Requirement to correct deadline looms as HMRC details penalties
HMRC has
issued updated guidance to the requirement to correct (RTC) rules for
offshore liabilities and non-compliance, with the 30 September
deadline rapidly approaching.
Offshore
financial centres and tax avoidance are a perennial topic in the
news, and there has been a shift in wider public perception following
the revelations in the Panama and Paradise Papers. The RTC rules are
designed to allow people to disclose their undeclared offshore tax
liabilities – for income tax, capital gains tax or inheritance tax
– to HMRC, as part of their efforts to combat tax evasion.
HMRC will
investigate any disclosures and take appropriate action, which will
include collecting any payments due, as tax, interest or penalties.
While it may not
seem tempting to put yourself forward for a potentially expensive
assessment such as this, HMRC has confirmed the sanctions for those
who fail to correct. The standard penalty for non-disclosure under
the RTC is set at a hefty 200% of the tax liability.
It will be
possible to reduce this penalty by voluntary disclosure, providing
access to records and helping HMRC with its investigation. However,
the penalty can only be reduced to a minimum of 100% of the tax
liability, and to do that an individual must provide information
about anyone who encouraged, assisted or facilitated the
non-compliance.
Disclosures made
by midnight on 30 September 2018 will avoid the penalties, provided
they are made using the Worldwide Disclosure Facility, submitting a
return amending inaccuracies or by telling an HMRC officer during an
enquiry. And the disclosure process then needs to be fully completed
within 90 days.
With such harsh
penalties being introduced, and a culture of whistleblowing to be
encouraged, the incentive is there to get any disclosure in ahead of
the deadline.
Fuel rates go green for electric mileage
Businesses can pay mileage for
company electric car drivers from 1 September, following the
introduction of a new Advisory Electric Rate (AER).
The AER has been set at 4p per mile for
100% electric cars, which introduces greater incentives to use
zero-emissions vehicles for the first time. HMRC hasn’t considered
electricity as a fuel until this update, so the change represents a
fundamental shift in how fleets will be taxed, giving another reason
for companies to move to greener options.
The advisory fuel rates are used by
businesses when reimbursing employees for any business mileage and
are also the amount employees must repay for any private travel. The
rates, including the AER, are applied free of tax and national
insurance, which makes them a tax-efficient option.
Employers can choose to pay a higher
rate of mileage, but proof of higher electricity costs will have to
be provided for this to be tax deductible. If the extra cost can’t
be demonstrated, any excess will be treated as taxable profit and
national insurance will have to be paid.
The petrol and diesel rates have also
been updated, with increases for smaller petrol engines and mid-sized
diesel engines. Hybrid cars continue to be treated as either petrol
or diesel vehicles, depending on their engine.
The UK is facing ongoing issues with
reducing air pollution and emissions levels, especially in city
centres, so the new fuel rate could provide enticement for businesses
to switch to electric vehicles. With charging infrastructure growing
more established throughout the country, electric cars will only
become more commonplace.
Wide-reaching changes proposed to gender pay gap reporting
requirements
Gender pay gap reporting
requirements should be extended to organisations with 50 or more
employees from April 2020, according to the Business, Energy and
Industrial Strategy Committee.
Early this year there was much media
coverage as large organisations with 250 or more employees were
required to publish information about their gender pay and bonus
gaps, along with information on who receives bonuses and salary
distribution by gender. Proposals to reduce that level to just 50
employees would mean a significant increase in the number of
organisations having to report their data.
The Committee made a number of other
recommendations, including counting partners in any calculations to
provide a more holistic view of remuneration. The calculations do not
currently include partner pay as they take a share of profits instead
of a salary. With partners likely to be amongst the most highly-paid
people in an organisation, this could alter some reports
significantly.
The Committee proposed calculating
bonuses on a pro rata basis and requiring more information on
full-time and part-time salaries. Both of these could be distorting
the data with, for instance, directors receiving large bonuses whilst
working fewer hours, or lower-paid employees in part-time roles.
Organisations should also be required
to publish an explanation of their pay gap, along with an action plan
to close it and updates in future years. The data is publicly
available, so media outlets are already providing analysis and
commentary of the results, but a new requirement such as this would
shift the focus to employers. After a few years of reporting, this
could lead to serious reputational risks for organisations not being
seen to change.
The next reporting deadline is April
2019, so there won’t be any changes during this period. However,
with such wide-reaching proposals, and the Committee also talking
about new requirements around disability and ethnicity, employers may
have to face up to a more transparent future.
Damping the ashes: Government seeks new controls for phoenixing
The government has announced new
powers for the Insolvency Service to pursue company directors who
recklessly push companies into administration or liquidation.
The announcement came shortly after
Wonga, the payday lender, went into administration following an
influx of compensation claims from customers.
Despite the inevitable barrage of jokes
– What’s wrong with Wonga, did they lend themselves a tenner? –
the Insolvency Service were still left with an administration that
includes 200,000 customers owing over £400 million in short-term
loans. These customers have been advised to keep paying their loans
as their debts will be sold as part of the company’s administration
process.
The proposed powers would allow the
Insolvency Service to punish directors who drive companies into
administration to escape debt obligations, pension deficits and other
liabilities with fines and/or disqualifications. The government also
wants to crack down on the practice of ‘phoenixing’ – where a
company is dissolved, leaving the directors free to start trading
again under a new name.
Whilst the majority of companies fail
without any wrongdoing on the part of the directors, who should be
able to try new business ventures in the future, some dissolve
businesses deliberately to avoid paying debts. In certain cases, new
businesses are transferring their trade to a new company, to continue
trading straight away newly free of debt, and it is these people the
government is targeting.
With 2018 having seen many high-profile
company failures, including Carillion, Toys ‘R’ Us, House of
Fraser and Maplin, and the BHS failure still in recent memory, the
new rules may be a welcome development. Of course, the most important
thing is to avoid going into administration in the first place, so if
you would like help getting your company’s finances in order,
please get in touch.
News on no deal Brexit for VAT
It has been confirmed that the UK
VAT system for domestic transactions will continue in the event of
the UK leaving the EU with no deal in March 2019.
The government has published a guidance
note which confirms some details of what will happen in the event of
a ‘no deal’ Brexit. The note confirms that VAT for UK domestic
transactions will remain unchanged, but businesses will have to treat
imports from EU countries like current third, non-EU countries, which
could mean changes to IT systems and reporting processes.
An important, and welcome,
clarification is that importers will be able to account for import
VAT on their VAT return rather than having to pay up front. This
prevents a situation where importers would have been forced to pay
VAT before having a chance to sell their goods. Interestingly, this
new system will also apply to imports from non-EU countries.
For exporters selling to the EU, a no
deal situation would mean distance selling arrangements would no
longer apply. This would allow UK businesses to zero rate sales of
goods to EU customers. Exporters will also no longer need to complete
an EC sales list, but will need to retain evidence of goods leaving
the UK. Import duties for EU countries may be due at the border,
applied on an individual basis.
The current place of supply rules will
remain in place, meaning businesses selling digital products to
non-business customers in the EU will still need to pay the VAT due
in the relevant member state. However, business won’t be able to
use the UK’s Mini One-Stop Shop (MOSS) portal. Instead, businesses
will have to register for the VAT MOSS non-Union scheme in an EU
Member state – and they can only register after the UK leaves the
EU.
The guidance note has been broadly
welcomed for providing clarity on the effects of a no deal Brexit. We
will be available to help your business prepare and adapt for
whatever Brexit will bring as more details are decided.