Implementation delayed following concerns raised by industry representatives.

HMRC has announced that the planned implementation of the VAT domestic reverse change for building and construction services, due on 1st October 2019, has been delayed for 12 months until 1st October 2020. Construction industry representatives had raised concerns that some businesses in the sector are not ready for the change, therefore more time has been given to prepare.

The reverse charge means that the UK customer receiving supplies of construction services accounts for the VAT on them rather than the UK supplier. Its introduction is designed to combat fraud where VAT due is stolen, and follows similar implementations relating to the supply of other goods and services such as computer chips, mobile telephones and telecommunication services.

In the intervening year until implementation of the reverse charge, HMRC has put in place a robust compliance strategy for tackling fraud. Any business which have opted to submit monthly VAT returns as they would receive regular VAT repayments can change back by using the VAT stagger option on the HMRC website.

For more information please contact us on 01226 298 298.

Stock markets, as well as some family holidaymakers, experienced a rollercoaster August.

The traditional holiday month proved to be anything but quiet on the world’s investment markets. As the graph of the major UK and US stock market indices shows, there were plenty of sharp lurches, up as well as down.

        A rollercoaster month

Inevitably the downward trends attracted more attention, particularly the fall in US share values on 13 August. “Dow drops 800 points” is a headline that newspaper editors find hard to resist. ‘Dow falls just over 3%’ would have been equally accurate, but 800 points sounds considerably more dramatic.

Several factors challenged the markets in August:

As with any rollercoaster ride, the experience can be both exhilarating and nauseating. It is by no means clear when this particular trip will end, but – again like the rollercoaster – it could be highly dangerous to jump out before the journey finishes.

Risk management, like football is a team effort. To get past the goalie it has to go right through the defence, midfield and strikers… the lines of defence.

There are FIVE
aspects to managing risk:

1. The “man on the ground” performing the role that was assigned to him in an organisation with a positive culture – “the tone”.

2.  The Line Manager / Head of Department overseeing the process, managing the risk and exhibiting the “tone at the top”.

3. An independent internal review (audit) function to provide assurance that the lines of defence function effectively.

4. An independent external audit function to add veracity and objectivity for stakeholders.

5. The Board of Directors, Trustees and Governors to balance value creation (profitability) and value protection (risk).

If you want to know more about governance, internal audit and external audit then get in touch with our team at gbac. Not only are we regulated in performing statutory financial audits we are now certified by BSI to provide assurance on Quality Management Systems; the 3rd and 4th lines of defence.

New measures for company car tax

You may want to review your company car needs in the light of changes to the company car tax rules coming in next year.

Do you know your WLTP from your NDEC? If you drive a company car or administer a company car scheme, you’ll find it useful to understand the distinction between the two:

The switch from the older, inaccurate NDEC to the more realistic WLTP has resulted in increases to measured CO2 emission figures. The size of the increase varies between vehicles, but European Commission research in 2017 suggested an average of 22% for petrol cars and 20% for diesels, with smaller engines attracting the largest rise.

Company car tax scales for 2020/21, when WLTP starts to apply to new vehicles, were set back in 2017, before the full impact of WLTP was understood. In July 2019 the Treasury announced that the company car scale rates set in the Finance (No 2) Act 2017 for cars registered after 5 April 2020 would all be cut by 2% in 2020/21 and 1% in 2021/22. NDEC figures will continue to be used for older cars.

Good and bad news

The good news is that in the next tax year electric-only vehicles will have a taxable benefit of zero, whereas at present the benefit is 16% of their list price. The bad news is that other newly registered cars will mostly see an increase in their benefit value over the 2019/20 figure because of the higher WLTP measures of CO2 emission.

For example, a £30,000 petrol car with 104g/km NDEC emission now (and a 2019/20 taxable benefit of £7,200) could have WLTP emission figure of 126g/km, implying a 2020/21 benefit value of £8,400 if registered after 5 April 2020.

If you are due to change your company car in the next year, make sure you know what tax you are going to pay for it. It might be worth making sure the car is registered before 6 April 2020. It could also make sense to review whether, as the tax screw is turned further, a company car makes financial sense.

Self-employed hit by self-assessment system error

If you are self-employed, you may find you have been affected by an HMRC system error which could mean a higher tax bill in January.

Self-assessment statements for payments on account affecting the self-employed have either not been sent out at all or show a zero balance where a payment was due on 31 July. If you’re not entirely clear about when you need to pay what you owe, the consequences of the incorrect information may mean you have skipped an outstanding payment for July or have been undercharged. When it comes to the next payment period in January 2020, you could be faced with a much higher bill to pay to cover the missed July payment.

The fault apparently lies in the HMRC system failing to generate payments on account for 2018/19 for some taxpayers. Despite knowing about the error for some months, HMRC has not corrected it, leading to incorrect balances showing for the 31 July payment.

The implications for cashflow are obvious where money set aside for your tax payments could end up being spent over the next six months, not to mention the usual post-Christmas expenses most of us tend to find in January.

If you were expecting to submit a half-yearly payment and either received a low or zero balance or no statement at all, you should contact HMRC as soon as possible. While the Revenue has said taxpayers affected will not have to pay interest for underpayment or non-payment at July, there will not be such generosity on demands for the full amount owed in January.

With rising numbers turning to self-employment, it’s not always easy to get to grips with all the processes involved in keeping on top of your finances. Planning to file your tax returns and pay regularly should be factored into your financial workflow, regardless of whether HMRC notifies you or not. HMRC does not regard lack of understanding of the finer points of self-assessment as a ‘reasonable excuse’ for late filing, so do get in touch if you may have been affected by this latest problem.

Time to overhaul inheritance tax?

July saw the publication of the long-awaited second report on inheritance tax (IHT) from the Office of Tax Simplification (OTS) with a range of useful proposals.

Focused on simplifying the structure of IHT, the report, contained some surprises, not only in the recommendations it makes, but also in those areas it has left untouched.

A new take on gifts

The OTS suggests that the annual exemption (£3,000 since 1981) and the wedding gifts exemption (a maximum of £5,000 and a minimum of £1,000, unchanged since 1975) should be combined into a single ‘personal gift allowance’. While no specific number was pinned on the new allowance, the OTS did note that the annual allowance would be £11,900 in 2019/20, had it been inflation proofed.

Currently you need to survive seven years for any lifetime gifts not to form part of your estate on death and, in some instances, gifts made up to 14 years before death could affect the level of tax payable. The OTS says that only gifts made within five years of death should be relevant. That sounds like good news, but there is a sting in the tail: the OTS wants to scrap taper relief, which currently reduces the tax payable – if any – on gifts made more than three years but less than seven years before death.

Revising reliefs

While the paper discusses the criticisms received about the complexities of the relatively recent residence nil rate band (RNRB), the OTS says it is too early to propose any changes. However, it does quote an HMRC estimate that for the same tax cost, scrapping the current £150,000 RNRB would only allow the main nil rate band to be increased by £51,000.

The OTS paper discusses the availability of 100% business relief for holdings of AIM shares, but to the surprise of some does not propose the relief’s withdrawal. However, it does make some recommendations about business relief generally and its twin, agricultural relief, which could have a major impact.

The OTS report will now be considered by the (new) Chancellor. What changes Mr Javid puts through will in part depend upon parliamentary arithmetic and for how long the government survives. In the event of a Labour Party win in a potential general election, IHT could be replaced by a much harsher lifetime gifts tax. All of which means that if you are thinking about estate planning, waiting for the dust to settle could be a risky strategy.

Improved protections against redundancy for new families

Extended legal protections against redundancy for pregnant women, new mothers and adoptive parents have been confirmed by the Department for Business, Energy and Industrial Strategy (BEIS).

Government consultation revealed that new parents continue to face discrimination at work, with up to 54,000 women saying they felt they had to leave their jobs due to pregnancy or maternity discrimination. Research for BEIS in 2016 showed one in nine women saying they had been made redundant or fired after returning from maternity leave or were made to feel so uncomfortable they had to resign.

After further industry consultation, the current rules will be extended by six months, giving a two year legal protection against redundancy for women returning from ordinary or additional maternity leave, plus those taking adoption or shared parental leave. This will take effect from the date of the mother’s return to work.

While adoption leave has been included in the initial announcement, further consultation may mean that this ends up with slightly different treatment than maternity leave. Parents of sick and premature babies may also receive new entitlements to additional leave.

The changes, yet to be legislated, are part of the Good Work Plan which the government hopes will encourage shifting practices to keep pace with changes in how we now work. With short term and zero hour contracts, gig work and working from home, employment practice needs to reflect the altered working environment.

During this holiday season, it’s also sobering to read research from the TUC in July showing that nearly two million workers don’t receive the minimum paid annual leave entitlement, with around a million not receiving any paid leave. The Working Time Regulation 1998 entitles employees to 5.6 weeks of paid leave, roughly 28 days a year including public holidays. Employers and employees need to take responsibility for ensuring that individuals take their entitled leave.

A taskforce of family groups and employers will be set up to contribute to an action plan to help pregnant women and new mothers stay in work, with an added remit around raising employer awareness of obligations and employee rights.

The taxing problem of plastics – a challenge for all

The Treasury has said a single use plastic waste tax will be brought in – but not for three years. What can you do in the meantime to help tackle the environmental challenge?

Legislation on a plastics tax is now slated for April 2022 following proposals expected to be included in the next Budget. The initial consultation received a record of over 160,000 replies, reflecting the importance of the subject to the public. Draft legislation is expected in 2020, with the actual mechanism of the tax yet to be revealed.

From the business point of view, it’s not just about doing our bit, but also long term commercial sustainability. From shoes made out of recycled plastic, mattresses made from plastic bottles to sustainable fabrics in clothing retailers, the marketing messages are straightforward. But some businesses can find the cost is too high to go green. Production costs on more sustainable materials can be lower, but higher transportation and energy costs may make a switch harder. With clients increasingly are including sustainability and green credentials in their selection processes, each sector has to work through its options.

What you can do

On a basic level you can make some changes long before the new tax comes into operation. If you’re shrink wrapping a magazine, for example, explore recyclable covers. Do you still have plastic cups for drinking water in the office? Have you reviewed your energy supplier? But there are also tax-saving measures you can take with wider ramifications.

If you offer company car benefits, then electric cars should be on your radar. Not only are they emission free, but there are no benefit-in-kind charges. They may appear more expensive up front but are more economical when the tax advantages are factored in. For employees who prefer to cycle to work, HMRC has said the cycle to work scheme can cover bikes worth over £1,000 which includes electric bicycles.

Research and development tax credits are another way to help you shift towards greater sustainability. There are also innovation grants available. Carbon accounting has been around for a few years and will become increasingly important as the country moves towards the goal of carbon neutrality in 2050. Starting to measure your businesses environmental performance now will not only set you on the right path for the planet, but also motivate staff and send a positive message to clients

Reversing the damage of plastic waste and carbon emissions is a global movement now regularly in the headlines. But it’s not just up to the legislators and big corporations. As a famous slogan once had it ‘Every little helps’.

VAT reverse charge for building and construction from October

New rules come into force in October for VAT-registered firms reporting under the Construction Industry Scheme (CIS) as part of HMRC’s attempt to tackle fraud in the industry.

Fraudsters who set up companies in order to siphon off VAT and then close within months before paying anything to HMRC, have started operating in the construction industry. As measures have been taken in other sectors to close them down, the fraudsters have sought out other industries to exploit.

The domestic reverse charge (meaning UK-only) will be introduced from 1 October and means that businesses receiving certain services will have to pay VAT directly to HMRC instead of the supplier of those services. This removes the flow of money from VAT between businesses, with the onus on the recipient of services to account for the VAT.

Those affected include sole traders and individuals working as contractors, or sub-contractors to larger contractors, or through agencies. CIS registered companies and companies invoicing non-CIS registered clients will continue to charge VAT as usual.

The charge applies only to supplies subject to standard or reduced rate VAT, not to zero-rated supplies or suppliers below the VAT threshold. VAT accounted for under the charge will not count towards the VAT registration limit for the recipient.

The specific services targeted include:

Excluded from the reverse charge are professional work from surveyors and architects, machinery delivery or installation of security systems.

Any contracts that are only partially completed by the October start date will have to be reviewed to assess whether the new charge needs to be applied to unfinished elements of a project. Subcontractors will need to plan for cashflow implications as previous, perfectly legitimate, uses of VAT around cashflow will disappear.

HMRC has said that it will apply a ‘light touch’ on any penalties for the first six months to allow firms to transition to the new regulations. If businesses are seen to be trying to comply with the new rules, and correct any errors as soon as possible, they should avoid being penalised.

There are several areas still to be clarified, but if you or your business may be affected from October, let us know.

Getting to grips with the tax gap

HMRC did not collect 5.6% of the tax revenue due for 2017/18 according to its annual report on the tax gap. And the biggest increase in shortfall was from smaller businesses and individuals.

The £35bn missing from expected tax receipts is a new record in cash terms, with an increase of £2bn on the previous year. Tax evasion and criminal activity together with small businesses failing to pay are the main culprits.

Some analysts believe the figure to be much greater since the figures do not include profit shifting by large multinationals, such as Apple or Google, or the hidden economy. What the report does show, however, is a particular shortfall of £14bn from smaller firms which is almost double that of larger companies.

Closer analysis reveals a steep rise in the amount of unpaid self-assessment tax. A total of £7.4bn was not collected, up more than 10% on the previous year. At the same time the PAYE tax gap improved marginally, down from 1.1% to 1%. For income tax, National Insurance contributions and capital gains tax, the overall figure was £12.9bn or 3.9% of all potential liabilities.

A combination of tax complexity and an under-resourced HMRC appear to underlie the figures. Fewer random audits have been carried out in recent years, while the number of targeted audits, which have been shown to bring in up to four times their cost to carry out, have also decreased. Staff redeployed to focus on Brexit issues has also contributed to resourcing issues.

One interesting contributory explanation is a figure of £6.2bn of tax lost due to differing “legal interpretation” of tax rules between the Revenue and taxpayers. With some recent high-profile cases around IR35 going against HMRC’s interpretation of its rules, there are increased calls for simplification and clarity.

HMRC is the only tax authority to publish estimates of uncollected taxes. However, they are only estimates, and the methods used to calculate them have been questioned. But with the published tax gap figures apparently equivalent to the housing and environment budget, or the public order and safety budget (depending on which reports you read), the problem goes beyond HMRC’s issues to the heart of the compact between taxpayers and society.

Parents receive HMRC penalties reprieve

Around 6,000 parents have had their penalties cancelled for failure to notify HMRC that they were liable for the high income child benefit charge (HICBC). This is unlikely to be repeated, so families need to be aware of their position.

Around 1.4 million families lose some or all of their child benefit because one of the parents earns over £50,000 a year. As soon as one partner earns over £50,000, child benefit is gradually withdrawn via a tax charge. The whole benefit is lost once earnings exceed £60,000.

One of the main criticisms of the HICBC has been around its practical implementation, with many more taxpayers drawn into self-assessment who had previously been taxed through PAYE. By tying the charge to the higher earner in a family, who is generally not the person claiming the original child benefit, HMRC is also applying the charge to the family income through an individual. The onus is on the individual higher earner to notify HMRC when they tip over the threshold.

Since the 2013/14 tax year – when the charge was introduced – 35,000 families have received failure to notify penalties for liabilities through 2015/16. Following a number of challenges, HMRC instigated a review of all the failure to notify penalties issued. Where they found a ‘reasonable excuse’ for a failed notification under certain criteria, penalties would be cancelled or refunded. In the end, of the 6,000 cancellations, 4,885 received refunds.

How it works

The £50,000 HICBC threshold applies to each individual. The benefit is paid in full, for example, if both parents earn £45,000 (creating a joint income of £90,000). But as soon as one parent earns over £50,000 – even if the other does not work – they’ll be hit by this charge. Parents can opt out of receiving child benefit, but they should still register to receive National Insurance credits if one partner is not working.

The tax charge can be reduced by increasing pension contributions to reduce taxable pay to below the relevant threshold in some cases. Remember though, money in a pension cannot be accessed until at least age 55.

HMRC has said that for tax years from 2016/17, they expect the higher earner in a couple to notify them where their income exceeds the HICBC threshold, on the assumption that any parent claiming child benefit since the charge was introduced will now be aware of it.

If you have any questions about your family’s tax position, get in touch with our tax team who will be happy to discuss this with you.

The implications of the over-75 licence problem

While the row over the BBC’s decision to scrap universal free TV licences for the over-75s has focused on the impact on those affected, it also forms part of the ongoing broader debate around inter-generational fairness.

Free TV licences for the over-75s were introduced by Gordon Brown in his 2000 Budget. At a relatively modest initial cost, it seemed a straightforward, crowd-pleasing measure.

Fast forward to 2015 and a government looking to ease spending cuts discovered a way to deal with the rising cost of free TV licenses: it passed the problem onto the BBC. In exchange for government agreement on a financing deal that provided an index-linked licence fee and closed loopholes on catch-up TV, the broadcaster accepted the poisoned chalice of responsibility for the free licence scheme from 2020.

Regardless of the expected political outcries, it always looked as if the BBC would be forced to drop the universality of 75+ free licences. As the corporation has pointed out, maintaining the status quo would cost £745m – a fifth of its total budget.

A look at population numbers casts an interesting light on the over-75s issue and the wider implications of that cost. National Statistics data show that in 2000 the UK had 4.37m people aged 75 and over. By 2020 the corresponding figure is projected to be 5.84m – an increase of 1.47m or about one third.

The overall population is projected to have grown by about a seventh over the same period – less than half the pace of the growth in over-75s.

Simply on the basis of over-75 population growth and the increase in licence fee, the cost in 2020 would be double that of 2000. From this angle, the argument around free TV licences is a lens through which the much larger issue of an ageing population and intergenerational fairness comes into focus.

It is also a reminder that relying on the state to fund a comfortable retirement could mean losing much more than your favourite TV shows.

Does inheritance tax have a future?

While inheritance tax (IHT) comes under scrutiny from the government, a paper presented to the Labour Party has suggested it should be abolished.

Labour Party proposals to kill off IHT and replace it with a gifts tax were reported across several newspapers last month. The coverage was somewhat creative, as the idea was in a paper prepared for the Labour Party primarily focused on reforming the taxation of land. The gifts tax section covered just half a page and did little more than revive a structure proposed over a year ago by the Institute for Public Policy Research (IPPR).

These proposals are not yet Labour Party policy – they will only be considered when the party prepares its manifesto for the next election, which could be as far away as 2022. However, it’s worth considering how IHT might be transformed into a gifts tax.

The major change proposed is that liability would shift to the recipient of a gift or legacy, instead of the person making the gift or bequest. This approach is common in other countries which levy estate taxes. The IPPR framework would make gifts and bequests totalling £125,000 (indexed to inflation) over a lifetime free of tax. Beyond that threshold, any amount received would be treated as income and taxed accordingly. The new tax would raise almost three times as much as IHT. The paper on land tax reform added one tweak to the IPPR proposals: a new tax on equity release which it described as a “key means of avoiding inheritance tax”.

Despite the relatively few estates that end up paying IHT, it is generally regarded as the UK’s most hated tax. However, IHT is much easier to sidestep than a lifetime gifts tax would be. Under IHT, the general principle is that outright gifts only enter the IHT calculation if they are made within seven years of death.

In a rare cheering move, the government announced in June that compensation payments from the German government to survivors of the Kindertransport, rescued prior to the Second World War, will be not liable for tax as part of those individuals’ estates.

If the impact of IHT on what your children and grandchildren will receive concerns you, now could be a good time to discuss with us the ways in which you can take advantage of the generous treatment of lifetime gifts…while it lasts.

Feel the benefit: have a party!

Most employers are aware that they can throw a staff party for their employees at a cost of up to £150 per head without this being treated as a taxable benefit, but there are conditions to watch out for.

The exemption can apply to any type of party, such as a summer barbeque or Christmas party, provided the party is held annually. Therefore, a one-off event, such as a 25th anniversary party, does not qualify.

Another requirement is that the party is open to staff generally, although it is possible to have an event for employees at one location or put on separate parties for different departments. A function should not just be for directors, unless of course there are no other employees.

The £150 per head is not an allowance, so the entire benefit is taxable if the per head cost just exceeds £150 by a pound or two. Along with expenditure on room hire, food, entertainment and prizes, cost includes VAT and any transport or overnight accommodation provided. Two or more annual parties can be exempt as long as the £150 limit is not exceeded.

Example – the summer party

A company throws an annual summer barbecue for its employees. For the summer 2019 party, the total cost is £11,200, with 40 staff attending. Each staff member can bring one guest. The cost per head is £140 (£11,200/80), so there is no taxable benefit for employees.

It may be impossible to establish the exact number attending a large function, but an estimate is permitted based on the number budgeted for or booked.

Smaller occasions can be funded tax-free by making use of the £50 trivial benefit exemption. There is quite a bit more flexibility here, since the only relevant condition when it comes to throwing a party is that the per head cost does not exceed £50. The function therefore does not need to be open to all employees or be held annually.

Let’s get this party started!

Business rates savings for small retailers

Small retailers in England should now be enjoying 33% off their business rates bills. However, businesses need to check their accounts as some councils are not giving the discount automatically.

The business rates retail discount scheme, in place from April 2019, applies to occupied retail properties with a rateable value of less than £51,000, and will operate for the years 2019/20 and 2020/21. The relief applies where a property is being wholly or mainly used as a shop (whether selling goods or providing services), restaurant, café or drinking establishment. Some of the less obvious types of establishment that qualify include:

Each local council can, based on Government guidance, determine for themselves which particular properties are eligible or ineligible, so the exact definition will differ around the country. Property used to provide certain businesses and services are ineligible for the discount, including: financial services (such as bureaux de change, payday lenders, betting shops and pawn brokers), other services (such as estate agents and employment agencies), medical services (such as vets, dentists, doctors, osteopaths and chiropractors) and professional services (such as solicitors, insurance agents, financial advisers and tutors).

The discount is one-third of the rates bill after deducting other reliefs such as small business rate relief. Therefore, there will be no discount if 100% small business rate relief is available. Some councils are insisting that the discount is applied for rather than it being applied automatically.

Example – the reduced bill

The rates bill for a shop with a rateable value of £13,500 and eligible for small business rate relief of 50% will be £2,210, that is:

If you need help with working out your situation, please pop in to our offices or give us a call.

Investors’ relief restriction runs out this tax year

Investors’ relief, effectively an extension of entrepreneurs’ relief for external investors, is now only available for disposals made during 2019/20 because of a three-year holding period requirement.

Like entrepreneurs’ relief, investors’ relief (introduced in 2016) gives a reduced rate of CGT of 10% for gains on qualifying share disposals by individuals or trustees. There is the same, but entirely separate, £10 million lifetime limit. However, investors’ relief is squarely aimed at external investors in unquoted trading companies. One of the requirements is indeed that the investor (or an individual connected with them) must not be an employee or a director of the company whilst owning the shares (although there are certain exceptions to this, such as being an unremunerated director).

The relief is intended to encourage and reward new investment, so there are conditions to ensure that the shares are subscribed for with new money that benefits the company.

As is often the case with tax reliefs, these conditions are quite complex. Broadly, shares must be:

Example – the relief in practice

On 1 June 2016, an investor subscribed for 250,000 £1 ordinary shares in ABC Ltd, an unquoted trading company, at their par value. The investor has never been an employee or director of the company. The shares were sold for £880,000 on 5 July 2019.

The conditions for investors’ relief are met, including the three-year holding period. After deducting the annual exempt amount, the investor’s CGT liability for 2019/20 in respect of the shareholding will be £61,800 ((£880,000 – £250,000 – £12,000) at 10%).

We’re still early in the tax year, but if you may benefit from investor relief in 2019/20, some forward planning might come in useful.

Pension flexibility: too taxing for many

Recent HMRC statistics highlight the over-taxation of some pension benefits.

More than one million people have received flexible pension payments thanks to the rules introduced just over four years ago. HMRC’s most recent statistics, to the end of March 2019, show that 1,113,000 people have withdrawn over £25,600m from their pensions, across 6,136,000 payments. The amounts withdrawn and the number of payments have both increased each tax year – in 2018/19 there were over 2,400,000 payments totalling £8,180m.

However, the system is causing some problems for HMRC. In the first quarter of 2019 HMRC refunded £31.1m of overpaid tax to over 12,500 people who had used pension flexibility. The over-collection is a result of HMRC’s insistence on using emergency tax codes where a pension provider does not have a current tax code for the individual, which is usually the case on a first withdrawal. More often than not, emergency tax codes create too high a tax deduction, as the example shows.

Emergency, Emergency!

Graham, who lives in England, expects to have an income of about £28,000 in 2019/20. He decided to draw £24,000 from his pension plan as an uncrystallised funds pension lump sum (UFPLS). He knew that a quarter of this would be tax free, with the £18,000 balance taxable. As that would still leave him comfortably below the £50,000 higher rate threshold, he expected to receive £20,400 as a net lump sum (£24,000 – £18,000 @20%).

In fact, he received £17,619 because an emergency tax code was applied to the taxable element of his UFPLS.

The excess tax can be reclaimed and HMRC has created dedicated forms to speed up the repayment process. In theory if no reclaim is made, the tax should eventually be refunded once HMRC undertakes its end of year reconciliation – but that could mean waiting over 12 months if the payment is taken early in the tax year.

If you are thinking about using pension flexibility, it pays to take advice before asking for the payment. In some circumstances the emergency code issue can be sidestepped, but if it cannot, then you need to be aware of what you will receive initially and the process of tax reclaim.

Tax-free childcare – highlighting the choices

HMRC is running a marketing campaign to raise awareness of its Childcare Choices website and the financial support available to parents. With tax-free childcare, the government will contribute up to £2,000 a year towards the costs of childcare.

For every £8 paid to a childcare provider, the government will add another £2, which is equivalent to 20% basic rate tax relief. The government’s contribution is limited to £2,000 per child each year (increased to £4,000 for a disabled child), which means that up to £10,000 (£20,000 for a disabled child) of childcare costs can qualify. Payments are made via an online childcare account, and must be used for approved childcare, such as:

The childcare provider must also be signed up to the scheme.

Tax-free childcare is aimed at working parents of children aged under 12, earning less than £100,000 per parent, with both earning at least the national minimum/living wage for 16 hours a week on average over the next three months (this is £131.36 a week for those aged 25 and over).

Self-employed parents can use an average of how much they expect to make over the current tax year, and the minimum earnings test is ignored altogether if the business commenced within the previous 12 months.

Parents: Although both parents normally need to be working, there are certain exceptions such as one parent being on parental, maternity, paternity or adoption leave.

Children: A child stops being eligible on 1 September after their 11th birthday, or up to age 16 for disabled children. Adopted children are eligible, but foster children are not.

Check: Tax-free childcare is not available at the same time as working tax credit, child tax credit, universal credit or childcare vouchers, so parents need to run the government’s childcare calculator to make sure this is the right option for them.

Doctors tapering off as pension tax rules bite

Measures designed to limit the cost
of pensions tax relief to the Treasury are having some unwelcome
consequences, as some senior doctors have found their incomes
disappearing.

Some members of the medical profession
have found changes to legislation mean their earnings are getting
swallowed up by the tax system. According to a recent Financial
Times report some NHS consultants are being landed with tax bills
of up to £87,000, prompting them to reduce working hours or even
take early retirement.

The doctors’ problems primarily stem
from the implementation of the pension annual allowance tapering
rules. These have two key trigger points:

If both levels are crossed, then the
standard annual allowance for pension contributions of £40,000 is
reduced by £1 for each £2 by which ‘adjusted income’ exceeds
£150,000, subject to a minimum annual allowance of £10,000. The
all-or-nothing nature of the triggers can mean that just an extra £1
of earnings brings the taper rules into play. That additional £1
could therefore result in an additional tax bill of much more than
£1.

To complicate matters further, £110,000
sits almost in the middle of the band of income between £100,000 and
£125,000 at which the personal allowance is tapered away, creating
an effective marginal tax rate of up to 60% (61.5% in Scotland).
Added to that will usually be 2% national insurance contributions.

The Financial Times article said
that many doctors had been ‘surprised’ by their pension tax
bills. This implies they had not sought personal financial advice on
how the pension taper rules, introduced from April 2016, would affect
them.

There are ongoing discussions between
the Treasury and the Department for Health and Social Care about the
issue, but it seems highly unlikely the former will forgo the revenue
generated by the annual allowance rules (over £560m in 2016/17).
In the meantime, the episode serves as a reminder of the
importance of regular financial reviews to avoid – or at least be
aware of – the growing range of tax traps in the UK’s
labyrinthine tax legislation.

The value of tax reliefs depends on
your individual circumstances. Tax laws can change. The Financial
Conduct Authority does not regulate tax advice.

Record IHT take parallels estate planning confusion

While the Treasury benefitted from
record inheritance tax (IHT) receipts of £5.2bn in 2018, new figures
show that many people are unaware of how the IHT system works or how
it could help them pass their wealth to their beneficiaries.

A survey out in April from Quilter
showed that only 37% of those asked were aware of inheritance tax
rules. Under half of those surveyed knew about basic IHT rules around
gifting or the nil rate band. At the same time, however, 60% thought
the rules likely to be important for how they could pass wealth on,
highlighting the disconnect between the information available and
understanding the practical implications for individuals and their
families.

The Office of Tax Simplification (OTS)
is due to deliver the second part of its review of IHT regulations
during this spring, following an initial report in January that
looked largely at administrative issues. The review is aimed at
simplifying how IHT is implemented, with the second of the reviews
expected to focus on specific areas of change.

With additional complications like the
residence nil rate band still focusing on the nuclear family, the IHT
regime appears out of step with modern families and concerns about
inter-generational wealth. A House of Lords committee on
intergenerational fairness has already reported across a range of
issues from housing to pension credits and estate tax.

Among a raft of recommendations, they
called IHT “capricious and not fit for purpose”. Going back to
fundamentals, the Lords report questions why and how assets should be
taxed at death or on transfer to the next generation. The report
suggested options such as a capital receipts tax payable on income
received by beneficiaries or exempting certain assets from IHT if
earmarked for first home purchase by a family member.

Whether any of these ideas come to
fruition, and whatever the awaited OTS report recommends, there are
ways in which the existing IHT regime can currently benefit your own
estate planning and ensure a fairer distribution of your assets
through your family. The £3,000 a year annual gift allowance is good
place to start. So is reviewing your will and making sure your assets
will be dispersed the way you wish.

Let us know if we can help.

Payslips for all

It may have come as a surprise to
realise that until this April, not all workers were entitled to a
payslip.

From 6 April, all workers now have a
statutory right to receive an itemised payslip, including zero hour
and casual workers. Up to that date, the right only extended to
employees. Employers must now be prepared to provide information on
‘time worked’ with details of the number of hours being paid on
workers’ payslips. This can be given either as a single aggregated
figure or separate figures for different types of work at different
rates. Workers should be able to clearly see that they have been paid
for the hours worked at the appropriate statutory rates where
relevant.

As the new rules were coming into
force, however, the Department for Business, Energy and Industrial
Strategy (BEIS) released a survey revealing that many don’t
entirely understand all the information on their slips – only 62%
were confident about everything they saw. Gaps in understanding were
higher for women than men (55% of women compared to 70% of men
admitted to not understanding their complete payslips) and younger
workers.

April also marked the 20th
anniversary of the national minimum wage (NMW), which has risen this
year to £7.70 an hour for employees between 21 and 24. At the same
time the national living wage saw a record 5% increase to £8.21 an
hour for employees over 25, However, the BEIS survey also revealed
misunderstanding around entitlement to the NMW, with around 30%
believing that only permanent employees are entitled to receive it.

With the new payslip rules now in
force, it’s even more important for all workers to be aware of
their entitlements and check that they are receiving them. But many
people don’t check their payslips, trusting their employers to get
it right and assuming deductions are correct. Payroll offices do make
mistakes or may have been given erroneous information on pay and
allowances. For permanent employees likely affected by April’s
increase to auto-enrolment contributions, there is even more reason
to make sure everything is present and correct.

Encouraging employees to question
anything they don’t understand, and to ask if concerned about
unknown deductions, will go a long way to consolidating trust.
Ensuring engagement with wages flows into helping workers with
informed financial decision-making, pensions planning and alleviating
one of the major factors of workplace stress.

Van or company car: what’s the real thing?

The phrase ‘define your terms’
could have been invented for the benefit-in-kind rules around company
cars. A recent case that ended up in the Upper Tribunal between
Coca-Cola and HMRC illustrates the importance of understanding when a
van is a van – or legally a car.

These definitions determine the
relevant income tax and NICs payable where a vehicle is provided to
an employee as a benefit-in-kind. The charges vary considerably
between ‘cars’ and ‘vans’, with tax on company cars generally
much higher than for vans.

In the legislation, the key concept is
around use as a ‘goods vehicle’, so:

The case centered
on three models of vehicles provided by Coca-Cola to technicians who
had previously been provided with cars. Over time the equipment they
were required to use became heavier and they were offered different
vehicles – either a ‘panel’ van or a modified vehicle. Two
models of a VW Kombi had dual capability, where some elements could
be added or removed for additional passengers or equipment. Which is
where the problems started.

The employees who were given these
vehicles had their PAYE coding notices adjusted by HMRC for car
benefit and the employer, Coca-Cola, was assessed for Class 1A NICs.
They appealed initially to the First Tier Tribunal on the grounds
that the vehicles were not cars but vans. The models came under
scrutiny under the definition of “construction” and whether they
were “primarily suited” for the purpose used, which was ‘the
conveyance of goods’.

The case hinged on the second element
of primary suitability. Because the Kombi model could be used both
for carrying passengers and for conveying goods, the Upper Tribunal
ruled it did not have a primary suitability for only conveying goods
and so could not be classed as a goods vehicle. It therefore had to
classed as a car for benefit-in-kind purposes. The other model
narrowly fell on the other side of the argument. Ultimately the VW
models were deemed to be more like mini-buses, while the other
vehicle on offer was a van.

The upshot of this complex case is that
the external appearance of any vehicle is not the deciding factor for
benefits-in-kind. Internal configuration and the purposes behind it
will make a difference. Being aware of how legal definitions may be
applied could ultimately save you and your employees some potentially
painful lessons.

How long do you want to work…?

As people are living longer, a
parallel older-age profile is emerging in the labour force.

Source: National Statistics
16/4/2019

Labour market statistics for the period
December 2018 to February 2019 revealed some impressive results. In
the UK, employment of those aged 16–64 was running at 76.1%, the
joint highest level ever and up 0.7% on a year ago.

Drill down into National Statistics
numbers and some interesting facts emerge:

There are several reasons for the
increase in employment beyond age 50:

Working for longer can be beneficial to
health, although the case is by no means clear cut: continuing
work-related stress could be life shortening. The key is to be able
to choose when to stop work, rather than have the decision
forced upon you. To get into that position, there is no substitute
for adequate retirement planning – preferably well before the age
50, yet alone 65, is reached.

The value of your investment can go
down as well as up and you may not get back the full amount you
invested. Past performance is not a reliable indicator of future
performance.

HMRC recently wrote to VAT registered businesses that currently import and / or export goods with the EU. The letter sets out actions that it’s important to take now and changes you need to be prepared for, in the event that the UK leaves the EU without a deal. The actions set out do not apply to importing and / or exporting goods between Northern Ireland and Ireland.

You will need an Economic Operator Registration Identification (EORI) number. If you have a UK EORI number beginning with the prefix ‘GB’, you should have it to hand to use for UK-EU trade and take steps so you are ready to complete customs processes on your UK-EU trade. If you have an EU EORI number beginning with a different prefix (eg ‘IE’ or ‘FR’), HMRC will continue to recognise your EU EORI number for a temporary period and will provide further information in due course. New Transitional Simplified Procedures (TSP) are being introduced by HMRC for businesses established in the UK to make importing from the EU as easy as possible in the initial period after the UK leaves the EU, should there be no deal. You will need to sign up online for TSP, using your EORI number. There will be further changes to customs procedures, and you may wish to consider whether to make transit declarations yourself or to use an agent or freight forwarder.

If your business exports goods to the EU from the UK, you will need to make an export declaration to HMRC, and will need to comply with EU member state customs and controls.

In the event of no deal, you will be able to declare and recover import VAT in your next VAT return, rather than when your goods arrive at the border (‘VAT postponed accounting’), It will also be possible to use VAT postponed accounting for imports from the rest of the world.

If you use the VIES website to check a customer or supplier’s VAT number, in the event of no deal, UK VAT numbers will no longer be part of this service. An alternative service will be provided on the gov.uk website.

You may wish to register for HMRC’s email update service at www.gov.uk/hmrc/business-support. There is also a useful tool to help establish what you may need to do at https://www.gov.uk/business-uk-leaving-eu

As always, please contact us if you have any questions or would like to discuss the above further.


Probate fees hike delayed

An expected revision of the probate
fees structure for England and Wales set for 1 April has been
delayed.

The proposed changes will increase the
cost of probate from the current single, flat charge of £215 to a
minimum of £250. A new fee structure based on the size of estate
being administered will rise through six bands to a maximum of
£6,000. The probate fee threshold will rise from £5,000 to £50,000.
Over half of estates will pay no probate under the higher threshold
and more than 25,000 more estates a year will be exempt.

By classifying the increases as a fee
rather than a tax, the government was able to put the changes forward
as a statutory instrument or secondary legislation, rather than
primary legislation which requires greater parliamentary scrutiny.

Citing pressures on parliamentary time
from the ongoing Brexit crisis, the Ministry of Justice announced
that the statutory instrument has yet to be approved. Once this
happens, the new regime will come into effect 21 days later. While
such instruments are normally passed without debate, MPs can raise
objections and force a vote on an issue, leading to amendments and
further delay. The Labour party has already objected to the probate
proposals and as yet there is no new timetable.

The confusion on
the timing of the changes has created a log jam with HMRC as people
tried to beat the original 1 April deadline and apply for probate.
HMRC must process inheritance tax (IHT) registration forms before
probate can begin This has led to HMRC taking a more flexible stance
on registering an estate for IHT purposes. It has said the process
will be more flexible for the time being on IHT registration so that
people can wait to submit IHT forms before starting the probate
application.

Individuals who may be asked to be
executors should think carefully about the terms of any executorship
once the new fee structure is in place. Bank accounts can be frozen
while probate is being processed, so they could be asked to help fund
probate fees if a loan is not secured. Under the new regime, these
could be substantial.


Remember the Spring Statement?

The Chancellor’s
Spring Statement could easily have passed you by as March was
dominated by other high-profile events.

Ever since he announced a
move to an Autumn Budget in 2016, Philip Hammond has made it clear
that he wanted to avoid the Spring Statement becoming a mini-Budget.
His vision was that in March he would simply be presenting a brief
response to the latest forecasts from the Office for Budget
Responsibility (OBR). As the Treasury website stressed, “there will
now only be one major fiscal event each year”.

Nevertheless, it is
unlikely that either the Treasury or the Chancellor wanted the Spring
Statement to be an event that was completely overshadowed by other
parliamentary business occurring on the same day, as it was by the
votes on whether to rule out a no-deal Brexit. Ironically, the
Chancellor made his statement on the assumption of “a smooth and
orderly exit from the EU”.

There were virtually no
new tax initiatives in the Statement, although there were hints that
a ‘deal dividend’ would help in keeping taxes low as well as
allow increased public expenditure. In the background papers
published alongside the Statement, there were reminders that the tax
screw continues to be tightened in some areas. For example, Mr
Hammond promised a consultation paper fleshing out two measures
announced in the October Budget, designed to restrict two
long-standing capital gains tax reliefs on residential property.

The
OBR’s calculations explain why the Chancellor did not mention fresh
tax cuts, as opposed to maintaining low tax levels. In this new
2019/20 financial year, government borrowing is projected to increase
by £6.5bn and to still be £13.5bn by 2023/24. Income tax and
national insurance contribution receipts have been rising faster than
expected and are the main reason why the OBR’s overall finance
figures looked rosier in March than last October.

As has been the case for
some years now, if you want to see your tax bill reduce, taking
control of your personal opportunities for improved tax planning is
the place to start.


Up and running – MTD for VAT is live

After tests, pilots and amid
continuing controversy, Making Tax Digital (MTD) for VAT went live on
1 April.

All VAT registered businesses above the
£85,000 threshold are now required to keep their records digitally
and submit their VAT return via compatible software. HMRC stated that
around 100,000 had registered by the April Fool’s deadline out of
an estimated 1.2 million businesses affected.

It’s worth remembering that 1 April
marked the requirement to keep digital records, not to sign up for
MTD itself. Once a business is signed up, it can no longer submit VAT
returns through previous methods, such as typing figures into the
portal. For businesses who submit VAT returns on a calendar quarter
basis, signing up earlier than necessary could mean HMRC will expect
the return to be submitted via MTD software, which the business may
not be ready for.

With the first quarterly VAT return
affected by MTD the June 2019 return, HMRC is taking a relaxed line
on any penalties for the first year of the roll out as companies
become more familiar with the requirements. Where businesses are
doing their best to comply with MTD, filing and record keeping
penalties may not be issued.

Digital records

Where a business has not yet signed up,
it should have begun to keep its records digitally for the next VAT
period starting on or after 1 April. If they are using software, this
must be MTD-compatible. They can then sign up to the MTD service and
have their software authorised.

Companies unfamiliar with software
systems can use bridging products that will work with spreadsheets
and HMRC has a list of those available. Any existing exemptions from
online VAT filing will be maintained, while those unable to register
for the new regime on grounds of age, disability, religion or
location can apply to be exempt.

HMRC issued additional guidance prior
to the launch. Where more than one product is used to keep digital
records, these must be digitally linked. This is defined as a
transfer or exchange of data between products and could include
importing and exporting files, linking cells in spreadsheets and
uploading and downloading files. These links between products must be
in place by 31 March 2020, except for businesses who have secured a
deferral from HMRC which have until 30 September 2020.

Regardless of where they are in their
digital compliance and software upgrades, businesses should still aim
to pay their VAT on time. Let know if we can help.


Painful lessons from the loan tax charge

5 April also marked the
deadline from which those still affected by loan schemes will now
have to pay a potentially punishing tax bill. The controversy
surrounding the loan charge deadline is a reminder of the dangers of
aggressive tax planning.

If you were offered a way
of being paid a ‘salary’ that involved no income tax and no
national insurance contributions (NICs), would it ring alarm bells?

In the late 1990s and
early 2000s, many contractors and consultants were offered the option
of joining schemes which purported to make tax and NICs disappear. At
the time, some decided the chance was too good to miss. Their choice
was often in response to IR35, the HMRC crackdown on people
sidestepping taxation as employees by claiming self-employment or
operating via one-person companies. The schemes promoted had various
structures, but one key factor was that they relied on earnings being
replaced by low or zero-interest loans that were never intended to be
repaid – hence the schemes often being described by HMRC as
‘disguised remuneration schemes’.

HMRC never approved these
schemes but took their time to act against them. Blocking legislation
for new loans was announced in 2010, by which time HMRC was already
challenging some schemes through the courts. However, it was not
until 2016 that the then Chancellor, George Osborne, introduced
legislation that treated the amount of any loans outstanding at 5
April 2019 as income. It is that measure which has recently brought
the subject into the headlines. HMRC has estimated that 50,000 people
face a charge averaging £64,000.

With hindsight, avoiding
all tax and NICs on earnings now looks a deal too good to be true.
That it seemed credible 15–20 years ago shows how attitudes to tax
avoidance have changed since the turn of the century. It is also a
reminder that if you are offered an avoidance scheme that appears to
make your tax liability evaporate, it could be many years before you
– or possibly even your executors – discover it does not.

A parliamentary group has
called for the charge to be delayed for six months following a debate
which had to be abandoned due to flooding in the House of Commons.
They have also challenged HMRC about its statements around the loan
charge. The controversy looks set to continue.


Property tax payment window cut

From 1 March the timescale for
payment of stamp duty land tax (SDLT) in England and Northern Ireland
has been cut in half.

Both residential and commercial
property transactions now have only 14 days to pay SDLT.

The cut, down from 30 days previously,
affects all property transactions in the two countries. The 14 days
start from the ‘effective date’ of the transaction. The effective
date is usually when the transfer is completed, but there can be
circumstances where the majority of the contract has been ‘performed’
prior to completion.

Even where no tax is due, for example
where a property is nil-rated at under £125,000 or there is another
form of exemption, HMRC still requires a return to be filed within 14
days of completion of the transaction.

Once the 14-day window has closed,
interest will begin to run on the charge and penalties will become
due. The time limit applies to both UK and non-UK purchasers. If the
return is filed late, the following penalties apply:

If a return is not filed within 12
months after the filing date, a tax-based penalty is also payable,
which can be up to the full amount of tax due.

HMRC has said the process has been
simplified and they believe the shorter window will increase
efficiency. The majority of SDLT returns and payments have been
completed within seven days during the previous 30-day window, so
HMRC does not believe very many transactions would be adversely
affected. Those dealing in more complex transactions, however, have
expressed concern about the shorter time frame.

Individual purchasers are responsible
for ensuring the tax is paid, though they are likely to have a
solicitor or conveyancer acting for them. Where property is
transferred as a result of an inheritance, or where no money or other
payment is involved, or because of divorce or dissolution of a civil
partnership, there is no SDLT charge to pay.

SDLT returns should be made
electronically via HMRC. There are different forms for different
types of transactions. There is still a 30-day window to apply for a
deferral of SDLT, although the return in relation to any deferral
must be filed within the new 14-day window.