All change for April – check your pay slip

Your April pay may look
much the same as March’s, but it is worth giving your pay slip a
closer look than usual next month.

If you are an employee, your April pay
slip is always worth checking, even if you pay little attention to
the other eleven you receive over a year. The items to check include:

Salary Many employers change pay
rates from 1 April, often coinciding with the start of their new
financial year. If you were notified of a pay increase in March, it
is worth making sure the number on the April pay check agrees with
what you were promised.

Tax code. Your April pay check
will be the first for the 2019/20 tax year and your PAYE tax code
will have almost certainly changed from what was on your March pay
slip. If you are entitled to a full personal allowance and have no
deductions, your code number should increase by 65, reflecting the
£650 increase in the personal allowance.

If you have a company car, then it is
likely to move your code in the opposite direction. For most cars
(other than those with the highest emissions), the percentage of list
price that is taxable rises by 3% – £300 per £10,000 of list price.
A £22,000 car will therefore more than counter the rise in the
personal allowance. The higher scale percentage also means a similar
increase in taxable value of employer supplied fuel. In practice you
might be better off paying your own fuel bills, even if your employer
pays you nothing in compensation.

National insurance contributions
(NICs) The primary threshold (that is, the starting point) for
NICs rises by £4 a week while the upper earnings limit (the top
level of earnings on which you pay full 12% NICs) jumps by £70 a
week. As a result, if your annual earnings are more than £46,600 a
year, you will be paying more NICs from April. If you earn over
£50,000 a year, your extra NICs will be just over £28 a month.

Pension contributions These are
generally linked to salary, although not necessarily your full pay,
so should increase if you have an April pay increase. If you are in
an automatic enrolment pension scheme, your contributions are usually
based on “band earnings”, which were £6,032–£46,350 in
2018/19 and are £6,136–£50,000 in 2019/20. The contribution rate
will rise, too. How much will depend upon your employer’s
contributions: you might see the rate increase by two thirds to 5% of
band earnings (4% after basic rate tax relief). If your pay in April
is lower than in March, the auto enrolment change could be the
culprit.

For more insight on the impact of the
tax, NICs and pension deductions from your pay, please talk to us.

Penalty notices delayed

HMRC has warned that
self-assessment penalty notices for 2017/18 may not be
issued until the end of April. The £100 penalties are normally
issued in February.

The deadline for submitting a
self-assessment tax return for 2017/18 was 31 January, and HMRC would
normally already have issued penalty notices to taxpayers who have
not filed on time. However, penalty notices create considerable
demand for HMRC’s call centres and back offices as taxpayers
contact them to discuss their options.

Anticipating increased demands on staff
time as the Brexit deadline looms, HMRC announced a delay in late
February to the issue of penalty notices this year. This will allow
HMRC to release staff for EU exit related work.

HMRC’s regular monthly bulletin
states that:

• Taxpayers who filed late will
  still be charged the £100 penalty, but the penalty notice will be
  delivered later than normal.

• The latest date that the notices
  will go out is the end of April, but will be issued sooner if an EU
  withdrawal agreement is agreed.

• HMRC will issue daily penalties to
  taxpayers who have still not filed three months after the 31 January
  deadline, with penalties being imposed from the normal deadline –
  that is, tax returns not received by 1 May 2019.

Given that penalty notices can take
over a week to arrive by post, taxpayers could easily be subject to
daily penalties before they even realise their return is late. A
delay in notification until April could prove costly. Even though a
taxpayer has ‘filed’ a return, there can be technical problems
with online filing, with the result that an online return is held in
suspension because the submit stage has failed.

Some 700,000 taxpayers missed the
filing deadline for 2017/18. HMRC will treat those with genuine
excuses leniently, as it focuses penalties on those who persistently
fail to complete their tax returns, and deliberate tax evaders.
However, the excuse must be genuine and HMRC may ask for evidence.

Please contact us if you think you
might be affected.

Twist again on buy-to-let

Buy-to-let investors
will be hit by another tightening of the tax rules in April.

When George Osborne announced in his
summer 2015 Budget a variety of tax changes aimed at discouraging
buy-to-let (BTL) investment, they came as a surprise. To ease their
impact, the then Chancellor phased in the most significant reform, a
revised treatment of interest relief, over four years and deferred
its start date to April 2017. Anecdotal evidence suggests some BTL
investors did not know what had happened until they found a larger
than expected tax bill in January.

April 2019 will see the start of the
third year of the phasing process, which will mean in 2019/20:

• Three quarters of any interest
  paid on BTL borrowing will be eligible for a 20% tax credit; and

• The balance of interest is
  deductible from rental income, meaning it is fully tax relievable.

If that all sounds rather convoluted,
the impact becomes clearer when you look at a simplified example.
Suppose a higher rate taxpayer in England had rental income of
£12,000 and interest on a BTL mortgage of £8,000. The investors’
net income position is as follows:

In practice, the situation might be
worse than the table suggests if, for example, the disappearance of
the deduction for interest increases the investor’s gross income to
the point that it trips over the £100,000 threshold, at which the
personal allowance is phased out.

Sales by BTL investors could pick up
this year due to the interest relief changes and poor short-term
prospects for capital growth. There is another tax incentive to sell
on the horizon, too. From April 2020, capital gains tax on
residential property (at 18% and/or 28%) will have to be paid within
30 days of sale, whereas the current rules effectively give a minimum
of nearly ten months’ grace.

If you are a BTL investor thinking
about your options, please get in touch.

Can HMRC ask to see private bank statements?

As part of a compliance check into
the tax returns of two company directors, the information notices
issued by HMRC included a request to see private bank statements as
well as a description of the source of funds for any deposits made.

For 2015/16, the two directors had
submitted self-assessment tax returns showing income from employment
and dividends but had omitted trivial amounts of interest. This was a
year before the introduction of the personal savings allowance, so
the omitted interest might well have affected the directors’ tax
liabilities. The directors appealed against HMRC’s request to see
private bank statements.

HMRC’s internal
guidance to inspectors states that, when opening a compliance check
“you should only ask to see private bank statements at this stage
if you can demonstrate their relevance to the return and that you
reasonably require them for the purpose of checking its accuracy.”

There is no right of appeal, however,
against a request for information that forms part of a taxpayer’s
statutory records. The private bank statements would only have
qualified as statutory records if there were further omissions in the
tax returns. HMRC argued that it could not know this in advance, but
the judge hearing the appeal at the First-Tier Tribunal was not
convinced. The decision therefore rested on whether the bank
statements were reasonably required.

HMRC was able to show third-party
evidence of a disparity between the directors’ declared income and
their personal expenditure, including the level of mortgage payments
and capital injections made into the directors’ company. The
verdict, not surprisingly, was that the private bank statements were
reasonably required and the appeals dismissed.

This case demonstrates just how
important it is not to give HMRC any reason to start a compliance
check. All sources of income should be declared, even if trivial. The
availability of the personal savings allowance, the dividend
allowance, and the £1,000 trading and property allowances will mean
that there might not be any tax liability in any case.

We’re here to answer any queries you
might have about your tax filing.

The Brexit roundabout – no deal measures on VAT clarified

Despite Parliament voting against
leaving the EU with no deal, this does not mean the risk of a no deal
has entirely disappeared. Forward planning in these circumstances is
both difficult and confusing for businesses attempting to keep on
track.

One of the key issues, for example, is
around import VAT and tariffs. There has been contingency planning
and, should there still be no deal, a postponed VAT accounting system
will be introduced and a temporary 0% tariff regime will apply to the
majority of imports.

Postponed VAT
accounting

Without a deal, goods brought into the
UK will be treated the same as imports from outside the EU.
Currently, this would mean businesses having to pay UK VAT at the
time of importation. However, a system of postponed accounting for
import VAT will be introduced, with HMRC recently
publishing guidance on how this will work.

Businesses will be able to account for
import VAT on their VAT return, rather than paying import VAT on or
soon after the time that the goods arrive at the UK border. This will
reduce any cash flow impacts after the UK leaves the EU.

To ensure parity of treatment, the
system will also apply to non-EU imports

Non-VAT registered businesses and
individuals will still have to pay import VAT at the time of
importation.

Tariff regime

A temporary
tariff regime will remove customs duties on the majority of
imported goods for a period of up to 12 months. Under the regime, 87%
of total imports to the UK by value will be eligible for tariff-free
access. This will prevent potential price spikes.

The 13% of remaining tariffs will apply
for a variety of reasons. High EU tariffs have traditionally
supported farmers, and there are a number of sectors where tariffs
will help provide support against unfair global trading practices.
Tariffs will also be retained on a set of goods to meet the UK’s
commitment to supporting developing countries.

If a deal is reached, the UK will
effectively remain within the EU Customs Union until 31 December
2020. There will then be no immediate impact on trade and the
measures outlined above will not need to be implemented.

With the immediate focus on Making Tax
Digital for VAT coming in from April, it’s worth keeping abreast of
the measures that may affect your VAT position long term in these
uncertain times.

Three things to watch out for in your VAT return

The risks of
incomplete VAT filings have been highlighted by a recent victory for
HMRC over an appeal.

The appeal – made
by Sacutia Healthcare Ltd (TC06844)
–
concerned the father of the company
director, who claimed a defence based on carelessness.
Unsurprisingly, HMRC took the view that this amounted to ‘deliberate
but unconcealed’ behaviour, which is why it applied substantial
penalties of £24,072 on a total assessment of £57,839.

The nature of the
filing errors should provide warning for those with responsibility
for their company’s VAT filing.

Export evidence

HMRC found that the
VAT return was missing paperwork to support declared exports of goods
and documents made to a company that the father was involved with.
HMRC also found no record of Sacutia as an exporter. It is essential
that you keep complete and accurate records of exports for VAT.

Deposits on
customer payments

The output tax was
not correctly reported on customer deposits. A tax point is created
whenever a company receives a deposit, as well as the balancing
payment, so you must ensure your VAT records reflect every stage of a
customer transaction.

Input tax
evidence

As well as the
issues with export invoices, HMRC found that Sacutia had claimed
input tax on supplies of goods using invalid invoices. They also
found uncertainty around pro-forma and VAT invoices, and mistakes in
the accounting records. As with export records, you must keep your
accounting records complete and accurate.

The case
demonstrates the high penalties HMRC will issue where mistakes are
made with VAT filing. With Making Tax Digital for VAT just around the
corner, we can help you ensure your company filings are error-free.

Protecting the state pension for stay-at-home parents

An issue concerning how the high
income child benefit charge (HICBC) can potentially affect
stay-at-home parents has emerged.

The HICBC claws back child benefit
payments where either parent has income over £50,000 a year and
removes the benefit entirely if either parent has income over
£60,000. For couples where one person earns over £60,000 whilst the
other stays at home to look after children, it can appear that it is
not worth claiming a benefit that is completely withdrawn.

However, child benefit payments also
provide national insurance credits for adults caring for children
under the age of 12. These credits can help build up entitlement to
the state pension, with 35 years of contributions required to receive
the full benefit (£168.60 a week from April 2019).

These NI credits are given to the
parent who claims the Child Benefit by default. However, the credits
are still provided even if the parent involved asks for payments to
stop to avoid the HICBC.

The state pension for stay-at-home
parents

The problem arises if one parent does
not work, but the NI credits are paid to their partner because of
that default allocation. This means the stay-at-home parent could
lose state pension entitlement while their partner receives unneeded
NI credits, while also paying full NI contributions through their
payroll.

HMRC only keeps data on the parent
making the claim, so when the House of Commons Treasury Select
Committee asked how many families might be affected by these rules,
no accurate answer was available. However, HMRC estimated 3% of
households (about 230,000) are affected, based on DWP annual survey
data.

If the wrong person is receiving NI
credits in your household you can ask HMRC for the credits to be
transferred, but such a switch can only be backdated for one tax
year. So, along with all the other deadlines on 5 April, that Friday
is the last opportunity to transfer NI credits for 2017/18.

Younger generations picking up the tax bill

The tax burden in
the UK is shifting on to the younger generations, according to new
research published by the accountancy firm, Moore Stephens.

Baby boomers paid
£63 billion in income tax in the 2015/16 tax year, compared to a
bill of £41.4 billion for millennials. However, baby boomers only
paid 38.2% of the total income tax paid in 2015/16, compared to 44.6%
of the total in 2011/12. Millennials, however, paid 25.1% of the
total in 2015/16, compared to 19.2% in 2011/12.

The research shows
that ‘millennials’ (here anyone born between 1977 and 1996) have
been taking the brunt of changes to stamp duty land tax (SDLT),
changes to national insurance contributions (NICs) for high earners
and the pension rules, whilst baby boomers (anyone born between 1946
and 1965) move property less and are increasingly benefiting from
changes to pensions rules.

Millennials are more
likely to be buying property and earning higher salaries, whilst baby
boomers are more likely to be using pension freedoms to draw income
instead of buying annuities – with low interest rates making these
products less attractive – which helps reduce their income tax
bill.

Insolvencies also
rising

In October, Ralph
Moore also reported a stark increase in new insolvencies for the
under-25s – 5,650 in 2017, a 20%
increase from 2016.The figure reduced for those over 65 – 4,580 in
2017, down 10% from 2016.

The
firm suggested that millennials are being squeezed by property price
inflation, and being forced to commit to larger mortgages, which
leaves them with fewer savings to deal with financial stress.
Conversely, the baby boomers typically have lower housing costs, and
can draw on the equity value of their property if needed.

The reports both
suggest the trends will continue, putting greater financial pressure
on the younger generations.

The value of a flexible employee benefits package

Employees are
looking for more tailored benefits packages that will reward their
loyalty to an organisation, as attitudes to careers and workplace
benefits evolve.

The nature of work
has changed considerably over the last few decades and it is now
normal for employees to change job – even career – regularly as
part of their personal and professional development. The increasingly
sophisticated technologies at use have also encouraged decentralised
working and made our lifestyles more flexible.

However, not all
employee benefits packages have kept pace with this change, and new
research published by Get Living suggests nearly three-quarters of
employees want more tailored benefits.

There has been a
shift away from more traditional desirable benefits – such as
health/dental insurance or a company car – with 17% of respondents
wanting access to mental health care and 8% wanting an office pet.

Changing
priorities

One of the more
interesting findings was how employee priorities depend on their age,
where younger employees wanted different benefits from older ones.

For example, 33% of
respondents aged 18-24 saying the best bonus they could have would be
unlimited holiday, suggest a desire for a better work-life balance
and a different working environment. However, just 17% of the over-55
thought unlimited holiday would be best.

Meanwhile, half of
respondents aged 45-54 said flexible working would be the best
benefit, whilst those over 55 wanted enhanced pension contributions.
With a recent report from Carers UK showing 1 in 7 workers juggling
work with caring and up to 600 workers a day giving up work to care
for sick, elderly or disabled relatives, there is a significant
potential for losing valuable members of staff.

The suggestion is
that the perfect employer would offer a suite of benefits, which
would allow employees to choose the thing they value most. With the
preference for more holiday, greater flexibility or enhanced pension
contributions depending on age, a one-size-fits-all benefits package
may not be the most attractive.

If you would like to
discuss how you can offer more options to your employees, please get
in touch.

Government to reassess impact of retrospective
loan charges

The government
will reassess its controversial proposed loans charge rules, which
are intended to address disguised remuneration, typically via non-UK
trusts or umbrella companies.

The loan charge is
due to take effect from April 2019 and is intended to reduce tax
avoidance by stopping people using loan schemes to avoid paying the
appropriate amount of income tax.

The new charge has
been challenged in part because it would give HMRC the power to
pursue anyone who has used a loan scheme at any point over the last
20 years. In particular, criticisms have noted that the rules could
penalise low- and middle-income individuals who used such schemes,
rather than the those who promoted and recommended them.

However, the
Treasury has now confirmed that it will undertake a review to assess
the impact of the loan charge, particularly for those on low- and
middle-incomes.

Loan charge
settlements

Many people will
have used such loans for relatively small amounts of income and may
well have acted in good faith. It is also the case that individuals
may not be able to pay significant charges back to HMRC so long after
the income was received.

While HMRC will
charge interest on any amounts relating to open tax years –
generally the last four tax years – they have also said that
penalties will be the exception instead of the norm.

Complex rules will
apply to anyone caught by the charge, as the amount payable could
depend on the untaxed loan income, their income tax rate and any
leftover personal allowance at the time, fees from the trust or
umbrella company and other factors.

If
you are concerned that your past income may be caught in the loan
charge, please get in touch to discuss your situation.

‘Gig economy’
reprieved in overhaul of workplace rights

The government has responded to the
Taylor Review into workplace rights by adopting the majority of its
recommendations to provide greater protection for workers on flexible
or zero hour contracts.

The working economy has changed
substantially and with it the need to ensure that all workers are
treated fairly. Matthew Taylor’s 2017 investigation into the ‘gig
economy’ and those on zero-hours or flexible contracts highlighted
the need for some recognition of how this kind of working impacted on
workers’ rights and employers’ obligations.

In a report titled ‘Good Work’, the
government has taken in 51 of 53 Taylor recommendations and pledged
to provide greater protection for agency and gig economy workers. It
stopped short, however, of going as far as banning the contracts
completely. Instead, new rules to be introduced will:

• Ensure agency staff are paid at
  the same level as permanent employees.

• Increase the holiday reference
  period from 12 to 52 weeks, so that seasonal or other workers
  receive their entitlement of paid time off.

• Require companies to provide a
  written statement of rights to workers from the first day of
  employment, setting out paid leave, sickness and maternity/paternity
  leave entitlements.

• Increase employment tribunal fines
  four-fold from £5,000 to £20,000

Other provisions have been proposed to
‘name and shame’ employers who do not make employment tribunal
payments. This will operate similarly to the scheme around employers
who fail to meet their national minimum wage obligations.

The announcements were met with the
expected up-beat assessment from the government and criticisms from
trades unions and Labour, who feel the provisions do not go far
enough to protect the most vulnerable workers. The national minimum
wage is also under scrutiny in a separate consultation which closes
in March.

Employers who have workers on flexible
or zero -hour contracts will need to be aware of the changes outlined
in the ‘Good Work’ report that are likely to go through to
legislation. As with all employment issues, clarity and fairness are
the bywords. If you need any guidance for your business, we’re here
to help.

Bonus gender
pay gap revealed

Men are receiving almost twice the level of bonuses as women,
according to data from the Office for National Statistics (ONS).

The spotlight in 2018 fell on the
gender pay gap and revealed significant differences across many
industries. With the annual bonus season on us, the ONS figures for
2018 bonuses show an average for full-time male employees of £2,613,
as opposed to female employees receiving £1,158. The overall average
bonus was £2,242.

Across the country there were also wide
disparities, with London workers earning bonuses up to three times
the national average. Workers in Wales received the lowest average
bonuses.

The gaps are even greater when
comparing directors and corporate managers (at £7,878) and those in
the caring services (£37 at the lowest). The range between the
extremes covers business, media and public services, technology,
administration, trades and secretarial.

Having fallen from a 2008, pre-crash
peak of £3,038, incentive pay has gradually been increasing, with
private sector bonuses growing since 2015. However, the gap in gender
parity – possibly linked to the types of roles women often occupy
towards the lower end of the earnings spectrum – is still a
reminder of the work remaining to be done.

With bonuses and incentives a key
element in certain sectors, making sure employees feel that they are
being properly rewarded is a crucial consideration for retention and
recruitment in the new year.

Partnership tax
filing – lessons from the tax tribunal

If you’re in a partnership, who is responsible for filing the
partnership tax return? A recent First Tier Tax Tribunal (FTT) case
has highlighted not just worrying HMRC practice, but also the need
for clarity.

Mrs L is a partner in a two-partner
business. HMRC had charged her penalties for failure to file a
partnership tax return for the 2015/16 tax year. The other partner,
Mr F, did not receive any penalty notices. HMRC said that Mrs L was
the “representative partner” for the business who was required
under statute to deliver the relevant tax return.

There are two definitions in the
relevant legislation as to how a return can be notified:

• A notice to “the partners”
  already identified to file; or
• A notice to “any partners”.

Since HMRC sent the notices to the
business’s address rather than the personal address of Mrs L, the
judge in the case felt the notice was given under the second
definition. That is, any partner at the business could have fulfilled
the requirement.

More pertinently for HMRC, the judge
cancelled the penalty orders after reviewing what he believed to be
an inadequate train of evidence from the Revenue, who had not only
failed to keep adequate records of what had been sent and to whom,
but had also sent the wrong letter to Mrs L and not pursued the other
partner at any time.

While the individuals and business in
this case were lucky to come before a rigorous judge, partners need
to be aware of the responsibilities each must ensure they comply with
on the tax filing rules. One of the issues raised in the case was why
one partner had been pursued over another. It transpired that Mrs L
was already registered for self-assessment and had a unique taxpayer
reference (UTR) number, while her partner did not. This meant it was
simpler for HMRC to find and fine her.

A partnership return must be filed,
regardless of whose name is on the notices. If a named partner is
unable to comply, for whatever reason, the notice should not be set
aside until they are able to deal with it. HMRC should have pursued
both partners for the return in this case and should have been able
to produce the proper notifications when required.

The simplest way to avoid becoming
embroiled with either HMRC or tribunals, however, is to be clear
within your partnership about how to manage such events. We’re
happy to discuss your options with you.

Counting down
to Making Tax Digital for VAT

The stage is still set for Making Tax Digital (MTD) for VAT to be
rolled out on 1 April. But according to the Institute of Chartered
Accountants in England and Wales, 40% of relevant businesses aren’t
aware they are about to be affected.

Despite calls from the House of Lords
at the end of last year to postpone MTD, there appears to be no
stopping this significant change going forward. The first wave of
implementation requires all VAT-registered businesses with turnover
above the £85,000 VAT threshold to file and pay VAT online through
specific software interfaces, as well as keep digital records.

The pilot programme was expanded in
October to cover around 500,000 businesses and you can still join it.
HMRC is still issuing guidance and clarification, so it’s important
that you know where you are in your preparations.

Businesses that are eligible for MTD
for VAT should now be working through the developments necessary to
be able to comply. Depending on how you have been managing your
accounting, you may need to change in one of the following ways:

• Move from paper-based records to
  digital MTD.

• Move from spreadsheets to filing
  with MTD via bridging software.
• Move from spreadsheets to full
  MTD-enabled software.
• Work with your existing software
  as it becomes MTD compatible.

We can work with you to help you plan
the best way forward. If you will be submitting your VAT returns
yourself, a growing list of software providers is on the HMRC
website. You can also check that your existing software supplier
is already included or planning upgrades.

It may take time to settle into the
best solution. But even if you are not immediately affected by the 1
April change for VAT, there are other deadlines on the horizon.
Certain other VAT registered businesses will need to start filing
under MTD from October 2019, and from April 2020, MTD is scheduled to
be implemented for income and corporation taxes. All VAT registered
businesses may also end up coming under MTD, regardless of turnover.

If you are in the first wave of
businesses required to move to MTD for VAT on 1 April, you need to
ensure that you are ready. Get in touch if you need to discuss your
MTD preparations.

Setting your intentions for 2019

It’s that time of year again.

Have your New Year’s resolutions
fallen by the wayside already? We all mean to do better about eating
healthily, drinking less and exercising more as the year turns over a
new page. But it’s not easy to maintain the lifestyle changes that
fulfilling these resolutions often takes, especially in these short,
dark days.

Thinking about your intentions rather
than resolutions can be a more helpful approach. And to try to look
beyond the short-term goals to longer term outcomes to boost the
likelihood of sticking to them.

Here are four simple financial New
Year’s resolutions which only require one-off actions, not
sustained effort. And they could provide long term benefits:

1. Make a
   will. If you don’t have a will, you have no say in how your
   estate is distributed. That may not matter if the laws of intestacy
   match your wishes, but often the two diverge considerably, leaving
   difficult issues for your dependants. If you have made a will, you
   are not completely off the hook: resolve to look at it and make sure
   it is still the right will for your current circumstances.
2. Set up lasting powers of
   attorney. Who would make decisions about your finances and
   medical treatment if you were unable to do so? Just as with a will,
   a lasting power of attorney lets you decide the answer rather than
   falling back on what the state determines or leaving your family
   without the ability to really help you.
3. Check your credit rating.
   If you have plans for 2019 that might require a loan, or you are
   applying for any kind of finance, your credit rating is important.
   You can easily check your credit score at one of the three credit
   reference agencies – Experian, Equifax or Transunion – and get a
   copy for just £2.
4. Check your state pension
   entitlement. This is easy to do online
   (https://www.gov.uk/check-state-pension)
   and shows both what you should receive based on current rates and
   when you should start to receive it. The projection will also
   indicate any scope you have for increasing your state pension.
   

For help with any of these resolutions
(we probably can’t help with the more personal ones), please get in
touch with us.

New probate fees to affect many estates

The government has revived plans to
raise probate fees in England and Wales.

A new, banded structure for probate
fees in England and Wales is to be introduced, according to a written
statement issued after the 2018 Budget.

The announcement comes despite the 2018
Budget barely mentioning inheritance tax (IHT). There was widespread
speculation about reforms to IHT after the Chancellor commissioned
the Office of Tax Simplification (OTS) to review the tax in January
2018. However, with the full findings of the OTS review yet to be
published, the only change to IHT announced in October was a small
adjustment to the legislation for the residence nil rate band –
this being such a complex piece of legislation, it had been wrongly
drafted.

New fee structure

The government made a very similar
proposal on probate fees in March 2017, and at
the time it was heavily criticised as being a stealth tax rather than
a simple fee adjustment. The argument was never resolved and the
issue was eventually lost in the legislative process around the last
General Election.

Since then, the
government has taken on board some of the original criticism and cut
the fees they were proposing, particularly for larger estates:

The current fees are £215 for
individual applications and £155 via a solicitor, with nothing
payable if the estate value is up to £5,000. Under the new banding,
there is a maximum effective charge for probate of 0.5% of the
estate, which is triggered at £50,000 (a £250 fee) and £500,000 (a
£2,500 fee).

The new fees are scheduled to come into
effect 21 days after the legislation is passed, and there is very
little that can be done to mitigate the impact. They are payable even
if the estate passes with no IHT liability, as is usually the case on
the first death of a married couple or civil partners, or if the
value of the estate is covered by the available nil rate and
residence nil rate bands.

If you would like help with a probate
application then please get in touch.

Rise in HMRC mediation cases

There has been a dramatic increase
in the amount of disputed tax collected by HMRC through mediation,
according to research by law firm RPC.

According to RPC, £40.8 million was
collected through mediation for the year ending 31 March 2018,
compared to £25.2 million for in 2016/17 – a 62% increase. RPC
also revealed that there were 455 successful uses of alternative
dispute resolution in 2017/18, which was up 23% on the previous year.

The increasing use of alternative
resolutions should be advantageous to both HMRC and taxpayers as it
means fewer cases have to go through expensive and time-consuming
legal processes. It also aligns with HMRC’s mission to increase tax
compliance generally and increase revenues for the Exchequer.

HMRC’s engagement with mediation
methods can offer several advantages to those caught in a tax
dispute:

• It speeds things up – legal
  processes are traditionally slow, especially when compared to direct
  negotiations.

• It’s cheaper – As neither side
  has to commit time or legal resources to a court case, the costs
  should be much lower than more formal routes. This is certainly a
  win for HMRC and should be a win for taxpayers as well.

• It is confidential – There can
  be great value in keeping the dispute private, and out of the court
  records.

• It is more flexible – Assuming
  HMRC and a disputing taxpayer can reach an agreement, it should be
  possible to put even long-running disputes to rest.

It is true that the better option is to
ensure tax is paid correctly and on time. But if you are in dispute
with HRMC, and would like some advice on how mediation could help
you, please get in touch.

Time extended on entrepreneur’s relief

New restrictions added to
entrepreneur’s relief (ER) during the 2018 Budget have reduced
access to this valuable tax relief.

ER provides a reduced rate of capital
gains tax on disposal of shares – at 10% instead of 20% – for
individuals, provided they meet certain conditions. These conditions
need to be met throughout a qualifying period, reflecting ongoing
involvement with a business.

From 6 April 2019 the qualifying period
will increase from one to two years. This change means individuals
will have to demonstrate a longer ongoing involvement with a company
to claim the relief.

Specific new requirements on the
shareholding were also introduced. Effective from 29 October 2018, to
claim the relief an individual must have shares that:

• Entitle them to at least 5% of
  dividends or profit distributions.

• Entitle them to at least 5% of
  assets on winding up.

These are in addition to the current
requirements to have at least 5% of the share capital of the company
and at least 5% of the voting rights. However, to balance this, from
April where outside investment dilutes a shareholding to less than
5%, relief on gains made up to that point will be protected.

Different rules apply to shares
acquired through an enterprise management incentive schemes, and
other qualifying conditions will apply.

The rules have been changed in response
to calls on the government to use the revenue lost to ER to help fund
the NHS. Instead of abolishing the relief entirely, the Chancellor
has adjusted the rules as he believes, “encouraging entrepreneurs
must be at the heart of our strategy”.

Get in touch if you are concerned about
how the new rules will affect your plans.

SMEs boost on apprenticeship levy

The government has halved the
apprenticeship levy for small businesses, from 10% to 5%, with a view
to increasing uptake of the scheme.

This means that the government will pay
95% of training and assessment costs for any apprentices taken on by
SMEs. Whilst a date for implementation has yet to be announced, the
move is designed to make the underutilised scheme more attractive to
employers and help address the skills shortage in the UK workforce.

The number of new apprenticeships
dropped by 26% from 2016/17 to 2017/18. Worse, reports suggest that
as many as one-fifth of firms paying the apprentice levy, including
35% of SMEs, do so as a tax write-off and have no plans to actually
train apprentices. The levy industry bodies believe the levy is
poorly understood by many SMEs.

First introduced on 6 April 2017, the
levy was meant to encourage workplace training through a 0.5% tax on
larger employers. As well as paying the levy, businesses with 50 or
more staff also have to release apprentices for one day a week of
off-site training.

Alongside this, the government will
enable larger levy-paying employers to transfer up to 25% of their
funds – increased from 10% – to pay for apprenticeship training
in their supply chains.

If you do choose to take on an
apprentice, you must provide them with a training opportunity that
lasts at least 12 months and employ them in a real job that helps
them attain the knowledge and skills needed to pass their assessment.

Apprentices must also receive the same
benefits as other employees and are paid for their time spent
training or studying off-site. However, their minimum wages are set
much lower, at £3.90 per hour for 2018/19.

If you are considering taking on an
apprentice and would like some advice on the levy, please get in
touch.

VAT change coming for construction industry

A new VAT reverse charge will apply
to construction or building related services from October 2019.

Under the new rules, a VAT-registered
company purchasing certain construction services will be responsible
for accounting the VAT to HMRC, rather than the supplier. The reverse
charge includes goods where the goods are supplied with the specific
services.

The new measures are being introduced
to reduce VAT fraud and evasion by placing the responsibility for VAT
on the customer. HMRC believe that some small VAT-registered
suppliers are charging VAT to their customers, but not then paying
the VAT on to HMRC.

The reverse charge mechanism won’t
apply in certain circumstances, for instance:

• If the supplies are zero-rated,
  including the construction of housing.

• The customer is an ‘end user’,
  for instance the property owner or the main contractor who sells a
  new build to a customer.

• Where businesses that supply
  certain services to connected parties within a corporate group
  structure, or with a common interest in land.

• The supplier and recipient are
  landlord and tenant, or vice versa.

Instead, the normal VAT accounting
rules will apply to these supplies.

If you are concerned the new reverse
charge mechanism will make your VAT administration more complicated,
we can advise you on how best to handle it.

The Budget: an end to austerity?

The 2018 Budget – delivered on a
Monday for the first time since 1962 – produced a number of
surprises, not least some high-profile ‘giveaways’.

Announcements in the Budget included:

• A £650
  increase in the personal allowance to £12,500 for 2019/20, the
  level originally pencilled in for 2020/21.

• A £3,650
  increase in the higher rate threshold to £50,000, again targeted
  for 2020/21.

• A £25,000
  increase in the pension lifetime allowance to £1,055,000 from April
  2019.

• A one-third
  reduction in business rates on smaller retail premises, starting
  from next April.

• An increase
  in the annual investment allowance (AIA), from £200,000 to
  £1,000,000, from January.

However, Mr Hammond’s generosity was
not all it appeared. For instance, the personal allowance and higher
rate threshold will both be frozen in 2020/21, while the business
rates reduction and higher AIA will only last for two years. The
Chancellor also kept many tax thresholds and allowances unchanged.

A good example of the impact of frozen
thresholds is the personal allowance that will continue to be tapered
from an income level of £100,000. This threshold has applied since
April 2010, and it creates high marginal rates for some taxpayers.
Combined with the increase in the personal allowance, for income
between the taper threshold of £100,000 and the starting point for
additional rate tax of £150,000:

• the first
  £25,000 will be taxed at up to 60% (61.5% in Scotland); and

• the next
  £25,000 will be taxed at 40% (41% in Scotland).

By far the largest element of spending
announced in the Budget was for the NHS. Investment is £7.35bn out
of a total £15.09bn in 2019/20, rising to £27.61bn out of a total
£30.56bn in 2023/24. With such large amounts to secure for the
health service, the Chancellor has limited scope to reduce personal
tax in the medium term.

If you would like to discuss the impact
of the Budget on your finances, please get in touch.

Tax laws are subject to change.

The Financial Conduct Authority does
not regulate tax advice.

Making Tax Digital deadline deferred for certain businesses

The Making Tax Digital (MTD) for VAT
deadline has been extended until October 2019 for certain businesses.
Around 3.5% of mandated customers are affected, including VAT
divisions and groups, trusts, unincorporated not-for-profit
organisations and traders based overseas.

The later deadline was announced in
response to concerns raised by businesses participating in the VAT
pilot scheme. This will give affected businesses with more complex
arrangements more time to prepare for their filing deadline.

The original deadline of 1 April 2019
still applies to most businesses with a taxable turnover above the
registration threshold. From next year any business filing under VAT
will need to provide quarterly VAT filings to HMRC and also record
transactions digitally as well.

The MTD system does not change any of
the filing requirements for VAT, so the same information will still
need to be supplied to HMRC. However, organisations will need to use
accounting software that allows them to file returns digitally. You
can use spreadsheet software but you will need ‘bridging software’
to submit records to HMRC.

The latest timetable for MTD is as
below. With many dates left to be confirmed, and deadlines moving as
close as six months before, it would be sensible to monitor
developments, and how they may affect your organisation.

Budget boost for business investment?

The 2018 Budget delivered
opportunities for businesses, intended to support and encourage them
to invest.

One of the key developments confirmed
by the Chancellor – but originally announced in previous Budgets –
is that corporation tax will fall to 17% from 2020. This new low rate
will make incorporation more attractive for smaller businesses and
reduce the tax burden for companies of all sizes.

Along with the cut in headline rate,
the Chancellor also announced some specific measures around business
investment.

Capital allowances

The annual investment allowance (AIA)
will increase from £200,000 to £1,000,000 for all qualifying
investments in plant and machinery. The increased allowance only
applies on investments between 1 January 2019 and 31 December 2020.

The AIA allows a company to deduct the
full value of an investment from profits before tax, and can be
claimed against items that you keep to use in your business,
including cars,
costs of demolishing plant and machinery, parts of a building
considered integral, known as ‘integral features’, some fixtures,
e.g. fitted kitchens or bathroom suites, and alterations to a
building to install other plant and machinery – although note this
doesn’t include repairs

Alongside this, a new structures and
buildings allowance has been introduced which has been set at 2% on
construction or conversion costs over 50 years, where all the
contracts for physical construction works were entered into from 29
October 2018.

It’s not all good news, however, as
the government has also reduced the special rate reduction from 8% to
6%, affecting qualifying plant and machinery assets.

If you are planning any investments for
your business, get in touch to discuss what tax-efficient options are
available to you.

Can the Chancellor save the high street?

Business rates will be cut by one
third for small retailers as part of the government’s drive to
revitalise the UK’s high streets, as announced in the 2018 Budget.

Most retail business with a rateable
value of less than £51,000 will see their business rates cut by 33%
for two years from April 2019. Whilst the relief is time-limited it
should affect around 90% of retail properties and provide some much
needed relief around the uncertain period during which the UK is due
to leave the EU.

Certain specific reliefs were also
announced, including a 100% business rate relief for public
lavatories – delivered with a barrage of associated puns from Mr
Hammond – and an extension of the £1,500 discount for local
newspapers.

The targeted relief for small
businesses was accompanied by a spending pledge from the Chancellor
of £675 million for a sustainable transformation of British high
streets. Some of this money will be spent on a High Streets Task
Force to support local leadership, and funding to strengthen
community assets, including the restoration of historic buildings on
high streets.

The ‘Amazon tax’

Mr Hammond made considerable use of his
announcement of a digital services tax – whether or not
international legislation will follow in suit – ahead of his
statement to parliament.

The details, which, emerged on the day,
are for a 2% tax on revenue derived from UK users for certain
business activities, such as search engines, social media platforms
and online marketplaces. The tax will also only apply to groups that
generate global revenues over £500 million a year.

The idea is to capture revenue
generated by large tech companies such as Google and Amazon, which
pay relatively little tax in the UK.

If you are running a retail business
and would like to discuss your rates, and other tax planning
opportunities, please get in touch.

Smaller firms benefit from Budget business detail

The details released after the 2018
Budget statement revealed a range of new restrictions for businesses.
However, they have been structured to reduce the impact on smaller
businesses.

Off-payroll working and IR35

One measure announced was the expected
extension of the off-payroll working rules, known as IR35, to the
private sector. This has now been pushed to April 2020. The change
will place responsibility for taxation of off payroll workers with
the organisation offering the engagement.

This change has already been brought
into effect in the public sector, despite ongoing uncertainty about
how the rules should be applied – with even HMRC settling IR35
cases outside employment tribunals. The complex rules, uncertain
results from HMRC’s CEST employment status tool and large costs for
mistakes, may discourage some companies from using off-payroll
workers.

Fortunately, small organisations are to
be exempt, although exactly how the government will define a small
organisation in this context remains to be seen.

Restricting reliefs and allowances

Small organisations will escape a new
restriction from April 2020 as the government will withdraw the
employment allowance (EA) from employers with national insurance
contributions (NICs) bills of £100,000 or over. The EA allows
employers to claim up to £3,000 of class 1 NICs every year.

From April 2019 new restrictions will
also apply to entrepreneurs’ relief. The minimum period during
which qualifying conditions must be met will be extended from twelve
to twenty-four months. Also, from 29 October 2018, shareholders
claiming entrepreneurs’ relief must be entitled to at least 5% of
the distributable profits and net assets of a company, in addition to
the current requirements on share capital and voting rights. The
relief will still apply if a shareholding is diluted below 5% by
fund-raising events after April 2019.

The costs of employees

The national living wage will increase
4.9% from April 2019, with the national living wage (NLW) for
employees aged 25 and over will rise to £8.21.

Whilst salary costs will increase,
there is some good news for small employers with apprentices. The
co-investment rate for apprenticeship training will be cut from 10%
to 5% as part of a drive to encourage employers to take on young
staff for training.

The impact of these changes, which
aren’t headline material, could be significant. Please get in touch
if you would like to discuss how they affect you.

Trick or treat? The
Chancellor calls the 2018 Budget for late October

The 2018 Budget has been set for
Monday 29 October, setting a deadline for speculation and proposals.
Mr Hammond, however, has indicated that he won’t end the long spell
of austerity measures, despite improving public finances.

Proposals raised by think tanks and
professional bodies include overhauls of income and inheritance tax,
‘pension tax relief simplification’, and scrapping entrepreneur’s
relief to help fund NHS costs.

But every proposal is overshadowed by
Brexit, and the uncertainty of what will happen on 29 March 2019.

What’s coming?

Alongside measures announced in the
draft Finance Bill, the following areas could see change:

The NHS – The NHS
Foundations’s ten-year plan will not be published in time for the
Budget, so the Chancellor could be limited to general spending
priorities. Mr Hammond said a digital services tax or ‘Google tax’
is coming – with or without European allies. This income could be
dedicated to the NHS.

Inheritance tax (IHT) – The
IHT review from the Office of Tax Simplification (OTS) may be
published ahead of the Budget. It was tasked to look at making IHT
less complex, focusing especially on trusts, administrative issues
and business and agricultural property reliefs. Calls for a complete
overhaul in favour of a ‘lifetime receipts’, ‘property’ or
‘wealth tax’ seem unlikely from a Conservative government.

Stamp duty – After introducing
new reliefs for first-time buyers, focus has shifted to ‘last time’
buyers, with calls to incentivise older homeowners to downsize. The
Prime Minister has also indicated that an additional 1-3% duty could
be levied on foreign property buyers to help control rising house
prices and tackle homelessness.

Business – Business rates are
due to increase next year, with business groups calling for action.
The Chancellor’s conference speech outlined changes to the
apprenticeship levy to help build training and skills for SMEs, and
appeared to boost commitment to the business sector.

The environment – We are
likely to see a dedicated plastics packaging tax. Initial reports
indicated the costs would be borne by manufacturers rather than
consumers. However, we may also see an increase to the plastic bag
levy from 5p to 10p and roll out to all shops, not just firms with
over 250 employees.

In this most turbulent of times, facing
pressure from many groups, perhaps the only clear thing is that Mr
Hammond has an unusually tricky balancing act to pull off.

HMRC caught out on IR35 and holiday pay

HMRC has suffered an embarrassing
setback after one of its contractors launched a claim for unpaid
holiday pay, relating to work covered under the off-payroll working
rules, also known as the IR35 rules.

At the end of 2016, HMRC employed a
marketing consultant, who was required to go onto an agency payroll.
The consultant wasn’t given a choice about this, because HMRC ran
the engagement through their CEST employment status tool – HMRC
abide by any decision issued by this tool. The contractor had to
accept the terms if she wanted to continue working with HMRC, and
that meant she was subject to salary deductions, including employer’s
national insurance.

However, while HMRC considered the
consultant as employed for IR35 purposes, it didn’t grant her
employment rights that she would have had as an employee. The
consultant claimed she was effectively an agency worker, which meant
she was entitled to holiday pay and entitlement in line with other
HMRC employees.

The case didn’t quite make it to the
employment tribunal, as HMRC agreed to settle by paying £4,200 to
the contractor on the morning it was due to start. This does mean
that no precedent has been set, but the case serves as further
example that contractors inside the IR35 rules should receive
employment rights.

The government is still considering
whether to extend the IR35 rules to the private sector – currently
they only apply to public sector engagements. Many people across
private industry are hoping this won’t be included in the
forthcoming Budget.

With HMRC tripping up on its own rules,
what is certain is more clarity is required.

Brief victory on VATMOSS for microbusinesses

A successful campaign by
micro-business owners has seen the EU introduce a new minimum
threshold for the VATMOSS rules. But with legislation due to take
effect in January 2019 at risk from a no-deal Brexit, the success
could be short-lived.

Under the EU rules on place of supply,
VAT is charged on any sales of digital products to a non-business
customer in the EU – in the country the customer is in. There is no
minimum threshold, which means even the most casual trader is
affected.

However, after a grassroots campaign by
sole traders and micro-businesses, the EU announced a minimum
turnover threshold of €10,000, and some simplification measures for
businesses turning over €10,001–€100,000. The new measures
will save digital traders with low profits from paying VAT on their
digital sales.

The rules will take effect in UK law
from 1 January 2019. However, with the Brexit date set for 29 March
2019, and the prospect of no deal with the EU, this could be very
short-lived in effect.

VAT MOSS

The rules were introduced to close a
loophole used by multinational businesses to avoid VAT, by
registering their revenue in a low-tax country such as Luxembourg.
Whilst large businesses could cope with the new requirements, this
created a real administrative burden for smaller affected sellers now
expected to pay VAT to tax authorities across the EU.

HMRC responded to the new rules by
setting up a VAT Mini One-Stop Shop (VAT MOSS). This system allows
traders to pay VAT for digital sales to the EU direct to HMRC, rather
than register for VAT in each relevant EU country.

However, according to HMRC’s ‘VAT
guidance on a no deal Brexit’, if the UK leaves without a deal with
the EU, “businesses will no longer be able to use the UK’s Mini
One Stop Shop (MOSS) portal to report and pay VAT on sales of digital
services to consumers in the EU. Businesses that want to continue to
use the MOSS system will need to register for the VAT MOSS non-Union
scheme in an EU Member State.”

If you are selling digital products to
the EU and would like advice on how to deal with Brexit, please get
in touch.

Class 2 NICs here to stay

The Chancellor has changed his mind
– again – on National Insurance Contributions (NICs) for the
self-employed. The Treasury has revealed that Class 2 NICs will
remain for at least the rest of this Parliament.

The Treasury’s justification was
that, without Class 2 NICs, “A significant number of self-employed
individuals on the lowest profits would have seen the voluntary
payment they make to maintain access to the state pension rise
substantially.”

This means that over three million
people will continue to pay the tax, providing more revenue for the
Chancellor at a time that he certainly needs it. However, as many as
300,000 self-employed people earning less than the Small Profits
Threshold (£6,032 a year) could have seen their NIC payments rise
from £2.95 a week to £14.65 a week.

Mr Hammond originally proposed a reform
of National Insurance Contributions (NICs) for the self-employed in
his March 2017 Budget. The 2017 proposal was to increase the main
rate of Class 4, from 9% to 10% in 2018/19 and again to 11% in
2019/20, bringing it closer to the employee rate of 12%.

The idea lasted less than a week before
it was buried under a welter of backbench criticism and The Sun
newspaper’s campaign. Some months later, the Treasury quietly
announced that the end of Class 2 NICs would be deferred a year. Now
they could survive until 2022, based on the current deadline for the
next General Election.

The decision, announced well ahead of
the Budget in October, is a reminder of the financial and political
constraints faced by the Chancellor.

The importance of a shareholder agreement for your new business

When incorporating a new business,
it can be easy to focus on immediate concerns of making some money.
However, it is also really important to take the opportunity to
create a shareholders’ agreement.

A shareholder agreement is a legal
document that sets out the rights, responsibilities, liabilities and
obligations of the shareholders. Importantly, where the articles of
association are filed at Companies House, a shareholders’ agreement
is private.

You can use a shareholders’ agreement
for a range of purposes such as:

Dispute resolution – Your
agreement can set out clear processes for resolving disputes between
shareholders. As well as having clear dispute processes, the
agreement could even force an obstructive shareholder to sell their
shares in certain circumstances.

Share transfers – If a
shareholder dies, or simply wants to sell their stake in the
business, the agreement can set out what happens. For instance, you
could give the business the opportunity to buy the shares back,
rather than be forced to sell them to a third party, or provide for
free transfer to family members inheriting a share in the business.

Reserved matters – Whilst
shareholders may not be involved in the day-to-day running of the
business, it might be appropriate for them to be decision-makers on
more significant matters. An agreement could require shareholders to
approve major changes, such as issuing more shares or amending the
articles of association.

Restricting competition – With
startups sometimes operating in small pools, you might want to place
restrictions on shareholders from starting competing businesses
during the sensitive first years.

Protecting minority shareholders –
Once in place, a shareholders’ agreement can only be changed if
all the shareholders agree. So, setting the right rules early on can
help you protect the interests of all investors from the first steps.

Selling a company – On the
other side, your agreement could include ‘drag along’ rights,
which allow a majority shareholder to force minority shareholders to
accept an offer to buy all the shares in a company. Whilst you can’t
reduce their share of the proceeds, you could stop a reluctant
individual from stopping a sale.

With so much to do at the start of a
business’s life, it can be easy to overlook the shareholders’
agreement. But as the above shows, getting it right from the outset
can save a great deal of trouble down the line.

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.