Tuesday, 26 April 2016

Class 1A NIC reports, CIS gross payment status, When can VAT be reclaimed?

Much of tax compliance is about detail - sending the correct information to HMRC at the right time in the specified form. Last week we had some tips on how to comply with the requirements for class 1A NIC, and the new compliance test for CIS gross payment status. We also reported a VAT case which may have wider implications for businesses which are trying to raise funding from a variety of sources. 

This is an extract from our topical tax tips newsletter dated 21 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>> 

When can VAT be reclaimed? 
A VAT registered trader can reclaim VAT he incurs on goods and services to be used for the purpose of making taxable business supplies. Goods or services which are used for non-business activities, or for generating VAT-exempt sales, can't be included in a VAT claim, unless the partial exemption rules apply. 
  
This is the foundation of the VAT system, and clients need to be reminded of this occasionally. HMRC are increasing questioning whether costly purchases are used for a purpose that generates VATable sales, and thus whether the VAT can be reclaimed. In a recent case HMRC attempted to block the repayment of VAT paid on the purchase on single farm payment entitlements (SFPE). 
  
SFPE units gave the farmer entitlement to receive certain EU farming support payments. The SFPE units could be traded, and gains made on their sale qualified for business asset roll-over relief for CGT. The SFPE scheme was replaced by the Basic Payment scheme which came into effect from December 2013, but the principles are the same. 
  
Frank Smart & Sons Ltd was building up its beef cattle farming business. The company acquired 34,777 units of SFPE and paid VAT on that purchase of £1.054m. Those units generated between £1.7m to £2.4m per year of single farm payments for the farm, which used that money to pay down its overdraft, build additional farm buildings and acquire surrounding farm land. 
  
HMRC argued that the SFPE units were acquired for the purpose of generating income which was a non-economic activity outside the scope of VAT, so the VAT paid on the purchase of the units could not be reclaimed. HMRC chose to ignore the fact that the single farm payments were used to build assets for the business. The First-tier and the Upper-tier Tribunals both agreed that the purchase of the SFPE were an integrated feature of the farming enterprise. Also the costs of acquiring the SFPE units were part of the business overheads, which formed a component of the price of the farm's products - in this case beef cattle. 
  
This case could have wider implications for businesses who incur costs to generate sources of finance such as grants or crowd funding. Our VAT experts can advise on any unusual VAT-reclaim situations which your clients may experience.

This is an extract from our topical tax tips newsletter dated 21 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>> 

Tuesday, 19 April 2016

SDLT supplement, Employment Allowance, IHT planning

Tax rules which have simple cut-off thresholds can become complex when tested at the limits, as two examples relating to SDLT and the Employment Allowance illustrate. We also had a reason to thank Prime Minister David Cameron last week, for drawing attention to some key aspects of inheritance tax planning.

This is an extract from our topical tax tips newsletter dated 14 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

IHT planning 
I was a bad week for David Cameron. On his first day back in the House of Commons he was forced to explain his family's tax affairs, including some inheritance tax planning under which he received two large gifts from his mother totalling £200,000. 
  
There was extensive coverage of this issue, with many newspapers citing the £80,000 IHT apparently “saved”. Of-course the IHT is only avoided if the donor survives for seven years after the date of the gift, but the fuss may well have prompted your clients to think about making gifts to the younger generation.    
  
This gives you a good opportunity to bring up the topic of IHT planning with your clients, as if it's OK for the PM to do (and he solidly defended the move), it should be good enough for them. 
  
Many older people are afraid of giving away money which may be needed to fund care in their last years. This is understandable, but you can help put their minds at rest by working through some cash-flow forecasts using various estimates of future cash needs and life expectancies. 
  
There are some key changes to IHT exemptions for the family home which will apply to deaths on or after 6 April 2017 onwards (Finance Bill 2016, s 82, Sch 15). The property needs to pass on death to a direct descendent of the owner for the exemption to apply. So the Will must be clear about who is to receive specific properties in the estate. Step children and adopted children are treated as direct descendants for this purpose, but nieces and nephews are not. 
  
Opening a conversation about planning for tax due after a death is never easy, but David Cameron has provided an ideal excuse - use it.


This is an extract from our topical tax tips newsletter dated 14 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>> 

Tuesday, 12 April 2016

Expenses and benefits, Single-tier state pension, End of contracting-out

As we start a new tax year, we look at some of the changes that come into effect from the start of the 2016/17 tax year. We explore the new-look expenses and benefits regime and examine the single-tier pension and the implications of the end of contracting out. 

This is an extract from our topical tax tips newsletter dated 7 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Single-tier state pension 
Individuals who reach state pension age on or after 6 April 2016 will receive the new single-tier state pension rather than the two-tier pension (comprising the basic state pension and the earnings-related second state pension) which is payable to people who reach state pension age before 6 April 2016. Those individuals who are of state pension age on 6 April 2016 will continue to receive their state pension under the two-tier system. They will not switch to the new single-tier state pension. 

The single-tier state pension is set at £155.65 per week for 2016/17 (slightly above the standard minimum guarantee, which is £155.60 per week). The basic state pension is £119.30 per week (but this may be topped up by the pension credits). 

To qualify for the full single-tier state pension, individuals need a minimum of 35 qualifying years. A reduced pension is payable where an individual has less than 35 qualifying years but at least ten. By contrast, only 30 qualifying years were needed for the basic state pension where state pension age was reached between 6 April 2010 and 5 April 2016. A person who contracted-out prior to 6 April 2016, may receive less than the full single-tier state pension, even if they have 35 qualifying years. 

It is possible to make up for missed years by paying voluntary Class 3 contributions. Also, individuals who reached state pension age before 6 April 2016 have until 5 April 2017 in which to pay a Class 3A contribution. Each Class 3A contribution increases the basic state pension by £1 per week and individuals can `buy’ up to £25 per week extra from Class 3A contributions. The amount of a Class 3A contribution depends on the individual’s age at the time that the contribution was made. 

Before deciding whether to pay voluntary contributions, individuals should get a pension forecast so that can assess whether or not such contributions are worthwhile.


This is an extract from our topical tax tips newsletter dated 7 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>> 

Tuesday, 5 April 2016

Investors' Relief, Contractor loan schemes, Employee expenses

In last week's newsletter we were enthusiastic about the new investors' relief which was promoted in the Budget as a version of entrepreneurs' relief for longer-term investors. Unfortunately the draft Finance Bill 2016 paints a different picture as we explain below. We also have a warning of some grim implications of leaving contractor loans outstanding, and an update on changes for employee expenses. 

This is an extract from our topical tax tips newsletter dated 31 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Investors' Relief 
The new investors' relief is not a form of entrepreneurs' relief, as claimed in the Budget, it has more in common with the enterprise investment scheme (EIS). The conditions needed to qualify for the new relief are more restrictive than we expected. 
  
Last week we encouraged you to look at investors' relief a means for individuals to benefit from a reduced rate of CGT, if they subscribe for shares in companies owned by family or friends. Unfortunately the new investors' relief won't be available to the relatives of employees or directors of the company. A key condition for investors' relief (revealed in the draft Finance Bill 2016), is the investor must not be an employee or officer of the company or connected to such an employee or officer. 
  
Investors' relief has also been saddled with conditions lifted directly from the EIS rules relating to value received from the company. Under EIS the investor losses a portion of their income tax relief, and associated CGT exemption, if he receives significant value from the EIS company within a four year period; (one year before the shares were issued to three years afterwards). This prevents the investor, or anyone connected with the investor, receiving anything worth more than £1,000 from the company in that period. 
  
Although there is no income tax relief available under investors' relief, and the CGT relief amounts to a halving of the top CGT rate, similar rules to disqualify shares from investors' relief will apply when value is received from the company (TCGA 1992, Sch 7ZB). This will limit investors' relief to people completely unconnected with the company, such as “angel investors”. It will also prevent those investors taking any guiding role with the company such as a non-executive director.

This is an extract from our topical tax tips newsletter dated 31 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday, 29 March 2016

Director's loan, Relaxed Entrepreneurs' Relief, Online Access

The dust-up over the Budget has settled, for now, but you should expect more tax changes to be announced in the Autumn Statement. In the meantime there are two Budget-related issues to discuss with your micro-company clients: directors' loans and entrepreneurs' relief. We also have an update on some new security measures for accessing HMRC's online services. 

This is an extract from our topical tax tips newsletter dated 24 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>


Directors' loans
When a close company makes a loan to its directors or shareholders, or associates of those people, it must pay a corporation tax charge set at 25% of the loan. This is the charge under CTA 2010, s 455 (formerly ICTA 1988, s 419), and it will increase to 32.5% on 6 April 2016. 
  
All your client companies are likely to be “close” (an old meaning of “secret”), as the legal definition is: a company controlled by its directors or by five or fewer participators. The participators are the shareholders, and certain creditors. The s 455 charge is only payable when the loan remains outstanding nine months and one day after the company's year end. The new rate of 32.5%, will apply to loans made and benefits conferred (under CTA 2010, s 464A) on or after 6 April 2016. 
  
Where your clients have taken loans from their companies before 6 April 2016, the s 455 charge will apply at 25%. However, it will require some careful accounting to prove exactly when a new loan is taken out in respect of directors' accounts that wander in and out of credit on a day to day basis. 
  
On 20 March 2013 anti-avoidance rules were introduced that treat a loan as continuing if £5,000 or more is repaid and borrowed again within 30 days. Where the loan is £15,000 or more the 30-day rule doesn't apply, and the loan is treated as continuing if there are arrangements in place for the repaid loan to be replaced. We will have to check the details of the new legislation to see if those anti-avoidance provisions will be over-ruled in favour of taxing the new loan at 32.5% rather than at 25%. 
  
This increase in the tax charge is to discourage directors who pay higher rate tax from taking a loan instead of a dividend from their company. It will not apply to loans made to a charity.


This is an extract from our topical tax tips newsletter dated 24 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday, 22 March 2016

Digital accounting records, Entrepreneurs' relief, S codes revisited

Last week's Budget contained a lot of promises and vague statements, which we will distill down for practical advice next week. In the meantime the pressure to move towards digital tax reporting can't be ignored, so we examine how you can prepare your clients. We also have advice about shareholdings which qualify for entrepreneurs' relief and an update on the issue of S codes  

This is an extract from our topical tax tips newsletter dated 17 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Digital accounting records 
The Government wants all businesses to send HMRC a summary of their accounting records every quarter. This data will update the “digital tax account” for that business held by HMRC, and will enable the taxpayer to see what tax they should be paying much earlier than would be the case when submitting an annual tax return.    
  
This is not a fairy tale, but a representation of the vision set out in the HMRC document: Making Tax Digital. There is no appreciation in that document of the effort involved to turn raw accounting data into accounts which show a taxable profit or loss. HMRC believe that all such issues will be solved by accounting software and the submission of data to HMRC will be as easy as one click. 
  
To enable this future fantasy to become a reality, every business, and every landlord who receives more than £10,000 of income, will have to maintain their accounts using software that can communicate directly with HMRC. That excludes electronic spreadsheets, and of-course paper based accounting records. 
  
An ICAEW commissioned survey has found that only 25% of businesses use accounting software to maintain their accounting records, and just 18% of sole-traders use such software. So to achieve the Government's target of businesses making quarterly updates to HMRC, some 75% of businesses, and 82% of sole traders will have to change the way they keep their accounting records. The small businesses need to convert to digital accounting within two years, as businesses with turnover below VAT threshold will be required to submit quarterly updates from April 2018. 
  
You need to start conversations with those clients who are not currently using accounting software, and persuade them that the Government is serious about this digital future. You will also have to examine the processes within your own practice and make some decisions about which forms of accounting packages you will deal with. For some businesses “cloud accounting” will provide the answer, others will need bespoke accounting software.


This is an extract from our topical tax tips newsletter dated 17 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday, 15 March 2016

Apprentices, Scottish rate of income tax, PAYE penalties

As we head into a new tax year there are two payroll issues to address; the new NIC rate for apprentices and the Scottish rate of income tax. We also have a heartening story about PAYE penalties that shows you can win against HMRC if you read the legislation really carefully. 

This is an extract from our topical tax tips newsletter dated 10 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Apprentices 
This week (14 - 18 March) is National Apprentice week, and it is also Budget week, so you may well be having conversations with your clients or sending them newsletters. The employment of apprentices is promoted by Government but it is surrounded with misunderstandings. 
  
Apprentices are employees who must be paid the NMW, but there is a special lower NMW rate for apprentices who are aged under 19 or in the first year of their apprenticeship. There is no age limit for an apprentice, but Government grants are normally only available for those aged 16 to 18. When the individual is aged 19 to 24 the adult NMW must be paid, and when they reach age 25 the living wage rate must be paid for pay periods starting on or after 1 April 2016. 
  
Where the apprentice is aged under 25, and is paid less than £43,000 per year, a zero rate of employer's class 1 NI will be due from 6 April 2016. An employer can't designate all his employees who are under 25 as “apprentices”, to qualify for the zero rate of class 1 NIC, the employee must be enrolled in a statutory apprenticeship. Note that the rules for statutory apprenticeships are different in England, Scotland, Wales and Northern Ireland, as it is a devolved issue. 
  
If you like the idea of taking on a young apprentice in your own practice, there is help and guidance available through Associate of Tax Technicians (ATT) - see link below. 
  
The Apprenticeship levy will add an extra 0.5% to the employer's payroll costs with effect from 6 April 2017. The levy will be relieved by a £15,000 allowance per employer, which will work much like the current employment allowance. Where the total payroll cost is less than £3 million the effect should be that no apprenticeship levy is paid. 
  
However, where the employer runs several payroll schemes or is part of a group, only one £15,000 allowance will be given, so some levy will end up being paid. Groups of companies may have to reorganise their payrolls so that all employees across the group are paid through one company. You have a year to sort out that little problem.


This is an extract from our topical tax tips newsletter dated 10 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>