Tuesday, 9 February 2016

Owner managed company, Alcohol wholesalers and producers, Labour providers warning

Now is a good time to help your clients plan their taxable income in 2016/17. The rules for NIC, and tax on dividends are changing, so all arrangements for extracting profit from owner-managed companies must be reviewed. Clients who sell alcohol wholesale need register with a new Government scheme, which you can help them prepare for. Finally, we pass on a warning about VAT fraud in labour supply chains.

This is an extract from our topical tax tips newsletter dated 4 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Owner managed company 
The combination of tax and regulation changes coming into effect in 2016/17 mean that every small company should review the remuneration strategy for its owners. Let's look at each factor briefly: 
  
Salary 
Paying a salary just below the NIC primary threshold of £8060 will preserve entitlement to the state pension, and incur no employee or employer's NIC. Any payment above the secondary threshold (£8112) will incur employer's NIC, but where the company has only one employee the employment allowance won't be available to cover that NIC.   
  
Dividends 
Any dividends received by a shareholder in excess of £5,000 will create a tax charge for that person being 7.5% more than they paid on the same cash dividend in 2015/16. As the 10% dividend tax credit is abolished, the shareholder will be able to receive more cash as a dividend before tipping into higher rates of tax (32.5% on dividends). 
  
Rent 
Rent is taxed at the normal rates of: 20%, 40% and 45%, but without NIC. Where the premises the company trades from are owned personally by the shareholders, a payment of rent should be considered as an alternative to some dividends. The company will receive a tax deduction for the rent paid. But entrepreneurs' relief on the gain arising on the premises could be restricted, if the building is sold alongside company shares in the future.     
  
Pensions 
As a person aged 55 and over has complete flexibility to withdraw cash from their pension fund (subject to charges), employer pension contributions are a very attractive option for the older director. The contribution is tax deductible for the company and attracts no tax or NIC for the employee, as long as the individual's pension annual allowance is not exceeded. This favourable treatment of pension contributions may not last.   
  
The ideal combination of these factors will vary for each owner/ director, according to their personal income needs and the profitability of their company. Our personal tax advisers will be happy to talk through the implications of each type of payment in greater detail. 

This is an extract from our topical tax tips newsletter dated 4 February 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, 2 February 2016

Flooding relief for SA filing, ATED expanded, Trivial Benefits

If you or your clients have been struggling to file SA tax returns due to disruption caused by flooding or other extreme weather conditions, we have some good news for you. Looking ahead to April 2016; you need to warn clients about the expansion of the ATED charge, and explain the new rules for trivial benefits.

This is an extract from our topical tax tips newsletter dated 28 January 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

ATED expanded 
The annual tax on enveloped dwellings (ATED) was restricted to properties worth over £2 million when it was introduced on 1 April 2013. From 1 April 2016 it will apply to residential properties worth over £500,000 which are owned by non-natural persons (companies and mixed or corporate partnerships). 
  
According Land Registry data collected in November 2015, the average price of a home in London is £506,724. If your client owns residential property through a company (or another vehicle), you need to check whether the ATED applies. 
  
Note the relevant value for ATED is not the value as at 1 April 2016, but the value at 1 April 2012. If the property was not held by the current owner on 1 April 2012, you must use the valuation at the date of acquisition. If you are not sure about the value at 1 April 2012 you can ask HMRC to undertake a pre-return banding check. 
  
However, you can't ask for a banding check if the ATED charge will be reduced to nil by one of the reliefs. This is typical muddled thinking by HMRC. They provide a mechanism to make life easier (valuation check) but block the use of it if there is no tax to pay. HMRC doesn't consider the cost of completing the ATED return to claim the relief. 
  
Don't overlook the need to submit an ATED return. Where the property falls within the ATED regime because of its value and ownership, an ATED return must be submitted. If a relief eliminates the ATED charge you must submit a relief declaration return - there is a different relief declaration form for each type of relief claimed. 
  
The ATED return must normally be filed by 30 April within the year to which the charge relates: 30 April 2016 for 2016/17. However, there is generally an extension to 1 October for properties which fall within ATED for the first time due to a new banding. The Gov.uk website hasn't been updated on this point yet. 
  
There are penalties for late submission of ATED returns which apply the same level of penalties as for late submission of self-assessment tax returns.
 
This is an extract from our topical tax tips newsletter dated 28 January 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, 26 January 2016

Share dealing losses, National living wage, VAT on telecoms services

Last week we examined a case concerning share dealing losses which provides hope to all day traders. You need to warn your clients about the NMW rate rise on 1 April 2016 and about a change in VAT treatment on wholesale telecoms services which applies from 1 February 2016.

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

National living wage 
The national minimum wage (NMW) rate normally increases with effect from 1 October. Many employers will be geared up to include such changes in their annual pay reviews. However, the next rate change applies from 1 April 2016. 
  
In his Summer Budget on 8 July 2015 George Osborne stole the opposition's clothes by announcing a “National Living Wage” of £7.20 per hour, to be gradually increased to £9 per hour by 2020. In fact the living wage is just another NMW rate, with all the same legal requirements. It must be paid to workers aged 25 and older for pay periods that fall on and after 1 April 2016. 
  
The NMW for those workers is currently £6.70 per hour, so a 50p per hour increase is significant. It will push the weekly wage for a worker on 35 hours up from £234.50 to £252, and cost the employer an extra £19.91 per week including employer's NI. Where the worker is enrolled in a company pension under auto-enrolment the total cost to the employer will be higher. 
  
You can help your clients identify which employees should receive a pay rise from 1 April, and budget for this extra cost. Remember company owner/directors don't have to pay themselves the NMW or living wage as long as they don't have a contract of employment with their company. Family members living in the employer's home also are not entitled to the NMW. 
  
The employment allowance is increasing from 6 April 2016 from £2,000 to £3,000 for most employers. One-man companies won't qualify for the employment allowance in 2016/17. 
  
The extra £1,000 of allowance will be available to off-set the additional employers' NIC payable on the compulsory wage increases for workers entitled to the living wage. However, the employment allowance can't be used to off-set the cost of pension contributions, or the actual wage increase itself.  


This is an extract from our topical tax tips newsletter dated 21 January 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 January 2016

VAT MOSS, VAT flat rate scheme, Trust tax returns

This issue highlighted two VAT issues which affect small businesses; the ridiculous VAT MOSS rules, and the VAT flat rate scheme which should make life easier for small businesses but can trip them up. We also have news about incorrect penalties issued in respect of trust and estate tax returns.

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

VAT MOSS 
All VAT MOSS returns must be submitted for calendar quarters, irrespective of the period for which the trader submits his domestic VAT returns. Thus the next VAT MOSS return must be submitted by 20 January 2015, for the quarter to 31 December 2015. 
  
This is just another example of how the VAT MOSS rules are a bad-fit for micro-traders. HMRC are starting to realise this, as they have issued new guidance on VAT MOSS for small traders. These are businesses with annual turnover below the UK VAT registration threshold, so they aren't required to be registered for VAT in the UK. However, they must operate VAT MOSS. In theory just one international sale of an electronic service to a non-business consumer in another EU country brings the business within the VAT MOSS reporting regime. 
  
HMRC say they have analysed the VAT MOSS returns submitted so far. From this incomplete data HMRC have concluded that some people registered for VAT MOSS may not be in business. A person who is not “in business” doesn't have to register for VAT MOSS as the supplies are not made in the course of a business. Problem solved!    
  
No, the problem is not solved. HMRC can't accurately determine whether a trader is “in business” from three VAT MOSS returns, but they are writing to those people they believe aren't “in business” suggesting the trader should deregister from VAT MOSS. If your client receives such a letter he will be confused, as HMRC is constantly telling people to declare all of their income for tax purposes. 
  
If you have advised your client to register for VAT MOSS, you will have already reviewed whether he is in business or not, and concluded that he is. If the international sales are merely part of a “hobby” and not part of a business, then you wouldn't have advised the individual to register for VAT MOSS. 
  
For those small traders who decide to stay registered with VAT MOSS, a further concession is offered: they only have to retain one piece of evidence of where their customer is located. However, the trade needs to abide by the VAT laws of the country he is selling into. A concession applied by HMRC won't necessarily be recognised by another EU tax authority.


This is an extract from our topical tax tips newsletter dated 14 January 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 January 2016

Farmers and losses, SDLT supplement, HMRC communications

Business life doesn't stop in January so everyone can concentrate on completing their tax returns - although you may like it to. Clients are busy trying to make a profit, or at least striving to avoid a farming loss for the sixth year running. We explain why this is so important in this week's newsletter. Property owners need to act quickly to complete deals before the new SDLT supplement kicks in. We also have a timely warning about communications from HMRC.

This is an extract from the first of our topical tax tips newsletters for 2016. It went out on 7 January (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>


HMRC communications 
Where a taxpayer has appointed a tax agent HMRC is supposed to write to that agent, or at least copy-in the agent on any correspondence with the taxpayer. That rule is being broken again with “educational” letters being sent out by HMRC. 
  
The letter we have seen is addressed to farmers, reminding them that subsidies paid by the EU are taxable income and should be included on their SA tax return. It goes on to say the farmer should check their tax returns to see if the right amount of income has been declared. This will alarm some clients, and no-doubt prompt phone calls to you. 
  
Other communications, such as emails and texts supposedly from HMRC are obvious fakes. We know that HMRC doesn't offer taxpayers refunds by email but it does send reminders to complete tax and VAT returns. It's easy to be duped by the fraudsters. 
  
Finally, where you or clients have been affected by the floods, and as a result need more time to complete tax returns or make tax payments, there is help available. Access that help by calling the HMRC flood helpline: 0800 904 7900. To arrange time to pay a tax debt call before the debt becomes due.

This is an extract from our topical tax tips newsletter dated 7 January 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 December 2015

Liquidate the company, Renewals allowance, Payrolling of benefits

The Government issued another 645 pages of draft tax legislation and notes last week. We have picked out two issues from the draft Finance Bill 2016 which may be relevant to your clients: whether to liquidate their dormant companies and the new renewals basis for items used in let residential properties. HMRC has also set a ridiculous deadline of 21 December 2015 to inform them about payrolling of benefits.

This is an extract from our topical tax tips newsletter dated 17 December 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Liquidate the company
Where a company is liquidated the proceeds received by the shareholders are treated as capital, after the costs of the liquidation are deducted. The shareholders pay CGT on those proceeds at: 18%, 28%, or 10% where entrepreneurs' relief applies. This is a huge tax saving compared to the dividend tax rates of: 7.5%, 32.5% and 38.1% which will apply to distributions from a company in 2016/17.
 
The Government wants to prevent business owners from achieving a “tax advantage” (tax saving), by liquidating their company and starting up the same or similar business in another vehicle. There are already anti-avoidance rules which can be used against such phoenixing, which are explained in HMRC's Company Tax Manual at CT36850.
 
The draft Finance Bill 2016 includes a new targeted anti-avoidance rule (TAAR) that goes further than the current rules. If the TAAR comes into effect as drafted it will tax the proceeds from the liquidation as income rather than as capital, where all these conditions are met:
a)     a close company is wound-up and an individual (S) receives proceeds from the shares;
b)     within two years of that distribution S continues to be, or becomes, involved in a similar trade or activity; and
c)     one of the main purposes of the winding-up is to obtain a tax advantage.
 
Condition b) will apply where the same or similar business is continued as a company, or as a sole-trader or as partnership, even on a much diminished scale.
 
The TAAR is due to apply to distributions made on or after 6 April 2016. Thus to be sure of falling outside of the TAAR, the liquidation must be completed before that date. Liquidations can take many months. If your client has a company which he intends to liquidate to pay CGT on the funds it has accumulated, he needs to act fast to avoid being caught by this new TAAR.
 
Our tax experts can advise you on whether a proposed transaction involving a company's shares will be affected by the draft anti-avoidance rules in Finance Bill 2016.


This is an extract from our topical tax tips newsletter dated 17 December 2015 (5 days before we publish an extract on this blog). it was the last one of 2015. 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>>>