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Taxpayers treated unfairly by HMRC says House of Lords

Adrian Mooy - Wednesday, January 23, 2019


The House of Lords Economic Affairs Committee has criticised some of the powers granted to HM Revenue & Customs (HMRC), describing them as disproportionate and lacking effective taxpayer safeguards.


The committee’s latest report says that HMRC’s powers are now too broad and the penalties too high, deterring taxpayers from appealing and creating injustice within the system. It has demanded that the Government reviews the current arrangements.


Lord Forsyth of Drumlean, the committee’s chairman, said that, while the tax authority was right to challenge tax evasion and aggressive tax avoidance, “a careful balance must be struck between clamping down and treating taxpayers fairly.”


The committee believes that the evidence it uncovered suggests that “this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer should expect.”


Although the report covers a number of areas of taxation, the committee gave special consideration to “disturbing evidence” on the approach to the loan charge.


This new fee is intended to prevent disguised remuneration schemes, where workers have been paid via a loan with the intention of avoiding tax and national insurance contributions.


However, the committee is concerned that the retrospective nature of the charge could affect those that were unaware of the risks or forced to use this arrangement by their employer.


It has recommended that HMRC urgently reviews these cases where the only remaining consideration is the individual’s ability to pay and establishes a dedicated helpline to support those adversely affected by the loan charge.


The committee has also called on Parliament to consider how it scrutinises the powers it gives to HMRC.

Think about tax planning

Adrian Mooy - Wednesday, January 09, 2019


With the Self-Assessment tax return deadline rapidly approaching on 31 January it becomes easy to overlook your tax planning and leave it until it is too late, however now is the perfect time to act.


If you haven’t thought enough about tax planning, don’t worry you are not alone. A recent study found that almost three-quarters of UK taxpayers have not done enough to reduce ‘tax waste’ in the last year.


Taxpayers should explore the numerous tax reliefs available and think about whether or not you are paying the right amount of tax.


Personal tax


When it comes to personal tax planning, a broad range of reliefs and allowances can be applied to the likes of Capital Gains Tax (CGT), business tax and Inheritance Tax (IHT), and each of these should be carefully considered.


CGT, for example, has a reputation for leaving people with a hefty tax bill on disposal of valuable assets. However, careful planning about how and when an asset is disposed of can have a major impact on the size of the bill. Likewise, making careful use of other allowances can see your tax bills shrink considerably.


When it comes to IHT, there are a wide range of allowances and reliefs to take advantage of, such as the Residence Nil-Rate Band (RNRB) – which provides an additional tax-free allowance if you leave your main home to direct descendants – or leaving money to charity, which is exempt from IHT. This means it makes sense to draft your Will with a view to your IHT liabilities.


It is also wise to consider Married Couples’ Allowance and any other helpful tax reliefs which could be appropriate depending on your situation.


Business tax planning


Business taxes have potentially an even greater scope to benefit from careful tax planning, with the way in which you structure your business having a major impact, as well as the ways in which you acquire new businesses and finance expansion.


Taken together, the potential savings for an individual and their business can stretch into the tens or even hundreds of thousands of pounds and beyond, depending on their income.


This means it will come as no surprise that up-to-date research suggests that UK taxpayers are paying £4.9 billion more in tax than they should.

Entrepreneurs’ relief – what do the Budget changes mean?

Adrian Mooy - Tuesday, January 08, 2019


Ahead of the 2018 Budget there was some speculation that entrepreneurs’ relief may be scrapped. In the event, this did not happen. However, the relief made an appearance with the announcement of changes to the personal company test, applying from Budget day, and of a doubling of the qualifying period throughout which the conditions must be met for two years from 6 April 2019.


Nature of the relief - Entrepreneurs’ relief reduces the rate of capital gains tax on disposals of qualifying assets to 10%. This is subject to a lifetime limit of £10 million. Spouses and civil partners have their own limit.


The relief is available where there is:

• a material disposal of business assets;

• a disposal associated with a material disposal; or

• a disposal of trust business assets.


Availability of entrepreneurs’ relief is contingent on the qualifying conditions being met. The qualifying conditions depend on the type of disposal.


The relief is complex, and a detailed discussion of the relief is beyond the scope of this article. However, guidance is available in HMRC’s Capital Gains Tax Manual at CG63950ff.


Shares in a personal company - Entrepreneurs’ relief is available for disposals of shares or securities in a personal company. To qualify, throughout the ‘qualifying period’ the company must be a personal company and either a trading company or the holding company of a trading group. The taxpayer must either be an officer or an employee of that company or of one or more members of the trading group.


The definition of a ‘personal company’ changed from 29 October 2018 (Budget day). Prior to that date, a personal company was one in which the individual held at least 5% of the ordinary share capital and that holding gave the holder at least 5% of the voting rights in the company.


From 29 October 2018 two further conditions must be met. The holding must also provide entitlement to at least 5% of the company’s distributable profits and 5% of the assets available for distribution to equity holders in a winding up.


Qualifying period - Entrepreneurs’ relief is only available if the conditions are met throughout the ‘qualifying period’. This is currently set at one year. However, it was announced in the Budget that the qualifying period will be doubled to two years from 6 April 2019 (except in relation to disposals where the business ceased prior to 29 October 2018).


Securing the relief - The timing of the disposal is important in securing the relief. If the disposal is one of shares in a personal company, and the new definition is not met, the qualifying period clock cannot start to run until the date when all conditions are met. To secure relief, the shares should not be disposed of until at least two years from the date on all of the conditions are first met.


Where the conditions have already been met for one year but will not have been met for two years by 6 April 2019, it may be preferable to dispose of the shares prior to 6 April 2019 to secure the relief. Alternatively, if the disposal is to take place after that date, it will make sense to wait until conditions have been met for two years in order to benefit from the relief.

National Living Wage to rise in April 2019

Adrian Mooy - Thursday, January 03, 2019


In his latest Budget speech to the Commons, Chancellor Philip Hammond announced that the National Living Wage and National Minimum Wage would increase from April next year.


However, despite many employees across the UK welcoming this sudden pay rise, small business owners across the UK are being left to pick up the bill.


From April 2019, employers will be required by law to pay their employees the following minimum wages:


Year        25 & over   21-24    18-20    Under18    Apprentice

Current      £7.83        £7.38     £5.90      £4.20         £3.70

Apr 19       £8.21        £7.70     £6.15      £4.35         £3.90


It is thought this increase in the UK’s statutory wage requirements will benefit around 2.4 million workers and means that the annual earnings of a full-time minimum wage worker will have increased by over £2,750 since the introduction of the National Living Wage in April 2016.


For businesses though the increase in the wage has not only affected their wage bill but has also led to an increase in their workplace pension contributions for staff.


With workplace pension contributions set to rise yet again in April 2019 to three per cent, this double whammy of costs is likely to affect their cashflow if they are unprepared.


The Government has said it will set out the Low Pay Commission’s goal for the years beyond 2020 next year, with a view to reviewing the potential impact on employment and economic growth of subsequent wage increases.


Link: National Minimum Wage and National Living Wage rates

House of Lords calls for a delay to MTD

Adrian Mooy - Friday, December 21, 2018


The House of Lords Economic Affairs Committee has criticised HM Revenue & Customs (HMRC) for its handling of Making Tax Digital (MTD) and called for a delay to some of the regime’s mandatory requirements.


The majority of VAT-registered businesses with taxable turnover above the VAT registration threshold of £85,000 will need to keep digital records and file their VAT returns using HMRC-compliant software or methods on a quarterly basis from April 2019.


However, having reviewed the requirements for MTD and its promotion by HMRC to businesses, the committee has recommended that the new rules for VAT should not be made mandatory next year and should instead allow businesses to ‘go digital’ at their own pace.


The Lords also recommended that the Government wait until April 2022 to apply MTD to other taxes to give HMRC time to learn lessons from the implementation of digital taxation on VAT.


Within its report, Making Tax Digital for VAT: Treating Small Businesses Fairly, the committee was also highly critical of HMRC’s public promotion of the new regime, which only began in any significant way several months ago.


Lord Forsyth of Drumlean, Chairman of the House of Lords’ Economic Affairs Committee that authored the report, said: “HMRC has neglected its responsibility to support small businesses with MTD for VAT.


“Small businesses will not be ready for this significant change to their practices, especially with Brexit taking place three days earlier,” he added.


The committee’s report has already gained the backing of a number of leading accountancy organisations, including the Institute of Chartered Accountants in England and Wales (ICAEW), the Chartered Institute of Taxation (CIOT) and the Association of Tax Technicians (ATT).

Unwrapping Christmas tax gifts

Adrian Mooy - Monday, December 17, 2018


Christmas is a time for giving, but many businesses may not be aware that their gifts can be made in a tax-efficient manner, which could make raising festive spirits that little bit cheaper.


While Christmas parties may not be for everyone, HM Revenue & Customs (HMRC) does provide an allowable tax deduction of up to £150 per head per year for events.


This means companies could hold one big Christmas blow out or spread their allowance over the year to improve staff engagement.


Of course, there are restrictions to this allowance. Under the rules, you must invite all employees to the event for it to qualify for the exemption and the cost per head must include VAT and take into consideration the cost of the entire event, including food, drinks and a venue.


If you are feeling generous this year, you could also give gifts to your employees at Christmas or any other special occasions. Thanks to the relief on offer, there will be no taxable employment benefit, providing the gift is trivial, such as a box of chocolates or a bottle of bubbly. However, the costs must not exceed £50 and must not be in the form of cash or a cash voucher.


Finally, you can spread the Christmas cheer even further by providing gifts to your clients. As long as the gift is less than £50 and includes a “prominent” advertisement for your business, then you can receive a tax deduction.


Gifts of food, drink, tobacco or vouchers are unfortunately not allowable, but items such as stationary would fall within the rules.

Public pilot of Making Tax Digital for VAT opens

Adrian Mooy - Monday, November 26, 2018


HM Revenue & Customs (HMRC) has opened a public pilot of Making Tax Digital (MTD) for VAT.
The pilot is open to sole traders and companies that are up-to-date with VAT, who have not received a default surcharge in the last two years.
Some other groups will need to wait to join, including those:
 • trading with the EU;
 • based overseas;
 • submitting VAT returns annually;
 • making payments on account;
 • using the VAT Flat Rate Scheme; or
 • who have never submitted a VAT return in the past will need to wait to join.
HMRC has also announced that a small number of the most complex businesses will have a six-month deferral to October 2019 before they need to comply with the requirements of MTD for VAT.
MTD for VAT will require businesses with turnovers of £85,000 or more to keep digital records and make quarterly digital submissions to HMRC using ‘designated software packages’ from next April.


Self-employed 'would back plans to expand pensions auto-enrolment'

Adrian Mooy - Monday, November 19, 2018


A survey carried out by insurance firm Prudential has suggested that over half of self-employed workers would back plans to expand pensions auto-enrolment, or make pension saving compulsory.


According to the survey, 27% of those polled would support the expansion of pensions auto-enrolment to cover the self-employed, and an additional 27% would back compulsory pension saving.


The survey also revealed that 18% of self-employed workers 'do not believe that pensions apply to them', while 20% stated that they find pensions rules 'very confusing'.


Furthermore, 28% of individuals surveyed reported that they will be reliant on the State Pension as their main source of retirement income.


Commenting on the survey, Vince Smith-Hughes, Head of Business Development at Prudential, said: 'It is clear that the self-employed want help in saving for retirement and that the State Pension alone may not be enough for a comfortable retirement.


'We believe it is important that the government works with the self-employed and the pensions industry to ascertain the most suitable option and put appropriate rules in place as soon as practicable.'

Making Tax Digital (MTD) for VAT

Adrian Mooy - Friday, November 09, 2018


HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system. The first area to be affected by MTD will be VAT with the new rules being implemented from April 2019.


Under the regulations, businesses with taxable turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using ‘functional compatible software’. These new regulations take effect for VAT return periods beginning on or after 1 April 2019.


HMRC has published VAT Notice 700/22: Making Tax Digital for VAT. This Notice defines ‘functional compatible software’ and the transaction-level data that needs to be recorded and retained within the software.


Under the new MTD regulations, businesses will have to use ‘functional compatible software’. This means a ‘software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API)’. This must be capable of:


 • keeping records in digital form as specified by the new rules


 • preserving digital records in digital form


 • creating a VAT return from the digital records held in compatible software and submitting this data to HMRC digitally


 • providing HMRC with VAT data on a voluntary basis


 • receiving, via the API platform, information from HMRC to ascertain compliance

HMRC delays late payments penalty reforms

Adrian Mooy - Wednesday, November 07, 2018


Planned reforms to HMRC’s penalty regimes for late submission and payment of tax due are to be further delayed while the department considers how best to communicate the changes, with papers published following the Budget indicating there are unlikely to be any change before April 2021 at the earliest.
The new penalty regimes for late payments of tax and late submissions of tax returns were originally expected to be introduced alongside Making Tax Digital for income tax from its original start date of April 2018 and would have affected a very large number of taxpayers.
Deferral of Making Tax Digital for income tax meant there was more time to refine the new penalty regime, which had attracted considerable criticism, but it still was not expected to be ready for the new deadline for Making Tax Digital for VAT, which is April 2019 and was predicted to commence from April 2020.
Now the Budget papers confirm that while the regime has been subject to consultation, it will not be implemented in the timescale originally foreseen.
The Overview of Tax Legislation and Rates (OOTLAR) document states: ‘The government consulted in summer 2018 on draft legislation for new late payment and late submission sanctions.
The government remains committed to the reform and intends to legislate in a future Finance Bill, to allow for more time to consider further the communications needed for successful implementation. ‘The government will provide notice before these measures are implemented.’
The Budget announcement means that the new regime will not now be in place until April 2021 at the earliest.
John Cullinane, CIOT tax policy director, said: ‘We are broadly supportive of these reforms to HMRC’s penalties regimes, so we are disappointed by this further delay, though as with any reform, we acknowledge that it is more important to do it right than to do it quickly.
‘If HMRC say they need until April 2021 – or later - to implement these changes then we will take them at their word and make the best use of the extra time to work with them on the details of the new regimes and publicity around their introduction.’
HMRC has indicated that it wants to introduce a two-tier penalty system which would kick in 15 days after a late payment.
Penalties will be calculated on debts remaining due after 15 days from the payment due date although on a mitigated basis where payment is made or a Time to Pay arrangements (TTP) has been set up until 30 days after the due date.
Where a successful TTP agreement is made, the government will take the date of contact with HMRC as the effective date for the purpose of late payment penalties.
If a payment or TTP is made or treated as made within 15 days of the due date no penalty will be charged; between 16 and 30 days half a penalty will be charged; and after 30 days a full penalty will be charged plus a further penalty which will then accrue daily until payment is made or a TTP treated as made.


Cullinane pointed out the penalty regime will now not be in place until at least two years after Making Tax Digital becomes mandatory for VAT, meaning the VAT default surcharge regime will remain in place for 2019/20, and may well also continue for at least 2020/21 and maybe even beyond that.
‘The existing penalty regime for VAT is not well suited to Making Tax Digital, and we are concerned around the complexities and administrative burdens that will result. The penalty point model being proposed for late submissions will work better with the Making Tax Digital reporting system.
‘With Making Tax Digital for income tax not coming in before April 2020 at the earliest, it would make more sense now, given that there is this delay, for the new penalty regime to be brought in at the same time for all taxes.
‘We hope HMRC will take the opportunity to do this. It is nonetheless disappointing that there has been a failure to deliver these changes effectively from the outset,’ he said.