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Registered to carry out audit work Association of Chartered Certified Accountants.
www.auditregister.org.uk under number 8011438
HM Revenue & Customs (HMRC) is trialling a new trigger, which is intended to improve the accuracy of employees’ PAYE tax codes.
According to HMRC, as many as half a million tax codes being used by employers across the UK could be incorrect, leading to employees either overpaying or underpaying tax.
To address the problem, HMRC is making changes to dynamic coding, which began its rollout in July 2017.
Dynamic coding is designed to make use of the additional information HMRC is now receiving from employees and employers to recalculate pay estimates during the course of the tax year.
Now HMRC is adding mismatches between its records and those of employers to the list of events that can trigger a recalculation.
As part of the initiative, HMRC is also placing a renewed emphasis on ensuring that employers complete new starter checklists properly and will be visiting the 100 worst offending employers when it comes to failing to complete the new starter process.
HM Revenue & Customs (HMRC) has updated its VAT notice regarding Making Tax Digital (MTD) for VAT to relax several of the digital recordkeeping requirements.
One of the changes, secured with the help of the Chartered Institute of Taxation (CIoT), relates to purchase invoices from suppliers.
It has become apparent in sectors that receive a high number of purchase invoices from the same company, that they are having to file multiple almost identical records, which is becoming very onerous.
MTD for VAT requires each individual supply or invoice to be entered as a new digital record.
However, a relaxation to the rules has been agreed, which will enable businesses to capture their digital records information from supplier statements, rather than from each individual invoice, as long as “all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown”. This change will only apply to purchases and not sales.
HMRC has also agreed to review the requirement for petty cash. Currently, the strict requirement is to record each individual supply, or at least each individual invoice/receipt, within a company’s digital records.
Instead, the updated VAT notice says that petty cash transactions can now be added up and summary totals entered as an alternative digital record.
The notice states: “This applies to individual purchases with a VAT-inclusive value below £50 and the total value of petty cash transactions recorded in this way cannot exceed a VAT-inclusive value of £500 per entry.”
The third and final relaxation of the rules relates to charity fundraising events run by volunteers. Under the new guidance the total values of supplies made can be entered as a single transaction, and similarly for supplies received.
HMRC has told the CIoT that it will not currently be seeking to apply record-keeping penalties where a business is clearly trying to comply with the requirements of MTD. This is in line with their previous promise of providing a ‘soft landing’ period in the first year of the new digital tax regime.
The annual tax on enveloped dwellings (ATED) is a tax that applies, in the main, to companies owning residential property which is valued at more than £500,000.
The tax only applies on properties that are classed as ‘dwellings’. This is a property where all or part of it is used as a residence, for example a house or a flat. The ‘dwelling’ also includes the property's gardens or grounds. However, properties such as hotels, guest houses, boarding school accommodation and student halls of residence fall outside the definition of a ‘dwelling’, and thus outside the scope of the tax.
Valuing the property
The tax only applies to dwellings with a value of at least £500,000. The amount of the charge depends on the value of the dwelling. Therefore, it is necessary to know the value of any residential property owned wholly or partly by a company (or a partnership with at least one corporate partner). The key date is the valuation date. From 1 April 2018 the valuation date is 1 April 2017. If the property was acquired after 1 April 2017, the value is the date of acquisition.
The valuation is an open market valuation. How much is the charge? The charge is an annual charge payable for the period from 1 April to the following 31 March. The chargeable amount for 1 April 2019 to 31 March 2020 is shown in the following table.
Property value Annual charge
More than £500,000 up to £1 million £3,650
More than £1 million up to £2 million £7,400
More than £2 million up to £5 million £24,800
More than £5 million up to £10 million £57,900
More than £10 million up to £20 million £116,100
More than £20 million £232,350
Payment and returns
An ATED return must be filed by 30 April each year. The return should be filed using HMRC’s ATED online service. An agent can be appointed to file the return on the company’s behalf. The tax must also be paid by 30 April.
Partner note: FA 2013, Pt. 3 (ss. 94—174, Sch. 33 – 35).
Within a family scenario, there are many situations in which one family member may make a gift to other family members. However, the way in which gifts are funded and made can make a significant difference to the way in which they are treated for inheritance tax purposes.
Not all gifts are equal
There is no inheritance tax to pay on gifts between spouses and civil partners. A person can make as many lifetime gifts to their spouse or civil partner as they wish (as long as they live in the UK permanently). There is no cap on the value of the gifts either.
Other gifts may escape inheritance tax if they are covered by an exemption. This may be the annual exemption (set at £3,000 per tax year), or a specific exemption such as that for gifts on the occasion of a marriage or civil partnership or the exemption for ‘gifts out of income’.
Gifts that are not covered by an exemption will counts towards the estate for inheritance tax purposes and, if the donor fails to survive for at least seven years from the date on which the gift was made, may suffer an inheritance tax bill if the nil rate band (currently £325,000) has been used up.
Gifts from income
The exemption for ‘normal expenditure out of income’ is a useful exemption. The exemption applies where the gift:
• formed part of the taxpayer’s normal expenditure;
• was made out of income; and
• left the transferor with enough income for them to maintain their normal standard of living.
All of the conditions must be met for the exemption to apply. Where it does, there is no requirement for the donor to survive seven years to take the gift out the IHT net.
What counts as ‘normal’ expenditure?
For the purposes of the exemption, HMRC interpret ‘normal’ as being normal for the transferor, rather than normal for the ‘average person’.
To meet this condition it is sensible to establish a regular pattern of giving –for example, by setting up a standing order to give a regular monthly sum to the recipient. It is also possible that a single gift may qualify for the exemption if the intention is for it to be the first of a series of gifts, and this can be demonstrated. Likewise, regular gifts may not qualify if they are not made from income.
In deciding whether a gift constitutes normal expenditure from income, HMRC will consider a number of factors, including:
• the frequency of the gift;
• the amount;
• the identity of the recipient; and
• the reason for the gift.
The amount of the gift is an important factor – to meet the test the gifts must be similar in amount, although they do not have to be identical. Where the gift is made by reference to a source of income that is variable, such as dividends from shares, the amount of the gift may vary without jeopardising the exemption.
Gifts will normally be in the form of money to the recipient, or a payment on the recipient’s behalf, such as school fees or a mortgage. The reason for making a gift may indicate whether it is made habitually – for example, a grandparent may makes a gift to a grandchild at the start of each university term to help with living costs. It is also important that having made the gift, the donor has sufficient income left to maintain his or her lifestyle.
When making gifts from income, check that they may meet the conditions to ensure that the exemption is available.
As a general rule, employees are denied a tax deduction for the cost of travel between home and work. Likewise, subject to a few limited exceptions, if the employer meets the cost of home to work travel, the employee is taxed on it.
One of the main exceptions to this rule is where an employee attends a ‘temporary workplace’. This is a workplace that the employee goes to in order to perform a task of limited duration or one that he attends for a temporary purposes, even if the attendance is on a regular basis.
Polly is based in the Milton Keynes office. She is seconded to the Bedford office for 12 months to cover an employee’s maternity leave. At the end of the secondment, she will return to the Bedford office.
The Bedford office is a temporary workplace.
Consequently, Polly is allowed a deduction for travel from her home to the Bedford office.
James is a health and safety officer. He is based in the Liverpool head office. Each week he visits factories in Manchester and Bury to carry out safety checks. The factories are temporary workplaces as each visit is self-contained.
Consequently, James is allowed a deduction for travel expenses incurred in visiting the factories, even if he travels there from home.
A workplace does not count as a temporary workplace if the employee attends it in a period of continuous work which lasts, or is expected to last more than 24 months. A ‘period of continuous work’ is one where the duties are performed at the location in question to a ‘significant extent’. HMRC regard duties being performed to a 'significant extent' at a particular location if an employee spends 40% or more of their working time there.
The upshot of this rule is that where the employee has spent, or is likely to spend, 40% of their working time at the location in question over a period of more than 24 months, that location will be a permanent location rather than a temporary location. Consequently, home to work travel is ‘ordinary commuting’ (travel between home and a permanent workplace), which is not deductible.
It is important to appreciate that both parts of the test must be met for the workplace to be a permanent workplace – more than 40% of time spent there and over a period of more than 24 months.
George is employed full-time at a care home in Southampton, a role which he has held for four years. He is sent to full-timework at a new care home in Bournemouth for three years, after which time he will return to the Southampton care home.
Although the move to the Bournemouth posting is not permanent, the posting lasts more than 24 months and, as such, the Bournemouth home does not qualify as a temporary workplace.
Consequently, George is not allowed a deduction for the cost of travelling from home to the Bournemouth care home.
Change of circumstances
Circumstances can and do change. If at the outset a posting is expected to last 24 months, the workplace will be treated as a temporary workplace. If later the posting is extended so that it will last more than 24 months, the workplace ceases to be a temporary workplace from the date that it becomes apparent the posting will exceed 24 months.
Fixed term appointments rule
An employee undertaking a fixed-term appointment is not entitled to relief for home to work travel, even where it lasts less than 24 months, if the employee attends the workplace for all, or almost all of the period which they are likely to hold the appointment.
Imogen takes on a 12-month contract at an office in Marlow. Although the appointment is less than 24 months, the Marlow office is not a temporary workplace as Imogen works there for duration of the contract.
If the employer pays or reimburses travel expenses which would be deductible if met by the employee, the payment or reimbursement is exempt from tax.
ITEPA 2003, ss. 289A, 338, 339;
At first sight, the calculation of a capital gain or loss on the disposal of an asset is relatively straightforward – simply the difference between the amount received for the sale of that asset and the cost of acquiring (and, where relevant) enhancing it, allowing for the incidental costs of acquisition and disposal. However, as with all rules there are exceptions, and particular care needs to be taken when disposing of an asset to other family members.
Spouses and civil partners
The actual consideration, if any, is ignored for transfers of assets between spouses and civil partners. Instead, the consideration is deemed to be that which gives rise to neither a gain nor a loss. The effect of this rule, which is very useful for tax planning purposes, is that the transferee simply assumes the transferors base cost – and the transferor has no capital gain to worry about.
Other connected persons
While the no gain/no loss rules for transfers between spouses and civil partners is useful from a tax perspective, the same cannot be said to be true for market value rule that applies to transfers between connected persons. Where two persons are connected, the actual consideration, if any, is ignored and instead the market value of the asset at the time of the transfer is used to work out any capital gain or loss. The market value of an asset is the value that asset might reasonably be expected to fetch on sale in the open market.
Who are connected persons?
A person is connected with an individual if that person is:
• the person’s spouse or civil partner;
• a relative of the individual;
• the spouse of civil partner of a relative of the individual;
• the relative of the individual’s spouse or civil partner;
• the spouse or civil partner of a relative of the individual’s spouse or civil partner.
For these purposes, a relative is a brother, sister or ancestor or lineal descendant. Fortunately, the term 'relative' in this context does not embrace all family relationships and excludes, for example, nephews, nieces, aunts, uncles and cousins (and thus the actual consideration is used in calculating any capital gain).
As noted above, the deemed market value rule does not apply to transfers between spouses and civil partners (to which the no gain/no loss rules applies), but it catches those to children, grandchildren, parents, grandparents, siblings – and also to their spouses and civil partners.
Barbara has had a flat for many years which she has let out, while living in the family home. Her granddaughter Sophie has recently graduated and started work and is struggling to get on the property ladder. To help Sophie, Barbara sells the flat to her for £150,000. At the time of the sale it is worth £200,000.
As Barbara and Sophie are connected persons, the market value of £200,000 is used to work out Barbara’s capital gain rather than the actual consideration of £150,000. If she is unaware of this, the gain will be higher than expected (by £14,000 if Barbara basic rate band has been utilised), and Barbara may find that she is short of funds to pay the tax.
This problem may be exacerbated where the asset is gifted – the gain will be calculated by reference to market value, but there will be no actual consideration
from which to pay the tax.