‘Uncategorized’

Penalties to be points based

Thursday, July 19th, 2018

Drivers face disqualification from driving if they accumulate 12 or more penalty points for driving offences. The resulting ban can last from 4 to possibly 11 years depending on the gravity of the offence.

HMRC seem to think that this point based system is a good idea and they now intend to include draft clauses to the forthcoming Finance Bill that will introduce a points system covering the late filing of tax returns.

In their notes attached to the draft clauses HMRC say:

The government wishes to encourage compliance with regular return submission obligations but does not want to punish taxpayers who make occasional mistakes. The new late submission penalty regime, announced at Autumn Budget 2018, is designed to be proportionate, penalising only the small minority who persistently fall foul of the rules. Consistent compliance will be encouraged by the opportunity to clear penalty points without incurring a penalty charge. A stronger deterrent is provided in cases where behaviour is shown to be deliberate, and also by other compliance tools. The new regime is designed to be applicable to as many taxes with regular filing obligations as possible to provide a clear, transparent and consistent approach for taxpayers and HMRC.

The new points-based penalty regime will only apply to returns (including Making Tax Digital regular updates) with a regular filing frequency, for example monthly, quarterly or annually. It will not apply to occasional returns (for example a return required for a one-off transaction).

HMRC are unlikely to be suggesting, as with driving penalties, that if you collect enough points you will be banned from paying tax, but the liability to penalties will remain until a predetermined period of time has elapsed.

Tax security deposits to be extended

Tuesday, July 17th, 2018

Continuing the theme from last week’s blog post, we have listed details of a forthcoming change to the taxation of companies that were disclosed in the draft clauses published last week for the forthcoming budget. The change outlined expands the rights of HMRC to demand a security deposit from “at risk” tax payers.

In their draft notes HMRC say:

HMRC can require some businesses to provide a security, in the form of cash or a performance bond, where this is considered necessary to protect the revenue. Securities may be required where a taxpayer has a poor compliance record and in “phoenix” type cases where a business accrues a tax debt, goes into liquidation or administration and the person responsible for the operation of the business sets up again, with the risk of running up further tax debts. 

HMRC already has powers to require security in relation to some areas of business tax, including VAT and PAYE. However, there is no similar provision in respect of corporation tax liabilities or deductions made by contractors on account of their subcontractors’ income tax under the construction industry scheme. The government intends to extend the existing securities regime to these areas to address these gaps in the coverage of the regime and strengthen HMRC’s ability to deal effectively with potential defaulters

Security deposits are normally requested when a company is liquidated owing monies to HMRC, and the directors then re-establish the trade in a new company, perhaps using assets purchased from the old firm’s liquidator – a so-called “phoenix arrangement”.

From Newco’s point of view, being required to lodge a hefty deposit with HMRC could be terminal if funding is not available. However, recent First Tier Tribunal cases have supported appeals from taxpayers when they can demonstrate that the owners of Newco were not directly responsible for any mis-management of Oldco. If you receive a request for a security deposit an appeal may be appropriate.  

Do not fall for spoof emails from the taxman

Thursday, July 12th, 2018

New figures show that HM Revenue and Customs (HMRC) requested a record 20,750 malicious sites to be taken down in the past 12 months, an increase of 29% on the previous year.

Despite a record number of malicious sites being removed, HMRC is warning the public to stay alert as millions of taxpayers remain at risk of losing substantial amounts of money to online crooks. The warning comes as Scam Awareness month, run by Citizens Advice, draws to a close.

HMRC has brought in cutting edge technology to tackle cyber-crime and target fraudsters. However, the public needs to be aware and report phishing attempts to truly defeat the criminals.

Genuine organisations like banks and HMRC will never contact people out of the blue to ask for their PIN, password or bank details.

Accordingly, people should never give out private information, download attachments, or click on links in emails and messages they weren’t expecting.

The most common type of scam is the ‘tax refund’ email and SMS. HMRC has confirmed that it does not offer tax refunds by text message or by email.

HMRC has also been trialling new technology which identifies phishing texts with ‘tags’ that suggest they are from HMRC and stops them from being delivered. Since the pilot began in April 2017, there has been a 90% reduction in people reporting spoof HMRC-related texts. This innovative approach netted the cyber security team with the Cyber Resilience Innovation of the Year Award in the Digital Leaders (DL100) Awards.

In November 2016, the department implemented a verification system, called DMARC, which allows emails to be verified to ensure they come from a genuine source. The system has successfully stopped half a billion phishing emails reaching customers. This initiative has saved the public more than £2.4 million by tackling fraudsters that trick the public into using premium rate phone numbers for services that HMRC provide for free. Scammers create websites that look similar to HMRC’s official site and then direct the public to call numbers with extortionate costs.

HMRC has successfully challenged the ownership of these websites, masquerading as official websites, and taken them out of the hands of cheats. HMRC is working with the National Cyber Security Centre to further this work and extend the benefits beyond HMRC customers.

Readers of this post who are concerned by any emails or text they have received should contact HMRC by phone to check and see that they are genuine. Clients in receipt of similar communications should contact us before responding.

 

Advance notice

Tuesday, July 10th, 2018

Last week the Treasury issued draft clauses for the forthcoming Finance Bill (to be published after the Autumn Budget later this year). These will set the scene for tax matters 2019-20 and beyond.

The aim of the advance notice is to give interested parties a chance to comment on the contents before government starts the formal process of processing the legislation through Parliament.

The draft clauses include numerous technical changes to legislation that are outside the scope of this article, but a cross-section of the more “interesting” disclosures are set out below:

  • Technical changes to various benefit arrangements for cars and vans.
  • Exemption from benefit charges if employees provide free vehicle-battery charging facilities for employees at work.
  • HMRC are to remove requirement for employers to check receipts for subsistence claims by employees using approved HMRC rates.
  • Employees will be able to nominate beneficiaries outside their close family members to receive their death in service benefits.
  • Non-UK resident property businesses will be subject to UK corporation tax and not income tax as at present.
  • The rent-a-room relief is to be amended to include a non-exclusive residence clause. This will mean that to continue to qualify for the £7,500 tax-free allowance, persons letting a room in their home will have to be in residence when they let.

Bear in mind that these are suggested clauses and are subject to change before the formal Finance Bill is published later this year.

Construction drawn into VAT reverse charge process

Friday, July 6th, 2018

It would seem, that HMRC is keen to plug the apparent drain from VAT receipts when contractors and sub-contractors charge their customers VAT and then go missing, keeping the VAT for themselves. This is described in legislation as “missing trader fraud”.

Their preferred method for dealing with this abuse is to make customers responsible for accounting for the relevant VAT charge rather than the supplier of construction services. This is an extension to the reach of the “reverse charge” scheme.

It has been used in the past to tackle similar VAT avoidance tactics. For example, a reverse charge was introduced for:

  • mobile telephones and computer chips with effect from 1st June 2007,
  • emissions allowances with effect from 1st November 2010.

Further reverse charge measures were introduced for gas and electricity with effect from 1st July 2014 and for electronic communications with effect from 1st February 2016.

The government are considering this extension of the reverse charge process to the construction sector from 1 October 2019.

According to HMRC:

The risk of fraud in the construction industry is principally centred around the supply of construction services between construction businesses in the supply chain and this instrument, therefore, does not require other types of business to apply the reverse charge when receiving construction services and there is also no reverse charge requirement in relation to building and construction materials that are supplied separately and independently of construction services.

They conclude:

Reverse charge accounting makes it impossible for fraudsters to perpetrate missing trader fraud because the customer rather than the supplier accounts for the VAT direct to HMRC. The introduction of the reverse charge in this business sector will mean that businesses will need to adapt their systems and manage their cash flow differently. Due to the large number of small businesses potentially affected by a reverse charge for construction services the government has given a long lead-in time to help businesses adjust, having announced in Autumn 2017 the intention to introduce legislation which will come into force in Autumn 2019.

Self-employed tax bills

Friday, July 6th, 2018

Whether you pay income tax or National Insurance, the effect on your cash flow is the same. The payments are a necessary part of our obligation to fund the activities of State, but the self-employed are often surprised that their bi-annual tax payments cover both “taxes” – NIC and income tax.

The weekly NIC Class 2 contribution is included, presently £2.95 per week, also Class 4 contributions: these amount to 9% of taxable income in excess of £8,424 and up to £46,350, and 2% on earnings above £46,350.

Accordingly, the combined rate of State dues on self-employed earnings in excess of £8,424 is potentially 29% – 20% basic income plus 9% Class 4 NIC – and over £46,350 a combined rate of 42%. Although in practice some of the income over £8,424 may be covered by other personal tax allowances, these combined rates illustrate the true impact of income tax and National Insurance to be paid.

Self-employed traders with significant taxable earnings should therefore expect to pay more than the usual rates of income tax when they contemplate settlement of their annual self-assessment bill and have funds in reserve to meet these combined liabilities.

Director minimum salary levels 2018-19

Friday, July 6th, 2018

Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions (NIC), and in some cases income tax.

The planning strategy is to pay a salary at a level that qualifies the director for state benefits, including the state pension, but does not involve payment of any NIC contributions.

For 2018/19 the NIC rate is set at 0% for annual earnings in the range of £6,032 to £8,424 inclusive. Earnings in this band range qualify for NIC credit for state benefit purposes. At up to £116 per week (£6,032 p.a.) no NIC credit is obtained for state benefit purposes. At over £162.01 per week (£8,424 p.a.) employees’ NIC starts to be paid at the rate of 12%.

Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band that depends on the actual date appointed. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC.

Directors resigning during the year still have the full annual earnings band quoted above, and so care is needed to ensure that earnings for the whole tax year are within the range of £6,032 to £8,424.

Careful planning is also required to ensure that any impact of the National Living Wage regulations is considered, this may be particularly important for women who would like to claim statutory maternity benefit at some future date.

Directors considering their planning options for the first time are advised to take professional advice when setting the most tax/NIC efficient salary. We, of course, would be delighted to help.

Tax Diary July/August 2018

Friday, July 6th, 2018

1 July 2018 – Due date for corporation tax due for the year ended 30 September 2017.

6 July 2018 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2018 – Pay Class 1A NICs (by the 22 July 2018 if paid electronically).

19 July 2018 – PAYE and NIC deductions due for month ended 5 July 2018. (If you pay your tax electronically the due date is 22 July 2018)

19 July 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2018.

19 July 2018 – CIS tax deducted for the month ended 5 July 2018 is payable by today.

31 July 2018 – Deadline for payment of second instalment self-assessment for 2017-18.

1 August 2018 – Due date for corporation tax due for the year ended 31 October 2017.

19 August 2018 – PAYE and NIC deductions due for month ended 5 August 2018. (If you pay your tax electronically the due date is 22 August 2018)

19 August 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2018.

19 August 2018 – CIS tax deducted for the month ended 5 August 2018 is payable by today.

Unmarried couples to qualify for spousal tax breaks

Thursday, July 5th, 2018

In a landmark decision, the Supreme Court has ruled that discriminating on the basis of sexual orientation, or a decision to live together rather than marry, is a breach of human rights.

Presently, couples need to be in a formal civil partnership or married to be able to claim the raft of tax benefits available. These advantages include:

  • Transfers of chargeable assets between civil partners and married couples is free of capital gains tax and inheritance tax.
  • In appropriate circumstances spare personal allowances can be transferred from one partner to the other.

In the case taken to the Supreme Court, a heterosexual couple who had decided not to marry considered that denial of rights given to same sex couples (via civil partnership arrangements), and married partners, was an infringement of their basic human rights, and the Supreme Court agreed.

Readers interested in this topic can watch a video recording of the Court’s decision here: https://www.youtube.com/watch?v=Ehyuer1AxFw

Although the case does not directly impact changes to the tax system it will be interesting to see how the government responds to this ruling. It would be a fairly simple matter to grant heterosexual couples to right to enter into a civil partnership, and therefore gain access to the present tax status of same-sex civil partners and married couples.

Why don\’t they join up the dots

Tuesday, July 3rd, 2018

According to HMRC, around three million couples across the UK have boosted their finances by claiming the Marriage Allowance, but more than a million married and civil partnered couples are still eligible for the free tax break worth up to £238 a year.

Thanks to the start of the new tax year couples can backdate their claim and boost a potential tax refund to a possible £900.

HMRC further announced:

Applying for Marriage Allowance is quick and easy and once an application is complete it’s processed immediately. The new online form takes fewer than ten minutes to fill out and eligible customers will receive backdated claims of up to £662 as a lump sum. Over 300,000 couples have signed up for the Marriage Allowance tax break since March 2018.

Which is all very well, but if HMRC can estimate the numbers of couples that are still eligible to make a claim – the 1 million referred to above – then why don’t they simply re-allocate the allowances automatically? Obviously, HMRC would need the permission of the partner who was transferring their spare personal allowance but HMRC could set up a much slicker digital process to cope with the formalities?

Surely most of the one million taxpayers will not have access to HMRC’s press releases, and this is precisely why there are still one million couples who have not claimed?

Perhaps the department that is tasked with developing the Making Tax Digital technology should get involved?

If you are reading this post and either you or your civil partner/spouse have income below the personal tax allowance (£11,850 for 2018-19, and equivalent amounts for earlier years) then follow this link to make a claim: https://www.gov.uk/apply-marriage-allowance.