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23-05-2018
Beware sting in VAT Annual Accounting Scheme

The VAT annual accounting scheme is open to most businesses with a turnover of up to £1.35m per year. The main benefits of the scheme include the requirement to file one VAT return per year. This can significantly reduce the amount of administration time and the associated cost of preparing and submitting quarterly VAT returns.

A recent First-Tier Tribunal case highlighted an unusual quirk in the way the scheme works and cost one taxpayer dearly. The taxpayer appealed against a penalty of almost £27,000. The background to this penalty started when the taxpayer (a small company employing less than 10 employees) began to use the VAT annual accounting scheme. However, the company experienced significant growth with turnover increasing from £700,000 in 2015 to £2.75m the following year. The taxpayer failed to realise the impact of this on using the VAT annual accounting scheme.

Businesses using the scheme make interim (usually nine monthly) VAT payments during the year, based on their estimated total liability for the year. These payments are followed by one balancing payment which is submitted with the annual VAT return. However, the taxpayer in this case did not submit a final VAT return on time and HMRC issued an estimated assessment.

The taxpayer admitted that they knew this assessment was too low although they did not know the exact shortfall at the time. The taxpayer eventually submitted the missing VAT return and HMRC issued a penalty assessment based on 15% of the 'potential lost revenue'.

The Tribunal examined whether this penalty was justified and had some concerns that the taxpayer might have been treated somewhat harshly due to the way HMRC calculated the potential lost revenue. However, ultimately the penalty was upheld, and the taxpayer was left with a costly bill for failing to submit a correct VAT return on time.

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23-05-2018
Give now pay later – what are the settlement rules?

The settlement rules are intended to prevent an individual from gaining a tax advantage by making arrangements that divert his or her income to another person who may be liable at a lower rate of tax or is not liable to Income Tax.

Where a settlor has retained an interest in a property in a settlement the income arising is treated as the settlor’s income for all tax purposes. A settlor can be said to have retained an interest if the property or income may be applied for the benefit of the settlor, a spouse or civil partner.

In general, the anti-avoidance settlements legislation can apply where an individual enters into an arrangement to divert income to someone else and in the process, tax is saved.

These arrangements must be:

  • bounteous, or
  • not commercial, or
  • not at arm’s length, or
  • in the case of a gift between spouses or civil partners, wholly or substantially a right to income.

Planning note

However, there are a number of everyday scenarios where the settlements legislation does not apply. In fact, after much case law in this area, HMRC has confirmed that if there is no 'bounty' or if the gift to a spouse or civil partner is an outright gift which is not wholly, or substantially, a right to income, then the legislation will not apply.

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23-05-2018
Company van use – the tax consequences

There are a number of tax consequences to be aware when employees are provided with company vans and fuel. A company van can be defined as a van made available to an employee by reason of their employment. There is usually nothing to report to HMRC if the van is used solely for business journeys, as a pool van or for vans provided as part of a salary sacrifice arrangement. If the van is not exempt then employers must report the cost on form P11D and pay Class 1A National Insurance on the value of the benefit.

Where the private use of a company van is 'insignificant', no tax is payable. The definition of insignificant is quite rigid and only applies where private use is exceptional, intermittent, irregular and lasts for short periods of time or happens on odd occasions throughout the year. Examples might include making a detour to drop children to school or using the company van occasionally to take rubbish to the tip.

Where a company van is used for private journeys there is a standard benefit charge for the private use of a company van of £3,350. There is an additional benefit charge of £633 if fuel is provided for significant private use. If private use of the van is insignificant then no benefit will apply.

Planning note

A van benefit charge also applies for zero emission vans. This rate is tapered and will increase each year until the tax year starting 6 April 2022. The rate for 2018-19 is 40% of the full rate, meaning that 40% of £3,350 i.e. £1,340 will need to be reported. When the transitional steps are completed in 2022-23, the van benefit charge for zero emissions vans will mirror that of conventionally-fuelled vans.

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23-05-2018
CGT base cost uplift on death

Special rules apply to assets when they are passed to a beneficiary after the death of the benefactor. In some cases Inheritance Tax may be due on the transfer. However, there can also be a hidden benefit known as a Capital Gains Tax (CGT) uplift on death (see details of the benefits below).

The CGT uplift mostly benefits a surviving spouse or civil partner. In this case, the transfer will be exempt from Inheritance Tax and the assets will be passed to the surviving spouse for CGT purposes at the probate market value. For example, a spouse may have invested in an investment property or portfolio of shares many years ago and built up a large, unrealised capital gain. The transfer of these assets on death will mean that the surviving spouse will be treated for CGT purposes as if they had acquired the assets concerned at the current market value on the date of their spouse's death.

Planning note

The legislation only applies to assets, including shares, comprised in a person's estate. There is no corresponding provision for assets which are the subject of a lifetime transfer. This ‘relief’ is obviously difficult to anticipate and proper planning must be put in place to ensure that assets qualify. It is important to take proper advice to consider any CGT and / or Inheritance Tax savings.

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23-05-2018
Tax exempt gifts paid out of income

Many taxpayers are aware that there is an annual Inheritance Tax exemption of £3,000 for gifts and this can be carried forward to the following tax year if not used to make a maximum gift of £6,000. You can also give as many gifts of up to £250 per person as you want during the tax year but only if you haven’t used another exemption on the same person. There are also special allowances for gifts made at a wedding or civil ceremony. These gifts are ignored in the event of the donor’s demise within 7 years of making the gift.

It is also possible for wealthier taxpayers to make tax exempt gifts and payments out of their disposable income. With proper planning, this can be a useful tool, for example to enable grandparents to help pay school fees for their grandchildren. However, careful consideration has to be given to ensure that these payments form part of the transferor’s normal expenditure and is made out of income and not out of capital. The transferor must also ensure that they are left with enough income for them to maintain their normal standard of living after making the gift.

Planning notes

We can advise you on the merits of such arrangements to meet your needs. It is also important to review your Inheritance Tax position from time to time. Regularly reviewing and updating Wills to ensure you are taking advantage of the current rules most effectively is recommended.

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23-05-2018
Can’t afford to pay your tax bill?

HMRC understands that taxpayers will sometimes experience difficulties with paying their tax bill and stress that taxpayers should make contact with them as soon as they realise that there is a problem. This is good advice as burying your head in the sand will only make matters worse.

Taxpayers should contact the Business Payment Support Service (BPSS) for practical advice and guidance. The BPSS was first launched back in 2008 and is available to all taxpayers (not just businesses). The purpose of the service is to provide support to those experiencing a wide range of tax problems.

The service offered by the BPSS depend on individual circumstances but could include:

  • agreeing instalment arrangements if you’re unable to pay your tax on time
  • suspending any debt collection proceedings
  • reviewing penalties for missing statutory deadlines
  • reducing any payments on account
  • agreeing to defer payments due to short-term cash flow difficulties

Any taxpayers that are having difficulties making VAT, Income Tax, National Insurance Contributions, Corporation Tax, and pay as you earn payments can contact the BPSS helpline on 0300 200 3835.

The BPSS will review the issues raised and look sympathetically at providing a practical solution. HMRC will not usually charge additional late payment surcharges in relation to specific arrangements made using the BPSS.

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23-05-2018
New advisory fuel rates published

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel.

HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. In this case, HMRC will accept there’s no fuel benefit charge. The advisory rates are not binding if you the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

The latest advisory fuel rates become effective on 1 June 2018. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

The rates are as follows:

Engine size Petrol – amount per mile      LPG – amount per mile
1400cc or less  11p 7p
1401cc to 2000cc  14p 9p
Over 2000cc  22p 14p
      
Engine size  Diesel – amount per mile
1600cc or smaller  10p
1601cc to 2000cc  11p
Over 2000cc  13p

Hybrid cars are treated as either petrol or diesel cars for this purpose.

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21-05-2018
New guidance published for employers on setting dress codes and sex discrimination

Following a joint report ("High heels and workplace dress codes") published by the House of Commons Women and Equalities Committee and Petitions Committee in January 2017, the Government Equalities Office has finally published promised new guidance on “Dress codes and sex discrimination – what you need to know”.

The new guidance is aimed at employers who set dress codes and employees and job applicants who may have to abide by them. It advises employers that while dress codes can be a legitimate part of their terms and conditions of employment and dress policies for men and women do not have to be identical, the standards imposed should be equivalent or similar. It also warns that gender specific prescriptive requirements, such as requirements for women to wear high heels, make up, skirts, manicured nails, certain hairstyles or specific types of hosiery, are likely to be unlawful. In addition, it states that dress codes must not be a source of harassment by work colleagues or customers, for example expecting women to dress in a provocative manner or to wear revealing clothing. According to the guidance, a dress code that requires all employees to dress smartly would be lawful, provided the definition of “smart” is reasonable, such as a two-piece suit with low-heeled shoes for both sexes.

Although the guidance is specifically aimed at preventing sex discrimination and harassment, it also covers making reasonable adjustments to dress codes for disabled employees and allowing transgender employees to follow a dress code in a way which they feel matches their gender identity and it urges employers to be flexible and not set dress codes which prohibit religious symbols that do not interfere with an employee’s work.

The guidance is non-statutory, meaning it is not provided for in legislation and need not be taken into account by employment tribunals. It is simply aimed at assisting with employers’ and employees’ understanding of the law.

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16-05-2018
Responding to a County Court claim

It is important that any correspondence received from the County Court is dealt with promptly. This should include taking proper legal advice when appropriate.

Usually, a creditor asks the County Court to make a county court judgment (CCJ) against a person who is refusing to pay their bill. The CCJ rules apply to court orders in England and Wales. There are different court system process in Scotland and Northern Ireland.

Before starting CCJ proceedings, creditors are required to take certain steps including sending a warning letter about the debt, often referred to as a letter of claim.

A court claim for money can be responded to in one of the following ways:

  • paying the full amount;
  • paying only what you think you owe;
  • defending the claim (if you don’t think you owe any money or you’ve already paid). This can also include making a counterclaim.

The letter or email from the court will include the final date by which you must respond. If you are defending the claim or paying only what you think you owe you can request an additional 14 days to respond. If you agree to pay the full amount you can make the claimant an offer to pay in instalments. If the claimant doesn’t accept your offer, the court will decide how you pay.

It can be detrimental to have an unpaid CCJ registered on your credit records. We would advise that every effort is taken to ensure that does not happen and to resolve the issue before a CCJ is issued. If you are issued with a CCJ and don’t make payment, creditors can take further enforcement action to get the money they are owed.

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16-05-2018
When might you be due a tax refund?

HMRC has issued helpful guidance that explains when you might be due a tax refund and how to make a claim.

According to HMRC you may be able to claim a refund if you:

  • are employed and had too much tax taken from your pay;
  • have stopped work;
  • sent a tax return and paid too much tax;
  • have paid too much tax on pension payments;
  • bought a life annuity.

You may also qualify for tax rebates if you have spent money on your job such as fuel costs or work clothing, paid tax on savings interest or if you have income in one country and live in another.

Claims can be backdated for up to four years after the end of the tax year. This means that claims still be made for overpaid interest dating back as far as the 2014-15 tax year which ended on 5 April 2015. The deadline for making claims for the 2014-15 tax year is 5 April 2019.

Making a claim depends on a number of factors. For example, the annual reconciliation of PAYE for the tax year 2017-18 is under way. HMRC use salary and pension information to calculate if the correct amount of tax has been paid. Where the incorrect amount of tax has been paid, HMRC use the P800 form to inform taxpayers. HMRC expects to send all P800 forms by the end of September 2018 for those due a refund. The P800 will tell you how to apply for a refund or how to pay any tax underpaid. For earlier tax years a claim can usually be made online.

Planning note:

It is also possible to make a claim for overpaid tax during the current tax year, if for example you are made redundant or are leaving the UK to live abroad. If you need any assistance in making a claim for overpaid tax, we are here to help.

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