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15-11-2018
Finance (No.3) Bill published

As expected, the government published Finance (No.3) Bill on Wednesday, 7 November 2018. The Bill is so named as it is the third Finance Bill in the current special two-year session of Parliament. The Bill contains the legislation for many of the tax measures announced by the Government at Autumn Budget 2017 some of which have since been the subject of further consultation. The Bill also includes other measures that were first announced in the recent autumn Budget on 29 October 2018.

The Bill extends to some 315 pages whilst the accompanying explanatory notes add another 266 pages. The Bill is colloquially known as Finance Bill 2018-19, and will become Finance Act 2019 after Royal Assent is received which is expected in March 2019 before the Brexit deadline.

Some of the measures included within the Bill are:

  • The Income Tax rates, thresholds, and allowances for 2019-20. This includes, meeting the government’s commitment to increase the basic personal allowance to £12,500 and the higher rate threshold to £50,000.
  • The setting of the Corporation Tax rate for 2020-21 at 17%. The rate for 2019-20 remains at 19%.
  • The temporary increase in the Annual Investment Allowance (AIA) from £200,000 to £1m for two years from 1 January 2019.
  • The introduction of a new 30 day reporting and payment deadline for CGT on UK residential property gains from 6 April 2020.
  • A number of changes to entrepreneurs’ relief including an increase in the minimum period during which certain conditions must be met to qualify for ER from one to two years.
  • A reduction in the tax writing down allowance from 8% to 6% from April 2019.
  • The current VAT registration limit (£85,000) and deregistration limit (£83,000) will continue to apply for a further two years; until 31 March 2022.

The proposed introduction of a new two tiered penalty system for Making Tax Digital has been dropped from the published Finance Bill. The legislation had been included in the draft Bill, but it appears the government needs more time to consider the complexities before including the measure in future legislation. In addition, and as announced at the Budget, the expected change to require shared occupancy to qualify for rent-a-room relief has been shelved.

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15-11-2018
Directors’ loans – tax consequences for your company

There are tax consequences for both companies and directors relating to the issue of director’s loans. We will examine below some of the implications if a company facilitates loans to a director. A director’s loan comprises not just an actual loan, but can also include other payments made by the company for the personal benefit of a director such as personal expenses paid for on a company credit card. These amounts are usually posted to a director’s loan account (DLA).

When and if your company has to tell HMRC about a director’s loan, depends on when the loan is repaid. Any company loans to directors outstanding at the end of the company’s Corporation Tax accounting period, have to be disclosed in the accounts and on the company tax return. There is an additional Corporation Tax (CT) bill of 32.5% of the outstanding amount (prior to April 2016 this rate was 25%) where the DLA remains outstanding 9 months after the year end.  There are also special rules to stop director’s repaying a loan and then taking a new loan out in quick succession (known as bed & breakfasting). 

Planning notes:

In most cases this extra 32.5% (25% if the loan was made before 6 April 2016) CT is not a permanent loss of revenue for the company as a claim can be made to have this CT refunded when the loan is repaid, written off or released. However, any interest paid by the company is non-refundable. To be effective, the claim to have the tax refunded needs to be made within 4 years after the end of the year in which the Director’s loan was repaid.

If the loan exceeds £10,000 at any time in the year, then the company must treat the loan as a benefit in kind and deduct Class 1 National Insurance. There is no benefit in kind to pay, if the director pays a market rate of interest due on the loan.

Please call if you need advice regarding these issues for your company.

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15-11-2018
Directors’ loans - tax consequences for the director

An overdrawn director's loan account is created when a director (or other close family members) 'borrows' money from their company. Many companies, particularly 'close' private companies, pay for personal expenses of directors using company funds. Where these payments do not form part of a director’s remuneration, they are usually posted to the director’s loan account (DLA).

The DLA can represent cash drawn by a director as well as other drawings by a director (including personal bills paid by the company). Whilst it is quite common for small company accounts to show an overdrawn position on a DLA, this can create some unwelcome consequences for both the company and the director. The rules are further complicated if the loan is for more than £10,000 and the loan must be reported on your personal Self Assessment tax return. There are also further income tax costs if the loan is written off or 'released' (not repaid) by the company.

Planning note:

Small business owners need to be mindful that withdrawing funds from their company in this way can have unwanted tax consequences. The CT, Income Tax and National Insurance impacts of using a DLA must be carefully considered. Please call if you have concerns in this area.

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15-11-2018
ISAs and Inheritance Tax

New rules were introduced by the Government in 2015 that allow for the spouse or civil partner of a deceased ISA saver to benefit from additional ISA benefits. Under the rules, if an ISA saver in a marriage or civil partnership dies, their spouse or civil partner inherits their ISA tax advantages.

Surviving spouses are able to save an additional amount in an ISA or ISAs up to the value of their spouse or civil partner’s ISA savings at the date of death. This additional allowance does not count against the surviving spouse’s/civil partner’s annual ISA subscription limit. These measures were put in place to help ensure bereaved individuals secure their financial future and enjoy the tax advantages they previously shared, following the death of their spouse or civil partner.

In general, assets left to a spouse or civil partner are not subject to Inheritance Tax. However, ISA investments continue to form part of the deceased estate for Inheritance Tax purposes. In essence, this means ISA's left to anyone apart from your spouse or civil partner will be subject to Inheritance Tax if the value of the estate exceeds the current IHT tax-free limit of £325,000. This effectively removes the tax-free status of any ISAs at the time.

ISAs allow equal limits for cash and stocks and shares. This provides savers with the ability to transfer funds from stocks and shares ISAs to cash ISAs allowing far greater flexibility to savers than was historically the case. The maximum amount that can be invested in an ISA is currently £20,000, the limit will remain the same in 2019-20. The income from ISAs is exempt from Income Tax and CGT.

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15-11-2018
Employment status of football referees

A recent First-Tier Tribunal case examined the complex issue of whether a group of 60 football referees should be classified as employees or self-employed. HMRC argued that the Professional Game Match Officials Limited (PGMOL) was the employer of the group of football referees in question. On this basis, HMRC raised assessments for a total of £583,874.07 relating to Income Tax and National Insurance Contributions in the 2014-15 and 2015-16 tax years.

By way of background, PGMOL provides referees and other match officials for matches in the most significant national football competitions, in particular the Premier League, the FA Cup, and the EFL. The referees to which this appeal relates undertake refereeing in their spare time, typically alongside other full-time employment. These referees primarily refereed League 1 and 2 matches.

HMRC argued that individual engagements to officiate at matches were contracts of employment. PGMOL appealed to the Tribunal on the basis that the referees in question were self-employed, and that further there was in fact no contractual relationship between the company and the referees.

The Tribunal was ultimately satisfied that PGMOL did not have a sufficient degree of control of the individual engagements to satisfy the test of an employment relationship. The Tribunal therefore, concluded that the referees in question should be considered self-employed and were not employed under contracts of service during the periods under appeal. PGMOL’s appeal was allowed. This case could have important implications for referees and other sports officials working in their spare time.

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15-11-2018
Holiday let property and Business Property Relief

Business Property Relief (BPR) is an attractive tax relief for taxpayers with business interests, offering either 50% or 100% relief from Inheritance Tax (IHT) on the value of their business assets if certain conditions are met. The relief can even be used whilst the donor is still alive, and the estate can still get BPR on qualifying assets.

An interest in a business or a company will not qualify for BPR if the business carried on by the entity consists wholly or mainly of making or holding investments. This fact drives HMRC's view that furnished holiday lets will in general not qualify for business property relief and it is rare that a successful claim for BPR can be made for these types of assets, but it is a grey area.

However, HMRC’s own guidance can prove instructive. HMRC accepts that 'there may however be cases where the level of additional services provided is so high that the activity can be considered as non-investment, and each case needs to be treated on its own facts'.

This specific area of HMRC’s guidance has been the subject of much case law. Where a taxpayer can prove that their holiday let business does far more than purely holding investments, such as providing additional services to holiday makers, there can be scope for claiming BPR.

HMRC is likely to reject such BPR claims in the first instance, and previous case law suggests that significant additional activities would need to be offered to move the nature of a holiday let from an investment to an active business.

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15-11-2018
Foreign currency considerations

There are special rules that must be considered when buying and selling assets in foreign currency. This is sometimes known as a barter transaction. As a general rule when a foreign currency transaction takes place at arm's length, the value of the consideration is the sterling equivalent of the amount paid for the asset at the date of acquisition and / or disposal.

HMRC provides the following explanatory example where US shares are bought for US dollars in a bargain at arm's length for full consideration:

  • the acquisition cost of the shares is the sterling equivalent of the dollars given at the exchange rate in force at the date of acquisition of the shares;
  • the consideration for disposal of the dollars is the sterling value of the shares received in exchange.

HMRC supported by case law, will not accept that the gain or loss on an asset acquired and disposed of for foreign currency should itself be computed in foreign currency, and then converted into sterling at the rate ruling at the time of the disposal of the asset. These rules can create unusual scenarios where a profit or loss in a foreign currency transaction due to currency movements, can create a significantly different outcome when the values are converted to sterling.

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15-11-2018
UK Living Wage rates rise

The Living Wage Foundation (an initiative of Citizens UK) recently announced Living Wage rates for London and the UK at £10.55 an hour and £9 an hour respectively. These Living Wage rates are not statutorily binding but represent an increase of 25p in the UK and 35p in London over the current rates. The new Living Wage rates were announced on the 5 November 2018 and all of the accredited employers have committed to implement them by the end of the financial year.

The Living Wage is an independent calculation that reflects the real cost of living. The London rate is set by the Greater London Authority and is based on a combination of a basic living costs approach and income distribution, with respect to a variety of household types which takes account the unique circumstances of living in London.
There are now over 4,700 Living Wage accredited organisations across the UK, who have committed to pay these higher rates with 1,200 of these employers signing up in the last year.

Tess Lanning, Director of the Living Wage Foundation said:

'The Living Wage campaign is about tackling the rising problem of people paid less than they need to live. Responsible businesses know that the government minimum is not enough to live on, and today’s new Living Wage rates will provide a boost for hundreds of thousands of workers throughout the UK.'

The legal current National Minimum Wage (NMW) hourly rate is £7.38 for adults 21-24 years old and the National Living Wage (NLW) is £7.83 for those aged 25 and over. From 1 April 2019 the NMW will increase by 32p to £7.70 and the NLW will increase by 38p to £8.21.

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15-11-2018
SDLT payment deadline to be reduced

Stamp Duty Land Tax (SDLT) is a tax that is generally payable on the purchase or transfer of land and property in England and Northern Ireland. It is also payable in respect of certain lease premiums. Higher rates of SDLT were introduced on 1 April 2016 and apply to purchases of additional residential property such as buy to let and second homes.

The filing and payment deadline for SDLT is currently 30 days after the 'effective date' of the transaction. HMRC’s guidance explains who must send a SDLT return, the penalties for late filing and how to amend a return. 

For some time, HMRC has been championing a reduction in the time limit that purchasers have to file a SDLT return and pay the tax due from 30 days to 14 days. The draft legislation to put this change in place has recently been published and barring any unforeseen circumstances, the new time limit will apply to transactions with an effective date on or after 1 March 2019.

According to HMRC's figures 85% of SDLT returns are already filed within 14 days of the relevant transaction. The SDLT return form will also be simplified by reducing the number of questions.

The Scottish Land and Buildings Transaction Tax (SLBTT) came into force on 1 April 2015 and replaced SDLT in Scotland, whilst the Welsh Land Transaction Tax (WLTT) replaced SDLT in Wales from 1 April 2018.

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13-11-2018
Security guidance on encryption and passwor

The Information Commissioner's Office (ICO) has published updated security guidance on encryption and on passwords in online services under the GDPR.

The GDPR requires data controllers to implement appropriate technical and organisational measures to ensure they process personal data securely. Article 32 of the GDPR includes encryption as an example of an appropriate technical measure. The guidance suggests that:

  • Encryption is a widely-available measure with relatively low costs of implementation.
  • Data controllers should have an encryption policy in place that governs how and when they implement encryption, and they should also train their staff in the use and importance of encryption.
  • When storing or transmitting personal data, data controllers should use encryption and ensure that their encryption solution meets current standards.
  • Data controllers should nevertheless be aware of the residual risks of encryption and have steps in place to address these.

The ICO stresses that where unencrypted data is lost or destroyed, it is possible that it will pursue regulatory action.

Although the GDPR does not say anything specific about passwords, data controllers are required to process personal data securely by means of appropriate technical and organisational measures and passwords are a commonly-used means of protecting access to systems that process personal data. The guidance suggests that:

  • Any password setup implemented must be appropriate to the particular circumstances of the processing.
  • Data controllers should consider whether there are any better alternatives to using passwords.
  • Any password system that is deployed must protect against theft of stored passwords and “brute-force” or guessing attacks.
  • There are a number of additional considerations data controllers need to take account of when designing their password system, such as the use of an appropriate hashing algorithm to store the passwords, protecting the means by which users enter their passwords, defending against common attacks and the use of two-factor authentication.
  • Data controllers must not forget about their password system once established; they should carry out periodic reviews.
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