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07-08-2018
32.5% Corporation Tax on overdrawn directors’ loans

HMRC defines a director's loan as money taken from your company (by you or other close family members) that isn’t:

  • a salary, dividend or expense repayment and
  • money you’ve previously paid into or loaned the company

An overdrawn director's loan account is created when a director effectively 'borrows' company money. A record of these loans must be kept in a director's loan account (DLA). Small business owners need to be mindful that withdrawing funds from their company can have unwanted tax consequences for both the company and the director. The tax rules are further complicated if the value of the loan exceeds £10,000.

Where certain DLA's are not paid off within nine months and one day of the company's year-end there is an additional Corporation Tax (CT) bill of 32.5% of the outstanding amount (prior to April 2016 this rate was 25%). In most cases this is not a permanent loss of revenue for the company as a claim can be made to have this CT refunded (but not interest) when the loan is paid back to the company. It is important to ensure that the claim to have the CT refunded is made within 4 years after the end of the year in which the participator's loan was repaid.

Planning note

The use of DLA’s as a means of extracting money from your company needs to be carefully considered with proper analysis of the tax impact for both the company and director. Please call if you need more information on this topic.

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07-08-2018
Tax free health benefits

There is no requirement for employers to pay tax and National Insurance on certain health benefits covered by tax concessions or exemptions. For example, there is no requirement to report employees’ medical or dental treatment or insurance if they are a part of a salary sacrifice arrangement. 

In addition, the following health benefits can be provided tax free:

  • A maximum of one health-screening assessment and one medical check-up in any year.
  • Eye tests required by health and safety legislation for employees who use a computer monitor or other type of screen.
  • Glasses or contact lenses required by employees for working on computer monitors or other types of screen.
  • Medical treatment for employees working overseas. The employer must have committed in advance to pay for this treatment or must pay the provider directly for the employee’s treatment or insurance.
  • Medical treatment or insurance related to injuries or diseases that result from your employee’s work.
  • Medical treatment to help an employee return to work. This allows the employer to pay up to £500 in costs for an employee to return to work.

Planning note

Any medical or dental treatment or insurance provided that is not exempt must be reported to HMRC. Employers may be required to deduct and pay tax and National Insurance on these amounts.

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07-08-2018
Gifting share in home

Most gifts made during a person's life are not subject to tax at the time of the gift. These lifetime transfers are known as 'potentially exempt transfers' or 'PETs'. The gifts or transfers achieve their potential of becoming exempt from Inheritance Tax if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor dies between three and seven years after the gift is made.

The rules are different if the person making the gift retains some 'enjoyment' of the gift made. This is usually the case where the donor does not want to give up control over the assets concerned. These gifts fall under the heading of 'Gifts With Reservation of Benefits rules' or 'GWROBs'. A common example is where an elderly person gifts their home to their children (who usually live elsewhere) and continues to live in the house rent-free.

There is an interesting exception to the GWROBs rules that occurs when there is a gift of an 'undivided shares of land'. This can happen when for example an adult child moves in with a parent and the parent transfers the home into joint ownership (usually a 50:50 split). Where the two people jointly occupy the property and share the outgoings then HMRC will accept that this is not a GWROB. However, the relief is not straightforward and HMRC will carefully examine such arrangements to ensure that they meet the necessary requirements for relief.

Planning note

If you are contemplating any of the arrangements set out in this post please call to clarify that no adverse tax consequences will occur as a result.

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07-08-2018
What is overpayment relief?

Overpayment relief was introduced from 1 April 2010 and replaced error or mistake relief for Income Tax, Capital Gains Tax (CGT) and Corporation Tax. Overpayment relief allows taxpayers to recover overpaid Income Tax, CGT, Class 4 NIC, Corporation Tax, overpaid bank payroll tax or to reduce an excessive assessment.

According to the HMRC, the rules for overpayment relief are intended to:

  • give a single route for persons to recover overpayments
  • bring the claims process into line with self-assessment claims and
  • align time limits with those for other claims.

Claims for overpayment relief must be made within 4 years of the end of the tax year or accounting period to which the claim relates. A claim for overpayment relief can only be made under certain circumstances.

For example, a taxpayer can only claim overpayment relief if they have not had a reasonable chance to correct their tax liability any other way, by making or amending a self-assessment return or appealing against an HMRC assessment or amendment of their return.

A claim for overpayment relief should be made in writing clearly stating the reason for making a claim, the period to which the claim relates and the reasons why the taxpayer considers that the overpayment or excessive assessment has occurred.

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07-08-2018
VAT – goods on sale or return

There are special VAT rules that must be followed when you sell goods on a sale or return basis. Goods sold on a sale or return basis (sometimes known as 'on approval') are goods that are effectively supplied to a customer free of charge and the supplier is only paid when the product has been sold. If the product remains unsold then it can be returned to the supplier without any charge.

This type of sale is most often seen in the retail sector where a supplier is eager to work with a new retailer, perhaps one who needs a range of merchandise available for retail sale but does not want to purchase a large amount of stock upfront or where a supplier is trying to launch a new product and the retailer is unsure if there will be a demand.

From a VAT point of view, the goods have not been sold by the supplier until such time as they are adopted by the customer. This is the point in time when the customer indicates a wish to keep the goods. By agreement, the supplier can put in place an agreed maximum time limit that the customer has to return the goods.

If a time limit has been fixed for a period of 12 months or less then the basic tax point is the date when that time limit expires. If there is no time limit or the limit has been fixed more than 12 months in the future, then the basic tax point is 12 months from the date when the goods were sent.

In either case if the customer adopts the goods before the time limit expires, the date of adoption becomes the basic tax point. The basic tax point is overridden by the issue of a VAT invoice.

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07-08-2018
Fixtures and fitting on transfer of ownership

The tax treatment of the sale of fixtures and fittings included in the sale or purchase of a commercial building changed from April 2014. From that date, the buyer of a building that contains fixtures can only claim plant and machinery allowances (PMA) if the expenditure on the fixtures is pooled before the sale.

The seller and buyer must also either:

  • formally agree a value for fixtures within 2 years of a transfer
  • start formal proceedings to agree the value within that time

The formal agreement to satisfy the fixed value requirement is usually achieved when the buyer and the seller make a valid tax election known as a Section 198 claim.

This election effectively binds both the seller and purchaser of a commercial property to an agreed valuation for fixtures and fittings included in the sale. The election is irrevocable and cannot be subsequently changed.

There is a lower Writing Down Allowances (WDA) rate of 8% available for certain long life assets and integral features. A standard 18% WDA is available for fixtures and fittings that do not qualify for the lower 8% rate.

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07-08-2018
Childcare voucher scheme issues

The Tax-Free Childcare Scheme (TFCS) was launched in April 2017 and opened to all remaining eligible families with children under 12 on 14 February 2018. The new scheme allows working parents to receive a government top-up on their contributions. For every 80p in the £1 contributed by parents an additional 20p or 20% will be funded by Government up to a maximum total of £10,000 per child per year.

In tandem with the introduction of the TFCS the government had announced the closure of the existing employer childcare voucher scheme to new entrants from 5 April 2018. However, in March 2018 the government confirmed that the childcare voucher scheme and directly-contracted childcare would remain open to new entrants for an additional 6 months, until 4 October 2018. This decision was made partly in response to significant parental demand that the voucher scheme be kept open.

HMRC has recognised that this decision may have created some practical difficulties for some employers. Employers can continue to allow their employees to join their childcare voucher or directly-contracted childcare schemes up until 4 October 2018 (as long as they had joined a scheme and received their first voucher by that date).

Where employers have already closed their schemes, HMRC have said they will use their collection and management powers to allow the tax and National Insurance Contribution advantages to continue for employees who were members of the scheme before 5th April 2018, even where employers choose not to re-open their schemes.

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07-08-2018
Emails and letters from HMRC

HMRC continues to warn taxpayers about email phishing scams. Phishing emails are used by fraudsters to access recipients’ valuable personal details, such as usernames and passwords. Whilst these messages may appear to be genuine they are very dangerous and clicking on a link from within the email can result in personal information being compromised and the possibility of computer viruses affecting your computer or smartphone.

HMRC has confirmed that from July 2018 to April 2019 they will be working with an independent research agency Kantar Public. This work will revolve around a study to understand tax agents’ views on filing Income Tax Self-Assessment and VAT returns. Tax agents may receive a letter from Kantar Public informing them about the research and a telephone call inviting you to take part. These letters are genuine.

If you are unsure as to the validity of any email or other communication from HMRC you should not respond or engage without verifying that the communication is genuine. HMRC has stated many times before that they do not send notifications of tax rebates by email nor do they ask recipients to disclose personal or payment information by email.

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01-08-2018
Football agent scores £1.2m own goal

A former football agent, Jerome Anderson, who looked after over 200 players during his career including Thierry Henry and Dennis Bergkamp, has lost his £1.2m tax avoidance case with HMRC.

The football agent's tax appeal was recently heard at the Upper Tribunal who upheld the decision of the First Tier Tribunal and disallowed the relief for losses incurred by a football academy run by the football agent. Anderson and eight others attempted to use this scheme to avoid large amounts of tax.

The losses that were under consideration by the Tribunal involved investments in the recruitment and training of young footballers at the Bafana Soccer Academy in South Africa. Anderson attempted to use this investment to claim a £3m artificial trading loss and thereby make a significant dent in his tax liability.

The tribunal found that Anderson’s activities were more like those of an investor which meant he could not claim a trading loss and was therefore liable to pay the tax HMRC said was due.

Penny Ciniewicz, HMRC’s director general for customer compliance, said:

'The court has made it clear that these schemes don’t work. Our public services rely on everyone paying their taxes and it’s unfair for people not to pay their share. Anyone who’s caught up in tax avoidance and who wants to put it behind them should come forward now and settle what they owe.'

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01-08-2018
Correcting errors on your VAT return

Where an error on a past VAT return is uncovered taxpayers have a duty to correct the error as soon as possible. HMRC can also charge penalties and interest if an error is due to careless or dishonest behaviour.

As a general rule, you can use a current VAT return to make any necessary adjustment. However, in order to do so, there are three important conditions that must be met:

  1. The error must be below the reporting threshold.
  2. The error must not be deliberate.
  3. The error can only relate to an accounting period that ended less than 4 years ago.

Under the reporting threshold rule, taxpayers can make an adjustment on their next VAT return if the net value of the errors is £10,000 or less. The threshold is extended if the net value of errors found on previous returns is between £10,000 and £50,000 but does not exceed 1% of the box 6 (net outputs) VAT return declaration figure for the return period in which the errors are discovered.

VAT errors of a net value that exceed the limits for correction on a current return or that were deliberate should be notified to HMRC using form VAT 652 (or providing the same information in letter format) and should be submitted to HMRC's VAT Error Correction team.

Planning note

If you discover an error on your VAT return and are unsure of the correct way to deal with it we can provide assistance. It is important that any errors are disclosed before they are discovered by HMRC. Non-disclosure can result in higher penalties and interest being due. HMRC generally look favourably on taxpayers who are proactive in correcting any errors they discover.

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