Budget Update 2018 Reply

 

How will yesterday’s budget affect you?

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Budget Highlights 2018

Income Tax
• The personal allowance threshold, the rate at which people start paying income tax at 20%, to rise from £11,850 to £12,500 in April – a year earlier than planned
• The higher rate income tax threshold, the point at which people start paying tax at 40%, to rise from £46,350 to £50,000 in April
• After that, the two rates will rise in line with inflation
• National Living Wage increasing by 4.9%, from £7.83 to £8.21 an hour, from April 2019.

Off Payroll IR35
• The employer will be responsible for deduction of tax and NI for personal service companies
• Small organisations will be exempt
• The crackdown is the biggest revenue-raising measure in this year’s Budget

Support for the High Street
• Small retail businesses will see their business rates bills cut by a third for two years from April 2019, saving them £900 million.
• Local high streets will benefit from £675 million to improve transport links, re-develop empty shops as homes and offices and restore and re-use old and historic properties.
• Public lavatories will receive 100% business rates relief.
• This adds to previous reductions in business rates since Budget 2016 which will save firms over £12 billion over the next five years.

Annual Investment Allowance
• The government will increase the Annual Investment Allowance five-fold from £200,000 to £1 million to help businesses to invest and grow.
• Also, from October 2018, businesses will be able to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax.

The 2019 Loan Charge for disguised remuneration Reply

HMRC are getting tough on those who seek ways to avoid tax and the schemes are often treated as Tax Fraud.

The Finance (No. 2) Act 2017 contains some of the most significant changes to tax legislation in recent memory (the 2019 Loan Charge).

The legislation which is retrospective targets Employee Benefit Trusts, Employer Financed Retirement Benefit Schemes, Contractor Loans and many others where an employee was rewarded with a loan from the employer or a trust, but in realty the employee was never going to repay the loan and just wanted tax free money.

The 5th April 2019 Loan charge will require Income Tax and National Insurance to be paid on the balance outstanding, as most of the loans will be high value that probably means 40%/45% income tax and Employee NI at 2% and Employers NI at 13.8%, so that could be 45% + 2% +13.8% = 60.8% tax on the loan, plus possible interest and penalties

How re-describing loans is claimed to work

Scheme users are being told they can sign documents saying that the sums they’ve received from their disguised remuneration scheme under loan agreements are not loans at all. Instead, these sums of money are merely held by them in a ‘fiduciary capacity’ – for example, an individual acts in a fiduciary capacity if they hold money, or assets, for the benefit of someone else, not themselves.
It’s wrong to claim that the loan charge won’t apply because the sums received aren’t loans.

Why you shouldn’t use this scheme

Renaming something now doesn’t change what happened in the past. Attempting to describe a loan as something else doesn’t mean it’s not a loan.
The loan charge will apply to more than just loans, including any form of credit or other right to a payment regardless of what it’s called. If you adopt this approach and choose not to reflect the loan charge on your tax return you may face a significant penalty in addition to the tax charge.
Deliberately misleading, or concealing information from HM Revenue and Customs (HMRC) may result in criminal prosecution.

https://www.gov.uk/guidance/disguised-remuneration-re-describing-loans-spotlight-39

The Options

  1. Repay in full before the 5th April 2019 – but be aware that if the company distributes money to you it may be taxable
  2. Settle with HMRC

Doing nothing is not an option, its likely you lead to bigger penalties and possible legal action.

The Advice from HMRC

Any arrangements to avoid the loan charge, which seek to deceive HMRC as to what is really happening, may be fraudulent.

A number of previous cases promoted as being compliant and legal have resulted in criminal convictions for the key people involved and extensive investigation of several hundred users. HMRC will investigate all of these arrangements and is likely to take similar action if it finds any that are seeking to deceive. At the very least, anyone who takes part in an offensive arrangement is likely to face penalty sums, chargeable along with any tax and interest that will be due.

Tax avoidance doesn’t pay. Most arrangements simply don’t work and people can end up paying more than they were trying to avoid. Users may have a long-term requirement to deal with the cost, commercial and tax fallout from these transactions with no support from the promoter of the original arrangement. If users are worried about their financial position, it is better to contact HMRC rather than risk more investigation and what is likely to be a larger bill.

steve@bicknells.net

Now HMRC are stopping Post Office tax payments! Reply

On the 15th December 2017 you will no longer be able to pay tax at any Post Office Branch, fantastic timing! just in time for the January self assessment payment rush

The contract with Santander which allowed this method of payment expires on that date and Santander and HMRC have not reached agreement on a new contract.

To make things worse from the 13th January 2018 you won’t be able to pay by Credit Card either!

So your options will be

  • Debit card
  • Online Banking
  • Cheque in the Post
  • Direct Debit

These changes are likely to come as shock to many taxpayers and any reduction in ways to pay can only be bad news for taxpayers!

steve@bicknells.net

The Director who made his company insolvent by taking a Bonus! Reply

Kenneth Moyes has been disqualified for five years from acting as a director after he withdrew cash from his football company to avoid tax payments.

https://www.gov.uk/government/news/pre-season-tours-no-longer-friendly-for-banned-director

Moyes’ disqualification follows an investigation by the Insolvency Service into Glasgow-based Professional Pre Season Tours Limited, which ceased trading in April 2014.

The company had been involved in arranging pre-season tours for various football clubs, including Everton, Chelsea, Liverpool, Leeds United, Sheffield Wednesday, Nottingham Forest, Norwich City, Aberdeen, Hibernian and Celtic.

The investigation found that Moyes transferred over £300,000 from the company to himself as a ‘bonus payment’ shortly before the company stopped trading. However according to the company accounts, no money was actually transferred, although it allowed him to claim a loan account debt was settled. In reality, this money had already been withdrawn for his personal use.

Investigators established that he withdrew at least £420,400 in cash from the company while it was trading, but failed to declare the full amount.

Because the fictitious transfer resulted in a nominal asset of the company being turned into a liability, it was unable to pay its obligations to HM Revenue and Customs (HMRC) in terms of PAYE and National Insurance contributions. At liquidation it owed £271,180 to creditors, of which all but £4,067 of which was to HMRC.

We all need to pay tax, those who seek to find ways round the system need to know that HMRC will find them and make them pay!

steve@bicknells.net

HMRC lose first case to fine a Senior Finance Officer for errors 1

All companies must deliver correct and complete tax returns.

A company may not be able to do this if its tax accounting arrangements are not fit for purpose. These arrangements will range from how it accounts for its business transactions to how it works out its final tax liability.

Schedule 46 FA09 sets out rules for certain large companies. Those companies must establish and maintain their tax accounting arrangements and their Senior Accounting Officer (SAO) is responsible for ensuring that they do.

This guidance tells the reader about

  • the rules that put responsibilities on those companies and particularly their SAOs
  • the actions that those companies and SAOs must take
  • how HMRC will ensure that they comply with the rules, and
  • the penalties chargeable if they fail to comply.

The way in which HMRC ensures compliance with the SAO rules is consistent with HMRC’s wider strategy for Mid-sized and Large Businesses by which we seek to build and maintain open and transparent relationships with companies and to work collaboratively with them in real time to reduce their level of tax compliance risk.

Currently SAO rules only apply to large companies (turnover of £200m plus) but will HMRC extent this to smaller companies?

Senior Accounting Officer Main duty: what is the main duty

The main duty of a Senior Accounting Officer (SAO) is to take reasonable steps to ensure that a qualifying company, see SAOG11000, establishes and maintains appropriate tax accounting arrangements.

This means, in particular, that the SAO must take reasonable steps to

  • monitor the accounting arrangements of the company and
  • identify any respects in which those arrangements are not appropriate tax accounting arrangements.

Penalties

A penalty of £5,000 is charged for the following failures:

  • Failure by the company to notify HMRC of the name and contact details of its SAO
  • Failure by the SAO to carry out their main duty under the rules
  • Failure by the SAO to provide a certificate to HMRC, or providing a certificate that contains a careless or deliberate inaccuracy.

The penalty is payable by the person responsible for the failure, as above.  The penalties are at a flat rate and cannot be mitigated.

K Thathiah v HMRC [2017] UKFTT 601 (3 August 2017)

The FTT found that a senior accounting officer (SAO) had not breached his main duty under FA 2009 Sch 46.

The case related to VAT errors totaling £1.3m despite providing ‘clean’ certificates, however, it was decided that reasonable steps were being taken to ensure the accuracy of VAT returns for example setting up a team, providing training and using an agent.

I think all SAO’s should take this a warning! get the right systems and procedures or face personal penalties

steve@bicknells.net

HMRC Tax Experts to directly advise growing businesses Reply

On the 20th September 2017 HMRC announced

A new service to directly help mid-sized businesses as they expand and grow, has been launched today by HM Revenue and Customs (HMRC).

There are around 170,000 mid-sized businesses registered in the UK. Businesses with either a turnover of more than £10 million or more than 20 employees, and undergoing significant growth, can now seek expert help from HMRC growth support specialists.

Known as the Growth Support Service, HMRC tax experts will offer dedicated support, tailored to the customer’s needs. It has been created to help growing, mid-sized businesses access the information and services they need.

This could include:

  • helping with tax queries about their growing business

  • supplying accurate information and co-ordinating technical expertise from across HMRC

  • supporting them to get their tax right first time and access relevant incentives or reliefs

I wonder if HMRC have plans to help other businesses too?

steve@bicknells.net

 

How will Clause 24 affect you? 1

Clause 24 of the Finance Bill sets out restrictions for individuals on claiming mortgage interest as a cost against their property investment income, for individuals it will work as follows

2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%

2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%

2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%

2020/21 100% will get only 20% relief

These rules will not apply to Companies, Companies will continue to claim full relief.

The rules also don’t apply to Furnished Holiday Lets.

Essentially Section 24 removes Interest from the property expenses and gives you tax relief at 20% (basic rate). So Higher rate tax payers will pay more tax.

The Mortgage Works have a spreadsheet calculator that demonstrates this and also incorporates other profits and income.

www.themortgageworks.co.uk/includes/xls/T1036_Tax_Change_Calculator.xlsx

steve@bicknells.net

DIY Corporation Tax Filing – are you excluded? Reply

There are a lot of companies that can’t file using the HMRC online service…

Who can’t use the service

You won’t be able to use the HMRC free service if any of the following apply:

  • your accounts require an audit or have been audited
  • your company turnover is above £632,000 per year
  • your charity turnover is above £6.5 million per year
  • your company must pay its Corporation Tax in instalments
  • your company is part of a group
  • your company is not registered in the UK
  • your company is in liquidation or receivership
  • your company is an insurance company – not including independent insurance brokers
  • your company is an investment company
  • your company is a credit union
  • your company is a commercial property management company
  • the Corporation Tax accounting period for the return is covered by more than one set of statutory accounts
  • you need to claim a repayment of a loan to a participator (for example, a director’s loan), more than 9 months after the end of the accounting period

If you can’t use HMRC’s free online service, you can use commercial software to submit your online return.

As we are moving towards Making Tax Digital, how is this going to enable businesses to file online?

Clearly they could buy third party software, such as BTC https://www.btcsoftware.co.uk/

I use BTC and this its brilliant, there are of course many other products available.

But as Tax is complicated, despite a constant effort to simplify it (which so far hasn’t really worked), surely HMRC are encouraging companies to turn to tax agents for help?

I thought the strategy was to reduce taxpayer reliance on Tax Agents?

steve@bicknells.net

 

The Seminar Tour starts this week! Reply

The government may have postponed Making Tax Digital but the Seminars continue.

The first one is this Friday (1st September) in Bristol, its an epic production.

6 Hours of CPD

110 PowerPoint Slides

229 pages of handouts

The seminar has 7 sections

  • HMRC MTD route map
  • The Requirements of MTD
  • Client transition planning and client communications
  • How will MTD change the way clients work with accountants
  • Case Studies
  • Software
  • Sanctions & Penalties

With contributions from Xero, Sage, MyFirmsApp, Free Agent, BTC, Practice Track and Clear Books

This is probably one of the most comprehensive seminars ever given on Making Tax Digital

Click here to find out about the seminars in Cambridge, Manchester and London.

I look forward to seeing you there

steve@bicknells.net

If my company pays me interest will it be taxed? Reply

Companies often borrow from their directors, especially property companies as 100% loan to value loans may not be available from lenders.

If the company pays interest on the loan it will have to register with HMRC and prepare CT61 returns

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/383833/ct61-notes-2010.pdf

The CT61 requires the company to deduct 20% tax on the interest.

The Director may be entitled to the interest tax free

Personal Savings Allowance

You may also get up to £1,000 of interest tax-free depending on which Income Tax band you’re in. This is your Personal Savings Allowance.

Income Tax band Tax-free savings income
Basic rate £1,000
Higher rate £500
Additional rate £0

Savings covered by your allowance

Your allowance applies to interest from:

  • bank and building society accounts
  • savings and credit union accounts
  • unit trusts, investment trusts and open-ended investment companies
  • peer-to-peer lending

So the Personal Savings Allowance should cover Directors Loans as explained in accountingweb

https://www.accountingweb.co.uk/tax/business-tax/paying-interest-to-the-director

If you are lending to your company you should make sure that its at a market rate and you may want to consider your security for the loan.

You could opt for a charge at Companies House but at the very least you should have a loan agreement.

steve@bicknells.net