Archive for December, 2016

Do not have a fake Christmas

Thursday, December 22nd, 2016

The Intellectual Property Office has issued a video setting out the dangers of buying counterfeit goods this Christmas.

They say:

Counterfeiting can be defined as the manufacture, importation, distribution and sale of products which falsely carry the trade mark of a genuine brand without permission and for gain or loss to another. Counterfeits can bring many dangers to us as consumers. From fake alcohol to children’s costumes…if it can be made, it can be counterfeited. Make sure you understand the risks.

Do you really know what you’re getting for Christmas?

We recently broadcast live talking about IP crime and the dangers and impact of buying counterfeit goods in the run up to Christmas.

You can view the video on the Gov.uk website at https://www.gov.uk/government/news/dont-have-a-fake-christmas

What taxes are payable if you set up in business

Tuesday, December 20th, 2016

The answer to this question depends, in the first instance, on the business structure you select.

If you run your business as a sole trader, or in partnership with another person, you are deemed to be self-employed. Partnerships also include Limited Liability Partnerships where the partners’ personal assets are protected from business risks.

The alternative to the above self-employed options is to incorporate your business, to be a limited company. In this case the company legally owns the business and you are an employee of the company, and in most cases, a shareholder too.

Sole traders and partners

As defined above, tax payers in this group are self-employed and subject to self-assessment for income tax purposes. Profits of your business, adjusted for tax purposes, are included in your annual self-assessment tax return and provide the basis (together with any other income you earn) of your half yearly income tax payments under self-assessment.

Additionally, there are National Insurance considerations. Presently, you will pay Class 2 and Class 4 contributions and these are collected with your income tax payments. Class 2 is a fixed weekly amount, and Class 4 contributions are graduated, based on the amount of profit you make. The government is to phase out Class 2 contributions shortly and adjust Class 4 contributions to provide for basic State benefits such as the State Pension.

Limited companies

Companies do not pay income tax, instead, they are subject to corporation tax.

Corporation tax is based on a fixed percentage of adjusted profits plus any chargeable capital gains the company makes.

Directors are treated as employees by the company. Any salary taken is taxed under the PAYE system and forms part of the allowable costs of the company. The amount of any income tax or National Insurance due will depend on the amount of salary taken.

Directors, who are also shareholders, may also choose to take part of their remuneration as a dividend. This is a distribution of taxed profits by the company and so no further tax consequences apply to the company. Dividends received by shareholders are subject to personal tax if they exceed £5,000 in a tax year. The rate of tax payable depends where the dividends sit in the tax payer’s basic, higher or additional rate income tax bands.

As you can see, business structure determines tax treatment, and the selection of the most appropriate structure is of paramount importance, both to ensure you minimise taxes due and protect your personal assets.

HMRC Key Objective \’maximise revenues due\’

Friday, December 16th, 2016

Tax investigations update.

 

Not so long ago HMRC’s priorities included improving customer service and ensuring that individuals and businesses were only asked to pay the right amount of tax at the right time.
 

However, we now live in a harsher reality. HMRC’s key objectives have changed and include the target to ‘maximise revenues due’ and ‘to transform tax for our customers’.

 

Making Tax Digital

 

The transformation is coming in the form of Making Tax Digital (MTD) which will, ultimately, see the end of the tax return.

By 2020, it will be mandatory for most businesses and landlords to keep their records digitally using MTD compatible software and to report accounts information to HMRC every quarter.

Over 5 million businesses and 4 million individuals already have access to digital accounts with HMRC.

But, even then, one of the primary reasons HMRC is launching MTD is to close the tax gap and maximise revenue.

 

Tax gap

 

The tax gap is the difference between the amount of money HMRC actually collects and the amount it believes is due.

According to HMRC’s latest figures, the tax gap currently stands at £36bn and is broken down as follows:

 

  • Individuals £3.4bn
  • Criminal Activity £4.8bn
  • Large Business £9.5bn
  • SMEs £18.3bn

In simple terms, HMRC believes over half of the tax gap is attributable to SMEs failing to declare accurate and complete accounts figures. With the introduction of MTD and quarterly reporting, HMRC expects the number of errors to decrease and will challenge businesses far earlier if figures appear to be inaccurate.

Enterprise Data Hub

HMRC has built an Enterprise Data Hub (EDH) which will house all of the information it holds on people and businesses. Just to put this into context, HMRC has compared this to storing and managing 10 million filing cabinets worth of data.

Most people are aware, for example, that banks and building societies report interest figures to HMRC and the Land Registry reports property transactions. The EDH has more advanced capabilities though and is going to be able to store all types of data, including structured, unstructured, log files, pictures, audio files, communication records and email.

All of this means HMRC will be able to ‘work smarter’, able to risk assess individuals and businesses for enquiry much quicker and yes, you guessed it, ‘increase our tax revenues’.

 

Current trends
 

  1. The government is cracking down on the so called ‘gig economy’. This is where people work on a self-employed basis, in temporary positions for organisations, typically for short periods of time. HMRC is setting up a new team to test what it regards as false self-employment.
  2. In a similar vein HMRC is disputing the status of drivers, such as road haulage and coach drivers. HMRC wrote to the Road Haulage Association recently saying it was concerned about haulage companies wrongly treating workers as self-employed or hiring workers through their own companies.
  3. Loss making farming businesses are being targeted by HMRC to see if they are genuinely being run on a commercial basis. If losses are made for more than 5 years in succession, HMRC will usually seek to restrict the losses, unless the farmer can provide evidence of a realistic expectation of a profit.

 

 

By tax group
 

Large Business
 

There are around 2,100 large businesses, each with an annual turnover of more than £200m.

These include UK national businesses and multinational corporations with a UK base and they account for around £200bn, or 40% of total tax receipts.

Almost half of large businesses are under enquiry at any one time by the 2,400 staff in HMRC’s Large Business directorate. This level of enquiry activity is unlikely to fall anytime soon, especially as HMRC believes large businesses are responsible for £9.5bn of the tax gap.

Wealthy Individuals

HMRC’s High Net Worth Unit (HNWU) closely monitors the 6,500 wealthiest individuals in the UK.

Until recently the HNWU had around 380 staff and focused on individuals with a net worth of at least £20m. However, HMRC has decided to extend the reach of the HNWU to include taxpayers with a net worth of more than £10m.

Another 129 members of staff are going to be recruited to monitor the additional 2,000 taxpayers with a net worth between £10m and £20m.

Around a third of high net worth individuals are under enquiry according to the latest figures available.

Mid-sized Businesses

There are around 170,000 mid-sized businesses in the UK with an annual turnover of between £10m and £200m.

As these businesses grow and their tax issues become more complex, it is not unusual for HMRC to launch a cross-tax investigation, where three Inspectors will seek to meet with the business owner. One Inspector will usually want to talk about VAT, with the other two Inspectors drawn from tax and PAYE compliance backgrounds.

Small and Micro Businesses

This is the biggest tax group of all. There are more than 5 million small businesses, which employ fewer than 20 people and have an annual turnover of less than £10m. Micro businesses employ fewer than 10 people, with a turnover of less than £2m.

The number of small businesses has grown by more than half since 2000, with a rapid rise in self-employment and online trading.

As mentioned earlier, HMRC is concerned that not all of this group are genuinely self-employed as drivers for Uber, Deliveroo or Hermes for example. HMRC compliance activity in this area is particularly high and contentious too, especially as some people are happy choosing their own hours, working when they want to and do not see themselves as exploited.

 

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The Land Registrys free property alert service

Thursday, December 15th, 2016

This service helps people to detect fraudulent activity on their property by sending them email alerts when there is certain activity on the property being monitored, such as a mortgage being taken out against it. The recipient can then decide whether they think the activity is suspicious and act quickly if so. The alert email tells them who to contact should they be concerned. The following notes are part of a recent announcement on this issue on the gov.uk website.

Alasdair Lewis, Director of Legal Services, said:

Property is usually our most valuable asset so it’s important to protect it from the ever-increasing risk of fraud. Land Registry is doing all it can to detect and prevent fraud but no system can be 100 per cent fraud-proof, which is why we urge people to follow our advice about protecting themselves from property fraud, including signing up for Property Alert.

Property fraud

Property fraud is where fraudsters try to “steal” a property, most commonly by stealing the homeowner’s identity and selling or mortgaging the property without their knowledge. They then disappear with the money leaving the true owner to deal with the consequences.

Since 2009, Land Registry has stopped fraud on properties worth more than £92 million.

How Property Alert works

You can monitor up to 10 registered properties in England and Wales. You will receive email alerts when there is certain activity on the properties you are monitoring, such as an application to change the ownership details.

Although Property Alert won’t automatically stop fraud from happening, it’s a useful early warning of suspicious activity which the home-owner can investigate if they are suspicious.

Example of how Property Alert helped to prevent a fraud

A landlord was renting out a property in England while he lived overseas. He was aware that absent landlords are more at risk of property fraud and signed up to our free Property Alert service. When he received an alert email informing him of a mortgage application being made against his property worth over £300,000, he contacted our property fraud line immediately as he wasn’t expecting this. Using this intelligence, we investigated and discovered the fraud. We then prevented the application from being registered. His contact details were out of date, so we advised him to update them, which he did so that if we need to contact him in the future he will receive our emails or letters.

Most at risk

You’re more at risk if your property:

  • is rented out
  • is empty
  • is mortgage-free
  • isn’t registered with Land Registry

Other fraud protection measures

To help protect yourself against property fraud, make sure:

  • your property is registered. If you become an innocent victim of fraud and suffer financial loss as a consequence, you may be compensated. Properties most likely to be unregistered are those that haven’t changed hands or been mortgaged since 1990
  • Land Registry has up-to-date contact details so we can reach you easily. You can have up to three addresses in the register including an email address and/or an address abroad

You can find out more about this service at https://www.gov.uk/guidance/property-alert

Changes to the VAT Flat Rate Scheme

Wednesday, December 14th, 2016

As we have noted in previous blog postings, Philip Hammond announced a significant change to the VAT Flat Rate Scheme (FRS) from 1 April 2017.

To join this scheme, businesses need to have turnover excluding VAT of under £150,000. VAT payable to HMRC is based on a fixed percentage of turnover including VAT. The percentage rates vary for different business sectors, and obviously the lower the rate, the lower the quarterly VAT bill.

Many users of the FRS have discovered that using the scheme means that they make a cash profit. This happens when the appropriate FRS rate produces a VAT bill that is lower than the cash collected from the VAT output tax added to sales (which FRS traders are required to do), less any input VAT added to goods and services purchased.

HMRC have decided that this is not the outcome they intended when setting up the scheme.

Accordingly, from 1 April 2017, users of the FRS scheme will be obliged to use the higher rate of 16.5% if they are classified as a “limited cost trader” (LCT). The LCT classification will apply to users of the FRS whose VAT inclusive costs are:

  • lower than 2% of their VAT inclusive turnover in an accounting period
  • greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000).

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

These exclusions are required to prevent traders buying either low value everyday items or one-off purchases in order to inflate their costs beyond 2% and thus continue to pay VAT at a rate lower than 16.5%.

Existing users of the FRS are advised to seek advice before 1 April next year to determine if they are affected by these changes. In some cases, traders may need to discontinue use of the FRS and switch to the use of the standard VAT scheme.

Carry back gift aid donations

Monday, December 12th, 2016

For a number of years, it has been possible to make gift aid donations and carry them back to the previous tax year. This is a useful tax planning facility if earnings were higher in the previous year, and in some cases it may mitigate loss of personal allowances and tax at higher rates.

 

There are, however, two conditions that need to be complied with:

  1. Firstly, you cannot claim to carry back gift aid donations once you have submitted your tax return for the current year. Consequently, if it would be beneficial to carry back gift aid contributions you have made since 5 April 2016, as if paid during 2015-16, you will need to make the claim when you file the 2015-16 return. This means that the latest date to action this type of claim is 31 January 2017.
  2. Secondly, you will need to have paid enough Income Tax or Capital Gains Tax in the earlier year to cover the tax that the charities reclaim on those donations.

For higher rate tax payers, especially those with taxable income in excess of £100,000 this strategy is a useful device to reduce tax payments in a year by utilising transactions made after the end of the tax year. In fact, this is the only readily accessible carry-back planning tool available to most tax payers.

What is a power of attorney

Wednesday, December 7th, 2016

A lasting power of attorney (LPA) is a legal document that lets you (the ‘donor’) appoint one or more people (known as ‘attorneys’) to help you make decisions or to make decisions on your behalf. There are two sorts of LPA. They can cover personal issues (health and welfare) or financial issues (property and financial affairs).

An LPA allows you to nominate who has control over what happens to you if, for example, you have an accident or an illness and can’t make decisions at the time, or if you for other reasons, ‘lack mental capacity’ to make prudent decisions on your own behalf.

You must be 18 or over and have mental capacity (the ability to make your own decisions) when you make your LPA. You can choose to make one type or both.

Please note that there are different process for registering LPAs in Scotland and Northern Ireland.

How do you make an LPA?

This is a three stage process:

1.      First, you must choose your attorney – the person who will have control over your affairs – and you can have more than one.

2.      Secondly, you will need to complete the relevant forms to appoint them as an attorney, and finally

3.      Register your LPA with the Office of the Public Guardian (this can take up to 10 weeks).

It costs £110 to register an LPA unless you get a reduction or exemption.

Unfortunately, you will need to register both LPAs if you want to cover all your risks so the above costs are doubled.

If you want to find out more about the process you can contact the Office of the Public Guardian at:

Office of the Public Guardian
customerservices@publicguardian.gsi.gov.uk
Telephone: 0300 456 0300
Textphone: 0115 934 2778
 

Or, you can take professional advice.

Tax Diary December 2016/January 2017

Monday, December 5th, 2016

1 December 2016 – Due date for Corporation Tax due for the year ended 29 February 2016.

19 December 2016 – PAYE and NIC deductions due for month ended 5 December 2016. (If you pay your tax electronically the due date is 22 December 2016.)

19 December 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2016.

19 December 2016 – CIS tax deducted for the month ended 5 December 2016 is payable by today.

30 December 2016 – Deadline for filing 2015-16 Self Assessment tax returns online to include a claim for under payments to be collected via tax code in 2017-18.

1 January 2017 – Due date for Corporation Tax due for the year ended 31 March 2016.

19 January 2017 – PAYE and NIC deductions due for month ended 5 January 2017. (If you pay your tax electronically the due date is 22 January 2017.)

19 January 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2017.

19 January 2017 – CIS tax deducted for the month ended 5 January 2017 is payable by today.

31 January 2017 – Last day to file 2015-16 Self Assessment tax returns online.

31 January 2017 – Balance of Self Assessment tax owing for 2015-16 due to be settled on or before today. Also due is any first payment on account for 2016-17.

Changes to NLW and NMW from April 2017

Monday, December 5th, 2016

From April 2017, the National Living Wage (NLW) for the over 25s is being increased to £7.50 per hour. This is an increase from the current NLW rate set in October 2016 of £7.20 an hour. For the over 25s, this will represent a wage increase of just over 4%.

The National Minimum Wage (NMW) will also increase from the same date to:

·         For 21 to 24 year olds – from £6.95 to £7.05 per hour

·         For 18 to 20 year olds – from £5.55 to £5.60 per hour

·         For 16 to 17 year olds – from £4.00 to £4.05 per hour

·         For apprentices – from £3.40 to £3.50 per hour

The government will also be spending an additional £4.3m to ensure that employers are complying with their legal obligation to pay the NMW.

Are you affected by changes to the VAT Flat Rate Scheme (FRS)

Monday, December 5th, 2016

HMRC is to introduce an additional test that will determine the flat rate percentage used by traders. It would seem that HMRC presently considers the benefits obtained by certain businesses to be excessive and not in accord with the intentions of Parliament.

Traders that meet the new definition of a “limited cost trader” will be required to use a fixed rate of 16.5%. This will include traders who are already using the FRS scheme, and many at rates lower than 16.5%.

From 1 April 2017, FRS traders who meet the following definitions will be considered “limited cost traders” and will be obliged to use a new 16.5% rate. A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period
  • greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000)

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

  • capital expenditure
  • food or drink for consumption by the flat rate business or its employees
  • vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services)

Businesses using the FRS will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.

VAT traders using the FRS should review their position before April 2017 to ensure that there are still advantages to using the scheme.

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