Tuesday 26 April 2016

Class 1A NIC reports, CIS gross payment status, When can VAT be reclaimed?

Much of tax compliance is about detail - sending the correct information to HMRC at the right time in the specified form. Last week we had some tips on how to comply with the requirements for class 1A NIC, and the new compliance test for CIS gross payment status. We also reported a VAT case which may have wider implications for businesses which are trying to raise funding from a variety of sources. 

This is an extract from our topical tax tips newsletter dated 21 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>> 

When can VAT be reclaimed? 
A VAT registered trader can reclaim VAT he incurs on goods and services to be used for the purpose of making taxable business supplies. Goods or services which are used for non-business activities, or for generating VAT-exempt sales, can't be included in a VAT claim, unless the partial exemption rules apply. 
  
This is the foundation of the VAT system, and clients need to be reminded of this occasionally. HMRC are increasing questioning whether costly purchases are used for a purpose that generates VATable sales, and thus whether the VAT can be reclaimed. In a recent case HMRC attempted to block the repayment of VAT paid on the purchase on single farm payment entitlements (SFPE). 
  
SFPE units gave the farmer entitlement to receive certain EU farming support payments. The SFPE units could be traded, and gains made on their sale qualified for business asset roll-over relief for CGT. The SFPE scheme was replaced by the Basic Payment scheme which came into effect from December 2013, but the principles are the same. 
  
Frank Smart & Sons Ltd was building up its beef cattle farming business. The company acquired 34,777 units of SFPE and paid VAT on that purchase of £1.054m. Those units generated between £1.7m to £2.4m per year of single farm payments for the farm, which used that money to pay down its overdraft, build additional farm buildings and acquire surrounding farm land. 
  
HMRC argued that the SFPE units were acquired for the purpose of generating income which was a non-economic activity outside the scope of VAT, so the VAT paid on the purchase of the units could not be reclaimed. HMRC chose to ignore the fact that the single farm payments were used to build assets for the business. The First-tier and the Upper-tier Tribunals both agreed that the purchase of the SFPE were an integrated feature of the farming enterprise. Also the costs of acquiring the SFPE units were part of the business overheads, which formed a component of the price of the farm's products - in this case beef cattle. 
  
This case could have wider implications for businesses who incur costs to generate sources of finance such as grants or crowd funding. Our VAT experts can advise on any unusual VAT-reclaim situations which your clients may experience.

This is an extract from our topical tax tips newsletter dated 21 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>> 

Tuesday 19 April 2016

SDLT supplement, Employment Allowance, IHT planning

Tax rules which have simple cut-off thresholds can become complex when tested at the limits, as two examples relating to SDLT and the Employment Allowance illustrate. We also had a reason to thank Prime Minister David Cameron last week, for drawing attention to some key aspects of inheritance tax planning.

This is an extract from our topical tax tips newsletter dated 14 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

IHT planning 
I was a bad week for David Cameron. On his first day back in the House of Commons he was forced to explain his family's tax affairs, including some inheritance tax planning under which he received two large gifts from his mother totalling £200,000. 
  
There was extensive coverage of this issue, with many newspapers citing the £80,000 IHT apparently “saved”. Of-course the IHT is only avoided if the donor survives for seven years after the date of the gift, but the fuss may well have prompted your clients to think about making gifts to the younger generation.    
  
This gives you a good opportunity to bring up the topic of IHT planning with your clients, as if it's OK for the PM to do (and he solidly defended the move), it should be good enough for them. 
  
Many older people are afraid of giving away money which may be needed to fund care in their last years. This is understandable, but you can help put their minds at rest by working through some cash-flow forecasts using various estimates of future cash needs and life expectancies. 
  
There are some key changes to IHT exemptions for the family home which will apply to deaths on or after 6 April 2017 onwards (Finance Bill 2016, s 82, Sch 15). The property needs to pass on death to a direct descendent of the owner for the exemption to apply. So the Will must be clear about who is to receive specific properties in the estate. Step children and adopted children are treated as direct descendants for this purpose, but nieces and nephews are not. 
  
Opening a conversation about planning for tax due after a death is never easy, but David Cameron has provided an ideal excuse - use it.


This is an extract from our topical tax tips newsletter dated 14 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>> 

Tuesday 12 April 2016

Expenses and benefits, Single-tier state pension, End of contracting-out

As we start a new tax year, we look at some of the changes that come into effect from the start of the 2016/17 tax year. We explore the new-look expenses and benefits regime and examine the single-tier pension and the implications of the end of contracting out. 

This is an extract from our topical tax tips newsletter dated 7 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Single-tier state pension 
Individuals who reach state pension age on or after 6 April 2016 will receive the new single-tier state pension rather than the two-tier pension (comprising the basic state pension and the earnings-related second state pension) which is payable to people who reach state pension age before 6 April 2016. Those individuals who are of state pension age on 6 April 2016 will continue to receive their state pension under the two-tier system. They will not switch to the new single-tier state pension. 

The single-tier state pension is set at £155.65 per week for 2016/17 (slightly above the standard minimum guarantee, which is £155.60 per week). The basic state pension is £119.30 per week (but this may be topped up by the pension credits). 

To qualify for the full single-tier state pension, individuals need a minimum of 35 qualifying years. A reduced pension is payable where an individual has less than 35 qualifying years but at least ten. By contrast, only 30 qualifying years were needed for the basic state pension where state pension age was reached between 6 April 2010 and 5 April 2016. A person who contracted-out prior to 6 April 2016, may receive less than the full single-tier state pension, even if they have 35 qualifying years. 

It is possible to make up for missed years by paying voluntary Class 3 contributions. Also, individuals who reached state pension age before 6 April 2016 have until 5 April 2017 in which to pay a Class 3A contribution. Each Class 3A contribution increases the basic state pension by £1 per week and individuals can `buy’ up to £25 per week extra from Class 3A contributions. The amount of a Class 3A contribution depends on the individual’s age at the time that the contribution was made. 

Before deciding whether to pay voluntary contributions, individuals should get a pension forecast so that can assess whether or not such contributions are worthwhile.


This is an extract from our topical tax tips newsletter dated 7 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>> 

Tuesday 5 April 2016

Investors' Relief, Contractor loan schemes, Employee expenses

In last week's newsletter we were enthusiastic about the new investors' relief which was promoted in the Budget as a version of entrepreneurs' relief for longer-term investors. Unfortunately the draft Finance Bill 2016 paints a different picture as we explain below. We also have a warning of some grim implications of leaving contractor loans outstanding, and an update on changes for employee expenses. 

This is an extract from our topical tax tips newsletter dated 31 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Investors' Relief 
The new investors' relief is not a form of entrepreneurs' relief, as claimed in the Budget, it has more in common with the enterprise investment scheme (EIS). The conditions needed to qualify for the new relief are more restrictive than we expected. 
  
Last week we encouraged you to look at investors' relief a means for individuals to benefit from a reduced rate of CGT, if they subscribe for shares in companies owned by family or friends. Unfortunately the new investors' relief won't be available to the relatives of employees or directors of the company. A key condition for investors' relief (revealed in the draft Finance Bill 2016), is the investor must not be an employee or officer of the company or connected to such an employee or officer. 
  
Investors' relief has also been saddled with conditions lifted directly from the EIS rules relating to value received from the company. Under EIS the investor losses a portion of their income tax relief, and associated CGT exemption, if he receives significant value from the EIS company within a four year period; (one year before the shares were issued to three years afterwards). This prevents the investor, or anyone connected with the investor, receiving anything worth more than £1,000 from the company in that period. 
  
Although there is no income tax relief available under investors' relief, and the CGT relief amounts to a halving of the top CGT rate, similar rules to disqualify shares from investors' relief will apply when value is received from the company (TCGA 1992, Sch 7ZB). This will limit investors' relief to people completely unconnected with the company, such as “angel investors”. It will also prevent those investors taking any guiding role with the company such as a non-executive director.

This is an extract from our topical tax tips newsletter dated 31 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>