MTD: quarterly reporting, MTD: software and costs, State pension top-ups

We generally don't discuss tax proposals which are still at the consultation stage in this practical tax update, but we are making an exception this week to answer some key questions about the Making Tax Digital (MTD) proposals. We also have some good news about topping-up a state pension.

This is an extract from our topical tax tips newsletter dated 13 October 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

State pension top-ups

Only individuals who have paid sufficient NIC for the requisite number of tax years can qualify for the maximum state pension. The number of tax years required depends on when the individual attained state pension age (SPA). Those that reach SPA on or after 6 April 2016 need to have paid NIC for 35 full years, but where the individual was contracted out for any part for their working life they may receive less state pension than they were expecting.

You can help your clients budget for their retirement by using the online state pension checker facility. Where NICs have been missed for certain tax years, the missing amounts can often be replaced using voluntary NIC payments, as detailed in the excellent guide from Royal London.

This top-up facility is particularly useful for individuals who have retired before they reach SPA or have missed contribution years by living overseas. Spouses and civil partners of members of the armed forces, who accompanied their partners when posted overseas, can apply for NI credits toward their state pension for tax years back to 1975/76.

The full newsletter contained the remainder of this item plus links to related source material 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>>>

Requirement to send HMRC leaflet, CGT for non-residents, VAT responsibilities of online markets

We live in an interconnected world; your UK-based clients may have investments in other countries, and non-resident clients may have invested in UK property. We have tips on actions required in respect of both categories of investor. Clients who run online marketplaces also need to know about new VAT rules, which will impact their businesses.

This is an extract from our topical tax tips newsletter dated 6 October 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

VAT responsibilities of online markets 

From 15 September 2016 online marketplaces (such as Ebay and Etsy) can be held jointly and severally liable for VAT which remains unpaid by overseas businesses which sell through those sites. 

The basic VAT rule is that overseas retailers must pay UK VAT on goods they sell which are stored within the UK at the point of sale. This rule has always applied, but it has not been enforced effectively. Hence overseas suppliers have been able to undercut UK traders on price. 

In VAT terminology an overseas supplier which has no place of business in the UK is referred to as a non-established taxable person (NETP). The NETP must register for VAT from its first sale in the UK, as there is a zero VAT registration threshold for such supplies. 

Any NETP whose home base is outside the EU can now be required to appoint a UK-based VAT representative, which may in turn be made liable for any unpaid VAT due by the NETP. However, the online marketplace through which the NETP sells its goods can also be made liable for the VAT due to be paid by the NETP. HMRC say it will normally pursue the overseas business first before issuing a notice for joint and several liability for VAT to the online marketplace. The marketplace business will be given a 30-day warning to allow it to take action against the errant trader to either secure the VAT due, or ban the trader from the site. 

Businesses who run online marketplaces need to ensure that all traders who are based outside of the UK provide evidence of their VAT registered status. 

This is an extract from our topical tax tips newsletter dated 6 October 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained the remainder of this item plus links to related source material 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>>>

Savings allowance, Marriage allowance, Pensions annual allowance

Last week we reviewed three forms of allowances which are available to individual taxpayers. The savings allowance looks straightforward, but it contains two alarming cliff edges. The marriage allowance should be simple, but in many instances the HMRC computer produces the wrong answer. The pensions annual allowance is now tapered for higher earners, based on a different definition of income than applies for the other allowances!

This is an extract from our topical tax tips newsletter dated 29 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Savings allowance  There is currently no HMRC guidance available on the interaction of the personal allowance, savings rate band (SRB), savings allowance, and different categories of income. This is a shame, as taxpayers need to appreciate how their savings will be taxed in the current tax year.  From 6 April 2016 savings income (includes interest but not dividends) is taxed at 0% if it falls with the taxpayer's savings allowance or SRB. The level of the savings allowance is determined by the taxpayer's adjusted net income, not by reference to their highest marginal tax rate.

Adjusted net income is the taxpayer's total taxable income before deduction of the personal allowance, but after deduction of losses, and after the thresholds have been expanded to give higher or additional rate relief for gift aid donations and pension contributions. Thus a basic rate taxpayer may have a savings allowance of £500 rather than £1000.

Example: Colin's adjusted net income before deduction of his personal allowance is £32,050. As his basic rate band threshold is £32,000, his savings allowance is £500 rather than £1,000. Colin's tax liability is £4,110, calculated as follows:

If Colin makes a gift aid donation of £40 net, (£50 gross), either within 2016/17 or before he submits his 2016/17 tax return, his basic rate band threshold is increased to £32,050. As his adjusted net income now lies within his basic rate band, his savings allowance set at £1000. Colin's tax liability is reduced to £4010, saving £100

 
This is an extract from our topical tax tips newsletter dated 29 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained the remainder of this item plus links to related source material 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>>>

Purchase of own shares, Union Customs Code, Overseas VAT claims

One of our objectives in publishing these practical and commercial weekly tax tips is that you hear about aspects of the UK tax system you weren't aware of, or had forgotten. This week we report a challenge by HMRC to the CGT treatment when a company purchases its own shares, and a new EU customs code. We also have a reminder of the deadline for reclaiming VAT incurred in other EU countries.


This is an extract from our topical tax tips newsletter dated 22 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Overseas VAT claims
When a VAT registered business sends its employees or directors on business trips to other EU countries, those individuals will incur expenses such as: hotel accommodation, restaurant meals and car hire. The VAT element of those expenses can't be reclaimed on the business's UK VAT return, because the VAT incurred is overseas VAT not UK VAT.

The UK business can only claim a refund of the overseas VAT by way of an online claim made through the HMRC VAT online service. You can do this on behalf of your client.

The refund claims can be made for periods of not less than three months, in which case the minimum claim is €400 or equivalent in local currency. Where one claim is submitted for the calendar year the minimum permitted claim is €50, or equivalent in local currency. Claims for the calendar year to 31 December 2015 must be submitted by 30 September 2016, late claims are not permitted.

Don't assume that every EU country has the same rules about non-refundable VAT as the UK. For example, in the UK VAT on business entertaining expenses can't be reclaimed; in other countries a block on reclaiming road fuel or hotel accommodation may apply. You may need to research the VAT rules for each country for which you submit a claim, but the instructions with the online claim will help with this.

Generally, you won't be required to submit invoices for the expenses with the refund claim, but those invoices must be retained. Some member states will request a scan of invoices with values of €1000 or more, or more than €250 for fuel.

 It takes up to four months for the refund claim to be processed, but if a query is raised the processing can take up to another four months. If the claim is paid more than 10 days following the end of the processing period, interest must be paid by the refunding state. Once again we have VAT experts in the Network who could help here.

This is an extract from our topical tax tips newsletter dated 22 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>> 
 
The full newsletter contained the remainder of this item plus links to related source material 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>>>

Obligation to send HMRC leaflet, Disclosure opportunities, Changes to CT notices

Some taxpayers feel that all tax agents are on the side of HMRC. New regulations which require you to send a specific HMRC leaflet to some of your clients will reinforce this belief. We also outline new tax disclosure opportunities and proposed penalties which support HMRC's campaign against tax avoidance. Finally, you need to be aware of changes to the distribution of some CT notices.

This is an extract from our topical tax tips newsletter dated 15 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Disclosure opportunities 

HMRC is convinced there is a large population who fail to declare all of their taxable income. So it has set up a permanent digital disclosure service (DDS) to allow individuals, companies and trustees to come clean about their tax affairs. 

UK matters 

The DDS allows the taxpayer, or you as their tax agent, to make a declaration under any of the current open disclosure campaigns for: 

• Let property 
• Second incomes 
• Credit card sales; and 
• Worldwide interests (see below) 

However, to use the DDS the person has to set-up a Government Gateway account. As an agent you should already have Government Gateway login and password, so that should not be a problem. 

The DDS can't be used to correct errors on tax returns already submitted for SA, VAT, IHT or payroll. It should not be used to report any incidence of tax fraud committed by the taxpayer or by another person. 

Worldwide 

The worldwide disclosure facility opened on 5 September 2016 to replace the various offshore disclosure facilities (including LDF) which closed last year. However, there are no special penalty reductions available with the worldwide disclosure facility, only a threat of more penalties if a full disclosure is not made by 30 September 2018. 

After that date new legislation will come into effect which will impose a requirement on taxpayers to declare any UK tax liabilities relating to offshore interests. If the taxpayer fails to correct their UK tax declaration in respect of offshore interests, sanctions will be imposed. HMRC is consulting on the design and implementation of those sanctions. 

HMRC is banking on the fact that from 2018 it will have access to vast amounts of taxinformation reported under the common reporting standard (CRS), from over 100 countries around the world. This CRS data will allow HMRC to identify UK taxpayers who have not fully declared their overseas interests. In addition, there is a separate initiative between; UK, Germany, France, Italy and Spain to share data from registers of beneficial ownership of companies and properties. 

Finally, you should be aware of a separate discussion document on strengthening taxavoidance sanctions and deterrents, which is explicitly aimed at tax advisers, accountants, financial advisers and anyone who helps to set up companies or other vehicles which are used in the implementation of tax avoidance. The penalties imposed upon the adviser in such cases could well exceed that paid by the taxpayer.

This is an extract from our topical tax tips newsletter dated 15 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained the remainder of this item plus links to related source material 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>>>

MTD - discuss and learn, Loans and disguised remuneration, NI numbers validation

Last week we examined how your accountancy practice may be affected by making tax digital, and how you can start to prepare. We also reviewed HMRC's current position on loans which have been used to replace salary, which tend to be provided through employee benefit trusts (EBTs). Finally, we had news about valid national insurance numbers - a vital cog in the PAYE system.

This is an extract from our topical tax tips newsletter dated 8 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Loans and disguised remuneration 
The Government is using all the means within its power to discourage the use of loans to replace remuneration, and in particular loans made by employee benefit trusts (EBTs). The law has been changed to ensure such loans don't provide a taxadvantage, and settlement opportunities have been provided for existing schemes.

If your client was drawn into a using an EBT, but didn't settle with HMRC before 31 July 2015, they still have a chance to make a settlement. However, the taxtreatment will be different for certain aspects, which HMRC helpfully summarised in one table. 

One of the lines within that table refers to investment growth on funds held within the EBT. HMRC's view is that this investment growth must be taxed, but there is some transitional relief on who bears the tax. To access that transitional relief the taxpayer who set up the EBT (or similar trust) must apply to HMRC before 31 October 2016. 

Taxpayers who used contractor loan schemes can still settle with HMRC, and there doesn't appear to be an end date to that settlement opportunity.

This is an extract from our topical tax tips newsletter dated 8 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained the remainder of this item plus links to related source material 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>>>

Trading or capital gain, VAT on unusual homes, ER on sale of business premises

Last week was property week! You need to be aware of new rules that may treat gains made from UK property as trading income, subject to income tax or corporation tax. HMRC has changed its view of the VAT treatment applicable when two or more buildings are constructed or converted into a single dwelling. Finally, we examine when entrepreneurs' relief can be claimed on the disposal of a business premises.

This is an extract from our topical tax tips newsletter dated 1 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

VAT on unusual homes 
The first sale of newly constructed home (or conversion from a commercial building) is zero rated, subsequent sales are exempt for VAT. The zero rating allows the builder to reclaim VAT incurred on building costs. Until now HMRC has insisted that a single dwelling must consist of a single building. 

This view was challenged by Mr Fox and Mr Catchpole in two cases in 2012. The taxpayers won, but it has taken four years for HMRC to change their official view. They have now released Revenue & Customs Brief 13/2016 which sets out their revised policy. 

HMRC now accept that if a dwelling is designed to incorporate more than one building, say a guest house across a courtyard from the main building, the result can be zero rated. However, all the construction or conversion work must be undertaken as one project with no unreasonable delays between the project stages. 

If your client incurred costs on converting two or more non-residential buildings into a single home, and either had their VAT claim blocked, or did not attempt to reclaim the VAT, they can now submit a claim. However, HMRC will only consider claims relating to the last four years. Our VAT experts can advise you on the format of claims which will be acceptable to HMRC.

This is an extract from our topical tax tips newsletter dated 1 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>> 
 
The full newsletter contained the remainder of this item plus links to related source material 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>>>