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>>>

Winding-up the company, Lifetime allowance protection, Supporting a student

Each of life's mile-stones has tax implications; marriage, having children, going to university, closing the family business, retiring and finally meeting one's maker. Last week we had advice relevant to three of those occasions; winding-up the company, drawing benefits from pension fund, and supporting a student through university.

This is an extract from our topical tax tips newsletter dated 25 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Lifetime allowance protection 
The pensions lifetime allowance reduced to £1m from £1.25m on 6 April 2016. This threshold is tested when an individual starts to take their pension benefits. If the pension fund value exceeds the lifetime allowance this triggers a tax charge of 55% on the excess value taken (where those benefits are taken as a lump sum) or a tax charge of 25% in other circumstances. 

Clients who have retired since 5 April 2016, or expect to do so shortly, need to assess whether their pension pots exceed £1m. An expert pension valuation from a qualified IFA may be required to do this. 

Where the total value of their pension funds does exceed £1m the individual should consider applying for fixed protection 2016 (FP2016) or individual protection 2016 (IP2016). These protections fix their lifetime allowance at the lower of their pensions value at 5 April 2016 and £1.25m. The application for either type of fixed protection must be done online, and it is not clear whether an agent can do this on behalf of a client. 

You may be surprised at how many of your clients have built up total pension funds of £1m or more, as that total can be easily achieved by making regular pension contributions over 30 to 40 years. If you do not advise your clients about the possibility of applying for fixed protection, and they suffer an unnecessary tax charge at 55%, they will not thank you for your silence.
This is an extract from our topical tax tips newsletter dated 25 August 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>>>

Employer-supported bus services, Threshold income for student loan repayments, Making Tax Digital

Last week we looked at the exemption for employer-supported bus service and the findings in a recent tribunal case. We also considered what constitutes total income for the purposes of triggering student loan repayments. Finally, in a week in which HMRC published six consultation documents on different aspects of their Making Tax Digital strategy we provided a warning that it is never too early to start preparing clients for the far-reaching changes ahead.

This is an extract from our topical tax tips newsletter dated 18 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Employer-supported bus services 
The First-Tier Tax Tribunal recently considered whether the purchase of a bus pass for an employee constituted financial support for a public transport road service within the context of the exemption for employer supported bus services in ITEPA 2003, s. 243. The Tribunal also examined whether a zonal bus pass fell within the terms of the exemption. 

Provided that certain conditions are met, no liability to income tax arises in respect of the provision of financial support for a public transport road service. 

The main issue was whether the purchase of a bus pass constituted financial support for a public bus service or whether more was needed. The appellant argued that buying the bus pass supported the service as the cost of the pass included an element of profit. HMRC contended that the financial support had to be substantial and that the employer must take some responsibility, financial or otherwise, for running the service. Having considered the issues, the tribunal found that simply purchasing a bus pass was not financial support and that something more was required. However, they did not consider what that `something more’ may be. 

When advising clients seeking to make use of this exemption, reference can be made to the guidance published by HMRC in April 2013 which confirmed that bulk buying of tickets did not count as financial support. However, support in the form of the provision of a bus shelter, putting in extra stops, running a service later at night, investing in bus lanes and suchlike would qualify. 

The Tribunal also confirmed that as ticketing in the UK is now on a zonal basis, zonal bus passes can qualify for the exemption. 

This is an extract from our topical tax tips newsletter dated 18 August 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>>>

Use EIS to defer and reduce CGT, VAT annual scheme, Access to tax refund

Last week we shared an idea on how to defer and reduce CGT payable on the sale of residential property. We also had a warning about the VAT annual accounting scheme, and have news of how HMRC are nudging taxpayers into using their personal tax accounts.

This is an extract from our topical tax tips newsletter dated 11 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

VAT annual scheme 
Taxpayers opt to use the VAT annual accounting scheme because they want to complete only one VAT return once a year, instead of four. You may have arranged to process that one VAT return for your client, which will work well if the client pays all the VAT instalments as agreed and on time. 

If the taxpayer doesn't pay the VAT as due, HMRC will unilaterally take the business out of the annual accounting scheme, and will write to inform them that quarterly VAT returns and payments are due. You may not get a copy of that letter. 

This is what happened to Angela Spence, a solicitor on the VAT annual accounting scheme. She failed to pay the full amount as agreed for her VAT instalments on four occasions, so HMRC sent her two warning letters. She didn't read those letters properly and claimed she didn't receive the final letter which removed her from the annual accounting scheme.      

As Miss Spence didn't appreciate she was no longer in the annual accounting scheme, she carried on paying VAT by instalments and didn't complete quarterly VAT returns. This lead to HMRC issuing estimated VAT assessments and three default surcharges. It took a year of such correspondence before she rang HMRC to find out what had gone wrong. 

If you let your clients deal with their own VAT affairs, impress upon them that they must read carefully and respond to any letters they receive from HMRC.

This is an extract from our topical tax tips newsletter dated 11 August 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>>>