Tuesday, 19 July 2016

Who holds the shares, Payroll pains, Paying HMRC


For the first time in over 6 years the UK has a new Chancellor of the Exchequer. Let’s hope he takes a considered approach to any tax changes, as there are many problems to fix with our tax system, before adding new complications. We have three examples of such problems with payroll systems this week, and two issues found when trying to pay HMRC. But first we examine the mess created by sloppy work when setting up a personal service company.

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

Who holds the shares 
When you take on a new client do you check the Companies House record for their personal service company, if they have one?  The reality of who holds the shares may not agree with the client's understanding. 

A mismatch can be very expensive, as Terrance Raine discovered. He was landed with a tax and penalty bill of £41,450 because he believed what he was told by the firm who set up his personal service company.    

Mr Raine was advised by a recruitment consultant to open his own limited company in order to gain work as an interim or locum manager. Raine and his partner Ms Hamilton met with Giant Accounting Limited, who offered them an off-the-shelf company (Linkdrive Solutions Ltd), and agreed to deal with all accounting, payroll and company secretarial requirements. Raine and Hamilton were told that they would hold one share each, and would be appointed as company director and company secretary respectively. 

However, Giant never completed the paperwork to allot shares to Hamilton or Raine, and technically the one subscriber share remained in the name of the formation agent. The annual returns for Linkdrive Ltd filed at Companies House, showed Raine as the only shareholder with two shares, and this continued for 10 years to 2011. The statutory accounts for Linkdrive also reflected that position.     

From 2004 to 2011 Giant prepared dividend vouchers showing equal amounts of dividend payable to Raine and Hamilton, which were declared on their respective tax returns. 

When HMRC investigated the mismatch between dividends shown on Raine's tax returns and the shareholdings declared at Companies House, Giant initially denied there was a problem. 

The Tax Tribunal decided that Raine must have realised that all the shares were in his name as he signed the company accounts, and he should have realised that dividends can only be paid to shareholders. The tax and penalties due were confirmed.    


This is an extract from our topical tax tips newsletter dated 14 July 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 July 2016

CGT relief on incorporation, VAT flat rate scheme, Fake HMRC contacts

Many businesses still want to incorporate for non-tax reasons, so last week we reviewed the reliefs which can postpone or reduce CGT due on incorporation. We also examined a problem found when applying for the VAT flat rate scheme, and we had a warning about convincing tax repayment scams which may catch-out your clients. 

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

VAT flat rate scheme
The VAT flat rate scheme (FRS) for small businesses is very useful. It reduces the work needed to complete a VAT return, as generally only the sales income is considered. Many businesses can also make a small profit purely from using the scheme. 


However, that profit depends on the trade category the business opts to use. This category determines the FRS percentage which must be applied to the gross sales income to calculate the VAT payable to HMRC each quarter. 


When the business applies to use the FRS it should pick the trade category which best fits a plain English description of the majority of its trade. For example, a mechanical engineer would not pick the category "architect, civil and structural engineers", as a mechanical engineer (dealing with machines) is a very different job to a civil engineer (dealing with buildings and structures). If there is no category which is a good fit, the business should choose one of the catch-all categories such as "business services that are not listed elsewhere". 


You can apply for the FRS online as part of the process of registering the business for VAT. This allows the business to benefit from a reduction in its FRS percentage by 1% point during the first 12 months in which it is VAT registered. However, the HMRC computer may not register the business category which you have picked. 


As part of the FRS application you can enter a free text description of the business activity. If that doesn't match one of the trade categories, you can use the more precise Standard Industrial Classification (SIC) code. The computer then matches the SIC code to one of the trade categories, but not always as you would expect. An online message should tell you which trade category has been selected. 


If you are not happy with the computer's choice of trade category your only option is to cancel the online application, and use the stand alone form VAT600FRS to apply for the FRS. This is an interactive form, but it doesn't try to guess the trade category for you. It must be completed then printed out for signing and submission to HMRC.


This is an extract from our topical tax tips newsletter dated 7 July 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 July 2016

Planning to leave, Loans to report on P11D, Rent-a-room relief

Some of your clients may be deeply affected by the result of EU referendum, and are looking for advice on how close or move their business interests in order to leave the UK. We have some practical tips on planning for such a move. We also look at which directors' loans to report on the P11D form. Finally, HMRC has updated its guidance on rent-a-room relief, we highlight the key points.

This is an extract from our topical tax tips newsletter dated 30 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Planning to leave 
Selling or moving a business is not a simple as moving home. It needs to be planned carefully, with as much notice as possible. The first thing to clarify is: how strongly is the business connected with the individual owner. 

If the business is essentially the individual trading on their own account as a sole-trader or company, then it may not be possible to sell the business without the current owner's continued involvement. In that case the only solution may be to wind-down the business and extract the cash in a tax-efficient manner. 

Pension contributions can be used to do this, as withdrawals from a pension fund can now be made from age 55. However, if the cash is required quickly locking value into a pension fund may not be advisable. The taxpayer should always take independent financial advice before making a large pension contribution. 

If the business is to be sold for a significant profit, check whether the conditions for entrepreneurs' relief will be met for at least 12 months ending with the date of sale. Where owner's the spouse or civil partner holds less than 5% of the ordinary share capital, a transfer of shares between the spouses/partners may allow two people to claim entrepreneurs' relief up to the maximum lifetime limit of £10 million.      

The levels of unutilised cash and investment assets held within the company should be reviewed. Where the cash has not been ear-marked for a business purpose (even paying a dividend), HMRC could regard it as a non-trading asset, which could scupper a claim for entrepreneurs' relief. 

Every business will need a different exit plan. Our tax experts are happy to cast a second eye over your client's plans, to check for possible problems.    

This is an extract from our topical tax tips newsletter dated 30 June 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, 28 June 2016

Entrepreneurs' relief, Investors' relief, Companies House

The Government has made some significant amendments to the draft Finance Bill 2016 concerning entrepreneurs' relief and investors' relief, which take effect immediately. The procedures and costs relating to incorporation and returns filed at Companies House are also changing from 30 June 2016. We outline those changes below.

This is an extract from our topical tax tips newsletter dated 23 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Entrepreneurs' relief 
The associated disposal rules within entrepreneurs' relief (ER) have been manipulated by people who arrange for their trading business to use a personally owned property for the purposes of the trade, (say as an office) for a year. A claim for ER on the sale of the property would succeed if the individual disposed of any shares or interest in the partnership at the same time as the property sale. 
  
Those associated disposal rules were changed from 18 March 2015 (by FA 2015), to discourage such manipulation. Now the taxpayer has to dispose of at least 5% of his partnership, or personal company, if he wants to claim ER on an associated disposal. Finance Bill 2016 tweaks these rules further to require the personally-held asset to be owned for at least 3 years before disposal - a change which was to apply to disposals from 18 March 2015 onwards.   
  
The Government has realised that such back-dating would mean some people would have further tax to pay on transactions which have already been completed. It has thus amended the Finance Bill 2016 such that the 3-year ownership period will only apply to assets acquired on or after 13 June 2016. 
  
The condition that the taxpayer must dispose of at least a 5% interest in his partnership is also changed by amendments to the Finance Bill 2016. In most circumstances a partner must reduce his interest in his partnership by at least 5% (eg from 20% to 15%) when he makes an associated disposal. But if the partner is retiring and he may have already reduced his interest in the partnership to below 5%. In such a case the retiring partner will be able to claim ER on an associated disposal made when he finally exits from partnership, even if that last portion of partnership interest amounts to less than 5% 


This is an extract from our topical tax tips newsletter dated 23 June 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, 21 June 2016

Shortage of funds, Professional conduct, HMRC experiments

Two tricky tax problems to consider this week; how a shortage of funds leads to a default surcharge for late paid VAT, and a client who refuses to provide the information necessary to complete his tax returns. We have tips on what to do in both situations. We also have news of two experiments HMRC is conducting on your clients. Are they messing with our minds?

This is an extract from our topical tax tips newsletter dated 16 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

PCRT - Guide to professional conduct relating to tax
Tax work can put you in a tricky position at times, as you stand between your client and HMRC. You are paid by the client, but occasionally you must provide some uncomfortable truths about his obligations under tax law. This can place you in an ethical dilemma. 

Fortunately help is at hand in clearly written guidance approved by a joint committee of the professional accountancy and tax bodies: Professional conduct in Relation to Taxation (PCRT). This document was last updated in May 2015 and its worth referring to when in doubt as what to do. 

One fairly common situation is when the client doesn't provide you with the information to complete his accounts or tax return on time. You may be tempted to do what one accountant did, and submit blank tax returns for his client for three consecutive years (see Murat Anik v HMRC). The accountant did this to prompt HMRC to investigate his client and, in his words “kick start” his client into doing something. 

The accountant knew there were self-employed profits and rental income to report, but he didn't have any figures to use as an estimate, so he entered nothing. This was the wrong approach, as by submitting a nil return he was knowingly presenting an incorrect position. The professional conduct guidance says a tax adviser “should take care not to be associated with the presentation of facts he knows or believes to be incorrect or misleading nor to assert tax positions in a tax return which he considers have no sustainable basis.” 
  
The professional conduct guidance also sets out what a tax adviser should do if there is a possible irregularity in the tax return, such as an under declaration (see para 5.9). If the client will not disclose the correct information to HMRC you must cease to act for the client. You would need to advise the client in writing, and HMRC. You may also need to make a money laundering report. 

This is an extract from our topical tax tips newsletter dated 16 June 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, 14 June 2016

Share scheme reporting, Second income disclosure, Penalties for follower notices

The P11D forms are sorted, so what's the next tax deadline to worry about? That will be the annual returns for employee share schemes which are due in by 6 July, as outlined below. We also have news of a disclosure opportunity for individuals who have a second income, and some new HMRC factsheets about penalties and follower notices. 

This is an extract from our topical tax tips newsletter dated 9 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>> 

Second income disclosure 
This disclosure opportunity was opened in April 2014 (see our newsletter 17 April 2014), but the guidance has recently been updated. It amounts to an open-ended opportunity to disclose taxable income or gains and take advantage of a discount on penalties due. 

To use this disclosure opportunity, the individual (or you as their tax agent), must notify HMRC using a special online form or by telephoning: 0300 123 0945. HMRC will respond with a disclosure number, and a payment reference number to quote when paying the tax due. A full disclosure and payment of all liabilities must be made within four months of HMRC's acknowledgement of the notification. 

The calculation of the payment due must include interest and penalties, but the level of penalty will be no more than 20%, and could be zero for some years. If the taxpayer can't pay the full amount due in one go, you should contact HMRC and make a formal time to pay agreement. This will generally require instalments to be paid by monthly direct debit for a period of between 6 and 12 months. 

If the only undeclared income relates to let property, the individual should use the let property campaign to declare that income and any related gains. The let property campaign operates in a similar fashion to the second income disclosure, but the taxpayer has only three months to pay the amount due after notifying HMRC. 

The second income disclosure can't be used to declare employer's NIC, IHT, VAT, trust income or income arising from a deceased's estate during administration. It also can't be used if there is an open tax enquiry into the taxpayer's affairs. 

If the taxpayer is uncertain about their residency status, and hence their liability to pay UK tax, that point needs to be resolved before completing the disclosure form. Also if the taxpayer has been part of a tax credit claim in any of the tax years covered by the disclosure, that fact should be declared on the disclosure form.


This is an extract from our topical tax tips newsletter dated 9 June 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, 7 June 2016

Doctors' pensions, VAT compliance checks, Beware HMRC scammers

The civil service for central Government is now in “purdah”, which means there will be no significant Government announcements until after the EU referendum on 23 June 2016. This is holding up the publication of key tax consultations, particularly on Making Tax Digital. In the meantime there is a problem with GPs' pensions you need to be aware of. We also have news of a pilot scheme for VAT compliance visits, and a warning about fraudsters claiming to be from HMRC.

This is an extract from our topical tax tips newsletter dated 2 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Beware HMRC scammers 
Fraudsters are using threats and intimidation in phone calls to taxpayers and accountants, as they pretend to be collecting tax debts on behalf of HMRC. This is not surprising as the HMRC-approved debt collectors can be threatening and unreasonable at times. 
  
The latest calls and text messages claim there is an outstanding tax debt, and that payment must be made immediately or the police will arrest the individual. The fraudsters are able to use technology to pretend to be calling from a genuine HMRC call-centre telephone number, in this case: 0300 200 3300. You should not trust the number shown on your telephone's display as it can easily be spoofed. 
  
The fraudulent caller normally attempts to obtain credit or debit card details, and may give her name as Heather Grey of HMRC. There is no such person within HMRC. In another twist the taxpayer may be asked to pay the tax debt in the form of gift card vouchers from iTunes or Argos. This sounds incredible, but some people are falling for this scam. Gift cards can be easily redeemed or sold on. 
  
Please warn your clients about these scams, especially those individuals who are new to self-employment and haven't dealt directly with HMRC before. HMRC never use text messages to ask for payment. 
  
If you or your clients have suffered an attempted fraud, report it to Action Fraud (National Fraud and Cyber Crime unit) on 0300 123 2040 or by using the online fraud reporting tool.   
   

This is an extract from our topical tax tips newsletter dated 2 June 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>>>