Tuesday, 27 September 2016

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>>>

Tuesday, 6 September 2016

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>>>

Tuesday, 23 August 2016

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>>>

Tuesday, 9 August 2016

Student loan deductions, Login for HMRC accounts, Dividends and deceased estates

Employers inevitably have to shoulder the administration burden of payroll deductions, and so it is with student loan repayments. We have an update on the new loan repayment structure effective from April 2016, and additional changes expected later this year. Accessing the HMRC online accounts is becoming more complicated as we explain below. There is also a difficulty with dividends received by estates of deceased persons.  

This is an extract from our topical tax tips newsletter dated 4 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
  
Dividends and deceased estates 
All dividends are now taxed in the hands of individuals and trustees at 7.5%, 32.5% or 38.1% depending on the taxpayer's total level of income. This applies to estates of deceased persons as well as to living taxpayers. 

The problem is that estates in administration (and trusts) are not entitled to the dividend allowance of £5000, so all dividends received after 5 April 2016 must be taxed at 7.5% at least. There is no de-minimise amount which can be ignored, as applies to interest received (see our newsletter 5 May 2016). 

When the dividend income received by the estate is distributed to a beneficiary, the cash amount must be grossed up at 7.5% and carry a repayable credit for the tax deducted at that rate. The form R185 (Estate Income) will be revised shortly, but meanwhile Box 18 on the current form may be used to show the position. 
  
The situation is more complicated where the estate has received dividend income in 2015/16 or earlier, and distributes that income in 2016/17 or later. HMRC's current position is that the 10% non-repayable tax credit for earlier years may be used to frank the 7.5% tax due in 2016/17. 
 
This is an extract from our topical tax tips newsletter dated 4 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>>>

Tuesday, 2 August 2016

P800 calculation, Travel and subsistence and umbrella companies: the SDC test, Partial exemption

Last week we took a look at the P800 calculation and why you should check  that your clients’ P800s are correct. We also explored changes to the travel and subsistence rules insofar as they affect workers who provide their services through umbrella companies. Finally, we took a look at the risk areas in relation to VAT returns for partially exempt clients.


This is an extract from our topical tax tips newsletter dated 28 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

P800 calculation 
HMRC’s annual PAYE reconciliation process for 2015/16 is now underway and your clients will be receiving their P800 calculations between now and November. As HMRC can and do make mistakes, it is important that you encourage your clients to pass their P800 on to you and that you check it to make sure everything is in order. During the reconciliation process, HMRC compare the tax that they think is due with what has actually been paid and send out a P800 to taxpayers who show and overpayment or and underpayment. 
  
So, what should you look for when checking the P800? 
  
The P800 shows the total income, which according to HMRC’s records, the taxpayer should have paid tax on. This will include wages or salary, any benefits in kind, any pension or taxable state benefits received and any interest on savings. Check the figures against the your client’s P60, P11D, bank statements etc to verify that they are correct. If the figures are wrong, you will need to tell HMRC. 
  
The P800 calculation may show that your client has paid too much or too little tax. There are various reasons why this may be the case and in checking whether the figures are right you should consider whether: ..........

This is an extract from our topical tax tips newsletter dated 28 July 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>>>

Tuesday, 26 July 2016

Dividend allowance, CIS issues, Tax Credits

Last week we examined how shares held in a micro-company can be used to spread income among family members and save tax. We also analysed the current problems with the HMRC online service for CIS, and the fixes available. Finally, we had a reminder about tax credit claims which need to be renewed this month.  

This is an extract from our topical tax tips newsletter dated 21 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
  
Dividend allowance 
From 6 April 2016 every individual can receive up to £5,000 of dividend income per year, tax free, whatever their marginal rate of tax, by using the dividend allowance. Spreading dividends among family members can save tax, but only if the correct company secretarial procedures are followed. 

The spouse, child, or other relative of the company owner, can only receive a dividend from the company if they hold a share which entitles them to receive the dividend. In last week's newsletter (14 July 2016) we examined what can go wrong if dividends are paid to someone who is not a shareholder. 

Your first step should be to examine the authorised and issued share capital for the company. Many micro-companies operate for years with only one share in issue. If the company owner wants to divide their shareholding with their spouse, the owner needs to hold sufficient shares in order to pass some shares on. 

This may mean more shares have to be issued. Different categories of shares will permit dividends to be paid at different rates and at varying times to each shareholder. To avoid the settlements legislation applying, the new shares should carry full rights to capital on a winding-up as well as variable dividends. 

A gift of shares between spouses or civil partners will be a no gain no loss transfer for CGT. Gains arising on gifts of shares to other individuals will be taxable, but small gains may be covered by the donor's annual exemption (£11,100) or could be held-over under TCGA 1992, s 165. 

Shares given to employees of the company can subject to income tax as employment-related securities, but there is a general exemption from that legislation for gifts made as part of a family relationship. As an alternative to gifting shares, family members could subscribe directly for their shares. 

Although the dividend allowance taxes up to £5,000 of dividends at 0%, that dividend income is counted for the high income child benefit charge, and for £100,000 threshold that withdraws personal allowances. The tax effect on the recipient of the dividend should be calculated before the dividend is declared or paid. 


This is an extract from our topical tax tips newsletter dated 21 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, 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>>>