RTI double trouble, Marriage allowance, Tax errors

Do you ever feel you have jumped through the tax looking glass? Words mean what HMRC want them to mean, and systematic problems are the fault of the user not the system designer. The week we have two examples – the RTI system and the new marriage allowance. We also take a serious lesson from a silly tax mistake – how you can help clients climb out of similar rabbit holes.

Tax errors

Do you read questions posted on tax forums by confused taxpayers? Sometimes the mistakes made by the unrepresented can be quite amusing, and educational. 

One taxpayer was under the impression that he is “self-employed” as he is the sole shareholder and director of his own company. It’s an understandable mistake.

Unfortunately he completed the self-employed pages of his tax return instead of the employed pages, and including his P60 earnings as his self-employed income. Not surprisingly HMRC want to know why he hadn’t paid class 4 NIC!    

That taxpayer was lucky as he hasn’t received an inaccuracy penalty for his mistake, but that may be on its way. HMRC are now issuing inaccuracy penalties for errors made in the 2013/14 tax returns, typically at the rate of 15% of the understated tax, although the penalty can be up to 100% of the underpaid tax. Strangely they don’t provide the taxpayer with a bonus for making a mistake in HMRC’s favour.

If your new client has received an inaccuracy penalty as a result of an error on a tax return they completed, the first thing to do is appeal the penalty. This should be done within 30 days of the appeal notice, but HMRC will normally accept a late appeal, especially if you explain that you have just been appointed as the tax agent.

The key to removing an inaccuracy penalty is to show the taxpayer took reasonable care when he completed the tax return, in which case the penalty should be reduced to nil. HMRC take into account the background, experience and personal circumstances of the taxpayer when deciding whether he took reasonable care. 

For example a qualified accountant or a person who works in the finance industry, such as a banker, will be expect get everything right and to ask for missing information where the employer has failed to supply it. On the other hand an elderly person, who may be easily confused, may be forgiven for putting income in the wrong box. HMRC won’t know the circumstances under which the taxpayer completed their return until you tell them. 

You can also ask HMRC to consider a “special reduction” for the special circumstances of the taxpayer outside the formal appeals process. Do this by asking for an internal review, and give as much detail about the taxpayer’s sorry story as possible.

Do ask one of our personal tax experts for guidance on claiming a special reduction for inaccuracy penalties if this is the first time you have encountered such a penalty.

This is an extract from our tax tips newsletter dated 26 February 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Really Timely Intervention, Rentals and renewals, Pension Freedoms

Groundhog Day is celebrated on 2 February in Pennsylvania, but HMRC thinks it falls on 17 February in the UK, as once again they have changed the conditions for RTI penalties, as we explain below. We also re-examine the application of the renewals basis to the cost of valuable items in unfurnished let properties, and supply words of warning for clients who are getting excited about accessing their pension savings.

Really Timely Intervention

In our newsletter on 11 September 2014 we said that RTI is a SNAFU mess, and so it continues. The fact that HMRC have introduced yet another penalty concession is evidence that the system still is not working as it should. 

Late filing penalties for RTI returns came into effect for employers with 50 or more employees from 6 October 2014, and are due to apply for all other employers from 6 March 2015. Those dates still apply but HMRC has said it will not issue a late filing penalty if the FPS is submitted within 3 days of the payment date (the date the employees are contractually due to be paid), or there is another valid reason for submitting a late FPS.  

If a late filing penalty notice has already been issued, for a period since 6 October 2014, the employer (or you or their behalf) can ask for the penalty to be removed. Do this by logging an appeal via the online appeals system. Complete the “other” reason box with the statement “return filed within 3 days”, the penalty should be cancelled.  

Late payment penalties were also due to apply automatically from 6 April 2015. However, HMRC is now going to hold-back on the automatic button and issue late filing penalties on a risk-assessed basis. We assume this means HMRC will only issue a late filing penalty when it is very clear that PAYE was deliberately paid late. This should avoid penalties being issued for the many disputed amounts showing up on employers’ business tax dashboards (online accounts) as underpaid or estimated PAYE.  

This is an extract from our tax tips newsletter dated 19 February 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Company cars, Business rates, More problems with HICBC

How can you add value to the service you provide to clients - to go beyond the expected norms of filing every tax return on time? One way is to anticipate future tax charges and help your clients make the changes necessary to minimise those taxes. Two areas in which you can help are; the provision of company cars, and business rates, as we discuss below. We also have news of more problems concerning child benefit claw-back.

 

Company cars

How many of your clients still have a company car? Do they understand how much it costs them and their company in tax and NI charges? Perhaps you need to have that conversation again in light of the proposed increases in tax charges in the years ahead.

From 6 April 2015 all company cars will generate a benefit in kind charge, even electric cars will be taxed on 5% of their list price. The taxable benefit for other low emission vehicles (51-75g/kg) will leap up from 5% to 9% of the vehicle’s list price. The taxable benefit for all other cars will also increase by two percentage points, even for high emission cars, as the maximum taxable benefit is increasing to 37% of the list price.  

In 2016/17 a similar hike in taxable benefit will be applied, as the appropriate percentage of list will increase by two percentage points for all cars, except for those which are already taxed at the maximum of 37%. These changes were introduced by FA 2014, s 24. 

However, company car drivers are set to get royally stuffed in 2017/18 and beyond in the proposals in the tax and impact note released on 10 December 2014 come to pass. In that year and in 2018/19 each 5g rise in CO2 emissions will mean a two percentage point increase in the taxable benefit. Thus the table of appropriate percentages of list price will go up in 2% steps not 1%, as has previously been the case. “Classic” cars with no recorded CO2 emissions will also be hit with increased taxable benefit charges. 

  

Say your client’s company has just provided him with a new Lexus NX 300 H Sport, list price: £40,000, CO2 emissions: 121g/kg. In 2014/15 he will be taxed on 17% x £40,000:  £6,800 (reduced by the proportion of the year when the car was not available). In 2015/16 he will be taxed on £7,600. In 2016/17 the taxable benefit increases to £8,400, but in 2017/18 the taxable benefit leaps up to £11,600 (29% of list price)! If he keeps the company car for more than 4.5 years he will be taxed on the full price of the car.

 

This is an extract from our tax tips newsletter dated 12 February 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Minimising CGT, HICBC strategies, PAYE codes for 2015/16

Now that January is over it’s a good time to think about tax planning and benefit protection strategies for your clients. Those who are looking to sell their business need to plan to minimise CGT, and there is a new way to do this using EIS. Clients with young children want to protect their child benefit so need advice on how to keep their net income below the relevant thresholds for 2014/15. Finally we review the new features to watch out for in the 2015/16 PAYE codes.

Minimising CGT

Until recently individuals who wanted to minimise their exposure to CGT on the sale of a business had to choose between paying 10% CGT by claiming entrepreneurs’ relief (ER), or to defer the gain using the Enterprise Investment Scheme (EIS) or the new Social Investment Tax Relief (SITR).

The gain subject to the ER claim can’t be deferred, as it has already been taxed. When the gain is deferred by investing in shares issued under EIS, or shares or debt issued under SITR, no CGT is payable immediately. But that gain becomes subject to CGT when the EIS or SITR investment is disposed of, or when the investment conditions are broken. At that stage it is normally too late to claim ER, and anyway a claim for ER would mean 10% CGT becomes payable retrospectively based on the date of the sale. 

However, for investments in EIS or SITR made on after 3 December 2014 the individual can choose to defer a gain, and then claim ER when that investment is disposed of. Thus your client can defer a gain that qualifies for ER, and then take advantage of the 10% rate of CGT by claiming ER when the deferred gain falls back into charge.

Remember a gain can be deferred by investing in EIS/ SITR up to three years after the date the gain was made, or one year before that date. So even if your client has already made a large gain, it is not too late to use the EIS instead of ER. 

This is also a useful mechanism for splitting a large gain into smaller gains that can be covered by the taxpayer’s annual exemption. The EIS shares can be disposed of in small tranches over a number of years, and at each disposal a relevant proportion of the deferred gain falls back into charge for CGT.

Do talk to one of our CGT experts if you would like further details on how this CGT planning works.

This is an extract from our tax tips newsletter dated 5 February 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>