How to determine if your worker is employed or self-employed following the new IR35 rules for the private sector from April 2021

Buoyed by the apparent success of rolling out IR35 into the public sector, HMRC have extended IR35 rules to the private sector with effect from April 2021. If you employ anyone through their limited company or via an agency then you will need to consider the new IR35 rules – read our guide to help you understand more.

Continue reading

A beginner’s guide to tax compliance

If you are self-employed or run your own business, you are liable for submitting tax returns. Making sure you’re tax complaint is essential as the fines for not doing so could be hefty.

A recent global analysis undertaken by PwC concluded that the UK has the second most effective tax system of the G20 countries. Whilst this sounds like good news, when compared with all countries, we’re a lot further down the list at number 23. Researchers concluded that Qatar has the simplest system which required a medium-sized company to spend only four hours on completing their tax return. In the UK, the average is 110 hours!

HMRC tax compliance

If HMRC is unsure you have submitted your return correctly, they will do a compliance check to make sure you are paying the right amount of tax. It could just be someone calling you to double check a figure if they think there’s been a simple error or to undertake a more thorough check on your return, or even a major investigation.

According to the HMRC website, if they intend to do a compliance check, you or your accountant will be contacted and asked to make certain information available for checking. This could be your accounts, tax calculations, your personal or business tax return, or PAYE records. Once they have been checked, you will receive notification and will be either asked to pay any additional tax due within 30 days or if it turns out that you have paid too much tax, you will receive a rebate.

There is a possibility that you may be asked to pay a penalty depending on the reason for the check and how helpful you’ve been.

Deadlines and period covered

The tax year runs from 6 April to 5 April the following year.

HMRC has two deadlines for filing your tax returns. If you are completing your tax return on paper (form SA100), you must return it by midnight on 31 October following the end of the tax year in point. If you are completing your return online, the deadline is midnight on 31 January following the tax year. If you are up to 3 months late, you will incur a penalty of £100 – and the longer you leave it, the greater the fines.

Any taxes owed must be paid by 31 January following the relevant tax year.

The advantages of using an accountant

By asking an accountant to complete your tax return, you will not only be saving yourself valuable time which could be better devoted to doing what you’re good at, i.e. running your business, but also less likely to need a compliance check because it will be completed accurately.

When choosing an accountancy firm to manage your tax services– look for one with a good reputation for high-quality work, great customer service and long-term relationships with clients.

 

General Data Protection Regulation (GDPR)

The new procedures under GDPR for businesses will come into effect on 25 May 2018, and there are unlimited fines for failure to comply.  Although this is EU legislation, it will not be affected by Brexit.

The procedures cover how you store and protect customer data, how long you retain such data, and what customers can require you to do in connection with that data.

In general, you will be treated as a data processor or a data controller, or both.

Personal data is a valuable commodity and can be used for criminal purposes or commercial marketing.  It, therefore, needs to be protected by all reasonable means.

The purpose of the regulation is to ensure that customers can find out quickly what data you hold on them and can require you to amend or delete that data.  Most importantly, you have a responsibility to keep the data safe and to notify any affected customers and the Information Commissioner’s Office (ICO) of any security breach within 72 hours of becoming aware of that breach.

It will be important to educate all personnel by publishing a statement of best practice and preparing a risk assessment to demonstrate that you have taken reasonable steps to comply with the legislation and so far as possible to prevent security breaches from happening.

In view of the administrative and reputational costs of cyber security breaches, particularly if you hold information for a large number of customers on your computer system, it may be worth considering insuring against this risk.  Bear in mind, however, that this type of insurance is probably best purchased on a bespoke basis, because generic policies are likely to contain exclusions which could render them worthless.

It will be sensible to ensure that regular backups are taken of computer data files and that these backups are kept for an appropriate period and are securely stored so that they will not be tainted if the main system is hacked.  It is also important to ensure that employees do not open e-mail attachments unless they are absolutely certain that the e-mail is genuine.  There have been cases where the sender’s e-mail address is very slightly different from a genuine address you might expect.  A recent version of this sort of scam involves attaching an “invoice” and asking you to check it is correct.  By doing so, you may infect the entire system, possibly with ransomware which asks you to pay a fee or lose all your data.  Even if there is no apparent immediate effect, some infiltrations can lay dormant for months or even years gathering valuable information.

You should also consider encryption of outgoing e-mails in case these are intercepted.

Although this article refers to “customers” the regulation also applies to any other personal data you may hold.  It does not appear to be restricted to information held on computer or “in the cloud” so you could be at risk if an employee leaves personal files in an unlocked car and they are stolen, for example.

Tax update for individuals holding buy to let properties

In this blog we will outline some of the tax implications that individuals who own a buy to let property, or are considering purchasing a buy to let property, should be aware of.

Changes to the level of interest relief available

  • From the 6 April 2017 onwards, the level of interest that can be deducted from rental income received from the let of a residential property will be restricted, this measure will be introduced gradually over three years
  • Finance costs include mortgage interest, any payments that are equivalent to interest, and incidental costs of obtaining finance, such as fees and commissions, legal expenses for negotiating drafting loan agreements or valuation fees required to provide security for a loan

 

  • From the 2017/18 to 2019/20 tax year, landlords will be able to deduct a certain percentage of the total finance costs from the rental income received, the remainder of the finance costs will then be deducted as a tax credit from the overall tax liability. The specific percentages for each tax year are highlighted below:

 

  • During the 2017/18 tax year the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction

 

  • During the 2018/19 tax year, the deduction from property income will be restricted to 50% of the finance costs, with the remaining 50% being given as a basic rate tax reduction

 

  • During the 2019/20 tax year, the deduction from property income will be restricted to 25% of the finance costs, with the remaining 75% being given as a basic rate tax reduction

 

  • From 2020/21 all financing costs incurred by a landlord will be given as a basic rate tax reduction

 

  • The tax reduction works by taking the mortgage interest suffered during the tax year and multiplying it by 20%, this amount will then be deducted from your overall tax bill

 

  • If your adjusted total income does not exceed the basic rate band (currently £32,500 for 2017/18, plus personal allowance of £11,500) you will not be affected by the changes

Replacement of Domestic items relief

  • From April 2016, landlords will no longer be able automatically to deduct 10% of their rental profits as notional wear and tear. They will be able to claim tax relief only on costs they have incurred, such as if they have bought a new sofa or bed for the property

 

  • Landlords will also have to start to keep receipts. Previously, landlords could write off the 10% even if they had not spent a single penny on repairs or replacements

Stamp Duty Land Tax

  • Stamp duty land tax (SDLT) rates for buy to let and second properties changed on 1 April 2016, and now include a 3% additional surcharge on top of the normal SDLT rates

Capital Gains Tax (‘CGT’)

  • CGT will be levied when you sell a property that is not your home

 

  • If you have lived in the property for some time prior to it being let before you may be entitled to principle private residence relief and lettings relief. For this relief to be in point, you must have treated the property as your ‘only or main home’ for a period of time

 

  • CGT has been increased for residential properties recently, and is now charged at either 18% or 28%

 

If you would like any further advice regarding buy to let properties, or any other assistance on tax matters, please do not hesitate to contact Amy Armitage (Tax Manager), John Neighbour (Tax Director) or any other member of the HB team on 01992 444466

After you sell your company

 

If you own shares in a family trading company they are treated as business property for inheritance tax (IHT) purposes and can pass to your heirs tax-free on your death.

If the next generation are not interested in carrying on the family business, you may decide to sell the shares.  The problem with this is that the money you receive will not be business property and will therefore be charged to IHT (probably at 40%) if you still have it when you die.  You will also be charged capital gains tax (CGT) at 10% or 20% when you sell the shares.

If, within the period beginning one year before the sale and ending three years after the sale, you reinvest some or all of the proceeds in a qualifying Enterprise Investment Scheme (EIS) investment, you can hold-over the capital gain.  If you reinvest within two years after the sale you will also retain the IHT business property relief.  Whether or not you claim to defer the capital gain, you will also be able to claim 30% of the amount invested against your income tax liability.  That income tax relief can be split between the tax year during which you acquire the EIS investment and the previous tax year.  There will be no capital gains tax payable on the sale of the EIS investment if held for at least three years (any deferred gains tax would, however, be payable on that occasion), but any losses can be set off against gains arising in the same or future years (including the deferred gain).

The income tax relief is restricted to an EIS investment of £1 million.

EIS investments are regarded as high-risk and your investment would not be protected.  However, some qualifying investments are asset-backed and some can even provide an income-stream.

August Tax Update

 

Welcome to HB Accountants Monthly Tax Update for July 2017.  In this month’s update, we will be outlining the Common Reporting Standard (‘CRS’) and what it means for our clients and contacts.

What is the CRS?

The Common Reporting Standard, generally known as the Global FATCA, is a regulation initiated by the OECD, aiming at preventing tax evasion and leading to a global automatic exchange of information between CRS-participating jurisdictions.

 

Which countries will be adopting the CRS?

The governments of over 100 countries have so far committed to the automatic exchange of information and the list is still growing.

The UK has committed to commence automatic information exchange, along with 56 other jurisdictions, by September 2017.

 

Which financial institutions are required to report?

Financial institutions that may have a duty to report include:

  • Banks (including local banks)
  • Custodial institutions
  • Trust companies
  • Brokers
  • Insurance companies
  • Collective investment vehicles
  • Investment managers and funds.

Which accounts are reportable?

The accounts that are reportable under the CRS include accounts held by individuals and entities i.e. trusts and foundations.

 

Details and information to be reported

The following information will be reported  

  • Personal information: Name, address, taxpayer identification number (e.g. UTR number in the UK), date of birth and place of birth of account holder
  • Country of residence of the account holder
  • For entities – the above for each controlling person
  • The account details
  • The financial institution’s details

The following financial information will be reported:

  • The account balance
  • Interest, dividends, and sales proceeds from financial assets
  • The applicable currency of the account

How will the CRS affect me?  

Financial institutions will be required to identify customers who are tax resident in one country but have financial accounts held in another for reporting purposes. To do this they will need to collect and report certain information on the ‘reportable person’ and their financial accounts to the local tax authorities.

The above means that HM Revenue & Customs (HMRC) and other tax authorities around the world will now have access to a vast amount of data, so it is becoming progressively more important for account holders to regularise their tax affairs at the earliest opportunity, as the penalty and disclosure regime will become much less favourable following the implementation of the CRS.

 

How can I bring my tax affairs up to date prior to the implementation of the CRS?

The Worldwide Disclosure Facility (‘WDF’) opened on 5th September 2016, this facility allows anyone to disclose a UK tax liability relating either wholly or partly to an offshore issue to HMRC.

 

Why Should I use the WDF?

HMRC has stated that the WDF is the final chance to put things right for those individuals with outstanding UK tax liabilities on undeclared offshore money or assets.

This last chance comes before HMRC starts to receive an unprecedented amount of data on offshore accounts held by individuals with a footprint in the UK.

Sanctions facing those who have not come forward already or use the WDF will be far tougher in the future, with the potential prospect of minimum penalties of 100% of the tax due and an increased chance of criminal prosecution.

 

How can HB Accountants help?

The HB Accountants tax team have experience in making disclosures to HMRC including via the WDF. HB accountants can assist you with computing any liabilities due under the WDF and assist you with approaching HMRC to ensure you minimise your financial exposure.

If you would like any further information regarding the above, or have any queries, please do not hesitate to contact John Neighbour (Tax Director), Amy Armitage (Tax Manager) or any other member of the HB Accountants team on 01992 444466.

Finance Bill 2017 Reinstatement & New Timetable for Making Tax Digital (‘MTD’)

The government has announced that all measures dropped from the Finance Act will be reinstated in a Second Finance Bill which will be introduced as soon as possible after MPs return to parliament in September.

All policies originally announced to start from April 2017, including the significant changes to the taxation of non-domiciled individuals and loss relief for companies, will be effective from this date.

The government has also confirmed an amendment to the implementation of Making Tax Digital (‘MTD’). Under the reformed timetable from 2019, businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records, for VAT purposes only. 

Businesses will not be asked to keep digital records, or to update HM Revenue & Customs (HMRC) quarterly, for other taxes until at least 2020 under the reformed proposals. MTD will also be available on a voluntary basis for the smallest businesses, and for other taxes.

Financial Secretary to the Treasury and Paymaster General Mel Stride said:

“Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms. We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.”

The changes to MTD follow widespread concerns voiced about the initial implementation timeline, with the House of Lords Economic Affairs Committee saying the previous timetable for implementation of MTD was “rushed” and that many small firms were not ready to cope with the additional administrative and financial burdens of digital taxation.

The changes will be legislated as part of the second 2017 Finance Bill which is to be introduced after the parliamentary summer recess.

For further information or any queries you may have regarding the above, please do not hesitate to contact John Neighbour (Tax Director), Amy Armitage (Tax Manager) or any other member of the HB team on 01992 444466.

Posted in Tax

Car Fuel Benefits

We have for several years been reminding clients that “enjoying” free car fuel from their employer for their private mileage can often be a bad deal.

If, for example, you have a diesel car with CO2 emissions of 140 grams per kilometre, you pay 120 pence per litre for fuel, manage an average of 35 miles per gallon, and are a 40% taxpayer, you would need to drive more than 17,000 private miles during the current tax year before you were better off with the so-called benefit.

If, in the same situation, you are also the owner of the company, there would be the additional cost of Class 1A contributions on the benefit.  After corporation tax relief this would cost the company an extra £758 so you would need to clock up private mileage of over 22,000 miles before you were ahead of the game.

Even with a petrol driven car with CO2 emissions of 105 g/km, you would still need to drive more than 11,500 private miles (or 14,500 private miles for the company owner) in order to really benefit from “free” fuel.

If you are currently receiving free fuel and, in the light of the above, decide to stop, you will only be charged the fuel benefit for part of the tax year, provided you don’t revert to free fuel before the end of the tax year.

WARNING

However, if you already have a company car but no free fuel, and you decide to start taking the free fuel “benefit” you should make sure you do so at or close to the start of the tax year.  This is because you will be charged the benefit for the full tax year regardless of when you start to take the benefit.

As a worst-case scenario, if you stated to take private fuel with effect from 5 March, you would need to drive twelve times as many private miles as the numbers quoted above!

Posted in Tax

A Further Update on Making Tax Digital (MTD)

 

Because of the forthcoming General Election, the Government have been forced to cut down the size of the Finance Act (to a mere 156 pages!) in order to get essential tax provisions into law before Parliament is dissolved.

One of the omissions is MTD, although it is widely expected that this will be reintroduced after the election.

However, there has been more criticism of the proposals. The Office of Budget Responsibility has said that HMRC’s estimates of the improved tax take from MTC were highly uncertain and the House of Lords Economic Affairs Committee has also cast doubt on the estimates.

The Federation of Small Businesses has estimated that the introduction of MTD could cost businesses around £3,000 per year in time, salaries and fees.

Some member of the Treasury Committee have suggested that the Government should delay any implementation until a full pilot scheme has been run and assessed.

As ever with MTD, we will have to wait and see!