Yearly Archive 2018

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Benefits that don’t have to be reported to HMRC

There is no requirement to report certain routine expenses to HMRC. The types of expenses and benefits covered are referred to as exemptions and have replaced dispensations which no longer apply.

The business expenses and benefits that do not need to be reported (since April 2016) include: reimbursed costs to employees covering business travel, phone bills, business entertainment expenses and uniforms and tools for work. As an alternative to reimbursing the employee for actual costs incurred, HMRC’s benchmark rates or a special bespoke rate may be used. Employers only need apply for an exemption if they want to use a bespoke rate which needs to be approved by HMRC. Employers that agreed dispensations using bespoke rates prior to 6 April 2016 can continue using the bespoke rates for up to 5 years from the date they were agreed.

Employers must also ensure that they have a checking system in place to ensure that employees are making valid expenses claims. This requirement is usually satisfied by asking employees to submit or retain receipts as evidence of a valid expense claim. HMRC is clear that employees aren’t allowed to check their own expenses and that someone else within the company must be responsible to ensure a claim is legitimate.

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Check your State Pension age

A ‘Check your State Pension age’ tool is available at www.gov.uk/state-pension-age/y. The tool allows taxpayers to check the earliest age they can start receiving the State Pension. The State Pension age is based on a taxpayer’s gender and date of birth and is subject to change as the State Pension age increases. The tool can also be used to check a taxpayer’s Pension Credit qualifying age and when they will be eligible for free bus travel.

The Department for Work and Pensions, has confirmed that the Government intends to follow the recommendations made by John Cridland in his independent review of the state pension age to increase the State Pension to 68 between 2037–39, seven years earlier than planned. These changes will require legislation which is not expected to be put in place before the next State Pension age review that needs to be completed by July 2023.

The change will not affect anyone born before 5th April 1970. However, those born between 6 April 1970 and 5 April 1978 will see their State Pension age increase to between 67 and 68 depending on their date of birth. Those born after 6 April 1978 will see no change to their State Pension age which was already set at 68.

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Advise HMRC if you stop being self-employed

Any taxpayers that have ceased to be self-employed must advise HMRC of their change in status. There are a number of steps that must be followed if a taxpayer stops trading as a sole trader or if they are ending or leaving a business partnership. This is required so that HMRC can help to get the taxpayers affairs in order.

Taxpayers must send in a Self Assessment return by the relevant deadline and will need to work out their trading income, allowable expenses and any Capital Allowances. Taxpayers must also determine if they have any Capital Gains Tax (CGT) to pay.

They may also be able to claim back any overpaid tax or National Insurance. It is also important to check if there is an entitlement to tax relief by way of entrepreneurs’ relief, overlap relief and / or terminal loss relief. There are also other reliefs available that may reduce the amount of CGT due

Taxpayers that owe tax or National Insurance and have difficulty paying it, may be able to negotiate an agreement with HMRC for more time to pay. In addition, where a VAT registration was in place this will also need to be cancelled and anyone who employed staff will need to close their PAYE scheme and submit final payroll reports.

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Tax Diary January/February 2019

1 January 2019 – Due date for Corporation Tax due for the year ended 31 March 2018.

19 January 2019 – PAYE and NIC deductions due for month ended 5 January 2019. (If you pay your tax electronically the due date is 22 January 2019)

19 January 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2019.

19 January 2019 – CIS tax deducted for the month ended 5 January 2019 is payable by today.

31 January 2019 – Last day to file 2017-18 Self-Assessment tax returns online.

31 January 2019 – Balance of Self-Assessment tax owing for 2017-18 due to be settled on or before today. Also due is any first payment on account for 2018-19.

1 February 2019 – Due date for Corporation Tax payable for the year ended 30 April 2018.

19 February 2019 – PAYE and NIC deductions due for month ended 5 February 2019. (If you pay your tax electronically the due date is 22 February 2019)

19 February 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2019.

19 February 2019 – CIS tax deducted for the month ended 5 February 2019 is payable by today.

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Amendments to UK data protection law in the event of a no deal Brexit

Following the publication of its technical notice in September 2018 on “Data protection if there’s no Brexit deal”, the government has now published an online summary covering what amendments would be required to UK data protection law in the event of a no deal Brexit.

The European Union (Withdrawal) Act 2018 (EUWA) will retain the GDPR in UK law, but the government will make appropriate changes to that and to the Data Protection Act 2018 using regulation-making powers under the EUWA to ensure the UK data protection framework continues to operate effectively when the UK is no longer in the EU.

In the event of a no deal Brexit, the summary confirms that:

  • The responsibilities of UK data controllers will not change and the same GDPR standards will continue to apply in the UK
  • The UK will transitionally recognise all EEA states, EU and EEA institutions and Gibraltar as providing an “adequate” level of protection for personal data, which means that personal data can continue to flow freely from the UK to these destinations after exit day. However, the UK cannot provide for the free flow of data into the UK from other jurisdictions and therefore alternative mechanisms for such transfers will be required to be put in place by UK organisations, e.g. Standard Contractual Clauses (SCCs)
  • Existing adequacy decisions made by the EU concerning countries outside the EU will be preserved by the UK on a transitional basis
  • Existing SCCs issued by the European Commission will also continue to be an effective basis for international transfers from the UK in the event of no deal (with the Information Commissioner’s Office (ICO) having the power to issue new SCCs after exit day)
  • Existing authorisations of Binding Corporate Rules (BCRs) made by the ICO will continue to be recognised in domestic law
  • The extraterritorial scope of the UK’s data protection framework will continue to apply. However, the UK will require controllers based outside of the UK to appoint a representative in the UK where certain processing conditions are met.
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VAT on property service charges

A new Revenue and Customs Brief (6-2018) entitled VAT exemption for all domestic service charges has recently been published by HMRC. The brief explains changes to the Extra Statutory Concession (ESC) 3.18 VAT: exemption for all domestic service charges may be applied. The ESC was introduced in February 1994 to enable the same VAT treatment on mandatory service charges to a freehold occupant as to a leaseholder or tenant living on the same common estate.

In the Brief, HMRC identified a number of scenarios where ESC 3.18 has been applied incorrectly. This in part followed a decision by the Upper Tribunal that confirmed if a landlord is contractually obliged to provide services to the occupant of a property, and uses a property management company or similar, to provide these services, the property management company cannot use the concession. This means that the concession does not apply to management fees charged by a management company, accordingly, their fees will be taxable at the standard rate of VAT.

HMRC is reminding all property management companies, and companies supplying similar goods and services in similar situations, who have not correctly applied ESC 3.18, that since 1 November 2018, they must correctly account for VAT. VAT information sheet 07/18 provides further guidance on this subject. Property management companies must ensure that the right amount of VAT incurred on costs and overheads is recovered.

Planning note

Residents affected by these changes could see an increase in their service charges of between say 10% to 20%. The actual amounts involved will depend on the VAT status of individual managing companies. Management companies taking care of small developments should not be affected.

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Citizens’ rights in the event of a no deal Brexit

The government has published a policy paper on what might happen to EU citizens in the UK and UK nationals in the EU in the event of a “no deal” Brexit.

The government has confirmed that those EU citizens and their family members who are resident in the UK by 29 March 2019 will have their rights protected, i.e. they will be able to stay and will continue to be able to work, study and access benefits and services in the UK on the same basis as they do now.

To achieve this, the UK will continue to run the EU Settlement Scheme for those who are resident in the UK by 29 March 2019 in a “no deal’” scenario. However, there would be some necessary changes to the scheme:

  • As there would be no agreed transition period, this guarantee would only apply to EU citizens who are resident in the UK by 29 March 2019, i.e. there is no guarantee of a right to live and work in the UK being given for those EU citizens for arrive in the UK on or after 30 March 2019
  • EU citizens would only have until 31 December 2020 to apply for a status under the EU Settlement Scheme, i.e. there would be no six-month “grace period” beyond this
  • EU citizens would have the right to challenge a refusal of status under the EU Settlement Scheme by way of administrative review and judicial review, in line with the remedies generally available to non-EEA nationals refused leave to remain in the UK. There would be no preliminary reference procedure to the Court of Justice of the European Union, as it would not have any jurisdiction in the UK.

The government is also calling upon the EU and the other EU Member States to take the same steps to reassure UK nationals in the EU that they can stay in the country where they currently live and have their rights protected.

Finally, the UK is seeking citizens’ rights agreements with the EFTA states (Iceland, Liechtenstein, Norway and Switzerland) to protect the rights of citizens. In the event of “no deal” with the EU, the UK would still pursue agreements with the EFTA states to ensure that EFTA nationals and their dependants resident in the UK, and UK nationals and their dependants living or working in one of the EFTA states, by 29 March 2019 will have their rights protected.

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When you can utilise overlap relief

The assessment of self-employed or partnerships profits is usually relatively straight-forward if the accounting date, to which accounts are prepared annually, falls between 31 March and 5 April. However, overlap profits can arise where a business year end date is not coterminous with the end of the tax year.

Overlap profits can happen in the first 3 years of the business or in any year in which there is a change of basis period because of a change of accounting date.

For example, if your business is incorporated on 1 January 2018 and your chosen year end date is 31 December 2018, your basis periods are:

  • 2017 to 2018, 1 January 2018 to 5 April 2018
  • 2018 to 2019, 1 January 2018 to 31 December 2018

The portion of accounts from 1 January 2018 to 5 April 2018 is therefore taxed twice and is known as overlap profit.

Overlap profits relief can be used to reduce the profits on the final tax return when the business ceases trading or if the accounting period changes. Overlap relief is a mandatory deduction. The full amount of the relief available for a particular tax year must be given as a deduction for that tax year. No part of the deduction can be waived.

If overlap profits were created some time ago, and profits have been declining in recent years, it may be prudent to consider a change of accounting date closer to, or at the end of, the tax year. In this way, the overlap profits can be deducted, and tax liabilities reduced at a beneficial time for the business or partnership. There can also be Income Tax and National Insurance savings.

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HMRC writes to taxpayers in Wales

HRMC has written to two million taxpayers in Wales concerning the introduction of the Welsh rates of Income Tax (WRIT) from 6 April 2019. The WRIT will be payable on the non-savings and non-dividend income of those defined as Welsh taxpayers and WRIT taxpayers will receive a new tax code, starting with C for Cymru. A proportion of the revenue from the Welsh rates of Income Tax will go to the Welsh Government.

To effect this change the UK government will reduce each of the 3 rates of Income Tax – basic, higher and additional rate – paid by Welsh taxpayers by 10p from next April. Each year, the Welsh Government will then decide the 3 Welsh rates of Income Tax (the Welsh basic rate; the Welsh higher rate; and the Welsh additional rate), which will be added to the reduced UK rates. The combination of reduced UK rates plus the Welsh rates will determine the overall rate of Income Tax paid by Welsh taxpayers. The WRIT will be administered by HMRC on behalf of the Welsh Government.

The Welsh Government has proposed to set the Welsh rates of Income Tax at 10p for 2019-20. This means that the rates of Income Tax paid by Welsh taxpayers, would continue to be the same as those paid by English and Northern Irish taxpayers at least for the first year. As the Welsh rates of Income Tax are not a discrete tax they continue to be covered by existing UK double taxation agreements.

The definition of a Welsh taxpayer is generally focused on the question of where a taxpayer lives. If the taxpayer has one place of residence or a main residence in Wales, then they will be defined as a Welsh taxpayer.

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UK VAT claims by non-EU businesses

The VAT paid in other EU countries is often recoverable by VAT-registered businesses in the UK, who bought goods or services for business use. The amount of VAT that is refundable depends on the other countries’ rules for claiming input tax. It is important to note that VAT incurred in foreign countries can never by reclaimed on a domestic UK VAT return.

There are special rules for businesses established outside the EU submitting a claim for VAT incurred in the UK. The deadline for the submission of a refund request for expenses incurred in the UK by non-EU businesses during the period 1 July 2017 – 30 June 2018, is 31 December 2018. There are a number of conditions which must be met in order for a claim to qualify.

The form that should be used by these businesses to submit a claim is called a VAT65A form. The accompanying notes explain how the form should be completed and includes details of what other alternative versions can be used in place of a VAT65A.