Category Archive blog

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VAT – motor dealer deposit contributions

A new Revenue and Customs Brief 7/18 has been published by HMRC concerning their policy on the VAT accounting treatment of promotions, where payments are said to be made by motor dealers to finance companies on behalf of the end customer. These are usually known as dealer deposit contributions (DDC) in the motor retail trade and have been the subject of different VAT accounting treatments by motor dealers.

HMRC views DDCs as a discount on the headline price charged by the dealer. The DDC is shown on the finance and sales documentation and is agreed by all the parties to the transactions before these take place. There is no retrospective adjustment to the amount the customer will pay, nor the amount the finance company will pay the dealer.

VAT is therefore due on the discounted amount actually charged to the finance company and the customer. Any VAT that has been miscalculated must be corrected. The dealer must either make a section 80 claim for overpaid output tax or adjust their VAT returns following the normal error correction process explained in VAT notice 700/45.

Finance houses do not have to make any corrective action. They can make a section 80 claim for overpaid output tax but must offset the input tax they claimed on the invoices from the dealer. There is therefore nil net tax to adjust.

This HMRC brief is not concerned with manufacturer deposit contributions (MDC), which are promotions where the manufacturer or importer of the vehicle make a contribution to reduce the amount that the customer has to pay for the vehicle.

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How to challenge your Council Tax listing

The Valuation Office Agency (VOA) is a government body in England and Wales and an executive agency of HMRC. The Agency values properties for the purpose of Council Tax and for non-domestic rates in England and Wales. The council tax bands were set on 1 April 1991 for England, and on 1 April 2003 for Wales and range from Band A – F.

If you believe that your council tax listing is incorrect, you can challenge this with the VOA. A new version of the Council Tax challenge form to submit to your council tax listing has recently been published. This form is used if you believe that your council tax band is wrong. An appeal against your current band can be made online for various reasons.

This includes:

  • You disagree with an alteration to your properties banding made by the VOA.
  • You are new to the property in question and feel the valuation band too high or low.
  • The property is no longer a dwelling.
  • The property is new or has only recently become used for domestic purposes.
  • Change in a property e.g. flats merged into a house of vice versa.
  • The valuation band does not take into account a relevant decision of a local Valuation Tribunal or the High Court.

When submitting the form, you should include the reasons why you think the Valuation List should be altered, and include documentary evidence where possible. You can also appoint someone else to challenge your council tax listing on your behalf.

If you live in Scotland, then you need to use the Scottish Assessors portal website to check your Council Tax band and if necessary lodge a claim with them (known as a proposal).

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Will I pay tax when coming to the UK?

The statutory resident test (SRT) is used to determine if someone is resident in the UK for tax purposes when coming to the UK. Historically, residence in the UK was determined by being in the UK in excess of 182 days in any tax year (6 April to 5 April) or by being resident in the UK for an average of 91 days in any tax year, taking the average of the tax year in question and the three previous tax years.

This changed with the introduction of the SRT from 6 April 2013. The SRT consists of the three separate tests which are intended to provide greater certainty as to a taxpayers residency status. For the majority of taxpayers, it will be clear that they are resident in the UK if they:

  • spend 183 or more days in the UK in the tax year
  • have a home in the UK, and don’t have a home overseas
  • work full-time in the UK over a period of 365 days

However, for taxpayers with complex circumstances there are further tests using the SRT that provide more clarity as to their residency status in the UK.

The three tests which comprise the SRT are as follows:

  1. An automatic non-residence test.
  2. An automatic residence test.
  3. A ‘sufficient ties’ test.

Planning note

There are also special rules for those coming to work in the UK as an employee or as a self-employed person, as well as a special scheme for taxing the income of foreign entertainers and sportspersons who come to perform in the UK.

If you are concerned with your UK tax status, please call for advice.

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Tax Diary August/September 2018

1 August 2018 – Due date for Corporation Tax due for the year ended 31 October 2017.

19 August 2018 – PAYE and NIC deductions due for month ended 5 August 2018. (If you pay your tax electronically the due date is 22 August 2018)

19 August 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2018.

19 August 2018 – CIS tax deducted for the month ended 5 August 2018 is payable by today.

1 September 2018 – Due date for Corporation Tax due for the year ended 30 November 2017.

19 September 2018 – PAYE and NIC deductions due for month ended 5 September 2018. (If you pay your tax electronically the due date is 22 September 2018)

19 September 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2018.

19 September 2018 – CIS tax deducted for the month ended 5 September 2018 is payable by today.

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New points-based late filing penalties

The Finance Bill 2018-19 draft legislation includes a new measure to introduce a points-based penalty system for certain regular (e.g. monthly, quarterly and annual) returns that are filed late. The introduction of a points system was first announced at Autumn Budget 2017 and will operate in conjunction with HMRC’s Making Tax Digital (MTD) initiative.

The changes will initially apply to regular VAT and Income Tax self-assessment obligations. Corporation Tax late filing penalties are not included within the scope of the current proposed legislation. However, it is the government’s intention to extend the new points-based penalty system to the Corporation Tax regime in due course. The government plans to roll-out the implementation of the new regime starting with VAT filing obligations from 1 April 2020. No timetable has yet been announced in relation to the introduction of the new penalties regime for Income Tax self-assessment.

Under the new system, a defined number of penalty points will be given where a regular tax filing is made late. The amount of penalty points will depend on several factors. When a taxpayer is given penalty points this will not mean an automatic penalty will be levied. A penalty will only be levied when a pre-defined points threshold has been reached. The points issued will be set to expire after a fixed period of compliance by the taxpayer. There will also be a new process under which penalties and points can be appealed and reviewed. HMRC will publish further details in due course. Presently, no penalty rates have been published.

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HMRC security deposit regime to be extended

The security deposit legislation is to be extended to both Corporation Tax and Construction Industry Scheme (CIS) deductions from April 2019. The security deposit regime allows HMRC to require security from high-risk businesses where there is a serious risk that taxes owed will not be paid.

At present HMRC’s security deposit powers only apply to VAT, PAYE and National Insurance Contributions, Insurance Premium Tax (IPT) and some environmental and gambling taxes. This measure will give HMRC the power to require securities in relation to Corporation Tax and CIS deductions.

There are many reasons for non-payment of tax to HMRC including phoenixism where businesses evade tax by becoming repeatedly insolvent and a new company being set-up. These measures also target businesses that build up large debts to HMRC. The extension of these powers to Corporation Tax and Construction Industry Scheme (CIS) deductions will help target businesses that seek to fail to comply with their tax obligations.

The required security will usually be payable by electronic payment to a specified HMRC bank account, by cheque, by banker’s draft, a specified bank guarantee or by way of a payment into a joint HMRC/taxpayer bank account. The amount of security required is calculated on a case by case basis. If the business does not meet HMRC’s security deposit requirement they will have committed an offence and will be subject to a fine. Businesses required to pay a security deposit will have the option to appeal any decision by HMRC.

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Change to penalties for late payment of tax

Plans to introduce a new two tiered penalty system for individuals and businesses that do not pay their tax bills on time have been included in the draft Finance Bill 2018-19. The government has said that the new late payment penalty regime will help to ensure that those who pay their tax on time are not disadvantaged by those who do not and to incentivise payment on time where possible. There will also be measures put in place to ensure that taxpayers who have a reasonable excuse for not making a payment on time are not disadvantaged.

The new regime will initially apply to regular VAT, CT and Income Tax Self Assessment obligations. The penalties will consist of two separate penalty charges. The first charge will be based upon payments and agreements to pay in the first 30 days after the payment due date. If a payment is made within 15 days of the due date no penalty will be payable, a reduced penalty will be payable if payment is made between 16-30 days. After 30 days a full penalty will be charged. A second charge based upon how long the debt remains outstanding will start to be levied after 30 days and will continue until the debt is repaid in full.

HMRC will publish further details including the rates of the penalties in due course. A staged implementation of the measure is expected to start with VAT from 1 April 2020.

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VAT and gift vouchers

New draft legislation has been published as part of the draft Finance Bill 2018-19 that aims to change the VAT treatment of vouchers. The legislation will focus on bringing the UK VAT treatment of vouchers in line with that published in the EU directive. Notwithstanding the Brexit negotiations, the UK continues to be a member of the EU for the time being and this legislation will help remedy a long running saga concerning the VAT treatment of vouchers.

The new legislation is not concerned with the scope of VAT and whether VAT is due, but with the question of when VAT is due and – in the case of multi-purpose vouchers – the consideration upon which any VAT is payable. The changes will apply to any vouchers issued on, or after, 1 January 2019 and will introduce a common VAT treatment of vouchers across the EU.

The new rules will see a consistent approach to the VAT treatment of vouchers especially those that involve more complex scenarios: where vouchers can be used in the UK and across the EU. This will help ensure that the correct amount of VAT is charged irrespective of the payment method used. This in turn will help stop the double-taxation or non-taxation of goods or services purchased with the use of a voucher.

HMRC has said they will take a pragmatic approach to businesses experiencing any difficulties complying with the new rules especially as the changes will be implemented over the busy Christmas holiday period.

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Corporation Tax relief for carried forward losses

The rules for the Corporation Tax treatment of carried forward losses changed from 1 April 2017. The changes increased flexibility to set off carried forward losses against total profits of the same company or another company in a group whilst at the same time introducing new restrictions as to the amount of profits against which carried forward losses can be set.

A number of further changes to the Corporation Tax treatment of carried forward losses rules were included in the draft Finance Bill 2018-19. These measures make some amendments to the reform of loss relief rules to correct some anomalies.

The first change relates to the treatment of Basic Life Assurance and General Annuity Business (BLAGAB). We are told in HMRC’s policy paper that the inclusion of the special BLAGAB rules in the loss reform legislation created an unintended consequence that may result in relief for carried-forward losses being claimed in excess of that intended. Furthermore, the ‘BLAGAB rules’ do not fully meet the policy objective as they restrict losses using a measure of profit that is in part not subject to Corporation Tax and this can lead to excessive relief.

The other aspects of the legislation that require changes to ensure that they work as intended are as follows:

  • the deductions allowance 
  • terminal relief
  • transfer of a trade without a change of ownership
  • oil and gas losses

The change relating to BLAGAB was made effective from 6 July 2018 with all other changes expected to come into force from 1 April 2019.

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Requirement to correct tax due on overseas assets

The Requirement to Correct (RTC) legislation created a new statutory obligation for taxpayers with undeclared UK tax liabilities that involve offshore matters. The RTC applies to any person with undeclared UK Income Tax, Capital Gains Tax and/or Inheritance Tax liability concerning offshore matters or transfers relating to offshore tax non-compliance committed before 6 April 2017.

Information that is required to be provided to HMRC under the RTC rules must be provided to HMRC by 30 September 2018. This date coincides with the date when more than 100 countries will exchange data on financial accounts under the Common Reporting Standard (CRS). This data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received.

Once the deadline ends, any new disclosure will be subject to the new Failure To Correct (FTC) penalties which are more punitive that the existing RTC penalties. Also, taxpayers risk being publicly named and shamed. The FTC standard penalty will start at 200% of any tax liability not disclosed under the RTC and cannot be reduced to less than 100% even with mitigation.

Any taxpayers that are unsure as to whether or not they need to make a disclosure are strongly encouraged to check their tax position. The RTC rules are very complex and we can help review any historic issues and advise and assist with making any necessary disclosures to HMRC. A disclosure can be made using the Worldwide Disclosure Facility or possibly using alternative disclosure methods which may be more suitable. HMRC’s guidance on making a disclosure, deadlines and penalty reductions under the RTC has been updated.