Category Archives: Tax

Contractor loan schemes – HMRC offers settlement opportunity

 

 

Have you ever used a contractor loan scheme or alternative arrangement to be paid more tax efficiently than your salary?

If you have then you are probably now in receipt of correspondence from HMRC, offering you the chance to pay the tax and national insurance that you should have paid on the loans you have received.

This could be a substantial amount, however, the main thing we are telling people is not to panic – there are things you can do.

If you have a loan outstanding and you have the funds to repay it, then we advise that you do so before March 2019. You will still have to notify HMRC of the arrangement but the tax charge that arises on that date will not apply.

If you cannot repay the loan, then you need to understand what your potential exposure to tax and National Insurance will be. We can help you with that and arrange for a settlement contract to be agreed with HMRC.

Once the formalities are concluded, you can arrange to pay the amount you owe over a longer period of time and, depending on your circumstances, this could be five years or more.

So, if you think you may be affected by this and need some help to settle the matter, please get in touch with Julie Walsh (julie.walsh@pmm.co.uk or 01254 604312) as soon as possible.

Spring Statement 2018

Jane Parry, Tax Partner, comments on today’s Spring Statement announcements…

As expected, the Spring Statement was a bit of a non event which was refreshing as I know many businesses didn’t want another ‘mini budget’. They’re tired of hearing new policy announcements along with additional tax and spending measures; they simply want to focus their time and effort on growing despite the ever present uncertainty of Brexit and things like the Making Tax Digital regime and the looming shadow of GDPR.

The news around consultations on tackling the issue of single-use plastics and the taxation of the profits of digital giants like Facebook and Google is all well and good, but action is what’s needed not more consultations.

On a positive note, it was good to learn that tax receipts are covering day-to-day government spending for the first time since the 2008 financial crisis, that borrowing is £4.7bn lower than expected and that growth is slightly higher than forecast last year. However, we’ve still got one of the slowest growth rates in the G7 and public debt as a percentage of national income remains well above 80%.

The consultations on productivity improvement and tackling late payment are both good news for local businesses, as is the additional funding to help smaller businesses take on apprentices.

What I want to see from the Government over the next few months is simple: more clarity around Brexit and how it plans to help businesses grow by closing the skills gap and helping them to improve productivity. These are the real issues that need to be addressed, everything else comes second.

If you would like to discuss any of today’s announcements with the PM+M team, please call 01254 679131.

Festive tax tips

Tax on the Christmas Party

As the festive season gets underway, here are a few tax pointers to watch out for on rewarding employees this Christmas.

How much can you spend on employees at the Christmas party?

Throwing a Christmas party for your employees will be treated as an income tax exempt benefit, provided the cost of the party does not exceed £150 per head.  The limit is an all or nothing exemption which means if the limit is exceeded, say at £200 per head, the full £200 will be a taxable benefit for each employee.

You can provide your employees with two or more parties throughout the year, however the costs will only fall within the exemption if both parties combined do not exceed £150 per head. If the costs do exceed the limit you can choose which party best utilises the exemption of £150 per head and a taxable benefit will arise on the others.

Ancillary costs such as paying for transport to the party or accommodation will also count towards the £150 per head test.

Can you claim the VAT back?

Any input tax paid on the cost of a Christmas party can be recovered in full if the party is exclusively for employees, even where directors attend the party. This is subject to the normal partial exemption rules.

However, if non employees attend, for example if you invite spouses of employees, input tax recovery must be restricted and only the element relating to employees can be reclaimed.  You should be aware that any VAT incurred on the cost of providing the party, and any ancillary costs, will need to be included in the total cost against which the £150 limit is tested.

If the party is just for business owners/shareholders, input tax cannot be reclaimed.

T’is the season to gift an employee…

As an employer, you can give your employees Christmas gifts without them incurring a taxable benefit if it falls within the trivial benefit exemption. For the exemption to apply, each gift must not:

  • exceed a value of £50,
  • be cash or a cash voucher,
  • be a reward of services performed, or
  • be part of a contractual obligation.

If the gift meets the conditions listed above, it will be completely tax free. However, in close companies (generally, a company is “close” if it is privately owned and controlled by five or fewer individual participators) and the gift is to a director or officer of that company the total tax exemption for trivial benefits is capped at £300 per tax year.

Any cash gifts to employees will be treated as earnings and attract income tax and national insurance through the payroll in the normal way.

What about the VAT?

Any input tax paid on the cost of gifts to both employees or clients can be recovered in full under your normal VAT recovery rules.

If the value of gifts to any one person in a 12 month period is below £50, there is no need to consider output VAT.  However, if it exceeds £50 per person, you should account for output tax on the value of the gifts.

Autumn Budget 2017

Jane Parry, Tax Partner, comments on today’s Autumn Budget announcements…

All in all this Budget was a bit of a damp squib as the Chancellor had no real room for manoeuvre – thanks mainly to the ongoing saga that is Brexit.

In my opinion, it actually threw up more questions than answers, which isn’t great for a Government that needs to promote a sense of stability in what are pretty turbulent times.

It’s positive that he recognised that frictionless trade is important but there’s nothing he can really do to address it right now, as everything is dependent on the outcomes of our negotiations with Europe. The challenge will be to ensure that we don’t drown in a sea of trade bureaucracy once we reach 29th March 2019.

I was pleased to hear him reassert his support for the Northern Powerhouse. However, much of the focus was on Greater Manchester but what about Lancashire and Cheshire who, just like Manchester, need long overdue investment in both connectivity and digital infrastructure? There was quite a bit of talk about cities but not much about towns.

On a more positive note, he resisted the urge to meddle in the pension tax rules which I welcomed.  I also welcome the increased investment in training and growing relevant skills for the future.  Finding skilled people is a huge challenge for many businesses and anything that helps to boost the supply of those people is good news.

For me, this Budget was missing some vital ingredients. Firstly, more effort is needed to reduce the bureaucracy faced by businesses and help them deal with the pressures that Brexit will bring in this regard.  Also, instead of just increasing the main R&D tax credit to 12%, he could have flipped how it operates so it becomes a real time payment rather than retrospective claim. That simple switch would allow thousands of companies to put investment into R&D far more quickly as they would have the cash available.

Announcements like increasing the National Living Wage by 4.4% are great in theory and should really benefit lower paid workers, but it will put additional pressure on small businesses as a significant number of SMEs probably won’t be able to pass all of that new wage burden onto their own clients or customers.

Even though we knew there were never going to be any major shocks or giveaways I came away feeling pretty deflated; it all seemed a bit gloomy, one dimensional and pessimistic. The downgrading of the OBR forecasts goes against the success and growth stories that we are seeing with our clients every single day and I fear a weak Budget and a weak Government could make businesses and the general public feel jittery and ultimately drive down confidence needlessly.

HMRC tightens the net on offshore tax avoidance

Put simply, HMRC and other tax authorities worldwide are getting tougher on individuals, trustees and companies not paying the right amounts of tax. They are increasing their focus on tax compliance both onshore and offshore in a bid to ensure all tax payers are paying the right amount of tax.

HMRC has more data sharing facilities than ever before and data is already flowing into the UK from sources such as the US FATCA arrangement, Crown dependencies and overseas territories arrangement. The introduction of the common reporting standard from September 2017 means data will also be flowing in from over 50 countries already signed up to the exchange of information agreement. In addition, HMRC can now collect and handle large amounts of data via their computer system ‘Connect’ which as the name suggest, connects with lots of external sources of information such as the land registry, banks and other financial institutions, the DVLA and many more. All this global and national transparency means HMRC has access to more data than ever before and is using this to ensure taxpayer compliance in all areas.
UK taxpayers with offshore interests will soon be subject to new reporting obligations with severe penalties if they fail to comply. To assist taxpayers in understanding their obligations and to offer a way to correct past irregularities HMRC introduced the Worldwide Disclosure Facility – WDF.

It opened on 5 September 2016 and runs until 30 September 2018.  It has been introduced to enable taxpayers to disclose UK tax liabilities that relate wholly or partly to an offshore issue. That is, income arising outside the UK, assets situated or held outside the UK, activities carried on wholly or mainly outside the UK or funds connected to a UK liability transferred outside the UK.

Changing rules over recent years, particularly in relation to residence and domicile could now mean that even if you have taken advice in the past, this may now not be correct. As a first step, taxpayers with complex international tax affairs should review their position and, if need be, ask for a health check to be undertaken. If a disclosure is then required the WDF can be used.
To encourage and drive tax compliance this facility will offer taxpayers a final chance to clear up issues from the past and avoid the highest rate of penalties that HMRC can impose.

A key part of the WDF is known as the Requirement to Correct – RTC

The RTC requires taxpayers to disclose any outstanding UK tax related to offshore matters up to 5th April 2017. Taxpayers will have until the end of September 2018 to do this and if they do so, tax interest and penalties will be paid under the current rules. If this deadline is not met, additional penalties known as Failure to Correct penalties will be added to the settlement which will be a minimum of 100% of the outstanding tax. There will also be an asset based penalty for serious cases of 10% of the value of the asset on top of other penalties.

There are also separate further penalties which can be applied for offshore tax depending on the jurisdiction of the asset. This could be up to a further 200% of the tax not paid and depends on the jurisdiction of the territory.

Penalties generally under the disclosure agreements will be less severe if the disclosure is unprompted by HMRC and there has been no deliberate attempt to conceal the tax.
The message is therefore clear, if you believe you may have a requirement to disclose a previously undeclared source of income, either in the UK, overseas or both, you should use the current disclosure facilities available to ensure a better financial outcome and you should do it now. The penalties for being found out if you do not will be severe.

If you would like to discuss any related issues or need further advice or guidance please get in touch with Julie Walsh on Julie.walsh@pmm.co.uk or 01254 679131

Taxing times deliver opportunities

 

 

 

 

 

 

 

Every industry is being threatened by technological advancements, regulation changes and the challenge of finding and recruiting great staff. The accounting and tax industry isn’t immune, currently we are facing a multitude of problems;

  1.  Information flows that have become automated and confidentiality further restricted.
  2.  Regulations tightened both by government and by our own regulatory bodies.
  3.  Automation is improved within every business in the market and also within our clients
  4.  Recruiting bright and competent people becomes ever harder

In lots of ways it is healthy for the economy as a whole to allow technology to automate tax compliance. Perception suggests, there is little net benefit to the world from a tax return, often the stated opinion of my engineering and nursing friends.

It is however, fundamental to our society that the right type of tax is paid and that people are confident that the accurate amount of tax (and no more) is also paid. Ensuring the first and supporting the second is what we at PM+M do and will continue to do so.

Dealing with the environment we trade in, we see the key challenges to sustaining our business for the future to be:

  1. Building and developing relationships with clients who require human intervention in their tax processes. As automated as we can make it, tax is still a complex requirement
  2. Recruiting and developing a team with a broad range of ages and backgrounds to secure succession and communicate well with the varying cultures of our clients
  3. Retaining technical competence as the volume of legislation grows (and making sure we have all the necessary specialists either in house or reliably available elsewhere)

And most importantly;

4. Maintaining the culture of our firm and our partnership, after all there is no point in     running a firm if you can’t bring everyone on your journey.

One of the great things about a growing tax team that occupies 20% of your headcount, is that you can have your say to directly influence  the journey of the business, ensuring we all grow and succeed in an exciting period of evolution.

Our first and most important step has been to set out, by committing to a vision for our business, not because consultants told us to or because we thought it was trendy, but because asking ourselves and our team to commit to being “the best North West firm of finance professionals” allows us to drive change with integrity throughout the team. Those changes and the reinforcement of great things we have done that haven’t changed allow you to deal with the challenges the world throws at you.

The next key step was to re-emphasise to everyone within our team how important our culture and values are. We are hugely proud of the culture we have built and of our values of quality, achievement, fun and doing the right thing.

Based on our values, we are building a firm of bright and inspiring people who want to make a difference. We have committed to trusting in people and particularly trusting in youth – recruiting apprentices and graduates and investing in professional training, coaching/mentoring and interpersonal training. We have given our people at all levels freedom to express their personality and build fantastic relationships with clients.

The effect of our decisions, commitment, vision and values: A great motivated team; higher sales than ever; strong relationships with clients at all levels; and great quality and technical capacity.

We have now hit the point that our need is not how to manage and deal with individuals challenged by technology and regulation, it’s how to continue to lead them to continued growth and success – we need more leaders and particularly tax partners.

Feel free to call us if you are interested in joining us on our journey, we would love to hear from you.

Do I qualify for research and development tax credits?

What are research and development tax credits?

Research and development (R&D) tax credits are a government tax incentive for UK companies, especially small and medium sized enterprises (SMEs), designed to encourage investment in innovative products, processes and services.

The government announced in March 2017 at the Spring Budget its commitment to R&D tax incentives going forward, which is particularly helpful and reassuring post Brexit. There will be an additional £4.7 billion invested by 2020-21, which will include improving awareness of the R&D scheme amongst SMEs, as it is widely accepted by HM Revenue and Customs (HMRC) that only a small proportion of SMEs undertaking qualifying R&D have claimed the tax relief. This represents a significant opportunity for SMEs undertaking innovative activities that have yet to claim R&D tax credits.

What is it worth?

R&D tax credits are extremely valuable for SMEs and are worth the equivalent of up to 33% of a company’s R&D expenditure being available as a cash repayment from HMRC or reductions of tax bills.

What type of work qualifies for R&D?

Whilst the Government plans to increase certainty and simplicity around making R&D claims, currently HMRCs R&D conditions are very broad. Therefore, SMEs in most sectors and industries can potentially qualify for R&D tax relief.

If you are not sure if the project you are undertaking is scientifically or technologically feasible or you don’t know how to achieve the desired outcome, it is likely that your project will qualify for R&D tax relief. This is even the case where you have incurred expenditure but your project has not been successful.

The type of project work could include creating new products, services or in-house processes. It could also include significantly changing or adapting your current products, services or processes.

Basically, if you are doing something that your competitors are not doing and would be impressed by, there is a reasonable chance that it could qualify as an R&D activity.

What costs qualify?

The main cost is usually the salaries of people engaged in the R&D activity, including employer’s national insurance and any pension contributions. Other allowable costs typically include consumables, sub-contractor’s costs, software and some utility costs if these can be directly related to the R&D activities.

How we can help?

Here at PM+M we have a wealth of R&D experience and have made hundreds of successful claims on behalf of our clients. Each client and R&D project is unique, so at PM+M we offer a no obligation meeting with a member of our tax team. This allows us to understand your business and the type of project(s) you are working on, with a view to assisting you in starting to identify any qualifying R&D activities.

Below is a summary of our most recent R&D claims made on behalf of our clients:

  • Mattress manufacturer – unique mattress designs improving comfort and reducing heat retention. This claim resulted in a £50,000 tax refund from HMRC.
  • Classic Car Company – the company redesigned a continuation model of a 1950’s racing car which involved a complete overhaul of the internal setup of the car for safety purposes and making it road worthy. The claim resulted in a £60,000 tax refund from HMRC.

If you would like to discuss R&D or if you have questions, please contact Jonathan Cunningham (jonathan.cunningham@pmm.co.uk) or Claire Astley (claire.astley@pmm.co.uk)

2020 Vision For Making Tax Digital

 

 

 

An announcement yesterday from HM Treasury delayed the timetable for the Making Tax Digital (MTD) initiative imposing quarterly tax returns on businesses. The change in policy has been driven by concerns from business owners and professional bodies regarding the pace of the proposed changes. The new timetable gives business owners until 2020 to adapt to keeping digital records and updating HMRC for other taxes. Those businesses below the VAT threshold will be able to voluntarily file digitally for other taxes should they chose to do so.

From April 2019 businesses with turnover above the VAT threshold (currently £85,000) will have to keep digital records for VAT purposes only, filing returns with an MTD compatible software. Critically however businesses will not be asked to keep digital records, or to update HMRC quarterly until at least 2020.

The government’s original plan, laid out in the March 2015 Budget, required unincorporated businesses with turnover above the VAT threshold to submit quarterly returns to HMRC from April 2018 and those with lower turnover to follow suit from April 2019. Limited companies of all sizes we due to follow these rules from April 2020.

If you would like to discuss any Cloud Accounting requirements or find out about how Making Tax Digital will affect your business, please contact Jill Morris (jill.morris@pmm.co.uk)

Tax confusion due to Finance Bill changes

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The original Finance Bill 2017 published in March amounted to 762 pages and contained draft legislation on a whole range of tax changes which were due to take effect from 1 April this year for companies and 6 April this year for individuals.  However, the imminent general election has caused all that to change.

Vast swathes of legislation have been dropped from the Bill –  72 out of 135 clauses and 18 out of 29 schedules have been dropped.  The volume of the bill has effectively decreased by over 80%. This is to allow time for the Bill to be debated and passed before parliament shuts down in the run-up to the General Election.

This has caused confusion and uncertainty for many taxpayers who were expecting to be affected by tax changes taking effect from 1 or 6 April or who were hoping to use the new legislation to carry out tax planning transactions.

Some of the key pieces of legislation removed from the Bill were:

  • Making tax digital – the Government has reaffirmed its commitment to making tax digital but it is not known whether the intended start date of 1 April 2018 will be delayed.  This is an enormous project and uncertainty for taxpayers is increasing as we get nearer to 1 April 2018 with no clear idea of what the requirements of the new system will be.
  • Changes to corporate loss relief – new rules were due to take effect bringing increased flexibility for brought forward tax losses and restrictions on the use of losses for large companies.  It is not now clear when those rules will take effect and this is causing uncertainty for many companies as to their tax position.
  • Restrictions to corporate interest deductibility – due to commence on 1 April 2017 but now uncertain.
  • The relaxation of the Substantial Shareholdings Exemption which allows the tax-free sale of qualifying shareholdings by companies – a major widening of these rules was due to commence on 1 April 2017 and a number of groups of companies were planning to restructure their holdings utilising the new rules.
  • The reduction of the dividend allowance from £5,000 to £2,000 due in 2018/19 – as yet there is no indication that this will change.
  • The £1,000 tax-free allowance for property and sundry income which was due to come into effect on 6 April 2017.
  • First year allowances on electric vehicle charging points – due from 1 April 2017.

Assuming no major surprises in the election result, it is expected that the government will legislate at their earliest opportunity at the start of the new parliament.  However, it is unlikely that such legislation will be retrospective in respect of the proposals due to start on 1 April 2017 but this has not been confirmed.  In the meantime, our advice is to hold fire on any planning under the new rules and keep a close eye on developments.

For further advice on any of the above issues contact Claire Astley on Claire.astley@pmm.co.uk or Jonathan Cunningham on jonathan.cunningham@pmm.co.uk

Making Tax Digital (MTD) Update

shutterstock_508146895Following the spring budget, the chancellor has announced that MTD for unincorporated businesses and landlords with an annual turnover between £10,000 and £85,000 will now take effect from April 2019 as opposed to the original implementation date of April 2018. This delay will no doubt be a welcome postponement for smaller businesses.

Unincorporated businesses and landlords who have turnover exceeding £85,000 will need to submit quarterly returns digitally to HM Revenue & Customs from April 2018. There is no change to the scheduled start date of April 2020 for limited companies.

If you have any questions on how MTD will affect you, please do not hesitate to contact one of our dedicated MTD team.

Andrew Cowking - New Website
Andrew Cowking
Partner
Email: andrew.cowking@pmm.co.uk 
Telephone: 01254 679131

Julie Walsh - New website
Julie Walsh 
Tax Manager
Email: julie.walsh@pmm.co.uk
Telephone: 01254 679131

Jill Morris - New Website
Jill Morris
Run My Business Director
Email: jill.morris@pmm.co.uk 
Telephone: 01254 679131

Lucy O Gorman - New wesbite
Lucy O’Gorman
Run My Business Manager
Email: lucy.ogorman@pmm.co.uk
Telephone: 01254 679131