Category Archives: Tax

VAT: ‘Deal or No Deal’ – Brexit

These are uncertain times but if the UK leaves the European Union without a deal, we will no longer be able to enjoy the free movement of goods that membership of the Single Market allows.  The supply of services may also be affected.

These are the key things you need to be aware of should a ‘no deal’ Brexit occur with some helpful links through to the Government’s website:

Then there are various complex areas where additional action may be needed, these include:   

Goods

  • Low value consignment relief
  • Distance selling
  • Call off stock
  • Buying and selling a new means o
  • f transport
  • Movement of own goods
  • Export and import requirements
  • Use of customs warehouses
  • Entry Summary Declarations
  • Common Transit Convention

Services

  • Broadcasting, telecommunications & e-services (BTE) and the mini one stop shop (MOSS)
  • Use and enjoyment provisions
  • Travel services
  • Financial services and specified supplies
  • Restaurant and catering services provided on board transport
  • Business to consumer freight transport
  • Reverse charge services
  • Goods sent for processing and repair
  • Express courier services

Other considerations

  • EC Sales Lists
  • Intrastat
  • Fiscal representatives
  • Invoicing

 

If you would like any advice on any of the information above, please get in touch with our VAT manager Alison Brown, on 01254 679131 or email alison.brown@pmm.co.uk.

 

HMRC move the goal post with partner expenses

HMRC have made a significant change to their guidance manuals recently regarding partner and members of LLPs expenses.

It had been a long standing principle, with HMRC approval, that business expenses incurred by partners (separate from the partnership itself) are tax deductible in arriving at the partners taxable profit share. For example,  partners incurring home office expenses; this would typically not be borne by the partnership but the partner incurring the cost would be capable of claiming a tax deduction. The deduction was claimed via the partnership tax return, it did not matter that the expense had not gone through the partnership accounts.

This meant that as long as the expense was “wholly and exclusively”  incurred for the purposes of the partnership business, a tax deduction was available regardless of whether it was the partner or the partnership that had incurred the expense. This was a practical way of dealing with partner expenses.

The Office of Tax Simplification, in the past, had suggested to improve the ability for partners to claim business expenses which they had incurred personally, that they should be able to make the claim on their own personal tax  return and not the partnership return. This would have been a welcome change for partners but has not been introduced.

HMRC have now updated their guidance note at  BIM82080  and have made the job of claiming partner expenses more difficult. The new guidance states   “To be allowable as a deduction for tax purposes, the expense has to be an expense incurred (typically, paid) by the partnership. If the partnership does not bring the expense into the accounts, then it is not an allowable deduction.”

If this new guidance goes unchallenged, it will require partnerships and LLPs to bring into account partner expenses into their accounts. This will require deducting the partners expenses in the partnership accounts and making an equal and opposite adjustment to the partner’s profit share to achieve the same net tax position as in previous years. Whilst the main impact of these changes is administrative, this will  clearly have a time and  cost impact for businesses. For example, a change in profit share to accommodate the tax relief for partner expenses, could require an update to the partnership agreement!

If you are likely to be impacted by these changes, please contact Jonathan Cunningham (Jonathan.cunningham@pmm.co.uk) or Helen Clayton (Helen.Clayton@pmm.co.uk).

Jill Morris, director of PM+M’s Run My Business division, cuts through the confusion of Making Tax Digital for VAT.

What is Making Tax Digital?

Making Tax Digital (‘MTD’) is an attempt to do exactly what its name suggests. Businesses will have to keep electronic records of their accounts (using HMRC MTD approved software) and file their tax information digitally.HMRC claims it wants to make tax administration more effective, more efficient and simpler.  In practice, it means that business and taxpayers will need to start using accounting software to digitally submit the returns instead of completing their VAT returns by typing numbers into the existing online HMRC portal.

When does MTD for VAT come into force?

Officially on 1st April. There is a stagger depending on the business quarter end date. This is when affected businesses will no longer be able to keep manual records. After that date, digital records must be maintained in software or spreadsheets which can connect to HMRC via an Application Programming Interface (API).

Who will be affected?

All VAT-registered businesses and organisations with a taxable turnover above the VAT threshold of £85,000 per annum.

Are there any exemptions?

In the main, no. HMRC’s online VAT return will remain available only to businesses and organisations that are not within the scope of MTD for VAT. So, just those which complete a VAT return but have taxable turnover below £85,000.00 per year. However, the only exception to this is a small minority of VAT-registered businesses and organisations with more complex requirements. These include trusts, ‘not for profit’ organisations that are not set up as a company, VAT groups, VAT divisions, traders who are based overseas, annual accounting scheme users and any organisation that makes payments on account. Those which fall into any of these categories have a six month deferral until October 2019.

What do businesses need to do to be ready for MTD for VAT?

Firstly, take time to understand the facts and what MTD actually means for you. It’s a huge change and one that can’t be avoided. On a more practical level, speak to your accountant or carefully research the types of compatible software products that use HMRC’s API platform. There are a lot on the market – some better than others.  It will also take time to learn how to use so don’t leave it until the last minute.

What are the implications of not being compliant?

If your business is affected by MTD for VAT and you don’t use compatible software then you simply won’t be able to submit your returns and pay what is owed. If that happens, HMRC will consider your business to have defaulted on its VAT bill. When a   business fails to pay its VAT, it enters into a 12-month period called a ‘surcharge period’. During which time, it will be charged an additional fee on top of its VAT bill based on its annual turnover and past default history. If it still fails to pay VAT, its account will go into arrears and HMRC will take steps to recoup the monies – often through the courts.

PM+M can offer a wide range of services and support to help you become MTD compliant (including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submissions to HMRC and even providing training for your team). Get in touch with our specialist MTD team to find out more by emailing MTD@pmm.co.uk or by calling 01254 679131.

Introducing Jon Connor: Our new R&D tax specialist

Research and Development (R&D) tax incentives have been around now for quite some time, but are you making the most of them? According to our newly appointed R&D Tax Credits Manager, Jon Connor, these benefits could give you “a competitive edge”.

Uncovering innovation from within a business can often be complex. It may be buried within different areas of your organisation or even outsourced. Whether you’re a recruitment agency designing a new app or a manufacturer developing new production techniques, innovation can come in all shapes and sizes, and is very rarely bound by industry.

However, around nine out of ten eligible SMEs fail to claim for R&D tax relief, indicating that the hidden value of innovation is not known.

“Companies are missing out on valuable R&D tax credits to the tune of thousands of pounds,” says Jon. “Generally speaking, I find it’s the businesses you typically wouldn’t associate with R&D that are overlooking relief.”

“The very term “R&D” often deters many firms from applying,” Jon explains. “Innovation doesn’t always take place in laboratories with scientists in white coats. On numerous occasions I’ve had business owners tell me “we don’t really do R&D”, often perceiving the scope of qualifying activities to be much narrower.”

If you are developing new products, processes or services there is a strong chance that you are eligible for R&D tax relief. The relief allows a company to deduct an extra 130% of qualifying costs from its yearly profit (as well as the normal 100% deduction) to create a total 230% deduction. Qualifying expenditure can include costs spent on employees, software, transformed / consumed materials and subcontractors.

Here at PM+M have helped clients all over the UK recoup over £3m in R&D tax credits in total. In turn, this has enabled business-owners to reinvest in innovation, future-proof their companies and, most importantly, invest in growth initiatives.

Jon says: “If you’re unsure as whether you could qualify for tax relief, it is absolutely worth having a ten-minute phone call with us. The potential outcomes of making a claim could revolutionise your business and help you achieve your financial goals.”

We can help you to identify eligible R&D projects (historic, current and future), highlight expenditure incurred on qualifying activities, optimise the amount of relief available, draft supporting documentation to HMRC and offer support in defending your claim in the event of HMRC raising queries.

Please do not hesitate to get in touch with Jon to discuss your situation and understand whether or not you may be eligible.

HMRC guidance for businesses to prepare for potential no-deal Brexit

Ahead of Britain’s upcoming departure from the European Union (EU), HM Revenue & Customs (HMRC) is warning businesses about the necessary steps they need to take to prepare for the unlikely event of a no-deal Brexit.

Earlier this year HMRC sent an initial warning to businesses who import or export goods within the EU, warning that should we fail to reach a deal, there would be immediate changes about the way that businesses trade with the EU.

More recently, HMRC has prepared a second letter that will be sent to those businesses, detailing the three steps that businesses should take now to prepare for the possibility of no deal.

  • The first of these steps is to register for a UK Economic Operator Registration and Identification (EORI) number at https://goo.gl/paAobk.

Businesses will need an EORI number to continue to import or export goods with the EU after 29 March 2019, should the UK leave without a deal. They will also need the number to apply for upcoming authorisations that will help to make the customs processes easier for businesses.

  • The second step that businesses will be advised to take is to decide whether to hire a customs agent to make import/export declarations, or if the business would like to make these declarations themselves through software that interacts with HMRC systems.

Whatever the decision it is encouraged that businesses take steps to prepare by either contacting an agent to find out what information they require or contacting a software provider to ensure their product meets the requirements of the business affected.

  • The final action HMRC is encouraging businesses to take is to contact the organisation that moves their goods to find out if they require any additional information to allow them to make the correct safety and security declarations for the goods.

More information on these changes can be found at https://goo.gl/EfgXXS

The international team at East Lancashire Chamber of Commerce have also put together a ‘Brexit Hub’ to look the practical actions internationally active companies can take to prepare and mitigate or manage the impact of Brexit, details can be found here https://www.chamberelancs.co.uk/brexit/

If your business is likely to be affected and you are unsure about the actions required, then it is important to seek specialist advice. Contact us on 01254 679131 and speak with your usual PM+M contact should you need any help or email us at enquiries@pmm.co.uk.

How do changes in entrepreneurs’ relief following the Budget affect me and when do they come into force?

PM+M’s tax director, Claire Astley, examines the changes to entrepreneurs’relief following announcements made in the 2018 Autumn Budget.

Entrepreneurs’ relief allows the individual owners of business assets, including shares in a “personal company” (see definition below), to pay a reduced rate of tax on any capital gain they make when they sell those assets.  Entrepreneurs’ relief applies to individuals only.  It isn’t applicable to any gains made by limited companies.

Key changes following Autumn Budget

The Chancellor announced two key changes to entrepreneurs’ relief which shareholders need to consider now.

The first change announced was the definition of a ‘personal company’ for entrepreneurs’ relief.  Previously, a personal company was defined as a trading company in which the shareholder:

  • is an office holder, director or employee of the company or group company; and
  • holds at least 5% of the ordinary share capital and of the voting rights of the company.

Following the Budget announcements, the shareholder will now also need to hold a 5% interest in the distributable profits and the net assets of the company for the relief to be available on the gain.

As this change will apply to disposals on or after 29 October 2018, the new conditions will need to have been met for a minimum period of 12 months leading up the disposal, this could have an impact on any imminent sales.

The second change, effective from 6 April 2019, is to extend the holding period throughout which the qualifying conditions for the relief must be satisfied before the disposal from one year to two years.

Finally, an individual whose shareholding is below the 5% qualifying threshold due to an issue of new shares will from April 2019 be able to obtain entrepreneurs’ relief on gains made up to the time of the dilution and freeze their entitlement at that point.

Points to note

There has been much discussion in the industry media regarding the impact these changes may have on shareholders with alphabet shares in their personal company and whether such shareholders will meet the new 5% interest in distributable profits condition.  The changes in legislation have led to a great deal of uncertainty in this area and the professional bodies are due to meet with HMRC on 12th December to hopefully clarify the position.

On the bright side these new conditions do not apply to shares issued through the enterprise management investment (EMI) scheme making this an even more attractive option for issuing shares to key employees.

Next steps

Shareholders with alphabet shares should sit tight for now and await the outcome of the discussions with HMRC.  Shareholders with alphabet shares who are in the process of selling their shares please contact us for a review of your position.

Any changes made to share rights without proper advice could result in income tax charges arising for shareholders under the employment related securities legislation, so it is important not to rush into making changes.

For advice on this matter speak to Claire Astley on 01254 679131 or email Claire directly at claire.astley@pmm.co.uk.

“Paving the way to a brighter future” – PM+M partner Jane Parry reviews Autumn Budget announcement

Today’s Budget was described by the Chancellor as one that ‘paved the way to a brighter future’ and that austerity is finally coming to an end. However, as we are still to secure a Brexit deal with our EU partners, I believe that it can only really be described as ‘steady as you go’ until that is actually sorted. We will also have to wait to see if his claim of a post-Brexit ‘double dividend’ comes to fruition. Let’s hope it does.

From a North West point of view things are looking generally good. According to the NatWest North West PMI, IHS 2018 Report, the region is enjoying the strongest growth in the UK along with Wales; new business rose at the fastest pace; whilst the rate of job creation accelerated to make the North West the leading UK region.

Business Rates

The news that for the next two years up to the next business rates revaluation, for all businesses with a rateable value of £51,000 or less, the government will cut their rate bills by one third. Whilst £900m worth of immediate relief is coming on stream and town planning laws are being relaxed. Many small high street businesses have been calling for this kind of action for a long time and it couldn’t have come soon enough – especially as there will also be a new fund to improve infrastructure and transport, to re-develop empty shops as homes and offices, and restore and re-use old and historic properties.

Roads

I was also pleased to see that Britain’s roads will get a £420m immediate injection in a bid to improve our network including to help local authorities fix pot holes. Although small projects in themselves, these kinds of essential repairs will make a significant difference to communities and businesses and will ultimately drive efficiency and productivity.

Broadband Infrastructure

Much of the North West is rural and the lack of superfast broadband has been a real problem for both businesses and individuals. The announcement that £250m is being pledged to install superfast broadband in some of the country’s most remote areas is again a positive step. If rural businesses are to compete then they need to have full fibre connectivity. I just hope it will be rolled out quickly and efficiently.

Business Investment Stimulus Measures

The news that the Annual Investment Allowance will rise from £200,000 to £1m is welcome and should stimulate business investment – especially in such an innovative region such as ours. Also, a new allowance for investment in new commercial property is a positive step.

Digital Services Tax

The introduction of a digital tax on global companies with at least £500m in global revenue was a surprise to some. He claims it will come into force in April 2020 and will raise £400m per year. There’s no doubt he’s right that progress on this has been ‘painfully slow’ but it’s step in the right direction as start ups should not shoulder the burden. However, what is really needed is a global agreement. That should be the aim.

Apprenticeships

I think the cutting of the apprentice fee for small businesses – qualifying companies will have to contribute 50% less – will be well received. We know of many firms in the North West which have been deterred from taking on apprentices due to the cost. Anything to combat that reticence must be applauded.

Tax

The Chancellor has announced a tax cut for 32 million people with the increasing of the personal tax allowance to £12,500 and the higher rate to £50,000. These were the allowance targets for 2020 but are being bought forward to 2019.

The tightening of the rules on the abuse of self-employment status will mean more workers becoming subject to PAYE from 2020.  For some of them that is probably reasonable, for others the wielding of a rather blunt tool by HMRC may result in more costs and confusion.

Finally, Making Tax Digital for VAT continues its inexorable march towards introduction on 1 April for the vast majority of VAT registered businesses.  Whilst modernisation and enhanced efficiency in the tax system is a goal nobody can disagree with, the Government have still seemingly not understood the very real upheaval and cost that this will bring for many, particularly small, businesses.

Conclusion

All in all, this Budget produced no surprises or shocks. Some of the announcements could well be good for business but without a Brexit deal I’m sceptical about what will actually happen. Time, as they say, will tell.

VAT: changes on the horizon for the construction industry with huge potential impact on cashflow

Significant VAT changes for the construction industry are due to come into force on 1 October 2019.

New legislation is designed to combat what HMRC describe as “missing trader fraud”, whereby the suppliers charge and collect VAT, but do not pay it over to HMRC.

In essence, the legislation will require the recipient rather than the supplier to account for the VAT due on certain construction services.

The new regime requires careful planning from all construction businesses in order to avoid a cashflow crisis.

How will the new rules work?

Under the new rules, businesses supplying construction services must not charge VAT where their customer:

  • is registered for VAT; and
  • will use the services to make an onward supply of construction services.

Instead of the supplier charging VAT, the recipient must self-account for VAT on the services received. This is known as ‘reverse charge’ accounting.

With each business transaction, the VAT will be calculated as a paper exercise and registered on the invoice as a ‘reverse charge’. Only client-facing organisations at the top of the construction supply chain will be required to pay the tax.

Who will be affected?

As a general rule of thumb, any company that is registered with the Construction Industry Scheme (CIS) – HMRC’s construction-specific tax-collecting regime will fall into the reverse charge category.

The new rules will apply to construction services supplied from 1 October 2019, regardless of value, even if construction is not the main business activity.

The definition of ‘construction services’ is extensive and duplicates the definitions used for the Construction Industry Scheme (CIS). It also includes goods, such as building materials, but only when supplied as a single package within the construction service being provided (e.g. a builder providing bricks).

Exclusions

There are some exclusions, such as the installation of seating, blinds, shutters and security systems. Also excluded are professional services of architects, surveyors and consultants. However, where excluded services are supplied as a package with other services which fall within the new criteria, the whole package will be subject to the reverse charge.

There are further exclusions for construction services which are to be used by the recipient to make an onward supply to a connected party or to make a supply between a landlord and tenant.

Clearly if the construction services qualify to be treated as zero rated then the reverse charge will not apply. For example, a sub-contractor supplying construction services to a main contractor who is building a new residential property would currently charge VAT at 0%. This treatment is unaffected by these new reverse charge rules and the sub-contractor would continue to charge VAT at 0%

In addition, the reverse charge rules will not apply where the recipient of the construction service is not VAT registered. In these circumstances, VAT must be charged in the normal way. However, the non-VAT registered recipient must add the value of construction services received to the value of its sales, when deciding whether it has exceeded the VAT registration threshold (currently £85,000). This is likely to mean that many small contractors who are not currently VAT registered will need to be registered in the future.

HMRC to be strict from 1 October 2019

As an anti-fraud measure, it is expected that HMRC will enforce the new rules strictly:

  • If a supplier charges VAT in error, HMRC may not allow the recipient to reclaim it
  • If a supplier applies the reverse charge rules in a situation where it should have charged VAT, HMRC will most likely seek to collect the under declared VAT from the supplier

In both situations, penalties and interest could apply. The main message we are delivering is that businesses within the construction sector need to have a sound understanding of the new rules and have systems in place ahead of the deadline to ensure that VAT is accounted for correctly.

Many subcontractors will find they are in a regular VAT refund position in the future. They will have VAT to claim on materials and overheads but will not charge VAT on sales where the reverse charge rules apply.

Some businesses will suffer a cashflow disadvantage, where VAT collected from customers is currently used as working capital before being paid over to HMRC.

To correctly apply the new rules, the supplier needs to know what its customer intends to do with the services and will need to be able to evidence this to HMRC. HMRC are undertaking a detailed technical consultation on this issue.

How should you prepare?

Final legislation and HMRC guidance is due to be issued in October of this year, giving businesses 12 months to prepare. Affected businesses should ensure they are fully up to date with the changes and when the VAT should be charged and, likewise when a reverse charge is required.

Well in advance of October 2019 construction businesses need to conduct a full review of supplies made to and received from other VAT registered contractors to establish whether these will be subject to a reverse charge from October 2019.

It is of course right that the problem of missing trader fraud within the construction industry be tackled, but if traders have not picked up on the forthcoming changes they may be faced with unwanted penalties and interest as a consequence of failing to implement the reverse charge correctly. We would recommend that in the event of doubt, seek guidance from your professional adviser to ensure there are no such unwelcome surprises.

If you would like to discuss how the above changes could impact on your business, please contact our property tax specialist, Jonathan Cunningham, on 01254 604318 or via email at jonathan.cunningham@pmm.co.uk.

Inheritance tax planning is best when it’s simple

Inheritance tax planning is something that many of us don’t want to think about. Facing your own mortality isn’t easy and can involve some difficult decisions, particularly in complex and extended families.

That said, there can be significant benefits from doing some basic planning at the right time, providing reassurance that your affairs are in order and your family aren’t going to face a huge tax bill.

I always tell my clients to keep it simple. There are some fancy schemes out there, but they usually bring lots of complexity and can reduce future flexibility. More often than not, some sensible advance planning can achieve substantial benefits without the complexity.

That might be a mix of getting your will right, ensuring that ownership of assets between you, your spouse and your family is structured properly, making appropriate lifetime gifts, fully using available allowances and exemptions and getting your investment strategy right. Our experienced tax team works closely with our financial planning specialists on the latter.

Trusts can be a great way of passing on wealth without losing control of it. You may be wary of trusts and think they are too complex, but that really isn’t the case. They can be simple and achieve exactly what the client wants, without significant cost or complexity.

Family investment companies can also be effective under the right circumstances, and they are becoming increasingly popular.

The key to inheritance tax efficiency is to think about it early and be open with your family.  Having conversations now can avoid problems later and pave the way for some effective tax planning.

We would be more than happy to help you begin the planning process. Please do not hesitate to speak to either myself (Jane Parry – jane.parry@pmm.co.uk), or member of our tax team to arrange a discussion on 01254 679131, or via email at tax@pmm.co.uk.

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.