Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
VAT is charged at 5% for the installation of certain energy saving materials in residential accommodation. It was first introduced in 1998 and has subsequently been extended and revised. There is a VAT Notice specifically about this.
Under the latest amendment from 1 October 2019, wind and water turbines were removed from the list of qualifying items. Solar panels, ground and air source heat pumps, and micro heat and power units remain qualifying if the conditions outlined below are met.
Installation services on their own are subject to the 5% reduced rate. However, installation services together with listed materials qualify for 5% VAT in the following circumstances:
- the customer is over 60 or in receipt of certain benefits.
- the customer is a registered housing association, or
- the building is a ‘relevant residential’ building, such as a care home.
The reduced rate can also apply in some other limited circumstances.
Is Inheritance tax the most hated tax?
A survey was carried out in September by Opinium for Hargreaves Lansdown. It found that nearly a quarter of respondents believed that it was the worst tax in the UK.
Respondents to the survey were irked that their loved ones lost out on benefits from their legacies.
In second place with 17% of the vote was taxes on income, namely income tax and National Insurance.
In third place with 15% of the vote was taxes on spending and investment such as VAT with 15%.
The sin taxes (alcohol, tobacco, fuel, and sugar ) were well down the list at 10%.
While nobody enjoys paying tax, I think we all begrudgingly accept that it is necessary, but some forms of taxation do seem to inspire deep and abiding hatred among a large swathe of the population.
Given that IHT is paid by just 4% of the population. It brings in around 1% of the taxes collected. The figure is likely to rise in absolute terms with the freezing of allowances until 2026.
Dividend Tax hits Small Businesses
The rate of dividend tax and National Insurance is set to rise by 1.25% just when businesses are struggling to get back on their feet.
Business owners can pay themselves through a salary or dividend, or a combination of the two, which is what we and many of our clients do.
Dividends have traditionally attracted lower rates of income tax than being paid a salary. Additionally, each person has a tax-free dividend allowance (currently £2,000) which means that tax is only payable on dividends above this rate. This allowance is on top of the income tax personal allowance. But remember you only get one dividend allowance of £2000, to cover your dividends from all sources.
Paying yourself a dividend (as opposed to a salary), will also be exempt from National Insurance contributions for both you and the company. However, a dividend is paid out of profits after corporation tax, and so do not attract tax relief in the company. So if you pay a salary, the company gets tax relief but you pay more income tax and NIC, but if you pay a dividend, the company pays tax on this money but you sane NIC and pay a lower rate of tax.
So, the optimum position depends on your personal circumstances and the numbers.
Businesses must be making a profit (after tax) to make dividend payments but these profits may have been made in earlier years so a loss making company now might still be able to pay a dividend if it made sufficient profits in the past.
One of the ways to minimise your tax is not taking a salary of dividend. If you are able to do without the dividend at least, this money is only subject to 19% tax overall at the moment. You can then keep the money in the company for reinvestment.
However, if you accumulate cash in your company, bear in mind that this may not qualify for IHT reliefs such as BPR.
There are some circumstances when paying dividends is not a good idea such as if you are going through a divorce or bankruptcy, emigrating or about to wind up the company.
Taking money out of a company has a number of implications in the form of legal, tax and accounting, come and speak to us about what is best for you.
Treasury’s lost road tax revenue
The move to greener energy and in particular electric vehicles will mean a big drop in the tax revenues collected through road tax and fuel duty.
A review of the UK’s net-zero plans has been released by the Treasury. The review refers to fuel duty and vehicle excise duty (VED) which the government collected £37bn from in the financial year ending March 2020 which is about 1.7% of GDP.
HMRC has found that it could raise an extra 1.3% of GDP in taxes with a new carbon tax which would go some way to closing the gap.
The review states that the governments will ‘need to consider changes to existing taxes and new sources of revenue’ This could include expanding carbon pricing and ensuring motor taxes keep pace with the transition to a green economy.
The question will inevitably be how government is going to raise the additional tax that it needs, or cut its spending.
Covid Loans – Defaults could reach £22bn.
A recent report has suggested that as much as a third of all Bounce Back and CBILS loans could go into default.
The end of the furlough scheme will enhance the strains on cash flow which will almost certainly cause higher levels of loan deferral, with many businesses also needing to find additional cash to repay deferred VAT.
One option for businesses to avoid defaults is to consolidate all existing borrowings into a new facility, with the repayment terms reprofiled to meet the forecast cash flow generation of the business.
In this regard, lending against assets could allow borrowers to obtain higher levels of funding as the value of their assets is also taken into consideration in determining the amount that they can borrow, rather than just the cash flow generation of the business.
Linking borrowing to assets can also minimise the loan repayment obligations during the term of the loan if the value of the assets providing the security does not significantly reduce over time.
If you want to explore your options, get in touch and we can put you in touch with a specialist in this area.
HMRC Time to Pay
Time to pay arrangements can cover all outstanding amounts overdue, including penalties and interest with HMRC stating that the agreements are based on the specific financial circumstances of the businesses or individual who owes the debt and that there is ‘no standard arrangement’. It is designed to be flexible and ‘is not a fixed, formal contract’ and can be amended over time.
In order to work out the arrangement for businesses, HMRC will ask for a proposal from the businesses on what they believe they can afford to pay, the tax authority will then ask questions based on the proposal to make sure it actually is ‘affordable’ in order to pay off the debt as ‘quickly as possible’.
HMRC also states that if a business can pay its tax liabilities by releasing assets, then the tax authority will discuss this option with the taxpayer. Business assets can include stock, vehicles or shares, directors putting personal funds into the business, business lending, equity in a business property, and extending credit lines.
If an agreement is made to release the business assets to pay HMRC, then the business can release them and HMRC would expect them to be used to reduce the debt as much as possible before the time to pay arrangement is confirmed.
Interest accrues from the due date to the end of the time to pay arrangement and the interest payable will be included in the overall debt.
Payment Diversion Fraud
Reports indicate that this type of fraud is on the rise.
Payment diversion fraud often involves cyber criminals posing as trusted entities to take scheduled payments.
There are a few types of payment diversion fraud, including mandate fraud and fraudulent bank communications.
Mandate fraud is when a person contacts you – usually by email or phone – pretending to be a client and asking you to change their bank details. Any payment made to this ‘client’ afterwards will go to the criminals’ bank account and not the actual client or supplier.
Criminals can also hack into the email of a client or supplier and send false payment instructions, which can seem more genuine to the victim.
In fraudulent bank communications; the criminal claims to be a bank to get you to reveal account security details, enabling them to make a payment out of your account.
So, what do you need to look out for in a scam of this nature?
The email address might not look the same as you expected or the way an email is written may be different to previous emails.
Messages will appear out of the blue. Suddenly a payment is urgent, a password is about to expire, or specific account details need verification. They may be posing as HMRC and pushing you into taking immediate action to avoid sanction.
You also need to have adequate checks in place to try and avoid fraud when it happens. This could be a double-check system before any bank details are changed. Phone the supplier to make sure you have the correct details or compare a previous invoice with a new one to make sure they match.
If you think you have been the subject of a fraud you need to take immediate action and that might be to contact your bank to see what they can do to rescue you.
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at firstname.lastname@example.org.