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.
Scottish Budget date announced
The 2022/23 Scottish Budget will be published on Thursday 9 December 2021.
The announcement states: “The 2022-23 Scottish Budget will focus on delivering the new Programme for Government, reflecting the challenges facing households, communities and businesses as a result of the coronavirus (COVID-19) pandemic.”
HMRC remote working
A freedom of information request identified that in order to facilitate remote working HMRC has been buying equipment. In total, they have bought 45704 devices including 37,624 laptops, tablets, and phones a massive increase on previous year’s spending on such equipment.
The most recent contract increase was approved shortly after HMRC announced that it was to allow staff to work from home at least two days a week permanently. HMRC is also permitting full-time home working if the role is suitable as well as evenings and weekend working from home.
At the time an HMRC spokesperson said: ‘We recognise the benefits of smarter ways of working and are committed to supporting as many employees as possible to work from home where this works for their personal circumstances and the role they do and will introduce a new working at home policy.’
In 2019, HMRC forecasted that around 2,839 people would leave under its voluntary or compulsory exit schemes as part of the tax authority’s office closure programme. However, due to the offer of flexible and remote working HMRC only saw 490 leave.
HMRC wants to remind you to be on your guard given that nearly 800,000 tax-related scams were reported in the last year.
Fraudsters use self-assessment to try and steal money or personal information from unsuspecting individuals. In the last year alone, HMRC has responded to 797,010 referrals of suspicious contact from the public and some 357,567 of these offered bogus tax rebates. In the last 12 months, HMRC has also worked with the telecoms industry and Ofcom to remove more than 1,282 phone numbers being used to commit HMRC-related phone scams.
The scale of the problem is vast with 8,561 malicious web pages reported for takedown.
The self-assessment deadline is 31 January 2022 and taxpayers may expect to hear from HMRC at this time of year.
More than four million emails and SMS will be issued this week to self-assessment customers pointing them to guidance and support, prompting them to think about how they intend to pay their tax bill, and to seek support if they are unable to pay in full by 31 January.
However, the department is also warning customers to not be taken in by malicious emails, phone calls or texts, thinking that these are genuine HMRC communications referring to their self-assessment tax return.
Some scams threaten immediate arrest for tax evasion, others offer a tax rebate. Never let yourself be rushed. If someone contacts you saying they’re from HMRC, wanting you to urgently transfer money or give personal information, be on your guard. ‘HMRC will also never ring up threatening arrest.
Criminals use emails, phone calls and text messages mimicking government messages to make them appear authentic. They want to trick their victims into handing over money or personal or financial information.
HMRC is also reminding self-assessment customers to double check websites and online forms before using them to complete their 2020/21 tax return. People can be taken in by misleading websites designed to make them pay for help in submitting tax returns or charging to connect them to HMRC phone lines.
HMRC’s advice to the public:
- take a moment to think before parting with your money or information;
- if a phone call, text or email is unexpected, don’t give out private information or reply, and don’t download attachments or click on links before checking on gov.uk that the contact is genuine; and
- do not trust caller ID on phones. Numbers can be spoofed.
- it’s ok to reject, refuse or ignore any requests – only criminals will try to rush or panic you; and
- search ‘scams’ on gov.uk for information on how to recognise genuine HMRC contact and how to avoid and report scams.
- Forward suspicious texts claiming to be from HMRC to 60599 and emails to email@example.com. Report tax scam phone calls on gov.uk.
- Contact your bank immediately if you think you’ve fallen victim to a scam, and report it to Action Fraud (in Scotland, contact the police on 101).
Incorporating – What is CGT incorporation relief
There are various reasons why you might want to incorporate your business. It may be for tax reasons or you may want the protection of limited liability. It might be that a corporate structure suits you better, in which case you may want to consider becoming an unlimited company, so you don’t need to file accounts at Companies House.
Whatever the reason you will be ceasing your previous sole trader or partnership business and commencing as a company, and that cessation will have various tax consequences, both Income Tax and Capital Gains Tax. Incorporation Relief is a way of avoiding an immediate CGT liability.
For incorporation Relief to apply, you must be transferring the business as a going concern and be transferring all of the assets although you can exclude cash. The consideration for the transfer must be paid in shares.
The relief works by rolling the net capital gains on the transfers, which are treated as taking place at market value, into the value of the shares used to acquire them.
You must be carrying on a business, which is defined differently from a trade. However, to be a business, you must broadly be spending 20 hours or more in a week on the sort of activities that are indicative of a business. So, this rules out most investment type activities. There is no automatic relief for furnished holiday letting businesses so they would need to follow the same rules.
Although the business has to be a going concern at the point of transfer, there is no requirement to continue the business, although it would seem a bit odd if it ceased shortly after transfer.
This is not the only relief mechanism when incorporating so come and speak to us if you want to know more.
Full relief is only available if all of the consideration is satisfied by the issue of shares and relief will be restricted if this is not the case.
The relief is also where a business is sold to an existing company for consideration wholly or partly in the form of newly issued shares.
By taking this route to incorporation you will be avoiding the need to claim Business Asset Disposal Relief. You will want to ensure that your shares in the new company will qualify for this relief when the time comes.
Although the relief is basically fairly simple it will not fit everyone and the alternative routes to incorporation need to be considered.
Family Investment Companies
Family Investment Companies can be attractive for various reasons.
It can be used to transfer assets to the younger generation while retaining control or it might just be a useful way of holding various assets.
A family investment company is typically formed by parents providing funds as loans or shares, neither of which has any IHT consequences.
The parents, who will also be directors set up two classes of shares in the company:
· voting shares which they retain and so that they maintain control of the company, and
· non-voting shares which are handed over to the children.
The gift of the non-voting shares will fall within IHT, so the parents need to survive 7 years. Dividends are paid from the non-voting shares and be subject to all the usual taxes on dividends.
The company will pay Corporation Tax on its profits just like any other company. This is currently 19% but will rise shortly, potentially to 25% or higher. However, the company can take advantage of the substantial shareholding exemption if it is disposing of all or part of a holding of at least 10% in a trading company. In addition virtually all UK dividends received by the company are exempt from taxation.
The company can claim tax relief on any loans such as the loans from the parents where these have been used for business purposes. It can also claim tax relief for the costs of managing its investments which could be investment managers’ fees and remuneration paid to employees or directors.
More on Furlough Fraud
It is now becoming more clear the lengths that businesses went to fraudulently claim under the scheme, while their employees carried on working.
It appears that some companies used intimidation to stop whistle-blowers from amongst their employees. The nature of employers was quite surprising and there have even been accountants who have claimed fraudulently and now have been found out, named and shamed.
One company used a virtual mailbox service in London to register fictitious employees with false National insurance numbers and raked in around £26m from the furlough scheme and this was achieved without even setting foot in the UK. The perpetrator was able to carry out the fraud by using fake IP addresses and completing government forms on the government website.
Coronavirus fraud is estimated to have cost the Treasury £6bn in fraud,
Making Tax Digital for VAT
Most of the remaining VAT registered businesses will have to join the scheme from 1 April 2022.
Things to consider:
- New Registrants
Newly registered businesses will be automatically signed up for MTD so that anyone registering early will not have any choice.
Retailers must digitally record their daily gross takings figures, but it is not necessary to record each individual retail sale.
A digital audit trail must be in place from day one. We have bridging software if you want to carry on using spreadsheets and put them into us to submit the returns.
The software used by a business must be capable of sending information to and receiving information from HMRC digitally. We can provide you with appropriate software.
If you really cannot face the upheaval of the new regime, and if you can, consider de-registering for VAT.
You know where to find us if you want to look at your options for MTD.
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.