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.

HMRC’s Tax Informants

Did you know that HMRC pays informants? In the last 5 years HMRC has paid £2m to informants with £400,000 being paid in the last 12 months.

Although HMRC has a fraud hotline, which has received more than 120,000 reports of alleged tax wrongdoing in the last year alone, not every informant gets a reward payout. Whether you would get a reward will depend on several factors such as scale. 

HMRC will have received many calls on the hotline in connection with furlough grant infringements for example. They will however be happy to get information from any and every source if it means preventing tax evasion or recovering taxes lost through evasion of fraud.

The Pandora Papers’ leak of almost 12m documents relating to the affairs of a large number of individuals, including the rich and famous demonstrates just how valuable information from external sources can be.

The HMRC fraud hotline number is  0800 788 887.’

Lease Cars, Benefits in Kind

Smallman & Sons Limited received a routine compliance review by HMRC and the final point of contention was the issue of company cars.

The company leased cars for the directors who reimbursed the company in full for the costs. The company could get better rates than the directors themselves.

HMRC took the view that these cars attracted a benefit in kind charge, and they raised assessments for the tax on these plus penalties going back over the previous 5 years amounting in total to £90,300.

A benefit in kind charge arises when a car is made available for private use, for an employee or member of their family/household, by reason of the employment.

The First Tier Tribunal concluded that there was a benefit in kind even though on the face of it, the director had reimbursed the company in full. The reason was that the leasing rates were a benefit. They did however limit the assessment and penalties to 4 years.

Public Charging Points – Standard Rate VAT

Although this is a supply of electricity HMRC’s Revenue & Customs Brief 7 (2021) confirms their view that supplies of electricity at public charging points will be subject to VAT at the standard rate of 20%.

This is on the basis that the de minimis provisions do not apply to supplies of electricity at public charging points.

Fraud Bonanza

Are the Black Friday offers you are seeing really a good deal or could they be a scam.

Do you know who you are giving your bank details to? Does the deal sound too good to be true? If it does, it probably is.

Action Fraud has published the following tips to help shoppers stay safe online but the principles are relevant to protecting all of us against any kind of fraud:

How to protect yourself

Choosing where you shop: 

If you are making a purchase from a website or person you don’t know and trust, carry out some research first. Look online for reviews of the website or person you are buying from. If you are purchasing an item from an online marketplace, you can view the seller’s feedback history before going ahead with the purchase.

Payment method: 

Use a payment method that offers buyer protection, such as a credit card if you have one, as most major credit card providers will help you get your money back if the item is faulty or damaged, or if it never arrives.

Staying secure online: 

Use a strong, separate password for your email account. Criminals can use your email to access other online accounts, such as those you use for online shopping. You should also enable two-factor authentication (2FA), where possible, which gives your online account additional protection by double checking that you really are the person you claim to be when logging in. For further information about how to stay secure online, visit www.cyberaware.gov.uk.

Watch out for phishing emails or texts: 

Some of the emails or texts you receive about amazing offers may contain links to fake websites. If you are unsure, don’t use the link and visit the website directly instead. If you receive an email you’re not quite sure about, you can report it by forwarding the email to the Suspicious Email Reporting Service at report@phishing.gov.uk. You can report suspicious texts you have received by forwarding the original message to 7726, which spells SPAM on your keypad. You can report suspicious websites via the National Cyber Security Centre’s scam website reporting service.

Action Fraud also advises that the public follow the advice of the Take Five to Stop Fraud campaign to keep themselves safe from fraud:

– stop and think before parting with money or information; 

– challenge whether the seller is who they say they are; 

– protect by contacting your bank immediately if you think you’ve fallen for a scam.

Most people have heard stories about ransomware and how it has affected major businesses. This comes on top of all the Covid related issues. A new phenomenon is ‘ransomware as a service’ in which ransomware developers lease out their malware in exchange for a share of the criminal profits.

‘Ransomware has the potential to rapidly disrupt an organisation’s entire business, across geographies and functions. However, at the end of the day, it is the big company attacks that are reported but ransomware can affect any size of business.

Almost two thirds of UK organisations are increasing their cyber security budgets over the coming year some by a significant amount.

Have you considered the risks to your business, its cash flow, security of confidential information etc? The more complex your systems and trading relationships, the bigger is the potential threat from ransomware.

Increasing Interest Rates

There seems to be more talk now about imminent interest rate rises and so we should expect something to materialise before long.

Increases in interest rates particularly affect businesses with high borrowing who already may be struggling with cash flow because of the loan payments.

You also need to keep an eye on the covenants that you agreed to as part of your borrowing.

Breaching interest rate covenants or defaulting on loan payments could mean the lender recalling the loan ‘which could result in the company failing.

So, what’s ahead? Depleted cash flows from Covid, higher interest rates and rising inflation.

Many companies took on more debt in a bid to preserve jobs and maintain working capital levels. Rising interest rates increase the cost of servicing these higher levels of debt, reducing cash available for other purposes, and putting a strain on a small company.

You need to forecast your cashflows and covenant calculations for at least the next year to make an informed assessment as to whether the risk of default is significant, and if so, hold pre-emptive discussions with lenders in advance of any defaults.

Garden Home Offices

Working from home has set increased interest in buying or building a work-related shed, pod or home office space in the garden away from all distractions.

However, you need to ask yourself about the tax implications.

Income tax

First, there are income tax considerations if you seek to charge your employer, or your own company, a rent for you to work from home. You could charge s rent to the company. This goes onto your tax return but can be offset by any costs (electricity etc ) used in your home office.

Capital gains tax

If the home office had been used 100% for business then it could potentially impact the capital gains on the sale of the house as this ‘portion’ of the property would no longer qualify for principal private residence relief (PPR) and so is no longer tax free. So, make sure it has other uses.

VAT

Third, if you purchase a home office through a company which is VAT registered, you should be able to claim back the VAT, but there will be no deduction for corporation tax for the cost of the ‘structure’.

You might also be able to claim back VAT on its contents, all of which means you have to ensure that any claims made for a tax deduction or relief have to be correct. To get these reliefs, you may need to declare that it is for 100% business use.

If, on the other hand, it is not purchased through the company then there would be no VAT recoverable though paying for it could be quite expensive for an individual.

Other Considerations

In addition, there are other things to consider other than tax, such as council tax, planning permission, connectivity to gas, electricity and water.

MPs, Second Jobs and Dubious Tax Planning

Some MPs have been found to be channelling large amounts of money from private consultancy work through personal service companies that may have significantly reduced their tax bills

An investigation by the Times newspaper found that 10 MPs have taken on outside work and channelled at least £1m through their personal companies.

Channelling income through personal service companies can significantly reduce the tax payable. That’s why HMRC don’t like them.

Margaret Hodge former chair of the Public Accounts Committee, said: ‘We, as MPs, determine the tax everyone has to pay and for some in our midst to choose to use personal service companies in this way is particularly scandalous.’

Sir Alistair Graham, former chairman of the committee on standards in public life has also pushed for rules on second jobs to be put in place, he said: ‘This should be stopped as soon as possible, MPs should not be avoiding paying the taxes they’ve decided that the rest of the population should pay.’

Questions?

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 alan.long@thelongpartnership.co.uk.