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 the 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.
Managed Service Companies
IR35 targeted personal service companies where someone typically set up a company in which they, either alone or with their spouse, owned the shares. They would typically be the sole director. These are often known as one-man companies or director only companies.
Managed Service Companies have been around for a while and have been seen as a way around the IR35 rules. MSC providers tend to be specialist accounting organisations who support many thousand contractors operating in this way. HMRC does not like MSC providers.
During March, HMRC opened enquiries under the Managed Service Companies (MSC) legislation. Many clients and former clients of these providers have received letters from HMRC and protective determinations for tax liabilities that HMRC claim to be due, on the basis that providers were MSC providers and their clients were therefore MSCs. The magnitude and consequences of these enquiries could be enormous.
The common feature of these accountancy firms seems to be that they specialised in contractors as clients.
HMRC has started to issue protective tax assessments for a number of client companies of these MSC providers. They date back to the 2017/18 tax year.
Initially these enquiries tend to be focused on the alleged MSC provider, but the tax liability is likely to fall upon their clients. You may therefore have just got a nasty shock when you opened the brown envelope from HMRC.
Appeals need to be lodged immediately against any assessments.
The MSC legislation has the most draconian debt transfer rules of any tax legislation, with not only
The MSC legislation was intended to take effect where a limited company is managed by an external MSC provider and there is a link between the two. The legislation bites when:
- the business is mainly providing services of individuals.
- the individuals receive the majority of the amount that comes into the business;
- the individual takes home more than a PAYE worker would; and
- there is a second linked external business (an MSC provider) promoting or facilitating the use of companies and is involved in the first business.
If you operate through a Manage Service Company, you need to review your position. If you have not heard from HMRC yet, it may just be a question of time.
A Managed Service Company (MSC) Survivors Group has been set up to help contractors affected by HMRC’s latest investigation into their use. The group has been launched in response to HMRC’s move to investigate contractors and accountants who they believe are caught within the managed service companies (MSC) legislation.
The MSC Survivors Group is urging contractors to establish if their accountant is being investigated by HMRC for the MSC legislation which could mean that they are under threat of investigation.
HMRC Are Getting More Teeth
The government is investing £161 million over the next five years to increase compliance and debt management capacity in HMRC. This investment is forecast to bring in more than £3 billion of additional tax revenues over the next five years, by funding additional HMRC staff to provide greater support to taxpayers seeking to pay off accrued tax debts, and to tackle the most complex tax risks, ensuring large and mid-sized businesses pay the tax they owe.
We are already seeing that the gloves are coming off when it comes to debt collection with HMRC being reported to be deploying its full arsenal of collection measures to enforce collection, and in some cases without quarter. Expect HMRC triggered insolvencies to spiral.
Akshata Murty aka Mrs Sunak
She has done nothing wrong but you may feel that someone in this position should be a UK taxpayer.
Murty who is the daughter of one of the richest men in India, has continued to use the tax status of non-domicile.
A recent statement said that Akshata Murty is a citizen of India, the country of her birth and parent’s home and that India does not allow its citizens to hold the citizenship of another country simultaneously.
This means that she is treated as non-domiciled for UK tax purposes and so only pays tax in the UK on her UK Income.
It is completely legal for Murty to use the status, as she has lived in the UK for nine years but remains domiciled in India as she has never taken British citizenship.
However, the controversy that has arisen is due to the fact that Murthy owns a 1% stake in her father’s software company Infosys which in 2019 reported revenues of $11.8bn (£9bn). Her dividends are therefore presumably taxed in India. She would only pay tax on this money if she brought it into the UK.
Murty and the Chancellor have been criticised by the Labour Party with shadow Treasury spokesperson, Tulip Siddiq MP stating: ‘It is staggering that his family may have been benefiting from tax reduction schemes’. She also argued that the Chancellor needed to ‘urgently explain how much he and his family have saved on their own tax bill’.
Flapjacks are not cakes
This means that unlike cakes, flapjacks are liable to 20% VAT.
They do not fall within the definition of cake for the purposes of VAT and were in fact classified as confectionery and are subject to standard rate VAT rather than zero-rated.
In making the decision in a recent case, the First Tier Tribunal analysed and tasted four varieties of flapjack to evaluate the ingredients and manufacturing technique, the texture, and the appearance. It also examined the function and typical circumstances of consumption, the marketing and markets, and the packaging and the name.
The Tribunal stated that most of the ingredients of the products were a blend of oats, with dried fruits and seeds, nuts, and flaxseed. It did contain some ingredients for a cake, such as flour, oils, and fats, however, not enough to classify it directly as a cake. It also found that the products contained a ‘very high level’ of protein which is not seen in traditional cake recipes.
The First Tier Tribunal added that the products were also not baked but were slightly heated to 85 degrees which is ‘not traditional baking’.
The tribunal ruled that the texture was also not one of a cake, describing the consistency as ‘chewy and dense’ and more like a fruit bar than a cake and that oats were ‘clearly obvious’ in regard to the texture.
The packaging failed to use the word ‘cake’ on any of the products with the words protein and flapjack featuring heavily.
An ordinary person would not consider the products to be cake, and they should be classed as
What will the new tax year mean to you?
Here is a list of changes that may or may not affect you:
- Increase in the state pension by 3.1%.
- Increase in the National Minimum Wage.
- Increase in National Insurance by 1.25% for employees and employers.
- Increase in Dividend Tax by 1.25%.
- MTD for VAT effective for all VST registered businesses from 1 April. 2022.
- The tax arising from the freezing of allowances and rate bands will become very noticeable this year given spiralling costs and rising inflation.
You must submit a tax return if you have self-employed earnings or have received untaxed income over £1,000. You will also have to file if you have generated income from renting out a property, including through Airbnb.
The deadline for submitting a paper return is 31 October, and 31 January 2023 if you are filing online but don’t leave it to the last minute.
Over- repayments of Student Loans
Some students have continued to repay student loans even after the balance has been paid in full.
Data released by the Student Loans Company, revealed that in 2020-21 the average overpayment was around £375 with the amount overpaid sitting at £16.9m, affecting 45,264 students.
This, however, is a significant drop of 38% since 2015-16 which saw 88,450 people overpay £53.3m.
The reduction is partly due to the fact that HMRC now communicated more regularly with the Student Loan Company rather than just once a year.
However many can avoid overpaying their loan if they switch to the direct debit scheme in the final two years of repayment as the direct debits stop as soon as the money is repaid.
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.
