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.
Have you filed your 2022 tax return yet?
Are you a hare or a tortoise? 66,500 people (hares) filed their self-assessment tax returns on 6 April 2022.
This is up on the 63,521 who filed their tax return online on 6 April 2021. In 2019 it was 35,255, in 2018 it was 36,939 and in 2017 it was only 22,885.
The highest year was 6 April 2020, which saw 96,519 people file their returns on the first day, presumably because they were at home in lockdown with nothing else to do.
At the other end of the filing scale around a million (tortoises) missed the filing deadline this year even with the one-month extension from January to February.
12.2m taxpayers were expected to file a return for the 2020/21 tax year, with around 10.2m received by 31 January, with the figure increasing to 11.3m by 28 February.
HMRC advises changing MTD year ends in 2023/24
MTD for income tax has been on the way for some time but in the 2021 Autumn Budget new basis period proposals were introduced to coincide with the introduction of MTD.
The basis period proposals are intended to streamline the quarterly reporting process. While the reforms will make life easier for HMRC, they potentially pose new challenges for both you and us.
In an online session HMRC recently clarified several points surrounding the introduction of Making Tax Digital for income tax self-assessment and basis period reform in 2024.
Sole traders don’t need to change their accounting periods although HMRC think they will. They are recommending that the change not be done until 2023/24.
From April 2024 the submissions for MTD ITSA will consist of quarterly updates, an annual end of year period statement and an annual final declaration.
MTD ITSA will impact self-employed business owners and landlords with a combined annual income of £10,000 or more.
The quarterly updates will require a summary-level report of the relevant income and expense data. Submissions that have already been made can be adjusted, if necessary, through a resubmission process.
The final declaration will be made by the following 31 January as with the current tax returns, with self-assessment, penalties and interest if the 31 January deadline for submitting this information is missed.
HMRC have said that there are no plans to change the £10000 threshold for self-employed business owners and landlords being required to follow MTD ITSA rules.
4.2m self-employed business owners and landlords will need to make submissions for MTD ITSA. A further 7-8m will be able to continue to submit self-assessment tax returns if they choose to do so.
MTD ITSA for partnerships will be delayed until April 2025.
Director forced to pay his company’s tax debt
Michael Eames was the sole director/shareholder of A1 Recovery Portsmouth Limited (A1RP), a company that maintained and repaired motor vehicles and provided roadside recovery for national breakdown services.
The company entered compulsory liquidation in July 2017, owing HMRC £108,059.07 (plus interest) in unpaid PAYE. On the grounds that Eames had been negligent in his behaviour HMRC decided to exercise its right to allocate this debt to Eames via a Personal Liability Notice.
The law allows HMRC to effectively take a corporate PAYE liability and make it a personal liability of an officer (or officers) of the company.
This can only be done where the company has failed to pay the required amount and the failure to pay can be attributed to fraud or negligence on the part of one or more officers.
Behind the decision of HMRC was Eames’ business history as he had been the director of two previous companies that had been liquidated leaving unpaid PAYE.
Negligence is where a taxpayer either omits to do what a reasonable person would do or does what a person taking reasonable precautions wouldn’t have done.
Various other factors were considered but ultimately the Tax Tribunal determined that Eames had used money owed to HMRC to pay himself and fund his businesses. He had failed to keep to agreed payment terms to clear his PAYE debts and he had seemingly not learned from his prior business failings. The Tribunal therefore agreed he had been negligent.
He, therefore, was liable to pay the tax personally.
Employment Ownership Trusts – More Popular
Over the last decade, the government has been keen to encourage more businesses to become employee-owned, with research indicating they can increase both profitability and productivity.
The government introduced tax incentives in 2014 that can provide for a zero per cent CGT rate on the sale of shares to an EOT and the ability for staff to receive an income tax free annual bonus of £3,600.
Another factor in the increased uptake of EOTs is likely to be the reduction in the tax relief from Entrepreneurs Relief for business owners during their lifetime. The 10% rate now only applies to lifetime gains up to £1M. It was previously £10M.
If a company plans to become employee-owned, the shareholders of that business will often seek to sell a majority stake to an Employment Ownership Trust (EOT) and thereby benefit from a highly beneficial zero per cent capital gains tax rate on the sale proceeds.
Prior to doing so, it is customary to apply to HMRC for a ‘clearance to confirm that they will not seek to apply certain tax anti-avoidance rules, known as the ‘transactions in securities’ rules.
There has been a 10-fold increase in clearance applications to HMRC for employee ownership trust (EOT) structures in the last two years.
In 2019, 38 companies made a clearance application to HMRC, with 100 in 2020, and 383 companies in 2021. It is likely that this will increase again in 2022.
Living Wage Penalties of £14M
HMRC has issued 580 penalties worth £14m in 2020/21 for national living wage and national minimum wage offences
This is down £4.5m from the year before which saw 992 penalties totalling £18.5m.
HMRC have said that 2472 complaint-led cases in 2020/21 were received via HMRC’s online complaint form and only 283 from the ACAS helpline. A mall number of cases originate elsewhere.
What is HMRC’s Trust Registration Service?
The Trust Registration Service (‘TRS’) requires trustees to provide information about the trust, including its assets, all relevant parties and beneficiary details. Recent changes to the anti-money laundering regulations mean that many more trusts will be required to register.
If you are a trustee, you will need to consider carefully if you are required to register the trust. The recent changes mean that all express trusts, even if they are not taxable will need to be registered unless they are excluded. All taxable trusts should be registered. The term ‘express trust’ broadly covers all trusts that have been deliberately created by a settlor.
Generally all Trusts will need to register unless:
- The trust is used to hold money or assets of a UK registered pension scheme — such as an occupational pension scheme.
- The trust is used to hold life or retirement policies providing that the policy only pays out on death, terminal or critical illness or permanent disablement, or to meet the healthcare costs of the person assured.
- The trust is holding insurance policy benefits received after the death of the person assured — as long as the benefits are paid out from the trust within 2 years of the death.
- It is a charitable trust that is registered as a charity in the UK or which is not required to register as a charity.
- It is a ‘pilot’ trust set up before 6 October 2020 and holds no more than £100 — pilot trusts set up after 6 October 2020 will need to register.
- It is a co-ownership trust set up to hold shares of property or other assets which are jointly owned by 2 or more people for themselves as ‘tenants in common’.
- It is a will trust created by a person’s will and comes into effect on their death providing they only hold the estate assets for up to 2 years after the person’s death.
- It is a trust for bereaved children under 18, or adults aged 18 to 25, set up under the will (or intestacy) of a deceased parent.
- Trusts set up for personal injury compensation or under the Criminal Injuries Compensation Scheme.
- it is a ‘financial’ or ‘commercial’ trust created in the course of professional services or business transactions for holding client money or other assets.
The deadlines depend on whether or not the trust is taxable and the date the trust was commenced.
Non Taxable Trusts created before or on 6 October 2020 – 1 September 2022.
Non Taxable Trusts created after 6 October 2020 – within 90 days of creation or becoming registrable or 1 September 2022 (whichever is later).
Taxable trusts created on or after6 April 2021 – within 90 days of becoming taxable or 1 September 2022 (whichever is later).
Taxable trusts created before 6 April 2021:
Where they are liable for income tax or capital gains tax for the first time – by 5 October in the tax year after the trust receives income or has any capital gains and becomes liable for tax.
Where they have been liable for income tax or capital gains tax before – by 31 January in the tax year after the trust receives income or has any capital gains and becomes liable for tax.
Where they are liable for other taxes such as inheritance tax – by 31 January in the year after the tax liability has arisen.
Car dealerships will often purchase an extra car to act as a demonstrator car. These demonstrators are usually the car that sits on display in the showroom and can also be the car that customers use for test drives.
The demonstrator car will typically be sold at a discount.
The capital allowance claims available for cars depend on both the CO2 emissions and whether the car is new or second-hand.
Logically, you would expect a demonstrator car, which will likely have clocked up some miles from test drives, to be classed as used. However HMRC will accept a car is unused and first-hand even if it has been test driven or used as a demonstrator.
An electric ex-demonstrator car can therefore still attract 100% first-year allowances, provided HMRC agree that the mileage to date of purchase by the business is “limited”.
The manufacturer will charge VAT to the dealership the same as they would for any other car and provided the dealership intends to sell the car within 12 months, they can recover the VAT charged. The dealer will then be required to charge VAT on the full selling price.
Employees/directors may use demonstrator cars privately for no charge. Often the employees will not have an allocated car that they use but will rather treat the demonstrator vehicles similar to a fleet of pool cars.
Where such private use occurs, the default VAT treatment would be to account for output VAT each quarter on the cost of providing each car for private use. This would involve considering the depreciation of the car, the value of repairs and running costs and the business/private use split.
However, the dealership can instead opt to use a simplified method (for cars with a list price under £80000) but this method must be used for all such privately used cars.
The list price of the car typically used by each affected employee is found and a table issued to find the output VAT amount to add to that quarter’s return.
Under the Gift Aid scheme, charities may reclaim basic-rate tax from monetary donations received from UK taxpayers. The donation is deemed to have been paid under the deduction of basic-rate income tax, and the charity can reclaim 25% of the donated amount from HMRC. If the donor is a higher or additional rate taxpayer (and intermediate rate in Scotland), the extra relief due can be claimed via their self-assessment return or PAYE code.
Taxpayers making donations to charities can claim Gift Aid relief provided that any benefit they receive in return is minor, which includes use of facilities. This enables charities such as the National Trust to allow access to their properties to members while treating the membership fee as qualifying for Gift Aid relief.
Relief can be claimed for National Trust and similar memberships, but membership fees for gyms, tennis or golf clubs for example do not qualify for relief if access to training or games is given. The level of subscription is often an indication as to whether the payment is support for a charitable sports club or gives access to the facilities.
You might be able to claim relief for your own membership fees, but not memberships given as gifts to others. It is a gift to the other member, and not a gift to the charity. However, an adult can claim relief under Gift Aid for a child’s membership but not for fees such as for trips or camps.
Further guidance can be obtained from the HMRC website.
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