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 R&D Letters
Payment of some R&D tax credits have been stopped while HMRC investigates suspicious claims. Letters have been sent out to the affected claimants.
HMRC have stated that they have recently seen some concerning claims. To prevent abuse of the Research & Development relief and protect legitimate customers, they have conducted additional checks. Where evidence leads them to believe that fraudulent claims may have been made, they will issue these letters which ask for more information to help verify the claims.
They have not written to R&D claimants accusing them of fraud. These letters state that they have not opened a criminal investigation into suspected fraud but reserve the right to do so.
The letter invites recipients to get in touch with HMRC within 30 days if they believe their claim is genuine. It warns that anything a company might say to HMRC about their claim could be used as evidence in respect of any future criminal investigation.
Finance Bill 2022-23
Even with the Conservative party leadership elections, ordinary life goes on.
The Government has published draft tax legislation arising from earlier consultation exercises and these will be included in the next Finance Bill.
Currently, transfers between divorcing parties are only free of CGT if they occur within the same tax year of separation. Between that date and the decree nisi the couple are connected persons but not living together, so the CGT no gain/no loss treatment for transfers between a married couple/civil partners does not apply.
The proposal extends the no gain/ no loss transfer window to 3 years from separation for all disposals that occur on and after 6 April 2023.
Under auto-enrolment, many low paid employees have auto enrolled pension contributions paid net of tax, although they don’t earn enough to pay income tax, so they miss out on the tax relief.
From 6 April 2024, those employees on net-pay schemes will be able to claim a rebate from the government on the tax relief they are due.
R&D tax relief
Small companies who want to claim R&D tax relief will have to inform HMRC in advance of their intention to claim within six months of the end of the first period of the claim and a senior officer of the company and the tax adviser will also both have to be named on the claim.
Large multinational companies will have to pay a minimum of 15% tax in each jurisdiction they operate in under the OECD Pillar 2 proposals. The Finance Bill will include a new multinational top-up tax to ensure that this minimum level of tax applies in the UK with effect from 31 December 2023.
MTD ITSA – 3 Line Accounts
HMRC recently released a notice on MTD for self-assessment but restricted the information purely to the legislative elements and failed to clarify other functional aspects of the scheme.
According to HMRC, the guidance is still being developed. which may illustrate that they don’t have answers to a lot of the questions they’re being asked.
At the moment the information that’s required to be submitted quarterly uses the same income and expense categories as those seen on your tax return but traders operating below the VAT threshold can file 3-line accounts. It is unclear how this concession will work with quarterly reporting.
Spreadsheets and MTD ITSA
Could spreadsheets alongside bridging software provide a cheap and easy solution for Making Tax Digital for self assessment?
It has been reported that HMRC has confirmed that the use of spreadsheets is acceptable as a digital record for MTD ITSA so that does not present an issue.
Bridging software should be able to be used to submit the quarterly updates under MTD ITSA.
One issue is how will that bridging software receive information back from HMRC regarding the quarterly tax estimate. One option being suggested is that the taxpayer may be signposted to view their online personal tax account to get that information.
Another issue with using spreadsheets is how bridging software will be able to complete the end-of-period statements (EOPS) required for each trade/property business, and the finalisation statement that replaces the self-assessment tax return.
The End of Period Summary (EOPS) needs to take into account all the information already provided in the quarterly updates, plus any additional tax allowances or accounting adjustments. This may become clear over time.
How these particular issues will be overcome and the answers to many other questions remain unanswered but at least we know it is being investigated with a view to providing low cost solutions.
The government has introduced legislation banning the provision of accountancy services and management consultancy services to Russian companies.
The latest measures came into force on 21 July 2022 and additionally target ancillary services – related technical assistance, financial services and funds, as well as brokering services related to the trade of all products sanctioned.
Costly Mistakes in Tax Returns
In 2021/22 HMRC handed out 80% more penalties for careless errors made by taxpayers in their tax returns, with 89,317 penalties issued. Of these over 70,000 (79%) were withdrawn due to mistakes by HMRC, it has been reported.
Therefore 18,757 taxpayers were charged the £100 penalty, raising £1.87m in revenue.
This was a period when many individuals and businesses struggled to collect all the information they required to fill out tax returns properly as lockdown measures restricted access to offices potentially leading to missing or incomplete information being included.
R&D Tax Credit Claims – New Rules on Registration
The changes will affect companies claiming research and development expenditure credit (RDEC) and SME R&D relief, as well as some companies which have made a Patent Box election. HMRC want to tackle abuse of the reliefs, and so, in future, all claims to the R&D reliefs either for a deduction or a tax credit will have to be made digitally.
These digital claims will have to break the costs down across qualifying categories and provide a brief description of the R&D and, in addition, each claim will need to be endorsed by a named senior officer of the company.
Through a new digital service, companies will need to inform HMRC in advance, that they plan to make a claim within six months of the end of the period to which the claim relates but companies that have claimed in one of the preceding three periods will not need to pre-notify.
Claims will also need to include details of any agent who has advised the company on compiling the claim.
Where a company engages externally provided workers to carry out R&D, expenditure on those workers will only qualify to the extent that their earnings are taxed through PAYE, or attributable to certain R&D activity outside the UK.
The government has extended the recovery loan scheme for small businesses for a further two years but lenders can now request a personal guarantee from borrowers.
The recovery loan scheme was originally launched in April 2021. It gives lenders a government-backed guarantee against the outstanding balance of the facility. Lenders may now require a personal guarantee from the borrower, in line with standard commercial practice.
Businesses will be able to apply for the latest iteration of the loan scheme in August, when the government will release further details.
IFA: VAT on Commissions and Referral Fees
The VAT treatment depends on om whether you are acting as a financial intermediary for VAT purposes and the services will only be exempt from VAT if all three of the following apply:
- You bring together a person seeking a financial service with a person who provides a financial service;
- You stand between the parties to a contract and act in an intermediary capacity; and
- You undertake work preparatory to the completion of a contract for the provision of financial services, whether or not it is completed.
These services can include helping a client to fill in an application form, checking and then forwarding them to the provider of the financial services, or negotiating the terms of a contract.
If the conditions are met, exemption will apply whether you charge a fee to the individual or receive a commission from the financial institution.
Any services of advice only remain standard rate.
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 email@example.com.