Nearly a million trusts are not registered yet.

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 Registered Your Trust Yet?

Nearly a million trusts are not registered yet.

The recent dramatic rise in registrations is the result of changes to the law so that all trusts are required to register by 1 September 2022.

You register through HMRC’s online portal by that date or you get us to do it for you.

All UK and non-UK trusts with a liability to UK taxation arising from UK income or assets are required to register on the trust registration service.

The clock is ticking and there is still a long way to go to ensure all the trusts that are required to register do so by the deadline.

Many people who are trustees may not realise that TRS registration still applies and so many small trusts may find that they miss the deadline. Those trusts dealt with by professionals, lawyers, accountants etc, should all be aware of the need to be registered and indeed those professionals have probably done it for them.

The new rules can even apply to parents owning investments including property for their minor children. The parents will probably have no idea that they have to register by 1 September.

Failing to register in time triggers an immediate fine of £100 but could cost up to £5,000 where HMRC judge the failure to be caused by deliberate behaviour. However, it is expected that HMRC will take a soft line initially and that fines will be waived but repeat offenders could face stiffer penalties.

Close or Sell?

Once you realise you cannot continue, what do you do? Just shut up shop or try to sell. Here are some thoughts.

Close

Closing down a business can be expensive and will include redundancy payments for your staff. There is a process to be followed, so it is also not going to necessarily be the most straightforward.

If your staff have worked for you for over two years, they will be entitled to at least a statutory redundancy payment but possibly more so read their contracts of employment carefully. Most will also be entitled to notice pay and final accrued holiday.

So, closing may seem simple but it is not. It also leaves your staff without a job and you surrender the chance to get some value out of the business that you have spent time and money building possibly over many years.

Sell

Selling the business as a going concern will mean selling the premises, clients and client list, equipment etc so you get value in return. In addition you might avoid redundancy payments as the sale will engage the Transfer of Undertakings (TUPE) regulations. This therefore works in your favour and should not concern you unduly.

The new employer will stand in your shoes and the staff length of service and their contracts will all transfer to the new employer. The details of this may therefore form part of the pre-sale negotiations. For the employees, this will mean that their employment will transfer in a way that should not lead to changes for them, unless the buyer wants to negotiate some changes.

Again there is just a process to be followed.

Selling in some ways may be a little more complicated, but it will allow for business continuity and enable you to get paid for your efforts put into the business (through the proceeds of the sale), while saving on the costs associated will shutting up shop.

New VAT Penalties Regime from 2023

For VAT periods starting on or after 1 January 2023, the default surcharge will be replaced by new penalties if you submit VAT returns late or pay VAT late. There will also be changes to how VAT Interest is calculated.

Who is affected

The changes will affect everyone submitting VAT Returns for accounting periods starting on or after 1 January 2023.

Any nil or repayment VAT returns received late will also be subject to late submission penalty points and financial penalties.

If you submit your VAT return late

Late submission penalties will work on a points-based system.

For each VAT Return you submit late you will receive one late submission penalty point.

Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

The late submission penalty points threshold will vary according to your submission frequency.

Submission frequency	Penalty points threshold	Period of compliance
Annually	2	24 months
Quarterly	4	12 months
Monthly	5	6 months

You will be able to reset your points back to zero if you:

• submit your returns on or before the due date for your period of compliance — this will be based on your submission frequency
• make sure all outstanding returns due for the previous 24 months have been received by HMRC

If you do not pay your VAT on time

For late payment penalties, the sooner you pay the lower the penalty rate will be.

Up to 15 days overdue

You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.

Between 16 and 30 days overdue

You will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.

31 days or more overdue

You will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.

You will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.

Period of familiarisation

To give you time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if you pay in full within 30 days of your payment due date.

How late payment interest will be charged

From 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full.

Late payment interest is calculated as the Bank of England base rate plus 2.5%.

Introduction of repayment interest

The repayment supplement will be withdrawn from 1 January 2023.

For accounting periods starting on or after 1 January 2023, HMRC will pay you repayment interest on any VAT that you are owed.

This will be calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC pays you the repayment VAT amount due to you in full.

Repayment interest will be calculated as the Bank of England base rate minus 1%. The minimum rate of repayment interest will always be 0.5% even if the repayment interest calculation results in a lower percentage.

Furnished Holiday Lets – The Tax Benefits

Furnished holiday lets in the UK offer a number of tax benefits,

Furnished holiday lets are considered separate from other residential and commercial properties and are treated as a trading business by HMRC and taxed accordingly.

Tax benefits include variable profit sharing, mortgage interest tax relief, capital allowances, and profits which count as earnings for pension purposes. Capital gains tax (CGT) reliefs also apply so the lets qualify for rollover relief, gift relief and business asset disposal relief (BADR).

For roll over relief to apply the new asset must be acquired either within 12 months before the capital gain rises, or within 36 months after.

Gift relief is also available to defer capital gains on disposals where business assets are gifted, perhaps to the next generation.

Where business asset disposal relief (BADR) applies, the CGT is reduced to 10% on profits of up to £1m if the business is closed or sold. Regular letting businesses do not qualify for these reliefs, CGT would apply at the usual rates of 18% to 28% for residential property.

To qualify the property must be available to let for at least 210 days in the tax year and actually let commercially for 105 days.  

Capital allowances can be claimed on assets such as heating, lighting, ventilation, data and power installations. Capital allowances can only be claimed by the individual that has both incurred the costs and is also carrying out the activity.

Sparks Fly on Electric Cars

ICAEW has asked HMRC to change its guidance that incorrectly tells employers to tax reimbursements made to employees for the cost of charging a company-owned electric vehicle. 

Electric vehicles are popular as the employee also saves on fuel costs and the taxable benefit for using an electric car is only 2% of its list price (frozen until 6 April 2025), and 0% for using an electric van. 

The company can claim a 100% deduction against corporation tax when it buys a new electric car and in addition, brand-new electric vans qualify for the 130% super deduction when purchased by a company, and even second-hand electric vans will qualify for the annual investment allowance (AIA), which can be claimed by all types of businesses.

The argument with HMRC is over how employees should be taxed if the employer pays to charge the company-owned EV and that EV is used for non-business journeys. 

The professional bodies and HMRC agree that there is no taxable benefit where:

• the EV is charged at the workplace, even if the vehicle is used for private journeys, or
• the employee is paid up 5p per mile for business journeys in the EV. 

The disputed point is what happens when the employee is reimbursed for the cost of charging the EV using their domestic electricity at home, or using a public charging point. 

HMRC say that because the EV is used for both business and private journeys, a reimbursement of the power used for non-business miles is a taxable benefit. ICAEW disagrees.

As far as ICAEW is concerned,  the reimbursement of the cost of electricity used to charge the EV, is a car-related cost and as such excluded from tax under the legislation governing these matters. As such it is included as part of the taxable car benefit, in other words 2% of list price, and it cannot be taxed separately because that would be double taxation. 

Managing Hybrid Workers

According to the Office of National Statistics 38% of working adults reported having worked from home at some point over the last week, compared with 18% before the pandemic. We must all therefore adapt to the new reality.

So, if you only see hybrid workers for 1 or 2 days a week, what should the person managing them do differently.

1, Design a capability process with employees

ACAS recommends discussing the following points with employees:

• how employees will be managed when at home,
• if monitoring is needed,
• what could be monitored and how (ensuring consistency between home and office), and
• data protection.

2. Set goals expectations

Set out what standards are expected and establish reasonable goals with staff.

3. Contact

Don’t wait till you are in front of the, tackling issues directly, and early, as this will build trust and help develop an effective working relationship.

4. Establish context through cohesive teams

Hold team meetings, lunch sessions, or group chats. This enables interaction to take place to replace those informal conversations that naturally occur in the office that help staff to understand the context of the tasks allocated to them.

5. Avoid a ‘two-tier’ workforce

Bias can creep into management decisions arising for who is or is not physical present.

To avoid this, you should seek a genuine connection with employees, through regular formal and informal meetings enabling you to form an accurate view of the individual employee.

6. Training

You need  to connect properly with your employees and find a way that works for both. And training will be essential in developing these skills and adapting existing skills to the new environment.

Tax take up £26.7bn

The latest figures on tax receipts for April to July 2022 totalled £252.6bn, which was £26.7bn higher than the same period last year.

Tax receipts from income tax, capital gains tax (CGT) and national insurance contributions (NIC) hit a total of £17.5bn.

In July total tax receipts hit £73.8bn, up substantially from £56.7bn the previous month. This is the highest figure since January 2022 when the tax take spiked due to self-assessment tax receipts and corporation tax payments.

The increase in revenue resulted from the freezing of personal tax thresholds which has resulted in more taxpayers being pulled into higher rate tax.

Soaring houses prices and frozen allowances pushed inheritance tax (IHT) receipts up 14% to £2.4bn for the quarter. The figure was £300m higher than at the same point last year.

VAT increased by £2.2bn compared with the same period a year earlier, reaching a total of £55.4bn.

HMRC Interest on Overdue Tax

HMRC has confirmed that it will raise its interest rates on late tax payments to 4.25% on 23 August – a level not seen since January 2009.

The threat of further interest rate rises this autumn, coupled with rising inflation, will likely see further increases in HMRC rates.

If you have outstanding tax liabilities, you should try to settle as much as you can afford before there are further rate rises.

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.