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.
Non Budget on 23 September
The new Chancellor Kwasi Kwarteng seems set to deliver his fiscal statement, not a budget, on Friday 23 September, unless of course the date gets changed.
We will have to wait until then to find out how the energy bill support scheme will be financed and whether the 1.5% National Insurance contributions (NICs) hike will be reversed as promised by LizTruss during her recent campaigning for leadership.
The energy bill support scheme is expected to start from 1 October for households. There are indications that help will be available for business but details are not expected to be available before the beginning of November, although it is expected that any measures will be backdated to the beginning of October. However, the business support package is only expected to last for 6 months.
A more meaningful budget is expected in October or November, which while not that long away, does give the Chancellor a bit more time to get his act together.
Regulation of the Tax Profession
The UK government is currently considering the case for possible regulation of the tax profession.
There is no formal regulatory framework in the UK governing those who provide tax services. Anybody can set themselves up as a tax agent and adviser. This situation contrasts with extensive regulatory regimes in other areas such as financial services and insolvency. However, many providers of tax services will belong to a professional body such as ICAEW, ICASS, ACCA or CIOT and will need to comply with these regulatory rules and codes of conduct, including the Professional Conduct in Relation to Taxation (PCRT).
We are in fact governed by 2 of these bodies because we are also members of The Institute of Taxation (CIOT).
The UK tax services market is diverse and fragmented. It includes not just tax services provided by chartered accountants and tax advisers, but many more specialised providers including payroll, pensions, capital allowances, research and development (R&D) tax relief and, increasingly, software providers.
HMRC figures suggest that there are about 65,000 registered tax agents. Of these, about 70% are advisers who are affiliated to a professional body.
So, about 30% of tax service providers do not appear to be affiliated to a professional body and therefore are not subject to any direct oversight. There is no doubt that this is a potential regulatory gap that allows some unscrupulous providers (rogue agents) to abuse the system.
If you intend to provide tax services in Australia you must register with the Tax Practitioner Board and meet various requirements, which include registration, being a fit and proper person, and meeting various PII/continuing professional development (CPD) requirements. Should this be applied in the UK.
One key problem that needs to be addressed is how exactly do you establish oversight of the unaffiliated sector? Some years ago, HMRC shared some high-level data during discussions that suggested that the 30% unaffiliated sector (about 20000 practitioners) gave rise to about 70% of its problem cases.
On the other hand there is a danger that overregulation could damage compliance by making it too expensive to seek help. The approach adopted will need to be proportionate to the problem and cost-effective in terms of raising compliance and reducing the tax gap.
HMRC Pre-filing Chat
HMRC has a number of “wealthy teams” that provide targeted guidance for wealthy taxpayers. An individual with an income of over £200,000, or who has assets exceeding £2m, is considered wealthy by HMRC. HMRC says that it has around 800,000 of these wealthy customers.
In April 2022 HMRC launched a pilot scheme, comprising about 1000 taxpayers, inviting these wealthy taxpayers with complex tax affairs to have a voluntary phone call with a member of a wealthy team, before filing their next tax return.
Their tax advisers are not being copied into these letters, effectively bypassing these appointed agents.
Taxpayers, however wealthy, should always talk to their tax adviser before meeting with, or talking to, HMRC officials. While co-operation with HMRC is always a good thing, tax terms can be misunderstood, so without professional guidance there is a danger that taxpayers’ explanations could set hares running unnecessarily.
Electric Cars and Tax
Let’s consider the position where a company leases an electric car and provides it to an employee.
One option is that is available is leasing electric cars in combination with agreed salary sacrifice arrangements between employers and their employees.
Providing a lease car through a salary sacrifice arrangement effectively creates a contract between the employer for a company lease car, generally of the employee’s choosing, which is provided to employees under a salary sacrifice arrangement. The cost of the lease is offset against the saving the employer makes by reducing their staff pay bill.
The employer is only obliged to calculate the cash equivalent of the company car benefit by using the standard rule which is the list price multiplied by the appropriate percentage for the car’s CO2 emissions – currently 2% for tax year 2022/23.
The subsequent benefit to the employer is the reduction in employer class 1 NICs due through payroll on account of the salary sacrifice compared with the amount of Class 1A the employer will have to pay for the provision of a company car.
The employee will also enjoy the use of a company car while saving on employee class 1 NIC as well as tax via the salary sacrifice. The employee will only pay income tax on the reportable cash equivalent of the vehicle.
Tax reliefs for electric cars
The current rules enable tax relief to be claimed for 100% of a new vehicle’s cost in the year of purchase. However, only qualifying low emission or electrically propelled car purchases made on or before 31 March 2025 will qualify for FYAs.
Expenditure incurred on the provision of electric vehicle charging points also qualify for FYAs, but only before 5 April 2023 for income tax purposes (or 31 March 2023 for corporation tax purposes).
There are currently long waiting times for new electric vehicles.
For capital allowance purposes, expenditure is treated as incurred once an obligation to pay becomes unconditional. If payment is not required until delivery, this could delay the date that the relief becomes available.
If a car purchase does not qualify for FYAs, capital allowances are instead available at a maximum rate of 18% per year on a reducing balance basis.
PAYE Direct Debits from 19 September
From 19 September employers will be able to take advantage of the new direct debit payment plan for PAYE and national insurance contribution liabilities.
The launch of the new variable payment plan will result in a new “Set up a direct debit” link being introduced to the business tax account and the employers’ liabilities and payments screens on the employers’ PAYE service.
Users will then have to set up a direct debit instruction, which will authorise HMRC to collect directly from their bank account based on their return submissions. Once this has been authorised, the link will switch to “Manage your direct debit”. Employers will also be able to use this option to change or cancel the direct debit.
The direct debit will never be more than the number declared on the Real Time Information (RTI) returns and can never be more than £20m. The money will be taken out on the 23rd of each month or the next working day and there will be no additional charge for the employer to use the payment plan.
This functionality on the HMRC website is restricted to employers only and agents cannot use it.
Inflation and Your Personal Tax Liabilities
High inflation will promote some interesting tax planning measures as there are a number of tactics that are available to individual taxpayers to cushion the blow from ever increasing living costs.
Generally, you should endeavour to accelerate (where possible) claims for tax reliefs as soon as possible. This means the individual will receive the tax repayment sooner rather than later, when the value of the repayment has not been eroded by inflation.’
- Carrying back charitable donations
It is possible to carry back donations made in the following year (before 31 January). By carrying back donations, you are receiving the tax relief and you save higher rate tax earlier.
- Payments on account
Liaising with your accountant to review the anticipated future tax liabilities will ensure that you do not unnecessarily pay too much tax in advance and therefore free up funds now to maintain their lifestyle.
- Enterprise investment scheme (EIS)
This relief is usually available for the tax year in which the investment is made. However, it is also possible to carry back the tax relief to the previous tax year, e.g., if you made an investment in the year ended 5 April 2023 you could carry back the relief to the year ended 5 April 2022. The advantage of carrying back the claim is that you are ensuring you claim the relief sooner rather than later.
Likewise deferring tax payments means that the liability is effectively reduced by the rate of inflation, and effectively is discounted.
Company in Financial Difficulty
In these circumstances, directors have responsibilities including responsibility to creditors before insolvency and for wrongful trading.
Directors of a company in financial difficulties should therefore consider seeking appropriate professional advice.
The Companies Act provides that the directors have a duty to promote the success of the company for the benefit of its members subject to any rule of law that require directors to consider or act in the interests of creditors. When the directors know or ought to know that the company is insolvent or likely to become insolvent, either on a cash-flow or balance sheet basis, the directors have a duty to take account of the interests of creditors.
Directors should therefore consider whether the company will still be solvent following a proposed dividend or other distribution. This means considering the immediate cash flow implications of a dividend and the continuing ability of the company to pay its debts as they fall due.
When the duty to consider the interests of creditors is triggered, directors must consider the interests of creditors, and not only the interests of a particular creditor or class of creditor.
If a company goes into insolvent liquidation or administration, a director can be personally liable for wrongful trading. This liability arises if the director concludes or should have concluded that there is no reasonable prospect of avoiding insolvent liquidation or administration and does not take every step that the director ought to take to minimise potential loss to creditors.
To avoid (or minimise) liability for wrongful trading, directors may have to cease trading. Resignation may be considered as an abrogation of responsibility and not serve to protect a director from liability. A director who resigns from office may still be liable for any wrongful trading that took place during the director’s time in office.
Directors are also responsible for complying with other laws including the law on fraudulent trading, and should be aware that, when a company goes into insolvent administration or liquidation, past transactions may be challenged, including transactions at an undervalue or payments that give one creditor a preference.
When a company goes into liquidation or administration the directors lose their powers to control the company’s affairs which pass to the administrator or liquidator.
However, their general duties (including to act in the interests of creditors when the company is insolvent) may continue.
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.