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.
Do the so-called Baby Boomers get presential treatment when it comes to tax, at a time when it is Generation Z that needs the help.
Baby Boomers were the children in the post war surge in the birth rate and so are now either dead, retired or retiring, with many being financially very comfortable. Research does show that people born earlier than the baby boomers are not so well off generally.
Boomers benefited from the expanding economy in the 1960s to 1990s. Those who went to university emerged largely debt-free, and most students received government grants to cover their living costs. Tuition fees were not charged to students in the UK from 1976 to 1998.
Individuals borrowing to buy their own homes enjoyed mortgage interest relief.
Many have retired on final salary pension schemes.
They also benefit from no national insurance on pensions or earnings, a steadily increasing state pension, bus passes and winter fuel allowance.
- State pension is increased each year by the higher of earnings, inflation and 2.5% (the triple lock)
- Free bus travel in most regions
- Winter fuel allowance.
The younger generation are burdened with rising mortgage or rental payments, Childcare costs, student loan repayments, high transport costs and the High Income Child Benefit Charge.
The question is how can the burdens be spread more evenly. Here are some suggestions:
- Charge National Insurance on earnings and pensions no matter what your age.
- Write off student loans for those in selected socially important
- Scrap the High Income Child Benefit Charge.
- Provide more government-subsidised childcare and/or make it easier for employers to provide tax-free childcare.
- Allow the full personal allowance to be transferred between a couple so they get the benefit of both personal allowances, even if one is not working. This would be turning the clock back to the way things used to be.
- Give the married allowance to all couples not just those born before 6 April 1935.
There are many things that could be done to give more tax and other breaks to the younger generation, if the government had the will to do them. However, this seems unlikely ate the moment.
3.5% on Income Tax
Recent research has found that for a middle earner the basic rate of income tax would have to have risen by 3.5% while the corresponding increase for lower earners is just 2%.
This illustrates the impact of this stealth tax.
It also highlights the sneaky tactics employed by the government to nab more money from our pay packets without many taxpayers realising, compared to the uproar if they actually tried to increase the rate of income tax by these percentages..
25% of small businesses fear going under next year
According to a survey conducted by the Federation of Small Businesses (FSB) 24% of their small business members who took part in the survey intend to close, downsize, or radically change their business model in the next year.
44% are considering raising prices to cope with soaring bills when the current EBRS is due to end, and 30% expect to cancel or scale down planned investments.
The factors are the aftermath of the pandemic, rising energy cots and high inflation.
Soaring energy costs, food price inflation and a slowdown in consumer spending have resulted in the closure of many restaurant businesses with 395 insolvencies last quarter rising to 453 this quarter. Another factor for restaurants is the difficulty of finding staff at all levels. So that they are losing capacity.
You are all on MTD now
The existing VAT online account can no longer be used to submit quarterly or monthly VAT returns.
The only way to file these VAT returns is now through Making Tax Digital (MTD) compatible software.
All businesses that have missed the deadline to sign up to MTD for VAT will now be automatically signed up to the digital reporting tool and will have to fill VAT accounts through accredited MTD software programmes. HMRC are therefore now signing up all remaining businesses to MTD.
The penalty system is also changing from 1 January 2023 when HMRC says it will be introducing ‘simplified’ penalties for late submissions and payments.
VAT domestic reverse charge for construction
A domestic reverse charge requires the customer receiving supplies to account for the output VAT due, rather than the UK supplier i.e. rather than paying the VAT over to the supplier who accounts for it to HMRC, the customer pays it direct to HMRC.
On 18 November 2022, HMRC updated its technical guide to include a section on scaffolding as well as a number of other areas.
The guidance confirms the VAT liability of any supply of scaffolding will depend on what is being supplied under the contract in each case. The hire of scaffolds is not covered but the service of erecting scaffolding will be subject to the reverse charge.
For a new house, a contract for the hire, erection and dismantling of scaffolding is within the scope of the Construction Industry Scheme. If the elements are shown separately, the labour element will be VAT zero-rated as a service carried out in connection with the construction of a new dwelling. While charges for the hire of scaffolding alone are not covered by the zero rate and are liable to VAT.
End user and intermediary suppliers
Being designated as an end user is optional and suppliers should not treat customers as end users without a written statement from the customer that they are an end user.
Labour-only supplies or employment business
The conditions regarding who workers or labourers are employed by when determining whether the supplying business is an employment business or a labour-only business has been removed.
In addition, the customer’s site foreman, directing and controlling the works carried out by the workers, is no longer considered by HMRC to be a feature of an employment business.
Construction services supplied with goods or other services
Goods supplied with construction services should be treated as a single supply for VAT purposes. As such, the reverse charge generally applies to the full value of the invoice.
If a utility company charges for work to connect, disconnect, reconnect, divert, make safe or cap off parts of its own utility network, this work is generally not within the scope of “construction services” for the purposes of the reverse charge. This is because the utility company is not making onward supplies of construction services.
Explaining Tax Codes
HMRC has introduced new interactive guidance to help taxpayers navigate their P2 coding notices and understand their tax position.
The new interactive tool responds to information provided by the taxpayer to give additional explanations relating to their tax code including situations where a taxpayer’s tax code has changed.
Many taxpayers within PAYE currently receive a tax coding notice setting out the taxpayer’s tax code, how HMRC has calculated the tax code and how to contact HMRC if the tax code is incorrect. It also includes notes explaining each element of the tax code calculation.
The interactive tool is not intended to replace the coding notice which will still be sent.
Missing Trader Fraud
Missing trader fraud involves the trade of goods and services for the purpose of the theft of value added tax (VAT) through the use of missing traders. Missing traders are companies that fail to pay the VAT due on their sales to HMRC (or other relevant overseas tax authorities) before ceasing trading (“going missing”). The goods and services used are often legitimate and often end up in the genuine market.
Common Features of Missing Trader Fraud
Fraudsters seek trading relationships with large reputable businesses in order to sell large amounts of goods to the genuine UK market, charging VAT on each transaction. These businesses are usually genuine and often not aware of, or involved in, the fraud. Dealing with large businesses allows fraudsters to maximise the amount of trade they conduct (therefore maximising their profits), while also avoiding the need to claim a VAT repayment from HMRC.
Red Flags to Consider:
- Commodity Flags
Any goods or services that are standard-rated for VAT can be used to conduct missing trader fraud. However, certain commodities are more attractive due to factors such as: their value, ease of trade, and their transport and storage costs. Commodities of interest include, but are not limited to:
• Metals (particularly copper and silver)
• Small electrical goods (such as hard drives and games consoles)
• Fast-moving consumer goods (such as soft drinks)
Commodities that may be attractive to criminal gangs also include ‘intangible goods’ that lead to VAT exposure, such as energy and financial services certificates. The most well-known cases involved emission allowance ‘carbon credits’ in 2009 and more recently Guarantees of Origin (GoOs) in 2019.
- KYC Flags
• Minimal industry experience of either the entity or its employees / poor knowledge of the market and products.
• Unusual expansion or movement into unrelated trade, especially where the business model does not seem suited to the new sector. This could include inconsistent and rapidly changing Standard Industrial Classification codes used by entities to trade.
• Businesses registered to a residential address or an address on a short-term lease. This would include links to shell company or higher-risk trust and company service provider (TCSP) addresses.
• Start-up funding received from an unusual or unconnected source, especially when provided to someone with a poor credit history.
- Transactional or Trading Flags
• Rapid increase in amount of trade sought. This would include dormant or new accounts suddenly trading or transacting in higher volumes than expected over a short space of time, potentially resulting in a large, sudden increase in revenue.
• Prices that are too good to be true. This could be observed where an entity is offering prices that are not in line with the market.
• Shorter payment terms than the industry standard.
• Entity may seem to have a disinterest in profit/loss, and a general lack of economic rationale for a transaction.
• Trade/transaction facilitates currency change.
• Trade/transaction facilitates jurisdiction change.
• Higher turnovers than expected for the size of the business.
• Large payments of almost equal value entering and exiting the account in a short time frame.
• Amounts being paid in large round figures, or a few pence over such a figure.
• Payments to very few companies and/or trading with limited number of counterparties, particularly where the counterparties and customers are owned or controlled by the same or related parties.
• Payments to overseas companies in unrelated trade sectors.
• Payments to higher-risk money laundering jurisdictions.
• Payments made or received from third-parties.
• No or very few salary payments, or other expected business outgoings. No payments to HMRC or other relevant overseas tax authorities.
• Transactions noted as using a) generic messages, b) multiple entities using the same, repeated invoice numbers, c) multiple entities using same VAT number.
• Repeat deals at the same or lower prices and small or consistent profit.
Other flags to consider
• Common Internet Protocol addresses used to manage multiple client accounts.
• Use of an Alternative Banking Platform (ABP) with an account based abroad.
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.