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.
Holiday Pay
Piece work and performance pay
You may think that this avoids the need to track hours worked but in order to ensure compliance with the minimum wage, you should be recording what hours were actually worked. This will ensure that you are compliant with all the usual employment rules including adequate rest times. You need evidence to support the fact that you are indeed compliant.
Types of Holidays
Your first four weeks are going to be EU law leave, and then your 1.6 weeks are going to be your Regulation 13A leave.
The first four weeks can’t be carried over unless you are prevented from taking it (for example by long-term sickness). Additional leave, either annual entitlement or time off in lieu, can be carried over within the terms of the employment.
If you have taken your EU leave, i.e. 20 days, you can carry forward any extra in accordance with your contract of employment or employment handbook. Alternatively it can be paid out.
Zero Hours Contracts
For someone on a permanent contract in calculating the holiday pay rate, you need to use a minimum of 52 weeks up to a maximum of 104 weeks to work out what the average week looks like for them and pay 5.6 weeks at that rate.
Commission Based Earnings
You should be using the 52 to 104 week average calculation. That takes into consideration what they normally earn plus any commission.
So the commission is taken into account with the holiday pay calculation. So even though they won’t be earning commission during that week, they should receive a relatively normal pay packet based on the 52 weeks’ previous commission.
You can vary the averaging period if it results in an increase in the holiday pay above the statutory minimum.
More Scams
HMRC has issued a warning that criminals are using the tax credits renewal deadline on 31 July to con people into handing over money or personal information.
The Revenue is currently sending out tax credits renewal packs and scams mimic these government communications to make them appear genuine.
Typical scams include
- emails or texts claiming someone’s details are not up to date and that the recipient may miss out on payments.
- emails or texts claiming that a direct debit payment hasn’t “gone through”.
- claims that the victim’s national insurance number has been used in fraud.
- emails or texts offering spurious tax rebates or bogus grants or support.
- email warned the recipient that their HMRC self-assessment password was about to expire and they had 48 hours to click a link to avoid their account becoming inactive.
HMRC will never ring you out of the blue making threats or asking you to transfer money.
Communications mimic HMRC headers and footers and links for the most part, will appear genuine, but actually point to a destination that is nothing to do with HMRC.
In order to check the validity of links hover your mouse over the sender’s email address or any links embedded in the text to check what’s behind them. This will cause a small pop-up box to appear just above the cursor.
The next generation of scams is using an app to clone your voice. These tools are being used by hackers to call people and impersonate family members asking urgently for cash to be wired to an unfamiliar account.
Simplifying CIS
HMRC is considering simplifying CIS by reducing reporting burden. This will not impact most of you.
The consultation covers two areas:
- Landlord/tenant payments.
The definition of what is and is not a reverse premium has led to difficulty in landlord-tenant transactions where businesses would otherwise be completely outside CIS.
The consultation proposes that both categories of expenditure could be treated as being outside the scope of CIS so that the payments can be made without deduction.
- Multiple reporting requirements by some groups.
The group reporting problem is particularly prevalent in the property sector where it is common for property groups to comprise large numbers of companies each owning and responsible for the maintenance of perhaps a single property. This necessitates spending considerable time each month identifying which companies must file a return because they have paid subcontractors, and which, although not obliged to, will file a nil return.
The government wants to test whether establishing a ‘CIS grouping arrangement’ for certain types of groups/entities could allow a single nominated company within a group to be responsible for submitting one single monthly group CIS return on behalf of all companies in the group.
In addition, the current CIS legislation does not allow VAT to be considered as part of the compliance test, which brings a risk that traders who are not fulfilling their VAT obligations nonetheless are being given gross payment status. HMRC is considering whether to add VAT to strengthen the GPS compliance test.
Electrical Blinds Not Tax Deductible
HMRC VAT Notice 708 confirms that manual roller blinds are considered as a standard product incorporated into construction projects and therefore, they qualify for VAT relief including the zero or reduced rate of VAT if all the conditions are met.
However, as soon as an electric mechanism is used to operate the blind it ceases to qualify for VAT relief.
Electrical blinds are not ordinarily incorporated in dwellings. Therefore, like other goods which do not qualify as building materials for VAT purposes, they are not eligible for VAT relief when supplied as part of a construction service and the ‘builders’ block’ prevents developers from recovering VAT incurred on them as input tax.
Other products included on the list, which do not qualify as building materials, include AGA and similar range cookers, freestanding and integrated appliances such as cookers, fridges, freezers, dishwashers, microwaves and washing machines, as well as electrical components for garage doors and gates.
Residential Properties and Tax
Principal Private Residence Relief
Between 1.5m to 2m homeowners benefit annually from the relief, which cost the Exchequer £25bn in 2019–20.
Provided that the property has been lived in for the entire time of ownership as a sole or main residence, then the entire gain on sale is completely tax-free – including the garden or grounds (anything over 0.5 hectares needs to be required for the reasonable enjoyment).
A residence is somewhere where there is a ‘degree of permanence, continuity and the expectation of continuity’ and must be a genuine residence, as opposed to a temporary home or an occasional holiday home.
Certain periods of absence can be deemed as in occupation, and the final nine months’ ownership will always be deemed as such for a genuine residence.
If the relief does not apply, then CGT will apply at 18%/28%.
Inheritance tax (IHT)
Residential properties constitute the most valuable asset in most people’s estates. The nil rate band (NRB) is £325,000 and it has been at this level since 2009, which has been left behind by house price inflation since then.
You cannot give it away and remove it from your estate if you continue to live in it. This is reserving a benefit – unless they pay a market rent to the new owners.
However, the residential nil rate band (RNRB) can alleviate this by potentially providing an additional relief.
Both the Nil Rate Band and Residential Nil Rate Band can pass to the surviving spouse if not fully utilised. But the RNRB is only available on death and the property must be bequeathed to a direct descendent, i.e., children, grandchildren
A farmhouse might in addition qualify for APR.
The same applies to farm workers’ cottages. BPR may be available if a residential property is an integral part of a trading business, e.g., housing employees.
Costs of purchasing a property
Purchasing a residential property will incur land and buildings transaction tax (LBTT) in Scotland.
The purchase of an additional residential property (which is not a replacement of the main residence) incurs a surcharge, the Additional Dwelling Supplement.
Tax-free Childcare
It is estimated that there are around 800,000 families that are not using childcare subsidies.
Launched in April 2017, tax-free childcare gives working families, with children up to the age of 11, the opportunity to save up to £2,000 a year per child or £4,000 if their child is disabled.
The scheme covers nurseries, childminders, breakfast or after school clubs, holiday care and out of school activities.
£97m VAT fraud
Two men sentenced to a combined total of 31 years in jail
Sock manufacturer Arif Patel was sentenced to 20 years, while co-accused Mohamed Jaffar Ali was also sentenced to 11 years in jail, although both have gone missing.
The pair were involved in one of the UK’s largest ever tax frauds totalling more than £97m through VAT repayment claims on false exports of textiles and mobile phones.
They also imported and sold counterfeit clothes that would have been worth at least £50m, had they been genuine. The proceeds were used to buy property across Preston and London through offshore bank accounts.
More than £78m of the gang’s assets have been paid back and the process to recover the remaining proceeds of crime is in progress.
Taxi Drivers and Scrap Metal Traders
The Taxi driver tax registration scheme is being extended to Scotland and will also apply to scrap metal dealers.
The registration system has been running in England and Wales since April 2022and was introduced to clamp down on perceived widespread abuse of the tax system.
The taxi driver or scrap metal trader must carry out the tax check themselves. They cannot use a tax agent or adviser to do this on their behalf.
They will then be given a nine-character tax check code which must be given to the licensing authority who will not be able to process applications without it.
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.
