During the last Budget, the Government announced new conditions to entrepreneurs’ relief that would take immediate effect to change the definition of a “personal company” for shareholders who claim entrepreneurs’ relief.
By introducing these changes, they hope to restrict shareholders relief to those with a genuine material stake of at least five per cent in a company.
For gains arising from shares, or assets used by the company, the company has to be their “personal company”, which requires them to be an employee or officer of that business or one within the same trading group.
In order to obtain relief shareholders would, therefore, have to meet four conditions:
- hold five per cent of the ordinary share capital
- control five per cent of the voting rights
- have a right to at least five per cent interest in the distributable profits
- have a right to at least five per cent of the net assets on a winding-up of the company.
However, the last two points are proving difficult to codify into law, due to the fact that they appear to rely on provisions relating to companies, intended to prevent the abuse of corporation tax group relief.
This has resulted in the tests referring back to definitions of a company receiving a distribution from another company, rather than looking at this issue at an individual shareholder level.
The point regarding distributable profits also creates issues as such entitlement, usually in the form of dividends, is not given until a dividend resolution is passed by all the eligible shareholders.
Following these issues, HMRC has tabled an amendment that will create an alternative test for a “personal company” based on the shareholder’s entitlement to proceeds in the event of a hypothetical sale of the whole company.
This will ensure that it will be easier to estimate the value of the whole company on a single day, rather than changing shareholder’s rights and dividend entitlements over the entire qualifying period.
A new study into preparations for Making Tax Digital amongst businesses has found that only 57 per cent of firms are ready to comply with the new regime by 1 April 2019.
Despite the various delays and changes to the Government’s new digital tax system, businesses have had several years to prepare themselves for this landmark change in taxation.
Initially, the new system will only apply to the recording and reporting of VAT on a quarterly basis for those VAT-registered businesses over the VAT threshold (£85,000).
However, the Government intends to extend the system out to other areas of taxation and to other businesses from April 2020 at the earliest.
Businesses will be offered a “soft landing” period of a year during which they won’t be fined if they don’t comply with the reporting requirements in time.
HM Revenue & Customs has also recently confirmed that during this period “where a digital link has not been established between software programs, HMRC will accept the use of cut and paste as being a digital link for these VAT periods.”
Despite its recent communications HMRC has been heavily criticised for not doing enough to make businesses aware of the new regime, with it only launching its social media and email campaign to small businesses in Autumn last year.
Link: Overview of Making Tax Digital
The Small Business Commissioner, Paul Uppal, has recommended a new “traffic light” system that will warn smaller firms which businesses have a consistent record of late payment and those most likely to request longer payment terms.
It is thought that around £2.5 billion is lost annually within the economy due to late payments and they have been attributed to the closure of around 50,000 businesses each year.
Under the new proposals, current payment data collected by the Government will be used to highlight businesses with a poor record.
Large companies have been required to report supplier payment records twice a year since 2017 and so it is thought that the Government already holds a good record of poor payers. However, companies which fail to report payment practices will also receive a red light under the new system.
The Small Business Commissioner explained that his plans would allow smaller suppliers to make better decisions on who they work with.
The Government has outlined its own measures that will ensure that public contracts are only given to companies that can demonstrate prompt payment to their own suppliers.
At present, the Commissioner does not have the authority to distribute late payment fines, and his department only managed to recover £2.1 million in unpaid invoices his first year in office.
Link: Small Business Commissioner calls for ‘traffic light’ warning system
The next increase in Automatic Enrolment (AE) pension contributions for both employees and employers will take place from 6 April 2019.
The minimum employer contribution will increase from two per cent to three per cent, while the employee contribution will rise from three per cent to five per cent – taking the total minimum contribution from five per cent to eight per cent.
The minimum contribution only applies to employees earning £10,000 a year or more and percentage contributions will be calculated using only the employee’s earnings between £6,136 and £50,000 from April. This is an increase from the existing income threshold of £6,032 to £46,350.
For the purposes of AE pension contributions, earnings include:
- Statutory sick pay
- Statutory maternity pay
- Ordinary or additional statutory paternity pay
- Statutory adoption pay
It is important to ensure that your payroll processes take account of the changes, as the penalties for non-compliance can be steep.
Link: Increase of automatic enrolment contributions
The House of Lords Economic Affairs Committee has criticised some of the powers granted to HM Revenue & Customs (HMRC), describing them as disproportionate and lacking effective taxpayer safeguards.
The committee’s latest report says that HMRC’s powers are now too broad and the penalties too high, deterring taxpayers from appealing and creating injustice within the system. It has demanded that the Government reviews the current arrangements.
Lord Forsyth of Drumlean, the committee’s chairman, said that, while the tax authority was right to challenge tax evasion and aggressive tax avoidance, “a careful balance must be struck between clamping down and treating taxpayers fairly.”
The committee believes that the evidence it uncovered suggests that “this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer should expect.”
Although the report covers a number of areas of taxation, the committee gave special consideration to “disturbing evidence” on the approach to the loan charge.
This new fee is intended to prevent disguised remuneration schemes, where workers have been paid via a loan with the intention of avoiding tax and national insurance contributions.
However, the committee is concerned that the retrospective nature of the charge could affect those that were unaware of the risks or forced to use this arrangement by their employer.
It has recommended that HMRC urgently reviews these cases where the only remaining consideration is the individual’s ability to pay and establishes a dedicated helpline to support those adversely affected by the loan charge.
The committee has also called on Parliament to consider how it scrutinises the powers it gives to HMRC.
Link: Taxpayers treated unfairly by HMRC, peers find
Christmas is a time for giving, but many businesses may not be aware that their gifts can be made in a tax-efficient manner, which could make raising festive spirits that little bit cheaper.
While Christmas parties may not be for everyone, HM Revenue & Customs (HMRC) does provide an allowable tax deduction of up to £150 per head per year for events.
This means companies could hold one big Christmas blow out or spread their allowance over the year to improve staff engagement.
Of course, there are restrictions to this allowance. Under the rules, you must invite all employees to the event for it to qualify for the exemption and the cost per head must include VAT and take into consideration the cost of the entire event, including food, drinks and a venue.
If you are feeling generous this year, you could also give gifts to your employees at Christmas or any other special occasions. Thanks to the relief on offer, there will be no taxable employment benefit, providing the gift is trivial, such as a box of chocolates or a bottle of bubbly. However, the costs must not exceed £50 and must not be in the form of cash or a cash voucher.
Finally, you can spread the Christmas cheer even further by providing gifts to your clients. As long as the gift is less than £50 and includes a “prominent” advertisement for your business, then you can receive a tax deduction.
Gifts of food, drink, tobacco or vouchers are unfortunately not allowable, but items such as stationary would fall within the rules.
The House of Lords Economic Affairs Committee has criticised HM Revenue & Customs (HMRC) for its handling of Making Tax Digital (MTD) and called for a delay to some of the regime’s mandatory requirements.
The majority of VAT-registered businesses with taxable turnover above the VAT registration threshold of £85,000 will need to keep digital records and file their VAT returns using HMRC-compliant software or methods on a quarterly basis from April 2019.
However, having reviewed the requirements for MTD and its promotion by HMRC to businesses, the committee has recommended that the new rules for VAT should not be made mandatory next year and should instead allow businesses to ‘go digital’ at their own pace.
The Lords also recommended that the Government wait until April 2022 to apply MTD to other taxes to give HMRC time to learn lessons from the implementation of digital taxation on VAT.
Within its report, Making Tax Digital for VAT: Treating Small Businesses Fairly, the committee was also highly critical of HMRC’s public promotion of the new regime, which only began in any significant way several months ago.
Lord Forsyth of Drumlean, Chairman of the House of Lords’ Economic Affairs Committee that authored the report, said: “HMRC has neglected its responsibility to support small businesses with MTD for VAT.
“Small businesses will not be ready for this significant change to their practices, especially with Brexit taking place three days earlier,” he added.
The committee’s report has already gained the backing of a number of leading accountancy organisations, including the Institute of Chartered Accountants in England and Wales (ICAEW), the Chartered Institute of Taxation (CIOT) and the Association of Tax Technicians (ATT).
Link: Making Tax Digital for VAT: Treating Small Businesses Fairly
Figures released by HM Revenue & Customs (HMRC) have revealed that 180,500 first-time buyers have benefited from the Government’s changes to Stamp Duty Land Tax (SDLT).
HMRC estimates that first-time buyers have saved a total of more than £426 million since Chancellor Philip Hammond announced the First-Time Buyers’ Relief (FTBR) in November 2017.
At Budget 2018, the Chancellor announced an extension of the scheme to first-time buyers purchasing through approved shared ownership schemes that choose to pay SDLT in stages, rather than on the market value of the property. This relief is available retrospectively to eligible property transactions since November 2017.
Mel Stride MP, Financial Secretary to the Treasury, said: “These statistics show that the Government was right to offer a helping hand to first-time buyers. Without this investment, more than 180,500 new homeowners may have struggled in getting onto the property ladder. Maintaining the status quo was not an option.”
FTBR is becoming increasingly popular, with the relief claimed in 58,800 transactions between July and September 2018, representing a 12 per cent increase on the previous quarter.
Link: 180,500 new homeowners benefit from stamp duty tax relief
HM Revenue & Customs (HMRC) has opened a public pilot of Making Tax Digital (MTD) for VAT.
The pilot is open to sole traders and companies that are up-to-date with VAT, who have not received a default surcharge in the last two years.
Some other groups will need to wait to join, including those:
- trading with the EU;
- based overseas;
- submitting VAT returns annually;
- making payments on account;
- using the VAT Flat Rate Scheme; or
- who have never submitted a VAT return in the past will need to wait to join.
HMRC has also announced that a small number of the most complex businesses will have a six-month deferral to October 2019 before they need to comply with the requirements of MTD for VAT.
MTD for VAT will require businesses with turnovers of £85,000 or more to keep digital records and make quarterly digital submissions to HMRC using ‘designated software packages’ from next April.
Link: MTD for VAT shifts to public pilot
From next year, payee names will be checked when making bank transfers in order to ensure that funds are being sent to the correct recipient.
Currently, only the sort code and account number are checked when making a transfer, something which has been exploited by fraudsters to trick people into transferring tens of thousands of pounds into the wrong account.
In cases where such fraud has occurred, banks have often been unable or unwilling to retrieve the funds or to accept any liability.
Under the plans unveiled recently by Pay.UK, the UK’s payment operator, the person making the payment will need to include a payee name alongside the sort code and account number from July 2019.
If the correct name is entered, the funds will be transferred. If a name that is similar to the correct name is entered, the correct name will be displayed for the account holder to check. If an entirely incorrect name is entered, the account holder will be referred back to their intended payee.
Paul Horlock, Chief Executive at Pay.UK said: “Sending a payment with an incorrect sort code or account number is like addressing a letter with the wrong postcode.
“Even if you have used the correct name, it won’t reach the intended destination – and fraudsters have become increasingly sophisticated in using this to trick people into sending money to the wrong account.
“Confirmation of Payee will let you check you have the correct name for the person or business you are paying, giving better protection against certain types of fraud, and helping to stop accidental mistakes too.”
In the first six months of this year, £145 million was stolen from account holders through scams relating to account numbers.
Link: Name checks to begin on bank payments