Newly cohabiting parents warned over new tax charge

Newly cohabiting couples, where at least one of the partners is a parent, have been warned by a leading insurer to be aware of a new tax charge, if either earns more than £50,000 a year.

NFU Mutual has said that cohabiting couples need to be aware of the High Income Child Benefit Tax Charge, which sees Child Benefit payments made to either the high earner or his or her partner recouped progressively on income between £50,000 and £60,000.

Notably, the charge applies regardless of whether the higher earner is the parent of their partner’s child and regardless of whether the couple is married, civil partnered or cohabiting.

Another feature of the charge is that it applies to one partner’s income, meaning that a couple with a combined income of nearly £100,000 would not be subject to the charge, while a couple with an income of £50,000 from only one partner would be subject to the charge.

While parents can opt-out of receiving Child Benefit, stay-at-home parents of children aged up to 12 can qualify for National Insurance credits that contribute towards their entitlement for the state pension.

Link: The hidden tax bill a new partner could bring

Spanish holiday home owners cautioned over post-Brexit tax impact

With the UK currently set to leave the EU by the end of January 2020, anyone who owns a Spanish holiday home needs to be prepared for the impact of Brexit on taxation.

Spanish tax law makes specific provision for EU/EEA residents that benefits people living in member states over others from outside the EU bloc. In some cases, this is expected to lead to a considerably increased Spanish tax bill.

The changes Spanish holiday home owners are likely to face include:

  • Higher tax on rental income with no deductions allowed in respect of costs
  • Higher tax on deemed rental income
  • Compulsory use of the state system for inheritance
  • Loss of capital gains tax benefits
  • Loss of deferral on exit tax
  • New 10 per cent tax on dividend paid to a UK company that owns less than a 10 per cent share of a Spanish company

If you have a Spanish holiday home, it is vital that you start planning for the effects of Brexit now.

Link: How Brexit will affect the taxation of Spanish holiday homes

Countdown to the 31 January Self-Assessment Tax Return deadline begins

Fewer than 100 days now remain until the 31 January 2020 deadline for the online submission of Self-Assessment Tax Returns.

Self-Assessment Tax Returns must be completed in respect of most income that has not been subject to PAYE. This includes the following groups:

  • Self-employed individuals
  • Sole traders
  • Partners
  • Individuals in receipt of rental income
  • Individuals in receipt of tips and commission
  • Those with income from savings, investments and dividends
  • Individuals in receipt of overseas income

Additionally, this year, people who are liable for the High Income Child Benefit Charge (HICBC) may need to file a Self-Assessment Tax Return. This generally applies to people with an income of £50,000 or more.

Anyone who misses the 31 January deadline for online filing and payment will be subject to penalties from HM Revenue & Customs (HMRC) beginning at £100.

Angela MacDonald, HMRC Director General for Customer Services, said: “The deadline for completing Self-Assessment Tax Returns is only 100 days away, yet so many of us wait until January to start the process. Avoid the last-minute rush by completing your tax returns on time and then enjoy the upcoming festive period.

“We want to help people get their tax returns right – starting the process early and giving yourself time to gather all the information you need will help avoid that stressful, late rush to file.”

Link: 100 days to self-assessment tax return deadline

HM Revenue & Customs has started carrying out PAYE tax investigations remotely

It has been reported that HM Revenue & Customs (HMRC) has begun carrying out PAYE investigations remotely.

The investigation begins with a phone call, inviting the employer to complete a survey sent by email. There is a concern amongst accountants that the wording of some of these questions could trip up unwary employers and prompt full-scale tax enquiries.

If you receive a call relating to a PAYE tax investigation, please contact us for professional advice before you return any information to HMRC.

25,000 companies receive penalties for the late filing of accounts in just one month

The latest data from Companies House shows that thousands of penalties were handed out for the late filing of company accounts, with more than 25,000 companies missing a deadline on 30 September.

This date marks a common deadline for companies, according to Companies House, with a further 643 companies narrowly avoiding a penalty by filing their accounts in the final hours.

The penalties issued in September are on top of the 223,640 late filing penalties issued in 2018 (the most recent year for which data is held). This includes all corporate bodies to which late filing penalties apply, such as private limited companies and limited liability partnerships.

Limited companies are required to file annual statutory accounts with Companies House. The deadline for this filing depends on when a company incorporated. A company will automatically be assigned a date for the company’s ‘end of financial year’ and this date is the last day in the month that the limited company was incorporated.

Companies House Senior Enforcement Manager, Ian Gronland said: “September can be a busy time for many people. However, if you are a company director you should be aware of your responsibilities to file annual accounts with Companies House on time. Failure to do so will result in a late filing penalty.

“Filing electronically is easier and faster, and our digital services have in-built checks to ensure that any necessary information is provided before accounts can be submitted.”

Link: Thousands of companies missed crucial accounts deadline last year

New figures show a sharp increase in Inheritance Tax (IHT) receipts

New figures published by HM Revenue & Customs (HMRC) have revealed a significant increase in the number and value of Inheritance Tax (IHT) receipts.

The figures, which relate to the 2016/17 tax year, show a 15 per cent increase in the number of estates paying IHT in comparison with the previous year, rising from 24,500 to 28,100.

At the same time, there was a three per cent increase in IHT receipts from £5.2 billion to £5.4 billion.

The average IHT bill in 2016/17 was £179,000, with 72 per cent coming from estates worth more than £1 million.

The increase follows a trend that has continued since 2009 and which has been widely attributed to the freezing of the £325,000 IHT threshold.

The new figures predate the introduction of the Residence Nil-Rate Band (RNRB) in 2017/18, which provides an additional tax-free threshold to people who leave their main residence to a direct descendant, such as a child or grandchild.

Link: Inheritance tax hits more estates in record receipts of £5.4 bn

Tax investigations reap in £13 billion for the treasury

The latest official data from HM Revenue & Customs (HMRC) shows that the actual cash collected from all tax investigations hit £13 billion in 2018/19.

This was up 27 per cent from the previous tax year in which £10.3 billion was collected. The data also showed that transfer pricing fines for multinationals have risen to £413,000.

The greater yield from tax investigations seems to have been driven in part due to payments HMRC has received ahead of the loan charge being introduced in April 2019.

A considerable amount was also recovered as a result of HMRC’s offshore tax campaign last year.

In addition, technology is playing a greater role in investigations, as HMRC has become more successful at identifying cases for investigation that are likely to result in large amounts of extra tax being collected.

Despite the headline figure, the bulk of this increase is made up of hypothetical estimates, such as ‘revenue losses prevented’ and ‘future revenue benefit’.

Meanwhile, HMRC’s crackdown on aggressive use of transfer pricing has seen the fines imposed on multinational businesses increase tenfold, indicating that the new country-by-country reporting (CBCR) rules are having an impact on compliance.

In 2018/19 HMRC imposed £413,437 in fines, compared to just £45,600 in 2015/16. The clampdown on these irregularities has also helped the tax authority to secure an additional £6.5 billion of tax in the years between 2012/13 and 2017/18.

Link: HMRC annual report and accounts: 2018 to 2019

MTD for VAT filing deadline missed by one in ten businesses

HM Revenue & Customs (HMRC) has reassured the 120,000 businesses that failed to meet the 7 August deadline for Making Tax Digital (MTD) for VAT that the tax authority will not be issuing fines to them for missing the date.

Under MTD, all businesses with a turnover of £85,000 or more must keep computer-based records and file their VAT return using HMRC-compliant software.

The latest figures suggest that around one in four firms failed to meet the deadline, meaning that the taxman could have issued tens of millions of pounds in fines, which could be between £100 and £400, depending on the turnover of the business.

However, HMRC has said that it will adopt a ‘light touch’ approach to penalties in the first instance and, according to officials, the organisation is also giving leeway to businesses because of the possibility of a no-deal Brexit.

Although the taxman is showing leniency now, it has been clear that late filings will be punishable with fines after the ‘soft landing’ period ends in April 2020, even though recent research has found that the majority of business owners say they feel unprepared for MTD.

The research, conducted by YouGov, found that only 12 per cent of business owners said they were ‘very prepared’ for MTD, and 28 per cent of small firms said they were worried about the costs of ensuring compliance. More worryingly, 12 per cent of those polled said they had not even heard of MTD, despite the 7 August deadline, which has now passed.

Link: One in 10 business miss MTD VAT filing deadline

Principal Private Residence Relief and Lettings Relief changes due in April 2020

The start of the next tax year in April 2020 will see key changes come into effect in respect of Principal Private Residence Relief (PPR) and Lettings Relief, both of which can be used to soften the impact of Capital Gains Tax (CGT) on property disposals.

From next April, Lettings Relief will be restricted to property owners who share occupancy of a property with their tenant. At the moment, people who let a property that either is currently or used to be their main residence and who sell it can claim relief of up to £40,000, with double that being available to a married or civil partnered couple.

At the same time, the Final Period Exemption (FPE), which means that people do not need to pay CGT on the gains made in the final 18 months that they owned the property, will be cut to just nine months.

There are special rules available that do not affect people moving to care homes and people with a disability that are not affected by the changes.

Link: Principal residence relief final period exemption

Employment Allowance to be restricted from next year

At the moment businesses and charities of all sizes can benefit from Employment Allowance. However, from the start of the new tax year in April 2020, the allowance will only be available to employers with a secondary National Insurance Contributions bill in the current tax year of less than £100,000.

Employers need to ensure that they update their payroll systems accordingly and cease to select any options within payroll software indicating that they will claim the allowance if they are no longer eligible.

Furthermore, in circumstances where an employer becomes connected with another employer that is excluded from Employment Allowance as a consequence of their secondary Class 1 bill having exceeded £100,000, they will also become excluded.

Required information regarding Employment Allowance must be provided to HM Revenue & Customs (HMRC) using the Employment Payment Summary (EPS) of the Real-Time Information (RTI) system.

Link: From April 2020, the employment allowance is to be restricted to those with only secondary class 1 National Insurance Contribution of less than £100,000