Significant lack of awareness around gifting rules for IHT

A new report published by the National Centre for Social Research (NatCen) and the Institute for Fiscal Studies (IFS) has revealed a worrying lack of awareness about the Inheritance Tax (IHT) benefits of making a gift.

Its study found that only 25 per cent of those who had made a gift had a ‘working knowledge’ of the IHT rules and fewer than half reported being aware of IHT rules or exemptions when they had given their largest gift.

Considering the lack of awareness around the rules it is not surprising that only eight per cent of all respondents actively considered the tax rules before making a financial gift.

Of those who did have awareness of the rules, around 54 per cent said that it influenced how much they gave. Extrapolating the data further reveals that the majority of those with an awareness of the rules came from wealthier households with assets of more than £500,000.

Below this level of wealth, there was significantly less knowledge of either the seven-year rule or the annual £3,000 limit on gifts.

A remarkably low number of estates are affected by IHT (around 4.2 per cent of all deaths annually). Nonetheless, IHT receipts still totalled £5.2 billion in 2017-18, an increase of eight per cent on the previous year’s figure.

The report also shows that around 12 per cent of people have made gifts, with those aged 60 or over giving a median total of around £4,000, while those under the age of 60 give on average £3,500.

Incredibly, 12 per cent of those aged 70 or over who were surveyed had given away £20,000 or more in the last two years. Over 80 per cent of gifts were made to individuals, but one in 10 respondents had also made donations to charity.

Link: Lifetime Gifting: Reliefs, Exemptions, and Behaviours

MTD for VAT – relaxation on posting supplier statements

HM Revenue & Customs (HMRC) has updated its VAT notice regarding Making Tax Digital (MTD) for VAT to relax several of the digital recordkeeping requirements.

One of the changes, secured with the help of the Chartered Institute of Taxation (CIoT), relates to purchase invoices from suppliers.

It has become apparent in sectors that receive a high number of purchase invoices from the same company, that they are having to file multiple almost identical records, which is becoming very onerous.

MTD for VAT requires each individual supply or invoice to be entered as a new digital record.

However, a relaxation to the rules has been agreed, which will enable businesses to capture their digital records information from supplier statements, rather than from each individual invoice, as long as “all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown”. This change will only apply to purchases and not sales.

HMRC has also agreed to review the requirement for petty cash. Currently, the strict requirement is to record each individual supply, or at least each individual invoice/receipt, within a company’s digital records.

Instead, the updated VAT notice says that petty cash transactions can now be added up and summary totals entered as an alternative digital record.

The notice states: “This applies to individual purchases with a VAT-inclusive value below £50 and the total value of petty cash transactions recorded in this way cannot exceed a VAT-inclusive value of £500 per entry.”

The third and final relaxation of the rules relates to charity fundraising events run by volunteers. Under the new guidance the total values of supplies made can be entered as a single transaction, and similarly for supplies received.

HMRC has told the CIoT that it will not currently be seeking to apply record-keeping penalties where a business is clearly trying to comply with the requirements of MTD. This is in line with their previous promise of providing a ‘soft landing’ period in the first year of the new digital tax regime.

Link: VAT Notice 700/22: Making Tax Digital for VAT

Government confirms that HMRC will get a higher priority when firms go bust

From April next year, HM Revenue & Customs (HMRC) will rank third just after secured creditors, such as banks, and insolvency practitioners in order to recover additional outstanding tax from failing businesses.

Currently, HMRC is ranked alongside unsecured creditors, such as suppliers, trade creditors, contractors and customers, who on average rarely recover more than four per cent of debts owed.

However, the change will mean that they are now likely to recover a higher percentage of tax, which will contribute around £185 million extra a year to the public coffers, according to the Government.

The taxman’s new ‘third place’ position in respect to employment taxes and national insurance contributions means that its claims will jump ahead of floating charges from secured creditors, such as debt provided by financial institutions.

The VAT paid by customers on goods will also jump up the queue, although claims relating to other charges, such as corporation tax, still rank alongside other unsecured creditors.

This latest decision is a reverse of the previous crown preference arrangements that were removed in 2003. These were abolished after a record number of smaller corporate entities began winding up in the late 1990s following concerns that HMRC was inadvertently pushing them into liquidation through its tax recovery activities.

Link: Protecting your taxes in insolvency

Registering for Making Tax Digital for VAT takes seven days, warns HM Revenue & Customs

HM Revenue & Customs (HMRC) has warned businesses across the UK that the registration process for Making Tax Digital (MTD) for VAT takes seven working days.

This means that VAT-registered businesses turning over £85,000 or more need to register more than seven days before submitting a return if they want to pay their tax bill by direct debit.

Last month saw the introduction of the requirement for such businesses to keep digital records and make quarterly digital VAT returns using HMRC-compatible software packages. In practice, this means that they need to use cloud accounting packages.

The quarterly nature of MTD for VAT returns means that the first quarterly submissions will not actually become due for most until at least July 2019.

Registering involves setting up a Government Gateway user ID and ensuring compatible software is in place.

Link: Making Tax Digital for VAT registration takes seven working days

IR35: off-payroll working rules set to change next year

HM Revenue & Customs (HMRC) has published new guidance on the expansion of the IR35 requirements to contractors working in the private sector.

IR35 governs the tax status of people working through personal service companies (PSCs) and until now required public sector employees to determine whether contractors working for them should be taxed as employees.

From April 2020, the same rules will apply to bodies in the private sector and HMRC has published the following tips to help employers prepare for the change.

  1. Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
  2. Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020.
  3. Start talking to your contractors about whether the off-payroll rules apply to their role.
  4. Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.

Currently, contractors working for private sector clients are themselves responsible for making sure they pay tax on the correct basis.

Link: Prepare for changes to the off-payroll working rules (IR35)

Additional year to prepare for Making Tax Digital for taxes other than VAT

The Chancellor’s Spring Statement contained an important nugget of information for businesses that had been wondering when they will need to be ready for Making Tax Digital (MTD) for taxes other than VAT.

Until recently, the Government’s official line was that the rollout of the UK’s digital system would be confined to VAT until “April 2020 at the earliest”.

Now, a subtle change to this wording seems to suggest that MTD will not apply to any further taxes until 2021, with the Chancellor saying in his Written Ministerial Statement that “the Government will therefore not be mandating MTD for any new taxes or businesses in 2020.”

April saw the launch of MTD for VAT, which requires VAT-registered businesses with a turnover of £85,000 or more to keep digital records and make quarterly digital returns using HM Revenue & Customs (HMRC) compatible software packages.

In practice, this means they need to use a cloud accounting platform for record keeping and filing.

Link: Spring Statement 2019: VAT MTD is go, but no further mandation until 2021

Employers must comply with new payslip rules

Under the Government’s Good Work Plan, more than 300,000 workers have received a payslip for the first time under new rules that came into force in April.

However, experts fear that many employers may be unaware of the recent changes and how it could affect them.

The new rules require employers to include variable rates of pay and hours worked within their payroll reporting, which will enable workers to easily confirm that they are receiving the minimum wage.

Thought to primarily affect those employees on zero-hours contracts or who perform what has been described as ‘casual’ roles within a business, the Department for Business, Energy and Industrial Strategy (BEIS) have said that itemising and clearly identifying hours worked would ensure that staff could check that they are being paid at the correct rate.

The new rules will also help the Government to more easily identify where employers are failing to meet their national minimum wage (NMW) and national living wage (NLW) obligations, as well as their contributions to workplace pensions and holiday entitlement.

In recent years, the BEIS and HM Revenue & Customs have been taking a tougher approach to those who fail to meet payroll rules, often imposing penalties and naming and shaming the worst offenders.

Alongside the new payslip requirements, the rules change will also see to the scrapping of the Swedish Derogation. This is a legal loophole that allows some companies to pay contractors and agency staff less than permanent employees.

All employees will also be given the ability to request a statement of rights on the first day of their employment, which sets out their annual leave pay and allowance.

Link: Good Work Plan

Beware the Employer Compliance Check Questionnaire

HM Revenue & Customs (HMRC) is understood to be sending out “Employer Compliance Check Questionnaires” without notifying agents, which could land businesses in trouble if the wrong information is provided.

The questionnaires are understood to be a replacement or substitute for a PAYE audit, which would typically require a visit from HMRC to ensure that a business’s payroll is compliant and being managed correctly.

The series of questions include:

  • What does the business do?
  • Where is the work carried out?
  • What are the names of Directors, how are they paid and what are their responsibilities?
  • Who prepares the payroll?
  • Which payroll package is used?
  • How many employees does the company have?
  • Are employees paid below the national minimum wage? If so why?
  • How many workers are paid off-payroll?

The questionnaire is also understood to go into some detail about the expenses of the business including details of staff entertaining, work travel and loans to staff or directors.

Alongside the questionnaire, many employers are also asked to provide policies and documents, as well as key data about the business.

This new style of compliance checks should not be taken lightly and anyone who receives one should contact the person who manages their payroll to ensure the correct information is provided.

Failing to complete the questionnaire or providing incorrect information could lead to additional investigations or a financial penalty.

Pass on up to £950,000 tax-free in 2019-20

As of 6 April, direct descendants can inherit up to £950,000 completely free of inheritance tax from their parents or grandparents thanks to increases in the residence nil-rate band.

This tax-free allowance on inherited property has risen from £125,000 to £150,000 this year and will rise again next year to £175,000.

In order to qualify for this allowance, an individual must pass on their main home to a direct descendant, such as a child or grandchild.

The residence nil-rate band is layered on top of the existing basic allowance for Inheritance Tax (IHT) of £325,000 per person or £650,000 for a married couple or civil partners.

This means that spouses and civil partners could leave behind up to £950,000 in 2019-20, rising to £1 million from next year.

Where an estate is valued at more than £2 million, the residence nil-rate band will be progressively reduced by £1 for every £2 that the value of the estate exceeds the threshold.

Individuals in England and Wales will normally incur IHT at a rate of 40 per cent on all estates valued over this threshold, so it is worth planning ahead to make sure you minimise any liabilities.

Link: Inheritance Tax: how to apply the additional threshold