Directors and the National Living Wage

Directors are considered to be office holders and therefore not entitled to the NLW.

Directors with a service contact, even if the terms are implied in some way, will be entitled to the NLW. Entitlement means that they must be paid at least the NLW or the employer (their company in most cases) will be subject to penalties.

I am not sure when a director could be considered to have an implied contract, but I think it would be prudent to have a clear definition. Any offers?

Many, if not most directors are advised to take the low salary, high dividend approach, and until we have some certainty about the definition of an implied contract, clients who have taken our advice in this way (typically, an £8,164 salary for 2017-18 and any balance as dividends) may be sitting on a compliance nightmare if HMRC come along and convert working practices into implied contracts of employment.

I am happy to post any comments received for the benefit of all…

Free software for MTD

The terms of the software development agreement – that will drive the collaboration between developers and HMRC were published today. Here.

The closing comments of the document caught my attention, they say:

Eligibility for free software will apply where the business meets all these conditions:

  • they’re unincorporated (for example self-employed persons or landlords)
  • they have a turnover, within the scope of MTDfB, below the VAT threshold
  • they have no employees
  • they use cash basis accounting

Other Considerations

HMRC wouldn’t require free software to link or integrate with an Agent product

This would seem to imply two things:

  1. That HMRC will be encouraging smaller traders to use cash accounting, even if this results in a higher tax charge for businesses that can ill afford to lose cash flow, and
  2. The independence from agent software will further distance smaller businesses from seeking the professional advice that will help them develop their businesses. It fosters a DIY approach.


Clarity from HMRC…

HMRC have published a list of the “washed-up” provisions in the March 2017 budget that will be reinstated when parliament reconvenes after the summer recess. The full text is reproduced below:

List of provisions that will apply from the start of the 2017/18 tax year or other point before the introduction of the forthcoming Finance Bill.

The second 2017 Finance Bill, which the Government has announced will be introduced in the autumn, will legislate for policies that have already been announced. This includes a number of provisions that have been announced as applying from the start of the 2017/18 tax year or other point before the introduction of the forthcoming Finance Bill. The Government has confirmed that these dates of application will be retained and that those affected by the provisions should continue to assume that they will apply as originally announced. To provide maximum certainty for taxpayers, the list below sets out all the provisions to which this applies.

 Taxable benefits: time limit for making good
 Pensions advice
 Legal expenses etc.
 Money purchase annual allowance
 EIS and SEIS: the no pre-arranged exits requirement
 VCTs: follow-on funding
 Social investment tax relief
 Business investment relief
 Calculation of profits of trades and property businesses
 Trading and property allowances
 Carried-forward losses
 Losses: counteraction of avoidance arrangements
 Corporate interest restriction
 Museum and gallery exhibitions
 Grassroots sports
 Profits from the exploitation of patents: cost-sharing arrangements
 Hybrid and other mismatches
 Elections in relation to assets appropriated to trading stock
 Substantial shareholding exemption
 Substantial shareholding exemption: institutional investors
 Deemed domicile: income tax and capital gains tax
 Deemed domicile: inheritance tax
 Settlements and transfers of assets abroad: value of benefits
 Exemption from attribution of carried interest gains
 Inheritance tax on overseas property representing UK residential property
 Employment income provided through third parties
 Trading income provided through third parties
 Disguised remuneration schemes: restriction of income tax relief
 Disguised remuneration schemes: restriction of corporation tax relief
 First-year allowance for expenditure on electric vehicle charging points
 Disposals concerned with land in United Kingdom
 Petroleum revenue tax: elections for oil fields to become non-taxable
 Gaming duty: rates
 Remote gaming duty: freeplay

Download the source document here 


Eureka, MTD deferred and more…

I have spent most of this week helping my youngest daughter and her partner decorate, fix fences and gates, and otherwise indulge my love of DIY! Today, I am back at my PC.

And yesterday, at long last, we have the summer budget, or at least it is clear that the rolled over sections of the March Finance Bill will be reinstated, but, and its a BIG but, the government have listened and learned and decided that the roll-out of MTD will now be at a somewhat slower pace. They say:

Under the new timetable:

  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
  • they will only need to do so from 2019
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.

This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.

As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.

All businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.


At least we now know what to expect. You can view the recent press release here.

Further announcements in the statement confirm:

Ministers also confirmed today that the Finance Bill will be introduced as soon as possible after the summer recess. This will legislate for all policies that were included in the pre-election Finance Bill, raising over £16 billion across the next five years to fund our vital public services.

The government has also re-confirmed that all policies originally announced to start from April 2017 will be effective from that date.

The Ministerial announcement regarding the “to be reinstated” Finance Bill can be seen here.

One can only imagine the “upset” of accounting software providers as they reschedule launch timetables for their MTD-ready software.

OTS recommend simplifying corporation tax compliance

The long awaited OTS review of corporation tax has been published.

Wide ranging reforms recommended, including:

Small companies

  • For the very smallest companies, to use the accounting profit prepared under accounting standard FRS105 as the taxable profit without any adjustments.
  • For slightly larger companies, the proposal is that companies should only need to consider a set list of five or six potential tax adjustments.

Aligning tax with accounts

Across the whole range of companies, for

  • the tax definition of capital and revenue to be more closely aligned to the accounts definitions,
  • the rules for trading and management expenses to be aligned
  • the 19th century schedular system (under which different types of income are calculated separately subject to slightly different rules) to be replaced with a “whole business” approach, in line with most other countries

Capital expenditure

For the OTS to undertake further work on capital expenditure to explore the issues involved in replacing the present capital allowances system with an accounts depreciation approach, recognising the need to consider the impacts on particular industry sectors.

Large companies

For improvements to be made in a number of technical areas, in the context of promoting stability and certainty in the corporation tax system.