Can you solve this puzzle?

A bit of light relief. See if you can solve this classic logic puzzle:

A man is stranded on an island covered in forest.

One day, when the wind is blowing from the west, lightning strikes the west end of the island and sets fire to the forest. The fire is very violent, burning everything in its path, and without intervention the fire will burn the whole island, killing the man in the process. There are cliffs around the island, so he cannot jump off. How can the man survive the fire? (There are no buckets or any other means to put out the fire)

Clue: the puzzle has Brexit overtones!

Answer to last week’s puzzle:

Farmer takes Goat across (leaving Wolf and Cabbage behind)
Farmer returns alone
Farmer takes Wolf across
Farmer returns with Goat

* We now have the Farmer, the Cabbage and the Goat on one side and the Wolf on the other side

Farmer takes Cabbage across
Farmer returns alone
Farmer takes Goat across

DONE!

 

Staff Tax Tips – 22 October 2018

specialist accountancy services

Staff tax tips for this week are listed below. We have added links to more detail as appropriate. We will be adding a least two posts a month under this heading so please ask your staff to add their names to our newsletter distribution list that will link to these articles.

What is the relevance of the “going concern” principle for VAT purposes?

When a business is sold each sale of chargeable business assets is a VAT able transaction: the seller is obliged to charge VAT to the purchaser. By concession, HMRC will allow the transaction to proceed with no VAT charged if the business is transferred as a going concern (TOGC).

To qualify as a TOGC, the following principles should be observed:

  • The assets must be sold as part of a ‘business’ as a ‘going concern’*
  • The purchaser intends to use the assets to carry on the same kind of business as the seller
  • Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
  • Where only part of a business is sold it must be capable of separate operation
  • There must not be a series of immediately consecutive transfers
  • There are further conditions in relation to transactions involving land.

The significance of this concession should not be underestimated. Consider a business selling chargeable assets of £500,000. Without the TOGC rule, the purchaser would have to pay VAT on their purchase of £100,000, they will be able to claim this back on their first VAT return after purchase, but will need to fund the extra cost for up to four months.

According to HMRC the TOGC was introduced to:

  • relieve the buyer of a business from the burden of funding any VAT on the purchase, thereby helping businesses by improving their cash flow and avoiding the need to separately value assets which may be liable at different rates or are exempt and which have been sold as a whole, and
  • protect government revenue by removing a charge to tax and entitlement to input tax where the output tax may not be paid to HMRC, for example, where a business charges tax, which is claimed as input tax by the new business but never declared or paid by the old business.

See VAT notice 700/9 for more information on this topic.

Ames v Revenue & Customs

This case considered a claim for CGT exemption when EIS shares were subsequently sold. HMRC disallowed the exemption as no income tax relief had been claimed by the taxpayer on subscription.

See the case details here.

Non-statutory advance clearance from HMRC

HMRC will offer non-statutory advance clearance for certain transactions. This can be useful to add certainty to a proposed course of action. They will not offer:

  • a clearance on matters of fact, such as if certain activities constitute a business,
  • clearances or advice in respect of the application of the ‘settlements legislation’ in Chapter 5 Part 5 Income Tax (Trading and Other Income) Act 2005, or the tax consequences of executing non-charitable trust deeds or settlements,
  • clearances relating to the venture capital schemes (Parts 5 to 6 of Income Tax Act 2007).

For more details on what is available see here.

 

Taxing question for limited and unincorporated traders

Before I commit hours to creating a suitable tax forecasting tool, has any one come across a simple tax planner that works out the current year tax liability of incorporated or unincorporated businesses and the effects of dividend payouts on the future self-assessment liability of director/shareholders?

Ideally, the report would be updated periodically as part of a monthly or quarterly review process.

Incorporated v unincorporated traders

At least limited company accounts include a reserve for the current year’s CT liability.

There is no such requirement for unincorporated businesses as the IT liability is associated with the sole trader or partners rather than the business. Unfortunately, it is the business that will likely fund the IT and NIC costs.

Consequently, traders are led to believe that they are paying tax as they go, or in some cases, in advance, when the truth of the matter is that current year’s profits are taxed in the current year but the tax may not be paid until some future date.

Surprise, surprise

This time lag usually means that clients are confused if their tax payments are high in a period when profits are falling – as they are paying tax nine months later if incorporated, and later if unincorporated. With the rapid approach of Brexit uncertainties, I am keen to provide my clients with as much information as I can regarding future tax payments so there are no nasty – and unexpected – surprises.

Brexit – take a deep breath

Tax advisers are starting to shift their attention towards the usual self-assessment filing deadline. This is especially true for smaller practitioners, myself included, where the responsibility for getting stuff done lies squarely on our shoulders.

Based on previous years, this means we will emerge from the filing fugue 1 February 2019 and the only thing we will have on our minds is how to make the most of the half-term break and some welcome rest and recuperation.

But what about Brexit?

Negotiations at present have the characteristics of a dog chasing its own tail, it’s never going to catch up. The 29th March 2019 deadline is the date we need to work towards and yet there seems no way out: the EU won’t accept the UK’s proposals, parliament is set to vote down any previously proposed deal, so what does that leave us with? A no-deal scenario?

Outlook for clients post-Brexit

Clients who import and or export to the EU only have the no-deal consequences of Brexit to consider, this is all the information that has been provided by government thus far. And hopefully, you will have been supporting affected clients in making appropriate preparations?

Clients with customers who export to the EU will be similarly affected as will clients whose suppliers buy their stock from the EU.

However you look at the UK trading situation from April 2019, all the ingredients for a short to medium downturn in activity, while we adjust to whatever trading relationship we agree with Europe, seems inevitable.

Hopefully, Brexit will not create recessionary conditions, but at present, this is starting to feel like wishful thinking. No one wants to return to the “banking crisis” conditions of 2008 and yet the outcome will depend on how quickly our trading relationships with the rest of the world will develop to compensate for any slow-down in our trade with Europe.

How can we best help clients in the lead up to Brexit?

As the scale of any disruption is speculative one thing we do not want to do is engage with clients on large scale changes in processes until we are more certain of the Brexit negotiations.

However, basic financial fitness could be promoted. I propose that we offer a “pre-Brexit” shake-down of clients’ balance sheets and profit and loss accounts to weed out inefficiencies. In this way, clients will have the best possible chance to weather any downturn in activity during 2019. This is not an audit in the classic sense, but a line by line check to remove any unwanted assets or stock, improve credit control and cash flow. My guess is we will all have to convert effort into cash at a much faster rate post Brexit.

Take a deep breath

Every business will face different challenges, but accountants are ideally placed to lead the charge. Not withstanding self-assessment obligations, in the coming months we should offer clients a Brexit physical: to determine their vulnerability to Brexit and help them design and implement a review of their business finances.

I am working on a bunch of resources that firms will be able to use to communicate these concerns with clients, and to offer appropriate help and support. Keep an eye on posts to this newsletter for more information.

 

 

 

 

Staff Tax Tips – 10 October 2018

specialist accountancy services

Staff tax tips for this week are listed below. We have added links to more detail as appropriate. We will be adding a least two posts a month under this heading so please ask your staff to add their names to our newsletter distribution list that will link to these articles.

What does “bona vacantia” mean?

‘Bona Vacantia’ means vacant goods and is the name given to ownerless property, which by law passes to the Crown. The Treasury Solicitor acts for the Crown to administer the estates of people who die intestate (without a Will) and without known kin (entitled blood relatives) and collect the assets of dissolved companies and other various ownerless goods in England and Wales.

In relation to the liquidation of private companies in the UK, why is it important to ensure that bank accounts are closed (emptied) before liquidation is completed?

To get yourself up-to-date on this topic read here

Why is shared occupancy a consideration from April 2019 if you are claiming rent-a-room relief?

Legislation will be introduced in Finance Bill 2018-19 to provide an additional test of ‘shared occupancy’ that must be met in order for the taxpayer to be eligible for rent a room relief.

This ‘shared occupancy’ test will provide that the individual, or a member of their household, in receipt of income must have a ‘shared occupancy’, a physical presence for all or part of the period of the rental, with the individual whose occupation of the furnished accommodation is generating receipts.

Those taxpayers that do not satisfy this test will no longer be eligible to claim rent a room relief on those receipts.

See the examples listed here.

Budget day is set for Monday, 29th October 2018

This will be the last budget before Brexit. You can keep abreast of changes advised on the Gov.uk website, but details will not be published until after the Chancellor has made his announcements.

We are speculating (based on the URL for last year’s announcements) that details will be available here: https://www.gov.uk/government/topical-events/autumn-budget-2018

 

Can you solve this puzzle?

A bit of light relief. See if you can solve this classic logic puzzle:

A farmer wants to cross a river and take with him a wolf, a goat, and a cabbage. There is a boat that can fit himself plus either the wolf, the goat, or the cabbage.

If the wolf and the goat are alone on one shore, the wolf will eat the goat. If the goat and the cabbage are alone on the shore, the goat will eat the cabbage. How can the farmer bring the wolf, the goat, and the cabbage across the river?

A solution will be published in our next newsletter.

Answer to last week’s puzzle:

The man is of short stature. He can’t reach the upper elevator buttons, but he can ask people to push them for him. He can also push them with his umbrella, which he always carries when its raining.

 

Brexit planning with clients

Whichever side of the Brexit debate you support, there does seem to be an inevitability about the UK’s severance from the EU March 2019. For better or worse we are going to have to deal with the consequences.

Hopefully, the date set to thrash out the details will be completed in November and we will be able to see the wood for the trees. Based on this assumption, I am now planning to write a comprehensive planning bundle for practitioners that they can use to support clients through the Brexit transition.

My feeling is that whatever shade of Brexit is finally agreed there will be a down-side bump in economic activity as we adjust.

What will the Brexit Planner consist of?

My initial thoughts are focusing on the following elements:

  • Recession planning – consultancy you can offer now to improve business fitness in readiness for the likely downturn in activity next year. This would include fact sheets written for clients promoting this service and copy that you could add to your website and promote through social media.
  • A simple risk assessment calculator that you could display on your website that would help website visitors assess their post-Brexit risks, and consequently, their need to contact you for advice.
  • More detailed, but still easy to read, fact sheets that you could offer clients who import or export to suppliers and customers in the EU, and will need to change their systems accordingly.
  • A less business orientated fact sheet that advises UK residents what Brexit will mean in practice for them: the need for visas, passport changes, driving in the EU etc.
  • A similar fact sheet for ex-pats presently living in the EU, or UK residents with property in the EU.
  • Depending on the terms of exit, a number of specialist fact sheets to support clients, for example those involved in transport of goods to the EU.
  • A fairly detailed summary of what Brexit means for accountants. It will include a round up of the major changes, and more importantly in my opinion, the promotion of opportunities to step in and support clients. This will be a resource to bring partners and staff up-to-date.
  • I will reshape the various fact sheets into articles that can be used as copy for websites and blogs.
  • A bibliography with links to GOV.UK source material, so you have all your background material accessible from one place.
  • I will be producing a “Brexit – for better or worse” video as part of Landmark’s Tax Box service in the first week of January 2019, the generic version will be made available to Brexit Planner buyers as iFrame code. This can be added to your website.

All of the above will be accessible via a dedicated Brexit Planner dashboard. In this way I can quickly update any changes to material provided.

What I need from you

Based on the above notes, what have I missed? Are there any other resources you would like me to produce?

Email me with your thoughts and suggestions. bob@landmarkpd.co.uk

 

Budget crystal ball gazing

Philip Hammond exudes the steady as we go approach and yet the Prime Minister was full of beans when addressing the Conservative conference today. We are promised the end of austerity and handouts to counter any negative effects of Brexit. But what are we to expect when the Chancellor steps up the box on the 29th?

My budget predictions

This is my take on possible items for the 2018 Autumn Budget:

  • Further tightening of legislation to stop the use of tax avoidance schemes.
  • A possible Google tax on the income of businesses that sell goods in the UK (usually on the internet) but divert most of their profits to low-tax jurisdictions, thus avoiding UK corporation tax.
  • The usual inflation proofing of tax allowances.
  • Very doubtful we will see an increase in tax rates, although there may be a promise of further, minor reductions to corporation tax in future years – thus establishing the UK as a de facto tax haven for business.
  • As we now have high levels of personal debt in the UK, a really useful additional relief would be tax relief at basic rate on credit card interest payments?
  • The government is supposed to be promoting tax simplification. Could we see capital gains taxed as income and the complex CGT rules scrapped?
  • The Office of Tax Simplification did toy with the idea that small company profits be taxed under income tax rules on shareholders – the “look through” scheme. This was abandoned as too complex, but what about an increase in the hybrid rates of dividend tax to compensate for lost NIC deductions?

And don’t forget the clauses already published. There are 40.

Presenting budget updates to clients

I do encourage firms to reconsider how they present the budget news and other tax announcements to clients.

To most taxpayers, especially those who are invited to read the usual post budget summaries, changes announced take on the appearance of “yawn” material: something to read (and not finish) if you have difficulty sleeping. The written word requires readers to create interest in the material they read, and I’m afraid, reading about tax – even if self-interest takes a part – does not quite hit the spot.

However, part of our job is to keep clients informed and up to date, which is why any attempt to make budget summaries more entertaining is worth consideration, and video presents just such an opportunity.

I write the scripted budget video output for our Budget Box service. Tapping into this visual presentation of otherwise dry information can engage visitors directed to the content on your website. At present, I guarantees to have the video ready for your website the day after the budget. You will also have access to the script and a fact sheet that you can send to clients…

If you would like to access video content for your website Landmark is offering discounted access to the 2018 autumn budget video for just £130 plus VAT. No strings attached. I will leave the offer open until 26th October.

My Budget summary

In reality, Brexit will likely scupper any major changes and I doubt Philip Hammond will be confident enough to give too much away. So in most respects its more likely to be “steady as you go”.

The Chancellor is breaking with tradition and has set budget day for a Monday. Must remember to go easy on the beers Sunday night. Budget day is usually the busiest day of my working year.

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