It all boils down to a lack of confidence

Brexit resource centre example website page

And as far as Mrs May is concerned, quite literally so.

There is a limit that you can ask any living organism to hold its breath and we have been holding our breath on Brexit issues for over two years.

From a business perspective, this manifests as an unwillingness to invest. Why would you, when the terms of our future trading relationship with the EU remain unclear?

What can we be confident about?

You don’t need to be an economist to figure out that Brexit of whatever shade will likely cause a downturn in business activity. In the case of a no-deal Brexit, the supply chain disruption, at least initially, will be significant.

Planning for a worst-case scenario is not only prudent, it will improve business fitness. Even if things work out to be better than expected any time spent increasing liquidity and financial efficiencies will not be wasted.

Time for accountants to stand out from the crowd

Whatever your preference, surely we have a duty to keep clients up-to-date with the worst-case scenario – probably a no-deal outcome – and help them prepare by taking a close look at supply chain issues. For example, are you preparing impact assessments for vulnerable clients and revising business plans for 2019-20 and beyond?

What should we be doing now?

Without interfering with your present obligations, primarily to meet the SA deadline next month, there are a few basic, inexpensive things we can do:

  1. Send your business clients an easy to read summary of the issues they may have to deal with.
  2. Send your non-business clients an easy to read summary that covers how Brexit may affect their  relationship with the EU after 29 March 2019.
  3. Add accessible information to your website and keep it up-to-date.
  4. Visit or call clients that you know will have supply chain issues and offer to help them plan for any possible disruption.

No time to deal with this?

Take a look at the material I am making available from the Landmark site – BREXIT RESOURCE CENTRE – simply identify the clients you want to contact and send them the material I have written. Likewise, send your developer the code to add a Brexit video, risk assessment tool and/or other copy to your website.

Bored with Brexit?

Be careful not to drift into a victim stance with this process. How can you be bored by an event that will likely change the trading dynamics of the UK for years to come?

There is no point in blaming anyone. We are not powerless. We know what the basic downside Brexit risks are and we are still the right side of the 29 March withdrawal date to plan for these issues.

All it will take is a couple of hours planning.

Accountants Brexit resources

Reminder for clients re MTD

I included copy this week in Landmark’s Online Copy service that reminds VAT traders that we are getting close to the MTD filing deadline, April 2019.

If you still have clients that are dragging their feet feel free to use the article, no copyright restrictions.

Brexit may be in limbo, but Making Tax Digital is not

As we have highlighted in many posts to this blog, from 1 April 2019, ALL VAT registered businesses with turnover above the £85,000 VAT registration threshold will have to submit their VAT returns from within software that can link with HMRC’s networks. In techno- speak, your data will need to be transferred using a designated API (HMRC’s application programming interface).

The fact that you have always prepared your VAT returns electronically, for example, by using a spreadsheet to record transactions and create the data for your VAT returns, will not be enough. Your spreadsheet will not have the functionality to link with HMRC’s API. In these circumstances you will need to acquire bridging software that will draw data from your spreadsheet and forward it the HMRC in the required format.

HMRC have now clarified that only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital (MTD). You will therefore need to keep an eye on your taxable turnover, especially if you think it is close to the VAT registration threshold.

Additionally, you may be excused from applying the MTD filing obligations if:

  • your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers);
  • it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason; or
  • you are subject to an insolvency procedure.

For the rest of us that are required to observe the MTD regulations, we should be using accounts software that will be MTD compliant come 1 April 2019. If you have consulted us on this issue you can be confident that any software that we have recommended will pass muster.

If you are still unsure which way to jump, please call so that we can help. As far as we can tell HMRC are on track to convert to this new filing process and the clock is ticking.

Like to subscribe to weekly copy written by Bob Edwards?

If you are short of ideas, or the time to create useful material for your website or newsletters each month, take a look at our Online Copy service. Monthly subscription, no long term tie-ins.

This week’s puzzle

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

5 pirates of different ages have a treasure of 100 gold coins. On their ship, they decide to split the coins using this scheme:

  • The oldest pirate proposes how to share the coins, and ALL pirates (including the oldest) vote for or against it
  • If 50% or more of the pirates vote for it, then the coins will be shared that way. Otherwise, the pirate proposing the scheme will be thrown overboard, and the process is repeated with the pirates that remain.

As pirates tend to be a bloodthirsty bunch, if a pirate would get the same number of coins if he voted for or against a proposal, he will vote against so that the pirate who proposed the plan will be thrown overboard.

Assuming that all 5 pirates are intelligent, rational, greedy, and do not wish to die, (and are rather good at math for pirates) what will happen?

Answer to last published puzzle:

The man picks up a piece of wood and lights it from the fire on the west end of the island.

He then quickly carries it near the east end of he island and starts a new fire. The wind will cause that fire to burn out the eastern end and he can then shelter in the burnt area.

The man survives the fire, but unfortunately dies of starvation, with all the food in the forest burnt.

 

 

Less is more say HMRC

tax return preparation

I thought practitioners would find the following comments instructive. They arose from a recent exchange between me and the Let Property Campaign team this last week.

The story so far

We submitted a declaration on behalf of a client under the Let Property Campaign. HMRC wrote to me to query three items:

  1. That the interest calculations were incorrect,
  2. That the penalties offered were incorrect, and
  3. There was an error in the rate of income tax used in one year’s calculations.

I decided to call HMRC to resolve the issues

In like order the resolution of the various matters was:

  1. We had used HMRC’s online calculator to estimate interest due and were informed that this sometimes produced inaccurate results. The officer spoken to was helpful and with the use of a separate “special” calculator, that only he had access to, it was agreed that interest charges paid were marginally higher than they needed to be.
  2. Regarding penalties, I was prepared for a time-consuming appeals process, but my fears were groundless. The officer confirmed that penalties offered in year one of the disclosure were too high, and in years two and three required an upward adjustment of just 5%.
  3. For the tax year 2016-17, we had applied the higher 40% income tax rate to rents disclosed and deducted a small basic rate tax credit based on disallowed finance charges. Accordingly, if the tax offered was expressed as a percentage of income disclosed the percentage rate was marginally lower than 40%. HMRC’s algorithms were not happy. To move matters along I agree to adjust the numbers so they would pass muster.

The outcome

The upshot of the conversation was an agreement to resubmit the client’s offer at an amount that was £40 more than the tax initially offered.

It is difficult to estimate the cost to HMRC of this seemingly pointless process. If systems have been designed to check Let Property Campaign submissions, then surely it would have been a simple matter to quantify a de minimis limit, say a £200 error level, below which submissions should be accepted?

What this experience does highlight is how driven HMRC have become by online system checks, and how their staff are powerless in the face of these controls.

A business would not be run in this way. When and if human intervention becomes necessary, the costs of reaching agreement with taxpayers or their advisers can quickly outpace any recovery of additional revenue.

This does not bode well in my opinion for the roll-out of MTD.

 

Expanded VAT return or MTDfB?

Office-of-Tax-Simplification-logo

I wasn’t in my bath when I had this particular Eureka moment, I was actually discussing the MTDfB changes with HMRC’s implementation team. In a nut-shell, it occurred to me that with a few changes (inexpensive changes!) the humble VAT return, which is already filed online, could be changed to accommodate the requirements of MTDfB, and in particular, the quarterly upload of profit data. My report, which was sent to HMRC some time ago, is reproduced in full below.

Obviously, this seemingly inexpensive change to provide data required by MTD has not been taken up and we trundle along with HMRC’s plan. I say no more…

A report on an alternative approach to Making Tax Digital

Report written by Bob Edwards FCCA – 21 July 2017

Introduction

Last week, an announcement on the future roll-out of Making Tax Digital for Business (MTDfB) was posted on the Gov.uk website, it said:

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.

Source: https://www.gov.uk/government/news/next-steps-on-the-finance-bill-and-making-tax-digital

Like many UK tax professionals, I greeted this announcement with a mixture of relief (previous implementation announcements had mandated that every business with turnover of more than £10,000 would need to comply with the MTDfB quarterly filing obligations, and the reporting process would start April 2018) and itchy feet, for goodness sake let’s get on with it.

But on reflection, the final part of the above announcement opened my eyes to other possibilities, and, as we have more time, are we not missing a trick or two? This paper discusses my ideas as a contribution to the wider debate on the scope and impact of MTDfB.

 

VAT, Income Tax, CGT, Corporation Tax place holders

At present, three labels are attached to these taxes:

  1. All VAT registered businesses have a VAT registration number.
  2. All self-employed Income Tax (IT) and CGT payers who file a tax return have a Unique Tax Reference number (UTR).
  3. All companies and other organisations subject to Corporation Tax (CT) have a CT UTR.

My first suggestion, is that VAT registration numbers are abolished and replaced by adding a “V” to businesses’ UTR.

There is an OECD convention that controls the use and changes to Tax Identification Numbers (TINs), see https://ec.europa.eu/taxation_customs/tin/pdf/en/TIN_-_subject_sheet_-_2_structure_and_specificities_en.pdf for a list of current TINs across Europe. However, Cyprus and Spain use TINs with a combination of numbers and letters so I am assuming there would be flexibility here to adopt my suggested approach.

Transforming the VAT return into an MTDfB Tax Return

There is already a collection system in place to file and pay a quarterly VAT return (unless Annual Accounting is adopted) in which case see later comments. For now, it is sufficient to say that the data collected does the job, and most accounting software suppliers (if not all) provide an adequate system for tagging accounting transactions to populate the form. The present Boxes 1-9 are:

Box 1 VAT due this period on sales and other outputs
Box 2 VAT due in this period on acquisitions from other EC Member States
Box 3 Total VAT due (the sum of boxes 1 and 2)
Box 4 VAT reclaimed in this period on purchases and other inputs (including acquisitions from EC)
Box 5 VAT to Pay Customs
Box 6 Total value of sales and all other outputs excluding VAT (including supplies to EC)
Box 7 Total value of purchases and all other inputs excluding VAT (including acquisitions from EC)
Box 8 Total value of all supplies of goods, excluding any VAT, to other EC Member States
Box 9 Total value of all acquisitions of goods, excluding any VAT, from EC Member States

Transforming these numbers into a profit statement is remarkably easy. In my opinion, it can be done by adding three new lines to the VAT return.

Most accounting software has a “No VAT” or “Outside the scope of VAT” or “Exempt” category. Transactions tagged with these codes would not be drawn into the VAT return, specifically, boxes 6 and 7. Obviously, income and revenue expenditure items that are subject to VAT are accumulated in boxes 6 and 7 together with sales and purchases of capital items that are subject to a VAT charge.

I propose adding a Box 10, 11 and 12 to the return, to complete the data required to produce a realistic, pre-tax profit figure:

Box 10 Sales and other outputs not subject to VAT
Box 11 Purchases of goods, services and other costs not subject to VAT
Box 12 Purchase of assets not subject to AIA or FYA

 

To facilitate the collection of the Box 10, 11 and 12 data, software producers would need to standardise the treatment of none VAT transactions. I suggest:

  1. All businesses should enter their UTR into their accounts software.
  2. If the UTR entered does not have the “V” suffix – 12345616780V – then all transactions that involve the sale or purchase of costs and services will automatically be treated as non-VAT and allocated to Box 10 or Box 11. This would include wages and other revenue costs not published to a VAT return, but would exclude non-revenue costs such as proprietors or partners’ drawings. Nominal coding tags in accounts software could easily be adapted to achieve this result.
  3. Any journal entries to introduce accounting only adjustments, depreciation, reserves for taxation and so on, would auto-generate a code that would not be added to Box 10 or Box 11. For the sake of this report, let’s call this code NP (Not taxable profit related).
  4. If posting capital acquisitions that do not qualify for the AIA or a FYA, then software suppliers would need to add a category that included the purchase in Box 7 and in Box 12.

This return is now primed to produce a realistic estimate of taxable profit. The calculations are simple enough:

Box 6

+

Box10

+

Box 12

Box 7

Box 11

No doubt there are further tweaks required to take more obscure transactions into account, but in my opinion this revamped MTDfB tax return would provide data for the quarterly VAT return and the quarterly upload for MTD purposes with very few changes to government or client software.

All that is required to remove any unwanted coding errors or other mistakes, is the ability for taxpayers or their agents to file a fifth return addressing add backs, capital allowance claims, or other matters before certifying that the return for a tax year is complete. This, I would suggest, is where tax practitioners can step to add value to the whole process and ensure that their clients only pay taxes to the limit imposed by legislation. There is a more wholistic feel to this annual audit as it will, of necessity, include a review of all taxes charged in the year: VAT, IT, NIC, CGT and/or CT.

VAT special scheme complications

But what about VAT traders registered for Cash Accounting, or the Flat Rate Scheme, or Annual Accounting, or special retailer schemes? My observations are set out below.

Cash Accounting (CA)

If HMRC are content that businesses who are registered for CA, pay VAT based on money received and expended, then why not simplify assessment of tax (IT/NIC/CT) to apply the same criteria. In this way, the data reported on the VAT return would also apply to the calculation of taxable profits on a cash basis.

Instead of having a separate Cash Basis for VAT and tax, why not use the same?

Flat Rate Scheme (FRS)

As far as I can tell, two changes are required:

  1. To show Box 6 as VAT exclusive, not inclusive, and
  2. To include all VATable purchases in Box 7 and not limit this to capital purchases.

Annual Accounting (AA)

As MTD for businesses over the VAT registration threshold will possibly be obligatory from April 2020, then I see no future for this scheme. Leaving matters as they are would mean AA traders having to report MTD data quarterly and VAT data annually.

Better to offer all VAT traders the option to pay by monthly DD for 9 months, with a balancing payment once a year (this balance, by the way, could be displayed in the business owners or company’s Personal Tax Account (PTA), so no surprises), and scrap the AA scheme.

Retailer schemes (RS)

Most retailer schemes concentrate on quantifying the amount of output VAT included in mixed rate sales, so the quarterly reporting should be acceptable for VAT and MTDfB purposes with no changes.

Advantages of the combined VAT and MTDfB tax return

I have summarised the advantages that I can see from adopting my suggestions set out in this paper. At this stage, they are purely speculative and obviously subjective, my opinion has, after all, shaped the narrative.

Benefits claimed are:

  1. Radical government cost savings.
  2. Simplification by merger of VAT and MTD reporting.
  3. Huge cost savings for the accounting software industry. For example, there is no need to adapt software to use an exclusive MTD API link, the present VAT API will do the trick.
  4. Easy to understand user changes, basically, the VAT return is being adapted to incorporate MTDfB reporting.
  5. Simplification and unification of VAT special schemes and assessment for other taxes.

I’ve no idea how much government have invested in MTD technology and systems changes. I have a sneaking suspicion that it will be £ millions.

 

 

Will 2019 be a hit or a miss?

The outlook for business in 2019 is at best steady as you go with the likelihood that the UK economy may dip into recession. And according to many pundits on all sides of politics it’s all thanks to Brexit.

The political uncertainties continue and with them building frustration in the business community as we try and grapple with landscape we are being directed towards.

Challenges for 2019

Leaving aside the chaos in parliament, the challenges for the accountancy profession as we move into 2019 are becoming clearer.

Who would have guessed when Making Tax Digital (MTD) was first proposed that its first steps towards implementation would be at the same time as our formal divorce from the EU? Let’s hope that HMRC have sorted out any wrinkles in their computer systems before the first MTD filed VAT returns hit their servers after 1 April 2019.

An alternative point of view

Ironically, there is an alternative way to view these significant changes.

All change processes create challenges, and those faced with these challenges either sink or swim. Advisors, therefore, can sit by and blame politicians for the decline in their fee income or they could re-engineer the situation as an opportunity.

Addressing Brexit supply chain risks

If there are risks that present importers from, or exporters to the EU will be adversely affected by Brexit, then shouldn’t accountants be assisting those businesses to produce an impact assessment regarding the changes in their supply chains?

Improving business fitness and reviewing business plans

And if there is a possibility that trading conditions generally will be difficult as we work through the Brexit transition, then shouldn’t accountants be working with their business clients to increase their business fitness? There is also an argument for revisiting existing business plans and forecasts for 2019.

Will 2019 be a hit or a miss?

The outcome may depend more on our perception of risk and our reactions to those perceived risks, than any lack of action by parliament or the EU.

Landmark’s solution, hit the ground running

Accountants Brexit resourcesBob Edwards has created an online tool, video and a range of documentation that you can use to support your clients. Take a look at our Brexit Resource Centre. It will save you time and enable you to cope with the current compliance challenges and start the process of supporting your clients through the Brexit transition.

 

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.

Staff Tax Tips – 21 September 2018

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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.

Umbrella companies in HMRC’s Spotlight

HMRC are upping their challenge to have certain schemes classified as tax evasion. In their Spotlight 45 report they say:

Some people that are employed through agencies and umbrella companies are signing up to arrangements that claim to save them tax, but are in effect tax avoidance schemes.

Most employment agencies and umbrella companies operate within the tax rules. However, some umbrella companies and agencies promote arrangements that claim to be a ‘legitimate’ or a ‘tax efficient’ way of keeping more of your income by reducing your tax liability.

To get yourself up-to-date on this topic read HMRC’s Spotlight here

What are the badges of trade?

Don’t know? These are the factors that HMRC take into account when deciding if a person(s) are engaged in a business activity. These criteria can be used to bring rogue traders into tax, but also deny loss relief to individuals who are unlikely to make profits from their endeavours.

See the summary list here.

Finance Bill draft clauses 2018-19

Way back in July 2018, HMRC published a number of draft clauses for the forthcoming Finance Bill.

In particular you should be aware that:

  • The qualifying criteria for rent-a-room relief is to change,
  • The requirement to produce receipts to cover scale rate expense payouts is to be abolished,
  • The donor benefit rules are to be changed for Gift Aid,
  • Changes to Optional Remuneration Arrangements for taxable cars and vans,
  • Loss relief rules for corporation tax are changing.

And much more. Take a look at the full range of changes here. 

 

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