Category Archives: Tax News

Scammers take advantage of businesses ignorance on EU VAT rules

Businesses across the UK are being targeted by scammers who are charging them to update companies VAT registration numbers online, when it is not necessary.

Typically businesses are told that as part of changes to EU legislation, which obligates all companies to provide their VAT registration numbers on ‘various’ documents since 2010, they as a company are required to update their database.

This service is offered for free with an option to update information past the basic entry, which may incur a cost. What many businesses haven’t realised is that they are then invoiced for £797 plus VAT once the information is submitted.

The way in which the letter is worded makes clear that they are not affiliated with a public authority or any official entity, but suggests that the update is a necessary requirement, when it is not.

Further investigation on the company’s website reveals that the information is not obligatory and that it acts as a form of digital advertising for businesses.

Online research shows that similar offers made to a number of companies have been sent as far back as 2013, with businesses getting caught out when they have sent information back, only to receive an invoice at a later date.

Although, not listed as an official phishing scam on the HM Revenue & Customs website, businesses are being warned to be on the lookout for similar offers.

A number of local councils have already warned businesses about the scam and MPs have previously asked the treasury to investigate, but as of yet the scammers continue to target businesses in the UK.

Source: HMRC Phishing Examples

Landlords – unpaid tax should be declared sooner rather than later

Landlords are being advised that HM Revenue & Customs (HMRC) is redoubling its efforts to crackdown on individuals who fail to properly report their taxes.

A number of reports have emerged recently which suggest that the Revenue’s Connect ‘supercomputer’ is being used by the tax authority to gather far-reaching data on taxpayers and to effectively crack down on those who are failing to declare or pay tax.

As part of this, HMRC are increasingly collecting data from the Land Registry and other organisations to compare against its own records.

HMRC appears to have been particularly active in pursuing buy-to-let investors, going as far in some cases as obtaining lists from letting agents and matching these up to historic tax returns in a bid to catch landlords who aren’t declaring tax.

These efforts come under what is known as HMRC’s Let Property Campaign. This long-running initiative gives independent landlords an opportunity to bring their tax affairs up to date under reasonable terms by making a voluntary disclosure to HMRC.

The penalty regime under the campaign is generally far more favourable to those who make early voluntary disclosure, rather than making a prompted disclosure under enquiry.

The Campaign is open to those who are renting out single and multiple properties, as well as non-resident landlords who are living abroad while renting out property in the UK.

However, the scheme cannot be used to declare previously undisclosed income by companies or trusts renting out property.

Landlords are advised to act sooner rather than later, as an increasing number of individuals are likely to face greater scrutiny and potentially costly tax investigations as HMRC’s Connect ‘supercomputer’ becomes more effective as it draws information from a growing network of sources, including social media sites.

Source: Let property campaign: your guide to making a disclosure

Making Tax Digital delayed by at least a year for the majority of businesses

The Government has announced that it plans to delay the full implementation of digital taxation until 2020.

Making Tax Digital (MTD), the details of which will be included in the upcoming Finance Bill for 2017, has already faced a number of delays and was placed on hold before the snap general election in June.

However, the Government has now revealed that businesses with a turnover above the VAT threshold (£85,000) will have to keep digital records and report them on a quarterly basis from 2019.

Initially these businesses only need to record VAT-related tax in the first year, before a much wider role out in 2020 – delaying the roll out date by more than a year and exempting a large number of sole traders, landlords and micro-businesses.

For other businesses below the threshold, MTD will be available on a voluntary basis and they will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.  

The Government will start testing the system on a small scale at the end of this year, before running a live pilot in spring 2018.

Mel Stride, Financial Secretary to the Treasury and Paymaster General said: “Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.”

She said that the Government was launching the new digital system “in a way that is right for all businesses” and pledged that they would not “widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest.”

Under the Government’s previous plans, all businesses, landlords and self-employed taxpayers with an annual turnover of £10,000 or more would have been required to register, file, pay, and update their information online each quarter under MTD by 2020, with some businesses beginning the process as early as April 2018.

Source: Next steps on the Finance Bill and Making Tax Digital

Deeds of Variation an option for managing the burden of inheritance tax

If you find yourself liable to pay Inheritance Tax following the death of a loved one, you may wrongly presume that there is no option but to pay the tax man the full amount that he is owed.

However, by using a Deed of Variation, it can often be possible to offset a portion of this tax burden.

A Deed of Variation is a legal tool which can be used by any adult beneficiary, regardless of whether an inheritance is left in a Will or through intestacy.

It is not, as many people believe, a rewrite of a Will or a ‘get out’ of the usual rules of intestacy.

A Deed of Variation allows either part or all of the deceased’s estate to be passed from one beneficiary to another, usually as a gift, although it can also involve the sale or exchange of respective interests.

As laid down in Section 142 of Inheritance Tax Act 1984 and Sections 62(6) to (10) of Taxation of Chargeable Gains Act 1992, the use of a Deed of Variation means that the moving of assets carries with it the ability to better plan tax to reduce a person’s tax liability.

The legislation permits the original beneficiary, specifically for tax purposes, to elect a new beneficiary. He or she will, to all intent and purpose, be deemed to have inherited these assets from the deceased, rather than as a gift from the original beneficiary. This process must take place within two years of the death to have a tax benefit and it is important to note that this does not apply to Income Tax.

The rules surrounding Inheritance Tax and the use of Deeds of Variation are complex, confusing and ever-changing and it is important to seek specialist IHT planning advice to suit your specific circumstances. To find out how the experts at Moore Thompson can help you today, or in the event of any surprise IHT changes in the near future, please contact us.

Opposing HMRC penalties on grounds of ‘reasonable excuse’

Recent reports have shed light on some of the most unusual cases where self-assessment taxpayers have managed to successfully appeal late filing and late payment penalties issued by HM Revenue & Customs (HMRC).

In one instance, a taxpayer named Magdalena Trzcińska successfully appealed a late filing penalty thanks to a well looked-after ‘signed for’ Post Office slip, according to reports.

Ms Trzcińska had submitted her 2011/12 self-assessment return to HMRC on 29 May – but the tax return had not been received by the Revenue.

Despite this, a Tax Tribunal took into account the fact that the return had indeed been sent to HMRC on time – as evidenced by a ‘signed for’ slip stamped by the Post Office.

The envelope could not be located via the Parcelforce Track and Trace system, however, a Judge noted that the audit trail would have been lacking anyway unless Ms Trzcińska had personally handed the envelope across the counter to a Post Office member of staff.

The Tribunal’s decision came despite the fact that separate evidence suggested Ms Trzcińska had later tried to rectify the matter by submitting a second self-assessment return to HMRC five months after the deadline. 

This separate evidence was presented to the Tribunal, but did not disturb its finding that the ‘signed for’ slip proved a paper return had been submitted 13 months’ previously.

In another unusual case, a taxpayer named Theodore Laverty who had moved abroad managed to successfully appeal penalties adding up to £1,700 for failure to submit self-assessment returns on time.

Mr Laverty had moved to Vietnam and his UK residence had been let out to a tenant during his time overseas. He argued that he had not received correspondence from HMRC in relation to his self-assessment return as the area of Vietnam he was living in had “no residential post” system in place.

At a Tax Tribunal, HMRC said that documents were “served within the ordinary course of postal delivery in accordance with the Interpretation Act 1978.”

However, in this case, the Tribunal doubted whether the Interpretation Act could fairly apply in Vietnam.

Furthermore, it considered that Mr Laverty had taken ‘adequate steps’ to take care of his tax affairs during his absence – primarily because he had appointed a UK-based accountant while he was abroad and because he had completed a 64-8 form.

It also took into account the fact that, after clarifying the position regarding his tax returns with HMRC, he had submitted his outstanding returns within six weeks.

The Tribunal found that, although the ‘reasonable excuse’ effectively came to an end in January 2013 – when Mr Laverty returned to the UK – the delay in submission “was rectified within a reasonable period on 7 March 2013.”

Link: Reasonable excuse round up

Rules on directors’ tax returns are not as clear you might think

According to the gov.uk guidance, a director must register for self-assessment (SA) and send a personal SA tax return to HM Revenue & Customs (HMRC) each year.

However, this isn’t always the case. There are exemptions to this rule, one of which was recently highlighted at a tax tribunal.

Mohammed Salem Kadhem has been a director of a property company since 21 May 2014. He’s since received no benefits or dividends from that company, and consequently chose not to register for self-assessment.

Mr Kadhem, however, was automatically registered for self-assessment by HMRC. After apparently “failing” to complete an SA tax return, the Revenue sent a notice to file immediately for 2014/15 on 6 April 2015.

The director denied ever receiving this notice, and otherwise thought that an SA return was unnecessary as all of his income was taxed at source through PAYE. Nevertheless, Mr Kadhem eventually submitted a return for 2014/15 on 21 September 2016 in response to a second letter, this time demanding a £100 penalty fine.

Such was the length of time that the tax return was delayed, further fines were issued totalling £1,200.

Mr Kadhem appealed the fine and attended a tax tribunal. HMRC quoted the guidance as published on gov.uk, but the tribunal ruled that the guidance does not have the force of law and did not “accurately reflect what the law says”.

It added: “If a person receives a notice to file a return he is under an obligation to file a return by the due date, but that is not what the Government guidance says.”

Further to this, HMRC could not prove that the notice to file a return was sent to the director’s correct address.

The tribunal accepted that he had a “reasonable excuse” for filing a late return and all penalties were quashed.

While Mr Kadhem may have been pleased to have been told that he did not need to submit an SA tax return, it may nevertheless be wise for directors to make SA tax returns. SA tax returns can make tax planning easier and help ensure you receive all the reliefs you are entitled to.

Link: Tribunal: Company directors don’t have to submit tax returns

I’m a non-resident landlord. Do I have to file a tax return in the UK?

If you have lived abroad for six or months or more in a year, you are classed as a “non-resident landlord”, and the income you receive from renting out your home whilst abroad is taxable in the UK.

This needs to be declared to HM Revenue & Customs (HMRC), but you do not necessarily need to file a tax return.

Non-resident landlords can choose to be taxed in one of two ways:

  • Through self-assessment (SA). SA tax returns must be filed by the 31 January deadline if you do it online, or by 31 October if you choose to do it by paper. If you haven’t registered for SA, you must do so by 5 October.
  • At source, deducted by your letting agent or tenant.

If you choose to get your rent in full and pay tax via SA, you’ll need to fill in a form NRL1i, found here. If previous tax returns are outstanding, or if tax is owed, your application may not get approved.

Even if you are a non-resident landlord, your £11,500 personal tax allowance still applies.

You might also need to pay Capital Gains Tax if you make a gain when you sell residential property in the UK.

Link: Tax on your UK income if you live abroad

Can you benefit from capital allowances on your business premises?

If you own your own business premises, you may be entitled to claim capital allowances on some of the costs associated with the ‘intrinsic fabrication’ of the building.

The ‘intrinsic fabrication’ of a building includes items such as lighting, heating, plumbing, electrics and fire safety systems. It essentially covers the items that are necessary for the business to be able to function.

Capital allowances mean that the cost associated with this ‘intrinsic fabrication’ can be offset against Corporation Tax.

However, since 2014, any capital allowances must be used before the premises are sold. Otherwise, the new owners will not be able to claim capital allowances.

This means that it is critical to ensure that you are claiming the full extent of capital allowances that you are able to. It is also means that capital allowances are something you should ask about if you are in the process of buying new business premises.

This is a relief that could save you tens of thousands of pounds a year, but only if you actively claim it.

Link: Capital allowances and R&D – don’t ignore these business tax reliefs

Receipts rise as Corporation Tax rates fall

Corporation Tax receipts reached a record high in the 2016-17 financial year, with a total of £56 billion collected, a 21 per cent year-on-year increase.

These record figures come despite the main rate of Corporation Tax falling from 30 per cent in 2008 to 19 per cent in 2017-18.

The most obvious driver for this increased take is the growth of the UK economy, but this by no means accounts for the whole of the increase and there are some interesting factors at work.

A rise in business profitability has also impacted the tax take too, with average net profitability reaching 12.7 per cent last year. This compares with a rate of 8.8 per cent in 2009, in the immediate aftermath of the financial crisis and the recession.

A significant driving force behind this has been an increase in banks’ profitability since the financial crisis, which are subject to a special bank levy.

Beyond this, there have also been significant efforts to counter avoidance globally, HM Revenue & Customs (HMRC) investigating an increasing number of cross-border deals.

A related measure which is believed also to have had an effect is the so-call Google tax, the Diverted Profits Tax, which was created to prevent firms sending profits to other jurisdictions.

Link: Riddle of UK’s rising corporation tax receipts

The Inheritance Tax main residence additional nil-rate band

A new additional nil-rate band of £100,000 for Inheritance Tax (IHT) on main residences, when bequeathed to a direct descendent, came into effect at the start of the new tax year in April 2017.

In 2018, 2019 and 2020, this will rise to £125,000, £150,000 and £175,000 respectively, before rising in line with Consumer Prices Index (CPI) in subsequent years.

The change affects estates worth £325,000 or more, meaning that since April 2017 no IHT has been due on estates that include a main residence valued at £100,000 or more and where the total value of the estate is less than £425,000.

For such estates valued between £425,000 and £2 million, IHT is charged at 40 per cent of the value of the estate above the threshold, meaning that an estate with a total value of £525,000 is subject to IHT of £40,000 instead of the current £80,000.

Where an estate has a net value of £2 million or more, the additional nil-rate band is withdrawn at a rate of £1 for every £2 of value above this threshold. This means that the additional nil-rate band will not apply in 2017 to estates worth £2.2 million or more, so the effective threshold remains at the current £325,000. Those worth £2.1 million are only eligible for an additional nil-rate band of £50,000, making the effective threshold £375,000.

Where the deceased has moved to a main residence of lower value or sold their home since 8 July 2015 and assets of equivalent value are bequeathed to direct descendants, the estate is still eligible for the equivalent additional nil-rate band.

Both the standard and additional nil-band rates are transferable from a deceased spouse or civil partner where the second spouse or civil partner has died on or after 6 April 2017, effectively doubling the thresholds.

Link: Inheritance Tax: Main residence additional nil-rate band