UK Income Tax Liabilities regarding Offshore Matters

New legislation has introduced a legal requirement for UK taxpayers who have undisclosed UK tax liabilities to income tax, capital gains tax and inheritance tax in respect of offshore matters to disclose the relevant information to HMRC by 30 September 2018.  This is known as the Requirement to Correct (RTC).

The penalties for failure to correct (FTC) start at 200% mitigated to a minimum of 100% of the tax.  There can also be asset-based penalties in more serious cases.

With effect from 1 October 2018, the Common Reporting Standard will be introduced under which 100 jurisdictions will exchange financial account information on residents’ investments offshore hence the need to report any undisclosed liabilities by the 30 September 2018.

When the legislation was first drafted it was thought it was intended to target deliberate tax evasion, such as routing undeclared UK income through off shore structures. However over the course of the last few months it has become clear that HMRC will be taking a more aggressive approach even in cases where an innocent error has occured.

In brief, a person must correct any offshore tax non-compliance, including failure to notify chargeability to tax or failure to submit a Return that should have been submitted.

The RTC covers tax years as far back as 2013/14 if a failure has occurred but the taxpayer has taken reasonable care, back to 2011/12 if behaviour was careless and back to 1997/98 if the behaviour is deliberate.

If you have any assets overseas, for example holiday homes, letting income, bank interest, then Pierce can help you prepare for the new legislation.

For further information, please contact Anne Wilson on a.wilson@pierce.co.uk or call 01254 688 100.

Pierce’s payroll manager shortlisted as biggest influencer

Pierce is celebrating after their payroll manager, Lisa Kennery has been shortlisted for a prestigious industry award.

Lisa has made the final eight for the biggest influencer category at the Chartered Institute of Payroll Professionals Annual Excellence Awards.

Lisa was nominated by Pierce’s payroll assistant manager Philip Johnson, after receiving unrivalled support from Lisa during his career at Pierce.

Philip said: “Lisa has not only played a key role in enhancing my knowledge needed for my professional qualifications but also in gaining the softer skills needed to develop my career. Since being at Pierce I have worked my way up from being an apprentice to assistant manager which is all thanks to the support, guidance and encouragement from Lisa.”

Lisa added: “It was such a shock to find out that I have been shortlisted for this award. It’s a great achievement and I’m thrilled that Phil nominated me.”

The 2018 Annual Excellence Awards will be taking place in Birmingham on Thursday October 11.

Making Tax digital – What will the future bring?

The government announced on 13 July 2017 that Making Tax Digital will commence in April 2019 for all VAT registered entities with a turnover above £85,000. Vat registered businesses with turnover below this amount will not be required to use the system but can choose to do so. They will also be able opt in for other taxes, benefitting from a streamlined, digital experience.

 Making tax digital will extend to other areas of tax for example,  self-assessment tax returns  in April 2020 . This gives you two years to adapt to the change of reporting digitally,

 Challenges you may face:

  • Converting manual records to digital version
  • Converting spreadsheets to recognised book-keeping software that will link direct with HMRC
  • Upgrading old software that will not be compatible
  • Adapting bespoke software
  • Cost of doing the above
  • Time processing

How can we help

  • Assisting in selecting the correct software for you
  • Implementing the software
  • Provide training initially and as and when required
  • Take the headache away and provide a full package

Spring Statement 2018

Chancellor Philip Hammond has delivered his Spring Statement 2018, and on his promise to move away from two major iscal announcements every year.

There was no red briefcase, no red book, and no tax changes as the chancellor announced updated economic forecasts in a speech lasting less than half the length of any of his previous statements.

Click here to download our in-depth report.

Changes to company car benefits – are you ready?

From April 6, 2018 there will be a change to the way company car benefits are payrolled, improving the process for both the employee and employer.

From the new tax year, if you choose to payroll company cars, the car information must be submitted via payroll and tax will be collected in real time through a monthly deduction.

The new streamlined process will reduce the number of tax calculation errors, eliminating the chance that employees will be landed with a big underpayment bill. The changes are easier for employees to understand as the tax code will remain at the personal allowance, presuming the employee has no other adjustments.

There’s benefits for employers too as P11Ds and P46 cars will no longer be required, reducing the amount of paperwork and saving valuable time.

Form P11D(b) is still required to report class 1A National Insurance due and companies need to provide the employee with a summary of the benefits payrolled, the cash equivalent as well as details of any benefits not payrolled, before June 1 every year.

The change means that all benefits apart from beneficial loans and employer provided living accommodation, can be processed through payroll.

If employers wish to payroll benefits in the 2018/19 tax year, they will need to act fast and register prior to the start of the tax year. If you use payroll software, then most platforms are ready for the change.

Although the payrolling of benefits is still voluntary, HMRC are moving to real time, so we predict that this will become mandatory in the near future.

After successfully completing payrolling benefits with a client, we are looking to roll it out to other businesses ahead of the implementation date. If you would like Pierce to help you with the changes, contact Lisa Kennery on 01254 688 110 or email l.kennery@pierce.co.uk.

Lisa Kennery is the payroll manager at Pierce.

Businesses urged to review Christmas party tax plans

As the decorations go up and the opening of advent calendar doors begins, Pierce Chartered Accountants suggests that Lancashire businesses should review their Christmas party plans to avoid tax hangovers!

Party time

Employees are exempt from tax on the cost of an employer provided annual party where the cost is less than £150. This event can be a Christmas party or other annual function, such as a summer BBQ, and can cover more than one occasion if it doesn’t exceed £150 per head in total across eligible events.

When calculating the cost of the event this should include food, drink, entertainment, venue hire, transport and overnight accommodation as well as VAT in arriving at the total cost per attendee.

The amount of £150 is a limit, not an allowance. If the cost is £151 per person attending, then the whole benefit becomes taxable.

The event should be primarily for entertaining staff and be open to all employees. If guests are invited, then the total cost should be divided by each attendee (including non-employees). If a business is spilt over various locations, then separate events can be held, so long as all members of staff have the option to attend one party.

The employer will also be able to claim a tax deduction for the cost of the staff party even if it exceeds the £150 per head limit.

Staff Gifts

Generous employers who give their staff a gift at Christmas should also consider the tax implications for their employees.

If you give your employee a non-cash gift worth no more than £50 the employee does not have a tax liability on the benefit in kind.  For example retail vouchers, flowers or a hamper would be eligible,  but the gift must be no strings attached such as a performance award and must not be a contractual entitlement.

Companies who give their employees a cash bonus will have to pay the bonus through the payroll and deduct tax and National Insurance as normal.

For further information about tax pitfalls during the Christmas period, call Pierce on 01254 688 100.

Solicitors could face hefty VAT bill for electronic property search fees

Solicitors are being warned they could face hefty VAT bills for electronic property searches after a landmark ruling deemed they should not be treated as a disbursement.

The caution comes following the case of Brabners LLP Vs HM Revenues & Customs (HMRC) which cast doubts over solicitors’ treatment of disbursements.

Brabners conducted searches and used the results as part of its advice to clients. The law firm treated the cost as a disbursement and invoiced the client for this cost, excluding VAT. HMRC assessed the law firm as liable for VAT, a decision that the law firm appealed.

It is standard practice in the sector to treat such costs as disbursements where no VAT has been incurred, this has now changed for electronic search fees.

Guidance from the relevant regulatory bodies, which sets out how legal disbursements should be treated for VAT purposes, is now under review following the tribunal decision.

HMRC which applies strict criteria to such situations, argued that Brabners’ costs were not VAT disbursements as the recharge of the cost formed part of the onward supply to the client and was therefore subject to VAT.

The First Tier Tribunal was in agreement with the HMRC, meaning Brabners was ordered to pay a £68,000 VAT bill as the results were used as part of their advice to clients, and they were not acting as a middle man to collect the search fee from the client.

At Pierce, we would advise law firms to review their disbursement treatment in light of the outcome of this tribunal, for both previous and future policies.

If your firm is using the same process as Brabners, then contact the Law Society to seek clarification before amending your practices as Brabners may consider taking this appeal further.

For more information regarding VAT for solicitors, please contact Gary Speak on 01254 688 100 or email g.speak@pierce.co.uk

Making Tax Digital for business

HMRC’s new Making Tax Digital reporting system is being introduced for businesses, sole traders and landlords from April 2018. The aim is to join up HMRC’s internal systems by creating one account for each taxpayer so businesses can provide its information more accurately and closer to real time. 

In his budget speech on March 8, Philip Hammond confirmed the timescale for the compulsory entry into the Making Tax Digital scheme as follows:

  • April 2018 businesses/landlords with turnover above the VAT threshold
  • April 2019 businesses/landlords with turnover below the VAT threshold
  • April 2019 VAT registered businesses/landlords
  • April 2020 businesses liable to corporation tax
  • April 2020 partnerships with turnover above £10m

Businesses and landlords with a turnover below £10,000 will be exempt from the scheme.

So what does Making Tax Digital involve?

  • Accounting records must be kept digitally ideally using a suitable accounting package although HMRC have conceded that they will accept information kept on spreadsheets.
  • Accounting information must be reported to HMRC quarterly.
  • An annual summary must be reported including tax adjustments to accounting records.
  • A new penalty regime has been introduced for Making Tax Digital submissions although this will not be introduced straight away.

HMRC has not yet released any detailed information on Making Tax Digital but as more information is released, Pierce will provide an update.  We are currently reviewing our clients to identify who the new rules will apply to in April 2018 and will shortly be contacting those affected with advice on what they are required to do to comply.

The government will not be providing software for businesses, we can offer advice on accounting software packages for those who currently keep manual accounting records. We have a range partners with various cloud accounting software providers covering a wide cross section of the market and we can help you choose, setup and configure the best choice of software for your business.

For more information visit http://www.pierce.co.uk/cloud-accounting-software/ or contact Ben Davies on 01254 688100 or b.davies@pierce.co.uk.

Fair shares for all

Anne Wilson, senior tax manager at Pierce Chartered Accountants looks at the wisdom of giving away company shares in order to reduce your tax liability and the potential savings.

A quick recap before elaborating: in April 2016, changes to the taxation of dividends came into effect, resulting in an increase in tax liabilities going forward. Previously, if you took a salary up to the personal allowance and a gross dividend up to the basic rate band then you would have no tax liability. Since these changes came into play, under the same scenario you would have a tax liability of just over £2,000.

The first thing that I want to do is to bust the myth of giving shares to your minor children. If a parent makes a gift of an asset, including shares, to their minor child then any income in excess of £100 is taxable on the parent whilst the child is under 18, making the tax saving void.

What about other gifts of shares to spouses, partners or adult children?

In order for a gift to be effective for tax purposes it must be an outright gift, with no strings attached and be more than a gift of income. For example, you cannot create a special class of shares with no rights other than the payment of a dividend as that would be a settlement for tax purposes and the dividend would continue to be taxed on the donor.

The problem with many contractor companies is whether the shares in question actually have any underlying capital value in any event. However, comfort can be taken from the decision in Arctic Systems where a spouse was permitted to subscribe for a share in a company, the income of which derived from the husband’s skills. HMRC argued that the dividends should be taxed on the husband because the wife’s shares were no more than a right to income (the company had no apparent underlying capital value).

However, the House of Lords found that the wife’s share was more than just a right to income, it was an ordinary share conferring the right to vote and to participate in the distribution of assets on a winding-up and to block a special resolution. Following the decision, despite HMRC’s initial intention to change the legislation, this has not happened and at the present time it is still possible for contractors to transfer shares carrying full rights to their spouse (or partner or adult child) and not fall foul of the settlement regime.

Transfers between spouses are exempt from capital gains tax. Where the shares are gifted to partners or adult children the same issues apply regarding the settlement rules, although a capital gains tax hold-over relief claim would be needed to hold-over the gain on the gift of shares. However, a note of caution about gifts of shares to parties other than spouses, once the shares have been transferred they are very difficult to get back in the event of a breakdown in the relationship. I always recommend that a shareholders agreement should be signed in conjunction with the gift. The desire to save tax should never override sound commercial decision making.

I also recommend that dividend waivers are avoided and if it is intended to pay different levels of dividend, alternative classes of share should be created.

What are the tax savings of a gift?

That depends very much on the levels of income received by each party. For example if the spouse has no other income they would be able to receive a dividend of up to £16,000 free of tax. If the spouse making the gift would have been taxable at the higher rates on the same dividend then the tax saving would be £5,525! If the donee spouse had other income but would be within the basic rate band then the saving would only be £4,700, in each case it would be important to do the sums as the savings may not always be so generous.

Giving some shares to adult children who are at university could be a good way of funding their education as they can receive £5,000 of dividend tax free.

In conclusion, there is still scope to make a transfer of shares to spouse or partner to save tax but the gift must be an outright gift and professional advice should always be taken.