The Blog

Government urged to overhaul Minimum Wage following Brexit vote

The Government is being urged to overhaul the UK’s minimum wage policy following the vote to leave the European Union, with warnings of damage to the economy and businesses if it does not.

According to the British Chambers of Commerce, the Government’s “politically driven” approach to setting the national living wage could cause it to become “unaffordable” to hire staff.

The lobby group argues in its submission to the Low Pay Commission’s consultation on future increases that a failure to calibrate the policy could push up prices, raise unemployment and even force companies out of business.

As of April 2016, the minimum wage for workers over the age of 25 rose by 7.4 per cent to £7.20 and it is proposed that the national living wage could rise to £9 by 2020.

However, the BCC said that the decision to leave the EU means it is vital to return to an “evidence-based” approach when setting the wage floor, otherwise it could lead to increased prices or even bankruptcies.

The group argues that the national living wage policy was set before the result of the vote and therefore the Government should reassess the policy in its aftermath, taking into account new economic data and forecasts, once these become available.

It is the BCC’s contention, based on “conservative” forecasts that the minimum age should rise by 2.4 per cent to £7.39 next April because “pressing ahead blindly” towards the £9 target would hit small businesses hardest.

Given that these organisations account for over 99 per cent of all private sector businesses and employ more than 15 million people, this would be disastrous.

Have HMRC got you in their sights?

Is a visit from the taxman a risk you can afford, or are prepared to take?

HMRC are more determined than ever to ‘claw back’ unpaid tax and ensure all tax due is paid. Millions of pounds have been allocated to target tax evasion and avoidance and the number of people being investigated by the taxman has doubled in one year.

Every year HMRC investigates hundreds of thousands of individuals and businesses in the UK. A tax investigation could happen at any time and everyone is at risk.

HMRC’s increased aggressive stance means more and more innocent businesses and individuals are likely to be investigated. Even if you have done nothing wrong, you are still at risk. HMRC don’t need a reason to investigate you and they can investigate anyone at any time.

You could be at greater risk than you think

Anyone who submits a tax return faces a real threat. HMRC are using a piece of highly efficient software which is accessing and trawling through your financial information right now.

The ‘Connect’ system has access to vast databanks holding information about every taxpayer and their businesses, income, assets and transactions.

From 2017, Connect will go global, with access to further data in 60 countries. It can identify tax discrepancies in seconds which can trigger a tax investigation.

A tax investigation could cost you – even if you’ve done nothing wrong

If they investigate you, HMRC will expect your professional adviser to explain how the computations have been prepared and how the amount of tax payable has been derived. As your trusted adviser, we will also be best placed to support and advise you through the enquiry process and to deal with any specific issues that arise.

Few individuals or businesses have budgeted for the cost of professional services should an investigation arise. However, if you are investigated it could be a substantial upfront cost, and for many this is more than they can afford at short notice.

Protection is available

We recommend that all our clients consider subscribing to our expert Fee Protection Service. If HMRC target you, we are on hand to guide you through the process, and by investing a small amount in our protection service now, you can rest assured that the professional fees are covered too.

A small cost now could save you thousands of pounds in the future.

If you’re currently an Ormerod Rutter client, you can request a free quote online now. If you’re not a client but would like to discuss this further, please contact us to speak to Anthony Middleton.

HMRC launches Worldwide Disclosure Facility

A new online disclosure facility has launched this week, giving offshore tax evaders a final chance to settle outstanding tax on their wealth hidden offshore ahead of new data sharing arrangements and tougher penalties due to be introduced.

HMRC launched the Worldwide Disclosure Facility (WDF) on 5 September 2016, following the closure of offshore disclosure facilities such as the Liechtenstein Disclosure Facility at the end of last year.

According to HMRC’s figures, tackling tax evasion brought in £26.6bn by tackling tax evasion and avoidance in 2014-15. Since 2010, £2.5bn has been raised from moves to tackle offshore tax evasion.

HMRC announced at the time that one final disclosure facility would be launched to enable those with offshore irregularities to come clean to the taxman, but there has been little detail about how this will work until now.

This last chance to get your affairs in order comes before HMRC starts to receive an unprecedented amount of data to assist their crackdown on tax evasion. Over 100 countries have committed to new international agreements that will allow HMRC to access even more data about overseas accounts held by taxpayers.

The WDF is available to anyone who is disclosing a UK tax liability that relates wholly or in part to an offshore issue. This includes:

  • Income arising from a source outside the UK
  • Assets situated or held outside the UK
  • Activities carried on wholly or mainly outside the UK
  • Where the funds connected to unpaid tax are transferred outside the UK

Anyone wishing to disclose a UK tax liability in relation to the above is eligible to use the WDF You first need to notify HMRC that you will be making a disclosure. Once you have notified HMRC, you will have 90 days to:

  • Collate the information needed to complete the disclosure,
  • Calculate the final liabilities including tax, duty, interest and penalties, and
  • Complete the disclosure, using the unique disclosure reference number provided when notifying.

The WDF offers no special settlement terms, unlike earlier schemes which offered reduced penalties. This means that those who come forward will pay the tax in full, with interest, and they could still face criminal prosecution.

There are a number of consultations running at the moment looking at the level of penalty/sanctions to be imposed on those who do not come forward during this disclosure opportunity, bearing in mind that this is the is the last of many facilities aimed specifically at offshore issues. One suggestion is that there will be a penalty of between 100% and 200% of the tax due if someone is discovered to have not used this disclosure opportunity when they should.

The WDF will run until September 2018. It is possible to make a disclosure under the WDF using the Digital Disclosure Service (DDS) launched in April this year. According to HMRC, one of the benefits of the DDS is that it removed the need for taxpayers to seek advice and help from accountants and professional advisors, as they can disclose by themselves.

However, we would strongly advise against disclosing by yourself if you are considering using the WDF. Professional support can make it much easier to collect the required information, ensure your calculations are correct and negotiate the best possible settlement terms within the required 90 day deadline.

If you are considering making a voluntary disclosure under the Worldwide Disclosure Facility, contact us and speak to our Tax Investigations Manager Anthony Middleton for your free, confidential consultation today.

HMRC issues digital tax accounts consultations for businesses, self-employed and landlords

 

 

HMRC has published six consultation papers unveiling new details about its plans for Making Tax Digital (MTD).

The controversial plans to move to digital tax accounts are expected to raise nearly £1bn in additional tax revenue.

The move to online filing of tax information by all taxpayers and businesses at quarterly intervals was first outlined in the 2015 Budget and has attracted considerable concerns about the potential costs and administrative burden for companies and individuals.

Last month The National Audit Office (NAO) released a report which said that HMRC are failing to fully estimate the costs of the new system to SMEs and must veer away from over-ambition.

Consultation on the issues was set to begin in April, but has been delayed until now, even though the reforms are set to be introduced from 2018.

HMRC says it has made a number of changes to the proposed design in order to ease the transition. These include removing more of the smallest businesses from the requirement to keep digital records and update quarterly.

All unincorporated businesses and landlords with a turnover under £10,000 a year will be exempt.

In addition, HMRC now says it will delay the start of MTD for some other small businesses, to give them extra time to get used to digital record keeping and quarterly updating, and will exempt digitally excluded businesses. However, it states that it expects to deliver ‘the end of the tax return by 2020’.

The six consultations are:

  1. Bringing business tax into the digital age
    This considers how digital record keeping and regular updates should operate. It includes discussion of HMRC’s plans to release a suite of APIs to ensure business software can communicate with HMRC’s systems and consideration of the requirements of those using spreadsheets for their accounting. It confirms that they will not provide free software and consults on the possible provision of financial support for businesses who need to purchase new IT to manage the changes.

 

  1. Simplifying tax for unincorporated businesses
    This looks at changing how the self-employed map accounting periods onto the tax year (reform of basic period rules), extending cash basis accounting to larger businesses and removing the link to the VAT threshold, reducing reporting requirements for businesses and removing the need to distinguish between capital and revenue for businesses using cash basis accounting.

 

  1. Simplified cash basis for unincorporated property businesses
    This proposes to extend the cash basis for trading income to unincorporated property businesses – providing an option for landlords to be taxed on the cash basis rather than using the accruals accounting basis. HMRC says this could benefit over 2.5m property businesses.

 

  1. Voluntary pay as you go (PAYG)
    Under this proposal, unincorporated businesses, sole traders and landlords could make voluntary PAYG payments in respect of their income tax/national insurance contributions/capital gains tax from 1 April 2018 and to VAT from April 2019. This would also extend to incorporated businesses in respect of their corporation tax from 2020.

 

  1. The tax administration consultation
    This covers aspects of the administration framework needed to support Making Tax Digital, outlining more detail about what the transformed tax system will look like by 2020. It also sets out proposals to align aspects of the tax administration framework across taxes including the simplification of late filing and late payment sanctions.

 

  1. Transforming the tax system through the better use of information
    This consultation focuses on how HMRC will make better use of the information it currently receives from third parties to provide a more transparent service designed to reduce end of year under and over payments. From April 2017 HMRC says it will start to use PAYE information during the tax year to calculate whether the right tax is being paid and to notify taxpayers where that is not the case via the digital tax account.

 

  1. Overview of changes for small businesses, self-employed and smaller landlords
    A separate consultation document provides an overview of the changes which will have the greatest impact on small businesses, the self-employed and smaller landlords. This highlights what HMRC views as the most critical issues for these groups.

 
The consultation period runs until 7 November 2016.

UK inheritance tax move to hit non-domiciled property owners

The Government plans to extend its inheritance tax (IHT) rules to cover properties held by non-domiciled residents in an offshore entity.

Under new guidelines from the Treasury issued in a consultation paper last week, residential property will be liable to inheritance tax (IHT) even if it is owned by an offshore trust.

As part of 2015’s Summer Budget, the Government announced it would be amending the rules for non-dom residents, particularly in terms of IHT.

Under the new guidelines, non-dom residents who own residential property in the UK will be subject to inheritance tax from April 6 2017. “This charge will apply to both individuals who are domiciled outside the UK and to trusts with settlors or beneficiaries who are non-domiciled,” according to the Treasury’s consultation paper.

It added that no change will be made to the taxation of UK property which is held by corporate or other structures and which are owned by UK domiciled individuals or by trusts made by UK domiciled individuals.

Many advisers have welcomed this clarification, but there are concerns that this might alienate current non-doms and deter wealthy individuals or families who are considering moving to the UK.

There had previously been hints that tax relief may be available for those who decide to remove UK properties from foreign company ownership structures, but the Treasury has now decided reducing the tax costs associated with restructuring UK property ownership would not be appropriate.

In the consultation paper the Treasury says: “While the Government can see there might be a case for encouraging de-enveloping, it does not think it would be appropriate to provide any incentive to encourage individuals to exit from their enveloped structures at this time.”

The Treasury said the reason for the planned changes is because non-doms currently enjoy a significant advantage over other individuals in this area.

The Government has now opened a consultation on the new IHT rules, which will run until 20 October 2016, but said the rule change it has outlined has been determined to be the best option and it is currently developing a framework for implementation.

Businesses able to submit ‘voluntary’ tax payments under HMRC’s PAYG proposals

Sole traders, landlords and unincorporated businesses will be able to submit ‘voluntary’ tax payments towards unexpected tax liabilities, under new HMRC proposals.

The news comes alongside the much anticipated publication of six consultation documents into HMRC’s ‘Making Tax Digital’ campaign, which the tax authority hopes will make all tax “100 per cent digital by 2020”.

HMRC’s proposed pay as you go system is one of many unanticipated changes to Making Tax Digital outlined in the tax authority’s latest consultations, which were published this week.

The proposed system will allow taxpayers to take full control over how often they wish to pay, and how regularly – although businesses with an annual income of £10,000 or more will also find themselves under new obligations to report accounts information to HMRC “at least quarterly” according to the consultations.

HMRC has said that their optional voluntary system will apply to the likes of Capital Gains Tax (CGT), income tax and national insurance (NI) contributions from 1 April 2018 – and to VAT from April 2019.

By 2020, HMRC hopes PAYG will also be open to incorporated businesses in respect of their corporation tax affairs.

Proposals under Making Tax Digital are complex and confusing, and taxpayers and businesses alike are advised to seek advice, to determine exactly how HMRC’s tax overhaul will affect them personally.

The Association of Taxation Technicians (ATT) recently branded Making Tax Digital “the biggest change to the way taxpayers will engage with HMRC since the introduction of PAYE in 1945”.

The end of salary sacrifice?

HMRC has revealed plans to limit tax and national insurance savings from salary sacrifice schemes.

In a 17 page consultation document released this week, HRMC stated that the government does not believe benefits-in-kind, effectively paid for by employees through reductions in gross salary, should be provided by employers at a cost to the Exchequer through salary sacrifice arrangements.

Plans were unveiled to change tax legislation so that where a benefit-in-kind is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer national insurance contributions, even if it is normally exempt.

Among the salary sacrifice schemes set to be hit are life insurance policies and mobile phone contracts, which will become taxable on employees. However, the paper did state that not all current schemes will be hit by the changes to the rules.

The purpose of the salary sacrifice consultation is to explore the potential impact on employer and employees should the government decide to implement these changes.

Several health-related benefits-in-kind such as the cycle to work scheme are not included as the government wishes to encourage their use. The consultation is also not asking for views on employer pension contributions, employer-provided pension advice and employer-supported childcare provision.

The consultation will run from 10 August 2016 to 19 October 2016 and the government is interested in hearing from employers, trade organisations and other interested parties who may be affected by the proposed changes.

The consultation on salary sacrifice for the provision of benefits-in-kind can be viewed here.

What does Brexit mean for VAT?

On 23 June the UK voted to leave the EU. This decision will have implications for businesses, individuals, the economy and the tax system.

However, the decision to invoke Article 50 and give official notice to exit the EU has not yet happened, and we will remain a member of the EU for at least the next 2 years.

It’s important to remember that the UK economy is essentially strong, and whilst we will see movements in exchange rates and the markets in the short term, they will eventually find their level.

The Chancellor has discounted the possibility of an emergency Budget in response to ‘Brexit’, but we can expect a clearer roadmap of how the UK’s tax and spending plans will evolve going forward to be outlined in the Autumn Statement.

One significant area likely to be affected will be VAT.

Value Added Tax derives from European law and was introduced in the UK as part of our original accession to the Common Market in 1973. However, it is one of the largest revenue generating taxes for the UK government, so it is unlikely to be abolished or significantly changed as a result of Brexit.

The way VAT currently operates is closely connected to our EU membership in many different ways. For UK businesses operating mainly within the UK, the effects of any changes are likely to be less than those for more internationally-focused businesses.

Going forward, the UK government will have more flexibility over the setting of VAT rates and liabilities. The current single claim mechanism will cease to apply and the process for UK businesses to reclaim VAT incurred in EU member states will become more administratively complex.

Cross border reclaims will need to be made to individual member states and will depend on the UK offering reciprocity (i.e. paying UK VAT claims from EU member states).

The changes for VAT on international transactions are likely to be more significant, and will be more dependent on the terms of the UK’s exit.

As a full member state of the EU, the UK is currently within the single market and the customs union, which means borderless movement of goods within the EU. If we negotiate a similar position to Norway and other EEA states, this will give us continued access to the single market. However, Norway is not within the EU customs union. This has significant implications for the VAT treatment of the movement of goods.

If we are outside the EU customs union, all goods moving between the EU and the UK will require customs clearance for VAT purposes, although there may be no customs duties imposed. For good entering the UK from the EU, import VAT will need to be paid or deferred before they can be cleared. This is likely to lead to delays and increased administrative costs, and increases the likelihood of a customs border being needed between Northern Ireland and the Irish Republic.

Businesses with complex supply chains will need to keep these under review and assess the implications as the financial position becomes clearer. Future plans will need to be flexible and take into account potential future changes.

Businesses selling good online to consumers in EU member states will need to review their business models, unless specific arrangements are negotiated. Currently, UK VAT is charged until sales reach a certain level when local VAT registration is needed. When the UK leaves the EU, the default position would be that EU customers would need to pay the import VAT due on their online purchases before the goods could be delivered to them.

Although nothing will change in the short term, and very little may change for UK focussed businesses in the future, there will be major considerations for any business with significant trading relationships with the EU. This will need to be kept under review as the situation develops.

However, it is important not to act in haste while so much remains unclear. Over the coming months we should start to see some clarity over how the UK’s relationship with the EU will evolve and these detailed negotiations will determine the exact arrangements going forward.

If you have any concerns or questions about your VAT position, please contact us to speak to our expert VAT advisors today.

Payments on Account Explained

Time is running out for self employed workers to pay the second part of their tax bill.

Most self employed workers pay tax bills in installments: one in January and one in July under the ‘payments on account’ system. If you have a payment on account to make to HMRC, you must do it by midnight on 31 July, or face a fine and additional interest on your outstanding balance.

These payments on account spread the cost of your tax bill across the year and are designed as a method for paying some of your tax in advance, therefore preventing people being indebted to HMRC.

Payments on account are calculated by looking at your previous year’s tax bill. The first installment is due on 31 January (the same day as your ‘balancing payment’ which clears your tax bill for the previous year), and the second is due on 31 July.

Each of the two installments of the payments on account is usually 50 per cent of the previous tax bill. This will include Class 4 National Insurance Contributions where applicable.

There are some circumstances where a payment on account will not be due. If your tax bill for the previous year was less than £1000 after PAYE or other deductions at source, you will not need to make a payment on account. Similarly, if you’ve already paid more than 80 per cent of the tax you owe you will not need to make a payment on account.

If you still have tax to pay after making your payments on account, you must make this balancing payment by midnight on 31 January.

For example

Your tax bill for the 2013/14 tax year is £3,000. You made 2 payments on account last year of £900 each (£1,800 in total).

The total tax to pay by midnight on 31 January 2015 is £2,700. This includes:

  • Your balancing payment for 2013/14 of £1,200 (£3,000 minus £1,800)
  • The first payment on account of £1,500 towards your 2014/15 tax bill (Half your 2013/14 bill)

You will then have to pay your second payment on account (£1,500) by midnight on 31 July 2015.

If your tax bill for 2014/15 is then more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2016, plus the first payment on account for the following year.

Reducing your payment on account

Self employed people’s income can fluctuate from year to year. If your income for the next tax year will be lower than in the previous year, you can apply to have your payment on account reduced.

You should think carefully before doing this and seek advice from an expert. Underpayments may be subject to interest, so if you reduce your payment on account and it subsequently turns out you have underpaid, you may find yourself facing an even bigger bill.

It is advisable to complete your tax return as early as possible, particularly if you’re paying payments on account. If you complete your tax return before 31 July, you may be able to reduce your payments on account, and you’ll know what your tax bill is going to be well in advance of the 31 January deadline – giving you more time to prepare for the cost.

Speak to an accountant to calculate your tax bill and see if you can reduce your payments on account. Contact us today for a free initial consultation.

SMEs failing to take cyber security seriously, says study

Small and Medium Enterprises (SMEs) across the UK are putting themselves at risk by failing to take their cyber security seriously, according to new research.

A study carried out by Barclaycard found that just one in five SMEs consider cyber security a ‘top business priority’, despite the fact that 74 per cent of UK firms found themselves facing at least one security breach during 2015, according to HM Revenue and Customs (HMRC).

The Government has warned that the average cyber-attack can potentially cost a business anywhere between £75,000 and £311,000.

The National Audit Office (NAO) has added that cyber-attacks could become more common following HMRC’s shift to an all-digital tax system.

Making Tax Digital (MTD) proposals came under fire last week, after an NAO report fund that much more still needs to be done by HMRC ‘to use data and technology to reduce fraud and error’.

The NAO said that HMRC is facing a great challenge in building “public trust that the new digital tax systems are easy to use and secure”, in order to protect both itself and SMEs from potential data loss and IT crime as the new systems are brought online.

Their report added that HMRC “must also demonstrate to taxpayers that its controls to verify each taxpayer’s identify and protect the confidentiality of data and working effectively.”

HMRC underestimating the cost of Making Tax Digital for SMEs, says NAO

HMRC are failing to fully estimate how much it could cost Small and Medium Enterprises (SMEs) to convert to Making Tax Digital, according to new criticisms.

The National Audit Office (NAO) has said that although the Government’s approach to the Making Tax Digital transformation is ‘credible’, HMRC must do more to increase public confidence in the online services currently being developed – and to inform SMEs of what they need to do in order to comply.

According to the NAO, HMRC needs to remain optimistic and committed to meeting its goals, but veer away from over-ambition, which the NAO believes is a recipe for failure.

An NAO report read “HMRC was over-optimistic about how much change it could deliver all at once, and how fast it could reduce demand for telephone contact in particular. This resulted in a collapse of its service to personal taxpayers in 2014/15 and the first half of 2015/16.

“HMRC has since recovered the quality of its service to personal taxpayers by recruiting more staff and has adjusted its future resource plans in the light of this experience.

“In the past year HMRC has made plans to invest more than £2bn on its transformation in the next five years,” the report added.

“HMRC has launched digital accounts for individuals; announced plans to close 137 offices and the location of 13 new regional hubs; and secured agreement for its plans to replace its IT services contract, Aspire, which it has revised to reduce the risk of carrying out too much change too quickly.”

The NAO reminded SMEs that “Most business customers will be required to update HMRC quarterly rather than annually about their tax affairs, and some may need to purchase new software that works with the new systems.”

SMEs concerned about how the switch over will affect them are urged to contact tax experts for advice.

Report assesses impact of National Living Wage

One of the biggest announcements to come from last year’s Summer Budget was the introduction of National Living Wage for UK workers aged 25 and over.

The changes came into effect in April 2016, raising hourly wages from £6.70 to £7.20 on 1 April, and is expected to rise steadily to £9 by April 2020.

New research conducted by an influential think tank has now shed light on how UK companies have coped following the introduction of the new National Living Wage earlier this year.

The survey, which was carried out by the Resolution Foundation, found that the majority of employers have favoured raising prices over cutting the number of staff on their books.

These findings appear to dampen fears that the changes would lead to an increase in redundancies.

The Office for Budget Responsibility (OBR) had previously suggested that the new rules could lead to as many as 60,000 job losses by the turn of the decade.

While the latest survey, which involved 500 companies across a range of sectors, may suggest that these fears won’t be borne out, there has nonetheless been a squeeze on many employers’ budgets.

Around three in ten of the firms who took part in the survey said they had reduced profits to cope with the new requirements. A small number of companies also admitted making changes to staff terms and conditions, with eight per cent having cut perks such as paid breaks or overtime pay.

If you need help planning for the increased costs incurred from the National Living Wage, contact us today. Our specialist team can help ensure your business stays in the strongest possible financial position.

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