The Blog

Landlords warned against ‘illegal’ stamp duty schemes

The popularity of illegal tax schemes which some landlords are using to avoid a recently introduced Stamp Duty Land Tax (SDLT) surcharge is on the rise, according to a recent investigation by The Telegraph.

HMRC has issued a warning advising investors to steer clear. These so-called ‘stamp duty schemes’ have been on the rise in recent months – many of which are illegal and could see landlords facing prosecution.

These schemes have gained prominence following George Osborne’s introduction of an additional 3 per cent SDLT surcharge on second home purchases in the Budget. Many investors and critics have labelled the surcharge ‘unfair’ since it was first implemented in April.

HMRC have spoken out against landlords who might be tempted to take advantage of legal loopholes to avoid paying the charge, warning “They [landlords] will be much worse off than if they had just paid the right tax at the right time, especially when they have paid fees to the promoter of the avoidance scheme, which are not refundable”

An HRMC statement read: “These kinds of schemes don’t work. We have investigated thousands of cases since 2013, bringing in over £200 million in Stamp Duty Land Tax. These individuals have had to pay 100 per cent of the original tax due, plus interest.”

If you’re a landlord, don’t be tempted to use an illegal tax scheme. Instead, speak to an expert to make sure your financial affairs are as tax efficient as possible and compliant with legal requirements, otherwise you could face strict penalties and even criminal prosecution.

Ormerod Rutter Chartered Accountants have a specialist team with experience of helping landlords structure their affairs in the most tax efficient way possible. If you would like further information about how the changes will affect you, please contact us to arrange a free initial consultation.

Self-employed pensions – are you saving enough?

Recent reforms to the state pension system could give millions of self-employed people more money from the Government to help them through retirement.

As of 6 April this year, people who work for themselves will be able to qualify for the full flat-rate weekly payment of £155.65, provided they have made sufficient National Insurance contributions.

Under the old system, the amount self-employed people could receive was limited because they were unable to get the top-up “state second pension” payments that were made to many employees.

This is welcome news which could see millions of self-employed people better off in their retirement, but the news is not so good when it comes to private pensions.

A record number of people in the UK are becoming self-employed or starting their own business. According to the Office for National Statistics, the number has increased by 182,000 to just under 4.7 million.

However, there are growing concerns that this new generation of entrepreneurs are not saving enough for their retirement. A new report by the Federation of Small Businesses shows that less than a third (31%) of self-employed people are saving into a private pension.

The number of people who pay into pensions and the typical contribution rate have both dropped sharply in the wake of the financial crisis and recession.

Someone starting to save £320 a month at age 45 would end up with a pension fund worth around £92,000 when they retire at 67. This would give an income of around £4,000. Added to the £6,000 from the state pension would only generate an annual pension of £10,000, which is unlikely to be enough for a good standard of living for most people.

Research from the government-backed Money Advice Service suggests that people need pensions worth somewhere between 50% and 80% of their pre-retirement salaries.  As it currently stands, self-employed people are unlikely to get anywhere near this target level of retirement income.

Many experts believe that the Government should introduce some form of automatic pension saving for the self-employed. Auto enrolment is currently being rolled out for employees, so the vast majority of people will join their company’s pension scheme and benefit from regular contributions from their employer too. However, this will have no impact on self-employed workers in its present form.

Although self-employed people won’t benefit from the employer contributions, there is still a big tax incentive to save into a pension.

Any payments you make will automatically be given tax relief at the basic rate (20%), which means that every £80 you pay into your pension is topped up to £100. For higher-rate taxpayers, a further £20 can be claimed back through the self-assessment system – this means £100 of pension only costs £60.

Tax amnesty for second incomes

HMRC is offering individuals a tax amnesty when they come forward and communicate previously undisclosed second incomes, in return for reduced penalties.

This is one of a number of tax amnesties HMRC has offered over recent years. Penalties are normally substantially reduced if a voluntary disclosure is made under these schemes, instead of penalties of up to 200% of any tax owed if the tax office discovers the income itself.

The second income amnesty is open to individuals in employment who have an additional untaxed source of income.

Examples of second income could include:

  • Fees from consultancy or other services such as public speaking or providing training
  • Payment from organising events and parties or providing entertainment
  • Income from activities such as taxi driving, hairdressing, providing fitness training or landscape gardening
  • Profits from buying and selling goods, e.g. regular market stalls, car boot sales etc.

It’s also important to be aware of the point at which HMRC considers your hobby to be a business. More information can be found in this blog post.

If you are considering making a disclosure, it is strongly recommended that you seek professional advice. For a free, confidential initial consultation, please contact us and speak to Anthony Middleton today.

More information is available on the HMRC website.

Date mistake in tax enquiry could cost HMRC

A man accused of avoiding more than £650,000 in tax this week won an appeal against HMRC after it emerged that the tax authority had put the wrong date on an enquiry note.

A tribunal ruled that the error – which concerned a reference to a non-existent tax year, was sufficient to invalidate the document.

The case related to a taxpayer alleged to have taken part in a tax avoidance scheme in the financial year to April 2009. Two years later, HMRC sent the correspondence to inform him that his return was being examined.

The tax authority had tried to argue that the date given was only one day out, and should therefore be classed as a minor error – not serious enough to invalidate the notice.

But the argument was refuted by the tribunal judge Jayne Bailey.

“The return which was described in the letter of 17 January 2011 is for a tax year which does not exist” she said.

“We conclude that the disputed notice of enquiry is not in substance and effect in conformity with the intent and meaning of the Taxes Acts.”

The case is fairly unusual and some experts have voiced their surprise that HMRC did not check the letter more thoroughly, given the sum of money involved.

A HMRC spokesman said they were disappointed with the tribunal’s decision and would consider an appeal.

“HMRC wins around 80 per cent of avoidance cases that are taken to litigation by the taxpayer and many more settle with us before reaching that stage” they added.

“We tackle avoidance wherever we see it and litigate where necessary to ensure schemes are defeated and the tax due is paid.”

Food firms urged to claim tax credits for research and development

Food manufacturers are being urged to claim back tax relief for research and development work after HMRC figures reveal that only 1% of potentially eligible UK firms in the industry are currently doing so.

There is a common misconception that recovery of R&D costs is just for the science industries and blue chip companies, but in reality small and medium-sized enterprises across sectors accounted for more than 80% of all UK R&D claims in 2014.

In 2012, the UK Treasury paid £1.2 billion to innovative UK companies through R&D tax credits. This is a government initiative designed to reward those innovative companies at the forefront of growing the economy.

When HMRC pay out an R&D tax credit they are looking for:

  • An improvement to a core process, product or service
  • An element of risk and uncertainty in the outcome

The food industry is full of innovation, whether it’s a factory developing new ways of storing, packaging or preserving food or a farmer experimenting with improvements in their processes in rearing animals.

Innovation does not have to happen in a laboratory to qualify. If you can identify innovation in your business, then you can claim R&D tax credits.

R&D tax credits are a specialist area and it may be worth speaking to R&D tax advisors who can help you identify a claim and maximise it so you receive the most benefit possible.

Our sister company, Templeton R&D, specialises in R&D tax credits and can process your claim with minimal disruption to your business. Contact us today to find out if you’re eligible for this valuable tax relief.

UK businesses sending tax payments to incorrect HMRC bank account

Businesses across the UK have been unable to pay HMRC millions of pounds in corporation tax and VAT after HMRC left them with incorrect bank details to make their payments.

The news comes after HMRC changed its bank details in February for firms which pay using International Bank Account Number (IBAN) and failed to inform many businesses of the changes.

HMRC issued an employer bulletin when they implemented the change claiming that all affected firms would be notified, but it has recently emerged that many firms were left completely in the dark.

The Daily Telegraph has now reported that a number of substantial payments from nationwide firms have ‘bounced’ or ‘remain uncollected’ with many businesses now facing late payment penalties and general confusion regarding how to settle their debts.

Unlikely VAT dispute over adult colouring books

The recent craze for adult colouring books has triggered an unlikely VAT dispute.

Print books and children’s colouring books are currently exempt from VAT, but HMRC is reportedly challenging the idea that adult colouring books and dot-to-dot titles, where some pages can be pulled out, can be classed as a book. It is also understood that HMRC believes adult colouring books could be classed as ‘uncompleted’ books, which currently attract the full 20% rate of VAT.

It is reported that HMRC is pushing for VAT to be introduced on the sale of adult colouring books and for the tax to be applied retrospectively. This could result in publishers and retailers owing millions of pounds in uncollected VAT.

HMRC has reportedly written to several publishers requesting money owed for VAT on these colouring books after companies filed their end-of-year returns.

Since VAT was introduced in Britain in 1973 children’s books, which includes “sample pictures for copying or outlines of pictures for colouring, painting or drawing” have been zero-rated. HMRC is arguing that these books are clearly marketed for adults, and so should be charged, and are now in talks with publishers to try and resolve the issue.

The trend for adult colouring books has been credited for boosting sales at many high street book shops. The Publishers Association, which measures sales within the total UK book and journal publishing industry, reported that book sales grew by 0.4pc last year to £2.8bn – its first rise for four years.

Michael O’ Mara, chairman of the country’s biggest publisher of colouring books, confirmed he had been told by HMRC that “they had ‘recently decided’ to standard-rate for VAT so called adult colouring books”.

“It is our view that this decision flies in the face of the relevant legislation. We and other publishers, following the lead of the Publishers Association, are fighting this decision and we hope that HMRC, on reflection, recognize that they have got this wrong”, said Mr O’Mara.

The Treasury confirmed that it was meeting with the industry later this month.

“There’s been no change to the rules”, a HMRC spokesman said. “Children’s colouring books are entirely free of VAT and there are no plans to change that. We are meeting with publishing representatives shortly to discuss the VAT treatment of adult colouring books.”

HMRC set to take tech expansion to next stage

Following ongoing attempts to ‘make tax digital’, HMRC has now announced plans to invest £215m in managed desktop services and cloud collaboration.

The ambitious plans, which could see more dramatic changes to HMRC systems, extend to the building, deployment, maintenance and support of user devices such as videoconference equipment, apps and desktop technology – which could all become commonplace in the tax world in coming years.

HMRC is hoping to outsource the production of the technology at an estimated cost of £200m.

It also hopes to invest around £15m in cloud computing and sharing solutions, which HMRC hopes will “transform working practices and improve current processes”.

“Transitioning to a cloud-based solution is expected to yield material commercial benefits, the adoption of which will simplify the existing desktop environment,” said a prior information notice published by the taxman.

HMRC said that it is considering a “wholesale transition” to cloud-based collaborative solutions in the future – which could mean another dramatic tech shake-up of tax systems in coming years, to complement recent plans to ‘make tax digital’.

HMRC claimed that “is currently undergoing a significant period of transformation,” and taxpayers should be wary of how any potential changes could affect them.

Save tax on your life insurance with Relevant Life Cover

If you’re a business owner employed by your business, there is a tax-efficient alternative to purchasing private life insurance and critical illness policies that will save you 20% on the cost of your premiums, called Relevant Life Cover.

Relevant Life Cover essentially works in the same way as life insurance. Should the person insured die whilst in the employ of the company, then it will pay out to their beneficiaries.

The premiums on Relevant Life Cover are paid for by the business, not the individual, meaning they are eligible for tax savings as a trading expense. This also means that no personal tax is paid as it may be if you pay for the policy personally.  They are also not treated as a P11D benefit, so there aren’t any implications on the amount of personal tax paid.

Relevant Life Cover is sometimes used as part of a benefits package for key employees, and is particularly well suited to directors/owner managers who work inside a business. However, shareholders who aren’t directly involved in the business are unable to take out a Relevant Life policy.

Up until recently for a Relevant Life plan to be paid through a business it must only cover the death of the policyholder and could not include critical illness cover. However, a new product has now been launched that includes life and critical illness cover, which pays out should the policy holder be diagnosed with a serious illness.

This is the first policy of its kind and provides significantly enhanced protection over existing Relevant Life Cover policies. It is expected that other providers will launch similar competing products in the near future too.

If you would like a quote or to discuss the potential tax savings of paying for life insurance through your business, please contact usfor more information.

New national minimum wage rates for 1 October 2016

The Government has announced new national minimum wage rates for 1 October 2016.

The new rates are:

  Current rateRate from 1 October 2016
Apprentices (aged 16 to 18 and those aged 19 or over in their first year of Apprenticeship)£3.30PH£3.40PH
Under 18£3.87PH£4.00PH
18 to 20£5.30PH£5.55PH
21 and over£6.70PH£6.95PH

The new National Living Wage of £7.20 per hour for employees aged 25 and over came into force on 1 April 2016, replacing the national minimum wage for that age group.

All employees have a legal right to the national minimum wage. HMRC are currently targeting employers who have not been paying their employees correctly with the National Minimum Wage Campaign.

Employers who have made any errors or underpaid their staff are encouraged to come forward voluntarily to disclose any mistakes they may have made and pay their employees any arrears owed.

Voluntary disclosures made through the campaign will result in more favourable terms. Those who do not do this and are caught by HMRC face penalties of up to 100% of what they owe (up to a maximum of £20,000 per employee) and will be publicly names on a list of employers known to not pay national minimum wage.

With the national living wage now in effect and set to rise to £9 an hour by 2020, and increases to the national minimum wage due to come into force later this year, now is the perfect time to review your systems and plan the necessary alterations.

If you’ve made any errors and you’re considering making a disclosure under the National Minimum Wage campaign or any HMRC campaigns, you will need to notify HMRC and complete a disclosure form. It is highly recommended that you seek professional advice to guide you through this process.

Our expert team can help you plan for the future, deal with HMRC and ensure you’re in the most tax efficient position possible. Contact us to arrange a free initial consultation today.

‘Accidental landlords’ at risk warns new research

Over half of new Buy To Let mortgage applicants are unaware of the mortgage tax relief changes, according to new research by Direct Line for Business. Accidental landlords were found to be the most at risk by being unaware of these new regulations.

The survey conducted amongst mortgage brokers across the UK revealed that 62% of applicants were either unaware of the changes to mortgage tax relief or the EU’s Mortgage Credit Directive (MCD), that means changes which could impact their ability to secure a mortgage.

This lack of awareness rises to 71% amongst ‘accidental landlords’ who rent out a property due to unforeseen circumstances, such as being unable to sell, or inheriting a home.

Changes to the mortgage tax relief are set to be phased in from April 2017, with landlords no longer able to deduct mortgage interest payments before calculating their tax bill. Instead, there will be a basic rate allowance for these financial costs.

New EU legislation on mortgages coupled with the Government’s increase in buy-to-let taxation could significantly affect the buy-to-let market. The changes don’t come into effect until April 2017, but it’s important to start planning now if you expect to be affected. The Budget 2016 also included several key changes for property which might affect you.

To make sure you’re in the most tax efficient position possible, contact our specialist property team today.

What does the new tax year mean for small business?

The start of April brings with it the new tax year, and this time round there’s several changes that will affect small businesses. We’ve put together a handy summary of the main points to be aware of.

VAT Threshold

On 1 April the VAT registration threshold changed from £82,000 to £83,000. The de-registration threshold also changed from £80,000 to £81,000.

This means that you won’t need to register for VAT until your business makes sales of £83,000 or more during any 12 month period.

If you’re currently registered for VAT, you’ll be able to de-register if you make sales of £81,000 or less during any 12 month period (and you’re confident that this will continue to be the case in the following 12 months).

Tax Dividend Changes

The way dividend income is taxed will change on 6 April and will have a significant impact on hundreds of thousands of small business owners across the UK. Every individual will now receive a £5,000 tax-free limit for dividend income. Dividend income of over £5,000 (and after using up any remaining personal allowance) will then be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate tax payers and 38.1% for those on the highest incomes who pay additional rate income tax.

Employment Allowance

The Employment Allowance is a reduction in employer’s National Insurance which was introduced in 2014 and is currently set at £2,000 for most employers. On 6 April the allowance will increase to £3,000, but company directors who are the only employee of their company will no longer be eligible.

If you were eligible in previous years, you may no longer be eligible from 6 April onwards. If you’re unsure whether you will continue to qualify for the Employment Allowance, check the guidance on excluded companies here.

Small Business Rates Relief

Small Business Rates Relief has doubled for the past 2 years, resulting in 385,000 SMEs not being required to pay business rates since 2014. In the Budget 2016 it was announced that from April 2017 600,000 small businesses will be taken out of business rates and 250,000 firms will pay less. Although this won’t come into effect immediately, it’s something to consider in your planning for the year ahead.

The new tax year brings many other changes with it, including the introduction of National Living Wage for workers over 25, changes to PAYE and benefits in kind and an increase in the personal allowance for all taxpayers.

If you’d like more information about how the new tax year will affect you and your business, contact us today.

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