2020 Innovation Training Limited Monthly Tax Webinar Martyn Ingles - - PDF document

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2020 Innovation Training Limited Monthly Tax Webinar

Martyn Ingles 22 June 2015

• Queen’s Speech – future tax legislation
• HMRC and other recent tax developments
• Recent tax cases
• Pension planning - income over £150,000
• Proposed IHT family home allowance

Agenda

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The Queen’ Speech

Summer Budget and Future Tax Legislation

• “Tax Lock” – No increases in income tax, NIC,
• r VAT – in Finance Bill and NIC Bill
• Personal allowance = NMW x 30 hours p.w.
• Scotland Bill – delegate powers to set Scottish

income tax rate, air passenger duty, aggregates levy, share VAT revenue

• Full Employment and Welfare Benefits Bill –

freeze tax credits for 2 years from 2016

Queen’s Speech – Tax and Benefits

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• Measures in Conservative Party manifesto to be

included in Summer Budget? - 8th July

• Pension Tax relief restricted if > £150,000
• IHT – additional IHT relief for family home
• Abolition of Class 2 NIC and merger with Class

4 – increase self-employed rate to 12%?

Queen’s Speech – not mentioned

• Enable the Scottish Parliament to:
• set the thresholds and rates of income tax on

earnings

• keep the first ten percentage points of standard

rate VAT raised in Scotland (and 2∙5% reduced rate)

• take responsibility for Air Passenger Duty and

the Aggregates Levy

Scotland Bill – Scottish Tax Powers

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• 1. a Scottish Parliamentarian; or
• 2. have a “close connection” to Scotland, either
• having only a single “place of residence”,

which is in Scotland; or

• where more than one “place of residence”,

their “main place of residence” in Scotland for at least as much of the tax year as it has been in another part of the UK; or

“Scottish Taxpayer”

• 3. where no “close connection” to Scotland (or

any other part of UK) exists – through day

• counting. If the individual spends at least as

many days in Scotland as elsewhere in the UK. HMRC provide guidance - similar to UK statutory residence test

“Scottish Taxpayer”

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HMRC announcements and other developments

• Qualifying political party:
• One member elected at General Election and

>150,000 votes cast for party

• 11 political parties now qualify
• Gifts during lifetime and on death exempt
• NB – no relief for donations against business

profits

UKIP Donations now exempt from IHT

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• Latest update May 2015 to include Auto-Enrolment
• Legal agreement between employer and employee
• To change terms of employment contract to reduce

entitlement to cash pay in return for non cash benefit

• Signed before the arrangement takes effect
• Cannot reduce cash earnings below NMW
• Can affect certain State benefits e.g. tax credits
• Typically childcare vouchers, additional pension

contribution

Salary Sacrifices – Updated HMRC Guidance Salary Sacrifice Examples

Salary Sacrifice Non cash benefit Tax consequence

£350 a week £50 Childcare vouchers £300 subject to PAYE, NIC £350 a week £100 Childcare vouchers £250 subject to PAYE, NIC Excess over £55 taxable £5,000 bonus £5,000 Employer pension contribution No PAYE or NIC due on pension contribution

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• £2,000 allowance introduced 2014/15
• Set against employer’s NIC
• Numerous exclusions – connected companies etc.
• “Scheme” used by employment agencies to set up

multiple companies with different director/shareholders

• HMRC view is that it doesn’t work
• Included in latest updated list of HMRC “Spotlights”
• Should have been disclosed under DOTAS
• Potential £1 million fine for promoter of scheme

Employment Allowance Scheme in HMRC Spotlight

• Cannot set against NIC on deemed salary (IR35)
• Employed for personal, household or domestic work,
• If already claim the allowance through a connected

company or charity

• If carry out functions either wholly or mainly of a public

nature (unless you have charitable status), for example:

• NHS services
• General Practitioner services
• the managing of housing stock for a local council

Employment allowance - exclusions

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Advisory Fuel Rates – 1 June 2015

Engine Petrol Diesel LPG < 1400 cc < 1600cc 12p 10p 8p 1400–2000 1601 - 2000 14p 12p 9p > 2000 cc 21p 14p 14p

• Applies to UK residential property owned by

companies, partnerships with corporate members, and collective investment vehicles

• ATED rates increased – previously applied to properties

valued over £2 million at 1 April 2012

• Starts at £1m MV for 2015/16 - £7,000 p.a.
• and £500,000 MV for 2016/17 (value at 1 April 2012)
• Numerous reliefs but still need to file a return

Annual Tax on Enveloped Dwellings (ATED)

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• Even if a relief applies still need to file a return:
• Property rental businesses
• Dwellings open to the public
• Property developers
• Property traders
• Dwellings used for trade purposes
• Farmhouses
• New ATED Relief Declaration Return

Do we need to file an ATED return

• Normal £100 late filing penalty to be waived where

taxpayer provided a reasonable excuse

• HMRC will not challenge the excuse and focus on

persistent late filers and tax evasion/avoidance

• Reasonable excuses:
• Death of partner shortly before the deadline
• Unexpected stay in hospital
• Computer software problems when preparing return
• HMRC online service issues
• Postal delays that couldn’t be predicted

Waiver of penalties for late 2013/14 returns

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Recent Tax cases and Tribunal decisions

• Porter (t/as Crafty Creations) v HMRC (2015) FTT
• Ms Porter was late with her 2012/13 SA tax return
• HMRC online service issues – unable to log onto HMRC

website on 29 January 2014

• Telephone and wrote to HMRC
• HMRC issued new login code and she filed online 5

March 2014 => £100 penalty

• FTT allowed the appeal – reasonable excuse
• She was doing her best to comply with the legislation

Reasonable Excuse for late Return?

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• Automation Ltd v HMRC (2015) FTT
• Understated output tax for 3 successive quarters – just
• ne months outputs included
• Director did not notice the error! = careless
• Appealed to Tribunal to have penalty suspended – but

submitted late

• Late appeal allowed, but no suspension as there had

been an earlier suspended penalty due to earlier careless error

Appeal against Suspended VAT penalty

• Marketing Lounge Partnership Ltd v HMRC (2015) FTT
• Supply of promotional services, printed brochures,

website and other services

• Argued that brochures should be zero rated
• HMRC argued that whole service should be standard

rated as supply of promotional services

• Further consideration of Card Protection Plan case
• Is there economically a single service? If so - ancillary

supplies treated same as principal supply

• Tribunal - a single standard rated supply

VAT – Single or Multiple Supply Again

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• French Connection Ltd v HMRC (2015) FTT
• FC supplied in-store staff with clothes from current

range up to stated limit

• If they left they were charged 30% of the value
• FC did not account for VAT unless the employee left
• HMRC argued that VAT should be based on cost where

annual value > £50

• FC argued that these were “overalls/ uniform”
• Tribunal – taxable supply, VAT due on cost to

employer

VAT – Value of Staff Clothing

• Mohammed Azam v HMRC (2015) FTT
• Mr A owned staff agency (Easy Recruitment Services Ltd)
• Supplied staff to Stubbins – no PAYE or NIC on wages
• Easy told HMRC that staff employed by sub-contractor
• Also failed to account for VAT output tax
• HMRC assessed dishonest evasion penalty on Mr A
• Few records available, £587,000 paid by Stubbins and

large cash withdrawals > £500,000

• Mr A had sole and complete control of bank account
• Tribunal – dismissed appeal – dishonest evasion

Dishonest Evasion – Director Responsible?

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• Vaughan-Jones & ors v Vaughan-Jones & ors (2015)
• Appeal to High Court on validity of D of V
• Entered into within 2 years of death
• Signed by all beneficiaries under original Will/

Intestacy

• Stands in place of original Will
• Send to HMRC (Capital Taxes Office) within 6

months

• Effective for CGT and IHT (but ineffective for IT)

Deeds of Variation effective for IHT, CGT?

Tax Planning Opportunities

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• Conservative Party manifesto proposal
• Tax relief restricted for those earning over

£150,000 p.a

• Normal £40,000 annual allowance restricted by

£1 for every £2 over £150,000

• £10,000 annual allowance if income >£210,000
• Increase contributions before 8 July 2015?

Pension relief to be restricted for high earners Pension tax relief restriction

Earnings Annual allowance Tax relief (max 45%) £150,000 or less £40,000 £18,000 £170,000 £30,000 £13,500 £190,000 £20,000 £9,000 £210,000 or more £10,000 £4,500

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• Annual allowance from £40,000 (was £50,000)
• Limit applies to employee and employer input
• Carry forward unused allowance 3 years
• Excess taxed at highest marginal rate
• Lifetime allowance £1,250,000 (£1,000,000 from 2016)
• Tax relief continues at highest rate

Current Pension rules

• Sybille pension input £60,000 in 2015/16

Set off firstly against £40,000 2015/16 allowance and then £20,000 unused allowance from 2012/13, £5,000 lost? Pay further £5,000 before 6 April 2016

2015/16 – 3 year carry forward

2012/13 2013/14 2014/15 Annual allow £50,000 £50,000 £40,000 Pension input £25,000 £30,000 £32,000 Unused allow. £25,000 £20,000 £8,000

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• Additional £175,000 IHT relief for family home
• No IHT on transfer of family home <£1,000,000

= (£325,000 + £175,000) x 2

• Like NRB transferred to surviving spouse if

unused

• Taper relief by £1 for £2 over £2,000,000 before

IHT reliefs – e.g. BPR, APR

• May need to review client’s Will’s and estate

planning – wait until 8 July 2015

Proposed IHT Family Home Allowance

• Taper relief by £1 for £2 over £2,000,000 before

IHT reliefs – e.g. BPR, APR

• Family home £900,000, business worth £5m

would mean no Family Home relief!

• Couple with £2m home plus £1m savings
• wned jointly = £1,500,000
• Leave half share to spouse on first death
• On second death, estate = £3m, no relief

Proposed IHT Family Home Allowance

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THE END

Any Questions?