Agenda • MTD for VAT – starts April 2019 – regulations published • Other HMRC announcements • “Simple Assessment” • Salary Sacrifices • OTS review of depreciation/ capital allowances • Recent tax cases • McQuillan case – 5% OSC for entrepreneurs relief
MTDfB delayed – 13 July 2017 • They finally listened! • 2020 at earliest for quarterly updating by traders and landlords (IT and NICs) • But VAT quarterly updating from 2019 • 12 month pilot of new VAT reporting • More time for testing and software development • Businesses below VAT threshold now exempt
Quarterly Updating for VAT • VAT quarterly updating starts 2019 • Aren’t we doing that already? • No – just filling in 9 boxes online – 87% are entered manually • From 2019 will no longer be able to keep manual records for VAT if above registration limit • So digital record keeping for most businesses will be required from 2019 not 2020 • Property businesses (not VAT registered) in 2020
Quarterly Updating for VAT – Problems? • VAT quarterly updating starts 2019 • Also when Brexit happens – EU imports/exports? • How will we deal with partial exemption? • Capital goods scheme? • Need to adjust accounts figures/ apportionments • Retail schemes? • Second hand margin scheme?
MTD for VAT – Secondary Legislation • Software must be capable of: • keeping records in a digital form as required by the regulations • preserving digital records in a digital form as required by the regulations • creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally • providing HMRC with VAT data on a voluntary basis • receiving information from HMRC via the API platform in relation to a relevant entity's compliance with obligations under the regulations
MTD for VAT – Adjustments • change of rate credit notes • adjustments for use of an approved estimation procedure • retail scheme annual adjustments • partial exemption annual adjustments • change of use input tax adjustments • capital goods scheme adjustments for subsequent intervals • bad debt relief claims and associated input tax repayment where consideration not paid • Only the total for each type of adjustment will be required to be kept digitally not details of the calculations underlying them.
HMRC Announcements and other developments 8
End of Self Assessment tax Returns? • Budget 2015 proposal - abolish during (this) Parliament • Replace with new online tax account • Pre-populated with data from employers, banks, pension scheme (RTI) State Pension (DWP) • “Simple Assessment” starts 2017/18 for many pensioners and certain PAYE customers • 60 days to challenge if incorrect
New Rules for Salary sacrifices • Where a BiK is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer NICs, even if it is normally exempt from tax and Class 1A NICs • The greater of: • the amount of salary sacrificed; and • the cash equivalent set out in statute (if any) • Note transitional rules – if in place at 5 April 2017 • 5 Exceptions…
Limiting tax relief on Salary sacrifices • 5 Exceptions: • employer pension contributions; • employer-provided pension advice; • employer-supported childcare and provision of workplace nurseries; and • cycles and cyclist's safety equipment • Ultra – Low (< 75g) CO2 emission cars
HMRC beat Rangers at Supreme Court
EBT Loan Scheme COMPANY TRUST LOANS Taxable Sub Trusts
Spotlight 41 – EBTs and similar schemes • HMRC's view is that principle applies to a wide range of disguised remuneration tax avoidance schemes, no matter what type of third party is used. This includes: • EBTs – including variants within these schemes where no loans are made from the EBT but instead the funds remain in, or are invested by, the trust • disguised remuneration routed through employer- funded retirement benefit trusts (EFURBS) • a range of contractor loans schemes
Spotlight 41 – EBTs and similar schemes • HMRC intends to use Rangers decision to take action against many of the disguised remuneration schemes • This will include HMRC considering, in appropriate cases, whether to issue follower notices and, if relevant, associated accelerated payment notices . • It will also include accelerating litigation where users choose to continue challenging HMRC on their scheme.
Tax implications of FRS 105 • Consider tax implications of accounting changes: • Transitional adjustment arising on conversion to FRS105 • Accounting under FRS105 going forward • Applies to a/c periods commencing on or after 1.1.2016 • Comparatives to be restated (B/fwd balances)
Tax implications of FRS 102/105 • HMRC produced useful Overview Paper January 2014 • Consider tax implications of accounting changes: • Financial instruments/ hedging transactions => Fair value • Business combinations – separate intangibles* • Lease incentives • Employee benefits - Holiday pay accrual • Goodwill and intangibles
Accounts and tax • “Tax legislation for companies requires that the profits of a trade are calculated in accordance with generally accepted accountancy practice, subject to any adjustment required or authorised by law in calculating profits for corporation tax purposes” • Section 46 Corporation Tax Act 2009 • Also section 25 ITTOIA 2005
Accounts and tax • General rule: Tax treatment follows accounting treatment, GAAP, unless tax law overrides • Main exceptions/overrides: • Tangible fixed assets – capital allowances • Share based payment • Pension costs • Provision for bonuses/ commissions
Accounts and tax – allow depreciation? • Tangible fixed assets – disallow depreciation • Claim capital allowances instead - complicated • OTS review of corporation tax • Why not allow accounts depreciation? • Allowed for intangibles • Only a timing issue • Small businesses worse off - AIA
Accounts and tax – Gift Aid • Charities with trading subsidiaries • Gift Aid profits up to charity to eliminate CT charge • Change to FRS 102 • Proposed amendments would allow the tax effects of gift aid payments from subsidiaries to their charitable parents to be taken into account at the reporting date, where it is probable that the payment will be made in the nine months following the reporting date.
Facilitation of Tax Evasion • The Facilitation of Tax Evasion Offences (Guidance About Prevention) Regulations, SI 2017/876 • From 30 September 2017 • HMRC have produced guidance on the “reasonable prevention procedures” relevant bodies can put in place to prevent those acting in the capacity of an associated person from committing the • New corporate offences of failure to prevent facilitation of tax evasion.
Recent tax cases 23
Entrepreneurs’ relief – Shares and Securities • Shareholder conditions: • Officer or employee • 5% of OSC and voting rights Min 1 year • Company conditions: • Trading company
Entrepreneurs’ Relief – Castledine case • Mr C held 5% of company’s ordinary shares • The company had also issued a number of deferred shares – no rights to dividends, no votes, limited rights to capital on a winding up = worthless • Should these shares be considered as ordinary share capital? If so Mr C only had 4.9% • Held: deferred shares are ordinary shares • Issued for a genuine commercial purpose • As < 5% held by Mr C no entrepreneurs’ relief
Entrepreneurs’ Relief – McQuillan case • Mr and Mrs McQ each held 33% of company’s ordinary shares (total 100) • The company had also issued 30,000 redeemable non- voting shares – representing a loan to company • No voting rights, no dividend rights, redeemable at par • Should these shares be considered as ordinary share capital? If so Mr and Mrs McQ held <1% • FTT: the redeemable shares not ordinary shares • UTT: consider all shares unless have fixed return • No entrepreneurs relief
No IHT BPR for holiday cottage business
No BPR for holiday cottage business Services included: • Laundry facilities on site, • Free wi-fi, • Handyman on site, • Children's sand pit, surf boards, fishing nets, croquet • OS maps of local area, • Newspapers/milk delivered, • Change of bed linen during stay,
No BPR for holiday cottage business • Executors of Mrs Marjorie Ross • R owned 2/3 of holiday letting business worth £1.5m • Cottages in Cornwall used by visitors and staff at Port Gaverne hotel (formerly also owned) • Also house in Weymouth • Extensive services provided in addition to hire of cottages • Furnished holiday lets for IT and CGT • But not BPR for IHT = business mainly of making or holding of investments
When is a van not a van?
When is a van not a van? • Payne and Garbutt and Coca Cola v HMRC [2017] UKFTT • Employees supplied with vehicles with two rows of seats and load carrying capacity • If van/commercial vehicle lower benefit than cars • VW Kombi vans – not commercial vehicles • Vauxhall Vivaro vans were! • Clear as mud! • Double cab pick ups?
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