Changes to VAT Place of Supply Rules for Digital Services
From 1 January 2015 the taxation location of digital services supplied to private individuals (B2C) is set to make a significant change from the location of the supplier of these services, to the location of the individual consumer purchasing them.
Known as the European Union (EU) VAT place of supply of services rules, these new changes will specifically relate to the sale of broadcasting, telecommunication, and digital services to individual consumers within the EU.
If you only sell digital services to other registered businesses (B2B), these changes do not apply to you. If you supply these services to both B2C and B2B customers, these changes only apply to your B2C sales.
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Don’t Forget Your VAT Return and Payment Deadline
It’s understandably in HMRC’s best interest that you submit your VAT Return (and any necessary payments clear their account) by your VAT payment deadline date.
Though HMRC show leniency to first-time offenders, especially if you’re turning over less than £150,000 a year, you’ll find yourself having to pay penalty charges should you continue to default on your payments in the twelve-month period following a default.
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Annual Investment Allowance Increased to £500,000
Announced as part of Budget 2014 back in March of this year, Chancellor of the Exchequer George Osborne has once again increased the Annual Investment Allowance (AIA) temporarily between 1 April 2014 (for corporation tax, 6 April 2014 for income tax) until 31 December 2015.
In a bid designed to stimulate business investment across the economy by increasing the time businesses have to make relatively heavy investments in plants or machinery, providing valuable assets for years to come, Mr Osborne doubled the AIA to £500,000, a figure that already saw a major increase just two years previous, as the Chancellor noted during his announcement:
“I want to do something today that helps all businesses invest. In 2012 I increased the Annual Investment Allowance ten-fold to £250,000. This generous allowance was due to expire at the end of this year – and all the business groups have urged me to extend it.”
The Social Investment Tax Relief Scheme Explained
In a move designed to help social enterprises access new sources of finance, the Government has unveiled the social investment tax relief scheme, encouraging individuals to support social enterprises by investing funds in qualifying social organisations across the country.
Announced as part of Budget 2014 on 19 March, Chancellor of the Exchequer George Osborne claimed that individuals investing in qualifying social organisations in this manner will receive a reduction of 30 percent of their investment in their income tax liabilities for the year in question.
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Settlement Opportunity for Contractor Loans
HMRC is currently offering a settlement opportunity, available until 9 January 2015, for the users of contractor loan tax schemes for tax years up to 5 April 2011.
Commonly known as a tax-avoidance arrangement, a contractor loan scheme is a tax scheme whereby, according to HMRC, “…non-UK employers have paid you untaxed income or given you a loan instead of part of your salary.” Users who agreed to be paid in this way argue that being paid via a loan means they’re not subject to income tax, however, HMRC views these loan schemes as a “particularly aggressive” method of tax avoidance.
Speaking on the issue of tax avoidance, and the settlement opportunity currently being offered, Jennie Granger, Director General for Enforcement and Compliance at HMRC said, “Many people regret ever getting involved with complex aggressive tax avoidance schemes and HMRC is providing an opportunity for contractors to come forward and straighten out their tax affairs.”
Your Eligibility
Designed to allow you to “bring your tax affairs up to date on the best possible terms,” anybody who has used a contractor loan scheme can take up this settlement opportunity from HMRC unless you’re currently:
- Subject to HM Revenue & Customs' (HMRC's) criminal investigation policy,
- Subject to civil investigation of fraud procedures,
- A UK employer who has used an Employee Benefit Trust and should being using the employee benefit trusts settlement opportunity.
More details can be found on the settlement opportunities page on HMRC’s website surrounding individuals who can and can’t take advantage of this settlement opportunity. Needless to say, if you’re unsure whether you’re eligible to use this opportunity, speak with your accountant before contacting HMRC directly.
Know What You Owe
Whether you (or your accountant) contact HMRC to take part in this settlement opportunity, or you get a letter from HMRC to let you know they believe you owe them unpaid income tax due to your use of a contractor loan tax scheme, HMRC may estimate the income tax you owe based on typical rates.
For this reason you should make a point to check your personal bank statements and records to let HMRC know of the exact amounts you received via your contractor loan tax scheme. To know how much you owe prior to agreeing to settle, complete form DO3 to request a calculation.
Agreeing to Settle
If you agree to settle, the terms of any signed agreement will become legally binding between both you and HMRC, and will not be affected by any further legal proceedings going forward.
Your settlement will include late payment interest for income tax payments HMRC believe you should have paid, but by coming forward as part of this opportunity you will not be liable to any penalties (however, if any of your loans came from a trust you may have to pay Inheritance Tax on the amount due).
Interest will add up from your original income tax due dates until the moment you pay.
Refusing to Settle
If you choose not to take advantage of this settlement opportunity HMRC will continue in their efforts to ensure that anybody who has previously used a contractor loan tax scheme to avoid paying income tax eventually pays back what they owe, with interest and National Insurance Contributions (NICs), alongside significant monetary penalties.
Interested in a Settlement Opportunity for Contractor Loans?
To speak with a professional to discuss the settlement opportunity for contractor loans, or anything else, contact us today on 020 7129 1199 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.
Looking for Accountants in London?
Say Hello to Our New Central London Office
Whether you’ve been a client of ours for years, or you’re looking for accountants in London and have considered getting in touch with us for some time, we’d like to take this opportunity to announce our latest brand-new office, ideally located right in the very heart of central London.
Our new address is below:
Tax Agility
17 Cavendish Square
London, W1G 0PH
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Tax Tips and News for September 2014
This issue … Late Filing Penalties, Redress Payments, VAT On Multi-products, Travel Question, September Questions and Answers, September Key Tax Dates
Late Filing Penalties
From 6 October 2014 the HMRC computer will automatically issue you with a penalty if you submit your full payment submission (FPS) under RTI "late", or don't submit it at all for a month in which you paid your employees.
So what makes the FPS "late"? HMRC say the FPS must be submitted on or before the day the employer pays the employees (the "payment date"). But is that the day the funds leave the employer's bank account or the day the employee receives the money?
In fact the "payment date" for RTI purposes is neither of these dates. It is the date contractually agreed between the employer and the employee to be the date on which the employee is to be paid. If the funds happen to be passed to the employee on an earlier or later date, perhaps due to a bank holiday, that doesn't change the "payment date". This is explained in HMRC's RTI guidance on non-banking days.
So whatever the payment date is in your employee's contract (verbal or written), that is the date that you should enter in the payroll software as the regular payment date. As long as the FPS is submitted before that regular payment date, you should be able to avoid any late filing penalty.
In fact you will be allowed one late filing per tax year without incurring a penalty. The HMRC computer will warn you that you have submitted your FPS late by sending an electronic notice sent through HMRC's PAYE online service. You may have already received some of these electronic warning messages, but at present no penalties have been issued. If you receive any more late filing warnings do let us know as the late filing penalties can be up to £400 per month for large payrolls.
Redress Payments
Was your business mis-sold an interest rate hedging product (IRHP) by its bank? The Financial Conduct Authority (FCA) has required the banks concerned to make redress payments to the wronged businesses, and some of those payments are coming through now.
If you receive an IRHP redress payment it will be made up of:
- consequential losses and basic redress; and
- interest is paid at 8%.
The bank may deduct tax at 20% from the interest element, where it is paid to an unincorporated business. Look out for such tax deductions declared in the documentation supplied by the bank. The interest and any tax deducted needs to be shown on the business tax return. However, if you trade as a company the interest should be shown as loan relationship income not as trading income.
If the original IRHP payments were treated as trading deductions for your business, the redress payment should be included as trading income in your accounts. It should be included in the accounts for the period in which it is received. If the redress is paid by instalments, each instalment should be included in the business accounts for the period in which it is received.
If the original IRHP payments were not treated as taxable deductions (perhaps because the product was treated as a hedging asset in your company accounts) the redress payment may be treated as a capital receipt. We can advise you on the correct accounting and tax treatment.
VAT On Multi-products
Most products and services are subject to standard rate VAT at 20%, but some products are zero-rated (VAT applied at 0%), while others, e.g. rent for certain buildings, are exempt from VAT. There is a limited range of products and services that attract 5% VAT.
If you supply a package which is made up of products and services which carry different rates of VAT, you need to be sure of the split to charge the right amount of VAT to your customers. The VAT man may insist that you charge VAT at the highest rate if he thinks the lower-rated product is only incidental to the total package the customer is buying. For example, a printed leaflet (zero rate) sold with a DVD (standard rate).
Say you own a large retail building and let out space within it as shops and in it are shops for antique dealers. The rent is exempt from VAT if you have not "opted to tax" your whole building. Each dealer can ask you to sell stock on their behalf if he is not present when a customer arrives. This selling service should be standard rated as an agency service.
In a similar case to this the VAT man argued that the whole charge to the dealers (rent and selling service) should be charged at 20% VAT. Fortunately, the Tax Tribunal disagreed and ruled there were two elements which should have separate VAT charges, as this is how the antique dealers viewed the arrangement.
If your products have several elements with different VAT treatments, talk to us about how your customers view the mix, and how you should split the VAT charges.
Travel Question
If you contract through your own personal service company (PSC), you will be an employee of that company and you have to obey the strict tax rules that apply to employees' travel deductions when claiming expenses from your PSC.
The first rule is that the cost of ordinary commuting cannot be claimed. This is defined as travel to a permanent workplace, which is somewhere attended regularly to perform the duties of the employment. Travel costs to a temporary workplace can be claimed, but the conditions that make a workplace 'temporary' must be met.
A place is not a temporary workplace if the employee attends for a continuous period of more than 24 months, or the attendance is expected to last more than 24 months. If your PSC takes on a contract that is expected to last say 36 months at one location, you can't claim travel costs to that location, as your workplace is not a temporary workplace from the start of the contract.
Another definition of 'temporary workplace' is one which the worker attends to perform a task of limited duration or for some other temporary purpose. HMRC has a rule of thumb that if the worker is attending a place for 40% or more of his working time, that is a permanent workplace and travel costs to the location can't be claimed.
If you work at your client's office for say 15 hours per week out of a 40-hour normal working week, your client's office is a temporary location even if the contract exceeds 24 months. Please discuss the matter of travel expenses with us before you take on a long contract, as the deductibility of the travel costs may tip the balance on whether the contract is worthwhile.
September Questions and Answers
Q. Private school fees are so expensive, can I get my company to pay the fees directly and save myself a bit of tax?
A. If the company pays a bill, such as the school fees, which you are personally liable to pay, the payment is treated for national insurance (NI) purposes, as if the company had paid it to you so the company must pay employers NI on top of the amount of the fee. However, it is a benefit in kind so it must be reported on the form P11D and the income tax you are due to pay will be included in your PAYE code for the next year. In the long run you don't save any tax or NI.
If your company contracts directly with the school to be the person responsible for paying the school fees, the tax position is slightly different. The payment must be treated as a benefit in kind and reported on your form P11D, and the company must pay class 1A NICs on the amount paid. You pay tax on the payment to the school, but not NICs.
Q. I was travelling abroad on business last month when I got terrible tooth ache. I sought emergency treatment at a local dentist and paid the bill using my company's debit card. Will I be taxed on the dentist's fee as a benefit in kind?
A. If the dental cost had been incurred while you were in the UK, it would have been a taxable benefit for you. But as you were working outside the UK at the time, your company can pick up the bill with no tax cost to you. The dental bill is also a valid deduction for the company as it forms part of the cost of sending you to work abroad for a short period.
Q. I own several properties which I let out unfurnished, but they do contain carpets, curtains and white goods. I've been told I can no longer claim the cost of replacing those items against my rental income. Is that true?
A. For periods before 6 April 2013 HMRC permitted a deduction for the cost of renewing carpets, curtains and white goods in all let residential properties on a concessionary basis. That concession was withdrawn with effect from 6 April 2013. The new rules now state that a wear and tear allowance (10% of the net rents) that covers furnishings and similar items, can only be claimed for fully furnished properties.
Your properties don't count as fully furnished, even though they contain some white goods and carpets. HMRC will not accept claims for the cost of free-standing white goods in unfurnished residential properties. It will allow a deduction for the cost of replacing fixtures such as baths, toilets, integrated fitted ovens and hobs, as those costs can be classified as repairs. If you replace part of the fitted carpet you could claim that as a repair, but not the cost of putting new carpet down in the entire property.
September Key Tax Dates
19/22 - PAYE/NIC and CIS deductions due for month to 5/09/2014
30 - Closing date to claim Small Business Rate Relief for 2013/14 in England
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
If you need further assistance just let us know – we're here to help!
Contact us today on 020 8780 2349 to discuss how any of the above affects your personal or business finances or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.
Contractors Now Receiving Accelerated Payment Notices (APNs)
Back in July 2014 HMRC published a list of over 1,000 schemes that they deemed to be tax avoidance vehicles, claiming that they will soon start sending out Accelerated Payment Notices (APNs) to taxpayers, including contractors and freelancers, who have invested in these schemes.
Under the new rules associated with APNs it’s mandatory for contractors who receive one of these letters to pay any tax bills upfront before appealing their case; including the full payment of all and any bills you dispute. If you don’t pay your tax bill in full you will automatically incur fees and penalties, even if you intend to appeal the decision.
Though these new rules were due to come into effect in July, HMRC have since revealed that APNs will start being sent out from August. It’s worth noting that if you are due to receive an APN you will first be sent a notice letting you know that HMRC have placed your tax payments under consideration. You should use this time to gather your payment options, as once you receive your APN you’ll have exactly ninety days to pay your bill in full.
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How to Make Redundancy Payments
If you’re the owner of a small to medium-sized business (SME) you may be lucky enough to not have had to make a single employee (or group of employees) redundant as of yet.
This luck, however, may well change over the coming months and years, and though you’ll by no means want to place your focus on this negative train of thought, when you know the implications of such a situation ahead of it occurring, you’re better placed to deal with the consequences once you’re put in a situation that requires you to go down this path.
Selecting Employees for Redundancy
If you’re required to make an actual position (or entire operation) within your business redundant, then every employee in this position will have fairly and objectively been selected for redundancy.
If, however, only a certain number of employees within a particular position need to be made redundant (often as a response to budget cuts or a reduction in company income), the most common, objective, and fair way of selecting employees for redundancy are:
- Self-Selection: When you ask for volunteer redundancies you can save your employees a lot of heart-ache if there are others who are happy and willing to accept redundancy at this time.
- Last In: The last in, first out selection process is deemed fair in most industries.
- Looking over Disciplinary Records: Another selection process that’s hard to argue against.
- Overlooking Skills, Qualifications, and Experience: Ensuring you keep on your most skilled and experienced workers.
When selecting employees for redundancy it’s imperative that any choices you make can’t be classed as unfair dismissal.
Redundancy Payment Breakdowns
Your employee(s) will be entitled to statutory redundancy pay if they’ve been working for your company for upwards of two years. Any redundancy pay your employee receives from you won’t be taxable so long as it totals under £30,000.
Depending on how long your employee(s) has been with you, you’ll have to pay out the following:
- Half a week’s pay for each year (full year) in which they were under the age of twenty-two.
- One week’s pay for each year in which they were between the ages of twenty-two and forty.
- One and a half week’s pay for each year in which they were forty-one and above.
You can calculate your employee(s) redundancy pay using this government-provided tool.
Finding Suitable Employment Alternatives
If you’re required to make an employee, or number of employees within your SME redundant, you should put some serious thought as to whether or not you can provide them with ‘suitable alternative employment’ in another area of your business, or an associated organisation.
The suitability of any employment alternatives you make to your employee(s) will be based upon the similarity of the new job compared to their previous role, the acceptability of the job’s terms, the similarity of the required skills for said job, and the rate of pay, benefits, working hours, and work location.
If your suitable employment alternative(s) are turned down by your employee(s), they may lose their right to statutory redundancy pay.
Notice Periods
You are legally contracted to give your employees the following notice periods before ending their employment through redundancy, though you may provide your employees with more than the below-stated minimums if you so wish:
- One week’s notice for employees employed between one month and two years.
- One week’s notice a year for employees employed between two and twelve years.
- Twelve week’s notice for employees employed twelve years and above.
Making Redundancy Payments
To speak with a professional to discuss how to make redundancy payments and what you owe your employees, as well as the tax implications regarding any payment made over £30,000, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.
Green Taxes and Reliefs for Businesses
The general idea behind the government offering green taxes and reliefs to businesses up and down the land is to encourage you to act in a more environmentally friendly manner; whether you’re a large organisation using a significant amount of energy annually, or you’re a SME that hardly uses any energy at all.
It should be remembered that, at a more general level, you can claim capital allowances when you purchase energy-efficient or low/zero-carbon technologies for your company, reducing your overall tax payments.
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