Tax Newsletter August 2017

Our newsletter this month includes: tax relief for uniforms and other expenses, possible changes to the tax rules for companies, the outcome of the Glasgow Rangers’ case concerning tax avoidance, the minimum salary levels for director shareholders to consider and an update on the Making Tax Digital process.

Our next newsletter will be published on Thursday, 7 September 2017.

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Newsletter August 2017


Possible changes to tax rules for companies

There is a government department, the Office for Tax Simplification (OTS), that has been charged with investigating ways that the UK’s tax rules can be changed to make them easier to understand and easier to use.

The OTS has recently issued a new report on the proposal to simplify the Corporation Tax assessment process for companies, particularly smaller concerns.

Their report sets out some significant steps towards creating what they describe as “a 21st-century Corporation Tax system in the UK”. The aim is to make the calculation of Corporation Tax simpler, with fewer changes and more time to plan. The report also recognises the importance of reducing the burden on small businesses, and “keeping this Country an attractive destination for trade and investment in a post Brexit world”.

The report takes an in-depth and innovative look across four broad themes:

  • simpler tax for smaller companies;
  • aligning the tax rules more closely with accounting rules where appropriate;
  • simplifying tax relief for capital investment;
  • a range of further issues affecting the largest companies.

It also highlights the links with HMRC’s work on Making Tax Digital, which offers a real impetus to move towards a simpler system by use of technology.

The OTS recommendations are not legislative changes, they are suggestions. These will now have to be taken up by the Treasury and HMRC to consider changes to tax law in future Budgets.


 

Making Tax Digital - common sense prevails

Making Tax Digital (MTD) is the government’s latest attempt to fully digitise the process of collecting data from taxpayers so they can speed up the process of calculating how much tax you owe.

Until recently, we were facing radical changes to the tax system to accommodate this objective. Businesses (including landlords) were to be required to upload summarised accounts data from their accounts software on a quarterly basis. This information, plus details of other income was to be collected in a personal tax account which would automatically calculate future tax liabilities.

The process was timed to commence April 2018 and be completed April 2020.

The accountancy profession was united in opposition to the undue haste of the implementation process and the obligation that all businesses with turnover more than £10,000 would be required to invest in acceptable accounts software and make quarterly uploads.

It would seem the government has listened. Last week they announced:

Under the new timetable:

  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
  • they will only need to do so from 2019
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.

This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.

As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.

It seems clear from this announcement that MTD is proceeding, but at a much more sensible pace.

VAT registered traders will need to have MTD compatible software in place by April 2019, and all businesses including property businesses with turnover above the VAT registration threshold (currently £85,000), will need to be ready to make the quarterly uploads of accounts data by April 2020.

Businesses with turnover below the VAT threshold will be under no obligation to use the MTD process, but can join in on a voluntary basis.

We will continue to work with clients to ensure they are ready to meet their obligations. It is gratifying to see the pace of change in this area slow down. This will give affected business owners and their advisors more time to implement the changes required and make more considered decisions about the software they will use to implement their links to HMRC’s MTD systems. 


 

Making Tax Digital - are we making progress?

There is evidence that HMRC’s Making Tax Digital (MTD) implementation team are working with advisors and their clients to beta test the computer systems that will drive the quarterly upload process when it is timed to begin April 2018.

For those readers who may have missed our previous updates on this topic, MTD aims to have taxpayers’ income and other relevant details uploaded to a personal digital account. When completed, this new system will eventually remove the necessity of a formal tax return each year.

Banks, employers, pension providers and business owners (including landlords) will have an obligation to upload data to HMRC. The information gathered will allow for the estimation of future tax liabilities in real time.

For business owners and landlords this is quite a change from the present annual tax return. At various implementation dates they will be required to make quarterly, summarised uploads of their accounts data and undertake an annual online check.

At present, HMRC is not providing direct access to taxpayers to comply with their MTD obligations; instead, business owners will need to use accounting or other software that is authorised for this purpose.

The present timetable, when businesses will need to start uploading data, is:

  • April 2018 – the self-employed, including landlords, with turnover in excess of the VAT registration threshold, presently £85,000.
  • April 2019 – the self-employed, including landlords, with turnover below the VAT registration threshold.
  • April 2019 – submission of VAT returns
  • April 2020 – companies and other organisations subject to Corporation Tax.

Businesses with income below £10,000 will be excluded from the MTD quarterly upload processes.

Incredibly, the legislation setting out the rules and regulations for MTD has still not reached the statute books. It was included in the Finance Bill 2017, but the relevant sections and schedules dealing with MTD were deferred for consideration until after the recent election. Professional advisors, software providers, and the business community looks forward to some progress in this area. Presumably, the deferred legislation will reappear in a summer Finance Bill. The intention, we would assume, is to tidy up these loose ends before members of parliament break for their summer recess.

 


 

Director minimum salary levels 2017-18

Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce NIC, and in some cases, Income Tax.

The planning strategy is to pay a salary at a level that qualifies the director for State benefits, including the State Pension, but minimises the amount of NICs paid.

For 2017/18 the NIC rate is set at 0% for annual earnings in the range of £5,876 to £8,164 inclusive.  Earnings in this band range qualify for NIC credit for State benefit purposes. At £112.99 per week (£5,875 p.a.) no NIC credit is obtained for State benefit purposes so it clearly makes sense to pay remuneration above this level.  At £157.01 plus per week (£8,165 p.a.) NICs start to be paid at the rate of 12%.

Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band which depends on the actual date appointed. Directors resigning during the year still have the full annual earnings band quoted above.

Some directors choose to pay themselves the minimum wage which will incur an NI liability, others look to stay within the band stated above, a band that provides the NI credits without incurring an NI liability. Care needs to be taken when becoming a director to ensure you achieve the strategy you are looking for. 

This is one of the many areas where we provide advice and assistance to our clients on an ongoing basis.


 

 

Rangers' tax scheme kicked into touch

There has been a long running tax case rumbling through the lower courts on the use of a device called an Employee Benefit Trust (EBT) by Glasgow Rangers. HMRC have considered the use of the EBT a scheme to avoid PAYE and NIC.

The case has now been considered by the Law Lords in the Supreme Court, who decisively ruled in favour of HMRC.

An EBT collects payments from employers and makes these available to employees as a loan – this process means that funds are made available, in the Rangers' case to players, without a charge to tax or NIC.

Whilst it was acknowledged that the individual processes in the set up and management of the EBT were carefully drawn to keep within current legislation, the overall strategy was the avoidance of tax and NIC. In their judgement, the Supreme Court judges were satisfied that this “purposive” approach, the purpose for which the EBT had been created, was the avoidance of PAYE and NIC and therefore they dismissed Glasgow Rangers' appeal.

A growing number of cases, where HMRC had challenged the use of EBTs by other concerns, will now be pursued by HMRC based on this judgement. This decision probably marks the end of the EBT as a legitimate tax planning device.

 

 


 

Tax Diary  August / September 2017

1 August 2017 - Due date for Corporation Tax due for the year ended 31 October 2016.

19 August 2017 - PAYE and NIC deductions due for month ended 5 August 2017. (If you pay your tax electronically the due date is 22 August 2017)

19 August 2017 - Filing deadline for the CIS300 monthly return for the month ended 5 August 2017.

19 August 2017 - CIS tax deducted for the month ended 5 August 2017 is payable by today.

1 September 2017 - Due date for Corporation Tax due for the year ended 30 November 2016.

19 September 2017 - PAYE and NIC deductions due for month ended 5 September 2017. (If you pay your tax electronically the due date is 22 September 2017)

19 September 2017 - Filing deadline for the CIS300 monthly return for the month ended 5 September 2017.

19 September 2017 - CIS tax deducted for the month ended 5 September 2017 is payable by today.


DISCLAIMER - PLEASE NOTE: The ideas shared with you in this email are intended to inform rather than advise. Taxpayers circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this newsletter, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.