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RTi was introduced over five years ago, but the automatic penalty system for late filing has still not been turned on. The latest Employer Bulletin (issue 79) confirms that HMRC will continue to risk-assess each significant case of late filing or late payment.

HMRC do not charge a penalty if the FPS is filed within three days of the payment date, and only issue a penalty when the late filing is persistent. Late paid PAYE will attract interest.

Don’t forget to check for electronic warning messages through your payroll software, or by logging into PAYE online and access the Notice Summary section. The penalties due for 2019/20 so far will be issued in September 2019.

Incidentally the “payment date” referred to in the Employer Bulletin is not necessarily the date on which the employees are paid, but it is the date on which the employees are contractually due to be paid. Say the employees are normally paid on 26th of each month, but this month they are paid on 23rd August because of the bank holiday, the payment date should not be changed on the FPS, but should remain 26 August.

Written by the Tax Advice Network

The VAT rates and thresholds applicable in the UK haven’t been altered for some years, but when the underlying rules change for certain goods and services, this can mean that VAT must be applied at a different rate, or that the method of accounting for VAT changes.

Construction industry reverse charge
The introduction of the domestic reverse charge for the CIS registered businesses on 1 October 2019 is the biggest change in VAT for some years. We outlined the changes in our newsletter on 13 June 2019, and the action to take for builder clients in our newsletter on 25 July 2019.

If you are one of subcontractor builder clients who is affected by the reverse charge, and most will be, it may be sensible for you to leave the VAT flat rate scheme on 30 September. It is possible to leave the flat rate scheme in the middle of a VAT quarter, but it is easier from an accounting point of view if the change is made at the end of a VAT quarter.

Energy saving materials
Some firms in the construction industry will be affected by a second alteration in VAT law on 1 October 2019; a change in the rate charged on the installation of solar panels and other energy saving items such as domestic wind or water turbines.

The installation cost is currently subject to 5% VAT, but this is increased to the standard rate of 20% for all turbines.

Installation of solar panels can continue to be charged at 5% VAT where the building is social housing, or the building occupant meets certain conditions. Solar panel installers need to research the detailed rules for installations undertaken from October onwards.

Education
Supplies of education are usually exempt from VAT, but where a charge is made the education provider must be an eligible body for the services to be exempt from VAT. The definition of eligible bodies has been revised from 1 August 2019 (see section 4.1 of VAT notice 701/30). If you are involved in the education sector refresh your understanding of VAT notice 701/30.

Ebooks
If you sell electronic services such as ebooks to customers in other EU countries, and they are not within the de-minimis exemption (£8,188) for VAT MOSS, they need to account for VAT at the rate due where the customer is based. The rate of VAT due on digital publications has been reduced in many EU countries this year, from varying dates depending on the country.

When the UK leaves the EU the de-minimis VAT MOSS turnover exemption will immediately fall away as the UK will be a non-EU country.

Written by the Tax Advice Network

We provided a brief overview of the SBA in our newsletter on 15 November 2018, as this new allowance was first announced in the Budget on 28 October 2019. HMRC has now produced some basic guidance on the SBA.

The SBA provides a 2% flat rate allowance for the cost of constructing non-residential buildings which are used for trading or business purposes, including managing investments and commercial property businesses. Residential properties include any building located in the grounds of a residence such as a home office built in the garden. Also properties used for furnished holiday lettings or residential letting don’t qualify for the SBA.

Construction costs include; building, renovation, repairs, fitting out, site preparation and design. Buying a newly constructed building can qualify for the SBA. However, the SBA can only be claimed on the lower of the construction costs and what the business paid for the building.

You may have incurred costs which qualify for the SBA in an accounting period which ended since October 2018, in which case they need to make a claim in their tax return.

To make this claim the business needs to have an “allowance statement” for the building. The first business that uses the building creates the allowance statement and passes it on to the next user when the building is sold. An allowance statement is also needed for any new extensions or renovations completed for existing structures.

The HMRC guidance on the SBA doesn’t include much detail about the allowance statement. Ideally before you submit a claim for SBA you should read more the detailed guidance in the HMRC capital allowances manual, but that hasn’t been published yet.

If you need to submit an SBA claim as part of a corporation tax return for the year to 31 December 2018 we will be happy to help you.

Written by the Tax Advice Network

A shocking case was reported in the Financial Times this week of two step-sisters who were arguing over which of them should inherit their late parents’ house. The elderly couple had been found dead in their home, and it was not possible to determine who had died first.

The situation was complicated because the father had not made a Will, and his younger wife had made no provision in her Will for her step daughter. If the wife was deemed to have died first her share in the home would pass to her husband. Under the intestacy rules his estate would pass only to his daughter and not to his wife’s daughter.

If the husband died first, the wife would inherit the property and it then would pass only to her own daughter under her Will.

The Court decided that the Law of Property Act 1925 should apply which determines that the elder of the two is deemed to have died first. The wife’s daughter thus inherited the entire property to the exclusion of her step-sister.

This gordian knot would have been easier to unwind if both individuals had made Wills with express provision for both daughters.

Which of our clients have a Will in place? It is important to have an up to date Will, not only for IHT planning, but also to prevent family disputes as described above. Perhaps you can use this shocking news story as a conversation starter to prompt you to think about the division of your assets after your death.

If you want to take advantage of the 36% rate of IHT by leaving at least 10% of your net estate to charities, then your Will should include express provision for those gifts. STEP has recommended a draft clause to be used to achieve this goal.

Written by the Tax Advice Network

If you need to correct an earlier tax return for missing crypto-asset gains, or for anything else, you need to be warned about the real risk of penalties being imposed. HMRC’s default position is that a penalty is due, unless it can be shown that the taxpayer took reasonable care in completing the return (see factsheet CC/FS7a).

Relying on the advice of a competent and qualified tax adviser may be accepted as taking reasonable care, but if our clients have refused to heed our advice about disclosing taxable transactions, the taxpayer’s behaviour will be considered careless or even deliberate. In that case the penalty can be up to 70% of the lost tax.

Where the taxpayer makes an unprompted full disclosure before HMRC has approached him or her with data received from a third party (such as a crypto exchange), the penalty can be reduced to zero. However, that reduced penalty will only apply if the taxpayer’s behaviour was not deliberate.

It is crucial to provide an explanation of the mistake to HMRC which demonstrates that the taxpayer’s behaviour was not deliberate, and the error was certainly not concealed.

Where you can show that the mistake was careless, but a penalty is still applied, it may be possible to have that penalty suspended. This means that the penalty is not payable as long as the suspension conditions are complied with for the suspension period – which is usually two years (see factsheet CC/FS10). The suspension conditions are individually negotiated with each taxpayer according to the circumstances which created the error.

If the taxpayer is issued with a second penalty for another mistake within the suspension period, the first penalty will automatically become due for payment. A penalty for the second mistake will also be due, and its very unlikely that HMRC will agree to suspend the second penalty.

Written by the Tax Advice Network

In our newsletter on 10 January 2019 we were advised to ask clients about their crypto-currency transactions, so that the correct declarations could be made on their tax returns. Those risk-taking clients may have replied – “HMRC will never find out, so I’m not going to declare my crypto-profits”.

Well those clients could be in for a shock, as HMRC has recently written to three crypto exchanges that do business in the UK; Coinbase, eToro and CEX.IO, asking for customer data and transaction histories. HMRC has the power to ask for this information under FA 2008 Sch 36, para 5, and it does not have to identify the individual taxpayers in advance. If the crypto exchanges refuse to provide the data requested, they can be issued with penalties.

As we explained in our 10 January newsletter, any gains made on crypto-assets are taxable and will be subject to CGT. A gain or loss is made whenever a crypto-asset is exchanged for another one, or given away, or surrendered for payment in legal currency, such as US dollars.

The transactions made by UK taxpayers must be calculated and reported in sterling, which means both the buy and sell value has to be stated in sterling. Thus, the gain will incorporate an amount of exchange gain as well as the change in value of the underlying asset.

Where the volume of transactions is very large, the taxpayer may consider he has been trading in the assets, and his profits or losses should be subject to income tax. This approach will be resisted by HMRC.

We are happy to advise you on how to calculate CGT on crypto- assets, and how to make a disclosure of missing profits or gains for earlier years.

Written by the Tax Advice Network