Uncategorised

The Fifth Money Laundering Directive (5MLD) was been implemented in the UK on 6 October 2020. This means that all UK express trusts, both taxable and non-taxable, now need to be registered in the Trust Registration Service (TRS) unless they are specifically excluded.

Non-UK trusts must also be registered in the TRS if the trust:

• Acquires land or property in the UK; or
• Has at least one trustee resident in the UK and enters into a business relationship in the UK.

The limited exclusions to the requirement to register non-taxable trusts are set out in the Trust Registration Service Manual (TRSM23000).

The TRS opened for registration of non-taxable trusts on 1 September 2021.

Where a non-taxable express trust is not excluded it must be registered in the TRS by the following deadlines:

• Trusts in existence on or after 6 October 2020 – register by 1 September 2022.
• Trusts created after 1 September 2022 – register within 90 days of creation.

When the trust’s circumstances or details are changed, those changes must be amended in the TRS within 90 days of the change.

Written by the Tax Advice Network

The VAT default surcharge system can create some very unfair charges for late payment where the delay in getting the money to HMRC is as little as one day. The new late payment rules may be fairer, but they could hit small businesses much harder as there will be no easement where turnover is low.

• All businesses will get a 15-day grace period to pay their VAT bill. If the VAT arrives with HMRC within 15 days there is no penalty at all.
• VAT unpaid after day 15 triggers an automatic penalty of 2% of the unpaid amount – no warning notices, no default periods, a flat 2% charge.
• VAT unpaid after day 30 triggers another automatic penalty made up of the over 15-day 2% penalty plus an over 30-day 2% penalty, which together amount to 4% of the late paid tax.
• Any VAT still outstanding at day 31 creates a daily penalty that increases at 4% per annum of the outstanding debt.

HMRC is planning to beef-up its automatic Time To Pay (TTP) offering. If a TTP agreement is reached the clock stops at the rate of penalty in force when the TTP agreement starts.

For example if a TTP agreement is reached within the first 15 days, no penalty is levied at all. Also for the first 12 months of the new regime taxpayers will have up to 30 days to agree a TTP with HMRC, and accrue no penalties.

If the taxpayer has a reasonable excuse for late payment, they will be able to communicate this excuse to HMRC (presumably through the MTD compatible software), and the penalty will not be assessed. All penalties can be appealed.

In addition to the late payment penalty the taxpayer will also be charged interest on any tax paid late at the rate of 2.5% plus the Bank of England base rate. This is in line with other taxes.

This new late payment regime will apply to income tax payable under self assessment form 6 April 2024, for taxpayers within MTD, and from 6 April 2025 for all other income taxpayers who are in self-assessment.

Written by the Tax Advice Network

The VAT default surcharge system, which applies to late filing and late payment, doesn’t fit with the structure of penalties for other taxes. HMRC has been planning to reform VAT penalties for some years, and the shake-up in VAT reporting under MTD seems an ideal time to bring in this change.

For VAT periods beginning on and after 1 April 2022 the taxpayer will only be subject to a financial penalty for late filing if they have accrued sufficient points for being tardy with a certain number of returns. The points threshold depends on the submission frequency of the return:

Submission frequency	Penalty threshold	Period of compliance
Annual	2 Points	24 Months
Quarterly	4 Points	12 Months
Monthly	5 Points	6 Months

Where the business is submitting quarterly VAT returns, it can submit up to three late VAT returns with no penalty, but on the fourth late submission an automatic financial penalty of £200 is triggered. Also every late submission after that threshold has been breached will trigger another £200 fine, but those additional penalties will not add points to the points slate.

Each point will expire after two years, and this lifetime clock starts running from the month after the month in which the late filing occurred, not the month when HMRC tell the taxpayer the point has been levied. HMRC has 11 weeks to levy points after the quarterly filing deadline is missed, 48 weeks for annual filings, and just two weeks to monthly filings.

The points slate can only be wiped clean when the taxpayer achieves both of:

• No late submissions for a period of compliance; and
• All returns filed for the previous 24 months, even if they have been filed late.

The period of compliance varies with the submission frequency of the return as shown in the table above.

Where the VAT return is a one-off form to report a particular transaction, this will not accrue a late-filing point.

All points and penalties can be appealed.

This system of “points means penalties” for late filing will also apply to MTD ITSA submissions from 6 April 2024.

We have just over two years to get used to this new system before it expands to cover the majority of our clients under MTD. Clients who fail to file quarterly under MTD ITSA will soon be hit with high penalties.

Written by the Tax Advice Network

Welcome to our monthly newswire. Please get in touch if you want to discuss any of the content in more detail

1.25% INCREASE IN NICs AND TAX ON DIVIDENDS TO FUND HEALTH AND SOCIAL CARE

Content accurate as at 27.9.21

The Prime Minister announced on 7th September that the government will introduce a new 1.25% Levy to provide an extra £12 bn a year to support the NHS and social care.

From April 2022 it is proposed that there will be a 1.25% rise in National Insurance Contributions (NICs) to be paid by both employers and workers. This will then become a separate Levy on earned income from 2023/24 - calculated in the same way as NIC and appearing on an employee's payslip.

Note that the 1.25% increase also applies to the Class 4 contributions paid by the self-employed on their profits. The Class 1 NI contributions paid by employees increase to 13.25% of earnings above £9,568 and the self-employed rate increases to 10.25%. The 3% differential remains for the time being, although there are rumours that the rates will align in the future. Above £50,270 earnings or profits the rate will be 3.25%.

The employers Class 1 NIC rate will increase from 13.8% to 15.05% from 6 April 2022, however many small businesses are able to set off the £4,000 employment allowance against their employers NIC liability. Many workers operating through personal service companies to whom the new “off-payroll” working rules apply will also be caught by the proposed measures.

DIVIDEND TAX RATES ALSO INCREASING FROM 2022/23

It is also proposed that there will be a 1.25% increase in the rate of tax payable on dividends received by those who own shares in companies. This would mean that after the £2,000 tax free dividend allowance the rate of tax would be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for those with income in excess of £150,000 a year. This will catch many family company director/shareholders who traditionally “pay” themselves by taking a low salary and larger dividends to minimise NICs.

PLANNING ACTIONS BEFORE THE NEW RATES COMMENCE

The announcement of the proposed changes more than six months before they take effect means that there is time to reduce the impact. Employees could consider agreeing a salary sacrifice arrangement with their employer, for example sacrificing their £5,000 annual bonus for an additional pension contribution paid by their employer. Such an arrangement would save 1.25% NICs for both employee and employer as well as £2,000 income tax where the employee is a higher rate taxpayer.

Employees might also consider a salary sacrifice in favour of an electric company car.

Shareholder/directors of family companies could consider bringing forward dividend payments to before 6 April 2022. Such a strategy needs careful planning as if the extra dividend takes the taxpayer’s income above £50,270 the excess would be taxable at the 32.5% rate instead of the 7.5% rate and the planning could backfire.

CAPITAL ALLOWANCES ON PLANT IN RESIDENTIAL PROPERTY

The capital allowance legislation specifically denies tax relief for plant and machinery installed in a dwelling house. However, plant and machinery installed in the common areas of blocks of flats such as hallways, stairs and lift shafts would qualify as the flats themselves are the dwellings not the building as a whole.

HMRC have recently confirmed their view that common areas in Houses of Multiple Occupation (HMO) are parts of a “dwelling house” and ineligible for capital allowance claims.

This would seem inconsistent with the treatment of blocks of flats and there may be a test case on the interpretation, particularly as there is no definition of “dwelling house” in the tax legislation.

There is also a lack of clarity concerning the status of University Halls of residence where there is often substantial expenditure on plant and machinery in common areas.

MTD FOR INCOME TAX POSTPONED TO 2024/25

Having listened to stakeholder feedback from businesses and the accounting profession, the government have announced that they will introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.

This will give the self-employed and buy to let landlords an extra year to prepare for the digitalisation of Income Tax and also allow HMRC more time for customer testing of the pilot system.

The start date for partnerships to join MTD for ITSA has been put back still further to the tax year beginning in April 2025.
There has been no change to the £10,000 per annum gross income threshold which means that most self-employed traders and buy to let landlords will be mandated to comply with MTD for income tax from April 2024.

HMRC SUPPORT WITH CHILDCARE COSTS

With more employees going back to work after the end of CJRS furlough support, they need to start thinking about childcare if they have children.

If they haven’t already done so employees should set up a “Tax-Free” Childcare Account to help pay towards the cost of childminders, breakfast and after school clubs, nursery fees and approved play schemes.

For every £8 an eligible family pay into the special account the government adds £2, up to £2,000 a year, or up to £4,000 a year if a child is disabled. The scheme is available to parents or carers who have children aged up to 11, or 17 if their child is disabled.

ADVISORY FUEL RATE FOR COMPANY CARS

As the result in recent increases in petrol and diesel prices HMRC have increased the advisory fuel rates that apply for the reimbursement of employees' private fuel for their company cars. The same rates apply when the employer reimburses employees for fuel used for business journeys in their company car.

The new rates apply from 1 September 2021, but you can continue to use the previous rates for up to 1 month from the date the new rates apply.

Where there has been a change the previous rate is shown in brackets:-

Engine Size	Petrol	Diesel	LPG
1400cc or less	12p (11p)		7p
1600cc or less		10p (9p)
1401cc to 2000cc	14p (13p)		8p
1601 to 2000cc		12p (11p)
Over 2000cc	20p (19p)	15p (13p)	12p

You can continue to use the previous rates for up to 1 month from the date the new rates apply. For wholly electric cars there is a 4p advisory rate.

However, for hybrid cars use the equivalent petrol or diesel rate.

Employees who have all the fuel for their company car paid for should consider reimbursing their employer for private use to avoid a private fuel benefit being charged

DIARY OF MAIN TAX EVENTS OCTOBER / NOVEMBER 2021

Date	What’s Due
01/10	Corporation tax for year to 31/12/20, unless quarterly instalments apply
05/10	Deadline for notifying HMRC of chargeability for 2020/21 if not within Self-Assessment and receive income or gains on which tax is due
19/10	PAYE & NIC deductions, and CIS return and tax, for month to 5/10/21 (due 22/10 if you pay electronically)
01/11	Corporation tax for year to 31/01/2021, unless quarterly instalments apply
19/11	PAYE & NIC deductions, and CIS return and tax, for month to 5/11/21 (due 22/11 if you pay electronically)

Welcome to our monthly newswire. We hope you enjoy reading this newsletter and find it useful

How to Manage Hybrid Working Effectively

We are moving into a new era of hybrid working - with some teams working from home, while others are in the office. This new way of working brings its own set of challenges.

The general consensus among UK businesses is that the post-Covid working environment will see most employers move to a hybrid working approach, with staff being able to opt for a mix of home, office or remote working.

This more flexible approach to working may lower costs and improve productivity, but it also presents managers with a new set of challenges. Policies and work processes will need to be updated and managers will need to learn how to run teams of home and office-based people effectively.

Before putting a hybrid working policy in place, any business should undertake a risk assessment to explore potential implications of things like cyber security, training new starters, wellbeing, client confidentiality, and so forth.

A hybrid working policy can then be developed, which sets out rules around working hours, provision of equipment, ratio of home versus office hours, etc. Employee handbooks should be updated with the new hybrid working policy once it has been finalised.

Managers should take steps to ensure that home-based staff don’t feel left out. Staff should be included in decision making regardless of where they are based.

Video conferencing can be a useful tool for team meetings as this technology allows everyone to join a meeting in a face to face environment. If you are planning team socials or strategic planning meetings, arrange them in advance and give remote workers the option to join these events in person. As with most things in business, communication is key.

Having A Clear Purpose Has Never Been So Important

A strong sense of purpose in your organisation is key to driving employee satisfaction and retention.

Since the Covid-19 pandemic began, many businesses have seen what the media has referred to as, “The Great Resignation” - where employees are leaving or switching jobs in their thousands. For many, employers have played a big part in why they are walking away. A major driver of this has been related to purpose. Many employees are seeking a change as they no longer find satisfaction, meaning or feel valued in their current role.

Employees expect their jobs to bring a sense of purpose to their lives. Employers need to help meet this need - if they don’t, their talented people will move on to companies that do. In order to define their purpose, businesses need to ask - “Why do we do what we do?” A business’s purpose describes the reason that the business exists. A firm’s purpose directs its teams of people to pursue objectives with a strong intention to service the wellbeing of others including customers, colleagues and the wider community.

The best businesses have a meaningful reason to exist. It’s about more than just selling a product or service. A good example is The Body Shop – a business whose success is linked to a strategy of selling all-natural products underpinned by a social drive to help communities in poorer nations around the world find sustainable employment while also protecting the environment.

Purpose is connected to the overall objectives of the business and helps to create the perception of the business among everyone inside and outside the firm. Once the firm’s overarching purpose has been defined, the leaders of the business must then work to help everyone in the firm to understand what their contribution should be – so that they know how to get involved.

Ultimately, the power of purpose comes into play when each individual team member understands how their efforts align to it. As such, it is important for the management team to keep the firm’s purpose front and centre for all employees. They should talk about their individual efforts and share examples of how they themselves have been working towards the company’s end goals. This can help to inspire others and motivate everyone across the firm to get involved.

Once the firm has articulated its purpose clearly and all team members are behind it, the external brand comes to life as a reflection of the internal culture. The sense of purpose and authenticity becomes tangible to customers and all who come into contact with the firm.

Having a clear purpose will help to motivate your people through tough times and will also help to attract new talent the firm. In the current environment, this has never been more important.

Becoming a More Eco Friendly Business

Environmental sustainability has moved to the forefront of the news headlines and consumers are keen to support eco-friendly businesses.

Buying habits are changing as people seek to minimise their impact on the natural environment. By incorporating eco-friendly ideas into your business, you can align your brand’s ethos with that of your customer base.

If you are running a small business, you might think that your environmental impact is inconsequential but the people buying your products or services don’t see it that way. Customers are starting to vote with their wallets – they want to support the green agenda.

Businesses can start their eco efforts by choosing to purchase and use sustainable products from paper through to packaging, etc. You can go a step further and introduce recycling facilities in your offices too.

Your business could make efforts to reduce its carbon footprint by switching to energy efficient appliances, LED lighting, smart thermostats and so forth. Encouraging staff to work from home where possible can also help to reduce CO2 emissions by reducing the number of cars on the road.

Your business can also make an effort to reduce its waste or even reduce its water usage in order to help to protect the environment. Conservation is just as important as recycling, after all.

Your firm can choose to do business with green suppliers only. Whether that is net zero emission web hosting or carbon neutral suppliers in your supply chain - every little bit helps.

Finally, for whatever parts of your firm’s operations that can’t become more environmentally friendly (for whatever reason), you can look into offsetting your carbon emissions.

There are a variety of carbon offset credits available on the market today. A carbon credit represents either the permanent removal of a tonne of CO2 from the atmosphere or the avoidance of one tonne of CO2 being emitted in the first place.

CEO Succession Planning

The transition from one CEO to another is a critical point in the lifecycle of any business.

CEO succession can be planned or unplanned - the decision for the CEO to move on to a new challenge or retire can be sudden and unexpected. Either way, by the time a succession plan is needed, it is too late to start building one. As such, it is the responsibility of the board to make succession planning a priority, in order to provide a framework for a smooth transition to a new leader for the business, when that time inevitably comes.

Creating a CEO succession plan provides an opportunity for the firm to drive the development of the next generation of senior leaders, aligning leadership at the top of the organisation with the strategic needs of the firm.

The foundation for CEO succession planning is the strategic direction of the business, from which the profile and selection criteria for the next CEO can be developed. Getting this profile right is key, because it provides a roadmap for internal candidate development plans and a framework for selecting potential candidates for the job.

The CEO succession plan should think long term. Look beyond just replacing the incumbent – who should be training up for the job after them? CEO succession is an ongoing process so it is important to have a pipeline of talented candidates undergoing development as they rise up through the organisation.

Create a written succession plan. This document should detail how the firm’s officers are elected and replaced, how successors are to be chosen and the respective roles of the CEO, the board and any management committees within the firm. Potential candidates should be assessed against industry benchmarks and these criteria should be detailed in the succession plan. An emergency succession procedure should be included in the written succession plan – in the case of a sudden vacancy for a new CEO.

Once you create your written CEO succession plan, the board should review it at least once a year, to ensure that it is fit for purpose. Future internal candidates should also be reviewed as part of this process, in order to manage the pipeline of potential future leaders of the business. If the capability to manage this process doesn’t exist within your business, it may be worth engaging the services of an external firm with expertise in this particular area.

These ‘nudge letters’ do not open a formal tax enquiry or compliance check into the taxpayer’s affairs, they just suggest that the taxpayer should review the pay and/or benefits figures on their tax return and make any amendments to the return as necessary.

If your our client receives such a nudge letter, we should also receive a copy.

As the errors have arisen from the payroll reporting it is quite likely that the mistake was made by the employer in the RTI returns or P11ds submitted, and different figures were reported to the taxpayer or the P60 or P45. Alternatively, the taxpayer may have omitted an employment completely.

In cases where a tax agent has a number of clients that have payroll data discrepancies on their tax returns, the agent will be invited to telephone HMRC directly to discuss the issues that affect their clients. The agent will be provided with a list of the clients, including their UTR numbers, which HMRC believes have incorrectly reported PAYE data or P11d data (or both).

Frustratingly HMRC does not disclose in the nudge letter what the exact problem is, only that it relates to the 2019/20 tax return. The taxpayer is invited to check that they have included all of their pay and/or taxable benefits from different sources. If there is something missing the taxpayer is asked to correct the error online through the HMRC self-assessment service, and is given a deadline to do this.

This deadline is not a statutory deadline, so it can’t be enforced, but the HMRC letter should not be ignored as that could lead to a formal tax enquiry being opened.

Written by the Tax Advice Network