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Items of post can go missing at this time of year, but when the letter is from HMRC this may have serious consequences for the taxpayer.

If HMRC has a letter to a business returned to it as undelivered, its new policy is to mark the trader as “missing”. This flag means the trader’s VAT record is frozen and it is unable to submit VAT returns until the “missing” flag is lifted. An unincorporated business will also have their self-assessment account frozen, and won’t receive any SA demands.

No doubt HMRC believes it is protecting the national revenue by taking this action, as fraudulent traders can reclaim large amounts of VAT and then disappear. However, before setting the “missing” flag HMRC doesn’t contact the business by an alternative route, such as by phone or email, or even attempt to contact the tax agent.

If our client is flagged as “missing” the first we may know about it is when we can’t submit your VAT return, as no VAT return has been “issued” by the system.

It can take some time to resolve this mess as we need to call HMRC to confirm the client’s address, and our client may have to contact HMRC directly.

In the meantime, the filing of one or more quarterly VAT returns will have been missed so the next VAT return may have to cover six or nine months. This should not generate penalties as the missed VAT returns were not “issued” during the period the VAT account was frozen.

Written by the Tax Advice Network

The General Election is upon us and your clients may be asking whether they can donate funds or goods to a political party from their business.

There is nothing to prevent a business owner from making a political donation out of their business bank account, or from their personal bank account. There is no upper limit on the amount which can be given to any one political party, either in cash, as services or goods.

Amounts to political parties that don’t exceed £500 (£50 received by the candidate or their agent) are not technically “donations” under electoral law. However, the recipient Party should keep a running total of such receipts, in case the £500 threshold is breached by a series of donations in a short period.

Any donations with a value exceeding £500 can only be accepted from; individuals registered on the UK electoral roll, UK-registered companies or businesses, UK registered trade unions, certain trusts and building societies. Political parties can also receive public funds.

Donations exceeding £1,500 to a local Party branch, and donations exceeding £7,500 to the central Party, must be reported to the Electoral Commission, which publishes details of the donors and the amounts once a quarter. Unincorporated organisations which make political donations exceeding £25,000 in a year must register with the Electoral Commission.

Political parties are not charities, so there is no tax deduction for amounts given by individuals or businesses. The political gift must added-back as a disallowable item in the tax computation for the business. Where the donor is a company a gift to political party doesn’t create a taxable benefit in kind for the director or shareholders of that company.

A business may also donate goods, or the services of its staff, by seconding them to work for or on behalf of the political party. If these goods or services are provided for free or with a discount of more than 10% the value of the donation is the difference between what was paid and the market value.

When giving away stock the company should not include the value as a sale for tax purposes, but the VAT on the item must be accounted for as if the item was sold.

This month HMRC is writing to taxpayers who HMRC believes have invested in offshore collective investment funds. The purpose is to remind taxpayers to declare the income received from those investment funds and any gains made when the funds are cashed-in.

If you hold money in such off-shore funds, we need to know whether the fund is an “approved offshore reporting fund”, a “non-reporting fund”, as the tax treatment is different.

Reporting funds

Actual or deemed distributions to the investor may arise in the form of interest or foreign dividends. The reporting is complex:

• Foreign dividends of up to £300 should be included in box 6 on the main part of the tax return.
• Foreign interest of less than £2,000, where no tax has been deducted at source, should be included in box 3 on the main tax return.
• Larger amounts of interest or dividends should be included under reportable income on pages 2 and 3 of the foreign income supplementary pages.
• Profit made on a fund which is not distributed to investors is called excess reportable income (ERI). This ERI must be included on the SA return for the tax year which includes the fund distribution date.
• Gains made on disposal of the fund are subject to CGT.

Where the fund is held within an ISA no reporting is required.

Non-reporting funds

• Distributions to the investor must be declared and are subject to income tax
• Gains made on disposal of the fund are taxed as offshore income gain and are subject to income tax. Report this on the foreign income pages in box 41 of the tax return.

 

We may need to amend an earlier tax return to declare ERI or gains due for that period. If you have any queries please contact our office.

Another TV presenter; Helen Fospero, has won her IR35 case. Helen worked with, and acted as a substitute for Lorraine Kelly, whose case we discussed in our newsletter on 18 April 2019.

Like Lorraine, Helen worked on many different contracts through her own personal service company: Canal Street Productions Ltd from 2002 onwards.

The FTT was only concerned with three contracts between Canal Street and ITV Breakfast Ltd in 2012/13 and 2013/14 for providing Helen’s services as a presenter on the programmes: “Daybreak” and “Lorraine”. During those years the ITV contracts generated up to 74% of Canal Street’s income, but the company also had 10 to 20 other customers.

The FTT established the following facts:

• The contracts with ITV did not establish a mutuality of obligation (MOO) to offer and accept work.
• There was no right of substitution written into the contracts.
• ITV had editorial control over the content of the programmes.
• ITV did not control where, when and how Helen prepared to present those programmes.
• Helen provided her own laptop and earpiece.
• Helen had no office or fixed place of work at ITV.
• There was little risk that Canal Street’s invoices would not be paid by ITV. However, it would not be paid if Helen was absent due to sickness, holiday or maternity.

The FTT concluded that there was insufficient MOO to establish a hypothetic employment contact. The control which ITV had over Helen was the same as it applied to any other presenter, whether an employee or not, so it was not indictive of an employment relationship. The other indicative factors pointed conclusively towards Helen being self- employed. The IR35 tests were not met.

Written by the Tax Advice Network

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

 

Managing a Redundancy Process

 

In the current economic climate, it is increasingly likely that at some stage, you could have to manage a redundancy process.

 

In today’s uncertain business climate many firms face the possibility of having to reduce their operating costs. This means that many managers will have to run a redundancy process. Apart from being an unpleasant process to manage, it can also be a legal minefield. As such, it is important to follow the correct procedures. The redundancy process follows the stages outlined below:

 

Preparation

This includes assessing whether redundancy is actually necessary before starting the process. You should also identify your time frame and prepare the appropriate documentation.

 

Selection

This includes selecting the pool of people under consideration for redundancy. You will also need to determine the criteria to be used in selecting those individuals. It is important that the selection criteria is objective and can be applied equally and fairly across the workforce. For example, experience, capability, relevant skills and competence.

 

Individual Consultation

There are legal time frames regarding consultation depending upon the number of people being made redundant. In any case, it is important to explain why an individual has been selected and to consider alternative employment in the company.

 

Notice of Redundancy and Appeals

Always remember to write to your employee to inform them of the dismissal and allow them the right of appeal.

 

The Termination Process

All employees in the UK with more than two year’s service qualify for a statutory redundancy payment. Remember to provide the employees with a written record of how the statutory redundancy payment has been calculated.

 

Throughout the redundancy process, communication is absolutely key. Having determined the need for redundancies and selected the criteria, it is good practice to ensure regular and open communication. This will help you and your firm to show that you’ve conducted the process in a fair and equitable manner in accordance with required legislation. If you are unsure about any legal aspects of a redundancy process, it is best to seek legal advice from a suitable law firm.

 

Making the Most of Alumni Networks

Whether it’s your University classmates or the colleagues you trained with at your first firm, we all have an alumni network.

 

Your alumni network is an immense network of professional contacts – all with whom you already have one thing in common. That one thing could be a University that you attended, a previous employer or perhaps you took an evening study course together. How you are connected doesn’t really matter. The fact that you have a connection gives you the right to reach out to someone and make contact. After all, people tend to be more receptive to contact from someone from within their network.

 

LinkedIn is a useful tool for reaching out to and connecting with your alumni. You can search by University or by Employer and connect / re-connect with former colleagues. LinkedIn features some useful filters which can help you to find some of your old contacts by location, firm, etc. You can even set up a dedicated online group for your alumni network using the “Groups” page on LinkedIn. Members of your Group can post messages, updates and communicate easily.

 

Online tools are great but there is no substitute for meeting up with your contacts, in person. If there is an annual alumni event then try to attend it every now and then, in order to maintain your network. If not, perhaps you can create an annual alumni networking event. It might be as simple as booking a private area in a bar and sending an email invitation to your alumni network.

 

Another great way to tap into your alumni network is to share your professional expertise. You could create a business blog or even offer to give a talk. If your alumni network has a common interest such as say, business startups, you could put together a panel of speakers who provide insights to your group. It makes a lot of sense to invest in cultivating your alumni network yet many business people don’t make the time to do so. You could gain a real competitive advantage by taking the time to re-connect with your alumni.

 

Avoiding Burnout

 

In today’s “always-on” society, business owners and managers are under more pressure than ever.

 

Stress related workplace burnout is now recognised by the World Health Organisation (WHO) as an official medical diagnosis. Here are some tips to help to avoid burnout.

 

Manage your time

It’s impossible to sustain long-term happiness without appropriately balancing your professional and personal time. Avoiding burnout means using that time wisely, both now and in the future. Use an Outlook calendar or scheduling tool to keep close tabs on how you’re spending your time. Regularly assess your week: How much time are you spending in the office? How much work do you do at home? How much time do you have fully to yourself? If any of those numbers look out of line, that’s a sign that something needs to change.

 

Use your full holiday entitlement

A high proportion of business professionals don’t use all of their annual leave days and they’re paying the price for it. Time off work can provide a big boost to your productivity, creativity and overall job satisfaction. Working through your holiday might feel like the right thing to do for your career, but only increases the likelihood of burnout in the long run. Take holidays that will be good for your overall mental health – go somewhere relaxing and new. Even if it’s just to a nearby destination, a change of scenery can go a long way toward helping you gain perspective on where you’re at in life.

 

Separate work and home life

One of the most common ways burnout occurs is through work creep. When professional responsibilities start to creep into your out-of-office life, whether it’s in the evening, over the weekends or on holiday, that’s a sign that burnout is approaching. People who work from home are most susceptible as the dividing line between work and family time is merely a closed door. One way of avoiding creep is by disconnecting. If your phone and laptop are always on and at the ready while you’re at home, then you’ve never really left the office at all. Make an effort to fully unplug from the job when you’re on your own time, and you’ll notice a shift in how much you get from your time at home. Also, focusing your attention on different aspects of your life will help you feel more invigorated and creative when it’s time to work again.

 

Embrace remote working

On the same note, you can get a change of scenery without fully leaving work behind. While it’s important to completely disconnect during holiday time, working remotely can give your work the breath of fresh air it needs without fear of falling behind. Remote work has other benefits as well, such as increased productivity and a boost in company culture.

 

Taking a step back from the office allows you to work at your own pace and dictate your own style – and that can make a big difference in your overall job satisfaction. In order to make the most of your career, you need to be prepared to take a long term approach to how you work. Burnout cuts things short. Your career is a marathon, not a sprint.

 

Effective internal communication

 

Effective internal communication is key to creating an engaged workforce.

 

Effective communication between a company and its employees enables businesses to fully tap into the unique knowledge, insights, and talents of its people. Having an effective internal communication strategy can help to avoid misunderstandings. For example, if your firm is working on multiple, complex projects, a good internal communication strategy will help to avoid confusion and ensure that each team member knows what they need to do, what the deadline is, what the budget is, what is expected of them, etc.

 

Good communication flows both ways. As important as it is to give feedback to your employees, it’s also crucial to teach your team members to give feedback. The key to this is an open and trustworthy culture that encourages dialogue between teams and individuals. Managers need to be willing to listen to their people and learn from them. They can use this information to help their teams to understand their role and how it fits with the objectives of the firm.

 

Internal communication should be part of a weekly routine. Employees want regular, real-time updates. They want to understand how their efforts are contributing to the success of the firm. Where employees are based in one location, weekly team meetings may be the best way to manage your communications. However, if your people are working from another location or they are mobile, it may be preferable to use a technology platform such as sharepoint, yammer or even video updates.

 

Finally, it is important not to overwhelm your team with too much information. People are constantly bombarded with emails, phone calls and social media. Your internal communications shouldn’t add to this. Instead, keep it brief and include the high priority information first. You want your team members to be able to glance at the message, understand what’s being communicated and what action is required (if any). When it comes to internal communication, keep it simple, ensure that your team feel informed and always welcome their feedback.

 

Welcome to our monthly newswire, we hope that you find it useful. Please contact us if you wish to discuss any matters in this newsletter.

WHEN WILL BUDGET DAY BE NOW?

 

It was announced on 14 October that Sajid Javed’s first budget would be on 6 November but with a general election in December when will it be now?

 

The current political uncertainty makes it difficult to give clear tax advice as a number of key proposals in the draft Finance Bill scheduled to take effect from April 2020 might not now take place, due to the December general election.

The key tax measures “in limbo” until legislated in Finance Act 2020 are:

– Extending the “off-payroll” working rules to the private sector

– Restricting R&D repayable credit for SMEs

– Limiting CGT private residence and lettings reliefs

– The proposed 2% reduction in P11d car benefits

The “off-payroll” working rules will almost certainly proceed, even if not from 6 April 2020, and thus businesses and workers affected should prepare for the planned changes. Contact us if you need help in assessing the likely impact on your business.

 

APPLY FOR MORE TIME FOR MTD DIGITAL LINKS

 

For VAT periods starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) your accounting systems must use digital links for any transfer or exchange of data between software programs, products or applications used as functional compatible software. That is the end of the current 12 month “soft landing” extension.

Businesses with complex or legacy IT systems may require a longer period to put digital links in place. These businesses can apply to HMRC for additional time to put the required digital links in place. If your business qualifies then the additional time will be granted as a specific direction from HMRC.

If, for example, your company purchases another business it may take additional time to digitally link different software applications or packages to meet the MTD legal obligations. HMRC will consider an application to extend the digital link deadline longer than the “soft landing” period.  That would mean the businesses would continue to be able to “cut and paste” during the extension period.

GOVERNMENT FUNDING TO HELP YOU PREPARE FOR CUSTOMS CHANGES

 

£16m in new government funding is now available to help businesses train staff in making customs declarations, and to help businesses who support others who trade goods to invest in IT.

 

This will ensure that trade with the EU continues as smoothly as possible after Brexit on 31 October. Grants can be used to support:

1. training costs for businesses who complete customs declarations, or who intend to in the future
2. funding for IT improvements, which is available to small and medium sized employers who are currently involved in trade as an intermediary

KEEP DETAILS OF YOUR DIRECTOR’S LOAN ACCOUNT, AND KEEP IT IN CREDIT

 

In a recent Tax Tribunal case the judge agreed with HMRC that a detailed breakdown of directors loan account transactions is required, including dates.

The significance is that where the loan account is overdrawn (debit balance) there may be a possible P11d benefit on the director and also a tax charge on the company. A taxable benefit in kind would arise where the loan exceeds £10,000 and the interest paid is less than the HMRC official rate, currently 2.5%.

In addition, if the director is also a shareholder of a close company, there is a 32.5% tax charge payable by the company making the loan where the loan is still outstanding 9 months after the end of the accounting period.

Thus, you can see why HMRC may require a detailed analysis of transactions between the director and the company.

Note that where the loan is repaid to the company and a similar amount withdrawn within a 30 day period the tax legislation matches the repayment with the new “loan” and consequently the original loan would still be outstanding.

NO CAPITAL ALLOWANCES FOR EQUIPMENT IN A “DWELLING HOUSE”

 

As a general rule, there are no capital allowances available for expenditure on plant and machinery in a dwelling house.

 

In a recent Tax Tribunal case it was decided that only equipment installed in the “common parts” of a dwelling house qualifies for tax relief. This would typically comprise a common entrance lobby, corridors, stairs or lifts and those parts of the building which do not provide any living facilities.

A major exception to this rule is where the property qualifies as furnished holiday lettings where the business is treated as if it is a trade. Consequently, assets such as beds, sofas, televisions and white goods would qualify for capital allowances as plant and machinery in such a business.

Note also that the new Structures and Buildings Allowance is not available in respect of “dwellings” nor structures in the garden such as a garden office.

FURNISHED HOLIDAY LETTINGS BUSINESSES ALSO QUALIFY FOR CAPITAL GAINS TAX RELIEF

 

As mentioned above furnished holiday lettings businesses are eligible for capital allowances on equipment in the property. Where the business incurs finance costs such as mortgage interest the restriction that applies to other residential property businesses does not apply to furnished holiday lettings.

It should also be noted that qualifying furnished holiday lettings businesses are eligible for a number of important reliefs from capital gains tax. “Rollover” relief would apply where the proceeds of sale of a property are reinvested in another qualifying asset and it is also possible to claim holdover relief on the gift of the whole or part of property business. Note also that entrepreneurs’ relief would be available on the disposal of the furnished holiday lettings business.

As mentioned in a previous newsletter the Office of Tax Simplification have recommended that furnished holiday lettings businesses should qualify for inheritance tax (IHT) business property relief which, if legislated, should mean no IHT payable when the business is passed on during lifetime or on death.

COLLECTING UNPAID TAX FOR 2018/19 THROUGH YOUR PAYE CODING

 

Under certain circumstances it is possible to arrange the collection of unpaid tax through your PAYE coding rather than making a balancing payment on 31 January. This will depend upon the amount outstanding and the amount of income taxable under PAYE. There is a further condition that the return is submitted to HMRC online before 30 December 2019 in order that the 2018/19 tax may be collected by amending the 2020/21 PAYE coding.

 

So please get your tax return information to us as soon as possible if you would like to take advantage of this facility.

 

DIARY OF MAIN TAX EVENTS

NOVEMBER/ DECEMBER 2019

 

Date	What’s Due
1/11/19	Corporation tax for year to 31/01/2019 unless quarterly instalments apply
19/11/19	PAYE & NIC deductions, and CIS return and tax, for month to 5/11/19 (due 22/11 if you pay electronically)
1/12/19	Corporation tax for year to 28/02/2019 unless quarterly instalments apply
19/12/19	PAYE & NIC deductions, and CIS return and tax, for month to 5/12/19 (due 22/12 if you pay electronically)
30/12/19	Deadline for filing 2018/19 tax return online in order to request that HMRC collect outstanding tax via the 2019/20 PAYE code