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

BUILDERS’ VAT RULES DELAYED FOR A YEAR

The government have decided to delay the start of the proposed VAT reverse charge for supplies by sub-contractors in the construction sector.

The reason for the u-turn is the lack of awareness of the change that was originally due to start on 1 October 2019. Many sub-contractors, and some main contractors, were not prepared for the changes on top of getting to grips with Making Tax Digital for VAT and consequently the government have decided to delay the start of the new rules for 12 months.

It has also come to light that some of those sub-contractors using the VAT flat rate scheme would be worse off which will require a review of whether that scheme is still worthwhile for them.

 

GET READY FOR THE “OFF-PAYROLL” WORKING RULES

Where large or medium-sized organisations are paying workers via personal service companies or agencies they will need to operate new procedures from 6 April 2020.

The new rules will apply to partnerships, LLPs and larger charities as well as limited companies. Only those organisations that would be classed as “small” under the Companies Act criteria will be outside of the new rules.

From 6 April 2020 the end user organisation will be required to determine whether or not the worker would be an employee of the organisation if directly engaged. That determination will need to be communicated to the agency supplying the worker so that income tax and national insurance is deducted from any payments.

The end user organisation should use the Check Employment Status for Tax (CEST) software on the HMRC website to carry out the determination. A copy of the determination should also be given directly to the worker.

 

WHAT IF THE WORKER DISAGREES?

 

Where the worker disagrees with the employment status determination they should contact the end user straight away setting out their grounds for disagreement.

 

The end user must provide a response within 45 days of receiving the disagreement. During this time they should continue to apply the rules in line with the original determination.

 

RADIO PRESENTER WINS IR35 PERSONAL SERVICE COMPANY CASE

The extension of the “off-payroll” working rules to the private sector mentioned above is planned for April 2020 but in the meantime tax tribunal decisions are still being decided against HMRC.

In a recent case involving a radio presenter working for TalkSport, it was decided that the presenter would not have been an employee if directly engaged. A key factor was that the the level of control over the presenter fell far below the sufficient degree required to demonstrate a contract of service.

The accountancy bodies have been lobbying the government to take the decision of the judges in this and the recent case involving Lorraine Kelly into consideration when they update the CEST software used to determine employment status.

 

DISGUISED REMUNERATION LOAN CHARGE REVIEW

 

The Chancellor, Sajid Javid has commissioned a review of the Loan Charge to consider whether the policy is an appropriate way of dealing with disguised remuneration loan schemes used by individuals who entered directly into these schemes to avoid paying tax.

The disguised remuneration Loan Charge was introduced to tackle contrived schemes where a person’s income was paid as a loan which did not have to be repaid instead of receiving salary, thereby avoiding tax and national insurance. Such schemes have now been successfully challenged by HMRC in the courts.

Disguised remuneration loan schemes were used by tens of thousands of people, and concerns have been raised about the use of the Loan Charge as a way of drawing a line under these schemes and collecting tax from the beneficiaries. The government is clear these schemes do not work and that their use is unfair to the 99.8% of taxpayers who have not used them.

TIME FOR AN ELECTRIC COMPANY CAR?

The government has announced that there will be a zero P11d benefit for the drivers of electric cars from 2020/21. This is instead of the 2% scale charge that was originally included in Finance Act 2017 to apply for 2020/21. The legislation for the change will be included in Finance Bill 2020 and it is proposed that the benefit will be 1% of list price in 2021/2 and then 2% in 2022/3.

The zero taxable benefit will also apply to hybrid cars emitting no more than 50 grams of CO2 per kilometre with a range using its electric motor of at least 130 miles, but only for cars first registered on or after 6 April 2020. For those registered before 6 April 2020 the scale charge will be 2%.

Rather confusingly there will be two different sets of scale charges from 2020/21, one set relating to those registered before 6 April 2020 and a new lower set of rates for those registered on or after 6 April 2020.

However businesses are advised to wait until 6 April 2020 as the P11d scale charge for electric cars is currently 16% of original list price for 2019/20.

ADVISORY FUEL RATE FOR COMPANY CARS

These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 September 2019. Where there has been a change the previous rate is shown in brackets.

 

Engine Size	Petrol	Diesel	LPG
1400cc or less	12p		8p
1600cc or less		10p
1401cc to 2000cc	14p (15p)		10p (9p)
1601 to 2000cc		11p (12p)
Over 2000cc	21p (22p)	14p	14p

 

You can continue to use the previous rates for up to 1 month from the date the new rates apply.  For hybrid cars use the equivalent petrol or diesel rate. However, for wholly electric cars there is a new 4p advisory rate from 1 September 2019.

DON’T FORGET THERE MAY BE TAX TO PAY ON YOUR DIVIDENDS IN JANUARY

 

The rules for taxing dividends changed radically from 6 April 2016 with the removal of the 10% notional tax credit and the introduction of new rates of tax on dividends. For many taxpayers that means more tax to pay on dividends on 31 January each year.

 

If you are a higher rate taxpayer and received £22,000 of dividends in 2018/19 only £2,000 of those dividends are tax free now leaving £20,000 of those dividends to be taxed at 32.5% meaning £6,500 due on 31 January 2020, and possibly payments on account of your 2020/21 liability.

If you can let us have all of your tax documents as soon as possible we can let you know how much tax you need to pay next January so that you can set aside sufficient funds. We may also be able to suggest some tax planning ideas to reduce your tax liabilities.

DIARY OF MAIN TAX EVENTS

OCTOBER / NOVEMBER 2019

Date	What’s Due
1/10	Corporation tax for year to 31/12/18, unless quarterly installments apply
5/10	Deadline for notifying HMRC of chargeability for 2018/19 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 5/10/19 (due 22/10 if you pay electronically)
1/11	Corporation tax for year to 31/01/19, unless quarterly installments apply
19/11	PAYE & NIC deductions, and CIS return and tax, for month to 5/11/19 (due 22/11 if you pay electronically)

 

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

 

Managing Leadership Transition

 

Successfully managing a change in leadership can be difficult for any business.

Good communication and proper planning are key. A change of leadership should be viewed as both a challenge and an opportunity for any business. If you are promoting existing managers, you should be prepared for some challenging times. The transition into the top team is demanding and around 50% of new business leaders fail within 18 months of taking on their new leadership role. This is because longstanding management issues are only likely to surface once the new team is in place, and often they can take the new management team completely by surprise.

However, with proper succession planning, any nasty surprises can be avoided. A change in leadership can also provide the opportunity to move in a new direction, develop new products / services, enter new markets or drive innovation.

It is important for new business leaders to remain positive, regardless of the challenges they face. If the management team is positive and communications are up-beat, this is likely to influence the staff across the wider business and they are more likely to view the leadership change favourably. Changes in leadership often mean changes to processes, and different expectations. The changes should be communicated as an opportunity for the firm to develop and grow.

Deal with resistance quickly. Not everyone will adapt to a leadership change in a positive way. As soon as you identify team members who are resistant to change, speak with them to find out why. What are the areas that most concern them? Is their resistance negatively affecting other team members? It is the job of the management team to encourage and help team members understand the reasons for the changes and to help them accept it. Sometimes the best way to win over dissenters is to give them a change management project to own and run. This makes them part of the solution to the problem.

A leadership change is not the time to close your office door, step back and see what happens. Staff from all levels across the business should be encouraged to submit ideas and suggestions on how they can help with the transition. The leadership team should take time to understand the capabilities of the various departments across the firm. They should encourage debate and welcome both positive and negative feedback as part of the process.

 

Thought Leadership

 

Thought leadership can be a very effective marketing tool but successfully implementing a thought leadership strategy is a lot harder that it sounds.

A thought leader is someone who, based on their expertise and perspective of an industry, offers unique guidance, inspires innovation and influences others. Their views on a particular subject are taken to be authoritative.

To become recognised as a thought leader by your peers, you are going to have to write, speak, produce content such as video, be interviewed and produce original ideas about the topic you want to specialise in. You need to be passionate about your topic or you are unlikely to succeed in becoming a thought leader in that area. Focus on a niche area – if your topic is too broad or is already covered by lots of other industry experts, you risk getting lost in all the noise.

Once you have identified your topic, consider the angle. Are you going to challenge conventional thinking? Have you got an original idea that helps you to stand out? Go beyond just collecting and disseminating existing information into useable chunks for your audience. Look at your target market – what challenges do they face in their business or personal lives. Perhaps there is a gap where your firm’s product or service can help? Consider how you could go about educating your target audience in a way that adds value for them. Social media makes it easier than ever to disseminate thought leadership material. Start by producing a blog on LinkedIn. Set yourself a target to update your LinkedIn blog once a month, focussing on expressing and articulating your thoughts on your chosen topic in way that is relevant to your target audience.

Carry out research that relates to your topic, you could perhaps create your own online survey. Use that research to substantiate your point of view. Draw on your own customer data and use this to develop your thinking and report on your results. Over time, you will start to gain some recognition among your target audience. As your reputation builds, expand your range of communication channels to include articles for industry magazines, e-news updates, newsletters and posts on your company website.

Make yourself available to speak at industry conferences and be open to responding to enquiries from the media and trade press. The more you put yourself, your content and your views out there, the more your reputation will grow and develop. Make a point of sitting down at least once a year to create, review and update a rolling thought leadership plan. Consider what it is that you are trying to achieve and set out your objectives for your thought leadership in order to support your overall goals.

 

iPhone 11 and iPhone 11 Pro

 

The iPhone is seen by many as the gold standard when it comes to smartphones. Is the newest version worth the upgrade?

 

Apple has just launched the new iPhone 11 and iPhone 11 Pro. For those who want a larger screen, there is also the iPhone 11 Pro Max which features a huge 6.5inch screen. The iPhone 11 Pro has a 5.8inch screen and the cheaper iPhone 11 (which replaces the iPhone Xr) has a 6.1 inch LCD screen and its case comes in a variety of colourful finishes including black, green, yellow, purple, red or white. The iPhone 11 Pro has a different selection of finishes and you can choose to have it with a silver, space grey, gold or midnight green metallic finish.

 

So other than screen sizes, how do the latest iPhone models compare? The iPhone 11 is the cheapest model in the new range, starting from £729 for the 64GB model. rising to £879 for the 256GB version. It has a high resolution LCD screen which is good but isn’t as pin-sharp as the OLED screen on the iPhone 11 Pro. However the iPhone 11 Pro is more expensive and starts from £1,049 for the 5.8inch version with 64GB storage and £1,149 for the larger 6.5in iPhone 11 Pro Max. For those who want more storage you can have up to 512GB but it is expensive at £1,499 without a contract. All phones in the iPhone 11 range are water and dust resistant. The big upgrade over the iPhone X is the camera. The iPhone 11 has a 12mp dual lens camera (offering wide and ultra-wide angle lenses).

 

The iPhone 11 pro adds a third, telephoto lens. The Face ID authentication system has also been improved and is designed to work at more angles than the previous iteration. Arguably the most important update to the new iPhone 11 range is the new battery technology which is designed to offer all-day battery life.

The new A13 Bionic chip which features across all iPhone 11 models is much more efficient in terms of power usage, while also offering improved performance. The key update is the improved battery life and this alone makes the upgrade worthwhile for most business users.

 

Effective Employee Benefits Don’t Have to Cost Much

 

Work life balance and flexible working benefits may be more valued than some of the more expensive employee benefits offered by some businesses.

Google is well known for providing everything from free food to onsite gyms, while Netflix has joined the bandwagon of firms offering unlimited holidays. What these employers demonstrate is that in the war for talent, large businesses are prepared to invest heavily in order to attract and retain the best people. Competitive pay and good benefits still factor into an employee’s decision to join and stay at a firm. However, the market is starting to focus on offering some other key benefits. To truly enjoy their jobs, employees must feel that their employers want to provide them with what they need to be successful in both their professional and personal lives. A recent study by Mercer identified three factors that employees are looking for in a company.

Flexibility

The nine-to-five workday is outdated. Regardless of industry type, flexibility is incredibly important to employees who are trying to get their work-life balance right. Firms that offer employees flexibility in the form of remote working, flexible schedules and the technology to work from anywhere are attracting the best people. Flexible working has also been linked to reduced levels of workplace stress, better employee well-being and increased productivity. The best firms have created a culture of trust. They trust their employees to self-manage and get the job done.

Health and Well-Being

Workplace wellness initiatives show employees that their employers truly care about their health and well-being. To be successful, employee wellness programs need to be customised and include a wide variety of wellness initiatives such as fitness activities, onsite health screenings, providing standing desks and regular ‘lunch and learn’ sessions. To truly make a commitment to employee health and wellbeing, employers need to lead by example and create a culture of wellness across the whole firm.

Working With a Purpose

The next generation of talented employees are coming up through the ranks and they want to work for a firm with a purpose. They are willing to give up fancy offices and free coffee in exchange for getting to work on more fulfilling projects that make a difference. Modern employees want to feel their work is contributing to the greater good of society. In order to create a sense of purpose for your team, you should create a company vision, develop a reward and recognition system that encourages the right behaviour and educate your employees as to how their job impacts the firm, its customers and the wider community.

 

Landlords can’t claim capital allowances on the cost of items used within residential properties (referred to as dwelling houses in CA 2001, s 35). However, there can be confusion over whether the cost of items in communal areas of blocks of flats or student residences, qualify for capital allowances.

Certain specialist firms will approach landlords of houses in multiple occupation (HMOs) encouraging them to claim allowances on up to 8% of the price paid for such properties. These claims are almost certain to fail when examined by HMRC, as illustrated by the case of Hora Tevfik (TC07383).

Tevfik let out three HMOs in Wokingham and Reading for which he claimed £50,000 of allowances under the AIA for 2011/12. This was the first mistake as the AIA only applies for items purchased on or after 6 April 2008. Tevfik was claiming allowances for equipment included in the properties which purchased before April 2008.

Tevfik’s agent; Portal Tax Claims, apparently surveyed the properties and made claims for equipment included in communal areas. However, the HMRC capital allowances manual at para CA11520 makes it clear that “the facilities required for day-to-day private domestic existence” (eg kitchens and bathrooms), are considered part of the dwelling house and don’t qualify for capital allowances.

The survey of the properties was not made available to the FTT, if it had been there may have been scope for accepting capital allowance claims relating to items in genuine communal areas such as on the stairways and corridors.

Our VAT registered clients have been focusing on the mechanics of getting their VAT returns into HMRC using MTD-compatible software. But there are two other requirements of the MTD regulations; to record VAT data digitally and to transfer that data via digital links to the VAT submission software.

Many business systems contain points where different software programmes or spreadsheets do not communicate, so summary totals are transferred by hand (retyping) or by copying and pasting. This non-automated data transfer must be replaced by a digital link to fully comply with the MTD regulations.

HMRC has agreed a one-year concessionary extension (the soft landing) to the requirement to have digital links at certain points in the business system. Section 8 of VAT Notice 700/22 explains where the digital links are compulsory and where the lack of a digital link can be covered by the soft landing concession.

The one year soft landing period runs out at the start of the first accounting period commencing from 1 April 2020, or 1 October 2020 for business that have a deferred start date for MTD. However, in the latest version of VAT Notice 700/22, new paragraph 4.2.1.3 introduces the possibility of an extension to the digital link concession.

This is not an automatic extension, the business must apply to HMRC for the extension to be granted, giving reasons why it will be “unachievable and not reasonable” to have the digital links in place by the deadline, and provide a timetable of when those digital links will be inserted. The business must also provide a map of the VAT recording system which highlights the points where a digital link is missing.

Drawing up such a system map requires an accurate audit of the VAT processes, which we can help our clients with (see examples in VAT Notice 700/22). HMRC also require an explanation of the controls which ensure that any manually transferred data is moved accurately and without errors.

Note that any extension granted to the soft landing period for digital links can only last a maximum of one year, and it must be applied for before the current soft landing period expires.

Clients’ duties under auto-enrolment are on-going. As part of those duties, every three years, employers must undertake a re-enrolment and re-declaration exercise.

On each third anniversary of their staging date or duties start date (as appropriate depending on when they came within auto-enrolment), employers must re-assess staff who have left the pension scheme (or who opted out). Staff who are aged 22 up to state pension age and who have earnings before tax of £10,000 a year (£833 per month; £192 per week) must be automatically re-enrolled. The employer must still re-enrol an employee even if the employer knows that the employee does not want to be a member of the pension scheme – it is for the employee to then opt out if they wish to. As part of their re-enrolment duties, the employer must also write to all employees who have been re-enrolled.

The employer must also complete a re-declaration of compliance every three years, confirming that they have met their obligations under auto-enrolment. This must be done within five months of the third anniversary of the staging date or duties start date. The re-declaration of compliance can be completed online on the pension regulator’s website.

It is important that clients understand their duties under auto-enrolment as penalties for non-compliance can be high.

Most employers use pay mileage allowances to reimburse employees for the cost of petrol incurred on business journeys. When the employee uses his or her own car for the journey, payments can be made tax-free as long as they do not exceed the approved mileage rates (set at 45p for the first 10,000 business miles in the tax year and at 25p per mile for any subsequent business miles in the tax year). If the employee has a company car but pays for fuel, reimbursement can be made tax-free up to the advisory fuel rates published quarterly by HMRC.

When it comes to VAT, input tax is calculated by multiplying the fuel element of the mileage allowance by the VAT fraction – at a VAT rate of 20%, the VAT fraction is 1/6. HMRC accept the advisory fuel rates as representing the fuel element of the mileage allowance. Rates published by the AA and the RAC are also acceptable. Clients should note that HMRC may check what rates have been used to work out the input VAT reclaimable on mileage allowances.

Clients should also note that the mileage allowances paid to employees must be based on actual business mileage. Records should be kept in support of this, showing:

• mileage travelled;
• whether the journey is business or private;
• the cylinder capacity of the vehicle;
• the rate of mileage allowance paid; and
• the amount of input tax claimed.

If the mileage allowance is capped, HMRC will only allow recovery on the basis on the mileage allowance paid, so if all company car drivers with cars with engines in excess of 1400ccs are paid the advisory fuel rate for the 1400—2000cc band, VAT cannot be reclaimed for cars with an engine in excess of 2000cc by reference to the advisory fuel rate for cars with engines over 2000cc.

Written by the Tax Advice Network