News & Updates

The structures and buildings allowance (SBA) will apply to qualifying construction and improvement expenditure committed to on or after 29 October 2018, but the law and regulations to implement the SBA are subject to a consultation which closes on 31 January 2019. So what do we know?

Documents are key

The SBA doesn’t have an expenditure cap, so it doesn’t matter how much the business spends on qualifying construction in a particular period, as long as the contracts for the physical works, including any preparatory works, are made in writing and are entered into on or after 29 October 2018. The expenditure must also be incurred on or after 29 October 2018.

There will be anti-avoidance rules to discourage businesses from fudging contract dates on recently started projects so they fall within the SBA. If a contract dated before 29 October is withdrawn, revoked, or replaced by a later contract, SBA may not apply. Similar anti-avoidance rules will prevent retrospective use of leases to divide up interests in a building between different parties.

What costs?

The SBA will cover all construction, renovation, conversion and repair costs (FB 2019 cl 29(12)). This is encouraging as businesses won’t have to argue whether the expenditure was an improvement or a repair. Demolition costs will also be covered, and costs of preparing the land, but the cost of acquiring the land and the cost of obtaining planning permission is not covered. Purchases of new and unused buildings from a developer will qualify, subject to an apportionment to take out the value of the land.

Definitions to be defined

A claim for SBA will only be permitted once the building is in “qualifying use” by the business. Regulations will determine what “qualifying use” means, but we do know this will be restricted to “prescribed business purposes” – also to be defined by regulations. Any building used partly or wholly as a dwelling house, or ancillary to a dwelling (perhaps a garage) won’t qualify. Also, any building used for holiday or overnight accommodation of a prescribed kind is unlikely to qualify.

There will be plenty of scope to influence how the regulations for the SBA are framed, so if your clients are likely to benefit from this new allowance, encourage them to submit representations to the consultation.

Written by the Tax Advice Network

Moving house is never easy, and sometimes it can take months or years to sell the former home. That’s why there is some flexibility in the CGT relief for the main residence, such that the last 18 months of gain is exempt from CGT for any reason.

You may remember that this final period exemption was cut from 36 months to 18 months with effect for sales agreed after 5 April 2014, although the 36-month period is retained for disabled taxpayers and those who move into residential care. The government is proposing to cut this final period exemption again to 9 months, and retain the 36 month exemption for those who currently qualify.

The Budget 2018 notes are vague about when this change will take effect. Table 2.1 in the main Budget summary indicates that these two changes are expected to generate some £15m of additional tax in 2019/20 (see item 57). This indicates that the final period exemption will be cut with effect from 6 April 2019 rather than from 6 April 2020, as the text implies.

The second change to CGT main residence relief is to remove lettings relief where the owner no longer lives in the property. Currently if the taxpayer moves and lets his former home, lettings relief can exempt a portion of the gain equivalent to the lower of:

• gain for let period
• gain exempt due to occupation as main residence
• £40,000 per owner.

The government is proposing to restrict lettings relief to periods in which the owner also occupied the property while part of it was let. This change is due to take effect from 6 April 2020. However, the Budget notes are not clear as whether this refers to disposals made on or after that date or for let periods beginning on or after that date.

Legislation to bring in these changes is expected to be included in the 2020 Finance Bill.

 

Written by the Tax Advice Network

The high income child benefit charge (HICBC) was introduced on 7 January 2013 to claw back child benefit paid to families where the highest earner has total net income of £50,000 or more. The professional bodies warned that this would drag people into self-assessment who would otherwise would have their tax affairs adequately dealt with under PAYE.

And so it came to pass. Since 2013 thousands of higher earners have been obliged to tell HMRC that they need a tax return in order to self-assess the HICBC. There are several problems with this:

• The parent who receives child benefit may not be the highest earner in the family.
• Many parents weren’t aware of the HICBC.
• Where the taxpayer’s income increases above £50,000 they aren’t prompted to think about their liability to pay the HICBC.
• HMRC knows who receives child benefit but didn’t tell all these claimants about the HICBC.

Some parents have received penalties for failing to notify HMRC of the need to pay HICBC. One such taxpayer was James Robertson (see our newsletter on 12 April 2018).

Robertson won his case as the child benefit he failed to tell HMRC about was not his income (his wife received it). In fact, child benefit is not taxable income at all. That’s why the HICBC is described as a charge and not a tax. As Robertson did not fail to declare any of his taxable income, there was no potential lost revenue to assess, and the penalty for failure to notify had to be nil as well.

Following the Robertson case, and other unreported cases, HMRC has now decided to refund some of the penalties charged to parents for failing to notify their liability to pay the HICBC for the years 2013/14 to 2015/16. However, not all parents will get a refund of the penalties. The parent must have made a claim for child benefit before 7 January 2013, and not received any communications from HMRC about the HICBC.

Parents who need to pay the HICBC for 2016/17 or a later year still need to tell HMRC about their liability. Also, any parents who claimed child benefit since 7 January 2013 are deemed to know all about the HICBC, which is really not the case.

Written by the Tax Advice Network

Many people think that they must wait until the end of the tax year to reclaim any tax overpaid. This is not the case, and it is now quite simple to do with dynamic PAYE coding and the online personal tax account.

Young people who have worked during the summer break to build up savings for living at university may have had too much tax deducted from their wages. This happens because £987 of their personal allowance is set against PAYE income each month, but over the whole year they may earn less than the full allowance of £11,850.

If the student doesn’t plan to earn a wage during the Christmas break, it would be worthwhile claiming a tax refund. This can be done by applying through their online personal tax account, or by calling HMRC. However, if making the claim by phone the taxpayer should note the date and time of the call, who said what, and the name of the HMRC adviser.

Tax refund claims can be made for the previous four tax years as well. Your children may need a bit of extra cash at this time, as they head off to University.

LITRG has produced a really helpful online tax guide for students covering all they need to know about tax, including some proforma letters to claim tax refunds.

Written by the Tax Advice Network

Are you fed-up with increasing burdens that government imposes on businesses through the tax system? MTD is just one example of a policy which is supposed make tax easier, but the transition to reporting digitally will certainly make tax compliance more difficult and more expensive for many businesses.

There are currently two surveys open which we and our clients can express our opinions about the UK tax systems. The results of these surveys will be fed into government policy making, so they are worthwhile.

The first an annual survey is hosted by the Administrative Burdens Advisory Board (ABAB). It is designed to evaluate experiences of engaging with the tax system by both businesses and tax agents. This year it focuses heavily on MTD, but don’t delay as this survey closes on 19 October 2018.

The second survey is a one-off exercise conducted by the Office of Tax Simplification (OTS), to seek views on the which tax complexities are challenging for businesses throughout the business lifecycle. The OTS want as many small businesses and their advisers to take part in this survey as possible, particularly businesses who normally wouldn’t engage.

The results of the OTS survey will be used to make recommendations to government on ways to make the tax system simpler, fairer and better for businesses.Its open until 7 December 2018.

Written by the Tax Advise Network

It was rumoured that the Minister for HMRC had to decide this month whether the MTD project should be stopped, postponed, or go ahead. It seems that decision has been made; MTD for VAT will go ahead from April 2019.

However, HMRC still has a lot to do to get its own systems aligned with the data which will flow through a different gateway under MTD, so it has introduced a six-month buffer into the MTD timetable.

The following categories of businesses and organisations will have their start date for MTD for VAT deferred until VAT periods beginning on and after 1 October 2019:

• VAT groups
• VAT divisions
• VAT traders based overseas
• Trusts
• Unincorporated charities and similar not for profit organisations
• Certain public sector bodies and local authorities
• Those who use the annual account scheme users
• Companies paying VAT of £2m or more who make VAT payments on account.

All other VAT registered traders with annual turnover of £85,000 or more must enter the MTD regime for periods beginning on and after 1 April 2019.

HMRC have also announced that it is inviting 500,000 businesses to join the MTD for VAT pilot. We believe this invitation will be sent by letter to sole-traders and companies who do not fall into one of the categories of deferred starters listed above. If you receive such a letter, you don’t have to join MTD until April 2019, and it may be better to wait until the system has been fully tested. Once inside the MTD regime it is very difficult to leave.

Partnerships, businesses who use the VAT flat rate scheme, and those who trade with EU countries, won’t be able to join the MTD for VAT pilot until late in 2018 or early 2019.

 

Written by the Tax Advice Network