National insurance checks

If you get your NIC calculations wrong, HMRC is unlikely to correct the figures, as it doesn’t reconcile NIC records at the taxpayer level as is done for income tax. There are three NIC issues you should check.

Directors

Unlike normal employees, directors are treated as having an annual pay period for NIC purposes. Only individuals who serve on the board of the company are directors for this purpose. Employees who are given the title of “director”, but who have no controlling say in running the company should not be treated as directors for NIC purposes.

Pension age

Employees are not liable to pay primary class 1 NIC once they have reached state pension age (SPA), but secondary (employers) class 1 NIC is payable on their salary beyond that point. In November 2018 the SPA was equalised at 65 for men and women, but the SPA continues to rise according to the individual’s date of birth. The employer needs to be aware of exactly when each employee will reach SPA, and record that information in the payroll software.

Deferral of class 1

It is still possible to defer payment of class 1 NIC where an employee has more than one employment and earns in excess of the upper earnings limit (£50,000 for 2019/20) in at least one of those employments. The individual needs to apply to defer class 1 NIC either online or using the paper form CA72A, preferably before the start of the tax year, but by 14 February within the tax year at the very latest.

Written by the Tax Advice Network

Entrepreneurs’ relief changes

FA 2019, Schedule 16 has introduced four changes to entrepreneurs’ relief (ER). The new conditions for an individual’s shareholding in their personal company to qualify for ER took effect from 28 October 2018, as we explained in our newsletters on 1 November 2018 and 10 January 2019. The three other changes to ER take effect for disposals made after 5 April 2019.

Qualification period

First the bad news; for disposals after 5 April 2019 all the qualifying conditions for ER must be in place for at least 24 months to the date of disposal, or to the date the business ceases to trade. If you are planning to wind down their business and sell-off the assets, it may be better to cease trading before 6 April 2019 to ensure the ER conditions only have to be met for 12 months rather than 24 months. This may be important where a spouse or partner has joined the business or acquired some shares, but they haven’t built up a 24-month history with the business.

Look through incorporation

Where a business incorporates the qualification clock for the ER conditions is set back to zero on the issue of the shares, or on date the on which the company starts trading, whichever is the later. Where the shareholders receive an offer for the company shortly after incorporation, they will be denied ER as they won’t have built up full qualification period of share ownership.

The good news is that for disposals after 5 April 2019 the qualification period for ER can look through the incorporation and include the period during which the business was owned by the current shareholders. This look-through only applies if the shares were acquired wholly or partly in exchange for the transfer of the business as a going concern, and all the assets of the business, other than cash, must have been transferred to the company. These are the conditions under which incorporation relief applies (TCGA 1992, s 162).

If you are planning to incorporate their business, make sure that incorporation relief does apply as an insurance policy against a quick sale of the company.

Dilution of shareholding

Where equity investment is raised from outside investors, it can dilute the holdings of existing shareholders to below 5% of ordinary share capital, stripping away their rights to ER.

For new share issues made from 6 April 2019, the existing shareholders can preserve their ER by making two elections (TCGA 1992, s 169SC and s169SD). The first election creates a deemed sale and reacquisition of their shares, crystallising the gain on which ER can be claimed, and the second election defers the CGT due until their shares are sold. These elections must be made by the first anniversary of 31 January following the tax year in which the additional shares are issued.

Written by the Tax Advice Network

Pensions Auto-Enrolment – How much?

Employee Employer

Up to 6 April 2018 1% 1%

6/4/18 to 5/4/19 3% 2%

From 6 April 2019 5% 3%

These rates apply from 1^st March 2019.  You can use the previous rates for up to 1 month from the date the new rates apply.

 

These rates only apply to employees using a company car.

 

Engine size                  Petrol – amount per mile     LPG – amount per mile

1400cc or less             11 pence                                 7 pence

1401cc to 2000cc        14 pence                                 8 pence

Over 2000cc                21 pence                                 13 pence

 

Engine size                  Diesel – amount per mile

1600cc or less             10 pence

1601cc to 2000cc        11 pence

Over 2000cc                13 pence

 

Hybrid cars are treated as either petrol or diesel cars for this purpose.

 

Advisory Electricity Rate

The Advisory Electricity Rate for fully electric cars is 4 pence per mile.

Electricity is not a fuel for car fuel benefit purposes.

In Alice through the Looking Glass the character Humpty Dumpty declares that when he uses a word it means just what he chooses it to mean, and so it is with “tax avoidance” when written or spoken by an officer of HMRC.

In 2016 a targeted anti-avoidance rule (TAAR) was introduced to prevent individuals from winding-up their close company, then continuing the same business in another vehicle, as we described in our newsletter on 13 July 2017. In Spotlight 47 HMRC declares that schemes designed to step around this TAAR, which involve selling the company to a third party rather than winding it up, don’t work, so the TAAR would apply.

This is misleading to say the least.

The TAAR only applies if a company is wound-up, it can not apply if the company is sold to a third party. If a business owner decides to sell their cash-rich company to a third party in order to release the funds, and within two years (the period defined in the TAAR), starts a similar trade or activity, the income tax charge imposed by the TAAR cannot apply. It is disingenuous for HMRC to imply that it could.

What’s more HMRC say that the general anti-abuse rule (GAAR) would apply in these circumstances if the TAAR doesn’t apply. This is also nonsense, as it was not the intention of Parliament for the TAAR to apply on the sale of a company to a third party.

HMRC is trying to frighten people away from using tax avoidance schemes, which is a good thing, but it needs to use this power in a responsible way. If a client is selling their company in order to release funds for another venture, that transaction is not tax avoidance.

Written by the Tax Advice Network

Chancellor Philip Hammond didn’t mention MTD in his Spring Statement speech in the House of Commons, but it was included in his written statement. This makes it clear that MTD will not be extended to other taxes in 2020, nor to any new businesses in that year.

This is a confirmed slowdown of MTD; there will be no mandation of MTD for business (income tax) until at least 2021, and no MTD for corporation tax until the cows come home. Also MTD for VAT won’t be extended to businesses which are voluntarily register for VAT until at least 2021.

In the meantime, MTD for VAT continues as planned, but you need to be aware of these points:

MTD compliant

Some businesses assume that if they have installed MTD-compliant software that is sufficient preparation in order to file VAT returns under MTD, but it isn’t. Each business must take the additional step to sign up to MTD, or the agent can do this for them. It is very important to get this message over to clients as if they leave the signing-up process to the last few days it may be too late to file under MTD.

Time to sign up

In last week’s newsletter (14 March) we explained that clients who pay their VAT by direct debit had to sign up for MTD at least 15 working days before the VAT payment is due, but that this period could be shortened, well it has. From 19 March 2019 businesses can sign up for MTD at any time other than:

• five working days after sending a VAT return and
• seven working days leading up to the date when the next VAT return is due.

Clients with no email

To sign up to MTD (and for you to sign-up your client) the business must have a functioning email address. If your client does not have an email address, they will need to claim exemption from MTD for VAT. See section 3 of VAT Notice 700/22. You should not provide your own email address as the client’s address as the client must agree to the terms and conditions of MTD, you can not do this for them.

VAT helpline

The voice recognition service on the VAT helpline still doesn’t recognise “MTD” or “making tax digital” as a thing people will be asking about. The VAT helpline is also very overloaded as HMRC has now written to every business which needs to start using MTD to file VAT returns, and this is the first many businesses have heard about MTD.