Welcome to our monthly newswire. As usual please contact us if you wish to discuss any matters in this newsletter further. Best wished for the festive season!

 

ELECTION TAX PROPOSALS – MORE MONEY FOR NHS?

The various political parties have all made bold promises in the run up to the General Election about increased spending if elected, particularly extra money for the NHS. Although many of the spending pledges will be funded out of increased borrowing, the parties have assumed that they can persuade voters that extra spending on the NHS should come from general taxation.

 

The Liberal Democrats policy would be to increase the rate of income tax by 1% to raise £35 billion a year for the NHS and social care. The Conservative and Labour parties propose to provide extra money for the NHS from corporation tax changes.

 

BORIS JOHNSON TO DELAY 17% RATE OF CORPORATION TAX

 

Corporation tax is scheduled to be reduced from 19% to 17% from 1 April 2020. However, in a speech to the CBI on 18 November Boris Johnson announced that, if elected, the Conservative Party would keep the rate at 19% to provide an extra £6 billion for the NHS.

 

Despite Jeremy Corbyn telling the CBI that the Labour party is “not anti-business” the party have previously announced that they would reverse the recent cuts in corporation tax. Note that the rate of corporation tax was 28% back in 2010 at the end of the last Labour government.

 

MORE MONEY FOR SOCIAL CARE?

 

In every General Election since 1997 there have been pledges by the various political parties to resolve the funding of care for the elderly in the UK but yet nothing has happened. It even sparked a dramatic U-Turn by Teresa May in 2015 with her proposal for a so-called “dementia tax”. With the care system in crisis it will be interesting to see what the different political manifestos promise to solve the problem.

 

Although not strictly a tax matter, for many families funding care fees for the elderly is a bigger issue than inheritance tax (IHT). The current rules in England and Wales require the family to make a contribution to care fees where the person’s assets exceed £23,250, including the value of the family home.

 

The normal IHT planning strategy of giving wealth away and surviving for seven years does not necessarily work as the social care rules are based on the concept of “deliberate deprival” of the estate.

 

If the local authority consider that the transfer of assets was done deliberately to deprive the estate of assets to avoid paying care fees, then the transfer is ineffective.

 

CHRISTMAS GIFTS OF UP TO £50 TO EMPLOYEES

 

Remember that certain gifts to staff at Christmas are tax free if structured correctly. Ever since April 2016 employers are allowed to provide their directors and employees with certain “trivial” benefits in kind tax free.

The rules were brought in as a simplification measure so that certain benefits in kind do not now need to be reported to HMRC, as well as being tax free for the employee. There are of course a number of conditions that need to be satisfied to qualify for the exemption.

 

Conditions for the exemption to apply

 

• the cost of providing the benefit does not exceed £50
• the benefit is not cash or a cash voucher
• the employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme
• the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)

 

This exemption will generally apply to small gifts to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.

 

Note that where the employer is a “close” company and the benefit is provided to an individual who is a director or other office holder of the company, the exemption is capped at a total cost of £300 for the tax year.

Please feel free to contact us if you are considering taking advantage of this exemption.

 

GIFTS TO CHARITY

 

Where possible higher rate taxpayers should “Gift Aid” any payments to charity to provide additional benefit to the charity and for the individual to obtain additional tax relief on the payment.

 

For example where an individual makes a £20 cash donation to charity the charity is able to reclaim a further £5 from HMRC making a gross gift of £25. Where the individual is a 40% higher rate taxpayer he or she is able to claim a further £5 tax relief under self-assessment, reducing the net cost of their donation to £15.

 

Note that the donor is required to make a declaration that they are a UK taxpayer and those that have not suffered sufficient UK tax to support the Gift Aid amount will taxed on the shortfall.

 

Remember that Gift Aid does not just apply to gifts of cash. Many charity shops will now sell the donated items on your behalf and are able to treat the sale proceeds as Gift Aided donations.

 

It is also possible to gift quoted securities and land and buildings to charity and claim Gift Aid on the market value of those assets.

 

GET ON YOUR BIKE!

USING THE CYCLE TO WORK SCHEME

 

The government has recently announced that the previous £1,000 limit on the cost of a bicycle provided under the cycle to work scheme has been removed. This will apply where the employer uses a firm authorized by the Financial Conduct Authority (FCA) to hire out cycles to employees who use them to commute to work.

 

Note that where the cycle is provided under a salary sacrifice arrangement there continues to be no taxable benefit if the amount paid by the employee is within HMRC approved limits. Note that where the bicycle is transferred to the employee after 6 years HMRC accept that value is negligible.

 

SALARY SACRIFICES

 

The provision of a bicycle to employees under the governments cycle to work scheme is an exception to the general rule introduced from April 2017 where the amount taxable is the greater of the salary foregone and the taxable benefit as set out in the tax legislation.

 

Other exceptions to the general rule include employer pension contributions and childcare vouchers.

 

Please get in touch for further details.

 

DIARY OF MAIN TAX EVENTS

DECEMBER 2019/JANUARY 2020

Date	What’s Due
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 2020/21 PAYE code
1/1/20	Corporation tax for year to 31/03/2019 unless quarterly instalments apply
19/1/20	PAYE & NIC deductions, and CIS return and tax, for month to 5/1/20 (due 22/1 if you pay electronically)
31/1/20	Deadline for filing 2018/19 self-assessment tax return online and paying your outstanding tax for 2018/19 and first payment on account of 2019/20 tax.

 

New CEST tool

HMRC has just released a new version of the check employment status for tax (CEST) tool. HMRC want engagers to use the tool when making a decision about whether a contractor should be taxed as an employee for the off-payroll working rules.

The off-payroll rules are due to be rolled out to contracts with large private sector engagers from 6 April 2020, but the law is still part of the draft Finance Bill which will have to be passed by the new government after the election. For now, we have to assume that the roll-out of off-payroll working will happen, and it is already in place for public sector contracts.

The worker can also use the CEST tool to check whether their contracts are within IR35 either before or after 6 April 2020. However, the CEST tool should only be used for tax purposes, it does not provide a meaningful answer to whether an individual is entitled to employment rights. Also, it should not be used to determine the tax treatment of self-employed individuals working through an agency, when the agency rules in ITEPA 2003, s. 44 may apply.

HMRC says it will stand by the results of the CEST check. However, that doesn’t always apply in practice, as there have been tribunal cases where the outcome of the CEST has been discounted when presented as part of the evidence (eg RALC Consulting Ltd).

The CEST tool is not perfect and it is not impartial. HMRC says the CEST tool reflects its own view of employment status cases and law. There may be an equally valid alternative view, which could be argued in court.

Having said that, if the outcome of the CEST is that the worker is outside IR35, that is valuable evidence to support that position.

Written by the Tax Advice Network

Missing pensions declarations

Where a taxpayer has paid pension contributions which exceed their annual allowance, they must declare the excess on their tax return to calculate the annual allowance charge, even if the pension scheme is going to pay that charge.

Many taxpayers don’t realise that they have to make this declaration, and HMRC has noted this in its latest pensions scheme newsletter. An over-payment of pension contributions can arise unexpectedly due to the operation of two pensions traps; the money purchase annual allowance (MPAA) and the “restricted” annual allowance.

The MPAA reduces the standard £40,000 annual allowance down to £4,000, where pension benefits have already been accessed, as we outlined in our newsletter on 24 January 2019.

The restricted annual allowance reduces the standard allowance by £1 for every £2 that the taxpayer’s adjusted net income (including pension contributions) exceeds £150,000. It applies even if pension benefits have not been accessed.

The problem for many high earners is they don’t know exactly how much has been added to their pension pot in a particular tax year.

For defined contribution schemes it should be the sum total of employee and employer contributions. In theory it should be possible to calculate this if the contributions are a straight percentage of total pensionable pay, but you need to check exactly what the pension scheme rules say.

For defined benefit (final salary) schemes the amount added to the pension scheme is the product of a complicated formula dependant on the value of the fund, years of pensionable employment, and the level of pensionable pay. In practice the taxpayer needs to get this figure from their pension fund administrator in order to make the correct declaration on their tax return.

However, some pension schemes, particularly the NHS schemes do not provide timely information to the scheme members.

Written by the Tax Advice Network

Electric car sweet spot

The way in which company car benefits are calculated is changing from April 2020 as we explained in our newsletter on 19 September 2020. There will be two parallel car benefit tables for cars registered before 6 April 2020 and those registered on or after that date.

However, the position for purely electric cars is slightly different. From 6 April 2020 the taxable benefit for all electric cars will be reduced to zero, irrespective of when the car was registered.

In 2019/20 the taxable benefit for an electric car is 16% of list price, so drivers of electric cars will be delighted that their taxable benefit for 2020/21 will be zero! This won’t last, as in 2021/22 the taxable benefit will rise to 1% of list price, then 2% of list price in 2022/23. This assumes that this tax policy will remain in place under the new government following the general election next month.

If you want to take advantage of these low company car benefit rates and acquire an electric car through your company, we recommend you wait until April 2020 to make that purchase. The 100% first year allowance for new cars with CO2 emissions of no more than 50g/km is available for purchases made before 1 April 2021 (6 April for income tax).

This means there is a sweet spot in 2020/21 where the company gets 100% capital allowance on the purchase of an electric car and the employee has a zero taxable benefit for using the car.

Written by the Tax Advice Network

Taxpayers who sell their business will generally be aware that capital gains tax is payable on any gain, and that entrepreneurs’ relief (ER) can reduce the rate of CGT due. However, the taxpayers may not appreciate the detailed conditions needed for ER to apply.

This is where you need to step in with timely and accurate advice.

For an unincorporated business you should first check who owned what proportion of the business, and for which periods. For ER to apply there is a 5% ownership threshold to meet for company and partnership shares, although this is subject to variations for retiring partners and diluted shareholdings.

The next point to clarify is whether the business was trading for at least a year up to the date of disposal, or cessation of the trade. This period is now two years for disposals made on or after 6 April 2019.

The Potter case, (see our newsletter 10 October 2019), examined whether a period of very low activity with no actual sales could be considered to be trading. The FTT decided the minimal activity was trading, and crucially there was no investment activity in that period, so the Potters’ ER claim was upheld.

Letting out property is nearly always regarded as an investment activity rather than trading, so where the business has been letting property you need to look for other activities which could be trading. The recent case of Stephen & Lynne Reneaux illustrates this problem.

The couple jointly owned two commercial units which were used for Stephen’s business until 2003. For the next 10 years the income from letting the units was reported as rental income inequal shares on the couple’s tax returns. The units were sold in 2013, and the individuals both claimed entrepreneurs’ relief on their share of the gain.

The FTT looked for substantial activity associated with the letting of the units which could be regarded as a trade, but concluded that the activities required to generate income from the units did not amount to a trade. The ER claims were rejected.

Written by the Tax Advice Network

When you close or sell your business, you may want to start up a new venture. Before we give your new idea our full blessing we should sit down with you and discuss the anti-avoidance rules which could kick in to foul-up your plans.

HMRC are alive to the issue of phoenix companies. This is when one company is closed down and liquidated, with the accumulated cash subject to CGT, then the same owner starts another business running a very similar trade.

The targeted anti-avoidance rule (TAAR) in ITTOIA 2005 s.396B and s.404A, can apply if the person who receives the distribution from the liquidated company starts up a similar trade or activity (not necessarily in a company) within two years of the liquidation. It must also be reasonable to assume that the main purpose, or one of the main purposes, behind winding up the company was to reduce that person’s income tax liability.

When the TAAR applies the distribution from the company is subject to income tax rather than CGT. However, in Spotlight 47 HMRC declared that the TAAR can also apply when the original company is sold rather than liquidated by the owners. This approach does not find full agreement within the tax profession.

There will be a range of circumstances between; selling the company with no intention to work in the area again, and disposing of the assets and trade out of the company then selling the cash-rich shell to a third party to liquidate. In the later case HMRC may invoke the general anti-abuse rule (GAAR) to counter the perceived tax avoidance.

When planning any death and rebirth of a business, take advice in advance of the transaction.

Written by the Tax Advice Network