Overseas landlords and tenants

HMRC has sent out two different letters to non-resident corporate landlords, and to the tenants of their properties. If you receive such an HMRC letter you may be confused about your tax obligations.

The landlord’s letter is sent to offshore corporate entities or trusts which own UK residential property, and refers to the obligation to pay the Annual Tax on Enveloped Dwellings (ATED). Unfortunately, HMRC has not checked its ATED database before sending the letters, so entities already registered for, and paying, the ATED may be confused and alarmed by this letter.

A second message in the landlord’s letter concerns the non-resident landlord scheme (NRL), which is due to change from April 2020. Corporate landlords will no longer pay income tax on their UK residential property income, but need to register with HMRC to pay corporation tax. The legislation was passed as Schedule 5 of FA 2019, but HMRC has yet to publish any detailed guidance for those companies.

The letter to the occupier of property owned by a non-resident corporate landlord is likely to generate more alarm, as the tenant may have no connection with the landlord and no idea that it is a non-resident entity.

This letter tells the recipient that tax may have to be deducted from the rent paid, and requests numerous details about the rent and when the tenant moved to the property. It also requests substantial information about the ownership structure if the property is held by a trust.

The tenant may well miss the short negative statement in the letter which says: “You will need to take tax from your rent if you: don’t pay your rent through a letting agent”. So may be concerned that they need to quickly register with HMRC.

These letters should not be ignored as HMRC will follow them up. A sensible response is to reply to HMRC pointing out that either the appropriate registrations for ATED or NRL are in place, a letting agent is acting, or that no rent is being paid.

Written by the Tax Advice Network

Most charities have been enjoying a six-month delay to the requirement to enter the MTD regime, but that deferral has now come to an end on 1 October. This means VAT registered charities with annual turnover exceeding £85,000 must enter the MTD regime from the first VAT period beginning on or after 1 October 2019.

We say “most” charities as the condition for the six-month deferral isn’t based on charitable status, but it applies to all not-for-profit organisations which don’t operate as a company. Charities which are companies only qualified for the MTD deferral if they are also part of a VAT group, which most will be.

The list of deferred organisations also includes all VAT groups, VAT divisions, trusts, traders based overseas, and those using the annual accounting scheme. In addition, local authorities and public sector organisations which use the GIANT system to report their VAT details have also enjoyed the MTD deferral. However, that later group – the GIANT users – have a further deferral of MTD for VAT until at least April 2022.

If we think you should qualify for the MTD deferral, but you didn’t receive a letter confirming the deferral from HMRC, we can contact the VAT helpline on 0300 200 3700.

VAT registered organisations who operate below the £85,000 turnover level can sign-up to MTD, but they don’t have to. Those below-the-threshold organisations may wish to opt-in to MTD if they believe their turnover will exceed £85,000, as then they won’t have to monitor their turnover for the preceding 12 months on a rolling basis to check if the MTD threshold has been breached.

The sign-up to MTD should be completed at least 72 hours before the first MTD VAT return is due, or at least 7 working days before the VAT return submission deadline if the VAT is paid by direct debit.

Written by the Tax Advice Network

We all need to be alert to scams operated by email, telephone, text or letter for our own businesses and to protect our clients. Many scammers try to impersonate HMRC, or claim to be agencies acting on behalf of HMRC.

If you receive a phone call out of the blue from someone claiming to be a bailiff collecting a tax debt it is unlikely to be genuine, as HMRC will have first contacted the taxpayer by letter. You can check on the Justice.gov.uk website whether the company is an approved bailiff.

In the past HMRC has said it won’t contact taxpayers by unsolicited text message or telephone call, but there are exceptions to that general rule.

Genuine HMRC texts may be sent to:

• those who owe income tax, VAT, PAYE or corporation tax;
• remind taxpayers of payment or submission deadlines;
• deliver an access code to activate the taxpayer’s tax account;
• advise entitlement to higher NMW rate following a birthday or the uprating of rates;
• advise that their self-assessment return is being processed.

In all cases the text will not include or request any personal or financial information.

A taxpayer may receive an unexpected phone call from HMRC or an HMRC approved research agency working on one of these issues:

• needs of charitable organisations (survey in October and November)
• challenges faced by the self-employed (survey in September and October)
• NMW or NLW enquiry
• how to prepare for Brexit
• HMRC’s digital services
• to arrange compliance check interview

If you receive a request for a compliance interview by phone you should refer the call directly to us as the authorised agent.

Written by the Tax Advice Network

Deadlines collect like fallen leaves in October, so be sure you don’t slip-up on one.

5 October
Where a taxpayer is not already within self-assessment and has a new source of taxable income or gains in 2018/19 which will not be covered by allowances, they need to register for self assessment.

Where the taxpayer has started a self-employed trade they should complete form CWF1, if the income is from savings or rental they should complete form SA1. Using the wrong form could result in class 2 NIC not being collected, see our newsletter 1 August 2019.

6 October
Taxpayers who have made pension contributions in excess of their annual allowance in 2018/19 should be told about that excess payment by their pension scheme administrator by this date. It can be quite easy to exceed the MPAA (our newsletter 24 January 2019) or the restricted annual allowance (newsletter 25 October 2018).

Ask clients if they have received a letter from their pension administrator as any excess contributions need to be declared on their tax return, in order to assess the annual allowance charge.

15 October
US citizens and US green-card holders need to submit their 2018 tax return by this date, if they have already obtained a filing extension. It is possible to get a further extension until 15 December, but specialist advice should be taken.

22 October
Tax due from PAYE settlement agreements for 2018/19 must be paid.

28 October
First-time buyers who purchased a property within a shared-ownership scheme from 22 November 2017 to 29 October 2018 have until this date to claim relief from SDLT and request a repayment.

31 October: Brexit day (as currently planned)
Any VAT paid on business expenses incurred in other EU member states in 2019 needs to be claimed by 5pm, using the HMRC online VAT service. Refunds of VAT incurred after this date will need to be submitted to the tax authority of the country where the VAT was charged.

Final day to submit a paper SA return, if the taxpayer’s circumstances do not fall within one of the online filing exclusions.

Written by the Tax Advice Network

This is a cautionary tale for clients who struggle to make the distinction between their own money and funds that belonging to their company.

The trouble started when HMRC investigated the company: Matharu Delivery Service Ltd, which is entirely owned by the director: Bhapinder Matharu. HMRC naturally wanted to see a complete breakdown of the director’s loan account, as it was clear there were large cash withdrawals and company cheques were paid to betting companies.

HMRC asked for a copy of the director’s loan account, showing dates, amounts and descriptions of each transaction in chronological order. When this was not produced HMRC issued an information notice under FA 2008 Schedule 36.

When the accountant eventually produced an analysis of the loan account, it appeared that he had averaged certain payments across the year. For example, Matharu’s “salary” of £8,695 was credited to the loan account at £725 per month when it was actually paid haphazardly as part of much larger amounts. As a result, the amount outstanding as shown on the loan account at the end of each month did not reflect the true position of monies due to, or from, the director.

HMRC was not satisfied with the information provided by the company so it issued an information notice to the director to produce his personal bank account statements, as well as £300 penalty for non-compliance with the company’s notice.

The director challenged his own information notice on the basis that HMRC did not have reason suspect that his personal tax return was incorrect.

The FTT found there was a significant discrepancy between the wages paid to Matharu as evidence by the company’s bank statements (£40,060) and the salary declared on his P60 (£8,786). This was enough reason for HMRC to demand production of all of the director’s personal bank statements for the year.

Written by the Tax Advice Network

The Government is self-destructing but the official line is that the UK will leave the EU, with or without an agreement, on 31 October 2019. This will have huge implications for many businesses as we described in our newsletters on 29 August and 12 September 2019.

If the exit from the EU happens without an agreement (no-deal Brexit), many of the arrangements that make life easier when moving goods or people across borders will cease to apply at 11pm on 31 October. This is expected to cause delays at borders as some carriers won’t have the correct paperwork, and it could affect you as follows:

Goods in bags
When people travel abroad carrying small amounts of goods for business use in their bags, such as samples, those items will have to be declared using a new system called “merchandise in baggage” (MiB). The business will need an EOIR number (see our newsletter 29 August) and may have to pay a tariff and VAT on the value of the goods.

Working in Europe
UK staff who work in Switzerland, an EEA or EU country, for less than two years can normally stay within the UK national insurance system by completing a form A1/E101, so they don’t have to pay social security charges in the country where they are posted.

After the UK leaves the EU that co-ordination between the UK and other EU social security systems will end, and local social security charges may be due. The social security arrangements between the UK and the Republic of Ireland won’t change on Brexit.

Customs declarations
New customs declarations will be required after the UK exits the EU as we described in our newsletter on 29 August. Businesses can now apply for grants for training staff and/ or for upgrading their IT systems to cope with the new customs and tariff processes.

The grant application process opened on 3 September, but only businesses with a clean tax record are eligible to apply. The business must also find the people who are capable of providing the training in customs procedures, as the Government won’t be providing that expertise.

There are many more issues to address concerning Brexit such as; VAT on imports and electronic services (see our newsletter 12 September 2019), transitional simplified procedures for importers, healthcare for staff who work abroad, and eligibility of EU citizens to work in the UK.

Written by the Tax Advice Network