News & Updates

Clients who work in the public sector may have been caught by the off-payroll working rules which came into effect from 6 April 2017, and as a result had tax and NI deducted from their invoices. The problem for us is how to deal with these deductions in the accounts of the intermediary personal service company, and in our client’s personal tax return.

HMRC has provided guidance on how to report the income for the individual worker on their SA tax return for 2017/18 and later years. If we didn’t get this quite right for the individual’s 2017/18 tax return there is still time to amend that tax return online.

The personal service company can account for the amount received from their customer either on a net or gross basis:

1. Net – the amount received after deductions for income tax and NIC is included as turnover for corporation tax purposes.
2. Gross – the total invoice value before tax and NIC is deducted is accounted for as turnover for corporation tax. The company will show that tax and NIC as a debtor which it will never receive. It will have to write-off that amount representing the tax and NI deducted from its invoices.

HMRC accept that either the net or gross basis can be used, but the net basis is probably easier for our clients to understand.

Where the worker takes a salary from his PSC, the amount of tax already deducted from its invoices can be set as a tax credit against that salary. The PSC should not have to pay any further tax and NIC if the salary paid to the worker does not exceed the net fees received by the company. Note that the example in section 17 of the HMRC guidance is misleading.

Written by the Tax Advice Network

Thirty days is not very long for a taxpayer to realise they need to make a report to HMRC and to pay the tax due, but this is the deadline imposed on non-residents who dispose of any UK land or property on or after 6 April 2019. Sellers (excluding companies) who completed their purchase on Saturday 6 April 2019 will have to make an “on account” payment of CGT by Sunday 5 May 2019.

A 30-day reporting deadline has applied in respect of disposals of UK residential property by non-residents since 6 April 2015, but the tax payment date has been inconsistent. Those already within self-assessment could pay the non-resident CGT (NRCGT) due with their SA tax by the normal payment date of 31 January following the tax year end, but others had to pay the tax within 30 days of the conveyance.

This lack of clarity over NRCGT procedures led to HMRC giving incorrect advice to some taxpayers.

The NRCGT charge was announced in the 2013 Autumn Statement, and non-resident taxpayers: Mr and Mrs Kirsopp rang HMRC in March 2014 to ask when they needed to report and pay the tax on the sale of the former UK home. HMRC said they should declare the disposal on their SA tax return. The Kirsopps sold their UK property in July 2015 and they sent their accountant the details in August 2016 along with other papers to complete their 2015/16 return.

HMRC did not inform the Kirsopps they had to submit a NRCGT return by 23 August 2015, either in the original telephone call, or at any later point when they were dealing with HMRC’s non-resident landlord unit. However, HMRC were quick to issue penalties for late submission of the NRCGT form. The tax tribunal threw out those penalties on the basis that the taxpayers had a reasonable excuse for not knowing they had to submit a NRCGT form in addition to the SA return.

The Kirsopps case may prove useful in the future if you fail to pay the CGT due within 30 days, as the article in Agent Update about the extension of NRCGT to all UK property fails to mention the requirement to pay tax within 30 days of the conveyance of the property.

Written by the Tax Advice Network

Real time information (RTI) reporting has been mandatory for all employers for five years now, but some employers still misunderstand the need to report on or before the relevant pay day and to pay over the PAYE on time. These are two different deadlines which must both be met in order to avoid penalties.

The Red Lion Trading partnership got this wrong. They claimed, in their appeal against penalties for late filed RTI returns, that as they had paid the PAYE on time the penalties should be removed. The tribunal agreed with HMRC that the late filing penalties had to stand. The judge was clearly exasperated with the employer’s inability to read HMRC’s guidance, as he commented in his judgment:

“The Education letter spelt out the position in words of one syllable: PAYE information must be reported to us on or before a payment is made to an employee or we may charge you a penalty.”

HMRC will do everything it can to educate employers about the correct time to make an RTI report, and we can help our clients to understand that the reporting date is on or before the employees’ contractual payment date.

Where the normal payment date falls over the Easter weekend, the actual payment to employees may be brought forward, or pushed back, because of the four consecutive non-banking days. HMRC has addressed this issue in the latest edition of the Employer Bulletin.

Written by the Tax Advice Network

In order to sign-up for MTD for VAT you need your unique taxpayer reference (UTR) number and your VAT number. This make sense since VAT registered taxpayers with a turnover of over £85,000 must surely also be registered with HMRC for income tax or corporation tax, and have a UTR number or equivalent corporation tax number.

However, where there is a shared interest in a property, which is not technically a partnership for income tax purposes, this joint venture may not have a UTR number. The joint owners will report their share of profits or losses from the property on their own tax returns, but the joint venture won’t registered as a partnership with HMRC.

If the property is subject to an option to tax there will be a need to register for VAT, and also register for MTD where the turnover exceeds £85,000. Until recently the VAT helpline was instructing such joint property ventures to register for income tax as a partnership with HMRC in order to get a UTR number. This is certainly a round the houses solution, and may cause other problems, such as penalties for not submitting partnership tax returns.

HMRC has recently confirmed to the CIOT that a system update has upgraded the MTD registration process so that VAT registered joint ventures which do not have a UTR number can now register for MTD.

Written by the Tax Advise Network

There have been three high profile IR35 cases heard at the FTT recently, all of which involved TV or radio presenters. HMRC won the first case concerning Christa Ackroyd, but has lost the cases concerning Lorraine Kelly and Kaye Adams.

The timing of these cases may have been managed to ensure what was perceived as the weaker case was heard first. HMRC referred to the Ackroyd judgment in evidence for the Kelly and Adams cases, but as Ackroyd was a FTT judgment it does not set a precedent and the tribunals hearing later cases are not obliged to follow it.

In all three cases the tribunal paid close attention to the written agreements, but gave equal balance to evidence from the presenters’ colleagues to understand how the contract was performed in practice. For example, in the agreement with Adams’ company the BBC had the right to ask her to attend editorial training sessions and to undertake a medical, both of which could have been indicators of an employment contract. However, as those rights were never exercised, the tribunal ignored them.

A criticism of the CEST tool, which HMRC encourages employers to use to determine employment status, is that it ignores the test of mutuality of obligation (MOO) between the parties to provide work, and to perform the work. If there is a MOO, this will be a strong indication of an employment contract. However, the FTT found there was MOO for Kelly and no MOO for Adams case, and both cases were judged to be outside IR35.

A more important factor was the control that the broadcaster had over each presenter. The higher the degree of control exercised by the engager the greater the likelihood of the relationship being an employment contract. Kelly and Adams were seen as having far more of a freehand over exactly what was included in their programmes than Ackroyd, which pointed towards a self-employment relationship.

In all three cases the judge stood back and viewed the evidence as a whole, which is something that the CEST tool does not do. Indeed, in Adams the judge considered the BBC contracts in the context of her 20-year freelance career.

When defending an IR35 case always look for evidence beyond the written contract, and consider how this evidence can be presented before a tribunal or in an ADR session. Our employment status experts are happy to help you with that.

Written by the Tax Advise Network

Where an amount of tax is disputed, and HMRC put forward calculations, the tax bill becomes finalised if both sides can agree to those figures. This offer (the tax calculation) and the taxpayer’s agreement, forms a contract between HMRC and the taxpayer, and the tax is said to be determined by agreement.

However, to reach this determination the taxpayer has to actually accept HMRC’s offer stating the tax due. A failure to reply or silence from the taxpayer can not be taken as an agreement, although HMRC investigators may try to skip this vital stage and record an agreement when none has been achieved.

A recent case concerning CGT has made it clear that where the taxpayer has failed to respond HMRC can not read that as acceptance of the tax due.

In 2014 HMRC discovered that Ms Kaura had not declared a number of property transactions in the years 2005 to 2013, and issued discovery assessments after she failed to reply to an information notice. In 2015 Kaura was diagnosed with cancer and did not give her full attention to her tax affairs. In January 2016 HMRC sent her calculations of the gains and tax due. In July 2016 HMRC wrote to Kaura explaining that her lack of response was taken as agreement to the tax figures.

The FTT determined that Kaura’s failure to respond could not be taken as agreement, and she was permitted to appeal against the discovery assessments.

Written by the Tax Advice Network