News & Updates

The law of unintended consequences came into play when the government changed the off-payroll working (IR35) rules for public sector contracts. Those contracting to public bodies such as NHS trusts suffered reductions in their take-home pay, and were tempted into using disguised remuneration schemes to make up the losses.

These schemes are variations of contractor loans which were closed down by anti-avoidance legislation years ago, but doctors and other health service staff are still being sold these complex and illegal schemes. We are warning clients who work in the public sector that schemes with tag lines such as “fully compliant 90% take home pay solution”, are illegal and if the promoter claims the scheme is approved by HMRC, it most certainly isn’t.

What is worse for the promoters and users of those schemes, is the general advisory panel of the general anti-abuse rule (GAAR) has recently ruled that a contractor loan scheme and a scheme involving employee loans, are both abusive arrangements. This means that HMRC can now issue counteraction notices to users of those schemes.

These notices may lead to the taxpayers being liable for a GAAR penalty, and will trigger the issue of an accelerated payment notice (APN) to demand payment of the avoided tax. The penalty and tax payment can both be enforced without the scheme having to be examined at a tax tribunal.

If you have already used a loan scheme, and is subject to the 2019 loan charge, you should read the updated guidance from HMRC. If you should need any further information please contact our office.

Written by the Tax Advice Network

Last year the FTT considered a claim by the personal representatives of the estate of Maureen Vigne, for business property relief (BPR) on the value of the livery business she owned at her death (see our newsletter 4 October 2017). The Vigne estate won the case at the FTT, but HMRC appealed to the Upper Tribunal.

HMRC generally challenges claims for BPR by asserting that the business consists wholly or mainly of “dealing in securities, stocks or shares, land or buildings or making or holding investments”, and thus is excluded from the relief by IHTA 1984 s 105(3).

In the Vigne case HMRC accepted that the livery was a business, but it argued that it was a land-based business which was wholly or mainly one of making or holding investments. The court heard about all the services the livery provides for the horses, including providing horse blankets in winter, making sure the greedy horses don’t over-eat, and daily health checks for each animal.

The Vigne estate argued that the business had more in common with a children’s nursery than holiday lettings, for which BPR claims have been rejected (see Pawson case).

Although the UT agreed with the FTT that BPR was due, the judge stated that there was no bright line separating businesses which qualify for BPR and those that don’t. Thus, we still have no clear guidelines on when BPR can apply to a land-based business. The best approach will be to document all the services provided alongside the use of the land.

Written by the Tax Advice Network

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