Newsletter. business summed up. We re here to help you prosper. In this edition. Get in touch for a free initial consultation

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1 Get in touch for a free initial consultation t: e: info@keens.co.uk We re here to help you prosper We work alongside you offering expert advice and support to make sure you reach your goals, because it all adds up to success. In this edition Under or overpaid Income Tax? Inheritance Tax main residence nil-rate band - Rent-a-room relief ANTS squashed by Tribunal - Offshore tax evasion Employment Allowance changes - Goodwill write offs Corporation Tax reductions - Investment Allowance increased 45 million boost to customer service - Tax lock Newsletter Autumn 2015

2 INTRODUCTION Our autumn newsletter has a number of reminders of tax changes announced in the Summer Budget At the time this newsletter was printed, the required changes to legislation were still working their way through parliamentary committees and debates. As the Government has a working majority, it is likely that most of the changes reported will become law in the near future. We have also added a number of articles that will be relevant to businesses across the UK. Readers who would like more information or advice regarding any of the topics included, please call to discuss or make an appointment. As always, it is advisable to close the tax stable door before your hard earned cash flow takes flight in the direction of the UK Treasury. PERSONAL Under or overpaid Income Tax? HMRC are busy sending out reconciliations of taxpayers Income Tax positions for the year to 5 April Unsurprisingly, it is possible that the number crunching that HMRC employs to reach their conclusions may be incorrect. Readers who receive their summary, P800 tax calculation, should be circumspect. Tax overpaid may be understated and tax underpaid overstated. HMRC does have a tax checker tool that you can use, but take care to include changes in your circumstances that HMRC may not be aware of. For example, you may have increased your pension contributions or charitable donations this may reduce liability to higher rates of Income Tax. Here s the advice HMRC s website offers individuals who receive a P800: If you get a P800 tax calculation, please check the details are correct. You can: Compare the figures used with your own records, such as your P60, P11d, bank statements or letters from the Department for Work and Pensions (DWP). Use the HMRC tax checker to check how much tax you should have paid. You don t need to do anything if the calculation is correct. If you ve underpaid tax If you haven t paid enough tax, HMRC will usually change your tax code for the next year to collect the money you owe. This happens automatically so you won t need to do anything and don t need to contact HMRC. Sometimes HMRC can t collect the money you owe through your tax code, for example, if you re now out of work. In this case, HMRC will write to you explaining how to pay the money you owe. If you ve overpaid tax If you have paid too much tax, HMRC will automatically send you a cheque within 14 days of receipt of your P800. You won t need to do anything and don t need to contact HMRC. If you find that your tax position is far from clear when you receive your P800 please call our office for a second opinion. Inheritance Tax main residence nil-rate band One of the least surprising aspects of the Summer Budget announcements in July was the much publicised intention to allow married couples to pass their family home (valued at up to 1 million) to descendents without paying Inheritance Tax. As always there are a number of issues raised by the details published: 1. The full relief will not be available until The first slice of the relief will not be introduced until April The relief will only be available when the family home is left to a direct descendent. The details published on HMRC s website state that the rate of the main residence relief will be: 100,000 in ,000 in ,000 in ,000 in It will then increase in line with Consumer Price Index from onwards. Any unused nil-rate band will be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendents. Married couples for the purposes of this relief include civil partners. Additionally, there will be a tapered 2

3 withdrawal of the additional nil-rate band for estates with a net value of more than 2 million. This will be at a withdrawal rate of 1 for every 2 over this threshold. The qualifying residential interest will be limited to one residential property but personal representatives will be able to nominate which residential property should qualify if there is more than one in the estate. A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify. A direct descendent will be a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendents. This will exclude some estates from qualifying for this new relief where there are no children, as described, or other lineal descendents. A claim will have to be made on the death of a person s surviving spouse or civil partner to transfer any unused proportion of the additional nil-rate band unused by the person on their death, in the same way that the existing nil-rate band can be transferred. Rent-a-room relief From 6 April 2016, the tax free rents that home owners can charge, to let out a room or rooms in their home, will be increased from the present 4,250 to 7,500 per year. This was another tax give-away announced as part of the Summer Budget. Rents, or rent-a-room receipts, include any receipts for meals and cleaning services. If two or more persons are entitled to claim the relief, the relief of 7,500 is apportioned between them. BUSINESS ANTS squashed by Tribunal HMRC has won another major tax avoidance case against Abbey National Treasury Services Plc (ANTS), protecting more than 85 million for UK taxpayers. The First-tier Tribunal s (FTT) ruling will protect over 45 million in tax from ANTS as well as another 40 million in a second case that will be decided by this ruling. Jim Harra, HMRC Director General, Business Tax, said: HMRC has again protected a significant amount of tax revenue, and we will continue to tackle aggressive tax avoidance schemes. This win shows that any business, irrespective of size, that promotes or uses tax avoidance schemes can expect to be challenged by HMRC. Where necessary, we will take them through the courts to protect tax revenue. This is the latest in a series of tax tribunal wins for HMRC, with tribunals finding in HMRC s favour in around 80 % of avoidance cases that taxpayers choose to litigate. The avoidance scheme, used by ANTS (now part of the Santander banking group), involved distributing profits from swaps to its parent company (Abbey National Plc), using accounting practice to claim an accounting debit as a tax deductible loss in ANTS without a matching taxable receipt in Abbey National Plc. The scheme involved the issue of shares by ANTS to Abbey National Plc. The shares had specific rights that entitled Abbey National Plc to receive dividends of an amount equal to certain cash flows receivable from specified derivative assets (swaps), held by ANTS. On issuing the shares, ANTS derecognised 160 million from the accounting value of the relevant swaps and recognised a corresponding 160 million dividends debit, which it claimed as a tax deductible loss in its Corporation Tax return. The dividends were not taxable income in the hands of Abbey National Plc. HMRC agreed with the accounting treatment but disagreed that the debit fairly represented a loss. This was supported by the FTT. The Tribunal found that no deduction was due as ANTS had not incurred any loss to which the relevant legislation applied. The Tribunal also supported HMRC s secondary transfer pricing argument. Offshore tax evasion Offshore tax evaders and the professionals who enable tax evasion will face even tougher sanctions as a result of consultations launched by HMRC in July The new regime to crack down on offshore evaders includes: A new criminal offence for offshore evasion so in the worst cases it s no longer possible to plead ignorance in an attempt to avoid criminal prosecution. A new criminal offence for corporates who fail to prevent tax evasion or the facilitation of tax evasion on their watch. Increasing the financial penalties faced by evaders including, for the first time, linking a penalty to the value of the asset hidden offshore. New civil penalties on those who facilitate evasion so they will face the same penalty as the tax evader. Publicly naming both evaders and those who enable evasion. Speaking at HMRC s Stakeholder Conference in London, Financial Secretary to the Treasury, David Gauke, said: Time s up for people who don t pay their fair share of tax by hiding their money

4 offshore. People who evade tax, facilitate or turn a blind eye to tax evasion will now face powerful criminal and civil sanctions under our tough new regime. We ve already seen over 90 countries across the world sign up to automatically exchange information on taxpayers. This, together with our new sanctions, will mean there is nowhere left to hide for offshore tax evaders. In the last few years there has been huge progress in tackling offshore tax evasion. HMRC has already collected over 2 billion from previously undisclosed offshore income through agreements with Switzerland, Liechtenstein and the Channel Islands. As announced in the March 2015 Budget, these offshore disclosure agreements will close early (31 December 2015) and be replaced by a tougher last chance facility ahead of the automatic exchange of tax information with over 90 countries, including tax havens, from Employment Allowance changes In a move set to disadvantage one person companies, the Chancellor has announced that from April 2016 the Employment Allowance will no longer be available where a director is the sole employee. For those employers who continue to qualify, the 2,000 allowance is due to increase from April 2016 to 3,000. Presently, the allowance will reduce your employers (secondary) Class 1 National Insurance each time you run your payroll until the 2,000 has gone or the tax year ends (whichever is sooner). You can only claim against Class 1 National Insurance you ve paid, up to a maximum of 2,000 each tax year. You can still claim the allowance if you pay less than 2,000 a year. You can currently claim Employment Allowance if: You re a business or charity (including community amateur sports clubs) paying employers Class 1 National Insurance. You employ a care or support worker. You can only claim Employment Allowance for one PAYE scheme. Goodwill write offs Changes were included in the Summer Budget, and will be effective once the Finance Bill receives Royal Assent, that removes Corporation Tax relief for companies who write off the cost of purchased goodwill and certain customer related intangible assets. Relief will still be available if the goodwill is sold. This measure will apply to all acquisitions made on or after 8 July 2015 unless made pursuant to an unconditional obligation entered into before that date. It also applies to all goodwill created on or after that date. Write offs that create losses will not be included in the calculation of trading losses, although no restriction will be made where a profit arises on a subsequent realisation. Corporation Tax reductions The Chancellor intends to reduce Corporation Tax from 20% to 18%. The main rate changes are due to be effective as follows: Year beginning 1 April % Year beginning 1 April % Year beginning 1 April % Year beginning 1 April % Year beginning 1 April % Investment Allowance increased Most businesss can currently write off up to 500,000 of qualifying capital purchases (plant, certain vehicles and other business assets) against their taxable profits by claiming the Annual Investment Allowance. This allowance was due to revert to 25,000 from 1 January In a welcome move, the Chancellor has confirmed that changes will be made to the relevant legislation to increase this reversionary limit of 25,000 to 200,000. Transitional arrangements will be in place to cover trading periods that straddle the 1 January 2016 change point. GENERAL 45 million boost to customer service HMRC has announced that it is allocating 45 million to improve 4

5 customer service, as statistics have been released that show an inconsistent call handling performance in ; surprise, surprise... The allocation is paying for around 3,000 additional staff to join customer service teams, on top of around 2,000 staff who are being moved over from other parts of HMRC to help with the tax credits deadline and letters and forms. HMRC receives more than 60 million calls a year, peaking around key deadlines such as 31 January for Self Assessment, and 31 July for tax credits renewals. The statistics show that while 73% of calls were answered last year, service standards were inconsistent across the year, with some months falling well short of HMRC s 80% target. The figures also show that in some months as many as one in five customers heard a busy tone and could not join a phone queue. Lin Homer, HMRC Chief Executive, accepted that standards had not been good enough and outlined the actions that HMRC has already taken to improve customer service, including recruitment and investment in technology. Readers might be amused by the continuing insistence of HMRC announcements referring to tax payers as customers. Definitions of the word vary, but there is a general consensus that a customer receives a good, service, product or idea from the seller. HMRC s activities as tax collectors do fund Government expenditure, and we all benefit from Public Services, but does the legal obligation to pay tax really place us in a customer/supplier role with HMRC? Tax lock George Osborne has committed, for the duration of the current parliament, to maintain Income Tax, National Insurance and VAT at the current rates: no increases. He has also locked the relevant provisions to prevent them from being used to remove any items from the current VAT reduced rates and zero rates. This is an unusual step to take. Rather than make a promise to hold rates at current levels, he has legislated; when passed, this statement will have the rule of law. Vehicle Excise Duty changes The way in which Vehicle Excise Duty (VED) will be charged on cars first registered after 1 April 2017 is to be changed. The reforms will be: First Year Rates of VED will vary according to the carbon dioxide (CO 2) emissions of the vehicle. A flat Standard Rate (SR) of 140 will apply in all subsequent years, except for zero-emission cars for which the SR will be 0. Cars with a list price above 40,000 will attract a supplement of 310 on their SR for the first 5 years in which a SR is paid. All cars first registered before 1 April 2017 will remain in the current VED system, which will not change. It would appear that the present system of providing cash incentives for drivers to choose lower CO 2 emission cars will gradually peter out unless you purchase a zero emission vehicle. VAT & DUTIES Verandas sold with caravans The supply of a static caravan, excluding removable contents, can be reduced rated or zero-rated for VAT purposes, depending on its size and specification. HMRC considered that where the reduced or zero rate applied, it did not extend to a veranda or decking structure supplied at the same time. An optional veranda was considered by HMRC to be a separate standard-rated supply. An appeal was made by Colaingrove Ltd on the grounds that they were making a single supply of a caravan with a veranda, and that as the veranda was ancillary to the caravan it should receive the same VAT treatment. The First-tier Tribunal accepted that the veranda served the static caravan. However it held that this type of veranda was: A structure in its own right, payment for which formed a substantial part of the total amount paid for the veranda and caravan taken together. Not integral or incidental to the static caravan. An optional extra. Therefore the Tribunal decided that there was a separate supply of the veranda which was subject to VAT at the standard rate. Colaingrove Ltd appealed and the Upper Tribunal reversed the decision ruling that the sale of a static caravan with a veranda is a single supply for VAT purposes. Implications of the Upper Tribunal decision As a result of the Upper Tribunal decision, HMRC accepts that verandas and decking structures sold with static caravans are to be treated as a single supply. Therefore the VAT liability of the veranda is the same as that of the caravan. Claims and retrospective action It should now be possible for affected companies to make a claim to recover any VAT output tax added in error to

6 sales of qualifying static caravans with integral decking or verandas. Claims will be subject to statutory four year time limits. What VAT records should you keep? The following article is a summary of the record keeping rules as issued by HMRC; failure to keep adequate records to underpin your VAT returns will likely result in a penalty being charged. What records must I keep for VAT? The basic rule is that you must create and retain normal business records. You do not have to keep records in a set way and most bookkeeping and computer systems will meet this requirement. Apart from keeping business records and other special requirements, HMRC ask that your records are complete, up to date and allow you to calculate correctly the amount of VAT that you have to pay to, or can claim from HMRC. Are there special records for VAT? Yes. There are two records that are specifically required for VAT. These are: The VAT account, in many cases this will be based on a routine business record of VAT owed or claimable. A VAT invoice for supplies to other VAT registered businesses, a VAT invoice is just the term for an invoice which contains some information required by VAT rules; most commercial invoices will already contain the right information. What do business records include? VAT law requires you to keep all your business records. HMRC s view of business records is wide and will include: Annual accounts, including profit and loss accounts Bank statements and paying-in slips Cash books and other account books Credit or debit notes you issue or receive Documentation relating to dispatches/acquisitions of goods to/from EC Member States Documents or certificates supporting special VAT treatment such as relief on supplies to visiting forces or zero-rating by certificate Import and export documents Orders and delivery notes Purchase and sales books Purchase invoices and copy sales invoices Records of daily takings such as till rolls Relevant business correspondence VAT account What a business record is will depend on the type of business you run. You will always have to keep a VAT account and copies of invoices but some of the other records above may not be a normal record in your business. If that is the case you don t have to keep such a record just for VAT. But equally, some businesses will create additional business records and these must be retained and produced to HMRC on request. How long must I keep records? Generally, you must keep all your business records for VAT purposes for at least 6 years. Records that you use for other tax purposes may need to be kept for longer periods. If the 6-year rule causes you serious storage problems or undue expense, or you need advice on records for other types of tax, then you should consult HMRC s advice service. They may be able to allow you to keep some records for a shorter period. What additional records might I have to keep? HMRC may direct some businesses to keep additional records. This is where they have reasonable grounds to believe that such records might assist in identifying supplies on which VAT is at particular risk of going unpaid. This will most commonly arise with supplies of mobile phones and computer chips, but is not limited to these types of supplies. Failure to comply with one of these directions can result in a financial penalty. You have a right of appeal against the issue of a direction and against the imposition of any penalty for non-compliance. Can I keep my records on computer? Yes. It is common for business records and accounts to be kept on a computer and there are no special VAT rules about using a computer. What if I fail to keep or produce records? There is a financial penalty for a failure to keep or produce the records required by law. 6

7 FINANCIAL CALENDAR In Preparing and maintaining this newsletter every effort has been made to ensure the content is up to date and accurate. However, law and regulations change continually and unintentional errors can occur and the information may be neither up to date nor accurate.the editor makes no representation or warranty (including liability towards third parties), express or implied, as to in this newsletter. The accuracy, reliability or completeness of the information published

8 Why Keens Shay Keens MK? Keens Shay Keens MK is the Central Milton Keynes based accountancy firm dedicated to helping people prosper. Our clients mean everything to us. We work alongside them offering expert advice and support to make sure they reach their goals, because it all adds up to success. = TAX Keens Shay Keens MK LLP Sovereign Court 230 Upper Fifth Street Central Milton Keynes MK9 2HR