The new normal: finance, but not as we know it

Transcription

1 Midlands Housing Finance Conference The new normal: finance, but not as we know it Workshop B: General Tax Update Stoneleigh Pete Chapman Tax Manager, KPMG Joanne Birkinshaw Manager, Indirect Tax, KPMG Paul Moreels Assistant Manager, Employment Tax and People Services, KPMG

2 KPMG Tax Session National Housing Federation Midlands Finance Conference 29 November 2012

3 Agenda VAT The Cost Sharing Exemption Joint working Other emerging issues Corporation Tax Benefit of charitable status for tax purposes Tax risks in development schemes Shared Ownership activity Employment Taxes Real Time Information (RTI) 2

4 The Cost Sharing Exemption

5 What s going on? A time of change Welfare reform will affect revenue and operational costs Supplier collapse Connaught, Rok and Southern Cross Future capital funding uncertainty Managing change Assessing business change Making supply chain more reliable Improving efficiency 4

6 Cost Sharing Exemption Conditions Independent group of persons HMRC require a CSG to be a separate entity from, but owned by, its members but the CSG may be under majority ownership of one of its members and could be VAT grouped Members must make exempt/non-business supplies 5% of the members activities must be VAT exempt or non-business Directly necessary services HMRC will accept that all services received by a member from a CSG may be treated as directly necessary and, therefore, VAT exempt if more than 85% of the member s activities by value are exempt or non-business (or if the member restricts more than 85% of VAT incurred) Services supplied at cost A CSG must not make a profit but may carry cash surpluses/deficits Distortion of Competition HMRC consider that the provision of services by a CSG on a cost and VAT free basis does not in itself result in a distortion of competition Must receive qualifying supplies The guidance included a further condition that all members must receive supplies that qualify for the CSE that qualify for the exemption 5

7 Cost Sharing Exemption Current position without CSG HA 1 Plus VAT (20%) Plus VAT (20%) HA 2 HA 3 6

8 CSG Simple Model All members own some of CSG Member A Member B Member C Exempt supply Exempt supply Exempt supply CSG Workforce sit in CSG 7

9 CSG VAT Grouped Model Member A VAT group >50% ownership & control Minimal Minimal Member B ownership CSG Member C ownership VAT exempt VAT exempt 8

10 Cost Sharing Exemption Possible applications CSE where might it be beneficial? Any service that involves a significant staff cost, for example: Repairs & Maintenance Housing management Finance and HR IT What next? There are still questions: Is it possible to make a profit in the VAT grouped model? How are value of supplies to the CSG in the VAT grouped model determined? The NHF and KPMG meeting with HMRC shortly to discuss the practical application of the exemption Consider how this might affect you 9

11 Cost Sharing Exemption What about the CT implications? Funding the CSG loan, equity, other? Corporate tax treatment of CSG dependent on its legal form, e.g. company limited by guarantee, LLP? What is the nature of the activity undertaken by the CSG? Is there a trade for corporation tax purposes? 10

12 Joint Working

13 Joint working Who? Service providers Other housing associations Why? Economies of scale Knowledge transfer Flexibility How? Informal exchange of information/expertise Secondments or joint employment Structured cost sharing (potentially including the CSE) Joint venture or partnering Merger 12

14 Repairs and maintenance without CSE Where we are now Internally resourced (DLOs) Outsourced Combined The alternative(s) There is no one size fits all solution The best of all worlds Control Efficiency Certainty Reduced costs 13

15 Repairs and maintenance example 1 VAT group HA 51% owned R & M Services No VAT 49% owned Contractor SPV Services + VAT Materials + VAT 14

16 Repairs and maintenance example 2 VAT group HA 100% owned R & M Services No VAT No ownership Contractor SPV Services + VAT Materials + VAT 15

17 Other emerging VAT issues

18 Partial Exemption Framework Revised draft HMRC to revisit the 90 day decision Original framework published in April 2010 HMRC have now revised the Partial Exemption Framework to incorporate feedback they have received On-going negotiations on additional information Next draft expected to be circulated shortly and finalised early in 2013, which will include example methods for different scenarios HMRC will present the revised Framework at the Warwick NHF conference in March 2013 and be available to field questions 17

19 Technical developments HMRC s approach to Supporting People In 2002 HMRC produced a briefing paper detailing the VAT treatment of Supporting People activities The guidance explained that supplies of housing management services that there is scope for supplies to RPs of housing management by organisations performing Supporting People services to be exempt for VAT purposes However, more recently HMRC officers have been informing organisations providing Supporting People services and housing management that their services are taxable HMRC appear to be open to reviewing the appropriate treatment What can we do? VAT on energy-saving materials There is scope for 5% VAT on the supply and installation of energy-saving materials The European Commission have challenged this application of the reduced rate HMRC have stood firm on the application for residential properties Likely to result in a legal challenge by European Commission but will take years to resolve The European Commission have also started a consultation into all reduced rates 18

20 Corporation Tax

21 Benefit of charitable status for tax purposes Back to basics Step one Is the entity a charity for tax purposes? No Charitable exemptions from tax will not apply Yes Step two What is the nature of the income/gain? Does it fall within the statutory exemptions? No Charitable exemptions from tax will not apply Yes Step three Has the income/gain been applied for charitable purposes only? No Charitable exemptions from tax will not apply Yes tax exemptions will apply 20

22 Tax risks in development schemes HMRC s view Bank Buy land Loan Charitable RP General needs rentals and sales to persons in need Buy land Loan Gift aid Wholly owned SubCo Sales to all other persons Arrangements with developers 21

23 Shared Ownership activity What do we need to be thinking about? Background HMRC guidance on charitable shared ownership was issued in 2008 and updated in May 2009 Guidance suggests treatment HMRC intend to follow for charitable and non-charitable RPs SORP 2008 changed accounting treatment of shared ownership Current position KPMG technical analysis Single asset capital treatment - First tranche & staircasing both capital disposals HMRC view Split asset trading & capital treatment, but no technical analysis provided - First tranche trading disposal - Staircasing capital disposal Practical impact for the sector? Charitable RPs need to be satisfied that first tranche disposals to valid charitable beneficiaries Documentation to evidence the position 22

24 Employment Taxes Real Time Information

25 Real Time Information What is RTI? Reforming process for reporting payroll information Under RTI, employers and pension providers will have to report pay details, income tax, NIC etc on or before payments are made Applies to all employers who are required to operate PAYE Most employers will be required to operate RTI by April 2013 and all employers will be routinely operating RTI by October 2013 Penalties to enforce compliance HMRC will carry out compliance checks on data submitted 24

26 Real Time Information Why? HM Revenue & Customs claim that RTI: Is aimed at improving the operation of PAYE Makes PAYE simpler for employers and HMRC ( over time ) Makes PAYE more accurate for individuals ( over time ) Enables HMRC to pursue late payments more effectively Supports the payment of Universal Credit Reduces Tax Credits error and fraud 25

27 Real Time Information Timeline Employee Communication Training Payroll/HR process review Start payroll/hr process testing Readiness Testing Dec Jan Feb Mar Set up a project team Data cleanse Map payroll/hr process changes Develop implementation plan for Payroll/HR software 26

28 Real Time Information Data Cleanse Employee Information Record the employee s full forename, surname, gender and address Record a double barrelled forename/surname in full Record the correct National Insurance Number Record the correct date of birth Record passport number for new joiners 27

29 Real Time Information Payroll/HR Process Review Payroll processes and data to be reviewed Weaknesses more transparent Introduction of auto-enrolment Gap analysis for each entity/paye reference data items New process for joiners/leavers and temporary workers Irregular payments Cash advances Termination payments Additional items still being added by DWP Desktop review Action plan 28

30 Real Time Information Employer Alignment Submission Employer Alignment Submission ( EAS ) What is it? The Employer Alignment Submission (EAS) is a one-off submission that you ll perform when you begin making RTI submissions HMRC will use this this to match, align and correct the records they hold for your company and employees on their system What information is included? Company Information (Accounts Office Ref, PAYE and Tax District Ref No) Employee Information (such as name, address, NINO and Tax Code etc.) When do I submit it? When you re invited by HMRC to join RTI. 29

31 Real Time Information Full Payment Submission Full Payment Submission ( FPS ) What is it? FPS is the main submission you ll make to HMRC HMRC will use this information to calculate how much PAYE and NIC is due from you each month or quarter What information is included? Employee payment and deduction information Normally expected hours worked by your employees PAYE, NIC and Student Loans Starter and Leaver information Irregularly paid employees When do I submit it? Every time you make a payment to an employee The submission must be made on or before the date the employee is paid 30

32 Real Time Information Employer Payment Summary Employer Payment Summary ( EPS ) What is it? The EPS informs HMRC about adjustments to your liability or that no payment is due What information is included? Statutory Payments Recovered Advance Funding CIS NI Holiday Nil payment When do I submit it? Monthly or Quarterly when you need to advise HMRC of adjustments 31

33 Real Time Information Penalties Consultation still ongoing with HMRC Expect penalties for: Late filing Monthly penalties Penalty cap 10,000 per month Late payment Surcharges Errors Period of grace to April

34 Real Time Information What you should be doing now? Is there a project team in place Progress with data cleanse Impact of returning 100+ data items Payroll/Pensions Auto-enrolment process When did HMRC last carry out a review of payroll How much work is involved in reconciling annual return form P35 How accurate are monthly payments to HMRC How often are payroll corrections made How much would penalty/surcharge have been due over past 12 months 33

35 Questions

36 Presenters Joanne Birkinshaw VAT Peter Chapman Corporate Tax Paul Moreels Employment Tax

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