Taxing Times – March 2015

Welcome to the third edition of this new monthly newsletter for 2015. In this edition we’ll look at:

  • Entrepreneur’s Relief Surprise from Autumn Statement – Some Thoughts
  • HMRC Taxpayer’s Charter – a Reminder about your Rights
  • ICAEW Survey Results on HMRC ServicesTax Opps
  • Changes to Assistance for Childcare Costs
  • NIC Changes for the Self Employed
  • What’s New in the World of Tax?

 

 

Dotted LineEntrepreneur’s Relief (ER) Changes on Incorporations

During the Autumn (more accurately “Winter”) Statement in December, the Chancellor slipped into his speech that he would “strengthen Entrepreneurs’ Relief” and tighten up on the transfer of intangible assets on incorporation.  What he didn’t say – and as we know, the devil is in the detail – is that from 3 December 2014, Entrepreneurs’ Relief will not be available on the transfer of goodwill to a related company.
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This restriction will have a major tax impact on traders or partnerships who incorporate holding goodwill; capital gains tax will be payable at up to 28% on the gain relating to the goodwill element instead of the 10% we have come to know and expect under Entrepreneur’s Relief.  Not quite what we expected when we heard the word “strengthen”….Businesses with incorporation plans on the table will be sorely chagrined as there were no transitional provisions.  The new measure is now in effect.

This unexpected change in tax legislation will no doubt mean that business owners need to pause for thought to identify how they are affected – but despite the changes, incorporations can still be beneficial, it is just more important than ever to do the number crunching first!

Please contact us if you would like to discuss how Dodd & Co can help you with incorporations.

The Chancellor also introduced a restriction on company Corporation Tax deductions for certain intangible assets acquired from a related party on incorporation.  The restriction applies to transfers on or after 3 December 2014. See our next edition of Taxing Times for more details.

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A reminder about your Charter ‘rights’ as a taxpayer

HMRC’s ‘Charter’, launched in 2009, sets out what you have a right to expect when dealing with them.  The existence of the Charter should encourage HMRC to strive to improve their service standards, and should help individuals in their dealings with them. But are you aware of it and do you know how it can help you?

Each year, HMRC and the Charter Advisory Committee publish a report, collated from taxpayer feedback, summarising how the Charter is working. The report looks at various values demonstrated by HMRC that correlate to the Charter rights.  HMRC say that this kind of feedback is vital for them as it determines where they are making progress and tells them where they need to make improvements – hopefully resulting in  better quality services for taxpayers.  And the Charter can be useful if you need to make a complaint – if HMRC’s services have fallen short of what you might expect from them under the Charter, you can consider referring to it in your complaint.

There are nine commitments made by HMRC under the Charter, namely:

1. To respect the taxpayer;

2. To help and support taxpayers to get things right;

3. To treat taxpayers as honest;

4. To treat taxpayers even-handedly;

5. To be professional and act with integrity;

6. To tackle people who deliberately break the rules and challenge those who bend the rules;

7. To protect taxpayer information and respect privacy;

8. To accept that someone else can represent a taxpayer; and

9. To do all it can to keep the cost of dealing with HMRC as low as possible.

Good to remember that taxpayers do have rights when dealing with HMRC…

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34% of ICAEW members say HMRC services are worse than last year

Interestingly – given the context of the above article and how HMRC should (ideally) try to use the Charter to improve their service – research commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW)  says that HMRC service standards have failed to improve over the past year, according to taxpayers’ professional agents.

calculator

The ICAEW survey of members found that 50% of those who took part in the survey did not see any change in the quality of services offered by HMRC compared with last year.  One in three (34%) felt that HMRC services had deteriorated over the last year while just one in six (16%) felt that there had been an improvement.  ICAEW says a key frustration highlighted by the research is HMRC’s ability to ‘get things right first time’ as this directly affects the time effort and costs of dealing with HMRC.

The survey participants reported that although HMRC telephone service is easy to use, waiting times remain a serious concern, as does the ability of the staff at the end of the line to deal with complex or non-routine queries.

ICAEW is now calling on HMRC to make a number of changes, such as setting and implementing agreed service standards; ensuring that there are sufficient experienced staff to deal with complex queries; and improving contact and response waiting times.  ICAEW also wants HMRC to do more to make it easier to find the right contact information and to raise awareness of account manager services. It is worried that in the digital age, HMRC must not ignore those taxpayers who do not want to make contact online and that HMRC must make sure service levels do not deteriorate for other contact methods.

All very sensible suggestions.  Hopefully HMRC will take note.

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Changes to Government Supported Assistance for Childcare Costs

A new scheme to assist parents with the costs of childcare is under consultation and due to be introduced from Autumn 2015.  Under the proposed scheme, parents will pay 80% of childcare costs per eligible child, with the remaining 20% (up to £2,000) paid by the government. That’s a possible £500 contribution by the Government to childcare costs every three months. Parents will be responsible for any costs over that amount.  Initially, it will only be available to children under the age of 5 but then extended to include all children under 12 years old.  Any cash which parents are entitled to under the new scheme will be paid into an account that must be set up with the scheme.  To be part of the scheme, parents will need to apply when it starts in late 2015.

crying baby

This differs quite significantly from the current childcare scheme provided by employers, know as Childcare Vouchers (CCV).  Under the current scheme, employers can provide childcare vouchers which are not taxable or subject to NIC, providing certain conditions are met and up to certain monetary limits.  For example, £243 worth of vouchers can be provided to basic rate employees per month. That’s £2,916 per year.

Childcare vouchers can be offered as a tax free perk on top of an employee’s or director’s current salary package or can be provided through a salary sacrifice arrangement.  If done via salary sacrifice, a basic rate taxpayer will save around 20% tax and 12% NIC which is a saving of £933 p.a. (assuming they take the maximum £243 per month and that the relevant conditions are met in order to obtain the tax and NIC breaks).

The CCV scheme will close to new entrants and the new system will not be administered by employers at all.  But anyone who is part of a CCV scheme with their employer before entry “closes” will be permitted to carry on with that arrangement.

Ultimately, employees and directors will need to sit down and think carefully about whether they want to take part in the proposed new scheme or want to take up any opportunity to join the existing Childcare Voucher scheme (before it closes to new entrants) given the key differences summarised below.

  • CCV is an employer/employee only arrangement as it has to be “employer provided” childcare – whereas self employed people can take part in the proposed new scheme;
  • Under CCV it is irrelevant whether the employee’s partner works or not – but under the new rule couples where one parent doesn’t work will be excluded from taking part in the proposed new scheme;
  • CCV covers childcare for children essentially up to 15 years old – but the proposed new system will only cover children up to the age of 5 initially then up to the age of 12;
  • As the proposed new scheme will not be operated  via the employer, salary sacrifice for Childcare Vouchers will not be relevant – but that means no new joiners to the CCV scheme so no extra NIC savings for the employer;
  • Under CCV savings are made via a tax saving through the payroll system – whereas under the proposed new scheme actual cash is transferred into an account but only to the extent that parents match it by £8 for every £2 put in by the Government.  This means that if any employee or director is in the lucky position whereby his employer would be prepared to provide childcare vouchers for free as a perk (not under salary sacrifice) they should seriously consider joining the CCV scheme now before it closes to new entrants!

How does the existing Childcare Voucher scheme compare with the proposed new scheme?

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Dotted LineThe Collection of National Insurance Is Changing (for Some)

From 6 April 2015, Class 2 national insurance due from the self employed will be collected through the self assessment tax return.

If you are currently paying by direct debit, you will have received a letter from the National Insurance Contributions Office to tell you when the last payment will be taken from your bank account.  This is because under the direct debit scheme, the contributions are paid in arrears, so if you are on monthly payments, the last direct debit will be collected in July 2015.  You  do not therefore need to do anything.  If you are paying 6 monthly by cheque, you will receive a demand for the outstanding contributions, which will need to be paid.

After this the contributions will be included on the tax return at the appropriate rate and will increase your tax payments.  The process for deferring Class 4 national insurance will also be included as part of the 2015/16 tax return, but we are yet to see how this will be done and will inform those affected as soon as we know any more.

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What’s new in the world of tax?

HMRC’s local sandwich shop owner jailed

A sandwich shop owner has been jailed over a £1m tax fraud. John Baker, 62, and his daughter Amy Baker, 27, ran the business in Hull and told tax inspectors it did not start trading until 2010, but it emerged staff from HMRC had been buying lunch there for years.

Moral of the story…if you are going to tell porkies, be careful who your clientele is!

Tax play panned

A review of the play ‘Islands’ which is about the immorality of tax havens, rates it worthy of only one star and says that “this dreadful rant against tax avoidance tries the patience.”

We agree – we’d much rather see a musical about dancing cats or a sociopathic ghost!

Pensioner receives £4.7billion tax bill!

Doug Yeomans, a 78-year-old retired widower who lives on a state pension, has received a tax bill for £4.7bn. HMRC wrote to Mr Yeomans ordering him to set up a £950million a month direct debit in order for him to clear a supposed tax bill of £4,742,354,255. Thankfully HMRC has acknowledged that this was an error.

As if we needed more proof that HMRC are not infallible….

Beware New Incorporations scam

A new scam appears to be doing the rounds, aimed specifically at newly incorporated entities.  Once a new company is  registered with Companies House, it may receive an official looking letter to its registered office from the supposed “European Register of Trade Names And Companies” (ERTNAC) with a bill for around the £500 or £600 mark, stating that this needs to be paid in connection with setting up of the Company in order to comply with European Union Legislation. The letter provides the details for an ERTNAC account in Poland.  This is a hoax letter.

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