Taxing Times – September 2016

Welcome back to Taxing Times – hope you have enjoyed the summer break and the very changeable weather!  In this edition we’ll dive straight back into the exciting world of tax and you can read about the new tax rules on Supporting Childcare.

There is also an article on the new kid on the tax block, Social Investment Tax Relief!

Tax OppsStepping away from the tax world we’ll also look at 6 things successful people do, and some cringe worthy “management speak” phrases to avoid!

To finish, we have a Payroll update, a VAT update and as usual some thoughts on ‘What’s new in the world of tax’?

Well, what are you waiting for – jump right in!

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 Child’s play: The new tax free childcare scheme (TFC)

The new tax free childcare scheme will be introduced from 2017.  It will replace the existing childcare vouchers scheme for all new entrants.  Employees who are currently in a voucher scheme can stay in it for as long as their employer continues to offer it or for as long as they work for that employer, but after the new scheme takes effect there can be no new entrants to a voucher scheme.

The new TFC scheme was announced in Budget 2013 and will finally come into force in 2017 (following some legal issues which delayed its original launch date of autumn 2015). It is designed to support childcare for children under 12 years old (unless the child is disabled in which case they will qualify up to the age of 17).

The TFC scheme will be phased in throughout 2017, with parents of younger children entering the scheme first. It can fund up to £10,000 of childcare costs per child per year, with the Government contributing 20% of the fund i.e. for £10k of costs, the parents will have to fund £8k of it but the money bankGovernment will pay for £2k of it. Note that the childcare purchased with the account must be Ofsted-regulated.  New online tax free childcare accounts will be run by HMRC in partnership with National savings and Investments.  This is of course very different from the current voucher scheme which has to be offered by an employer so is only available to those who are employed (not self employed) and only available if the employer offers the scheme.  The new TFC scheme is designed to be flexible so that it doesn’t matter if parents are employed or self employed, and multiple people can pay into the childcare accounts so both parents can contribute.

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 Social Investment Tax Relief: the new kid on the block!

Social Investment Tax Relief (SITR) enables investors in eligible charities and social enterprises to deduct 30% of the cost of eligible investments from their income tax liability. It also gives Capital gains tax (CGT) breaks.  SITR has been around for investments made from 6 April 2014 but it has been hiding its light under a bushel.  Now, with continuing tweaks and tightening up of the Enterprise Investment scheme (EIS) and venture capital trust ( VCT) rules for investments in for-profit entrepreneurial companies, SITR is starting to shine.

The driver behind all the “risk capital” schemes (EIS, Seed EIS, VCT and now SITR) is that small businesses can find it difficult to raise capital because of the specific risk for investors associated with small unlisted new kidbusinesses.  The Government’s intention is to help “de-risk” investments (to an extent) and make investment in small businesses more attractive by giving generous tax reliefs to investors.  The Government’s aspiration is to make the UK a leader in social investment and SITR is an attractive part of a package of measures designed to support and grow the social enterprise sector.

SITR is available for investments in eligible social enterprises. These are businesses which trade wholly or partly for social purposes and for SITR tax purposes must be one of four types of business:

  • Community Interest Companies
  • Community Benefit Societies
  • Registered Charities
  • A Cabinet Office accredited social impact contractor (established specifically for the purpose of carrying out a social impact contract which has been awarded to it)

What investors need to know:

There are a number of criteria that must be met around the investor, the investment and the social enterprise being invested in;

Eligible investments must be newly issued, fully paid ordinary shares or newly qualifying debt instruments.  Note that unlike EIS or VCT, the investment can be a loan, which potentially offers more flexibility to the investor so could be very attractive.

The investment has to be made by 5 April 2019 (watch this space to see if SITR will be extended beyond this date).

SoftwareTo qualify for the SITR tax relief the social enterprise must have fewer than 500 employees and less than £15m assets when the investment is made and less than £16m afterwards (this is a group test so if the company is a group just watch out for this).  Also, it must not undertake any ‘excluded activities’ (such as property development and the generation of electricity.)  It has to be unlisted and not in a group with a listed parent.  And it cannot raise more than 344,827 Euros over three years (approximately £270,000) (although there are representations to increase this limit).

The investor must not acquire more than 30% of the share or loan capital in the organisation for the period from one year before to three years after the investment.  Importantly, the investor must not have a material interest in the social enterprise. This therefore prevents those who have set up and invested their own money in a charity or social enterprise from taking advantage from this tax relief, as well as trustees and employees.

In order for the tax reliefs to be retained, the investment must be held (and all the qualifying criteria met) for a minimum of 3 years.  The generous income tax relief takes the form of a deduction of 30% of the amount invested from the investor’s income tax liability (which can be applied to the current year and/or carried back to the previous year).  The investor can invest £1m pa and get tax relief.  In addition, any gain on disposal of the SITR shares (once they have been held for 3 years and the income tax relief has not been clawed back) will be exempt from CGT.  And if the investor has made a capital gain on disposal of another asset, he can holdover that gain into the SITR investment and it will not crystallise until the SITR investment is sold.

What the charity/ social enterprise needs to know

  • The organisation needs to submit a compliance statement to HMRC within 2 years of the investment in order that the investors can claim the SITR.
  • The money raised must be spent within 28 months of receipt.
  • Debt investments are likely to require a carefully worded agreement in place with the investor.

These are just some key pointers and facts…but of course this is an overview and if you wanted to find out more about how SITR could apply to your circumstances please contact Dean Johnston or Kathryn Brown.

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6 things successful people do when they meet someone

You know the old saying “First impressions count”.  How true! We often judge people (and they judge us) within the first few seconds of meeting them, and overturning that impression can take a long, long time.  So…. here are some ways you can be aware of what is happening and undertake a meeting with more control.

Remember that no one is comfortable

Few people are really comfortable meeting other people. If you’re uncomfortable, recognize that the other person is as well and focus on putting him or her at ease. You’ll forget your own problems in the process.

Do research ahead of time 18456177_s

Some meetings are accidental, but many aren’t. Do the research you can to see what you can learn about the other person and their business. Make an effort before the meeting that might influence how you see it and the other person (and will help you answer questions like “what do you know about us?”!)

Smile in a relaxed manner

Smiling when meeting someone is old advice. But that doesn’t mean grinning like a Cheshire cat.  People can sense insincerity.  So let a smile come genuinely when they say something interesting or which surprises you.

Look someone in the eyes…but not like a psycho!

Like smiling, looking directly into someone’s eyes is standard advice. But you have to be careful not to inadvertently make it a contest or test of domination. Don’t get into a situation of seeing who is going to blink first!  Take cues off their body language and posture.

Concentrate on the other person

Focus on the needs, interests, and comfort of the other person. That doesn’t mean to ignore your own interests, if the meeting is for a specific purpose. But don’t ignore them either! Good relationships occur when the other person feels you are genuinely interested in them.

Don’t overstay your welcome

Be aware of signs the other person is ready to conclude the meeting. Then there’s a greater chance that the other person will look forward to a second meeting rather than find ways to avoid it.

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 Cringe worthy “management speak” phrases to avoid!

Everyone overuses a few words or phrases and it is easy to fall into a habit. But what effect do your favourite fall backs have on your listeners?   Here are some overused words and phrases to avoid going forward:

  1. “Expect the unexpected”Worried

Ummm, how can I do that?  The actual subtext here is “I expect this to go well. If it doesn’t, it’s because you weren’t sufficiently prepared or didn’t react quickly enough. Either way, it’s all on you because, I told you to expect the unexpected.” Not helpful!

  1. “With all due respect”

Subtext: “I have no respect for what you’ve just said/done”.  Move on.

  1. “No problem”

If you’re in a service industry then of course it should be no problem… because it’s your job to make sure the customer is happy! Just don’t say it!

  1. “It’s on my radar”

No, it’s not, or you would have already done something about it. “It’s on my radar” admits “I know you want it, but it’s not important enough for me to have done it yet”.  Best avoided.

  1. “Think outside the box”

This one is often code-speak for, “I want you to do this but I can’t give you any money or resources or time, so if you don’t get it done it’s your fault because you weren’t creative enough.”

  1. “If I’m honest”

The listener thinks, “OK, now you’re going to be honest. But sometimes you’re not?”

  1. “I see what you’re saying”

In fact, you don’t really see what I’m saying because otherwise you would agree with what I’m saying!  If you disagree, just say so.

  1. “It’s all good”

When someone says this … it never actually is.

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Interesting tax fact of the month – did you know? 

The first “emergency” aboard Apollo 13 was when astronaut John Swigert radioed Huston that he had forgotten to file his income taxes. Flight Director Glynn Lunney assured him that Americans out of the country got a 60-day extension on filing.

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Payroll Update

How will BREXIT affect payroll and employment rules?

The UK’s decision to leave the European Union has caused a great deal of uncertainty and may result in some changes affecting the payroll profession.  At present it is business as usual and it is impossible to predict what changes there may be. 45106394 - united kingdom exit from europe relative imageBut in payroll, we are continually dealing with changing legislation and no doubt this will continue to be the case over the coming months and years, irrespective of our status within Europe. Many employment regulations for instance are encompassed in UK legislation.  The EU was responsible for the introduction of the right to paid holiday leave.  However, EU legislation grants workers 20 days’ paid holiday, whereas UK workers have a higher entitlement of 28 days as a result of UK regulations.

It is not a foregone conclusion that everything will change following our exit from the EU but rest assured!  The payroll team at Dodd & Co will always ensure that we are aware of our payroll responsibilities and obligations and how these should be met.

Is LISA a threat to the workplace pension?

Announced by George Osborne in his April 2016  Budget, the Lifetime ISA(LISA) will be available to any adult under 40 from April 2017.  People will be able to save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in, until the age of 50.  The LISA can be used towards buying a first home or as retirement income without a withdrawal penalty (subject to certain restrictions and age limits of course). Concerns have been raised in the pensions industry that the LISA will undermine incentives for employees to save for their retirement through workplace schemes.  However, in a recent survey of under 40 year olds, the majority of respondents who already saved into a company pension scheme said they would continue to do so or would use a LISA in addition to their current plan.

Encouragingly, the research shows that those who are involved in company pensions do value them and will stick with their scheme even when LISAs are launched.

Tax Penalty

 

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Part time workers miss out on Automatic Enrolment

Around 4.6 million workers, including 3.4 million women, are excluded from workplace pensions, according to analysis from the Trades Union Congress (TUC).

The TUC state that more than half of 14969151_spart-time staff earn less than £10,000 and by being excluded from automatic enrolment, miss out on employer contributions. The TUC is calling for the government to set out a plan for the long term development of workplace pensions that includes explaining how more low-paid workers can be included.

 

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NINO “KC” is not OK !

Job Centre Plus has run out of National Insurance numbers (NINOs) so in June 2016, they decided to start issuing NINOs with prefix “KC”.

The problem is that they didn’t tell HM Revenue and Customs (HMRC) about the new numbers who in turn didn’t advise software developers about the change.

So, while KC is a valid prefix, HMRC’s systems do not recognise it and in all probability, payroll software22175861_s will not recognise it either. The result is that either payroll software will reject the National Insurance number or HMRC will reject the FPS.

On 8 July 2016, HMRC’s PAYE Service Issues page was updated with a message about the issue. This was followed up with the same message to software developers:

“We are aware that a small number of National Insurance numbers with prefix ‘KC’ were issued recently and that these are causing some problems for our customers.

“The National Insurance numbers with the prefix ‘KC’ are valid and customers receiving them should use them as normal.

“If you are experiencing issues when submitting Real Time Information (RTI) data for an employee with this National Insurance number, the following steps should be taken:

  • The National Insurance number field should be left blank
  • You should make sure the employee address field is completed in those cases
  • If you/your employee has a ‘KC’ National Insurance number, they don’t need to request a new one

“We are working hard to resolve this issue quickly and will provide more information shortly.”

This is a welcome acknowledgement from HMRC that there is a problem to sort…..however there is no fix as yet.

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Time to check your VAT Scale Charges!

If your business is VAT registered and reclaiming VAT on road fuel which may be used for private journeys, then a scale charge must be added onto the outputs on your VAT return.

39137174_mFrom 1 May 2016 HMRC have changed the scale charge values (see here), which are determined according to a car’s CO2 emissions. The new scale charges apply to the first full VAT period beginning on or after the 1st May 2016. You need to apply a scale charge for each car which has private fuel paid for by the business, so you may need to apply more than one scale charge to your VAT return.

The alternative to having to apply a scale charge is to not claim the VAT on road fuel for any vehicle, or to pay a rate per mile rather than putting the fuel bills through the business. Please contact Faye Armstrong on 01768 864466 or 01228 530913 if you would like to discuss the best option for your business.

 

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What’s new in the world of tax?

Treasury jumps onto the cat bandwagon

G14050974 - mouse and cat isolated on white backgroundladstone the cat has acquired a new home at the Treasury as the newest arrival of the Whitehall “mouse” patrol, alongside fellow felines Larry in Downing Street and Palmerston in the Foreign Office.

Gladstone, who is named after former prime minister and chancellor William Ewart Gladstone, is a stray adopted from Battersea cats and dogs home like Larry and Palmerstone.

He got the job at the Treasury to catch the mice overrunning the offices. There has always been a chronic mouse problem at the Horse Guard Road building but the problem has worsened with the mice getting braver – apparently they are now running around the offices throughout the day!! Go Gladstone!

It started with a kiss . . .

Solicitors Doyle Clayton have warned that kissing colleagues or employees in the workplace is a potential legal minefield – in some cases leading to expensive discrimination and harassment cases. Darren Clayton, senior partner, stresses that his warning encompasses the age-old peck on the cheek and even the fast-growing-in-popularity air kiss normally accompanied with a “mwah” sound. Despite the risk of the target of the kiss complaining, those who are not favoured in such a way could claim discrimination (!!) Stick to a polite handshake then!

Money bags 2The next big blockbuster?

Netflix is set to make a film based on the account of the Panama Papers written by two German journalists. The company has acquired exclusive rights to The Panama Papers: Breaking the Story of How the World’s Rich and Powerful Hide Their Money, the recently published book by Frederik Obermaier and Bastian Obermayer.

 

You just keep me hanging on!

509970_lA report by MPs reveals members of the public have been made to wait on the phone for an average of 47 minutes when they try to get through to HMRC. The Public Accounts Committee said that cost-cutting measures by the Revenue had contributed to longer waits for callers. In one week in October 2015, the average time taken for HMRC to answer the telephone reached almost 35 minutes. But callers to its helpline with questions on self-assessment were left hanging on for 47 minutes on average. Throughout 2015-16, almost three in ten calls remained unanswered as customers gave up. HMRC has shed 5,600 call centre staff and closed dozens of tax offices whilst encouraging more people to file their self-assessment returns over the internet. But at the end of 2015, it had to recruit 2,400 new staff to try to deal with call volumes. An HMRC spokesman admitted that service levels in the early part of last year “were not acceptable”, but added: “The PAC is well aware our phone lines have since fully recovered and we are now offering our best service levels in years.”

Methinks they doth protest too much…

Does HMRC have routine tax planning in its sights?

HMRC’s “departmental plan” for 2015-20 states that the Revenue will “raise an additional £5bn a year 17905074_lby 2019-20 by tackling tax avoidance and tax planning, evasion and compliance.” Note the absence of the word “aggressive” to qualify tax avoidance and the inclusion of “tax planning”; could this leave taxpayers and their advisers unsure about even being able to claim the tax reliefs to which they are entitled, for purposes specifically intended by Parliament?  If HMRC’s plan is construed to mean an attack on routine tax planning, this would be a major shift in HMRC’s approach and would seem to pit it against Parliament, which has enacted specific legislation for specific purposes……..

Watch this space

Rail worker warned of £14 trillion tax bill!

A Bristol man has received a letter from HMRC claiming he could owe £14trn in tax. The railway signal tester received the warning in his tax code notice. The letter stated: “We think the amount you owe HMRC is £14,301,369,864,489.03. We will let you know if this amount is right when we look at your tax return for the year.”

The moral of this story: double check your tax demands!

Not just like magic: Harry Potter actor loses tax case

Harry Potter actor Rupert Grint has lost a £1m tax refund case. A tax tribunal judge rejected his appeal against an HMRC block on him using a change in accounting dates to shield earnings from the 50% tax rate. Mr Grint (aka Ron Weasley) is said to have followed advice to change his accounting date so that 20 months of income would be taxed in 2009-2010. Dismissing the appeal, the Judge that he had failed to show a change had been effected because he did not have accounts showing the correct accounting period for the change.

And finally…

Scam to watch out for15431411_l

If you are setting up a new company to run your business through, be aware that a scam is circulating whereby the new company will receive (to their registered office address) an ‘invoice’ claiming that e-record.co.uk requires payment for the “publication of the company”. Hoax alert!

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