Taxing Times – May 2018

Welcome to May’s edition of Taxing Times. 

In this edition we have:

  • MTD (Making Tax Digital) update
  • Some cautionary HMRC tales
  • PAYE update
  • What’s new in the world of tax?

 

 

Making Tax Digital (MTD)

Making Tax Digital (or MTD) is one of the current buzzwords in the world of accountancy.  It’s been on, it’s been off and now it’s back on again, and the start date of 1 April 2019 is looming.

The first group of taxpayers that will be brought into MTD from 1 April 2019 are those that are:

  • VAT registered, AND
  • Have turnover over the £85,000 VAT threshold

Initially it is VAT return submissions only that will be brought into MTD.

Accounts/tax return submissions were due to be brought into MTD from April 2020, but just this week HMRC have mentioned that this is looking unlikely.

We’ve got an MTD team working away behind the scenes, keeping up to date with the ever changing legislation and timeframes, to make sure that we’re ready to help you get on board with these changes.

We’ll be in touch with all of our clients in the Autumn to help them plan for MTD but if you have any questions in the meantime, or if you’re not a client but would like some help, please contact Simon Kirkbride on 01768 864466 or simon@doddaccountants.co.uk.

Beware relying on HMRC manuals

HMRC’s manuals are very useful – they are clearly written and give us an insight into what HMRC expect on particular points/tax issues (even if we don’t necessarily technically agree that their stance is correct).  However, a recent tax case has provided a cautionary tale when it comes to relying on HMRC manuals.  In short, it is difficult to do so! Aozara GMAX Investments Limited tried to use a judicial review to force HMRC to adhere to its manuals.  The High Court said that HMRC was only obliged to follow its manuals IF the taxpayer relied on the manual to his/her detriment; if the wording in the manual was clear and unambiguous; and if there was conspicuous unfairness.  And in this case there was no evidence that the company actually relied on the instruction in the manual – so the case was thrown out.

Aozara was quite lucky in a way, in that the High Court was prepared to accept that HMRC should stick to the instruction in their manuals if the above conditions are met.   We have recently had experience at the First Tier Tribunal in which the Judge flatly refused to take into account anything the manuals said – only the legislation and case law are applicable!  A cautionary tale indeed….

Form Filling – Another cautionary tale

Seed EIS relief (SEIS) is very generous and permits investors who buy shares in start-ups to claim a 50% tax credit of the value of their investment, to sell their SEIS shares free of capital gains tax after the qualifying (3 year) period and to immediately extinguish some of the other capital gains made during a short time before or after the investment (gains worth 50% of the SEIS investment value can be exempted in this way). However the legislation surrounding the relief is draconian and one poor company, Innovate Commissioning Services Limited, has fallen foul of the administrative side of making the claim.  SEIS claims cannot be made after EIS claims have been made so it is important not to mix the two up.  Unfortunately, that is exactly what this company did.

Instead of submitting a SEIS1 form to let HMRC know about the investment by its investors, and getting permission to make claims under SEIS, it submitted the EIS version.  EIS works differently and amongst other things, it only permits a 30% tax credit not a 50% one so it is less valuable.  EIS permission was given and once given could not be withdrawn and replaced with SEIS permission, even when the company realised its mistake and asked HMRC to ignore the EIS form and accept the SEIS form instead.

Unfortunately the devil is in the detail, especially when it comes to Enterprise Investment reliefs! Make sure the right form is completed in the first place as it may not be possible to go back and undo bad administration.

Top tips for the 2018/19 tax year

If you can structure your tax affairs to take advantage of the valuable reliefs below then it could save you hundreds if not thousands of pounds.  Make some New (Tax) Year resolutions now!

  • Contribute to your ISA – the ISA allowance for 2018/19 remains at a generous £20,000 and ISA allowances cannot be carried forward
  • Maximise your pension contributions (after taking appropriate financial advice of course).  The annual allowance is £40k (although tapered for those with income over £150k and restricted for those already in receipt of drawdown). You can carry forward unused pension annual allowances for up to three years, so the 2015/16 allowance needs to be used by 5 April 2019
  • Contribute to stakeholder pensions for non-earning spouses and children – pay in net £2,880 and effectively receive £720 free
  • Use the inheritance tax gift exemption of £3,000, which can be carried forward one year.
  • Consider transferring income producing assets to a lower earning spouse to utilise their personal allowance and lower tax bands
  • Use the capital gains annual exemption of £11,700 for 2018/19 – it can’t be carried forward or transferred to another person
  • Make any charitable donations before filing your 2017/18 tax return and you can decide whether you want to carry back the donation to 2017/18 to achieve the tax relief earlier
  • If you think you are due a tax repayment, file your 2017/18 tax return as soon as possible so that you receive the refund
  • If you had to make advance payments on account for 2017/18, file your tax return before 31 July 2018 so that the second payment on account could be potentially reduced.

May Dates for your Diary

Thought of the month

PAYE update

The cost of inputting an opt out

Workchain Ltd (formerly known as Smart Recruitment UK Ltd) is accused of logging into its workplace pension scheme’s online system and using employees’ personal details to terminate their membership of the scheme. This is contrary to the regulations regarding workplace pensions and automatic enrolment, which specifically requires employees to opt out themselves.

The defendants have been summoned to appear at Derby Magistrates’ Court on 7 June 2018.

This is the first time that The Pension Regulator (TPR) has launched prosecutions for this offence and a conviction for computer misuse can lead to a prison sentence and/or an unlimited fine.

The lesson to be learned is that if your employee(s) want to opt out of your pension, they must do this themselves and not be influenced by you in their decision.  Even if they tell you they want to opt out, they must complete the process themselves.  You cannot do it for them even if they state that you have their permission.

National Minimum Wage Guide

The Department for Business, Energy and Industrial Strategy (BEIS) has updated their guide on calculating the National Minimum Wage and National Living Wage.

This guidance provides practical advice and examples to explain:

  • What counts and does not count as pay and working hours for minimum wage purposes
  • Eligibility for the minimum wage
  • How to calculate the minimum wage
  • How the minimum wage will be enforced

This is general guidance designed to assist workers and employers in calculating minimum wage entitlement. It may be used to help gain and check understanding of the minimum wage rules. However, it does not provide definitive answers to individual queries.  Each employer must check their own employee contracts of employment and get advice on their specific circumstances.

What’s new in the world of tax?

Early bird catches the ISA returns

Those investing the full annual allowance in an Isa at the start of the tax year would be £10,000 better off after ten years than those who invest on the last day.

Be warned: Tax investigators trawl social media

Tax investigators are grilling workers about their earnings after studying their social media activity. HMRC inspectors will look on social media websites to look for people whose lifestyles do not match their declared earnings. People who claim to be on a low income are flagged if they post pictures of expensive cars or luxury holidays. A spokesman for the Revenue states: “HMRC collects and analyses data from a range of sources to understand and manage risks to the tax system. Sometimes this includes the use of publicly available data.”

Do as I say…HMRC employee sentenced for benefit fraud

An administrative officer in HMRC’s compliance team benefits section has been sentenced to seven months in prison, suspended for two years, for pretending to be a single parent to fraudulently claim almost £50,000 in tax credits.

 

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