Welcome, to August's Tax Tips &
News, our newsletter designed to bring you tax tips and news to keep you one
step ahead of the taxman.
If you need further assistance just let
us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our
clients pay a penny more in tax than is necessary and they receive useful tax
and business advice and support throughout the year.
Please contact us for advice in your own
specific circumstances. We're here to help!
August 2016
· Help to Successfully Grow Your
Business
· Spotlight on Tax Avoidance Schemes
· HMRC Focus on Contractor Loan Schemes
· Casual Employees
· August Questions and Answers
· August Key Tax Dates
Running a successful business requires
skill, determination and a lot of hard work. One of the worst things a business
owner can do is to start trading without considering any of the challenges
ahead. There is no avoiding them so it’s
better to be prepared and know where to turn for expert help when needed. There
will be challenges every day, whether or not you are able to rise to them can
be the difference between success and failure.
Hillmans Chartered Accountants is
pleased to working alongside Achieve365 Weston-super-Mare, a compnay set up to
help business owners get their business set up and achieving profitability as
soon as possible.
More details can be found on our blog at
http://blog.hillmans.co.uk/2016/08/help-to-successfully-grow-your-business.html
Spotlight on Tax Avoidance Schemes
HMRC have published Spotlight 31: change
of date for withdrawal of transitional relief on investment growth, which
covers the extension of the date of withdrawal of transitional relief currently
available under FA 2011, Sch. 2, para. 59 from 30 November 2016 to 31 March
2017.
The withdrawal of the relief was
announced at the 2016 Budget, as part of the package of changes to tackle the
use of disguised remuneration avoidance schemes (such as Employee Benefit
Trusts (EBTs) and contractor loans) and ensure that those who have used these
schemes pay the correct amount of tax and National Insurance contributions.
The transitional relief was intended to
work alongside the EBT settlement opportunity, which closed on 31 March 2015.
However, HMRC are keen to ensure all users of disguised remuneration schemes
have the opportunity to settle liabilities before the transitional relief in
para. 59 is withdrawn. Therefore an amendment to Finance Bill 2016 has been
tabled to extend the date for the withdrawal to 31 March 2017. The amendment,
once enacted, will mean that users who want to benefit from the transitional
relief on investment growth in para. 59 must have settled on or before 31 March
2017.
HMRC Focus on Contractor Loan Schemes
HMRC have recently published new
guidance on 'contractor loan schemes', which have been widely marketed by
scheme promoters as a method of receiving non-taxable income. HMRC are adamant
that such schemes do not work and they are likely to challenge anyone using
them.
In a contractor loans scheme, an
individual is paid in the form of a loan from a trust or company, sometimes
referred to as a remuneration trust. The payment is not made directly by the
engaging company, and will be diverted through a chain of companies, trusts or
partnerships. Scheme promoters have claimed that payments are non-taxable,
because they are just loans and don't count as income. However, since the loan
is not paid back, the payments are to be treated as normal income and should be
taxed accordingly. Those who use such schemes are highly likely to be regarded
by HMRC as participating in tax avoidance arrangements, and this could result
in additional taxes, penalties and interest becoming due.
In their guidance on the use of
contractor loan schemes, HMRC specifically refer to the case of Boyle [2013] TC
03103, where the taxpayer's appeals against discovery assessments and/or
closure notices in respect of a scheme for 'soft currency loans' from his
employer, an Isle of Man company, failed. The Tribunal determined that the
loans were not genuine and the money paid to Mr Boyle as loans was 'in
substance and reality income from his employment' and therefore taxable.
All contractor loans schemes must be
declared to HMRC and a scheme promoter is required to provide users with a
scheme reference number. However, since HMRC never 'approve' schemes, the
reality is that the reference number merely identifies users, which in turn,
challenges HMRC to investigate it! HMRC are keen to point out that they win
around 80% of avoidance cases that taxpayers take to court, and many more users
choose to settle their affairs before that stage.
It is highly likely that an individual
using a scheme will receive an 'accelerated payment notice' (APN) from HMRC,
requesting them to pay tax and NIC up front, whilst the scheme is being
investigated.
HMRC point out that they may contact a
scheme user's clients to check their position relating to the contract. This
may put vital working relationships at risk. They may also seek information provided
to mortgage providers and other creditors about loans from schemes. If the
level of income on your tax return is lower than the income disclosed on a
mortgage application, HMRC state they may seek penalties.
HMRC strongly advise anyone using a scheme
to withdraw from it and settle their tax affairs. There is a contractor loans
helpline (0300 534 226) for anyone requiring further assistance.
Casual Employees
Some employers will be considering
taking on extra staff on a 'casual' basis to cover the summer period. There are
a few issues which employers should think about when taking on people on a
temporary basis.
Firstly, the employment status of the
worker needs to be carefully considered. The term 'casual worker' is not
precisely defined in statute. It is often used to refer to individuals who are
engaged on an 'as and when required' basis, and often, the intention is that
the individual will not have employment status and all the legal rights which
permeant employees enjoy.
Although the term 'casual worker'
suggests an informal relationship between two parties, the law in this area is
complex and employers need to be aware that a casual worker can be an employee
with all the full legal rights which this entails, such as written particulars
of employment, a broad range of 'family-friendly' rights, protection against
unfair dismissal, and entitlement to statutory redundancy payment.
Essentially, for a contract of
employment, three key elements must be present, namely:
- the employee must be under an
obligation to perform the work personally;
- there must be 'mutuality of
obligation' between the parties; and
- the employer must have sufficient
rights of control over the employee.
The Tribunals are well aware that employers
often try to avoid the existence of these key elements and so contract terms
(written or verbal) are only the starting point. A wholes range of facts and
circumstances need to be considered to determine the true employment status of
a worker.
Casual workers can establish employment
status via 'umbrella contracts'. This generally happens where an individual is
engaged on a series of individual contracts, with breaks in between, but in
reality there is an overarching contract (which may be implied) that continues
even when the worker is not working (for example, during seasonal contracts).
However, at the end of the day, many
workers are in fact casual workers, not employees. Nonetheless such workers
still have important statutory rights. These include rights to paid annual
leave, to the national minimum wage (see below), and protection against
deductions from wages, whistleblowing and discrimination.
Casual worker contracts and working
arrangements should be reviewed regularly. The employment status of a casual
worker can change over time, as the working relationship evolves. The longer
the working relationship, the greater the scope for contract terms no longer to
reflect the reality of the situation, meaning they should be updated.
The entitlement of casual workers to
paid annual leave should be monitored carefully. Misunderstandings and disputes
around paid annual leave rights are a common source of disputes between
employers and casual workers.
In addition, it is important to remember
that casual workers will always have important legal rights, irrespective of
their employment status. Although unfair dismissal protection only applies to
employees, the status of casual workers may not be entirely clear, and with
discrimination protection applying in any event, employers should always take
care in termination situations.
HMRC provide a useful Employment Status
Indicator, which employers can use to check the status of individuals, or
groups of workers to see how they should be treated for tax and NICs.
August Questions and Answers
Q1. I have five employees who I recently
took out for dinner to celebrate the success of the company. The total cost of
the meal was £225. Do I have to report this as a benefit-in-kind to HMRC?
A: Finance Bill 2016 legislates for a
new tax exemption relating to trivial benefits, which broadly means that if the
cost of providing the benefit does not exceed £50 per employee, you will not
have to account for it to HMRC, and the employees will not have to pay tax and
NICs on it.
The cost of the benefit is defined in
the legislation as:
- the cost of providing the benefit; or
- if the benefit is provided to more
than one person and the nature of the benefit or the scale of its provision
means it is impracticable to calculate the cost of providing it to each person
to whom it is provided, the average cost per person of providing the benefit.
So, although different employees will
have chosen different food and drinks, HMRC will accept that the cost per head
can be taken as £45 (£225/5). The benefit of the meal will therefore be covered
by the exemption as the cost per employee did not exceed the £50 trivial
benefit limit. You will not have to report it to HMRC.
Q2. Is there any update on Finance Bill
2016 Progress?
A: There has been much speculation on
when the Finance Bill 2016 will receive Royal Assent. According to the latest
information, all stages of the Bill have been provisionally scheduled to take
place in the House of Lords on Tuesday 13 September. It is expected that Royal
Assent will be achieved shortly after that time.
Q3. How long do I need to keep VAT
records for?
A: VAT-registered businesses must:
- keep records of sales and purchases;
- keep a separate summary of VAT; and
- issue correct VAT invoices
In the UK, VAT records must be kept for
at least six years (or ten years the trader uses the HMRC VAT mini-one-stop-shop
(VAT MOSS) service. VAT records may be kept on paper, electronically or as part
of a software program (e.g. book-keeping software) - but whichever method is
used, the records must be accurate, complete and readable. HMRC can visit
businesses to inspect record-keeping and impose penalties if the records are
not in order.
August Key Tax Dates
2 - Last day for car change
notifications in the quarter to 5 July - Use P46 Car
19/22 - PAYE/NIC, student loan and CIS
deductions due for month to 5/8/2016
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About Us
Hillmans is a firm of Chartered
Accountants and Tax Advisors in Somerset. We offer a 'one stop shop'
accountancy and tax service to help meet the needs of local small businesses
and tax payers.
Disclaimer
The information contained in this
newsletter is of a general nature and no assurance of accuracy can be given. It
is not a substitute for specific professional advice in your own circumstances.
No action should be taken without consulting the detailed legislation or
seeking professional advice. Therefore no responsibility for loss occasioned by
any person acting or refraining from action as a consequence of the material
can be accepted by the authors or the firm.
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