Archives for August 2012

The case in question involved a couple who inherited a second home from a deceased parent.

They complied with the usual filing deadlines and sent an election to have the second property considered as their principal private residence for the week before it was sold on 19 October 2007. If successful, the election would have had significant Capital Gains Tax consequences. For example if a property is at any time considered to be a principal private residence, the last three years of ownership will be ignored for CGT purposes.

HMRC rejected their claim.

The election was refused, not because they only claimed to be in residence for a week, but because they could not demonstrate that they had occupied the second property with any degree of permanence or continuity.

For example:

• The owners kept no records of their periods of residence in the inherited house.
• None of the householder bills were in their personal names.
• No personal possessions were moved to the second property.
• The inherited house was similar to, and only 6 miles from, the main residence.
• Steps were taken to sell the property shortly after it was inherited.

Readers who may be considering this type of arrangement should take note: it is not only essential to make a proper election to HMRC within the required time limits, it is also critical to accumulate evidence of appropriate occupation of the elected property

Two of the VAT special schemes can provide particular advantages for smaller businesses.

• The Flat Rate Scheme (reviewed in our June 2012 newsletter) can reduce overall VAT payable, especially for traders that are subject to the lower Flat Rate percentages.
• Cash Accounting allows you to defer payment of VAT added to your sales until the invoices are paid. This can have significant cash flow benefits for businesses with amounts owed from customers that are higher than amounts due to suppliers.

In order to register for either of these schemes, your projected business turnover for the year following registration needs to be below certain limits.

• Under the Flat Rate Scheme rules you can register as long as your projected turnover for the next twelve months does not exceed £150,000 excluding VAT.
• The equivalent turnover limit to join the Cash Accounting Scheme is £1.35m.

Once you are in the scheme you can continue to enjoy the benefits until your turnover exceeds the exit turnover limits. For both of these schemes these turnover limits are higher than the amounts required for registration.

• You will need to leave the Flat Rate Scheme when your annual turnover exceeds £230,000 excluding VAT.
• The equivalent amount to leave the Cash Accounting scheme is £1.6m.

Planning note

From a planning point of view it is therefore wise to consider registration for these schemes when a smaller business commences trading or shortly thereafter, when turnover limits will be at their lowest levels in most cases.

The Flat Rate rules allow you to stay in the scheme and exceed the turnover registration limits by £80,000 before you need to exit. For Cash Accounting purposes the equivalent figure is £250,000.

From April 2013 most employers (and from October 2013 all employers) will be required to submit PAYE information to HMRC as the information is processed. The process acronym, RTI, short for “Real Time Information”, is a new way for employers to report their employees’ pay and tax details. According to HMRC it will make it easier for employers, pension providers and HMRC to administer PAYE.

Employers and pension providers will tell HMRC about PAYE payments at the time they are made – rather than at the end of the year.

A pilot started in April 2012 is apparently going well. Over 1,300 employers will join the pilot between now and September 2012.

David Gauke, Exchequer Secretary, is quoted as saying:

“RTI is the single biggest innovation in the administration of the tax system since PAYE was brought in after the Second World War. Its introduction will remove admin burdens from businesses of around £300m each year and will support the operation of Universal Credit. As we have seen today, the RTI pilot is going well and on track for April 2013 when most employers will start reporting PAYE in real time.”

If you need more information on the impact that this new initiative will have on your business please call.