Archives for 2017

It is possible to reclaim VAT you have paid on any business purchases before you have subsequently registered for VAT. In fact, once you have registered your business for VAT the first thing you should consider is the possibility of reclaiming input tax on purchases of goods and services prior to registration.

This article summarises the issues you will need to consider for the two categories: goods and services.

There’s a time limit for backdating claims for VAT paid before registration. From your date of registration, the time limit is:

• 4 years for goods you still have, or that were used to make other goods you still have
• 6 months for services

You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.

You should reclaim them on your first VAT Return (add them to your Box 4 figure) and keep records including:

• invoices and receipts
• a description and purchase dates
• information about how they relate to your business now

If your pre-registration purchases and other costs are significant, this facility can produce a reasonable cash flow benefit. Please call if you would like our help to assess any possible claim you could make.

An example may illustrate the answer to this question.

Harry updates his iPad and decides to sell his old one – he does not use the iPad for his employment or any business, it’s used purely for recreational purposes. He sets up an account on eBay and manages to sell for a reasonable price. Encouraged, he sells a number of other, no longer used, personal items on the same eBay account.

At this point, it would be difficult for the tax office to argue that Harry was engaged in a trade.

Harry then has an opportunity to buy an iPad from a friend, and the price his friend wants is reasonable, so reasonable that Harry is tempted to purchase and resell on eBay for a quick profit. This he does. With a small profit in the bank Harry starts to consider that he may be onto a good thing and plans to buy and sell more items online.

Buying with an anticipation of selling in order to make a profit is a so-called “badge of trade”, and if Harry continued with this activity he may need to register his online trade with HMRC and submit a tax return.

The criteria that HMRC will apply to decide if a hobby (sometime described as an adventure in the nature of a trade) is a trade are listed below. These are the badges of trade that will be considered by HMRC together with any relevant case law:

• profit seeking motive
• the number of transactions
• the nature of the asset
• existence of similar trading transactions or interests
• changes to the asset
• the way the sale was carried out
• the source of finance
• interval of time between purchase and sale
• method of acquisition.

We are waiting to see if a new Trading Allowance of £1,000 will be reintroduced after the election this month, if it is, Harry would not pay tax as long as the income from his eBay account did not exceed £1,000.

We would be happy to discuss this issue with any readers who are unsure of their present status. You should be aware that there may be penalties if you do not register a business activity with HMRC, file a tax return and pay any tax due.

Following on from the previous article, we thought readers might be interested in the consequences if they fail to pay their Self Assessment tax on time.

If you are facing cash-flow issues, and cannot see how you can afford to settle part, or all of your tax payment due 31 July 2017, what is the best strategy to avoid confrontation with HMRC and minimise any penalties and interest charges?

Firstly, let’s take a look at penalties. The trigger dates for penalties are 30 days, 6 months and 12 months after the tax became due for payment. On each of these trigger dates you will be charged a 5% penalty based on the amount of tax outstanding.

The current interest charge on unpaid tax is 2.75%.

If you are concerned that you may not be able to meet your liabilities as they fall due, and in particular, any payment due 31 July 2017, we recommend a two-pronged approach.

• Firstly, make a realistic estimate of when you can settle amounts due. This may be instalments or payment in full at a time after the due date.
• Secondly, call HMRC’s Business Payment Support Service on 0300 200 3835, and agree an extended payment scheme with them. Generally speaking, they will agree as long as your suggested scheme clears any outstanding liability before your next liabilities become due for payment. They will also exhort you to gather funds such that you can settle future tax on the due dates.

What is inadvisable, is to bury your head in the sand and wait for the brown envelopes, telephone calls and debt collectors at your front door. Call the help line before the tax falls due and keep to your agreed settlement plan.

Are you self-employed? If you are, or if you are someone who doesn’t pay all their tax at source, you may need to make your second payment on account for 2016-17, due date for payment is 31 July 2017.

This second payment on account will have been based on 50% of your combined Self Assessment tax and Class 4 NIC liability for 2015-16. Which raises an interesting question.

What if your estimated Self Assessment liability for 2016-17 is higher or lower than the liability for 2015-16? From a cash flow perspective, the outcome is win-win in both cases. Let’s consider the two options in more detail from the self-employed viewpoint (who are the most likely to be affected):

2016-17 liability is expected to be higher than 2015-16

In this case your taxable profits will have increased, year on year, and after your January and July 2017 payments on account have been deducted, there will be a balance owing to HMRC. At present there is no legal requirement to add this underpayment to your July 2017 payment, in fact HMRC will not ask for any balance owed until 31 January 2018.

2016-17 liability is expected to be lower than 2015-16

In this case your taxable profits will have reduced, year on year, and if you make your January and July 2017 payments on account (based on the 2015-16 results) you will have overpaid HMRC. Again, there is no legal requirement to change your July 2017 payment, and HMRC would no doubt be happy to make use of your overpayment until they would be required to offer a possible refund on 31 January 2018.

However, if you find yourself in this position, you can make a formal application to reduce your 31 July 2017 payment.

Our advice, if you have a realistic expectation that your accounts on which your 2016-17 liability will be based (usually the accounts ending in the tax year to 5 April 2017) are lower than the previous year, then we should calculate the effect on your Self Assessment liabilities for 2016-17 and lodge a formal request to reduce your July 2017 payment on account, if appropriate.

IS THIS YOU?

If you run a business, what would happen to it, your staff, your customers and your family should you die or become incapable of making decisions?

The business you have set up, managed, nurtured and established is at huge risk unless you have made proper plans to cover such an eventuality.

Planning should start now.

We appreciate that running a business takes up massive amounts of time and therefore you may not be able to devote enough capacity to getting things sorted.

Make time for you, your family, your business and your staff.  You never know…..

A FREE consultation with Hugh or Nigel is available with no obligation – just advice from local experts.

Morris Cook highly recommend using the local services of WillMakers. We feel we have a duty of care to make you aware of the importance of such planning.

Hugh 07971 963016

Nigel 07882 948718

 

1 May 2017 – Due date for Corporation Tax due for the year ended 31 July 2016.

19 May 2017 – PAYE and NIC deductions due for month ended 5 May 2017. (If you pay your tax electronically the due date is 22 May 2017)

19 May 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2017.

19 May 2017 – CIS tax deducted for the month ended 5 May 2017 is payable by today.

31 May 2017 – Ensure all employees have been given their P60s for the 2016-17 tax year.

1 June 2017 – Due date for Corporation Tax due for the year ended 31 August 2016.

19 June 2017 – PAYE and NIC deductions due for month ended 5 June 2017. (If you pay your tax electronically the due date is 22 June 2017)

19 June 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2017.

19 June 2017 – CIS tax deducted for the month ended 5 June 2017 is payable by today.

Mileage Allowance Payments (MAPs) are the rates used by employers to reimburse employees when they use their own transport for business purposes. The current rates are well-known. They are:

• Cars and vans – 45p per mile for the first 10,000 miles and 25p thereafter.
• Motorcycles – 24p per mile
• Bikes – 20p per mile

As long as employers pay at these rates, and no more, any expenses paid are tax free in the hands of the employee.

If the employer is registered for VAT, they can also claim back as input tax the deemed VAT included in the mileage rate. To do this, employers should use the advisory fuel rates. These are published on the gov.uk website at https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

If employers pay at rates higher than MAPs, any excess will be treated as remuneration, added to employees’ salary, and taxed accordingly.

If employers pay their employees at less than the MAP rates, employees can make a claim to HMRC to compensate them for any shortfall. In effect, the difference in the MAP rate paid times the business mileage for the tax year can be claimed as an allowable expense.

Driving instructors will have a tough time this year. Many are sole traders and will need to start changing their record keeping to accommodate the challenges of Making Tax Digital, either April 2018 if their turnover is above the VAT registration limit (presently £85,000), or April 2019 if their turnover is below this limit.

On 4 December 2017, they will also face changes to the driving test. According to a recent press release issued by the Driver & Vehicles Standard Agency there will be four basic changes:

1. The independent driving part of the test will increase to 20 minutes – it currently lasts 10 minutes – so this will be about half of the test.
2. Following directions from a sat nav – during the independent driving part of the test, most candidates will be asked to follow directions from a sat nav. One in five driving tests won’t use a sat nav. You’ll need to follow traffic signs instead.
3. Reversing manoeuvres will be changed – the ‘reverse around a corner’ and ‘turn-in-the-road’ manoeuvres will no longer be tested, but you should still be taught them by your instructor. You’ll be asked to do one of 3 possible reversing manoeuvres:
   • parallel park at the side of the road
   • park in a bay – either driving in and reversing out, or reversing in and driving out (the examiner will tell you which you have to do)
   • pull up on the right-hand side of the road, reverse for 2 car lengths and re-join the traffic.
4. Answering a vehicle safety question while you’re driving – the examiner will ask you 2 vehicle safety questions during your driving test – these are known as the ‘show me, tell me’ questions.

Ironically, this may produce a rash of activity as learner drivers attempt to pass before the December change. It may also be a window of opportunity for employers to consider supporting employees who would benefit from being able to drive as part of their work. As long as the employer directly engages the driving school, and pays for the lessons, and it can be demonstrated that passing a test is a requirement of their employment, then the cost would be a tax-free benefit to the employee.

In many cases, making loans to your employees or their relatives can create an obligation to report a beneficial loan to HMRC. The deemed benefit would be a taxable benefit in kind for the relevant employee, and would increase the employer’s Class 1A NIC bill at the end of the tax year.

However, certain loans are exempt from this reporting obligation. These may include loans employers provide:

• in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee),
• with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year,
• to an employee for a fixed and never changing period, and at a fixed and constant rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out – the official rate for 2016-17 was 3%,
• under identical terms and conditions to the general public as well (this mostly applies to commercial lenders),
• that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief,
• using a director’s loan account as long as it’s not overdrawn at any time during the tax year.

Loans written off also create a National Insurance Class 1 charge. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC on the deemed value of the benefit.

Calculating the taxable benefits for chargeable loans can be somewhat complex and readers are advised to take advice if they are unsure of their tax and NIC responsibilities.

Until 2015-16, it was possible to apply for a dispensation to exclude certain expenses and benefits provided to employees from the year end returns to HMRC: primarily the submission of forms P11D. These dispensations ceased to be effective from 6 April 2016. From this date many of the expenses covered by dispensations were exempted from the benefits legislation. The sorts of expenses covered include:

• business travel
• business phone bills
• business entertainment expenses
• uniform and tools for work

To qualify for an exemption, employers must either be:

• paying a flat rate to your employee as part of their earnings ¬ this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC, or
• paying back the employee’s actual costs

Employers do not have to formally apply for exemption if they reimburse using HMRC’s benchmark rates for allowable expenses. You only need apply if you want to use your own rates as these rates will need to be agreed with HMRC. There must be systems in place to check the payments are as agreed with HMRC.

Filing deadlines:

The filing deadlines for P11D forms and associated returns are:

• 6 July 2017 – file forms P11D
• 6 July 2017 – give employees a copy of their P11D
• 6 July 2017 – submit return of Class 1A NIC due on form P11D(b)
• On or before 22 July 2017 (19 July 2017 if paying by cheque) – pay any Class 1A NICs due

There is a fixed penalty of £100 per 50 employees for each month or part of a month the P11D(b) return is late.

There are also penalties and interest if your payments of Class 1A NICs are paid late.

Don’t forget that the earnings rate of £8,500 pa for a P11D to be required was abandoned from 6 April 2016 so that employees who previously needed a form PD9 will now need a P11D.