HMRC relaunched its Business Record Check (BRC) initiative on 1 November 2012.

When the program was first unveiled in January 2011 HMRC intended to visit 50,000 small businesses across the UK. A year later the whole process was reviewed and subsequently suspended following concerns raised by professional bodies and accountants. According to HMRC:

“Up until 17 February 2012, 3,431 BRC had been carried out. These found that 36 per cent of businesses had some issue with their record-keeping of which 10 per cent had issues serious enough to warrant a follow up visit.

Following a review, HMRC announced a fresh approach to its pilot BRC programme on 3 February 2012.

The review of the pilot programme, which included discussions with trade and professional bodies’ representatives, found clear evidence that the programme was effective in improving record-keeping practices amongst SMEs. However, it recommended that the checks were better targeted in future, and linked to wider education and support activities.

In order to implement the review’s recommendations all new BRC activity was paused from 3 February to 31 October 2012 to allow HMRC to redesign the BRC process.”

Essentially, a BRC is just what it says on the tin, an enquiry from HMRC staff to make sure that record keeping is adequate. The relaunch has introduced a change of emphasis:

HMRC now intends to:

• Write to those SMEs selected for a BRC.
• Telephone the selected SMEs to talk through their business record keeping. The call is expected to last 10 – 15 minutes.

Based on the responses received:

• The HMRC officer will assess whether a face to face BRC visit is required.
• If the business records are deemed to be adequate, the HMRC officer making the call will tell the SME and then confirm the decision in writing.
• If the business records are deemed to require improvement, an HMRC officer from the Business Education and Support Team will make contact with the SME.
• If the business records are deemed to be inadequate and a visit required, the HMRC officer will ask one of their colleagues on the booking team to call to make the arrangements.

This appears to be very similar to the traffic light system used by HMRC prior to the suspension. Adequate records were given the green light, records in need of improvement were given the amber light and inadequate records awarded a red light.

After much intense lobbying by the charity sector, the Chancellor’s attempt to cap tax relief on charitable giving (Budget 2012) was withdrawn.

Major donors to charities are obviously moved to philanthropy by considerations other than the amount of tax they can save, although they will want to make their donations in the most tax efficient way. Here is a roundup of some of the tax considerations to be considered.

• To qualify for relief, cash donations need to be paid out of taxed income. Accordingly, charities can recover the 20% basic rate tax deemed to have been paid by the donor, thus increasing the cash value of the donation significantly.
• 40% or 50% rate tax payers can claim an additional 20% or 30% tax relief on qualifying donations.

A gift can be made by way of an outright gift of a qualifying investment or land. In this case the Gift Aid rules set out above do not apply and the reliefs available are as follows:

Income Tax consequences:

• The donor can claim Income Tax relief based on the market value of the investment or land on the date of the gift, or
• If the donor sells the investment or land to the charity at less than market value. Income Tax relief is normally available on the difference between the sale price and the market value when the sale is completed.
• In each case the relief is given by deducting the relevant value from income.

Capital Gains Tax consequences:

• In the case of an outright gift, no chargeable gain will arise.
• In the case of a sale at less than current market value, CGT will only be payable if the amount received from the charity is more than the base cost of the asset for CGT purposes.

Carry back bonus

It is still possible to carry back Gift Aid donations made in a current tax year to the previous tax year. The over-riding condition is that any election to make the carry back must be made prior to the tax return being submitted for the relevant year. For example, if a tax payer wanted to carry back a donation, made during the tax year 2012-13 to 2011-12, they would need to make the election prior to submitting their tax return for 2012.

From January 2013 a person who earns more than £50,000 must advise HMRC if they receive Child Benefit personally, or if they are the higher earner of a couple where their partner receives Child Benefit. If you fall into this category you may be receiving a letter soon from HMRC advising you of the new tax charge.

We have summarised below the details of the tax charge that will apply from 7 January 2013:

1. Child Benefit is not being made liable to tax, the amount claimed is unaffected. The tax charge simply claws back the value of the benefit of those with higher incomes.
2. Child Benefit claimants can elect not to receive benefit if they or their partner do not wish to pay the new tax charge. This election can subsequently be withdrawn if circumstances change.
3. The amount of the tax charge will be collected through self assessment and PAYE.
4. The tax charge will be 1% of the amount of the Child Benefit you receive for every £100 of income you earn in excess of £50,000. This sliding scale will apply to earnings up to £60,000.
5. The tax charge will recover all of the Child Benefit you or your partner receives if your income exceeds £60,000.
6. An individual who has an income over £50,000 but does not receive Child Benefit themselves will only be subject to the tax charge for any part of the tax year during which they live with a Child Benefit claimant whose income is below theirs.

A couple or partnership affected by these new rules comprises:

• a married couple living together;
• civil partners living together;
• a man and a woman who are not married to each other but who are living together; or
• a man living with a man or a woman living with a woman who are living together as if they were civil partners.

How can you mitigate this tax charge?

If the highest earner’s income is marginally over £50,000 the simplest way to reduce or eliminate this new tax charge is to reduce your income for tax purposes. One way that you can do this and retain benefit for your family is to make a lump sum contribution into your pension scheme. You will create higher rate tax relief on the contribution and save all or part of the higher Income Tax charge to recover Child Benefit. Depending on the number of children you claim for, this could create tax savings of over 70%.

Couples affected would be wise to seek professional help to ensure this new tax charge is kept to a minimum, especially for families where the highest income earner’s income only marginally exceeds £50,000.

All employers need to be aware of their responsibilities following the introduction of pension reforms. Some elements of this new legislation, such as the safeguards for individuals, came into effect for all employers from 1 July 2012.

The Pensions Regulator has issued “Getting Ready” notes for employers and this can be downloaded as a PDF document at http://www.thepensionsregulator.gov.uk/docs/pensions-reform-getting-ready-v4_1.pdf.

This article summarises some of the key points.

• Employers should find out the staging date from which the new auto enrolment regulations apply to their business.
• Employers will need to familiarise themselves with the duties they are likely to have to comply with. These could include: deciding on a pension scheme to use, preparing data to send to scheme administrators, preparing information to send to employees, and setting up payroll processes.

Staging Dates

1. Employers with 250 or more employees will be staged between 1October 2012 and 1 February 2014.
2. Employers with 50 to 249 employees will be staged between 1 April 2014 and 1 April 2015.
3. Employers with less than 50 employees will be staged between 1 June 2015 and 1 April 2017.
4. New employers setting up a business from 1 April 2012 up to and including 30 September 2017 will have staging dates between 1 May 2017 and 1 February 2018.

In certain circumstances small employers (employers with less than 50 employees at 1 April 2012) can elect to move their staging date to a later modified date. These modified dates are published in the PDF linked earlier in this article.

The Pensions Regulator will be writing to each employer 12 months and 3 months ahead of their staging date.

After much intense lobbying by the charity sector, the Chancellor’s attempt to cap tax relief on charitable giving (Budget 2012) was withdrawn.

Major donors to charities are obviously moved to philanthropy by considerations other than the amount of tax they can save, although they will want to make their donations in the most tax efficient way. Here is a roundup of some of the tax considerations to be considered.

• To qualify for relief, cash donations need to be paid out of taxed income. Accordingly, charities can recover the 20% basic rate tax deemed to have been paid by the donor, thus increasing the cash value of the donation significantly.
• 40% or 50% rate tax payers can claim an additional 20% or 30% tax relief on qualifying donations.

A gift can be made by way of an outright gift of a qualifying investment or land. In this case the Gift Aid rules set out above do not apply and the reliefs available are as follows:

Income Tax consequences:

• The donor can claim Income Tax relief based on the market value of the investment or land on the date of the gift, or
• If the donor sells the investment or land to the charity at less than market value. Income Tax relief is normally available on the difference between the sale price and the market value when the sale is completed.
• In each case the relief is given by deducting the relevant value from income.

Capital Gains Tax consequences:

• In the case of an outright gift, no chargeable gain will arise.
• In the case of a sale at less than current market value, CGT will only be payable if the amount received from the charity is more than the base cost of the asset for CGT purposes.

Carry back bonus

It is still possible to carry back Gift Aid donations made in a current tax year to the previous tax year. The over-riding condition is that any election to make the carry back must be made prior to the tax return being submitted for the relevant year. For example, if a tax payer wanted to carry back a donation, made during the tax year 2012-13 to 2011-12, they would need to make the election prior to submitting their tax return for 2013.

In this way, higher rate tax payers are given an extended opportunity to maximise the tax effectiveness of charitable donations. If the additional rate of Income Tax is reduced next April to 45%, 50% rate, tax payers in this tax year (2012-13) may want to consider carrying back charitable donations made 2013-14 to the previous tax year to reduce liability at the higher rate.

Carry back does not apply to a gift of investments or land.

Investors in higher-risk smaller companies have benefitted for a number of years from the Enterprise Investment Scheme (EIS). The new SEIS is targeted to provide funding for early stage companies who may find it difficult to raise seed capital. Recognising these needs, the SEIS scheme also offers investors higher tax breaks than the existing EIS. The SEIS applies to shares issued on or after 6 April 2012.

The following tax reliefs are available to qualifying investors:

Income Tax

• Relief is available to individuals who subscribe for qualifying shares in a company that meets the SEIS requirements.
• Investors need to have a UK tax liability against which the relief can be set.
• Relief is available at 50% of the cost of the shares on a maximum annual investment of £100,000.
• Relief is limited to the total tax liability of an investor in a year of assessment.
• Surplus relief can be carried back to a previous year but no relief can be carried back prior to 2012-13, the first year that SEIS applies.

Capital Gains Tax (CGT) – reinvestment relief

If chargeable gains arise for an individual in the tax year 2012-13 they can be reinvested in the SEIS scheme and the amount reinvested will be exempt from any CGT charge. The £100,000 SEIS investment limit and the carry-back facility also apply to this relief in exactly the same way as income relief.

The chargeable asset does not need to be disposed of first. As long as the CGT disposal and SEIS investment occur in the tax year 2012-13, reinvestment relief can be claimed.

Individuals who pay Income Tax at the highest rates can potentially claim a 78% tax break from claiming SEIS and the associated CGT reinvestment reliefs for 2012-13.

Capital Gains Tax (CGT) – disposal relief

Individuals who have claimed Income Tax relief on an SEIS investment, and the shares are kept for at least three years, will be exempt from CGT on any gain on disposal.

Note that if an investor did not claim Income Tax relief on the original investment, then any gain on subsequent disposal at any time will be subject to CGT.

Investment requirements

One of the key investment requirements is that shares to be included in SEIS must be paid up in full, and in cash, when they are issued.

According to HMRC, one of the most common reasons that an SEIS claim is refused is where investors take up subscriber shares when a company is set up, but before the company has banking arrangements in place to accept payment.

There are also a number of other “qualifying” criteria that need to be met. It is not possible to outline them all in this short article. Please contact us if you would like to explore this investment opportunity for your company.

New rates came into force on 1 October 2012 and are:

• £6.19 per hour for workers aged 21 and over – a rise of 11p
• £4.98 per hour for 18-20 year olds – no change
• £3.68 per hour for workers above school leaving age but under 18 – no change
• £2.65 per hour for apprentices – a rise of 5p

If your employer provides you with accommodation, they can count some of its value towards your NMW pay. This is called the accommodation offset. From October, the maximum that employers can count towards NMW pay will be £4.82 – a rise of 9p.

Owners of business property will be aware that certain parts of commercial buildings are treated as fixtures and fittings and capital allowances can be claimed.

From April 2012 sellers of commercial property should ensure that they have maximised any claims for capital allowances and have a full track history available to potential buyers. If appropriate elections are made the buyer will continue to enjoy the benefits of any unclaimed allowances.

Buyers in particular should make sure they get full details of past allowances claimed so that they can evaluate the value of any capital allowances they may be able to claim in the future.

From 2014 if a seller has failed to identify and ‘pool’ the expenditure qualifying for capital allowances (even if tax relief is not claimed) then any buyer will be unable to make a capital allowance claim in respect of this expenditure.

The message is clear. If you own, or are considering the purchase of commercial property before 2014, make sure you obtain professional advice to ensure that valuable tax allowances are not lost. Otherwise, as a seller, you may devalue your property as a prospective purchaser may be prepared to pay less than they would if capital allowances were available.

In a further, recent First-tier case the Tribunal considered the tax treatment of a businessman who was paid £123,750 on the termination of his employment. He dutifully deducted the usual £30,000 tax-free amount from this payment and declared the difference on his tax return.

Unfortunately, the termination payment was paid under the terms of his contract of employment. Payments made in this way are considered to be part of remuneration and therefore taxable in full.

The £30,000 deduction was not, therefore, available.

The case points to the need for constant vigilance when drafting contracts of employment to ensure that the £30,000 exemption is not invalidated. Even a “thank you for your services” letter can cause problems. Do seek our advice if you wish to make use of the exemption: either as an employee or employer.

In a potentially wide ranging decision, a First-tier Tribunal has ruled in favour of HMRC.

The case involved an LLP partnership that was formed to provide management services to a company. The following details are of interest:

• As part of the arrangement the LLP owned and provided the use of cars to the partners. This included private fuel.
• The partners were also directors of the company, or were family members of the directors.
• The partners had a minimal role in the running of the LLP.
• The LLP only had one customer, the limited company.

The Tribunal considered and reached the following decisions:

• That the LLP’s business would have survived without the provision of cars to the partners.
• That all of the car running and acquisition costs were recouped from the company as part of a management charge.
• That the terms of business between the LLP and the company did not reflect those of independent parties acting at arm’s length.

The Tribunal decided that the use of the cars by the partners of the LLP was made available due to their employment as directors of the company. Accordingly, the directors should be taxed on the use of the cars as a benefit in kind – the company was also liable to pay Class 1A NICs.

It would seem that there is an effective element of double taxation on the private element of motoring costs – but, in the words of the Tribunal, the taxpayers have “to live with the consequences of that”.

It is not clear at this point if the case will be appealed by the defendant. As things presently stand the case does offer HMRC an opportunity to challenge similar arrangements. The general circumstances of this case are quite specific, though by no means rare, but partnerships that are genuinely “standalone” will not be affected