2020 Innovation Training Limited Monthly Tax Webinar Martyn Ingles 22 June 2015 Agenda • Queen’s Speech – future tax legislation • HMRC and other recent tax developments • Recent tax cases • Pension planning - income over £150,000 • Proposed IHT family home allowance 1
The Queen’ Speech Summer Budget and Future Tax Legislation Queen’s Speech – Tax and Benefits • “Tax Lock” – No increases in income tax, NIC, or VAT – in Finance Bill and NIC Bill • Personal allowance = NMW x 30 hours p.w. • Scotland Bill – delegate powers to set Scottish income tax rate, air passenger duty, aggregates levy, share VAT revenue • Full Employment and Welfare Benefits Bill – freeze tax credits for 2 years from 2016 2
Queen’s Speech – not mentioned • Measures in Conservative Party manifesto to be included in Summer Budget? - 8 th July • Pension Tax relief restricted if > £150,000 • IHT – additional IHT relief for family home • Abolition of Class 2 NIC and merger with Class 4 – increase self-employed rate to 12%? Scotland Bill – Scottish Tax Powers • Enable the Scottish Parliament to: • set the thresholds and rates of income tax on earnings • keep the first ten percentage points of standard rate VAT raised in Scotland (and 2∙5% reduced rate) • take responsibility for Air Passenger Duty and the Aggregates Levy 3
“Scottish Taxpayer” 1. a Scottish Parliamentarian; or 2. have a “close connection” to Scotland, either having only a single “place of residence”, - which is in Scotland; or where more than one “place of residence”, - their “main place of residence” in Scotland for at least as much of the tax year as it has been in another part of the UK; or “Scottish Taxpayer” 3. where no “close connection” to Scotland (or any other part of UK) exists – through day counting. If the individual spends at least as many days in Scotland as elsewhere in the UK. HMRC provide guidance - similar to UK statutory residence test 4
HMRC announcements and other developments UKIP Donations now exempt from IHT • Qualifying political party: • One member elected at General Election and >150,000 votes cast for party • 11 political parties now qualify • Gifts during lifetime and on death exempt • NB – no relief for donations against business profits 5
Salary Sacrifices – Updated HMRC Guidance • Latest update May 2015 to include Auto-Enrolment • Legal agreement between employer and employee • To change terms of employment contract to reduce entitlement to cash pay in return for non cash benefit • Signed before the arrangement takes effect • Cannot reduce cash earnings below NMW • Can affect certain State benefits e.g. tax credits • Typically childcare vouchers, additional pension contribution Salary Sacrifice Examples Salary Sacrifice Non cash Tax benefit consequence £350 a week £50 Childcare £300 subject to vouchers PAYE, NIC £350 a week £100 Childcare £250 subject to vouchers PAYE, NIC Excess over £55 taxable £5,000 bonus £5,000 Employer No PAYE or NIC pension due on pension contribution contribution 6
Employment Allowance Scheme in HMRC Spotlight • £2,000 allowance introduced 2014/15 • Set against employer’s NIC • Numerous exclusions – connected companies etc. • “Scheme” used by employment agencies to set up multiple companies with different director/shareholders • HMRC view is that it doesn’t work • Included in latest updated list of HMRC “Spotlights” • Should have been disclosed under DOTAS • Potential £1 million fine for promoter of scheme Employment allowance - exclusions • Cannot set against NIC on deemed salary (IR35) • Employed for personal, household or domestic work, • If already claim the allowance through a connected company or charity • If carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example: • NHS services • General Practitioner services • the managing of housing stock for a local council 7
Advisory Fuel Rates – 1 June 2015 Engine Petrol Diesel LPG < 1400 cc 12p 8p < 1600cc 10p 1400 – 2000 14p 9p 1601 - 2000 12p > 2000 cc 21p 14p 14p Annual Tax on Enveloped Dwellings (ATED) • Applies to UK residential property owned by companies, partnerships with corporate members, and collective investment vehicles • ATED rates increased – previously applied to properties valued over £2 million at 1 April 2012 • Starts at £1m MV for 2015/16 - £7,000 p.a. • and £500,000 MV for 2016/17 (value at 1 April 2012) • Numerous reliefs but still need to file a return 8
Do we need to file an ATED return • Even if a relief applies still need to file a return: • Property rental businesses • Dwellings open to the public • Property developers • Property traders • Dwellings used for trade purposes • Farmhouses • New ATED Relief Declaration Return Waiver of penalties for late 2013/14 returns • Normal £100 late filing penalty to be waived where taxpayer provided a reasonable excuse • HMRC will not challenge the excuse and focus on persistent late filers and tax evasion/avoidance • Reasonable excuses: • Death of partner shortly before the deadline • Unexpected stay in hospital • Computer software problems when preparing return • HMRC online service issues • Postal delays that couldn’t be predicted 9
Recent Tax cases and Tribunal decisions Reasonable Excuse for late Return? • Porter (t/as Crafty Creations) v HMRC (2015) FTT • Ms Porter was late with her 2012/13 SA tax return • HMRC online service issues – unable to log onto HMRC website on 29 January 2014 • Telephone and wrote to HMRC • HMRC issued new login code and she filed online 5 March 2014 => £100 penalty • FTT allowed the appeal – reasonable excuse • She was doing her best to comply with the legislation 10
Appeal against Suspended VAT penalty • Automation Ltd v HMRC (2015) FTT • Understated output tax for 3 successive quarters – just one months outputs included • Director did not notice the error! = careless • Appealed to Tribunal to have penalty suspended – but submitted late • Late appeal allowed, but no suspension as there had been an earlier suspended penalty due to earlier careless error VAT – Single or Multiple Supply Again • Marketing Lounge Partnership Ltd v HMRC (2015) FTT • Supply of promotional services, printed brochures, website and other services • Argued that brochures should be zero rated • HMRC argued that whole service should be standard rated as supply of promotional services • Further consideration of Card Protection Plan case • Is there economically a single service? If so - ancillary supplies treated same as principal supply • Tribunal - a single standard rated supply 11
VAT – Value of Staff Clothing • French Connection Ltd v HMRC (2015) FTT • FC supplied in-store staff with clothes from current range up to stated limit • If they left they were charged 30% of the value • FC did not account for VAT unless the employee left • HMRC argued that VAT should be based on cost where annual value > £50 • FC argued that these were “overalls/ uniform” • Tribunal – taxable supply, VAT due on cost to employer Dishonest Evasion – Director Responsible? • Mohammed Azam v HMRC (2015) FTT • Mr A owned staff agency (Easy Recruitment Services Ltd) • Supplied staff to Stubbins – no PAYE or NIC on wages • Easy told HMRC that staff employed by sub-contractor • Also failed to account for VAT output tax • HMRC assessed dishonest evasion penalty on Mr A • Few records available, £587,000 paid by Stubbins and large cash withdrawals > £500,000 • Mr A had sole and complete control of bank account • Tribunal – dismissed appeal – dishonest evasion 12
Deeds of Variation effective for IHT, CGT? • Vaughan-Jones & ors v Vaughan-Jones & ors (2015) • Appeal to High Court on validity of D of V • Entered into within 2 years of death • Signed by all beneficiaries under original Will/ Intestacy • Stands in place of original Will • Send to HMRC (Capital Taxes Office) within 6 months • Effective for CGT and IHT (but ineffective for IT) Tax Planning Opportunities 13
Pension relief to be restricted for high earners • Conservative Party manifesto proposal • Tax relief restricted for those earning over £150,000 p.a • Normal £40,000 annual allowance restricted by £1 for every £2 over £150,000 • £10,000 annual allowance if income >£210,000 • Increase contributions before 8 July 2015? Pension tax relief restriction Earnings Annual Tax relief allowance (max 45%) £150,000 or less £40,000 £18,000 £170,000 £30,000 £13,500 £190,000 £20,000 £9,000 £210,000 or more £10,000 £4,500 14
Current Pension rules • Annual allowance from £40,000 (was £50,000) • Limit applies to employee and employer input • Carry forward unused allowance 3 years • Excess taxed at highest marginal rate • Lifetime allowance £1,250,000 (£1,000,000 from 2016) • Tax relief continues at highest rate 2015/16 – 3 year carry forward • Sybille pension input £60,000 in 2015/16 2012/13 2013/14 2014/15 Annual allow £50,000 £50,000 £40,000 Pension input £25,000 £30,000 £32,000 Unused allow. £25,000 £20,000 £8,000 Set off firstly against £40,000 2015/16 allowance and then £20,000 unused allowance from 2012/13, £5,000 lost? Pay further £5,000 before 6 April 2016 15
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