Election on 8 th June • Snap Election = Short Finance Act • Lots of legislation deferred =>Next Bill? • Making Tax Digital – 2018 start? • Corporate tax changes – 1 April 2017? • Non-Dom changes – 6 April 2017? • Considerable uncertainty • Second Finance Bill/Act later this year? • Another election?
Finance Act 2017 – What’s in, What’s Out? • See Appendix last month for Overview of what was included • Changes to rates and limits enacted, Also: • IR35 – public sector workers “off payroll” • Changes to salary sacrifice arrangements • Offshore Pensions • Employee shareholder shares • Soft drinks levy (sugar tax)
Public sector workers “Off payroll” 'Client' 'Intermediary' Service company/partnership 'Worker'
So Why did Teresa no get a Majority? • Students voted Labour – abolish tuition fees promise • Funding of the NHS? • Public sector 1% pay freeze – 7 years? • Un-costed manifesto pledges? • “Dementia tax” U – turn lost the “grey” vote?
Funding social care • Current rules – contribute to care fees if assets exceed £23,250 • Includes value of family home • Conservative Party manifesto – increase to £100,000 • But no cap on contributions • Dilnot recommendation – limit to £72,000 • U-Turn – Green Paper to consider cap on contributions • Is this a tax?
Planning for social care costs • Current rules – contribute to care fees if assets exceed £23,250 • Give cash away to family? • Transfer family home to trust? • Not effective if deliberately deprive estate of assets to avoid care fees/ increase means tested benefits • What is deliberate deprivation?
Deliberate Deprivation • The Department of Health document called the Charging for Residential Accommodation Guide (CRAG), gives the following examples of deprival of capital : • a lump-sum payment such as a gift or to pay off a debt • transferring the title deeds of a property to someone else • putting money into a trust that cannot be revoked • converting money into another form that has to be disregarded from the means test, eg personal possessions, investment bonds with life insurance • reducing capital through substantial expenditure on items such as expensive holidays or by extravagant living
Deliberate Deprivation • The local authority or Pension Service has to show that this intention was there before it can take transferred capital into account. • Avoiding accommodation charges does not have to be the only motive behind a transfer of eligible capital ahead of the means test. • For the transfer to amount to deliberate deprivation, the intention to avoid accommodation charges must be a significant part of the reason for acting in this way.
Deliberate Deprivation – Timing: • No 7 year rule like IHT planning – CRAG: • “The timing of the disposal should be taken into account when considering the purpose of the disposal. It would be unreasonable to decide that a resident had disposed of an asset in order to reduce his charge for accommodation when the disposal took place at a time when he was fit and healthy and could not have foreseen the need for a move to residential accommodation. ”
Deliberate Deprivation – Timing: • s21 of the Health and Social Services and Social Security Adjudications Act 1983: where a resident has deliberately deprived himself or herself of an asset the local authority can recover any sums it consequently has to pay towards the resident’s care costs from the person who the asset was transferred to, as long as the deliberate deprivation occurred within six months of the resident approaching the local authority for funding. If the transfer was made more than six months before the local authority cannot use this section. • Although the six-month limit only applies to the particular power of recovery, the Assessment of Resources Regulations place no set time limit beyond which the local authority has to ignore transfers of assets .
HMRC Announcements and other developments 12
IHT – exempt gifts out of residue – grossing up • HMRC have updated their online form and IHT calculator to assist the computation of IHT • Where the residue of the estate is partly exempt/ partly chargeable • Gross-up legacies that are free of tax • Example • Martyn dies leaving his £1 million estate equally between 3 children and 3 charities • Assume that nil rate band already used
IHT – exempt gifts out of residue – grossing up • Martyn dies leaving his £1 million estate equally between 3 children and 3 charities 1. The non-exempt shares bear the whole burden of the tax – this leads to an unequal division of the estate, with the charities receiving more than the children. The estate rate is 40%. The charities receive £500,000 between them and the children receive £300,000, with tax of £200,000 met out of the children's share.
IHT – exempt gifts out of residue – grossing up • Martyn dies leaving his £1 million estate equally between 3 children and 3 charities 2. Divide proceeds so that the net estate is then divided equally between all six beneficiaries – equal distribution but, because it is necessary to gross-up the non-exempt gifts leads to significantly greater tax . 3 x £125,000 = £375,000 grossed up by 100/60 =£625,000 Balance to charities (3 x £125,000) exempt £375,000 Total estate £1,000,000 (Proof - £625,000 x 40% = £250,000)
Advisory Fuel Rates – 1 June 2017 Engine Petrol Diesel LPG < 1400 cc 11p 7p < 1600cc 9p 1400 – 2000 14p 9p 1601 - 2000 11p > 2000 cc 21p (22p) 13p 14p
HMRC Guidance to those using labour supplied by third party (gangmasters etc) • HMRC has identified a continuing incidence of problems with fraud and unpaid taxes through the use of un- vetted or poorly vetted labour providers • Across all of the agricultural and food processing sectors, construction, hotels and leisure, security and other labour intensive industries • HMRC suggest that users of such labour should carry out “due diligence” into labour provider • Report concerns to HMRC hotline
HMRC Guidance to those using labour supplied by third party (gangmasters etc) • Problems/fraud has involved: • the use of false invoices • hi-jacked VAT registrations • contrived insolvencies • under-priced contracting • the non-payment of PAYE tax and National Insurance Contributions (NIC) due • Not paying NMW
Using labour supplied by third party (gangmasters etc) – VAT Fraud • Where it can be shown that you (the trader) knew or should have known that transactions you entered into were connected with any fraudulent evasion of VAT, you will lose your right to recover the VAT incurred on those transactions. • Failure to carry out appropriate checks will be one of the factors that HMRC will take into account in considering whether you knew or should have known of the fraud
HMRC Guidance to those using labour supplied by third party (gangmasters etc) • Does the labour provider need/have the appropriate Gangmaster Licensing Authority (GLA) licence ? • It is illegal to use workers or services supplied by an unlicensed labour provider in the regulated sector of agriculture, forestry, horticulture, shellfish gathering and food processing and packaging. • The maximum penalty in England and Wales is 51 weeks imprisonment and a fine ;
HMRC Guidance to those using labour supplied by third party (gangmasters etc) • Does the labour provider make regular/monthly PAYE and Class 1 NIC remittances to HMRC at least consistent with the number of workers supplied to your business? • Does the labour provider employ the workers directly or is an intermediary involved? • Does the labour provider submit regular VAT returns and make full and proper payments in respect of these returns? • Should also carry out due diligence into the labour providers business
HMRC Guidance – enquiries into labour provider’s business • What is the history of the business? • Is the business registered in the UK or overseas (including the Isle of Man or Channel Islands)? If registered overseas and PAYE is not accounted for, HMRC may ask the user of the labour to account for this tax and the associated NIC • Is it a live company on the Companies House register? • What do you know about the directors and their background in the industry?
HMRC Guidance – enquiries into labour provider’s business • How many workers for hire do they employ in total? • Do they in turn hire workers from other labour providers and/or sub-contractors? If so, are the fees that they are proposing to charge you commercially realistic whilst also allowing each party to achieve a profit? • Association of Labour Providers suggests £8.69/ hour • Has the business obtained trade references from other businesses they supply workers to? If so ask for copies. • Do they have Employer’s Liability Insurance?
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