Category: Insights

The Government and HMRC have updated its collection of high-level guides called “partnership packs”, intended to help businesses involved in importing and exporting prepare for changes to customs procedures after 29 March 2019 in the event of a “no deal” scenario.

If the UK exits the EU without a deal, UK businesses will have to apply customs, excise and VAT procedures to goods traded with the EU, in broadly the same way that already applies for goods traded outside of the EU.

In the event of a “no deal” Brexit the government’s aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses.
However, there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU countries.

Postponed VAT Accounting for Imports 

The government has announced that in the event of a “no deal” Brexit, it will introduce postponed accounting for import VAT on goods brought into the UK.
This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT at or soon after the time that the goods arrive at the UK border. This procedure will apply both to imports from the EU and non-EU countries.

Low Value Consignments

If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses. Low Value Consignment Relief (LVCR) will no longer apply to any parcels arriving in the UK. For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.

VAT Mini One Stop Shop (VAT MOSS) will come to an to end

A further change if the UK leaves the EU without an agreement is that the UK will stop being part of EU-wide VAT IT systems such as the VAT Mini One Stop Shop which currently simplifies VAT reporting for UK businesses.

Customs changes

Businesses can currently move goods freely between EU countries. For customs purposes, this means that businesses trading with the rest of EU do not have to make any customs import or export declarations, and their trade with the EU is not subject to import duty.

In the event of a “no deal” Brexit there would be immediate changes to the procedures that apply to businesses trading with the EU. It would mean that the free circulation and movements of goods between the UK and EU would end.

HMRC is currently introducing its new Customs Declaration Service (CDS), which replaces its Customs Handling of Import and Export Freight (CHIEF) system.

From 11pm on 29 March 2019, for businesses trading with the EU, the impacts would include businesses having to apply the same customs and excise rules to goods moving between the UK and the EU as are currently applied in cases where goods move between the UK and non- EU countries.

This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration).
For imports into the UK, a separate safety and security declaration needs to be made by the carrier of the goods (usually the haulier, airline, freight train operator or shipping line).

For exports from the UK, the export declaration includes the safety and security declaration.

New inheritance tax rules for passing on the family home started on 6 April 2017. This additional relief should be taken into consideration when drafting your Will and we can work with your solicitor to make sure your Will is tax efficient.

From 6 April 2017 an additional nil rate band of up to £175,000 is available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil rate band.

This additional relief is however restricted If your assets exceed £2 million. The rules are fairly complicated but we can review your personal circumstances to ensure that you take advantage of all the relief that you are entitled to.

This additional inheritance tax relief is available even when you downsize to a smaller property.

For example if a married couple currently live in a large house worth  £500,000 and downsize to a flat worth £250,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property.  They could even sell up completely and move into a rental property and still get the inheritance tax relief!

JANUARY / FEBRUARY 2019

These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 December 2018. Where there has been a change the previous rate is shown in brackets.

Note that for hybrid cars you must use the petrol or diesel rate.

You can continue to use the previous rates for up to 1 month from the date the new rates apply.

PENSION PLANNING

For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers contributions by both the individual and their employer.

Note that the unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current year, but then lapses if unused. Hence the unused pension allowance for 2015/16 will lapse on 5 April 2019 if unused. Note that under the current rules the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000 but there are rumours that this generous relief may be reduced in future.

The Chancellor announced a temporary increase in the Annual Investment Allowance (AIA) for expenditure on plant and machinery to £1 million from 1 January 2019. However transitional rules mean that the full amount will not necessarily apply to your business straight away.

For example, if your business year end is 30 June 2019 the maximum AIA would be £600,000 being 6/12 x the old £200,000 limit plus 6/12 x the new £1 million limit. The following year to 30 June 2020 would be entitled to the full £1 million.

NEW CAPITAL ALLOWANCE FOR COMMERCIAL BUILDINGS

The Autumn 2018 Budget announced a new 2% straight line tax deduction for the cost of construction or renovation of commercial buildings and structures. HMRC have now issued a technical note setting out the details for the operation of the new relief.

Unlike the old Industrial Buildings Allowance the new relief is available for the construction of shops and offices as well as factories and warehouses.

The new tax break is available where the contract is entered into and construction costs are incurred on or after 29 October 2019. The allowance is available to commercial property landlords as well as trading businesses. There are special rules for leasehold buildings which determine whether the landlord or tenant is entitled to the allowance.

Note that there are more generous plant and machinery allowances available for fixtures and fittings within the building and we can work with you to help you maximise tax relief. The AIA referred above would mean that there may be 100% capital allowances for equipment such as central heating and air conditioning.

CAPITAL ALLOWANCE ON HIGH CO2 CARS AND ASSETS IN SPECIAL RATE POOL REDUCES TO 6%

One of the other capital allowance changes announced in the Autumn Budget was the reduction of the writing down allowance on assets in the special rate pool from 8% to just 6% per annum reducing balance from April 2019.

The assets included in this pool include long life assets, such as aircraft, integral features within buildings and cars emitting more than 110g CO2 per kilometre.

A claim for the 100% AIA referred to above can be made for expenditure on these assets, (with the exception of motor cars) and this will result in faster tax relief.

This means that where a company buys a motor car that emits more than 110g CO2 per km it will take many years to get relief for the expenditure as even when the car is sold the proceeds are deducted from the special rate pool and continue to be written down at 6% reducing balance.

For example Global Ltd which makes up accounts to 31 March each year buys a new Mercedes E220d AMG line for the managing director Mr Global for £40,000. As the CO2 emissions are 127g per km the WDA would be 8% for year ended 31 March 2019 = £3,200 leaving a tax written down value of £36,800. The 6% WDA would then apply for year ended 31 March 2020 = £2,208 leaving £34,592.

If the car was sold for £25,000 in the following year then the remaining balance of £9,592 would continue to be written down at 6% per annum, hence a very long write off period.

It may be more tax efficient to lease such a vehicle as, although 15% of the lease rentals are disallowed for tax purposes for such high CO2 vehicles, this may nevertheless be more beneficial.

Note that the above rules operate differently where the motor car is acquired by a sole trader or a partner for his business as the car is not included in the pool and a balancing adjustment occurs when the car is sold.

At this time of year we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5^th April.

An obvious tax planning point would be to maximise your ISA allowances for the 2018/19 tax year (currently £20,000 each).

You might also want to consider increasing your pension savings before 5 April 2019 as the unused annual pension allowance is lost after three years.

For those looking to do some inheritance tax planning it would be a good time to review (or make) your Will.

The issue

Apparently HMRC identified £300m in frauds by ‘artificial corporate structures’ relating to research and development tax credit claims. Broadly these frauds involve funds being circulated through complex tax structures and not genuinely applied for genuine research and development purposes. For example a UK company could pay a Guernsey company (say) £100M for research and development and then that Guernsey company would subcontract it on for a much lower amount.

Consequently, from April 2020 the amount that a loss-making company can receive in R&D tax credits will be capped at three times its total Pay As You Earn (PAYE) and National Insurance contributions (NIC) liability. The thinking here is that genuine companies are likely to have significant payroll costs whereas ‘sham’ companies will typically have low costs.

How will it work?

Consultations will be carried out ahead of implementation to ensure that the impacts are minimised and those caught by the restriction will still be able to claim payable credits up to the cap with any unused losses carried forward to be set against future profits.

Final comment

There was a similar restriction when research and development tax credits were introduced but this was abandoned in 2012. If this is only being introduced to catch ‘fraudulent transactions’ then it seems rather harsh on various research and development start-up companies which could quite genuinely have high research and development costs but low payroll costs. These firms could suffer very real collateral damage from the fraudsters.

Date  /  What’s Due

1/12/18 

Corporation tax for year to 28/02/2018 unless quarterly instalments apply

19/12/18  

PAYE & NIC deductions, and CIS return and tax, for month to 5/12/18 (due 22/12 if you pay electronically)

30/12/18 

Deadline for filing 2017/18 tax return online in order to request that HMRC collect outstanding tax via the 2019/20 PAYE code

1/1/19

Corporation tax for year to 31/03/2018 unless quarterly instalments apply

19/1/19

PAYE & NIC deductions, and CIS return and tax, for month to 5/1/19 (due 22/12 if you pay electronically)

31/1/19

Deadline for filing 2017/18 self-assessment tax return online and paying your outstanding tax for 2017/18.