Category: Tax News

There is currently a very generous 100% relief from inheritance tax for passing on businesses and farm land during lifetime and on death. The rationale for Business Property Relief (BPR) and Agricultural Property Relief (APR) is to enable businesses to be passed on without the need to sell off assets to pay the IHT due on the transfer.

Currently if a business is wholly or mainly for the purpose of investment, then it will not be eligible for BPR. This is not always straightforward to determine. Many estates include both trading and non-trading business assets, and establishing whether this test is met can be difficult to establish. The ‘wholly or mainly’ test is generally considered to be a greater than 50% test and the OTS are suggesting that the test should be aligned with the much stricter 80:20 test that applies for CGT gift of business asset holdover and entrepreneurs’ relief. If introduced many more business transfers would be liable to IHT.

On the positive side the OTS have recommended that IHT business property relief should be extended to include Furnished Holiday Lettings aligning the tax treatment with that of Income Tax and CGT where they are treated as “trading” providing that certain conditions are met.

A recent case before the tax tribunal saw the liability for a late VAT registration penalty being passed on to a manager of the company. HMRC have the power to impose such a penalty on an individual where (1) there is a penalty payable by the company for a deliberate failure (2) the individual on whom HMRC seek to impose liability is an “officer” of the company; and (3) the deliberate failure is attributable to that officer.

Date What’s Due
01/08 Corporation tax for year to 31/10/18 (unless pay quarterly)
19/08 PAYE & NIC deductions, and CIS return and tax, for month to 05/08/19 (due 22/08 if you pay electronically)
01/09 Corporation tax for year to 30/11/18 (unless pay quarterly)
19/09 PAYE & NIC deductions, and CIS return and tax, for month to 05/09/19 (due 22/09 if you pay electronically)

The Office of Tax Simplification (OTS) have undertaken a detailed review of Inheritance Tax (IHT), which is perceived by many as a complicated tax. The government normally takes account of OTS recommendations and their report is likely to lead to future changes to the rules. We will keep you posted as the changes may necessitate amending your will or further planning to pass on your wealth.
There are also numerous misconceptions about how the tax operates, particularly in connection with gifts during someone’s lifetime. One of the proposed changes is to shorten the period for lifetime gifts to be exempt from 7 to 5 years. The OTS also recommended replacing the current £3,000 annual allowance, marriage allowances and the exemption for regular gifts out of income with a £25,000 personal allowance each year.
NO TAX FREE CGT UPLIFT ON DEATH
Although the OTS were tasked with simplifying inheritance tax, they also considered the interaction with CGT as many asset transfers potentially have both CGT and IHT implications. Currently there is no CGT on assets transferred on death and the recipient inherits the asset at its market value.
It has been suggested that the capital gains tax uplift on death distorts decision making relating to assets that benefit from an exemption from Inheritance Tax. Where an individual holds such an asset that has risen in value, and is considering transferring it during their life, they are often advised to retain it until death rather than giving it away during lifetime, because of the tax benefits.
Where a business is retained until death, any potential capital gains are wiped out and there is no Inheritance Tax to pay. This could lead to an asset being retained rather than being transferred to the next generation at the time that is right for the business.

We will again monitor the progress of this proposed change as it is likely to have significant implications on family business succession planning.

DIARY OF MAIN TAX EVENTS

JULY/ AUGUST 2019

These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 June 2019. Where there has been a change the previous rate is shown in brackets.

Note that for hybrid cars, use the equivalent petrol or diesel scale charge. However, it may be more beneficial to compute the actual cost. You can continue to use the previous rates for up to 1 month from the date the new rates apply.

Under new rules due to come in on 1 October 2019 builders, sub- contractors and other trades associated with the construction industry will have start using a new method of accounting for VAT.

Under the new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the reverse charge, a main contractor would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The customer (main contractor) would then account for VAT on the net value of the supplier’s invoice and at the same time deduct that VAT from the payment to the sub-contractor.

This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors.

The new reverse charge will apply to a wide range of services in the building trade, primarily those activities covered by the construction industry (CIS) payment rules. Note that normal VAT invoices will continue to be issued to domestic customers.

Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system.

Last month we highlighted the restricted annual pension allowance for those with high income, such as doctors. Note that the deadline for requesting for the additional tax to be paid out of the fund for 2017/18 is 31 July 2019.

There is a further complication for those individuals who have started drawing income from certain money purchase pension schemes. A new £4,000 limit introduced from 6 April 2017 restricts the amount that they can save in their pension and receive tax relief. Our concern is that many taxpayers may unwittingly trigger a tax charge due to this rule change.

PAYE settlement agreements (PSAs) are arrangements under which an employer can settle the income tax and National Insurance liabilities on benefits in kind and expenses payments provided to employees and officeholders.

Setting up a PSA avoids passing on an unexpected, and potentially demotivating, tax charge to employees. Where a PSA has been agreed with HMRC, this will obviate the need for any reporting on the individual’s P11D.

The items that can be included in the PSA must meet one of three criteria: minor, irregular or impracticable to apply PAYE or apportion between the employees receiving the benefit.

Although reporting will eventually go online, applications for a PSA are currently made in writing to HMRC. The Revenue will then issue a P626 contract, which states that the employer will pay the tax and National Insurance liability on agreed benefits.

BUT NOT TRAVEL COSTS FOR NON-EXECUTIVE DIRECTORS IN PUBLIC SECTOR

Until recently, HMRC allowed taxable travel expenses to be included in public sector PSAs in respect of normal commuting costs for Non-Executive Directors (NED). The Department of Business (BEIS) wrote to the bodies it oversees on 30 May 2019 instructing them that any payments for commuting made to non-executives and other office holders, will now have to be paid through payroll, with tax and National Insurance deducted at source.

Note also that fees for NED roles in the public and private sectors are always required to be subject to tax and NI through the payroll, as this is income for the holding of an office so it cannot be invoiced and paid gross to the NED.