Tax Diary March/April 2018

1 March 2018 – Due date for corporation tax due for the year ended 31 May 2017.

2 March 2018 – Self assessment tax for 2016/17 paid after this date will incur a 5% surcharge.

19 March 2018 – PAYE and NIC deductions due for month ended 5 March 2018. (If you pay your tax electronically the due date is 22 March 2018)

19 March 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2018.

19 March 2018 – CIS tax deducted for the month ended 5 March 2018 is payable by today.

1 April 2018 – Due date for corporation tax due for the year ended 30 June 2017.

19 April 2018 – PAYE and NIC deductions due for month ended 5 April 2018. (If you pay your tax electronically the due date is 22 April 2018)

19 April 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2018.

19 April 2018 – CIS tax deducted for the month ended 5 April 2018 is payable by today.

30 April 2018 – 2016-17 tax returns filed after this date will be subject to an additional £10 per day late filing penalty.

Claiming expenses by the mile

A reminder that employees can make a claim for the business use of their own cars, motorcycles or cycles by logging their business mileage and applying an approved mileage rate.

Mileage allowance payments (MAPs) are the HMRC approved rates used by most employers to reimburse employees when they use their own transport for business purposes. The current rates have remained unchanged for some time. They are:

  • Cars and vans – 45p per mile for the first 10,000 miles in a tax year and 25p thereafter.
  • Motorcycles – 24p per mile
  • Bikes – 20p per mile

If employers pay at these rates, and no more, any expenses paid are tax free in the hands of the employee.

If the employer is registered for VAT, they can also claim back as input tax the deemed VAT included in the mileage rate. To do this, employers should use the advisory fuel rates. These are published on the gov.uk website at https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

If employers pay at rates higher than MAPs, any excess will be treated as remuneration, added to employees’ salary, and taxed accordingly.

If employers pay their employees at less than the MAP rates, employees can make a claim to HMRC to compensate them for any shortfall. In effect, the difference in the MAP rate paid times the business mileage for the tax year can be claimed as an allowable expense.

Tax-free childcare support expanded

From 14 February 2018, tax-free childcare is available to all remaining eligible families: parents whose youngest child is under 12. The new scheme aims to help working parents with the cost of childcare.

According to government, it is quick and easy to apply, and parents could save thousands of pounds each year. For every £8 parents pay into their childcare account, the government will add an extra £2, up to £2,000 per child per year. HMRC has been gradually rolling out tax-free childcare since April 2017.

Parents must each expect to earn (on average) at least £120 per week (equal to 16 hours at the National Minimum or Living Wage). If either parent is on maternity, paternity or adoption leave, or you're unable to work because you are disabled or have caring responsibilities, you could still be eligible.

However, if either you, or your partner, expect to earn £100,000 or more, you can’t get tax-free childcare. Also, you can’t use tax-free childcare at the same time as childcare vouchers, Universal Credit or tax credits. You can use it with the 15 hours and 30 hours schemes.

You can use tax-free childcare to help pay:

  • Registered childminders, nurseries and nannies
  • Registered after-school clubs and playschemes
  • Registered schools
  • Home careworkers working for a registered home care agency

Parents, including the self-employed, can apply online for tax-free childcare by visiting Childcare Choices at https://www.childcarechoices.gov.uk.

Inheritance tax in for an overhaul

The Office for Tax Simplification (OTS) has been tasked by government to review key aspects of the inheritance tax (IHT) legislation. According to information posted to the government’s website recently, the review would appear to be wide ranging. Issues to be examined include:

  • The process around submitting IHT returns and paying any tax, including cases where it is clear from the outset that there will be no tax to pay;
  • The various gifts rules including the annual threshold for gifts, small gifts and normal expenditure out of income as well as their interaction with each other and the wider IHT framework;
  • Other administrative and practical issues around routine estate planning, compliance and disclosure, including relevant aspects of probate procedure, in relation to situations which commonly arise;
  • Complexities arising from the reliefs and their interaction with the wider tax framework;
  • The scale and impact of any distortions to taxpayers’ decisions, investments, asset prices or the timing of transactions because of the IHT rules, relevant aspects of the taxation of trusts, or interactions with other taxes such as capital gains tax; and
  • The perception of the complexity of the IHT rules amongst taxpayers, practitioners and industry bodies.

We will be keeping a keen eye on the outcome of these deliberations as they could turn even the most basic IHT planning on its head. We will keep readers informed when the OTS publishes its report although it may be some time before any changes are enacted and have a direct impact on estate planning. The OTS doesn’t envisage publishing its initial report until the Autumn of this year.

Tax and making loans to employees

A reminder that making loans to your employees or their relatives can create tax problems for employees and employers. For example, the employer will have an obligation to report a beneficial loan to HMRC and the deemed benefit would be a taxable benefit in kind for the relevant employee. A beneficial loan is one that is interest free or the rate charged is below the “official rate” and the benefit is the difference between these interest rate charges. Further, the benefit would increase the employer’s Class 1A NIC bill at the end of the tax year.

Fortunately, certain loans are exempt from this reporting obligation. These may include loans employers provide:

• in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee),

• with a combined outstanding balance due from an employee of less than £10,000 throughout the whole tax year,

• to an employee for a fixed and never changing period, and at a fixed and constant rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out – the official rate for 2017-18 is 2.5%,

• under identical terms and conditions as those provided to the public (this mostly applies to commercial lenders),

• that are ‘qualifying loans’, meaning all the interest qualifies for tax relief.

Loans written off also create a National Insurance Class 1 charge for the employee. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC from the employee’s salary, on the amount written off for tax purposes.

Calculating the taxable benefits for chargeable loans can be somewhat complex and readers are advised to take advice if they are unsure of their tax and NIC responsibilities. Don’t forget “employees” includes directors and loans to family members may be caught.

New protection for company directors from identity fraud

The Department of Business, Energy & Industrial Strategy issued the following announcement last week:

  • Company directors are twice as likely to be victims of identity fraud, research shows
  • New laws will allow directors to remove their personal address from the company register whilst still ensuring transparency at Companies House
  • Protection will help to ensure the UK continues to be one of the best places in the world to start a business – a key part of our Industrial Strategy

New laws to help protect company directors from identity fraud and personal harm will be introduced by the Government. The new laws will enable company directors to remove their personal addresses from the UK’s official company register on Companies House. Directors must still provide their business address as a legal requirement.

This comes in response to reports that fraudsters are using this publicly available information to pose as company directors to buy products online. There are also concerns the information is leaving company directors vulnerable to violence and intimidation.

They are twice as likely to be the victims of identity fraud, with company directors being victims in one in five recorded cases, according to research by fraud prevention organisation Cifas.

These new regulations will also help to ensure people feel safe when setting up a new business by protecting directors from identity fraud.

Currently, personal addresses can only be removed when Companies House and the relevant authorities judge there is a serious risk of violence or intimidation because of the company’s work.

The new laws will also ensure transparency in legal information as public authorities such as the police, the insolvency service and the pension regulator will still be able to access directors’ information, such as their personal address.

The laws will come into force by the end of summer 2018.

Just a few weeks to the end of the tax year

The 5 April 2018, is the next key marker for tax advisors, the end of the current tax year. Why is this date especially important?

Each tax year, taxpayers are granted a number of tax-free allowances, exemptions and reliefs, and in most circumstances, if you don’t take advantage of these reliefs they are lost; they cannot be carried forwards. Basic allowances for 2017-18 include:

Income Tax:

  • Personal tax allowance – £11,500
  • Personal savings allowance – £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
  • Dividend allowance – £5,000. This is the last year that this generous tax-free allowance is available, from 6 April 2018 it is reducing to £2,000.

National Insurance:

  • The employment allowance of £3,000 is available to set-off against employer’s Class 1 secondary contributions subject to certain restrictions.

Capital Gains Tax:

  • Annual exempt amount, individuals can accrue chargeable gains of £11,300 (trusts £5,650) in the tax year without paying this tax.

Annual Investment Allowance:

  • Sole traders, partnerships and companies can invest up to £200,000 in qualifying capital expenditure and set this off against their taxable profits.

Inheritance tax:

  • Annual gifts out of capital £3,000 (this gift allowance can be carried forward for one year).
  • Small gifts allowance, £250 per recipient.
  • Parental gift on marriage, £5,000.
  • Grandparent or party to marriage, £2,500.
  • Other gifts on marriage, £1,000 per donor.

Savings

  • Annual ISAs – you can invest up to £20,000 in a tax-sheltered ISA. The limit for Junior ISAs is £4,128.

This is by no means a complete list, what it does help to illustrate is the need to work through a basic check list of reliefs to ensure that you have organised your tax affairs for 2017-18 in such a way that you can make the most of reliefs available.

We can help. If you have not considered your tax planning options for 2017-18, call now to organise a planning meeting.

Inheritance tax due for a shakeup

The government has tasked the department charged with simplifying our present tax system with taking a fresh look at inheritance task. The scope of their review has just been published. It says:

The review will consider how key aspects of the current IHT system work and whether and how they might be simplified. This will include a combination of administrative and technical questions such as:

  • The process around submitting IHT returns and paying any tax, including cases where it is clear from the outset that there will be no tax to pay;
  • The various gifts rules including the annual threshold for gifts, small gifts and normal expenditure out of income as well as their interaction with each other and the wider IHT framework;
  • Other administrative and practical issues around routine estate planning, compliance and disclosure, including relevant aspects of probate procedure, in particular in relation to situations which commonly arise;
  • Complexities arising from the reliefs and their interaction with the wider tax framework;
  • The scale and impact of any distortions to taxpayers’ decisions, investments, asset prices or the timing of transactions because of the IHT rules, relevant aspects of the taxation of trusts, or interactions with other taxes such as capital gains tax; and
  • The perception of the complexity of the IHT rules amongst taxpayers, practitioners and industry bodies.

Potentially, this could result in legislation being presented to parliament that radically changes the present planning options usually considered by UK taxpayers to minimise IHT liabilities.

We are still some way from any changes being actioned, but we will be keeping a weather eye on the situation and will advise clients if the rules do change.

Requirement to correct tax due on offshore assets

A new legal requirement is included in the Finance (No. 2) Act 2017 that creates an obligation for anyone who has undeclared UK tax liabilities that involve offshore matters or transfers to disclose the relevant information about this non-compliance to HMRC by 30 September 2018.

Failure to disclose the relevant information to HMRC on or before 30 September 2018 will result in the person becoming liable to a new penalty. The new failure to correct penalty is likely to be much higher than the existing penalties, with a minimum penalty of 100% of the tax involved.

To avoid becoming liable to these new higher penalties, a person must correct the position by no later than 30 September 2018. If they do this, the tax and interest will be collected, and the existing penalty rules will apply.

The purpose of the Requirement to Correct (RTC) legislation is to require those with undeclared offshore tax liabilities (relating to Income Tax, Capital Gains Tax or Inheritance Tax for the relevant periods) to disclose those to HMRC on or before 30 September 2018.

This will allow HMRC to take the appropriate action, for example, the collection of tax, interest and any penalties due under the appropriate legislation currently in force. This will ensure that those with offshore interests pay the correct amount of tax. Where taxpayers are unsure whether they have undeclared offshore tax, they will need to review their affairs to check whether action is needed.

30 September 2018 was chosen as the final date for corrections as this is the date by which more than 100 countries will exchange data on financial accounts under the Common Reporting Standard (CRS).

CRS data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received.

If taxpayers are unsure whether they have undeclared UK tax liabilities that involve offshore matters or transfers, they should check their affairs and if necessary put things right before they become liable to the new FTC penalties that will come into force on 1 October 2018.

Please call if you need more information.

This takes the biscuit

In a recent hearing before a tax tribunal, HMRC led the charge to insist that bicarbonate of soda (BoS) was a chemical not a food of a kind used for human consumption.

Why was this important?

HMRC had issued an assessment amounting to £291,000 to hapless food company, Phoenix Foods Ltd, as they had treated the sale of BoS to their customers as a zero-rated supply, and HMRC insisted that BoS was a chemical, an additive, and should have been a standard rated supply.

For non-culinary readers, BoS is a raising agent used when cooking cakes and certain types of bread. It helps to make the end-product light and fluffy!

Phoenix sold BoS to supermarkets who stacked the ingredient with other cooking essentials. BoS also features regularly in recipe books as a required ingredient.

The Tribunal judges had to endure lengthy presentations by food experts from both sides of the argument, but in the end decided that common sense needed to prevail.

Their decision reads:

“… in our view, the supply by Phoenix of bicarbonate of soda in a form that was intended for use primarily as a baking ingredient was a supply of “food of a kind used for human consumption”.

Accordingly, this judgement underlines the notion that it is necessary to examine the supplies made and their intended use by the consumer rather than consider other factors, such as alternative uses that the product could be turned: for example, BoS is also used as a cleaning agent.

As a result, Phoenix Food’s appeal was upheld and HMRC will need to decide if they want to take the case to a higher court. Hopefully, some of the lower court’s pragmatism will influence HMRC to let the matter rest.