Nichola's SME tax news: 21 August 2009
Welcome
This is a summary of the news items that have interested me over the last month. Normally I try and put out my news more regularly, but it has been summer...
New tax guides
I have been adding and updating the Practical Tax Database over recent months. Hot off the press is a new guide to capital allowances which tracks all the changes and gives you a checklist for your files so that you don't have to keep looking up the rules. Very, very handy.
I have been updating the Starting in business range and Tax efficient remuneration. There are also new guides coming up which look at off-shore issues and tax-avoidance.This is because people keep asking about setting up overseas and generally trying to avoid paying tax at 50% in the future!. These cover the remittance, remittance compliance and low earners, anti-avoidance: transfer of assets abroad.
ATT
The Association of Taxation Technicians have invited me to be part of their tax technical committee, which is exciting news. They are a lively and interesting association who put in a lot of commitment to help make tax and tax compliance more workable and understandable.
SME tax news headlines: 21 August 2009
Its the small print, stupid
Oh, the devil IS in the detail: an interesting little case involving a tax penalty. It illustrates how important it is to read the small print.…more
EBTs under fire
HMRC has decided enough is enough. If you are a close company with an EBT you may be in for an IHT charge:...more
More offshore disclosure opportunities
Two new tax disclosure opportunities have been announced by HMRC. Both aimed at those who have undeclared foreign income...more
Other tax news
- Finance Bill receives Royal Assent
- CT returns: no PDFs from 2011
- Muted threats on temps travel and subsistence
- Tax penalties for senior accounting officers
- New VAT forms and guidance
Top story: Read the small print
Oh, the devil IS in the detail: an interesting little case which shows just how important it is to read the small print.
In A. O. Sokoya V HMRC a taxpayer was successful in appealing a £50 penalty for failing to comply with a section 19 TMA 1970 disclosure notice. Whilst the taxpayer, who was unrepresented, had made arguments and appeals in the case which went all over the place (and to various courts and back again, as he tried to prevent the section 19 disclosures), the tribunal judge observed that HMRC had got the wording on the notice wrong. He cancelled the penalty.
The notice gave Mr Sokoya 30 days to disclose the documents requested from the date of the notice, but it should have been 30 days after the determination of the Special Commissioner in the original appeal.
The judge observed that “The due time is therefore one of the substantive bases for the imposition of a penalty. As s 19(10) provided for a specific time for compliance with the s 19A Notice in this case, a Penalty Notice that failed to record that time correctly cannot in substance and effect conform with or accord to the intent and meaning of the Taxes Acts”.
Although we now have a new tax penalty regime in place, always go over HMRC’s demands with a fine tooth comb. You never know...
EBTs under fire
Cheap loans and EBTs: now an IHT problem too...
Companies use Employee Benefit Trusts (EBTs) as a method of deferring income tax for their directors. The company transfers funds to the EBT which then uses them to make a loan to the director, who only pays income tax on the benefit of a cheap loan. There is no section 419 Income Taxes Act 1988 charge either. Very handy when the 50% tax rate is looming, but EBTs are hardly inexpensive to set up and run, and so are only really useful when big sums are involved.
Following the Dextra case, HMRC changed the rules which means that the company does not get a corporation tax deduction for its contribution into an EBT, until the EBT applies the funds as taxable earnings for an employee, which are correspondingly subject to PAYE and NICs.
This has not stopped EBTs making loans though.
HMRC is now pursuing a policy where it will treat the contribution made by a close company to its EBT as a transfer of value for Inheritance Tax purposes. The result is a tax charge on the company. To achieve this, HMRC also has to argue that none of the exemptions in section 10 to 13 IHTA 1984 apply. This is where the fun starts! We will need a court case to decide this, I am sure.
Tax aspects of how the transfer of value rules affect close companies is fund in my Practical Tax Guide to close companies (Part 4).
HMRC's versions of events is here:
http://www.hmrc.gov.uk/briefs/inheritance-tax/brief4909.htm
A new Offshore Disclosure Facility
HMRC announced a new Offshore Disclosure Facility this month, which will run from 1 September 2009 to 12 March 2010.
Why?
It provides an opportunity those who have any undeclared foreign income from foreign bank accounts to come forward and get their tax in order, subject to a 10% penalty.
What if you did not own up under the previous disclosure facility?
If you have an accounts with one of the following: Barclays, HBOS, HSBC, Lloyds or RBS and you did not make disclosure under the 2007 Offshore Disclosure Facility your penalty will be 20%.
Does this cover on-shore income too?
No detail is given as to whether you will be allowed to disclose previously undisclosed income from UK sources under this new arrangement.
What about prosecution?
It is still possible to face prosecution under the NDO. If your client is found to have made an incomplete disclosure under the NDO or if he has previously been under investigation and signed a false statement of assets or certificate of disclosure.
Who?
Advisers can register (and submit disclosures) on behalf of their clients.
Dates and deadlines
Registrations from 1 September (1 October for online registrations) until 30 November 2009. Disclosure submitted (with payment) by 12 March 2010 (by 31 January 2010 for paper disclosures).
Is that it?
HMRC have indicated that this will be the final opportunity for those with an offshore account to make a disclosure, but they have also given details of a separate deal with Liechtenstein
Finance Bill receives Royal Assent
As if we really needed any more rules, the Finance Bill 2009 received Royal Assent on 21 July 2009 and so it now called the Finance Act 2009.
If you find any out of date pages on HMRC's website (apart from its manuals) which refer to old taxes acts etc email me the links. Ann Redstone is collecting them as part of her Cobweb campaign.
CT returns: new format from 2011
The worst decision of the century (so far) is HMRC’s decision to mandate that after 31 March 2011, CT returns must be filed online in a specified data format (known as Inline XBRL or iXBRL). What was wrong with the PDF format? It is all done so HMRC can read data electronically, we hope.
This is not meant to be a problem for us, as you will be able to use HMRC’s software or commercial software to convert your accounts.
I am skeptical, aside from the technical nightmare for developers in tagging. Think about the hideous problems that you will face if your software does not convert into XBRL.
Tax committee members at a recent ATT meeting were highly skeptical about the benefits of this aspect of Lord Carter's recommendations for HMRC. Another layer of admin for tax advisers.
Temps: travel and subsistence
Travel and subsistence rules remain incredibly relaxed in the UK, mainly because the civil service does so nicely out of its own system of allowances (so I hear...).
Last year HMRC issued a consultation paper on temporary workers and the travel rules. It has not made any changes to the law, but it would like to clamp down on any schemes where the travel rules are generally used to substitute taxable pay with tax deductible expense contributions. It also has its sights on salary sacrifice and mis-use of PAYE dispensations.
It has issued “Use of labour providers. Advice on due diligence” which is clearly aimed at trying to warn businesses about using labour providers such as agencies which try and circumvent tax and NICs rules, amongst others.
As yet it has not issued anything which is directly applicable to professional contractors and the like, but many umbrella company schemes make ample use of dispensations so we might expect some changes in the future (if HMRC can only work out quite what would work).
Salary sacrifice is a potential problem in the SME sector (too many accountants not giving the right advice).This week I am updating both of my Practical Tax Guides on flexible working and salary sacrifice so that your clients do not fall into the Revenue's lap on this one.
Guidance for senior accounting officers
Big fines and guidance for senior accounting officers. HMRC has released a guide for the senior accounting officers on how the Finance Act 2009 changes will apply to them.
The new measures only apply to the accounting officers of large, UK registered corporates. They are required to register with HMRC and sign an annual certificate for HMRC to declare that their accounting systems are in order. Fine are a maximum of £10,000 in total per year.
I have published a Five minute guide on the topic for Accounting web, and I will add a link when it is published on that site.
New VAT guides and forms
You may have noticed that HMRC is updating many of its VAT guides and some of this includes new forms.
In August 2009 there are new forms for DIY house builders and converters on the costs of their building work and updated guidance on the option to tax. See http://www.hmrc.gov.uk/news/index.htm to top
