Category Archive: March 2017

  1. NEW VAT Flat Rate Scheme Changes

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    The Flat Rate Scheme (FRS) was originally introduced as a simplification scheme to help reduce the administrative burden for smaller businesses. It is not a tax allowance and businesses using the scheme should broadly pay the same amount of VAT as they would on standard VAT accounting.

    In the Autumn Statement the Chancellor of the Exchequer announced new legislation to come into effect from 1 April 2017 to tackle what HM Revenue & Customs believes is “aggressive abuse” of the FRS. This new legislation introduces a new test to undertake and a new flat rate for businesses with low costs.

    On 28 February 2017 HMRC updated VAT Notice 733: Flat Rate Scheme for small businesses to include detailed legislation on “limited cost businesses”.

    HMRC state that the legislation is aimed to level the playing field and tackle the abuse. In the past 12 months HMRC dealt with an additional 30,000 applications to join the FRS, the bulk of which were received from “unscrupulous employment agencies” who have transferred clients out of umbrella companies into single limited companies and then registered them for VAT and the FRS. In addition, it believes many businesses were registering to use the scheme for a cash benefit rather than for simplification purposes and that many advisors were marketing the scheme in this way.  HMRC believe that the solution published is resilient and should retain the simplification benefits for the majority of FRS users.

    Limited cost business category

    From 1 April 2017 businesses need to assess if they fall into the new limited cost businesses category for each VAT period, if they are not a limited cost business they will continue to use the sector appropriate percentage to calculate the VAT liability for that period. If the VAT period straddles the 1st of April then split treatment is required. The appropriate sector percentage under the current FRS rules is used for months prior to 1 April, and the limited cost business test is completed for the months post 1 April, with appropriate limits being time apportioned.

    A limited cost business is defined as a business whose expenditure on “relevant goods” (including VAT) is either:

    • Less than 2% of their VAT flat rate turnover or
    • Greater than 2% of their VAT flat rate turnover but less then £1,000 per year (£250 per quarter).

    Unless it is clear that you are not a limited cost business you will have to complete the test each VAT period. You could be a limited cost business in one period but back to using your relevant sector percentage in another. In order to assist FRS users HMRC are releasing an online calculator. This is currently at beta testing stage and should be finalised in early April. The calculator can be found at:

    https://www.tax.service.gov.uk/check-your-vat-flat-rate/vat-return-period

    “Relevant goods”

    The key to the test is the definition of “relevant goods”. After the draft legislation was released much commentary was published and potential work-arounds discussed. The final legislation has increased some of the complexity behind the definition but has removed what appeared to be some potential loopholes. The main definition for relevant goods as stated in VAT Notice 733 is:

    “You receive a supply of goods (including by acquisition or import) if the exclusive ownership of moveable items is passed to you from another person.”

    There is some further clarification on the supply of goods which includes receiving “water or any form of power, heat, refrigeration or ventilation”. The notice then details goods that are used for the purposes of your business but are specifically excluded from the “relevant goods” definition and these are:

    • vehicle costs including fuel, unless you’re operating in the transport sector using your own, or a leased vehicle
    • food or drink for you or your staff
    • capital expenditure goods of any value
    • goods for resale, leasing, letting or hiring out if your main business activity doesn’t ordinarily consist of selling, leasing, letting or hiring out such goods
    • goods that you intend to re-sell or hire out, unless selling or hiring is your main business activity
    • any services

    It is also important to note that goods are only included if they are used exclusively for the purposes of the business. This means that if goods have a dual purpose such as some element of private use then it is excluded from the definition.

    If you are using the FRS then HMRC are in the process of writing to you and the first round of letters will be received mid-March. HMRC are also looking to notify users via email. The communications from HMRC will outline the potential outcomes and options of this new test, which are:

    1. No change – you are definitely not a limited cost business and can continue to use the relevant sector percentage.
    2. You are a limited cost business:
      1. Use the limited cost business percentage for the periods in which your purchases of relevant goods are below the limits, or
      2. Leave the FRS and calculate VAT using the standard method, or
      3. If your turnover is below the VAT deregistration limit you can deregister from VAT.

    Another option to consider if you are currently accounting for VAT on a quarterly basis is to apply to use the annual accounting scheme in conjunction with the FRS, which means you will only need to undertake the test once per year when you submit your annual VAT Return. This also allows you to spread the payments over 10 months and gives you 2 months after the end of the VAT year to complete and submit your return.

    If you are currently using the FRS to calculate and administer your VAT then please discuss the various options with us. Please call your local office and ask to speak to a member of our VAT team – we would be delighted to advise you.

     

  2. Budget 2017 – The last Spring Budget?

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    The last Spring budget?

    Mr Hammond opened his budget speech by declaring that his “last Spring budget” was not the first! Apparently Norman Lamont presented the first “last Spring Budget” 24 years ago.  However the tax landscape has changed greatly since then and the system of announcing intentions, running consultations and only then introducing legislation, appears to be one that is here to stay. There may not have been many new announcements in this budget, but April 2017 will still see the start of many changes which have been announced previously.  Here are just a few:

    • The income tax and employer NIC advantages of using a salary sacrifice arrangement for benefits in kind will be removed for new arrangements
    • Non-contractual payments in lieu of notice (as well as contractual ones) will be taxable as earnings
    • The substantial shareholding exemption will be simplified ensuring relief for qualifying institutional investors
    • New flexibility will be available for corporate losses made from 1 April 2017 onwards
    • A restriction on the offset of corporate losses against profits above £5 million will be introduced
    • A limit will be imposed on corporate interest relief above £2 million
    • The annual allowance for contributions to a money purchase pension by someone who has flexibly accessed their pension savings will be restricted to £4,000
    • All profits from dealing in or developing land in the UK, irrespective of the residence of the person making the disposal will come within the charge to UK tax

     

  3. Budget 2017 – Business Rates

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    Budget changes to soften the impact of 2017 rates revaluation

    Many businesses are dreading the impact of the five yearly revaluation which will take effect in April 2017.  Details of a transitional relief were announced in the 2016 Autumn statement, ensuring that no small property would see more than a 5% increase before inflation due to the revaluation. Three further measures were announced in the Spring budget:

    • Small businesses coming out of small business rates relief will pay no more than £600 per annum more in business rates than they did in 2016-17
    • Pubs with a rateable value of up to £100,000 will be able to claim a £1,000 business rate discount
    • Additional funding will be made available to local authorities to provide discretionary relief to the businesses most affected by the revaluation.

     

  4. Budget 2017 – NICS for the self-employed

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    Big changes planned for NICs payable by the self-employed

    Mr Hammond was keen to point out that the self-employed are paying less in NIC than the employed, a fact which he described as unfair.  In his comparison he conveniently made the difference appear greater by quoting both employee’s and employer’s NIC contributions when describing how much NIC was paid in respect of an employed individual.  In terms of NIC contributions actually suffered by the individual, the difference between what is paid by an employed individual and a self-employed individual is only currently 3%. Despite the Chancellor’s reference to the fact that the new State Pension for those reaching retirement age on or after 6 April 2016 gives the self-employed access to the same State Pension as employees, there remain differences in entitlements to parental benefits, job-seekers allowance, statutory sick pay and holiday pay.

    Class 2 NICs will be abolished from April 2018.  This was something announced by George Osborne in 2016, but would increase the differential in the amount of NICs paid by employed and the self-employed. However, as Class 2 NICs are a flat rate of £2.80 a week, Mr Hammond is going ahead with the abolition and instead increasing the rate of Class 4 NICs by 1% from April 2018, bringing the rate to 10%. A further 1% rise will be applied from April 2019.

    The true reason for these changes can be found in the detailed background information published on gov.uk. The proportion of the work-force who are self-employed has been rising steadily since 2000. It is estimated that the lower rates paid by the self-employed cost the Exchequer £5.1 billion in 2016-17.

    The changes are however designed to protect those with the lowest profits. Only someone with annual profits in excess of £16,250 in 2019/120 will have to pay more NIC than under the current rules and when combined with the increases in the personal allowance, (based on these changes alone) only someone with profits in excess of £32,900 in 2019/20 will pay more in tax and NICs than in 2015/16.

  5. Budget 2017 – R&D tax relief is safe!

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    Research & Development Tax Relief is Safe!

    Many businesses have been concerned that the economic impact of Brexit might have a detrimental effect on the enhanced tax relief and tax credits currently available for R&D expenditure.  The fact that the government were conducting a review was regarded by many as an indication that they might be considering cutting the benefits.

    In his budget speech however,  Mr Hammond told us that the review had confirmed that the UK system of R&D tax credits is globally competitive.  He promised a reduction in the administrative burdens of the scheme to increase certainty and simplicity around claims and further action to improve awareness of the scheme among small and medium sized enterprises.

  6. March 2017 Tax Tips & News

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    Welcome to March’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

    If you need any further assistance just let us know.

    Changes IR35 rules confirmed

    Tax-free access to pension advice

    Salary v dividend

    Changes to company carry-forward of losses confirmed

    Company Cars: Change in Advisory Fuel Rates from 1 March 2017

    March Questions and Answers

    Q. Will I have to pay stamp duty land tax on a property I am about to inherit?

    Q. I run a small business but I am registered for VAT. What are the advantages and disadvantages of using the annual accounting scheme?

    Q. I live in a leasehold flat in a property in which there are six other leasehold flats. The opportunity has arisen for the leaseholders to buy the freehold reversion from the landlord and all of the leaseholders have agreed to contribute equally towards the purchase. Our solicitor has advised a limited company should be set up to buy the freehold. Are there any tax consequences involved here?

    March key tax dates