Finance Bill 2019-20 shelved

The Government’s draft finance bill has been shelved as we countdown to the general election on 12 December 2019. The consultation on the draft legislation has closed, but the prorogation controversy and Brexit issues meant there was no time for the Government to respond to any of the issues raised.

The Bill contained the legislation for some of the tax measures that were announced by the Government at Autumn Budget 2018. Many of these measures have been the subject of further consultation. The measures expected to come into force from April 2020 included: the extension of off-payroll working rules to the private sector, the introduction of the Digital Services Tax and the new Corporate Capital Loss Restriction. If the Conservatives are re-elected, we are likely to see these measures revived whilst a new Government could make significant changes.

The Chancellor, Sajid Javid, cancelled the Budget that was meant to be presented to Parliament on 6 November 2019. Once again, the cancellation was in response to the calling of a general election. This leaves us with a significant gap since the last Budget was held on 29 October 2018. The next Budget will likely take place during January / February 2020. There are also issues for Scotland's Budget which is currently scheduled for 12 December 2019, and which is expected to be deferred.

The meaning of ‘goodwill’ for CGT purposes

The meaning of goodwill for CGT purposes is complex. The term 'goodwill' is rarely mentioned in legislation and there is no definition of 'goodwill' for the purposes of Capital Gains legislation.

In fact, most definitions of goodwill are derived from case law. At its simplest you could describe goodwill as the 'extra' value of a business over and above its tangible assets.

In the vast majority of cases when a business is sold a significant proportion of the sale price will be for the intangible assets or goodwill of the company. This is essentially a way of putting a monetary value on the business's reputation and customer relationships. Valuing goodwill is complex and there are many different methods which are used and that vary from industry to industry.

HMRC’s internal manual states that:

'Most businesses can be expected to have goodwill even though its value is likely to fluctuate from time to time. The fact that goodwill may not be reflected in the balance sheet of a business does not mean that it does not exist. In the same way, the writing off of purchased goodwill in the accounts of a business does not mean that its value has decreased or that it has ceased to exist.'

Interest on children’s savings

All children in the UK have their own personal annual tax allowance. However, anti-avoidance laws prevent this allowance being utilised by parents of children aged under 18 with some minimal exceptions.

If older children are employed by a parent they can receive income paid as wages subject to the usual rules.

There are special rules if a parent gifts significant amounts of money to their children which results in annual bank interest of more than £100 (before tax) accruing to each child. If this is the case, the parent is liable to pay tax on all the interest if it’s above their own Personal Savings Allowance.

The £100 limit does not apply to money given by grandparents, relatives or friends. In addition, any income from CTF’s or Junior ISA’s is exempt from Income Tax and CGT on the child or the parent even where the invested funds came from the child’s parents. The 2019-20 subscription limit for both CTFs and Junior ISAs is £4,368.

What is a joint venture?

A joint venture is a commercial enterprise undertaken by two or more parties who otherwise retain their separate identities. The parties to the joint venture usually bring together different resources and areas of expertise to help fulfil a specific project or business activity.

HMRC’s manuals make the point that on close examination many of these associations prove to be partnerships, despite the name applied to them. The manuals state that a joint venture, which is not a partnership, is most likely to be found where parties already carrying on businesses of their own agree to co-operate in a single project, but they do not agree to share net profits or losses. Where they do agree to share net profits or losses, it is likely that a partnership will result even where the parties are already engaged in their own businesses.

For a partnership to exist, there must be a business and that business must be a business that is separate and distinct from any other business that the joint venture parties may conduct on their own account.

What is a negligible value claim?

A negligible value claim is a claim made by a taxpayer when an asset they own has become of negligible value, i.e. it is worthless or worth next to nothing. The taxpayer effectively treats the asset as having been disposed of and then immediately reacquired at the negligible value. The asset must still be owned by the person making the claim and must have become of negligible value whilst it was owned.

Making a claim allows the owner of the asset to realise a capital loss in respect of an asset without actually having to dispose of it.

By making a negligible value claim, rather than selling an asset, the taxpayer retains ownership and may benefit should the asset ever recover in value; even if this is only a remote possibility.

HMRC publishes a list of shares or securities, formerly quoted on the London Stock Exchange, that have been officially declared of negligible value for the purposes of making a claim. In other cases, an application should be made to HMRC to agree a valuation.

A negligible value claim can be back-dated to an earlier time falling in the previous two tax years provided all the other qualifying conditions are met.

Employing someone to work in your home

When you employ someone to work in your home, it is your responsibility to meet the employee's rights and deduct the correct amount of tax from their salary. This can include employees such as a nanny, housekeeper, gardener or carer. The rules are different if the person is self-employed or paid through an agency.

If you employ anyone they must:

  • have an employment contract
  • be given payslips
  • work no more than the maximum hours allowed per week
  • be paid at least the National Minimum Wage.

Your employee is also entitled to standard employee rights such as statutory maternity pay, statutory sick pay, paid holiday, redundancy pay and a workplace pension – once they meet the standard eligibility requirements. An employee must also have minimum notice periods if their employment is to end. Note, that these rules apply even if the employee works on a part-time basis, although some payments depend on the level of earnings or may be adjusted pro-rata.

It is also your responsibility to register as an employer, check any employees are allowed to work in the UK and to have employer’s liability insurance. There are different rules if you have an au pair as they are not usually considered to be workers or employees.

Transfer of business as a going concern

The transfer of a business as a going concern (TOGC) rules cover the VAT implications when a business is sold. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

Where the sale of a business includes chargeable assets, and meets certain conditions, the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT. Under the TOGC rules no VAT would be chargeable on a qualifying sale.

All of the following conditions are necessary for the TOGC rules to apply:

  • The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
  • The purchaser intends to use the assets to carry on the same kind of business as the seller.
  • Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
  • Where only part of a business is sold it must be capable of separate operation.
  • There must not be a series of immediately consecutive transfers.
  • There are further conditions in relation to transactions involving land.

The TOGC rules can be complex and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this 'VAT' from the seller.

Tax Diary November/December 2019

1 November 2019 – Due date for Corporation Tax due for the year ended 31 January 2019.

19 November 2019 – PAYE and NIC deductions due for the month ended 5 November 2019. (If you pay your tax electronically the due date is 22 November 2019.)

19 November 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2019. 

19 November 2019 – CIS tax deducted for the month ended 5 November 2019 is payable by today.

1 December 2019 – Due date for Corporation Tax due for the year ended 28 February 2019.

19 December 2019 – PAYE and NIC deductions due for the month ended 5 December 2019. (If you pay your tax electronically the due date is 22 December 2019)

19 December 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2019. 

19 December 2019 – CIS tax deducted for the month ended 5 December 2019 is payable by today.

30 December 2019 – Deadline for filing 2018-19 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2020-21.

Pecuniary liability treated as income

A pecuniary liability can occur when a monetary obligation is fulfilled by an employer, when by law, the liability was that of an employee. One example of this is the case of an employer paying a debt that an employee owes to a third party. The employer’s payment in this case is of direct monetary value to the employee because he or she no longer has to pay that amount of money to the third party. This payment is therefore treated as earnings in the hands of the employee and is taxable.

It does not matter for tax purposes whether the employer makes the payment voluntarily or under a contract. HMRC provides the example of an employee who has signed the application form for the supply of electricity or gas to her home, the employee is the customer and she will be the person who is billed. If the employer pays the bills for the employee, the employer is discharging the employee’s debt.

This principle has been applied in a number of cases including those relating to an employee’s Income Tax, employee’s rates, lighting, heating, other costs and the cost of employee’s petrol.

Using the cash basis for property businesses

The cash basis scheme helps sole traders and other unincorporated businesses benefit from a simpler way of managing their financial affairs. The scheme was extended to landlords from April 2017. The scheme is not open to limited companies and limited liability partnerships. The entry threshold for the cash basis scheme is £150,000 and you can stay in the scheme until your business turnover reaches £300,000.

Unlike other taxpayers that need to opt-in to use the scheme, the legislation assumes that landlords will use the cash basis as the default method of calculation. A landlord can still elect to opt out of the scheme in which case they can continue to use Generally Accepted Accounting Practice (GAAP) to calculate their taxable profits. Landlords are also required to continue using GAAP if their rental receipts are in excess of the £300,000 scheme threshold.

The cash basis scheme allows landlords to use the cash basis when recording income received and expenditure paid i.e. recording the flow of money from and to the business based on actual money flows. Traditional accounting uses the accruals basis i.e. income and expenditure is recorded when a bill is received, or a customer is invoiced.