Loan charge review launched

The Treasury has announced that Sir Amyas Morse, the former Comptroller and Auditor General and Chief Executive of the National Audit Office (NAO), will lead an independent review of the loan charge. This announcement gives some hope to many people affected by the contentious loan charge. This review will consider concerns raised by MPs and campaigners lobbying for the withdrawal of the loan charge.

The review will examine whether the loan charge is an appropriate way of dealing with loans schemes (also known as disguised remuneration tax avoidance schemes) that have been used by a number of employers and individuals in order to avoid paying Income Tax and National Insurance contributions (NICs). HMRC has never approved these schemes and has always said they are ineffective.

HMRC has confirmed that whilst the review is under way, the Loan Charge remains in force. As part of this announcement, HMRC has confirmed that, if you are not settling your disguised remuneration scheme, you will still need to complete an additional information return by 30 September 2019. If you fail to do so HMRC reserves the right to charge penalties.

HM Treasury has asked Sir Amyas Morse to report back with his recommendations by mid-November. This will give taxpayers who are liable to the charge time to prepare ahead of the planned January 2020 deadline for making payment.

Don’t miss your company accounts filing deadline

Companies House has issued a press release to remind companies to keep on top of their filing responsibilities. The end of this month, 30 September 2019, marks a common deadline for many companies who will need to file their company accounts with a 31 December 2018 year-end date. Last year, a total of 25,049 companies failed to meet the 30 September 2018, filing deadline.

In fact, we are told that another 643 companies narrowly avoided a penalty. They actually filed their accounts in the final hour before the deadline. In total, 223,640 late filing penalties were handed out in 2018.

Companies House also published some of the bizarre excuses it has received for late filings including:

  • I found my wife in the bath with my accountant,
  • pirates stole my accounts,
  • a volcano erupted, and
  • goats ate my accounts and prevented me from filing!

The late filing penalties are designed to encourage companies to file their accounts and reports on time. The penalties for late submission by a private limited company are as follows:

 

How late are the accounts delivered    

Penalty

Not more than one month 

£150

More than one month but not more than three months 

£375

More than three months but not more than six months  

£750

More than six months 

£1,500

The penalty is automatically issued if your accounts are filed late and the penalties are doubled if your accounts are late 2 years in a row.

Failure to file confirmation statements or accounts is a criminal offence which could see the directors personally fined in the criminal courts. Late penalties which are unpaid, will be referred to collection agents and could result in a County Court judgement or a Sheriff Court decree against your company.

It is possible to appeal against a penalty, but there are strict circumstances for doing so including that you must be able to prove that the circumstances were outside of your control.

 

VAT Agricultural Flat Rate Scheme

Businesses that use the flat rate scheme pay VAT as a fixed percentage of their VAT inclusive turnover. The VAT agricultural flat rate scheme is a variant of the flat rate scheme specifically designed for farmers and other activities relating to agricultural production (such as horticulture).

Farmers cannot join this scheme if the value of their non-farming activities is above the VAT registration threshold (currently £85,000). The amount of VAT paid on business expenses becomes irrelevant to the VAT returns.

The scheme was introduced to help ease the administrative burden of farmers who found that the requirement to maintain full VAT records had become disproportionally burdensome, usually by reason of the relatively small size of their businesses.

It is a condition of joining the scheme that farmers who are registered for VAT must have their registration cancelled. However, although the farmers will no longer be able to reclaim input tax, they can still charge a flat rate addition (FRA) currently 4%.

The FRA is not VAT and the farmer is allowed to keep the 4% collected. The addition acts as compensation for the loss of input tax the farmer would have been able to reclaim if registered for VAT.

IHT and lifetime transfers

There are special rules concerning the liability to IHT of a transfer made during a person's lifetime. For example, most gifts made during a person's life are not subject to tax at the time of the gift. These lifetime transfers are known as 'potentially exempt transfers' or 'PETs'.  The gifts or transfers achieve their potential of becoming exempt from IHT if the taxpayer survives for more than seven years after making the gift. If the taxpayer dies within three years of making the gift, then the IHT position is as if the gift was made on death. A tapered relief is available if death occurs between three and seven years after the gift is made.

IHT can also be chargeable if the person making the gift retains some 'enjoyment' of the gift made: for example, where an elderly person gifts their home to their children (who usually live elsewhere) and continues to live in the house rent-free. In this case, HMRC will not accept that a true gift has been made and the 'gift' would remain subject to IHT even if the taxpayer dies more than seven years after the transfer.

In addition, transfers into most types of discretionary trusts, those involving companies and transfers into most types of interest in possession trusts are immediately chargeable transfers for IHT purposes.

Paper Self-Assessment return deadline

The 2018-19 tax return deadline for taxpayers who continue to submit paper Self-Assessment returns is 31 October 2019. Late submission of a Self-Assessment return will become liable to a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid in full by 31 January 2020.

We would recommend that anyone still submitting paper tax returns consider the benefits of submitting the returns electronically and therefore benefit from an additional three months (until 31 January 2020) in which to submit a return.

Taxpayers with certain underpayments in the 2018-19 tax year can elect to have this amount collected via their tax code (in 2020-21), provided they are in employment or in receipt of a UK-based pension. The coding applies to certain debts and the amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. The maximum coding out allowance applies to taxpayers with earnings exceeding £90,000.

Daily penalties of £10 per day will also take effect if the tax return is still outstanding three months after the filing date up to a maximum of £900. If the return remains outstanding, further, higher penalties will be charged from six months and twelve months.

Taxpayers that received a letter informing them that they have to submit a paper return after 30 July 2019, have an extended deadline which runs for three months from the date they received the letter to submit a paper return.

Income excluded from a UK property business

HMRC publishes a list of income streams that are excluded from a UK property business. The list includes fishing concerns, hotels and guest houses, tied premises, caravan sites, lodgers and tenants in your own home, extra services to tenants and letting surplus trade accommodation. In most cases the income from these activities will be taxed as income of a trade and not as property income.

There are also certain receipts which can arise out of the use of land and which are specifically excluded by statute from a rental business. These include yearly interest, income from the occupation of woodlands managed on a commercial basis, income from mines and quarries and income from farming and market gardening.

In addition, there is a £1,000 property income allowance that applies to income from property (including foreign property). If a taxpayer’s annual gross property income is £1,000 or less, the amount is exempt from tax and does not need to be reported on a tax return.

Reporting changes that affect Child Benefits

You must notify HMRC of certain changes to family life. For example, a change in your child’s or your family’s circumstances. This is to ensure that the correct amount of Child Benefit is paid in respect of your children.

You must tell HMRC if your child:

  • starts paid work for 24 hours a week or more
  • will live away from you for either 8 weeks in a row or more than 56 days in a 16-week period
  • will go abroad permanently or for more than 12 weeks
  • moves to or from Northern Ireland
  • will be in hospital or residential care for more than 12 weeks
  • dies
  • changes their name
  • changes their gender
  • goes missing
  • gets married, forms a civil partnership or starts to live with a partner
  • starts getting certain benefits
  • goes to prison for more than 8 weeks

The weekly rates of Child Benefit for the only or eldest child in a family is currently £20.70 and the weekly rate for all other children is £13.70. These rates are fixed until April 2020. If you are currently receiving Child Benefit it is important to be aware that HMRC usually stops paying Child Benefit on the 31 August following your child’s 16th Birthday. However, under qualifying circumstances, the Child Benefit payment can continue until a child reaches their 20th birthday if they stay in approved education or training.

You also need to tell HMRC if your earnings change and you become liable to the High Income Child Benefit charge. The charge applies to higher rate taxpayers whose income exceeds £50,000 in a tax year and who are in receipt of Child Benefit. The charge either reduces or removes the financial benefit of receiving Child Benefit. Where both partners have an income that exceeds £50,000, the charge applies to the partner with the highest income. If your income is above £60,000, the amount of the charge will equal the amount of Child Benefit received.

Shared parental leave and pay

The shared parental leave and pay rules offer working parents far greater choice as to how they share the care of their child and take time off work during the first year of their child’s life. The rules apply equally for children that have been adopted. There are various work and pay criteria that must be met in order to be eligible and the parents must share responsibility for the child.

Under the rules, mothers must take at least two compulsory weeks (four weeks if working in a factory) of maternity leave immediately after birth, but after that period, working couples can share up to 50 weeks of shared parental leave and up to 37 weeks of statutory shared parental pay. These rules, which were introduced in 2015, give families greater choice over how they arrange childcare in the first year of their child’s life by allowing working mothers the option to share leave and pay with their partner.

New parents can choose to be at home together or to work at different times and share the care of their child during the important first year after birth. This means that parents can take their leave simultaneously, so that they can spend time at home together with their child or they could opt to take leave in phases, for example, 20 weeks for the mother/adopter, followed by 20 weeks for the father/partner, followed by 10 weeks for the mother/adopter.

Tax relief for private pension contributions

You can claim tax relief for your private pension contributions. The annual allowance for tax relief on pensions is £40,000 for the current tax year. There is also a facility to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years. There is also a lifetime limit for tax relief on pension contributions. The current lifetime limit is £1.03 million.

You can obtain tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is allowed at your highest rate of Income Tax paid.

This means that if you are:

  • A basic rate taxpayer, you can claim 20% pension tax relief
  • A higher rate taxpayer, you can claim 40% pension tax relief
  • An additional rate taxpayer, you can claim 45% pension tax relief

The first 20% of tax relief is usually deducted by your employer, with no further action required if you are a basic-rate taxpayer. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your Self-Assessment tax return.

The above applies for claiming tax relief in England, Wales or Northern Ireland. There is an interesting regional difference if you are based in Scotland. If you are a Scottish taxpayer paying Income Tax at the starter rate of 19%, you can still claim tax relief of 20% and are not required to pay back the difference. As with the rest of the UK, basic rate taxpayers in Scotland pay 20% Income Tax and qualify for 20% pension tax relief. There are also three higher rates, an intermediate rate of 21%, a higher rate of 41% and an additional rate of 46% where further tax relief can be claimed.

Immigration rights of EEA citizens in the event of a no-deal Brexit

The Government has now announced the revised transitional arrangements that will apply in the event of a no-deal Brexit to EU, EEA and Swiss citizens and their close family members arriving in the UK after Brexit, replacing those set out in a January 2019 policy paper issued under the previous Prime Minister, Theresa May. The Government’s new policy paper means that law-abiding EU, EEA and Swiss citizens arriving in the UK after a no-deal Brexit and before the end of 2020 will be able to enter, live, work and study as they do now. The new transitional arrangements provide that:

  • There will be a transition period from the date of Brexit until 31 December 2020, during which time EU, EEA and Swiss citizens who move to the UK will be able to apply for a three-year temporary immigration status, to be called European Temporary Leave to Remain (Euro TLR). Although applications will be voluntary, EU, EEA and Swiss citizens will need to apply for Euro TLR if they wish to remain in the UK beyond 31 December 2020.
  • Applications made under the new Euro TLR scheme will be free of charge and will be made after arrival in the UK. It will involve a simple online process and identity, security and criminality checks. Successful applicants will be given a digital status, granting them three years’ leave to remain in the UK, running from the date the leave is granted.
  • EU, EEA and Swiss citizens wishing to stay in the UK after their Euro TLR expires will need to make a further application under the UK’s future new points-based immigration system (to be based on skills) which is due to be implemented from January 2021. This is likely to mean that low-skilled workers may need to leave their jobs and the UK when their three years’ Euro TLR expires if they do not meet the requisite criteria to have a right to remain in the UK under the new immigration system.
  • Any EU, EEA and Swiss citizens who move to the UK after Brexit and do not apply for Euro TLR will need to leave the UK by 31 December 2020, unless they have applied for and obtained an immigration status under the new immigration system by that date. Otherwise, they will be here unlawfully and will be liable to enforcement action, detention and removal as an immigration offender.
  • Time spent in the UK with Euro TLR status will count towards settlement.
  • Employers will not be required to distinguish between EU, EEA and Swiss citizens who arrive before and after Brexit until the new immigration system is introduced from January 2021. This means that right to work checks for employers will remain the same until January 2021, so EU, EEA and Swiss citizens can start work by providing a passport or ID card until this date, or they can use their digital status granted under the Euro TLR scheme to prove their right to work via the Home Office’s digital status checking service. Employers will not be required to make retrospective right to work checks of EU, EEA and Swiss citizens who start work before 1 January 2021, but anyone employed after this date will need to show that they have a valid UK immigration status.

There will also be some new border controls to make it harder for serious criminals to enter the UK.

EU, EEA and Swiss citizens are their family members who are already living in the UK before Brexit still have until at least 31 December 2020 to apply to the EU Settlement Scheme for settled or pre-settled status.

Irish citizens’ rights are unaffected by the new arrangements, and they can continue to come to the UK after Brexit to live and work.