Monthly Archives: May 2018

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270,000 late penalty notices cancelled by the Revenue

A response to a freedom of information request has revealed that HM Revenue & Customs (HMRC) cancelled 270,000 late penalty notices in 2016.

However, this figure was dwarfed by the 610,000 cancellations in 2015 and the 400,000 cancellations in 2014.

The request was made by a partner in a ‘magic circle’ law firm, who was himself issued with a late penalty notice, despite having submitted his tax return in December, ahead of the 31 January deadline.

Despite having filed on time, when HMRC overturned the penalty in March this year, it nevertheless issued a letter, stating “if you file on time we won’t charge penalties”.

While HMRC revealed the number of late penalty notices that were cancelled over the three-year period, it did not disclose how many of these were the consequence of errors on the part of the Revenue, as opposed to the taxpayer having a reasonable excuse for late filing.

A spokesperson for HMRC said: “We don’t want penalties, we just want tax returns. Taxpayers with a reasonable excuse for filing late or who have been taken out of SA do not have to pay penalties. Taxpayers who file on time are not issued with penalties.”

Link: HMRC cancels 270,000 late penalty notices

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OTS calls for overhaul of ‘complex’ tax charges and reliefs

An overhaul of “the complex patchwork” of tax charges and reliefs affecting businesses throughout various stages of the business lifecycle is urgently required in order to stimulate growth among small and medium-sized enterprises (SMEs), the Office of Tax Simplification (OTS) has said.

In a report published midway through April, the OTS looked closely at business taxes, charges and reliefs, identifying a number of areas in which it believes simplification or streamlining ought to be considered.

In total, the OTS identified as many as 32 areas where it felt streamlining and simplification was needed.

12 of these were highlighted as priorities for immediate consideration, including, amongst others, the Entrepreneur’s Relief (ER) scheme, which the OTS said was ‘disincentivising’ some founder shareholders from bringing in external venture capital by requiring shareholders to hold a minimum of five per cent of a company’s share capital in order to be eligible for the relief.

Its report also criticised the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). It said that these schemes, along with the Venture Capital Trust (VCT) scheme, were not necessarily targeted effectively in line with the capital needs of future businesses and that ‘complexities’ built into the legislation governing them often caused confusion.

The OTS added that, while those who invest in start-up businesses through such schemes can benefit from several tax reliefs, these schemes do not currently provide any reliefs for the actual founders of the emerging businesses involved – something which the OTS said must be examined.

In addition, the report recommended that a ‘one-stop shop’ registration and filing facility be introduced for small incorporated businesses. Under existing rules, such businesses need to register separately with HM Revenue & Customs (HMRC) and with Companies House.

Paul Morton, Tax Director at the OTS, described the report as “a significant first step towards meeting the pressing need to undertake a detailed review of the tax system as it operates across the business lifecycle.”

He added that the paper was “aimed at helping the businesses that are the lifeblood of the UK economy to maximise their opportunities” by making Britain’s business tax system clearer and more “simple to understand and use.”

The report in full can be accessed here.

Link: OTS wants action on ‘patchwork’ of business tax reliefs

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1.3 million SMEs hoping to branch out internationally to boost growth

An annual survey suggests that some 1.3 million UK-based small and medium-sized enterprises (SMEs) intend to branch out overseas this year in a bid to expand their horizons and fuel their growth plans.

According to CitySprint’s latest annual survey of business owners and decision makers, ambitions among Britain’s SMEs remain strong despite the fact that business confidence has fallen slightly over the past few years.

Looking ahead, almost a quarter (24 per cent) of business leaders surveyed told the leading logistics company that they intended to investigate opportunities to expand overseas before the end of 2018.

Of those eyeing-up international trade, the majority (78 per cent) said they wanted their organisation to branch out into Europe, while more than half (55 per cent) added that they were hoping to establish a customer base in the United States.

Meanwhile, a further 36 per cent added that they wanted to expand into Asian markets.

The survey assessed businesses in a variety of prominent sectors and found that, in most industries, around a third of businesses were anticipating above-average levels of international growth.

37 per cent of SMEs operating in the arts and culture sector felt confident about their short-term international future, as did 36 per cent of IT and telecoms companies, 32 per cent of SME retailers and 30 per cent of manufacturing and utility firms.

Commenting on the findings, Patrick Gallagher, Group CEO at CitySprint, suggested it was encouraging that businesses were keen to push ahead with their growth plans despite current political uncertainties.

“The UK’s smaller enterprises show no shortage of ambition when it comes to exploring new markets,” he said.

“While overall SME confidence has dropped since 2015, it is great to see so many SMEs, especially those outside of London, showing no fear in the face of international opportunity.”

Link: Quarter of UK SMEs going global for growth

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Workplace pension contributions more than double

The percentage of salary employers and employees must contribute to a workplace pension has increased from 6 April 2018.

Employees will now contribute three per cent (up from one per cent) of their annual salary into a personal workplace pension, while employer contributions have increased from one to two per cent.

Under the new rules, an employee earning an average salary (around £27,000) can expect to pay about £350 more a year into their personal pension.

If this sounds too steep, a worker can choose to opt out of automatic enrolment. But this also means they will no longer be saving for their retirement. A worker can also choose to continue paying the old rate of one per cent of total salary. If the employee chooses the latter option, an employer has no obligation to make further contributions to their pension.

The measures are part of a campaign to help workers save more for retirement, but the increases won’t stop there. Contributions will rise again from April next year to five per cent from the employee and three per cent from the employer.

The most recent figures show that more than one million employers have enrolled over 9.3 million workers into a workplace pension scheme.

Currently, only employees who meet eligibility requirements – linked to pay and age – need to be enrolled, but employers should carefully monitor workers’ individual circumstances so they can be enrolled when the time comes.

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Dividend Allowance cut could cost you £1,143. Is it time to restructure?

For a while, company directors have been able to make a tax-efficient living by taking a combination of salary and dividends due to the generous Dividend Allowance.

However, changes which took effect from 6 April 2018 have cut the allowance from £5,000 to just £2,000.

The changes are meant to level the playing field between the self-employed, directors, shareholders and employees, but if you’re not careful, you could get left behind.

In real terms, the cut will cost directors anywhere from £225 to £1,143 a year, depending on which tax bracket they fall into. It is therefore recommended that you review how you drawdown income from your company to avoid losing out.

This could become complicated if you receive income from multiple sources, for example, shares and savings.

Link: Dividend tax changes in 2018/19: all you need to know

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Do you offer an EMI scheme? These are the new rules you need to know about

EU State Aid approval for the Enterprise Management Incentives (EMI) scheme expired on 6 April 2018, meaning any share options received after this date may not be eligible for tax reliefs.

This is an important change for employers who currently grant EMI share options or plan to do so in the future.

The Government said it is currently following the process of applying to the European Commission for fresh approval and is awaiting the Commission’s final response.

As such, there is an indefinite period between the lapse of the existing approval on 6 April and a decision by the EU Commission on fresh approval.

Any share options granted between these dates may not necessarily be treated as non-tax advantaged employed-related securities options.

HM Revenue & Customs (HMRC) suggested that companies may wish to delay the grant of employee share options intended to qualify as EMI share options until fresh EU State Aid approval has been given.

What are Enterprise Management Incentives?

Any company with assets of less than £30 million may be able to offer the EMI scheme. This means they can grant share options up to the value of £250,000 in any three-year period. The employee does not need to pay income tax or national insurance providing the shares were bought for at least market value. The shares, however, may be eligible for capital gains tax on disposal.