Monthly Archives: May 2019

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Pass on up to £950,000 tax-free in 2019-20

As of 6 April, direct descendants can inherit up to £950,000 completely free of income tax from their parents or grandparents thanks to increases in the residence nil-rate band.

This tax-free allowance on inherited property has risen from £125,000 to £150,000 this year and will rise again next year to £175,000.

In order to qualify for this allowance, an individual must pass on their main home to a direct descendant, such as a child or grandchild.

The residence nil-rate band is layered on top of the existing basic allowance for Inheritance Tax (IHT) of £325,000 per person or £650,000 for a married couple or civil partners.

This means that spouses and civil partners could leave behind up to £950,000 in 2019-20, rising to £1 million from next year.

Where an estate is valued at more than £2 million, the residence nil-rate band will be progressively reduced by £1 for every £2 that the value of the estate exceeds the threshold.

Individuals in England and Wales will normally incur IHT at a rate of 40 per cent on all estates valued over this threshold, so it is worth planning ahead to make sure you minimise any liabilities.

Link: Inheritance Tax: how to apply the additional threshold

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Beware the Employer Compliance Check Questionnaire

HM Revenue & Customs (HMRC) is understood to be sending out “Employer Compliance Check Questionnaires” without notifying agents, which could land businesses in trouble if the wrong information is provided.

The questionnaires are understood to be a replacement or substitute for a PAYE audit, which would typically require a visit from HMRC to ensure that a business’s payroll is compliant and being managed correctly.

The series of questions include:

  • What does the business do?
  • Where is the work carried out?
  • What are the names of Directors, how are they paid and what are their responsibilities?
  • Who prepares the payroll?
  • Which payroll package is used?
  • How many employees does the company have?
  • Are employees paid below the national minimum wage? If so why?
  • How many workers are paid off-payroll?

The questionnaire is also understood to go into some detail about the expenses of the business including details of staff entertaining, work travel and loans to staff or directors.

Alongside the questionnaire, many employers are also asked to provide policies and documents, as well as key data about the business.

This new style of compliance checks should not be taken lightly and anyone who receives one should contact the person who manages their payroll to ensure the correct information is provided.

Failing to complete the questionnaire or providing incorrect information could lead to additional investigations or a financial penalty.

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Employers must comply with new payslip rules

Under the Government’s Good Work Plan, more than 300,000 workers have received a payslip for the first time under new rules that came into force in April.

However, experts fear that many employers may be unaware of the recent changes and how it could affect them.

The new rules require employers to include variable rates of pay and hours worked within their payroll reporting, which will enable workers to easily confirm that they are receiving the minimum wage.

Thought to primarily affect those employees on zero-hours contracts or who perform what has been described as ‘casual’ roles within a business, the Department for Business, Energy and Industrial Strategy (BEIS) have said that itemising and clearly identifying hours worked would ensure that staff could check that they are being paid at the correct rate.

The new rules will also help the Government to more easily identify where employers are failing to meet their national minimum wage (NMW) and national living wage (NLW) obligations, as well as their contributions to workplace pensions and holiday entitlement.

In recent years, the BEIS and HM Revenue & Customs have been taking a tougher approach to those who fail to meet payroll rules, often imposing penalties and naming and shaming the worst offenders.

Alongside the new payslip requirements, the rules change will also see to the scrapping of the Swedish Derogation. This is a legal loophole that allows some companies to pay contractors and agency staff less than permanent employees.

All employees will also be given the ability to request a statement of rights on the first day of their employment, which sets out their annual leave pay and allowance.

Link: Good Work Plan

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Additional year to prepare for Making Tax Digital for taxes other than VAT

The Chancellor’s Spring Statement contained an important nugget of information for businesses that had been wondering when they will need to be ready for Making Tax Digital (MTD) for taxes other than VAT.

Until recently, the Government’s official line was that the rollout of the UK’s digital system would be confined to VAT until “April 2020 at the earliest”.

Now, a subtle change to this wording seems to suggest that MTD will not apply to any further taxes until 2021, with the Chancellor saying in his Written Ministerial Statement that “the Government will therefore not be mandating MTD for any new taxes or businesses in 2020.”

April saw the launch of MTD for VAT, which requires VAT-registered businesses with a turnover of £85,000 or more to keep digital records and make quarterly digital returns using HM Revenue & Customs (HMRC) compatible software packages.

In practice, this means they need to use a cloud accounting platform for record keeping and filing.

Link: Spring Statement 2019: VAT MTD is go, but no further mandation until 2021

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IR35: off-payroll working rules set to change next year

HM Revenue & Customs (HMRC) has published new guidance on the expansion of the IR35 requirements to contractors working in the private sector.

IR35 governs the tax status of people working through personal service companies (PSCs) and until now required public sector employers to determine whether contractors working for them should be taxed as employees.

From April 2020, the same rules will apply to bodies in the private sector and HMRC has published the following tips to help employers prepare for the change.

  1. Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
  2. Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020.
  3. Start talking to your contractors about whether the off-payroll rules apply to their role.
  4. Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.

Currently, contractors working for private sector clients are themselves responsible for making sure they pay tax on the correct basis.

Link: Prepare for changes to the off-payroll working rules (IR35)

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Registering for Making Tax Digital for VAT takes seven days, warns HM Revenue & Customs

HM Revenue & Customs (HMRC) has warned businesses across the UK that the registration process for Making Tax Digital (MTD) for VAT takes seven working days.

This means that VAT-registered businesses turning over £85,000 or more need to register more than seven days before submitting a return if they want to pay their tax bill by direct debit.

Last month saw the introduction of the requirement for such businesses to keep digital records and make quarterly digital VAT returns using HMRC-compatible software packages. In practice, this means that they need to use cloud accounting packages.

The quarterly nature of MTD for VAT returns means that the first quarterly submissions will not actually become due for most until at least July 2019.

Registering involves setting up a Government Gateway user ID and ensuring compatible software is in place.

Link: Making Tax Digital for VAT registration takes seven working days