Monthly Archives: February 2020

Entrepreneurs’ Relief changes expected in March Budget

Speculation is increasing that the Government will announce significant curbs on Entrepreneurs’ Relief in the Budget, or could even scrap the valuable tax relief altogether.

According to the Financial Times, ministers are concerned that Entrepreneurs’ Relief is too generous to wealthy individuals.

Entrepreneurs’ Relief allows business owners to pay half the usual 20 per cent rate of Capital Gains Tax on gains of as much as £10 million when they dispose of all or part of a business.

Amongst the voices calling for Entrepreneurs’ Relief to be reformed has been the Federation of Small Businesses (FSB).

Speaking to the Financial Times, Craig Beaumont, the FSB’s Director of External Affairs, called for the relief to be refocused away from the wealthiest to more typical entrepreneurs.

He said: “Unlike employees, most don’t have a pension and have been planning to sell their business to fund their retirement.

“A reform to limit Entrepreneurs’ Relief to £1 million, for example, would align well with the pension pots limit.”

The speculation comes after the Conservatives committed to reforming Entrepreneurs’ Relief in their December 2019 General Election Manifesto.

Get ready for a range of tax changes this April

Monday 6 April 2020 will see a range of tax changes come into effect with the start of the 2020/21 tax year.

Some of these changes have the potential to have considerable implications for your tax bill, depending upon your specific circumstances.

Here is a selection of the most significant changes:

Capital Gains Tax (CGT):

Some of the biggest changes in April relate to CGT, with extensive changes to Private Residence Relief and Lettings Relief set to come into effect.

While current and former landlords will be most affected by the changes, people who choose to stagger the buying and selling process so that they only sell up after buying their new home could be at increased risk of incurring a tax bill that they would not previously have received.

Until now, homeowners have had 18 months in order to complete the sale before CGT applies, however, restrictions to Private Residence Relief will see this slashed to just nine months from April, meaning conveyancing and finance delays could lead to an unexpected CGT bill.

Furthermore, from April, Lettings Relief – which discounts from the CGT calculation by up to £40,000 any time during which a landlord used a property as their main residence – will be restricted to circumstances where the landlord lived at the property with their tenant.

Compounding the potential additional tax bills that arise from the changes is a new requirement for CGT on residential property to be calculated and paid within 30 days of the completion of the sale, rather than being included at least 10 months later on an individual’s Self-Assessment Tax Return. Taxable gains from a sale will need to be reported via a standalone online return, but will still also need to be included in a person’s subsequent Self-Assessment Tax Return for the year.

National Insurance Contributions (NICs)

The NICs threshold is set to rise by more than 10 per cent to £9,500 a year, for both the employed and self-employed. The average employee is expected to pay around £104 less as a consequence in 2020/21.

Income Tax                                                                                          

The key change in relation to Income Tax is that there will not be a change to the thresholds for the first time in several years, unless the Chancellor changes course at the Budget on 11 March.

The personal allowance and the basic rate limit will not change for the first time in several years.

VAT zero-rating now applicable to businesses e-publications

Businesses that rely on the production of guides, physical books, newspapers or other printed materials currently enjoy a zero-rating for VAT.

However, those who sell and publish similar content online have had to pay VAT at the standard rate.

This is now set to change after a decision made by the Upper Tax Tribunal (UTT) confirmed that the suppliers of electronic literature should now consider their supplies zero-rated in the same way as their physical printed equivalent.

The UK has had the opportunity to keep both supplies zero-rated for some time after the EU adopted a VAT Directive permitting EU member states to tax the supply of electronic publications at the same rate of VAT as the printed equivalents.

 

Despite this directive, the UK has not decided to follow suit and the supply of content electronically has remained standard-rated for VAT.

The decision that looks set to change this now though is the case of News Corp UK & Ireland Limited ([2019] UKUT 0404 (TCC), decided 24 December 2019).

During the case at the UTT, News Corp argued that its supply of its newspaper electronically was still the zero-rated supply of a newspaper in accordance with Item 2, Group 3, Schedule 8, VAT Act 1994.

However, HM Revenue & Customs (HMRC) defended the current arrangements saying that it was a supply of electronic services and therefore standard-rated.

Having weighed up both arguments, the judge found that there was no material difference and that the electronically supplied newspaper should, therefore, be zero-rated.

Within the judgment, the UTT indicated that restrictions would apply and clarified what might, or might not, be acceptable as an electronic equivalent to a newspaper. It is thought that this ruling, using the judicial “tool of construction”, applies not only to digital newspapers but to many other forms of digitally supplied literature too.

Businesses which purchase digital publications but which have been unable to recover all the VAT incurred should consider approaching their suppliers and requesting a refund of the overcharged VAT, while the suppliers themselves should consider whether to zero-rate future supplies.

They may also wish to make claims to HMRC in respect of overpaid output tax, which may help them to cover any requests from customers who are seeking to recover the VAT themselves.

Link: News Corp wins VAT dispute at Upper Tribunal

Latest case highlights the dangers of not meeting workplace pension requirements

A recruitment business has been ordered to pay £10,890 after avoiding their automatic enrolment duties and misleading the Pensions Regulator (TPR).

Hertfordshire-based SKL Professional Recruitment Agency Ltd’s managing director Linus (known as Lee) Kadzere has been sentenced at Brighton Magistrates’ Court for wilfully failing to comply with the workplace pension rules and misleading TPR.

The specialist recruitment agency provided workers to the care sector, but despite their knowledge of the rules, Kadzere and the company provided a false declaration of compliance telling the TPR his company had automatically enrolled 22 staff.

However, thanks to a whistleblower within the business and a subsequent investigation by TPR, it was revealed that although a pension scheme had been set up, staff had not been enrolled and pension contributions deducted from pay had not been paid into the scheme.

District Judge Teresa Szagun said Kadzere had been “reckless” in his approach to his responsibilities and that “failure to comply has a detrimental economic impact not only for the individuals concerned but for society as a whole”.

As the company’s director, Kadzere was fined £1,300 plus a victim surcharge of £120, while SKL was fined £6,000 plus a victim surcharge of £120 and prosecution costs of £3,350.

Darren Ryder, TPR’s Director of Automatic Enrolment, said: “TPR will not stand by if an employer wilfully fails to meet their responsibilities towards their staff – we will take action to make sure workers get the pensions they are due.”

Link: Recruitment agency fined £10,890 for misleading TPR

When was the last time you checked your NIC record?

Most workers assume that their National Insurance Contributions (NICs), as reported by their employer or through their own records, are accurate and up to date.

After all, within the Income Tax system, we have the comfort of an annual reconciliation process, so why would NICs be any different?

However, it may come as a shock to learn that they aren’t and that this could have an impact on your ability to claim the full state pension.

Many have argued that HM Revenue & Customs have always held tax as a priority over NICS, with some pointing to the fact that NIC records are hidden behind the Personal Tax Account (PTA) portal, which includes no mention of National Insurance.

Many people will reach state pension age and suddenly realise there are gaps in their NIC record, which means that they may not be entitled to the state pension they were expecting.

This is why it is important that individuals check their own NI records every year and if needs be, make payments to cover any gaps that they may have.

Reasons for gaps could include the RTI data from your employer being incorrectly recorded or a period out of work.

Where you identify a gap in your records it is worth contacting HMRC to find out why the gap exists and how it can be rectified.

Remember, if you have been out of work and in receipt of certain state benefits you will get automatic NI credits to provide you with a qualifying year for NIC, where your earnings aren’t high enough for that year to otherwise qualify.

The state benefits that provide eligibility for NIC and which are relevant to employees are:

  • employment and support allowance
  • maternity allowance
  • child benefit for a child under 12 since April 2010 (prior to April 2010 home responsibility protection could provide credits for children under 16)
  • carer’s allowance or income support
  • working tax credit with a disability premium so your earnings’ capacity is restricted
  • universal credit.

Link: Personal Tax Account

Property tax implications of getting divorced

If you are in the process of getting divorced, it is likely that the tax considerations involved are not foremost in your mind.

However, divorce can have extensive implications for your tax bill, including in relation to Capital Gains Tax (CGT).

This means it is crucial that you take your tax position into consideration when negotiating your financial settlement.

For the purposes of CGT, spouses and civil partners can be taxed as separate individuals under certain circumstances and could be subject to tax on any chargeable gains arising on disposals of assets.

Every individual has an annual CGT exemption – currently £12,000 for the 2019/20 tax year – so any gains above this amount are subject to CGT at various rates, depending on a person’s income and the nature of the asset.

The most significant asset in most people’s estate is their home. In most cases, the availability of private residence relief (PRR) means these will not result in a CGT liability.

However, a married couple, or civil partners, can only have one principal private residence between them – typically the one at which they reside. If couples own a second home, they must decide which property is their main residence and which should subject to CGT if it is sold.

Elections can be made within two years after a change, for example when a new residence is bought or sold.

If an individual has lived in a property as their main home for a period, the last 18 months of ownership are treated as a period of residence regardless of whether that individual lived in the property during that time or not.

However, this period will be reduced to nine months from April 2020, which is likely to have a significant impact on couples stuck in a dispute.

Make the most of the Brexit implementation period

Make the most of the Brexit implementation period

Now that the UK has left the EU, we have entered an implementation period that will last the rest of 2020, during which the UK’s future relationship with the EU will be agreed, giving businesses the chance to prepare for the UK’s new trading arrangements.

While much of the detail is still to be decided, we do know that businesses trading with the EU will need to do the following in the coming months:

  • Obtain an Economic Operator and Identification (EORI) number
  • Decide whether to make customs declarations yourself or using a customs agent.

HM Revenue & Customs (HMRC) recently issued a letter to some VAT-registered businesses that explains these processes in detail.

Read the letter here.

For more information on making the most of the Brexit implementation period, contact us today.