Election on 8 th June Snap Election = Short Finance Act Lots of - - PowerPoint PPT Presentation

• Snap Election = Short Finance Act
• Lots of legislation deferred =>Next Bill?
• Making Tax Digital – 2018 start?
• Corporate tax changes – 1 April 2017?
• Non-Dom changes – 6 April 2017?
• Considerable uncertainty
• Second Finance Bill/Act later this year?
• Another election?

Election on 8th June

• See Appendix last month for Overview of what was

included

• Changes to rates and limits enacted, Also:
• IR35 – public sector workers “off payroll”
• Changes to salary sacrifice arrangements
• Offshore Pensions
• Employee shareholder shares
• Soft drinks levy (sugar tax)

Finance Act 2017 – What’s in, What’s Out?

'Worker' 'Intermediary'

Service company/partnership

'Client'

Public sector workers “Off payroll”

• Students voted Labour – abolish tuition fees promise
• Funding of the NHS?
• Public sector 1% pay freeze – 7 years?
• Un-costed manifesto pledges?
• “Dementia tax” U –turn lost the “grey” vote?

So Why did Teresa no get a Majority?

• Current rules – contribute to care fees if assets exceed

£23,250

• Includes value of family home
• Conservative Party manifesto – increase to £100,000
• But no cap on contributions
• Dilnot recommendation – limit to £72,000
• U-Turn – Green Paper to consider cap on contributions
• Is this a tax?

Funding social care

• Current rules – contribute to care fees if assets exceed

£23,250

• Give cash away to family?
• Transfer family home to trust?
• Not effective if deliberately deprive estate of assets to

avoid care fees/ increase means tested benefits

• What is deliberate deprivation?

Planning for social care costs

• The Department of Health document called the Charging for

Residential Accommodation Guide (CRAG), gives the following examples of deprival of capital:

• a lump-sum payment such as a gift or to pay off a debt
• transferring the title deeds of a property to someone else
• putting money into a trust that cannot be revoked
• converting money into another form that has to be

disregarded from the means test, eg personal possessions, investment bonds with life insurance

• reducing capital through substantial expenditure on items

such as expensive holidays or by extravagant living

Deliberate Deprivation

• The local authority or Pension Service has to show that

this intention was there before it can take transferred capital into account.

• Avoiding accommodation charges does not have to be

the only motive behind a transfer of eligible capital ahead of the means test.

• For the transfer to amount to deliberate deprivation, the

intention to avoid accommodation charges must be a significant part of the reason for acting in this way.

Deliberate Deprivation

• No 7 year rule like IHT planning – CRAG:
• “The timing of the disposal should be taken into account

when considering the purpose of the disposal. It would be unreasonable to decide that a resident had disposed

• f an asset in order to reduce his charge for

accommodation when the disposal took place at a time when he was fit and healthy and could not have foreseen the need for a move to residential accommodation.”

Deliberate Deprivation – Timing:

• s21 of the Health and Social Services and Social Security

Adjudications Act 1983: where a resident has deliberately deprived himself or herself of an asset the local authority can recover any sums it consequently has to pay towards the resident’s care costs from the person who the asset was transferred to, as long as the deliberate deprivation occurred within six months of the resident approaching the local authority for funding. If the transfer was made more than six months before the local authority cannot use this section.

• Although the six-month limit only applies to the particular

power of recovery, the Assessment of Resources Regulations place no set time limit beyond which the local authority has to ignore transfers of assets.

Deliberate Deprivation – Timing:

HMRC Announcements and other developments

12

• HMRC have updated their online form and IHT

calculator to assist the computation of IHT

• Where the residue of the estate is partly exempt/ partly

chargeable

• Gross-up legacies that are free of tax
• Example
• Martyn dies leaving his £1 million estate equally

between 3 children and 3 charities

• Assume that nil rate band already used

IHT – exempt gifts out of residue – grossing up

• Martyn dies leaving his £1 million estate equally

between 3 children and 3 charities 1. The non-exempt shares bear the whole burden of the tax – this leads to an unequal division of the estate, with the charities receiving more than the children. The estate rate is 40%. The charities receive £500,000 between them and the children receive £300,000, with tax

• f £200,000 met out of the children's share.

IHT – exempt gifts out of residue – grossing up

• Martyn dies leaving his £1 million estate equally

between 3 children and 3 charities 2. Divide proceeds so that the net estate is then divided equally between all six beneficiaries –equal distribution but, because it is necessary to gross-up the non-exempt gifts leads to significantly greater tax. 3 x £125,000 = £375,000 grossed up by 100/60 =£625,000 Balance to charities (3 x £125,000) exempt £375,000 Total estate £1,000,000 (Proof - £625,000 x 40% = £250,000)

IHT – exempt gifts out of residue – grossing up

Advisory Fuel Rates – 1 June 2017

Engine Petrol Diesel LPG < 1400 cc < 1600cc 11p 9p 7p 1400–2000 1601 - 2000 14p 11p 9p > 2000 cc 21p (22p) 13p 14p

• HMRC has identified a continuing incidence of problems

with fraud and unpaid taxes through the use of un- vetted or poorly vetted labour providers

• Across all of the agricultural and food processing

sectors, construction, hotels and leisure, security and

• ther labour intensive industries
• HMRC suggest that users of such labour should carry
• ut “due diligence” into labour provider
• Report concerns to HMRC hotline

HMRC Guidance to those using labour supplied by third party (gangmasters etc)

• Problems/fraud has involved:
• the use of false invoices
• hi-jacked VAT registrations
• contrived insolvencies
• under-priced contracting
• the non-payment of PAYE tax and National

Insurance Contributions (NIC) due

• Not paying NMW

HMRC Guidance to those using labour supplied by third party (gangmasters etc)

• Where it can be shown that you (the trader) knew or

should have known that transactions you entered into were connected with any fraudulent evasion of VAT, you will lose your right to recover the VAT incurred

• n those transactions.
• Failure to carry out appropriate checks will be one of the

factors that HMRC will take into account in considering whether you knew or should have known of the fraud

Using labour supplied by third party (gangmasters etc) –VAT Fraud

• Does the labour provider need/have the appropriate

Gangmaster Licensing Authority (GLA) licence?

• It is illegal to use workers or services supplied by an

unlicensed labour provider in the regulated sector of agriculture, forestry, horticulture, shellfish gathering and food processing and packaging.

• The maximum penalty in England and Wales is 51

weeks imprisonment and a fine;

HMRC Guidance to those using labour supplied by third party (gangmasters etc)

• Does the labour provider make regular/monthly PAYE

and Class 1 NIC remittances to HMRC at least consistent with the number of workers supplied to your business?

• Does the labour provider employ the workers directly or

is an intermediary involved?

• Does the labour provider submit regular VAT returns

and make full and proper payments in respect of these returns?

• Should also carry out due diligence into the labour

providers business

HMRC Guidance to those using labour supplied by third party (gangmasters etc)

• What is the history of the business?
• Is the business registered in the UK or overseas

(including the Isle of Man or Channel Islands)? If registered overseas and PAYE is not accounted for, HMRC may ask the user of the labour to account for this tax and the associated NIC

• Is it a live company on the Companies House register?
• What do you know about the directors and their

background in the industry?

HMRC Guidance – enquiries into labour provider’s business

• How many workers for hire do they employ in total?
• Do they in turn hire workers from other labour providers

and/or sub-contractors? If so, are the fees that they are proposing to charge you commercially realistic whilst also allowing each party to achieve a profit?

• Association of Labour Providers suggests £8.69/ hour
• Has the business obtained trade references from other

businesses they supply workers to? If so ask for copies.

• Do they have Employer’s Liability Insurance?

HMRC Guidance – enquiries into labour provider’s business

• What do you know about the workers being supplied?
• Do they have the right to work in the UK? What checks

do you make to ensure this and protect your own business?

• What checks are carried out by the labour provider on

their workers? Are these sufficient?

• Do the workers need a licence to operate? For example,

Security Industry Authority licence – if not you should not use those workers in your business.

• Should the employees be security vetted for the type of

work they are doing for you? If so, how is this done and by whom?

HMRC Guidance – questions about workers supplied

• Are any of the workers being treated as self employed?
• If you were engaging those workers directly would you

treat them as being self-employed?

• Do the workers have written terms and conditions of

employment?

• Are full and easily understood payslips provided to each

worker on payday?

• Who carries out the following for the workers:
• Health and safety training and risk assessing?
• General training for the work?
• Day to day supervision, discipline and security

HMRC Guidance – questions about workers supplied

• You can get a penalty if:
• your Full Payment Submission (FPS) was late
• you didn’t send the expected number of FPSs
• you didn’t send an Employer Payment Summary (EPS)

when you didn’t pay any employees in a tax month

Penalties for late RTI submissions

• HMRC won’t charge a penalty if:
• your FPS is late but all reported payments on the FPS

are within 3 days of your employees’ payday (this applied 6 March 2015 to 5 April 2017) however employers who persistently file after the payment date but within 3 days may be contacted or considered for a penalty

• you’re a new employer and you sent your first FPS

within 30 days of paying an employee

• it’s your first failure in the tax year to send a report on

time (this doesn’t apply to employers who register with HMRC as an annual scheme)

Penalties for late RTI submissions

• Number of employees Monthly penalty
• 1 to 9

£100

• 10 to 49

£200

• 50 to 249

£300

• 250 or more

£400

• If you’re over 3 months late you can be charged an

additional penalty of 5% of the tax and National Insurance that you should have reported

Penalties for late RTI submissions

• If you don’t submit your FPS on time or tell HMRC by

sending an EPS that you haven’t paid any employees, they may raise a specified charge - an estimate of how much HMRC thinks you should pay.

• Based on previous PAYE payment and filing history
• Can view specified charges on PAYE online account
• Only the submission of the missing FPS or EPS for

each month will replace the charge(s) with the amount that is due for each month and support any appeal you have made against a late filing penalty.

RTI – Specified charges

Recent tax cases

30

One Business or Two for VAT?

• Mr and Mrs Belcher v HMRC [2017] UKFTT
• Gents hairdressing business run by husband (started off

as a butcher!)

• Turned garage into ladies hairdressing salon – run by

wife

• Accountant prepared accounts and SA tax returns as a

partnership

• Business not registered for VAT – both businesses

below VAT registration limit

• HMRC assessed £135,000 VAT

One Business or Two for VAT?

• The business run under a single name – “Crewe Cuts”
• No cross-charging of utility costs
• Single account for ordering consumables, a single music

licence and a single insurance policy

• All moneys were paid into a single bank account.
• However Mr and Mrs Belcher asserted that they had never

intended to run a single business in partnership

• There was physical separation of the premises
• Separate clientele; different stylists worked for each salon;

separate books were kept; and each salon was able to bear its own expenses without cross-subsidy.

• The Tribunal found as a fact that there was never any

intention to form a partnership.

One Business or Two for VAT? Factors:

• Higgins v HMRC [2017] UKFTT
• 2004 paid deposit on apartment in converted hotel
• October 2006 entered into contract
• Conversion started November 2009
• No right to occupy until January 2010
• Sold December 2011 with completion January 2012
• HMRC assessed CGT on disposal £61,383
• When did ownership start? Oct 2006 or Jan 2010?
• When did PPR start? Jan 2010

Start date for PPR relief?

• Higgins v HMRC [2017] UKFTT
• 2004 paid deposit on apartment in converted hotel
• October 2006 entered into contract
• Conversion started November 2009
• No right to occupy until January 2010
• Sold December 2011 with completion January 2012
• HMRC assessed CGT on disposal £61,383
• When did ownership start? Oct 2006 or Jan 2010?
• When did PPR start? Jan 2010 Thus exempt PPR

Start date for PPR relief?

Sponsorship of Racing Driver wholly and exclusively for purposes of trade

• Crown and Cushion (Chipping Norton) Ltd v HMRC

[2016] UKFTT

• Hotel business near Silverstone
• Sponsored racing driver (MD’s granddaughter)
• Not Wholly and Exclusively if “duality of purpose”
• Disallowed in Interfish Ltd case – financial support to

Rugby club

• FTT held that sole purpose of the payments was to

promote the hotel’s business near the Silverstone racing circuit as evidenced by the improved financial performance of the hotel business. Allowed

Sponsorship of Racing Driver wholly and exclusively for purposes of trade

The End Any questions?

38