Businesses that buy goods from the EU or export goods to the EU would be advised to read the recent guidance from HMRC that is published under the title:

"VAT for businesses if there is no Brexit deal"

The stated purpose of the document is reproduced below. The full text can be read online at  https://www.gov.uk/government/publications/vat-for-businesses-if-theres-no-brexit-deal/vat-for-businesses-if-theres-no-brexit-deal

The purpose of this notice is, in the event that the UK leaves the EU on 29 March 2019 with no agreement, to inform UK businesses of the implications for VAT rules for goods and services traded between the UK and EU member states. It outlines the impacts and gives information for businesses to take into consideration.

While the UK government is confident that it will agree a good deal for both sides, as a responsible government it will continue to prepare for all scenarios, including the unlikely outcome that the UK leaves the EU on 29 March 2019 without a deal.

This is contingency planning for a scenario that the UK government does not expect to happen, but people should be reassured that the government is taking a responsible approach.

It is important that businesses consider how a ‘no deal’ scenario could affect them and begin to take steps to mitigate against such a risk, however unlikely. This technical notice provides further details to support early planning on VAT to help businesses understand the potential impacts, and government will provide further details, including specific actions that businesses should take, in due course.

For most UK businesses there will be no change to VAT rules. UK businesses that are affected may wish to consult other relevant technical notices, including the Trading with the EU if there’s no Brexit deal notice, which covers customs, excise and import processes at the border.

If your business buys and/or sells goods to the EU you may want to start your contingency planning now, and, of course, VAT is just one of the issues you may need to consider. We can help.

None of us relish the thought of our own demise which probably explains why approximately 70% of us have not made a Will. With no direction, who will inherit your worldly goods if you die without making a Will? The legal jargon is dying 'intestate'.

Consider Louis, 75 years old and deeply into avoidance when it comes to considering his estate. Let speculate that he died recently, and his estate was subject to the rules and regulations that apply in England. He is married, and his estate is worth more than £1m. He has two children, Kate and Ian, each with two children (Louis’s grandchildren). Louis has no time for his son and has no intention of leaving him a bean.

But Louis has no Will.

The remainder of his estate after costs and taxes (let’s say this is £1m) will be divided under the intestacy rules as follows:

• His wife will keep assets (including property) up to £250,000.

• His wife gets an absolute interest in half of what’s left, £375,000, and

• The other half is divided up between the two children, Kate and Ian. 

Accordingly, and against his unwritten wishes, the errant son, Ian, received £187,500.

Louis’s family is a fairly typical structure, but there are numerous variations that can create all sorts of complications if there is no Will that expresses the deceased person’s wishes. 

Perhaps the most alarming example is where a couple have lived together for some time but never married or created a civil partnership. The surviving partner in these circumstances would have no right to inherit if their partner did not leave a Will.

The remedy, obviously, is make a Will. If your affairs are straight-forward the cost should be affordable, and your immediate family will benefit from your estate based on your intentions, not the grey dictat of the rules of intestacy.

In a recent tax case, Pallister v Revenue & Customs, Pallister’s son (PJ) was left a share in his deceased parent’s investment property in June 2012. A local surveyor valued the property at £1.2m and this was the figure used to determine the deceased parent’s inheritance tax bill.

Subsequently, the property was sold in March 2014 for £2.5m.

HMRC were peeved. Less than two years had passed and PJ’s share of 88% in the property had seemingly increased in value by almost 100%. They therefore challenged the earlier valuation for inheritance tax purposes on the basis that “hope” value should have been considered in the probate valuation.

Hope in this context is defined by HMRC as:

A component part of the open market value in appropriate cases, whether or not planning permission had been sought or granted.

The courts agreed with HMRC and after a degree of wrangling the £1.2m probate valuation was increased to £1.6m. The increase in the valuation likely cost PJ a further £160,000 in inheritance tax.

In their IHT Tax Toolkit, HMRC have added the following advice:

It is important to properly ascertain the value of assets. For assets with a material value you are strongly advised to instruct a qualified independent valuer, to make sure the valuation is made for the purposes of the relevant legislation, and for houses, land and buildings, it meets Royal Institution of Chartered Surveyors (RICS) or equivalent standards. Some issues are easily overlooked when instructions are given. For example, the potential for the development of the land, the existence of tenancies or occupancy by people other than the deceased. Copies of relevant agreements, or full details where only an oral agreement exists, are often not given to the valuer so misunderstandings arise. Where we are satisfied that all the relevant information has been considered by the valuer, we are less likely to challenge the valuation.

No doubt surviving families will always be willing to proffer the lowest valuation for a property to keep IHT liabilities to a minimum, even if the surveyor appointed is not advised of past, lapsed, planning consents, or the impending likelihood of future changes that would not be resisted by planning authorities.

As we can witness in the Pallister case, overlooking hope value can have expensive consequences.

The government has announced that it has received record-breaking support from members of the public to counter the blight of plastic waste. Here’s what they said:

Individuals, businesses and campaign groups have expressed overwhelming support for action on tackling the impact of plastics on our environment.

The backing comes as HM Treasury publishes the summary of responses to its recent call for evidence on how tax can be used to reduce plastic waste. The call attracted an unprecedented 162,000 responses, the highest in the Treasury’s history.

The Chancellor, Philip Hammond, has reiterated the department’s commitment to act through the tax system to reduce the amount of single-use plastic waste. The views received will help inform and shape the government’s approach ahead of this year’s Budget.

Measures which received noteworthy public support and are being considered include using the tax system to:

• encourage greater use of recycled plastic in manufacturing rather than new plastic,
• discourage the use of difficult to recycle plastics, like carbon black plastic,
• reduce demand for single-use plastics like coffee-cups and takeaway boxes,
• encourage further recycling as opposed to incineration.

It will be interesting to see Mr Hammond’s more detailed ideas if and when they become part of the Autumn Budget later this year.

According to Treasury sources, the department is also looking at how it could further support measures to fund the development of new, greener products and innovative processes that will help ensure a more sustainable future for the country.

This work forms part of the government’s overall commitment to eliminate all avoidable plastic waste. It builds on the recently announced £20 million plastics innovation fund – to support the production of sustainable and recyclable plastics – and follows the £61.4 million announced by the Prime Minister to be invested in tackling plastic in the world’s oceans.

At the beginning of August, the Office for Tax Simplification (OTS) – a government department charged with coming up with new ideas to simplify our tax system – issued a number of reports and recommendations. They include a number of interesting topics and we have shared the conclusions below:

Changes to capital allowances

At present, businesses depreciate assets in their accounts and this process creates a reserve in their accounts such that when the assets are worn out, there is a fund of profits and cash to replace them. For tax purposes, this depreciation charge is added back in tax computations and is replaced by a deduction for capital allowances.

The OTS are now suggesting that trying to align tax relief with the depreciation charge in the accounts would be too complex, but they have suggested that the scope of some capital allowances should be widened.

Lookthrough taxation

Lookthrough taxation was an idea to charge the shareholders of small companies to income tax and National Insurance on the profits of their company rather than tax the company on those same profits using the present corporation tax rules.

If adopted this would have had a dramatic effect on the taxation of small companies. Thankfully, the OTS have considered this notion and have concluded that it’s application would complicate rather than simplify matters for small companies

Sole enterprise with protected assets (SEPA)

This is an interesting and welcome option to the legal status that sole traders could adopt.

At present, sole traders can be personally liable for the commercial liabilities of their businesses: there is no way to protect their personal assets, and in particular their family home, in the event that their business becomes insolvent.

The OTS have now recommended that sole traders be offered a new form of status. The principle behind SEPA is that it will allow an individual to continue to trade as a sole trader whilst offering protection for their primary residence against claims arising from the business. The primary residence will not be protected from personal claims nor will any other asset be protected.

In conclusion

These ideas are by no means certain to find their way onto the statute books. The Treasury will consider the OTS findings and may include the changes in future legislation. We will have to wait and see.

1 August 2018 – Due date for Corporation Tax due for the year ended 31 October 2017.

19 August 2018 – PAYE and NIC deductions due for month ended 5 August 2018. (If you pay your tax electronically the due date is 22 August 2018)

19 August 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2018.

19 August 2018 – CIS tax deducted for the month ended 5 August 2018 is payable by today.

1 September 2018 – Due date for Corporation Tax due for the year ended 30 November 2017.

19 September 2018 – PAYE and NIC deductions due for month ended 5 September 2018. (If you pay your tax electronically the due date is 22 September 2018)

19 September 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2018.

19 September 2018 – CIS tax deducted for the month ended 5 September 2018 is payable by today.

UK residents can ask for publicly owned land and buildings to be sold if they think that the property is vacant or underused.

You will need to track down the owner of the land and ask for the property to be sold. Your application will not entitle you to purchase the land, the owners may want to consider other offers.

The government department that owns the land will not sell if:

• the land or buildings aren’t safe for your proposed use, for example if they’re part of a port, army barracks or on a flood plain,
• they have plans for the land, such as for a railway or road,
• the cost of selling wouldn’t be good value for the taxpayer, for example if moving to another site would cost more than the value of the property.

You will receive a letter telling you the result of your application.

Initially, you could contact the Government Property Unit righttocontest@cabinet-office.gsi.gov.uk to start the ball rolling.

Notwithstanding any of the comments that follow, an individual is allowed to make tax-free capital gains of £11,700 during 2018-19.

There are also a number of circumstances when a disposal does not create a taxable gain. These include:

• The sale of personal assets worth less than £6,000.
• Gifts to your spouse or civil partner.
• Gifts to a charity.
• Gains when you cash in ISAs or PEPs.
• Disposal of certain UK government gilts and premium bonds.
• Betting, lottery or pools winnings.
• Any personally owned car.

If you live abroad, you will have to pay tax on gains you make on residential property in the UK even if you are non-resident for tax purposes. You do not pay Capital Gains Tax on other UK assets, for example shares in UK companies, unless you return to the UK within 5 years of leaving.

Even if gains are taxable there may be reliefs you can claim to reduce or defer any Capital Gains Tax that may be due. These reliefs include:

• Entrepreneurs’ relief

• Business asset rollover relief

• Incorporation relief

• Gift hold-over relief

Circumstances when these reliefs may be of use include:

• When you sell your business

• When you reinvest the proceeds from a chargeable disposal into a new asset

• When you change a sole trader or partnership business into a limited liability company, and

• If you give away a business asset.

If you are likely to dispose of, or re-organise, any assets in this way please contact us to discuss any Capital Gains Tax implications.

A new test is to be added to the qualifying criteria for rent-a-room relief from April 2019.

The test will require that the individual or individuals in receipt of income – the home owner(s) – will need to share occupancy of the residence in question with the individual whose occupation of the furnished accommodation is generating the receipts – the lodger.

In their notes advising this change HMRC says:

Rent-a-room relief provides Income Tax relief for those letting out furnished accommodation. It was introduced in 1992 to encourage individuals to make spare capacity in their homes available for rent. The government intended this to increase the quantity and variety of low-cost rented accommodation, giving more choice to tenants and making it easier for people to move around the country for work.

Rent-a-room relief presently gives relief from Income Tax for up to £7,500 of income to individuals who let furnished accommodation in their only or main residence.

In the last 25 years the housing market has changed significantly. The private rented sector has more than doubled in size, and the emergence and growth of online platforms in particular, have made it easier than ever for those with spare accommodation to access a global network of potential occupants.

The objective of this clause is to ensure that rent-a-room relief is better targeted to achieve its objective of incentivising individuals with spare accommodation (that might otherwise go unused) to share their homes.

In the recently published draft clauses that will form the basis of the Budget later this year, HMRC has outlined a significant change to the way they will be levying penalties for late filing breaches under the Making Tax Digital regulations.

Rather than base penalties on each transgression, taxpayers will receive a penalty point per event, and when these penalties reach a certain amount the taxpayers will be required to pay a fixed penalty.

Essentially, if you miss a deadline a point will be given, but a penalty will only be charged when a specified number of points are accrued. According to HMRC, the number of points required for a penalty to be levied depends on the filing frequency of the return.

HMRC is also introducing an amended penalty for deliberately withholding information from HMRC. The changes to this penalty are required to accommodate the new points based regime and ensure that the penalty works as intended. The enacting schedule gives HMRC the power to charge penalties where a taxpayer deliberately withholds information which would enable HMRC to assess their tax liability. These penalties are based on a percentage of the tax due and can be reduced based on the taxpayer’s willingness to correct past disclosure.

The new system is similar to that adopted for driving offences. Of course, there is no suggestion that if you gather enough points to pay tax penalties you will then be banned from paying tax…

From 1 October more than 100 countries, including the UK, will be able to exchange data on financial accounts under the Common Reporting Standard (CRS). CRS data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received.

The most common reasons for declaring offshore tax are in relation to foreign property, investment income and moving money into the UK from abroad. According to HMRC, over 17,000 people have already notified the department about tax due from sources of foreign income, such as their holiday homes and overseas properties.

HMRC is urging UK taxpayers to come forward and declare any foreign income or profits on offshore assets before 30 September to avoid higher tax penalties. New legislation called ‘Requirement to Correct’ requires UK taxpayers to notify HMRC about any offshore tax liabilities relating to UK income tax, capital gains tax, or inheritance tax.

However, some UK taxpayers may not realise they have a requirement to declare their overseas financial interests. Under the rules, actions like renting out a property abroad, transferring income and assets from one country to another, or even renting out a UK property when living abroad could mean taxpayers face a tax bill in the UK.

Taxpayers can correct their tax liabilities by:

• Using HMRC’s digital disclosure service as part of the Worldwide Disclosure Facility or any other service provided by HMRC as a means of correcting tax non-compliance

• Telling an officer of HMRC in the course of an enquiry into your affairs

• Or using any other method agreed with HMRC

Once a taxpayer has notified HMRC by 30 September of their intention to make a declaration, they will then have 90 days to make a full disclosure and pay any tax owed.

HMRC have provided a list of offshore assets required to be disclosed under these arrangements. They are:

• art and antiques

• bank and other savings accounts

• boats

• cash

• debts owed to you

• gold and silver articles 

• government securities

• jewellery

• land and buildings, including holiday timeshare

• life assurance policies and pensions

• other accounts, such as stockbroker or solicitor

• other bond deposits and loans including personal portfolio bonds

• rights or intellectual property including image rights

• stocks and shares

• trusts including employee benefit trusts and self-employed persons trusts 

• and vehicles

Clearly this is a major change as HMRC will soon gain information about overseas assets that will enable them to trace taxpayers who have not declared these interests on their UK tax returns. If you are concerned by this new legislation, please contact us so that we can regularise your affairs before the 30 September 2018 deadline.

We are often quizzed by clients who are contemplating working from home: what are the tax consequences? And in particular, will I have to pay capital gains tax?

Capital gains tax

Generally speaking, if your business use is limited to allocating space for a home office, then as long as there is duality of use, no capital gains tax complications should arise when you sell the property. Duality of use means that your home office: doubles as a spare bedroom, or a storage space for domestic items, or is a study or has a similar non-business as well as a business use.

If the property you work in has a more permanent business area, for example if you live in a flat above shop premises, then sale proceeds will need to be apportioned and you will need to consider the capital gains tax position of any profit on sale attributed to the business premises.

Business tax

If you use space at home as a self-employed person you can claim reasonable, apportioned costs for the use of the space. How you make the calculation can be quite complex and will need to be based on the actual costs of occupying the relevant space. If you work 25 hours or more from home each month, you can claim using HMRC’s simplified rates:

• 25 to 50 hours a month – £10 per month,

• 51 to 100 hours a month – £18 per month, and

• Over 100 hours a month – £26 per month.

Business rates

You won’t need to worry about paying business rates for home-based businesses if you:

• use a small part of your home for your business, for example if you use a bedroom as an office, or

• sell goods by post.

You may need to pay business rates as well as Council Tax if:

• your property is part business and part domestic, for example if you live above your shop,

• you sell goods or services to people who visit your property,

• you employ other people to work at your property,

• you’ve made changes to your home for your business, for example converted a garage to a hairdresser’s salon.

You should contact the Valuation Office Agency to find out if you should be paying business rates. In Scotland, contact your local assessor.

In conclusion

Other complications arise, for example you may be required by your employer to work from home a fixed number of days a week. Any contribution you receive from your employer to cover your costs could be tax free if a nominal amount or a taxable benefit if excessive.

If you are considering working from home, to manage your own business or your employment needs, we can help you quantify any tax implications, and in particular, calculate a realistic “rent” for your home space that will not cause any unexpected tax consequences.