As we will possibly live on until our 80s and beyond, and as that may involve coping with disability of one form or another, the need for consideration of support as we get older is ever more pertinent.

Readers will no doubt have heard the term “power of attorney”, but not many, we suspect, will have made the investment and appointed someone trusted to act as their representative if they become physically or mentally unable to look after themselves in old age.

If you did become infirm and unable to make sensible decisions about your health care or finances, and you had not appointed a lasting power of attorney (LPA), then management of health care and finances would pass to your doctors and the Court of Protection. Whilst these two outside-the-family institutions will no doubt try their best on your behalf, they may not do so in accordance with your wishes, or the wishes of your close family.

There are two types of LPA that will deal with:

1. Health and welfare, and

2. Property and financial affairs.

You can complete the forms to apply for the two types of LPA with the Public Guardian’s office, without professional assistance, but we suggest you invest in the required legal advice as part of a wider consideration of tax and inheritance issues.

LPAs, if properly considered, will give both you and your family a clearly defined structure to work within should you become incapacitated in old age. And as you would expect, you need to be able to demonstrate that you have the mental capacity to make you own decisions when you make an LPA.  

If the present wrangling over the terms of our exit from the EU result in terms that disadvantage UK businesses, what can we do now to protect our hard-earned business assets?

It is difficult to make this call as negotiations could drift in either direction: a continuing trade agreement or a so-called “hard-Brexit”.

No-one can say what trading conditions will be like from April 2019, but it is likely that perception will rule the roost. If uncertainty continues to cloud the debate, and there is no sign of resolution on the political front, opportunists, those brave, and some would say reckless, few will be on the lookout for ways to profit from any downward trend. For the rest of us, we need to consider our options, and quickly.

What could we do?

As the title of this piece suggests, we could add fat to our balance sheets by improving cash flow, cash is king.

How to do this:

•    Examine your options if you are registered for VAT. There are schemes that determine liability based on monies received and paid rather than sales and purchases invoiced. Why pay VAT if it is tied up in debtors: money owed to you? There are turnover limitations, but worth considering if these don’t apply.
•    Determine how many days credit you are giving to customers and aim to reduce these. Bad payers can quickly become bad debts if economic activity slows down. If customers are bad payers, what they are doing is using your money to underpin their cashflow.
•    If you buy production goods from the EU consider increasing your stocks, or better, discuss setting up stock-holding facilities for your EU suppliers. Perhaps you could find space for them and they would provide stock on a sale or return basis?
•    If you sell goods to EU suppliers adapt the previous strategy in reverse?
•    Release working capital from obsolete or slow moving stock by offering to customers at reduced prices, a late summer sale?

Every business will have different opportunities to ready themselves for the changes next year. There is still time to consider your planning choices. Please contact us if you would like our help in considering your options.
 

When you are selling your home, you are likely to be selling a range of fixtures and fittings. For example:

• White goods, washing machines, fridges, cookers etc,

• Furniture,

• Carpets,

• Curtains,

• Garden equipment,

• Leisure or fitness equipment, jacuzzi etc,

• And the garden shed.

If identified in the sale contract, any value attributed to these personal assets, or chattels, will not attract a stamp duty charge for your purchaser.

Accordingly, if you are selling at a value that just tips your property into the next band for stamp duty purposes, being able to allocate part of the price to stamp duty free “chattels” may provide an incentive to buyers to make an offer.

What you cannot do is allocate an arbitrary amount when pricing up your list of exempt fixtures and fittings. You will need to base your valuations on the cost price. Unless you have a very special garden shed, valuing it at say £5,000 to avoid stamp duty would beg the unwanted attention of HMRC, who would rightly see the transaction as tax avoidance.

Selling personal, home based assets in this way should not create any other tax issues, capital gains tax for example. You do not need to declare any gain on the sale of a personal chattel if the disposal proceeds do not exceed £6,000.

Talk with your selling agents as they should be able to help you draw up a realistic, costed list. 

In a recent tax case, three taxpayers asserted that cleaning costs of work clothes amounted to £2,200 a year and HMRC disagreed.

The facts were compelling. Each of the appellants worked in the drainage or sewage industry and to maintain personal hygiene they washed work clothing on a daily basis. Why shouldn’t they claim for the costs of keeping their work apparel clean?

Claims were based on the purchase of sanitising and washing products, wear and tear on their home washing machines and an apportioned cost of home electricity charges. Importantly, no receipts were kept.

To succeed in their tax claim, the appellants needed to satisfy three criteria:

1. That the amounts claimed were actually paid by the claimants,

2. That they were obliged to clean the clothes by their employers,

3. That the amounts incurred were wholly and exclusively laid out for the purposes of their employment.

The First Tier Tribunal did not see any evidence that these three criteria had been met and they dismissed the claims. What they did agree, was that each appellant could claim the HMRC’s £60 maximum cleaning allowance.

What this case illustrates is the importance of keeping evidence of expenditure. For example, keeping supermarket bills with the cleaning products highlighted. Electricity is more difficult as even if meter readings were taken when the washing machine was running it would be difficult to prove that no other appliances or lighting were also switched on at the same time.

Wear and tear of the washing machine would be impossible to claim, Its use would always fail as it was partly used for personal cleaning purposes – in other words the cost of the machine was not incurred wholly and exclusively for the purposes of their employment.

To stand a reasonable chance of success in their claim, it would appear that each would need to:

• keep receipts for the purchase of cleaning products and somehow restrict its use to work clothes only,

• meter the electric supplied to the washing machine,

• install a washing machine that was only used for cleaning work clothes, and

• make sure that their contracts of employment required that they wash work clothes each day.

As always, the burden of proof is on the taxpayer and evidence is the key to a successful claim. However reasonable the assertion – who would not want to wash their work clothes each day if required to crawl through sewers – without proof that expenditure qualifies, a claim is likely to fail.

If you are a sole trader, or in a basic partnership, and if your business gets into financial difficulties, any liabilities that cannot be covered by the disposal of business assets may have to settled out of personal assets.

In accountancy speak, you have unlimited liability; there is no protection for your personal assets.

You have options. 

The Office for Tax Simplification has suggested, welcomed, the idea that sole traders can elect for a form of limited liability status that will allow them to protect their homes from any claim by business creditors. At present, this is pure conjecture. Mr Hammond may introduce this option in the forthcoming Budget later this year, we will have to wait and see.

Alternatively, sole traders – or those in an unlimited partnership – could form a Limited Liability Partnership (LLP), but in the case of sole traders they would need a partner to do this.

Finally, sole traders or those in a partnership could incorporate their business, convert to a Limited Company status.

The last two options will create additional compliance costs: LLP and Limited Company accounts have to be drawn up in a statutory format and filed at Companies House and tax planning will need to be reconsidered.

It has always been the case that highly profitable businesses, and businesses where commercial risks cannot be adequately covered by insurance, should consider a form of incorporated status: LLP or Limited Company. Now that the outlook is being clouded by the Brexit issue, the self-employed may like to reconsider their options.

It may well be that what has served you well in the past will do so in the future, but we recommend that you take time out to reassess your risks, just in case there is an argument for change.  

As we have outlined in recent posts, change is upon us and come the end of March next year, the combination of Brexit and the advent of Making Tax Digital (MTD) will change much that we have taken for granted.

Apart from the cross-border considerations (import VAT, customs duties and the like) MTD will require all affected businesses to link with HMRC by using approved software.

The time to figure out the best strategy to survive these changes need to be considered now. Businesses should be taking time out to draw up contingency plans, and if possible, before March 2019.

The main problem is that our politicians, or at least those involved in the exit negotiations, appear to be dragging their feet; with little more than six months to the 29 March deadline, we still don’t know if there will be a negotiated “divorce” with the EU, or if the borders with Europe will simply close on the appointed day.

Rumours of motorways being used as car-parks, the stockpiling of medicines and other “essential” goods are commonplace as the clock ticks down. All of which does not inspire confidence.

Many of our clients are already engaged in the serious matter of contingency planning. This has involved consideration of their risk – from Brexit in particular – and strategies to minimise loss of cash flow and profitability.

MTD, ironically, although a radical change, only requires affected VAT traders to invest in the IT and software to cope with the link to HMRC’s online systems.

It you are reading this post and thinking that perhaps you should start thinking about your options for next year, please give us a call. One advantage of working with our team is that we already have experience of brainstorming options with clients. Please don’t leave this planning imperative until after March 2019, you will likely regret your decision. 

Up to £20 million is being made available to increase productivity and sustainability in crop and ruminant agriculture systems through the Industrial Strategy Challenge Fund.

Innovate UK are looking for projects that improve productivity and sustainability in crop and ruminant agriculture.

There is £20 million to be shared across 2 types of project:

• productivity solutions, which develop a single intervention within a supply chain or production system,
• supply chain solutions, which develop multiple interventions across at least 3 parts of the supply chain, for example: beef producers, beef processors and supermarket retailers; plant breeders, arable producers and food manufacturers.

Projects should focus on one of two themes, to:

• drive productivity and improve environmental outcomes in crop and ruminant production systems,
• develop new, highly efficient, high-value production systems that maximise productivity and improve environmental performance.

This could include:

• combining digital technologies and engineering solutions with biological, environment or social science to improve productivity,
• developing technologies and systems that connect farms and supply chains,
• transferring an innovative technology from another sector into agriculture.

More details on the GOV.uk website at https://www.gov.uk/government/news/efficient-and-sustainable-agriculture-apply-for-funding

The gradual restriction of tax relief for buy-to-let mortgage interest has received much publicity since the process commenced 5 April 2017. From that date, tax relief is converted from a straight forward deduction against business profits into a basic rate tax deduction.

If you continue to be a basic rate taxpayer as these changes roll-out, you will see no increase in your income tax liabilities. You may see an increase if you are, or become, a higher rate or additional rate income tax payer.

The changes have and will occur as follows:

• 2017-18, relief for 75% of interest costs was given by deduction from rents, the remaining 25% given as a basic rate tax deduction.
• 2018-19, relief will be given on 50% by deduction from rents and 50% as a basic rate tax deduction.
• 2019-20, relief will be given on 25% by deduction from rents and 75% as a basic rate tax deduction.
• 2020-21, and from then on, relief will be given on 100% of interest payments as a basic rate tax deduction.

Buy-to-let landlords need to quantify how these changes will impact their income tax liabilities in the coming years and we can help.

A final planning note, it is possible to borrow money by extending the mortgage on your own home. This makes sense from a cost saving point of view as the arrangement costs of the re-mortgage will likely be less as will the rate of interest charged. However, be sure to take the following into account:

• You will be allowed tax relief on interest on loans up to the value of the property when it was first let, and
• The mortgage will likely be secured against your home and the funds to repay the mortgage (or part of it) will come from letting income. This means that if the rental income dries up, and you are unable to sell the rental property to clear the additional loan, you may be faced with selling your home.

Planning is a must-do for prospective, and existing, buy-to-let landlords. Please call if you would like to consider your options. There are no short-cuts. Creating a well rounded business plan that considers the tax changes highlighted above are a prerequisite to achieving success in your property business.

If a business owner makes a loss as a self-employed person, they can set off the losses against any other earnings of the same year. In effect, the business losses are moved side-ways against other earnings.

However, in order for loss relief to be allowed, the loss making business must be able to demonstrate that it was managed on a commercial basis and with a view to making profits.

Many cases have come to the courts when HMRC has not been satisfied that a business venture does demonstrate commerciality, and accordingly, losses have not been allowed as a set off against other earnings.

In a recent case, Beacon v HMRC, Beacon purchased a property in Tuscany. In the first two years of active trading the taxpayer made losses amounting to £218,967 and £139,936. These losses were claimed in Beacon’s tax return against their other earnings in the relevant years.

HMRC disputed the loss relief claims on the basis that the letting business was not run on a commercial basis and the matter was taken to the First Tier Tribunal.

The court disagreed with HMRC. They pointed to a number of factors that suggested a commercial basis, including:

• The property refurbishment had been financed by bank loans and these were backed up by detailed business plans and projections.
• The fact that the business was blown off-course was due in part to the financial crisis of 2008.

The court were also critical of HMRC’s evidence on several other fronts that suggested a lack of commerciality.

The loss relief claims were therefore allowed as claimed.

A government think-tank, the Office for Tax Simplification (OTS), was briefed to consider a non-tax issue, a restricted form of limited liability for sole traders.

At present, a sole trader’s personal assets (including their home) are vulnerable to a claim by business creditors if the sole trader business becomes insolvent.

The principle behind this Sole Enterprise with Protected Assets (SEPA) scheme 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 essence, SEPA offers a limited, limited liability vehicle for sole traders.

In conclusion the OTS report says:

The case for SEPA’s introduction is not by any means cast iron. But our work indicates that SEPA has the potential to be a useful simplification for those that would otherwise consider incorporation. Furthermore, it could provide a boost to enterprise.

Accordingly, we recommend that it should be developed into a formal proposal. While doing so, one would have to address some of the issues that we have raised in this report as well as fully assessing any impact on the creditor and debt collection markets.

Which in plain speaking means SPEA is a good idea, but don’t hold your breath. We will have to wait and see if the required changes in legislation appear at some future date.

Last week we posted an article advising businesses that trade with the EU of guidance that HMRC have issued in the event that we do not reach an accommodation with the EU when we leave March 2019.

This week we are paraphrasing, from HMRC’s guidance announcements, the likely changes to customs procedures if the so-called “no deal” scenario becomes a reality. Essentially, the two-way, free movement of goods between the UK and the EU will cease and the raft of changes that firms trading with the EU will need to accommodate are significant.

Whilst the political process is deadlocked, or so it would seem, the information shared below is very much the worst possible out come for importers and exporters to the EU from a red-tape perspective. If the government is successful in negotiating a softer version for the UK exit from the EU, then some, or perhaps all, of the following changes may not have to be made.

As we indicated last week, contingency planning should now include at least an appreciation of the import/export changes that will need to be faced if we leave the EU with no deal. And so, warts and all, this is what will need to be considered.

The specific customs changes would include:

• Businesses would have to apply the same customs and excise rules to goods moving between the UK and the EU as currently apply in cases where goods move between the UK and a country outside of the EU (customs duty may also become due on imports from the EU. This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration).
• Separate safety and security declarations would also need to be made by the carrier of the goods (this is usually the haulier, airline or shipping line, depending on the mode of transport used to import or export goods).
• The EU will be obliged to apply customs and excise rules to goods it receives from the UK, in the same way it does for goods it receives from outside of the EU. This means that the EU would require customs declarations on goods coming from, or going to, the UK, as well as requiring safety and security declarations.
• The Excise Movement Control System (EMCS) would no longer be used to control suspended movements between the EU and the UK. However, EMCS would continue to be used to control the movement of duty suspended excise goods within the UK, including movements to and from UK ports, airports and the Channel tunnel. This will mean that immediately on importation to the UK, businesses moving excise goods within the EU, including in duty suspension, will have to place those goods into UK excise duty suspension, otherwise duty will become payable.

Before importing goods from the EU after 29 March 2019

UK businesses will need to:

• Register for an UK Economic Operator Registration and Identification (EORI) number. Businesses are advised by HMRC that they do not need to do anything now. For those businesses that sign up for the EU Email updates, they will be contacted when this service becomes available.
• Ensure their contracts and International Terms and Conditions of Service (INCOTERMS) reflect that they are now an importer.
• Consider how they will submit import declarations, including whether to engage a customs broker, freight forwarder or logistics provider (businesses that want to do this themselves will need to acquire the appropriate software and secure the necessary authorisations from HMRC).
• Decide the correct classification and value of their goods and enter this on the customs declaration.

When importing goods from the EU after 29 March 2019, a business will need to:

• Have a valid EORI number.
• Make sure that their carrier has submitted an Entry Summary Declaration at the appropriate time.
• Submit an import declaration to HMRC using their software, or get a customs broker, freight forwarder or logistics provider to do this for them.
• Pay VAT and import duties including excise duty on excise goods unless the goods are entered into duty suspension (for example a customs or excise warehouse – a financial security will be required to cover the duty liability of the goods whilst they are being moved to the warehouse). Import VAT may also be due although HMRC have indicated that this process may be dealt with on the VAT return thus delaying any cost impact at the time of import.
• Once excise goods leave a customs suspensive arrangement, they may be immediately entered into an excise duty suspension regime. A business will need to declare the goods on EMCS for onward movement via a Registered Consignor.

Businesses may also need to apply for an import licence or provide supporting documentation to import specific types of goods into the UK, or to meet the conditions of the relevant customs import procedure.

Before exporting goods to the EU, a business will need to:

• Register for an UK Economic Operator Registration and Identification (EORI) number. You do not need to act now, but you will want to familiarise yourself with this process.
• Ensure that contracts and International Terms and Conditions of Service (INCOTERMS) reflect that you are now an exporter.
• Consider how you will submit export declarations, including whether to engage a customs broker, freight forwarder or logistics provider (businesses that want to do this themselves will need to acquire the appropriate software and secure the necessary authorisations from HMRC). Engaging a customs broker or acquiring the appropriate software and authorisations from HMRC will come at a cost.

When exporting goods to the EU, a business will need to:

• Have a valid EORI number.
• Submit an export declaration to HMRC using their software or on-line, or get their customs broker, freight forwarder, or logistics provider to do this for them. The export declaration may need to be lodged in advance so that permission to export is granted before the goods leave the UK (the export declaration also counts as an Exit Summary Declaration).
• Businesses may also need to apply for an export licence or provide supporting documentation to export specific types of goods from the UK, or to meet the conditions of the relevant customs export procedure.

When exporting duty suspended excise goods to the EU, a business will need to continue to use EMCS to record the duty suspended movement from a UK warehouse or premises to the port of export.

Readers who are considering their options and are engaged in contingency planning for their trade with the EU after March 2019, may be less than enthusiastic if they have managed to reach this part of our article. If you want more information you could read HMRC’s notes on the subject here: https://www.gov.uk/government/publications/trading-with-the-eu-if-theres-no-brexit-deal/trading-with-the-eu-if-theres-no-brexit-deal#what-businesses-trading-with-the-eu-need-to-know.

Or please call. We can help you consider your options and keep you abreast of any changes as and when the political negotiations are concluded.

Making Tax Digital (MTD) is HMRC’s long running intention to make an electronic link with the accounting data of UK businesses. The idea is to draw in the data they need directly from your computers using links provided by your software developers for this purpose.

Which is fine if you are using accounts software that will accommodate these changes.

The first implementation deadline for MTD is 1 April 2019, when all businesses registered for VAT, and with turnover in excess of £85,000, will need to submit returns using HMRC’s MTD processes.

Certainly, the accounts software that we use to prepare and submit returns for clients will be approved for MTD, and in most cases will not require the use of spreadsheets. 

The reason for this post is to clarify what traders, who do use spreadsheets to prepare data for their VAT returns, will need to do in order to become MTD compliant. There are two basic groups affected:

• Businesses who use spreadsheets in place of accounting software, generally smaller traders, and

• Larger concerns, with complex VAT issues – perhaps with multiple branches and partial exemption rules to consider – who cannot undertake the necessary calculations without copying summarised data from their accounts software into a spreadsheet to prepare the actual numbers for their VAT form.

HMRC has confirmed that it is happy for traders to continue using spreadsheets in these ways as long as the process involves the use of “bridging software”.

HMRC does not want you to upload data from a spreadsheet if this disconnects the summarised information provided, from the detailed transactions that make up the return. In other words, they want the figures on your VAT return to be linked to the underlying transactions. They do not want you to cut and paste data and break this link. Which is where bridging software will be used to maintain these links.

We are seeing an increasing number of software companies offer this type of facility. If you are VAT registered, have turnover in excess of £85,000 and use spreadsheets to prepare data for your VAT returns, please get in touch so we can help you regularise your position for returns to be submitted after April 2019.