Archive for December, 2018

Brexit may be in limbo, but Making Tax Digital is not

Monday, December 17th, 2018

As we have highlighted in many posts to this blog, from 1 April 2019, ALL VAT registered businesses with turnover above the £85,000 VAT registration threshold will have to submit their VAT returns from within software that can link with HMRC’s networks. In techno- speak, your data will need to be transferred using a designated API (HMRC’s application programming interface).

The fact that you have always prepared your VAT returns electronically, for example, by using a spreadsheet to record transactions and create the data for your VAT returns, will not be enough. Your spreadsheet will not have the functionality to link with HMRC’s API. In these circumstances you will need to acquire bridging software that will draw data from your spreadsheet and forward it the HMRC in the required format.

HMRC have now clarified that only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital (MTD). You will therefore need to keep an eye on your taxable turnover, especially if you think it is close to the VAT registration threshold.

Additionally, you may be excused from applying the MTD filing obligations if:

  • your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers);
  • it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason; or
  • you are subject to an insolvency procedure.

For the rest of us that are required to observe the MTD regulations, we should be using accounts software that will be MTD compliant come 1 April 2019. If you have consulted us on this issue you can be confident that any software that we have recommended will pass muster.

If you are still unsure which way to jump, please call so that we can help. As far as we can tell HMRC are on track to convert to this new filing process and the clock is ticking.

Scottish Budget 12th December 2018

Wednesday, December 12th, 2018

12th December 2018

Against the backdrop of Brexit and a vote of no confidence in Westminster, Derek Mackay wisely chose to present a fairly low key Budget today. We will not comment on the political and spending aspects of his speech (a solid speech) but it was interesting to contrast the manner and style with Chancellor Hammond’s recent Autumn Budget. Mr Hammond appeared to choose to ignore the huge National Debt and presented up a Budget which presumes continued growth and a Brexit risk free future. On the other hand, Mr Mackay made much of his desire to maintain public services and to bring fairness to taxation. The author of this note has often observed that one man’s view of fairness in taxation is another man’s view of punitive taxation and state theft. However, it is hard to get away from the fact that Scottish society appears to expect higher spending on health and education etc. And, perhaps, there being very few truly high earners in Scotland, his retention of the 53% tax/NI marginal rate for middle class Scots was inevitable.

You see the English now (from April 19) don’t pay 40% (higher rate) tax until they earn £50,000. However, the 12% employee national insurance limit is pegged to that. So in England the combined tax/ni rate just below £50,000 is 32% (20% tax, 12% NI).

The Scottish higher rate tax threshold was kept down last year and will be kept down again. This means on a slice of income from £43,430 to £50,000 Scots appear to be facing 41% taxation and 12% national insurance (53%). Even with the tinkering the SNP used for lower earners, the effect is that Scots earning £50,000 will be well over £100 per month worse off than their English counterparts. Credit for the honesty in politics because Derek Mackay referred to MSPs being around £30 a week worse off than the equivalent English earner and he presents the view this is value for money for our additional public services (e.g. University education without tuition fee).

In other areas of taxation the main changes appears to be LBTT where the Additional Dwelling Supplement (“ADS”) paid by landlords and those not merely replacing their own home will be increased from 3% to 4%. This presents the potential top rate of LBTT of 16% from January 25th, if implemented. Eye-watering stuff but the “ADS” has been a good money generating measure and with England introducing a 1% supplement for non-resident purchasers this ensures a level playing field for them.

Commercial LBTT is also being tinkered with. From 25th January the rates will be 0% on £150,000, 1% to £250,000 and 5% above that. The current rates are 0% on £150,000, 3% up to £350,000 and 4.5% thereafter. Again we see the reduction in taxation at the lower end and increases further up.

In amongst this the author is sure that he heard Derek Mackay say the proposal from the Barclay report that out of town office car parking be subjected to some form of tax is being left to one side for now. That’s welcome, if true (and let’s hope it is permanent).

All in all, a strong delivery from Derek Mackay. Sometimes with these things it takes a few days for the terrible reality of a seemingly trivial item of small print on taxation policy to be identified. In this case, we hope not.

A final note, let’s hope one of the other parties backs this Budget. There’s enough uncertainty about just now and whilst the Greens may ask for commitments to bring in punitive local taxation on wealth and the Liberals demand Independence is taken off the agenda, it is rather obvious that taxpayers and businesses just want an agreed Budget and that this one seems, at face value, fairly uncontroversial. Let’s hope it isn’t a political football. If Holyrood is to rise above the mess of Westminster, this is a good moment for the MSPs to demonstrate their maturity.

Written by Donald Parbrook, Director, Tax Services
12th December 2018 at 1800 hours.

A possible, unwelcome increase in service charges

Tuesday, December 11th, 2018

From 1 November 2018, owners of properties on estates or sites that are obliged to pay service charges to a management company – for example, for the maintenance of common areas, gardens, or the employment of a site warden or caretaker – may be in for an unwelcome surprise.

It would seem that HMRC have applied a concession in the past that allowed the management companies to treat service charges collected on behalf of a landlord as part of an exempt supply for VAT purposes – in other words, when the management company charged a resident, no VAT was added to the fee.

From 1 November 2018, if the right circumstances apply, the management company will need to treat the supply of services as a standard rated supply for VAT purposes. As the current rate of VAT is 20%, residents affected may see an equivalent increase in their charges.

However, if the management company for your property is obliged to charge you VAT, it will also be able to claim back VAT on expenses related to your service charge: this is VAT that in the past was a cost to the management company. It is estimated that a more likely service charge increase due to this change in VAT rules will be between 10% to 15%.

Smaller management companies should not be affected by these changes.

As always, unpicking the various “grey” areas of the VAT regulations will likely prove to be a headache for residents and the management companies affected. If you are reading this short article and have concerns, please call for more information.

What is an OpRA?

Thursday, December 6th, 2018

OpRA is the acronym for an optional remuneration arrangement. Before April 2018, these were termed “salary sacrifice” arrangements. Essentially, both are benefits in kind (BiK) offered to employees in place of salary increases.

Recent changes ensure that that where such benefits are offered recipients many are taxed as if the cash value of the benefits provided were taken as salary.

Readers should also note that there are still a small number of BiKs that are tax and NIC efficient.

Accordingly, we feel that there is a need to review all BiK arrangements before the end of each tax year to make sure that the most tax efficient remuneration options are being provided.

Where an arrangement falls under the new rules, the work to be included in an annual OpRA review could be:

  • Test each benefit provided against the OpRA legislation.
  • If OpRA applies, what are the increased tax and NIC costs for the employee and is the employer willing to compensate?
  • Consider alternative benefit arrangements that have a lower tax and NIC footprint.
  • Consider substitution for exempt BiKs, including: pension provisions, cycle to work schemes, ultra-low emission cars, and employer supported childcare.
  • Consider an arrangement to purchase more holiday, effectively unpaid leave.

Our initial report would usually be directed to the employer to agree any changes, and then provide updates for employees to communicate these changes, if any.

Please call if you would like to schedule in a BiK review before the end of the tax year.

Would you set off for uncharted territory without a plan?

Tuesday, December 4th, 2018

Truthfully, no one knows what trading conditions will be like once we exit the EU. Will supply chains seize up or will it be business as usual?

If there is a possibility, however remote, that the commercial landscape will change, doesn’t it make sense to undertake an assessment of any downside risks and plan accordingly?

From a Brexit point of view, supply chain concerns are likely to cause the most disruption, at least initially. Even if your business does not buy or sell goods to the EU, many of your customers and suppliers may, and this could affect your sales and purchases of goods if transport links are affected.

Accordingly, we recommend that you undertake a basic supply chain risk assessment. For example:

  • If you sell goods to EU concerns could you encourage them to increase their stocks of your goods before 29 March 2019?
  • If you buy goods from the EU, could you increase your stocks prior to the same date?

If we head for a no-deal Brexit, and you import goods, what effects will import VAT and other duties have on your margins and cash flow?

And if your suppliers or customers have similar concerns, will you be under pressure to reduce your selling prices to customers or find alternative suppliers in the UK?

Until we are certain which way the no-deal or negotiated separation will pan out, we should be planning for all options. Whilst this may seem to be over-the-top at present, come spring 2019, you will be grateful that you are ready for any disruption whatever shape it may be.

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