Folkes Worton LLP

Childcare voucher scheme deadline extended

The government has announced that the employer-operated childcare voucher scheme will remain open to new entrants for a further six months, i.e. until October 2018. The childcare voucher scheme, also called employer-supported childcare (ESC), was due to close from 6 April 2018 and be replaced by the government-backed childcare payments scheme, also called tax-free childcare (TFC). The government announced the extension during a debate in the House of Commons in response to concerns expressed by MPs about problems with the operation of TFC.TFC was initially launched on a phased basis in April 2017. It has different eligibility criteria to ESC, plus employers have no involvement at all in the running of TFC. Employees who are already on ESC are not obliged to switch over to TFC, as ESC will continue to run as normal providing employers continue to offer the scheme. However, ESC was due to close to new applications from 6 April 2018. It is now due to close to new entrants in October 2018 and, as a result, employers can continue to admit new members to their schemes for a further six months.

ISAs transfer of benefits upon death

New rules were introduced in April 2015 that allow for the spouse or civil partner of a deceased ISA saver to benefit from additional ISA benefits. Under the rules, if an ISA saver in a marriage or civil partnership dies, their spouse or civil partner inherits their ISA tax advantages. Surviving spouses are able to save an additional amount in an ISA or ISAs up to the value of their spouse or civil partner’s ISA savings at the date of death. This additional allowance does not count against the surviving spouse’s/civil partner’s annual ISA subscription limit.These measures were put in place to help ensure bereaved individuals secure their financial future and enjoy the tax advantages they previously shared, following the death of their spouse or civil partner. There are estimated to be around 150,000 married ISA holders that die each year (equivalent figures are not available for civil partners).Planning noteISAs allow equal limits for cash and stocks and shares. This provides savers with the ability to transfer funds from stocks and shares ISAs to cash ISAs allowing far greater flexibility to savers than was historically the case. The maximum amount that can be invested in an ISA is currently £20,000, the limit will remain the same in 2018-19. The income from ISAs is exempt from Income Tax and CGT.

Claiming legal and financial costs

The self-employed are often concerned as to whether an expense is allowable for tax purposes. As a general rule, the self-employed can deduct running costs of the business when working out their taxable profit as long as the expenses are classed as ‘allowable expenses’. In this article, we briefly look at the rules for claiming expenses relating to claiming legal and financial costs.HMRC provides the following guidance on the matter. Accountancy, legal and other professional fees can count as allowable business expenses.You can claim costs for:hiring of accountants, solicitors, surveyors and architects for business reasonsprofessional indemnity insurance premiumsYou can’t claim for:legal costs of buying property and machinery – if you use traditional accounting, claim for these costs as capital allowancesfines for breaking the law.Planning noteIf you are unsure if a cost of this type can be claimed please call us for clarification.

Inflation proofing corporate gains ceased December 2017

As part of the Autumn Budget measures, the Chancellor announced that the indexation allowance for corporate chargeable gains would cease on 31 December 2017. The indexation allowance allowed companies to compensate for the effects of inflation and claim tax relief when calculating any chargeable gains. The monthly indexation allowance was frozen from 1 January 2018. This means that the indexation relief available for any gain after 1 January 2018 will be calculated based on the indexation allowance between the date the asset was acquired and the end of December 2017 regardless of the date the asset is disposed. Any assets purchased after 1 January 2018 will have no indexation allowance associated with them.The Chancellor announced that this will bring the corporate system into line with personal Capital Gains Tax and non-incorporated businesses for whom indexation allowance was abolished in 2008. However, there is no annual exemption for chargeable gains for companies as is the case for individuals. This measure will see companies pay increasing amounts of Corporation Tax on capital gains as the benefit of the relief reduces over time. According to figures published by HM Treasury this change should result in additional exchequer revenue of over £500m by 2022-23, the end of the current Parliament.

Tax avoidance scheme scuppered by HMRC

A tax avoidance scheme used by businesses that sought to avoid paying tax and National Insurance on company directors’ bonuses was the subject of a recent Upper Tribunal hearing. HMRC challenged the validity of tax claims by two companies firstly at the First-Tier Tribunal and then at the Upper Tribunal. The two cases were heard together as the underlying appeals raised similar issues and were designated as related cases by the Tribunal. In addition, there were also over a hundred other businesses using similar schemes and attempting to avoid paying over £55m in tax. The scheme used specially created companies issuing loan notes in £10 denominations that matched the bonus amount exactly. Special conditions were included to avoid the tax and National Insurance due when the loan notes were given to the director. The scheme was used in the 2003-4 and 2004-5 tax years and the legislation has subsequently been amended to make the use of this kind of scheme impossible.The Upper Tribunal examined two main issues but ultimately dismissed the taxpayers appeals. This meant that HMRC has been able to secure a multi-million pound victory and close down this tax avoidance scheme. HMRC has said that they have won 9 out of 10 tax avoidance cases taken to court in the last 2 years, with many more settling before reaching that stage.Commenting on the Upper Tribunal win HMRC’s Penny Ciniewicz said:’We cannot allow tax avoidance schemes like these to deprive the UK of vital revenue. The money we’ve protected in this case alone would be enough to pay the annual salaries of around 2,400 newly qualified teachers.’

Tax break to help black cabs turn green

The government has confirmed that a new tax allowance for electric taxis will come into effect from April 2018, a year earlier than had been expected. The new exemption will be worth £1,550 for anyone purchasing a new zero emission black cab. In addition, zero emission taxis worth over £40,000 will no longer have to pay the Vehicle Excise Duty charge from this April.It is hoped that these changes will help encourage more taxi drivers to replace old diesel taxis for a cleaner and greener alternative. Drivers will also benefit from over £400 a month in fuel savings.Commenting on the announcement, Chris Gubbey the CEO of LEVC (formally London Taxi Company), said:’We are delighted that the Treasury has brought forward previously announced changes to Vehicle Excise Duty for green taxis. These measures will encourage more cabbies to switch to zero emissions transport sooner – meaning improved air quality across the UK.A small number of drivers who already own the vehicle or are expecting to take delivery in March will still have to pay an additional £310 charge. However, LEVC will compensate these drivers to ensure that they are not penalised for being the first to make the transition to a cleaner vehicle.’

Information Commissioner’s Office publishes introduction to the Data Protection Bill

The Information Commissioner’s Office (ICO) has published a 77-page introduction to the Data Protection Bill, to help businesses navigate their way around the Bill and focus on the areas that are most relevant to them. Assuming it receives Royal Assent and becomes the Data Protection Act 2018, the Bill is expected to come into force on 25 May 2018, i.e. on the same date as the EU General Data Protection Regulation (GDPR). The two pieces of legislation will then work alongside each other in place of the current Data Protection Act 1998, which is to be repealed. The GDPR gives EU member states limited opportunities to make provisions for how it applies in their country. One element of the Bill is the details of these. The Bill is currently progressing through Parliament and is currently at Committee Stage in the House of Commons. The ICO intends to produce further detailed guidance on the Bill once it has been enacted.In addition, the government has announced a new charging structure for data controllers to ensure the continued funding of the ICO. The draft Data Protection (Charges and Information) Regulations 2018 have been laid before Parliament and are also expected to come into force on 25 May 2018 in line with the GDPR. Until then, businesses are legally required to pay the current notification fee, unless they are exempt. When the GDPR comes into effect, it will remove the requirement for data controllers to pay the ICO a fee, but the new charging structure has been proposed by the government to ensure that the ICO remains adequately funded. The draft regulations, which will replace the Data Protection (Notification and Notification Fees) Regulations 2000:set out when data controllers will be required to provide information to the ICO and pay a charge associated with the processing of personal datarequire the payment of an annual charge to the ICO unless all processing undertaken by the data controller is exemptconfirm that there will be three tiers of charge, i.e. £40, £60 and £2,900, depending on the data controller’s turnover, number of staff and organisation type.For very small organisations, the fee won’t be any higher than the £35 they currently pay, if they take advantage of a £5 reduction for paying by direct debit. Larger organisations will be required to pay £2,900. The fee is higher because these organisations are likely to hold and process the largest volumes of personal data, and therefore represent a greater level of risk. There will continue to be financial penalties for not paying fees, but these will be in the form of civil monetary penalties rather than a criminal sanction.To help data controllers understand why there is to be a new funding model and what they will be required to pay from 25 May 2018, the ICO has produced a new guide to the data protection fee. The guide also outlines the ICO’s intention to publish an online exemption assessment tool before 25 May 2018.

New offshore tax penalties

New legislation that comes into effect from 1 October 2018 will see higher penalties for anyone with undeclared offshore assets. HMRC has published a news release urging taxpayers with undeclared offshore assets to become compliant and warning taxpayers that they will prosecute the most serious cases of tax evasion. These new penalties are part of HMRC’s plans to target overseas tax avoidance.From 1 October 2018, any new disclosure will be subject to the new failure to correct (FTC) penalties which are more punitive that the existing penalties. The new regime will also mean that some taxpayers can be publicly named and shamed. The FTC standard penalty will start at 200% of any undisclosed tax liability and cannot be reduced to less than 100% even with mitigation.HMRC is clear that any taxpayers with offshore assets that are already compliant have nothing to worry about. However, any taxpayers that are unsure as to whether or not they need to make a disclosure are strongly encouraged to check their tax position to ensure they are fully compliant and have paid the correct amount of tax due. Planning noteSome taxpayers may not realise that they must declare their overseas income to HMRC if, for example, they have worked overseas or are receiving income from a rental property outside the UK. HMRC has also published a consultation looking at implementing a new minimum time limit of 12 years for HMRC to assess offshore tax. We can help review any historic issues and advise and assist with making any necessary disclosures to HMRC.

Company fined £297,845 for paying VAT one day late

We have often warned our readers of the importance of submitting and paying VAT returns in a timely manner. In a recent article we wrote that it is imperative that VAT returns are submitted and paid on time as a delay of even one day can have significant consequences in the future. Unfortunately, a company by the name of Global Switch Ltd does not appear to have taken heed of our warning.A recent First-Tier Tribunal case examined an appeal by Global Switch Ltd against a penalty for a late final payment on account of VAT for the quarter ending 30 September 2016. The penalty relates to what is known as the default surcharge regime.A VAT default surcharge is a penalty levied on businesses that submit late VAT returns. The default surcharge penalty was levied at the second highest 10% rate. The VAT payment was due on 31 October 2016 and was made one day late on 1 November 2016 resulting in a VAT default surcharge of £297,845.The taxpayer appealed on two grounds. Firstly, arguing that there was a reasonable excuse for an earlier late payment in relation to the period ending 31 December 2013. The Tribunal was clear’that the mere fact that a mistake is honestly and genuinely made is not sufficient in and of itself for the mistake to amount to a reasonable excuse’. There are exceptions where a business can have a reasonable excuse for submitting a late VAT return, but the criteria is limited and was not met in this case.The taxpayer’s second argument was that the surcharge levied was not proportionate to the gravity of the infringement. Unfortunately for the taxpayer, there has been much case law looking at this specific issue and the Tribunal was clear that it would be very difficult to identify when such an appeal would be successful. The taxpayer had continued to file late VAT returns since their first default in June 2012 and had remained within the default surcharge period becoming liable to ever increasing penalties with each default. This case serves as a further warning to taxpayers to ensure that VAT returns are submitted and paid on time as a delay of even one day in making a payment or submitting a return can have ramifications far into the future.