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October 2017

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Welcome…
To October’s Tax Tips & MYOB News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

This month we address the issue of Making Tax Digital – the HMRC’s slimmed down version.  And specifically how you can have your say by writing to the HMRC and your MP following the latest consultation. 		 
October 2017
· The Cost of Driving a ‘greener car’
· VAT Briefings on our Website
· Making Tax Digital (MTD) – Have Your Say
· We can Manage your Workplace Pension for you
· October questions and answers
· Gifting shares – Extra taxation or Full Relief?
The Cost of Driving a ‘greener car’.
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VAT Briefings on our Website
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The financial benefits of driving a company car have continued to erode over recent years, but this benefit remains one of the most popular and potent perks of a job.

Broadly, the taxable benefit arising on a car is calculated using the car’s full manufacturer’s published UK list price, including the full value of any accessories. This figure is multiplied by the ‘appropriate percentage’, which can be found by reference to the car’s CO2 emissions level. This will give the taxable value of the car benefit. The employee pays income tax on the final figure at his appropriate tax rate (e.g. 20% for basic rate taxpayers; 40% for higher rate taxpayers). In general terms, less tax will be payable on ‘greener’ cars those with lower CO2 emissions. Read More

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1.  VAT for Beginners
If you’re new to VAT, it explains the basics of how it works and the main schemes available. 
2. Synopsis of the Schemes
This is a brief explanation of all the VAT schemes for smaller businesses.  How to do the bookkeeping for each.
2a.  VAT Flat Rate Scheme
Aimed at simplifying VAT for the very smallest businesses, it can also have the effect in some instances of producing significant VAT savings.  Under a VAT Flat Rate Scheme the VAT payable to HMRC is calculated as a particular percentage of the gross turnover of a business.  However the savings are minimal for businesses that do not buy stocks. 
2b.  VAT Flat Rate Scheme Calculator
A calculator to help you decide if it is likely to be beneficial to join the VAT Flat Rate Scheme for small businesses.
2c.  Annual Accounting VAT
VAT Annual Accounting is administratively easier.  You pay instalments through the year.  You then eventually pay a balancing payment with your VAT return.
2d. Cash Accounting VAT
VAT Cash Accounting allows you to hold back from paying over VAT which you have yet to collect.
3.  VAT Codes for particular expenses
This gives a list of VAT Codes for typical transactions. There is an explanation of the usual mistakes people can make with VAT coding.
4. EC Sales list and intrastat
Supplementary VAT reports that the HMRC expect for exporters and large scale importers.  Guidance on how to provide these from Accountedge.
5. Period end procedure for VAT
VAT Period end procedure. 
 
Making Tax Digital (MTD) – Have Your Say
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In July 2017 the Government announced that Making Tax Digital (MTD) is being delayed. MTD will be not be mandatory until April 2019, and then only for VAT.  From that date, businesses with a turnover above the VAT threshold (currently £85,000) will be required to keep digital records for VAT.  This could create an inconvenience for those of us using Accountedge / MYOB who are VAT registered.  You can find out more about our strategy at http://www.simpleaccounting.co.uk/services/making_tax_digital.php but we will write more about this next month.  In the short term however we would like to ask you to object to a change in a government consultation that is still running.

If you are VAT registered we suggest that you write to your MP at https://www.writetothem.com/ and the HMRC at before 10th November 2017 with your version of the following letter.

Here is a model response:
I am writing to respond to the consultation on Making Tax Digital for VAT.  I wish to oppose the regulations given at: https://www.gov.uk/government/consultations/making-tax-digital-reforms-affecting-businesses/making-tax-digital-for-vat-legislation-overview#annex1. 
The HMRC regulations are intended allow it to withdraw the HMRC Government gateway VAT portal for VAT return submission.  This portal is how my company currently submits its VAT returns.
My business is an XYZ business and we employ X people.  My business uses MYOB/Accountedge software to keep our records digitally.  We use this software for business management, cash control and invoicing reasons.  The software also produces our VAT return information. 

It is unreasonable is to expect our software to link directly to the HMRC via an API.  This would require us to shift software.  There would be a variety of disruptions and unreasonable costs to doing this.

There is a concession which is itself unreasonable.  If our digital bookkeeping does not link directly to the API the HMRC expect us to use a second piece of software that does link to the HMRC’s API to submit the VAT MTD submissions.  This is not reasonable because it would require quarterly transfer of data to a second piece of software.  Red tape.

My company is entitled to use VAT annual accounting.  We do not need to submit quarterly as the new regulations require, for us to determine our liability.  You are wasting our time by forcing us to make these submissions –particularly as you are doing this merely as a way of confirming that we are using digital recordkeeping; which we are.

The MTD idea is flawed.  It claims that there is some advantage to my business, the taxpayer, to file data more frequently.  There is none.  We do not want or need to submit data to the HMRC more frequently in order to fulfil our obligations.  We do not want to have to use separate software to complete this unnecessary red tape.  I demand that the HMRC removes the compulsion inside these regulations and reverses its threat to remove the VAT return webpage.  We intend to continue to use the digital record-keeping software on which my business depends.  And we expect the HMRC to make it easy for us to pay our VAT, not place obstacles in our way.

As usual, you are very welcome to phone with any queries about Acclivity Accountedge.

Read More
 
We can manage your Workplace Pension for you
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October questions and answers top
Is your staging date coming up for Auto Enrolment (Workplace Pensions)?

As part of our Business Companion service, Simple Accounting can manage the workplace pension scheme for your company (with help from your Directors). 

We use the Peoples Pension Scheme as it is good value and a user friendly service.  To keep it simple, our standard scheme has employer-only contributions only, calculated on ‘banded qualifying earnings’ (wages above £490 per month for 2017/18).

Until  March 2018 we recommend employers pay:
contributions of 2% so there will be no employee contributions required. 

In April 2018 the minimum contribution rate will go up to 5% (at least 2% must be paid by employers).  In April 2019 the minimum rate will increase to 8% (at least 3% must be paid by employers).

If you would like us to help you set up your scheme just give Jennifer a call on 01422 847500.
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 		Q. My mother gave my daughter £5,000 on 1 May 2013. She had not made any other gifts in previous years. Unfortunately my mother passed away on 1 September 2017. How much of the gift she gave to her granddaughter is chargeable to inheritance tax? Answer

Q. I am a self-employed builder. I carried out a job for a customer and invoiced him for £750. The customer did not pay the invoice and I have since discovered that he has been declared bankrupt. I included the £750 in my turnover figures. Can I claim tax relief for the unpaid bill? Answer

Q. I purchased a buy-to-let property in 2000 and rented it out straight away. I lived there myself for two years between 2006 and 2008, but since then it has been rented out again. I am now selling the property. Will I qualify for lettings relief? Answer
 
Gifting Shares – Extra Taxation or Full Relief?
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 Questions from a couple of our clients have raised some interesting questions.  What happens if a client wants to involve others in their company?  What if they are children?  What if they are employees?  Well let’s consider the options.
 
Let us assume that the company has traded as a consultancy or service business and owns no property. 

New shares issued by company
One option is that new shares could be issued from the company to the beneficiary.  If the share is sold at a reasonable value, then no tax arises on the recipient, and there is no tax on the selling company.  If the transfer is at zero price (or an undervalue) then there are two possibilities.  If the share is given to an employee then it is deemed to be a consideration and is taxable on the recipient.  There would be a P11d liability for the gross value of the shares transferred.  For a company to be giving out free shares to anyone other than to employee is basically against company law.

Share transferred from proprietor
The second option is that a share could be given or sold from the proprietor to another person.  Whatever the sale price, full value or zero, the proprietor will (usually) pay personal CGT on the whole receipt.  If this is below £11,500 personal exemption there would be no actual tax to pay by the proprietor. This exemption can be effectively doubled if the shareholding is in a husband-and-wife company.  The donor is subject to Capital Gains Tax charge whether or not there is a link between the company and the recipient. 

If the shares are sold at a reasonable value, then no tax arises on the recipient, even if they are an employee.  Meanwhile if the transfer is at zero price (or an undervalue) then there is tax on the recipient.  If there is an employment link between a company owned by the donor, and the recipient then the employee will have to pay tax through a P11d benefit.  The benefit and tax on the P11d is based on a fair valuation of the shares.  The benefit will be taxed at the recipient’s highest marginal tax rate.  Employer National Insurance will also apply. 

Meanwhile if the recipient is a friend or relative then no personal tax is due nor Employer NI.  But Capital Gains Tax will still be due from the donor on the deemed sale of the shares.  In these circumstances the CGT can be deferred.  Business Asset holdover relief can apply on gifts of shares that will holdover the CGT liability to the recipient rather than the donor.  ‘Gift relief’ (TCGA 1992, s 165) allows shares in a private trading (ie not investment) company to be gifted from one individual to another without crystallising the CGT liability – instead the CGT will be higher when the recipient eventually sells they received from the donor.

The claim form is here. 

This form is a Joint election between donor and recipient.  It would not be worthwhile to use the holdover relief if the value of the shares transferred was under £11500 – it would be more tax effective to increase the base cost of the shares.

Other points
Some key further points arise here.  If you want to involve others in your company, and want to take advantage of gift relief, then transfer the shares necessary for this prior to investing in residential property. Valuation method is quite important in some of these decisions.  Usually a minority shareholding in proprietor – led business will have only a low real value, despite the way that investors behave on BBC2’s Dragon’s Den!  Therefore it is often better to declare a gain, pay little or even nil Capital Gains Tax, than to seek to evade the tax.  If you wish to give shares away, give them in tranches which are at roughly the same value as the donor’s CGT level. 

If the shares are given to a friend or relative who is a minor (ie under 18), something called ‘settlements’ legislation will apply.  The value of the shares will be added to the donor’s tax bill.  So our recommendation is sell shares to adults. 

The gift relief is conditional on the company being a trading company.  The company must only hold investments that are part of the trade carried on by the company.  If a trading company owns an investment property (eg a buy-to-let) then the mere existence of this property (however irrelevant to the overall assets) means that gift relief under s 165 is not available. If you want your company to invest in non-operational property then reorganise your shares beforehand rather than afterwards.

Conclusion
If you transfer shares depending how you do it, you can either have no tax, one tax at zero rate, one tax at full rate or two full rate taxes! Confusing!  Plan it right!
 
October Key Tax Dates
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New Clients Welcome top
14 – Return and payment of CT61 tax due for quarter to 30 September 2017

19 – Tax and Class 1B national insurance due on PAYE settlements for 2016/17

19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/10/2017 or quarter 2 of 2017/18 for small employers

31 – Deadline for 2016/17 self assessment paper returns to be filed for HMRC to do the tax calculation. If a paper return is being filed also the deadline for tax underpaid to be collected by adjustment to your 2018/19 PAYE code (for underpayments of up to £3000 only).		 If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.

See details of our Business Companion Service.
 
About Us top
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, Solar Accounts, Quickbooks or Clearbooks.

‘All clients using these software packages can benefit from our support. Visit our website http://www.simpleaccounting.co.uk for a look at the resource on offer.’
 
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