More U turns from HMRC…

HMRC announced a new “interpretation” of policy towards pre-registration input tax last year. Traditionally, newly registered parties could look at goods and equipment on hand at the date of registration and go back four years. If you had a valid VAT invoice you could recover the VAT.

Last year policy changed and it was no longer a simple case of claiming all the VAT back – you had to apportion for depreciation. It was claimed that this was always the Commissioners policy and it was not strictly interpreted. This caused consternation in the profession and made advising newly VAT registered clients difficult.

Such changes in policy are always destined to be debated at Tribunal. I have received news of HMRC withdrawing from a first tier tribunal that was scheduled to consider the question of VAT recovery of a “van” on a pre-registration claim. Is this another “u-turn” or have HMRC seen the light?

If you have had any VAT blocked on your first return then you may wish to revisit the claim and talk with our VAT specialist Nigel Smith.

Theatre Tax Relief

Alan Lane the artistic director of Slung Low (a company which “makes adventures for audiences outside of conventional theatre spaces”) has recently described Theatre Tax Relief as “….magic money from the magic money tree”. So what’s it all about?

Theatre Tax Relief is one of the six creative sector Corporation Tax reliefs that allow companies, including charitable companies, to claim a larger deduction from tax or in some circumstances claim a payable tax credit.

The tax credit amounts to 16%-20% of qualifying production costs.

The important point to note is that the production company does not need to have paid tax to be able to claim a tax credit – hence Alan Lane’s comment that Theatre Tax Relief is “….magic money from the magic money tree”.

So who can qualify for Theatre Tax Relief?

Here is a basis checklist of eligibility requirements for Theatre Tax Relief:

  • Only companies can claim Theatre Tax Relief, this includes charitable companies
  • Only the production company responsible for producing, running and closing the production can claim – this is called the Theatre Production Company (TPC)
  • There can only be one TPC per production i.e. if a production is co-produced, only the company “most directly engaged” in the production activities will qualify
  • Each performance of the proposed run is to be live i.e. it must be to an audience before whom the performers are present
  • The actors, singers, dancers or other performers must give their performances wholly or mainly through the playing of roles
  • At the beginning of the production phase the TPC intends that all, or a high proportion of the live performs will be to paying members of the general public, or provided for educational purposes

Productions which are not “qualifying productions” for Theatre Tax Relief:

  • Productions where the main purpose, or one of the main purposes is to advertise or promote any goods or services
  • Performances which consist of or include a competition or contest
  • Performances which include the use of a wild animal
  • A production of a sexual nature
  • Productions where the making of a recording is the main object, or one of the main objects, of the company’s activities in relation to the production

Since the introduction of the creative sector tax reliefs in 2014 Tait Walker has helped creative bodies in our region to claim more than £1m in tax credits.

We offer all new potential clients a free, no-obligation initial discussion to evaluate whether they may qualify for a creative sector tax relief.

If you would like to meet up for a coffee to discuss your potential claim please contact:
Louise Barker (0191 226 8390 or louise.barker@taitwalker.co.uk) or
Alastair Wilson (0191 226 8411 or
alastair.wilson@taitwalker.co.uk).

HMRC is withdrawing all company dispensations at the end of the current tax year…

From 6 April 2016, the provision of tax and NIC relief for employees will mean that they will no longer receive a P11D nor need to claim a deduction for genuine business expenses reimbursed by their employer. Therefore, HMRC is withdrawing all company dispensations at the end of the current tax year.

Instead, such business expenses will be treated as exempt from tax and NIC. However, employers will need to have systems in place to ensure that the expenses being reimbursed are exempt business expenses and that the expenditure has actually been incurred by the employee.

If employers pay non-allowable expenses or provide non-exempt benefits these will still need to be included within the payroll or reported on the form P11D, with tax and NIC being paid as relevant.

Benefits that are only partially exempted will need to be reported in full and employees will need to claim a deduction from HMRC in respect of the exempt part.

The exemption does cover subsistence payments where these are paid at HMRC benchmark scale rates and the employer has a suitable system in place for checking payments made.

Within some dispensations, employers had previously agreed with HMRC that bespoke scale rates could be paid. This agreement will no longer apply when dispensations are withdrawn.

Salary sacrifice arrangements

Additionally, from 6 April 2016 HMRC will no longer allow tax free business expenses (e.g. travel and subsistence expenses) to be linked with salary sacrifice arrangements.

What do employers need to do?

Where you reimburse expenses, you will need to consider whether these fall within the new exemption for business expenses.

Where you pay bespoke scale rates for subsistence then HMRC may agree that you can continue to pay this scale rate going forward. Employers must make an application to HMRC to continue to use a bespoke scale rate using the application form. The application must demonstrate that the scale rate is a reasonable estimate of the amount of expenses that employees are expected to incur, and that a deduction would be allowed in respect of these amounts in accordance with the exemption. The scale rate amount will normally be worked out following a sampling exercise as set out at EIM30250.

If you have salary sacrifice arrangements in place in respect of business expenses, you will need to consider the required changes before the arrangements are discontinued in April 2016.

We would be happy to discuss your employee expenses policies with you to identify opportunities for your business and to safeguard the company in respect of the upcoming changes.

For further advice, please contact Clair Williams on 0191 285 0321 or email clair.williams@taitwalker.co.uk.

Employment Intermediary Reporting – Deadline

If you are an employment intermediary and you have not submitted intermediary reports to HMRC, you may receive penalties of £1,750 if you haven’t filed anything by 5 February 2016.

The third deadline for sending an employment intermediary return to HMRC giving details of workers who you pay but don’t operate PAYE for is fast approaching.

If you supply two or more workers to a client but don’t operate PAYE for these individuals you may be classed as an employment intermediary and should be sending in quarterly reports to HMRC.

You must send a report to HMRC if at any time in a reporting period you:

  • are an agency
  • have a contract with a client
  • provide more than one worker’s services to a client because of your contract with that client
  • provide the worker’s services in the UK – or if the services are provided overseas, that the person is resident in the UK
  • make one or more payments for the services (including payments to third parties)

Sending reports to HMRC

To submit the reports you need to be registered to use HMRC online services. You then need to log in to the employment intermediaries’ service to upload and send in your reports.

Your reports need to be submitted on a quarterly basis using HMRC’s report template. You must provide full details of any workers you pay but don’t operate PAYE for, including the amounts you have paid each of these individuals.

The third report for the period 6 October 2016 to 5 January 2016 is due on 5 February 2016!

If your reports are late, incomplete or incorrect you may be charged a penalty. Penalties have been introduced for not sending a report or for sending a late report. These are given based on the number of offences in a 12-month period. These are:

  • £250 – first offence
  • £500 – second offence
  • £1,000 – third and later offences

We have not seen HMRC issue penalties for late submission to date and do not know whether they have allowed a relaxation for the first year of reporting however we recommend that you ensure your position is brought up to date as soon as possible.

If you have not previously submitted reports, we recommend that you register and send draft reports as soon as possible. These can then be updated accordingly in due course. It is important that you submit the third report before 5 February so that you do not incur the £1,000 penalty.

We also recommend that you introduce processes to help you to obtain the information you need in respect of workers to make the reports as easy as possible to complete in future.

If you would like to discuss your reporting requirements, please contact Clair Williams on 0191 285 0321 or email clair.williams@taitwalker.co.uk.

How to prepare your business

Today’s blog comes from our Corporate Finance Partner, Michael Smith

One of the questions I get asked most frequently is, ‘How do I prepare my business…’ either for sale, or for fundraising? There are common themes for both, which I will outline below.  In my next two blogs, I will focus on the specific preparation for a prospective sale and then fundraising.

The key issues I encounter when helping clients to prepare their business fall under these main headings:

  1. Build a financial story
  2. Improve your financial efficiency
  3. Understand your market
  4. Do your housekeeping!
  1. Your financial story

Whether you are trying to sell or persuade a funder to invest in your business, you need to tell the external party a coherent story, the basis of which is the underlying financial trajectory – so you need to have up to date, reliable and robust management accounts.  You also need to have realistic forecasts that the external reader can depend upon to provide a reasonable estimate of future performance. KPIs included in management information should show you how you are performing against business plan and remember that most readers will be interested in cash generation, as well as profit.

  1. Improve your financial efficiency

This is an area focused on cost control, working capital management and accessing opportunities. Benchmarking your gross margin, overheads and tax costs is a great way to assess whether you are as efficient as you could be. With working capital, answer these questions:

  • Do I need this much stock?
  • Are my debtors being collected as quickly as possible?
  • Do I get as much credit from my suppliers as I can?

The efficiently run business will also look at ways in which it can minimise tax cost (think R&D tax credits, capital allowance reviews) and obtain grant funding for revenue and capital projects.

  1. Understand your market

Buyers and funders have research at their fingertips to compare you to your peers, so how does your growth rank against your competitors?  What type of funding are others in your market using?  If there is M&A in your market, who are the buyers, what are they looking for and what price are they paying? On a macro level, what are the issues that could impact significantly on your business and what are your plans to address them e.g. are you expecting commodity price fluctuations?

  1. Housekeeping

The external party looking at your business will undertake some form of due diligence when contemplating purchase or funding transactions.  So, make sure all your principal legal documents (leases, banking facilities, customer and supplier agreements) are up to date.  Are all of your key employees tied in to the business for an appropriate period of time?

For further advice regarding preparing your business, please contact Michael Smith on 0191 285 0321 or email michael.smith@taitwalker.co.uk.

DIY VAT claim that spanned 20 years…

It is possible to build your own house or carry out your own barn conversion and claim back the related VAT. The scheme is aimed at putting the man on the street in the same position as a VAT registered house builder.

The HMRC section dealing with such claims are notorious for examining each claim in great detail and rejecting or reducing claims on a technicality. One of which is the time limits in which a claim should be made, which is within 3 months of completion.

But when is a job complete?

In a recently decided case of B Bowley v HMRC, the project was spread over 20 years as there were delays in finalising the scheme and it was only on completion of the garage that a claim was submitted. HMRC cried “foul” and the first tier tribunal begged to differ – they accepted that the garage construction was part of the original project and within the three month claim period.

Actions were not ideal for cash flow but a moral victory for the taxpayer. If you are thinking about or are in the middle of a DIY project, then we would recommend you take early advice and present your claim in a clear fashion to avoid disappointment.

Our experienced VAT specialist Nigel Smith would be pleased to assist with your claim.

Changes to Stamp Duty Land Tax – Do you know what they mean for you?

In a further attempt to dampen the UK Buy to Let market, the Chancellor announced that higher rates of stamp duty land tax (SDLT) would apply to purchases of additional residential properties, such as second homes and buy to let properties, from 1 April 2016.

The current rates and new rates of SDLT for additional residential property purchase are:

Band Existing SDLT rates New additional property SDLT rates
*£0 – £125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m + 12% 15%

 

* Only applies to purchases over £40,000

Consultation Document

On 28 December 2015, a consultation document was issued which gives some answers on the detail of the new rules, although the document also creates some questions.

The higher rates will not apply to purchases below £40,000, purchases of caravans, mobile homes or houseboats. Also the new rates will not apply to the purchase of a main residence to replace your current main residence, if your current residence is sold on the same day. However if the sale of your current main residence is delayed and so for a time, you will own both houses, you will have to pay the higher rate of SDLT and then apply for a refund if the old house is sold within 18 months.

The document also refers to a possible exemption from the higher rates for purchases by corporate investors or funds making significant investment in residential property. However the consultation document includes various questions on the possible scope of this relief. If planning for a transaction now, reliance on this relief will carry a risk until the scope of it is clarified.

Commencement Date

SDLT is normally payable on completion or, if earlier, on substantial performance.

The higher rates will apply to all contracts entered into on or after 26 November 2015 where completion takes place on or after 1 April 2016, or where there is substantial performance of the contract on or after 1 April 2016. Therefore if substantial performance of the contract be on or before 31 March 2016, the higher rates of SDLT will not apply.

Buy to Let Restructuring

Restrictions to tax relief for interest on buy to let mortgages are causing some buy to let investors to consider transferring their properties into limited companies. In addition, some investors are choosing to sell some of their properties to reduce debt levels on their remaining portfolio.

Both of these options could be caught by the new higher rates of SDLT and so where possible it would be better to ensure that there is substantial performance by 31 March 2016.

Next Steps

The consultation process is still ongoing, but although the detail of the new rules is being ironed out, the principle of higher rates of SDLT for second properties and buy to let properties will happen and so you need to plan on that basis. If you would like advice on the scope of the new rules, please contact Alastair Wilson or Chris Hodgson.

Civil recoveries – the alternatives

The biggest risk facing organisations often comes from their own staff, whether it is procurement corruption or data theft.

The urgency to stop the loss has to be balanced against knowing where to start, what an organisation can or cannot do, what happens if the police are involved, what options they have to recover what they have lost, and by having a clear strategy on internal investigations.

Upon finding yourself the victim of a financial crime it is likely that your first thought will be to call the police. The police will deal with the criminal investigation, however, the recovery or lost monies may be slow and often minimal. There is another option of civil recovery.

Tait Walker and Watson Burton will be presenting a master class with the North East Fraud Forum on the options available. This event will be held on 14 January 2016 at 9.30am at Council Chambers, Gateshead Council, Civic Centre. For more information or to sign up to this event at www.northeastfraudforum.co.uk

Good news for North East companies investing in tooling in 2016

A new and perhaps unknown source of funding for those North East manufacturers looking at tooling investments in 2016 comes from Birmingham Finance which operates a national £24m Tooling Funding Programme.

Each funding loan has the following features and benefits:

  • Loan of £50,000 to £1m to support an investment in tooling
  • Must be for the design, development and manufacture of tooling (where the component manufacture and tooling finishing must be within England)
  • Funding is in the form of a loan up to 18 months
  • Up to 90% of tooling costs are funded
  • 1% arrangement fee
  • Limited security (a company debenture behind existing funders and no personal guarantees)

Applicants need to demonstrate:

  • A firm order for products from an OEM or 1st tier supplier;
  • That UK jobs are safeguarded/created; and
  • That they are unable to secure funding in whole or in part from existing banks.

Further details can be found at www.financebirmingham.com/funding/tooling/

If you have any queries about this or other sources of funding for your investment plans then please contact Steve Plaskitt at Tait Walker on 0191 285 0321 or at steve.plaskitt@taitwalker.co.uk.

Stamp Duty Land Tax – Increased rates from April 2016

The Government’s aim to increase taxes raised from Buy to Let landlords continued in the Autumn Statement.  Following on from the restriction of tax relief on loan interest for residential properties announced in July and the removal of tax allowances for “wear and tear”, Stamp Duty Land Tax (SDLT) is to be increased for most purchases of buy to let investments from April 2016.

The Government have announced that increased rates of SDLT will come into effect from 6 April 2016.   Under the new rules, the rate of SDLT on the purchase of a buy to let property, or indeed on the purchase of a second home costing more than £40,000, will be subject to a 3% surcharge.

If the rate of SDLT would have been 1%, it will be 4% under the new rules. If the rate would be 3% now, it will be 6% post 6 April 2016.

It is proposed that there may be some exemptions for purchases by companies holding 15 or more properties, but HMRC are to issue a consultation document on whether this relief will be granted.

At this time, it is not clear how this new SDLT regime will link in to other areas of SDLT legislation, but the position will become clearer after 9 December 2015 when the draft legislation is to be published.

The practical point from this change is that, because of the changes to tax relief on loan interest, a number of our clients are currently working through the process of transferring buy to let properties to a limited company.   This process, known as incorporation, brings with it various tax issues including potential charges to SDLT and also Capital Gains Tax.

Prior to the Autumn Statement, landlords who were being impacted by the restriction on tax relief for mortgage interest did at least have until 2017 to consider the impact of that change. The delay to the restriction of tax relief until 2017 did also allow time to work through commercial issues such as mortgages on the properties and what terms the bank will offer to a newly formed company taking on a mortgage.

The SDLT changes are such that it may become desirable to carry out the incorporation before 5 April 2016, if personal circumstances mean that incorporation is the best financial option for the landlord.  On that basis, we recommend that landlords should start considering the benefits of incorporation sooner rather than later, to have time to complete the process by 5 April 2016 if that is necessary.

This is a highly technical area on which landlords will need to take advice before taking action.   If the advantages and disadvantages of incorporation of your buy to let business might be of interest to you, our specialists Chris Hodgson and Dorothy Johnston would be happy to discuss this with you.

Follow

Get every new post delivered to your Inbox.

Join 140 other followers