February - Monthly Round up

Three things to watch out for in your VAT return

The risks of incomplete VAT filings have been highlighted by a recent victory for HMRC over an appeal.

The appeal – made by Sacutia Healthcare Ltd (TC06844) – concerned the father of the company director, who claimed a defence based on carelessness. Unsurprisingly, HMRC took the view that this amounted to ‘deliberate but unconcealed’ behaviour, which is why it applied substantial penalties of £24,072 on a total assessment of £57,839.

The nature of the filing errors should provide warning for those with responsibility for their company’s VAT filing.

Export evidence

HMRC found that the VAT return was missing paperwork to support declared exports of goods and documents made to a company that the father was involved with. HMRC also found no record of Sacutia as an exporter. It is essential that you keep complete and accurate records of exports for VAT.

Deposits on customer payments

The output tax was not correctly reported on customer deposits. A tax point is created whenever a company receives a deposit, as well as the balancing payment, so you must ensure your VAT records reflect every stage of a customer transaction.

Input tax evidence

As well as the issues with export invoices, HMRC found that Sacutia had claimed input tax on supplies of goods using invalid invoices. They also found uncertainty around pro-forma and VAT invoices, and mistakes in the accounting records. As with export records, you must keep your accounting records complete and accurate.

The case demonstrates the high penalties HMRC will issue where mistakes are made with VAT filing. With Making Tax Digital for VAT just around the corner, we can help you ensure your company filings are error-free.

Protecting the state pension for stay-at-home parents

An issue concerning how the high income child benefit charge (HICBC) can potentially affect stay-at-home parents has emerged.

The HICBC claws back child benefit payments where either parent has income over £50,000 a year and removes the benefit entirely if either parent has income over £60,000. For couples where one person earns over £60,000 whilst the other stays at home to look after children, it can appear that it is not worth claiming a benefit that is completely withdrawn.

However, child benefit payments also provide national insurance credits for adults caring for children under the age of 12. These credits can help build up entitlement to the state pension, with 35 years of contributions required to receive the full benefit (£168.60 a week from April 2019).

These NI credits are given to the parent who claims the Child Benefit by default. However, the credits are still provided even if the parent involved asks for payments to stop to avoid the HICBC.

The state pension for stay-at-home parents

The problem arises if one parent does not work, but the NI credits are paid to their partner because of that default allocation. This means the stay-at-home parent could lose state pension entitlement while their partner receives unneeded NI credits, while also paying full NI contributions through their payroll.

HMRC only keeps data on the parent making the claim, so when the House of Commons Treasury Select Committee asked how many families might be affected by these rules, no accurate answer was available. However, HMRC estimated 3% of households (about 230,000) are affected, based on DWP annual survey data.

If the wrong person is receiving NI credits in your household you can ask HMRC for the credits to be transferred, but such a switch can only be backdated for one tax year. So, along with all the other deadlines on 5 April, that Friday is the last opportunity to transfer NI credits for 2017/18.

Younger generations picking up the tax bill

The tax burden in the UK is shifting on to the younger generations, according to new research published by the accountancy firm, Moore Stephens.

Baby boomers paid £63 billion in income tax in the 2015/16 tax year, compared to a bill of £41.4 billion for millennials. However, baby boomers only paid 38.2% of the total income tax paid in 2015/16, compared to 44.6% of the total in 2011/12. Millennials, however, paid 25.1% of the total in 2015/16, compared to 19.2% in 2011/12.

The research shows that ‘millennials’ (here anyone born between 1977 and 1996) have been taking the brunt of changes to stamp duty land tax (SDLT), changes to national insurance contributions (NICs) for high earners and the pension rules, whilst baby boomers (anyone born between 1946 and 1965) move property less and are increasingly benefiting from changes to pensions rules.

Millennials are more likely to be buying property and earning higher salaries, whilst baby boomers are more likely to be using pension freedoms to draw income instead of buying annuities – with low interest rates making these products less attractive – which helps reduce their income tax bill.

Insolvencies also rising

In October, Ralph Moore also reported a stark increase in new insolvencies for the under-25s – 5,650 in 2017, a 20% increase from 2016.The figure reduced for those over 65 – 4,580 in 2017, down 10% from 2016.

The firm suggested that millennials are being squeezed by property price inflation, and being forced to commit to larger mortgages, which leaves them with fewer savings to deal with financial stress. Conversely, the baby boomers typically have lower housing costs, and can draw on the equity value of their property if needed.

The reports both suggest the trends will continue, putting greater financial pressure on the younger generations.

The value of a flexible employee benefits package

Employees are looking for more tailored benefits packages that will reward their loyalty to an organisation, as attitudes to careers and workplace benefits evolve.

The nature of work has changed considerably over the last few decades and it is now normal for employees to change job – even career – regularly as part of their personal and professional development. The increasingly sophisticated technologies at use have also encouraged decentralised working and made our lifestyles more flexible.

However, not all employee benefits packages have kept pace with this change, and new research published by Get Living suggests nearly three-quarters of employees want more tailored benefits.

There has been a shift away from more traditional desirable benefits – such as health/dental insurance or a company car – with 17% of respondents wanting access to mental health care and 8% wanting an office pet.

Changing priorities

One of the more interesting findings was how employee priorities depend on their age, where younger employees wanted different benefits from older ones.

For example, 33% of respondents aged 18-24 saying the best bonus they could have would be unlimited holiday, suggest a desire for a better work-life balance and a different working environment. However, just 17% of the over-55 thought unlimited holiday would be best.

Meanwhile, half of respondents aged 45-54 said flexible working would be the best benefit, whilst those over 55 wanted enhanced pension contributions. With a recent report from Carers UK showing 1 in 7 workers juggling work with caring and up to 600 workers a day giving up work to care for sick, elderly or disabled relatives, there is a significant potential for losing valuable members of staff.

The suggestion is that the perfect employer would offer a suite of benefits, which would allow employees to choose the thing they value most. With the preference for more holiday, greater flexibility or enhanced pension contributions depending on age, a one-size-fits-all benefits package may not be the most attractive.

If you would like to discuss how you can offer more options to your employees, please get in touch.

Government to reassess impact of retrospective loan charges

The government will reassess its controversial proposed loans charge rules, which are intended to address disguised remuneration, typically via non-UK trusts or umbrella companies.

The loan charge is due to take effect from April 2019 and is intended to reduce tax avoidance by stopping people using loan schemes to avoid paying the appropriate amount of income tax.

The new charge has been challenged in part because it would give HMRC the power to pursue anyone who has used a loan scheme at any point over the last 20 years. In particular, criticisms have noted that the rules could penalise low- and middle-income individuals who used such schemes, rather than the those who promoted and recommended them.

However, the Treasury has now confirmed that it will undertake a review to assess the impact of the loan charge, particularly for those on low- and middle-incomes.

Loan charge settlements

Many people will have used such loans for relatively small amounts of income and may well have acted in good faith. It is also the case that individuals may not be able to pay significant charges back to HMRC so long after the income was received.

While HMRC will charge interest on any amounts relating to open tax years – generally the last four tax years – they have also said that penalties will be the exception instead of the norm.

Complex rules will apply to anyone caught by the charge, as the amount payable could depend on the untaxed loan income, their income tax rate and any leftover personal allowance at the time, fees from the trust or umbrella company and other factors.

If you are concerned that your past income may be caught in the loan charge, please get in touch to discuss your situation.