September - Monthly Round up

Requirement to correct deadline looms as HMRC details penalties

HMRC has issued updated guidance to the requirement to correct (RTC) rules for offshore liabilities and non-compliance, with the 30 September deadline rapidly approaching.

Offshore financial centres and tax avoidance are a perennial topic in the news, and there has been a shift in wider public perception following the revelations in the Panama and Paradise Papers. The RTC rules are designed to allow people to disclose their undeclared offshore tax liabilities – for income tax, capital gains tax or inheritance tax – to HMRC, as part of their efforts to combat tax evasion.

HMRC will investigate any disclosures and take appropriate action, which will include collecting any payments due, as tax, interest or penalties.

While it may not seem tempting to put yourself forward for a potentially expensive assessment such as this, HMRC has confirmed the sanctions for those who fail to correct. The standard penalty for non-disclosure under the RTC is set at a hefty 200% of the tax liability.

It will be possible to reduce this penalty by voluntary disclosure, providing access to records and helping HMRC with its investigation. However, the penalty can only be reduced to a minimum of 100% of the tax liability, and to do that an individual must provide information about anyone who encouraged, assisted or facilitated the non-compliance.

Disclosures made by midnight on 30 September 2018 will avoid the penalties, provided they are made using the Worldwide Disclosure Facility, submitting a return amending inaccuracies or by telling an HMRC officer during an enquiry. And the disclosure process then needs to be fully completed within 90 days.

With such harsh penalties being introduced, and a culture of whistleblowing to be encouraged, the incentive is there to get any disclosure in ahead of the deadline.

Fuel rates go green for electric mileage

Businesses can pay mileage for company electric car drivers from 1 September, following the introduction of a new Advisory Electric Rate (AER).

The AER has been set at 4p per mile for 100% electric cars, which introduces greater incentives to use zero-emissions vehicles for the first time. HMRC hasn’t considered electricity as a fuel until this update, so the change represents a fundamental shift in how fleets will be taxed, giving another reason for companies to move to greener options.

The advisory fuel rates are used by businesses when reimbursing employees for any business mileage and are also the amount employees must repay for any private travel. The rates, including the AER, are applied free of tax and national insurance, which makes them a tax-efficient option.

Employers can choose to pay a higher rate of mileage, but proof of higher electricity costs will have to be provided for this to be tax deductible. If the extra cost can’t be demonstrated, any excess will be treated as taxable profit and national insurance will have to be paid.

The petrol and diesel rates have also been updated, with increases for smaller petrol engines and mid-sized diesel engines. Hybrid cars continue to be treated as either petrol or diesel vehicles, depending on their engine.

The UK is facing ongoing issues with reducing air pollution and emissions levels, especially in city centres, so the new fuel rate could provide enticement for businesses to switch to electric vehicles. With charging infrastructure growing more established throughout the country, electric cars will only become more commonplace.

Wide-reaching changes proposed to gender pay gap reporting requirements

Gender pay gap reporting requirements should be extended to organisations with 50 or more employees from April 2020, according to the Business, Energy and Industrial Strategy Committee.

Early this year there was much media coverage as large organisations with 250 or more employees were required to publish information about their gender pay and bonus gaps, along with information on who receives bonuses and salary distribution by gender. Proposals to reduce that level to just 50 employees would mean a significant increase in the number of organisations having to report their data.

The Committee made a number of other recommendations, including counting partners in any calculations to provide a more holistic view of remuneration. The calculations do not currently include partner pay as they take a share of profits instead of a salary. With partners likely to be amongst the most highly-paid people in an organisation, this could alter some reports significantly.

The Committee proposed calculating bonuses on a pro rata basis and requiring more information on full-time and part-time salaries. Both of these could be distorting the data with, for instance, directors receiving large bonuses whilst working fewer hours, or lower-paid employees in part-time roles.

Organisations should also be required to publish an explanation of their pay gap, along with an action plan to close it and updates in future years. The data is publicly available, so media outlets are already providing analysis and commentary of the results, but a new requirement such as this would shift the focus to employers. After a few years of reporting, this could lead to serious reputational risks for organisations not being seen to change.

The next reporting deadline is April 2019, so there won’t be any changes during this period. However, with such wide-reaching proposals, and the Committee also talking about new requirements around disability and ethnicity, employers may have to face up to a more transparent future.

Damping the ashes: Government seeks new controls for phoenixing

The government has announced new powers for the Insolvency Service to pursue company directors who recklessly push companies into administration or liquidation.

The announcement came shortly after Wonga, the payday lender, went into administration following an influx of compensation claims from customers.

Despite the inevitable barrage of jokes – What’s wrong with Wonga, did they lend themselves a tenner? – the Insolvency Service were still left with an administration that includes 200,000 customers owing over £400 million in short-term loans. These customers have been advised to keep paying their loans as their debts will be sold as part of the company’s administration process.

The proposed powers would allow the Insolvency Service to punish directors who drive companies into administration to escape debt obligations, pension deficits and other liabilities with fines and/or disqualifications. The government also wants to crack down on the practice of ‘phoenixing’ – where a company is dissolved, leaving the directors free to start trading again under a new name.

Whilst the majority of companies fail without any wrongdoing on the part of the directors, who should be able to try new business ventures in the future, some dissolve businesses deliberately to avoid paying debts. In certain cases, new businesses are transferring their trade to a new company, to continue trading straight away newly free of debt, and it is these people the government is targeting.

With 2018 having seen many high-profile company failures, including Carillion, Toys ‘R’ Us, House of Fraser and Maplin, and the BHS failure still in recent memory, the new rules may be a welcome development. Of course, the most important thing is to avoid going into administration in the first place, so if you would like help getting your company’s finances in order, please get in touch.

News on no deal Brexit for VAT

It has been confirmed that the UK VAT system for domestic transactions will continue in the event of the UK leaving the EU with no deal in March 2019.

The government has published a guidance note which confirms some details of what will happen in the event of a ‘no deal’ Brexit. The note confirms that VAT for UK domestic transactions will remain unchanged, but businesses will have to treat imports from EU countries like current third, non-EU countries, which could mean changes to IT systems and reporting processes.

An important, and welcome, clarification is that importers will be able to account for import VAT on their VAT return rather than having to pay up front. This prevents a situation where importers would have been forced to pay VAT before having a chance to sell their goods. Interestingly, this new system will also apply to imports from non-EU countries.

For exporters selling to the EU, a no deal situation would mean distance selling arrangements would no longer apply. This would allow UK businesses to zero rate sales of goods to EU customers. Exporters will also no longer need to complete an EC sales list, but will need to retain evidence of goods leaving the UK. Import duties for EU countries may be due at the border, applied on an individual basis.

The current place of supply rules will remain in place, meaning businesses selling digital products to non-business customers in the EU will still need to pay the VAT due in the relevant member state. However, business won’t be able to use the UK’s Mini One-Stop Shop (MOSS) portal. Instead, businesses will have to register for the VAT MOSS non-Union scheme in an EU Member state – and they can only register after the UK leaves the EU.

The guidance note has been broadly welcomed for providing clarity on the effects of a no deal Brexit. We will be available to help your business prepare and adapt for whatever Brexit will bring as more details are decided.