December 2017 Tax News - Albert Goodman

TAX NEWSLETTER

CHARTERED ACCOUNTANTS, TAX CONSULTANTS & FINANCIAL PLANNERS

CHARTERED ACCOUNTANTS, TAX CONSULTANTS & FINANCIAL PLANNERS

Contents Upcoming tax deadlines In the news International Tax DIT – Q&A Profiling AG tax staff Cross border legal considerations – Foot Anstey Employees working overseas Advisory fuel rates for company cars Trade Wars New guidance for employers Criminal Finances Act 2017 Employee gifts – tax free? Pension contribution increases and temporary staff Delay to roll out of tax-free childcare Simple assessment

TAX NEWSLETTER DECEMBER 2017

www.albertgoodman.co.uk

WELCOME

Welcome to this month’s international themed E News.

I would like to express my gratitude to Peter Singfield and Duncan Sykes of Foot Anstey, for providing their invaluable legal insight into evaluating international trade opportunities. In addition, I have had the pleasure of meeting Gustavo Anacleto, an international trade adviser from the Department of International Trade, on a number of occasions. Gustavo takes a very practical approach to ensuring business deals are secured between UK and overseas businesses and kindly agreed to a Q&A to dispel the myths surrounding overseas trade. Continuing with the international theme, Albert Goodman is of course part of Praxity, the world’s largest alliance of independent accountancy and consulting firms. This resource enables us to assist our clients when navigating both the UK and overseas tax regimes. The overarching message from this month’s newsletter, is why limit your market to the UK? There is no doubt, with the assistance of individuals such as our contributors this month, that the first step to trading overseas is not as nerve wracking as you might expect. As usual, if you would like to discuss any of the articles in more detail, please do get in touch. Lastly, I would like to wish all our readers a very enjoyable Christmas and New Year break.

Upcoming tax deadlines December

14th Large companies under the quarterly instalment payments regime may need to make a further corporation tax payment. 15th The Post Office will no longer accept HMRC payments from this date. 19th PAYE, NIC, CIS and student loan liabilities for month ended 5 December 2017 are due (22nd if paying electronically). 30th Deadline for the online submission of the 2016/17 self-assessment tax return, where tax liabilities (under £3k) are to be collected by a PAYE coding adjustment.

January

1st Companies (outside of QIPs) with March year ends are liable to pay their 2017 corporation tax liability.

In the news

Government introduced The Taxation (Cross-border Trade) Bill • The to enable the introduction of a stand alone customs regime. European Commission opened a state aid investigation into • The the UK’s controlled foreign companies’ rules.

(ordinary share capital) update; the taxpayer has been • McQuillan permitted to appeal the Upper Tribunal decision to the Court of Appeal.

Tracey Watts Tax Partner

2

published its report on ‘Behavioural evidence around IHT • HMRC and reliefs’, prompting concerns that (in particular) APR and BPR could be restricted in future.

Spring Statement will be delivered by the government on 13th • The March 2018.


This month we are fortunate enough to be able to pick the brains of DIT adviser Gustavo Anacleto.

International Tax

1. Gustavo, can you tell us a little about your professional background? I have been involved in International Trade for the last 20 years, where I have specialised in trading operations, export pricing, import duties & taxes, international physical distribution and freight forwarding.

The basic rule of international tax appears to be straightforward: each country seeks to tax the profit derived from economic activity carried on in that country. On the face of it this seems quite simple, and indeed it can be where independent enterprises are concerned. But what if the enterprises are not independent? For example an internet service provider headquartered in California might wish to reduce the level of its profits taxable in the UK by overcharging its UK subsidiary for matters such as the use of patent rights. In order to avoid a loss of tax in this way, governments throughout the world have brought in “transfer pricing” rules which impute for tax purposes an arm’s length price for goods and services where the actual amount charged between connected parties is not arm’s length. This is where many arguments begin. How does one determine what is really the true “arm’s length” price? It might also be tempting for a UK resident individual to avoid UK taxes by transferring his wealth abroad, perhaps to a tax haven, maybe setting up an offshore trust or offshore company which does not pay tax in the jurisdiction in which it is situated. We have the “Transfer of Assets Abroad” and “Settlements” legislation to stop this. It generally operates by bringing such foreign income and gains into the UK tax net. But equally, UK Plc does not want to make the UK tax regime so unfriendly that it stops wealthy foreigners from coming to live here. We therefore have the specialist “non-domicile” tax rules which make tax less onerous for foreigners living in the UK than for native UK citizens. Clearly such rules can be difficult to justify politically. There is a thin line to follow. Of course, this merely skims the surface. Huge complications lie underneath. Take, for example, the German Niessbrauch (a particular specialisation of mine). This is a legal concept which exists in Germany, but not the UK, whereby it is possible to separate the ownership of an asset from the ownership of the income that asset produces. Given that there is no equivalent legal structure on this side of the North Sea, how does HMRC seek to tax an individual with a Niessbrauch interest who happens to come to live here? And also, regardless of HMRC’s thoughts on the matter, what is really the true position? That, as they say, is a very interesting question.…… Dominic Crilly


2. Let’s cover the obvious question many SME business owners may have. Why should business owners consider exporting whilst we are in the midst of Brexit negotiations and the associated uncertainty which seems to hang over our economy currently? Every business should consider exporting despite Brexit. Exporting is a great opportunity for businesses to spread risk and access larger markets, with the ultimate aim to create wealth and employment. The UK has 130 embassies world-wide with a DIT office in every one. The resource available to UK business is considerable. 3. Which UK based sectors are seeing the highest demand from your overseas trade partners? We have seen increasing demand from the Food & Drink, Agritech and Advanced Engineering sectors. 4. Perfect for South-West businesses then! Through your experience, what are the main issues which prevent business owners from making the decision to export overseas and are you able to dispel any myths which you have encountered? There are various reasons, the main ones being fear of the unknown, coupled with a perceived lack of understanding of the export process. In reality, exporting is nothing more than selling overseas. Obviously, there are some rules that have to be adhered to, however, the Department for International Trade through its International Trade Advisers are well placed to guide business owners throughout the entire export process. This free service covers the research of opportunities, gaining and converting an enquiry, all the way through to getting paid and ensuring a repeat order is gained. 5. Could you run through a recent South-West based case study from your introduction, through to export? An interesting case involved a local horseshoe manufacturer. This individual works by himself and so far we have assisted with the sale of around a ton of horseshoes into the Far East. We have supported the company to prepare all the corresponding export documentation, obtaining payment, freight quotes, freight forwarder selection and shipping, all from scratch! 6. An owner manager reading this article is thinking about researching export opportunities, what should his/her next steps include? The first step is to get in touch with their local International Trade Adviser, who will support them in every aspect of their export journey. Alternatively, they can contact the Southwest International Trade Centre at [email protected] Thank you for your time Gustavo; it certainly seems that there are plenty of business opportunities to be pursued beyond our borders. gov.uk/dit 01275 370 944 [email protected]

3

Profiling AG tax staff To introduce you to our eclectic mix of tax team members, we will interrogate members of the AG team each month.

This month it is the turn of Dominic Crilly, a tax partner based in our Taunton office.

Next up is Kelly Wilkinson, a key member of the AG international private client offering.

1. Dominic can you provide a brief summary of how your tax career developed following university? I had always had an interest in tax, so following university I went straight into the tax department of Deloitte, a large accountancy practice in the City of London. I was assigned to the “small business” department, although “small” was somewhat of a misnomer – one of the clients was even quoted! When I married I moved to KPMG in Stoke-on-Trent. The Stoke office was quite small by KPMG standards, but there was a great deal of international tax work to be done, mainly concerned with the pottery industry. It was here that I learned the intricacies of international tax as regards business structuring, and for wealthy individuals. After four years in the north west, my wife and I moved to Somerset and I have been with Albert Goodman ever since. There is a surprising variety of international work in Albert Goodman’s practice, and I have even developed a particular niche expertise in, of all things, German structural issues such as KGaA’s and Nießbrauch’s.

1. Kelly, how did you get involved in this specialist area of tax? It’s always been an area that I have found interesting so when I was given the opportunity to get more involved, I jumped at it.

2. One of your specialisms includes advising the internationally mobile. How do you view government’s recent approach to those not domiciled within the UK? The government’s recent attacks on the taxation of non domiciliaries are to my mind rather sad. Those foreigners who take advantage of the “non domicile” tax breaks are usually very wealthy individuals who are perfectly capable of living somewhere else in the world, but by choosing to come to the UK and spend their money here they greatly benefit society in general, and indeed in a rather more direct manner than by paying their money to the Exchequer. The attacks on non domiciliaries are largely driven by considerations of envy, which I do not think is a good motivation for tax policy. 3. Can you tell us something about yourself that would come as a surprise to those who work with you? I suspect very few people know that I lived for some years in the Norwegian Arctic. The midnight sun is something I shall never forget, although the perpetual darkness in winter was certainly dreary. 4. I did not know that! What advice would you give to those at the beginning of their tax career? Without wishing to state the obvious, it is very important to obtain the basic tax qualifications in order to succeed in tax. Beyond that, I would suggest that a person starting in tax today should keep abreast of developments, paying attention to what is in the budget, what goes into the Finance Bill and the decisions being made by the courts. 5. If you could change one aspect of our tax system what would it be? Tax law has become far too complicated for the good of society today. The last Chancellor of the Exchequer to attempt to start the simplification of tax legislation was Kenneth Clarke. I firmly believe that tax legislation can and ought to be simplified. There is no excuse for the volume of legislation which is around today. Navigating this ocean of treacle does no good for anyone (except, perhaps, the tax accountant).

4

2. I am very jealous that you are now the proud mum of a cocker spaniel puppy. How has she settled at home and do you have any pics for (me) the readers?! She’s settled in well thank you. Enjoying chewing anything she can get her paws on!

3. I’m in love!! If you could give one piece of advice to someone relocating overseas, what would it be? Make sure that you have spoken to your advisers, in the UK and overseas before you go, as you may need to take action before you leave the UK. And make sure you pick somewhere with better weather than the UK! 4. Name of your favourite song, tipple and author. At this time, I’d have to say, Mr Brightside by the Killers, a glass of Baileys and Anna Bishop. 5. For our business owners inspired to get involved with exporting, how can AG help with UK and overseas payroll implications? AG can advise you on your employees’ liability to UK tax and national insurance and how this will affect the information reported through RTI. Although we cannot advise you on the foreign tax position, as a member of Praxity, a worldwide alliance of accounting and tax specialists, we can refer you to an expert who can provide you with local tax advice.


Cross border legal considerations – Top Tips Peter Singfield and Duncan Sykes of Foot Anstey provide their five top tips of legal issues to consider when engaging in International Trade.

Understand your IP portfolio & the laws within the country you wish to trade

Your branding and the uniqueness of your products can be the crown jewels of your business. Most IP rights work territorially (or regionally for instance within the EU). When trading abroad, businesses will need to get to grips with a suite of legal rights (both domestic and international). Some rights may be registered (i.e. trademarks or design rights) or unregistered (i.e. copyright or unregistered designs) and the protections afforded to each will vary. Once the extent of all rights is clear, businesses should also get to grips with the law applicable to the country within which they wish to trade, in the same way as they would consider cultural and societal differences when exploring whether there is a market for their goods in that territory. Specific attention should be paid to the laws surrounding local product liability (i.e. for defective goods), tax and licensing.

Protect your IP

Ensure your brand: a) is registered. Prior to exporting, your IP portfolio should be up to date at home which means making certain that the appropriate registrations are in place and considering whether any additional international registrations are required. b) translates well. Different countries have different cultures and values and a brand that means something in one country may mean something entirely different in another. For example, Nordic Mist (a tonic water) was never launched in Germany as “mist” literally translates as manure! c) is not at risk from squatting. Trademark squatting is where a business registers a second party’s trademark in a jurisdiction which, at that time, the second party did not hold a registration in an attempt to benefit from the second party’s mark. In some Far Eastern jurisdictions, we have seen business who want to distribute for a brand register trade marks for that brand; a sales technique which to our knowledge has never worked. However it creates a headache for the brand owner. It pays to plan ahead in this area.

domain names are registered to prevent piggy backing whereby another company operates a confusingly similar address in an attempt to attract custom on the back of the other’s domain. The process for registration is cheap and straight forward and we would encourage any business that seeks to export its products abroad to take a relatively comprehensive approach to domain name registration to try to head off at the pass possible cyber-squatting.

Choose an effective business structure

Assuming you are not building a root and branch operation yourself in a foreign territory, there are many ways to take a product to market, both directly and indirectly and, one size doesn’t fit all. The advantages and disadvantages of the three most common are set within the table below.

Build and manage an effective supply chain

Clarity on your supply chain and route to market is crucial in ensuring that value for money and reliability are delivered. Avoid confusion with a supplier by drawing up and agreeing to accurate contracts that comprehensively negotiate risk and cover, for example, the payment method, trading terms, insurance and delivery. Be aware of the potential impact of ethical supply on your hard won brand and reputation. A relationship of trust is fantastic, but in a trusting relationship neither side should be worried about recording clearly, in writing, the terms of their relationship and what happens if things don’t work out. In summary, as ever, look before you leap, but provided you take care to plan, there are fantastic opportunities out there to explore!

Further Information

Prevent Piggy Backing

Disadvantages

Advantages

Domain names are increasingly crucial for businesses, particularly those who are consumer facing. It is vital that Distributor/Reseller • • • • •

Separate contracting entity Less administration No compensation/indemnity on termination (in EU) No contractual liability to end users Motivated to sell

• Limited control over selection of customers • Limited control over marketing and promotion of products • Limited control over terms of sale • Goodwill generated in name of distributor/reseller • Potential for IP disputes


Peter Singfield | Partner IP and Dispute Resolution +44 1392 685362 [email protected] Duncan Sykes | Partner Corporate +44 1392 685384 [email protected]

Agency agreement

• • • • • • •

Direct contact with the customer Greater control of terms of sale of product Limit agents customer base Close control marketing and promotion Commission on sales made (incentive) Goodwill in principal’s name Usually outside scope of competition law (not separate entity)

• Responsible for agent’s actions • Compensation/indemnity payments due on termination • Commercial Agents Regulations 1993 • Tax Treatment

Franchise Agreement

• Costs will be incurred by Franchisee • Risk is with the Franchisee • Goodwill is developed for the Franchisor • Control over marketing/ promotion and use of brand • Provision of full package (upfront costs to the Franchisor in developing same) • Provision of training and hands on involvement at the beginning

5

Employees working overseas There are many reasons why your business might employ individuals overseas, for example seeking individuals with specialist knowledge, expanding your business overseas or gaining access to new perspectives and ideas. Although there are many benefits, you do need to plan carefully to ensure that you meet with your obligations as an employer both in the UK and overseas. We are going to look at some of the implications of Alberto Co sending their employees, José and Isobel, overseas to work in Utopia. Of course, every situation is different so while we cover some of the situations which may arise below, please get in contact if this is something you are looking to do.

Is there a UK tax charge on the employees?

There are a few factors which will determine whether José and Isobel are liable to UK tax on their remuneration.

Residence status

The first of these is residence status, which is determined each year under the Statutory Residence Test (SRT). José is resident in the UK, therefore, he will liable to tax on his worldwide income. His salary will be chargeable to UK tax regardless of where this is paid or where in the world José is working. Isobel is non-UK resident and will only be subject to UK tax on her UK income. Therefore the tax position will depend on where she is physically carrying out her duties. If this is wholly overseas, she will not be liable to tax in the UK on her employment income even if this is paid by a UK employer.

Where the duties are carried out

It’s not always as clear cut as the above and Isobel may be non-resident, but spend some of her time working in the UK and some of her time working in Utopia. In this case, Isobel’s remuneration must be split between the UK duties and the overseas duties, normally on a time spent basis. The UK element of her salary will be liable to UK tax, whilst the overseas element will not.

6

Agreement between UK and Utopia

Alberto Co also needs to consider whether the terms of the Double Tax Agreement (DTA) between the UK and Utopia contain any specific rules which may affect the tax treatment in the UK. This could apply if José and Isobel work in a specific sector such as on an aircraft or ship, as a teacher, or for the government.

Is there a UK national insurance charge?

Of course things are never simple and the rules for determining if there is a liability to UK NIC differ to those for income tax. As well as considering José’s and Isobel’s residence status, Alberto Co will also need to consider if they are gainfully employed in Great Britain, which will be based on where they carry out their duties and not where the contract is based. The residence status does not affect the NIC, so we will consider Isobel’s position. Even if Isobel carries out her work wholly overseas for Alberto Co, a UK employer, whether or not she has a UK NIC liability will be affected by where in the world she is working.

EU/EEA countries

If Utopia is within the EEA, Isobel’s NIC position will depend on how long she will be working in Utopia. If the secondment is to last less than two years, she will remain within the UK NIC charge and Isobel would not need to pay social security contributions in Utopia. If the intention is for Isobel to work in Utopia for more than two years, she will instead be subject to Utopian social security contributions.

Countries with a reciprocal agreement (US, Canada, Japan etc) Instead let’s assume Utopia has a social security agreement with the UK. The exact terms of the agreement should be checked but usually Isobel will remain within the UK NIC regime if the secondment is temporary.


Countries with no agreements

If Utopia is not caught under the above, then Isobel will remain within UK NIC regime for 52 weeks. After this time she will be liable to social security contributions in Utopia.

What are my reporting requirements? Alberto Co’s RTI reporting requirements will depend on its employees’ liability to tax and NIC.

Liable to tax and NIC

Alberto Co determines that José is liable to both UK tax and NIC meaning they should report his remuneration through PAYE as they do with ‘normal’ UK workers.

Liable to tax but not liable to NIC

José’s contract is extended; as a result he is no longer liable to UK NIC but is still chargeable to UK tax. Alberto Co must report his salary and deduct tax through PAYE, however Alberto Co should operate NI category X which means no NIC will be deducted from José’s salary. José may wish to make voluntary NIC payments direct to HMRC in order to maintain his entitlement to a UK State Pension.

Not liable to tax but liable to NIC

For Isobel, Alberto Co has determined that she must pay NIC but is not liable to UK tax. Alberto Co should complete form P85 which will ensure that no tax is deducted from Isobel’s salary. The NT code should not be operated until it has been issued by HMRC therefore tax should be deducted as normal until this is received. Isobel can reclaim any tax deducted from HMRC.

Not liable to tax or NIC

Isobel’s contract is also extended, as a result, she is not liable to tax or NIC. As such, Isobel can be removed from Alberto Co’s FPS until she returns to the UK or a liability arises.

Is there any overseas tax/social security charge?

Identifying the UK tax treatment is only half the story, the employee and Alberto Co must also consider whether there is a charge abroad as well. Advice should be sought from an expert in that country and we can refer you to a specialist if requested.

What other factors should be considered?

There are a number of other factors which Alberto Co should consider before employing individuals overseas, including:

• • • •

What currency will salary be agreed and paid in? Will the contract be drawn up under English or local law? How long will the contact last? If seconding an employee, have they got the correct visas to work overseas?


Kelly Wilkinson

Advisory fuel rates for company cars New company car advisory fuel rates have been published which took effect from 1 December 2017. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car. The advisory fuel rates for journeys undertaken on or after 1 December 2017 are: ENGINE SIZE 1400cc or less 1401cc – 2000cc Over 2000cc ENGINE SIZE 1400cc or less 1401cc – 2000cc Over 2000cc ENGINE SIZE 1600cc or less 1601cc – 2000cc Over 2000cc

PETROL 11p 14p 21p LPG 7p 9p 14p DIESEL 9p 11p 13p

HMRC guidance states that the rates only apply when you either: reimburse employees for business travel in their company cars require employees to repay the cost of fuel used for private travel You must not use these rates in any other circumstances. If you would like to discuss your car policy, please contact us. Internet link: GOV.UK AFR

• •

Andy Branson

7

VAT

VAT currently accounts for about 35% of the UK tax take and so rates are our VAT rules are unlikely to change much. There may be some scope for extending some zero rated items but only if they come at a low cost.

Trade Wars Whether there is to be a soft or hard border in Ireland, or a soft or hard Brexit, one thing we do know is that “Brexit means Brexit” (!!) and that there will be a very large divorce bill……! Given the constant political charade, it is likely to be sometime before we have any idea of what the trade talks might bring (or even when they will start), but one thing is clear, businesses will not have any certainty for a long time and so should plan for the worse, even if they hope for the best.

Trade Agreements

Any eventual outcome will of course be a political compromise, but it is likely that tariffs will increase, particularly for food exports to the EU, and there will be delays at Customs on processing any necessary paperwork. Further, John Thompson has already contradicted the government and has advised that HMRC may take up to 7 years to deliver the changes needed to its IT systems to cope with changes to the Customs process. Businesses only trading with the EU may end up dealing with Customs for the first time: this will bring added risks and complications, and they might want to consider spreading their export risk. Businesses already trading outside of the EU should be aware of the tariffs with those other countries in the likely event that the current World Trade Organisation tariffs agreed via the EU will cease.

Double Tax Agreements

Tax agents will have to familiarise themselves with the DTAs for each country, but ignoring any EU treaty overrides. National insurance costs are also likely to increase as the EU social security agreement would fall away.

Customs Duties

At present, Customs Duty is almost entirely governed by EU Directives and Regulations, with duty rates being set at EU level. Any solution is likely to be a political compromise and the fall back is likely to be WTO duties which, although might not be outrageous, might put the UK at a competitive disadvantage with the EU. Increased compliance costs are likely to be inevitable and some businesses might want to subcontract compliance to freight forwarders, but will still retain overall responsibility for this burden. Finally, EU agreements with non-EU countries are likely to fall away, possibly leaving the UK exposed and needing to negotiate new treaties, which might make any Brexit progress to date seem very quick.

8

Import VAT might be charged on EU imports which, although recoverable, will have a cashflow impact, and certain sectors are likely to be radically changed such as the possible removal of the TOMS system for the travel sector, with suppliers of e-services having to register in at least one EU state to access the EU MOSS.

Corporation Tax

November’s Budget made no reference to the proposal for corporation tax to reduce to 17% from 2020 although this is likely to go ahead, particularly if Trump’s proposal to cut US corporate taxes succeeds. Changes might include a reintroduction to tax rules held contrary to EU law; stricter anti avoidance measures UK companies might apply and there may also be the possible cessation of loss relief for EU group companies.

Conclusion

Despite the lack of clarity (or even the start of the trade talks!), it is clear that businesses should consider the possible impact of Brexit and should review current contracts as well as putting careful consideration in to contracts that are currently being negotiated. Other non exhaustive questions businesses might ask themselves include:

• • • • • • • •

What might the impact of higher tariffs be? Who will pay for these higher tariffs? My suppliers, customers or me? Will my delivery dates be affected if it takes longer to get my goods to my customers? Will be delivery dates be affected if it takes longer for my materials to reach me from my suppliers? Will I be in breach of any contractual delivery dates? What happens if my goods are perishable and it takes longer to process them? Will my lead times be affected? What impact will this has on my customer expectations and any current contractual terms? Do my contracts provide for price flexibility? Will my contract fail if we do come out of the EU? Can my business cope with unexpected delays or will I need to consider more flexible working arrangements?

• • •

Whilst definite answers to the above may not be known for some time, and you might prefer not to think about Brexit too much, it would be advisable for Brexit to be kept very much in mind and for the above to form at least the starting point for future plans. If you would like help on any scenario planning, please do get in touch.

Tracey Watts


New guidance for employers

HMRC have issued the October 2017 Employer Bulletin which contains a number of articles relevant to employers on payroll related issues. HMRC are advising that following the changes to the valuation of benefits in kind (BiK) where there is a cash option available, they will consult and then issue the necessary amendments to the PAYE Regulations. The guidance will also clarify the taxable amounts that need to be reported under Optional Remuneration and salary sacrifice arrangements. Where a BiK is taken rather than the alternative cash option, the taxable value of the benefit is the higher of the cash foregone or the taxable value under the normal BiK rules. Transitional provisions apply for arrangements entered into before 6 April 2017. The Bulletin also includes articles on: Changes to Business Tax Account for employers, including new data on the Apprenticeship Levy and the introduction of monthly and annual statement pages Data matters – ensuring RTI returns are submitted on or before the date the wages are paid, that the returns are accurate, cover all employees, including those that earn less than the National Insurance lower earnings limit Paying HMRC at the Post Office - via transcash. This option will be withdrawn from 15 December 2017 Construction Industry Scheme - clarification of when CIS deductions should be reported via the Employer Payment Summary (EPS) Student Loans - new income thresholds from April 2018 for Plan Type 1 and 2 loans Apprenticeships benefit your business - includes links to help on finding apprenticeship training and recruiting an apprentice.

• • • • • •

For help with payroll matters please get in touch. Internet link: Employer Bulletin

Criminal Finances Act 2017

From 30 September 2017 a company or a partnership (A “Firm”) could be criminally liable if they fail to prevent tax evasion or the facilitation of tax evasion by a member of staff, external agent, contractor or consultant (an “associated person”) acting on their behalf. Whilst financial services, accounting and legal sectors are likely to be most affected, other sectors that have a high risk of being caught by the new legislation include those that: have casual/agency labour and contractors, trade internationally, pay large sums to consultants or source/ supply goods and services in areas with a high fraud risk. Firms should complete a risk assessment to identify where tax evasion could occur and how likely it is to happen, and then implement preventative procedures that are proportionate to the risk identified. Firms can face criminal conviction and unlimited financial penalties if successfully prosecuted and therefore compliance with the new legislation is not something that businesses should ignore. Please contact us for more detailed guidance or visit “Tackling tax evasion - legislation and guidance for a corporate offence of failure to prevent the criminal facilitation of tax evasion” for the Government guidance document.

Employee gifts – tax free? At this time of year some employers may wish to make small gifts to their employees.

A tax exemption is available which should give employers certainty that the benefits provided are exempt and do not result in a reportable employee benefit in kind. In order for the benefit to be exempt it must satisfy the following conditions: the cost of providing the benefit does not exceed £50 per employee (or on average when gifts made to multiple employees) the benefit is not cash or a cash voucher the employee is not entitled to the voucher as part of a contractual arrangement (including salary sacrifice)

• • •


• the benefit is not provided in

recognition of particular services performed by the employee as part of their employment duties where the employer is a ‘close’ company and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family, then the exemption is capped at a total cost of £300 in a tax year.

•

If any of these conditions are not met then the benefit will be taxed in the normal way subject to any other exemptions or allowable deductions. One of the main conditions is that the cost of the benefit does not exceed £50. If the cost is above £50 the full amount is taxable, not just the excess over £50.

Sophie Parkhouse

The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial. Where the individual cost for each employee cannot be established, an average could be used. Some HMRC examples consider gifts of turkeys, a bottle of wine or alternative gift voucher. Further details on how the exemption will work, including family member situations, are contained in HMRC manual. However if you are unsure please do get in touch before assuming the gift you are about to provide is covered by the exemption. Internet link: HMRC manual

9

Delay to roll out of tax-free childcare

Pension contribution increases and temporary staff The Pensions Regulator is reminding employers that they need to comply with their auto enrolment duties.

Automatic enrolment still applies to temporary staff this Christmas

The government has announced a delay to the roll out of tax free childcare which was expected to be fully implemented by the end of the year. From 24 November 2017 the service is available to parents whose youngest child is under 6 or who has their 6th birthday on that day. Parents can apply online through the childcare service which can be accessed via the Childcare Choices website. In April 2017, HMRC started rolling out the childcare service via a single website through which parents can apply for both 30 hours free childcare and TaxFree Childcare. The roll out started with parents of the youngest children first. HMRC acknowledge that over the summer some parents didn’t receive the intended level of service when using the website and that they have subsequently made significant improvements. For those parents who have had difficulties in accessing the service, compensation may be available: see childcare service compensation.

With the festive season fast approaching, employers may be planning to take on temporary staff to help their business survive the rush. Automatic enrolment applies to these employees in the same way as permanent employees, even if they will only be working for a short time.

Over the coming months, HMRC will gradually open the childcare service to parents of older children, whilst continuing to make further improvements to the system. HMRC hope this strategy of managing the volume of applications will result in prompt eligibility responses when parents apply, with ‘almost all parents receiving a response within five working days, and most are getting their decision instantly’.

Employers will still need to assess temporary staff and auto enrol any eligible employees into a qualifying pension scheme. Once auto enrolled both the employer and employee must make pension contributions.

All eligible parents will be able to apply by the end of March 2018. Parents will be able to apply for all their children at the same time, when their youngest child becomes eligible.

It is possible to apply postponement to temporary employees, which has the effect of delaying some of the auto enrolment duties, but TPR are warning this must be dealt with correctly.

Are you ready to increase contributions?

TPR are reminding employers that they need to be ready to deal with the increased auto enrolment pension contributions which apply from April 2018. Employers and their employees need to be aware of how the changes will affect them, including checking that the employer’s payroll software is compatible. Guidance is included on TPR website on this issue. From 6 April 2018, the minimum contributions employers and staff pay into their automatic enrolment pension goes up to 2% for employers and 3% for employees. This increase has been planned since automatic enrolment started. Further increases in rates are scheduled for April 2019. Please contact us if you would like any help with auto enrolment duties. Internet links: TPR increase in contributions TPR irregular

10

Andy Hopper

Tax-Free Childcare is the new government scheme to help working parents, both employed and self employed, with the cost of childcare. For every £8 a parent pays in, the government will pay in an extra £2. Parents can receive up to £2,000 per child, per year, towards their childcare costs making a total amount of £10,000. Higher limits of £4,000 and £20,000 apply for disabled children. To qualify for Tax-Free Childcare parents and partners in the household must generally meet a minimum income level of on average £120 a week and each earn less than £100,000 a year. The scheme will eventually be available for children up to the age of 12, or 17 for children with disabilities. Those eligible will be able to apply for all their children at the same time. Employer Supported Childcare, usually by way of childcare vouchers, will remain open to new entrants until April 2018 to support the transition between the schemes and it will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. It is not possible to benefit from both Employer Supported Childcare and Tax Free Childcare at the same time. Internet link: Tax free childcare for under 6


Simple Assessment HMRC have changed the way in which they will assess some taxpayers removing the need for these individuals to complete a Self Assessment Tax Return. These changes took effect from September 2017. The affected taxpayers fall into one of two categories: new state pensioners with income more than the personal tax allowance (£11,000) in 2016/17; and employees or pensioners with PAYE tax codes who have underpaid tax and who cannot have that tax collected through their tax code because it is too high to code out.

• •

HMRC have also confirmed that all existing state pensioners who complete a tax return because their state pension is more than their personal allowance will be removed from self assessment in 2017/18. This may mean that some clients are dropped out of self assessment and issued an assessment instead based on the information which HMRC hold. Of course, whether the assessment is actually correct will be a different matter. HMRC state: ‘HMRC will write to customers from September 2017 with a tax calculation. This could be a P800 or a Simple Assessment letter (PA302).


The letter will show their: income from pay pensions state benefits savings interest employee benefits.

• • • • •

Customers just need to check the information is correct, and if it is they can pay their bill online or by cheque by the deadline in the letter. If a customer thinks any information is incorrect they have 60 days to contact HMRC. For instance, if they think amounts used are wrong or HMRC didn’t act on information received. Should customers miss the deadline they should contact HMRC to discuss their circumstances or financial penalties will be applied in line with current policy. If customers are not happy with the follow-up response from HMRC, they have 30 days to appeal against the decision.’ If you would like help with your personal tax affairs please get in touch. Internet link: GOV.UK briefing policy paper

11

CHARTERED ACCOUNTANTS, www.albertgoodman.co.uk TAX CONSULTANTS & FINANCIAL PLANNERS