Off-payroll rules (IR35) to be extended to private sector workers?

As mentioned in the Autumn Budget, the Government has opened a consultation into a possible extension of the rules that currently apply to “off-payroll” workers in the public sector to the private sector. This consultation is being undertaken at the same time as the consultation into employment status.

The IR35 rules introduced in 2000 are intended to ensure that people working through a Personal Service Company (PSC) who would have been employees if they had been engaged directly, pay broadly the same Income Tax and National Insurance Contributions (NICs) as if they were employed. However, it is estimated by HM Revenue and Customs (HMRC) that only 10% of individuals working in this way apply the rules properly, costing the Exchequer hundreds of millions of pounds in lost tax revenues every year.

Is it working in the public sector? 

In April 2017, the Government reformed the rules for engagements in the public sector, and early indications are that this has resulted in an increase in public sector compliance. The April 2017 change requires the public sector body or agency, not the worker, to decide whether or not the IR35 rules apply and then deduct income tax and national insurance from payments to the worker.

There are however concerns that many of such workers are being treated as quasi-employees incorrectly. The consultation document states that there is evidence that some public authorities did have difficulties implementing the reform, both understanding the new rules and resolving disputes with contractors. HMRC have introduced the Check Employment Status

for Tax service (CEST) software on their website to assist employers in reviewing workers’ contracts.

Options being considered for the private sector

As well as the possible extension of the rules that currently apply to the public sector, the consultation is requesting views on other options.

One alternative would be to require engagers to carry out due diligence into labour providers in their supply chain to ensure that they are compliant with employment and tax laws. This is already a requirement for gangmasters and other labour providers.

One suggestion apparently rejected was to create a new corporate structure referred to as a “freelance limited company” that would offer a simplified tax treatment, limited liability, a restriction on the frequency of dividend payments, and a requirement for the worker to be paid a minimum salary.

Another proposal rejected was to introduce a flat-rate withholding tax, similar to the Construction Industry Scheme for off-payroll engagements.

The consultation period ends in August and it is anticipated that the Chancellor will make an announcement about future proposals in the Autumn Budget.

Making Tax Digital delayed further, apart from VAT reporting

making tax digital

HM Revenue and Customs (HMRC) have confirmed that no further making tax digital (MTD) for business changes will be brought in before 2020 at the earliest.

The Treasury set out its revised priorities for current digital transformation projects, to make room for the additional demands on its resources of work to upgrade customs systems in preparation for Brexit.

The HMRC statement notes that the convergence of business taxes from the current range of IT systems onto a single system will now happen at a slower pace. This will slow the creation of the single account for all business customers.

For individuals, the introduction of further digital services will be delayed, with progress on simple assessments and real time tax code changes put on hold for the time being.

Note that the introduction of VAT reporting under MTD is still scheduled to commence in April 2019 for those VAT registered businesses with turnover over the £85,000 VAT registration threshold.

What expenditure is deductible against taxable income on a furnished holiday let?

Although income from a FHL is declared as property income on an individual’s tax return, it is treated as trading income.  Consequently trading expenses in running the FHL can be set off against such income.  The FHL can be in the UK or the EEC so for example a holiday villa in Spain can count as a FHL.

WHAT TYPES OF TRADING EXPENSES CAN BE CLAIMED?

  • Marketing/Advertising – this includes setting up a website, advertising in brochures etc.
  • Council Tax and Water RatesTIPS
  • Heat & Light – gas, electricity and coal etc
  • Cleaning and laundry – including washing up liquid, bleach, toilet rolls plus laundry services etc.
  • Telephone – you will need a phone to make calls with regard to letting the FHL.
  • Repairs and Renewals: including expenses incurred in the general maintenance and upkeep of the property such as painting and decorating.
  • Insurance – such as buildings, contents and public liability
  • Interest – interest on a loan to purchase or improve the FHL – note it is only the interest that can be offset and not the capital repayments. From 5 April, 2016 HMRC restricted the deductibility of finance costs against a residential letting property but this restriction does not apply to an FHL
  • Letting Agents Fees – you may decide to use a holiday letting agent to deal with the FHL.
  • Accounting Fees – you the cost of preparing your tax return to declare your income and expenditure from your FHL
  • Travelling expenses – you can claim mileage at the fixed mileage rate to and from the property provided it relates purely to running the FHL and is not mixed with private travel. You need to keep a mileage log.

If the property is used privately for part of the year then the expenses will need to be apportioned between private and business use on a reasonable basis.

 

WHAT CAN BE CLAIMED ON CAPITAL EXPENDITURE?

Tax relief can be claimed on capital expenditure via what are known as capital allowances.

Capital allowances can be claimed on moveable items such as furniture, white goods, carpets and electrical goods such as TVs etc.

Currently the first £200K of capital expenditure can qualify for 100% tax relief under the Annual Investment Allowance rules.

Something that is often missed however is that capital allowances can also be claimed on plant and machinery fixed into the holiday letting property itself.  In tax terms there are two types.  Firstly there are integral plant/fixtures which include sanitary ware, integrated kitchen equipment etc.  Secondly there are integral features which are things like the electrical system, central heating, hot and cold water systems, air conditioning etc.

Plant/fixtures get a tax writing down allowance of 18% whilst features get a lower rate of writing down allowance of 8%.  However, as long as the capital spend on these two categories along with that on movable items is not more than £200,000, Annual Investment Allowance can be claimed giving 100% tax relief on the whole spend.

Integral items can amount to 10% to 20% of the whole cost of the FHL property when purchased.  However for a high specification property overseas in the EEC e.g. Spain which has air conditioning and swimming pools, the integral items can account for up to 30% of the purchase price.

Again if there is private use of the FHL the claim to capital allowances needs to be restricted to business use only.

Cyndy Potter Tourism & Leisure Manager
Cyndy Potter
Tourism & Leisure Manager

 

 

 

June/July deadlines for P11D forms, corporation tax, PAYE and other tax events

 

 June/July diary of main tax events

Date What’s Due
19/06 PAYE & NIC deductions, and CIS return and tax, for month to 5/6/18 (due 22/06 if you pay electronically)
1/07 Corporation tax for year to 30/9/17 (unless pay quarterly)
5/07 Last date for agreeing PAYE settlement agreements for 2017/18 employee benefits
5/07 Deadline for agents and tenants to submit returns of rent paid to non-resident landlords and tax deducted for 2017/18
06/07 Deadline for forms P11D and P11D(b) for 2017/18 tax year

Deadline for employers  to submit details of benefits in kind provided to directors and employees 

19/07 PAYE & NIC deductions, and CIS return and tax, for month to 5/7/18 (due 22/07 if you pay electronically)
31/7 50% payment on account of 2018/19 tax liability due

Revised advisory fuel rates from 1 June 2018

Company Owned Vehicles

HM Revenue and Customs have announced revised tax free advisory fuel rates from  1 June 2018 which may be paid for business journeys in a car owned by the business.   Rates for the previous quarter are shown in brackets.

Engine size Petrol Diesel LPG
1,400 cc or less  11p (11p)   7p (7p)
1,600 cc or less   10p (9p)  
1,401 cc to 2,000 cc 14p (14p)    9p (8p)
1,601 cc to 2,000 cc   11p (11p)  
Over 2,000 cc 22p (22p)  13p (13p) 14p (13p)

Where employers reimburse for business travel in company cars.These rates may be used in the following circumstances:-

  1. Where employers provide fuel for company cars but employees are required to reimburse the cost of fuel for private use.

Input VAT claims on mileage paid for company cars OR employee owned vehicles

HM Revenue & Customs will accept the above figures for claiming input VAT on fuel for company cars, provided a VAT receipt is available to cover the cost of the fuel.  They will also accept use of the above rates by the employer when calculating input VAT on the fuel element for employees using their own vehicles and claiming mileage under the tax free approved mileage rates for business travel of 45p for the first 10,000 miles and 25p thereafter.

If you have not already done so, please update any spreadsheets you may use.

If you have any queries regarding the above or require any further information please do not hesitate to contact us.

Taking a lodger? Don’t forget to claim “rent a room” relief

HMRC are carrying out a review of rent a room relief to discover whether the scheme, introduced back in 1992 provides the right incentives for the rental market. The current scheme exempts from tax, gross rents up to £7,500 where rooms within the taxpayer’s main residence are rented out.

Most accountants that responded to the call for evidence were keen for the relief to continue as it encourages taxpayers to let out spare rooms and provides them with additional income.

Note that where the gross rental income exceeds £7,500, say £12,000, the excess of £4,500 would be taxable. Alternatively the taxpayer may deduct costs of providing the living accommodation such as a proportion of mortgage interest and light and heat. If these allowable expenses amounted to £9,000 then it would be more appropriate to be taxed on the net rental profit of £3,000.

Note also that the current scheme only provides relief where the rooms let are in the taxpayer’s main residence and if the property is jointly owned, the relief would be £3,750 each. Where the lettings are in another property, the new £1,000 property allowance could be set against the gross rental income, however this allowance applies to each taxpayer.

 

HM Revenue & Customs (HMRC) lose IR35 case

IR35

The Tax Tribunal decision involving Christa Ackroyd Media Ltd, a company set up by a TV presenter to supply her services to the BBC, was held that the IR35 personal service company rules applied to the arrangements. In a recent case involving a night manager on a building site, another tribunal decided that the IR35 rules did not apply.

The facts of the recent case involve a Mr Daniels supplying his services via his company MDCM Ltd. These are entirely different from those in the Christa Adcock case but it indicates that the current rules are very unclear and open to interpretation by the courts.

For the IR35 rules to apply it must be inferred that under the hypothetical contract between “worker” and client that worker would be regarded as an employee if directly engaged. There are numerous factors taken into account, but the most important factor considered by the courts is the extent to which the “worker” is under the control of the client.

Please contact us if you wish to discuss whether these recent cases impact on your particular circumstances.

Form P11Ds to include benefits provided by salary sacrifice

Employers need to report all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) or “salary sacrifice” arrangements, to HMRC on form P11D from 6 April 2018, unless they are registered to voluntarily payroll benefits.

OpRAs are where an employee gives up the right to an amount of earnings in return for a Benefit in Kind (BiK) and includes flexible benefit packages with a cash option, cash allowances and salary sacrifice. All BiKs are now valued at the higher of the cash given up or the value of the BiK. Many previously non-taxable BiKs are now taxable, valued on the cash given up.

Note however that cars with emissions of 75g CO2 / km or less, pensions, pension advice, childcare and Cycle to Work benefits are unaffected.
Subject to a few specific exceptions, arrangements entered into on or before 5 April 2017 kept their previous tax treatment until the earlier of a renewal or variation of the arrangement. Such arrangements moved into the new rules on 6 April 2018.

 

Making Tax Digital (MTD) applies to VAT registered hospitality businesses

As a VAT registered hospitality business, keeping your book-keeping records in digital format will be mandatory from April 2019.   All businesses, whether sole trader, partnership or limited company, which are VAT registered and trading over the VAT threshold will be required to use compliant software for the purpose of submitting their VAT Returns.  There is no choice in the matter, this is compulsory.  The current on-line HMRC VAT Account will not meet the new requirements.

It may be a year away but this is why you need to act now

Easter was early this year but hopefully the tourists will turn out following a winter of exceptionally bad weather, particularly in Saint and Co’s homeland of the Lake District and Dumfries & Galloway.

Next year Easter falls later between 19th and 22nd April 2019.  Spring should be in full bloom by then and bookings should be in abundance.  With lots of guests to look after, the last thing you will want is to have to get to grips with a new accounting system so you can submit your first VAT Return for the period after 1 April 2019 digitally!!!

It is, therefore, essential to learn about and think about how you are going to deal with MTD now.

In an ideal world I would recommend making the switch to compliant digital software from the beginning of your next financial accounting year.  This will mean that you will have had time to get used to the new system and can deal with any teething problems without getting into a state of panic.  It will also make production of the annual accounts easier if your financial year end is after 1 April 2019 – otherwise the accounts may have to be produced from data on two different systems which is cumbersome and expensive.

An ideal world, however, is not always possible and with the 2018 Season getting underway the best thing you may be able to do now is arm yourself with the facts and plan to take action at the end of the Season in say October 2018.

I set out below some pertinent facts about Making Tax Digital:

What is digital record-keeping

Eventually every taxpayer whether business or individual in the UK will have a Digital Tax Account set up with HMRC.  This Digital Tax Account will hold information HMRC has gathered from other sources relating to payroll, interest, dividends etc so there is no need to separately declare this income on a tax return.  All tax data will be held in one place on the Digital Tax Account

Business accounting records need to be kept on specialist commercial software which will keep the data in digital form.   It will create a VAT Return from the digital records.  This will enable a seamless flow of data from the business to HMRC and vice versa.

Bank statements can be either fed directly into the software or imported.

Spreadsheets can be used but you will need to acquire software which will allow returns and updates to be made directly from the spreadsheets.

Paper records will no longer be sufficient.

Why is this happening?

The UK tax system is known as one of the most complex in the world.  The Government, therefore,  plans to transform the tax system so it is more effective, efficient and simpler for taxpayers.  MTD is intended to improve the accuracy of business records and minimise errors.

Timing of First Digital VAT Return

Applies to the first VAT period starting on or after 1 April 2019

Monthly returns

If you are on monthly returns your first digital VAT Return will be for the month of April 2019.

Quarterly returns

VAT stagger period 1st Digital Return
March/June/Sep/Dec 30 June 2019
April/July/Oct/Jan 31 July 2019
May/Aug/Nov/Feb 31 August 2019


Annual Returns

Users of the annual accounting scheme will only have to submit one digital report and those with a 31 March accounting period end will have to submit their first digital VAT Return for the year ended 31 March 2020.

It may be appropriate to re-consider your hospitality business’ financial year end, VAT stagger or even a switch to Annual Returns in readiness for the change to MTD.

How much will it cost?

Businesses need to buy their own software so you need to decide what system you would like to acquire.  There are around 75 providers who have been working with HMRC on producing the required software.  The software is not overly expensive to purchase and is generally acquired on a monthly subscription basis.  Whilst most of the systems are similar, Saints Tourism & Leisure have been using “Xero” for some time now.  There are two Xero packages suitable for VAT registered businesses as follows:-

Plan/Package Price per month exc. VAT
Simple VAT Cash book £9
Full VAT package with Purchase Ledger £22


How is this going to be enforced?

A points based system is to be put in place to deal with late digital submissions [along similar lines to driving offence points].  Once points have been accumulated up to a certain threshold a penalty will be charged for every subsequent late submission – the Government has yet to announce the penalty amount!  They have, however, indicated that they will be lenient for the first 12 months.

Download and complete a simple questionnaire and I will let you know about the best way for you to deal with MTD for your hospitality business.  Send your completed questionnaires to me at the Carlisle Office or email to cyndy@saint.co.uk.

Cyndy Potter Tourism & Leisure Manager
Cyndy Potter
Tourism & Leisure Manager

 

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