fpdteam, Author at Bennetts Accountancy

Statutory interest

6th October 2022 by fpdteam

Taxpayers that are owed VAT repayments by HMRC are entitled to claim statutory interest under certain circumstances. Where this is the case, a claim should be made in writing to HMRC. VATA s78 (11) requires all claims for statutory interest to be made within four years of the end of the applicable period to which it relates.

For example, if a repayment claim is authorised for payment on 31 March 2022. The taxpayer will have until 31 March 2026 to make a claim for statutory interest.

The payment of statutory interest is intended to provide commercial restitution (compensation to the party deprived of the use of the money it is owed) where a taxpayer has overpaid or under claimed VAT as a result of an official error by HMRC.

HMRC’s view is clear that there is no obligation for statutory interest to be paid where an overpayment results from an error by the taxpayer or their accounting systems.

Source:HM Revenue & Customs| 03-10-2022

How the VAT Reverse Charge works

6th October 2022 by fpdteam

The VAT domestic reverse charge accounting mechanism was put in place to help prevent criminal attacks on the UK VAT system by means of sophisticated fraud.

UK businesses receiving certain specified goods and services are liable to account for UK VAT, by way of the domestic reverse charge procedure. Under the domestic reverse charge rules, it is the responsibility of the customer, rather than the supplier, to account to HMRC for VAT on supplies of the specified goods or services. It should be noted that there are exceptions within each category, and it is important to check carefully if the domestic reverse charge is required on a transaction or not.

The specified goods that the reverse charge applies to are:

mobile phones
computer chips
wholesale gas
wholesale electricity

The specified services are:

emission allowances
wholesale telecommunications
renewable energy certificates
construction services

The following example is included in HMRC’s internal manual to help outline how the charge works:

A VAT registered UK distributor of mobile phones sells a number of mobile phones to a VAT registered UK retailer for a VAT-exclusive value of £6,000, an amount that is above the de minimis limit. The distributor does not charge VAT on the supply (£1,200), specifying on its invoice that the reverse charge applies.

The retailer will account for the distributor’s output tax (£1,200) but will also reclaim the amount as input tax, thus producing a nil net effect. The retailer now sells the mobile phones to members of the general public, charging VAT on the supply as normal.

The domestic reverse charge should not be confused with the reverse charge for cross-border services which applies to certain services from abroad.

Source:HM Revenue & Customs| 03-10-2022

Small Business rate relief

6th October 2022 by fpdteam

Business rates are charged on most non-domestic premises, including most commercial properties such as shops, offices, pubs, warehouses and factories. Some properties are eligible for discounts from the local council on their business rates. This is called business rates relief. There are a number of reliefs available including small business rate relief, rural rate relief and charitable rate relief.

In England, small businesses rate relief is available on properties with a rateable value up to £15,000. Small businesses that occupy property with a rateable value of £12,000 or less pay no business rates. There is a tapered rate of relief on properties with a rateable value up to £15,000. Relief is usually only available to businesses with one property but can be extended under certain limited circumstances.

In Scotland, the relief is known as the Small Business Bonus Scheme (SBBS). Business rates relief through the SBBS scheme is available if the combined rateable value of all business premises is £35,000 or less and, the rateable value of individual premises is £18,000 or less.

In Wales, the relief is known as the Welsh Small Business Rates Relief scheme. 100% rate relief is available to eligible businesses premises with a rateable value of up to £6,000 and a tapered relief is available on properties with a rateable value between £6,001 and £12,000.

In Northern Ireland, the Small Business Rate Relief (SBRR) scheme is available. Eligibility for the SBRR is based on the Net Annual Value (NAV) of business premises. There are three levels of SBRR where the reductions in rate relief range from 50% to 20%. No relief is available for properties with a NAV of more than £15,000.

Source:Other| 03-10-2022

Income Tax in Scotland

6th October 2022 by fpdteam

The Scottish rate of income tax (SRIT) is payable on the non-savings and non-dividend income of those defined as Scottish taxpayers.

The definition of a Scottish taxpayer is generally focused on the question of whether the taxpayer has a 'close connection' with Scotland or elsewhere in the UK. The liability to SRIT is not based on nationalist identity, location of work or the source of a person’s income e.g., receiving a salary from a Scottish business.

HMRC’s guidance states that for the vast majority of individuals, the question of whether or not they are a Scottish taxpayer will be a simple one – they will either live in Scotland and thus be a Scottish taxpayer or live elsewhere in the UK and not be a Scottish taxpayer.

If a taxpayer moves to or from Scotland from elsewhere in the UK, then their tax liability for the tax year in question will be based on where they spent the most time in the relevant tax year. Scottish taxpayer status applies for a whole tax year. It is not possible to be a Scottish taxpayer for part of a tax year.

You may also pay Scottish Income Tax if you live in a home in Scotland and also have a home elsewhere in the UK. In this case, you need to identify which is your main home based on published guidance and the facts on the ground. You may also be liable to SRIT if you do not have a home and stay in Scotland regularly, for example you stay offshore or in hotels.

The Scottish rates and bands for 2022-23 are as follows:

Personal allowance – 0%	Up to £12,570
Starter rate – 19%	£12,570 – £14,732
Basic rate – 20%	£14,733 – £25,688
Intermediate rate – 21%	£25,689 – £43,662
Higher rate – 41%	£43,663 – £150,000
Additional rate – 46%	Above £150,000

Source:The Scottish Government| 03-10-2022

Government U-turn on 45p tax rate

5th October 2022 by fpdteam

The Chancellor, Kwasi Kwarteng has announced plans to scrap the proposed removal of the 45p tax rate from April 2023. The proposed removal of the 45p Rate was first announced as part of the Growth Plan measures on 23 September 2022. However, the change sparked a backlash that has sent shockwaves through the financial markets and even saw many members of the Conservative party actively campaigning against the move.

The Prime Minister and the Chancellor initially refused to backdown on the measure but eventually accepted that they were left with little choice but to U-turn on their proposal. The announcement of the U-turn was made earlier this week on the second day of the Conservative Party conference in Birmingham.

A Twitter statement from the Chancellor announcing the move said:

‘It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country. As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened. This will allow us to focus on delivering the major parts of our growth package.’

This means that the Additional Rate of Income Tax of 45% that applies to taxpayers with an annual income over £150,000 will remain in the 2023-24 tax year.

Source:HM Treasury| 03-10-2022

IR35 reforms

29th September 2022 by fpdteam

One of the measures the Chancellor of the Exchequer, Kwasi Kwarteng referred to in the delivery of the Growth Plan 2022 (commonly referred to as the mini-Budget) concerned moves to simplify IR35 rules. This measure was one of the pre-election promises of the new Prime Minister, Liz Truss. In the end it seems that the Chancellor went further than expected and announced moves to simplify the IR35 rules that included the full repeal of the 2017 and 2021 reforms.

The rules for individuals providing services to the public sector via an intermediary such as a personal service company (PSC) changed from April 2017. The rules shifted the responsibility for deciding whether the intermediaries’ legislation applies, known as IR35, from the intermediary itself to the public sector receiving the service. These rules were further extended in April 2021 for individuals providing services to certain medium and large-sized clients private sector organisations via an intermediary such as a personal service company (PSC). Small companies remained exempt.

It should be noted, that whilst the full details on this change remain to be published, the repeal of the 2017 and 2021 reforms is set to take place with effect from the start of the 2023-24 tax year on 6 April 2023.

From this date, contractors providing services via an intermediary will once again be responsible for compliance with the IR35 rules to determine their employment status and to pay the necessary tax and National Insurance contributions. This will remove the burden that currently falls on businesses and public authorities to determine the employment status of their contractors.

The government will need to ensure that these reforms do not result in increased tax avoidance and there may be new measures put in place in that regard. We will publish further information when more details are made available.

Source:HM Treasury| 27-09-2022

Private residence relief

29th September 2022 by fpdteam

In general, there is no CGT payable on a property disposal which has been used as the main family residence. An investment property which has never been used as a private residence will not qualify. This relief from CGT is commonly known as private residence relief.

Taxpayers are usually entitled to full relief from CGT where all the following conditions are met:

The family home has been the taxpayers only or main residence throughout the period of ownership.
The taxpayer has not let part of the house out – this does not include having a lodger.
No part of the family home has been used exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use).
The garden or grounds including the buildings on them are not greater than 5,000 square metres (just over an acre) in total.
The property was not purchased just to make a gain.

If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time period can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.

Married couples and civil partners can only count one property as their main home at any one time.

Source:HM Revenue & Customs| 24-09-2022

Capital Allowance Pools

29th September 2022 by fpdteam

A Writing Down Allowance (WDA) is available for plant and machinery expenditure that exceeds the Annual investment allowance (AIA) and / or does not qualify for a First-Year Allowance as well as for residual balances of expenditure that has been carried forward from the previous accounting period. The WDA is based on the cost of the items in the year they are acquired.

There are two rates of WDA for plant and machinery. To calculate them, you first group your expenditure into separate capital allowance pools:

the main pool – this includes expenditure on most items – the rate is 18%
the special rate pool includes special rate expenditure including long-life assets, integral features, certain thermal insulation and some cars – the rate is 6%.

Integral features are:

lifts, escalators and moving walkways
space and water heating systems
air-conditioning and air cooling systems
hot and cold water systems (but not toilet and kitchen facilities)
electrical systems, including lighting systems
external solar shading

It is important to note that the capital allowances regime for integral features only applies to the above list and that buildings themselves don’t qualify for capital allowances. However, before you make a claim (or not) for integral features please speak to us as the rules can be complicated and there are many grey areas.

Source:HM Revenue & Customs| 24-09-2022

Joining the MTD ITSA pilot

29th September 2022 by fpdteam

Many businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). Under the pilot, qualifying landlords and sole traders (or their agents) can use software to keep digital records and send Income Tax updates instead of filing a Self-Assessment tax return.

The full launch of MTD for ITSA is expected to start from 6 April 2024. The rules will initially apply to taxpayers who file ITSA returns with business or property income over £10,000 annually. General partnerships will not be required to join MTD for ITSA until a year later, in April 2025. A new system of penalties for the late filing and late payment of tax for ITSA will also apply. Taxpayers interested in signing up for the pilot should contact their software provider or agent for further information.

HMRC’s guidance on who can use the pilot has been updated as the pilot has been expanded. Currently to be eligible, taxpayers need to have an accounting period that aligns exactly to the tax year (6 April to 5 April) to join the 2022-23 pilot. The option to sign-up as an individual for MTD for ITSA is currently only available to individuals using a recognised provider offering software that is compatible with MTD for ITSA.

The pilot currently needs taxpayers who file for:

self-employment (including multiple self-employments)
UK property
Gift Aid
Pay As You Earn income, including employment income and occupational pensions (excluding those with a coded-out liability)
UK interest
UK dividends

Later this tax year, the pilot will be expanded to include the following customer types

pension contributions
CIS
Student Loans
additional Self-Assessment (SA 101)
foreign income from property
voluntary class 2 NICs
capital gains
marriage allowance.

Source:HM Revenue & Customs| 24-09-2022

Tax relief for job expenses

29th September 2022 by fpdteam

Employees who are working from home may be able to claim tax relief for bills they pay that are related to their work.

Employers may reimburse employees for the additional household expenses incurred through regularly working at home. The relief covers expenses such as business telephone calls or heating and lighting costs for the room you are working in. Expenses that are for private and business use (such as broadband) cannot be claimed. Employees may also be able to claim tax relief on equipment they have bought, such as a laptop, chair or mobile phone.

Employers can pay up to £6 per week (or £26 a month for employees paid monthly) to cover an employee’s additional costs if they have to work from home. Employees do not need to keep any specific records if they receive this fixed amount.

If the expenses or allowances are not paid by the employer, then the employee can claim tax relief directly from HMRC. Employees will receive tax relief based on their highest tax rate. For example, if they pay the 20% basic rate of tax and claim tax relief on £6 a week, they will receive £1.20 per week in tax relief (20% of £6). Employees can claim more than the quoted amount but will need to provide evidence to HMRC. HMRC will accept backdated claims for up to 4 years.

Employees may also be able to claim tax relief for using their own vehicle, be it a car, van, motorcycle or bike. As a general rule, there is no tax relief for ordinary commuting to and from the regular place of work. The rules are different for temporary workplaces where the expense is usually allowable if the employee uses their own vehicle to do other business-related mileage.

Note, that if an employee agreed with their employer to work at home voluntarily, or they choose to work at home, they cannot claim tax relief on the bills they have to pay. If an employee previously claimed tax relief when they worked from home because of coronavirus (COVID-19), they might no longer be eligible for relief.

Source:HM Revenue & Customs| 24-09-2022