Tax Connect – September 2016
Simplification of the tax system?
There have been new proposals from HMRC over the last couple of years, the aim of which is to make life simpler for the tax payer and bring in revenue for HMRC earlier in the year. These proposals are the new payrolling benefits system and Making Tax Digital. Is this the end of the P11D and the tax return or is it just a new format with different challenges?
Payrolling benefits – should you be using the new system?
There is new legislative framework in place from 2016/17 which allows employers to voluntarily report certain Benefits in Kind (BIK) via their payroll. Employers wishing to report these benefits via their payroll must register their intent to start payrolling BIKs with HMRC before the start of a new income tax year (ideally pre December). Once registered, subject to exceptions, employers will no longer be required to prepare and file end of year P11Ds for each employee detailing what benefits they received in the year. It is HMRC’s hope that this real time approach will allow them to collect tax quicker while also alleviating concerns from tax payers that they will have a substantial tax bill in January due to company benefits received. Given there will still be notices of coding, HMRC are not overly concerned about the possibility of too much PAYE being deducted from the employee’s salary.
While the BIKs can be reported via payroll, employers are still required to submit Form P11D(b) detailing the Class 1A NIC payable and making payment by 19th July (22nd if paying electronically). HMRC have confirmed that their own software will not support payrolling BIKs until 2017/18 (at the earliest), so employers would need to make alternative arrangements to allow them to report BIKs via payroll (perhaps at an additional cost to the employer).
Given the potential “teething issues” that comes with any new software, and the potential added cost to the employer, employers may prefer to hold off registering to payroll BIKs through their payroll for the 2017/18 tax year. Henderson Loggie are continuing to monitor the situation and will apprise you on any new developments.
Making Tax digital – the future for tax in the UK?
We know HMRC are consulting on making tax digital and that this is the future for tax reporting in the UK. So the important questions are:
- How is this different from the current self-assessment tax return system?
- Will it be simpler?
- Will I still need an accountant/tax advisor?
The latest consultation document was published on 15 August 2016. There are some digital accounts already being created and the proposed timetable would have the first taxpayers using the new system from April 2018 progressing to all tax payers by April 2020.
Individuals and businesses will be due to report at least quarterly to HMRC rather than annually. There is currently much discussion as to whether this will make life easier for the tax payer or create an additional burden. Under the current consultation, quarterly reporting will be compulsory for all businesses including self-employed and landlords with income or turnover exceeding £10,000.
HMRC’s aim in making tax digital is to revolutionise the way businesses keep records and report to HMRC in the hope of making life much easier for both HMRC and for the tax payer. Information already held by HMRC will be automatically downloaded into the accounts for each individual or business. For tax payers who already keep their records electronically, the real change for them is that interaction with HMRC will be more regular and should be more transparent.
One piece of potential good news in the consultation for tax payers is the proposal that under the new digital system, an underpayment of one tax can be offset against an overpayment of another. The other advantage will be that information already held by HMRC will not need to be resubmitted. Those tax payers with the simplest tax affairs may no longer be required to submit information at all, simply log on, check your details and pay the tax.
The main advantage for HMRC of the new system is the proposal that tax is paid earlier and on a more regular basis by the tax payer. So how will this work? Tax will still be calculated on an annual basis but as the quarterly figures are submitted, estimated figures will be produced on which tax payments can be made. One item still under discussion in the consultation is when tax adjustment will be made and when reliefs and losses will be applied. With tax still to be calculated on an annual basis with current system of tax adjustments, reliefs and losses which are not due to change, would be difficult to apply on a quarterly basis.
The main concerns with the proposal in its current form is the additional burden on business reporting more often and impact on the overall calculations and the other is the difficulty for those who are not comfortable with technology. HMRC plan to have new staff to help with this but many question if there will be enough staff and if they will be sufficiently trained. Certainly tax advisors and accountants will have plenty to do under the new system!
At Henderson Loggie we are keeping a close eye on all the information released and getting involved in the discussions. The current consultation period ends on 7 November 2016. We are also reviewing our own and our client’s current software and practices to make sure that we are ready for the new system when it arrives. If you have any concerns on how this may affect you or you would like any advice on this please get in touch.
Inheritance Tax – is it voluntary?
The death last month of the Duke of Westminster brought many headlines mainly focussing on the wealth of the UK’s third richest person. His estimated fortune was in the region of £9bn.
Shortly after all of the obituaries, the national press then focussed on the fact that despite the level of his fortune the Inheritance Tax (IHT) liability of the estate would be £NIL. This caused a backlash against the super-rich and their ability to pay for professional advice to enable them to avoid paying IHT.
However, in many ways the Grosvenor family are doing what most families would want to achieve. They are passing down wealth from one generation to the next without eroding the value by 40% on each successive death. This seems to be prudent tax planning and has managed to keep the estate intact. If the Duke’s Estate had incurred an IHT liability of 40%, approximately £3.6bn, it is likely that large parts of the estate would have to be sold to meet the liability.
While most of us won’t have billions of pounds of IHT liability it is still a tax that is seen to be unfair as it is taxing wealth that has been accrued over the years and other taxes will no doubt have been paid on that money. IHT is seen by some as a voluntary tax in that with careful planning it is one that is possible to avoid. Rather than deriding the Duke’s lack of IHT liability on death it may make more sense to take a leaf out of his book. Undertake planning in advance and it is possible to pass down your wealth to your family without the taxman getting his 40% share.
Brexit – Is it time to plan a new route?
Following the vote to leave the EU, the reaction from currency and stock markets was swift. Since then, markets have stabilised somewhat, at least in the short term. It is, however, still too early to tell what the full implications of the result will be, and we expect a long period of uncertainty that will undoubtedly impact on investment markets.
All businesses should have contingency plans in place and these should be reviewed on a regular basis. In light of Brexit, you should consider additional scenario planning to help mitigate any challenges which may arise as a result of the negotiations which will take place.
We also recommend that, regardless of the size of the businesses, managers should:
- Conduct a supply chain review to understand where there are any potential weaknesses as a result of Brexit. For example, where are your suppliers located and what plans do they have in place?
- Determine how much of your business is from EU markets
- Establish if your customers have any concerns as a result of Brexit. How and what could you communicate to them to help alleviate their concerns?
- Assess to what extent you expect sales to be affected and whether your current business margins have the flexibility to deal with fluctuations in tariffs on goods
- Conduct a VAT review, in particular how any changes to VAT may impact on your ability to supply to the EU
- Consider advantages or disadvantages of either delaying or bringing forward investments and projects
- Assess your staffing requirements and be ready to address any employee queries throughout the exit negotiations. Careful consideration should be given to the format and timing of this communication.
Brexit will provide the UK with greater autonomy to tailor the tax regime to support different industries, regions and groups. In the short term, uncertainty and further tax rules will create challenges for business, but it could also create opportunities.
Our tax team can help you review and identify your key risks and opportunities as a result of Brexit and help you plan to mitigate those risks.
Should you wish to discuss this more please get in contact with us at firstname.lastname@example.org
Registering for self-assessment
If 2015/16 is the first year that you are required to complete a tax return you need to register with HMRC by 5th October 2016.
We would be happy to assist you with the registration process as well as the completion of your tax return. Otherwise you can register yourself online by clicking here.
No penalties will be charged for late notification as long as your tax return is filed and any liability is paid by the 31st January following the tax year.
Finance bill update
The Finance Bill usually receives Royal Assent in July each year but this year the Finance Bill was delayed until after the summer recess. The Finance Bill has now completed its passage through the House of Commons on 6 September. The Lords Bill has been published, incorporating all the amendments made at report stage. The remaining House of Lords stages are scheduled to take place on 13 September with Royal Assent expected shortly after.
We will update you on all significant amendments in the next tax newsletter.
To discuss any of the issues highlighted within this newsletter, or any other matter you require our help with, please contact any member of our tax team.
Alan Davis – VAT Partner & Head of Tax
Barbara McQuillan – Partner