IHT – estimating an estate’s value

Posted on 12th January 2023 by Solutions Accountancy

Inheritance Tax (IHT) is levied on a person’s estate when they die and can also be payable during a person’s lifetime on certain trusts and gifts. The rate of Inheritance Tax payable is 40% on death and 20% on lifetime gifts.

The current IHT nil rate band is £325,000 per person, below which no IHT is payable. This is the amount that can be passed on free of IHT as a tax-free threshold. A reduced rate of IHT of 36% (reduced from 40%) applies where 10% or more of a deceased’s net estate after deducting IHT exemptions, reliefs and the nil rate band is left to charity.

In order to ascertain whether or not IHT is due, the executor or personal representative of the deceased must value the deceased's estate. This is done by calculating the total value of the assets and gifts of the deceased and deducting any debts. An initial estimate of the value of the estate’s value should be undertaken to help determine if there is IHT to pay. This includes ascertaining the value of any assets owned by the deceased on the day they died, an analysis of any gifts made in the seven years prior to death and the value of trusts where the deceased had a beneficial interest.

If the estate is likely to owe tax, then full accurate valuations will be required. IHT is usually due six-months after the end of the month in which the deceased died. In certain cases, it is possible to pay by instalments or to make payments later with the addition of interest.

Dissolved companies and bona vacantia

Posted on 12th January 2023 by Solutions Accountancy

A company comes to a legal end when it is dissolved. However, one if the important points to be aware of when doing so is that the dissolved company can no longer do or receive anything including receive a tax refund. It is the responsibility of the company directors to ensure that all of a company’s assets and liabilities are all dealt with before it is dissolved.

Any assets or rights (but not liabilities) remaining in the company at the date of dissolution will pass to the Crown as ownerless property. This happens under what is known as 'bona vacantia' which literally means vacant goods. The bodies that deal with bona vacantia claims vary across the United Kingdom, but they all ultimately represent the Crown.

Only formally dissolved companies are caught by bona vacantia. A company 'in liquidation' or 'being wound up' is on its way to being dissolved but is still in existence. Until the company is dissolved its property and rights will not be bona vacantia.

It may also be possible for a company to apply to be restored to the register if it was dissolved less than six years ago. This would mean that the bona vacantia ceases to exist. However, this process is by no means straightforward, and any assets or rights owned by the company should be properly dealt with before a company is dissolved.

New Energy Bills Discount Scheme

Posted on 12th January 2023 by Solutions Accountancy

The government has published details of a new Energy Bills Discount Scheme which will replace the current Energy Bill Relief Scheme that comes to an end on 31 March 2023. The new scheme will offer support until 31 March 2024, to eligible non-domestic energy customers, including UK businesses, the voluntary sector, for example charities, and the public sector such as schools and hospitals.

Under the new scheme, eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill and a unit discount of up to £19.61/MWh applied to their electricity bill, except for those benefitting from lower energy prices.

The government has also confirmed that a substantially higher level of support will be provided to businesses in sectors identified as being the most energy and trade intensive – predominately manufacturing industries. These businesses will receive a gas and electricity bill discount based on a supported price which will be capped by a maximum unit discount of £40.0/MWh for gas and £89.1/MWh for electricity.

The latest data has shown that wholesale gas prices are continuing to fall and there are some concerns that the falling prices are not being passed on to businesses fast enough by energy suppliers.

A definition of trusts

Posted on 12th January 2023 by Solutions Accountancy

HMRC’s internal manuals states that the word `trust’ describes a relationship between certain persons

which is recognised by the law;
concerned with particular property; and
enforceable by reference to rules of trust law.

Effectively, a trust is an obligation that binds a trustee, an individual or a company, to deal with assets – such as land, money and shares – which form part of the trust. The person who places assets into a trust is known as a settlor and the trust is for the benefit of one or more 'beneficiaries'.

The trustees make decisions about how the assets in the trust are to be managed, transferred or held back for the future use of the beneficiaries. They are also responsible for reporting and paying tax on behalf of the trust. A trust needs to be registered with HMRC if it pays or owes tax. CGT may be payable when assets are placed into or taken out of a trust.

If assets are placed into a trust, then tax is paid by either the person selling the asset to the trust or the person transferring the asset (the 'settlor'). If assets are taken out of a trust, the trustees usually have to pay the tax if they sell or transfer assets on behalf of the beneficiary. However, the rules are complex and there are different types of trusts that need to be considered. For example, bare trusts or non-UK resident trusts.

UK regains control over business subsidies

Posted on 9th January 2023 by Solutions Accountancy

A new system to regulate the award of subsidies to business came into force on Wednesday 4 January 2023. It should provide a boost to businesses across the country and empower public authorities to deliver support to businesses in a quicker, fairer, and simpler way.

Subsidies will be tailored to local needs, with public authorities and devolved administrations having added flexibility to ensure they can get support to where it’s most needed as quickly as possible.

The introduction of these new rules is the most significant change in subsidy administration in over forty years and marks a landmark transition away from the restrictive aid scheme the UK was subject to as part of the EU, which would regularly block elected devolved administrations and local authorities from delivering funds to businesses that most needed it in their communities.

Under the previous EU system, all subsidies except for a select few under a ‘Block Exemption Regulation’ would be required to undergo a time-consuming bureaucratic process, subject to European laws and the European Commission.

Subsidies would require notification to and approval from the European Commission well in advance, therefore delaying vital funds reaching businesses in good and efficient time. The new regime is tailor-made for businesses and public authorities in the UK, with views gathered from stakeholders across the country in an extensive consultation.

The new regime will also give public authorities the ability to award subsidies through streamlined routes, schemes that are pre-assessed by the government, and provide public authorities with an even easier and quicker way to award subsidies to businesses. The government is currently developing three of these schemes, which will cover research, development and innovation, energy usage, and local growth.

Which way to turn

Posted on 9th January 2023 by Solutions Accountancy

Inflation and recession are cruel task-masters.

If you provide goods or services that can be readily sourced from alternative suppliers, and at a lower cost, trying to beef-up your sales prices will likely result in lost income as your customers go elsewhere. If your costs are increasing this can only lead to lower profits.

If you sell luxury goods, there will likely be a reduction in demand as customers concentrate their expenditure on meeting rising fuel and food bills.

Business owners can react by reducing their own costs but there is a limit to the saving that can be made.

There is an argument to mothball business activity. i.e., reduce activity and hibernate until market conditions improve, although this is unlikely to prove a workable strategy for an extended period.

Businesses who supply goods or services with no competition, or for goods that have no ready substitutes, are in the best position as they can increase their prices to cover cost increases with little or no impact on sales.

During this period, all businesses would be wise to take control of cashflow and scale down or at least reconsider investment activity until market conditions become more buoyant.

If you are in business and really don’t know which way to turn, please call so we can talk over your options.

Limits to tax relief for pension contributions

Posted on 5th January 2023 by Solutions Accountancy

Under current rules, you can claim tax relief for your private pension contributions. The annual allowance for tax relief on pensions is £40,000 for the current tax year. There is a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years. There is also a lifetime limit for tax relief on pension contributions. The limit is currently £1,073,100 and will remain frozen at that level until at least April 2026.

You can get tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is paid on pension contributions at the highest rate of Income Tax paid.

This means that if you are:

A basic rate taxpayer you get 20% pension tax relief
A higher rate taxpayer you can claim 40% pension tax relief
An additional rate taxpayer you can claim 45% pension tax relief

The first 20% of tax relief is usually automatically applied by your employer with no further action required if you are a basic-rate taxpayer. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your Self-Assessment tax return.

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are based in Scotland.

Customs Declaration Service deadline extended

Posted on 5th January 2023 by Solutions Accountancy

The Customs Declaration Service (CDS) is a customs IT platform designed to modernise the process for completing customs declarations for businesses that import or export goods from the UK. A phased launch of the service started in August 2018 and was due to be completed by 31 March 2023. The CDS covers export declarations of goods sent from the UK. This phase has now been delayed until 30 November 2023, an 8-month delay.

HMRC’s Director of Border Change Delivery commented that:

'We have moved the deadline to enable us to spend more time working with industry in delivering and testing critical functionality as well as the support needed to help declarants move across to the new system. The extra time also allows businesses and stakeholders more time to prepare their customers and software products for the November deadline.'

When the transfer to the CDS is complete, the old Customs Handling of Import and Export Freight (CHIEF) service will close. The first stage of this withdrawal started on 30 September 2022 when the ability to make import declarations on CHIEF closed for the vast majority of users. From 1 December 2023, the ability to make export declarations using CHIEF will also be withdrawn.

HMRC has confirmed that they will provide further information about the exact timeline for CDS exports by the end of January 2023.

Did you file your tax return on Christmas Day?

Posted on 5th January 2023 by Solutions Accountancy

A new press release by HMRC has highlighted the fact that 3,275 taxpayers took the time to file their tax return online on Christmas Day with a further 10,311 taxpayers completing their tax returns on Boxing Day. In total, 22,060 Self-Assessment returns were filed between 24 and 26 December. The total number of submissions for the period were actually less than last year.

HMRC’s Director General for Customer Services, said:

‘We are grateful to those customers who have already filed their tax returns. For anyone who is yet to make a start, help is available on GOV.UK, just search ‘Self-Assessment’ to find out more.’

If you are filing online for the first time you should ensure that you register to use HMRC’s Self-Assessment online service as soon as possible. Once registered an activation code will be sent by mail. This process can take up to 10 working days.

We would encourage our readers to complete their tax return as early as possible to avoid last-minute stress as the 31 January 2023 filing date looms. Last year over 2.3 million taxpayers or 19% of those required to file missed the 31 January deadline.

If you miss the filing deadline then you will be charged a £100 fixed penalty (unless you have a reasonable excuse) which applies even if there is no tax to pay, or if the tax due is paid on time. There are further penalties for late tax returns still outstanding 3 months, 6 months and 12 months after the deadline. There are also additional penalties for late payment amounting to 5% of the tax unpaid at 30 days, 6 months and 12 months.

What is the VAT One Stop Shop?

Posted on 5th January 2023 by Solutions Accountancy

The VAT One Stop Shop is an EU wide scheme that allows a VAT registered business to register in only one single EU Member State. The scheme was extended with effect from 1 July 2021. The extended scheme covers three special schemes: the non-Union scheme, the Union scheme and the import scheme.

The VAT One Stop Shop scheme can be used by businesses selling goods from Northern Ireland to consumers in the EU under the terms of the Northern Ireland Protocol. In order to use the scheme, sales must be above the distance selling limit of €10,000 – currently set at £8,818. The scheme only covers the sale of goods. Supplies of digital services to consumers in the EU should not be reported.

Using the VAT One Stop Shop can save affected businesses from having to register for VAT in up to 27 EU countries. If a qualifying Northern Ireland business chooses not to use the scheme, they will have to register for VAT in each EU country where they make distance sales of goods.