Community Investment Tax Relief scheme

Posted on 28th September 2023 by Solutions Accountancy

The Community Investment Tax Relief (CITR) scheme is designed to encourage investment in accredited Community Development Finance Institutions (CDFIs). The tax relief under the scheme is available to both individuals and companies.

CDFIs may take a range of forms including:

community loan funds, which make capital available to community regeneration initiatives and businesses;
micro-finance funds, which make small loans, usually at near-market rates of interest, to the smallest businesses, e.g., sole traders; and
social banks – profit-seeking financial service providers or subsidiaries, dedicated to social or environmental objectives.

The scheme encourages investment in disadvantaged communities by giving tax relief to investors who back businesses (and other not-for-profit enterprises) in disadvantaged communities by providing additional tax relief. Tax relief of up to 5% per year is available for up to 5 years starting with the year in which the investment is made. This provides for a total tax relief of up to 25% of the invested amount.

It was announced as part of the Spring Budget measures that the amount CDFIs can apply to relevant investments would increase from £250,000 to £375,000 for non-profit organisations and from £100,000 to £250,000 for profit organisations. The enabling legislation came into force on 2 June 2023.

In addition, the amount accredited CDFIs can raise through CITR increased from £10 million to £25 million for retail CDFIs and from £20 million to £100 million for wholesale CDFIs.

Replacement of domestic items relief

Posted on 28th September 2023 by Solutions Accountancy

The replacement of domestic items relief enables landlords to claim tax relief when they replace movable furniture, furnishings, household appliances and kitchenware in a rental property. The allowance is available for the replacement cost of domestic items such as free-standing wardrobes, curtains, carpets, televisions, fridges and crockery.

The amount of the deduction is based on:

the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
the incidental costs of disposing of the old item or acquiring the replacement; and
less any amounts received on disposal of the old item.

There is an important distinction between deciding whether or not a new item represents a replacement or an improvement. Where the new item is an improvement on the old item the allowable deduction is limited to the cost of purchasing an equivalent of the original item.

HMRC’s internal guidance provides an example highlighting that a brand new budget washing machine costing circa £200 is not an improvement over a 5 year old washing machine that cost around £200 at the time of purchase (or slightly less considering inflation).

However, if a replacement item is for a reasonable modern equivalent, for example, a new energy efficient fridge replacing an old fridge, this is not considered an improvement and the full cost of the new item is eligible for relief.

VAT Capital Goods Scheme

Posted on 28th September 2023 by Solutions Accountancy

The VAT Capital Goods Scheme (CGS) is a means of spreading the initial VAT recovery in respect of certain assets over either 5 or 10 years. The scheme seeks to agree a fair and reasonable attribution of VAT to taxable supplies and non-taxable supplies relating to the use of an asset over its lifetime.

The adjustment period for land and buildings is 10 years and for other CGS assets, 5 years. This adjustment period also considers any non-business use of the asset. The CGS is intended primarily for partly exempt businesses. However, businesses can change direction over the adjustment period and be subject to making CGS adjustments some years after an asset was purchased.

The CGS currently applies to:

Land and building (including extensions, alterations and refurbishments) with a cost (net of VAT) of £250k or more.
Computers, or computer equipment, with a cost (net of VAT) or £50k or more.
Ships and boats with a cost (net of VAT) of £50k or more.
Aircraft with a cost (net of VAT) of £50k or more

The scheme does not apply if:

the assets are acquired solely for resale;
you spend money on assets which are solely for resale; or
assets are acquired, or you spend money on assets, which are wholly used for non-business purposes.

Charity Trustees Quiz

Posted on 26th September 2023 by Solutions Accountancy

The Charity Commission has launched the next phase of its trustee campaign which aims to increase charity trustees’ knowledge and drive a positive change in charities’ governance.

The campaign encourages trustees to check what they know about their duties and aims to increase their awareness of the Commission’s 5-minute guides.

As part of the latest phase of the campaign, the regulator has released a new Trustee Quiz to enable trustees to test their knowledge of their duties and responsibilities.

The quiz is designed to engage trustees with a variety of questions based on everyday scenarios that they may encounter at their charity. It has been designed to help identify knowledge gaps and is an ideal refresher for trustees at all levels of experience. Research shows that the majority of trustees feel confident in their ability to manage their charities, however there may be areas of knowledge they can improve. The quiz is intended to encourage trustees to think again about what they know, to inspire upskilling.

The quiz takes around three minutes to complete and gives busy trustees an interactive means to quickly check what they know and help them uncover potential knowledge gaps they may not have been aware of. It prompts participants to test their knowledge on a range of topics, such as conflicts of interest and safeguarding. Feedback is provided for each question, and users are pointed to further guidance from the regulator to strengthen their knowledge.

Each participant also receives a score out of 10, allowing them to benchmark their knowledge.

The quiz can be accessed at https://beingacharitytrustee.campaign.gov.uk/take-the-trustee-quiz/

Help for businesses launching new AI

Posted on 26th September 2023 by Solutions Accountancy

Organisations across the country will be able to demonstrate that their new artificial intelligence and digital innovations meet regulatory requirements so they can quickly bring them to market.

In their press release published 19 September 2023, the Department for Science, Innovation and Technology said:

A new pilot scheme set to launch next year will see a number of regulators develop a multi-agency advice service providing tailored support to businesses so they can meet requirements across various sectors while safely innovating – including through innovative technologies such as AI.

Backed by over £2 million in UK government funding, the streamlined service is intended to make it easier for businesses to get the help they need, by bringing together the different regulators involved in the oversight of cross-cutting AI and digital technologies.

In turn, businesses will be able to take their new innovations to market responsibly and more quickly, helping to grow the UK’s economy.

With digital technologies such as artificial intelligence needing increasingly to demonstrate compliance with a range of regulatory regimes, there is a growing need for joined-up advice across the regulatory landscape. This pilot scheme will meet business demands for coordinated support and help innovators navigate regulations, so they can spend more time developing cutting edge new products.

The service will be run by members of the Digital Regulation Cooperation Forum (DRCF), made up of the Information Commissioner’s Office, Ofcom, the Competition and Markets Authority and the Financial Conduct Authority, and known as DRCF AI and Digital Hub.

The DRCF came together as a voluntary collaboration in 2019, launching formally in 2020, and works to explore emerging regulatory issues which cut across the remits of the four regulators with the goal of making it easier for industry to comply with multiple regulatory regimes.

The trial is expected to last around a year, and will assess industry take up, service feasibility and how innovators are interacting with it. Innovators and businesses requiring advice will be invited to apply in due course with the DRCF expected to run a competition for innovators to outline where they need support from regulators to ensure innovative new technologies comply with cross-cutting regulatory regimes. Successful applications will be selected against criteria agreed jointly by regulators and the department.

Change to Company Accounts filing

Posted on 21st September 2023 by Solutions Accountancy

The Economic Crime and Corporate Transparency Bill has completed its initial journey through the House of Commons and the House of Lords and is now at the stage known as, consideration of amendments. This is where the second House’s amendments are considered, and the Bill may go back and forth until both Houses agree on the Bill. The Bill is expected to receive full Royal Assent over the coming months. The new Act will be aimed at reducing the abuse of corporate structures and at the same time tackling economic crime.

As part of the measures that will be introduced, Companies House will be streamlining the accounts filing options available to small and micro companies. At present, small businesses are able to file what are known as filleted accounts with Companies House. This means that these small or micro companies can choose not to submit a profit & loss account and/or director’s report to Companies House. In this way, this information will not be made public. Filleted accounts can be submitted whether or not a company has prepared full or abridged accounts.

Companies House has now acted on various concerns that this minimal level of disclosure has the potential to appeal to fraudsters wishing to present a false image of the company.

Companies House will therefore introduce a new framework under which all small companies, including micro-entities, will be required to file their profit and loss accounts. The option for abridged accounts will also be removed.

A small company is defined as a business with two of the following:

a turnover of £10.2 million or less
£5.1 million or less on its balance sheet
50 employees or less

A micro-entity is defined as a business with two of the following:

a turnover under £632,000
£316,000 or less on its balance sheet
10 employees or fewer.

No date has yet been announced for the implementation of these changes. However, it is important that those who currently submit filleted or abridged accounts familiarise themselves with the upcoming changes and how best to prepare for them. This represents a significant change for these businesses.

Activities subject to the scope of VAT

Posted on 21st September 2023 by Solutions Accountancy

There are a number of conditions that must be satisfied for an activity to be within the scope of UK VAT.

An activity will fall within the scope of VAT when all the following conditions are met:

it is done for consideration;
it is a supply of goods or services;
the supply is made in the UK;
it is made by a taxable person; or
it is made in the course or furtherance of any business carried on or to be carried on by that person.

One of the conditions that needs to be carefully considered when deciding whether an activity is within the scope of VAT is the concept that the supply must be made in the course or furtherance of business.

This idea of 'business' is one of the less well-known conditions. However, the concept of business is an important condition that determines whether a business must charge VAT on their sales, known as output VAT, and on its ability to recover VAT, known as input tax.

In most cases it will be clear whether an activity is ‘business’ related and should fall within the scope of VAT. However, in cases where the result is less clear cut, there is a test based on an historic court case where the court identified six factors or indicators to determine whether an activity was ‘business’ related. The test should be applied to individual activities separately.

HMRC’s internal manuals provide the following example:

Imagine a person registered as a self-employed plumber who now and again renovates old cars. They do not automatically have to charge tax when selling those cars. This is because it would be hard to see the activity of car renovation being included within their business as a plumber.

On the other hand, if the car activity can be seen to have the attributes of a business in its own right, then the plumber would have to charge tax on the sales.

Tax on incentive rewards

Posted on 21st September 2023 by Solutions Accountancy

Companies may use incentive award schemes to encourage their employees in various ways. For example, to sell more of their own goods and services. The award can be in forms including cash, vouchers or other gifts.

Where an employer meets the tax payable on a non-cash incentive award given to a direct employee, by entering into a PAYE settlement agreement (PSA), the award is not chargeable to tax on the employee.

With the exception of non-cash awards covered by a PSA, the incentive awards made to employees are chargeable as employment income. The value of these awards is calculated as follows:

Cash
The value to use is the total amount of cash awarded.

Vouchers
If the award consists of vouchers, then the value to use is the full cost to the provider of making the award.

Other gifts
If the award is something other than vouchers, then the charge is usually the full cost to the provider of making the award. There are certain exceptions for the low paid.

There are also concessions which HMRC makes to enable you to say thank you to staff including encouragement awards, suggestion schemes and to reward long service.

Utilising Capital Gains Tax losses

Posted on 21st September 2023 by Solutions Accountancy

Usually, if you sell an asset for less than you paid for it you would make a capital loss. As a general rule, if the asset would have been liable to CGT had a gain taken place, then the loss should be an allowable deduction.

The exact treatment of losses depends on whether they are:

losses of the same year of assessment as the gains;
losses of earlier years of assessment;
losses of the tax year of death; or
particular losses which may, exceptionally, be carried back from a later year of assessment.

These deduction of an allowable loss from chargeable gains does not require a claim and does not extend the time limit for enquiring into the original loss claim. Gains accruing in a tax year may be chargeable to CGT at different rates. Therefore, the tax effect of losses and the annual exempt amount set off against those gains can vary.

In most circumstances, allowable losses and the annual exempt amount can be deducted in the way that is most beneficial to the individual. This will usually be against gains that are charged at the highest rate. A claim for losses does not have to be made straight away and can be made up to 4 years after the end of the tax year that the relevant asset was disposed.

Where there remain unused losses that cannot be set against gains of the same year, these losses are carried forward to be set against future gains. It is only possible to utilise losses brought forward if net gains exceed the annual CGT exempt amount for the year.

No gain – no loss transfers in groups of companies

Posted on 21st September 2023 by Solutions Accountancy

There are special rules concerning the transfer of assets in groups of companies. In most cases, this means that where assets are moved around group companies, there are no immediate capital gains consequences. This effectively allows for a tax neutral, no gain – no loss transfer opportunity.

HMRC’s manuals states that:

This is achieved by fixing both the consideration received for the asset by the transferor and the consideration given for the asset by the transferee. The transferor has neither chargeable gain nor allowable loss. The transferee effectively takes over the transferor’s capital gains cost, augmented by indexation allowance as appropriate.

The no gain – no loss rule only applies where a member of a group of companies disposes of an asset to another member of the same group. There is a general requirement that there should be both a disposal by a group company and an acquisition by a group company.

The no gain/no loss rule does not apply where a group company makes a deemed disposal of an asset for consideration received from another group company, if the group company paying the consideration does not itself acquire an asset.

There are also other specific exceptions that must be considered before relying on the use of a no gain – no loss transfer.