Accountancy expenses arising out of an enquiry

Posted on 28th April 2022 by Solutions Accountancy

HMRC’s internal manual offer some revealing insights as to the treatment of accountancy expenses arising out of an enquiry. As a matter of course, HMRC allows companies to claim a tax deduction for normal accountancy expenses incurred in preparing accounts or accounts information and in assisting with preparing Self-Assessment tax returns.

In respect of accountancy expenses arising out of an enquiry HMRC’s manuals state the following:

Additional accountancy expenses arising out of an enquiry into the accounts information in a particular year’s return will not be allowed where the enquiry reveals discrepancies and additional liabilities for the year of enquiry, or any earlier year, which arise as a result of:

negligent or fraudulent conduct or
for periods beginning on or after 1 April 2008 where the filing date for the return is on or after 1 April 2009, careless or deliberate behaviour.

Where, however, the enquiry results in no addition to profits, or an adjustment to the profits for the year of enquiry only and that adjustment does not arise as a result of:

negligent or fraudulent conduct or
for periods beginning on or after 1 April 2008 where the filing date for the return is on or after 1 April 2009, careless or deliberate behaviour

the additional accountancy expenses will be allowable.

This guidance was originally published in Tax Bulletin 37 (October 1998) and supersedes Statement of Practice SP16/91 which applied to pre-SA periods.

Tax Diary May/June 2022

Posted on 26th April 2022 by Solutions Accountancy

1 May 2022 – Due date for corporation tax due for the year ended 30 July 2021.

19 May 2022 – PAYE and NIC deductions due for month ended 5 May 2022. (If you pay your tax electronically the due date is 22 May 2022).

19 May 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2022.

19 May 2022 – CIS tax deducted for the month ended 5 May 2022 is payable by today.

31 May 2022 – Ensure all employees have been given their P60s for the 2021/22 tax year.

1 June 2022 – Due date for corporation tax due for the year ended 31 August 2021.

19 June 2022 – PAYE and NIC deductions due for month ended 5 June 2022. (If you pay your tax electronically the due date is 22 June 2022)

19 June 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2022.

19 June 2022 – CIS tax deducted for the month ended 5 June 2022 is payable by today.

Paying staff on jury service

Posted on 26th April 2022 by Solutions Accountancy

If you have staff that have been called up to serve on a jury, then you must allow them the necessary time off. You can ask them to request to delay their jury service if their absence would seriously harm your business. Your employee would need to agree to this request and would need to provide written evidence explaining why a delay has been requested. The request to delay jury service can only be made once in a 12-month period, and the employee must say on the jury summons when they will be available.

Whilst employers must provide time off to allow for jury service, there is no legal requirement to pay employees whilst they are serving.

However, the employee can continue to be paid as normal. If this is the case, the employer cannot reclaim money paid to the employee or that the business has lost during the jury service.

If an employer does not pay their employee, then they can claim a loss of earnings allowance from the court. The employer will need to prepare a certificate of loss of earnings for their employee. This form comes together with the jury service letter.

Employers can also decide to top up the ‘loss of earnings allowance’ by subtracting the court allowance from their employee’s usual take-home pay.

Asset disposals not subject to Capital Gains Tax

Posted on 21st April 2022 by Solutions Accountancy

Capital Gains Tax (CGT) is a tax on the profit made from selling certain assets such as property, shares or other investments. CGT is usually charged at a flat rate of 20% and applies to most chargeable gains made by individuals.

If taxpayers only pay basic rate tax and make a small capital gain, they may only be subject to CGT at a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT. An 8% surcharge applies to the sale of chargeable residential property (apart from a principal private residence) and carried interest (the share of profits or gains that is paid to asset managers). There is also an annual CGT exemption for individuals that is currently £12,300.

There are a number of asset disposals, which are not subject to CGT.

These include:

your car
your main residence – known as a principal private residence, but there are some important caveats to be aware of
personal possessions worth up to £6,000 each, such as jewellery, paintings or antiques
stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs
UK Government or 'gilt-edged' securities, for example, National Savings Certificates, Premium Bonds and loan stock issued by the Treasury
betting, lottery or pools winnings
personal injury compensation
foreign currency you bought for your own or your family's personal use outside the UK

So, if you are lucky enough to win the National Lottery this weekend, it is unlikely you will have to pay CGT!

Note that none of the above exemptions apply when the gains arise through trading or business activities as distinct from occasional sales and disposals.

Dividend tax increase from 6 April 2022

Posted on 21st April 2022 by Solutions Accountancy

A reminder that the 1.25% increase in NIC contributions that came into effect on 6 April 2022 are reflected in a similar increase in the tax charge on dividends.

This means that the dividend tax rates for 2022-23 are as follows (all rates having increased by 1.25% over the 2021-22 rates):

Basic rate taxpayers will pay tax on dividends at 8.75%.
Higher rate taxpayers will pay tax on dividends at 33.75%.
Additional rate taxpayers will pay tax on dividends at 39.35%.

This change applies UK-wide. The dividend tax allowance was first introduced in 2016 and replaced the old dividend tax credit with an annual £5,000 dividend allowance with tax payable on dividends received over this amount. The tax-free dividend allowance was reduced to £2,000 with effect from 6 April 2018 and has remain fixed at that level ever since.

The dividend tax is charged on taxable dividend income an individual receives that falls outside of the personal allowance and that exceeds the dividend allowance. Taxable dividend income excludes, for example, dividends on assets held in ISAs.

According to government figures, around 59% of individuals with taxable dividend income are not expected to pay any dividend tax in 2022-23. The average loss of those affected is around £335 although there will be additional and higher-rate taxpayers who will owe significantly more tax.

Tax-free mileage expenses

Posted on 21st April 2022 by Solutions Accountancy

If you use your own vehicle for business journeys, then you may be able to claim a tax-free allowance from your employer known as a Mileage Allowance Payment or MAP. The allowance is paid when employees use their own car, van, motorcycle or bike for work purposes. It is important to note that this tax-free allowance is not available for journeys to and from work but is available where employees use their own vehicles to do other business-related mileage.

Employers usually make payments based on a set rate per mile depending on the mode of transport. There are approved mileage rates published by HMRC. For cars, the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile. An equivalent payment of 20p per mile is available for bicycle travel and 24p per mile for motorcycle travel. These rates have been fixed for many years and HMRC has confirmed that they will continue to apply for the current 2022-23 tax year.

If an employee travels with business colleagues, they can claim an additional 5p per passenger per business mile for each qualifying passenger. Where an employer pays less than the published rates, the employee can make a tax relief claim for the shortfall using Mileage Allowance Relief (MAR). There is no equivalent to MAR for passenger payments, which means that if the employer pays less than 5p per mile to carry a passenger, the driver cannot claim any tax relief on the difference.

Please note that if employees are paid more than the approved mileage rates then the excess is treated as a Benefit in Kind. Conversely, if employees are paid less than the published rates, they can make a tax claim for the shortfall using Mileage Allowance Relief (MAR). There is no equivalent to MAR for passenger payments.

Basic principles of domicile

Posted on 21st April 2022 by Solutions Accountancy

Domicile is a general legal concept which in basic terms is taken to mean the country where you permanently belong. However, actually determining domicile status can be complex. In fact, HMRC’s guidance states that domicile cannot be defined precisely, but the concept rests on various basic principles.

Every individual must have a domicile at all times. The law ascribes a domicile to those individuals it regards as lacking capacity to choose one.
An individual cannot have more than one domicile at the same time for the same purpose.
An existing domicile is presumed to continue until it is proven that a new domicile has been acquired.

Your first domicile, known as a domicile of origin, is based on that of your parents, usually your father. Your domicile will change if you acquire a new domicile of choice. To do this, you usually have to move to another country and establish a permanent intention to remain there.

Although domicile can change, there is generally a presumption in favour of the continuation of an existing domicile. To change a domicile, lots of factors are considered. For example, the location family, property and business interests. The issues that need to be considered are one of the primary reasons that many of these complex cases are decided in court.

It is also possible for an individual to have two domiciles although this is unusual. Further, there is a concept in the UK of deemed domicile, whereby any person who has been resident in the UK for more than 15 of the previous 20 years will be deemed to be domiciled in the UK for tax purposes.

Planning for Basis Period reform

Posted on 21st April 2022 by Solutions Accountancy

The basis period reforms will change the way trading income is allocated to tax years. The reforms will change the basis period from a ‘current year basis’ to a ‘tax year basis’. Under the current rules there can be overlapping basis periods, which charge tax on profits twice and generate corresponding ‘overlap relief’ which is usually given on cessation of the business. The new method of using a ‘tax year basis’ will remove the basis period rules and prevent the creation of further overlap relief.

The new rules are set to come into effect in the 2024-25 tax year with 2023-24 being a transitional year. During the transitional year, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief given.

The changes will affect businesses which draw up annual accounts to a date different to 31 March or 5 April (mainly seasonal businesses and large partnerships), and businesses that commence from 6 April 2024. Affected businesses should ensure they are prepared for the changes as there may be implications on cashflow by accelerating profits into an earlier tax year as well as increased compliance costs.

Demergers

Posted on 21st April 2022 by Solutions Accountancy

There are special statutory demerger provisions that are designed to make it easier to divide and place into separate corporate ownership the trading activities of a company or group of companies. Using these provisions, an exempt demerger will be deemed to take place and the distribution will normally be exempt for Income Tax purposes and usually not give rise to any CGT as the gains are effectively rolled over.

The provisions do not apply where a trading activity is to be sold or becomes owned by a person other than the existing member of the original company.

The provisions allow the removal of the distribution charge in appropriate circumstances, making the distribution an ‘exempt distribution’. This applies to trading activities only. Companies that make use of the demerger provisions range from small private companies to some of the UK’s largest public companies.

The legislation also provides for a clearance procedure. Using this a company that wants to demerge trading activities can obtain advance confirmation from HMRC that the distribution that will arise will be an exempt distribution.

The use of these demerger provisions, when available, can be beneficial and help companies avoid adverse consequences of other more complex demerger options.

Business tax cuts from April 2022

Posted on 14th April 2022 by Solutions Accountancy

A number of business tax cuts came into effect from April 2022. This includes an increase in the Employment Allowance from £4,000 to £5,000.

The allowance enables eligible employers to reduce their National Insurance liability. An employer can claim less than the maximum if this covers their total Class 1 NIC bill. This increase represents a tax boost for around 495,000 small businesses who can claim an increased reduction in their NIC liabilities or even reduce their bills to zero.

The Employment Allowance is only available to employers with employer NIC liabilities of under £100,000 in the previous tax year. Connected employers or those with multiple PAYE schemes will have their contributions aggregated to assess eligibility for the allowance.

A news release from HM Treasury also highlighted a number of other measures on offer to spur business growth, including:

A new 50% business rates relief worth almost £1.7 billion, for eligible high street businesses, subject to a £110,000 cash cap per business.
A freeze to the business rates multiplier worth £4.6 billion over the next five years.
A temporary twelve-month-long 5p cut to fuel duty.
The super-deduction tax break that allows companies to deduct 130% of the cost of any qualifying investment on most new plant and machinery investments that would ordinarily qualify for 18% main rate writing down allowances continues until 31 March 2023.
Help to Grow programmes are supporting SMEs to adopt productivity enhancing software and to get mini-MBAs.