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R & D boost for smaller businesses

Wednesday, November 4th, 2015

In a major boost for pioneering small businesses, the Financial Secretary to the Treasury, David Gauke, recently launched a new plan outlining how government will make it easier for small businesses investing in research and development to claim tax relief.

The two-year plan, which is a response to an HMRC consultation, aims to increase take-up of research and development (R&D) tax relief through raising awareness of the relief amongst small businesses and making it easier for them to apply.

The tax relief, which encourages companies to invest in costly new product development, helps companies reduce the amount of corporation tax they pay on profits by offsetting them against any investment in research and development. Latest statistics for 2013-14 show more than 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but the government wants to go further.

Financial Secretary to the Treasury David Gauke said:

R&D is crucial for the long-term growth of the UK economy. Over 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but we need to go further to support pioneering small businesses.

That’s why we’ve published a document setting out our plans to increase awareness and make it easier for people to apply.

The plan, ‘Making R&D Easier: HMRC’s plan for small business R&D tax relief’, was published 28 October 2015 and sets out that:

  • From November, small companies – with a turnover under £2 million and fewer than 50 employees – will be able to seek advance assurance on R&D tax relief. This will give them greater certainty and enable them to plan their finances effectively.
  • HMRC will explore ways to improve its communication around R&D tax relief, including looking at ways to use data and work with other government agencies to identify companies that have carried out R&D but have not claimed relief.
  • Interactive guidance will be developed with stakeholder involvement

HMRC evaluation shows that each £1 of tax foregone by R&D tax relief stimulates between £1.53 and £2.35 of additional R&D investment. SME R&D relief works by way of super deduction, allowing companies to reduce profits liable to corporation tax by 230 per cent of their qualifying R&D expenditure. In 2013-14, businesses received £1.75 billion in R&D tax relief, an increase of almost £750 million since 2009-10.

Tax avoiders beware

Tuesday, February 3rd, 2015

HMRC have published details of a new consultation they are undertaking to tighten the rules that will be applied to tax payers who use avoidance schemes to artificially reduce their tax liabilities.

The press release includes the following ten points that persistent tax avoiders should be aware:

  • HMRC is serious about stopping avoidance: the government is taking unprecedented steps to clamp down on the small minority who try to avoid paying tax that is legally due.
  • Other people are getting out of avoidance: increasing numbers of people involved in multiple avoidance schemes are approaching HMRC to settle up so that they can put the past behind them and protect their reputation.
  • HMRC want to help you to get out of avoidance: HMRC will work with avoiders who demonstrate a commitment to resolving their avoidance arrangements to finalise their tax liability and will provide certainty over payment terms. HMRC has set up a single point of contact to help establish the possible terms for exit from each scheme a serial avoider uses.
  • HMRC is moving more quickly to tackle serial avoiders: as they close in and increase their focus on this minority, HMRC will look ever more carefully at those who use multiple schemes.
  • You are the one who is responsible: even if a promoter or agent has arranged the avoidance scheme for the user, the avoider remains responsible for their own tax affairs and what is put on their tax return. Serial avoiders will personally have to provide HMRC with information and documents regarding their tax affairs.
  • HMRC has a special unit looking at you: the Serial Avoiders Unit is identifying users of multiple schemes who choose not to approach HMRC to settle their affairs.
  • You may personally have to attend meetings with HMRC investigators: HMRC will ask you about your tax affairs and will be checking that they have the full facts about your arrangements.
  • HMRC will look at all your tax affairs: serial avoiders will be subject to a more co-ordinated approach to challenge and resolve their tax affairs. HMRC will look at your current activity, not just enquiries that are already open. And they will look at all the entities and structures you are connected with, to challenge any avoidance and evasion in all areas of your affairs.
  • You may have to pay up front: HMRC will fundamentally reduce the incentive to engage in serial tax avoidance and recover all duties legally due at the earliest opportunity. Multiple users of schemes may receive Accelerated Payment Notices before other users of a scheme.
  • There are heavy sanctions: HMRC will evaluate the behaviour of each serial avoider and this could result in penalties for careless or deliberate behaviour or for any failure to disclose avoidance. Deliberately misleading or concealing information from HMRC could lead to prosecution and criminal conviction.

 As part of the ongoing clampdown on tax avoidance, HMRC has set up the new Serial Avoiders Unit (SAU) which will identify and tackle users of multiple avoidance schemes.

The specialist unit will offer a new hotline service to help people who have used multiple schemes and want to get their tax affairs in order. This will provide a single point of contact within HMRC to facilitate resolution of their tax affairs.

Self Assessment late filing penalties

Tuesday, February 3rd, 2015

The deadline for submitting your Self Assessment tax return for 2013-14 has passed. The online filing date, after which penalties apply, was midnight, 31 January 2015.

 Penalties for individuals:

 If you failed to make the filing deadline a range of penalties becomes payable, or potentially payable, how much will depend on how quickly you bring your affairs up-to-date.

 Penalties are progressive: they apply from 1 day, 3 months, 6 months and 12 months after 31 January 2015 for the 2013-14 return. 

  1. One day late: an automatic penalty of £100 applies.
  2. 3 months late: a daily penalty of £10 per day for a maximum of 90 days applies (£900).
  3. 6 months late: a further £300 or 5% of any tax outstanding, whichever is the greater.
  4. 12 months late: a further £300 or 5% of any tax outstanding, whichever is the greater. In serious cases you may be asked to pay 100% of the tax due instead.

 The above penalties are in addition to any penalties and interest for paying tax late.

 Penalties for partners:

 There is a nasty sting in the tail for partners who fail to submit their partnership Self Assessment return on time.

 Even though a partnership tax return is one document each partner will be charged a penalty for late filing. If a partner is also late in filing their own tax return then separate penalties will apply.

 The penalties listed in points 1 and 2 above will be payable by each partner. The penalties in points 3 and 4 will be limited to £300 per partner.

 Opportunities to appeal against a penalty charge are considered in the next article.

What is a reasonable excuse for late filing

Tuesday, February 3rd, 2015

You may feel aggrieved that you were unable to file your return on time for a perfectly valid reason. If you want to appeal against any penalties charged there is a formal appeals procedure you should follow. In order to convince HMRC to withdraw their penalty notice you will have to convince them that you had a reasonable excuse.

 The following examples, of what constitutes a reasonable excuse, are copied from HMRC’s website:

  • HMRC Online Services would not accept the tax return – you’ll need to provide the error message you received and the date you tried to send it.
  • You did not receive the tax return or letter telling you to complete a tax return – HMRC usually know if you did not because it is sent back undelivered.
  • Bereavement – the death of a close relative or domestic partner shortly before the deadline.
  • Serious or life-threatening illness, for example, a major heart attack or a serious mental illness that prevents you dealing with your tax affairs.
  • You did not receive your online Activation Code, User ID or password in time to send your tax return by the deadline – as long as you tried to get them before the deadline and once you received them you sent your tax return as soon as you could.
  • Your tax return or cheque was lost or delayed in the post. You must have posted it in good time to meet the deadline.
  • Loss of tax records, through theft, fire or flood that cannot be replaced in time to meet the deadline.
  • Your cheque was dishonoured because of an error by your bank.

 What HMRC will not accept as a reasonable excuse includes:

  • The tax return was too difficult to complete.
  • Pressure of work.
  • It was your agent’s or tax adviser’s fault that you missed the deadline.
  • Lack of information available.
  • We did not remind you about the tax return and payment deadlines.
  • You want to replace the paper tax return you have already sent with an online tax return to reduce your penalties.
  • Unable to send a certain tax return or supplementary pages online as there was no free HMRC software.
  • Your cheque was dishonoured due to a shortage of funds or made out incorrectly.

The best possible strategy to avoid penalties is to file your tax return before the statutory deadline. If you are prevented from doing so by circumstances that you feel constitute a reasonable excuse, then you should appeal against the penalty.

Home based businesses and business rates

Tuesday, February 3rd, 2015

The local property tax you pay, in England and Wales, will be either Council Tax or Non-domestic (business) Rates depending on the type of property. Some properties are part business and part domestic, so you may pay both taxes. Good examples are public houses where the publican lives on the premises or shops where the shopkeeper lives in a flat over the shop.

Generally, you should not have to pay business rates for minor business use of the home. The Government does not normally expect home-based businesses to have to pay business rates if:

  • You use a small part of your home for your business (for example you use a bedroom part of the day as an office), and
  • You do not use it to sell goods or services to visiting clients or members of the public (as opposed to selling by post), and
  • You do not employ other people to work at the premises, and
  • You have not made alterations of a sort that would not usually be associated with a home (such as converting a garage to a hairdressers or installing a hydraulic car lift).

 These are general guidelines currently set out on the GOV.UK website. Some situations might need the facts of each case to be considered.

Snugglebundl wins appeal

Tuesday, February 3rd, 2015

In a recent case considered by the courts a company that sold a baby lifting blanket appealed a ruling by HMRC that the supply was standard rated for VAT purposes.

For the company this placed them at a competitive disadvantage as retail outlets selling the item were required to charge VAT at 20%.

 

At issue was whether a Snugglebundl qualified as an article designed as clothing or footwear for young children and should therefore be zero rated for VAT when sold.

 

The First-tier Tribunal disagreed with HMRC’s judgement and the appeal was upheld.

 

The case is of interest as it helps to clarify that an item of clothing can have other uses and still qualify as clothing for VAT purposes; although the decision in this case is “fact sensitive”.

Tax Diary February/March 2015

Tuesday, February 3rd, 2015

1 February 2015 – Due date for Corporation Tax payable for the year ended 30 April 2014.

 19 February 2015 – PAYE and NIC deductions due for month ended 5 February 2015. (If you pay your tax electronically the due date is 22 February 2015.)

 19 February 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2015.

 19 February 2015 – CIS tax deducted for the month ended 5 February 2015 is payable by today.

 1 March 2015 – Due date for Corporation Tax due for the year ended 31 May 2014.

 2 March 2015 – Self Assessment tax for 2013/14 paid after this date will incur a 5% surcharge.

 19 March 2015 – PAYE and NIC deductions due for month ended 5 March 2015. (If you pay your tax electronically the due date is 22 March 2015.)

 19 March 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2015.

 19 March 2015 – CIS tax deducted for the month ended 5 March 2015 is payable by today.

 

Statutory Maternity and Paternity Pay

Friday, January 30th, 2015

What you can reclaim

As an employer, you can usually reclaim 92% of employees’ Statutory Maternity (SMP), Paternity and Adoption Pay.

You can reclaim 103% if your business qualifies for Small Employers’ Relief. You get this if you paid less than £45,000 in Class 1 National Insurance in the last complete tax year before the qualifying or matching week (or the official notification for overseas adoptions).

Statutory Maternity Leave

Eligible employees can take up to 52 weeks’ maternity leave. The first 26 weeks is known as ‘Ordinary Maternity Leave’, the last 26 weeks as ‘Additional Maternity Leave’.

The earliest leave can be taken is 11 weeks before the expected week of childbirth. Employees must take at least 2 weeks after the birth (or 4 weeks if they’re a factory worker).

Statutory Maternity Pay (SMP)

SMP for eligible employees can be paid for up to 39 weeks, usually as follows:

  • the first 6 weeks – 90% of their average weekly earnings (AWE) before tax
  • the remaining 33 weeks – £138.18 or 90% of their AWE (whichever is lower)

Tax and National Insurance need to be deducted. Most payroll software packages cope with these transactions.

Women are more likely than men to send in their tax return on time

Tuesday, January 27th, 2015

Women are more likely than men to send in their tax return on time, an HM Revenue and Customs (HMRC) analysis has revealed.

For every 10,000 tax returns received last year by HMRC from men, 394 were after the relevant deadline – 31 October for paper submissions and 31 January for online returns. This compares to 358 late returns for every 10,000 received from women.

As well as a gender gap, HMRC’s analysis showed a significant difference in filing behaviour between age ranges. People aged 18 to 20 were the worst offenders, with 1,085 in every 10,000 filing late. At the other end of the scale, those aged 65 or over were the most punctual, with only 155 out of every 10,000 missing the deadline. HMRC’s analysis found that the older you are, the more likely you are to send in your tax return on time.

In terms of differences between workers in different industries, those in the agriculture, fishing and forestry industry are the star performers, with just 109 in every 10,000 filing late returns. Lawyers and accountants came second (219 late filers per 10,000), with health and social workers (262 per 10,000) in third place. Workers in the information and communication industries fared the worst (390 per 10,000), with administrative and support services not far behind (388 per 10,000) and the construction industry the next worst performing sector (352 per 10,000).

Across the United Kingdom, taxpayers in Northern Ireland were the most punctual (301 per 10,000), followed by those in Wales (346 per 10,000), England (374 per 10,000) and Scotland (391 per 10,000). The figure for the United Kingdom as a whole was 372 late filers per 10,000.

Within the English regions, South West taxpayers were the least likely to miss the deadline (299 per 10,000), followed by the East Midlands (324 per 10,000), Yorkshire and the Humber (337 per 10,000) and the West Midlands (344 per 10,000). By some distance, the worst-performing region was London (512 per 10,000), followed by taxpayers in the North East (380 per 10,000), North West (369 per 10,000), South East (355 per 10,000) and the East of England (346 per 10,000).
 

Have you utilised your exempt amount for capital gains tax purposes

Thursday, January 22nd, 2015

As we are approaching the end of the 2014-15 tax year, individuals who own assets that are subject to capital gains tax (CGT) may be advised to consider the comments made in this article.

If you dispose of a chargeable asset between 6 April 2014 and 5 April 2015 you are allowed gains of up to £11,000 tax free. If you have made no chargeable disposals in this period, but are considering a disposal after 5 April 2015, you may want to reconsider the timing of the disposal.

The £11,000 allowance cannot be carried forward. If you have no gains to cover with the allowance it is a permanent loss of tax relief.

This planning opportunity is especially useful if you have a portfolio of shares. If you are advised by your broker to consider the disposal of a holding it should be possible to time the disposal (perhaps selling some shares before 5 April 2015 and some afterwards) to maximise utilisation of the exempt allowance.

The utilisation of this allowance can be enhanced if you are sitting on potential capital losses. For example, you may own shares that will never recover from a recent drop in price – they have become of negligible value. A separate claim can be made for this sort of loss of value and in some cases it may be possible to set off losses against income rather than other capital gains.

The key to these and other tax planning strategy is to consider your options before 5 April 2015. As we have said before, on numerous occasions, once the tax year end date is passed, many allowances and reliefs may be permanently lost. Spending an hour or two with your tax advisor before 5 April may be the best investment you make this year…