Abbey

Chartered Tax Advisers
Old Bishops' College
Churchgate
Cheshunt
Hertfordshire
EN8 9XP

T: 01992 642024

E: abbey@abbeyaccountants.com

Smiling businessmen and women

  TAX E-NEWS - August 2016


Welcome to the August monthly tax newsletter.  These newsletters are designed to keep you informed of the latest tax issues.

Please contact us if you need further information on any of the topics covered.

Peter McDaid
CTA ATT TEP
Director




BREXIT – What are the tax implications?


One of the fundamental reasons that individuals voted "leave" was to restore democratic and fiscal sovereignty to the UK so that we are able to set our own laws without interference from Brussels. From our perspective the amount of tax law which originated one way or another from Brussels was and is quite unbelievable.

Examples of this are that significant tax changes currently require “State Aid” approval and we have seen many recent tax changes forced on us by the EU such as the extension of Furnished Holiday Letting treatment to EU situated properties and the extension of the Enterprise Investment Scheme and Enterprise Management Scheme to companies with a Permanent Establishment in the UK. The list is endless and contributed to making the UK tax system far more complex than it needed to be. Hopefully this will eventually stop and we can start making tax law purely for the UK benefit alone.

So the question is what can we expect next on the tax front as a result of “BREXIT”?

VAT is the one tax that is likely to see the most significant changes as a result of leaving the EU. As stated in last month’s newsletter, it is well known that it will take at least 2 years following the UK’s notification of Article 50 before we actually leave the EU. So until then, businesses will trade as normal, with business to business trade (“B2B”) in the EU being largely VAT and Duty free.

VAT is a European tax. Withdrawal from the EU means that UK VAT law will no longer be governed by the EU VAT Directive.

In the 2016 Budget it was announced that VAT would raise £138bn revenue for the UK Treasury in 2016/17, second only to income tax and about £100bn more than corporation tax. Therefore, it is expected that VAT or something equivalent will remain in place as an important revenue raiser for the UK, but the UK will in future have more freedom to set VAT rates. On the plus side, more zero-rating may emerge, whereas on the downside VAT may be raised above 20%, to cope with a possible recession and to generate additional revenue.

The biggest VAT impact will be the change to Intra-EU trade. At the moment B2B transactions are zero rated for VAT purposes. In future such sales will be imports into the EU and subject to EU VAT, which has a number of potential consequences. On the plus side, there will be no more Intrastat or European Sales Lists (ESLs) for UK businesses to complete.

However, businesses and their advisers will need to consider the following points:

- Will a local EU VAT registration be required?

- There will be increased freight agent costs of arranging imports and exports. There will be a requirement to “enter and clear goods”.

- Whilst UK businesses should still be able to recover VAT on overseas expenses, the system is paper based and is a more onerous and lengthy procedure.

POSSIBLE CUSTOMS DUTY CHANGES

This potentially has a major impact and very much depends on the negotiation of a Free Trade Agreement (“FTA”) with the EU. Without an FTA, the normal WTO tariffs apply.

For example, for a UK car manufacturer selling cars to it’s French subsidiary would result in a 10% duty tariff, being imposed on the transaction. Therefore, an FTA is critical to businesses with EU supply chains.

The EU, in particular Germany, sells far more cars to the UK than we sell to them and it is therefore in their self-interest not to have a duty tariff imposed.


THINKING ABOUT INCORPORATING YOUR BUSINESS?

Where a sole trader, partnership or LLP has established a significant value for the goodwill of their business it was possible up until 3 December 2014 to transfer that goodwill to a limited company and pay just 10% capital gains tax by claiming entrepreneurs’ relief. The former owner(s) could then draw down on the director’s loan account created with the transferee company over time as future cash was generated by the business. This tax planning strategy became less attractive when entrepreneurs’ relief was denied where the transferor and transferee were related parties, although the latest Finance Act has relaxed this rule where the former owner receives less than 5% of the acquiring company’s shares.

Now that the top rate of CGT has been reduced to 20% from 6 April 2016 for such transfers, rather than 28%, it may be worth reconsidering this strategy. For example, where an individual’s share of goodwill is worth £500,000 the CGT due would be £100,000 leaving £400,000 net of tax. Note that for a transfer in June 2016 the CGT would not be due until 31January 2018.

As part of this planning exercise it is worth considering charging interest to the company on the loan account balance as that is now more tax efficient than dividends for higher rate taxpayers.

Note that although the goodwill would generally need to be written off against the company’s profits, there is no longer a tax deduction for the amortisation resulting in higher taxable profits.

TRIVIAL BENEFITS IN KIND NOW EXEMPT

Employees are no longer taxable on trivial benefits in kind, provided the cost to the employer is less than £50. This must not be cash or vouchers or a reward for past or future services but is intended to cover gifts of flowers on a birthday or a turkey at Christmas.

SEED EIS RELIEF DENIED

The Enterprise Investment Scheme (EIS) and the recently introduced Seed EIS provide generous tax breaks for investors who subscribe for shares in qualifying companies provided the correct procedures, and in particular the correct forms, are used to claim tax relief.

Seed EIS provides income tax relief of 50% of the amount invested and EIS 30% relief, both given by way of a deduction from the investor’s income tax liability. Furthermore, there is an exemption from capital gains tax when the shares are sold after 3 years.

In a recent case before the Tax Tribunal, tax relief for Seed EIS investors was denied by HMRC and the Tribunal as the directors had filled in the wrong HMRC forms! They tried to save costs by not using professional advisers - a very costly mistake!

BEWARE SCAMMERS AND FRAUDSTERS

Every day more and more people are being approached via phone calls, emails, text messages and letters by scammers and fraudsters claiming to be from HMRC. Most of the time it is an attempt to get a person to reveal personal information but sometimes it is a blatant attempt to extract money.

HMRC has recently updated their guide on this which can be found at: https:www.gov.uk/publications/phishing-and-bogus-emails-hm-revenue-and-customs-examples.

TAX DATES AND PAYMENTS

Date What's Due
19 August

PAYE & NIC deductions, and CIS return and tax, for month to 05/08/2016 (due 22 August if you pay electronically)

1 September Corporation tax for year to 30/11/15
19 September PAYE & NIC deductions, and CIS return and tax for month to 05/09/2016 (due 22 September if you pay electronically).

If you have any questions about this newsletter please contact us, we will be happy to help.