Uncategorized

Pay CGT on property in 30 days

From 6 April 2020, Capital Gains Tax due on the disposal of residential properties will be payable within 30 days of the completion date. This is another step in the acceleration of tax payment dates

The delay between making a capital gain and paying the CGT due can be as much as 22 months. For example, the CGT arising from a gain made by a UK resident individual on 6 April 2019 will be payable by 31 January 2021.   

NRCGT

In 2015, certain non-resident landlords were the first to be hit with an acceleration of tax payment period under the non-resident capital gains tax (NRCGT) rules. This tax was payable on gains arising from UK residential property, but only in respect of gains accruing from 6 April 2015 to 5 April 2019. Larger corporate landlords who paid the annual tax on enveloped dwellings (ATED) on their residential properties were liable to pay the ATED-related gains charge instead of NRCGT.

The transaction subject to NRCGT had to be reported within 30 days of the completion date, whether or not there was tax to pay. This short reporting period generated a lot of late filing penalties for taxpayers who weren’t advised of the change in the law, or in some cases were incorrectly advised by HMRC (Kirsopp TC07064).

The NRCGT was also payable within 30 days, but taxpayers who were already registered with HMRC for self assessment could defer that tax so it was payable with their normal SA tax.

New NRCGT

Finance Act 2019 transformed NRCGT so it now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property). This includes gains arising from indirect disposals of property such as where shares in a property-rich company are sold. Gains accruing from periods before April 2019 (or April 2015) stay out of the UK tax net if the landlord remains non-resident.

The NRCGT is also potentially payable by all non-resident landlords, as the ATED-related gains charge is abolished from 6 April 2019.

The NRCGT is charged at the normal rates of CGT for the taxpayer concerned, so corporates pay at 19% (corporation tax rate) and individuals, trustees and personal representatives pay at 18% or 28%. The tax is due within 30 days of the completion date for all transactions (with no deferrals), although as most properties have a base value at 5 April 2019, few gains will actually be subject to NRCGT in 2019/20.

UK landlords

In 2018, the government proposed that CGT would be payable “on account” within 30 days of the completion date for all UK residential properties disposed of by a UK resident. This change was due to come into effect on 6 April 2019 to coincide with the new NRCGT rules, but it was delayed until 6 April 2020.

The “on account” description of the tax payment is a misnomer as the full amount of CGT will be payable within 30 days, alongside a new online property disposal return. I suspect this return may look much like the existing real-time CGT report, except it will be possible for HMRC to enquire into the property disposal return independently of the taxpayer’s SA return.

If there is no gain to report or the gain is covered by exemptions or losses, the taxpayer won’t have to complete a property disposal return. It seems a lesson has been learned from the hundreds of late-filed NRCGT returns which reported little or no gain.  

If there is a taxable gain to report, the taxpayer must calculate the CGT due taking into account their annual exemption for the year and guess at the correct rate of CGT to apply (18% or 28% based on 2019/20 rates).

After the end of the tax year, the taxpayer will complete their self assessment tax return, including the property gain. Once their full income, gains and losses for the year are calculated, the true amount of CGT will be ascertained and any “on account” payment will be deducted. This could result in a repayment of CGT for the taxpayer. 

Action

Clients need to tell their tax advisors about their residential property sales as soon as they are agreed, so the tax due can be calculated and the property disposal return submitted to HMRC within 30 days of the completion date.

Uncategorized

VAT: Reverse charge for builders delayed until 2020

In a move hailed as a ‘victory for common sense’, the government has announced a 12-month delay to the introduction of the domestic reverse charge VAT for construction services, citing industry concerns and Brexit as the reasons behind the postponement.

Clock in the helmet

In a short briefing on gov.uk, the government announced it would be putting the introduction of the domestic reverse charge for construction services on ice for a period of 12 months until 1 October 2020.

The brief explained that industry representatives had “raised concerns” that many construction sector businesses were not ready to implement the changes on the original date of 1 October 2019. To help them prepare, and to avoid the new rules kicking in at the same time as the UK’s potential exit from the European Union, the reverse charge has been delayed for 12 months until 1 October 2020.

‘Construction chaos’ avoided?

Industry insiders, including the largest trade association in the UK’s construction sector, had called on the government to delay the changes, citing research findings that the charge could lead to a spike in company insolvencies and ‘construction chaos’.

In a statement, HMRC said that it “remains committed” to introducing the charge and in the intervening year it will focus additional resource on identifying and tackling existing perpetrators of VAT-related fraud in the industry. HMRC also committed to working closely with the sector to raise awareness and provide additional guidance to make sure all businesses will be ready for the new implementation date.

The tax authority recognised that some businesses will have already changed their invoices to meet the needs of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC has stated that it will take into account the late change in its implementation date.

“Some businesses may have opted for monthly VAT returns ahead of the 1 October 2019 implementation date, which they can reverse by using the appropriate stagger option on the HMRC website,” said the statement.

‘Victory for common sense’

Reacting to the news, Brian Berry, Chief Executive of the Federation of Master Builders, hailed the decision as “sensible and pragmatic”.

“To plough on with the October 2019 implementation could have been disastrous given that the changes were due to be made just before the UK is expected to leave the EU, quite possibly on ‘no-deal’ terms,” said Berry.

Uncategorized

The revised IR35 rules that apply from 2020/21 will require the engager to issue a status determination statement and allow contractors to challenge it.

The production of the status determination statement and what happens to it after it is issued plays a pivotal role in deciding who is liable for any IR35 tax and NIC.

What is the SDS?

Under the revised form of IR35, the engager (referred in the law to as the ‘end client’) will decide whether a worker is caught by IR35 or not. However, only engagers who are themselves not ‘small businesses’ will have to do this, as Rebecca Seeley Harris explained in her analysis of the off-payroll working rules.

The engager must notify the worker of its decision about the worker’s status in a status determination statement (SDS). The SDS must explain the reasons for the decision and the engager must take reasonable care in reaching the decision. It is clearly envisaged that the SDS will be a written document.

Buck passing

The IR35 tests are not changing but the party liable for the tax and NIC, should IR35 apply, does change from April 2020 for large engagers.

Unless and until the engager provides an SDS to the worker personally, the engager will always be liable for any IR35 duties. Where, as will often be the case, the engager is contracting with an agency the engager can pass the SDS to the agency, with the result that the agency then becomes the liable party, as long as the requirement to give the SDS to the worker is complied with.

If the agency is contracting with another intermediary the agency can, in turn, pass the SDS to that intermediary, which in turn becomes liable to pay the tax.

The SDS is passed on through the supply chain until it reaches the personal service company (PSC). The buck eventually stops with the last person in the supply chain paying the PSC directly. The SDS can’t pass down to the PSC, so the PSC will no longer be liable for IR35 (unless the PSC has provided any fraudulent document to do with the employment status test).

The person who is liable for the IR35 tax (referred to as the ‘deemed employer’) must deduct PAYE tax and employee’s NIC from the payments they make to the next person in the supply chain as if the worker were on their payroll.

The law also permits anybody in the supply chain to pass on a deduction they have suffered to the next party in the chain. However, employer’s NIC liability, as well as the apprenticeship levy liability, remain with the deemed employer and there is no statutory right to deduct these liabilities, although in practice many deemed employers will probably do so regardless.

Challenging the decision

The new IR35 rules allow either the worker or the deemed employer to challenge the SDS and make representations to the engager who issued the SDS. The engager then has 45 days to either confirm, with reasons, why it upholds the SDS or to withdraw and replace the SDS with a revised decision. The draft law doesn’t say that such representations have to be in writing.

If the engager does not comply, the IR35 tax liability shifts back to the engager. Unlike the pass-the-buck procedure with the SDS, it appears from the current draft law that this liability shift is final and conclusive: it can’t be corrected by complying with the process outside the 45-day window once the deadline is missed.

The clock starts ticking upon receipt of the SDS challenge, which is a problem for agencies in the chain. For example, an agency might believe it is liable for the IR35 tax and thus entitled to make PAYE deductions. But that agency won’t know whether a worker has challenged the SDS issued by the engager, or whether the engager has responded.

CEST issues

In recent cases, HMRC has consistently got IR35 wrong. However, engagers are expected to make an accurate status determination in this notoriously complex field of law.

The revised IR35 rules seem designed to nudge engagers towards using HMRC’s check employment status for tax (CEST) tool.

The CEST tool may provide a reasoned conclusion on IR35 which would satisfy the SDS requirements. However, in many cases, the CEST tool returns an “unable to determine” conclusion. This is not an option open to the engager. An equivocal conclusion is not a valid SDS – the legislation expressly prohibits any sitting on the fence.

However, the CEST tool leans incorrectly towards disguised employment, as it doesn’t take into account the fundamental characteristic of any employment relationship, which is the degree of mutual obligation to offer and accept work (the MOO).

Implications of getting it wrong

Engagers making IR35 decisions that are too harsh or cautious will be incorrectly imposing employer’s NIC and apprenticeship levy liabilities on themselves or others, and therefore will face inevitable commercial problems engaging contractors to do work.

The engager will also have to provide the worker directly with an SDS. It will be interesting to see the response of contractors who are given a document telling them that they are being engaged as a ‘disguised employee’ without any employment rights.

If engagers get things unreasonably wrong the other way, they risk a retrospective IR35 tax liability, as well as penalties for carelessness. The engager may also have missed the opportunity to recover those liabilities from the contractor’s PSC under PAYE, or to pass the liability obligation on to an agency.

Recovery powers

The draft Finance Bill clauses give HMRC the power to make regulations to allow it to recover IR35 debts from anybody who is party to the arrangements. This would encompass the engager, the agency or any other intermediaries in the supply chain, the PSC and the worker. However, the precise circumstances of debt recovery are not yet known.

Preparation is key

All parties in the supply chain will need procedures to ensure that an accurate SDS is made, passed on to the correct parties at the correct time and that any challenges to the SDS are dealt with and communicated properly. All this will need to be carefully documented in the case of any dispute about the tax liability.

DMS Posts

Late filing statistics from Companies House.

With latest figures published by Companies House showing an increase of 2% in accounts being filed late for 2018 (as compared with 2017), we thought it was worth reminding you of the fines that companies could face:

Accounts delivered late Penalty: Private company/LLP Penalty: PLC
< 1 month £150 £750
> 1 – 3 months £375 £1,500
> 3 – 6 months £750 £3,000
> 6 months £1500 £7,500

According to Companies House, 223,640 companies (4,202,044 total on register) were late to file their accounts, with the worst areas being London, Birmingham and Manchester.

Uncategorized

Advisory fuel rates for company cars 1st June 2019

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which take effect from 1 June 2019. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 June 2019 are:

Engine sizePetrol
1400cc or less12p
1401cc – 2000cc15p
Over 2000cc22p
Engine sizeLPG
1400cc or less8p
1401cc – 2000cc9p
Over 2000cc14p
Engine sizeDiesel
1600cc or less10p
1601cc – 2000cc12p
Over 2000cc14p

HMRC guidance states that the rates only apply when you either:

  • reimburse employees for business travel in their company cars or
  • require employees to repay the cost of fuel used for private travel.

You must not use these rates in any other circumstances.

The Advisory Electricity Rate for fully electric cars is 4 pence per mile. Electricity is not a fuel for car fuel benefit purposes.

Internet link: GOV.UK AFR

DMS Posts

Government confirms implementation of pensions dashboards

The government has confirmed that the initiative to introduce a pensions dashboard will go ahead.

Pensions dashboards will allow those saving for retirement to view information from multiple pensions in one place stating that the dashboard will ‘open up pensions to millions’, and ‘provide an easy-to-access online view of a saver’s pensions’.

The Department for Work and Pensions (DWP) will bring forward legislation that will require pension scheme providers to make consumers’ data available to them through their chosen dashboard. The plan is to include State pension information as well.

Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), said:

‘The government’s commitment to compel pension schemes to share data with platforms through primary legislation is particularly welcome. Some urgency is now required, and we question the three to four-year timeframe for schemes to prepare data for dashboards.’

Internet links: GOV.UK Pensions dashboard fsb press release

DMS Posts, PAYE, Tax

Latest guidance for employers

HMRC has issued the latest version of the Employer Bulletin. This April edition has articles on a number of issues including:

  • Cash Allowances, Flexible Benefits Packages and Salary Sacrifice
  • Unpaid work trials and the National Minimum Wage
  • Diesel Supplement Company Car Tax Changes to meet Euro standard 6d
  • Student Loans
  • Construction Industry Scheme – helpful reminders for contractors and subcontractors
  • Welsh rate of income tax and Scottish Income Tax.

If you have any queries on payroll matters please contact us.

Internet link: Employer Bulletin April 2019