Debonair Management Services Limited

In two stealthy moves, the Chancellor used the 2018 Budget to raise some extra capital gains tax from certain individuals when they sell their home. Could this include you?

Selling tax free

As you probably know, if you make a gain from selling your home it’s exempt from capital gains tax (CGT) because of private residence relief (PRR). Even you haven’t used a property as your home for extended periods, for example if you live elsewhere because of your job, PRR can still apply (see The next step ). In addition, the last 18 months of ownership are always CGT free, regardless of whether you occupy the property or not. This means you could move into a new home before selling the old one without losing any PRR. However, the 2018 Budget included two important changes to the PRR rules.

First change – ownership period

The 2018 Budget reduces the PRR for the final period of ownership to nine months (instead of 18) with effect from April 2020. This means if you buy a new home, move out and the property doesn’t sell within nine months you could face a CGT bill when you do finally find a buyer.

Tip. Special rules currently allow PRR for the final 36 months of ownership if you’re in, or moving into, a care home or have a disability. This won’t change as a result of the Budget.

Annual exemption

If you lose some or all of your PRR and this results in a capital gain a CGT bill won’t always follow. Your annual CGT exemption, £12,000 from 6 April 2019 (if you haven’t used it against other gains) reduces the taxable amount. If there are joint owners they can also use their annual exemption to reduce the tax on their share of the gain.

Second change – letting relief

Currently, if you let your home PRR includes a bonus in the shape of an extra relief which can reduce the taxable amount of any capital gain you make from selling your home by up to a maximum of £40,000 (see The next step ). The Chancellor has decided that this letting relief is to be withdrawn from April 2020 unless you occupy part of your home or share it while letting it.

Check your circumstances

The once simple PRR is becoming more complicated year-on-year. If you’ve occupied a house as your main residence for a while, but you’ve also lived somewhere else, the Budget raises the chance of a CGT bill. In future when you sell your home you’ll need to consider the CGT position if you’ve been absent from your home for one or more extended periods during your ownership.

Trap. While some absences are ignored, this might only apply if you re-occupy your home after the absence.

CGT changes in the pipeline

In an obvious attack on landlords, although it may affect others, the Chancellor confirmed that from April 2020 anyone who makes a capital gain from selling residential property which is not covered by an exemption or relief will have to declare and pay an estimate of the CGT within the following 30 days.

DMS Posts

More changes to the taxation of termination payments

December 3, 2018 Debonair Management Services Limted

On 6 April 2019 the law relating to the taxation of termination payments will change. From that date, you’ll have to pay employers’ NI on any part of the payment that exceeds £30,000. What does this mean in practical terms?

PILON payments

Up until 5 April 2018 the tax rules stated that where an employer had a right or a discretion under the employment contract to make a payment in lieu of notice (PILON) on the termination of employment, the payment would be classed as normal earnings and subject to income tax and Class 1 NI in the usual way. These are payable by the employee but deducted by the employer.

£30,000 exemption removed

Where there was no PILON clause, or a discretion was not exercised, a termination payment was classed as damages, i.e. compensation, for the employer’s breach of contract. In this situation, the first £30,000 of the termination payment could be paid free of income tax and NI due to a statutory exemption. On 6 April 2018 the distinction was removed and all termination payments are subject to income tax and NI, no matter what the employment contract says.

The statutory formula

To work out the amount payable, you must calculate exactly how much of the PILON is post-employment notice pay (PENP). PENP is essentially the basic pay that an employee would have received for any unworked period of notice, minus any contractual PILON they are entitled to receive. Unfortunately, there’s a complicated statutory formula which must be used to calculate the actual PENP figure. You should calculate PENP for all employees whose employment is terminated, including those whose contracts contain an express PILON clause.

A nil PENP

Whilst you must make this calculation in every circumstance, the PENP will always be “nil” where an employee works out their full contractual notice period, i.e. they don’t leave, or are asked to leave, part-way through that notice period.

Tip. Where you need to calculate a PENP using the statutory formula, follow the guidance set out in HMRC’s manual (see The next step ).

More new rules

On 6 April 2019 there will be a further change to the taxation of termination payments (this change was originally due to take effect in 2018 but was delayed). From that date, you’ll also be required to pay employers’ NI on any part of a termination payment that exceeds £30,000. This exemption doesn’t relate to employees’ NI, so you’ll need to amend your payroll procedures accordingly.

Tip. The practical effect of this change is that a termination payment could cost you more overall because you’ll have to pay an additional 13.8% on the balance over £30,000. If you have any costly termination payments on the horizon, you can avoid this additional cost by concluding matters fully before 6 April 2019. Employment must also terminate before this date.

DMS Posts

Advisory fuel rates from 1 December 2018

December 3, 2018December 3, 2018 Debonair Management Services Limted

HMRC have published new advisory fuel rates for company car drivers which will apply from 1 December 2018.

The new rates will be:

Engine size	Petrol	Diesel	LPG	Electric*
1,400cc or less	12p		8p	4p
1,600cc or less		10p		4p
1,401cc – 2,000cc	15p		10p	4p
1,601cc to 2,000.cc		12p		4p
Over 2,000cc.	22p	14p	15p	4p

You can continue to use the old rates up to 31 December 2018.

DMS Posts

Certificate of residence

December 3, 2018 Debonair Management Services Limted

HMRC have published a new online form for companies and partnerships who wish to apply for a UK certificate of residence.

Certificates of residence are often needed to ensure that double tax relief or treaty relief is accepted by a country in respect of particular income or profits.

In some cases, a certificate or residence is required to avoid Withholding Tax.

HMRC have now issued a new online form, RES1, which can be used by companies, LLPs and partnerships, or their agents, to apply for a certificate of residence where proof of UK residency is required. In some cases the relevant double tax treaty may require that a letter is required rather than a form and additional conditions may apply. It will be necessary to check the requirements of the territory to which the certificate is to be provided.

To be able to complete the form you will need to have the following information:

Address and UTR of partnership or company
Reason for the certificate application
Type of income the certificate is required for
The period for which the certificate is required: this must be in the past
The ‘other country’ that requires the certificate
From the double tax treaty with that other country:
- The article number dealing with the type of income
- Whether the income must be subject to tax or liable to tax

In addition, if completing the form for a partnership you must have the following:

Managing partner full name, address and UTR
Title, full names and residency status of all partners

If completing the form for a company, you will need the company tax office ID, the UTR and, if this is for a new company before its first Corporation Tax return is submitted, you will need to explain why you believe the company is UK resident.

The partnership form should be sent to HM Revenue & Customs, PAYE & Self Assessment BX9 1AX.

The company form can be emailed to contactus.largebusinessscotlandandni@hmrc.gsi.gov.uk or posted to MUID 854, Large Business S0862, HM Revenue & Customs, Newcastle Upon Tyne, NE98 1ZZ.

The form can be found here.

DMS Posts

Autumn Budget 2018 – Other Matters

October 30, 2018 Debonair Management Services Limted

Extension of offshore time limits

Draft legislation has been issued to increase the assessment time limits for offshore income and gains to 12 years. Similarly the time limits for proceedings for the recovery of inheritance tax are increased to 12 years. Where an assessment involves a loss of tax brought about deliberately the assessment time limit is 20 years after the end of the year of assessment and this time limit will not change.

The legislation does not apply to corporation tax or where HMRC has received information from another tax authority under automatic exchange of information.

The potential extension of time limits will apply from the 2013/14 tax year where the loss of tax is brought about by careless behaviour and from the 2015/16 tax year in other cases. The amendments will have effect when Finance Bill 2018-19 receives Royal Assent.

Penalties for late submission of tax returns

Taxpayers are required to submit tax returns by specified dates. When taxpayers submit their returns late they generally incur a penalty. Draft legislation has been issued which sets out a new points-based penalty regime for regular submission obligations. Returns have to be submitted more frequently in some circumstances. Depending on the frequency of the return submission obligation, a defined number of penalty points will accrue to a threshold. Once this threshold has been reached, a fixed penalty will be charged to the taxpayer.

After this each late submission will attract a fixed penalty, until the taxpayer meets all submission obligations by the relevant deadline for a set period of time. Once this happens, and a taxpayer has provided any outstanding submissions for the preceding 24 months, the points total will reset to zero. Points will generally have a lifetime of 24 months after which they expire, so if a taxpayer accrues points but does not reach the threshold, the points will expire after 24 months. Taxpayers will have a separate points total per submission obligation.

Penalties for late payment of tax

Draft legislation has been issued to harmonise the late payment penalty regimes for income tax, corporation tax and VAT. Late payment penalties are charged when customers do not pay, or make an agreement to pay, by the date they should, and do not have a reasonable excuse for the failure to do so.

The penalties will consist of two penalty charges, one charge based upon payments and agreements to pay in the first 30 days after the payment due date and another charge based upon how long the debt remains outstanding after the 30 days.

Interest harmonisation

Draft legislation has been issued to change the VAT interest rules so that they will be similar to those that currently exist for income tax and corporation tax.

This will mean:

late payment interest will be charged from the date the payment was due to the date the payment is received
HMRC will pay repayment interest when it has held taxpayer repayments for longer than it should.

The provisions are expected to take effect for VAT returns from 1 April 2020.

Tackling the plastic problem

As part of the government’s response to tackling plastic waste, the following announcements were made:

Single-use plastics will be addressed in the Resources and Waste Strategy later in the year for situations where recycling rates are too low and producers use too little recycled plastic.
The issue of excess and harmful packaging will be addressed with a tax on the production and importation of plastic packaging which does not contain at least 30% recycled plastic. This tax will be implemented in April 2022.
The Resources and Waste Strategy will also consider ways of reducing the environmental impact of disposable cups. The government does not believe that a levy would be effective at this time but will return to the issue if insufficient progress has been made by those businesses already taking steps to address the matter.