Author Archives: Lauren Quinn

Making Tax Digital starts on 1 April – Are you ready?

Question.

 

I run a small business and I have received a letter from HMRC about Making Tax Digital for VAT and a deadline of 1 April. What do I need to do?

 

Answer.

 

The countdown is on until the UK Government’s digital tax reporting system, Making Tax Digital, opens for VAT-registered businesses on 1st April 2019.

 

The Making Tax Digital (MTD) initiative is designed to bring the UK’s tax administration into the 21st century, while making the reporting process simpler and more efficient for taxpayers.

 

All VAT-registered businesses with a turnover above the current £85,000 VAT threshold will be legally required to digitally record their books and file VAT returns using MTD-compliant accounting software.

 

According to HM Revenue & Customs (HMRC), 99% of all VAT returns are filed online, but just 13% of these are filed using software. The remaining 87% are manually entered in to HMRC’s Government Gateway.

 

However, the arrival of MTD for VAT will mean affected businesses can no longer file their VAT returns using the Government Gateway website. Instead, they will have to submit their returns using MTD-compliant software.

 

HMRC have stated they will not be offering software to help small firms comply with Making Tax Digital for VAT. Some businesses may already be using bookkeeping software that can file directly with HMRC. However, if you’re affected by MTD for VAT and your business is using spreadsheets, handwritten records or non-compliant software, you may need to change your systems, invest in new software or ask your accountant to help you meet your obligations.

 

MTD is intended to help you keep track of your tax position throughout the financial year and all in one place- your personal tax account and your business tax account if you are self-employed.

 

There are many advantages, including:

 

• Ensure the details HMRC holds about you are accurate – new digital tax accounts will make it easier to check the information HMRC retains about you and your business is 100% correct.

 

• Eliminate human error – MTD compliant tax reporting software will enable HMRC to review your tax information almost immediately, drastically minimising human error from data input.

 

Better clarity over your tax position – benefit from a clearer understanding of how much tax is owed and when within your digital tax account.

 

Easier contact with HMRC – your new digital tax account will be designed to liaise with HMRC easily online via secure messaging and webchats.

 

HM Revenue and Customs (HMRC) has warned that VAT-registered businesses have just four weeks until the introduction of Making Tax Digital for VAT. HMRC estimates that 1.2 million businesses will need to comply but only 30,000 businesses have signed up early to the Making Tax Digital pilot.

 

HMRC hope that digitising the VAT return system will help to reduce the time businesses spend on their administration and bookkeeping in the long run, while making it easier for them to accurately calculate their VAT liability.

 

Ahead of the 1st April 2019, there are some steps to make sure you’re ready for MTD for VAT:

 

• Familiarise yourself with the rules. Will it apply to your business and if so when?

• Establish if your bookkeeping systems and software are compliant with MTD for VAT

• If you’re using a bookkeeper or accountant, make sure they’re ready for MTD for VAT

 

For more information of Making Tax Digital please click here

 

The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

 

Get in touch with Feargal McCormack via email f.mccormack@pkffpm.com

 

Fuel Scale Charge

Question.

I am the director of a limited company and regularly use my private car for business journeys. Can I reclaim VAT on the fuel purchased?

Answer.

Where a vehicle is used for both business and private purposes, provided the company does not pay a fixed rate under the Flat Rate Scheme, there a several ways a company could recover the VAT on fuel purchased. The company could choose to reclaim the VAT on fuel purchased for business use, and therefore would not claim VAT on any private mileage. In this case the company would need to keep detailed mileage records for any mileage incurred, the purpose of the journey and the car details. Alternatively, the company could choose to reclaim all of the VAT on fuel purchased and pay the correct fuel scale charge for the vehicle. This adds back a fixed sum, per VAT period, to account for private consumption of fuel. The fuel scale charge is calculated according to a car’s CO2 emissions and the fixed charge is added to output VAT on the company’s VAT return. You can find details of your cars CO2 emissions on the DVLA website. For cars which are too old to have a CO2 emissions figure, you should identify the CO2 band based on engine size. Note that fuel scale charges are amended each year and can be found on the HMRC website. If business mileage is very low the fuel scale charge may be higher than the VAT, the company could reclaim. In this case the company can choose not to reclaim any VAT. If, however, a company chooses not to reclaim VAT on fuel for one vehicle, it cannot reclaim VAT on any fuel for other vehicles used by the company. If you are unsure about the best way to claim business miles or how to minimise your tax exposure you should consult your tax advisor.

The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Get in touch with Ciara Ryan via email c.ryan@pkffpm.com

 

 

Minimising Tax

Question.

I paid a lot of self-assessment tax in relation to my self-employment for the tax year 2017/18. A friend mentioned that I should make a pension contribution before 5 April 2019 to reduce my 2018/19 tax liability. Is there a limit on the amount I can contribute?

Answer.

You can get tax relief on private pension contributions worth up to 100% of your annual earnings. There is a current annual allowance for pension contributions of £40,000 and you would usually pay tax if annual savings into your pension scheme goes above the annual allowance. If you are already paying into a pension scheme, then you may be able to carry over unused allowance from previous years.

From April 2016, you will have a reduced or tapered annual allowance if, in the tax year, your threshold income is over £110,000 and your adjusted income is over £150,000. There is also a lifetime allowance restriction and you would usually pay tax if your pension pot is worth more than the lifetime allowance. This is currently £1.03 million.

Pensions are very specific and planning with your accountant and your financial advisor is vital before considering any large contributions.

There are other ways to minimise your annual tax liability, for example, you may be able to claim tax relief for donations you have made to registered charities. If you pay tax above the basic rate, you can claim the difference between the rate you pay and the basic rate on your donation.

Alternatively, if you are intending to purchase any plant and machinery soon, you may wish to do so before the 5th April to claim Annual Investment Allowance in the current tax year. The amount available may depend on your accounting year end so it is best to talk to your accountant before any large purchases.

Finally, if you pay a lot of income tax and national insurance on your self-employment, it may be worthwhile considering the Incorporation of your sole trade business into a Limited Company. Again, planning is required for this as the advice will vary for your specific business and personal circumstances.

The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Get in touch with Maria Crudden m.crudden@pkffpm.com

The complexities of Entrepreneur’s Relief

Question.

 

I want to transfer some shares in my trading business to my sons while ensuring that all the shareholdings remain tax efficient if the company is sold in the future. In particular, I want everyone to benefit from entrepreneur’s tax relief if we sell the company, so that we all only have to pay 10% capital gains tax. Are there any conditions I need to be mindful of?

 

Answer.

 

Entrepreneur’s relief (ER) was first introduced in 2008 and is one of the main tax reliefs designed to encourage entrepreneurship and business succession. It is a complex tax relief and there are many conditions to be fulfilled before successfully making a claim. On a future disposal of your business, ER may be available for each shareholder’s first £10m of gains, meaning that capital gains tax (CGT) will only be suffered at a rate of 10%, provided all the qualifying conditions are fulfilled.

 

Assuming you plan to sell your company after 5th April 2019, the shareholders hoping to claim ER must have owned their shares for at least 24 months. The shareholders are also required to have held at least 5% of the shares and voting rights for 24 months and have at least 5% share in the full economic value of the business. Following the 2018 budget announcements the rules used to determine if the various conditions are met are much more complex than before and if your company has a complex share and financing structure expert advice should be sought to determine if each condition is fulfilled.

 

When transferring the shares to family members you may want to consider the benefit of transferring a minimum of 5% equity to each shareholder to fulfill this ownership condition before considering a sale of the shares. In most circumstances it is also necessary to hold the 5% shareholding for at least 24 months before sale. If it is impractical to transfer 5% equity to a shareholder it may be worth considering the use of a qualifying EMI scheme as a means of transferring shares. EMI shares qualify for ER but the conditions are more relaxed, in particular it is not necessary to hold a minimum of 5% shares and the 24 month holding period begins when the options are granted, not when the shares are issued. These generous relaxations are not available to any other type of employee share option.

 

It is necessary for anyone claiming ER to be an employee or officer of the company for a period of 24 months before share sale. The tax legislation does not define the term ‘employee’ for the purpose of this relief but is it recommended that a contract of employment should be in place for each shareholder employee and remuneration should be paid for their role in the company.

 

Although ER is conceptually quite simple, there are many traps for the unwary. The detailed conditions should be kept under review until such time as a company sale is anticipated. Before gifting or selling shares to the next generation it is also necessary to consider if an immediate Capital Gains Tax charge arises, if Stamp Duty is payable or if the transfer of shares has any Inheritance Tax implications. There are a number of generous tax reliefs available which should allow you to avoid these taxes, particularly on a transfer of equity to your sons, as long as you ensure that the necessary tax elections are made and all the qualifying conditions are met. With advance planning, it should therefore be possible to sell the trading company in future years and secure a 10% tax rate for each shareholder.

 

The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Key rules of debt collection

Most businesses encounter debt collection problems from time to time. Good procedures will help minimise the risk of financial loss, explains Director Michael Farrell.

 

For businesses exploring new markets in preparation for Brexit, it is important to be aware that local payment practices vary from one country to another. The Euler Hermes “2018 Collection Complexity Score and Rating” examined debt collection procedures in 50 countries and found that Sweden, Germany and Ireland had the least complex procedures while the Middle East and Asia Pacific showed greater complexity.

 

Commenting on the results, Jennifer Baert, Group Head of Collection at Euler Hermes said, “A key rule applies to debt collection: the longer one waits, the greater the complexity and risks.”

 

This is good advice and applies equally whether you are doing business at home or abroad. Here some key debt collection rules to keep in mind.

Debt collection rules

• Know your customers and suppliers. Conduct credit and compliance checks before embarking on new relationships. This will help you avoid future problems.

• Pay attention to the terms and conditions in contracts. They can protect you if the businesses you deal with fail to deliver.

• Review and update contracts if your business requirements change.

• Ensure that your management information systems are up to scratch. Real time accounting can provide early warning if things are going wrong.

• Ensure that you have correct contact details when issuing invoices. Familiarise yourself with your customer’s payment procedures. If they process payments once a month, you may need to take this into account when raising your invoice.

• Issue invoices promptly and chase payment as soon as it is overdue.

• If disputes arise, try to resolve them quickly. The longer you wait, the more complex they are likely to become.

• If you are unable to obtain payment, seek professional advice. You may need to engage a debt collection agency.

• Consider obtaining trade credit insurance as this will protect you when extending credit to your customers.

 

International expertise

When you are expanding into new markets, keep in mind that PKF-FPM can provide you with access to high quality expertise in more than 150 countries through our membership of the PKF International network. For details and to find out more about how we can help, please get in touch.

Michael Farrell l Director
m.farrell@pkffpm.com

What you need to know about the new payslip legislation

Question.

 

I own a small business with six employees who are paid weekly. At present I do not provide them with any payslips and have heard that new legislation is coming into force soon. Can you advise me what this is and what I need to do?

 

Answer.

 

On 6 April 2019 HMRC is introducing new legislation which covers the provision of payslips to employees. The main features of this legislation are that as an employer you will have to provide payslips to all of your workers and on the payslips you must show the hours worked where the pay varies by the number of hours worked.

 

This new legal right to receive a detailed payslip covers all workers. At present, only employees of the business are entitled to receive payslips however a worker could include one of the following;

 

• someone on a zero hours contract;
• a seasonal worker (example a fruit picker);
• a freelance worker;
• an agency worker;
• a casual worker.

 

All of the above “workers” are protected by the 1996 Employment Rights Act which defines a worker as a person who:

 

“has entered into work under a contract of employment or any other contract, whether express or implied and whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or custom of any profession or business undertaking carried on by the individual”

 

Where you have workers who are paid variable amounts each week or month with the variation being due to the number of hours worked you will have to show the hours worked on each relevant payslip. However, a staff member receiving a monthly salary for a fixed number of hours does not need to be shown the number of hours they work on their payslip. In this case, the hours can be shown as a single total of hours or can be separated into separate figures for different types of work or different rates of pay. This would be the case where employees on a fixed monthly salary are required to work overtime at a different pay rate. These new regulations come into being for pay periods beginning on or after 6 April 2019.

 

Three classic examples of persons falling within these regulations would be:

 

1. A worker paid by the hour – Bob is paid £12 per hour and receives payment weekly for the number of hours that he has worked. His pay varies by the number of hours worked and therefore all hours which he works each week must be shown on his payslip.

 

2. Bill has a contract of employment to work 37.5 hours per week on an annual salary of £30,000. He sometimes works overtime when required to do so.

 

Bill’s payslip does not need to show the number of hours for which he is paid the monthly salary however his payslip does need to show the number of hours that he works as overtime as this is variable pay.

 

3. Jane has a contract of employment to work 35 hours per week at an annual salary of £70,000 per annum. Jane does not work overtime and works a flat 35 hours per week.

 

Because Jane’s pay does not vary by the number of hours worked there is no need to show the number of hours worked on her payslip.

 

The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

 

 

Get in touch with Paddy Harty via email p.harty@pkffpm.com

 

PKF-FPM placed 27th in The Sunday Times 2019 Top 100 Best Small Companies to Work for in the UK

Northern Ireland headquartered accountancy practice, PKF-FPM has scored another milestone success…. after being placed in the prestigious Sunday Times Top 100 Best Small Companies to Work for, for the second consecutive year.

Ranked 27th in the UK small-sized business category, PKF-FPM jumped an astonishing 37 places from position 64 last year. Indeed, PKF-FPM achieved the Number One spot in Northern Ireland against stiff competition.

PKF-FPM Accountants, currently employing 120 plus staff across five offices – 4 in Northern Ireland and 1 in the Republic of Ireland has established a reputation as one of the leading independent accountancy and business advisory firms operating on the island of Ireland.

Annually The Sunday Times assess and recognise the quality and popularity of companies to work for in the UK, across all sectors and industries. Now in its 19th year, the ‘Best Companies To Work For’ ranking celebrates the elite of Britain’s employers across four different categories: The 100 Best Companies, the 25 Best Big Companies, the 100 Best Small Companies and 100 Best Not-for Profit Organisations.

On average around 1,000 companies enter the Awards each year, making it widely acknowledged as the most comprehensive research into employee engagement across the UK.

Places in the rankings are determined by results of a extensive staff survey measuring seven key areas including Leadership; Personal Growth; Team; and Giving Something Back alongside a review of pay, benefits and work-life balance.

The glittering Awards Gala Ceremony, hosted by I’m a Celebrity – Get me out of Here! Now! T.V. presenter, Mark Durden-Smith, took place on Wednesday evening 20 February 2019 at Battersea Evolution, Battersea Park in London.

On accepting the award, People & Culture Director Teresa Campbell commented: “inclusion in The Sunday Times 2019 Top 100 Best Small Companies to work for in the UK, means that PKF-FPM Accountants has now been recognised and acknowledged as an exemplar employer in a variety of national Awards for the fifth successive year.”

Picture left to right – Team PKF-FPM members Ciara McFerran People & Culture Manager, Seamas Keating Insolvency & Corporate Recovery Director, Caroline Preston Business Development Manager, Feargal McCormack Managing Director, Teresa Campbell People & Culture Director, Malachy McLernon Tax Director.

Valid notice of enquiry

Question.

I recently moved to a new house and changed tax advisors. HMRC have sent a notice of enquiry to my old address and my previous tax adviser. As the enquiry was not sent to my current address or my current tax adviser, is it possible that the enquiry could be cancelled?

Answer.

A notice of enquiry is a notice from HMRC outlining their intention to enquire into your tax affairs. Legislation is clear that the notice of enquiry must be made to the taxpayer themselves. Where, however, you have changed address and not notified HMRC, then a valid notice of enquiry can be made to your last known address.

HMRC follow clear guidelines where postal notices are concerned. First class post is assumed to take two days and second-class post is assumed to take four days. Notices close to a deadline should be sent via “track and trace” per HMRC’s own guidance. The time limit for receiving a valid notice of enquiry is up to the end of a twelve-month period after the day on which the return in question was delivered. If the notice of enquiry relates to your personal tax affairs for the year to April 2018 and you filed this return on 1 January 2019, then a valid notice can be issued up until 1 January 2020 i.e. 12 months from the date you filed the return.

Case law is still evolving in the area of notices served to incorrect addresses. Revell v HMRC established that an administrative error could lead to a tax return escaping enquiry. Where HMRC have failed to follow their own guidance in issuing the notice your position will be strengthened.

In order to conclusively respond to your query, it is necessary to establish the full circumstances of the notice of enquiry and decide whether there is scope to have the enquiry closed or whether the notice is indeed valid. The relevant factors to be considered are how did you initially notify HMRC of your change in address and your move to a new tax agent? Can you prove that you posted/emailed this to HMRC? Has HMRC amended their records accordingly? Where you can prove you followed procedures to notify HMRC of your change in circumstances you have a strong case to challenge this enquiry if the notice was initially sent the incorrect address and subsequently reached you after the twelve-month period following the filing date had elapsed.  

The advice above is specific to the facts surrounding the questions posed.  Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Get in touch with Mairead McParland via email m.mcparland@pkffpm.com

Correcting errors on previous VAT returns

Question.

I prepare and complete the quarterly VAT returns for my small business and noticed recently that I had made some errors in previous returns. Can you advise how I correct these, and will there be any penalties or interest to pay on this?

Answer.

If you’ve made a mistake on a previous VAT return, it’s important that you take the right steps to remedy this, or you could end up paying a hefty financial penalty.

There are two different steps to take depending on whether the error on your VAT return is under £10,000 or over £10,000.

If the error is less than £10,000 this can be adjusted by including it on your business’s latest VAT return and so in theory there should be no penalties or interest to pay.  However to be absolutely sure that HMRC will not levy a penalty you should disclose the error anyway as discussed below.

If the error is above £10,000 you are required to formally notify HMRC and the error will be subject to interest and penalties ranging from up to 30% for a careless error, up to 70% where this is deemed to be a deliberate error and up to 100% where this error is both deliberate and concealed.

HMRC are usually of the opinion that most errors are careless so penalties tend to range from 0-30%. Errors can either be prompted (discovered by HMRC during a VAT inspection) or unprompted, where you make a voluntary disclosure to HMRC before a VAT inspection. Unprompted disclosures attract a lower level of penalty, so where you discover an error has been made, it’s always a good idea to notify HMRC immediately.

If you want to ensure that you avoid a penalty on an error that has been corrected on a VAT return then you must also notify HMRC of the error even where it is less than £10,000.

An example

You discover that you over-claimed VAT on equipment when you first set up your company. This error amounts to £2,000 and so you add this amount to your company’s latest VAT return thinking that you’ve fulfilled your obligations. 

HMRC carries out a VAT inspection a year later and discovers the error in the company’s VAT account. Because the error was not reported to HMRC at the time, your company is liable to a penalty. HMRC would usually consider this to be careless and subject to a penalty in the 0-30% range. 

However because HMRC have ‘discovered’ this error as a result of their inspection they consider this error to be a prompted (rather than unprompted) and so your company is potentially liable to a penalty ranging from 10-30%. Your company is therefore potentially facing a penalty ranging from £200 to £600 even though you corrected the mistake.

In order to avoid the penalty it’s important to write to HMRC with the information detailed below, at the same time as you make the adjustment to your company’s VAT return:

  • The VAT period the error was made in.
  • The amount of the error.
  • The reason for the error.
  • The VAT period the adjustment was made in.

If an error of less than £10,000 is spotted by HMRC at a later date and they try to impose a penalty you should demonstrate that you’ve amended your systems to prevent similar errors happening in future. If you manage to convince HMRC that the appropriate action has been taken to prevent these errors happening again, then they may suspend the penalty. However it’s vital that you don’t make any further errors during the period the penalty is suspended.

The advice in this column is specific to the facts surrounding the questions posed.  Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Get in touch with Malachy McLernon via email m.mclernon@pkffpm.com