There has been much commentary in recent months reminding tax payers who claim tax credits to file their renewals application before the 31 July deadline. But apparently, many applications have been made incorrectly, and as a result, claimants are not collecting the full amount to which they are entitled.

According to a recent announcement by HMRC, many parents do not realise that they need to deduct any statutory parental pay from their salary when renewing tax credits.

In more detail, HMRC advise:

Thousands of parents could be at risk of missing out on hundreds of pounds from their tax credits by accidently reporting their income incorrectly.

HMRC is urging parents to check their income to avoid potentially missing out on an average of £495 a year. Many tax credits claimants who receive statutory maternity pay do not realise that some of this pay should be deducted from their gross pay when their tax credits awards are calculated.

As well as maternity pay, parents can deduct any payments they have received for statutory paternity, shared parental or adoption pay up to a value of £100 a week.

HMRC estimates that parents who did not deduct their statutory maternity pay from their income could have been entitled to on average an extra £495 across the year. Around 35,000 people could potentially be missing out. A full list of what can be deducted is available on GOV.UK.

This is a welcome contribution by HMRC. Hopefully, the advent of digitised accounting by the tax office will mean that, in the future, these sorts of errors will be adjusted automatically. One can only hope…

One of the first things a budding entrepreneur considers is what to call their business.

If you intend to incorporate your business as a limited company, the registration process will filter out unacceptable names and names that are too similar to a company already registered at Companies House. However, this registration process can create situations where an existing company thinks that the name you have registered is too close to their own and may challenge you to change your company name.

If you set up as a sole trader there is no official registry of business names, but you must still be wary of using certain expressions.

In certain circumstances you can write to a particular organisation or government department to get clearance to use a restricted name or phrase in a name.

For example, you should avoid, or seek to permission to use, the use of the words: association, bank, British, charity, England, government, Her Majesty, institute, King, mutual, NHS, patent, police, Post Office, Queen, registrar or regulator, society, Trade Union, trust, tribunal, and University.

This list is by no means complete. There is a fairly comprehensive list of names and expressions to avoid on the GOV.UK website at https://www.gov.uk/government/publications/incorporation-and-names/annex-a-sensitive-words-and-expressions-or-words-that-could-imply-a-connection-with-government.

If you need advice we can help. We have advised numerous businesses on how best to set up and run a new business. Please call to arrange an initial consultation.

Although we strive to be non-political in this blog, it would seem that there is an increasing likelihood that when we leave the EU March next year the present free movement of goods will no longer apply. And so, putting aside our reaction to this possibility, what should we be doing to prepare for this so-called “Hard Brexit”?

A fair proportion of the raw materials used in our manufacturing processes and the food we eat come from EU suppliers. It is unrealistic to expect UK businesses to increase stocks in anticipation of disrupted supply lines and increased prices after Brexit. In the case of perishable foodstuffs this is patently impossible. Perhaps we could lobby EU suppliers of manufacturing and finished goods to set up warehousing facilities in the UK, otherwise we may be forced to seek suppliers from outside the EU.

Without the harmonisation of VAT for cross-border transactions businesses that buy goods from the EU will be faced with higher VAT charges. Eventually, these higher charges can be reclaimed in the normal way but there will be an initial cash flow hit as goods are paid for (including VAT) before the input VAT is reclaimed on a quarterly VAT return. HMRC may help with this issue by introducing a self-accounting for import VAT scheme similar to the present scheme for imports from EU countries. Businesses affected would be advised to at least quantify the likely cash flow downside and if significant, plan for additional funding to cover the deficit.

Retailers will have a tough time if they buy perishable goods from the EU. Without frictionless passage of goods across the Channel, delays could cause all sorts of issues. If warehousing in the UK is not possible, it is difficult to see how we could maintain our supplies and keep the larger supermarkets stocked.

We have less than nine months to prepare, and wherever your business sits in relation to trading with the EU you should by now be making contingency plans to cope with the likely Brexit effects. We are certainly working with and supporting our clients in this way. If you need help with this process, please call. 

Drivers face disqualification from driving if they accumulate 12 or more penalty points for driving offences. The resulting ban can last from 4 to possibly 11 years depending on the gravity of the offence.

HMRC seem to think that this point based system is a good idea and they now intend to include draft clauses to the forthcoming Finance Bill that will introduce a points system covering the late filing of tax returns.

In their notes attached to the draft clauses HMRC say:

The government wishes to encourage compliance with regular return submission obligations but does not want to punish taxpayers who make occasional mistakes. The new late submission penalty regime, announced at Autumn Budget 2018, is designed to be proportionate, penalising only the small minority who persistently fall foul of the rules. Consistent compliance will be encouraged by the opportunity to clear penalty points without incurring a penalty charge. A stronger deterrent is provided in cases where behaviour is shown to be deliberate, and also by other compliance tools. The new regime is designed to be applicable to as many taxes with regular filing obligations as possible to provide a clear, transparent and consistent approach for taxpayers and HMRC.

The new points-based penalty regime will only apply to returns (including Making Tax Digital regular updates) with a regular filing frequency, for example monthly, quarterly or annually. It will not apply to occasional returns (for example a return required for a one-off transaction).

HMRC are unlikely to be suggesting, as with driving penalties, that if you collect enough points you will be banned from paying tax, but the liability to penalties will remain until a predetermined period of time has elapsed.

Continuing the theme from last week’s blog post, we have listed details of a forthcoming change to the taxation of companies that were disclosed in the draft clauses published last week for the forthcoming budget. The change outlined expands the rights of HMRC to demand a security deposit from “at risk” tax payers.

In their draft notes HMRC say:

HMRC can require some businesses to provide a security, in the form of cash or a performance bond, where this is considered necessary to protect the revenue. Securities may be required where a taxpayer has a poor compliance record and in “phoenix” type cases where a business accrues a tax debt, goes into liquidation or administration and the person responsible for the operation of the business sets up again, with the risk of running up further tax debts. 

HMRC already has powers to require security in relation to some areas of business tax, including VAT and PAYE. However, there is no similar provision in respect of corporation tax liabilities or deductions made by contractors on account of their subcontractors’ income tax under the construction industry scheme. The government intends to extend the existing securities regime to these areas to address these gaps in the coverage of the regime and strengthen HMRC’s ability to deal effectively with potential defaulters

Security deposits are normally requested when a company is liquidated owing monies to HMRC, and the directors then re-establish the trade in a new company, perhaps using assets purchased from the old firm’s liquidator – a so-called “phoenix arrangement”.

From Newco’s point of view, being required to lodge a hefty deposit with HMRC could be terminal if funding is not available. However, recent First Tier Tribunal cases have supported appeals from taxpayers when they can demonstrate that the owners of Newco were not directly responsible for any mis-management of Oldco. If you receive a request for a security deposit an appeal may be appropriate.  

New figures show that HM Revenue and Customs (HMRC) requested a record 20,750 malicious sites to be taken down in the past 12 months, an increase of 29% on the previous year.

Despite a record number of malicious sites being removed, HMRC is warning the public to stay alert as millions of taxpayers remain at risk of losing substantial amounts of money to online crooks. The warning comes as Scam Awareness month, run by Citizens Advice, draws to a close.

HMRC has brought in cutting edge technology to tackle cyber-crime and target fraudsters. However, the public needs to be aware and report phishing attempts to truly defeat the criminals.

Genuine organisations like banks and HMRC will never contact people out of the blue to ask for their PIN, password or bank details.

Accordingly, people should never give out private information, download attachments, or click on links in emails and messages they weren’t expecting.

The most common type of scam is the ‘tax refund’ email and SMS. HMRC has confirmed that it does not offer tax refunds by text message or by email.

HMRC has also been trialling new technology which identifies phishing texts with ‘tags’ that suggest they are from HMRC and stops them from being delivered. Since the pilot began in April 2017, there has been a 90% reduction in people reporting spoof HMRC-related texts. This innovative approach netted the cyber security team with the Cyber Resilience Innovation of the Year Award in the Digital Leaders (DL100) Awards.

In November 2016, the department implemented a verification system, called DMARC, which allows emails to be verified to ensure they come from a genuine source. The system has successfully stopped half a billion phishing emails reaching customers. This initiative has saved the public more than £2.4 million by tackling fraudsters that trick the public into using premium rate phone numbers for services that HMRC provide for free. Scammers create websites that look similar to HMRC’s official site and then direct the public to call numbers with extortionate costs.

HMRC has successfully challenged the ownership of these websites, masquerading as official websites, and taken them out of the hands of cheats. HMRC is working with the National Cyber Security Centre to further this work and extend the benefits beyond HMRC customers.

Readers of this post who are concerned by any emails or text they have received should contact HMRC by phone to check and see that they are genuine. Clients in receipt of similar communications should contact us before responding.

Last week the Treasury issued draft clauses for the forthcoming Finance Bill (to be published after the Autumn Budget later this year). These will set the scene for tax matters 2019-20 and beyond.

The aim of the advance notice is to give interested parties a chance to comment on the contents before government starts the formal process of processing the legislation through Parliament.

The draft clauses include numerous technical changes to legislation that are outside the scope of this article, but a cross-section of the more “interesting” disclosures are set out below:

• Technical changes to various benefit arrangements for cars and vans.
• Exemption from benefit charges if employees provide free vehicle-battery charging facilities for employees at work.
• HMRC are to remove requirement for employers to check receipts for subsistence claims by employees using approved HMRC rates.
• Employees will be able to nominate beneficiaries outside their close family members to receive their death in service benefits.
• Non-UK resident property businesses will be subject to UK corporation tax and not income tax as at present.
• The rent-a-room relief is to be amended to include a non-exclusive residence clause. This will mean that to continue to qualify for the £7,500 tax-free allowance, persons letting a room in their home will have to be in residence when they let.

Bear in mind that these are suggested clauses and are subject to change before the formal Finance Bill is published later this year.

1 July 2018 – Due date for corporation tax due for the year ended 30 September 2017.

6 July 2018 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2018 – Pay Class 1A NICs (by the 22 July 2018 if paid electronically).

19 July 2018 – PAYE and NIC deductions due for month ended 5 July 2018. (If you pay your tax electronically the due date is 22 July 2018)

19 July 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2018.

19 July 2018 – CIS tax deducted for the month ended 5 July 2018 is payable by today.

31 July 2018 – Deadline for payment of second instalment self-assessment for 2017-18.

1 August 2018 – Due date for corporation tax due for the year ended 31 October 2017.

19 August 2018 – PAYE and NIC deductions due for month ended 5 August 2018. (If you pay your tax electronically the due date is 22 August 2018)

19 August 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2018.

19 August 2018 – CIS tax deducted for the month ended 5 August 2018 is payable by today.

Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions (NIC), and in some cases income tax.

The planning strategy is to pay a salary at a level that qualifies the director for state benefits, including the state pension, but does not involve payment of any NIC contributions.

For 2018/19 the NIC rate is set at 0% for annual earnings in the range of £6,032 to £8,424 inclusive. Earnings in this band range qualify for NIC credit for state benefit purposes. At up to £116 per week (£6,032 p.a.) no NIC credit is obtained for state benefit purposes. At over £162.01 per week (£8,424 p.a.) employees’ NIC starts to be paid at the rate of 12%.

Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band that depends on the actual date appointed. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC.

Directors resigning during the year still have the full annual earnings band quoted above, and so care is needed to ensure that earnings for the whole tax year are within the range of £6,032 to £8,424.

Careful planning is also required to ensure that any impact of the National Living Wage regulations is considered, this may be particularly important for women who would like to claim statutory maternity benefit at some future date.

Directors considering their planning options for the first time are advised to take professional advice when setting the most tax/NIC efficient salary. We, of course, would be delighted to help.

Whether you pay income tax or National Insurance, the effect on your cash flow is the same. The payments are a necessary part of our obligation to fund the activities of State, but the self-employed are often surprised that their bi-annual tax payments cover both “taxes” – NIC and income tax.

The weekly NIC Class 2 contribution is included, presently £2.95 per week, also Class 4 contributions: these amount to 9% of taxable income in excess of £8,424 and up to £46,350, and 2% on earnings above £46,350.

Accordingly, the combined rate of State dues on self-employed earnings in excess of £8,424 is potentially 29% – 20% basic income plus 9% Class 4 NIC – and over £46,350 a combined rate of 42%. Although in practice some of the income over £8,424 may be covered by other personal tax allowances, these combined rates illustrate the true impact of income tax and National Insurance to be paid.

Self-employed traders with significant taxable earnings should therefore expect to pay more than the usual rates of income tax when they contemplate settlement of their annual self-assessment bill and have funds in reserve to meet these combined liabilities.