Search launched for new Bank of England governor

The current Governor of the Bank of England, Mark Carney, will step down from his role on 31 January 2020. Mr Carney had been due to step down earlier but agreed to stay in his role to help support a smooth exit from the European Union. Although this has not yet happened, the Chancellor has confirmed that Mr Carney will step down in January 2020 as planned, and the search for a new Governor of the Bank of England has been launched.

The Chancellor of the Exchequer, Philip Hammond, said:

'In today’s rapidly evolving economy the role of Governor is more important than ever. Finding a candidate with the right skills and experience to lead the Bank of England is vital for ensuring the continuing strength of our economy and for maintaining the UK’s position as a leading global financial centre.'

The appointment of Mr Carney was the first time the position of Governor was held by a foreigner since the Bank of England was founded in 1694. The recruitment net for the next Governor has been designed to ensure that the most qualified candidate is appointed from the broadest possible pool of applicants.

The new role has been advertised on the Cabinet Office public appointments website and potential candidates have been informed that they should be able to commit to an eight-year term.

Treatment of capital expenditure if using the cash basis

The cash basis scheme helps many sole traders and other unincorporated businesses to manage their financial affairs. The scheme is not open to limited companies and limited liability partnerships. Using the scheme, allows qualifying businesses to use the cash basis when recording income and expenditure.

You must have a turnover of £150,000 or less to join the scheme and you can continue using the scheme until your turnover reaches £300,000. However, certain small businesses are more suited to using the case basis than others. The scheme is most suitable to relatively modest businesses especially those that provide services.

If you are using the cash basis scheme, then capital expenditure is usually treated as an allowable business expense with the following exceptions:

  • The acquisition or disposal of a business or part of a business
  • Education or training
  • The provision, alteration or disposal of certain non-depreciating assets, assets not acquired or created for continuing use in the trade, land, non-qualifying intangible assets and certain financial assets.

In addition, if you buy a car you can claim the purchase as a Capital Allowance on the condition that the business mileage rate has not been claimed on the car. This is because the rate already contains an element to allow for depreciation.

Dealing with builders retentions

It is common practise in the building industry for a final percentage of an amount due to a builder to be withheld as a retention. This payment allows the customer to retain part of the total payment due until satisfied that the builder has completed all the activities required of them under contract at an agreed level of satisfaction.

Typically, this may be for a 12-month period between a Certificate of Completion being given and the issue of a Maintenance Certificate.

HMRC accepts that builders will generally deal with retentions in one of the following ways:

  • include retentions within turnover, provide for the estimated cost of remedial work, and make provision for any debt impairment, or
  • defer recognition of retentions until their receipt becomes virtually certain.

HMRC is prepared to accept either of these options for tax purposes as an accepted treatment unless an unrealistically conservative view has been taken. In some cases, these monies are never paid. HMRC point out that, consequently, it will often be the case that, whichever of the above approaches is adopted, there will be little or no difference in the figure of net profit.

Renewing your tax credit claim

Families and individuals that receive tax credits should ensure that they renew their tax credit claims by 31 July 2019. Claimants who do not renew on-time may have their payments stopped.

HMRC has commenced sending tax credits renewal packs to tax credit claimants and is encouraging recipients to renew their tax credits claim online. All packs should be with recipients by the end of June. A renewal is required if the pack has a red line across the first page and it says, 'reply now'.

Claimants need to notify HMRC where there have been changes to the family size, child care costs, number of hours worked and salary. Details of previous year's income also need to be completed on the form to allow HMRC to check if the correct tax credits have been paid. Claimants must also inform HMRC of any changes in circumstances not already reported during the year such as new working hours, different childcare costs or changes in pay.

The Child Tax Credit has been designed to help lower income families with children, credits are available to families with low to moderate income. Child Tax Credit is paid directly to the main carer in the family either weekly or monthly and is usually paid directly to a designated bank or building society account. The working tax credit assists taxpayers on low incomes by providing top-up payments.

In some areas of the country new claims for tax credits may no longer be possible as the introduction of Universal Credit is slowly rolled out. Universal Credit will eventually replace tax credits, and other social security benefits.

Beware Limited Cost Test if you use the VAT Flat Rate Scheme

The VAT Flat Rate Scheme (FRS) has been designed to simplify the way a business accounts for VAT and in so doing, reduce the administration costs of complying with the VAT legislation. The scheme is open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000.

In April 2017, HMRC introduced a limited cost test that can increase the VAT flat rate percentage used by VAT registered businesses that use the Flat Rate scheme. It appears that HMRC considered the benefits obtained by certain businesses to be excessive. Businesses that meet the definition of a 'limited cost trader' are required to use a fixed rate of 16.5%. The highest 'regular' rate is 14.5%.

Why should I be concerned about this change?

A limited cost trader is defined as one whose VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period;
  • greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).

For some businesses – for example, those who purchase no goods, or who make significant purchases of goods – the outcome of the test will be self-evident. Other businesses need to complete a simple test, using information they already hold, to work out whether they need to use the higher 16.5% rate. Businesses currently using the scheme are expected to ensure that, for each accounting period, they use the appropriate flat rate percentage. Any businesses adversely affected by the test should consider whether it is more beneficial to leave the FRS and account for VAT using the normal rules.

How do I check this out? 

The number crunching can be complicated and you need to get this right otherwise you may have to repay VAT underpaid to HMRC. Please call if you would like us to check out this for you.

Will your gift aid donations create a tax bill?

The Gift Aid scheme is available to all UK taxpayers. The charity or Community Amateur Sports Clubs (CASC) concerned can take a taxpayer’s donation and provided all the qualifying conditions are met, can reclaim the basic rate tax allowing for an extra 25p of tax relief on every pound donated to charity.

Higher rate and additional rate taxpayers are eligible to claim tax relief on the difference between the basic rate and their highest rate of tax. This can be actioned through their Self Assessment tax return or by asking HMRC to amend their tax code.

For example:

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can claim additional tax back of:

  • £125 if they pay tax at 40% (£625 × 20%),
  • £156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%).

Beware this potential tax trap

However, an awkward situation can arise if you gift too much to charity as one of the conditions of gaining tax relief is that you must have paid enough tax (or any tax) in the relevant tax year. The rules state that your donations will qualify for tax relief as long as they are not more than four times what you have paid in tax in that tax year. If you have claimed more tax relief than you are entitled to you will need to notify the charity and pay back any excess tax relief to HMRC.

What is business relief for Inheritance Tax purposes?

Inheritance Tax (IHT) is levied on a person’s estate when they die and can also be payable during a person’s lifetime on certain trusts and gifts. Currently, no tax is payable when a person’s estate is worth £325,000 or less.

Certain business assets may be exempt

There are a number of reliefs available that can reduce liability to IHT if you inherit the estate of someone who had died. One of these reliefs is known as Business Relief and is a valuable tax relief for taxpayers with business interests, offering either 50% or 100% relief from IHT on the value of the business assets if certain conditions are met.

  • 100% Business Relief can be claimed on a business or interest in a business or on shares held in an unlisted company.
  • 50% Business Relief can be claimed on:
    – shares controlling more than 50% of the voting rights in a listed company
    – land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
    – land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

Relief is only available if the deceased owned the business or asset for at least 2 years before they died. There are a number of restrictions to the relief, for example, if the company in question mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments. In some cases, partial Business Relief may be available.

The question of whether or not Business Relief is available can be complex and we would recommend that business owners pay attention to the facts to ensure their descendants IHT bill is as low as possible. We can of course help review the facts and advise accordingly.

Minimum wage underpayment is on the rise

A new report from the Low Pay Commission (LPC) has found that the number of workers paid less than the statutory minimum wage in the UK increased in 2018. In April 2018, 439,000 workers were paid less than the hourly minimum wage rate they were entitled to. Of these, 369,000 were workers aged 25 and over paid less than the National Living Wage (NLW). This is an increase of around 30,000 on the previous year’s level of underpayment of the NLW, or a two percentage point rise in the share of workers entitled to that rate.

The report also found that women are more likely than men to be paid less than the minimum wage, and underpayment is higher for the youngest and oldest workers. The largest numbers of underpaid workers work in hospitality, retail, cleaning and maintenance, with childcare being the occupation with the highest proportion of underpaid workers.

The LPC has recommended that the government continues to invest strongly in communications to both workers and employers around minimum wage compliance and enforcement. 

Tax Diary May/June 2019

1 May 2019 – Due date for Corporation Tax due for the year ended 30 July 2018.


19 May 2019 – PAYE and NIC deductions due for month ended 5 May 2019. (If you pay your tax electronically the due date is 22 May 2019)


19 May 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2019. 


19 May 2019 – CIS tax deducted for the month ended 5 May 2019 is payable by today.


31 May 2019 – Ensure all employees have been given their P60s for the 2018-19 tax year.


1 June 2019 – Due date for Corporation Tax due for the year ended 31 August 2018.


19 June 2019 – PAYE and NIC deductions due for month ended 5 June 2019. (If you pay your tax electronically the due date is 22 June 2019)


19 June 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2019. 


19 June 2019 – CIS tax deducted for the month ended 5 June 2019 is payable by today.
 

Making an EU VAT refund claim

The VAT paid in other EU countries is often recoverable by VAT-registered businesses in the UK, who bought goods or services for business use. The exact rules of what VAT is refundable depends on the other countries' rules for claiming input tax. It is important to note that VAT incurred in foreign countries can never be reclaimed on a domestic UK VAT return.

Claims must be made electronically via the tax authority in which the claimant is established, i.e. a claim from a UK company to any other EU country must be submitted electronically to HMRC. The deadline for the submission of a refund request for expenses incurred in other EU member states during the 2018 calendar year is 30 September 2019. HMRC will electronically forward the claim to the country where the VAT was paid. 

We had urged readers to make a claim before 29 March 2019, the expected Brexit date as the claim process could have been compromised if there was a no-deal Brexit. Given the expected Brexit 'flextension' until the end of October 2019, any businesses that need to make a claim should ensure they do so by the deadline of 30 September 2019. After we leave the EU, it is likely that UK businesses will be able to reclaim VAT from EU countries, by using the existing process available to non-EU businesses.

VAT registered businesses in the UK can use the scheme to reclaim the VAT paid in other EU countries where all the following apply:

  • They are not VAT-registered in the EU country where they are making a claim and don’t have to be or can’t be registered there.
  • They don’t have a place of business or other residence there.
  • They don’t make any supplies there, unless they are transport services for the international carriage of goods or the person they are supplying pays VAT on the supplies.