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Month: July 2021

Leasehold shake-up on the horizon

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Ground rents for residential properties on long leases in England and Wales will soon be abolished, with further reform to follow. This first step in the government’s plan to reform leasehold law affects new leases. However, many homeowners will benefit immediately following a commitment made by two big players in the leasehold sector.

Government reforms

The Leasehold Reform (Ground Rent) Bill currently passing through parliament will remove ground rents for residential leasehold properties with leases of more than 21 years.

The next step, if the Government follows through with its intentions, will be to give leaseholders the right to extend a lease to a maximum term of 990 years, with no ground rent payable. This term is more than 10 times the current standard 90-year extension. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to extend.

Persimmon and Aviva

The Competition and Markets Authority (CMA) has been investigating the leasehold sector, with doubling ground rent clauses of particular concern. Also, many homes that should ordinarily be sold as freehold have been mis-sold as leasehold. Crucial changes have recently been agreed by housebuilder Persimmon and insurance company Aviva (which buys leaseholds from housebuilders), including:

  • Aviva will remove leasehold clauses that double ground rent every 10 to 15 years, with leaseholders refunded for past increases.
  • Persimmon will grant leaseholders the chance to acquire the freehold of their property at a concessionary price (capped at £2,000), and refund homeowners who have already bought their freehold at a higher price.

As yet there is no date for the implementation of the new leasehold rules. The CMA is continuing its investigations into several other housebuilders and investors in freeholds. The Leasehold Reform (Ground Rent) Bill doesn’t help existing leaseholders, but the hope is that that the recent move by Persimmon and Aviva will send a clear signal without the need for costly court cases.

Photo by Michael Dziedzic on Unsplash

IR35: The Question of Control

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The off-payroll working (IR35) tests are still relevant despite the blanket approach often in place regarding contractors’ employment status. They must always be applied if you are contracting for a small organisation.

Two recent decisions in the Upper Tribunal closely examined the question of control.

In both cases, the Upper Tribunal upheld First-Tier Tribunal decisions, with one going the way of HMRC, and the other for the contractor. The court was prepared to look beyond the contract in question and consider the contractor’s wider business structure.

A win for HMRC

Robert Lee’s company was contracted to work for the Nationwide Building Society from 2007 until 2014. Even though Lee’s contract contained a substitution clause, the Upper Tribunal did not consider there to be a genuine right of substitution because the Nationwide valued Lee for his specialist expertise and familiarity with the work.

One way to strengthen contractor status is to make sure your substitution clause can be actioned. In the words of one commentator, “give your right of substitution clause teeth”.

The degree of control by the Nationwide was held to be significant, with Lee having to work when and where he was told. In addition, he was required to obtain approval for project plans and his performance was monitored.

The contractor comes out on top

Kaye Adams, via her company, presented a radio show for the BBC during the tax years 2015/16 and 2016/17.

Although there were factors indicating employee status, the Upper Tribunal found that the BBC did not have the level of control that would exist in an employment relationship. Despite some 50% to 70% of Adams’ income coming from the BBC contracts, the Upper Tribunal looked at the bigger picture of her career in the surrounding years when Adams generally acted as an independent freelance journalist.

Up to date HMRC guidance for contractors can be found on its website.

Photo by Agni B on Unsplash 

 

Bounce Back Loans – Repayment Options

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The bounce back loan scheme (BBLS) has kept many businesses afloat over the past year, but, with the first repayments now starting to become due, many of the 1.5 million businesses that borrowed money could fall into difficulty.

Default position

The BBLS was launched in May 2020, with no interest charged or repayments required for the first twelve months. Bounce back loans are repayable over five years, so 1/60th of the capital is repaid each month, plus the interest accrued for that month, at a fixed annual interest rate of 2.5%. Repayments will therefore reduce over the term of loan as capital is repaid. The first repayment on a £20,000 loan, for example, will be £375.00 (£333.33 capital plus £41.67 interest).

Although loans are guaranteed by the government, banks will be under pressure to recover cash without triggering guarantees. However, since lenders were not permitted to require personal guarantees, even unincorporated businesses are not at risk of having their home or car seized.

Managing repayment

There are various measures that you can take if repaying a BBL is going to cause difficulty:

  • The term of the loan can be extended to ten years so that capital repayments are reduced.
  • You can move to interest-only repayments for a period of up to six months (this option can be used three times).
  • You can pause repayments altogether for a period of up to six months (this option can only be used once).
  • Consider topping up your finances under the recovery loan scheme launched in April, although your existing BBL will be taken into account and you must be able to afford the additional debt.

Your BBL lender will inform you of the first three measures, known as pay as you grow. They will all result in more interest being paid overall. Do let me know if you need advice on how best to deal with repaying your BBL. I can be reached at femi.ogunshakin@nexa.law

Photo by Konstantin Evdokimov on Unsplash

Focus on national insurance contributions

Written by admin on . Posted in DOTAS, Employment Tax, National Insurance Contributions, Tax. No Comments on Focus on national insurance contributions

New government proposals target the promoters of national insurance contribution (NIC) avoidance schemes, while plans are in place to introduce a zero rate of employer contributions in Freeports. Both measures are included in the National Insurance Contributions Bill 2021.

Crackdown on avoidance

NIC avoidance is already within the scope of the Disclosure of Tax Avoidance Schemes (DOTAS) regime, but these measures will strengthen HMRC’s ability to clamp down on the market for NIC avoidance. HMRC will be able to act quickly and decisively where promoters fail to provide information on their NIC avoidance schemes.

One area which has received considerable publicity is the use of mini-umbrella companies, where a temporary workforce is split into hundreds of small, limited companies. Each company benefits from the £4,000 employment allowance, avoiding the annual employer NICs on this amount.

HMRC is on the lookout for particular actions. The new measures target promoters that:

  • Respond by restructuring their business when challenged by HMRC;
  • Engage in protracted circular correspondence; or
  • Simply deny they are a promoter even with clear evidence.

Freeport employees

From 6 April 2022, employers with business premises in a Freeport tax site will be able to benefit from a zero rate of employer NICs (visit www.britishports.org.uk/Freeports to find out more about Freeports). Eligible employees will be those who spend at least 60% of their working time at the site. However, only new hires will qualify, and then only on annual earnings up to £25,000. Relief will apply for 36 months per employee. At current rates, a Freeport employer will save a potential £6,690 in NICs per employee over 36 months.

Relief is available until at least 5 April 2026, although it might run for a further five years. Regardless of whether relief is extended, new hires employed by 5 April 2026 will qualify for 36 months of relief.

Photo by Jefferson Santos on Unsplash

The future of capital gains tax takes shape

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A recently released report on capital gains tax (CGT) by the Office of Tax Simplification (OTS) has made several recommendations on the future of a tax, about which it says many people have limited awareness or understanding. The 30-day reporting and payment deadline for residential property disposals comes in for particular criticism.

Although around half a million people need to report disposals each tax year, the majority will only be affected on a one-off basis. Reporting may be via self-assessment, 30-day reporting or the real time CGT service, so the OTS has suggested integration into a single customer account.

Residential property

The OTS considers 30 days to be a challenging requirement and has therefore recommended the reporting deadline is increased to 60 days. An alternative proposal suggests estate agents and conveyancers could be more involved.

However, HMRC may well resist extending the deadline given that over £1.3 million was raised in late filing penalties for the last six months of 2020.

Private residence relief nominations

The OTS found a lack of awareness of the nomination procedure for second homes, and recommends:

  • A review of the practical operation of nominations;
  • Raising the level of awareness of how the rules operate; and
  • Using a new, single customer account for nominations.

Some 1.5 to 2 million homeowners are estimated to benefit from private residence relief annually, although a common misunderstanding is to assume all private homes are exempt.

Divorce and separation

Divorced and separated couples do not incur any CGT on transfers between themselves for the tax year of separation, but very few are able to come to an agreement and transfer assets during this timeframe unless separation occurs near the start of the year.

The OTS therefore suggests relief be extended until the later of:

  • At least two years after separation, and
  • Any reasonable time set for the transfer of assets in accordance with a financial agreement.

Whether the government takes on board any of these suggestions may be unveiled in the anticipated autumn Budget.

Photo by Clay Banks on Unsplash