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Coping With Brown Envelope Syndrome

Written by admin on . Posted in COVID-19, Law, Tax, Uncategorized. No Comments on Coping With Brown Envelope Syndrome

It’s estimated roughly 100,000 people a year enter one form of formal personal insolvency or another and Covid-19 is likely to significantly increase this figure. This article is written in the hope that it may provide comfort to some and encourage others to avoid the potholes the content deals with.

Every so often a new client is referred to me for assistance with a challenge in dealing with debt owed to HMRC, and typically, I get the introduction when HMRC’s Debt Management team has stepped in to either collect the unpaid taxes or refer the matter for enforcement action which mostly means the matter has escalated to the point of threats of a statutory demand, bankruptcy proceedings or winding up petition.

There are usually, two main reasons why escalation kicks in: either HMRC is playing hard-ball and not giving the client time to settle the liability or more often than not; the client has suffered from what I like to call “Brown Envelop Syndrome” or BES for short. Not a new term, I’m sure. A quick search of googles reveals tons of articles on this subject; I’m probably not discussing anything new here, but I’ll continue anyway as this is a live and topical issue for many.

Some of you out there may no sympathy for BES sufferers whatsoever, after all, they earned (or in the case of PAYE and VAT, collected) the money and should (when due) pay what is owed. I don’t disagree with you on this but, having dealt with scores of ‘sufferers’, I can assure you this is a real (if not medically diagnosed) ailment – suffered by hundreds of thousands of individuals across the UK. And, like COVID-19, it has no respect for gender, race, religion, politics, football club or anything else we human beings use to differentiate ourselves from others.

The ailment starts with the receipt of, and you will not be surprised to hear this: the arrival of a brown envelope.

Approaching the floor mat with trepidation, then separating out the brown envelope(s): the former opened almost immediately, the latter either opened at a future date or in some instances, not at all. The problem with BES is that despite ignoring the content of the envelope, and wishing the problem will go away, the fact of the matter is credit card bills, HMRC demands, utility bills etc don’t go away because we ignore them. They only attract further demand, the accrual of interest, the arrival of debt collectors, or threats of county court judgements.

Back to my clients – sometimes an individual, often a company. Having finally opened the envelopes and read through the various correspondence from the creditor, I break the bad news to the client on the quantum of the debt owed, and this is then followed a conversation on how best to resolve the matter is had, after which I am engaged to correspond with the creditor to put in place a repayment arrangement, stop any enforcement action and provide my client with the peace of mind in knowing that the tax liability is not going to lead to a county court judgement, an adverse credit rating or insolvency (personal or commercial).

So, if you are a BES sufferer and have a pile of brown envelopes stashed away somewhere. Do not panic, and most importantly: do not ignore them. Set aside your dread and trepidation and go retrieve them, then give me a call on 01925 937 499, or email me at femi@lofusstowe.com or, if you’re really feeling brave; book an initial consultation with me at: https://calendly.com/femiogunshakin

 

Femi joins Tax Advisers Network

Written by admin on . Posted in Tax. No Comments on Femi joins Tax Advisers Network

I am proud to announce that I have been accepted as a member of this prestigious and long-standing network of independent tax advisers.

The website www.FindATaxAdviser.online is highly ranked and used by thousands of visitors each month to source specialist tax advisers across a wide range of tax issues and topics.

Members like me provide tax support to accountants, business people and anyone else needing independent advice, guidance and expertise.

The 3 most popular areas on which I am asked to advise are: tax disputes/investigations, tax consultancy and time-to-pay arrangements

You can find me on the website here

 

Taxation of electric vehicles (from 6 April 2021)

Written by admin on . Posted in Company Car Tax, Tax. No Comments on Taxation of electric vehicles (from 6 April 2021)

With the government announcing there will be no van benefit charge for fully electric company vans from 6 April 2021, you might be forgiven for thinking that having a company electric vehicle avoids any tax cost. However, this is not quite always the case.

You can currently be subject to a van benefit charge if you have the use of a company van which is also used privately. Unlike company cars, the definition of ‘private use’ for a company van does not include your normal commute to work.

Over recent tax years, the fully electric van benefit charge has been set at an increasing percentage of the full charge, and for 2020/21 it is 80% (£2,808) of the full amount. The exemption to be introduced from 6 April 2021 will apply in all circumstances.

Company cars

Although fully electric company cars escape any car benefit charge for the current tax year, the percentage charge will be set at 1% next year, increasing to 2% for 2022/23. This will still make fully electric company cars very tax effective.

For a higher rate taxpayer, the monthly tax cost of a Tesla Model S, for example, with a list price of £96,000 will be just £32 in 2021/22 and £64 a year later.

Fuel benefit

For benefit purposes, electricity is not treated as a fuel. This means there can be no fuel benefit for a fully electric vehicle, even if the employer installs a vehicle charging point at the employee’s home or provides a charge card to allow access to commercial or local authority charging points.

However, a benefit will arise if the employee charges their company car at home and is then reimbursed in excess of the 4p per mile advisory electricity rate for business travel. However, this advisory rate cannot be used for company vans.

Check here to see if tax is payable on the cost of charging an employee’s electric car.

Photo by Michael Marais on Unsplash

Expanding digital tax strategy

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Details of an ambitious ten-year strategy to create a tax system fit for the 21st century have been released alongside Finance Bill legislation. With the rapid growth of information and communications technologies, the aim is to have a fully integrated digital tax system able to support taxpayers across the whole range of their needs.

There are three elements to the government’s strategy, outlined in the July report.

Making tax digital

At present, making tax digital (MTD) applies to businesses with a turnover above the VAT threshold of £85,000. These businesses are required to keep digital records and to file VAT returns using online software.

Recently announced plans will see MTD extended:

  • From April 2022, the VAT filing requirements will apply regardless of turnover.
  • From April 2023, MTD will apply to all taxpayers filing self-assessment tax returns where their annual business or property income exceeds £10,000.

Once self-assessment taxpayers are included within MTD, HMRC will have access to up-to-date, real time business information which is no more than four months old.

HMRC intends to expand its MTD pilot service from April 2021 to allow businesses and landlords to test the service well in advance of the requirement to join. A consultation later this year will look at how MTD is to be extended to limited companies.

Payment of tax

Although the report makes it clear the extension of MTD to self-assessment taxpayers will not initially see any change to when tax is paid, it then considers what might happen in the longer term. Tax payments could be brought into line with the increasingly real-time nature of tax reporting, with the change making it easier for many taxpayers and businesses to manage their cash flow.

Tax administration

Various suggestions are made under this heading. One very useful proposal is for the government to go ahead with a simplified registration process, so that a business need only register once with HMRC for all taxes.

With HMRC having had to quickly develop additional online systems and help for taxpayers during the Covid-19 pandemic, moving towards a more integrated, real time approach should make such interventions easier to manage in future. Help and support for MTD can be found on the .GOV site.

Photo by Scott Graham on Unsplash

Capital gains tax review new on the agenda

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The Chancellor has asked the Office of Tax Simplification to review capital gains tax (CGT).

Within a week of giving his Summer Statement, the Chancellor wrote to the Office of Tax Simplification (OTS) asking it to “undertake a review of CGT and aspects of the taxation of chargeable gains in relation to individuals and smaller businesses”.  The request was unexpected and prompted some press speculation that Rishi Sunak was beginning his hunt for extra tax revenue after the unprecedented spending on Covid-19.

CGT is certainly an interesting place to start:

  • The latest data from HMRC show that there were fewer than 300,000 CGT payers in 2017/18.
  • Nearly two thirds of the tax raised in that year came from 3% of CGT payers who made gains of £1 million or more.
  • Over half of the CGT payers either paid no income tax, or paid it only at the basic rate, as the graph below shows.

The main reason why CGT payers are such a rare breed is the annual exemption. For 2020/21 this allows up to £12,300 of net gains to be realised before any tax becomes payable. Even then, the maximum tax rate is 20% (28% for residential property).

At the last election, both the Labour Party and the Liberal Democrats called for gains to be taxed at full income tax rates and for the exemption to be cut to just £1,000 or abolished. The Conservative manifesto made no comment – CGT was not one of the taxes for which a rate freeze was promised.

Neither Mr Sunak nor the OTS has put any date on when the review might be published. However, the OTS has asked for all comments to be in by 12 October, so government proposals might emerge in the Autumn Budget, particularly if that Budget appears later in the year. There is a precedent for changing CGT rates part way through a tax year – as then Chancellor George Osborne did in 2010. With this in mind, a wise precaution could be to review your portfolio and consider whether you wish to realise any gains in the next few months, while the current generous CGT regime is in place.

Photo by Markus Spiske on Unsplash

Business rates review back on the table

Written by admin on . Posted in Business Rates, Tax. No Comments on Business rates review back on the table

The government committed to undertake a fundamental review of business rates in England at the Spring Budget. It has now issued a call for evidence, with views on reliefs and the ‘multiplier sort’ by 18 September. Although fundamental reform is for the longer term, the intention is to have some improvements in place for April 2021.

High street retailers were already struggling against online competition prior to the Covid-19 crisis, but months of closure and reduced sales have exacerbated the impact of business rates, with online competitors having much lower bills. The review will look at these issues and concerns around complexity, rigidity and how the regime could be improved and made fairer.

The next revaluation of business property was scheduled for 1 April 2021. This was then put back by a year, but will now not take place until 1 April 2023. In the meantime, however, the government intends to introduce some intermediary changes.

Reliefs

Business rates reliefs can be complex and often poorly targeted. Small business rate relief, for example, is based on rateable value, taking no account of the actual size of a business or how profitable it might be.

  • There is significant regional variation in eligibility.
  • Landlords may negate any benefit by increasing the rent for eligible properties.

The government review will look at how reliefs can be targeted more effectively, made robust against abuse, and whether their administration can be simplified.

The multiplier

A business rates bill consists of a property’s rateable value calculated by a multiplier.

  • Businesses have raised concerns about the level of this multiplier and the rate at which it has been increased.
  • There is also criticism that business rates are unresponsive to changes in the property market.

One option being considered is the introduction of additional multipliers that vary by geography, property value, or property type.

Longer term

An online sales tax has been suggested as a possible replacement for business rates. Such a tax, however, would be unlikely to raise comparable revenue, so is more likely to run alongside business rates.

Details of the various business rates reliefs can be found here.

Photo by Adeolu Eletu on Unsplash

HMRC Pauses Inheritance Tax Investigations

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HMRC’s recent suspension of IHT investigations during the Covid-19 crisis opens up a brief opportunity for executors to get their IHT accounts in order.

HMRC normally investigates around 5,500 IHT cases every year, around 25% of the estates for which IHT is payable, recovering an average of £50,000 extra tax each time. The complexity of IHT means that extra tax will often be due just because mistakes have been made. There can also be a temptation to use low valuations so that assets are covered by the available nil rate bands. HMRC, not surprisingly, can be expected to look quite closely at such estates.

Common problem areas are:

  • Business relief – Some business activities are borderline and holding non-business assets within a company may mean relief is not available.
  • Agricultural relief – This is only available if land and property is used for agricultural purposes, so HMRC may query whether there is active use, especially if land is just rented out under a grazing licence.
  • Pension transfers – A particularly confusing area of tax, pension transfers are normally not subject to IHT. However HMRC will look at any transfer made within two years of death to see if this was done to avoid IHT. If so, the pension will be included as part of the deceased’s estate.
  • Lifetime gifts – Gifts made to individuals within seven years of death can easily be overlooked, and whether gifts are exempt under the normal expenditure out of income rule can be unclear given the lack of a statutory definition.
  • Post Covid-19

    Given how much the Covid-19 crisis has cost the government, expect to see HMRC being quite aggressive once compliance work resumes.

    There have been calls to simplify IHT and the Office for Tax Simplification published two reports into the issue last year. This now seems unlikely to be high on the Chancellor’s to do list when it comes to the next Budget.

    Find out how to work out and report the value of an estate to HMRC here.

Time to look at an alternative tax?

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The adoption in the UK of a transatlantic approach to income tax could appeal to a cash-strapped Chancellor.

“…only the little people pay taxes.”

That 1980s comment by the New York Hotel owner Leona Helmsley sums up an attitude that many taxpayers still believe to be true. Today the same idea often comes up in headlines suggesting that the chief executive pays a lower rate of tax than his (it’s usually his) cleaner. There is an element of truth in such assertions, as the wealthy generally have greater opportunity to plan when, where and how they receive their income.

The US has long attempted to address the problem with the Alternative Minimum Tax (AMT). The rationale behind AMT is simple: those with income above a certain threshold ($197,900 in 2020) must pay a minimum rate of tax on their income after deducting a flat exemption. If their tax bill calculated on a normal basis is lower than the one produced by applying the AMT rates, then it is the AMT amount that must be paid. There comes a point, therefore, at which tax planning has no benefit.

Two UK academics with links to leading think tanks recently published a paper examining the possibility of a UK version of AMT. With the help of anonymised HMRC data, the pair were able to show that the average effective rate of tax paid by one in ten people with income (including capital gains) of over £1m was lower than for somebody earning £15,000. The inclusion of capital gains is open to challenge and one reason why the result was produced – capital gains are more lightly taxed than income.

The headline proposal of the paper was that the UK government could raise £11bn a year – about the same as 2p on the basic rate of tax would produce – by applying an AMT rate of 35% to anyone with income (again including gains) above £100,000. For a government that was elected with a pledge not to increase income tax rates, AMT offers an interesting revenue raising opportunity.

If nothing else, these AMT proposals are a reminder that – at least for now – tax planning can save you money.

 

Card tax payments to incur charges

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When making tax payments to HMRC, you are currently only charged a fee if you pay by business credit card, while payments by personal credit card are not permitted. However, from 1 November 2020, payments made using a business debit card will also attract a fee.

The rationale behind the change is to avoid any cost to the public purse, so business debit card users will be charged a fee equal to the total cost incurred by HMRC when receiving the card payment.

Alternatives

HMRC accepts a wide range of alternatives which will not incur charges for the taxpayer, including:

  • Online banking – Quick and easy to set up, with the advantage that details are saved for the future, with Faster Payments normally being immediate. You can also pay with CHAPS or Bacs or use telephone banking.
  • At your bank or building society – This method is only an option if you still receive paper statements from HMRC and also have the paying-in slip HMRC sent you (printing one is not an option).
  • Direct debit – Set up is via your HMRC online account, this is not quite as convenient as online banking, with payments normally taking longer to process. You need to plan ahead if paying by direct debit. HMRC says to allow five working days to process a Direct Debit the first time one is set up, and three working days the next time if you’re using the same bank details.
  • By cheque through the post – You can print a payslip to use if HMRC has not sent you one. Allow three working days for the payment to reach HMRC, with an obvious delay if the cheque is not completed correctly.

The fee-change is only to business debit cards, so payments made using a personal debit card can continue to be made to HMRC free of any charges.

HMRC has online guidance on paying your taxes.

Furlough scheme to be tapered from August

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On 12 May, the Chancellor announced changes to the operation of the Coronavirus Job Retention Scheme (CJRS) and set out details on how the scheme will operate as people return to work. The good news is the scheme will continue in its current form until August. The not so good news: from September, the amount of the grant to employers will be tapered to reflect employees returning to work. 

Initially, employers will be required to pay their employees’ National Insurance and pension contributions with the government paying 70% of wages up to a cap of £2,187.50 and employers will contribute 10% of wages to make up the 80% total up to a cap of £2,500. Then, from October, the government’s

contribution will be reduced to 60% of wages up to a cap of £1,875 with employers required to pay the remaining 20%.

The revised scheme includes an announcement that new entrants to the scheme will need to have been furloughed for at least three weeks prior to 1 July i.e. those employees who on 30 June had been on furlough at least three weeks under the existing scheme. The CJRS is currently scheduled to close at the end of October. 

Workers eligible under the self-employment income support scheme will be able to claim a second and final grant in August. The grant will be worth 70% of their average monthly trading profits paid in a single instalment covering three months’ worth of profits and capped at £6,570.