Category: HMRC notices

The small trading tax treatment of charities can be complex. Many charities trade either as part of their charitable interests or to raise funds. As a first step, any charity hoping to benefit from any beneficial tax treatment needs to be recognised as a charity for UK tax purposes by HMRC as well as meeting other criteria.

A charity will not pay tax on profits it makes from trade if:

• they are making money to help their charity’s aims and objectives, known as ‘primary purpose trading’
• their level of trade that is not primary purpose falls below the charity’s small trading tax exemption limit
• they trade through a subsidiary trading company

The charity must pay tax on any other profits.

The small trading tax exemption limits are as follows:

If the charity’s small trading turnover is higher than the exemption limits, then they are required to pay tax on all of their profits from that trade.

The tax treatment of charities can be complex. Many charities trade either as part of their charitable interests or to raise funds. As a first step, any charity hoping to benefit from any beneficial tax treatment needs to be recognised as a charity for UK tax purposes by HMRC as well as meeting other criteria.

HMRC’s new points-based penalty regime for late submission and payment will start from 1 April 2022. The changes will apply in the first instance to the submission of VAT returns for VAT return periods beginning on or after 1 April 2022.

The penalty regime will then be extended to Making Tax Digital (MTD) Income Tax Self-Assessment (ITSA) accounting periods beginning on or after 6 April 2023. This will be in tandem with the extension of MTD (from the same date) for taxpayers with business or property income over £10,000 annually. The penalty scheme will be extended to all other ITSA taxpayers for accounting periods beginning on or after for 6 April 2024.

Under the new regime, taxpayers will incur a penalty point for each missed submission deadline. At a certain threshold of points, a financial penalty of £200 will be charged and the taxpayer will be notified. The threshold varies depending on the required submission frequency (monthly, quarterly, annual). The penalty points will apply separately to VAT and ITSA. The penalty points will be reset to zero following a period of compliance by the taxpayer. There are also time limits after which a point cannot be levied.

In addition, the new system will see the introduction of two new late payment penalties. A first penalty of 2% of the unpaid tax that remains outstanding 15 days after the due date. The penalty increases to 4% of any tax still outstanding after 30 days. An additional or second penalty at a penalty rate of 4% per annum will accrue on a daily basis after 30 days. This additional penalty will stop accruing when the taxpayer pays the tax that is due.

There will be an appeals mechanism for both the late submission and late payment penalties available through an internal HMRC review process and an appeal to the First Tier Tax Tribunal.

Website One of the main areas to consider in deciding how to treat a deductible expense is whether the cost is revenue or capital in nature. There is no single, simple test that can be applied to decide which items are capital expenditure and which are revenue. This can only be determined by reference to the relevant facts that applied at the time the expenditure was incurred. Capital expenditure cannot be deducted in computing profits, however, there are separate reliefs for some capital expenditure.

How would this capital/revenue split apply to the costs of setting up a website?

HMRC’s internal guidance says that the costs of bringing an asset into the existence or that have an enduring benefit to the trade are capital. Therefore, the regular update costs of the site are likely to be revenue expenses and the original cost of creation, the capital.

HMRC’s manuals go on to the state an interesting view that, ‘the cost of a web site is analogous to that of a shop window. The cost of constructing the window is capital; the cost of changing the display from time to time is revenue’.

Declaration For Exporters: The UK businesses who export to the EU now need to make customs declarations when exporting goods to the EU as well as to the rest of the world.

Businesses can make customs declarations themselves or hire a third party such as a courier, freight forwarder, or customs agent.

Businesses can use simplified export declarations to help export most goods. The use of simplified export declarations allows businesses to export goods out of the UK by providing basic details to HMRC. This is usually done electronically. Once the goods for export are cleared, they can then be exported without needing to present any supporting documents.

Have a look at our VAT services page.

To use simplified declarations for exports, authorisation is required from HMRC. If you are thinking of applying you need to:

• have a good customs compliance record, including VAT returns and duty deferments
• have a regular pattern of customs declarations against their Economic Operator Registration Identification (EORI) number
• show how they will record all declarations for no less than four years after their submission date
• have access to the Customs Handling of Import and Export Freight (CHIEF) system. The Customs Declaration Service will eventually replace CHIEF.

Businesses are still required to complete a more detailed customs declaration known as a supplementary declaration, but this can be done at a later point in time.

If you are looking to know more these new and related laws; feel free to book a free consultation.

A Taxation Of Partnerships is a business structure where there are more than one person running and owning the business with the view of making profit. The people who own and run a partnership are called partners.

Partnerships can take many forms. Legal persons other than individuals can also be partners in a partnership.

https://www.gov.uk/set-up-business-partnership/register-partnership-with-hmrc

Generally, for tax purposes each partner is treated as receiving their share of the income and expenses of the partnership as they arise. This treatment is overridden in particular cases by anti-avoidance legislation intended to prevent partnership structures being used to avoid (or reduce) tax.

Partnerships may split profits between their partners equally, or unequally if this can be commercially justified, for example if one partner does more of the work of the business or has invested more money in the business.

There are two main types of partnership, a conventional one with two or more partners in the business. There is also a limited liability partnership or LLP, this more complex structure provides partners with the protection of limited liability, as afforded by a limited company.

In order to register a partnership with HMRC, the following forms need to be completed (where applicable):

• Form SA400 – Registering a partnership for Self-Assessment
• Form SA401 – Registering a partner for Self-Assessment and Class 2 NICs
• Form SA402 – Registering a limited company, trust or another partnership as a partner

The registration forms should be filed with HMRC within six months of the end of the tax year the partnership commenced.

LLP’s are automatically registered with HMRC upon registering with the Companies House, which is mandatory for these types of partnership. This means that there is no need to need to submit Form SA400. However, it is important that details of the partners are filed with HMRC using Forms SA401 and/or SA402.

HMRC should also be notified when new partners join an existing partnership, using forms SA401 or SA402.

Taxation Of Partnerships

If you are looking to know about this; feel free to contact us.

We are going through a tough time and there is a risk that so many businesses might have to close down; it will be useful to explain how the final distribution would work for directors and the business.

https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm36220

The Extra Statutory Concession (ESC) – C16 was a well-used extra-statutory concession that allowed company directors to treat final distributions as a capital disposal and close down their business in an efficient manner. ESC C16 was withdrawn in March 2012 and replaced by s1030A Corporation Tax Act 2010 (CTA 2010) provisions.

This move meant that from 1 March 2012, the concessionary treatment provided by ESC C16 were replaced by more restrictive statutory rules which included the introduction of a new £25,000 threshold.

Under the legislation, distributions made in anticipation of dissolution under the striking off process will not be taxed as ‘income’ distributions provided:

• at the time of the distribution, the company has secured, or intends to secure, payment of debts due to it, and similarly has satisfied, or intends to satisfy, debts due from it, and
• the amount of the distribution, or total amount of distributions if more than one, does not exceed £25,000.

Directors with more than £25,000 of reserves will not be able to treat the final distribution as a capital disposal but rather as ‘income’ distributions.

Click here to know more about our Capital Gains Tax services

Conditions of ESCC16

1. The company is not one which, if the distributions were made in a winding up, would be reported to the Anti-Avoidance Group, Clearance and Counteraction Team in relation to ITA07/PART13/CHAPTER1 (formerly ICTA88/S703) under sub-paragraphs (e) or (f) of CTM36875.
2. The company is not the subject of an enquiry either on its own or as part of an enquiry embracing individuals or other companies.
3. The company satisfies an HMRC officer that:

(a) it does not intend to trade or carry on business in future, and

(b) it intends to collect its debts, pay off its creditors in full and distribute any balance of its assets to its shareholders (or has already done so), and

(c) it intends to seek or accept striking off and dissolution.

4. The company and its shareholders agree that:

(a) they will supply such information as is necessary to determine, and will pay, any CT liability on income or capital gains, and

1. b) the shareholders will pay any CGT liability (or CT in the case of a corporate shareholder) in respect of any amount distributed to them in cash or otherwise as if the distributions had been made during a winding-up (see CG40430to CG40432).

If you are looking to know more about this; feel free to book a free appointment contact us.

Importers After Brexit Transition

Since we know the UK government has confirmed that it will neither accept nor seek any extension to the Brexit transition period which expires on 31 December 2020. The EU has formally accepted this position. This means that the process for importing goods from the EU will change from 1 January 2021.

https://www.gov.uk/topic/business-tax/import-export

HMRC has published guidance to help those importing goods to prepare.

Some important points to bear in mind from 1 January 2021 are as follows:

• You will need to make customs declarations when you import goods from the EU. These rules currently apply to importing goods from the rest of the world, including Switzerland, Norway, Iceland and Liechtenstein.
• You will need to make customs declarations when you import goods from the EU.
• The rules for importing some types of goods will change.
• You will need an EORI number that starts with GB to import goods.
• You will need to pay customs duties and VAT on all imports.
• You will need to make customs declarations when you import goods from the EU. Under certain circumstances, it will be possible to delay making a declaration for up to 6 months after you imported the goods.

Note, this guidance applies to England, Wales and Scotland. Separate guidance on moving goods into, out of and through Northern Ireland is expected to be published shortly.

Importers After Brexit Transition

If you need further information; feel free to book a free consultation with us.

In an effort to moderate the vagueness in imports and exports from the UK after Brexit, the government is going ahead with the plans of free trade zones – known as Freeports. Freeports are a special kind of ports where normal tax and custom duty rules do not apply. These rules are simplified within Freeports.

https://www.city.ac.uk/news/2020/september/free-ports-could-help-britain-take-back-control-and-keep-trade-flowing-with-the-eu

Free ports often offer a wide range of incentives for businesses to operate here. These include lower corporate taxes, providing basic utilities at below-market prices and laxer regulations and employment rules.

The initiative would allow firms to import components and other pre-manufactured goods into a Freeport without paying taxes. The goods would then be processed into a finished product to be built in the UK. In these new Freeport areas, no duties would be charged on goods or materials until they leave the zone as a finished product for the UK domestic market. There should be no UK tariffs payable when the finished product is re-exported directly from the Freeport.

The Freeport bidding process in England is expected to open before the end of the year and the first Freeports on track to be open by the end of 2021. In this opening series of applications, sea, air and rail ports in England will be invited to bid for Freeport status.

The Chancellor of the Exchequer, Rishi Sunak, said: “Our new freeports will create national hubs for trade, innovation and commerce, regenerating communities across the UK and supporting jobs.

The government is also working with the devolved administrations to establish at least one Freeport in each nation of the UK and will introduce a package of tax reliefs for business investment in the Freeports. This will include speeding up the planning process to accelerate development. We are also told there will be new initiatives to encourage innovators to generate new ideas to create additional economic growth and jobs.

If you are looking for more information; book a call with us.

There are special rules that apply when a property is let at less than a commercial rate or is not let on commercial rates or terms. These rules also apply if a property is occupied rent free or at less than a commercial rates, for example, a property is occupied by a family member at a reduced or nil rent.

In these circumstances, HMRC can take the view that unless the landlord charges a full market rent for a property and imposes normal market lease conditions, it is unlikely that the expenses of the property are incurred ‘wholly and exclusively’ for business purposes.  Problems may also arise when considering the deduction of expenses during periods when the property is lived in by ‘house sitters’ who do not make any payment whilst staying at the property.

HMRC generally accepts that if a property is let at below the market rate (as opposed to providing it rent-free), the landlord can deduct the expenses of that property up to the rent they receive from letting the property. This means that the affected property produces neither a profit nor a loss. Any excess expenses cannot be carried forward to be used in a later year.

If the landlord is actively seeking a tenant and a relative house sits while it is empty, relief will not be restricted as long as the property remains genuinely available for letting. Relief for capital expenditure on uncommercial lettings may also be restricted.