TAX NEWSLETTER August ’16

Dear Friend Welcome to our August tax newsletter. Our monthly updates are designed to keep you informed of the latest tax issues. Remember, we are here to help you so please contact us if you need further information on any of the topics covered.

Best wishes Godley Tax Team

BREXIT – WHAT ARE THE TAX IMPLICATIONS?

One of the main reasons that individuals voted "leave" was to restore fiscal sovereignty to the UK so that we are able to set our own laws, in particular tax law, without interference from Brussels. Significant tax changes currently require “State Aid” approval and we have seen many recent tax changes forced on us by the EU such as the extension of Furnished Holiday Letting treatment to EU properties and the extension of EIS and EMI to companies with a PE in the UK instead of trading wholly or mainly in the UK.

New Chancellor, a new tax strategy? George Osborne, a leading member of the “remain” campaign, pledged to cut corporation tax to encourage investment in the UK in response to the referendum result. In an interview with the Financial Times, the former chancellor said he would reduce the rate to below 15%, although he did not mention any timescale. It will be interesting to find out whether the new chancellor Phillip Hammond will adopt a similar approach to corporation tax. VAT is the one tax that is likely to see the most significant changes as a result of leaving the EU. However, it is well known that it will take 2 years following the UK’s notification of Article 50 before we leave the EU. So until then, businesses will trade as normal, with business to business trade (“B2B”) in the EU being largely VAT and Duty free. Possible VAT changes VAT is a European tax. Withdrawal from the EU means that UK VAT law will no longer be governed by the EU VAT Directive. In Budget 2016 it was announced that VAT would raise £138bn revenue for the UK

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Treasury in 2016/17, second only to income tax and about £100bn more than corporation tax. Therefore, it is expected that VAT or something equivalent will remain in place as an important revenue raiser for the UK, but the UK will in future have more freedom to set VAT rates. On the plus side, more zero-rating may emerge, whereas on the downside VAT may be raised above 20%, to cope with a possible recession and to generate additional revenue. The biggest VAT impact will be the change to Intra-EU trade. At the moment B2B transactions are zero rated for VAT purposes. In future such sales will be imports into the EU and subject to EU VAT, which has a number of potential consequences. On the plus side, there will be no more Intrastat or European Sales Lists (ESLs) for UK business to complete. However, businesses and their advisers will need to consider the following points:

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Will a local EU VAT registration be required?

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There will be increased freight agent costs of arranging imports and exports. There will be a requirement to “enter and clear goods”;

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Whilst UK businesses should still be able to recover VAT on overseas expenses, the system is paper based and is a more onerous and lengthy procedure.

Possible Customs Duty changes This potentially has a major impact and very much depends on the negotiation of a Free Trade Agreement (“FTA”) with the EU. Without an FTA, the normal WTO tariffs apply. For example, for a UK car manufacturer selling cars to its’ French subsidiary would result in a 10% duty tariff, being imposed on the transaction. Therefore, an FTA is critical to businesses with EU supply chains.

IHT TAKE JUMPS BY 20% In the tax year to April 2016, the UK government collected £4.66bn which was an increase of 20% compared to the previous tax year. Of this almost 50% was paid by estates in London and the South East. IHT is forecast to increase to £5.7bn by 2021. This is largely due to the increase in property prices. Some call IHT just another tax on UK property. Many individuals and families still do not appreciate the importance of planning for Inheritance Tax. Steps can be taken to mitigate some of the future inheritance tax liability and making sure adequate planning has been carried out so that the family’s wealth is well protected for the future generations. Why gift 40% of your hard earned money, which has already been taxed once, once again to beef up HMRC coffers! We can assist you with the planning and help mitigate some of the IHT liability. Please speak to Viral Haria /Hemel Khimasia or your contact person at our office.

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HMRC OUTLINES FURTHER MAKING TAX DIGITAL PLANS On 15th August 2016 HMRC has published a series of consultation documents outlining further plans for the Government’s Making Tax Digital initiative. The measure is intended to create a ‘transparent and accessible tax system fit for the digital age’. The consultation documents reveal that businesses and landlords with an annual turnover of less than £10,000 will not be required to produce quarterly reports or record information digitally. The Government also stated that it will consider delaying the start of Making Tax Digital for a further group of small businesses to give them extra time to get used to digital record keeping and quarterly updating. The six consultation documents target specific customer groups or reforms, and seek views on the Government’s Making Tax Digital plans. The documents also confirm that those who cannot go digital will not be required to. Commenting on the plans, Jane Ellison, Financial Secretary to the Treasury, said: ‘This new system will make the UK’s tax

administration more efficient and straightforward and will offer businesses greater clarity when it comes to paying their tax bills.’ However, critics of the Making Tax Digital plans have suggested that digital tax returns will be an unnecessary burden on businesses. Frank Haskew, Head of the Tax Faculty at the Institute of Chartered Accountants in England and Wales (ICAEW), commented: ‘This is not the time to be rushing through fundamental changes to business processes that are likely to result in major upheaval and extra costs, especially when the business benefit to the UK has not been clearly demonstrated.’ Under the Government’s plans, the changes to the tax system will be introduced gradually between 2018 and 2020. The consultation period runs until 7 November 2016. We will be keeping a close eye on developments of the Making Tax Digital initiative and will provide updates in due course. If you have any questions in the meantime, please contact your Godley contact.

UNDECLARED RENTAL INCOME – LET PROPERTY CAMPAIGN REVISITED Our tax team has helped individuals make voluntary disclosures to HMRC, in respect of their undeclared UK rental income, to bring their UK tax record up to date. This has been a “win,win” result for both the client and HMRC. By using some of the facilities available to clients such as making disclosures under the Let Property Campaign, we have been able to conclude the matters satisfactorily for clients. Also, making an unprompted disclosure to HMRC has helped as

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it has enabled us to negotiate lower penalties compared to a prompted disclosure (i.e. when HMRC writes to the individual requesting them to make a disclosure). In certain cases, we have also found other income which needed to be disclosed which the client was not aware of. It will generally always be better to make an unprompted disclosure to HMRC rather than to wait for HMRC to make an enquiry. If you have not disclosed your UK rental income or are not sure whether or not you need to disclose a particular source of income on your tax return please do call Viral Haria or your contact person at our office to discuss the matter sooner rather than later.

HMRC CONSIDERS CHANGES TO SDLT FILING AND PAYMENT PROCESS On 10 August 2016 HMRC launched an eightweek consultation on plans to make changes to the stamp duty land tax (SDLT) filing and payment process. During the 2015 Autumn Statement, the Government announced its intention to reduce the filing and payment window for SDLT from 30 days to 14 days following the purchase of a new property. This announcement accompanied the Government’s decision to charge higher rates of SDLT on purchases of additional residential properties, such as buy-to-lets and second homes. These higher SDLT rates came into effect on 1 April 2016.

The Government also intends to revolutionise the filing and payment process by introducing compulsory online filing and electronic payments for agents, as well as extending the online filing service to those who choose not to use an agent. Currently, individuals who do not wish to use an agent are required to file on paper. HMRC aims to introduce these changes during the 2017/18 tax year, but, as they require digital system alterations, implementation during 2017/18 ‘may not be possible’.

SEED EIS RELIEF DENIED The Enterprise Investment Scheme (EIS) and the Seed EIS provide generous tax breaks for investors who subscribe for shares in qualifying companies provided the correct procedures, and in particular the correct forms, are used to claim tax relief. Seed EIS provides income tax relief of 50% of the amount invested and EIS 30% relief, both given by way of a deduction from the investor’s income tax liability. Furthermore there is an exemption from capital gains tax when the shares are sold after 3 years. In a recent case before the Tax Tribunal, tax relief for Seed EIS investors was denied by HMRC and the Tribunal as the directors had filled in the wrong HMRC forms! They tried to save costs by not using professional advisers - a very costly mistake! If you have any questions on EIS/SEIS, please contact Yogesh Patel or your contact person at our office.

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TAX DIARY OF MAIN SEPTEMBER 2016 •

EVENTS

FOR

AUGUST

/

1 August – Corporation tax for year to 31/10/15

• 19 August - PAYE & NIC deductions, and CIS return and tax, for month to 5/8/16 (due 22 August if you pay electronically) •

1 September - Corporation tax for year to 30/11/15

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19 September - PAYE & NIC deductions, and CIS return and tax, for month to 5/9/16 (due 22 September if you pay electronically

This publication is intended to be a general guide and cannot be a substitute for professional advice. Neither the authors nor Godley & Co Ltd accept any responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this publication.

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