FREQUENTLY ASKED QUESTIONS
I am a bathroom fitter and was VAT registered from January 2017 to March 2018 as I had a contract with a large developer to fit en-suites into new-build dwellings. My supplies were mostly zero-rated and I received repayments of VAT from HMRC. I bought a new commercial vehicle and specialist tooling in August 2016 on which I recovered the VAT as pre-registration input tax. On my final return, for the tax period ending 31st March 2018, I accounted for VAT on all the assets and stock on hand as a deemed supply. I have now been approached by another developer to install bathrooms and will look again to VAT register in order to recover my input tax. My effective date of registration (EDR) will be 1st April 2019. I understand that I can recover pre-registration input tax on new tooling and stock on hand at registration that I purchased earlier in 2019, but can I also recover the input tax on the commercial vehicle and the tooling purchased in 2016 as pre-registration input tax again?
Regulation 111 entitles businesses that buy goods and services prior to VAT registration, to be used for its taxable activities after registration, to recover the VAT as input tax provided that:
- the goods, whether stock for resale or fixed assets, remain on hand at the EDR and have been bought within four years of that date, and
- In the case of services, the supply was received within six months of the EDR and those services haven’t been supplied on as part of a supply made prior to registration; weren’t services on goods no longer on hand at registration, and weren’t services on assets acquired more than four years prior to registration.
You cannot recover the VAT on the original purchase of those goods again, but HMRC confirm in their Input Tax manual (link below) that when a business re-registers, provided those goods continue to be used in the course of his business, you can treat the VAT accounted for on the deemed supply of the assets as input tax. The evidence required is proof of payment of VAT on the deemed supply on deregistration. The VAT should be reclaimed on your first period return when you re-register.
The National Minimum Wage (NMW) and National Living Wage (NLW) rates increased with effect from 1st April 2019 to:
NLW (workers aged 25+) — from £7.83 to £8.21 per hour. NMW rates:
- workers aged 21–24 — from £7.38 to £7.70 per hour
- workers aged 18–20 — from £5.90 to £6.15 per hour
- workers aged 16–18 — from £4.20 to £4.35 per hour
- apprentice rate — from £3.70 to £3.90 per hour
Regulation 4B of the National Minimum Wage Regulations 2015 states that “the hourly rate of the national minimum wage at which a worker is entitled to be remunerated as respects work, in a pay reference period, is the rate which applies to the worker on the first day of that period.”
In other words, whichever rate was in force on the first day of the reference period is applied to the whole of that reference period. A pay reference period relates to the period for which the worker is being paid. There is no requirement to apply the new rate until the start of the next period. Pro-rata calculations are not required.
Therefore with a seven day (one week) pay reference period which starts on 25th March, the ‘old’ rate continues to apply even though payment is made after 1st April. The first week for which the ‘new’ rate will apply is week commencing 1st April 2019.
Three adjustments to the legislation about Entrepreneurs’ Relief are proposed.
The first affects the definition of a personal company. This will apply where the disposal is of shares in a trading company or the holding company of a trading group. One of the requirements is that the company is the individual’s personal company. The definition of a personal company will be expanded to add a requirement that the shareholder must have a 5% interest in the distributable profits and net assets of the company for the relief to be available.
This is in addition to the existing requirements that the shareholder holds at least 5% of the share capital and that shareholding entitles them to at least 5% of the voting rights and that the individual is an employee or office holder of the company.
This change will apply to disposals on or after 29th October 2018.
The second change will be that the qualifying conditions in all cases must be met for 2 years to the point of disposal or the cessation of trade. The previous rule allowed a 1-year qualifying period.
This is to apply to disposals on or after 6th April 2019. However, an element of protection has been put in place where businesses ceased prior to 29th October 2018. The 1-year qualifying period will be preserved.
The third change will apply where a shareholding is diluted to fall below 5% where, prior to the dilution, the shareholding was greater than 5%. This will be subject to a genuine commercial reasons test. This would exclude, for example, debt for equity swaps or the exercise of employee share options.
Entrepreneur’s Relief would be retained on the growth in the shares up to the point of dilution. A deemed disposal will arise. However, it will be possible for the shareholder to elect for the notional gain to be deferred until the shares are actually sold.
This will apply in respect of shares held at the time of fundraising events on or after 6thApril 2019.
This is based on Budget proposals and will not be Law until the 2018-19 Finance Bill is enacted. It is, of course, possible that the proposals and legislation could be amended during the passage of the Finance Bill through Parliament.
The use of mobile phones in the workplace is a concern for many employers. It is important to tackle this issue when it arises as continued usage will have a detrimental impact on productivity and increase the risk of confidential data breaches. Taking a proactive and visible approach will help discourage other staff members from using their mobile phones in the future.
It is important that you implement a suitable mobile phone policy setting out your stance on the matter. Having the rules outlined in a policy will allow you to begin a disciplinary procedure, should one be considered necessary. The policy should be clear and specific, taking into account personal phone calls, text messages and social media usage. Due to advancements in technology, it would be useful to include devices such as tablets and smartwatches, and if you have an old policy you can update this accordingly. You should also specify in the policy where staff are required to keep their phones during working hours, such as out of sight or in a locked drawer.
Once a policy is in place it is important to address any incidents of unacceptable mobile phone usage. You should address the next individual caught using their mobile phone, asking them to refrain from doing so immediately. An informal meeting may be all that is needed with the individual to warn them of their misconduct and give them an opportunity to change their behaviour. If the individual has already been afforded this opportunity then you may wish to begin a formal disciplinary procedure on the matter, beginning with formal warnings that increase in seriousness should the misconduct continue.
Whilst taking a proactive approach to mobile phone usage will deter other staff members from following suit, it is advisable to educate your workforce further on the matter. You could put up posters which discourage staff from using mobile phones or place notices on staff notice boards. For a less subtle approach, you may opt to hold a meeting with the entire workforce, issuing them with a copy of the policy on mobile phone usage and reminding them of their responsibility to adhere to the policy.
To succeed in tackling mobile phone usage, you should be proactive and look to discipline and educate their workforce in equal measure. At the same time, it is equally important that managers lead by example and abide by the rules of the policy, which will create a more unified and cooperative workforce.
Direct exports can usually be treated as zero-rated provided the following conditions are met. These are that the supplier:
- Exports the goods from the EC within the relevant time limits (three months from the time of supply);
- Obtains evidence of export of the goods within three months from the time of supply and
- Holds supplementary evidence of the export transaction.
Confusion arises when there are more than two businesses in the supply chain. Just because the goods are being shipped by the client to a business outside the EC, it does not necessarily mean that they can zero-rate the sale. In your scenario we have:
- Company A – UK client selling gym equipment;
- Company B – UK company purchasing the goods but not taking delivery of them, and
- Company C – Swiss company which is B’s customer, receiving the goods.
This transaction should be treated as two separate supplies, and only the final supply relating to the export can be zero-rated.
This means that the supply from company A to company B is a UK to UK transaction, and therefore subject to the appropriate rate of UK VAT; in this case, standard rated.
Company B will be invoicing company C, and it is B that will be able to zero-rate this supply subject to the rules above. As it will be you who physically ships the items, you will need to pass the evidence of shipping to company B.
HMRC’s guidance on this point is set out is Notice 703 (Exports) at paragraph 4.1, and the conditions for zero-rating direct exports are set out in paragraph 3.3.
Whilst the Shared Parental Leave (SPL) scheme itself is not new, having first been introduced in April 2015, the government are making a concerted effort to increase awareness amongst the general public as a result of so few individuals choosing to take up the scheme in recent years.
You should be aware that SPL allows eligible parents to share a maximum of 50 weeks leave between them to care for their child. SPL grants parents greater flexibility to divide the allocated time up between themselves, allowing them to choose between spending time off with their child together or having one parent spend time caring for the child alone whilst the other returns to work.
During the period of leave, eligible parents will be entitled to Shared Parental Pay (SPP) currently set at £145.18. It is important you understand that SPP does not cover the entirety of the leave period, instead parents are entitled to a maximum of 39 weeks of paid leave minus any weeks paid as Statutory Maternity or Adoption Pay.
The scheme looks to provide greater equality amongst parents, allowing mothers the possibility to return to their careers earlier, whilst giving fathers or partners the opportunity to take a greater share of the childcare. You need to be aware that not all employees will be eligible to take part in the scheme. Generally speaking for an employee to be eligible they must at least meet the following requirements:
- They must share responsibility for the child with either; their husband/wife or joint adopter; the child’s other parent or their partner
- They must have worked for your you for a continuous period of at least 26 weeks by the end of the 15th week before the due date (or the date they are matched with their adopted child)
There are other more detailed terms employees must adhere to in order to be eligible for SPL and SPP, including strict notice requirements the employee has to meet.
Having a clear policy in place regarding SPL and SPP will help you manage this leave and can be used to increase awareness among staff, and managers. Additionally, you could arrange a training session on this leave to help inform employees about the way the leave works and the requirements in place.
A. Due to the abundance of legislation that applies to land transactions and gifts, various tax implications are of concern.
Where only an income stream is transferred and the transferor retains an interest in the capital value of the property generating the income, the income is treated for income tax purposes of the income of the transferor under the settlement legislation at ITTOIA 2005 s.624.
To effect a transfer of the income stream and achieve the client’s objective, the transferor must also transfer a proportionate capital interest. To transfer 50% of the income stream effectively, a 50% interest in the capital value of the property also must be transferred.
Capital assets are transferred between spouses at nil gain or loss for capital gains tax purposes. The deemed consideration is so much as would secure a net gain of £0 after accounting for enhancement expenditure, costs to transfer, etc. There are exceptions to this rule where the spouses are not living together so do not assume tax neutrality will apply.
Take additional care where the property in question was previously the main residence of the transferring spouse, as private residence relief may be inadvertently lost. A transferee spouse will only acquire the ownership and occupation history of the transferor where the property is transferred whilst it is the main residence of both spouses (TCGA 1992, s.222(7)). If the property is not their main residence, a gain which would have been 100% relieved in the hands of the transferring spouse will come into charge on a future disposal by the acquiring spouse.
The final tax charge to consider is Stamp Duty Land Tax. There is no exemption from SDLT for transfers between spouses. SDLT is chargeable where the acquiring spouse provides consideration for their interest in the property, including assuming liability for debt.
Although not technically a tax issue, it is of note that a transfer of beneficial ownership of a property does not require a conveyance of legal title. Although a trust arrangement does not need to be written to be effective, a written declaration which is signed and dated can prevent disputes with HMRC over the validity and commencement of the transfer, particularly where income continues to be deposited into a joint bank account.
Clients need to be aware of the changes in statutory pay rates which came in effect in April 2018.
April brought with it several developments which are set to alter the landscape of employment law, particularly in the area of employee wages and other monetary issues. It is important you are aware of these and review your practices to ensure you are acting lawfully.
Minimum wage increases
National Minimum Wage (NMW) and National Living Wage (NLW) will increase for pay reference periods starting on or after 1st April as follows:
- Age 25 and over – £7.83 per hour
- Age 21-24 years old – £7.38 per hour
- Age 18-20 – £5.90 per hour
- Over compulsory school age but not 18 – £4.20 per hour
- Apprentice rate – £3.70 per hour
Statutory pay rates rise
‘Family friendly’ payments also increased on 1st April. The weekly pay rates of statutory maternity pay (SMP), statutory adoption pay (SAP), statutory paternity pay (SPP) and shared parental pay (ShPP) will all increase from £140.98 to £145.18.
Coinciding with the new tax year, statutory sick pay (SSP) increased from 6th April from £89.25 to £92.05 a week. The average weekly earnings limit which an employee must reach to be eligible for these statutory payments also rose from £113 to £116 a week.
Tribunals to become more expensive
Maximum tribunal awards increased on 6th April as part of the government’s annual review procedure. Most notably the new maximum award for an unfair dismissal, totalling the maximum basic and compensatory award, rose from £95,211 to £98,922. You should be wary that this publicised increase, coupled with the fact that individuals no longer have to pay to lodge a claim with the employment tribunal, may lead to an increase in potential claims against you.
Pension Auto Enrolment
With effect from 6th April, the minimum automatic enrolment (AE) contributions you must pay towards their employees’ pensions also increased. You will now need to contribute at least 2%, whilst the employee is required to contribute 3% themselves through automatic wage deductions. The government has warned that any failure to abide by these new regulations will lead to financial penalties for the organisation in question.
Finally, you need to be aware that, with effect from 6th April, payments in lieu of notice upon termination of employment will become subject to income tax and employee National Insurance contributions, regardless of whether the right to pay is included within the contract or not.
After many years together, I am separating from my partner, as part of the separation I have agreed to buy my partner’s joint interest in the family home for £300,000. Will Stamp Duty Land Tax be payable on this acquisition, and if so, as I also own a rental property, will the additional 3% rates apply?
Finance Act 2003, Schedule 3, Paragraph 3A provides an exemption from SDLT on transactions made in connection with the ending of a marriage or civil partnership. As you never married, this exemption will not apply and SDLT will be due on the £300,000 consideration paid to acquire the joint interest from your ex-partner.
Legislation at Schedule 4ZA of Finance Act 2003 contains provisions for SDLT rates to be increased by 3% for the acquisition of additional dwellings. Generally, these rules apply to a transaction if the purchaser has an interest in more than one dwelling unless the property acquired is replacing a main residence that has been, or will be, disposed of in the period 3 years before and 3 years after the acquisition. In this instance, as you own more than one residential property, but have not disposed of your main residence, and so it would appear that the 3% additional rate would apply.
However, Finance Act 2018 brought in some minor amendments to provide relief to higher rates of SDLT in certain circumstances. One of these covers the situation where a purchaser adds to their interest in their current main residence.
As such, with the exception of a leasehold interest with less than 21 years to run or a joint interest of less than 25%, transactions after 22 November 2017 will not fall within the higher rate rules if:
- The purchaser had a prior interest in the purchased dwelling immediately before the date of the transaction, and
- The purchased dwelling had been the purchaser’s only or main residence throughout the period of three years ending with the date of the transaction.
Therefore, provided the property in question has been your only or main residence throughout the last three years, although SDLT will be payable, the additional 3% higher rate will not apply.
A limited company, purchased a new commercial property in November 2008 for £500,000 + VAT. They occupied the property since then for its fully taxable trading activity and recovered the VAT charged on its 01/09 return. They did not opt to tax and no work has been done on the property in the last 10 years. The company is now selling it. What are the VAT implications of this sale?
A. As the property was bought, within the last ten years, for more than £250,000 + VAT, they are is disposing of an asset that is subject to the Capital Goods Scheme (CGS). You can find detailed information on the CGS in VAT Notice 706/2.
Where a CGS building is sold before the end of the CGS term of ten intervals, then the adjustment for the interval in which the property is sold will be the final adjustment, and would also reflect the deemed use in any remaining complete intervals. An interval is usually the same as a tax year for partial exemption and this is a usually a period of 12 months ending on 31 March, 30 April or 31 May depending upon the business’s VAT periods.
If the sale is exempt, the use in any remaining complete intervals is deemed to be exempt, so there would be some VAT to repay to HMRC. If the sale is standard-rated because an option to tax is made prior to sale, then the remaining use is deemed to be taxable so in your client’s case this would reflect the initial recovery and there would be no adjustment to make.
However, you are is already in the tenth interval so there are no remaining complete intervals, and the use in the final interval reflects the fully taxable use during that period, excluding the sale itself. This means that no final adjustment is required.
Assuming you do not make a last-minute decision to opt to tax, the sale of the property will be an exempt supply. Input tax incurred on the selling costs would then be attributable to the exempt supply, and therefore irrecoverable unless one of the de minimise tests is met. These are set out in VAT Notice 706 in paragraphs 11.2 and 11.7.
A. The annual allowance has applied from the tax year 2006-07 onwards. There have been various changes since then with the current allowance set at £40,000 for 2017-18. In basic terms an individual can make pension savings up to £40,000 and claim tax relief. If pension savings go above the annual allowance a tax charge applies.
From 6 April 2016, a tapered reduction in the annual allowance applies for those with an ‘adjusted income’ over £150,000. This definition is based on the individual’s taxable income after allowing for certain reliefs plus the value of their pension savings during the tax year.
The annual allowance is reduced by £1 for every £2 of income above £150,000, subject to a minimum reduced annual allowance of £10,000.
Where the reduction would otherwise take an individual’s tapered annual allowance below £10,000 for the tax year, their reduced annual allowance for that year is set at £10,000.
If the individual’s net income is no more than £110,000 they will not normally be subject to the tapered annual allowance.
As an example, an individual with income of £160,000 has a reduced annual allowance of £35,000 for the tax year. The £10,000 of income above £150,000 creates a reduction of £5,000 from the annual allowance of £40,000 – resulting in a reduced annual allowance for the tax year of £35,000.
However, an individual with income of £215,000 has a reduced annual allowance of £10,000 for the tax year. The £65,000 of income above £150,000 creates a reduction of £32,500 which would otherwise have reduced the annual allowance to below £10,000 – in this case it would have been reduced to £7,500.
Are there any exemptions for Stamp Duty Land Tax for employers in the case of relocation of employees?
A. Yes. Where a dwelling is acquired from an individual by his employer and certain conditions are met, the acquisition is exempt.
The conditions as in FA 2003 Sch 6A 5(2) are as follows: it must have been the individuals only or main residence at some point in time in the period of two years ending with the date of acquisition, the acquisition is made in connection with a change of residence by the individual due to relocation of employment, the consideration does not exceed the market value of the dwelling and that the area of land acquired does not exceed the permitted area. If the first three conditions are met but the land is over the permitted area the chargeable consideration for the acquisition to be taken into account is calculated by deducting the market value of the permitted area from the market value of the dwelling.
An ‘employer’ is not specifically defined. An employee is defined so as to include an office-holder. An employer will include a prospective employer. There is no requirement as to how long an employee needs to be employed prior to the acquisition.
Relocation of employment is defined as a change of the individuals place of employment due to:
- his becoming an employee of the employer,
- an alteration of the duties of his employment with the employer, or
- an alteration of the place where he normally performs those duties
– SDLTM21060 FA 2003 sch6A – acquisition by the employer in case of relocation of employment.
For a copy of our tax card with all the information you need for the tax year 2019/20 please click here.
Digital Tax is coming, for more information please click here.
How to pay your tax bill
Unsure how to use DocSafe?
Xero Training Videos
For more videos on how to use xero please click here.