Capital Taxes

Gains on UK Dwellings

Non-residents

People who are not tax-resident in the UK do not pay UK capital gains tax when they sell a property in the UK, although the gain may well be taxed in the country where the individual is tax-resident. 

From 2015/16 non-resident owners of UK homes (dwellings) will have to pay UK capital gains tax on the gain that arises on the sale of their home for periods from 6 April 2015 onwards. However, the non-resident individual can elect for their UK home to be treated as free from capital gains tax, if they spend at least 90 midnights in that home in the UK during the tax year. Those 90 days may be spread over several properties if they own several homes in the UK. Spending 90 days in the UK could make the individual tax-resident in the UK for the tax year in question.

UK Residents

This 90 day rule will also apply to UK residents who own a second home outside of the UK. Currently the owner can elect for an overseas home to be treated as free of capital gains tax. From 6 April 2015, an overseas property will only be eligible to be free of UK capital gains tax if the owner spends at least 90 midnights there during the tax year, or is treated as being tax resident in the country where the property is situated. It is possible to be tax resident in more than one country concurrently.

Entrepreneurs' Relief
Entrepreneurs' relief was introduced from 6 April 2008 to apply a 10% tax rate on gains made on disposing of a business, part of a business, or shares held in a personal company.

Incorporation

Entrepreneurs' relief has always been available to apply to gains that arise on the incorporation of a business, which often involves the transfer of goodwill created by the unincorporated business into the company that takes over the trade. The Government has decided that this use of entrepreneurs' relief is unfair. From 3 December 2014 entrepreneurs' relief will not be available for gains arising on the transfer of goodwill on the incorporation of a business.

EIS or SITR Shares

Where an individual makes a gain that taxpayer can defer tax on the gain by investing in Enterprise Investment scheme (EIS) shares, or shares or loan notes issued under the social investment tax relief (SITR) scheme. Where such an investment is made any entrepreneurs' relief due on the original gain is normally lost. For investments under EIS or SITR from 3 December 2014, the entrepreneurs' relief can be retained, and may be claimed when the EIS or SITR investments are subsequently disposed of.

Tax Favoured Investments

ISAs
For deaths on and after 3 December 2014 the surviving spouse or civil partner will inherit the deceased person's ISA including all its tax benefits. This means the survivor will be able to contribute into the ISA account that belonged to their partner, as well as into their own ISA. The income from the deceased person's ISA will continue to be tax free in the hands of the survivor. 

The tax free ISA investment limits will increase as follows:

	2014/15 (limits from 1 July 2014)	2015/16
Shares and cash ISA	£15,000	£15,240
Junior ISA and Child Trust Fund	£4,000	£4,080

Social Investment Tax Relief
Social investment tax relief (SITR) was introduced from 6 April 2014 and provides income tax and capital gains tax reliefs for individuals who invest in social enterprises. The activities the social enterprise can undertake will be expanded to include community farms and horticultural businesses, with effect from 6 April 2015.

The maximum investment each social enterprise organisation can receive is limited to about £283,000 for each three year investment period. The Government is to seek EU approval to increase this limit to £5 million per year, up to £15 million for each investment period.

Individuals

Income Tax Allowances
The standard personal allowance will increase from £10,000 to £10,600 on 6 April 2015, but the personal allowances for those born before 6 April 1938 are frozen. From 6 April 2015 married couples and civil partners will be able to transfer £1,060 of their unused personal allowance to their spouse/ partner, if the recipient is taxed at no more than the basic rate for the year (20%).

Tax Rates
The income tax rates for 2015/16 on earnings and dividends are the same as apply in 2014/15. However, the savings rate is reduced from 10% to zero and the savings rate band is increased to £5,000. The savings rates only apply if the individual's net non-savings income does not exceed the savings rate limit.

Pensions
The Chancellor announced in September 2014 that the "death tax" on undrawn pensions, set at 55% of the value of the pension fund, would be removed from 6 April 2015 where the deceased was aged under 75. Where the deceased was aged 75 or more the undrawn pension fund is taxed in the hands of the beneficiary (usually the surviving spouse) at their marginal rate of tax, or at 45% where the fund is taken as a lump sum.

Those tax changes would not apply where the pensioner had already bought an annuity with his pension fund, leaving the surviving spouse worse off. From 6 April 2015 where the pensioner dies before age 75 and had purchased a joint life annuity or guaranteed term annuity to provide for the spouse, further payments from the annuity made after the death of the pensioner will be tax free.

Non-domiciled
The Government likes to welcome foreign-born individuals to the UK, especially if they are very wealthy. Such individuals have a special tax status, which is almost unique to the UK, called "non-domiciled". Even though the individual is resident for tax purposes in the UK their non-domiciled status allows them to keep their overseas income and gains outside of the UK tax net, such that it is only taxed when it is brought into the UK. This tax arrangement is called the remittance basis.

To take advantage of the remittance basis the non-domiciled person must elect to do so, and pay an annual charge which varies according to how long they have been living in the UK:

- 7 out of last 9 tax years: £30,000
- 12 out of last 14 tax years: £50,000 to be increased to £60,000
- 17 out of last 20 tax years: £90,000 (new charge)

Business Taxes

Corporation Tax
Corporation tax rates for all sizes of company in the UK (excluding the oil and gas sectors which pay at special rates) are aligned at 20% from 1 April 2015. This removes the need for the associated companies rule that restricts the use of the small profits rate of corporation tax, so those rules are abolished from April 2015.

However, large companies must pay their corporation tax by quarterly installments once their taxable profits exceed £10 million, and the tax due is at least £10,000. From 1 April 2015 those thresholds are divided by the number of companies in the corporate group which are related by a 51% holding. 

The Chancellor has proposed the Northern Ireland Executive could take control of corporation tax rates, and directly collect corporation tax from companies based in that region. There is no indication of when this change may occur.

Creative Sector
In 2013 and 2014 the Government introduced various new tax reliefs for companies that produce high-end TV programmes, video games or theatre productions. These reliefs are all similar but not exactly the same.

A new tax relief along the same lines for companies that produce children's TV programmes will be introduced from April 2015. It will also consult on introducing a new tax relief for orchestras from April 2016.

Research and Development

Small Companies 
Companies have been able to claim enhanced tax relief for expenditure on research and development (R&D) for many years. The amount spent on specific classes of costs relating to qualifying R&D projects is multiplied by a percentage, before the total is deducted from the company's taxable income for the year. Since 1 April 2012 that percentage has been 225%.

For R&D expenditure incurred from 1 April 2015 that percentage is increased to 230%. However, the costs that qualify for this deduction will be further defined to remove materials which are used in products that are sold.

Large Companies
Large companies claim R&D tax relief as an expenditure credit equal to a percentage of the R&D spend for the accounting period. That credit (known as "above the line" credit) is generally set against the company's corporation tax liability for the year. The percentage of R&D costs translated into the "above the line" credit was 10% for periods since 1 April 2012, and will be increased to 11% from 1 April 2015.

Employers

Employment Allowance The employment allowance was introduced from 6 April 2014. It is worth £2,000 per year per employer to set against the employer's national insurance liability. For 2014/15 individuals who employed people in their own home, such as nannies, housekeepers or gardeners could not claim the employment allowance. This blanket ban for domestic workers also applied to carers, but from April 2015 the employment allowance will be available to households who employ care and support workers.  National Insurance From 6 April 2015 employers will not have to pay employers' NI on the wages of workers aged under 21, for wages up to £815 per week. From 6 April 2016 that exemption from employers NI will be extended to wages paid to apprentices aged under 25, with the same weekly cap on the amount paid. Employee Benefits  Company Cars Drivers of very low-emission cars may be in for a shock from 6 April 2015.  Those vehicles with CO2 emissions from zero (i.e. electric) to 50g/km will be subject to tax as a benefit in kind for the first time. Tax will be payable on 5% of the vehicle's list price, or 8% for diesel cars. The benefit in kind chargeable amount for all other cars will increase by 2% of the list price, including those cars which are currently taxed on 35% of the list price, as the maximum benefit rises to 37% of the list price. Where a company car driver receives free fuel (petrol, diesel or LPG) for private journeys, the taxable benefit is calculated as the percentage of the list price for the car applied to the fuel charge multiplier set at £22,100 for 2015/16 (£21,700 for 2014/15) . The maximum taxable benefit of receiving free road fuel for private use will increase to £8,177 for 2015/16 from £7,595 for 2014/15. Where the employer pays for the electricity to charge an electric company car there is no tax on the benefit of using that electricity on private journeys. Equally there is no standard rate to reimburse employees when they use their own domestic electricity supply to charge an electric company car. Company Vans Driving from home to work in a company van is not considered to be a private journey, but it is when the vehicle is a company car.  When a company van is used for private journeys the driver is taxed on £3,090 for 2014/15. This increases to £3,150 for 2015/16. When road fuel is provided for private journeys in a company van the taxable benefit is £581 for 2014/15, rising to £594 for 2015/16. An electric van is currently tax-free for the driver, even when it is used for private journeys. However, from 6 April 2015 the private use of an electric commercial vehicle will be a taxable benefit, calculated as £630 for 2015/16. The taxable benefit for electric vans will increase each year until it is equal to other vans from April 2020.

Property Taxes

Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) is paid by purchasers of land and buildings. The tax is regarded as unfair, as it is imposed in a slab system on the whole value of the property according to the highest rate applicable for the property value.

From 4 December 2014 the new rates and bands of SDLT apply (see below) and the tax is imposed in a progressive fashion such that each slice of the property value bears tax at the rate according to that band, like income tax. These changes only apply for residential properties, not for commercial properties.

Until 3 December 2014 a house which sold for £260,000 would attract SDLT at 3% on the entire value, so the purchaser would pay £7,800 (£260,000 x 3%), although SDLT for properties costing up to £250,000 was just 1%.

Where the contract for the same house at the same price completes on or after 4 December 2014 the SDLT will be calculated as:

£250,000 - £125,000 x 2%	£2,500
£260,000 - £250,000 x 5%	£ 500
Total =	£3,000

This saves the purchaser £4,800.

Buyers who have already exchanged contracts to purchase, but have not completed the transaction before 4 December 2014 will pay SDLT at the new rates and bands which are:

Purchase price	Rate of SDLT on each band
£0 - £125,000	0%
£125,001 to £250,000	2%
£250,001 to £925,000	5%
£925,001 to £1,500,000	10%
Over £1,500,001	12%

The changes for SDLT will mean that purchasers of residential properties costing less than £937,500 will pay less tax, but purchasers of properties over that threshold will pay more tax, and for purchasers of properties costing over £2.1 million will pay considerably more.

Land and Building Transaction Tax
From 1 April 2015 purchasers of land or buildings in Scotland will pay Land and Building Transaction Tax (LBTT) in place of SDLT. This new Scottish tax will be imposed in a progressive fashion, like the new SDLT. However, the new progressive LBTT will apply to both residential and commercial properties at the following rates and bands:

Residential Properties

Purchase price	LBTT rate
Up to £135,000	0%
£135,001 to £250,000	2%
£250,001 to £1m	10%
Above £1m	12%

Non-residential Properties

 

Purchase price	LBTT rate
Up to £150,000	0%
£150,001 to £350,000	3%
Above £350,000	12%

Annual Tax on Enveloped Dwellings
The annual tax on enveloped dwellings (ATED) is paid by the owners of residential properties (dwellings), where the property is held by a non-natural person such as a company, partnership with one or more corporate members, unit trust or similar structure. A number of reliefs and exemptions are available which must be claimed on a property by property basis for dwellings that are commercially let, held as stock for development companies, used as employee accommodation or as farmhouses, or are open to the public.

This tax was introduced in April 2013 and has raised five times more than expected, so the Chancellor is putting up the annual charges to apply in 2015/16 as follows:

Property value	2014/15	2015/16
Up to £1,000,000	£Nil	£Nil
£1,000,001 to £2,000,000	£Nil	£7,000
£2,000,001 to £5,000,000	£15,400	£23,350
£5,000,001 to £10,000,00	£35,900	£54,450
£10,000,001 to £20,000,000	£71,850	£109,050
Over £20,000,000	£143,750	£218,200

Business Rates
The Chancellor has ordered a full review of the future structure of business rates to report by Budget 2016. In the meantime the high level of small business rates relief (SBRR) will be extended to 31 March 2016, and the increase in business rates for that year will be capped at 2%. 

High street shops, pubs, restaurants and cafes with a rateable value of less than £50,000 currently qualify for a discount on business rates of £1,000 per year. This discount will be increased to £1,500 per year for 2015/16.

Travel Question

If you contract through your own personal service company (PSC), you will be an employee of that company and you have to obey the strict tax rules that apply to employees' travel deductions when claiming expenses from your PSC.

The first rule is that the cost of ordinary commuting cannot be claimed. This is defined as travel to a permanent workplace, which is somewhere attended regularly to perform the duties of the employment. Travel costs to a temporary workplace can be claimed, but the conditions that make a workplace 'temporary' must be met.

A place is not a temporary workplace if the employee attends for a continuous period of more than 24 months, or the attendance is expected to last more than 24 months. If your PSC takes on a contract that is expected to last say 36 months at one location, you can't claim travel costs to that location, as your workplace is not a temporary workplace from the start of the contract.

Another definition of 'temporary workplace' is one which the worker attends to perform a task of limited duration or for some other temporary purpose. HMRC has a rule of thumb that if the worker is attending a place for 40% or more of his working time, that is a permanent workplace and travel costs to the location can't be claimed.

If you work at your client's office for say 15 hours per week out of a 40 hour normal working week, your client's office is a temporary location even if the contract exceeds 24 months. Please discuss the matter of travel expenses with us before you take on a long contract, as the deductibility of the travel costs may tip the balance on whether the contract is worthwhile.

VAT on Multi-products

Most products and services are subject to standard rate VAT at 20%, but some products are zero-rated (VAT applied at 0%), while others, e.g. rent for certain buildings, are exempt from VAT. There is a limited range of products and services that attract 5% VAT.

If you supply a package which is made up of products and services which carry different rates of VAT, you need to be sure of the split to charge the right amount of VAT to your customers. The VAT man may insist that you charge VAT at the highest rate if he thinks the lower-rated product is only incidental to the total package the customer is buying. For example a printed leaflet (zero rate) sold with a DVD (standard rate).

Say you own a large retail building and let out space within it as shops and in it are shops for antique dealers. The rent is exempt from VAT if you have not "opted to tax" your whole building. Each dealer can ask you to sell stock on their behalf if he is not present when a customer arrives. This selling service should be standard rated as an agency service.

In a similar case to this the VAT man argued that the whole charge to the dealers (rent and selling service) should be charged at 20% VAT. Fortunately the Tax Tribunal disagreed and ruled there were two elements which should have separate VAT charges, as this is how the antique dealers viewed the arrangement.

If your products have several elements with different VAT treatments, talk to us about how your customers view the mix, and how you should split the VAT charges.

Late Filing Penalties

From 6 October 2014 the HMRC computer will automatically issue you with a penalty if you submit your full payment submission (FPS) under RTI "late", or don't submit it at all for a month in which you paid your employees.

So what makes the FPS "late"? HMRC say the FPS must be submitted on or before the day the employer pays the employees (the "payment date"). But is that the day the funds leave the employer's bank account or the day the employee receives the money?

In fact the "payment date" for RTI purposes is neither of these dates. It is the date contractually agreed between the employer and the employee to be the date on which the employee is to be paid. If the funds happen to be passed to the employee on an earlier or later date, perhaps due to a bank holiday, that doesn't change the "payment date". This is explained in HMRC's RTI guidance on non-banking days.

So whatever the payment date is in your employee's contract (verbal or written), that is the date that you should enter in the payroll software as the regular payment date. As long as the FPS is submitted before that regular payment date, you should be able to avoid any late filing penalty.

In fact you will be allowed one late filing per tax year without incurring a penalty. The HMRC computer will warn you that you have submitted your FPS late by sending an electronic notice sent through HMRC's PAYE online service. You may have already received some of these electronic warning messages, but at present no penalties have been issued. If you receive any more late filing warnings do let us know as the late filing penalties can be up to £400 per month for large payrolls.

E-bay Traders Beware

Do you trade on E-bay, Amazon, GumTree or similar or know someone who does?

Did you know that the tax man has been collecting information from E-bay to identify traders who are not declaring their income?

HMRC have gathered names, ID’s and transactional information and are cross referencing this to self assessment records to identify individuals who should be registered as self employed.

Penalties are greater where HMRC discover the income before you declare it to them, so if you are already a client of Defacto and have been trading in this way but have not yet told us about it let us know as soon as possible – and remember that even if you are not making a profit the income should be declared and the losses recorded.

If you know someone who has been trading through one of these sites and may not have registered for self assessment then please pass on our details and let them know that we can help them to register and prepare their return.

Entrepreneurs Relief – Planning Required

If you are thinking about disposing of the shares in your own company then make sure you plan ahead to ensure you meet all of the criteria for Entrepreneurs Relief.

Entrepreneurs Relief reduces the Capital Gains Tax on certain gains from 28% or 18% to 10% but all of the relevant conditions must be met for the gain to qualify.

In this scenario, for the 12 months up to the disposal of the shares:
1. The company must be a trading company
2. You must hold 5% or more of the shares in the company
3. You must be an employee or officer of the company

The first of these conditions – a trading company – means a company whose activities do not include to a substantial extent activities other than trading activities.

If you have amassed a large cash balance in the company bank accounts this could be considered to be an investment activity rather than a trading activity and could therefore leave you open to a challenge by HMRC over whether Entrepreneurs Relief is due on the gain.

Careful planning is required in advance.

EC Sales Lists

If your business is VAT registered and you sell goods or services into other European countries you must generally also submit an additional form to the Government called an EC Sales List (ESL also known as form VAT101). There are no payments to be made or reclaimed with the ESL, as you do on your quarterly VAT return form, but you must submit the ESL on time or HMRC will charge a penalty for late submission.

If you export goods worth more than £35,000 per year you will need to complete a monthly ESL, otherwise it's a quarterly task. However, where your total turnover is less than £106,500 and you export less than £11,000 you can ask HMRC for permission to submit just one ESL per year.

HMRC should send you an ESL form to complete if you have filled in box 8 on your VAT return. Don't ignore it, as the deadline for returning the form is just 14 days from the end of the quarter. If you chose to complete an online version of the ESL you have 21 days from the end of the quarter. These deadlines are much shorter than that for your quarterly VAT return.

We can complete and submit the ESL online on your behalf.

Commission Refunds

If you invest through a firm of financial advisers, you may well receive a repayment of commission from that firm each year. In previous years any refunded commission was rolled into the earnings from your investments or set against charges, so you may not have been aware of it. However, from 6 April 2013 the financial adviser must deduct tax from any refunded commission and show the amounts paid and deducted separately on your annual statement .

You should look out for these refunded amounts on your investment statement for 2013/14, as it must be declared on your 2013/14 tax return. However, don't add it into your interest, or dividend income. The correct place to declare the refunded commission is in box 16 on your self-assessment tax return under "other taxable income", with an explanation of the income in box 20.

We will do this for you when we complete your tax return, but please remember to provide us a copy of your investment statement that shows the refunded commission.

Maximising Statutory Maternity Pay

Paying statutory maternity pay (SMP) is not optional. It must be paid if your employee qualifies, but the good news is that a small business can recover 103% of the SMP paid from HMRC. A business that pays less than £45,000 of class 1 NICs in one tax year is defined as "small" for this purpose.

In a family business there may be scope for maximising the SMP payable for the first six weeks of maternity leave, and hence getting the Government to refund that SMP with a bit extra to cover the employer's NICs due. Let's see how this could work.

Where the employee earns at least £111 per week the employer must pay SMP at these rates for the following periods:

- for the first 6 weeks - 90% of the employee's average weekly earnings (AWE);
- the remaining 33 weeks - the lower of £138.18 or 90% of their AWE.

If a bonus is paid in the crucial "relevant period" - which is used to calculate the employee's "average weekly earnings" - the SMP payable for the first six weeks automatically increases. The remaining 33 weeks of SMP are not affected as that period is paid at a flat rate where earnings exceed £153.53 per week.

The relevant period is a period of at least 8 weeks ending on the pay day before the "qualifying week". The qualifying week falls 15 weeks before the expected birth date, so you need to know the expected date of birth before timing the bonus payment.

Say the expectant mother normally earns £520 per week, she will receive £468 per week in gross SMP for the first six weeks. Her employer will pay class 1 NICS of £260.82 on top of this SMP and will be able to recover: £468 x 1.03% = £2,892.24. If the class 1 NICs on the SMP are covered by the employment allowance of £2,000 for the business, the employer effectively recovers £2892.24 against an SMP cost of £2808.

However, paying a large bonus won't necessarily be tax effective; it depends on how much NICs can be covered by the employment allowance.

Say the employee receives a bonus payment of £2,000 in the relevant period, this bonus generates an employer's NICs bill of £276, and increases her AWE and hence her SMP for the first six weeks to £675 per week. Her employer can recover £675 x 1.03% for six weeks = £4171.50.

But this is a marginal increase from £2892.24 which was recovered without the bonus; an increase of £1279.26 for paying out £2447.40 (bonus + NICs on the bonus and SMP).

There is a calculator on the GOV.UK website that can help you work out the SMP that will be due, and you can change the answers to each question to see how difference in pay will change the SMP. We can also help you crunch the numbers.

Scary Letters

Have you received a scary letter from HMRC lately? Perhaps all HMRC letters are scary, but this latest nudge-letter really takes the biscuit.

In it HMRC says the taxpayer's effective rate of income tax is lower than the average for taxpayers with similar levels of income. It goes on to suggest that there could be something wrong with the self-assessment tax return for 2011/12 and the taxpayer should check what they submitted for that year. Penalties and interest are mentioned, which would worry anyone - even those with nothing to hide.

Bear in mind the period in which the 2011/12 tax return can be investigated closed for most taxpayers on 31st January 2014. This means HMRC can't open an enquiry into your tax return for that year unless it discovers new information which was previously not disclosed.

HMRC sent these letters as part of a pilot to nudge non-compliant taxpayers into paying the right amount of tax. However, in this case HMRC made no attempt to screen out those taxpayers who have good reasons for paying a low proportion of their income in tax - for example because of a loss claim, gift aid donation, or pension contribution. HMRC did not read the disclosures on the tax return before pressing the send button.

If you receive a scary letter from HMRC, call us immediately. It may be another "test" by HMRC trying to squeeze more tax and penalties out of innocent taxpayers, but it could be more serious.

PAYE Reconciliations

If most of your income is taxed under PAYE (Pay As You Earn) you may soon receive a reconciliation of the income tax you have paid compared to the amount that was due to be paid for 2013/14. This calculation arrives on a form P800, which should be checked very carefully for errors and omissions. If mistakes are missed they can be carried forward for several years, resulting in escalating amounts of tax over or under-paid.

For example the High Income Child Benefit Charge (HICBC) may be due where you earn over £50,000 and your family receives child benefit. But the HICBC will not be reflected in the P800 calculation, as HMRC can't accurately match child benefit claimants with the high earners in those families. If you believe you are due to pay the HICBC to claw-back the child benefit received, you need to register for a self-assessment and complete a tax return. We can help you with that.

Other common errors on the P800 arise from the changing value of taxable benefits, varying pension contributions, and estimated amounts of other income included in your PAYE code such as rents or interest.

If you have paid the right amount of tax under PAYE for 2013/14 you won't receive a communication from HMRC. If you have overpaid tax you should receive a cheque from HMRC within two weeks of the issue of the P800. Don't respond to emails promising a tax repayment - those are scams.

If the P800 shows you owe tax, that amount will normally be collected through your PAYE code for 2015/16. We can help you challenge the calculation if you think it's wrong, but we will need to see the P800 you have received, as HMRC don't send us a copy.

VAT on Digital Services

Do you sell digital services such as: music or software downloads, e-books or online videos? If so, do you know where your customers are, and whether they are businesses or individuals?

From 1st January 2015, when you sell digital services across international borders you will have to collect information about your customers to determine if they are businesses or not, and where they are based. Where your international sale is to a non-business customer, from 2015 you will have to charge that customer VAT of the country where he or she is located (if that's in the EU). You will also have to register for VAT in your customer's country. This is because the VAT threshold for traders selling into other EU countries is zero.

Many music and software creators are suspicious of the large online stores such as iTunes, and want to sell their tunes or games directly to their customers. If you sell through a large online store, that store sorts out the VAT so you don't have to worry about it. However, if you sell your digital product directly to non-business customers who are located in other EU countries from 1st January 2015, you must deal with the VAT consequences.

The easiest way to do this will be through the HMRC website under a system called VAT-MOSS. This system goes live from October 2014, and it will allow you to account for VAT in all the EU countries you sell services to.

However, in order to use VAT-MOSS you must first be registered for VAT in the UK. If you are not already VAT registered, perhaps because your turnover does not exceed the UK VAT threshold of £81,000, you need to pick one of these options:

1. register for VAT in the UK;
2. stop selling digital services to non-business customers outside the UK; or
3. sell only through online stores or other businesses.

We can help you make this choice and do the necessary registrations.

Real Time Information (RTI) Penalty Notices

As an employer you may have received an RTI penalty warning letter accusing you of not submitting all of the RTI returns required for 2013/14. However, that letter may be incorrect.

HMRC has admitted that its computer has churned out inappropriate penalty warning letters to employers who have submitted employer payment summaries (EPS) during 2013/14. If you have submitted all the required RTI returns for the tax year you can ignore the warning letter, as a penalty will not be charged.

This "cry wolf" by HMRC sets a dangerous precedent, as you may be inclined to ignore further RTI penalty warning letters that could be issued later this year.

From October 2014 new penalties come into effect where the monthly full payment submission (FPS) is submitted late, or an EPS is not submitted where a FPS is not required as no payments are made. If or when those new penalties arrive you will be able to appeal against the penalty online. Note this online appeal system is not up and running yet.

From October 2014 the FPS will contain a new box that allows you to tell HMRC why the FPS is apparently late, perhaps because you are taking advantage of the concession for payrolls with nine or fewer employees.

The EPS will also be changed in October so it will relate to a particular tax month. This will avoid the need to file the EPS in the window of 20th of the current month to 19th of the following month to ensure it is applied by HMRC to the appropriate tax month.

Auto-enrolment

Auto-enrolment is the term for the law that requires all employers to register their employees into a qualifying workplace pension scheme. This requirement is being rolled-out to the largest employers first and will eventually apply to the smallest employers from June 2015 onwards.

For example if you have 62 to 89 employees you have to apply auto-enrolment from 1 July 2014. Those with larger payrolls should already have auto-enrolment in place.

There are let-outs; auto-enrolment only applies to employees working in the UK who are aged 22 to state pension age, and who earn more than the personal allowance (£10,000 for 2014/15). After being enrolled in to a pension scheme, each employee has an opt-out period of one month whereby they can receive a full refund of any contributions already made. Another opt-out opportunity must be offered every three years.

Once the workplace pension scheme is running both the employee and the employer must make contributions, which will start at 1% of qualifying earnings rising to a total of 8%. Qualifying earnings consist of pensionable pay in the range £5,772 to £41,865 (for 2014/15). The employee's employment contract will define what "pensionable pay" is.

We can help you work out what auto-enrolment may cost you, and which employees will be covered. There is a lot to think about, and if you haven't already got a suitable pension scheme in place you will need to set one up. There are significant penalties for employers who fail to enrol employees on time, so don't let the auto-enrolment timetable overtake you.

VAT and Discounts

Do you offer prompt payment discounts to your customers - known as PPDs?

Under UK law VAT is payable on the net amount after deducting the discount, whether or not the customer takes advantage of the discount.

Say you sell a carpet for £1,000 + VAT, and offer 3% discount if the customer pays with 10 days. VAT is charged at 20% on £970 ie £194, rather than as 20% of £1,000 which is £200. Even if the customer takes two weeks to pay and thus doesn't qualify for the PPD, the amount due will be £1194.

This is a ripe loophole ready for blocking, and that is exactly what the Government is going to do from 1 April 2015. From that date it is proposed that VAT will be due to the amount the customer actually pays. So in the example above where the customer doesn't take up the PPD he pays the full £1000 plus VAT of £200.

The PPD VAT-dodge has been widely exploited by suppliers of telecommunications and broadcasting services, so the use of PPDs to reduce VAT due has already been blocked in those sectors from 1 May 2014, where the customer can't recover the VAT charged. Those will be non-business customers.

If you offer PPDs you may need to change your sales software. We will keep you informed of the details of the changes, when they are announced nearer the time.