18 July 2014

The early bird catches the worm when it comes to filing tax returns

By Penny Lupton

By now, all UK employees should have received their 2013/14 P60s and P11Ds. Banks are also in the process of sending out interest certificate for the year and for many UK taxpayers these forms cover the bulk of their income and the process of completing the tax return can begin in earnest.
While the deadline for filing returns for the 2013/2014 year is still some way off - the deadline for paper returns is 31 October 2014 and for electronic returns it is 31 January 2015 - there are a number of advantages to getting it in early.

Completing your tax return will highlight any additional tax you have to pay. And even if you submit your return early you don’t have to pay any extra tax until the 31 January deadline.
Getting your affairs in order now will provide extra certainty of the amount due, and provide time to arrange payment, especially if an additional payment on account is needed.

Equally, if you are due a repayment, HMRC will repay this to you once they have processed your return. And with the bulk of returns being submitted later in the year or near to the deadline date, getting it in early can help your repayment jump the queue, and you therefore get your money back to you sooner.

HMRC has powers to enquire into your return. However, these are limited to the twelve months after your return was submitted. Getting your return in sooner rather than later, means that the enquiry window will close earlier and provide you with increased certainty that you have no further tax to pay.

Completing your return earlier will also give you more time if your affairs are unexpectedly complex. Capital gains transactions, share schemes, property income and large pension contributions are just some of the entries that may require extra consideration.

Getting started now will give you the time you need to get your tax return correct, or leave plenty of time if you want professional help with your return.

For more information please contact Penelope Lupton in our private client team, Email: penelope.j.lupton@uk.pwc.com Tel: 0191 269 4098

18 June 2014

Statutory residence test

By Penny Lupton

On 6 April 2013 the statutory residency test (SRT) was introduced. This significantly changed the rules surrounding who would be considered resident in the UK for tax purposes.  Those about to complete their 2013/14 returns will face a number of different questions to determine their residency position.

Residency has a major impact on a person’s liability to UK tax.  A UK resident pays UK tax on their worldwide income and capital gains.  A non-resident is only liable to UK tax on their UK income– their foreign income will not be taxed in the UK and they do not pay capital gains tax.

The SRT introduced a series of tests to determine whether a taxpayer is automatically resident or automatically non-resident.  These tests are based on the number of days the individual is present in the UK, or working in the UK or abroad.

If these ‘automatic’ tests are not conclusive then the individuals residency status will be determined by looking at the number of ‘ties’ they have to the UK.  These ties involve:

  • Having a UK resident partner or visiting children in the UK
  • Having accommodation available in the UK
  • Having been present in the UK for more than 90 days in either of the last two tax years
  • Spending more than 40 days working in the UK
  • Spending more days in the UK than any other country

The number of ties an individual has will determine how many days they may spend in the UK before they are resident.  The rules for leavers and arrivers are slightly different, with it being harder to lose UK residency than to gain it.  As few as 16 days in the UK may be sufficient to keep residency.

A ‘UK day’ is one in which the individual is present in the UK at midnight.  A UK workday is one in which more than three hours of work is carried out.  HMRC will take a very broad definition of work, including business travel as work time. 

It is vital that individuals affected by these changes keep sufficient records of their movements and additional evidence of their ties to the UK.  Those who lose track of their number of UK days or work days may have an unpleasant surprise when they complete their tax return if they have unexpectedly become UK resident.

For more information please contact Penny Lupton, Email: penny.j.lupton@uk.pwc.com Tel: 0191 269 4098

16 June 2014

Inheritance tax update: Single nil-rate band proposal for relevant property trusts

HMRC has proposed a single "settlement" nil rate band as part of their latest consultation on simplifying relevant property inheritance tax (IHT) charges.

The broad aim of the relevant property trust regime is to ensure the equivalent of a full IHT charge is paid on trust property once in every generation (30 years).

This new proposal forms part of a series of measures targeted at reducing the administrative burden, cost and complexity of assessing IHT charges for trustees. In particular, HMRC is looking to manage the risk that settlors might seek to reduce their IHT liabilities by fragmenting ownership of property across a number of trusts in order to maximise the availability of the nil rate band exemption (currently £325,000).

The new rules would mean that for the purposes of the ten yearly anniversary and exit charges each settlor would become entitled to a single "settlement" nil-rate band (SNRB) which is separate from and unconnected with their own personal nil-rate band. They will decide how their SNRB is to be allocated between the settlements they create and will be responsible for providing that information to trustees.

It is proposed that the SNRB will be the same as and will change in line with the IHT nil-rate band.
HMRC has further proposed a standard  6% tax rate to be used in the calculation of periodic (ten-year) and exit charges.

The new measures would take effect from 6 April 2015 but would apply to any settlement established after 6 June 2014 and to any property added to trusts after the same date.

This is one to watch, with the consultation period coming to a close on 29 August 2014.

If you have any questions on this issue or for more information, please contact Katherine Gunn Email: katherine.e.gunn@uk.pwc.com Tel: 0207 804 8765

15 May 2014

Update on renewals basis for landlords

By Penny Lupton

Landlords are facing increased complexity and potentially higher tax bills this year after HMRC withdrew a concession which allowed the cost of replacement white goods and furnishings to be deducted from rents.

Relief for spending on replacement goods, such as fridges, washing machines, curtains and carpets, used to be obtainable in two ways. 

Property that was let fully furnished could benefit from a fixed deduction of 10% of the rent received to cover the cost of replacing the furniture provided. This hasn’t changed.

Or landlords of fully furnished properties could elect to use the ‘renewals basis’ instead.  This allowed a deduction to be claimed every time an item was replaced.  For landlords of properties that were not fully furnished this was the only way to obtain relief for their purchases.

From 6 April 2013 landlords have not been able to use the renewals basis.  This change therefore needs to be considered when calculating tax liability for 2013/14, which is due for submission to HMRC by 31 October 2014 (paper returns) or 31 January 2015 (electronic returns). 

But it can get confusing as integrated appliances may still attract relief. This is because they are considered to be part of a larger asset, such as a fitted kitchen, and so are considered to be repairing part of that larger asset.  Repairs in general, such as a new pump for the washing machine, will remain allowable in full. 

Certain small items, such as crockery, will also be an allowable deduction under a separate set of rules aimed at ‘utensils and trade tools’. But HMRC has confirmed that this relief will not apply to larger goods.

So potentially landlords who supply items such as carpets, curtains and white goods, will receive no relief on the expenditure incurred on replacing them. Landlords could therefore start to consider converting their properties to fully furnished lets to gain the advantage of the 10% allowance.

Updated guidance will be available soon to allow landlords to make their own judgment, but if you are a landlord and would like advice on this or any other matter please let us know.

For more information please contact Penelope Lupton Email: penelope.j.lupton@uk.pwc.com Tel: 0191 269 4098

09 May 2014

Expensive cars: executive toys or essential toys

By Katherine BullockJob_3817 (1)

I was recently lucky enough to attend the launch of a spectacular and very beautiful new car.  For those petrol heads out there (including my husband), photos to evidence this are included. This new car provides the comfort and features of a modern vehicle but is packaged within classic car styling. 

One conversation which stuck in my mind was the general perception that it would be more beneficial to hold these sorts of executive toys or collectible cars within a company, rather than personally. However the tax implications of this may outweigh any perceived benefits.

A company car is one of the most common benefits offered to employees, as well as a way for private business owners to reward themselves. However an individual may not realise that this will result in a taxable benefit if the car is also used privately.

To calculate this benefit you need to take into account not only the list price of the car, but also the vehicle’s CO2 emissions. It therefore follows that the more expensive the car, the higher the benefit. In addition employees who drive large cars with high emissions will pay more tax than those with more environmentally friendly cars.

You may think there is a way around this by driving a classic car. Surely the list price for these cars, which are over 15 years old, is so low any benefit which may arise would be insignificant. But the benefit for these sorts of cars is based on the market value of the car if it is greater than the list price, so there is no tax advantage to this. 

It may be worth thinking about having a zero emissions electric car for business, which, at least until 2015/16 will be tax free.  

The best way to determine the most efficient way of holding a car is to work though the various calculations. If you would like any help with this, or require further information please do get in touch.

Katherine Bullock:
Read profile | Contact by email | Tel: 0113 289 4268

06 May 2014

Capital gains tax and the second home election

By Martin Pickering

It is well known that if you own two or more homes that potentially qualify for capital gains tax private residence relief, you can choose by election which one to exempt. You might, for example, choose to exempt a home you will one day sell as opposed to the one they will have to carry you out of. It’s nice to have the choice.

Until now this is not something that has affected non-resident taxpayers as they don’t pay capital gains tax (CGT) on UK property, unless their UK home makes them UK resident.

But this might all change if the Government’s plans to bring all UK residential property into the CGT net come to fruition, in accordance with a recently published consultation document.

The document points out that if a non-resident has more than one private residence, including one in the UK, they are likely to claim the UK residence as his CGT exempt home as they won’t have to pay CGT on foreign properties.

The Government is therefore considering removing this element of choice and limiting the CGT exemption to the property which is the taxpayer’s principal home.

If the CGT net is indeed extended as proposed, then this change to the principal residence election will prevent most foreign residents from claiming CGT exemption on their UK home.

It will also deny that element of choice to UK residents.

Having the choice has meant that householders have not only had some flexibility over their domestic arrangements, but they have also had certainty. The proposed new rules could limit this, and of course if it ever becomes necessary for anyone to prove which of two or more properties has been their principal home, then they might need to maintain some records.

It is one to keep an eye on with the consultation takes place until 21 June

For more information please contact Martin Pickering Email: martin.pickering@uk.pwc.com Tel: 01482 58 4089

02 May 2014

Every Penny Counts

From April 2015, eligible married couples or those in a civil partnership will be able to transfer a portion of their unused personal allowance to their spouse or partner under the Transferable Tax Allowance (TTA).

TTA will be available from 2015/16 to couples where both people are basic rate tax payers and one person has unused personal allowances. But it’s worth noting you cannot apply for TTA if you qualify for the Married Couples Allowance (MCA)

Initial plans were for a fixed amount of £1,000 of one person’s personal allowance to be available to a spouse or partner. But in the 2014 Budget, this was increased to £1,050 resulting in a maximum saving per couple of £210. Going forward the TTA will reflect 10% of the basic personal allowance.

Eligible couples include those in their first year of marriage or civil partnership. Those who got married part way through the year don’t have to adjust the TTA and will get the full amount available. The couple must be married when they put themselves forward for TTA and individuals can only make one election in any tax year (even if they get married more than once in a year)

You can make a claim for TTA online which you will be available to claim up to four years following the end of that tax year. You will continue to claim TTA until you notify HMRC you would like to end it.

While it’s not a huge saving, it’s worth bearing in mind to make sure you make the most of all personal allowance options available.  

If you would like any further information about  any of the above, you can contact Susannah Simpson who is a director in our Private Business team. You can contact her on 0131 524 2436 or by email.

30 April 2014

Cyber crime doesn't pay: cost of breaches doubles for UK businesses

By Katherine Bullock

Our latest Information Security Breaches Survey 2014, commissioned by BIS and carried out by PwC was published this week and I was surprised to learn that the number of information security breaches affecting UK businesses has actually decreased over the last year. But while the amount of breaches is reducing, the scale and cost of individual breaches has almost doubled.

I have had a number of clients who have been victims of cyber breaches recently, both from external fraudsters and internal staff. It is something that affects every organisation, however large or small.

The survey found that the average cost of an organisation’s worst breach has risen significantly for the third year running. For small organisations the worst breaches cost between £65,000 and £115,000 on average and for large organisations between £600,000 and £1.15 million.

Breaches are becoming more sophisticated and their impact more damaging. Given the dynamic nature of the risk, private business owners and family offices need to be reviewing threats and vulnerabilities on a regular basis. As the average cost of an organisation’s worst breach has increased this year, it must be worth reviewing whether the way in which individuals are spending their money in the control of cyber threats is effective. 

Business owners and entrepreneurs also need to develop the skills and capability to understand how the risk could impact on themselves, their families and their organisation and what strategic response is required.

Increasingly those that can manage cyber security risks have a clear competitive advantage and so it is something to bear in mind when planning your business strategy.

Katherine Bullock:
Read profile | Contact by email | Tel: 0113 289 4268

25 April 2014

National minimum wage – there’s no excuse

By Katherine Bullock

April 2014 is the 15th anniversary of the national minimum wage (NMW). To mark this, HMRC has released a list of some of the excuses employers have used when asked why they didn't pay their staff the NMW. Some of the strangest are:

  • “I’ve never considered paying my staff the NMW as none of them had complained or questioned whether they were getting paid enough."
  • “I know I pay my workforce less than the NMW but they are happy to work for that amount because they were getting an experience.”
  • “I provide accommodation for my staff so that makes up for the shortfall in their pay packet.”

In one case, an employer tried to trick HMRC officers by claiming one of the workers in a restaurant was a friend of the owner. He was found out when officers returned the next day and the ‘friend’ was there again preparing food. 

And one employer went so far as telling them one of his workers was his wife. But HMRC got suspicious when he had to check the lady’s name.

While these may seem ridiculous, it is shocking that some employers still think they can get away with not paying their employees a fair wage.

Employers are required by law to pay most workers the NMW, which varies depending on the employee’s age. The NMW for employees over 21 currently stands at £6.31 per hour.

HMRC’s enforcement officers will investigate all allegations of employers not paying minimum wage and, where appropriate, action will be taken to ensure workers receive back-pay and fine the offending employers. According to HMRC’s figures, their investigations resulted in £4 million in back-pay being paid to over 26,000 people last year alone.

If you are an employer unsure about your obligations in respect of the National Minimum Wage, please do get in touch.

Katherine Bullock:
Read profile | Contact by email | Tel: 0113 289 4268

23 April 2014

PwC's private client team shortlisted for hat-trick of awards

By Katherine Bullock

We are thrilled to announce our UK private client team has been shortlisted for the Wealthbriefing European Awards and in two categories in the Lexisnexis Taxation Awards.

The Wealthbriefing European Awards recognise the very best providers in the global private banking, wealth management and trusted adviser communities. They are designed to acknowledge teams who have demonstrated innovation and excellence during the year.

The team has also been shortlisted for the annual Lexisnexis Taxation Awards, which celebrate the success of teams and individuals in all areas of tax.

We have been nominated in two categories: Big Four Tax Team of the Year and High Networth Team of the Year.

This is a fantastic accolade for the team to be shortlisted for three awards in one month. These awards focus on client experience rather than quantitative performance metrics, so it’s a great honour and shows the hard work the team has put in over the last 12 months to have reached this stage. Fingers crossed for the award ceremonies in May.

Katherine Bullock:
Read profile | Contact by email | Tel: 0113 289 4268