New Inheritance Tax Rules, VAT Flat Rate & Advisory Fuel Rate 2017

Passing On The Family Home

New inheritance tax rules for passing on the family home start on 6 April 2017 and many people have a New Year’s Resolution to either make a Will or update their Wills. This new relief should be taken into consideration when drafting your Will and we can work with your solicitor to make sure it is tax efficient.

From 6 April 2017 a new nil rate band of £100,000 will be available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil rate band and will increase over the next 4 years to £175,000 in 2020. You may recall that when this was originally announced in summer 2015 the chancellor said that a married couple should be able to pass on their family home worth up to £1 million free of Inheritance tax.  The rules are fairly complicated and HMRC have recently issued guidance on how the new relief will operate. We can review your personal circumstances to ensure that you take advantage of all relief that you are entitled to.

Downsizing To A Smaller Property

One of the features of the new inheritance tax rules for passing on the family home is that the relief is protected even when you downsize to a smaller property.

For example if a married couple currently live In a large house worth  £800,000 and downsize to a flat worth £300,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property.  They could even sell up completely and move into a rental property and get the inheritance tax relief!

This would very much depend on the timing of such planning and, as mentioned above, the rules are very complicated so contact us to discuss how this can apply in your family circumstances.

More on the New Higher Vat Flat Rate Percentage

As covered in the Autumn Statement newsletter a new VAT flat rate of 16.5% applies from 1 April 2017 for “limited cost traders”. This is being introduced as HMRC believe that the current system is being abused by some businesses providing their labour but who have very few costs.

The flat rate scheme was originally introduced as a simplification measure for small business as they merely pay a percentage depending on the type of business to their VAT inclusive turnover. For many businesses this process takes about 5 minutes but in future they may have to add up all the input tax on their expenses and deduct that from the output tax on their sales which will often take a lot longer!

Take for example a training consultant who bills his clients £100,000 a year, £120,000 inclusive of VAT. Using the flat rate scheme he currently pays 12% to HMRC = £14,400.  If the VAT inclusive cost of his goods for the year is less than £2,400 (2%) excluding capital expenditure, food, fuel, vehicle costs then he would have to pay £19,800 to HMRC!  It would almost certainly be beneficial for him to stop using the flat rate scheme.

If you are currently using the VAT flat rate scheme contact us to discuss whether the changes will apply to you.

Advisory Fuel Rate For Company Cars

These are the suggested reimbursement rates for employees' private mileage using their company car from 1 December 2016. Where there has been a change the previous rate is shown in brackets.

Engine Size	Petrol	Diesel	LPG
1400cc or less	11p		7p
1600cc or less		9p
1401cc to 2000cc	14p (13p)		9p
1601 to 2000cc		11p
Over 2000cc	21p (20p)	13p	13p

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 and may not remain chancellor post Brexit. 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 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:

• Will a local EU VAT registration be required?
• There will be increased freight agent costs of arranging imports and exports. There will be a requirement to “enter and clear goods”;
• 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.

Contact us to know it better and what changes your business should make!
APJ Accountancy | ☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com

VAT Flat Rate Scheme for your Small Business!

Should I Use The VAT Flat Rate Scheme For My Small Business?

The VAT Flat Rate Scheme is intended to simplify VAT accounting and reporting for small businesses, and some may even find that they pay less VAT than using normal VAT accounting.

To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC to use the scheme. You can remain in the scheme until your turnover including VAT exceeds £230,000. 

With the Flat Rate Scheme you pay a fixed rate of VAT to HMRC depending on your business category and you keep the difference between what you charge your customers and pay to HMRC. However, you can’t reclaim the VAT on your purchases, except for certain capital assets over £2,000.

HMRC have recently revised their guidance on different business categories. 

For example not all consultants should use the 14% flat rate applicable to management consultants and should instead use the 12% rate for ‘business services not listed elsewhere’. That would result in them paying over 2% less of their takings to HMRC. On £150,000 a year that would be a £3,000 VAT saving. There is a further 1% reduction in the first year that the business is VAT registered.

To sum it up, with the Flat Rate Scheme:

• you pay a fixed rate of VAT to HMRC
• you keep the difference between what you charge your customers and pay to HMRC
• you can’t reclaim the VAT on your purchases - except for certain capital assets over £2,000
• To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.

If you want to know more or advice on whether the Flat Rate Scheme is right for you, contact us.

PJ - APJ Accountancy

☎ 020 89310165

☏ 07900537459

✉ info@apjaccountancy.com

Monthly UK Tax Updates - May/June 2016

Changes Next Year for Public Sector Workers “Off Payroll”

It was announced in the March Budget that Finance Bill 2017 will include measures to change the rules for those workers supplying their services to public sector bodies via their own company. The current rules require the intermediary to consider whether or not the IR35 rules apply to the engagement, and if so apply PAYE and National Insurance (NIC) to the income paid via the intermediary company.

If the proposed changes go ahead the public sector body will be required to assess whether the IR35 rules apply and operate PAYE and NIC.

For these purposes public sector includes central Government departments, Local Authorities, the NHS, schools and other bodies such as the BBC.

Tax Relief for Travel Expenses For IR35 Workers

Another measure affecting such workers, and those in the private sector, concerns tax relief for travel and subsistence expenses. New legislation in the current Finance Bill 2016 seeks to deny relief for travel and subsistence expenses incurred by workers caught by the IR35 rules. The restriction will also apply to agency workers where there is supervision, direction and control (SDC) over the worker by the end user client.

According to updated HMRC guidance the SDC test will be the only test used to determine whether the new rules will apply and ignores the other employment status factors. The HMRC examples suggest that if there is no expertise within the end user organisation then there is likely to be limited SDC and the worker will continue to be entitled to relief for travelling to the client’s premises.

Possible New “Look Through” Entity Will Change Small Company Taxation

The Chancellor announced in his Budget Speech that the Government is considering further major changes to small company taxation following a review by the Office of Tax Simplification (OTS).

As in many small companies the directors are also shareholders the OTS believe that it would simplify matters if the shareholders of such companies were to be taxed on their share of profits made by the company in proportion to their shareholdings. In other words the shareholders would be subject to income tax in a similar way to members of a partnership or LLP and there would be no corporation tax paid by the company. This would clearly level the playing field between limited companies and unincorporated businesses. However it is likely to result in more tax payable than under the current rules!

We will monitor further discussions on this possible future change and keep you updated.

Changes to Construction Industry Scheme (CIS) Reporting

Following the abolition of monthly paper CIS returns from 6 April 2016 HMRC have indicated that some leniency will be allowed for late returns for the first three months of the new tax year. Contractors and other businesses required to operate CIS now have to submit their returns online.

It is proposed that from April 2017 contractors will also be required to verify subcontractors online.

Remember that it is not just mainstream contractors that are required to operate CIS. The system extends to property developers who pay plumbers, electricians, and others in the building trade. However CIS does not apply to home owners and property investors who renovate a property prior to renting out to tenants.

Thinking of Building Your Own House? You Can Reclaim The VAT

You can apply to HMRC for a VAT refund on building materials and services if you are building a new home, or converting a property into a home. In order to qualify the home must be separate and self-contained, be for you or your family to live or holiday in, and not be for business purposes (although you can use one room as a work from home office). Builders working on new buildings should zero rate their work anyway and you won’t pay any VAT on their services.

Where there is an existing dwelling on the site you will normally need to demolish the existing building, however it will count as a new build where a single façade is retained if that is a condition of the planning consent. You may also claim a refund for builders’ work on a conversion of non-residential building into a home, or a residential building that hasn’t been lived in for at least 10 years.

When you make your claim you must supply a copy of the planning permission, a full set of building plans, the invoices - including tenders or estimations if the invoice isn’t itemised, and proof the building work is finished. Please contact us if you need advice or assistance on this or any other VAT matters.

Scottish Taxes

In these newsletters we tend to focus on tax matters that apply generally throughout the UK. However, under powers devolved to the Scottish Government there is now a different system of tax for the transfer of property in Scotland instead of SDLT.

Please contact us if you are considering buying a property in Scotland. We will also keep you up to date with other Scottish tax developments from time to time. 

Supplying Digital Services to Customers in Other EU Countries

The VAT place of supply rules changed on 1 January 2015 where digital services are supplied to non-business customers. The place of supply changed from where the supplier was based to where the customer is located as some companies were avoiding UK VAT.

This rule change had serious implications for small businesses supplying digital services such as software downloads to non-business customers. Where those customers are in other EU countries the UK trader may be required to register for VAT in that country and charge that country’s VAT rate on the supply. This is because unlike the £83,000 UK threshold many EU countries have a zero threshold. To simplify compliance with the EU VAT rules HMRC introduced the VAT Mini One Stop Shop (MOSS).

How UK VAT MOSS works?

Once you register your business for the scheme, you must account for the VAT due on any qualifying sales by sending HM Revenue and Customs (HMRC) a VAT MOSS Return and payment each calendar quarter.

This means you only need to send a single VAT MOSS Return, each calendar quarter. You don’t have to declare the VAT due separately in each EU member state.

HMRC will send the relevant parts of your return and payment to the tax authority of the country where your customers are based.

Please contact us for further assistance if this may apply to your business. 

☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com 

VAT On Mixed Supplies

Care needs be taken when invoicing if your business makes supplies, some of which are standard rates and others which are potentially zero rated or exempt for VAT.

A recent VAT Tribunal case has reinforced the rule established in the Card Protection Plan case that if the supply comprises a single service from an economic point of view it should not be artificially split.

In the recent case, a company provided marketing and promotional services including brochures and other publications. It was held that the supply of printed matter (potentially zero rated) was merely ancillary to the principal supply of marketing and promotional services so the entire services should follow the principal supply and be standard rated, even if separately invoiced.

Please get in touch with us if these rules potentially affect your business and you need advice on your invoicing.




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VAT “Mini One Stop Shop” (MOSS) for digital services to consumers in the EU

Has/Is your business supplied/supplying digital services to consumers in the EU?


There is a very important change in the VAT place of supply rules for businesses supplying digital services to consumers (B2C). From 01 January 2015, the place of supply for digital services will be where the customer belongs, instead of the current rule (where the supplier belongs). Digital services include telecoms, satellite TV, the downloading of computer software, music, books and manuals.


From 1 January 2015 there are new place of supply rules for value added tax (VAT) on the supply of digital services by businesses to consumers in the EU.

As a UK trader, you will need to identify where in the EU your non-business customer is located and apply the VAT rate for that country, instead of UK VAT. The customer’s location will be where the consumer is established, has their permanent address or usually resides. 

The VAT Mini One Stop Shop (MOSS) has been introduced to save these businesses from having to register for VAT in every EU Member State in which they supply their services.

Businesses can now register for the online service from 20 October 2014. Registration for the service has to be carried out by the business itself. Once registered, you can authorise us as your agent to act on your behalf for VAT MOSS.

To know more details, Register for and use the VAT Mini One Stop Shop, check these links below https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop
https://www.gov.uk/vat-on-digital-services-in-the-eu

If you have any queries, post them as comments below.

Contact us to know more on these changes and what changes you need to make to your small business!

 

☎ 020 89310165  | 📱 07900537459  | 📧 info@apjaccountancy.com