If you are self-employed or run your own business, you are liable for submitting tax returns. Making sure you’re tax complaint is essential as the fines for not doing so could be hefty.

A recent global analysis undertaken by PwC concluded that the UK has the second most effective tax system of the G20 countries. Whilst this sounds like good news, when compared with all countries, we’re a lot further down the list at number 23. Researchers concluded that Qatar has the simplest system which required a medium-sized company to spend only four hours on completing their tax return. In the UK, the average is 110 hours!

HMRC tax compliance

If HMRC is unsure you have submitted your return correctly, they will do a compliance check to make sure you are paying the right amount of tax. It could just be someone calling you to double check a figure if they think there’s been a simple error or to undertake a more thorough check on your return, or even a major investigation.

According to the HMRC website, if they intend to do a compliance check, you or your accountant will be contacted and asked to make certain information available for checking. This could be your accounts, tax calculations, your personal or business tax return, or PAYE records. Once they have been checked, you will receive notification and will be either asked to pay any additional tax due within 30 days or if it turns out that you have paid too much tax, you will receive a rebate.

There is a possibility that you may be asked to pay a penalty depending on the reason for the check and how helpful you’ve been.

Deadlines and period covered

The tax year runs from 6 April to 5 April the following year.

HMRC has two deadlines for filing your tax returns. If you are completing your tax return on paper (form SA100), you must return it by midnight on 31 October following the end of the tax year in point. If you are completing your return online, the deadline is midnight on 31 January following the tax year. If you are up to 3 months late, you will incur a penalty of £100 – and the longer you leave it, the greater the fines.

Any taxes owed must be paid by 31 January following the relevant tax year.

The advantages of using an accountant

By asking an accountant to complete your tax return, you will not only be saving yourself valuable time which could be better devoted to doing what you’re good at, i.e. running your business, but also less likely to need a compliance check because it will be completed accurately.

When choosing an accountancy firm to manage your tax services– look for one with a good reputation for high-quality work, great customer service and long-term relationships with clients.

The new procedures under GDPR for businesses will come into effect on 25 May 2018, and there are unlimited fines for failure to comply.  Although this is EU legislation, it will not be affected by Brexit.

The procedures cover how you store and protect customer data, how long you retain such data, and what customers can require you to do in connection with that data.

In general, you will be treated as a data processor or a data controller, or both.

Personal data is a valuable commodity and can be used for criminal purposes or commercial marketing.  It, therefore, needs to be protected by all reasonable means.

The purpose of the regulation is to ensure that customers can find out quickly what data you hold on them and can require you to amend or delete that data.  Most importantly, you have a responsibility to keep the data safe and to notify any affected customers and the Information Commissioner’s Office (ICO) of any security breach within 72 hours of becoming aware of that breach.

It will be important to educate all personnel by publishing a statement of best practice and preparing a risk assessment to demonstrate that you have taken reasonable steps to comply with the legislation and so far as possible to prevent security breaches from happening.

In view of the administrative and reputational costs of cyber security breaches, particularly if you hold information for a large number of customers on your computer system, it may be worth considering insuring against this risk.  Bear in mind, however, that this type of insurance is probably best purchased on a bespoke basis, because generic policies are likely to contain exclusions which could render them worthless.

It will be sensible to ensure that regular backups are taken of computer data files and that these backups are kept for an appropriate period and are securely stored so that they will not be tainted if the main system is hacked.  It is also important to ensure that employees do not open e-mail attachments unless they are absolutely certain that the e-mail is genuine.  There have been cases where the sender’s e-mail address is very slightly different from a genuine address you might expect.  A recent version of this sort of scam involves attaching an “invoice” and asking you to check it is correct.  By doing so, you may infect the entire system, possibly with ransomware which asks you to pay a fee or lose all your data.  Even if there is no apparent immediate effect, some infiltrations can lay dormant for months or even years gathering valuable information.

You should also consider encryption of outgoing e-mails in case these are intercepted.

Although this article refers to “customers” the regulation also applies to any other personal data you may hold.  It does not appear to be restricted to information held on computer or “in the cloud” so you could be at risk if an employee leaves personal files in an unlocked car and they are stolen, for example.

In this blog we will outline some of the tax implications that individuals who own a buy to let property, or are considering purchasing a buy to let property, should be aware of.

Changes to the level of interest relief available

• From the 6 April 2017 onwards, the level of interest that can be deducted from rental income received from the let of a residential property will be restricted, this measure will be introduced gradually over three years

• Finance costs include mortgage interest, any payments that are equivalent to interest, and incidental costs of obtaining finance, such as fees and commissions, legal expenses for negotiating drafting loan agreements or valuation fees required to provide security for a loan

• From the 2017/18 to 2019/20 tax year, landlords will be able to deduct a certain percentage of the total finance costs from the rental income received, the remainder of the finance costs will then be deducted as a tax credit from the overall tax liability. The specific percentages for each tax year are highlighted below:

• During the 2017/18 tax year the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction

• During the 2018/19 tax year, the deduction from property income will be restricted to 50% of the finance costs, with the remaining 50% being given as a basic rate tax reduction

• During the 2019/20 tax year, the deduction from property income will be restricted to 25% of the finance costs, with the remaining 75% being given as a basic rate tax reduction

• From 2020/21 all financing costs incurred by a landlord will be given as a basic rate tax reduction

• The tax reduction works by taking the mortgage interest suffered during the tax year and multiplying it by 20%, this amount will then be deducted from your overall tax bill

• If your adjusted total income does not exceed the basic rate band (currently £32,500 for 2017/18, plus personal allowance of £11,500) you will not be affected by the changes

Replacement of Domestic items relief

• From April 2016, landlords will no longer be able automatically to deduct 10% of their rental profits as notional wear and tear. They will be able to claim tax relief only on costs they have incurred, such as if they have bought a new sofa or bed for the property

• Landlords will also have to start to keep receipts. Previously, landlords could write off the 10% even if they had not spent a single penny on repairs or replacements

Stamp Duty Land Tax

• Stamp duty land tax (SDLT) rates for buy to let and second properties changed on 1 April 2016, and now include a 3% additional surcharge on top of the normal SDLT rates

Capital Gains Tax (‘CGT’)

• CGT will be levied when you sell a property that is not your home

• If you have lived in the property for some time prior to it being let before you may be entitled to principle private residence relief and lettings relief. For this relief to be in point, you must have treated the property as your ‘only or main home’ for a period of time

• CGT has been increased for residential properties recently, and is now charged at either 18% or 28%

If you would like any further advice regarding buy to let properties, or any other assistance on tax matters, please do not hesitate to contact Amy Armitage (Tax Manager), John Neighbour (Tax Director) or any other member of the HB team on 01992 444466

If you own shares in a family trading company they are treated as business property for inheritance tax (IHT) purposes and can pass to your heirs tax-free on your death.

If the next generation are not interested in carrying on the family business, you may decide to sell the shares.  The problem with this is that the money you receive will not be business property and will therefore be charged to IHT (probably at 40%) if you still have it when you die.  You will also be charged capital gains tax (CGT) at 10% or 20% when you sell the shares.

If, within the period beginning one year before the sale and ending three years after the sale, you reinvest some or all of the proceeds in a qualifying Enterprise Investment Scheme (EIS) investment, you can hold-over the capital gain.  If you reinvest within two years after the sale you will also retain the IHT business property relief.  Whether or not you claim to defer the capital gain, you will also be able to claim 30% of the amount invested against your income tax liability.  That income tax relief can be split between the tax year during which you acquire the EIS investment and the previous tax year.  There will be no capital gains tax payable on the sale of the EIS investment if held for at least three years (any deferred gains tax would, however, be payable on that occasion), but any losses can be set off against gains arising in the same or future years (including the deferred gain).

The income tax relief is restricted to an EIS investment of £1 million.

EIS investments are regarded as high-risk and your investment would not be protected.  However, some qualifying investments are asset-backed and some can even provide an income-stream.

Welcome to HB Accountants Monthly Tax Update for July 2017.  In this month’s update, we will be outlining the Common Reporting Standard (‘CRS’) and what it means for our clients and contacts.

What is the CRS?

The Common Reporting Standard, generally known as the Global FATCA, is a regulation initiated by the OECD, aiming at preventing tax evasion and leading to a global automatic exchange of information between CRS-participating jurisdictions.

Which countries will be adopting the CRS?

The governments of over 100 countries have so far committed to the automatic exchange of information and the list is still growing.

The UK has committed to commence automatic information exchange, along with 56 other jurisdictions, by September 2017.

Which financial institutions are required to report?

Financial institutions that may have a duty to report include:

• Banks (including local banks)
• Custodial institutions
• Trust companies
• Brokers
• Insurance companies
• Collective investment vehicles
• Investment managers and funds.

Which accounts are reportable?

The accounts that are reportable under the CRS include accounts held by individuals and entities i.e. trusts and foundations.

Details and information to be reported

The following information will be reported  

• Personal information: Name, address, taxpayer identification number (e.g. UTR number in the UK), date of birth and place of birth of account holder
• Country of residence of the account holder
• For entities – the above for each controlling person
• The account details
• The financial institution’s details

The following financial information will be reported:

• The account balance
• Interest, dividends, and sales proceeds from financial assets
• The applicable currency of the account

How will the CRS affect me?  

Financial institutions will be required to identify customers who are tax resident in one country but have financial accounts held in another for reporting purposes. To do this they will need to collect and report certain information on the ‘reportable person’ and their financial accounts to the local tax authorities.

The above means that HM Revenue & Customs (HMRC) and other tax authorities around the world will now have access to a vast amount of data, so it is becoming progressively more important for account holders to regularise their tax affairs at the earliest opportunity, as the penalty and disclosure regime will become much less favourable following the implementation of the CRS.

How can I bring my tax affairs up to date prior to the implementation of the CRS?

The Worldwide Disclosure Facility (‘WDF’) opened on 5^th September 2016, this facility allows anyone to disclose a UK tax liability relating either wholly or partly to an offshore issue to HMRC.

Why Should I use the WDF?

HMRC has stated that the WDF is the final chance to put things right for those individuals with outstanding UK tax liabilities on undeclared offshore money or assets.

This last chance comes before HMRC starts to receive an unprecedented amount of data on offshore accounts held by individuals with a footprint in the UK.

Sanctions facing those who have not come forward already or use the WDF will be far tougher in the future, with the potential prospect of minimum penalties of 100% of the tax due and an increased chance of criminal prosecution.

How can HB Accountants help?

The HB Accountants tax team have experience in making disclosures to HMRC including via the WDF. HB accountants can assist you with computing any liabilities due under the WDF and assist you with approaching HMRC to ensure you minimise your financial exposure.

If you would like any further information regarding the above, or have any queries, please do not hesitate to contact John Neighbour (Tax Director), Amy Armitage (Tax Manager) or any other member of the HB Accountants team on 01992 444466.