Paying VAT online

From 1 April 2012 ALL VAT registered businesses must send their VAT returns online and settle their balances electronically. Presently, only newly – registered businesses and those with turnover of more than £100,000 have been required to do so.

The new rules apply for VAT returns filed for accounting periods beginning on or after 1 April 2012.

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HMRC to issue new penalties for late tax returns

From 17 February HM Revenue & Customs (HMRC) will start issuing penalties to taxpayers who fail to file their 2010/11 self assessment tax returns on time. These penalties could reach up to £1,600, even in cases where no tax is due. The deadline was extended to 2 February this year, after HMRC staff went on strike on deadline day.

Last year, 86% of the 10.3m self assessment taxpayers filed by the 31 January deadline. However, of the 14% that were late in filing, 11% (some 1.1m people) still hadn't submitted their return six months later.

The new penalties start at £100 for missing the deadline. Where the tax return is three months late daily penalties of £10 will be issued for a maximum of 90 days. If the tax return is more than 6 months late a further penalty will be charged of 5% of the tax due, or £300 if higher. This penalty will be also be applied where the tax return is more than 12 months late.

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Controlled Foreign Companies

CFC Reform – Further draft legislation and update on the proposals

Under current law, a Controlled Foreign Company (CFC) is an overseas company controlled by United Kingdom residents which pays less than three quarters of the tax which it would have paid on its income had it been resident in the UK.  The controlled foreign companies’ provisions are directed at companies which artificially divert UK profits to low tax territories or other favourable overseas tax regimes to reduce their UK tax liabilities.

The Government has been going through a consultation process to reform that CFC tax rules and on 31 January 2012 published an update on the CFC reform as well as updated draft legislation for consultation.  The Treasury has acknowledged the need for further amendments to the draft legislation published on 6 December 2011 and is working with businesses and advisers to achieve final legislation.

The key points arising from the recent consultation are as follows:

Finance company partial exemption
The most attractive feature of the new regime is the opportunity for certain finance profits to benefit from a low tax rate of 5.75%.

A limited full finance exemption is proposed where the CFC’s interest income exceeds the aggregate borrowing costs of the UK group or for interest income that arises from certain transactions (such as share issues) that place no reliance on the wider group.

Application of the new CFC rules to the financial sector
The current proposal is to have an insurance safe harbour of between 200% and 250% of minimum regulatory capital and a banking safe harbour limit of the greater of a 12.5% Tier 1 capital ratio and the level of Tier 1 capital that the bank would be required to hold if regulated in the UK plus a 2% buffer.  These proposals will be subject to continuing discussions with the insurance and banking sectors and draft regulations will be published in due course.

The Gateway Test
The Gateway is intended as a simple test to allow groups to identify whether they are within the scope of the CFC rules.  The Government has acknowledged that this is currently too complicated and does not enable businesses to determine with sufficient certainty whether or not a foreign subsidiary is potentially within the scope of the rules.   Revised draft legislation will be shared with businesses when available.

Temporary Period of Exemption
It is proposed that where a UK group acquires foreign subsidiaries or a non-UK group moves to the UK, the group will be given a period of time to restructure the foreign subsidiaries so that they fall outside the CFC rules.

Foreign Branches
The new CFC regime will also apply to foreign branches of UK resident companies.  For CFC purposes the branch will be treated as if it were a subsidiary of a UK company.

Commencement
The new rules will apply to accounting periods beginning on or after 1 January 2013. Comments have been requested on the latest consultation by 10 February 2012.

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HMRC postpones new SME Business Record Checks

HMRC is to postpone any new SME business record checks (BRC) until it has formulated a new approach to these interventions targeted more at high-risk businesses. Responding to pressure from the representative bodies, HMRC agreed in December to review the entire BRC project. New visits will not resume until HMRC announces the detail of a 'revamped' approach, expected at some time after April 2012.

For further information/advice on this topic please visit http://www.wardwilliams.co.uk/