CIS late filing penalties

The penalties for late CIS contractor monthly returns are changed from 6 October 2011.

Penalties will now be charged as follows:

·         £100 for the initial failure to meet the due date of 19th of the month.

·         A further £200 if the return is still outstanding two months after the due date.

Then in addition the tax geared penalties kick in  

·         The greater of 5% of any deduction shown on the tax return or £300 if more than six months late.

·         A further tax geared penalty as above if the return is more than 12 months late.  

For new CIS contractors who have not sent any previous returns and are filing your first returns late there will be an upper limit of £3,000 of the total fixed penalties (£100 and £200) that may accrue. The upper limit does not apply to any tax geared penalty unless the minimum penalty of £300 applies.

Furnished Holiday Lettings

HMRC have for many years allowed the owners of furnished holiday accommodation situated in the UK to be treated for a number of tax purposes as though they were traders. In 2009 the rules were extended to cover all qualifying properties situated anywhere in the EEA.

In 2011the rules have been amended to

(1) Remove the entitlement, where there is a loss, to make claims for sideways loss relief against general income and terminal loss relief. This change takes effect for income tax purposes in relation to 2011/12 onwards and for corporation tax purposes in relation to accounting periods beginning on or after 1 April 2011.

(2) Extend the length of time for which the accommodation must be both available for letting and actually so let. This change takes effect for 2012/13 onwards for income tax or for accounting periods beginning on or after 1 April 2012 for corporation tax.

The revised day count tests are as follows:
(i) The 140-day limit is being replaced by a requirement that the accommodation must be available for commercial letting to the public for at least 210 days in the tax year.
(ii) The 70-day limit is being replaced by a requirement that the accommodation must actually be let on a commercial basis to the public for at least 105 days in the tax year

Remember that the accommodation must not be let for periods of long term occupation of more than 155 days during the year.

There are two elections you can make to reach the occupancy threshold. There is an averaging election which can be made for any year where one or more of the properties do not reach the requisite limit. Thus, if, in 2011/12, two holiday cottages were let for 75 days each and a third one was let for only 68 days, the taxpayer could make an election which would treat each of the properties as satisfying the day count test for that tax year. Where a person has holiday property both in the UK and elsewhere in the EEA, the averaging election must be made separately for each of the two categories of property.

In addition the new period of grace election can assist where a property which has previously qualified as holiday accommodation fails to do so in the following year despite genuine efforts to do so. For 2010/11 onwards, where the property owner makes an election on or before the first anniversary of the normal self-assessment filing date for the tax year, the accommodation can be treated as satisfying the ‘letting condition’ for that year. Where an election has been made for that first year the period of grace can be extended to take in the following year as well. This election can only be made if an averaging election is not made in respect of the same tax year.

If the holiday property is owned jointly by a husband and wife, the normal 50:50 rule for splitting income does not apply and the couple are entitled to divide up their income for tax purposes as they see fit.

Note that the capital gains reliefs will continue to apply to UK letting businesses and now extends to non UK lettings:

·         entrepreneurs’ relief;

·         rollover relief;

·         holdover relief;

·         relief for loans to traders; and

·         the substantial shareholdings exemption.

HMRC have issued an advanced version of their new Helpsheet (HS253) which can be found at www.hmrc.gov.uk/manuals/pimmanual/attachments/PIM4100_helpsheet.doc

Tax strategies for contractors and directors

Following on from our earlier post on current tax strategies we have set out an overview of an opportunity for contractors together with a variation on this which is available to directors. We would again stress that this is about understanding your options and the associated risks. In short we would rather you hear about these opportunities from us and have a sensible discussion about whether they fit your circumstances. The area around contractor solutions is complex which has not been helped by the huge amount of misinformation that exists in this market place and historically commercial solutions that simply don't work. 

Contractor Solutions- for individuals providing personal services. Equivalent monthly contract value in excess of £4,000. Indicatively the net funds available to workers will be between 82 to 84%

Contractor Solutions for directors -  for individuals in owner managed companies currently providing services to the company as a director, there is an opportunity to provide services in the form of consultancy. Equivalent monthly contract value in excess of £5,000. There is a substantive process which can deliver significant long-term benefits to the individual and the company. Indicatively the net funds available to workers will be between 80 to 82%.

Please contact us if you would like to know more.

Tax Strategies and Structures

Now that the last Finance Bill has received Royal Ascent it is noticeable that a number of new tax strategies have been released. The new disguised remuneration legislation brought an end to many strategies that had been around for some while. The longer a tax strategy is around the more likely there is to be copycat solutions. This new legislation is both long and complex and more particularly has been spectacularly poorly drafted. This has meant that it has been difficult to unwind existing structures caught by the new legislation and gain any certainty in the interpretation of that legislation as it impacts on current transactions, both those which are simply undertaken in the normal course of business and those that could be seen as part of a more aggressive tax strategy.  

Our objective is to ensure that clients are fully informed of their tax options so that they can make informed decisions. It is not our role to second guess what our clients want to do. What we can do when looking at any tax planning is to assess both the commercial and tax risks associated with it and to assist the client in understanding whether the tax planning meets their needs. The truth is that some tax planning, from that perceived as low risk through to the more aggressive high risk strategies, is poorly thought through and even more poorly implemented.

That is not to say that there are not some very effective tax solutions available which are not only robust in their structure but also rigorous in their implementation. Even in these circumstances it must be assumed that HMRC will enquire into any tax planning and therefore it is vital that those providing a solution also have the skills, resources and the will to defend their planning. The fact is that it can take many years for an enquiry to be closed. This extended open enquiry period is in part a result of the complexity of the tax legislation and the shortage of resources available to HMRC, and if one were cynical there is little incentive for HMRC to close a case where it is not certain of winning the argument as it creates uncertainly in the minds of the taxpayer and may dissuade them in carrying out any new planning.  Danny Alexander's announcement this week suggests that HMRC will increase its focus in this area backed by greater resource.  

There may be new opportunities out there that fit with your own needs but after reviewing your options the answer may simply be to do nothing. Over the next few days we will provide details of the tax strategies that we are familiar with and which meet our own internal quality and risk assessment.

Non residents

HMRC has issued its draft guidance on “non-residence and full time work abroad” which is to be included in next update of HMRC6 Residence, Domicile and the Remittance Basis

HMRC has indicated that when assessing whether an individual is on a full-time contract of employment abroad, it will not generally challenge the claim to non-residence if the days worked in the UK are 10 days or fewer. Where those individuals work more than 10 days in the UK in a tax year then the position will depend on their particular circumstances.

A non-resident individual will pay tax on any employment duties which they carry out in the UK unless those duties are “merely incidental” to an employment abroad.

WW Tax Club

It has taken a little while to get this underway but using the excuse of the start of a New Year, Ward Williams Chartered Accountants are formally launching WW Tax Club today. The purpose of WW Tax Club is to keep businesses up to date on current UK tax legislation so that you can make informed decisions. We will be making regular posts on relevant and topical tax issues that impact upon SMEs. We have also set up a twitter account at http://twitter.com/wwtaxclub as a further method of keeping you informed. We hope you find it useful.