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Oct 4

About-turn, you can use spreadsheets

HMRC has about-faced regarding the ban on using spreadsheets to work out your VAT return data from 1 April 2019, when the new requirement to file VAT returns using Making Tax Digital (MTD) format is introduced.

Bowing to pressure from industry, the accountancy profession and Parliamentary committees, HMRC has now agreed that you can use spreadsheets for VAT purposes; unfortunately, there is a large “but”.

The rationale behind the development of MTD is that HMRC wants your returns of data through its MTD portal to be linked directly to the source material, the accounting entries that make up the returns. They do not want you to cut and paste data from your accounting records (including spreadsheets) into HMRC’s digital accounts.

Accordingly, they have agreed to the use of spreadsheets as long as the data is transferred using bridging software that is compatible with its MTD systems.

Software developers are now faced with creating this bridging solution and we will be reviewing solutions to settle on the best-fit option for clients.

Oct 4

Invoice discounting with larger customers

 Suppliers who sell goods and services to larger concerns often find that the terms of their supply, limits or bans the process of factoring the debts to release funds into cash flow.

Cynically, this could be seen as a method these larger customers have used to control options available to their smaller suppliers.

Unfortunately, suppliers who sell predominately to major buyers find themselves in a cleft stick: they generally have to wait for longer periods to be paid and as a result are constantly short of cash.

Invoice factoring or discounting allows say 80% of a sales invoice value to be received when the invoice is issued and accepted by the customer; a specialist finance company or bank steps in to provide the discounting service.

The good news is that there is to be a change in the law to ban these restrictive practices and allow smaller companies to gain access to the funds locked up in their trade debtors.

Under the new proposed laws, any such contractual restrictions entered into after 31 December 2018, with certain exceptions, would have no effect and could be disregarded by small businesses and finance providers, which will help stop larger businesses from abusing their market position.

Oct 4

Passport issues if a “no-deal” Brexit

 Guidance on the use of a British passport to travel abroad after 29 March 2019, if there is a “no-deal” Brexit, was issued by government last month. The pertinent facts are reproduced below:

After 29 March 2019, if you’re a British passport holder (including passports issued by the Crown Dependencies and Gibraltar), you’ll be considered a third country national and under the EU Schengen Border Code you will need to comply with different rules to enter and travel around the Schengen area. Third-country nationals are citizens of countries (like Australia, Canada and the USA) which do not belong to the EU or the European Economic Area.

According to the Schengen Border Code, third country passports must:

  • have been issued within the last 10 years on the date of arrival in a Schengen country, and
  • have at least 3 months’ validity remaining on the date of intended departure from the last country visited in the Schengen area. Because third country nationals can remain in the Schengen area for 90 days (approximately 3 months), the actual check carried out could be that the passport has at least 6 months validity remaining on the date of arrival.

If you plan to travel to the Schengen area after 29 March 2019, to avoid any possibility of your adult British passport not complying with the Schengen Border Code we suggest that you check the issue date and make sure your passport is no older than 9 years and 6 months on the day of travel.

For example, if you’re planning to travel to the Schengen area on 30 March 2019, your passport should have an issue date on or after 1 October 2009.

If you are a parent or guardian:

  • For 5-year child passports issued to under-16s, check the expiry date and make sure there will be at least 6 months validity remaining on the date of travel.
  • For example, a child planning to travel to the Schengen area on 30 March 2019 should have a passport with an expiry date on or after 1 October 2019.
  • If a child’s passport does not meet these criteria, they may be denied entry to any of the Schengen area countries, and you should renew their passport before travel.
  • For countries that are in the EU but not in the Schengen area, you’ll need to check the entry requirements for the country you’re travelling to before you travel.

The Schengen Area is an area comprising twenty-six European states that have officially abolished passport and all other types of border control at their mutual borders. The area mostly functions as a single jurisdiction for international travel purposes, with a common visa policy. The area is named after the Schengen Agreement. States in the Schengen Area have strengthened border controls with non-Schengen countries.

Oct 4

What is side-ways loss relief?

If a business owner makes a loss as a self-employed person, they can set off the losses against any other earnings of the same year. In effect, the business losses are moved side-ways against other earnings.

However, in order for loss relief to be allowed, the loss making business must be able to demonstrate that it was managed on a commercial basis and with a view to making profits.

Many cases have come to the courts when HMRC has not been satisfied that a business venture does demonstrate commerciality, and accordingly, losses have not been allowed as a set off against other earnings.

In a recent case, Beacon v HMRC, Beacon purchased a property in Tuscany. In the first two years of active trading the taxpayer made losses amounting to £218,967 and £139,936. These losses were claimed in Beacon’s tax return against their other earnings in the relevant years.

HMRC disputed the loss relief claims on the basis that the letting business was not run on a commercial basis and the matter was taken to the First Tier Tribunal.

The court disagreed with HMRC. They pointed to a number of factors that suggested a commercial basis, including:

  • The property refurbishment had been financed by bank loans and these were backed up by detailed business plans and projections.
  • The fact that the business was blown off-course was due in part to the financial crisis of 2008.

The court were also critical of HMRC’s evidence on several other fronts that suggested a lack of commerciality.

The loss relief claims were therefore allowed as claimed.

Oct 4

Buy-to-let mortgages

 The gradual restriction of tax relief for buy-to-let mortgage interest has received much publicity since the process commenced 5 April 2017. From that date, tax relief is converted from a straight forward deduction against business profits into a basic rate tax deduction.

If you continue to be a basic rate taxpayer as these changes roll-out, you will see no increase in your income tax liabilities. You may see an increase if you are, or become, a higher rate or additional rate income tax payer.
The changes have and will occur as follows:

  • 2017-18, relief for 75% of interest costs was given by deduction from rents, the remaining 25% given as a basic rate tax deduction.
  • 2018-19, relief will be given on 50% by deduction from rents and 50% as a basic rate tax deduction.
  • 2019-20, relief will be given on 25% by deduction from rents and 75% as a basic rate tax deduction.
  • 2020-21, and from then on, relief will be given on 100% of interest payments as a basic rate tax deduction.

Buy-to-let landlords need to quantify how these changes will impact their income tax liabilities in the coming years and we can help.

A final planning note, it is possible to borrow money by extending the mortgage on your own home. This makes sense from a cost saving point of view as the arrangement costs of the re-mortgage will likely be less as will the rate of interest charged. However, be sure to take the following into account:

  • You will be allowed tax relief on interest on loans up to the value of the property when it was first let, and
  • The mortgage will likely be secured against your home and the funds to repay the mortgage (or part of it) will come from letting income. This means that if the rental income dries up, and you are unable to sell the rental property to clear the additional loan, you may be faced with selling your home.

Planning is a must-do for prospective, and existing, buy-to-let landlords. Please call if you would like to consider your options. There are no short-cuts. Creating a well rounded business plan that considers the tax changes highlighted above are a prerequisite to achieving success in your property business.

Oct 4

Protect your home

A government think-tank, the Office for Tax Simplification (OTS), was briefed to consider a non-tax issue, a restricted form of limited liability for sole traders.

At present, a sole trader’s personal assets (including their home) are vulnerable to a claim by business creditors if the sole trader business becomes insolvent.

The principle behind this Sole Enterprise with Protected Assets (SEPA) scheme is that it will allow an individual to continue to trade as a sole trader whilst offering protection for their primary residence against claims arising from the business. The primary residence will not be protected from personal claims nor will any other asset be protected.

In essence, SEPA offers a limited, limited liability vehicle for sole traders.

In conclusion the OTS report says:

The case for SEPA’s introduction is not by any means cast iron. But our work indicates that SEPA has the potential to be a useful simplification for those that would otherwise consider incorporation. Furthermore, it could provide a boost to enterprise.

Accordingly, we recommend that it should be developed into a formal proposal. While doing so, one would have to address some of the issues that we have raised in this report as well as fully assessing any impact on the creditor and debt collection markets.

Which in plain speaking means SPEA is a good idea, but don’t hold your breath. We will have to wait and see if the required changes in legislation appear at some future date.

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