OTS calls for ‘urgent review’ into how UK tax system affects businesses

MTD

OTS calls for ‘urgent review’ into how UK tax system affects businesses

In a new report, the Office of Tax Simplification (OTS) has called for the government to carry out ‘urgent work’ in order to simplify the business tax system for UK firms.

The OTS report focused on businesses owned by individuals and families, and examined how the tax system affects firms at each of the key stages of their development, from starting-up to disposal or cessation. The OTS’s stated aim was to ‘highlight the complexity entrepreneurs face when seeking to establish or grow a business’.

In the report, the tax reliefs and charges that apply to new and growing businesses were examined in order to ascertain how well they operate and whether they achieve their objectives.

The OTS concluded that the reliefs and charges would ‘benefit from an overhaul to reduce complexity’, which would help to make reliefs ‘more accessible’ to firms.

The regulatory body has urged the government to consider streamlining or simplifying a number of key reliefs in order to better help entrepreneurs in starting up and expanding their businesses.

The OTS has highlighted 12 key observations, focusing on two main areas: the operation of the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes; and Entrepreneurs’ Relief (ER), capital gains tax (CGT) gift relief and inheritance tax (IHT) reliefs for business.

The organisation has invited the views of businesses and the industry, and will ‘consider some of the areas touched upon in more depth in the future’.

Paul Morton, Tax Director at the OTS, said: ‘This paper takes a significant first step towards meeting the pressing need to undertake a detailed review of the tax system as it operates across the business lifecycle.

‘It is aimed at helping the businesses that are the lifeblood of the UK economy to maximise their opportunities and to make the system clear and simple to understand and use.’

Government outlines VAT proposals for post-Brexit Britain

Businesses groups have voiced concerns over government proposals to amend the way in which EU imports will be treated following the UK’s withdrawal from the EU in 2019.

Plans to change the VAT rules are included in the Taxation (Cross-Border Trade) Bill 2017-19, which is currently making its way through Parliament. The proposals could see UK businesses being required to pay VAT upfront in cash to HMRC.

Currently, goods imported from the EU are treated as ‘acquisitions’ for tax purposes, meaning that VAT is not paid until the products have been sold to the end consumer. However, if the UK exits the Customs Union, goods from the EU will be treated in a similar way to other imports.

The British Retail Consortium (BRC) has warned that the proposed changes could create ‘additional burdens’ for UK businesses. Commenting on the Bill, the BRC stated: ‘If the Bill becomes law without any commitment to inclusion within the EU VAT area, UK businesses will become liable to pay upfront import VAT on goods being imported from the EU27 for the first time.

‘Liability for upfront import VAT will create additional cashflow burdens for companies, as well as additional processing time at ports and border entry points attached to the customs process.’

Meanwhile, the Chair of the Treasury Select Committee, Nicky Morgan, has written to the head of HMRC, Jon Thompson, urging him to address the BRC’s concerns.

Ms Morgan stated: ‘I have written to HMRC to seek clarification on the costs to businesses and consumers arising from this legislation, the options being considered to mitigate these costs and the likelihood of the UK participating in the EU VAT area as part of its end-state relationship with the EU.’

As your accountants, we can help you with your VAT obligations. Please contact us for advice and assistance.

Strategies for saving tax ahead of the 5 April year end

With the end of the 2017/18 tax year approaching, now may be the ideal time to think about strategies to help mitigate your tax liability. There are many different options to consider so do contact us for further advice.

Reducing your personal tax liability…

Are you making the most of your tax-free personal allowance (PA)? Individuals are entitled to their own PA, which is set at £11,500 in 2017/18. Therefore, if your spouse or partner has little or no income, you could stand to benefit by spreading your income more evenly to ensure that each PA is being fully utilised.

Some married couples may also be eligible to transfer 10% of their PA to their spouse under the Transferable Tax Allowance, or ‘Marriage Allowance’. It means £1,150 may be transferred in 2017/18, which could help to reduce a couple’s tax liability by up to £230 in this financial year. Certain rules apply.

And despite relatively low interest rates, for many individuals ISAs are still an attractive tax-free way to save. For 2017/18, the overall subscription limit for ISAs is £20,000, of which no more than £4,000 can be deposited into a Lifetime ISA. With a range of ISAs to choose from, you have until 5 April 2018 to make your 2017/18 ISA investment.

… and your business’s tax bill

Are you maximising claims for capital allowances? The majority of businesses are able to claim a 100% Annual Investment Allowance on the first £200,000 of expenditure on most types of plant and machinery (except cars). In many cases, a purchase made just before the end of the current accounting year will mean that the allowances are available a year earlier than if the purchase was made just after the year end.

Business owners may also wish to consider tax-efficient ways in which they can extract profit from their business. There are many ways to achieve this. Some may opt to take dividends instead of a salary or bonus, as these are paid free of national insurance contributions. Others may wish to talk to us about incorporating their business, while employer pension contributions can be another tax-efficient means of extracting profit.

As always, it is important to seek our advice before taking action. For more information on tax-saving strategies to implement ahead of the 5 April 2018, please visit the Hot Topics section of our website.

New Land Transaction Tax set to come into effect

From 1 April 2018, Wales will collect its first national taxes for almost 800 years, in the latest in a series of wider UK devolutionary measures.

From next April, Stamp Duty Land Tax (SDLT) will be replaced with a new Land Transaction Tax (LTT) in Wales. The LTT will preserve the essential structure of SDLT, but with some key differences.

Under proposals announced in the Welsh outline Draft Budget 2018-19, the starting threshold for LTT will be the highest in the UK and individuals seeking to buy lower value residential property in Wales will pay little or no tax.

For residential properties priced between £0 and £150,000, a rate of 0% will apply, while homes priced between £150,000 and £250,000 will attract a rate of 2.5%.

However, residential properties priced between £250,000 and £400,000 will be subject to a main rate of 5%.

The proposed rates can be viewed in full here.

The Welsh Draft Budget also outlined plans for a new Landfill Disposals Tax (LDT), which will replace Landfill Tax in Wales.

The Association of Accounting Technicians (AAT) has separately called on Chancellor Philip Hammond to switch liability for SDLT in England to property sellers rather than buyers, in the forthcoming Autumn Budget.

Meanwhile, following the devolution of the Scottish Rate of Income Tax in April 2016, and further devolved powers over Air Passenger Duty and Aggregates Levy in April 2017, the Scottish government is reportedly set to outline plans in its Draft Budget to make its tax system ‘more progressive’.

Some experts believe that Derek Mackay, Finance Secretary for Scotland, could announce an increase in income tax for higher rate taxpayers. The Scottish Draft Budget will be delivered on 14 December.

Business groups outline priorities as Autumn Budget approaches

With Chancellor Philip Hammond’s first Autumn Budget looming, leading business groups have published their Autumn Budget wishlists, urging the government to consider including a range of business and tax measures in its plans for the UK economy.

The Confederation of British Industry (CBI) has called on the Chancellor to implement a number of measures intended to help the UK to ‘grow its way out of austerity’.

Included among the proposals is a call to ensure that business rates ‘incentivise productive investment’ by exempting new plant and machinery from rates bills, an appeal to redesign the Apprenticeship Levy framework (including new pilots for pooling levy funds locally to help SMEs) and a call to provide HMRC with the resources it needs to administer a real-time tax system that will ease the pressure on businesses.

Meanwhile, the Federation of Small Businesses (FSB) has urged Mr Hammond to deliver a ‘Brexit-ready’ Budget, which rules out any new business tax increases and maintains investment incentives. It also recommends the introduction of new ‘exporting vouchers’, which UK small businesses could use in order to continue to trade overseas post-Brexit.

Commenting on speculation that the Chancellor could abolish the so-called business rates ‘staircase tax’ in the Autumn Budget, the FSB said that such a decision would ‘mark a victory for common sense’, adding that the tax has ‘heaped misery on thousands of small businesses that happen to occupy split workspaces’.

The British Chambers of Commerce (BCC) also urged the Chancellor to address the UK’s business rates system, calling for the government to take ‘immediate action’ to halt the anticipated 3.9% increase in business rates valuations, set to occur in 2018.

The Institute of Directors (IoD), meanwhile, focused on the need for tax reforms, urging the Chancellor not to use Brexit as ‘an excuse for delaying much-needed reform’ of the UK tax system and other policies aimed at boosting business and the economy.

The IoD also called for a temporary increase in the Annual Investment Allowance (AIA) from £200,000 to £1 million, and highlighted the importance of maintaining a low corporation tax rate as a way of signposting that Britain is ‘open for business’.

The Chancellor will deliver the Autumn Budget on Wednesday 22 November. Make sure you keep an eye on our website for coverage of the key announcements.

Backdated ‘staircase tax’ bills branded unfair to small firms

The Head of the Treasury Select Committee, Nicky Morgan, has branded the sending of backdated business rates bills to small businesses in England and Wales as ‘particularly unfair’.

Dubbed the ‘staircase tax’, businesses which occupy space on multiple floors of a communal commercial property now receive separate business rates bills for each floor they occupy, where the areas separating the offices are communal (for example lifts, corridors and stairs). Some firms in England and Wales have seen their business rates rise significantly as a result.

The Valuation Office Agency (VOA) determines business rates for firms in England and Wales, and made the changes as a result of a previous Supreme Court ruling which considered how different storeys under common occupation in the same block are assessed for business rates purposes.

Business rates are calculated separately in Scotland, using the rateable value which is set by a local assessor, and the ‘poundage rate’ which is set by the Scottish government. For 2017/18, a Large Business Supplement of 2.6p is being added to all business properties with a rateable value of £51,000 or more.

Commenting on the so-called staircase tax, Ms Morgan said: ‘It seems unfair to tax businesses differently depending solely on whether the staircases between their rooms are communal or private.

‘It seems particularly unfair for the increase in rates to be backdated.’

Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), said: ‘No small business should receive a sudden tax hike of 5,000% simply because a workplace has been separated, for years, by a communal area, stairway or lift.

‘Some small business owners are discussing whether to knock holes in their walls or stick a staircase on the outside of their premises.

‘This is no way to run a tax system in the 20th century, let alone the 21st. Ministers have the power to provide relief, and they should do this urgently – to correct this defect in the UK tax system.’

Finance Bill confirms Dividend Allowance reduction

The publication of Finance Bill 2017-19 ushers back in a raft of measures that had previously been dropped from Finance Bill 2017.

One such measure is the forthcoming reduction in the Dividend Allowance, which is set to fall from £5,000 to £2,000 next April. With 2.7 million individuals in receipt of dividend income, many are likely to feel the effects of the change.

Chancellor Philip Hammond stated that the cut would help to ‘address the unfairness’ that may be associated with the tax advantage enjoyed by director-shareholders.

The Chancellor initially announced the plans in the 2017 Spring Budget, but the measure was dropped from Finance Bill 2017 to pave the way for the General Election.

The reduction is likely to affect director-shareholders who opt to take dividends on top of a salary. It may also have consequences for savers with investments in stocks and shares worth £50,000 or more outside of an Individual Savings Account (ISA). According to HM Treasury, the average loss is expected to be around £315 – but it could be significantly more for individuals paying tax at the higher or additional rate.

Other measures reintroduced to Finance Bill 2017-19 include the planned reduction in the pensions Money Purchase Annual Allowance (MPAA), which has fallen from £10,000 to £4,000. The measure is being enforced retrospectively, and has been backdated to the beginning of the 2017/18 tax year.

The Finance Bill also outlines a framework for VAT reporting, under the government’s new Making Tax Digital initiative.