Technical and Insight
Employed or self-employed? The Pimlico Plumbers ruling

Supreme Court ruling has wide implications on the definition of a ‘worker’.


Supreme Court ruling has wide implications on the definition of a ‘worker’.

 

Determining a person’s employment status has been a contentious legal issue since the middle of the 20th century, and there is a great deal of legal precedent around the various definitions and tests for status. Although the current cases have tended to focus on employment rights, there is a large body of case law around tax, and the principles applied are not always entirely consistent, which adds to the difficulty. The sheer variety of arrangements that can be made between a business and those providing their services adds to the difficulty in establishing general principles that will apply to every set of facts.

 

The Supreme Court ruled on 13 June 2018 that a plumber who was officially self-employed was in fact a worker. The case had previously been heard at the Employment Appeal Tribunal and in the Court of Appeal with the latter finding that a ‘self-employed’ plumber should be regarded as a worker. The decision by the Supreme Court could trigger huge changes for many businesses.

 

What was the case about?

Pimlico Plumbers Ltd and another (Appellants) v Smith (Respondent)

 

In this case:

  • the contract stated that Gary Smith was self-employed
  • Smith had been working for Pimlico Plumbers for around six years when his contract was terminated following his suffering a heart attack
  • he was required to work a minimum of 40 hours per week
  • he was subject to company rules about procedures and good practice, including about his appearance
  • he was required to wear uniform and drive Pimlico Plumbers vans, for which he paid a hire charge
  • he was not allowed to take Pimlico Plumbers clients as private clients and, if he did, this would lead to dismissal
  • he did not get paid unless Pimlico Plumbers got paid for any engagement that he performed
  • he did not work for other clients, although some of his colleagues did
  • he could swap jobs with other plumbers, but the court said this was more akin to workers swapping shifts than to real substitution
  • he was VAT registered and also registered as self-employed with HMRC. 

 

After a heart attack in 2010 Smith wanted to work three days a week rather than five. Pimlico refused his request and took away the van. He claimed that he was unfairly dismissed and an employment tribunal made a preliminary finding that he was a ‘worker’ within the meaning of the 1996 Employment Rights Act.


The five judges at the Supreme Court upheld this decision and rejected an appeal by Pimlico Plumbers. Lord Wilson ruled that an employment tribunal was ‘entitled to conclude’ the firm could not be regarded as having been a ‘client or customer’ of Mr Smith. The decision clarified that plumber Gary Smith’s work for the company met the definition of ’employment’ under section 83(2)(a) of the Equality Act.

 

Lord Wilson said Smith should be considered as a ‘limb (b) worker’ and therefore entitled to certain rights. So-called ‘workers’ do not enjoy the full range of employment protection rights that full-time staff do but are entitled to elements including holiday pay.

 

What implications are there for similar ‘self-employed’ workers?

As a recap, a person is generally classed as a ‘worker’ if:

  • they have a contract or other arrangement to do work or services personally for a reward (your contract doesn’t have to be written)
  • their reward is for money or a benefit in kind, for example the promise of a contract or future work
  • they only have a limited right to send someone else to do the work (subcontract)
  • they have to turn up for work even if they don’t want to
  • their employer has to have work for them to do as long as the contract or arrangement lasts
  • they aren’t doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client.

 

This case was difficult as Mr Smith could choose when he worked and which jobs he took. He was also required to provide his own tools and equipment. However, the Court of Appeal held that he was a worker because, amongst other arguments, he was required to use the firm’s van for assignments and was contractually obliged to do a minimum number of hours a week. There were also issues about the ability to substitute someone else to do the work.

 

Although each case is decided on the individual facts, this decision may have a huge impact on the flexible working economy, particularly self-employed workers potentially being able to:

  • claim sick pay
  • claim annual paid leave
  • bring unfair dismissal cases.


Currently there are a number of similar cases going through the courts. It is possible that the government will be forced to clarify the law in respect of these issues.

ACCA’s Employment Law factsheet suite, free to members, includes Employment status: workers and includes the Court of Appeal decision in the above case as well as several other cases.

 

The factsheet states that: ‘Employers cannot presume that categorising staff as “self-employed” will limit their employment rights or determine their tax position. The established authority of Autoclenz along with the recent run of gig economy cases, in which individuals who are ostensibly self-employed have achieved findings that they are properly workers, along with the King case above, serve as a reminder to review self-employed arrangements with a critical eye to determine if those relationships might be vulnerable to being re-categorised.’

 

 

 

P11D deadlines

New ‘special rules’ will shortly impact on the filing of P11D returns.


New ‘special rules’ will shortly impact on the filing of P11D returns.

 

The 2017/18 tax year will be the first tax year where the value and types of benefits that employers report on their 2017/18 forms P11D and P11D(b) can be affected by the introduction of ‘special rules’ to determine the amount of a benefit which is treated as earnings from the employment where the benefit is provided as part of an optional remuneration arrangement. Optional remuneration arrangements (salary sacrifice) is where an employee gives up the right, or future right, to salary or the right to some other form of cash remuneration in return for the benefit.

 

Where a salary sacrifice arrangement existed before 6 April 2017 the benefit calculation can continue as before unless the arrangement was varied, renewed or modified (with exemptions for statutory sick pay, maternity, paternity, adoption or shared parental pay).

 

It is recognised that a number of pre-6 April schemes will have been varied, renewed or modified and a large number of the existing arrangements set up before 6 April 2017 will automatically be subject to the new rules from 6 April 2018. HMRC provide the following simple illustration in its guidance:

 

‘An employer operates a flexible benefits scheme under which employees give up the right to receive salary in return for free car parking near their workplace. Employees have to sign up for 12 months’ car parking. An employee enters into a 12-month salary sacrifice arrangement starting on 1 January 2017. The benefit will continue to be exempt until the contract comes to an end on 31 December 2017. The contract starting on 1 January 2018 will fall within the new rules.’

GDPR security measures

New guidance clarifies what are considered ‘appropriate’ measures.


New guidance clarifies what are considered ‘appropriate’ measures.

 

Guidance summarising appropriate and proportionate security measures issued by the ICO and NCSC towards the end of May recognises that ‘there is a lot of confusion as to the technical security required to comply with … data protection obligations’.

 

The guidance describes a set of technical security outcomes that are considered to represent appropriate measures under the GDPR.

 

The guidance states that ‘GDPR requires you to have a level of security that is “appropriate” to the risks presented by your processing. You need to consider this in relation to the … costs of implementation, as well as the nature, scope, context and purpose of the processing. This reflects both the GDPR’s risk-based approach, and that there is no “one size fits all” solution to security.

 

‘This means that what’s “appropriate” for you will depend on your own circumstances, the processing you're doing, and the risks it presents.’

 

It is then stated that the ‘guidance sets out security outcomes that could form the basis of describing appropriate technical and organisational measures to protect personal data. Whilst there are minimum expectations, the precise implementation of measures must be appropriate to the risks faced.’

 

Clearly, it would be prudent to check security measures implemented against the guidance provided as, highlighted above, there are minimum expectations.

 

It is recommended in the guidance that an outcomes-based approach is adopted that is built around the following aims to:

  1. manage security risk
  2. protect personal data against cyber attack
  3. detect security events
  4. minimise the impact.

 

In the guidance, under each of the aims above, measures are highlighted that organisations may wish to consider. Under Protect personal data against cyber attack it is stated that a business should have ‘proportionate security measures in place to protect against cyber attack which cover:

  • the personal data you process and
  • the systems that process such data’.

 

The sub-headings provided set out the measures that organisations may wish to consider. These are also useful when checking the processes an organisation has in place as it would seem likely that regulators may ask for documentation around each of the headings in the event of an investigation. The sub-headings are:

 

B.1 Service protection policies and processes

B.2 Identity and access control

B.3 Data security

B.4 System security

B.5 Staff awareness and training.

 

Under B.1 Service Protection Policies and Processes it is highlighted that suitable appropriate policies should be in place and that policies and procedures should be defined, implemented, communicated and enforced. For example, a computer use policy may be appropriate for many organisations as this sets out the requirements on employees and workers. 

 

ACCA has issued a member proforma Computer Use Policy, made available to members as part of the Employment Law series of Factsheets.

 

It is also highlighted that the use of frameworks such as the Cyber Essentials framework would be beneficial. As a reminder, Cyber Essentials, as well as offering certification (the Cyber Essentials Certificate), also provides free advice and highlights the essential controls required.

 

As highlighted earlier you and your team should review genuine and non-genuine contact updates from HMRC.

 

Non-taxable employee benefits and payments

An employer can provide some benefits to employees on which the employee is not taxable – from advice on pensions to work-related training.


An employer can provide some benefits to employees on which the employee is not taxable – from advice on pensions to work-related training.

 

Benefits on which the employee is not taxable are listed in chapter 5 of HMRC Booklet 480 ‘A tax guide – expenses and benefits’. This can be used as a checklist when reviewing benefits and P11D entries:

These include the following:

  1. Annual parties or similar functions which cost no more than £150 per head (see the May issue of In Practice for more details).
  2. Carers’ board and lodging.
  3. Costs of purchasing assets from employees.
  4. The benefit of the employer funding certain kinds of independent advice in relation to the employee shareholder agreements is not taxable in the hands of the employee.
  5. Employees with a disability are not taxable on the benefit of the private use of equipment or services provided by their employer to enable them to work for the employer (eg wheelchair or hearing aid).
  6. Fee paid by employer for an application for employee to join the Protection of Vulnerable Groups (Scotland) monitoring scheme.
  7. The provision of goodwill entertainment for an employee (or employee’s family or household) if no more than £250 and subject to various conditions.
  8. Health-screening and medical check-ups (up to one of each per year).
  9. The provision of job-related living accommodation in certain circumstances.
  10. Late night taxis provided by an employer to employee, subject to certain conditions.
  11. Subject to certain conditions, long service and suggestion scheme awards.
  12. Free or subsidised meals provided by employer to employee, subject to numerous conditions.
  13. The cost of necessary medical treatment abroad where an employee becomes ill or suffers injury while away from the UK in the performance of his/her duties (and insurance cost for such treatment).
  14. The provision of one mobile phone by an employer to an employee (not to member of family or household) unless any of these can be converted into money by the employee. Money an employer pays to an employee to use their own mobile is taxable.
  15. Accommodation, supplies or services used by the employee in performing his/her duties and any use of the benefit for private purposes by the employee is not significant.
  16. The provision of a car, motorcycle or bicycle parking space at or near the employee’s place of work.
  17. Where an employee works regularly at home, under agreed flexible working arrangements, an employer may pay up to £4 per week, £18 per month or £216 per year without supporting evidence of the cost. If more is paid then supportive evidence is required or HMRC’s agreement is required to pay higher amounts tax free.
  18. Expenses incurred in the provision of any pension, annuity, lump sum, gratuity or similar benefit to be given to the employee or to any member of the employee’s family or household on the employee’s retirement or death. The cost of providing such benefits may in some circumstances be taxable (under ITEPA 2003).
  19. The provision of pension advice to the employee up to £500. This should be available to all employees generally, or to those at a particular location (although it may be limited to those nearing retirement through age or ill health).
  20. Reimbursements made to employees by the employer for items purchased by the employee on behalf of the employer (eg an employee may buy stamps, stationery and equipment etc. for the employer and be reimbursed by the employer). Such amounts should not appear on form P11D.
  21. Subject to numerous conditions, the removal expenses borne or removal benefits provided by the employer may be exempt from tax and NICs. The exemption is due to employees who change residence as a result of starting a new job or as a result of a transfer within an employer’s organisation. The first £8,000 may qualify for the exemption.
  22. Subject to numerous conditions, costs incurred by the employer in retraining the employee intended to help that employee get another job.
  23. Sports facilities provided by the employer to employees and members of their families and households.
  24. Subject to conditions, benefits are exempt from tax and NICs if cost does not exceed £50.
  25. The benefit of welfare counselling made available to all employees generally on similar terms is exempt from tax (excluding some specific counselling).
  26. The provision of work-related training made for the employee by the employer.
  27. Subject to various conditions, the benefit of childcare provided or supported by the employer. Although from October 2018 employer-supported childcare is due to close for new applicants.
  28. The cost of transport which an employer provides to take an employee home, but limited to
  • travel after 9pm
  • employee usually travels in shared vehicle, which is unexpectedly not available
  • provision of a works bus
  • employer subsidises public transport
  • benefit of bicycles and/or cyclist’s safety
  • additional costs caused by strikes or other industrial action (such as hotel accommodation near place of work or additional travel costs)
  • assistance with the cost of travelling between home and work for disabled persons
  • travelling facilities provided between the mainland and offshore oil or gas rigs or platforms. May also include overnight accommodation and subsistence.

 

HMRC booklet 480 deals with the tax treatment of expenses and benefits.

Tax investigations – a recap

How HMRC tackles tax fraud was covered in a recent webinar.


How HMRC tackles tax fraud was covered in a recent webinar.

 

At a recent ‘talking points’ webinar HMRC summarised some of the main points on how it tackles fraud and related issues such as the use of the Contractual Disclosure Facility (CDF) and the potential liability that accountants may face.

 

As these are very important issues we are summarising its comments below with additional links and information from HMRCs code of practice (COP 9)

 

How does HMRC handle tax fraud?

Each year we check the tax position of various individuals, companies and many other areas to ensure the right amount is being paid. When we think that the right amount of tax is not being paid we open an investigation to find out more details.

 

When is a criminal investigation started?

The Commissioners of HMRC reserve complete discretion to pursue a criminal investigation with a view to prosecution where they consider it necessary and appropriate.

 

If the investigation is not a criminal one, what is the procedure?

In cases where a criminal investigation is not started, the Commissioners may decide to investigate using the Code of Practice 9 (COP9) investigation of fraud procedure. We will only open a COP 9 investigation where we have a suspicion of fraud:

  • specially trained investigators work on these cases
  • it’s not a fishing exercise
  • we keep an open mind.

 

Using a Contractual Disclosure Facility (CDF)

If we open a COP 9 investigation, we offer the individual the chance to tell us about all irregularities in their tax affairs.  The Individual enters into a contract with us. If they accept this offer we undertake not to conduct a criminal investigation into the tax frauds disclosed.

 

You will make a full disclosure of all your tax irregularities under the terms of the CDF. To comply with your part of the contract you need to complete the two disclosure stages:

 

  1. A valid Outline Disclosure of the deliberate conduct that brought about a loss of tax (Outline Disclosure).
  2. A certified statement that you have made a full, complete and accurate disclosure of all tax irregularities together with certified statements of your assets and liabilities, and of all bank accounts and credit cards you have operated (Formal Disclosure).

 

This is the only way that you can be certain that we will not carry out a criminal investigation into the tax frauds we suspect.

 

Does the taxpayer have to wait for the offer of CDF?

  • There’s no need to wait for us to offer CDF
  • You can request to make a voluntary disclosure but it’s up to us if we offer CDF
  • If we do offer CDF, we will not undertake a criminal investigation on what the individual discloses to us

 

Can HMRC help with this disclosure report?

You may not need to produce a full report but we will discuss and agree a way forward with you. We will work with you to ensure it contains the correct information. Your client will always make the final decision on whether to produce or adopt a report

 

Penalties for accountants

Schedule 38 Finance Act 2012 allows HMRC to charge penalties on agents complicit in evasion.  These could be £5,000 to £50,000 per client. This is mainly concerned with the agent being involved in ‘dishonest conduct’.

 

Dishonest conduct includes dishonesty through action, through omission, and through advising or assisting a client to do something that the tax agent knows is dishonest.

 

Remember that:

  • a loss of tax does not need to actually occur – it is the intent that matters
  • HMRC have the power to access the agent’s working papers and their client files.

 

Full guidance on section 38 is available here.

 

PAYE Settlement Agreement (PSA)

After 5 July 2018, you can’t apply for a PSA for the 2017 to 2018 tax year.


After 5 July 2018, you can’t apply for a PSA for the 2017 to 2018 tax year.

 

As a reminder, a PAYE Settlement Agreement (PSA) allows an employer to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits.

 

HMRC highlights the benefits that an employer ‘won’t need to:

  • put them through your payroll to work out tax and National Insurance
  • include them in your end-of-year P11D forms
  • pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead)’

 

It is important to remember that businesses do not need to pay tax on a benefit for an employee if all of the following apply and so are not required to be part of a PSA:

  • it cost you £50 or less to provide
  • it isn’t cash or a cash voucher
  • it isn’t a reward for their work or performance
  • it isn’t in the terms of their contract.

 

It is also worthwhile remembering that HMRC’s Employment Income Manual, in the section Particular benefits: exemption for trivial benefits – relationship with other exemptions (from 6 April 2016), states that ‘where a benefit is covered both by the trivial benefits exemption and also by another exemption, in applying the trivial benefits exemption, you should apply the outcome that is most favourable to the employee’.

 

The section includes the following examples:

 

‘Example S

Employer S provides its employees with two annual functions at Christmas and in the summer. The first function costs the employer £140 per head and the second costs £40. The first function is covered by the annual parties and functions exemption under section 264 ITEPA. The second function is not covered by that exemption because the financial limit of £150 has been exceeded by the combined total of the two events. However, the second function can be covered by the trivial benefits exemption because the cost did not exceed £50.

 

If an existing exemption exempts only part of a benefit, even if the excess cost is less than the trivial benefit monetary limit, that excess is not exempt.

 

Example T

Employer T provides its employees with an annual function at Christmas that costs it £180. The benefit is not exempt under the annual parties and functions exemption under section 264 ITEPA because the cost of £180 exceeds the financial limit for the exemption of £150. Nor is the benefit covered by the trivial benefits exemption because the cost of £180 exceeds the trivial benefit financial limit of £50.’

ATED reliefs and filing deadlines

In a further ATED update, available reliefs are considered alongside filing deadlines.


Following on from last month’s ATED update the available reliefs are considered alongside filing deadlines.

 

The reliefs available are:

 

  1. Property rental business relief

Property is used in a commercial property business to generate taxable profit, or steps are being taken to use it in a commercial property business without delay.

 

For example:

  • It is advertised with a view to finding a tenant
  • It is or has been managed
  • Landlord enforces his legal rights against the tenant, for example recovers from the tenant costs incurred as a result of damage caused by the tenant
  • Periods during which the property is empty are short
  • Landlord advertises the property in its local area where finding a suitable tenant is commercially possible
  • Rent asked is not excessive in comparison to local rates
  • Property is being prepared for rental (redecoration works are carried out, alteration works are done, property is being furnished)

 

ATED relief may still be claimed despite a delay in renting the property, if the delay is unavoidable and caused by commercial factors, such as:

  • Property is damaged and needs to undergo remedial works
  • Delays in obtaining licences or meeting other legal regulations
  • Adverse market conditions and the property owner can prove the decision to delay rental was based on expert opinion on the rental market (his own due to experience or reputable third party).

 

Look back and look forward provisions deny relief if a period of non-qualifying occupation arises (see below).

  1. Preparation for sale or demolition relief

Property is not currently rented but some of the following conditions are met:

  • Property has been put up for sale
  • Property is to be demolished and replaced with a new one which will qualify for ATED relief
  • Property is to be  converted and the converted property will qualify for ATED relief

 

 

 

In the above example reliefs will initially apply during the whole period of ownership, first under property trade and then preparation for sale. As ATED relief declaration was made for 2020/21 claiming the relief, but the property was later sold, an amended return to reflect the sale needs to be submitted. This can be done immediately when the property is sold on 28/02/2021 but the window for return submission lasts till 31/03/2022 – the last day of the next chargeable period.

  1. Dwelling opened to the public relief

The relief applies where the following exists:

  • The property typically is a conference centre, offers  training facilities, or is a place of historical interest
  • Public access constitutes a commercial activity or various types of commercial activity, to generate income, which is not incidental
    • for example a dwelling could be made available to host weddings and host a conference. As long as the total number of days spent on both activities is 28 days or more, relief will be due.
    • if access to property is granted free of charge, the relief is not available due to the commercial basis condition not being met.
  • Availability of building
    • at least 28 days in a chargeable period (although not necessarily used for 28 days) or
    • being prepared to be available
    • or there is a demonstrable intention for it to be made available in subsequent periods for at least 28 days, despite it not being available in the current period
  • Proportion of building to be made available
    • whole of the building or
    • significant part – eg a small part of gardens of a stately home will not qualify

 

Relief will not be withdrawn if a non-qualifying individual occupies the building. For example – the owner lives at the property while making part of it available to the public, to generate income towards the upkeep of the property.

 

  1. Property development relief

This applies to companies buying, and developing or redeveloping, property for resale, including land. The following are some of the conditions when looking to see if the relief is available:

  • major works take place rather than cosmetic redecoration prior to sale
  • development is on commercial basis and with a view to a profit
  • property can be rented out prior to sale if the intention is to sell the property as part of property development trade
  • if the main aim is to rent the property, property rental business relief should be claimed in future years
  • relief applies to a new never occupied property received by the developer as consideration from an individual who passes ownership of it back to the developer, in return for a different dwelling (reverse acquisition in a qualifying exchange)
  • look back and look forward provisions are triggered by non-qualifying occupation (see below)
     
  1. Property trade relief

The relief applies where the:

  • property is held as stock for resale
  • business is run with a view to a profit rather than an investment activity

 

Look back and look forward provisions may also apply if non-qualifying occupation occurs.

 

  1. Occupation by certain employees or partners relief

The relief applies where:

  • the property is used to provide living accommodation to qualifying employees (including directors and company secretaries) or partners
  • the dwelling is made available for reasons that are solely or mainly to meet the purposes of the trade carried out by the company or partnership owning the property
  • employees or partners hold less than 10% in the company or partnership. This includes shares held on behalf of the employee or partner by someone else, including an individual, another company or an associate, which are taken into account just like a stake held directly by those employees/partners

 

Periods of non-qualifying occupation

Occupation of a property subject to ATED by a non-qualifying individual for a number of reliefs triggers the withdrawal of the ATED reliefs. A non-qualifying person is:

  • an individual who owns a joint interest in a property with a company caught by ATED
  • an individual (and those connected with him/her - relatives) connected with a company which has interest in an ATED property (usually 10% shareholding or more)
  • partner of a partnership which has an interest in the ATED-caught property, his/her spouse, relatives and their spouses
    • people connected with a partner of a partnership are spouse, brother, sister, ancestor or lineal descendant (children or grandchildren) and their spouses
    • a partner of a partnership is not connected with another partner in that partnership, relatives of that other partner, and the other partner’s relatives’ spouses
  • In a trust scenario:
    • settlor of a trust which sets up a company which acquires an ATED-caught property – settlor is connected with the company because they are connected with the trust (relevant settlor)
    • settlor’s spouse or civil partner in a similar scenario
    • settlor’s spouse’s or civil partner’s relatives in a similar scenario
  • a 50% holder (‘major participant’), or someone connected with them, of an interest in a collective investment scheme which holds in a single dwelling

 

Whatever the basis for a relief (for example rental, or preparation for sale etc) non-qualifying occupation brings that relief into charge and affects the period of occupation as well as preceding and subsequent periods.

 

Look forward and look back provisions denying ATED relief

If there is a non-qualifying occupation (occupation of the property) during the time when it is marketed to be rented or prepared for sale, ATED relief is denied. The withdrawal of the relief affects:

  • any period immediately preceding the non-qualifying occupation in the chargeable period when the occupation arose
  • the preceding period (chargeable period before the one when non-qualifying occupation arose). The relief is only withdrawn until the day before it was occupied by a tenant in that preceding period.
  • three chargeable periods after the chargeable period in which the non-qualifying occupation arose. The relief is only withdrawn until the day before it was occupied again by a tenant again.

For example:

 

 

The property would normally qualify for ATED relief under property rental business (it was being marketed with a view to finding a tenant and to be rented out without delay), despite not being actually rented out. Therefore initially ATED relief declaration for period 2016/17 would have been filed (by 30 April 2016).

 

However, on 1 June 2016 non-qualifying occupation of the property denied the ATED relief as follows:

  • for period 01/04/2016 to 31/03/2016 – part of the chargeable period in which non-qualifying occupation arose
  • for 2015-16 –due to ‘12 month look back’ rule, relief is denied for the whole of the proceeding period
  • for periods 2, 3 and 4 (2017/18, 2018/19, 2019/20) due to the three-year look forward rule, which denies relief in the following three chargeable periods.

 

The above applies even if the non-qualifying occupant is charged market rent. This means that:

  • amended relief needs to be submitted and ATED paid for 2015-16
  • amended return needs to be submitted and ATED paid for 2016-17
  • normal returns and ATED payment is due for 2017/18, 2018/19, 2019/20

 

However, if a qualifying tenant is found and property rented subsequently, or a qualifying occupation by a tenant arose in the past, the look back and look forward rules are ‘stopped’ a day before the qualifying occupation started (for subsequent periods), and a day before it ended for the preceding period).

Let’s consider the following example:

 

 

Despite the non-qualifying occupation triggering the ‘look back’ and ‘look forward’ rule which would normally deny ATED relief for 2015/16 and 2017/18 to 2019/20, relief is only denied for a short period.

 

‘Look back’ into the preceding chargeable period (2015/16) shows that the property had been rented. Relief is therefore only denied till 1 April 2016, no look back applies beyond that date.

 

Relief is denied from 1 December 2016 to 30 September 2018 (straddling two chargeable periods), as the property was not rented, only marketed with a view to rent.

 

However, from 1 October 2018 relief is due, as the property is rented out. Any further ‘look forward’ provisions are stopped at 30 September 2018 and relief is not denied for the subsequent periods.

 

Non-qualifying occupation from 01/06/16 to 30/11/16 and the period when the property was vacant 01/12/16 to the end of the chargeable period 31/03/2016 are not entitled to relief.

 

Amended return will need to be submitted for 2016/17 and ATED paid in proportion to the length of time when the property was subject to non-qualifying occupation and then empty – 01/06/2016 to 31/03/2017 (end of chargeable period).

 

A normal return for 2017/18 with ATED payable needs to be submitted. This period will later be subject to an amended return to exclude the period of qualifying occupation and obtain ATED partial refund for period 01/10/17 to 31/03/2018.

 

If property is first rented, then marketing to sell the property starts, and the property is sold, an amended return needs to be submitted by 31 March the year following, to reflect the sale.

 

Let’s look at an example with a period of non-qualifying occupation and a subsequent sale.

 

 

  • For 2021/22 – Amended return under look back provisions (preceding chargeable period) denying previously claimed relief but only till 02/02/2022, because the look back is stopped at that point due to a qualifying occupation by a tenant who was there till 01/02/2022. Period chargeable is from 02/02/2022 to 31/03/22 and approportioned ATED charge will apply.
  • For 2022/23 - Normal ATED relief declaration as property was used in a rental business and then advertised to find a new tenant
  • For 2022/23 – Amended return to show the now disqualified from relief period of 12 months made of:
    • under ‘look back’ from 01/04/22 to 30/04/22 (period directly preceding non- qualified occupation in the same chargeable period)
    • actual period of non-qualified occupation 01/05/22 to 01/12/22
    • further period from 02/12/22 to 31/03/2023 due to ‘look forward’ provisions of the subsequent (to the period in which non-qualifying occupation took place) chargeable period – property was not rented so the look forward rule does not stop
  • For 2023/24 – Normal ATED return with no relief as the second chargeable period following the period of non-qualifying occupation is chargeable to ATED by 30/04/2023
  • Amended 2023/24 return due to the subsequent sale to be submitted from 15/09/2023 (date of sale) to 31/03/24, in order to reclaim the originally paid ATED in the first 2023/24 return.
Travelling and subsistence - what to enter on the P11D

Some paid or reimbursed expenses are exempt and do not need to be reported.


Some paid or reimbursed expenses are exempt and do not need to be reported.

 

The P11D guidance issued by HMRC states that form P11D box N should include ‘the total non-exempt expenses reimbursed on fares, hotels, meals and so on including travel between home and a permanent workplace for UK employments and employments performed wholly outside the UK’ (not included elsewhere on form P11D).

 

Exemptions for paid or reimbursed expenses

From 6 April 2016 all dispensations ceased to exist. Instead, some expenses will be within an exemption and will not need to be reported on form P11D or payroll. Where the employer is satisfied that all the expenses and/or benefits they provide would be fully covered by the expense exemption they do not need to show these on forms P11D or deduct tax if they payroll expenses. Similarly the employee need not disclose them in their tax return.

 

Common items that will be covered by the exemption include the following:

  • travel, including subsistence costs associated with business travel
  • business entertainment expenses
  • credit cards used for business
  • fees and subscriptions

 

The exemption does not apply to expenses or benefits that are paid or provided under a salary sacrifice agreement.

 

HMRC Booklet 480 chapters 8 to 10 have further details on this subject.

 

Also HMRC Booklet 490 provides detailed guidance on tax and NICs guide for employers relating to employee travel. In particular there is a ‘table of reporting requirements’ on page 63.

 

 

 

 

 

 

Keep calm and carry on encrypting

Simple practice disciplines such as encryption are vital in the wake of GDPR compliance and cybersecurity issues.


Simple practice disciplines such as encryption are vital in the wake of GDPR compliance and cybersecurity issues.

 

GDPR so far!

GDPR became law on 25 May 2018 for everyone working in the EU including the UK. A summary of useful resources for GDPR provided by ACCA was published in last month's In Practice magazine.

 

Why is encryption necessary?

ICO has highlighted increased adoption of data pseudonymisation and that data encryption is seen as best practice. GDPR defines pseudonymisation in Article 3, as ‘the processing of personal data in such a way that the data can no longer be attributed to a specific data subject without the use of additional information’.

 

This means that the ‘additional information’ must be ‘kept separately and subject to technical and organisational measures to ensure non-attribution to an identified or identifiable person’. Pseudonymisation does not remove all identifying information from the data but merely reduces the linking of a dataset with the original identity of an individual – encryption.

 

Encryption is one of the tools available when considering data security policies. ACCA's guidance on firm's a proforma Data Protection Policy states: ‘Data Security – Transferring Personal Data and Communications: We will ensure that we take the following measures with respect to all communications containing personal data:

• all emails containing personal data are encrypted …’

 

How can you encrypt?

Practitioners usually have to send three types of documents containing data: MS Word reports, MS Excel spreadsheets and PDF documents for approval via email. Here are some simple and free ways of encrypting these documents through passwords:

 

Microsoft Word documents

  1. Open your Microsoft Word document.
  2. Click File. It's a tab in the upper left corner of the Word window
  3. Click the Info tab
  4. Click Protect Document
  5. Click Encrypt with Password
  6. Enter a password
  7. Click OK
  8. Re-enter the password, then click OK

 

Microsoft Excel Spreadsheets

  1. Open the document that you want to help protect
  2. On the Review tab, under Protection, click Passwords
  3. In the Password to modify box, type a password, and then click OK
  4. In the Confirm Password dialog box, type the password again, and then click OK
  5. Click Save 

 

PDF Password protection

PDF documents can be protected with a password by purchasing a PDF protection package which is sometimes a better option than purchasing a full package. Tp apply a password:

  1. Open the PDF and choose Tools > Protect > Encrypt > Encrypt with Password
  2. If you receive a prompt, click Yes to change the security
  3. Select Require a Password to Open the Document, then type the password in the corresponding field
  4. Select an Acrobat version from the Compatibility drop-down menu.

OR

  1. Open your PDF document.
  2. Click File. It's a tab in the upper-left corner of the Word window
  3. Click the Properties tab
  4. Click Protect Document
  5. Click Encrypt with Password
  6. Enter a password
  7. Click OK
  8. Re-enter the password, then click OK.

 

Summary

Although these methods help to protect the data, do consider how your client will react and their ability to use these documents. Do also consider how reliable and secure email is itself.

 

Alternatively, a virtual online portal – while appearing expensive at the outset – may deliver good value for money in the longer term by ensuring secure communication, a professional image for the practice and an ultimate time cutback on administrative activities.

 

Further guidance on encryption for types of data will be available for members and highlighted in the next issue of In Practice.

Insider fraud in charities

Study finds that poor governance and oversight within charities contributes to fraud.


Study finds that poor governance and oversight within charities contributes to fraud.

 

The aim of the Charity Commission study into insider fraud in charities was to better understand:

  • the types of insider fraud occurring in charities
  • the factors that make charities vulnerable
  • current and emerging trends in the sector.

 

The study concluded that factors such as placing excessive trust in or responsibility on individuals, and the lack of internal challenge and oversight, contributed to 70% of insider frauds.

 

The Commission is ‘urging all charities to foster a culture where staff, trustees and volunteers are reminded of the need to challenge any concerning behaviour and not turn a blind eye when internal processes aren’t followed’. Clearly, independent examiners and auditors should also read the findings as there are risk factors that need to be considered.

 

Additionally, the poor reporting by charities of when fraud occurred (only 57% reported the fraud to the Charity Commission, and only 62% of charities who suffered a fraud reported it to Action Fraud or the police) will cause concern for independent examiners and auditors as to reporting matters of material significance obligations.

 

The findings in the study highlighted poor governance and oversight within charities as being causes, as the following extract from the report highlights:

  • ‘43% of respondents suggested the prime factor was excessive trust or responsibility placed on one individual
  • 24% due to a lack of challenge or oversight
  • 24% due to either absence of controls or existing controls poorly applied’.

 

The review also highlights some of the signs - weak and non-existent controls - that were common when fraud occurred. These include:

  • failure to reconcile transactions and bank statements on a regular basis
  • poor segregation of duties/unclear responsibility for financial controls
  • only one signatory for bank transactions
  • only one individual counting cash collections.

 

In a separate report on persistent late filing by charities it was highlighted that, out of the 45 charities whose accounts were reviewed by Commission accountants, 16 were charities involved in education and 16 were religious charities. This constitutes 72% of the total number reviewed. The report went on to highlight under Lessons for auditors and independent examiners that:

  • The trustees of charities that are late in filing may need additional help and support in meeting their legal obligations.
  • Late filing can be indicative of wider governance problems in a charity.
  • It is the responsibility of an independent examiner to check that their charity client is eligible for independent examination.

 

You can also read more about this.

 

Don’t miss out on trading allowances

Two new £1,000 tax-free allowances came into play from April 2017.


Two new £1,000 tax-free allowances came into play from April 2017.

 

For the tax year 2017/18 we saw the introduction of two new £1,000 tax-free allowances. Both are available from 6 April 2017 and are the property allowance and the trading allowance.

 

Allowances

The trading and property allowance provides for a complete exemption from income tax if the total trading or property income in the year is less than £1,000.

If a person has both types of income, they will receive a £1,000 allowance for each.

Each is aimed at relieving the taxpayer of having to report nominal amounts of income which HMRC would, in turn, find very cost-ineffective to process and collect the tax due.

 

Full exemption is only available if the total income, not profit, is below the limit. So individuals are required to record their income level and if their trading income goes above £1,000 they will need to inform HMRC and be subject to self-assessment.

The trading allowance is applicable to trading income from either self-employment, or casual services (eg babysitting, private tuition, gardening) but for the purposes of the trading allowance, the income and profits of all an individual’s trades are combined.

 

Where income exceeds £1,000, the legislation allows for so-called partial relief. Effectively, individuals can choose to either:

  1. deduct their actual business expenses from trading income in the usual way, or
  2. elect instead to deduct up to £1,000, but not more than the amount from trading income.

 

It should be noted that if the expenses are more than the income it may be beneficial to claim expenses instead of the allowances.

 

Also, if you own a property jointly with others, each individual is eligible for the £1,000 allowance against your share of the gross rental income. Individuals can decide on an annual basis which approach to take. The trading allowance applies equally to both cash basis and accrual accounting however, it is expected that most small businesses would adopt the cash basis.

 

When you can’t claim the allowance

The allowances can’t be claimed when you have any trade or property income from connected or controlling parties.

 

In addition the property allowance cannot be claimed if:

  • The person claims the tax reducer for non-deductible costs of a dwelling loan.
  • The Rent-a-Room Scheme is available but they choose to disapply it. However, as the Rent-a-Room relief limit of £7,500 is higher than the property allowance of £1,000 this is unlikely to be a concern.
  • The income is from partnership property income.

 

Like the trading allowance, the property allowance cannot be claimed in respect of partnership property income. However, if the property is owned jointly with one or more other persons it does not mean that, of itself, the activity is a partnership.

 

HMRC PIM 1030  states:

 

Whether or not a customer is a member of a partnership depends on the facts. A partnership is unlikely to exist where the customer is one of a group of joint owners who merely let a property that they jointly own. On the other hand, there could be a partnership where the customer is one of a group of joint owners who: let the jointly owned property, and provide significant additional services in return for payment.’

 

In conclusion if there is no partnership agreement and no partnership return has ever been filed, it is likely that the share of the income from property is reported in property pages of the tax return and it qualifies for relief.

 

It should be noted that, unlike Rent-a-Room relief, if property is jointly held then each person is entitled to the full £1,000 property allowance.

 

In conclusion, in order to qualify for allowance:

 

  1. Do not involve your spouse or your friend (in order to avoid trading as a partnership).
  2. Do not sell anything to your own employer or your own limited company; selling one item to your company would mean you could not claim the tax-free trading allowance at all.
  3. Do not think of setting up a new trade for each of your businesses to get around the £1,000 limit as the allowance applies to all self-employed trades carried on by you.
Update on option to tax

Property VAT and option to tax can be a challenging area.


Property VAT and option to tax can be a challenging area.

 

VAT reform is never out of the news and many areas are highlighted as needing simplification. The current complexities and solutions to the most common challenges faced by businesses and advisers on property VAT are described below.

 

What is option to tax? 

Most property transactions are exempt from VAT. VAT is not charged on sales and lettings of property and no input VAT incurred on associated purchases, such as building work, fees and other expenditure, can be recovered.  

 

Option to tax allows the conversion of this normally exempt transaction in the sale or letting of land and buildings, into standard rated, where a seller or landlord charges VAT on the sale or rental, and VAT incurred on costs can be recovered. There are, however, many detailed rules and exceptions. 

 

If a business exercises option to tax over a property, the option applies to all its future dealings in it (unless there is a specific reason for it not to do so), until the option lapses or is revoked. 

 

Option to tax applies per property, but does not transfer with it. A new owner needs to opt to tax in order to get the tax benefits, rather than inherit the option to tax from the vendor. 

 

Option to tax can be overridden or disapplied: 

  • if previously opted property is sold as part of a TOGC – VAT is not charged as the transaction is outside of scope and option to tax is overridden if the buyer opts to tax 
  • usually where the building is designed or intended for use as a dwelling or dwellings. This can include cases where a buyer or tenant intends to convert it for residential use
  • if the transaction is caught by anti-avoidance rules 
  • in some instances where the building is intended for other residential or charity uses, and the buyer or tenant certifies that intention 
  • in some cases where the buyer or tenant is a housing association, if the housing association certifies its intended use of the property 
  • if the buyer or tenant is an individual who intends to build their own dwelling on the site - there is no certification requirement here  
  • in some cases involving caravan pitches or moorings for houseboats. Again, there is no certification requirement. 
  • if the option has lapsed or been revoked. Revocation generally needs a positive action by the owner, but this does not strictly apply if it was never notified to HMRC. 

 

How to exercise option to tax 

A property can be opted at any time during ownership, and not necessarily at the point of purchase. 

 

It is assumed a decision to opt a property is taken by the authorised beneficial owner. Within 30 days of the decision, a notification form 1614A should be sent to HMRC. It is also possible to notify HMRC by letter, provided that it contains the same information as the form, although letter notifications may take longer to process. 

 

The proof that the form was sent and its acknowledgment by HMRC is generally sufficient evidence of a decision to opt a property. 

 

Additional evidence such as board minutes or emails may also be requested, particularly in case of failed or late notifications which HMRC may accept (but not retrospective decisions). In this case the fact that VAT has been charged and recovered would usually be expected. 

 

If the business is not yet VAT registered, VAT registration should be made at the same time as opting, and both forms should be sent to the registration unit together. 

Practical points in completing form VAT1614A

 

When completing 1614A, it may be possible to ignore land registry title numbers and not have the form rejected by HMRC. It is important to include the correct address and including maps and plans showing the opted property is encouraged.

 

The main problems with processing forms are incorrect opter's details (eg director's details given instead of company's details) and the form being signed by someone who is not an authorised person.

 

Permission to opt

It is necessary to obtain HMRC’s permission to opt to tax if you have made or intend to make exempt supplies of the land or buildings within the period of 10 years prior to the date your option to tax will have effect. Some permissions are automatically given and some have to be requested using form 1614H, see 5.2 in HMRC’s VAT Notice 742A, for where automatic permission is given.

 

Who should exercise option to tax 

The option to tax needs to be made by the person making the supplies, and in particular: 

  • Option to tax  should be exercised by the beneficial owner, not the legal owner. If there is more than one beneficial owner, they will be expected to opt together and to register for VAT as though they are a partnership. 
  • For trusts option to tax can be made by trustees, or the trust itself. For unit trusts and pension funds, HMRC will normally expect it to be the fund manager who opts. 
  • For most partnerships, including LLPs, the partnership should opt, and not individual partners. This applies even if only selected partners hold the property on behalf of the partnership as a whole: it is still the wider partnership that opts. 
  • In joint ventures that do not involve partnership or co-ownership, the joint-venturers should opt separately. 

 

To opt or not to opt - risks and traps

Opting is a long term commitment and may restrict how and when the seller can best realise property value.  Purchasers may also find themselves facing a higher stamp duty bill due to the VAT uplift on purchase price. 

 

Conversely, delaying option to tax due to uncertainties around the VAT status of a buyer or tenant may affect the seller through the lost benefit of recovered VAT as well as involve a significant cash-flow cost. This is particularly relevant if seller or landlord is not currently registered for VAT, or is incurring ongoing costs on a vacant property.  

 

Cash flow 

While purchasers may seek to counter the cash flow impact by submitting a VAT return early, and sellers may help by agreeing to delay the date of completion or the issue of the invoice within the 14-day rule, the cash flow cost of option to tax may have a significant impact on both the buyer and the seller, where due to the amounts involved transactions may fall through unless bridging finance is secured. 

 

Commercial marketability 

Option to tax locks other associated fees, such as service charges, into the same VAT treatment as the underlying supply. Whether this is tax neutral or detrimental to the tenant will depend on how much of the VAT can be recovered. 

 

Further complications for landlords arise when renting to both exempt and non-exempt tenants. For example, commercial property with residential units rented to a retailer, and offices rented to an exempt insurance company. In order to recover VAT on the refurbishment of the retail space, the landlord would have to opt to tax, but this would increase the rent charged to the exempt insurer, as option to tax would apply to the whole commercial property. Usually splitting the title between retail and office parts and transferring the retail space to a separate company which then exercises option to tax may be the only way to remedy the situation, subject to appropriate disclosures being made to HMRC, if applicable. 

 

Restriction of VAT recoverability due to mixed use 

Occupation of a property by its owner who carries out standard taxable supplies, as well as sublets space to a tenant under option to tax, may sometimes result in more VAT restriction than anticipated. If, for example, you occupy half the building in activities that are 20% taxable, and use the other half in 100% taxable lettings, you might expect to recover (100% + 20%) ÷ 2 = 60% of the VAT on costs related to the building as a whole. HMRC will not necessarily agree to this, and there is a danger that you will still only recover 20% of the VAT (the Tribunal decision in Farnham Physiotherapy and Sports Clinic v Revenue & Customs [2007] UKVAT V20004) 

 

Restriction of VAT recoverability incurred before option to tax is exercised 

VAT incurred prior to exercising the option to tax cannot be recovered, unless it related to costs incurred strictly in connection with the supply of the opted property (its sale or letting).

 

For example, if a VAT registered trader decides to sell a property and incurs refurbishment costs with a view to sell and then decides to opt to tax the property as he finds a buyer who can recover VAT on the purchase, VAT suffered on the refurbishment will be recoverable. 

In practice, vendors may find themselves in a position where it is not known until much later after such costs were incurred whether option to tax and VAT registration is relevant and beneficial. This could apply in case of developers facing uncertainties in relation to planning permission application outcomes or availability of finance to continue the build. Thanks to concluded past VAT cases, in these situations pre-option VAT may be either partly recoverable and treated as residual VAT subject to partial exemption method, or fully recoverable if there is demonstrable, evidenced and strong intention to use the property in a taxable supply (Beaverbank Properties Ltd (VTD 18099)), even if subsequently no such taxable supply is realised, as the project is aborted. 

 

However, where permission from HMRC is needed to opt to tax, no recovery of input tax should take place until option to tax is actually granted. 

 

Once option to tax is exercised past VAT may be recovered and several avenues can be used to achieve this:  

  • Through your partial exemption annual adjustment, if the input tax was incurred during the same partial exemption year. Provided that the taxpayer was required to carry out an annual adjustment in the previous year, the taxpayer may (but need not) use the previous year's adjusted annual recovery percentage as the provisional recovery percentage for the current year (avoiding the need to calculate the rate for each return made in the tax year). 
  • Under regulation 109 of the VAT Regulations. This does not apply if you have used the expenditure in the meantime, even if only to a limited extent. 
  • Under the CGS. This will only allow you to recover some of the VAT but it can apply where you have already made use of the expenditure. If, for example, you refurbished the property five years ago, opting now might allow you to claim back half the VAT through the CGS. The CGS only applies where VAT was incurred on expenditure of £250,000 or more. 
  • If the CGS does not apply, and you were not registered when you incurred the expenditure, under the rules for pre-registration VAT, subject to the following limitations: 
  • No VAT can be recovered if it was incurred more than four years before registration.  
  • VAT on services can only be claimed if it was incurred within six months before registration. This may include, among other costs, professional fees and rent under a lease for a term of 21 years or less (in Scotland, of less than 20 years), since this is a supply of services. Case law also indicates that the six-month rule generally applies to both the goods and services elements of building work. 
  • HMRC also consider that VAT cannot be recovered on building work, even within the six-month period, if the property was acquired more than four years before registration, although in practice they might still be prepared to make a repayment in these cases.  

 

Example 

Matt is a teacher providing maths tuition which is VAT exempt. He has had a lease on premises he teaches from, for many years. In addition to teaching Matt sells teaching aids and stationery to small local businesses and is VAT registered. As he provides both taxable and exempt supplies, he can only recover 5% of the VAT he incurs.  

 

Matt wishes to retire and has been looking to sell the lease. He does not exercise option to tax to start with because he does not know who will take the property.  

 

In the few years before he retired, he had incurred input tax on: 

  • surveyors' fees
  • rent
  • refurbishment

 

After Matt retires and moves out, he incurs VAT on the following costs: 

  • redecoration with a view to sale 
  • fees in connection with the sale 
  • rent 
  • abortive negotiations to surrender the lease 

 

Eventually, Matt finds a buyer and assigns the lease to a small firm of solicitors. They are fully taxable, so he opts to tax at the time of the sale. 

Matt can recover VAT on: 

  • surveyor's fees – if these were incurred purely with a view to dispose of the lease and are a cost of disposal 
  • rent – 5% per partial exemption as this related to his business at the time 
  • refurbishment – initially 5% per partial exemption if this refurbishment was linked to his teaching business at the time; further recoverability may depend on whether refurbishment qualifies as CGS.  
  • redecoration with a view to sale – option to tax makes the sale of the property a taxable supply, so VAT can be recovered as redecoration relates to the taxable sale 
  • fees in connection with the sale - option to tax makes the sale of the property a taxable supply, so VAT can be recovered as fees relate to the taxable sale 

 

What Matt cannot recover VAT on: 

  • rent since his retirement  
  • abortive negotiations to surrender the lease.  

 

More VAT could be recovered under the CGS if the project cost at least £250,000. If Matt incurred VAT of £30k five years ago, he will have recovered £1.5k of this at the time. On the sale, the CGS might allow him to recover another £13.5k (£30k x 5÷10) - £1.5k = £13.5k), subject to HMRC's agreement that the costs incurred qualify for CGS and their value is still reflected in the building. 

 

If the refurbishment cost less than £250,000, CGS does not apply and there is no basis for Matt to recover further VAT. 

 

Setting up a business in the UK by an overseas company

Why it is important to register with Companies House and HMRC.


Why it is important to register with Companies House and HMRC.

 

Companies House has recently highlighted the rules relating to overseas companies.  There are deadlines involved in the registration and it is important that directors and their agents understand the compliance requirements.

 

What is required?

If an overseas company wants to set up a place of business in the UK it must register with Companies House.  This includes a permanent place of business or if the company usually carries out business from somewhere in the UK.

 

Remember that:

  • some types of company can’t register as an overseas company in the UK, including partnerships and unincorporated bodies
  • overseas companies that are developing property or land in the UK may need to register for corporation tax (see below) but may not need to register with Companies House

 

How to register and deadlines

The company must fill in form OS IN01 and send it to Companies House within one month of opening for business. The company will need to provide various details on the form and include documents such as accounts etc. There is also a £20 fee payable.

 

On-going requirements after registration

The company must tell Companies House within 14 days if the company details change. This includes:

  • name
  • address
  • what the business does
  • details of directors, secretaries or people authorised to represent the company
  • company information, for example accounting requirements or the powers of directors or secretaries
  • company constitution (one of the documents made when you formed the company)

 

What about HMRC?

The general rule currently in operation is that a company which is not resident in the UK has to pay UK Corporation Tax only if:

  • it has a permanent establishment in the UK
  • the economic activity that generates its profits is carried out in the UK

 

The criteria above can be subjective:

A permanent establishment is deemed to be where a company has a presence in a country through which trade is carried out. There are two types of permanent establishment:

  • a fixed place of business
  • a dependent agent.

 

A fixed place of business is generally a building or a site which the non-resident’s personnel have at their disposal and use to carry out the non-resident’s business. An office, a factory or a shop, for example, can all be a fixed place of business.

 

A dependent agent is a person who is not independent of the non-resident company and regularly does business for the company, usually by concluding contracts on its behalf.

 

The location of economic activity is even harder to define. Many different elements contribute to a multinational’s economic activity, including sales, employees, technology, physical assets and intellectual property. However, simply having customers in the UK does not mean that a company is carrying out its economic activity here. This is because having UK customers is not the same as having a permanent establishment in the UK. There is a difference between a non-resident company that is trading from abroad with customers in the UK, and one that is actually trading in the UK.

 

Registering with HMRC

Where a foreign company’s UK activities are deemed to be taxable, it must register with HMRC. Remember that it will need to do this within three months of starting to do business.

 

It will then be subject to the normal rules of keeping appropriate accounting records and completing corporation tax returns.

 

Exchanging information on cyber attacks

Practices can now sign up to an information-sharing group tailored to the accountancy sector.


Practices can now sign up to an information-sharing group tailored to the accountancy sector.

 

Cyber Security Information Sharing Partnership (CiSP) is a joint industry and government initiative set up to exchange cyber threat information in real time, in a secure, confidential and dynamic environment, increasing situational awareness and reducing the impact on UK business.

 

The National Cyber Security Centre (NCSC) is responsible for making the UK the safest place to live and work online, and ACCA has joined NCSC to help our practices be more resilient in the face of cybercrime. You can now able to sign up to a new, private CiSP group tailored to the needs of the accountancy sector.

 

Why should you join CiSP?

  • to form part of your GDPR/Cyber/AML protection policies and procedures
  • early warning of cyber threats and advice on mitigations
  • wealth of cyber security expertise and guidance from both government and industry
  • the ability to learn from experiences, mistakes, successes of other users and seek advice
  • unique access to NCSC’s network abuse reporting service to help protect your corporate IT infrastructure.

 

CiSP offers principals within firms the opportunity to see the latest developments and to share information. The accountancy group is in its formative stage and practitioners will need to select the group when applying. There are CiSP membership guidelines, which state:

 

MEMBERSHIP

Any UK registered company or other legal entity which is responsible for the administration of an electronic communications network in the UK, a UK Crown Dependency, or a UK Overseas Territory and which has a sponsor is eligible to become a Member provided that it is able to confirm that it complies and is willing to continue to comply with clause 2.2.

2.2 Members must have appropriate measures in place to protect the confidentiality of any information received via the CiSP Collaboration Environment. 

2.3 Membership of the CiSP Collaboration Environment is exclusive to the legal entity to whom it is granted and does not extend to any related or associated company.   Companies that are a holding company or a subsidiary of a Member are required to apply for membership in their own right in order to participate in the CiSP Collaboration Environment.

 

When applying practitioners will confirm as part of their CiSP application that they are responsible for the protection of an electronic communications network in the UK. This for firms means that the person joining is responsible for the firm’s cyber security.

 

You must first register your firm, which requires a sponsor. ACCA’s nominated, named sponsor is Glenn Collins.

 

HMRC’s latest webinars

Recorded and live webinars from HMRC.


You can register and listen into HMRC webinars, both live and recorded on the following areas:

 

Recorded webinars

Company tax returns online, revisited: Get it right first time, avoiding common errors and answering some queries. Register and view

 

Making Tax Digital - a general update for agents preparing their clients: This webinar included how to sign up for the Agent Services and Income Tax Pilot, getting ready for the VAT Pilot later this year and more information about the questions we’ve been asked in previous webinars. Register and view

 

Corporation Tax loss reform: We covered the reform of Corporation Tax loss relief that applied from 1 April 2017. The focus was on the relaxation of relief for carried-forward losses, which can affect companies of any size. We talked about what companies can and can't do with carried-forward losses under the new rules, with some worked examples. Register and view

 

Negligible value claims and Share Loss Relief: Looking at certain conditions that must be met for your clients to claim that an asset has become of negligible value. Also an overview of share loss relief. Register and view

 

Business expenses for the self-employed: This webinar provided guidance on what is and isn’t classed as an allowable business expense and included motoring and premises costs. Register and view

 

Live webinars

Inheritance Tax (IHT), enveloped UK residential property and related finance: This webinar provides an overview of the changes made to the IHT treatment of foreign assets whose value is attributable to residential property. The changes apply from 6 A‌pr‌il 2017 and may restrict the availability of excluded property for non-domiciled individuals and trusts.

Mo‌nd‌ay 2‌5 J‌un‌e - midday to 1p‌m                            Register now

 

P11D Submission Overview: This webinar will give an overview of how to complete P11Ds, to ensure your clients employees are paying the right tax on benefits or expenses that have been provided.

We‌dn‌esd‌ay 2‌7 J‌un‌e - midday to 1p‌m                       Register now

 

Class 1A NICs Overview – Getting it right: This webinar will give an overview of how to complete P11D(b)s and what you can do to help HMRC process them in a timely manner.

Th‌ur‌sd‌ay 2‌8 J‌un‌e - midday to 1p‌m                           Register now

 

IPO - The Value Within: In this webinar we will cover how businesses can identify their intellectual property and talk through methods of valuation to help access finance.

Tu‌esd‌ay 3 J‌ul‌y - 1‌1am to midday                               Register now

 

Income from property - What’s New: In this webinar we will be looking at some of the recent changes to the taxation of property income that now apply to individual landlords. Including, the finance cost relief restriction and the 2017/18 cash basis rules for calculating profits of a rental business. 

We‌dn‌esd‌ay 4 J‌ul‌y - 1‌1am to 1‌2.1‌5p‌m                        Register now

We‌dn‌esd‌ay 4 J‌ul‌y - 1.3‌0p‌m to 2.45p‌m                      Register now

 

Companies House - Late Filing Penalties. How to avoid, how to appeal, how to pay: This webinar will cover the benefits of filing accounts on time, how to avoid being penalised, the consequences of filing late, and how to pay when penalties are levied.

Tu‌esd‌ay 1‌0 J‌ul‌y - 1‌1am to midday                          Register now      

 

Input Tax Recovery in relation to Option to Tax: This webinar will provide a general overview of how an Option to Tax can impact input tax recovery, dispelling some of the myths. We will cover belated notifications and your entitlement to claim input tax.

Th‌ur‌sd‌ay 1‌2 J‌ul‌y - 1‌1am to midday                       Register now 

 

NEWS
News and tools for you

Find out about free practical guidance on MTD implementation, updated model accounts, an extension to the deadline for entries to the British Accountancy Awards, further options for managing GDPR and how to find a continuity partner.


Free practical guidance on MTD implementation

 

Coming soon - updated model accounts

 

Accounting Excellence Talks - delivering better client service in the digital age

 

British Accountancy Awards 2018

 

GDPR – are you still considering your options? 

 

Are you willing to be a continuity partner?

 

 

Free practical guidance on MTD implementation

While the non-VAT parts are not mandated before 2020 at the earliest, it is clear that MTD will be mandated for VAT for those businesses with income above the VAT threshold from April 2019. The VAT Notice is expected before the next issue of In Practice. In the summer all agents will be able to:

  • Sign up an existingVAT client to submit VAT returns through MTD
  • Be authorised by a new VATclient (a digital64-8/OAA for MTD)
  • Client can digitally confirmauthorisation to MTD-VAT
  • Client can digitally de-authorise for MTD-VAT.

 

To assist you and your clients, ACCA has partnered with Bloomsbury Professional and will provide practitioners with free practical guidance on MTD VAT implementation. This will be available during the summer and we will highlight in future publications, on the website and in social media when this free member resource is available and how you can receive your member copy.

 

Coming soon – updated model accounts

ACCA is updating its successful and regularly requested free proforma model accounts.

 

The suite will shortly cover FRS102, FRS102 1a, FRS 105, Small Self-administered Pension Schemes, CIOs, Charity company accounts using FRS102, and LLPs using FRS102. They will be available to members on request, with details on how to obtain them highlighted in ACCA publications and on the website.

 

Accounting Excellence Talks - Delivering better client service in the digital age

Thursday 19 July, 11am

 

Providing exceptional client experience has always been a top priority for accountants. However, the digital age has brought new processes, techniques and tools, as well as increased rewards for those firms who get it right. How can you evolve your practice to make sure you retain your existing clients and attract new ones? This accountant-led webcast will give viewers unique insights into the behind-the-scenes work of cutting-edge firms that have successfully rolled out software and built new processes. The panel will also be giving practical tips on how technology can help you put excellent client service at the heart of everything you do.

 

Join us for this live, interactive online broadcast on 19 July at 11am.

 

Register here now for free

 

 

British Accountancy Awards 2018

The deadline for entries to the British Accountancy Awards 2018 has been extended to 28 June. Taking place on 26 September at Grosvenor House in London, the awards will welcome over 1,000 guests from across the UK and celebrate the very best of the practice sector. Here are five top reasons to enter:

 

1. Benchmark your firm across the industry
2. Increase your firms credibility and differentiate from your competitors
3. Boost staff morale and improve motivation
4. Attract new talent to help drive your business forward
5. Celebrate your team's hard work across the year with an unforgettable night at one of London's finest hotels.

 

View the categories and then download the Entry Pack

 

GDPR – are you still considering your options? 

Now that the Regulation has come into law, you can still take the necessary steps to ensure your practice complies. Last month we advised members that Bob Edwards FCCA, in conjunction with GDPR Auditing Ltd, had created a bespoke solution to GDPR compliance created specifically for UK tax and accounting professionals, and was offering a discounted option for ACCA members for a limited period.

 

Bob has agreed to extend the discount offer for a further month – find out more details of his solution. If you decide to buy the Workbook be sure to add the discount code [ACCA5P] to the order form.

 

If you would like to discuss your concerns about the GDPR, Bob has offered to speak with practitioners to share his experience of creating and utilising his solution for his own practice. You can call him on his mobile 07879 896073, or email bob@landmarkpd.co.uk.

 

 

Are you willing to be a continuity partner?

ACCA has a search tool to enable members in the UK and Ireland to find firms prepared to provide continuity of practice arrangements. 

 

The search tool is located in the Directory of Business Advisers section of ACCA’s website. At present we are focusing on building up a number of firms who are interested in participating.

 

To participate in the scheme and offer your firm as a potential continuity partner, your firm must contain at least one ACCA practising certificate holder. If you are willing to participate in the scheme please download this form, complete and return it to:

 

Authorisation, ACCA, 110 Queen Street, Glasgow G1 3BX
Email: authorisation@accaglobal.com

 

ACCA is unable to recommend specific firms and will not get involved in drawing up continuity of practice agreements, but guidance is available in this technical factsheet about continuity of practice arrangements, which also contains copies of ACCA's model agreements.

 

Members are strongly recommended to seek independent legal advice when drawing up a continuity agreement. The agreement will be legally enforceable upon the parties. It is, therefore, important that all parties are clear in their understanding of their responsibilities under the agreement, and that the document records accurately all matters agreed by the parties.

 

Further advice can be obtained from Technical Advisory on 020 7059 5920 or at advisory@accaglobal.com.