Online sales tax – would it work?

Recent reports suggest that Chancellor Rishi Sunak is considering introducing an online sales tax as a ‘sustainable and meaningful revenue source’, amid mounting concern about the collapse of the high street, as Britain recovers from the Covid-19 pandemic.

The Treasury has highlighted concerns from retailers that business rates place an unreasonable burden on the high street, as they effectively penalise businesses with physical premises because online rivals do not need to rent “high-value” properties. The Treasury has stated that the Covid crisis “has had a significant impact on how business is done” and that the government must act to make sure that “the tax system raises sufficient revenue” to help bricks and mortar retailers to compete.

There could be two models that the Govt is looking at: 1) a straightforward levy of around 2% on sales of online goods, which would raise around £2bn a year or 2) a mandatory charge on consumer deliveries which would form part of a campaign to cut congestion and toxic emissions.

Is the ‘high street’ model broken?

The online sales tax in the UK has largely been discussed in the context of ‘levelling the playing field’ between physical shops and online retailers, particularly with regards to business rates. However, within the Retail sector, it is not widely viewed as a viable solution as it is unlikely to directly benefit or impact on the costs borne by smaller and bricks and mortar retailers.  Business rates have, of course, been suspended in the short term and this has been widely welcomed but a longer-term solution to the issue still needs to be found.

If the sales tax is passed on to consumers, it remains questionable whether it has been set at a level which would override the benefits of shopping online, particularly the convenience aspect. The recent lock down has, through necessity, introduced online shopping to traditional high street shoppers and it is likely that many of these will continue to shop online in future, even if only to a limited degree.

If a key driver behind introducing an online sales tax is to persuade consumers to return to the high street, then conducting some form of analysis to confirm the effectiveness of such a tax would be required before going further.

Other factors to consider

If the EU’s proposed directive requiring online platforms to report the level of online sales (i.e. DAC 7) gets approval, the tax authorities will have more information on online sales, which could be an underlying driver for the tax, as there are likely to be online sales in territory  that are not currently taxed notwithstanding any  obligation to register for VAT.

There is a strong indication that the VAT registration threshold will be reduced in the years ahead which would bring the UK in line with most other countries. The Government has consulted with interested bodies to try to find a solution to the issues surrounding business rates, but no viable solution has been agreed. One alternative could be a 1% rise in the rate of VAT, the revenue from which could be directed towards a reduction in business rates.

It is also rumoured that the Government could be considering a capital values tax to replace business rates, based on the value of the land and buildings, and paid by the property owner. Were a capital values tax to be introduced, it seems likely that landlords would ultimately try to pass it on to the lessee either by increased rents or other charges.

Ultimately, the demise of the high street cannot be wholly blamed on the rise of online shopping. Consumer expectations of the ‘shopping experience’ have also changed and bricks and mortar retailers must be versatile and adaptable to ensure that they are able to move in line with consumer expectations.

Contact us

Please get in touch with David Hackett, Tax Director, if you need support, or alternatively contact us here.

This update originally appeared on the website of our colleagues at MHA MacIntyre Hudson

Capital Gains Tax – Are there clouds on the horizon?

It
was Harold Macmillan who, in 1957, came up with the phrase “most of our
people have never had it so good.” Whilst he was referring to the economy
generally, the sentiment is often applied by commentators to the capital tax
status of owner managed businesses and farms. When one compares the current
Inheritance Tax (IHT) regime to the somewhat punitive one of the early 1980’s
which older practitioners can still recall, the combination of 100% business
and agricultural reliefs, a single flat rate of tax, transferrable allowances
and potential exemption for lifetime transfers would have been a practitioner’s
dream 40 years ago. Sadly, these are now sometimes taken for granted, but with
the impact of the Covid support package looming over public finances it would
be a worthwhile exercise to dust off an old textbook by way of illustration.

What’s
the problem with Capital Gains Tax?

Whilst
the Treasury has hitherto shown limited enthusiasm for IHT reform, there is no
guarantee that this will still be the case post Covid. The position as regards
Capital Gains Tax (CGT) is possibly even more ominous. CGT has had a chequered
pathway over the decades, with rebasing points in 1965 and 1982, indexation
allowances given, enhanced, frozen and removed and rates varying between 10%
and 40%. Reliefs on retirement have been subject to change to an almost annual
basis. One could conclude that the Government have felt with CGT that the tax
has “never been quite right”.

Calls
for a CGT review

On
the back of all this the Office of Tax Simplification was, in July, instructed
to review the principles and practical operation of CGT. In the call for
evidence, it notes that the tax is a “modest source of revenue for the
Exchequer” and it asks for broad thought about current rules on allowances,
exemptions and reliefs, losses and interactions with other taxes. Without
drilling too far into the detail, it is easy to see that its findings might
include the boundaries between Income Tax and CGT, particularly where assets
are only held for a short time. They might also include the complexity of CGT
rates (almost infinite, given the interaction with income levels) and the
perceived anomaly where an asset is given a CGT uplift on death even if no IHT is
paid. Interestingly, no mention is made of the fact that most long-term capital
gains include a very substantial element of inflationary uplift.

What
next?

It
is of course possible that the findings of the OTS are that the tax is perfect,
and it is also possible that the Treasury will conclude that a new rebasing
date is long overdue or indeed that the exemptions should be increased or the
rates reduced. Given the long-term impact of the Covid support package on the
public finances, these outcomes seem improbable.

Currently,
it is often relatively quick and easy to transfer business assets and capital
gains can usually be held over. Whilst it may not be the case that “our people
have never had it so good” in this respect 100% CGT retirement relief
was rather useful, they certainly could have it considerably worse.

Commenting
on the issue, MHA agriculture partner Keith Porter remarked “We have
been sensing changes in the air regarding CGT for a while now. Everything
points towards an announcement this autumn, so those who have transactions
planned should really give some serious thought to putting them in hand sooner
rather than later.”

For further information please get in touch with a member of our Farming and Rural Business team here or email info@mooreandsmalley.co.uk

This update originally appeared on the website of our colleagues at MHA Monahans.

Stamp Duty Land Tax (SDLT) refunds – have you paid too much?

Have you recently bought a residential property for at least £300,000 with a subsidiary dwelling, such as an annex or granny flat? If so, you are likely to have overpaid SDLT due to a little known SDLT relief for such properties. The good news is that you have 12 months and 14 days from your purchase date (being the completion date) to apply for your refund e.g. for a purchase completing on 6 December 2019 you have until 20 December 2020 to claim your SDLT refund, which would normally be £10,000 for properties between £500,000 and £925,000 and much more for higher value properties.

For the purposes of this relief a “dwelling” means a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use. To be treated as separate dwellings for these purposes there must normally be separate access to the subsidiary dwelling.

It has been widely reported in the financial press recently that a high proportion of property buyers overpay SDLT due to this relief and other SDLT reliefs being overlooked.

We are specialists in this area and are happy to perform an obligation-free check to see if you are entitled to a significant SDLT refund on your property purchase if you paid at least £300,000 for it and it has at least one subsidiary dwelling with a separate entrance as described above.

Contact us

Please get in touch with David Bennett, Tax Partner if you need support, or alternatively contact us here.

This is based on an update which originally appeared on the website of our colleagues at MHA MacIntyre Hudson

What is a VAT Group?

It is a measure in which two or more entities form a VAT group and are treated as a single taxable person for VAT purposes.

Which entities can form a VAT group and what are the eligibility criteria?

The entities which can form a VAT group are:

  • A corporate body, which includes both a limited liability partnership (LLP) and a limited partnership (LP)
  • An individual
  • A partnership
  • A Scottish partnership

The eligibility criteria are:

  • Each entity is established or has a fixed establishment in the UK
  • For corporate bodies, they must be under common control, although not necessarily by another member of the VAT group
  • For individuals and partnerships, they must control all other members of the VAT group and must also be in business.

How does a VAT group work?

The group is registered for VAT in the name of the representative member (a nominated ‘lead’ entity) and a VAT number is issued to the VAT group. If any of the entities are currently registered for VAT, they will be deregistered and declare VAT through the VAT group. The ‘representative member’ will submit one VAT return on behalf of the group and account for any VAT due or receive repayment of any VAT from HMRC. Although the representative member submits the VAT return, all the entities within the VAT group are still jointly and severally liable for any VAT debts.

As the VAT group is treated as a single taxable person, any supplies between the VAT group entities are not a supply for VAT purposes and therefore no VAT is due on these transactions.

Before you go ahead

There are a number of points to consider before forming a VAT group:

  1. Any approvals or agreements reached with HMRC under the old VAT registration number(s) will end. You will need HMRC approval for them to apply to the VAT group. 
  2. You should review the mix of supplies which will take place within the VAT group. For example, if one of the entities makes exempt supplies, you may need a partial exemption calculation to cover the VAT group as a whole. These exempt supplies may affect the input tax that the whole VAT group can reclaim.  
  3. The VAT group will need to apply for a new EORI number for any imports and exports.
  4. A new VAT registration number will be required for the group. Although not necessarily a major issue, any stationery, letters, and similar correspondence that carry the original VAT numbers would need to be amended to reflect the new VAT registration number.
  5. HMRC thresholds do not change for VAT groups. For example, the voluntary disclosure limit remains £10,000 and the payments on account threshold of £2.3m net VAT per year will apply to the group.
  6. If the VAT group submits VAT returns or pays HMRC the VAT late, default surcharges may be due. The surcharge amounts will be calculated on the higher turnover of the VAT group, rather than the individual VAT registrations and therefore a higher amount will be due to HMRC.

Impact on VAT Cashflow

If you run businesses with different period ends, this will change when you form a VAT group. With a VAT group there will only be one period to consider.  This may affect VAT cash flows; if any businesses are currently in a typically VAT repayment position, by grouping these will be offset against others who may be regular VAT payers.  It may also be the case that inter-company charges create a positive cashflow benefit with the related VAT, so the overall impact of a single return for both/all companies should be considered fully ahead of any group application.  Depending on the size of the returns for each business this may still result in overall repayments for the group in each period and monthly group returns may be appropriate.

Contact us

Please get in touch with Jonathan Main, Indirect Tax Partner, if you need support, or alternatively contact us here.

VAT and import duty reliefs to help improve cash flow and working capital

Whilst businesses are looking to the future following the impact of the Covid-19 pandemic, it is vital that you manage your VAT obligations as efficiently as possible. We can help you do this and also improve your cash position at the same time.

There are several areas which can be assessed immediately in order to minimise business interruption and maximise your working capital:

Cash management and VAT

 

 

Time to pay

 

 

PPE VAT relief

 

 

VAT recovery and Covid 19 grant income

 

 

E-publications VAT relief

 

 

What happens to VAT on deposits?

 

 

Special considerations if you use the flat VAT scheme

 

 

What is a attraction?

 

 

Do I have to pass the 5% VAT cut onto my customers?

 

 

Prepare for a VAT Cut

 

 

Deferring import taxes

 

 

Contact Details

If you would like further information about the content in these factsheets then please contact Jonathan Main, Indirect Tax Partner on jonathan.main@mooreandsmalley.co.uk or 07760 166802.

HMRC Extends Deadline for Customs Training Grants

Businesses who will become involved in completing customs declarations, carrying out customs processes such as importing and exporting and/or helping other businesses with import and export processes can apply for grants now with HMRC funding up to £2,250 per employee that undertakes the training.

The three HMRC grants available are:

Training Grant

The training must give your employees the skills to complete customs declarations and carry out customs processes. The funding can be used to arrange internal training.

The cap per trainee per training course is £1500 if run by an external training provider and £250 if arranged internally. The training does not have to lead to a formal qualification.

IT Improvements Grant

IT improvement funding provides funding of the costs related to IT expenditure related to improving the efficiency of making customs declarations. The application will request details of the software intending to purchase.  

Recruitment Grant

The grant will give you £3000 towards recruitment costs for each new employee hired to complete customs declarations and/or manage customs processes and use customs software and systems.

Action required – apply now

Applications are submitted to PWC, who administer the scheme on behalf of HMRC.

Be aware that applications will close on 31 January 2021, or earlier if funding is fully allocated. Currently there is approximately £7m remaining but this is being allocated quickly, so we recommend that action is taken soon.

Contact us

Please get in touch with Jonathan Main, Indirect Tax Partner, if you need support, or alternatively contact us here.

For further details of other Government support packages please click here.

If anything should happen to me….

The phrase “if anything should happen to me…” is a very common euphemism. Frankly, the first word should be “when” not “if”.

COVID 19 has concentrated the minds of many on their own mortality, and may be a timely reminder that Will planning is really something which, by definition, cannot be put off forever. Surveys indicate that less than half of those in the UK have written Wills and even for those over 55 the figure is only around 75%. For various reasons (superstition, indecision, cost or simply a preference for displacement activity) many people are still often reluctant to deal with this issue.

It is
perhaps instructive to remind ourselves of the recent revisions to the
Intestacy Provisions. For intestate estates deaths after 6th
February 2020 they are as follows:

  • A surviving spouse or civil partner takes the
    first £270,000 and all personal possessions
  • A surviving spouse also takes half of the
    remainder
  • The residue is then shared between surviving
    children (on attaining the age of 18)
  • In certain circumstances grandchildren,
    siblings, parents and remoter relations may inherit
  • Ultimately if there are no living relatives,
    the estate will go to the Crown
  • Spouses who are separated but not divorced will
    be entitled to inherit as above, but cohabitees have no such right of inheritance
  • Jointly owned property will normally pass by
    survivorship, outside the scope of these rules

Whilst
the intestacy rules may work for very simple estates, they will rarely fit into
a farming estate, much less into today’s world of second and third marriages,
cohabitation, estranged relatives and step children, nor will they adequately
cover practical issues where children are involved. Aside from the separate
issue of guardianship, children will inherit under the intestacy provisions at
the age of 18. At this age not everyone has the judgement or experience to
handle substantial sums as soon as they leave school, and the attractions of
fast cars and slow racehorses present themselves. Writing a Will with
independent trustees, and perhaps guidance on releasing capital over a longer
period may prove a wiser course of action in the long run.

The phrase “Making a Will won’t kill you” has stood the test of time. For those with no Will, or indeed those whose Wills have not recently been reviewed, the gradual ending of Covid-19 lockdown might prove the perfect opportunity to rectify the position, and to take professional guidance, not only on the practical issues but also on the Inheritance Tax (IHT) implications. An appropriately crafted Will should fit in with a business and/or financial strategy, minimise or defer IHT and avoid unexpected consequences for those left behind.

For further information please contact our financial planning team or please email us at info@mooreandsmalley.co.uk.

Review of Capital Gains Tax – what it means for small businesses and individuals

The Government announced on 14 July 2020 that Capital Gains Tax, as it applies to individuals and small businesses was to be reviewed by the Office of Tax Simplification.

The backdrop to this is, of course, the Covid-19 pandemic and public spending that this has caused in seeking to keep the UK economy on life support.

The perceived issue and problem for the Government is that public spending must be paid for, yet in the current environment, tax rises are particularly difficult: most taxing decisions have impact on the behaviour of taxpayers.

In some cases, tax raises are designed to seek to create behavioural changes, such as for example increasing duties on tobacco or alcohol, so called sin taxes, yet increases in the major raisers of revenue for HM Treasury: Income Tax (forecast at £208bn), VAT (forecast at £161bn) and National Insurance (forecast at £150bn) all would impact on aspects of the economy that are febrile: the economic impact of the coronavirus has been to impact on demand and supply within the economy, together with a significant risk of high levels of unemployment as the Government’s employment and business support packages are phased out.

This leaves the Government scrabbling for other sources from which revenue may be raised, without impacting the elements of the economy that need protecting. Further, taxation is, of course, a deeply political matter and any Government will be concerned to ensure that whatever is done from a taxation viewpoint does not alienate voters that are within its potential grasp.

There are, however, two competing points regarding the politics of tax rises: on the one hand, we are still early in the current parliamentary term and generally Government behaviour is to raise taxes in the early years and announce give-aways as one approaches an election, but on the other, the current Government will be looking over its shoulder at the possible re-emergence of what might be perceived by voters to be a credible Labour party. This, it is suggested is the context in which Capital Gains Tax and capital taxation generally is being looked at.

CGT has always been a political football but equally, quite unimportant in terms of the revenue that it raises: £8.8bn was raised in the 2017/18 tax year (Inheritance tax only raised £5.228bn for that year). When taxes are changed, there is a tendency for Governments to adopt a ‘back to the future’  mentality and therefore it is perhaps worth seeing where we have come from in order to predict what might come to pass.

For a number of years, until 1988, CGT had been charged at a flat rate of 30%. From 1988 until 2008, gains were taxed at income tax rates, but with taper relief reducing the gain between 1998 and 2008. In 2008, a flat rate of 18% was introduced. This was then again changed from 2010 so that gains were generally taxed at 18% for basic rate income taxpayers and 28% for higher rate taxpayers. This was then reduced from 2016 for non-residential property gains to 20% or 10% for basic rate taxpayers, the system we have to this day.  

Yet the tax base for both CGT and IHT is very small. Fewer than 300,000 people paid CGT in 2017/18. For IHT, the base is smaller still: for 2016/17, there were only about 28,000 deaths on which IHT was paid (4.6% of deaths for the year). Increases in tax rates for CGT and IHT will not increase the tax base and generally, the way in which significant revenue increases are achieved is widening the base rather than increasing the rate.  

For the reasons set out above, whilst the ambit of the instruction to the OTS is to review of Capital Gains Tax and aspects of the taxation of chargeable gains, there is every reason to believe that CGT will be looked at (together with IHT) from a viewpoint of widening the base so as to increase revenue.

It would be entirely unsurprising for some sacred cows to be slaughtered to achieve this, for example, the tax breaks provided in respect of your main residence, tax breaks for ISA’s etc. From an IHT viewpoint, the reliefs that are provided in relation to business and agricultural assets must be potentially within the Government’s sights together with how capital taxes interact, for example, the CGT uplift of assets to their market value at death, even where there is no IHT payable must be called into question.

The taxation holy grail of any chancellor faced with the need to raise taxes in current circumstances must be to raise taxes without impacting employment and with minimal impact on the supply and demand aspects of the economy. The “simplification” of capital taxes linked to a broadened tax base will surely be too tempting.

We are left in the situation where a budget is expected in November. This might be too early for major reforms, however, for those looking for certainty there is a certain attraction to act now to “bank” the current system, by acting now where there is every reason to believe that capital taxation will not be getting better any time soon.  

Find out more

To discuss how this Capital Gains Tax review may affect your current or future plans, please get in contact with David Bennett.

This update originally appeared on the website of our colleagues at MHA MacIntyre Hudson

VAT Deferment – What do businesses need to do now it has come to an end?

Background

The Government allowed businesses to defer VAT payments due to HMRC in the period 20 March until 30 June 2020. For businesses to take advantage of the deferment, the direct debit used to make VAT payments to HMRC had to be cancelled. The VAT payments deferral scheme ended on 30 June 2020.

After the deferment

Businesses should ensure:

  • The cancelled direct debit is set up with enough time for HMRC to take any payment due on the next VAT return. The direct debit also allows HMRC to pay any repayment direct to the bank account.
  • VAT returns are submitted on time.
  • Pay any VAT due to HMRC after 30 June in full.

Payments can be made towards the deferred VAT at any point and must be paid in full before 31 March 2021.

Time to Pay

If you need any help to pay your VAT, you can discuss your tax affairs with HMRC’s Time To Pay service. Further information regarding this service can be seen in our Covid-19 Time to pay blog here.

Contact us

For more information in regards to what is discussed in this article, please get in touch with our Indirect Tax partner Jonathan Main on 01772 821 021 or jonathan.main@mooreandsmalley.co.uk

VAT Hub

Additionally for further related VAT news, please visit our VAT Hub here.