Criminal Finances Act

The Criminal Finances Act 2017 took effect on 30 September 2017. It makes companies and partnerships, a ‘relevant body’, criminally liable if they fail to prevent the facilitation of tax evasion being carried out by an employee, anyone acting on their behalf or someone acting as an agent. If found guilty, the business could face unlimited fines and potentially further consequential sanctions within their industry or profession.

This Act has the effect of creating an offence at corporate and partnership level which does not require the directors/partners to have had any knowledge of the offence in question. Broadly, the offence is the failure to prevent the crimes of those who act for or on behalf of the corporate body or partnership instead of the need to attribute criminal acts to that body.

For a firm to be criminally liable under the new Act, there are three elements of the offence:

There must be the execution of a criminal act of tax evasion.
The crime must have been facilitated or carried out by a person associated with a relevant body.
The relevant body failed to initiate adequate prevention procedures in relation to the act carried out by the associated person.

A defence is available when it can be shown that ‘reasonable prevention procedures’ were in place to prevent the associated person from committing or facilitating the crime; or that it would have been unreasonable or disproportionate to expect such procedures to be in place.

The government advises that any reasonable prevention procedures should be based on six guiding principles:

Risk assessment – the relevant body should assess the nature and extent of its exposure to the risk of an associated person committing a criminal act;
Proportionality – the procedures should take into account the nature, scale and complexity of the relevant body’s activities;
Top level commitment – the management of the relevant body should be committed to preventing illegal acts and should foster a culture that tax evasion and its facilitation is never acceptable;
Due Diligence – with appropriate procedures put in place with respect to all people who perform services for the relevant body;
Communication – training staff and ensuring the message effectively gets across to all employees and agents;
Monitoring and reviewing – ensuring that whatever procedures are put into place are regularly reviewed and updated and amended where necessary.

Please contact us if you require further information on this issue.

Internet link: GOV.UK Tackling tax evasion corporate-offence

New timetable for Making Tax Digital

The government has announced a revised timetable for the introduction of Making Tax Digital for Business (MTDfB).

MTDfB introduces extensive changes to how taxpayers record and report income to HMRC. Unincorporated businesses, including landlords, were expected to be the first to see significant changes in the recording and submission of business transactions but the government has announced a delay to the implementation of the new rules and some exceptions for smaller businesses.

The government had decided how the general principles of MTDfB will operate after receiving responses to their original ideas first published in August 2016. Some legislation was published in Finance Bill 2017 but this was removed due to the General Election.

Under MTDfB, businesses will be required to:

maintain their records digitally, through software or apps
report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
submit an ‘End of Year’ statement through their DTAs.

The new timetable is being introduced following concerns raised by the Treasury Select Committee, businesses and professional bodies about the implementation of the new rules and to hopefully ensure a smooth transition to a digital tax system.

Mel Stride, Financial Secretary to the Treasury and Paymaster General said:

‘Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.

We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.’

The government has confirmed that under the new timetable:

only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
they will only need to do so from 2019
businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.

This means that businesses and landlords with a turnover below the VAT threshold will not have to move to the new digital system.

Ministers have also confirmed that the Finance Bill will be introduced as soon as possible after the summer recess and that all policies originally announced to start from April 2017 will be effective from that date.

The government has also confirmed that the proposed changes to VAT reporting will come into effect from April 2019. From that date, businesses trading above the VAT threshold will have to provide their VAT information to HMRC through Making Tax Digital software.

Internet link: GOV news

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 June 2017. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 June 2017 are:

Engine size	Petrol
1400cc or less	11p
1401cc – 2000cc	14p
Over 2000cc	21p
Engine size	LPG
1400cc or less	7p
1401cc – 2000cc	9p
Over 2000cc	14p
Engine size	Diesel
1600cc or less	9p
1601cc – 2000cc	11p
Over 2000cc	13p

The guidance states that the rates only apply when you either:

reimburse employees for business travel in their company cars
require employees to repay the cost of fuel used for private travel

You must not use these rates in any other circumstances.

If you would like to discuss your car policy, please contact us.

Internet link: GOV.UK AFR

Tax cheats – HMRC’s criminal case highlights of 2016

HMRC have revealed their top ten most significant fraud and organised crime cases of the last year.

Simon York, Director of HMRC’s Fraud Investigation Service, said:

‘Day in, day out, HMRC is coming down hard on tax cheats. As these cases show, we’ll tackle anyone committing tax fraud, regardless of how well resourced, well advised, or well organised. These ten prosecutions are among the most significant cases we’ve handled this year, and they reflect the wide range of work carried out by HMRC.’

Internet link: GOV.UK news

Landlords to receive less tax relief on interest

In a change that will impact residential landlords, the amount of income tax relief available on residential property finance costs will be restricted to the basic rate of income tax. This change will mean that landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

The restriction in the relief will be phased in over a four year period as follows:

in 2017/18, the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction;
in 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction;
in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction;
from 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

These rules do not apply to residential properties held in companies.

In addition rules may further restrict the relief which is due where the individual’s property income or total income is less than the amount on which basic rate relief is due. The computation is complex so please do get in touch if you would like us to review your position.

Internet link: GOV.UK guidance

Making Tax Digital

The government published their responses to the six consultations on making tax digital (MTD).

In response to the consultations the government have decided the following:

businesses will be able to continue to use spreadsheets for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of Making Tax Digital for Business (MTDfB). This is likely to involve combining the spreadsheet with software
businesses eligible for three line accounts will be able to submit a quarterly update with only three lines of data (income, expenses and profit)
free software will be available to businesses with the most straightforward affairs
the requirement to keep digital records does not mean that you have to make and store invoices and receipts digitally
activity at the end of the year must be concluded and sent either by ten months after the last day of the period of account or 31 January, whichever of these is soonest
charities (but not their trading subsidiaries) will not need to keep digital records
for partnerships with a turnover above £10 million, MTDfB is deferred until 2020 due to the complexity of their tax affairs.

The MTD consultations also specifically explored the appropriate level of the initial exemption and deferral for the self-employed, landlords and businesses. Given the range of views expressed on this matter from respondents to the consultation, the government has decided to take more time to consider these issues alongside the fiscal impacts. Final decisions will be made before the law is finalised later this year.

In addition, HMRC will begin piloting digital record keeping and quarterly updates for a full year from April 2017, building up to working with hundreds of thousands of businesses and landlords before rolling the services out more widely. The stated aim of this pilot is to ensure the software is user-friendly and give individuals and businesses time to prepare and adapt. Piloting of the system had been recommended by the Treasury Select Committee.

Select Committee’s findings

The Treasury Select Committee has urged HMRC to implement a series of wide-ranging pilots in order to better test the government’s plans for the new digital tax initiative, Making Tax Digital (MTD), before it becomes compulsory for the majority of taxpayers.

The report found that, while the government had already carried out trials of the new initiative, those businesses which took part had done so at HMRC’s invitation.

The Committee stated that comprehensive pilots of MTD are ‘essential’, and that these need to be designed to collect information over the entire reporting cycle.

It also suggested that an evaluation of these pilots should be carried out before the full implementation of the scheme which is expected, for all but the smallest businesses to be implemented from April 2018 onwards.

Andrew Tyrie MP, Chairman of the Committee, said:

‘Without sufficient care, MTD could be a disaster. Implemented carefully, with long transitional arrangements where necessary, and, having drawn on information from fully inclusive pilots, MTD could be designed for the benefit both of the economy and of the tax yield. But with a rushed introduction, it will benefit neither.’

MTDfB will still be phased in from April 2018. We will keep you informed of developments.

Internet links: Parliament MTD GOV.UK MTD responses Consultations

VAT claim on company cars allowed

HMRC recently lost a first tier tribunal case on the recovery of VAT on the purchase of six cars.

Although most VAT registered businesses are able to recover the VAT on the purchase of commercial vehicles the rules for the recovery on a car state two conditions must be met:

the vehicle must be used exclusively for business purposes and
it is not made available for private use.

In the case of Zone Contractors Ltd the court accepted that six cars were not available for private use which allowed the business to successfully recover the VAT on the six cars.

The business had a strongly worded contract of employment that prevented employees from using company cars for private travel. This was the crucial factor in this case and allowed the business to recover over £27,000 in input VAT on the purchase of six new cars.

The tribunal was satisfied that the cars were wholly used for business purposes and were not available for private use. The tribunal also rejected HMRC’s argument that the company had failed to demonstrate that the cars were not available for private use.

Other factors which were relevant:

The Tribunal was satisfied that all employees signed a contract when they first joined the company, which included the following ‘It is hereby strictly forbidden for the Employee to use the Company vehicle for any personal use inside/outside their employment hours’.
The six cars were always kept overnight at the company’s offices or were left on site.
Zone Contractors carry out groundwork projects and the vehicles were appropriate for for site based work.
The taxpayer also successfully counteracted HMRC’s argument that the insurance cover of the vehicles included use for ‘social, domestic and pleasure’ (SDP), and was not just restricted to business use. But the tribunal accepted it was impossible to have a business only policy without the SDP clause.
HMRC also put forward an argument that private use of a car would include detours to buy ‘cigarettes or lunch while out on a business journey or even going off site to collect lunch’. The tribunal concluded that such use could be ignored as de minimis.
The intended use of the car at the time it is purchased is crucial. The private use issue means that either a legal restriction to prevent such use or a physical restriction must be in place.
HMRC may appeal against the decision.
Internet link: Tribunal decision

VAT fuel scale charges

HMRC have issued details of the updated VAT fuel scale charges which apply from the beginning of the next prescribed VAT accounting period starting on or after 1 May 2016.

VAT registered businesses use the fuel scale charges to account for VAT on private use of road fuel purchased by the business.

Please do get in touch for further advice this or other VAT matters.

Internet link: Gov.uk Fuel scale charges

Farmers’ averaging

Changes have been made to the rules which allow farmers to average their profits for tax purposes. Under the new rules unincorporated farmers will be able to average their profits for income tax purposes over five years rather than the previous two years.

The amendment to the rules which took effect from 6 April 2016 is aimed at helping farmers with fluctuating profits better manage the ‘risk and the impact of global volatility which has become an inherent feature of the agricultural industry’.

Chancellor George Osborne said:

‘… reforms will provide farmers with additional security to plan and invest for the future, allowing them to spread profits over a longer period of time. Over 29,000 farmers can benefit from the changes, saving an average of £950 a year.’

As well as having the new option to average tax over five years, farmers will also retain the choice to average profits over two years.

If you would like guidance on how these rules will affect you please get in touch.

Internet link: Gov.uk publications

Parking fines ruled not deductible

Business tax news

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