NEW HMRC APPROACH TO BUSINESS RECORDS CHECK (BRCs)

The BRC programme involves on-site visits to encourage taxpayers to keep better records, and to keep up to date. The checks help and encourage SMEs, say HMRC, to improve the standard of records they keep and consequently help them to send correct returns to HMRC.

A new approach in specified geographical areas reflects the fact that taxpayers whose records were not adequate on first inspection, and who received follow up visits, all improved their record-keeping standard.

HMRC have not had to charge any penalties – that’s an encouraging admission on its own!

HMRC’s BRC activity in the Edinburgh, Glasgow, Leeds, Bradford and Stockport areas will explore new ways of using the checks. As part of this, HMRC will evaluate new risk processes and ensure new approaches are cost-effective and fit with its wider compliance activity.

Originally the BRC initiative was expected to raise £600million in extra tax. That was dramatically downgraded to £62million in February 2012. The new approach emphasises the educational aspect and reflects the fact that HMRC found that most businesses do keep adequate records. Whether they expect to collect extra tax now from BRCs has to be open to doubt!

DATA ON COMPANY CARS

If a car is provided by reason of an employment and is available for private use, there is ordinarily an income tax charge on an amount which is calculated as a variable percentage of the original list price, the variation depending on the level of the car’s CO2 emissions.

Not surprisingly, company cars are not as popular as they used to be, due to a combination of cost, depreciation and the tax charge. Nevertheless they account for about 50% of all taxable benefits.

Other interesting data includes the fact that there are 30 million cars in the UK, of which 1 million are company cars. Of the company cars, 250,000 involve some private use fuel being provided despite the high tax charge. This is clearly a concern and means that anyone who is provided with some private use fuel for their company car needs to review the position as the chances are that they are paying tax on far more than the benefit is really worth and they would be better off to replace the fuel with extra pay.

AMORTISATION OF GOODWILL

If you buy the goodwill of a business you will often be able to claim corporation tax relief on the amount of the purchase price which is amortised in the accounts.

The question then is at what rate can goodwill be amortised? There are new developments on this. In the USA there is a statutory deduction of 20% per annum over 5 years, but it is now understood that ordinarily HMRC will accept amortisation over 3 years, based on 1/3rd of the cost being claimed each year.

A new FRS 102 may be adopted for accounting periods beginning on or after 1 January 2015, but with the right to apply it earlier to accounting periods ending on or after 31 December 2012. FRS 102 requires amortisation over the expected useful economic life, but if the entity is unable to make a reliable estimate of what the useful life is, it must not exceed 5 years. Accordingly, amortising over 3 years may still be acceptable.

 

THE EMPLOYER’S £2,000 NIC ALLOWANCE

This valuable allowance is due to start for all businesses on 6 April 2014, and simply exempts the employer from the normal employer NICs of 13.8% of the earnings paid.

The mechanics are that the allowance will be obtained via standard payroll software and HMRC’s RTI system. A facility will be added to the RTI Employer Payment Summary referring to the allowance in the form of a “yes/no” indicator, with payroll software providers doing the same. The employer then offsets the allowance against each monthly Class 1 secondary NICs payment until fully claimed or the tax year ends. For the following tax year the allowance is available against NICs as the liability arises during the year.

For a small company rewarding working shareholders by way of dividends, the current thinking is that from 6 April 2014 it will usually be best to receive remuneration of £10,000 per annum instead of limiting it to the NIC secondary threshold of (currently) £7,696 as is normally done. This is because earnings of £10,000 will fully utilise the new level of personal allowance, whereas dividends effectively waste the allowance. We will do the calculations for you, to reflect your own circumstances.

 

TAX DIARY OF MAIN EVENTS

 

Date

What’s Due

19 December PAYE & NIC deductions, and CIS return and tax, for month to 5/12/13 (due 22 December if you pay electronically)
1 January Corporation tax for year to 31/3/13
19 January PAYE & NIC deductions, and CIS return and tax, for month to 5/1/14 (due 22 January if you pay electronically)
31 January Deadline to file 2013 SA tax return online
31 January Income tax balancing payment for 2012/13, plus CGT for 2012/13
31 January Income tax 1st payment on account for 2013/14

 

IHT BUSINESS PROPERTY RELIEF ON FURNISHED HOLIDAY LETTINGS

IHT business property relief is extremely valuable, as on your death it effectively eliminates inheritance tax on the value of the property. The problem is that, following recent case law, HMRC are likely to resist any claims on the grounds that the activity of letting properties is nothing more than an investment, even where the people using your property are holiday makers.

The only hope is to ensure that plenty of additional services are provided which would not be provided if it was an ordinary property let. They could include:

  • providing breakfast (likely to be sufficient to qualify on its own, but may well not be feasible)
  • taking the holiday makers on trips to local attractions during their stay
  • on-site help

If you own furnished holiday lets, or are considering a purchase, we can advise on the scope for obtaining BPR, where careful forward planning is essential.