Yet another attack on the use of LLPs concerns the employment status of certain members. Up until 6 April 2014 a member of a LLP was always treated as self-employed for tax purposes, however some members may now be treated as employees.
This proposal was also consulted on last summer but legislation in the latest Finance Bill goes much further than what was originally proposed. Where the following conditions are satisfied the member is now treated as an employee:
A) His or her profit share is essentially fixed or less than 20% is based on the profitability of the LLP as a whole
B) He or she does not have a significant influence over the running of the LLP
C) His or her capital contribution is less than 25% of the “disguised remuneration”.
Condition A could catch a member whose profit share is based on his personal performance or the profits of a department or office, not the firm as a whole. Condition B may catch members of larger LLP’s where the firm is effectively run by a separate management committee.
If the member is caught by Conditions A and B and is being allocated a profit share of £100,000 then they would need to contribute at least £25,000 in members capital and long term loans to the LLP otherwise they would need to go on the payroll.
It’s not all doom and gloom this month! As you may be aware motor cars used in a business that emit no more than 95g CO2 per kilometre qualify for a 100% capital allowance. This threshold reduced from 110g back in April 2013 and there are now fewer cars that qualify for this generous tax relief.
However, if your business can afford one, the new Porsche Panamera S E-Hybrid with CO2 emissions of just 71g/km does qualify! The car has a top speed of 167 mph, develops 328 bhp with its 2.3 litre V6 petrol engine and a decent 95 bhp with its electric motor. List price? £88,967, however the Road Tax (Vehicle Excise Duty) is £0.
The 100% write off is available where the car is used by directors or employees but for sole traders and partners the relief is restricted by any private use proportion.
There have been a number of high-profile celebrities who have been involved in tax avoidance schemes that have been successfully challenged by HMRC in the courts. This seems to be a deliberate ploy by HMRC to give their current stance on tax avoidance greater exposure in the press, to put off other taxpayers who are considering using tax avoidance schemes.
Controversial new legislation in the latest Finance Bill will require “followers” of schemes that have been successfully challenged by HMRC to amend their tax returns in the light of the court’s ruling, even though that decision may be subsequently overturned on appeal. Taxpayers will be issued with a “follower notice” instructing them to amend their tax return in line with the court ruling, and will be faced with a penalty if they ignore the notice. Furthermore, the tax in question will need to paid in full pending the outcome of any appeal.
In addition to the benefit in kind charged on directors and employees who are provided with a car for private use, there is a further taxable benefit should their petrol or diesel be paid for in respect of private journeys. Like the car benefit, the fuel scale charge is based on the official CO2 emissions percentage for that vehicle, multiplied by a notional list price of £21,100 for 2013/14 and £21,700 for 2014/15.
The P11d benefit for 2013/14 for a director driving a diesel car with emissions of 125g/km would be 20% (17% plus 3% for diesel) multiplied by £21,100, regardless of the actual list price of the vehicle = £4,220. This benefit in kind applies unless there is full reimbursement of private fuel, generally by the end of the tax year. HMRC suggest that their advisory fuel rates, now published every 3 months, should be used for this purpose.
A higher rate taxpayer would pay £1,688 income tax (at 40%) on this benefit, and using a reimbursement rate of 14p per mile would need to drive 12,057 miles to make paid-for private fuel beneficial. The employer would also have to pay Class 1A national insurance at 13.8% on the £4,220. There are also VAT implications.
Another controversial measure is being proposed by the Government to give HMRC the power to recover unpaid tax over £1,000 from taxpayers’ private bank accounts. We are told that this new power will only be used where the taxpayer has ignored several demands for payment and the taxpayer’s bank account should not be reduced below £5,000 by HMRC. It would appear that this proposed new power will extend to joint bank accounts in the tax debtor’s name.
We are so accustomed to rising motor taxes that it was a nice surprise to see the VAT fuel scale charges (in respect of petrol and diesel supplied for private motoring) decrease for return periods. This reduction is to commence on or after 1 May 2014 and follows the recent reductions in the price of petrol and diesel.
The new quarterly charges range from £156 a quarter (inclusive of £26 output tax) for a car emitting 120g per km or less to £548 (£91.33 output VAT) for cars emitting 225g/km CO2.
Remember that unless the director / employee fully reimburses the employer for private fuel, the appropriate amount for the company car should be shown as output tax for the return period. A credit entry made to motor expenses should be made in the business accounts.
If you identify an error in an earlier VAT return, you can correct it by including the net effect in the latest return, providing that the error is no more than the greater of £10,000 and 1% of the Box 6 figure (total sales ex. VAT) on your VAT return for the period that you discover the error, subject to an upper limit of £50,000. Your VAT workings to correct the error should of course be retained. To avoid a penalty, you also need to report certain errors to the VAT Error Correction Team using form VAT 652. We can assist you with this if necessary.
Finance Act 2012 introduced a 15 per cent rate of SDLT on the acquisition by certain non-natural persons (broadly companies) of dwellings costing more than £2 million. Finance Bill 2014 reduced this threshold to £500,000. The previous £2 million threshold will continue to apply, subject to exceptions, where contracts were entered into before 20 March 2014.
Acquisitions by trustees or for the purposes of letting, trading or redevelopment, trades involving making a dwelling available to the public, providing dwellings for occupation by certain employees or use as a farmhouse are excluded from the higher rate charge.