Download Report

Rural
Private
Business
Client
November 2014
December
2013
In this issue
Charity
Employee
accounts
accommodation
are changing
The
– page
OTS2 has issued its final report
following a review of employee benefits
and expenses – page 1
digital
Taxinggiving
matters
Louise
– page Speke
4
of the CLA talks to
us about the key issues facing CLA
members – page 2
The Renewable
Heat
Incentive
VAT
and Christmas
mailings
Both
individual
households and
– page
6
commercial property can benefit from
RHI schemes – page 4
Rural Business
Editor’s comment
Welcome to the December 2014 issue of Rural Business.
The Office of Tax Simplification has highlighted issues in relation to living
accommodation and its recommendation, if implemented, will have serious
implications for those in the rural community. We highlight those issues and also the
window of opportunity to perhaps improve the situation before any changes occur.
We are delighted that Louise Speke from the CLA has kindly agreed to be interviewed
for this issue of Rural Business and her article highlights the issues that CLA members
and others in the rural economy face.
VAT can be a real burden to landowners and we feature two articles that provide
guidance on how the burden might be reduced.
The implications of restrictions for income tax losses for individuals in business
continues to tax all of us. We use our fictional family, the Summerton-Winters to
illustrate the issues and also highlight a couple of recent tax cases which will apply to
rural businesses.
With the Renewable Heat Incentive scheme now available to domestic properties, we
examine the difference between the Non-Domestic and Domestic schemes and also
illustrate some of the complications with properties that have a mixed use.
Finally, our news in brief rounds up on other topical matters.
I hope you find this issue both interesting and informative. Please do not hesitate
to contact me or your usual Saffery Champness partner if you would like more
information on any of the topics featured here.
Mike Harrison
Simplifying the tax treatment of
employee accommodation Page 1
Taxing matters: an interview with Louise
Speke of the CLA Page 2
RHI schemes: Domestic or Non-Domestic
Page 4
Revisiting the option to tax
Page 5
Dealing with business losses: sideways
loss relief Page 6
Serving two masters: joint employment
contracts Page 8
In brief
Page 9
December 2014
Simplifying the tax treatment of
employee accommodation
The Office of Tax Simplification (OTS) has issued its final report following a
review of employee benefits and expenses. Of particular interest to many rural
businesses and estates are the views on employee living accommodation.
The OTS identified a number of problems,
including: the definition of living
accommodation; difficulties in applying
exemptions; and inconsistencies and
unfairness in the rules that have not kept pace
with changes in working practices.
Recommendations
In broad terms, the OTS considers that
amendments to the legislation and
exemptions from a tax charge should
distinguish between what is really “perk”
accommodation (and hence taxable) from
situations where accommodation needs
to be provided for the employee to get
the job done. It recommends the following
assessment criteria:
yy Whether the employee is required to live
in accommodation to enable him/her to
protect buildings, people or assets;
yy Whether the employee is regularly
required to work outside normal working
hours; and
yy Whether he/she is required to live in the
accommodation as a result of regulatory
requirements.
Further recommendations include:
yy Introducing the use of open market
rental value with a valuation, say, every
five years where the provision is classed
as a taxable perk. Employees in this
position could incur a significant income
tax liability, particularly where, under the
current rules, the property occupied has
a relatively low gross rateable value (for
properties costing under £75,000, the
tax charge is based on the gross rateable
value, which is usually only a few hundred
pounds).
yy The most basic accommodation, such as
board and lodgings, being taken out of the
tax charge entirely.
yy Where the accommodation is tax exempt,
all ancillary services, such as light, heat,
repairs etc (excluding council tax, water
and sewage), would also be exempt.
policy decisions. Given that we are facing a
general election in 2015, these are decisions
that we can expect to be addressed by the
next government.
As and when new legislation is introduced,
the OTS recommends that transitional
provisions are considered to protect
disadvantaged employees.
What should employers do?
Employers may wish to consider assessing
the living accommodation that they currently
provide against the OTS’ proposed criteria
for exemption to see how they and their
employees might be affected.
It may also be appropriate to consider
building relevant clauses into employment
contracts and to start communicating with
employees who might be affected, so that any
potential future impact on their tax liabilities
does not come as a shock.
What happens next?
We are unlikely to see any immediate changes
to the legislation as the proposals require
One of the recommended changes is to
drop the “customary” test for exemption,
which would include many farm and estate
employees. The OTS concludes that this
is out of date and subject to inconsistent
interpretation by HM Revenue & Customs
(HMRC). In the meantime, updated
HMRC guidance and a checklist have been
recommended to help employers assess
whether the customary test is met.
1
Rural Business
Taxing matters:
an interview with Louise Speke of the CLA
The CLA is the
membership organisation
for owners of land,
property and rural
business in England
and Wales. Louise
Speke, the CLA’s Chief
Taxation Adviser, very
kindly agreed to speak
to us about some of
the key issues facing its
members.
The country faces a general election in
2015. What can a new government do to
benefit the rural sector?
Over the last few years, it has been
disappointing to see policies and legislation
that are predominantly urban-focused.
We would like all political parties to achieve a
better understanding of the countryside, to
ensure that their policies unlock the potential
of rural areas and effect real change.
Our 2015 manifesto, entitled Unlock the
Countryside’s Potential, sets out how the next
government can have an agenda with the
countryside at its heart. The challenge for the
future will clearly be for MPs, prospective
parliamentary candidates and Whitehall
policy makers to ensure that policy developed
or action taken is ‘rural proof’ and deliverable.
The creation of the new high speed rail
network (HS2) highlights problems with the
way the compulsory purchase system in
the UK works. What are the issues for rural
landowners?
The CLA has long campaigned for the
compulsory purchase regime to be
modernised and we are lobbying hard for the
capital gains tax (CGT) rules to be changed
to provide meaningful relief for landowners
forced to sell their land.
Many of the shortcomings in the compulsory
purchase regime relate to the fact that some
of the legislation harks back to Victorian
times. Landowners, farmers and rural
businesses are different from urban-based
businesses in that many have been in their
current location for decades. When a
major project is planned and the spectre
of compulsory purchase looms, those
businesses are often unable to relocate. They
must endure uncertainty while plans are
developed and tolerate the disruption of
2
construction, all the time hoping to remain
viable after construction is complete.
The severance of the landholding and access
to that land are key issues, but they are
difficult to address practically and the loss
of value of the retained property remains
a major problem. To make matters worse,
compensation is often paid late – 10 years
after is not uncommon – and currently no
interest is paid, which fails to reflect the real
cost of borrowing.
Landowners are at risk in that their
compensation payments may be liable for
CGT, owing to the limitations in the way in
which the roll-over relief operates. Although
there is no requirement that the old or the
new land is used for any particular purpose,
such as a trade, the fact that section 247
of the Taxation of Capital Gains Act 1992
restricts the relief to reinvestment in land
results in a narrower and less flexible relief
than that of business roll-over relief, which
enables re-investment in a wider range of
qualifying assets. For example, the proceeds
of sale cannot be reinvested in a new farm
building on retained land or as shares in
another business.
Difficulties can arise for taxpayers who
wish to claim roll-over relief under section
247, as the time limits in which to reinvest
do not reflect practical or business reality,
particularly where the taxpayer has specific
needs regarding the land he wishes to
reinvest in. For example, it may be difficult to
find replacement land at an affordable price
or in a suitable location. There is no guarantee
land will become available within the
timescale prescribed by the roll-over relief
rules. Areas affected by large infrastructure
projects can also see an imbalance in the
supply of and demand for land, which forces
land prices upwards and makes re-investment
unaffordable.
December 2014
From your contact with CLA members, what
do you consider to be the issues of greatest
concern?
As the economy improves, developers are
more willing to proceed with land purchases
for housing. This has led to members
contacting us with concerns about CGT and
the reliefs available to them. Older farmers
are particularly concerned to ensure they can
claim Entrepreneurs’ Relief and it is crucial
that they time the cessation of their business
correctly when they are selling land.
We also continue to see members having
difficulties with claims for inheritance tax
Agricultural Property Relief (APR), with HM
Revenue & Customs (HMRC) challenging
the availability of APR for farmhouses,
particularly where land is utilised by graziers
under profits of pasturage arrangements.
The capital allowance rules give valuable
tax relief for investment in some business
assets. Does this regime work well for rural
businesses?
The ability to offset the cost of expensive
equipment such as tractors, combine
harvesters, or biomass boilers against tax is
valuable, yet the current annual investment
allowance of £500,000 is not available to
businesses that are trustees or are a mixed
partnership (ie a partnership that includes
both individuals and a company). This
reflects, perhaps, the fact that trusts and
mixed partnerships are viewed as avoidance
vehicles, despite the fact that such structures
may exist for good commercial, non-avoidance
motives.
Considerable emphasis has been placed on
achieving growth by reducing the corporation
tax rate. However, the burden of taxation
on profits in unincorporated businesses
have become greater as a consequence of
increasing income tax rates and reducing the
scope for tax efficient reinvestment. This is
evidenced by the removal of the Agricultural
Buildings Allowance (which had existed in
one form or another since 1945) as part of
a package of measures announced in the
2008 Budget to counter the cost of reducing
corporation tax.
Investment in farm buildings and
infrastructure generally, including reservoirs
and other water storage facilities, is essential
for modern farm businesses. We believe that
the tax system should give encouragement
to sensible, long-term business investment to
support the ongoing need for food security
and water management.
Inheritance tax reliefs are obviously very
valuable to the rural sector. Are there any
improvements that could be made?
Government policies have encouraged
agricultural businesses to diversify, providing
support and advice to do so. These diversified
activities may include letting activities, such as
holiday let cottages or office space.
However, these diversified businesses
are faced with an historic, but increasingly
inconsistent, distinction between the
exploitation of property rights and trading
activities, which is built into the fiscal system.
This means that property that is let out does
not qualify for inheritance tax Business
Property Relief. For example; holiday let
cottages, which are not regarded as assets
used in a trading business.
An owner of rural land may conduct many
interdependent commercial activities on
their land. These activities often reflect
long-term inter-generational business plans.
The property and trading distinction is at the
root of major obstacles to the implementation
of business plans designed to ensure that
capital assets are efficiently and productively
employed.
Changing inheritance tax reliefs so that they
can be claimed by diversified land-based rural
businesses will assist rural businesses to adapt
to the changing economic environment and
would benefit the rural economy as a whole.
Do you feel that politicians properly
understand and serve rural communities?
In our experience, government policies
often favour urban communities and
incorporated businesses. This reflects a lack
of understanding of rural communities.
Economic activity is every bit as crucial to
the health and vitality of rural areas as it is to
urban ones.
Rural communities have seen no, or
minimal, new housing, and this has stopped
settlements from growing at a natural pace,
as they have done for centuries. This has
led to the erosion of services, the loss of
businesses, inflated house prices and often an
aging population, as the younger generation is
priced out.
There are key areas where government policy
is either lacking or where new approaches are
required, including: lack of infrastructure; lack
of digital connectivity; lack of housing (both
affordable and market rate); as well as an
unsuitable planning system.
A more cohesive approach is needed to create
the right policy and regulatory framework
that will benefit both rural businesses and
communities. A medium to long-term strategy
is needed rather than a political quick fix.
The CLA’s 2015 Manifesto is available at
www.cla.org.uk/manifesto.
Louise Speke is the CLA’s Chief Taxation
Adviser. She can be contacted on:
T: + 44 (0)20 7235 0511; or
E: [email protected].
3
Rural Business
RHI schemes:
Domestic or Non-Domestic?
The launch of the Domestic Renewable Heat Incentive (RHI) scheme last April
has been warmly welcomed by the renewables industry. Now, both individual
households and commercial property can benefit from RHI schemes.
What is the difference between
the Domestic and Non-Domestic
schemes?
Each scheme has separate tariffs, joining
conditions and a separate application process,
though both are administered by Ofgem.
The main practical difference between the
schemes is that the Non-Domestic RHI pays
annually for 20 years, whereas the Domestic
RHI pays for just seven years. Under both
schemes, the payment is based on the heat
output (expected or metered) of the system.
An application can be made to only one of the
schemes.
The Non-Domestic RHI
is applicable where the
renewable heating system
is in commercial, public or
industrial premises.
Which is the appropriate scheme
to apply to?
The Domestic RHI is appropriate where the
renewable heating system is for just one
domestic property. A domestic property is
defined by Ofgem as a “single, self-contained
premises used wholly or mainly as a private
residential dwelling, where the fabric of the
building has not been significantly adapted for
non-residential use.”
4
The property must be capable of getting a
domestic Energy Performance Certificate
(EPC), which will confirm the domestic status
of the building. The EPC gives information
about the energy use of a property and must
be acquired to join the Domestic RHI scheme.
This applies equally to landlords of properties
where one heating system serves a single
household as it does owner occupiers.
A cottage let to an employee or
commercially let
Where the renewable heating system serves
just one property, the landlord can apply for
the Domestic RHI. However, if one heating
system serves a number of cottages, eg
across the estate, this would be considered a
district heating system and may be eligible for
the Non-Domestic RHI.
The Non-Domestic RHI is applicable
where the renewable heating system is in
commercial, public or industrial premises.
The applicant must be the owner of the
installation.
A property with mixed domestic and
commercial use
This is the least clear cut scenario. A home
office within a domestic dwelling should be
eligible for Domestic RHI. At the other end of
the scale, if the property is predominantly of
commercial use, then Non-Domestic rather
than Domestic RHI may be applicable.
What if the situation is more
complicated?
It may not be immediately clear which scheme
is suitable. The specifics of each individual
situation must be reviewed, however the
following show some guideline examples.
A farmhouse
A farmhouse is normally predominantly a
domestic dwelling and therefore should be
eligible for the Domestic RHI. If the farm
office is within the farmhouse, both are
heated by the same renewable system, and
the property is still predominantly a dwelling,
Domestic RHI would remain the appropriate
scheme.
If the renewable heating system heats the
main farmhouse and also a number of other
outbuildings, then under the current scheme
rules the system may well not be eligible for
the Domestic RHI. However, the government
has recently announced plans to amend the
Domestic RHI scheme rules so that from
spring 2015 a dwelling with outbuildings
would be eligible for the Domestic RHI.
The proposed amendments to the scheme
now mean that is it possible to have situations
where a system would be eligible for either
the Domestic or the Non-Domestic RHI. An
example of this would be a dwelling with an
annex that is used for commercial purposes.
In such circumstances, it will be necessary
to choose the scheme that will give the best
return. Although on the face of it, it would
be preferable to receive tariffs for 20 years
rather than seven years, the differentials in
tariff rates and other factors mean that this is
not necessarily a clear cut choice.
As with any major project, it is very important
to get the correct advice before embarking
on a scheme. The tax issues surrounding
both Domestic and Non-Domestic RHI
schemes can be complex and it is important
to fully understand these issues to allow the
feasibility of a project to be fully assessed.
Our Renewable Energy Team can assist
with any RHI project, and not just with
determining the tax status.
December 2014
Revisiting the
option to tax
If you own land and property, there is a good chance you have made an option
to tax on an area of land or on a non-residential building to recover VAT on the
construction, repair or alteration costs.
Opting to tax may have been a very sensible
decision in the past and have allowed you
to recover VAT incurred on the costs of
such works. However, it does mean you are
required to charge and account for VAT
on the income received in respect of the
property as long as you retain an interest in it.
Of course, a decision that made perfect sense
in the past may no longer suit your current
use of the property or future plans.
undervalue, and where a further supply
is expected to be made after the option is
revoked for a significantly greater value, will
typically not meet the criteria for automatic
permission. If the automatic permission
conditions are not met, HMRC can still be
requested to grant permission. HMRC says it
will consider whether the business or a third
party will receive a VAT benefit as a result of
the business’ actions.
Why opting to tax may no longer
be working for you
However, there are a number of other
practical problems and questions that still
need to be resolved before revoking becomes
commonplace and routine. Part of the
problem is that, over the years, options to
tax were made and notified in many different
ways. A single letter may have listed all of the
land and property to be opted. It is not clear
in some cases if these letters represent one
option to tax or many different options to tax
when a taxpayer comes to revoke.
The option to tax, introduced in 1989, has
always been very inflexible and, once made,
is very hard to get rid of. There are many
reasons why, after making the option to tax a
number of years ago, it may no longer make
commercial and financial sense. Two of the
most common reasons are:
yy A plan to sell the land for development.
Similarly, an owner may wish to revoke the
option to tax over a discrete area of land
covered by a single option to tax for a larger
area of land. They would appear able to
revoke and then make a fresh option to tax
over just part of the land. However, this would
restart the 20-year clock again on the freshly
opted land, and that appears inequitable.
In summary, revoking the option to tax is
increasingly proving to be a very useful
measure. However, it would be helpful if
HMRC were to issue detailed guidance to
address some of the practical problems
and indicate where they are prepared to be
flexible. In the meantime, revoking the option
to tax is an important tool to consider if more
than 20 years have passed and a business has
changed its use or plans for the property.
yy A desire to dispose of the land to a buyer
who is not in business or otherwise
unable to recover VAT.
If you made the option to tax more than 20
years ago, it is possible to remove the option
to tax by revoking it.
Revoking the option to tax after
20 years
You need HM Revenue & Customs’ (HMRC’s)
permission to revoke the option to tax.
However, permission is automatically granted
if three conditions are met. The conditions
are designed to prevent businesses taking
advantage of the ability to revoke, and should
be reviewed carefully. Businesses that own
opted land and property within the Capital
Goods Scheme adjustment period and/
or where an earlier supply was made at an
5
Rural Business
Dealing with business losses:
sideways loss relief
We return to our fictional family, the Summerton-Winters, to consider the
latest challenge facing the diversified estate business, which concerns the house
opening operations.
The family has three trading activities on the
estate at present. In-hand farming, the play
barn and local produce centre, and the house
opening/tea room enterprise.
Whilst the play barn initially made some
losses, it is currently very popular and has
been turning in steadily increasing profits.
Unfortunately, the dairy farming activities
have been hit badly by the downturn in milk
prices, coupled with some expensive repairs
needed to buildings and equipment. Ideally,
Ted could do with either increasing the size
of his operation to benefit from economies
of scale – though there is no land available
locally and he is not sure whether to keep
going until he finds a solution – or stop dairy
farming altogether.
The house opening and tea room operation
has also fared badly for the last few years,
with declining visitor numbers. As a result
of some serious staffing problems this year,
Ted has scaled down the operation. Whilst
this has made some small savings, the costs
involved in keeping the house in a presentable
state have not really changed.
The costs of dealing with staff issues were
also rather high and, as a result, the loss for
the enterprise amounts to nearly £100,000.
Ted is concerned that HM Revenue &
Customs (HMRC) will take a dim view of the
situation and may refuse loss relief.
Reporting
Ted had decided to continue reporting his
activities as three separate trades on his tax
return. HMRC is therefore likely to look at the
result from each in isolation.
6
The farming business has been making profits
until recently and therefore it is unlikely that
a loss relief claim would be challenged at this
stage. Results from farming do fluctuate and
HMRC tends to take a long-term view.
The house opening business is a concern
though, as results have been poor for a
long time and the decision to scale down
the operation this year may affect its
commerciality.
Legislation and case law
There have been two interesting tax cases
concerning loss relief recently, one an income
tax case, the other concerning corporation
tax relief for a company. In both cases the
Tribunals looked at the test for allowing loss
relief where broadly “the trade is carried
out on a commercial basis and with a view to
realising profits”.
In the case of Beacon Estates (Chepstow)
Ltd, the Tribunal looked at a yacht chartering
business and concluded that, when applying
the test above, one should look at whether
there was a realistic possibility of making
profits in the future. In this case they found
for the taxpayer and the losses were allowed.
In the Judith Thorne case, which concerned
an asparagus growing and horse breeding
business, the Tribunal decided that the
composite business was not being carried
on in a commercial way and that there was
no reasonable expectation of making profits
in the future from the combined enterprise.
Therefore, loss relief for the years in question
was denied.
Evidence
Ted needs to consider what evidence
he will have to demonstrate that he is
trading commercially and has a reasonable
expectation of profits in the future.
At the moment he is probably considering the
following:
yy Does the house need to be open to the
public at all, and if so, how many days
should it be open?
yy Are there Conditional Exemption
requirements to meet?
Ted needs to work
through how many visitors
he needs annually to
make a profit, budgeting
properly for ongoing
expenses, and then
considering how he will
increase the number
of visitors so that the
business plan stands up to
scrutiny.
December 2014
yy Does the income help to offset
maintenance costs that would have to be
met anyway?
yy What does the next generation want to
do with the house?
yy If the operation is to continue, what might
help to make it become profitable? For
example, should more events be put on to
encourage visitors? Are the gardens of a
standard to win awards to help publicise
them and attract garden lovers?
yy A strategy meeting followed by an action
plan might be the first thing to arrange.
If Ted decides that he would like to keep the
house open and make some money from it,
taking positive action to turn it around and
keeping evidence of how he is going about it
will be vital in answering any queries on the
loss relief claim that come from HMRC.
HMRC will look to see if the operation is
being carried on commercially. It would look
to see how well organised it is, or whether it
is in reality being operated mainly to satisfy
grant or conditional exemption conditions. It
is helpful that there is a tea room, which goes
to show that the business is being run as any
other commercial venture of a similar type
would be.
Assuming Ted is able to show that the recent
losses from the operation are allowable to be
set against his other income, HMRC can now
use the capping rules to restrict the amount
of loss relief available. These rules, which we
have mentioned previously, cap the sideways
loss relief, against other income sources,
to the higher of £50,000 or 25% of ‘other
income’.
In terms of the reasonable expectation of
profit, HMRC will be keen to see a wellthought out and reasoned business plan,
which shows that there is a realistic possibility
of a profit being made. Ted needs to work
through how many visitors he needs annually
to make a profit, budgeting properly for
ongoing expenses, and then considering how
he will increase the number of visitors so that
the business plan stands up to scrutiny.
Assuming Ted’s other annual income is
less than £200,000, only £50,000 of the
£100,000 loss would be available for tax
relief (with the additional £50,000 being
carried forward to set against future profits
of the house opening business). If losses are
going to continue in excess of £50,000 for
a few years, even with the added effort of
turning the business around, then Ted may
want to consider introducing his wife, Angela,
as a partner so that they can share the losses.
This assumes that Angela has her own income
against which her share of losses can be set!
7
Rural Business
Serving two masters:
joint employment contracts
In today’s flexible labour market, the master and servant relationship in
employment has become a thing of the past. In some sectors, short-term
contracts have replaced traditional employment. Workers may be holding
down two or even more jobs at the same time and daily working hours are very
different to the traditional nine to five.
When it comes to VAT, the relationship the
worker has with the person they are working
for is of crucial importance. An employee’s
wages are paid outside the scope of VAT.
However, in most other cases, a selfemployed worker provides a service for VAT
purposes. The difficulty for VAT-registered
companies, individuals, partnerships and
trusts that allow their employees to work
for third parties (and are reimbursed for the
appropriate share of the cost) is that this, in
principle, forces VAT to be charged. The VAT
may not be recoverable or fully recoverable
by the third party recipient.
A joint contract of employment allows an
employee to have more than one employer.
This means the employee can work for each
employer as an employee on demand. The
worker’s employment costs are paid by the
joint employers outside the scope of VAT.
Furthermore, it is permissible for one of
the joint employers to pay the employee on
behalf of the others. The reimbursement
made by the other employers to the paying
employer is also treated as outside the
scope of VAT in respect of the employee’s
employment costs. This arrangement can be
financially beneficial in reducing irrecoverable
VAT costs that would otherwise have arisen
where one or more of the joint employers
is unable to recover, or fully recover, VAT.
HM Revenue & Customs (HMRC) readily
recognises the concept of joint employment
and the beneficial VAT treatment it is
afforded.
8
There is a note of caution that should
be sounded with joint employment
arrangements and VAT. It is firstly necessary
that there is a joint employment contract
in place. This gives the arrangements legal
substance. However, as important is the
economic substance of the arrangements.
For example, if, as a private individual, you
were to enter into a joint employment
contract with the VAT registered company
that repairs your boiler, this may be thought
to reduce the VAT you would otherwise
have needed to pay on the plumber’s
employment costs. The economic substance
of the arrangement is unlikely to be that the
plumber is your employee, because you will
not exercise control, supervision or direction
of the plumber over their work as the
employer.
If the plumber were to carry out a poor job,
you would call the plumbing company and
demand a refund or another plumber. This
does not sit comfortably with the normal
workings of an employment relationship.
Employers must deal with poor performance
of employees and pay them even if their
work is defective. The substance of the
arrangements with the plumber is likely to
be that of the plumbing company providing
a repair service to you, and you holding
the plumbing company responsible for
the service provided. You may argue that
contractually you may exercise the powers of
employer, but in practice you are very unlikely
to be able to demonstrate you do.
The true substance of such arrangements
raises many questions and the courts
have historically struggled to provide
clear guidance. HMRC has challenged
arrangements where it felt the motive was
to avoid VAT, particularly in the outsourcing
sector. It is clear that if the employee is
found to be working for one employer to
benefit another party, then that is not joint
employment for VAT purposes, even if the
legal contract says otherwise. In the plumbing
example above, the plumber works for the
plumbing company for the benefit of the
individual that has broken boiler needing the
repair.
It is also important to be aware that
employers have legal responsibilities to
their employees. A joint employer is likely
to be jointly and severally liable for these
responsibilities in cases of health and safety
and unfair or constructive dismissal. These
are not responsibilities to be entered into
lightly.
If you have joint employment arrangements
in place, we would recommend reviewing
them and considering if you meet both legal
and economic criteria for joint employment.
You must meet both criteria if HMRC is
not to challenge the effectiveness of your
arrangements. It is not enough to have just
the legal contract in place.
For those considering joint employment
arrangements, we recommend taking
professional advice from your legal and tax
advisers to ensure your arrangements are
robust and VAT compliant.
December 2014
In brief
Pensions – more changes ahead
From April 2015, no matter how much you
choose to take out from your pension after
retirement, withdrawals from your pension
scheme will be treated as your income and
taxed at your marginal rate of income tax.
This is instead of being taxed at 55% for full
withdrawal, as was previously the case.
Plans have also been announced which, if
enacted, would continue to allow the 25%
lump sum withdrawal free of tax, to be taken in
annual segments over a period of years rather
than in one payment.
If you are over the age of 55 (or will be from
April 2015) you will be able to take advantage
of the new system from then, and if you are
younger than 55 then you will be able to take
advantage of the new system when you
reach 55.
Foreign Account Tax
Compliance Act
This far-reaching piece of legislation was
introduced by the US authorities is to
ensure that all US persons pay tax on their
worldwide income and assets. Through an
intergovernmental agreement with the UK, it
places reporting obligations on entities which
fall within the definition of a Foreign Financial
Institution (FFI), even if there is no connection
with the US.
FFIs must register with the US Internal
Revenue Service (IRS) before 1 January 2015.
Individuals and charities are exempt from
any reporting requirement, but trusts and
companies will need to confirm their FATCA
status.
Regrettably, determining whether or not
registration reporting is required is not
straightforward and each situation needs to be
considered on a case-by-case basis.
We have formulated checklists to make this
process more straightforward and we are
reviewing the position in relation to each of our
clients to ensure they fulfil their obligations
under the Foreign Account Tax Compliance Act
(FATCA) legislation.
If you have not heard of FATCA and are
involved in a corporate entity or trust, then you
should seek professional advice at the earliest
opportunity. As with all registration deadlines,
there will be a deluge of applications and an
early registration is recommended.
Trusts: inheritance tax and
retained income
New rules provide clarification concerning
the treatment of undistributed income in the
context of the inheritance tax (IHT) 10-year
anniversary charge regime. If income has been
retained in a trust for more than five years, this
is treated as capital for the calculation of the
10-year charge only, for all other purposes it
remains income.
Thankfully, HM Revenue & Customs (HMRC)
recently confirmed that it is not necessary for
trustees to keep very detailed records of when
income arose and what has been distributed
over the course of the 10 years. It has been
agreed that the amount of income liable to
the 10-year charge can be the difference
between the balance at the tenth anniversary
and the income that has arisen during the five
preceding years. Although it should be open to
trustees to use detailed records if available and
it reduces the IHT liability.
Annual tax on corporate owned
residential properties
The Annual Tax on Enveloped Dwellings
(ATED) is an annual tax payable by companies
on high value residential property. Originally
affecting properties worth £2 million or more,
this threshold is set to reduce, firstly to £1
million at April 2015 and then to £500,000 in
April 2016.
From 1 April 2015, the new band affecting
properties with a value greater than £1 million
but less than £2 million will produce an annual
charge of £7,000. The further new additional
band from 1 April 2016 will apply to properties
with a value greater than £500,000 but less
than £1 million, with a resultant annual charge
of £3,500. In all cases, the charge is based on
the value of the property on 1 April 2012.
For properties entering the charging regime
from 1 April 2015; returns will be due by
1 October 2015 and payment of the tax due by
31 October 2015.
Enhanced capital allowances:
a reminder
Environmentally beneficial plant and
machinery can qualify for enhanced tax relief
provided it is of a description specified by
Treasury order and it meets the environmental
criteria specified by Treasury order for plant
and machinery of that description.
One exclusion is where the use of the
equipment attracts tariff payments or other
incentives under either of the Renewable Heat
Incentive or Feed-in Tariff schemes.
Changes to the enhanced capital allowances
scheme for energy-saving technologies
took effect on 7 August 2014. Two new
technologies have been added to the list –
active chilled beams and desiccant air dryers
with energy saving controls. Additionally, there
are 11 technology categories where changes
have been made to the qualifying criteria,
including water and air source heat pumps,
solar thermal systems and uninterruptible
power supplies. For more information visit:
www.etl.decc.gov.uk.
9
Our offices
Our landed estates team
Bournemouth
Midland House, 2 Poole Road,
Bournemouth BH2 5QY
T: +44 (0)1202 204744
Bristol
St Catherine’s Court,
Berkeley Place, Clifton,
Bristol BS8 1BQ
T: +44 (0)117 915 1617
Liz Brierley
Head of Landed Estates
Bournemouth
Mick Downs
Heritage Asset Specialist
London
Shirley Mathieson
Head of Renewables
Inverness
David McGeachy
VAT
London
Tim Adams
London
Andrew Arnott
London
Karen Bartlett
High Wycombe
Matthew Burton
London
Richard Cartwright
Bristol
Stephen Collins
Peterborough
Catherine Desmond
Manchester
Max Floydd
Edinburgh
Tim Gregory
London
Mike Harrison
Manchester
Jane Hill
Peterborough
Alison Robinson
Harrogate
Alex Simmons
Bournemouth
Susie Swift
Inverness
James Sykes
London
Jamie Younger
Edinburgh
Edinburgh
Edinburgh Quay,
133 Fountainbridge,
Edinburgh EH3 9BA
T: +44 (0)131 221 2777
Geneva
Avenue Pictet-de-Rochemont 7,
1207 Geneva, Switzerland
T: +41 (0)22 319 0970
Guernsey
PO Box 141, La Tonnelle House,
Les Banques, St Sampson,
Guernsey GY1 3HS
T: +44 (0)1481 721374
Harrogate
Mitre House, North Park Road,
Harrogate HG1 5RX
T: +44 (0)1423 568012
High Wycombe
Fox House, 26 Temple End,
High Wycombe HP13 5DR
T: +44 (0)1494 464666
Inverness
Kintail House, Beechwood Park,
Inverness IV2 3BW
T: +44 (0)1463 246300
London
Lion House, Red Lion Street,
London WC1R 4GB
T: +44 (0)20 7841 4000
Manchester
City Tower, Piccadilly Plaza,
Manchester M1 4BT
T: +44 (0)161 200 8383
Peterborough
Unex House, Bourges Boulevard,
Peterborough PE1 1NG
T: +44 (0)1733 353300
Subscriptions
In the future, if you would prefer to just receive Rural Business via email, instead of a printed copy,
email us at [email protected] with ‘Rural Business by email’ in the header, being sure to include
the name and address that the printed copy is currently delivered to.
You can subscribe to any of our newsletters by visiting the subscriptions page in the publications
section of our website at www.saffery.com.
Saffery Champness is regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales. Saffery
Champness is a member of Nexia International, a worldwide network of independent accounting and consulting firms. No responsibility for loss
occasioned to any person acting on or refraining from action as a result of the material in this publication can be accepted by Saffery Champness.
J5608
Zurich
Hottingerstrasse 17,
8032 Zurich, Switzerland
T: +41 (0)43 343 9328
www.saffery.com