Archive for May, 2015

Clothing giant Next loses tax avoidance case

Thursday, May 28th, 2015

High street retailer Next has been hit with a £22.4m tax bill after a court ruled the firm’s complex tax scheme was artificial tax avoidance.

HM Revenue & Customs (HMRC) successfully challenged Next Brand Ltd, which is part of the well-known Next group, over its use of a tax avoidance structure known as a rate-booster.

The First-Tier Tribunal (FTT) ruled in HMRC’s favour after finding Next’s scheme artificially moved money around the group so they could try and claim tax relief on overseas profits.

HMRC’s Director General of Business Tax Jim Harra said:

This case shows how HMRC takes effective action against big businesses that try to avoid paying tax through convoluted, artificial avoidance schemes. HMRC expects all businesses to steer well clear of such schemes.

This is the second rate-booster case to reach the FTT after the tribunal ruled against P&O in 2013, who appealed and a decision is awaited.

About £130m in tax is at stake across 20 rate-booster cases, which were waiting on the P&O and Next decisions. Around 70 rate-boosters have already been conceded by companies rather than go to court, which has brought in more than £500m in tax.

Rate-booster schemes involve trying to avoid Corporation Tax on foreign profits that are paid back to the UK from a subsidiary.

The UK company receiving these profits gets credit for any foreign tax the subsidiary paid. The rules are designed to prevent companies being taxed twice on the same income and is known as double taxation relief.

Some companies set up artificial arrangements involving complex circular movements of money between companies in the same group so they can claim there has been double taxation.

Through these movements the companies claim far more tax had been paid on the overseas profits than was actually the case.

Legal changes in 2005 and 2009 mean rate-booster schemes are no longer possible or attractive.

No doubt we will see more high profile tax wins by HMRC in the coming months as the government continues its clampdown on corporate tax avoidance.

New Business Secretary rolls back red tape

Wednesday, May 27th, 2015

Sajid Javid set out his priorities for supporting Britain's small businesses last week. Here’s a summary of what he said:

Over the next 5 years, we’ll build on the success of ‘One in, two out’ to put a strict brake on new regulations. For the first time, the actions of regulators will be counted towards achieving the overall £10 billion in cuts.

This will be the first time in modern history that government has successively reduced red tape and continued with reductions in the next parliament.

And business will be our partner…giving us the evidence we need to roll back the state. One crucial aspect of this roll back will be the extension of the rule that is known as Primary Authority.

Primary Authority allows a business to get advice on regulation from a single local council. This advice must then be respected by all other local councils, thus reducing the time and cost to businesses of having to obey multiple masters. When Primary Authority came in, the purpose was to help larger firms trading nationwide. But it was so successful that we opened it to small business in 2013. Today, more than two-thirds of the businesses taking advantage of Primary Authority are small businesses.

It frees them from inconsistent and confusing red tape. It reduces their operational costs, and allows them to focus on expansion.

Thanks to Primary Authority, cheese makers don’t have to display their cheddar on wooden boards in one place and on steel platters in another. Yet only a tiny fraction of small businesses that could benefit are actually doing so. Accordingly, we’re going to simplify Primary Authority itself. 

And we’re going to extend its reach. There’s one more area I wish to cover this morning. It’s a subject that’s exercised me for some time.

There’s a situation familiar to small business owners up and down the country. A letter turns up from a larger customer changing payment terms, or charging them to remain a supplier, and in some cases even deducting that charge on the spot against payment owed.

This pattern of behaviour is an outrage. It’s bullying – pure and simple. In 2008, late payment alone cost British business £19 billion. This year, that’s set to exceed £40 billion. The average amount owed to a small business is more than £30,000. You know as well as I what figures like that can do to the cash flow of small businesses. It’s enough to force a company into insolvency.

We’ve not been blind to these issues.

During the last Parliament, we introduced legislation requiring the UK’s largest companies to report on their payment practices. That’s going to shine a light on poor performance when it comes into effect next April. Recent U-turns show that public scrutiny can make big firms mend their ways. We also strengthened the Prompt Payment Code to introduce a maximum 60 day payment term and promote 30 days as the norm.

Government has rightly been leading by example. We pay our suppliers within 30 days. We’ve brought in measures requiring all public sector contracts to pay out within 30 days, all the way down the supply chain.

Now, we’re going to widen the powers for representative bodies to act on behalf of their members to challenge grossly unfair payment terms. There’ll be a consultation on this later this year. And we will fulfil the manifesto pledge to set up a Small Business Conciliation Service to help small businesses settle their problems with large corporations.

The purpose is to avoid expensive legal costs and maintain business relationships by reaching mutually satisfactory agreements.

This model has worked in Australia. We will explore it, and other models, and find what works best here in the UK.

George Osborne – second Budget announced

Friday, May 22nd, 2015

The first Budget of the new parliament is to be delivered by George Osborne on July 8th.

Apart from tying up loose ends from the spring Budget the Chancellor will make a number of announcements:

  1. His plans for eliminating the UK’s budget deficit and running a surplus by the end of the current parliament.
  2. Details of the £12bn cuts in public expenditure he will need to make.
  3. Further measures to crack down on tax avoidance.

There may be a few tax “sweeteners” in the summer Budget, but it is more likely that George Osborne will get the painful changes out of the way, and early in the new parliament, leaving tax cuts until later.

Directors jailed for contempt of court

Tuesday, May 19th, 2015

Two Directors and a Company Secretary have been jailed for contempt of court relating to a £7.7m VAT fraud, following an investigation by HM Revenue and Customs (HMRC).

A court order appointing a Provisional Liquidator was made by the High Court in March 2014 against Parkwell Investments Ltd, based in Wilmslow, Cheshire. The order removed the company’s officers and appointed a Provisional Liquidator in their place to protect the company’s remaining assets.

The company’s officers then deliberately and knowingly acted in contempt of court by transferring £450,000 out of the reach of the Provisional Liquidator.

The funds are now very unlikely to be recovered, a point which presiding Judge Mr Justice Norris took into consideration when sentencing. He said the company officers’ actions “were an affront to the rule of law and order”.

Amran Munir, Ali Sami Farooq, and Saif Chaudhry were each sentenced to six months’ imprisonment, of which three months is to be served in prison before being granted unconditional release. Unusually, the prison sentence was given in civil, rather than criminal, proceedings.

The individuals initially defended their actions but at the eleventh hour admitted to knowing breaches of the court’s order.

Mr Justice Norris said:

Where company officers seek to thwart a liquidator, a message must be sent to the business community.

Andy Cole CBE, Specialist Investigations Director, HM Revenue and Customs (HMRC), said:

Committing contempt of court to get out of paying your VAT debts just adds insult to injury. We will relentlessly pursue those behind this type of abuse using all the means at our disposal.

Jamie Harrison update – 9th May, Oulton Park

Monday, May 18th, 2015

Jamie - Oulton Park - 9th MayThis race meet saw Jamie and the team back at Oulton Park, and yet again more rain.

Jamie started with a practice but due to the wet conditions and a big oil spill around the circuit the practice session was cut short with the reg flags appearing after just three laps.


First up was qualifying for the open race and the track was drying out so the team decided to go with a wet front and a intermediate tyre in the rear.
As the track dried out the rear tyre was giving Jamie more and more grip and on his last lap he set the fastest lap to get pole position out of 41 riders.

Race One

The first race was the powerbike qualifier and by now the track had dried but just before the racers were called to the grid there was a very light shower so the team decided to go with intermediate tyres front and rear.

The starting positions for this race were determined by championship positions, and as Jamie hadn’t raced with race organisers NG this year he started out 12th on the grid.

However this didn’t stop him, and after a cracking start he was up to 4th place as he exited the 2nd corner.

Fast forward a couple of laps and he had moved into 2nd place, but made a little mistake a the chicane and had to go down the slip road but managed to re-join still in 2nd place.

On the last lap Jamie and the racer in 3rd place swapped places over taking each other a couple of times and both racers finished the race side by side. Unfortunately though Jamie had received a 5 second penalty for a track infringement at the chicane which put me back to 4th.

Race Two

The open race was next up and the conditions were good.

Jamie started from pole position but was just beaten to the first corner and had to settle for 2nd. With a strong field of TT riders and current and ex BSB riders he struggled to hold onto 2nd and lost a couple of places and finished 5th at the flag.

Jamie was able to get a new personal best lap time of 1.44.06 so he finished the race quite happy.

Race Three

The last race was the powerbike final where Jamie started 4th. On the second lap though he had dropped to 5th but this time managed to stay with the leaders for a little longer but was just losing time in a couple of places and started to drop back.

On the last 2 laps he had a good battle with another rider passing each other 3 times on the last lap and he managed to hold on to 5th by 4 tenths of a second.

Jamie Harrison update – 25th April, Oulton Park

Monday, May 18th, 2015

Jamie - TestingAfter a glorious week of sunshine leading up to the meeting by the time Saturday 25th April arrived the weather had changed dramatically with a cold wind and rain forecast.

The practice session combined with the qualifying went well on a dry but cold track, and after the dramas of the previous meetings qualifying sessions Jamie was pleased to see his name 2nd on the time sheet.

Race One

The first race was a 600cc/1000cc 5 lap mixed heat race and just before Jamie was called to the grid the rain that has been forecast arrived so a quick change to wet tyres was needed.

Jamie started from second on the grid but didn’t get the best of starts so lost a few places. He then had a big front wheel slide going into the first chicane, which was due to the wet weather, which meant that he lost a few more places.

At the end of the first lap Jamie had slid down to 18th place, but as the race continued, and he got used to the wet conditions, he managed to gain some places and finished the race in 12th place.

Race Two

As the day continued so did the bad weather, causing lots of delays due to accidents and oil spillages.

All of these delays meant that the second race didn’t start until 5.40pm, by which time the track had dried out but the temperature had dropped to 5 degrees.

Jamie started out from 14th place on the grid and was able to get up to 4th place, but the race had to be cut to only 4 laps due to the time restrictions.

Race Three

The 3rd race was cancelled as the club ran out of time to complete the full program.

Business investment 2015

Friday, May 15th, 2015

Is this a good time to invest if you are in business?

Actual business investment in the UK fell in the last quarter of 2014. This was largely driven by the reduction of investment in North Sea oil and gas exploration as global energy prices continued to fall.

Additionally, smaller businesses may have been waiting to see the outcome of the election.

Should you reconsider investment at this time? Certainly, it’s worth taking advantage of the current 100% write off available to those businesses making qualifying purchases of equipment and commercial vehicles. As mentioned in our other blog posting today, currently HMRC will allow businesses to write of up to £500,000 against their taxable profits. This relief is due to reduce after 31 December 2015.

Certainly, businesses should not let the tax tail wag the dog. Financing capital expenditure also needs to be taken into account. Businesses will be unlikely to spend hard earned liquidity especially if they operate in competitive markets where there is downward pressure on margins.

If you are in need of new plant or equipment planning your investment is critical. We would be delighted to help. Call any time to make an appointment.

More of the same

Wednesday, May 13th, 2015

So now we know. For the next five years we will have a Conservative government, albeit, with a slim majority in the House of Commons.

From a tax point of view George Osborne is continuing as Chancellor and we can probably expect more of the same as he struggles to reduce the deficit, repay debt and maintain a steady increase in economic growth. No mean feat if he achieves this.

As we reported in out last posting to this blog, it is likely there will be a second Finance Bill this year, reinstating the items that were dropped from the first Bill in order to close down government business before the election.

David Cameron also promised to increase the inheritance tax threshold to £1m for married couples and civil partners. We should expect further announcements to remove the higher rate tax relief for pension contributions. Persons who are considering significant contributions to their pension this year should speak with their advisors sooner rather than later if they want to benefit from the present higher rate relief regime.

At the end of this year the present Annual Investment Allowance limit of £500,000 is due to reduce to just £25,000. Hopefully, Mr Osborne will announce a continuation of this valuable tax incentive for businesses in the next Finance Bill.

George Osborne does have an unenviable task. If he depresses economic activity, by severe cuts to government expenditure, tax payers will not be encouraged to spend and GDP will fall. Add to this the anticipated referendum on Europe and the effects of the Scottish vote, and more of the same may be an understatement…

P11D Forms – guidance on completion

Tuesday, May 12th, 2015

P11D forms – don’t get them wrong

HMRC have published a list of common errors in the completion of forms P11D. The information is part of the latest Employer Bulletin and we have reproduced the guidance below.

  • Submitting duplicate P11D information on paper where P11D information has already been filed online to ensure ‘HMRC have received it’. These duplicates can cause processing problems.
  • Using a paper form that relates to the wrong tax year – check the top right hand corner of the first page.
  • Not ticking the ‘director’ box if the employee is a director.
  • Not including a description or abbreviation, where amounts are included in sections A, B, L, M or N of the form.
  • Leaving the ‘cash equivalent’ box empty where you’ve entered a figure in the corresponding ‘cost to you’ box of a section.
  • Completing the declaration on the final FPS/EPS submission accurately (for those employers whose software package requires them to be completed) or question 6 in section A of RT 4 form to indicate whether P11Ds are due.
  • Not advising HMRC either by paper form P11D(b) or electronic submission that there is no Benefits in Kind & Expenses return to make.
  • Where a benefit has been provided for mixed business and private use, entering only the value of the private-use portion – you must report the full gross value of the benefit.
  • Not completing the fuel benefit box/field where this applies. This means an amended P11D has to be sent in.
  • Incorrectly completing the ‘from’ and ‘to’ dates in the ‘Dates car was available’ boxes. For example entering 06/04/2014 to 05/04/2015 to indicate the car was available throughout that year. If the car was available in the previous tax year, the ‘from’ box should not be completed and if the car is to be available in the next tax year, the ‘to’ box should not be completed.

If you would like help with the completion of the forms P11D please contact us.

Internet link: Employer Bulletin 53

VAT fuel scale charges and recovery on vans

Tuesday, May 12th, 2015

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 2015.

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 on VAT matters.

Internet link: GOV.UK news

VAT recovery on car-derived vans and combi vans

HMRC have issued a list of makes and models of car derived vans and combi vans which VAT registered businesses can use to determine if the VAT paid on the purchase can be reclaimed as input tax.

The issue is that VAT will normally be claimable in full on the purchase of a commercial vehicle.  However if the vehicle purchased is a passenger car VAT is not recoverable unless it is used ‘exclusively for the purposes of a business’. Generally cars are therefore VAT ‘blocked’ and no input VAT is recoverable.

The VAT guidance states

‘Motor car means any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

  1. a) is constructed or adapted solely or mainly for the carriage of passengers; or
  2. b) has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows’

Whether or not a vehicle is commercial is not specifically defined but instead the definition of a car excludes:

  • vehicles capable of accommodating only one person or suitable for carrying twelve or more people including the driver
  • vehicles of more than three tonnes unladen weight;
  • caravans, ambulances and prison vans
  • special purpose vehicles such as ice cream vans, mobile shops, hearses, bullion vans and breakdown and recovery vehicles
  • vehicles constructed to carry a payload of one tonne or more.

Many car-derived vans are not cars for VAT purposes as they have no rear seats, have metal side panels to the rear of the front seats and a load area which is highly unsuitable for carrying passengers etc.

HMRC have issued the clarification due to developments in the car-derived van market as some vehicles with a payload of less than one tonne, have ‘blurred’ the distinction between cars and vans.

If you would like help with this or any other VAT issue please contact us.

Internet link: GOV.UK news