February 2019

tax tips & finance e-newsletter

In this issue

No Deal Brexit - What about VAT?
Welcome CGT Entrepreneurs’ Relief change for shareholders
Corporation Tax Relief back for acquired goodwill
Termination payment changes delayed to 2020
Entrepreneurs’ Relief
Probate Fee Increase 2019
Main Residence Relief
Managing in uncertain times
Exam Success

No Deal Brexit - What about VAT?

The Government and HMRC have updated its collection of high-level guides called “partnership packs”, intended to help businesses involved in importing and exporting prepare for changes to customs procedures after 29 March 2019 in the event of a “no deal” scenario.

If the UK exits the EU without a deal, UK businesses will have to apply customs, excise and VAT procedures to goods traded with the EU, in broadly the same way that already applies for goods traded outside of the EU.

In the event of a “no deal” Brexit the government's aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses.

However, there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU countries.

Postponed VAT Accounting for Imports

The government has announced that in the event of a “no deal” Brexit, it will introduce postponed accounting for import VAT on goods brought into the UK. 

This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT at or soon after the time that the goods arrive at the UK border. This procedure will apply both to imports from the EU and non-EU countries.

Low Value Consignments

If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses. Low Value Consignment Relief (LVCR) will no longer apply to any parcels arriving in the UK. For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.

 

 

VAT Mini One Stop Shop (VAT MOSS) will come to an to end

A further change if the UK leaves the EU without an agreement is that the UK will stop being part of EU-wide VAT IT systems such as the VAT Mini One Stop Shop which currently simplifies VAT reporting for UK businesses.

Customs Changes

Businesses can currently move goods freely between EU countries. For customs purposes, this means that businesses trading with the rest of the EU do not have to make any customs import or export declarations, and their trade with the EU is not subject to import duty.

In the event of a “no deal” Brexit there would be immediate changes to the procedures that apply to businesses trading with the EU. It would mean that the free circulation and movements of goods between the UK and EU would end.

HMRC is currently introducing its new Customs Declaration Service (CDS), which replaces its Customs Handling of Import and Export Freight (CHIEF) system.

From 11pm on 29 March 2019, for businesses trading with the EU, the impacts would include businesses having to apply the same customs and excise rules to goods moving between the UK and the EU as are currently applied in cases where goods move between the UK and non-EU countries.

This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration).

For imports into the UK, a separate safety and security declaration needs to be made by the carrier of the goods (usually the haulier, airline, freight train operator or shipping line).

For exports from the UK, the export declaration includes the safety and security declaration.

Welcome CGT Entrepreneurs’ Relief change for shareholders

In the December 2018 newsletter we alerted you to important changes to CGT entrepreneurs’ relief included in the latest Finance Bill that could have the effect of denying the relief to certain employee shareholders.

As the result of lobbying by the professional bodies the government have made a late change in the Finance Bill to the definition of “personal company” so that fewer shareholders will be denied the relief when they dispose of their shares.

The normal test is that the shareholder is required to be entitled to at least 5% of the company’s ordinary share capital, voting rights, profits available for distribution, and assets available on the winding up of the company.

The amendment provides an alternative test which would allow relief where the individual is entitled to at least 5% of the sale proceeds in the event of a disposal of the whole of the ordinary share capital of the company, even if the 5% test in relation to distributable profits and assets on a winding up was not satisfied.

This remains a complex area and we would suggest that you contact us to review your company’s share structure to check whether particular shareholders would be entitled to relief for their shares.

Corporation Tax Relief back for acquired goodwill

A further late change to the Finance Bill will re-introduce relief for acquired goodwill on the acquisition of businesses with eligible intellectual property from 1 April 2019.

This relief was withdrawn back in July 2015 and the restoration of relief for goodwill and customer-related assets is very welcome although the new form of relief will be more restricted.

The proposed new relief will be given at a fixed rate of 6.5% on up to 6 times the value of any qualifying intellectual property assets in the business being acquired. Qualifying assets will include patents, registered designs, copyright and design rights and plant breeders' rights. This means that the qualifying costs will be written off over a period of just over 15 years and will not follow the treatment in the company accounts as currently applies to other intangibles.

Termination payment changes delayed to 2020

HMRC have announced that the changes to the national insurance (NIC) treatment of termination payments and sporting testimonials have been delayed to 6 April 2020.

From 6 April 2020 Employer class 1A NIC will become payable on termination payments in excess of £30,000 and on sporting testimonials that exceed £100,000 (lifetime limit). The changes are intended to align the NIC treatment with the treatment for income tax although there is no NIC liability for the employee on such payments.

Whether or not the £30,000 exemption applies on termination of employment is a complex area and specialist advice should be obtained.

Entrepreneurs’ Relief

New personal company test

Entrepreneurs’ relief reduces the amount of capital gains tax payable on the disposal of qualifying business assets. The availability of the relief is contingent on the qualifying conditions being met.
Entrepreneurs’ relief is available for the disposal of shares and securities in a personal company. The definition of a personal company was changed with effect from 29 October 2018. Prior to that date, a company was an individual’s personal company if the individual held at least 5% of the ordinary share capital of the company and that holding gave the shareholder at least 5% of the voting rights in the company. From 29 October 2018 two further tests apply – the individual must also be beneficially entitled to at least 5% of the distributable profits and at least 5% of the assets available for distribution to equity holders in the event of a winding up.
The new test must be met if entrepreneurs’ relief is to be available in respect of disposals on or after 29 October 2019.
 
If you are planning on disposing of shares in your personal company, speak to your adviser to check that your company meets the new definition of a personal company.
 

Extension of the qualifying period

For entrepreneurs’ relief to be available, the qualifying conditions must be met throughout a minimum qualifying period. The minimum period is to increase from one year to two years for disposals on or after 6 April 2019.
Forward planning is essential where a disposal is planned to ensure that the conditions have been satisfied throughout the relevant minimum period. Speak to your adviser to determine the optimal disposal date to ensure that relief is not lost.

Probate Fee Increase 2019

The Government’s proposal to increase probate fees with effect from 1st April 2019 has now been agreed and approved.

At the moment probate costs a flat fee of £155 when an authorised practitioner is involved and £215 if it is done personally. But from April it will rise on a sliding scale – for example, £750 for estates where there is a typical home and some savings, to a fee of £6,000 for estates worth more than £2 million.

If you are in a position where you need to apply for a Grant of Probate before April then please contact a member of our Trust and Estate Support Services team to see if we can assist you before this price rise is instigated.

Main Residence Relief

Reduction in the final period exemption

Where a property has been occupied as the taxpayer’s only or main residence at some point during the period of ownership, the final 18 months of ownership are exempt from capital gains tax (even if the property is not the taxpayer’s main residence during that period). At the time of the 2018 Budget, the Government announced that they plan to reduce the final period exemption to nine months with effect from April 2020.

If you are planning to dispose of a property which has been your main residence for some but not all of the time that you have owned it, speak to your adviser as to what the reduction in the final period exemption may mean for you.

 

Curtailment of lettings relief

Lettings relief is a useful relief which can reduce the amount of the gain that is taxable on a property which has been let and which has also been a main residence at some point by up to £40,000.

At the time of the 2018 Budget, the Government announced that they planned to restrict the availability of lettings relief to cases where the owner of the property is in shared occupation with the tenant. The intention is for the new rules to come into effect from April 2020.

If you have a property that you let out, speak to your adviser to find out how you can benefit from the availability of lettings relief in its current, more generous, form.

Managing in uncertain times

Due to Brexit, 2019 looks set to be a year filled with uncertainty for businesses. The future is always unknown but this year managers will need to navigate some particularly choppy waters due to market uncertainty and global political turmoil.

Focus on what you can control

As a manager you can always control your response, attitude, behaviour, actions and words. You can choose to be proactive and inquisitive rather than paralysed. In times of uncertainty, the best managers step up and embrace their authority. When times are uncertain, your team wants you to lead the way. Bring your team with you on the journey, ask them for their opinion, include them in your planning conversations and challenge them to come up with new solutions.

Cash is king

In uncertain times, the old adage that “cash is king” carries even more weight. Cash is the lifeblood of your business and poor cash flow management kills businesses during tough economic times. Market volatility also creates opportunities. If you have cash or credit available to take advantage of these opportunities when they present themselves, you may be able to move quickly and move your business forward. As such, good cash flow management can allow you to cash in.

 

Embrace change and adapt

As your particular market changes, there will be opportunities for you to adapt. For example, if your customers have less budget to spend on buying products and services in your sector, it might be an opportunity for you to introduce a lower priced “value offering.” You could even go one step further and change your pricing model. For example, you could move clients to monthly retainers rather than charging a one-off annual fee.

Diversify

If you depend on one big client to keep your business going, you should consider how to diversify your client base. Sometimes even giant businesses fail during tough times. If your biggest client goes out of business, you don’t want to be collateral damage. Just like in investing, the key is to have a diversified portfolio. Now could be a good time to look at trying to win some new clients in order to make your business more resilient.

Exam Success

We are pleased to announce that Lucas Belim has passed the final exam to achieve his Tax Technician Qualification and become a member of ATT, the leading professional body for those providing UK tax compliance services.

Lucas works for Partner Craig Manser assisting with his wide portfolio of business clients, particularly the tax affairs of Barristers.

We congratulate Lucas on all his hard work in achieving this qualification.