Adviser insights: Q&A with Alun Oliver : Capital Allowances expert

How long have you been a tax adviser Alun?
Since April 1994 when I joined Crosher & James Quantity Surveyimg practice and about a third of my work was property tax related.

How did you come to specialise in property tax and specifically capital allowances?
I trained and qualified as a Chartered Quantity Surveyor (QS) with WS Atkins and moved to Crosher & James. At the time they were one of only a handful of QS firms specialising in Capital Allowances.

In my last QS role I spent six month negotiating with the contractor over £50K, yet only four weeks or so after starting in capital allowances I sent out my first claim report for a property investor client – saving them £3.5m… I was hooked at the opportunity to really impact clients!

What are the most common mistakes you see made by non-specialists in capital allowances?
Generally non-specialists Accountants fall into two camps

  1. Those who overclaim
  2. Those who underclaim.

Both types of mistake can have a seriously negative impact on the client and their projects.

Too often we hear and see accountants claiming too much as plant & machinery and providing only a fairly rudimentary analysis of the project expenditure. Also high levels of expenditure get categorised as Repairs (100% deduction) when actually they are improvements and should be capital – whether of not eligible for capital allowances (SBAs, PMAs, IFAs or other).

Claiming too little, is to me worse, as the client ends up paying too much tax! The reasons range from lack of awareness, apathy, to old school (and inaccurate) views that Capital Allowances are only a timing difference!

Solicitors also make mistakes here, particularly when acting on commercial property transactions. They often have a poor understanding of the New Fixtures Rules (ss.187A/B CAA2001) and too often default to a s198 election and accepting at face value the responses from the other party. Failure to properly deal with the CAs during a second-hand property transaction can result in NIL capital allowances!

What are the most valuable issues on which you have given advice?
The biggest capital allowances claim was a £600m power station where some 96% was accepted (after scrutiny & negotiation) by HMRC as Plant & Machinery with the balance as then, Industrial Buildings Allowances (IBAs).

What differences might you expect to see in the coming year that could impact those issues?
After the impact of Covid-19 there are certain sectors that will have been impacted more negatively as others. Leisure & Hospitality for example may have lower trading and thus may see losses increase and thus less requirement to seek out tax saving advice – until trade levels improve and growing profitability.

Other sectors – Logistics for example – are seeing strong demand and growth. in the medium term I feel taxes will increase as the Government has to rebuild the country’s finances after the JRS and wider C-19 support measures – but the time frame for that is not at all clear!

What has been your worst experience with HMRC?
Generally HMRC has, in my experience, been relatively fair and reasonable; although on the odd occasion there are some more pedantic enquiries.

One annoying one was a query as to why we were claiming capital allowances on air conditioning units. I simply replied asking the Tax Officer to reference the legislative or case precedent whereby they felt HVAC was disallowed; after which the claim was accepted. On balance I have had more positive feedback from HMRC than negative experiences – we regularly get compliments on the comprehensive nature and transparency of our claim reports!

How would you describe your attitude to tax?
I consider that tax is an essential part of life that enables Government to do so much. Equally tax can successfully be used to encourage or modify behaviour. There is a balance and it is important that Government sets out clear tax legislation and then applies those rules fairly and consistently so tax-payers can make commercial decisions with confidence of the tax consequences.

Which aspect of tax would you nominate for a silliest tax rule award?
Not so much a rule but the reaction of certain politicians as to WHO uses/benefits the tax reliefs – when they are working exactly as planned.

To illustrate Enterprise Zone Allowances (EZAs) or Business Premises Renovation Allowances (PBRAs) gave 100% relief to encourage deprived areas to be regenerated and be brought back into economic use – yet if these regeneration projects are funded by footballers or musicians some politicians focus on them gaining 100% tax relief on their high incomes – criticising them as tax dodgers – when they have facilitated the essential regeneration of thousands of these projects and areas across the country – as the tax relief was designed to do!

What is your top tax tip for general practitioners?
I have two tips:

  1. To recognise that few people are ‘Jack of All Trades’ and thus an independent Property Tax Specialist can add considerable value, saving time, effort, anxiety, reducing risk and saving money!
  2. Beware false economy – good advice is worth paying for – as robust, comprehensive and cost effective.

If you hadn’t gone into tax what would you like to be doing now?
Farming or an artist… but one or both of these may still feature in my next career move?!

What do you enjoy doing in your spare time – away from the world of tax?
Spending time with family and friends – often cooking (and then eating) – from cakes and biscuits through to full multi-course dinner parties!


VAT on contract cancellation fees

Some of your clients may be restructuring their businesses in response to Covid-19 pressures. This may involve terminating supplier service contracts for power, telecoms, or security. Early termination of those contracts can trigger a cancellation fee.

In the past such cancellation fees were regarded as outside the scope of VAT as no goods or service were being provided for the consideration. However, two European Court of Justice cases involving telecoms companies have determined that cancellation fees are part of the agreement to supply the services, so they should be subject to VAT in the same manner as the service provided.

HMRC has set out its revised view on cancellation and termination fees in Revenue and Customs Brief 12/2020 published on 2 September. However, this doesn’t just affect cancellation fees paid from that day forward, the change in VAT treatment is retrospective.

Where your client has charged any cancellation fees in the last four years, they need to check whether they accounted for VAT on that fee, and what rate of VAT applied to underlying service. For example, venues frequently charge a cancellation fee if a booking is cancelled within a set period. There are special rules for tour operators who use TOMS, as explained in Revenue & Customs Brief 9/2019.

If VAT should have been charged the supplier needs to issue a corrected VAT invoice to the former customer. The supplier will also have to correct the error which has understated VAT due in earlier returns.

Where the understated VAT is no more than £10,000, or is less than £50,000 and doesn’t exceed more than 1% of net outputs (box 6), that error can be corrected on the current VAT return. Where the understated VAT is more than £50,000 the correction must be made using form VAT652.

Clients who have paid cancellation fees during the last four years, should contact the supplier for a corrected VAT invoice. The supplier should not charge additional VAT on top of what has been paid as the cancellation fee, the VAT should be treated as part of the fee already paid.

Once the corrected invoice has been received, the customer can reclaim the VAT, using the same error correction limits above.

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Adviser insights: Q&A with Liz Zitzow : US taxes expert

How long have you been a tax adviser Liz?
Since 1984!
How did you come to specialise in US taxes?
I became a specialist in US international tax about twenty years ago when I moved to the UK. After three years here I was practically running the entire US division of a boutique dual US/UK company. I started my own practice after five years there.
Where were you working at the time?
US Tax and Financial Services, a practice in London and Zurich.
What are the most common mistakes you see made by non-specialists in your area of tax?
Robbing Peter to pay Paul. What’s the good of getting the lowest tax number in one country only to have a higher tax in the other one? I figure out where it’s lowest and how to get it there.
What are the most valuable issues on which you have given advice?
The disposition of assets before a major life changing event, such as divorces, moving countries, giving up citizenship, aquiring permanent residence status, starting a company, closing a trust, selling a home, etc.
What differences might you expect to see in the coming year that could impact those issues?
We’ve got a lot of people who had arrived in a country for just a few weeks only to have it turn into three months or more from Covid 19. We’re helping make sure their country of residence remains the one it would have been pre-Covid 19.
What has been your worst experience with HMRC?
The threat made to a famous author that if he wanted to object to their findings, it would be in court which would have sullied his reputation. I got them to agree that we would accept their findings only if we could compute the figures rather than use their estimate. Their estimate of how much was owed was £200K. They owed him £30K once I did the maths. Yay!
What has been the most rewarding thing you have done from a tax perspective?
Every person who came to my office crying over the worry that they would owe a lot turned around when I showed them the balance due was much smaller (often zero) and that I could get the IRS to waive all the penalties too.
How would you describe your attitude to tax?
It serves a good purpose; except for the bits that go towards military might.
Which aspect of tax would you nominate for a silliest tax rule award?
Children’s breakfast cereal is sales tax exempt in Canada if the box has a free toy. They go on define what a free toy is; the description specifies that it can’t be beer, liquor, or wine. I don’t know about you, but I’d pay sales tax to get me some of that more grown up cereal.
What is the funniest tax related experience you have had?
I did an advice session with an actor who did the voice of a robot on a sitcom. I couldn’t stop laughing as he peppered our oherwise stressful conversation with quips from the show. I like my comedian clients a lot!
What is your top tax tip for general practitioners?
Ask all-encompassing questions. It’s not, “Did you earn any interest?” It’s, “Do you have any bank or investment accounts?”
If you hadn’t gone into tax what would you like to be doing now?
I was doing day labour, waitressing, and singing in a rock band; so I suppose I’d still be in the rock scene nights with a boring day job.
What do you enjoy doing in your spare time – away from the world of tax?
I’m gardening this year. Most years I travel a lot! This year it was New England and Dublin. Next year it’s to be Washington DC and Las Vegas and the southern coast of Spain.
What other question do you wish I had asked and how would you reply?
What tips would you give an apprentice? Have a perfect resume. It’s not just spelling and grammer that have to be perfect. The fonts, the kerning, the paragraph structure, the bullet points; every teensy detail is critically identical to all the other similar bits on the CV. You don’t know what programme they’re going to be using to open your CV, so check how it looks on Windows, Macs, Android, Google, etc. Everywhere it should be the same: Perfect. You’ve had all the time in the world to get the CV right. If you can’t get something right with all the time in the world, why would a job with high pressure deadlines be interested in your CV?

Trust Registration Service

We summarised the debacle of the Trust Registration Service (TRS) on 7 December 2017, and there have been continuing problems with the TRS ever since.

For example, until April 2020 it was not possible for agents to update the details of the trustees, settlors and beneficiaries on the TRS. However, the trust SA tax return asked, at question 20, to confirm whether the TRS had been updated with any changes.

Agents can now truthfully answer question 20 on the trust’s 2019/20 tax return, but had to ignore that question on the 2017/18 and 2018/19 returns. Any trust changes which occurred in the two years to 5 April 2019 should be reported on the TRS by 31 January 2021.

Note the TRS is not linked to the self-assessment service. A trustee can’t gain access to the TRS by logging into their Business Tax Account.

To allow an agent to access the TRS and update details the trustee and the agent must follow these steps:

  1. Trustee sets up a government gateway ID for the trust asking for an “organisation” account.
  2. Trustee logs into the government gateway for the trust and “claims” the trust. This requires the trustee to answer a number of questions about the trust, such as NI number name of lead trustee.
  3. Agent logs into to their Agent Services Account (ASA)
  4. Agent selects option to be authorised to maintain a trust, and enters the trust’s UTR number. The system generates a link which agent must send to the client.
  5. Trustee clicks on the link received from the agent and signs into the government gateway.
  6. Trustee chooses option to authorise agent to act to maintain the trust.
  7. Agent logs in with their ASA credentials to update the trust.

Will they collect more tax if they again align the rates of CGT and income tax?

“Increases in capital gains tax are inevitable now, despite doubts expressed ten years ago”, says Mark Lee, Chairman of the Tax Advice Network.

On 13 July, the Chancellor asked the independent Office of Tax Simplification (OTS) to undertake a review of Capital Gains Tax (CGT) in relation to individuals and smaller businesses. “The publication of a full scoping document on 14 July, just one day after a formal request was issued, suggests the request was no surprise.” Says Lee. “So, as the Sunday papers predict today, we are likely to see increases in the next Budget”.

The wording of the letter references capital gains as being a type of income. “This is odd language” says Lee, “as the Chancellor must know that CGT doesn’t tax income. By definition CGT taxes capital gains. That’s the increase in the value of your investments – and CGT is only charged when you realise those gains by selling your investments – things like second homes, shares, paintings and so on”.

“No one wants to say it but increasing CGT makes good political sense” says Lee, who was himself a tax adviser for 25 years.  “I remember discussing this very point with Sir Edward Troup at a tax conference in 2010.  Back then he doubted that aligning the rates of CGT and income tax would increase the tax take from CGT. I wonder what has changed?”

There are many exemptions and reliefs from CGT and an annual exemption. This means that the first £12,300 of capital gains anyone makes each year is tax free.  This rule simplifies things for the majority who cannot make significant capital gains.

Notes for editors:

1. Mark Lee is a Fellow of the ICAEW and of the CIOT. He is a former tax partner at the accountancy firm BDO and a former Chairman of the ICAEW Tax Faculty.

2. The Tax Advice Network, launched in 2007, operates the FindATaxAdviser.online website and has members all over the UK.

3. In May 2010 George Osborne, Chancellor in the new Coalition Government, announced that he would “seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities. In his Budget on 22 June 2010 he raised the top rate of CGT to 28%.

4. Mark Lee’s subsequent conversation with Sir Edward Troup is recorded on the Tax-Buzz blog entry 5/7/2010: “CGT rules unlikely to change again in this Parliament”.

5. In 2010, Troup was Managing Director of the Budget Tax and Welfare directorate at HM Treasury. He later became Executive Chair and First Permanent Secretary of the HM Revenue and Customs (HMRC) in April 2016. He retired in December 2017, and was knighted in the 2018 New Year Honours.

6. On 13 July 2020 The Chancellor of the Exchequer, Rishi Sunak, asked the OTS to carry out a review of Capital Gains Tax to identify simplification opportunities. The scoping document for the review was published on 14 July 2020.

7. The rate of CGT has changed over time since it was first introduced in 1965. Until 1988 it was fixed at 30%. Then for 20 years CGT was payable at income tax rates, as if it was additional income (but with it’s own set of reliefs and exemptions). It was a Labour Chancellor, Alastair Darling, who reduced the top rate of CGT from 40% (when it was aligned with the then top rate of income tax) to 18% in 2008. In recent years the top rate of CGT has been 28% whereas the top rate of income tax is now 45%.

8. Lee questioned the rationale for reducing the rate of CGT in an article on his Tax Buzz blog on 5/2/2009: Why are capital gains taxed at less than  half the main rate of tax?

 


Adviser insights: Q&A with Bill Stevenson: Tax investigations specialist

How long have you been a tax adviser Bill?

Since July 2006 after 41 years on the bad side (HM Revenue and Customs – Previously Inland Revenue)

Why did you move into tax work?

It was in 1965 because my first choice of the diplomatic service was not considered suitable for this school leaver.
41 years later after having set up the COP9 teams in Scotland, Wales and Northern Ireland I decided to “retire early”. Since then I have enjoyed almost every day of my retirement providing my expertise in assisting clients to deal with HMRC. This is especially under Code of Practice 9 (but in fact any tax investigation where there is a mutual willingness to engage with a client on a full disclosure basis)

How did you come to specialise in Investigations work?

For the first 10 years or so of my career I progressed “through the ranks” to Tax Inspector and then on to Fully Trained Tax Inspector with District Charge.

I always enjoyed doing tax investigation work and catching people out. Then spending almost 9 years in HMRC’s Enquiry Branch undertaking specialist and serious tax investigations (with a view to prosecuting or settling civilly with errant taxpayers) I found the work even more interesting and I was good at it.

For another 20+ years in the job I was in charge of various tax offices and enjoyed working with and seeing staff develop.

Having retired early I was almost immediately asked to help an accountant who HMRC had their sights on and managed to satisfy them that their risk was ill-conceived. The rest is history as they say. Eventually I may retire but still find that my expertise is needed and appreciated by clients when it wins the day; so we will see when that day come.

What are the most common mistakes you see in your area of tax?

  1. HMRC do not always get it right but they do in a fair percentage of cases. So don’t think that you will be smarter than the investigator or deny irregularities if you know you’ve done wrong and want to settle in the most beneficial way possible.
  2. Don’t underestimate the time it takes to properly examine and defend a client. When the COP9 letter hits your doorstep – to be signed for – you only have 60 days in which to get your ducks lined up to best effect. Failing to meet that deadline or not properly accepting or rejecting HMRC’s offer can leave you exposed to losing immunity from prosecution for matters (however serious) that you have disclosed to HMRC.
  3. Lay your cards (however serious or misguided they may be) on the table with your COP9 specialist at the earliest possible. Keeping things back can lead to a suspicion that there is more being hidden and cause the trust/relationship to deteriorate or terminate.

What do you like most about the work you do?

Apart from the great satisfaction felt when you get the client a good result. Well it has to be forensically analysing business records and financial accounts to prove that the client’s full and frank disclosure is justified and that matters are not any more serious than disclosed.

What is your top tax tip for general practitioner accountants?

General practitioners should realise that I wouldn’t probably be able to do their job as well as they do it – I don’t want to prepare accounts and do tax returns.

In the same way they can do their clients the biggest favour by recognising that it needs a certain type of person and experience to do COP9 work and they should refer such cases for specialist attention. Additionally as I have no intention of doing their type of job their bread and butter is safe in their hands.

If you hadn’t gone into tax what would you like to be doing now?

A covert hotel inspector or failing that an agricultural farmer.

What has been the most rewarding thing you have done from a tax perspective?

Achieved the right result for a client who said that comparing my service to a Big 4 Accounting firm – and he had experience of such – would be a disservice to Bill….

Which aspect of tax would you nominate for a silliest tax rule award?

HMRC’s view that it only costs £4 per week (surprisingly £6 because of Covid19) for the additional costs of working from home.

What advice would you give your younger self?

Do it all again.

What do you enjoy doing in your spare time – away form the world of tax?

In season – Creel fishing inshore and when able driving my tractor.
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You can reach Bill via his profile here>>>


Imaginary NIC debts

Another group of small employers have received letters and calls from HMRC’s debt management department this month, accusing them of deliberately underpaying the PAYE and NIC due for April to June. Those employers are certain that they have paid the correct amount of tax and NI for the period.

On closer inspection the amount that HMRC say is due equals the employer’s NIC for the months concerned. Where the employer has claimed the Employment Allowance, this should cover up to £4,000 of employer’s class 1 NIC for 2020/21 and the allowance should be set against the NIC liability for the month in which the claim is made and the following months until it is fully utilised.

The root of this problem is HMRC’s computer, specifically the National Insurance and PAYE System (NPS). For some reason the NPS is not picking up the employer’s claim for the Employment Allowance made in the first quarter of 2020/21. It is a known problem, which HMRC hope to solve with its IT business partners by 19 August.

In the meantime, the debt management letters may continue to arrive with your clients, but at least you know how the payment difference may have arisen. The employer can confirm whether their Employment Allowance claim has been accepted by checking their business tax account (BTA), unfortunately you can’t access the BTA on behalf of your clients.

Where your client has had their entire workforce on furlough for April to July, their full payroll costs, including employer’s NIC and pension contributions should have been covered by the CJRS grant. In such cases it made sense not to claim the Employment Allowance in the first quarter.

If the Employment Allowance was claimed, the CJRS claims for April to July should not include the costs of the employer’s class 1 N1C, if the total class 1 NIC liabiities are less than £4,000.

From 1 August 2020 the CJRS grant does not cover the employer’s class 1 NIC, or the employer’s contributions to the workplace pension, for employees on furlough. It thus makes sense to now make a claim for the Employment Allowance so it can be set against the employer’s NIC for August and later periods.

Remember there are additional conditions for claiming the Employment Allowance for 2020/21; the class 1 NIC liability for 2019/20 must have been less than £100,000 and the state aid threshold must not be exceeded.


Inheritance tax receipts fall. Does this make a wealth tax more likely?

Inheritance tax (IHT) seems to worry far more people than are ever likely to pay it. The latest stats reveal why the Government and HMRC may be planning to switch to a wealth tax instead.

The most recent figures available tell us that fewer than 4% of UK deaths resulted in a charge to IHT. And that HMRC received only a little over £5 billion inheritance tax in 2019/20.

Earlier this year an all-party parliamentary group proposed the wholesale reform of IHT and intergenerational fairness. Their main recommendation was to replace IHT with a flat-rate gift tax payable both on lifetime and death transfers. As ever such proposals are easier to accept in theory than they would ever be to legislate.

And let no one assume that a wealth tax would be easy to apply and charge by reference to shares, properties and other assets whose values are ever changing.

Many of the members of our Network are expert advisers on inheritance tax and related issues. YOU’ll find their profiles by entering inheritance tax in the search bar on the home page of this site


CGT 30-day reporting

From 6 April 2015 non-resident taxpayers who sell UK residential property have been required to report the gain and pay the Non-Resident CGT due with 30 days of the completion date.

From 6 April 2019 the range of assets that NRCGT applied to was extended to all UK property or land held directly or indirectly by a non-resident. All disposals within the NRCGT regime that completed before 6 April 2020 had to be reported on a simple online NRCGT form within 30 days.

From 6 April 2020 a 30-day reporting regime applies to all UK residential property disposed of by any individual taxpayer or trustee. Non-residents must report the disposal of any type of UK property, not just residential property. However, both UK resident taxpayers and non-residents must now use the new CGT on UK property service, which requires a government gateway ID and password to access it.

Non-residents may have difficulty setting up a government gateway ID as they may not have the necessary ID documents such as a UK passport, driving licence, NI number or a UTR number. If your client falls into this category, they can still create a UK property account by ignoring the boxes asking for the government gateway ID and password. Instead click on “create sign in details” below green box marked “Sign in”. The client needs to enter an email address and the address of the UK property.

Where your client is digitially excluded and doesn’t have an email address, you need to contact HMRC on 0300 200 3300, and ask for a paper form. Unfortunately, HMRC will only send this form to the taxpayer. So by the time it arrives, if it ever does, the 30-day period for reporting the gain may have expired.

Penalties apply for late filing of the NRCGT return and the UK property CGT return. These penalties were suspended for disposals completed before 1 July 2020, but all those disposals need to be reported by 31 July 2020, if there is CGT to pay.


Is a company car ‘available’ for private use?

A benefit in kind tax charge arises where a company car is available for an employee’s use. Once a car has been made available to an employee, the charge is reduced proportionately for period of unavailability of at least 30 days. This period can span two tax years.

The legislation (ITEPA 2003, s. 118) provides that a car is treated as being available for private use unless the terms on which it is made available prohibit such use and it is not so used.

During the Covid-19 pandemic, employees with company cars may have been furloughed or shielding. In guidance published on how to treat expenses and benefits provided to employees during the pandemic, HMRC address the issue of company car availability.

In the guidance they state that:

`You should treat a car as being made ‘’available for private use’’ during this period even if your employee is:

  • instructed to not use the car
  • asked to take and keep a photographic image of the mileage both before and after a period of furlough
  • unable to physically return the car or the car cannot be collected from the employee’.

However, HMRC concede that where restriction on movement applied because of coronavirus which prevent the car from being handed back, they will accept that a car is unavailable where the contract is terminated from the date that the keys, including tabs or fobs, are returned. Where the contract is not terminated, HMRC will regard the car as being unavailable 30 days after the returns of the keys, tabs or fobs.

HMRC’s test of availability goes beyond that set by the legislation. If an employee is instructed not to use the car and does not do so (for example, as shown by photographic evidence), under the terms of the legislation, the car is not ‘available’ for the employee’s private use, and where the period of unavailability exceeds 30 days a reduction in the tax charge should be forthcoming. Attempts by HMRC to impose a stricter test than that required by the legislation (e.g. the return of keys) should be challenged.

It should be noted, however, the test is whether the car is unavailable for the employee’s private use, not whether the employee is able to use it. Thus, an employee who is shielding may be unable to leave the house and drive a company car. However, unless private use is prohibited, the car remains available for private use and there is no reduction in the tax charge, despite the fact there is no actual private use.