Signature Tax Newsletter August 2018

SigTax Newsletter August

Are you a Landlord?

Considering Incorporation ?

UK residential property has been a target for legislators in recent years. Immediately springing to mind are the provisions of ATED; ATED CGT; the 3% SDLT surcharge; CGT for non residents; the 8% “surcharge” on CGT rates; the restriction of relief for finance costs; the abolition of the wear and tear allowance; and the widening of the scope of Inheritance Tax.

Of all the recent tax changes the most controversial has been the introduction of Mortgage Interest Relief. Previously, individuals who took out a mortgage on a property were able to make a full deduction from gross profit of the interest payments to arrive at Net Profit. This is a huge disadvantage if you own property which is significantly geared. As the interest relief restrictions are being phased in over the years, more of your income will be subject to tax. In the Tax Year 2020/2021 only a 20% deduction will be allowed. However, the same deduction does not apply to companies* where the interest costs meets the wholly and exclusively condition.

Considering Incorporation?
If you own a property business through a partnership you will be able to transfer your rental business to a company but not without incurring CGT or SDLT charges. However, you may be able to transfer your business if certain conditions are met without incurring these charges.

A thorough analysis of the position on whether to incorporate a business should be undertaken. It is advisable to carry out a financial modelling exercise of the business as well as to factor in legal, commercial, taxation, administrative and refinancing costs.

R&D tax credits and GDPR

The Government has stated that data breaches are significant, whether they are minor and/or unintended regardless of the size of the company. Fines are likely to be significant as NCC Group, a global cyber security expert body, estimates that the total value of fines to UK businesses for data breaches in 2016 of just over #880k would have been more than #69 million under the incoming GDPR rules.

Our in-house expert, Steve Deighan explains; ‘There are often serious challenges finding data in (multiple) legacy software systems and actually finding where it has been stored. Additionally, deleting data is not as easy as it sounds as we have witnessed from Google’s experience following the EU court ruling which gave individuals a ‘right to be forgotten’. Again, there are technical issues in getting legacy systems to ‘forget’ individuals and their data and therefore, developing a robust IT security system is imperative to avoiding this.

What many of our Clients are not aware of is that research and development (R&D) into IT security systems and data deletion can often be eligible for R&D tax relief by simply adhering to the new rules and identifying appropriate qualifying expenditure.
R&D tax credits can help offset the expense involved in complying with GDPR, however you need to use an adviser who understands both the technical issues and the tax rules to be sure that your claim is eligible’

Steve can be contacted on

Requirement to Correct

What is the Requirement to Correct? 
HMRC has introduced new legislation called the Requirement to Correct. This requires UK taxpayers to make sure that all their foreign income and assets, where there might be tax to pay, have been declared to HMRC before the 30th September 2018. From the 1st October 2018, new, substantially higher penalties will apply for those who have failed to pay all the tax due on foreign income and assets. To avoid these new penalties, action must be taken now.  

Does it affect me? 
Many people may not realise that some straightforward actions, such as renting out a property abroad or transferring income or assets from one country to another, could mean having to pay tax in the UK. This includes having income from or an asset in the Channel Islands, Isle of Man, the Republic of Ireland, the EU or anywhere else in the world. These must all be declared to HMRC. 
Although the Requirement to Correct applies to people who pay tax in the UK, it could still affect you if you live abroad and pay tax outside of the UK, for example people who rent out their UK home whilst living in another country.  

What action should I take? 
If you are concerned that you haven’t told HMRC about foreign income or assets, or that you have transferred UK income abroad without paying the UK tax on it, you should make a disclosure to HMRC before the 30th September 2018.  
If you are confident that your tax affairs are in order, then you do not need to worry. If you are unsure, we recommend you seek advice from a professional tax advisor or agent. 

How do I make a correction to my tax affairs? 
The main route to let HMRC know about previously undeclared income or assets is the Worldwide Disclosure Facility through the Digital Disclosure Service. This is the final opportunity to make a disclosure before the penalties rise.  

Why act now? 
A disclosure or discovery after the Requirement to Correct deadline will be subject to much tougher Failure to Correct penalties. These penalties are much higher than the present penalties and start from a minimum penalty of 100% of the tax owed. There is also an Asset Based Penalty of up to 10% of the underlying asset for serious cases; and an additional penalty for situations in which HMRC can show the taxpayer moved their assets to avoid reporting.  

We would also like to make you aware that HMRC is beginning to receive an unprecedented amount of information about foreign income and assets under the Common Reporting Standard (CRS) exchange of information. By September 2018, more than 100 jurisdictions will be exchanging data with the UK under the CRS. The CRS data will provide HMRC with information on UK taxpayers’ bank accounts, investments and trusts held around the world. HMRC will use this information to open tax enquiries, issue tougher penalties, and take forward criminal prosecutions against those who avoid paying the tax they owe.  The Requirement to Correct period, from now until 30th September 2018, is the last opportunity to put things right before HMRC receives the CRS data and the new penalties apply.