R&D tax: key points in the recent consultation

This post is part of our Entrepreneurial team’s regular series of blogs.

Research & Development Tax reliefs (R&D) play a key role in promoting UK investment by reducing the costs of innovation, so it’s unsurprising that the Government wants the reliefs to remain up-to-date, competitive and well-targeted.

A consultation on the future of R&D Tax relief recently closed, exploring how this is supported and whether changes may be appropriate. Below are some of my thoughts on the key points brought up.

The case for consolidating the two schemes into one

In some instances, the R&D Tax legislation can be overly complex. Having two schemes means having two overlapping sets of rules instead of a single coherent system. Simplifying and consolidating the schemes makes sense, provided SMEs continue to receive preferential rates.

The RDEC model provides a step-by-step methodology for the calculation, and it would therefore make sense for the SME scheme to mirror this by standardising the process. Ultimately this should help HMRC review the claims effectively, improving turnaround times.

R&D compliance

There have been growing concerns over the past few years that the system does not provide adequate controls for the allocation of tax credits. HMRC aim to process claims within 28 days. However, due to their sheer number, there isn’t a lot of time for them to consider every case in detail. Whilst HMRC have the power to enquire into claims after they have been “accepted”, we should look to develop the incentive so that it provides as much certainty as possible in the first instance. After all, getting it right first time should be good for everyone and improve consistency throughout the process.

The new CT600L form helps this to a certain degree, but new regulations are required. Currently, there is limited regulation covering who can provide advice and the supporting documentation required. R&D Tax can have a significant impact on a company’s tax position and strategy, so it’s important that companies get the right professional advice on the matter.

Comparatively, other business advisory professionals (such as accountants and lawyers) must rightly conform to regulation and governance from their respective industry bodies. There is no such body to regulate R&D specialists. New regulation in this area would help to improve consistency and ensure companies are not put at risk of making an illegitimate claim.

Qualifying expenditure and new R&D definition

The world is ever-changing and, as such, incentives should adapt accordingly. Modernising the ‘software costs’ category to accurately reflect how data and hosting costs contribute to R&D processes is welcomed, and I hopefully look forward to this being reflected in both updated legislation and guidance once the consultation is complete.

It is also good to see the Government considering whether the R&D definition needs updating. This is especially necessary in terms of clarity, or to widen the kinds of research covered by reliefs. The UK definition of R&D was set out last in 2004, therefore it is definitely due a revisit. There’s a particular opportunity to identify better ways to address R&D practices and fields, which have changed significantly since then.

Overall, change is definitely coming. However, I view it as a positive modernisation. Genuinely innovative companies shouldn’t be worried about change, as the ultimate goal is to update and target the reliefs, whilst helping attract and retain key businesses in the UK.

If you have any questions about R&D tax relief, get in touch with our team.

Reform of tax ‘Basis Period’ announced by HMRC

The Government has this week announced a consultation concerning a potential reform of the basis on which trading profits arising to the self-employed (including members of partnerships) are subject to income tax. Should the proposed changes go ahead they will impact the self-employed who carry on a trade for UK tax purposes and do not draw up annual accounts to 31 March or 5 April.

In very broad terms, to align the taxation of trading profits with other types of income arising to individuals, the Government has proposed that existing ‘basis period’ rules, whereby income tax on trading profits for a tax year is determined based on profits arising in the accounting period ending in the tax year, will be replaced by a simplified system which would require the self-employed to apportion trading profits to tax years.

Whilst the proposals should certainly remove much of the complexities associated with the taxation of trading profits for many self-employed individuals (particularly in the early years of trade), to align with the introduction of Making Tax Digital (MTD) for income tax, the Government has proposed that these changes will take effect from 2023/24 with a one year transitional period in 2022/23. This leaves very little time for businesses to prepare for the practical implications of the changes which, due to the transitional provisions which will apply in 2022/23, could include cash flow challenges arising from the possibility that a higher income tax liability will arise for that tax year than might otherwise have been the case.

Notwithstanding that the objective of the proposals is the simplification and modernisation of a somewhat outdated set of rules, implementation of the changes over such a short period of time could represent an added burden for the self-employed post-Covid and arguably another unwelcome level of disruption as the whole country looks towards a future after the global pandemic. The consultation closes on 31 August; we will provide further information when available.

Raising standards in the tax advice market – how do you choose a tax adviser?

This post is part of our Entrepreneurial team’s regular series of blogs.

Tax advisers, their reputation and the risks to clients of making the wrong choice in selecting one, are under the spotlight like never before.

HMRC have published a summary of responses to the call for evidence and next steps, in relation to the recent consultation on raising standards in the tax advice market (the full outcome can be found here).

An independent review into the tax advice market in 2019 highlighted varying levels of standards and cases where taxpayers received advice that left them open to substantial tax bills. While the majority of tax advisers are technically competent and adhere to high professional standards, it was found that some advisers were displaying incompetence and others were actively bending or breaking the rules.

This prompted HMRC to open a consultation into improving the standards of advisers across this field. Their aim was to help taxpayers make informed decisions when seeking tax advice, to assure them that the advice they receive is competent, professional and trustworthy.

The consultation highlighted indicators of tax advisers with high standards that taxpayers should consider, when selecting a tax adviser. These included:

  • Holding accountancy qualification(s)
  • Having relevant experience
  • Complying with the PCRT (Professional Conduct in Relation to Taxation), including ethical practice
  • Not taking shortcuts
  • Acting transparently
  • Seeking to educate clients
  • Undertaking due diligence on clients
  • Recognising their own expertise and whether they are appropriately placed to offer advice
  • Having professional indemnity insurance
  • Being a member of a professional body
  • Being registered for anti-money laundering supervision

C+T meets all of the above points and consistently provides high quality standards to all of our clients, whether that be for compliance engagements or providing more complex tax advice. We have specialists across many aspects of tax who can help in areas such as, but not limited to, Capital Allowances (CAs), creative industries tax reliefs, R&D tax relief, (S)EIS, share schemes and VAT.

As we are accountants, we understand the bigger picture in relation to how these areas of tax interact with compliance requirements and can help companies utilise any available tax reliefs in the most efficient manner, and in a way that fits with their long-term strategy.

For more information on how the Chiene + Tait team can help you, contact us today at mail@chiene.co.uk or call 0131 558 5800.

Self-Assessment Taxpayers get additional help through HMRC Time To Pay

UK taxpayers can now apply online for additional support from HMRC to help spread the cost of their self-assessment tax bill from an annual payment to smaller monthly payments.

In his Winter Economy Plan, Chancellor Rishi Sunak announced that taxpayers could pay amounts due on 31 January 2021 (including any deferred payment on account from July 2020, their balancing payment owed for 2019/20 and the first payment on account for the current tax year) in monthly instalments online through HMRC’s online Time To Pay system.

Interest will still be charged on the tax owed from 1 February 2021.

Taxpayers who wish to set up an arrangement must:

·         Have no outstanding tax returns, other tax debts or existing HMRC payment plans;

·         Have tax due of between £32 and £30,000;

·         Put the payment plan in place no later than 60 days after the due date of 31 January 2021.

Anyone who has larger amounts due or needs more than 12 months to settle their tax affairs will need to contact HMRC separately.

HMRC has also asked taxpayers to be aware of scammers claiming to be from HMRC who offer to help set up Time To Pay.

Business must prepare for R&D tax relief crackdown

In this blog, Dave Philp Head of R&D at Chiene + Tait outlines the implications of a potential clampdown on spurious research and development claims to HMRC.

R&D (Research and Development) Tax Relief, introduced in 2000 to encourage more company investment into innovation, is more popular than ever. In 2017-18, UK companies submitted over 48,000 claims for R&D tax credits. A total of £4.3bn in tax relief was secured, an increase of £1bn from the previous year. Here in Scotland, £175m in R&D tax relief was secured by businesses in 2017-18. While this rise in claims is positive, suggesting more UK businesses are focusing on innovation as a way to make themselves competitive, there are also concerns about illegitimate claims being submitted.

HMRC is now taking steps to combat fraudulent claims, reporting that it has already identified and prevented half a billion pounds of fraud linked to R&D tax credits. Last year the Government announced it would re-introduce the PAYE and NIC cap on SME payable credits, a move aimed at preventing fraud within structures set up to claim a tax credit despite there being no evidence of UK-based innovation activity or job creation.

Following the internal re-structuring of HMRC’s R&D tax teams last Autumn, it was also announced in the Queen’s speech that the Government would create a single, beefed-up, anti-tax evasion unit to cover all taxes and introduce new anti-avoidance measures. This potential forthcoming clampdown on R&D tax credit abuse in the UK follows a similar process carried out in Australia in 2018 which sent shockwaves through that country’s software sector. The Australian Government’s crackdown had significant impact with companies, including the tech firm Airtasker, being ordered to pay back millions of dollars they had received in R&D tax breaks.

While a number of businesses there were caught on the hop, the Australian Tax Office had made clear a year earlier of their intention to review R&D claims from software companies. This came amid concerns that advisory firms were encouraging companies to claim for work, which didn’t count as pure R&D. Despite the British Government getting set to impose greater scrutiny here, its support for R&D tax credits is unlikely to dissipate, especially with the UK having just completed its withdrawal of the EU.

Indeed, the new Boris Johnson-led administration has stated that it will review the definition of R&D, mainly to further incentivise cloud computing and data projects. It has also announced it will increase the R&D Expenditure Credit available for large companies and grant-funded projects. Potential abuse of R&D tax relief claims is, however, likely to be subject to much closer scrutiny going forward. To assist this process, one of the areas that the Government should be focused on is tougher regulation for those who advise companies on R&D tax relief.

Whilst there are a number of good, tax focused, R&D advisors operating within the UK, there are also a number of ‘experts’ who resort to cold-calling and wrongly advising that a company can easily qualify for relief. HMRC can take their time opening enquiries into a company’s tax affairs and any erroneous claim will be required to be repaid, along with potential penalties and interest. It will also likely be a red mark in any due diligence process, should it wish to be sold in future.

While other business advisory professionals, such as accountants and lawyers, must rightly conform to regulation and governance from their respective industry bodies, there is currently no such body to regulate R&D specialists. New regulation in this area would help to ensure companies are not put in risk at making an illegitimate claim.

Time will tell if the UK’s R&D tax credit crackdown will prove to be as harsh as what occurred in Australia.  There is, however, no doubt that companies need to consider whether they meet HMRC’s definitions as set out in the tax legislation and guidance with sufficient back up to support their claim. For those companies that are unsure of this process it is important they work with a credible and established adviser, ideally one that is currently governed by an industry code of conduct.

Case Study: DIY Home Builders VAT Reclaim

The DIY House Builders VAT scheme is available for people who build their own homes to reclaim the VAT incurred on their building costs. This scheme puts self-builders in the same position as people who buy new houses from housebuilders in that the costs are zero rated for VAT.

In its guidance to applicants HMRC sets out a strict and rigorous application process for each applicant to follow in order to be successful.

Two important conditions for making a claim stand out:

  • Only one claim can be made per project; and
  • The reclaim application must be submitted within 3 months of the building being “completed”.

Completion certificates are mentioned several times on the application form (VAT431NB) and there is a section outlining their importance in the accompanying notes and when completing a claim form most people would consider that the date of the completion certificate was the relevant date for the clock to start ticking on making a claim. So in an ideal situation, a property will be completed on time and on budget, a completion certificate will be issued, a family will move into the house and an application to recover the VAT will be dispatched to HMRC within 3 months seeking a reclaim of the VAT on the project.

In recent years, we have become aware that HMRC has rejected several claims where the builder and family have moved into the property prior to the work being fully completed. These claims have been rejected even where a completion certificate has been issued and the reclaim application is submitted within 3 months of the certificate date. Within the application form there is a question which asks when the property was first occupied which then leads to the initial challenge by HMRC. Given the strict timescale for submitting claims, it can render some claims “out of time” and self-builders have lost out on the VAT they paid on the construction of their homes.

We recently assisted one DIY builder who was faced with this very issue.  Due to financial and extreme economic pressures our client had to move into the property midway though the project. The house was built, however several rooms were incomplete but he was left with no option to move firstly into the garage building of the property and then into the main house and then continue work when he had time and budget to undertake the additional work.

In this particular case, a completion certificate was issued on 26 May 2017 and a claim was submitted on 10 August 2017 (within the 3-month timescale), however the claim was rejected because HMRC considered that the building was completed well before the completion certificate was issued.

We advised our client through an independent review process and then Alternative Dispute Resolution (ADR) but were not able to change HMRC’s position on the date when they considered that the building was complete. HMRC’s position was that the building was complete either in December 2008 when the property first started to be occupied; or, in June 2016 when the last invoice was received.

Our client was brave enough to take his case to the VAT Tribunal and was successful in what was a significant personal (and financial) triumph.  What was most interesting about the Tribunal judgment was the Chairman’s comments on what the law means by “completion” (rather than HMRC’s definition which was relied on throughout the appeal process).

The VAT legislation explains that specific documents are required in order to make a claim; namely, a certificate of completion from a local authority or other documentary evidence of completion of the building. The Tribunal Chairman goes on to describe that having this rule gives clear guidance for both a claimant and HMRC on where the 3-month clock starts clicking for a DIY claim. The Chairman ruled that it is only where there is no certificate in place that other completion date alternatives can be given. This may apply where a claimant wants to submit a claim well in advance of a formal completion certificate being issued (which would negate his ability to make a further claim). Tellingly, the judgment goes on to point out that, based on the statute, neither the date of occupation or the date of the last item of expenditure should be used as alternatives to determine the completion date, although HMRC relied on these in this case.

A lot of the discussion during the Tribunal revolved around the clarification of what the legislation means to be ‘complete’. On this point the Tribunal found in our client’s favour and ruled that the meaning of ‘completion’ is to be given its plain meaning and can be defined by the issuing of a certificate of completion as this is a clear-cut definition. The Tribunal also rejected HMRC’s argument that the primary date of completion was the date of the last invoice included in the refund as it is considered that DIY new builds often occurs in bursts of activity then periods of inactivity. The tribunal also noted that from the photographic evidence submitted, there were still several rooms of the property ‘incomplete’ at the date of sale.

Conclusion

This case has helped highlight how strict and compliant DIY housebuilders must be in order to be successful with their claims. It also highlights that HMRC can be challenged where taxpayers are denied claims. Unfortunately, the costs associated with going to VAT Tribunal often outweigh the VAT at stake, so taxpayers are often in the invidious position of having to accept HMRC’s position. In this case, our client was confident enough to represent himself clearly worked in his favour with Tribunal Chairman – a position that the majority of laypeople would want to face!

HMRC has decided not to appeal this case, which is a relief for the taxpayer, however it still leaves legal uncertainty. As this is a Tribunal decision it cannot be relied on by other taxpayers in future cases (although the Tribunal Chairman’s comments on “completion” are very telling).

We would recommend that anyone who has had recent DIY claims rejected by HMRC to speak to a VAT adviser to see if it may be possible to appeal the decision.

TC07240: STUART FARQUHARSON

[2019] UKFTT 425 (TC)

European Court Ruling may impact Charities VAT position on Investment Management fees

A recent case, in what may be one of the last UK VAT cases to be heard at the Court of Justice of the EU (CJEU), may have a significant impact on UK Charities who have investments and who have recovered any VAT on investment management services in the last 4 years.

In C-316/18 – The Chancellor, Masters and Scholars of the University of Cambridge, the UK Court of Appeal referred a question on whether a charity can treat investment management services as an overhead cost which relates to all of a charity’s activities (with the VAT potentially partially recoverable) or whether it directly related to financial investments (with the VAT not recoverable). In what was a complex case, the final analysis of the Court was that these costs were not an overhead of the charitable activities, but were solely referable to the investment activity which would mean that VAT recovery was not possible.

The case will be referred back the UK Court of Appeal to make the final decision but we expect that HMRC will use this to target charities it believes may have recovered VAT on investment management services and potentially raise assessments.

We would recommend that charities consider whether they are at risk and seek advice immediately as they may be required to submit error declarations to HMRC to avoid potential penalties.  We would hope that HMRC will issue helpful advice but in the interim we recommend that appropriate action is taken.

If you would like to discuss this or are concerned that your charity might be affected please contact Iain Masterton, our VAT Director on 0131 558 5800 or iain.masterton@chiene.co.uk.

Non-Resident CGT regime continues to cause a headache for taxpayers (and HMRC!)

Stephen Baker in our Personal Tax team outlines that the lack of publicity for the Non-Resident Capital Gains Tax return has seen a huge rise in individuals falling foul of the filing requirement.

Since 6 April 2015, non-resident individuals are liable to UK Capital Gains Tax on the disposal of UK residential property. Such disposals must be reported to HM Revenue & Customs (HMRC) within 30 days by way of a Non-Resident Capital Gains Tax (NRCGT) return. Penalties arise if the return is submitted late.

Despite rules being in existence for over 3 years, there continues to be a large number of individuals falling foul of this filing requirement. Recent published tribunal cases on the issue suggest that the reason for late filing is largely due to the short 30-day timescale for reporting and a general lack of awareness of this deadline.

In most cases where penalties have been levied, by the time the taxpayer realises that a return is required, it is likely that multiple late filing penalties are already accrued (even in cases where the CGT due is zero). For example, if a return is filed 12 months late on a disposal on which no tax is due, a total potential penalty of £700 may arise, comprising of a £100 late filing penalty and two £300 tax geared penalties.

A number of taxpayers have appealed against these penalties by bringing a case to the tax tribunal. From these appeals, a number of interesting outcomes have emerged. As would be expected, ignorance of the rules is not a reasonable excuse and the tribunal has stated this in several cases, although initial tribunal rulings were somewhat critical of HMRC’s lack of sufficient promotion of the new regime and found in favour of taxpayers in a couple of appeals on this basis. More recent tribunal decisions however, have found in favour of HMRC and concluded that lack of awareness of the change in law was not a reasonable excuse.

Despite the trend of cases in favour of HMRC, there were several smaller wins for taxpayers:

  • In cases where there were multiple disposals and subsequent multiple penalties, the tribunal has reduced or eliminated some of these penalties. It was found that there had been no chance for the taxpayer to learn from their first mistake (i.e. filing the return for the first disposal late) and therefore charging penalties for additional disposals would be unfair.
  • The tribunal analysed the penalty legislation in great detail and held that any tax-geared penalties should not exceed 100% of the actual tax due. Therefore, if no NRCGT is actually payable, penalties should be restricted to the initial £100 late filing penalty. It will be interesting to see how this point develops as the legislation applies to other taxes also.

Going forward it appears that there will need to be an increased awareness of the requirement to file a NRCGT return within 30 days. Although this is a requirement that tax advisers should be aware of, clients tend to notify advisers of transactions after the tax yearend (when a NRCGT return is likely to be already long overdue). This problem has the potential to become more prominent; currently there is a proposal to extend the 30-day reporting limit to both Non-resident commercial property disposals and to residential property disposals by UK residents.

It will be interesting to see how HMRC deal with any further appeals on this matter, but in the meantime, if you have any queries regarding NRCGT, please do not hesitate to contact me or one of the Personal Tax Team at Chiene + Tait on 0131 558 5800 or email mail@chiene.co.uk.

News Corp v HMRC

In this blog, VAT Director Iain Masterton looks at the history of the tax treatment of newspapers and books and how VAT legislation hasn’t moved with the times.

A recent VAT case has highlighted how VAT legislation drafted in the 1970s and 1990s has not easily translated into the modern age.

VAT zero rating is available for the supply of “printed matter” which includes newspapers, books and magazines.  Critically the legislation describes these items as “goods”.

News Corp, the company who own the Times and Sunday Times, tried to argue at the VAT Tribunal digital versions of their newspaper should qualify for the same VAT treatment as its printed counterparts.

The decision in the case revealed the fascinating history of the tax treatment of newspapers and books going back to 1940 when the VAT treatment of these items was exempt under the then named ‘purchase tax.’ This was replaced in 1973 by VAT as the UK joined what is now the EU.

The Tribunal conceded that the digital version of The Times was 95% similar to the paper version of the newspaper and despite the fact that the digital version of the paper was issued periodically under the same title and contained current affairs news, the VAT Tribunal could not look past the fact that the zero-rating provisions for printed matter refers to goods, not services.

The Tribunal also noted that zero rating provisions needed to have a social component and when Parliament originally decided to zero rate newspapers, the purpose of this was to increase literacy amongst the population and to encourage debate. Despite this “purposive” construction, the Tribunal could not look beyond what Parliament originally intended and drafted in the legislation. As a result, the legislation considers digital newspapers to be more suitable to a supply of services than of goods.

Clearly there is a huge change in how the UK public read newspapers, magazines and books in 2018 compared to the 1970s and 1990s when the last version of the VAT Act was drafted.  The zero rating provisions which were introduced with VAT cannot be revised at present. They can only be removed.

With the UK’s impending move away from the EU there may be scope for the UK Government to change this in the future, however it would have to consider the amount of revenue it could potentially lose from removing VAT from all online publications.

If you have a query about VAT, please contact Iain.Masterton@chiene.co.uk or call 0131 558 5800.

HMRC’s behind you (if you are planning to claim inheritance tax reliefs)!

Paul Houston in our Personal and Business Tax Department reviews the long-awaited HMRC commissioned research into whether Inheritance Tax is being abused.

Inheritance tax (IHT) is an important source of revenue for the Treasury, with total income for the 2016/2017 tax year reaching close to £5bn*. Faced with the prospect of this golden goose laying more jewelled eggs, HMRC commissioned research earlier this year into the current use of inheritance tax reliefs, primarily Business Property Relief (BPR) and Agricultural Property Relief (APR). Both of these are meant to help individuals pass on their businesses to the next generation without requiring a sale of assets to meet the associated inheritance tax liability.

Although the catchily-titled ‘The influence of Inheritance Tax reliefs and exemptions on estate planning and inheritances’ report was completed in May 2017, it wasn’t publicly released until the Autumn Budget on 22nd November. Originally commissioning the research led to speculation that HMRC suspected that the reliefs were potentially being abused, with the delay in publication perhaps signalling that HMRC had identified instances of misuse, and would announce them with a dramatic Christmas pantomime-style pulling back of the curtain on budget day.

However, in a true theatrical moment, HMRC (our Dame of this piece), after a number of dramatic scenes in the build up to the finale, found…. nothing. APR and BPR are generally being used for the purposes for which they are intended** and are not being misused. This means that the Treasury (the Sheriff in our panto) has not recommended to restrict the future use of the reliefs to generate more golden eggs. However, Buttons in our panto (played by the Office of Tax Simplification) recently announced that it intends to commence work on a review of inheritance tax in general, so this issue is still front and centre stage.

So, what does this mean? Anyone who plans to use BPR or APR should ‘look behind you’? In reality, individuals and family businesses will face increasing resistance when making claims for IHT relief and it’s more important than ever to seek professional advice at the earliest opportunity. HMRC’s findings provide reassurance that there is unlikely to be any immediate, radical changes to how IHT works but there are more reviews and consultations planned for the future and the conclusion to this fairy-tale may not have a happy ever after ending.

* An increase of around £3bn in five years largely due to the increase in property prices and the freezing of the IHT nil-rate band (currently £325,000)

**HMRC conducted 80 interviews with individuals, most of whom did not hold assets in excess of £325,000.

 

If you have a question about Inheritance Tax, please contact Paul Houston on 0131 558 5800 or email paul.houston@chiene.co.uk.

How to plan for the future in turbulent times

Moira McMillan, Chiene + Tait Tax Director, writes about how to plan for the future in turbulent times.

When the news is dominated by turbulent events, it becomes harder to plan for the future.

I remember writing an article for Connect newsletter just before the Scottish independence referendum in September 2014 which mentioned the famous Donald Rumsfeld quote about the known knowns, the known unknowns and the unknown unknowns. With the ongoing political uncertainties, I could have called on this again but I have turned instead to a quote that is said to be an ancient Chinese curse. ‘May you live in interesting times’ somehow seems appropriate.

Brexit remains the key issue tripping off many a tongue. The snap General Election has failed to provide clarity on anything much, so we know that it will be some time before the Brexit process is complete – and, indeed, whether the UK will remain in the single market, the Customs Union, the European Court of Justice or myriad other Europe-wide institutions. This provides uncertainty for many: for businesses, which will find themselves in a different situation once the UK has left the Single Market, and for individuals, who may find themselves affected by new, harder borders.

Meanwhile, the possibility of another independence referendum seems to have diminished for now but it remains the policy of Scotland’s largest political party and we cannot rule anything out in these days of interest: who would have thought a year ago that Donald Trump would be President of the USA?

There are interesting times ahead too for the accountancy profession with the Government’s ‘Making Tax Digital’ (MTD) programme looming on the horizon (see pg 10 of our Summer 2017 Connect newsletter). This will radically and permanently change the way tax submissions are made to HMRC and will be the biggest change to the tax system since the introduction of Self-Assessment. Certain elements of MTD have been delayed but VAT compliance in 2018 is still necessary, and HMRC is pressing ahead with a bigger roll-out in subsequent years. This is despite ‘glitches’ in the HMRC software for the 2016/17 tax returns which will mean that some individuals will be forced to file paper returns this year. A cynic might wonder if the HMRC systems will be robust enough to cope with MTD.

Technological developments are an unavoidable feature of this interesting age. New systems and processes bring amazing benefits but also new challenges. The NHS, in common with many other organisations worldwide, recently suffered a phishing attack – basically, a criminal implanting a virus on their computers in an attempt to extort money or gather sellable data (see pg 5 of our Summer 2017 Connect newsletter). This sort of attack is ever more common, and will become increasingly difficult for organisations to prevent. Meanwhile, British Airways had a catastrophic collapse of its IT systems over one weekend that cost the company tens of millions of pounds. The new EU data protection legislation, the General Data Protection Regulations, or GDPR – to which the UK will still be subject when it is launched in May 2018 (see pg 8 of our Summer 2017 Connect newsletter) – is doubtless intended to add a layer of protection but it also adds a burden to businesses to ensure that they comply.

The way we shop and the way we travel has already been changed thanks to technology. What will be next? Driverless cars could threaten professional drivers – of taxis, lorries, delivery vans, buses – within 10 years. Even human interaction can be replaced by technology, so we can’t rely on the common fall-back defence that customers prefer face-to face service: Amazon’s size and growth shows that this isn’t always the case. It’s a big question: in 10, 20, 30 years, what jobs will have been automated?

 

What can you do?

The framework of the world will continue to be shaped by politicians and tech entrepreneurs. There will continue to be unpredictable events, uncertainties, debates, annoyances and hold-ups. The world will also continue to turn. The only battle you can’t win is the one against change. Fighting against change is a waste of energy: the best you can do is to understand change, help make it better, and have a plan.

The sensible course of action is to take control of your own destiny, as far as possible. It’s impossible to mitigate every risk but it’s sensible to take care. Making sure you have IT protection to ward off fraudsters is a good practical example; other problems might require more careful, thoughtful and tailored planning to address – ensuring flexibility in your skills as job roles are re-defined, for instance, is a longer and trickier project.

At Chiene + Tait we believe that our clients see us as their trusted advisers who can be relied upon to provide the right advice in turbulent times. We believe that we have the expertise across our various sectors to ensure that we can continue in this role during the interesting times ahead.

Catriona Finnie in Scottish Financial News: Chiene + Tait charity tax specialist appointed to UK Gift Aid group

Catriona Finnie, a key member of the Charities and Education Group at Edinburgh accountancy firm Chiene + Tait (C+T), has joined HMRC’s newly-formed working group, set up to consider increasing the effectiveness of UK Gift Aid relief. The assistant tax manager becomes one of the first Scottish-based members to join the group, while C+T is the sole accountancy firm to be represented on it.

Full details about Catriona’s appointment can be found online here – http://www.scottishfinancialnews.com/14533/chiene-tait-charity-tax-specialist-appointed-to-uk-gift-aid-group/

Iain Masterton in Business Insider Magazine: Crowdfunding is a grey area for HMRC

‘Iain Masterton, director of VAT and indirect tax at Chiene + Tait , says that businesses looking to raise finance via the crowdfunding route should carefully consider the VAT implications before going ahead.

He says that if the crowdfunding pitch includes the funders getting a product in exchange for their funds then the business might be liable to VAT – something that should be taken into account when working out the funding requirement.

Masterton says: “There is a problem because there is no definitive guidance on offer from HMRC, something that people could refer to without going to an advisor so it does make it a bit of a grey area.”

He says that if the product provided in exchange for the funding is something that would have been liable for VAT on the sale of the good then VAT will be levied. This will not be the case on VAT exempt products such as food and children’s clothes.

“It’s a fact for a lot of these businesses that they haven’t taken VAT into account and they are suddenly faced with a bill from HMRC for 20 per cent of the value of the VAT-able goods sold.”

He says: “We worked for a company that was crowdfunding a board game they were developing. They were trying to put together a Dungeons and Dragons type board game and they had commitments from the UK, EU and non-EU funders.

“They had commitments of £90,000 from the UK which meant that they immediately went over the £85,000 turnover threshold and they were liable to VAT. HMRC were very good about it and didn’t give them a penalty payment but it meant that they were due to pay 20 per cent and that was something they hadn’t taken into account in the financial calculations.”

Masterton says that if the crowdfunding is set up as a loan or if the investor received equity in return for their investment then VAT would not apply; only if goods are exchanged for the investment that are liable to VAT.

Despite recent uncertainties, including Brexit and the triggering of Article 50, alternative lending has seen a sustained period of growth in recent years. For example, peer-topeer lending by volume reached over £100m by the start of 2017 according to alternative funding news website altfi.’

To read the full article in Business Insider, visit their website here.