Kestrian Small Practitioner 60 second round-up

February 2017 Tax and new UK GAAP business taxpayers who pay their due taxes It seems obvious that a change in account- came into effect on 1 January 2017 – p 5. ing framework, such as a move to any of INSIDE the standards in new UK GAAP, might re- HMRC consult on draft regulations THIS ISSUE sult in a change in reported accounting for profits. But there are other possible ef- HMRC have opened a technical consulta- 60 second round-up 1 fects, too, and Helen Lloyd picks out some tion on draft regulations for the apprentice- Diary dates 1 interesting points about tax treatment of ship levy. The apprenticeship levy comes profits, in particular places where there is into effect in April 2017 and some employ- Accounting & Audit a difference between companies and oth- ers will be required to contribute – p 5. New developments 3 er businesses – p 2. Readers ask 4 Revised LLPs SORP issued Taxation The Consultative Committee of Accountancy Bodies (CCAB) has published Business tax 4 a new edition of the LLPs SORP – p 3. Income tax 4 Tax anti-avoidance 5 Impact of exempting small companies from statutory audit International tax 5 The Government has published a research Employment tax 5 report which assesses the scale of take- Stamp taxes 6 up of the small companies audit exemp- Value added taxation 6 tion – p 3. Excise & duties 6 New penalties for tax evasion Tax agents 7 enablers come into force Readers ask 7 A new raft of measures intended to cre- Useful figures 8 ate a level playing field for individuals and

Diary dates 2 February 2017: 14 February 2017: Content feedback: ll A penalty of £300 or 5% of the Employees with more than one employ- liability, whichever is the higher, ment who wish to make an application for [email protected] may be due if the 2014–15 income deferment of some of their Class 1 NIC General enquiries: tax self-assessment return is still where their combined earnings exceed outstanding. the upper [email protected] ll Deadline for submitting earnings limit must make an application 0844 561 8166 P46(Car) for employees who have by today using form CA72A. www.wolterskluwer.co.uk received a new car or had one Filing date withdrawn during the quarter to 28 February 2017: 5 January 2017. Year ended 31 August 2016 pub- ‘The essential tax and lic companies, year ended 31 May 2016 accounting update for private companies and limited liability the smaller firm’ partnerships www.wolterskluwer.co.uk 1 Kestrian Small Practitioner – February 2017

Tax and new UK GAAP It seems obvious that a change in accounting framework, such as a move to any of the standards in new UK GAAP, might result in a change in reported accounting profits. But there are other possible effects, too, and this article picks out some interesting points about tax treatment of profits, in particular places where there is a difference between companies and other businesses.

Helpfully, HMRC themselves have issued several documents For businesses (not companies), there is instead a key distinc- looking in detail at the tax effects of the new framework. The tion to be drawn between financial instrument items that are latest to be updated is on income tax implications of FRS 102, capital in nature, and those that are revenue. Once this has been meaning that it applies to individuals, partnerships and certain identified, it drives their treatment, and there is no need to go non-resident companies. on to the additional layers of legislation that apply to compa- nies. When a business determines that an instrument is capital, it is adjusted out in the tax computation and has no effect on General accounting issues profits – although interest is always a revenue item, even if the In general, the papers both for companies and non-company loan that it is payable on is capital. businesses make it clear that calculation of profits for tax pur- The idea of a capital/revenue distinction is not new to anyone poses usually follows accounting profits set out in GAAP. They who has wrestled with tax law before, but there is no exact defi- are helpful in drawing out the changes from old to new UK nition to apply. HMRC do give indicators that an item is capital, GAAP – for instance, the section on property, plant and equip- such as borrowings that are not temporary, fixed in amount, and ment reminds readers that renewals accounting, which was al- available for use in any of the trader’s activities and not merely lowed under FRS 15, is not permitted under FRS 102. For some the day-to-day trading operations. So we can see how a typical preparers, this will lead to accounting adjustments and they will bank loan would be treated as capital, but a bank overdraft as in turn have tax consequences. revenue. In general, the language used is informal and easily under- This distinction runs through all the guidance on financial stood, and preparers could do worse than using the document instruments, and affects issues such as hedge accounting and as a general primer on the application of the new standards, the treatment of changes in fair value (including derivative con- quite aside from the tax aspect. tracts which previously would not have made it on to the balance sheet, such as forward currency contracts). Hedge account- ing specifically is another area where the tax consequences for Financial instruments companies are more complex than for those in income tax – the Perhaps the most significant point of difference outlined in the Disregard Regulations are relevant to derivatives, and effectively paper on income taxes relates to financial instruments. All enti- require a company to make an election under the Regulations if ties reporting under FRS 102 need to recognise all financial in- they want the tax treatment of a derivative not to simply follow struments on their balance sheets. This in itself may give some the profit and loss account. changes, because items such as forward currency contracts, It is worth noting that the paper covering corporation tax, commonly used to reduce risks arising from overseas sales or which was also updated in December 2016, does not yet address purchases, are classified as derivative contracts and are not Finance Act 2016 changes in the loan relationship and derivative exempt from recognition. Many smaller entities may also find rules. that their external financing has some unusual terms in it (per- haps an interest rate cap, or conditions triggering early repay- ment) which need to be carefully understood. Instruments are Other specific considerations classified as being basic or not, and this determines whether In most cases, the tax consequences of financial reporting they will (broadly) be measured at amortised cost or fair value. changes are quite intuitive and a review of the papers will sim- For companies looking at the tax consequences of these ply confirm a reasonable understanding. Another area to be financial instruments, there are some complex pieces of legisla- careful on, though, is the treatment of transition to FRS 102. tion, including that on loan relationships, non-lending money For accounting purposes, in many ways this is straightforward: debts and derivative contracts. This means that even when the the first set of new UK GAAP accounts will show the current accounting is fully understood, there is a separate job to per- period and comparative period using FRS 102 recognition and form in understanding the tax treatment, and ideally a company measurement. They will also include a reconciliation showing would look at the full tax consequences before entering into any adjustments that were needed to opening equity (i.e. at complex financial instruments, since what seem like minor the start of the first comparative period), whether these were changes in terms and conditions might have a significant effect because a change was required by FRS 102, or because the pre- on tax. This is in addition to all the careful work needed in under- parer had taken a one-off option, such as using a valuation of standing the requirements of sections 11 and 12 of FRS 102, properties as their deemed cost without being committed to which are already much more nuanced than they were in old an ongoing policy of revaluation. But looking at it from a tax UK GAAP. perspective, both papers make it clear that a change from old

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GAAP to new GAAP is treated as a change in accounting policy balances’!). This is a vital point to consider. More information on and the effects need to be included in a tax computation some- treatment of transitional adjustments is included in the papers. where (there is no tax equivalent of ‘adjusting it in the opening Helen Lloyd, Technical Consultant at SWAT UK.

ACCOUNTING & AUDIT

New developments offset potential negative consequences, such as the impacts on lenders. Revised LLPs SORP issued The research identified examples of audits being required as The Consultative Committee of Accountancy Bodies (CCAB) has preconditions for loans, which was always an area of concern for published a new edition of the LLPs SORP. The underlying pur- audit experts and the professional institutes when the original pose of the SORP is to deal with issues that are specific to LLPs decision was taken to slash the audit threshold. and ensure that, as far as possible, LLPs present financial state- There is also some reticence on the part of eligible compa- ments that are comparable with those of other entities. nies to take up the exemption as it could be detrimental to their The LLPs SORP has been updated to reflect the new LLP loan status. Aside from financial considerations, a lack of public- Regulations that were issued in May 2016 and recent changes ity about the changes has also been an issue. BEIS claims there to UK accounting standards. While these changes do not fun- is also a lack of awareness of eligibility for audit exemptions. damentally alter the financial reporting regime for LLPs, they Awareness of eligibility criteria is significantly lower among allow LLPs – particularly small LLPs – to benefit from a less bur- those undergoing audits and many survey respondents either densome financial reporting regime and ensure that the legisla- thought they were ineligible or did not know if they were eli- tive requirements for LLPs are aligned with those applicable to gible, most of whom had wrongly assumed they exceeded the limited companies. eligibility thresholds.’ A number of minor clarifications have been made to the SORP, One of the main reasons to continue with an audit is down to including amending the existing guidance to address diversity in lending and banking requirements, which mean that it is not via- practice on how ‘automatic divisions’ of profits are accounted ble for small businesses to simply drop the audit requirement. for. Although the wording has been clarified, no changes to Until a new alternative is devised which will satisfy lenders and existing requirements are intended. stakeholders, there is unlikely to be a surge in adoption. The updated SORP is effective for periods commencing on or While three out of four SMEs undergoing audits felt they after 1 January 2016. The revised SORPS are available from the would benefit from exemptions, 80% of companies agreed that CCAB at http://tinyurl.com/z6wm9p7. taking up audit exemptions reduce red tape and costs for small businesses. Impact of exempting small companies from statutory As such, BEIS believes there is strong support for audit audit exemptions to continue with similar eligibility criteria, although The Government has published a research report which assesses thresholds should be monitored over time and increased in line the scale of take-up of the small companies audit exemption. It with inflation. aims to give the Department for Business, Energy and Industrial The department estimates that over a million SMEs qualify for Strategy (BEIS) a better understanding of the reasons behind the exemption, which requires them to meet two out of three the take-up or otherwise of the exemption and its implications. criteria. These are having fewer than 50 employees; an annual The report which was prepared by ICF International, in col- turnover below a specified maximum amount (now £10.2m); or laboration with BMG Research, on behalf of BEIS, polled 410 assets worth no more than a maximum (currently £5.1m). small and medium-sized businesses (SMEs) to analyse the take The full report is available from GOV.UK at http://tinyurl. up of new audit exemption reforms in 2015. It calculated the com/zmncdjc. audit exemptions may have saved UK companies £4.6bn in 2015 on the basis of reduced audit fees and less time spent on FRC issues draft Plan and Budget for 2017–18 paperwork. The Financial Reporting Council (FRC) has issued for consulta- However, takeup of the new audit threshold exemption has tion its Plan and Budget for 2017–18. been lower than expected with less than a third of eligible SMEs A key focus of the FRC’s work going forward will be its moni- using the exemptions. Original government estimates expected toring and enforcement activities to ensure the UK’s reputation up to 80% of companies would take up the exemption and drop for high standards of corporate governance and reporting, and their annual audits. its standing as a global centre of excellence for accountancy, The BEIS report argued that the reason for the lower than audit and actuarial work. expected take-up was inertia and the fact that some companies The FRC will continue to contribute to the development of have always undergone audits. Some respondents told BEIS that the UK’s corporate governance framework, including making the potential savings from not having audits are insufficient to any necessary changes to the UK Corporate Governance Code. Stephen Haddrill, Chief Executive Officer at the FRC said,

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‘For the UK economy to prosper we need to encourage a continuing in the subsidiary can look at the notes in the group accounts flow of investment into our capital markets. We must ensure that investment supports economic growth and the wider needs of so- (if it is a qualifying parent, it will even be presenting the group ciety. We will play an active role with other regulators in helping accounts with its company accounts). An entity choosing to address the challenges and opportunities of Brexit and remain in- apply FRS 101 would always have the alternative option of using fluential internationally. FRS 102, which provides a comparable or lower volume of dis- The FRC will continue to work closely with investor, business and closures. So although a minority shareholder might feel they are professional groups, as well as wider stakeholders, reflecting the ‘losing out’ by not seeing as much disclosure as they would if strong public interest in the success of the UK corporate gover- nance framework.’ their investee prepared IFRS accounts, in fact they are still see- ing more in FRS 101 accounts than they would be if the investee In addition to its work on corporate governance, the FRC will: used FRS 102. ll Enhance the speed and effectiveness of its enforcement The changes take effect for periods beginning on or after role. 1 January 2016, in other words, December year ends starting to ll Promote clear and concise corporate reporting. think about their 2016 accounts can cross notifying sharehold- ll Promote justifiable confidence in audit through its role as ers off their action list immediately. Competent Authority for audit. Answer provided by Helen Lloyd, Technical Consultant at ll Promote high quality actuarial work SWAT UK. The FRC’s budget for 2017/18 will require a 4% increase in its overall funding requirement, principally through an increase of 2.5% in the levies on the professional bodies and a 5% TAXATION increase in the preparers levy. The FRC says this will enable them to strengthen its enforcement activities and respond to the Government agenda on corporate governance. Business tax The consultation will close on 17 February 2017. Comments should be sent by email to [email protected]. The consultation HMRC update money laundering registration fees document is available from the FRC at http://tinyurl.com/ HMRC have updated the scale of fees applicable for registering jf34o3j. for anti-money laundering supervision under the money laun- dering regulations. The fees include a non-refundable application charge, prem- Readers ask ises fees, renewal fees and ‘fit and proper’ test fees. HMRC uses the fees to provide advice and guidance to com- Disclosure exemptions in FRS 101 and FRS 102 panies to help them meet their money laundering regulations Q: What is the recent rule change about notifying sharehold- responsibilities, carry out checks to make sure that businesses ers when a company takes disclosure exemptions in FRS 101 and are doing all they need to under the regulations and work with FRS 102? other organisations, for example assisting the National Crime A: In December 2016, the FRC released a matched pair of amend- Agency with prosecutions. ments to FRSs 101 and 102. FRS 101 requires use of IFRS recog- More details are available at http://tinyurl.com/j5vnano. nition and measurement, with a few UK-specific changes, and significant disclosure exemptions. Previously, an entity choos- HMRC put anti-money laundering supervision online ing this standard was required to notify all of its shareholders HMRC are to launch an online, digital system for anti-money in writing, and not to receive objections from owners of 5% or laundering supervision in 2017. Once launched, businesses will more of its shares. The same applied to qualifying subsidiaries be able to register and renew online. The online system will wanting to take advantage of the (more limited) disclosure ex- allow all registrations, renewals, updates and payments to be emptions in FRS 102, including the exemption from preparing a made online, reduce errors and ‘rejected’ applications and bet- cash flow statement, set out in FRS 102.1.12. ter meet customer needs. Rejected applications will be flagged The original requirements had good intention, being designed instantly by the new system, avoiding forms being returned for to protect shareholders from being harmed by a unilateral com- re-submission. pany decision to effectively withhold information from them by Businesses using the system for the first time need to make producing slimmed-down accounts. But the application turned a one-off completion of their details and will need an online ID, out to be onerous for many: there is cost involved in chasing which can be obtained by registering online at the Government down contact details for all shareholders and writing to them, Gateway website. and there is then uncertainty in waiting for a response. Neither More details can be found at http://tinyurl.com/hqlls7f. standard had been helpful in specifying what time period should be allowed, or even whether the notification was definitely required annually rather than as a one-off. Income tax And as well as being difficult in practical terms, careful review suggested that even the theoretical requirement did not add publishes proposed 2017–18 much value for users of accounts. After all, an FRS 102 quali- income tax rates fying subsidiary is already at least 51% owned, and its par- Scotland’s Finance Secretary Derek Mackay has announced ent’s accounts are publicly available, so minority shareholders the proposed rates of income tax for tax year 2017–18. The

4 www.wolterskluwer.co.uk Kestrian Small Practitioner – February 2017 basic rate of income tax is to be frozen at 20% and the higher successfully challenged in court, will have their tax affairs rate of income tax is to be frozen at 40%. The higher rate pay- checked by HMRC and may receive a notice. Someone in receipt ment threshold will be frozen in real terms at £43,430, while of a follower notice will be asked to settle their tax affairs with the additional rate of income tax will remain at 45% and the HMRC, or risk a penalty. They may also receive an APN, in which threshold will be unchanged. case they will have to immediately pay the disputed tax as well. The proposals also include leaving the residential and non- HMRC will hold the sum of the disputed tax amount until their residential rates and bands for land and buildings transaction enquiry is complete, or the appeal is resolved, and it will be tax (LBTT) unchanged. The standard rate of Scottish landfill tax refunded if HMRC find the money is not owed after all. (SLfT) will be increased to £86.10 per tonne and the lower rate More details can be found at http://tinyurl.com/gq4gu56. of SLfT to £2.70 per tonne in line with RPI inflation and landfill charges in the rest of the UK. The Scotland Act 2012 gives the Scottish Parliament the International tax power to set the Scottish rate of income tax from tax year 2017–18. The Scottish rate of income tax (SRIT) came into effect Amended tax treaty with the Isle of Man comes into from 6 April 2016. force More details can be found at http://tinyurl.com/jv5phcq. The amended double taxation agreement between the UK and the Isle of Man has entered into force, effective from 5 January 2017, following the latest arrangements signed on Tax anti-avoidance 8 March 2016. The bilateral agreements between the UK and the Isle of Man New penalties for tax evasion enablers come into force concern cooperation in tax matters through the exchange of A new raft of measures intended to create a level playing field information. for individuals and business taxpayers who pay their due taxes The amendments concern a reciprocal agreement with the came into effect on 1 January 2017. Isle of Man relating to the European Union (EU) Directive, which The measures are aimed at accountants, bankers, lawyers and affects taxation savings income in the form of interest pay- other advisors who enable offshore tax evasion, who will face ments, regarding profits tax, income tax and surtax. tough new sanctions. More details are available at http://tinyurl.com/hpphf88. The new powers mean that individuals or corporates who take deliberate action to help others evade paying tax will face Amended Jersey tax treaty comes into force fines of up to 100% of the tax they helped evade or £3,000, The amended double taxation agreement between the UK and whichever is highest. HMRC also now have powers to publicly Jersey has entered into force, effective from 1 January 2017, fol- name enablers. lowing the 2015 exchange of letters that became effective on HMRC are also introducing a new requirement to correct past 19 January 2016. tax evasion, meaning anyone who has failed to correct past The bilateral agreement between the UK and Jersey concerns evaded taxes by 30 September 2018 will be hit with tough new cooperation in tax matters through the exchange of information. penalties. The amendments affect corporation tax and income tax in More details are available at http://tinyurl.com/gnjpprx. the UK. More details are available at http://tinyurl.com/hyt4o3l. HMRC publish guidance on profits from dealing in or developing UK land HMRC have issued guidance on profits from a trade of dealing in Employment tax or developing UK land. The Government announced changes in the 2016 Budget that HMRC consult on draft regulations for apprenticeship are designed to counter the use of offshore structures, in order levy to disguise what is in essence a trade in land or a trade in devel- HMRC have opened a technical consultation on draft regula- oping land, and ensure the taxation of onshore and offshore tions for the apprenticeship levy. The apprenticeship levy comes property developers is on a level playing field. into effect in April 2017 and some employers will be required to The guidance should be read alongside the legislation in the contribute. Finance Act 2016 and explanatory notes that were published on Draft reg. 147B–147J of the Income Tax (Pay As You Earn) 5 July 2016. Regulations 2003 which make provision for calculation, report- More details are available at http://tinyurl.com/jemz26m. ing, payment and recovery of the apprenticeship levy, were pre- viously subject to consultation. Some amendments have been HMRC issue APN guidance for tax avoidance made and more provisions have been added to cover matters HMRC have published guidance for people who have used tax relating to the operation of the levy and HMRC are inviting com- avoidance schemes and may receive a follower notice, an ac- ment on these changes. celerated payment notice (APN), or both. The consultation closes on 3 February 2017. Anyone who has used a tax avoidance scheme that has More details can be found at http://tinyurl.com/z6qaq7a. the same or similar arrangements to one that HMRC have

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HMRC issue guidance on paying and reporting on Value added taxation apprenticeship levy HMRC have published guidance on when employers need to pay HMRC consult on withdrawal of ESCs the new apprenticeship levy. HMRC have opened a technical consultation on the impact of From 6 April 2017, employers will be required to pay the levy withdrawing four extra-statutory concessions (ESCs). The four if they have an annual pay bill of more than £3m. There is an ESCs are: annual allowance of £15,000 each year for employers, which can ll zero-rating of central processor – Notice 701/7 (VAT); be allocated flexibly. The levy is charged at 0.5% of a company’s ll the composite rate of VAT for computer systems – annual pay bill and is payable monthly through the PAYE pro- Notice 701/7 (VAT); cess, like income tax or contributions. ll affiliation fees for sports clubs – Notice 701/45 (VAT); and The guidance also contains detailed information on how ll C12 – Retail co-operative societies: accounting periods a company must report what it owes. Once a company has (income/corporation tax). started paying the apprenticeship levy, they must continue to HMRC are seeking the views of anyone who may be affected report it until the end of the tax year even if their annual pay by the withdrawals of these non-statutory tax reliefs. The con- bill turns out to be less than £3m. Companies must also keep sultation closes on 7 March 2017. records for at least three years after the tax year they relate to. More details can be found at http://tinyurl.com/z2cp527. More details are available at http://tinyurl.com/jfu78m2. EC opens consultation on special VAT scheme for SMEs Review of auto enrolment in 2017 The European Commission (EC) has launched The Government has announced a review of the pensions au- a public consultation on the special scheme for small enterpris- tomatic enrolment regime in order to explore ways the policy es under the VAT Directive. can be further developed to encourage more people to save into The consultation has been launched because the EC is prepar- a workplace pension. ing a comprehensive simplification package for SMEs that will The Department for Work and Pensions (DWP) said the seek to create a more business-friendly environment, as indi- review will look at existing coverage and consider the needs cated in its 2016 Action Plan on VAT (COM(2016) 148 final). of those not currently benefiting from automatic enrolment, The EC seeks stakeholders’ views on the current VAT provi- which includes employees with multiple jobs who do not meet sions for SMEs and their application, and possible reforms. the criteria for automatic enrolment. The consultation closes on 20 March 2017. More details can be found at http://tinyurl.com/hg8g2hr. More details are available at http://tinyurl.com/jf6o75r.

HMRC issue VAT briefing on colouring books Stamp taxes HMRC have published Revenue and Customs Brief 17 (2016): VAT – treatment of colouring and dot-to-dot books. CIOT comments on new Welsh The brief sets out HMRC policy on the scope of the VAT zero Further to its comments in September 2016, the Chartered rate for colouring and dot-to-dot books suitable for children Institute of Taxation (CIOT) has now set up a blog about the and/or adults. The policy is effective from 1 April 2017. Welsh Finance Committee’s report on the new Welsh land More details can be found at http://tinyurl.com/j4ofsxd. transaction tax (LTT) (to replace stamp duty from April 2018). That report was published in December 2016 and EC publishes latest VAT guidelines can be found at http://tinyurl.com/h3x3yn8. The European Commission (EC) has issued new guidance on the The CIOT notes that LTT will contain many stamp duty fea- application of EU VAT provisions. tures, which will help taxpayers and financial practitioners alike The latest list of guidelines agreed by the EC’s VAT Committee when determining how to manage transactions, and has wel- includes the text of all the guidelines issued since the VAT comed the committee’s insistence that a table outlining the dif- Committee was set up in 1977. It links the guidelines agreed ferences between LTT and SDLT should be included in guidance with the relevant provisions of the VAT Directive and comments on the new tax, not least to prevent traps for businesses operat- upon them. The VAT Committee’s guidelines are advisory only. ing across borders. More details can be found at http://tinyurl.com/htdyb3t. However, the CIOT says there are border problems, with regard to title plans not always indicating where the Welsh– English border is. This raises the possibility that where the land Excise & duties being transferred straddles the border, it could be subject to double taxation. Scottish Government consults on proposed Air More details can be found at http://tinyurl.com/zbekcdf. Departure Tax Bill The Scottish Government has put out a call for evidence fol- lowing its publication of the (Scotland) Bill on 19 December 2016. The Finance and Constitution Committee is the lead committee scrutinising the legislation and will begin taking evidence on the Bill in February. The deadline for written submissions is 10 February 2017.

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The consultation will examine the overall structure for the Readers ask tax. The committee is interested in hearing views on how best to achieve the strategic and policy objectives of the Bill, the Tax cost of a ‘contractual PILON’ extent to which the key concepts of the Bill are appropriate, the Q: I am recruiting. The post is reasonably senior and will involve appropriateness of the proposed structure for the tax and the contact with the firm’s clients – with whom the new employee is proposed administrative arrangements for the payment, collec- likely (especially if all goes well) to develop good relationships. tion and management of the tax. I’m concerned to protect the firm’s client connections in the More details are available at http://tinyurl.com/hmljkc8. future, should the employee ever leave. My employment law adviser will include usual ‘restrictive covenants’ in the employ- HMRC publish draft legislation on fuel duty relief ee’s service contract – but suggests also a right for employer to HMRC have published draft legislation for fuel duty relief. terminate the contract without notice, on paying salary in lieu The Hydrocarbon Oil (Vapour Recovery Relief) (what she calls a ‘contractual PILON’). She suggested I check Regulations 2016 set out the conditions for claiming an excise the tax consequences of this with my accountant. Can you ex- duty credit – vapour recovery relief. plain please? The measure will allow eligible businesses to claim a relief of A: I believe that in employment law, if the employer ever wishes excise duty following the capture of petrol vapour and its return to get rid of an employee immediately, and can do so only by to duty-suspended stocks. The measure is tax neutral. Its aim dismissal without giving notice and so in breach of contract, re- is to avoid double taxation of the recovered petrol when it is strictive covenants in the service contract will or may, in con- released again for UK consumption. sequence of that breach, automatically fall away and cease to More details are available at http://tinyurl.com/zrsy7k2. be enforceable. Employers include these ‘contractual PILON’ clauses, giving the right to terminate immediately but still law- returns move to online filing fully, to seek to preserve such covenants. HMRC have launched a new online service to file monthly bingo It is true there’s a tax cost to this approach. In pay-outs duty returns. Taxpayers submitting their own returns need their under a contractual PILON, the employer has to account for bingo duty registration number. employer NICs. By contrast, where the contract does not con- The service is also available to agents or personal representa- tain a contractual PILON, amounts paid to compensate the tives. Agents will need their agent reference number and their employee for lack of notice incur no NICs at all. Furthermore, client’s bingo duty registration number. It is still possible to sub- what the employer has to pay to compensate the departing mit returns on paper. employee for not working their notice period may be reduced; More details are available http://tinyurl.com/zdvy25y. this is because the obligation is to put the employee into the financial position they would have been in had they worked their notice – and the fact up to £30,000 can be paid to the Tax agents employee tax-free can be taken into account here. For employers, there’s historically been a balancing act HMRC publish new agent guidance on self-assessment between securing the commercial benefit of covenant preserva- HMRC have published a special self-assessment edition of its tion against the extra tax cost; for more senior staff, or those in Agent Update bulletin. sensitive roles, this commercial benefit has often taken priority The special edition outlines the extra help and support avail- (and a contractual PILON included), but not necessarily so for able to help agents, or their clients, to file tax returns. junior staff. Alongside the special edition, brought out in time for the Do note, however, Government is reforming the tax regime, self-assessment deadline of 31 January, HMRC have also added and making things more level. This should make it easier to a new selection of short self-assessment videos on its YouTube decide to include contractual PILON clauses in service con- channel that cover a variety of difficult and common queries. tracts. From April 2018, amounts paid under contractual PILON HMRC are also holding five dedicated Talking Points meetings clauses, or paid under service contracts with no such clause on self-assessment during January. (to compensate for salary that would have been earned during More details are available at http://tinyurl.com/zd6fg6t. the notice period had proper notice been given), will both be charged to income tax and NICs, in full. The £30,000 tax-free HMRC publish Agent Update 57 amount is not disappearing altogether, but is significantly cut HMRC have published Agent Update 57, the final Agent Update down. of 2016. This edition includes articles about the offshore penal- Answer provided by Mark Cawthron, Tax Writer, Wolters Kluwer. ty regime to include inheritance tax and the April 2017 changes to tax relief for residential landlords. The HMRC service section includes an update from their High Net Worth Unit and how to help clients choose a pension scheme for automatic enrolment. More details can be found at http://tinyurl.com/jg97ogc.

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USEFUL FIGURES

Retail Prices Index Annual Inflation Rate Exchange Clearing Bank Base Rates (as Rates to £1 at 01.31.2017) 2014 2015 2016 2014 2015 2016 31 January 23/02/16 0.50% Jan 252.6 255.4 258.8 Jan 2.8% 1.1% 1.3% US$ 1.257 04/04/16 0.50% Feb 254.2 256.7 260 Feb 2.7% 1% 1.3% Euro 1.165 26/04/16 0.50% Mar 254.8 257.1 261.1 Mar 2.5% 0.9% 1.6% Yen 147.5 25/05/16 0.50% Apr 255.7 258 261.4 Apr 2.5% 0.9% 1.3% 29/06/16 0.50% May 255.9 258.5 262.1 May 2.4% 1% 1.4% Jun 256.3 258.9 263.1 Jun 2.6% 1% 1.6% 26/07/16 0.50% Jul 256 258.6 263.4 Jul 2.5% 1% 1.9% 24/08/16 0.25% Aug 257 259.8 264.4 Aug 2.4% 1.1% 1.8% 27/09/16 0.25% Sep 257.6 259.6 264.9 Sep 2.3% 0.8% 2.0% 26/10/16 0.25% Oct 257.7 259.5 264.8 Oct 2.3% 0.7% 2.0% 29/11/16 0.25% Nov 257.1 259.8 265.5 Nov 2% 1.1% 2.2% 15/12/16 0.25% Dec 257.5 260.6 267.1 Dec 1.6% 1.2% 2.5% Indexed rise April 1982 to January 2017 = 2.34 31/01/17 0.25%

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