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Review Newsletter July 2016

Tax Specialist –  Laith Al-Hilfi Joins Rayner Essex

Rayner Essex has launched its Middle East team with the appointment of Laith Al-Hilfi to cater for the growing demand  from that region. The appointment forms part of the firm’s strategy to further develop its Middle East and International client base. Laith joins the firm as an Executive Manager.

He comes with a wealth of experience, having spent the last seventeen years at Hazlems Fenton LLP where he built up a successful practice acting for Middle Eastern and International clients.

Laith comments: “I am excited by the challenge offered to me at Rayner Essex. The firm has strong international links and I look forward to working with other team members to develop our Middle Eastern practice.”

Laith is fluent in Arabic and represents overseas and domestic private clients and companies on accounting and taxation matters, with a particular specialism in property taxation, HMRC investigations and CGT planning.

He also advises on residence and domicile issues for a number of resident non- domiciled private clients.

His appointment further enhances the firm’s international capability. Rayner Essex is a member of the top 20 Global Association of Accountancy Firms, Inpact International, which has 140 independent member firms in some 232 locations in more than 60 countries. The firm is very active within the Association and has facilitated international trade, acquisitions, sales and provided cross-border tax advice.

Commenting on his appointment Rayner Essex Tax Partner Mark Moore said: “I am delighted that we have been able to attract Laith to the firm. I have known him for some years. He is an impressive, capable individual with a considerable reputation for providing insightful advice.

His addition reinforces our international outlook as a firm whilst providing him with  a good platform to develop his client base.”

Brexit and The Budget

The 2016 Budget which was delivered on 16 March already seems a long time ago with the turmoil which has occurred since then. However, following the EU referendum result in June, the then Chancellor George Osborne and his successor Philip Hammond both announced that there would be no new Emergency Budget, as expected, and we will therefore have to wait until our new Prime Minister Theresa May, has assessed the situation later in the year.

Because of the referendum, the 2016 Spring Budget’s passage through Parliament has been delayed and therefore Royal Assent is unlikely before the Summer recess. A summary of the 2016 Budget can be found here: www.rayneressex.com/publications/2016- budget, and do let us know if you need further information or clarification.

What you are likely to have questions about is how Brexit is going to affect you and your business. The simple answer is that we do not know. What we can be sure about is that there will be little effect on direct taxation as direct taxation is the generally the responsibility of each member state, upon which leaving the EU will have little bearing. There are a number of EU directives which apply to EU members and relate to intra group income such as dividends and changes between companies in the same group in the EU. However, the UK has extensive and comprehensive double tax treaty arrangements with over 120 countries which will generally protect those trading within the EU from unnecessary withholding taxes in the future.

Where we know things will change is with VAT and to a lesser extent Excise duties and social security arrangements within the EU, VAT is an EU tax which we are committed to as part of the Single market, and is established by EU law across all member states. However, do not expect VAT to disappear when we do finally withdraw. It accounts for over 17% of all  UK Government receipts and therefore will remain, albeit perhaps in a different form.

For the time being, and until the process of withdrawal from the EU commences, nothing changes with personal or business taxation in the UK. Naturally as things do change and developments occur we will keep all our clients and contacts fully informed.

Salary Sacrifice and Auto Enrolment

With pension auto enrolment applying to more and more employers, we look at the options for using a salary sacrifice scheme to deliver tax savings for the employer and the employee.

Salary sacrifice takes place when an employee gives up the right to part of their remuneration in return for the employer providing the employee with some form of non-cash benefit.

As announced in the 2016 Budget, the government is considering limiting the range of benefits that attract income tax and National Insurance advantages when they are provided as part of a salary sacrifice arrangement. However, the government’s intention is that pension savings, childcare and health related benefits will continue to attract these reliefs. One option therefore is that employees sacrifice part of their salary in return for the employer paying a sum to a registered pension scheme for the employee’s benefit.

Conditions for effective salary sacrifice

The recent Reed Employment tax case illustrated that it can be costly to implement a salary sacrifice scheme incorrectly. To be effective the arrangement has to reduce the employee’s contractual right to cash remuneration. This requires two conditions to be met:

  1. the employment contract must be effectively varied before the changes are implemented i.e. the employee must give up their salary before they are entitled to receive the remuneration
  2. the revised contractual arrangement must show that the employee is entitled to lower cash remuneration and a

In addition, the employee should not have the right to give up the non-cash benefit and revert to the higher cash salary within 12 months.

In practice, the variation of the contract can be achieved by rewriting the contract, setting out the changes in a separate document attached to the contract or by giving employees an ‘opt out’ option. An ‘opt out’ clause would specify a time limit by which time employees would have to opt out of the salary sacrifice arrangement. Failure to do so would be regarded as an ‘opt in’. Employees would need to be fully informed of the proposals.

It should be noted that the cash wage cannot fall below rates set in the National Minimum Wage and the National Living Wage following salary sacrifice. Salary sacrifice can affect an employee’s entitlement to certain state benefits such as Maternity Allowance and Incapacity Benefit. Therefore consideration should be given to excluding lower paid employees from the scheme.

Effects of successful salary sacrifice

Where salary sacrifice is implemented with  a pension payment being provided by the employer then the employee will pay income tax and NICs on the lower cash salary.

There is no charge to income tax or NICs on the amount of the pension payment made by the employer.

The effect of using salary sacrifice for employee’s pension payments would therefore be a saving of up to 12% for the employee and up to 13.8% for the employer.

HMRC approval

HMRC will not comment or advise on any proposed salary sacrifice arrangements  as they do not want to be involved in employment agreements. They will, however, give assurance after the arrangements are in force. To allow HMRC to do this they will require sight of all relevant documentation.

A New Breed of State Pensioners

Those who reached State Pension age on or after 6 April 2016 have the privilege of being the first recipients of the new, supposedly ‘flat rate’ State Pension. Although the headline flat rate has been set at £155.65 per week nearly everyone is receiving a different amount to this.

There are a number of reasons why this is so but the two main reasons relate to the old State Pension system, which featured  an entitlement to additional State Pension for many and lower State Pensions for those who had been ‘contracted out’.

The important point for everyone who is planning for their retirement is to have an up to date pension forecast. An online version is in its testing stage at gov.uk/check-state- pension. This page provides details of other ways of obtaining a forecast.

All you then have to do is understand it!  At the start of this year the Work and Pensions Committee raised concerns that the details sent out to individuals regarding when they will receive their State Pension and its expected value were insufficiently clear and could be misunderstood. However it is clearly far better to be in receipt of this information than have no information at all.

HMRC’s Investment in Tax Investigations Continues to Yield Healthy Returns

HMRC has seen a strong return on its investment in tax investigations over the last year, with spend on its teams targeting ultra-wealthy individuals, large businesses, SMEs and ‘everyday’ taxpayers yielding very healthy amounts.

HMRC now has a number of specialist units, which focus their investigatory work on particular groups of taxpayers, in order to maximize the recovery of unpaid tax.

Three key teams include the High Net Worth Unit, which focuses on individuals with a net worth of £20 million or more,  the Large Business Directorate, which monitors the tax compliance of the UK’s 2,100 most sizeable companies and finally,

Local Compliance, which covers ‘everyday’ taxpayers and small to mid-sized firms.

Strong returns on the Revenue’s investment in these teams was achieved across the board. The Large Business Directorate collected £73 per £1 spent by HMRC on its work, the High Net Worth Unit gleaned £29 per £1 invested whilst Local Compliance teams gathered £18 per £1 spent.

The results mean that the Revenue is likely to continue to invest heavily in targeted investigatory work. Businesses of all sizes, across all sectors, and individual taxpayers from all walks of life, will consequently continue to face close scrutiny, and should prepare for a full and potentially very costly investigation, should their affairs raise any questions.

The bar for launching an enquiry or investigation is not always set particularly high, which means innocent taxpayers with nothing to hide frequently find themselves under the spotlight. Simple mistakes or discrepancies on a tax  return, or even a few unusually high-value purchases or trips abroad could end up raising suspicion. With its new database system, Connect, HMRC can keep a close eye on virtually all aspects of a taxpayer’s financial affairs and spending habits at the touch of a button.

HMRC will take into account any information it can obtain or is provided   with – from data gleaned in major leaks, such as that uncovered in the recent Panama papers scandal, to details on what an individual is buying or selling on e-bay. The Revenue can now deal quickly and efficiently with new information, and will be sure to follow up any lead, however vague.

Recent scandals, alongside a related move against tax evasion and white collar crime globally, mean that HMRC is under intense political pressure to stamp out the issue and ensure all are paying their ‘fair share’. Whilst the media focus is often on large multinational corporations or ultra-wealthy individuals stashing money in complex structures offshore, those ‘lower down’

the scale will be in no way immune from the government’s clampdown. Taxpayers across the board will likely see or feel the effects of a low-tolerance approach from HMRC over coming months.

Even if a taxpayer’s affairs are ultimately shown to be entirely legitimate, dealing with any probes from the Revenue will likely be costly.

The increased risks which all of these developments pose to taxpayers mean  that many are opting to protect themselves against the cost of tax investigations.

Looking Forward to the Lifetime ISA  – If you are Under 40

Perhaps the most significant announcement in the recent Budget was the news of the Lifetime ISA.

A few commentators are suggesting that many taxpayers in their 20s and 30s will ditch saving into a pension scheme and will view the Lifetime ISA as the better way to save for their retirement.

The Lifetime ISA will give a government top up of 25% of the amount invested and the ability to accumulate savings income tax free – just like a pension.

In addition, there is the ability to eventually withdraw all the funds tax free rather than 25% of a pension fund. You will however have to wait until you are 60 rather than 57 (minimum pension access age is set to rise from 55 to 57 by April 2028). Alternatively, you can access the ISA earlier for the purchase of a first home up to £450,000.

You can also access earlier for any other reason but this comes at the price of losing the government top up, the accrued income associated with it and suffering a 5% penalty. The government is however considering whether Lifetime ISA funds plus the government bonus can be withdrawn in full for other specific life events in addition to buying a first home.

There is still a lot to be said for pension contributions if you are a higher rate taxpayer. The government top up for a 40% taxpayer is effectively 67% i.e. £6,000 of pension contribution after full tax relief provides investments of £10,000.

The biggest constraint in the Lifetime ISA will be an annual investment limit of

£4,000. Many basic rate taxpayers who can afford to save more than this may well go for a strategy of utilising their Lifetime ISA allowance first and then saving into a pension. Also a couple whose aim is to buy a house together can each use a Lifetime ISA to accumulate funds for the prospective purchase.

The scheme is not scheduled to start until 6 April 2017 and it will be open to any adult under 40 from that date. Once you qualify, you can continue to save up to £4,000 each year and will receive a 25% bonus on the contributions made up to the age of 50.

It’s a pity if your 40th birthday is on the 6th April 2017.

Is Research and Development Tax Relief Available?

Research and Development (R&D) tax relief can provide additional tax deductions and enhanced cash flow for companies. HMRC have introduced ‘Advance Assurance’ which enables small companies to confirm their entitlement to R&D tax relief.

R&D tax relief can allow a company to claim an additional corporation tax  reduction of 26% of the expenditure incurred.

Alternatively the company can surrender a loss for a cash repayment. A surrendered loss could give a repayment of up to 33.35% of the expenditure. This could significantly improve cash flow for new companies.

To claim R&D tax relief a company must meet several qualifying conditions.

Reviewing whether these are met can be expensive and time consuming for small companies. HMRC have therefore introduced  Advance  Assurance  whereby a small company will have access to an HMRC specialist who will discuss whether the activities of the business meet the qualifying requirements.

In order to access Advance Assurance, the company must:

  • not have claimed R&D tax relief before
  • have an annual turnover of £2 million or less
  • have less than 50 employees.

We can apply for Advance Assurance on your behalf but any discussions about the business will be carried out with a main contact in the company (appointed by the company in the application). HMRC state  that most applications are dealt with by a short telephone call. We will be able to contribute to the discussions if there are any difficulties.

If HMRC agree that the company qualifies to claim R&D tax relief they will then allow the claim for the next three accounting periods without further queries. If you’re planning to carry out R&D at a future date, Advance Assurance can still be applied  for. HMRC will contact you after you’ve submitted your first claim to check that the R&D matches the details supplied in the Advance Assurance application.

Four Seasons to Add Social Media to Your Marketing Plan

The use of social media in businesses has rocketed over the last few years as it is a great way to communicate with a wide audience. If you’re not an active user you could be missing out on vital chances to communicate with your clients.

The easy way to reach a wide audience

Signing up for social media accounts is free and simple to set up. All you need is an email address and ideas on what to post. With a constantly expanding audience (38 million in the UK) and the average time spent on social media increasing (2 hours 13 minutes per day), embracing this marketing channel will allow you to stand next to bigger businesses and share news and knowledge from your company.

Be recognised as an expert in your field

Posting to your social media channels allows you to create an online personality and establish a first impression for your brand.

For businesses, this can be very beneficial  as developing a knowledgeable voice can aid your reputation as a trusted company and source of information. An example of how to do this is to post technical content and links to news articles. This shows that you are up to date on the latest developments in your industry and would not refer to  out of date information when dealing with clients. When you read articles online, there’s often an option to share to your social media profile – this is an easy way to share content with your followers.

Don’t forget, your online presence is like meeting someone for the first time, but in an online environment. What do you want your contacts to think about your company? If you are approachable and outgoing on social media, they will be more at ease and more likely to return to you in the future.

Customer service tool

In business, nothing matters more than your reputation. Social media allows you to connect with your clients and contacts

outside your office while, most importantly, giving them a comfortable choice in

how to communicate with you. Whether commenting on a news article you have tweeted, retweeting a useful fact or giving your firm some feedback, it is engagement your company may not have received previously. Complaints are always an upsetting occurrence, but using social media to respond in a timely and useful manner will often be the detail that is remembered when the incident is reflected upon.

Improved website traffic

Your website is the place that thoroughly reflects your company’s brand and offering, so why not encourage more people to visit? If your website contains helpful resources and product information, you should communicate this to your audience to enable them to use your website as a hub of information. While they are on your website, they can find out more information about other elements of your business and may contact you.

Linking to your website can also help improve your search engine optimisation, to aid you in climbing towards the top of search engines such as Google and Bing. Search engines are constantly developing to make sure the best and most relevant results are being found and social media is now being used to find quality content that users are engaging with. Creating and sharing content and links to your website on these platforms will send  a signal to search engines that people like what you are saying and this is a reason your site should be ranked higher than competitors.

Can we help you?

If you have any questions, please do not hesitate to contact us.