Guest Blog – What Happens When I Issue A Legal Claim?

What do you think of when you think of the court process? A severe looking man in a wig bashing a gavel and shouting? A room full of clerks scribbling away with quill pens like in a Dickens novel?

The reality is that the modern court process for debt recovery is very different – for the first stages of the process there’s no courtroom and not even a Judge. Instead there’s just a computer system in an office block in the Midlands.

So what really happens? 

For the purpose of this article we are assuming that a Letter Before Action has already been sent to the debtor, they have not responded, and so specialist debt recovery solicitors have been engaged.

The first thing the solicitors will do is compile the essential information neccessary to issue a Claim. This includes basic contact details such as name and address for the Claimant (the person who wants their money) and the Debtor (the person who owes the money). The solicitor will also put together what is known as the Particulars of Claim (or POC for short). This is a brief summary of what is owed, why it is owed and details of any additional interest, compensation or costs that should be added on to the debt.

Once all this information has been compiled it is sent electronically to the County Court Bulk Centre (CCBC) using a system known as Secure Data Transfer. This is a completely automatic process available to selected debt recovery solicitors and other high-volume Court users. It is not available to individual claimants.

Once the information is received by CCBC it is automatically checked for basic errors such as missing address information, non-UK postcodes, etc. Provided the information passes this validation process the data is then entered onto CaseMan – the Court Service computer system. At this point the case is allocated a Claim Number which is the unique reference henceforth used to refer to this case.

Every day all the cases received up to midnight the previous day are loaded onto CaseMan and then Claim Forms (N1) are printed for each case and posted out to the debtor. It is important to stress that this entire process is completely automatic – at no point is a Judge (or anyone else for that matter!) looking at the case and deciding which party is right or not.

If the debtor does not respond to the Claim Form within 14 days then an electronic request for Judgment can be made against the debtor (known as Default Judgment). Again it’s important to stress this is completely automatic – if the debtor has not responded then the Judgment will be entered regardless of the merits of the case. No human being (and certainly no Judge) will have looked at the case.

Once Judgment has been entered, Enforcement action can be taken to recover the debt. It is only if the Claim is defended that there is the potential that you will have to go to Court for a trial. On average only 16% of Claims are defended and far fewer (3%) actually reach a trial. If you do find yourself, having to go to trial you will in fact be surprised that the settings are far less formal than anticipated. Less Dickensian Court room and more modern office rooms within close proximity of the Judge who will listen to each side and make a decision and provide reasons for their decision accordingly.   

 

Our first guest blog was written by Andrew Dancy of Lovetts Solitiors

For more information above Lovetts Solicitors please visit http://www.lovetts.co.uk or @LovettsDebt

CONSULTATION ON 3% SDLT SUPPLEMENT ON SECOND HOMES FROM APRIL 2016

HMRC are consulting on the details of the higher rates of stamp duty land tax (SDLT) on purchases of additional residential properties announced in the 2015 Autumn Statement. The Government will include detailed rules in the Budget on 16 March 2016. The higher rates will not apply if at the end of the day of the transaction an individual owns only one residential property, irrespective of the intended use of the property.

In line with the CGT rules there will be an 18 month period between sale of a previous main residence and purchase of a new main residence for the purpose of determining whether the higher rates apply.

Single Director Companies Excluded From £3,000 NIC Employment Allowance

From 6 April 2016 the Employment Allowance increases from £2,000 to £3,000, but if you’re the only employee in a company, and also the director, your company will no longer be eligible for the NICs Employment Allowance.

HMRC is currently consulting on the draft legislation for this change which will mean that the £3,000 allowance will not be available to offset against the employers’ NIC liability of such companies.

Fee Protection – Is it worth it?

Courts Accountancy Services work closely with Taxwise to offer their clients piece of mind should HM Revenue and Customs ever come calling.

What is Tax Fee Protection Service?

HMRC tax and VAT investigations can be daunting, disruptive and expensive.  Courts Accountants will assist you every step of the way to answer HMRC’s questions and demonstrate you are paying the correct amount of tax.  This requires the expertise, time, flexibility and expense of your accountant on your behalf and such costs are not included in your regular annual fees.

Just as you take out contents insurance to protect your home or business, our Tax Fee Protection Service protects you against the unforeseen costs incurred by Courts Accountants when dealing with an HMRC enquiry.

Why do I need Tax Fee Protection Service?

All business and personal taxpayers are at risk of enquiry.  HMRC activity as been at unprecedented levels for a number of years to the point where enquiries are common place.

Even if the tax man finds no errors, the accountancy costs of dealing with HMRC can still be substantial.

For a modest amount you can enjoy peace of mind that Courts Accountancy Services cam deal with the tax authorities on your behalf and you will not be subject to any additional expense.  These costs will be covered by our policy.

What’s excluded?

  • Criminal prosecutions and fraud.
  • Enquiries that have commenced prior to subscribing to the service.
  • Enquiries to periods where Courts Accountancy Services were not appointed.
  • Any tax, interest or penalties due
  • Routine compliance work, e.g. preparing tax return.

In the event of a Tax or VAT enquiry

Please speak to us straight away, immediate professional advice can make all the difference.

Business clients are entitled to complimentary access to the country’s leading employment law advisors to obtain practical considered advice in the complex areas of employment law and business safety.

Unfortunately this service is only available to our clients, so may be its a good time to talk to us on 01280 875250.

 

Separation & Divorce

It is an unfortunate fact of modern life that many marriages do not survive.  Unfortunately it is around Christmas time and the New Year when most separations occur.

When separation, divorce or dissolution occurs, there will almost inevitably be some tax consequences.

Allowances

The married couple’s allowance has been withdrawn, except for those couples in which at least one spouse or civil partner was born before 6 April 1935. The allowance will cease at the end of the tax year in which separation occurs.

The child tax credit, is available to each former spouse or civil partner with one or more children living with him or her (i.e. each spouse will be entitled to the credit, as a single parent, if one or more children live with him or her).

Maintenance payments

Maintenance payments qualify for tax relief only where a spouse, civil partner or former spouse or former civil partner was born before 6 April 1935 and only if they are legally enforceable. This will be the case if they are made under a court order, a Child Support Agency assessment, or a legal deed of separation. Such maintenance payments must be made to your divorced or separated spouse or civil partner (if they are not remarried or have not entered into a new civil partnership) for the benefit of him or her or of your child under twenty-one living with him or her.

The maximum tax reduction available is £304.

Maintenance payments received do not count as taxable income.

Transferring assets

Assets transferred between spouses or civil partners in a tax year during which they have lived together, including the year of separation, are exempt from capital gains tax (CGT) and inheritance tax.

From the end of the year of separation until the decree absolute, the former spouses or civil partners are still regarded as connected persons for CGT purposes, and therefore all transfers between them will be treated for tax as if made at full market value, even if no consideration changes hands.

Thereafter, transfers will be treated as ‘at arms length’ and therefore transfers will, for CGT purposes, be treated as disposals or acquisitions for only such amount as changed hands.

Where the couple separate but decide not to divorce, the inheritance tax exemptions still apply to them. This can be a useful relief for couples who remain on good terms.

Finance Services Compensation Scheme (FSCS) reduced

The deposit compensation limit protected by the Finance Services Compensation Scheme (FSCS) has been reduced to £75,000.

The FSCS protects deposits made by private individuals and small businesses to any authorised firms.

From 1 January 2016, the new deposit compensation limit will be £75,000, a reduction of £10,000 from the previous limit of £85,000.

The new changes mean that deposits are limited up to £75,000 for single accounts and £150,000 for joint accounts.

The FSCS covers any losses individuals and small businesses suffer as a result of their bank, building society or credit union failing. The deposit protection limit covers money in savings and bank accounts, cash ISAs and saving bonds per person, per firm.

However businesses may still receive a share of their savings above this limit following any distribution of assets as part of a bank failure. This would be a matter for the bank to decide and any money recovered would vary according to the circumstances of the failure.

Tax Treatment of Member’s Voluntary Liquidations set to change on 6th April 2016

You may already be aware that the taxation treatment of dividends from limited companies will change on 6th April 2016, such that previously tax free levels of dividends will now be taxed.

This change will have a negative impact on many shareholders, particularly those involved in contracting or providing personal services via a limited company structure. Many of these companies were paying salaries and dividends within tax free limits and accumulating cash within the company.

At the end of the useful life of the company, it was the usual practice to place the company into Members Voluntary Liquidation (“MVL”) and to distribute the cash to the shareholders as a capital gain.

In some cases, shareholders were eligible to claim Entrepreneurial Relief (“ER”) and the capital gain taxed at 10%. The directors and shareholders of limited companies have been seeking advice since the announcement of these changes in the Autumn Statement by the Chancellor of the Exchequer in 2015, specifically with a view to reviewing limited company structures and planning for the changes to take effect on 6 April 2016. As an added complication, HM Revenue & Customs (“HMRC”) published a policy paper and draft legislation in the week prior to Christmas 2015, relating to MVLs and the accessibility of ER to shareholders which may have some serious ramifications for your clients and any tax advice you provide in future.

A copy of the documents can be found at this link. https://www.gov.uk/government/publications/corporation-tax-income-tax-and-capital-gains-tax-company-distributions/corporation-tax-income-tax-and-capital-gains-tax-company-distributions

It is clear that HMRC are seeking to introduce legislation to prevent serial users of the MVL procedure (and by implication using ER to limit the tax on capital distributions to 10%) with a Targeted Anti-Avoidance Rule (“TAAR”). Accordingly, should the recipient of the MVL capital distribution fall foul of the terms and conditions, the capital distributions could be retrospectively deemed to be income and thus subject to the normal income tax regime. The TAAR identified that capital distributions from an MVL will be treated as income under the following circumstances:

  1. An individual, who is a shareholder in a close company, receives from that company a distribution in respect of shares from a winding-up; and
  2. within a period of two years after the winding-up, the shareholder continues to be involved in a similar trade or activity (directly or via an associate); and
  3. the arrangements have a main purpose, or one of the main purposes, of obtaining a tax advantage.

Our preliminary advice on this matter therefore is that anyone considering using an MVL in the near future should do so before 6th April 2016 (any dividend must be distributed prior to this date) to avoid any potential issues as and when the draft legislation comes into force.

Sage Instant Is Changing

From the 1st February 2016 Sage Instant is changing to Sage 50 Essentials.

So is it worth upgrading?  We think so…

The new Instant Accounts, or Sage 50 Essentials as it will be known has a number of improvements and new features to help you run your business.

You’ll get…

  • Instant Accounts Plus featuring
    • Error corrections
    • Invoice payments
    • Bank feeds
    • Drillable reports
  • Power of Sage Pay and Payments
  • Sage Drive & Mobile Apps
  • Quarterly continuous improvements
  • Free online support

Interested give us a call on 01280 875250 for more information

January 2016 Questions & Answers

Q. What is our IHT position following a change of ownership?

In 2014, my partner and I changed the ownership status of our house from joint tenants to tenants-in-common. At that time, my share of the equity was reduced from 50% to 25% and my partner’s was, in turn, increased to 75%. Does this count as a lifetime gift for inheritance tax purposes (IHT)?

A. If you are married to you partner (spouse or civil partners), then the change will not count as a lifetime gift (a potentially exempt transfer (PET)) as it will be treated as an inter-spouse/civil partner transfer (assuming that your partner is domiciled in the UK). If, however, you are not married, the transfer will be treated as a PET, and you will need to live for seven years after the transfer date for it to be completely ignored for IHT purposes.

Q. CGT annual exemption and entrepreneurs’ relief. Can the annual capital gains tax (CGT) exemption be utilised against a capital gain that qualifies for entrepreneurs’ relief?

A Yes it can.

If your qualifying net gains exceed the lifetime limit applicable to the time you make that disposal, no further relief is due and the excess over that amount is wholly chargeable at the CGT rate (18% or 28% for disposals made on or after 23 June 2010). The annual exempt amount is allocated in the most beneficial way, so is set first against gains having the highest rate of CGT. If you make a subsequent business disposal in a later year which qualifies for entrepreneurs’ relief, the total relief (for all years) is still limited to your lifetime limit. Any gains exceeding that limit are wholly chargeable at the normal rate of CGT.

See the HMRC factsheet HS275 for further details (www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-entrepreneurs-relief-2015).

Q. Can I claim for laundering my uniform? My employer provides me with a uniform that bears our company logo. I am required to maintain the uniform at my own expense without a contribution from my employer. Can I claim tax relief for the costs of keeping it clean?

A You may be entitled to a uniform tax allowance if your work requires you to wear a uniform that is provided by your employer and bears a company logo. Depending upon your employment, this could be anything from a polo shirt with the company’s logo on it, to a high-visibility jacket and overalls. If you are then required to maintain that uniform at your own expense without a contribution from your employer, you are likely to be entitled to the allowance.

Flat rate expenses for cleaning costs have been negotiated for operatives in particular industries (including shop workers wearing a branded uniform). You can find a full list of flat rate expenses on the HMRC website at www.hmrc.gov.uk/manuals/eimanual/EIM32712.htm. There are also separate flat rate expenses available for nurses and other health care workers.

The cost of clothing worn at work has been considered by the Courts on a number of occasions and in many cases they have ruled that the cost of work clothing is not incurred ‘wholly and exclusively in the performance’ of the taxpayer’s duties. In general terms, you will not be able to claim a clothing allowance for the cost of upkeep, replacement and repair of ordinary clothing, even if you only wear it for work.

Introducing Innovative Finance ISAs

From 6 April 2016, a new type of Individual Savings Account (ISA) will be launched – the Innovative Finance ISA. This new ISAs will be able to hold peer-to-peer (P2P) loans, which often pay significantly higher returns than cash accounts. Broadly, P2P lenders act as middlemen by matching people who wish to invest cash with those who want to borrow money. From 6 April 2016, interest and gains from P2P loans will qualify for tax advantages where these loans are made through an Innovative Finance ISA.

There are currently two types of ISA – cash ISA and stocks and shares ISA. The ISA Regulations specify which investments qualify for each of these accounts. P2P loans are currently not eligible for either type of ISA, other than where they are included within an investment trust or similar product that is eligible to be held within a stocks and shares ISA. The ISA Regulations also set out which financial institutions can offer ISAs, and specify the information that ISA providers must supply to HMRC. These regulations also specify other rules and features of ISA, including those concerning the ownership, transfer and withdrawal of ISA investments. The ISA Regulations will be amended by secondary legislation to establish a third ISA type – the Innovative Finance ISA. Accounts will be available to investors aged 18 or over. Along with loan repayments, interest and gains from peer to peer loans will be eligible to be held within this new type of ISA, without being subject to tax.

P2P lending platforms with full regulatory permissions from the Financial Conduct Authority (FCA) will be eligible to offer the Innovative Finance ISA in accordance with the ISA Regulations. Like other ISA providers, these platforms will be required to supply HMRC with certain information about the accounts they provide. Various account requirements set out in the ISA Regulations will be updated or modified to accommodate the Innovative Finance ISA.

As a result of these changes, an ISA investor will be entitled to subscribe new money each year to a maximum of one Innovative Finance ISA, one cash ISA and one stocks and shares ISA. The amount of new money paid into all of the ISAs held by an investor must not exceed the overall ISA subscription limit for the year.

For further information, see the GOV.UK website at www.gov.uk/government/publications/income-tax-innovative-finance-individual-savings-account-and-peer-to-peer-loans/income-tax-innovative-finance-individual-savings-account-and-peer-to-peer-loans.