Password Security

Every day, we read stories about the latest business to suffer from a cyber attack. Businesses install quality security software and password protected servers to guard against cyber threats. However, the weakest link in your IT security could be your employees and the strength of the passwords they use to log in to your systems.

A huge problem for businesses is people use passwords that they can easily remember such as password123 (one of the most commonly used). More sophisticated security means users often have to include special characters so perhaps they are now using p@ssword123. This isn’t going to do much to secure your IT systems.

Many firms will provide IT security training to their staff, encouraging the use of more complex passwords. That is good unless the team members start writing their passwords down and leaving them on their desk.

You can encourage people to use complex, more secure passwords that they can easily remember by using a password manager and generator.

A password manager and generator is a piece of software that generates secure passwords for all relevant accounts and stores them securely either on their server, on a USB drive or locally on your PC. The software will encrypt and store password information so you only have to remember one password for the password manager itself.

Password manager and generator services are available online from the likes of LastPass, Dashlane or KeePass Password Safe. Larger businesses might want to use an enterprise level system such as Sticky Password from AVG. Perhaps this is the way forward for password security until fingerprint scanning or facial recognition become mainstream options for businesses.

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ARE SPOUSES WAGES FULLY DEDUCTIBLE?

HMRC have recently won a tax tribunal case where they were seeking to challenge the deduction for a wife’s wages in arriving at the profits of her husband’s business. The judge agreed with HMRC that the amount allowed as a deduction should be limited based on the hours spent and appropriate rate for the work done.

The general principle here is that the expense must be incurred wholly and exclusively for the purpose of the trade. Traditionally when the personal allowance was fairly low (e.g. £6,475 in 2010) it was quite easy to justify the wages paid to the spouse at around that level. However, there have been significant increases in the personal allowance in recent years to £11,500 in the current tax year and it is important that wages paid to the spouse can be justified.

CGT Investors’ Relief

A client has recently sold his family company, realising a significant gain and using all of his Capital Gains (CGT) Tax Entrepreneurs’ Relief lifetime allowance in the process.Although he has stepped back from active involvement, he is considering investing a significant amount of money in a trading company and has told me he would like to ensure that he benefits from a 10% CGT rate when he sells this. Is this possible?

CGT investors’ relief, introduced in Finance Act 2016, allows for a separate, additional £10 million of lifetime allowance on the sale of qualifying shares in a trading company. The rules are somewhat complex, but potentially provide a favourable rate of CGT for an investment that may not, for instance, qualify for the various tax incentives under EIS/SEIS or Entrepreneurs’ Relief.

The relief applies to ordinary shares subscribed for on or after 17 March 2016, in an unquoted trading company or holding company of a trading group, where the shares are held for a minimum 3-year period prior to disposal.

The relief will generally not apply if either the investor or someone connected to them is either an officer or employee of the company invested in, or another company connected to it (the ‘relevant employee’ restriction).

That said, it is possible for an unremunerated director of the company invested in to avoid the ‘relevant employee’ restriction if, prior to making the investment, neither they nor any person connected to them were either connected to the company or involved in the carrying on of its trade.

Furthermore, an unremunerated director would be able to receive dividends, interest (arising on a loan to the company) and a reimbursement of business expenses from the company without breaching this condition.

In addition, it might be possible for trustees to claim relief if a qualifying life tenant met these requirements.

REPORTING VAT ONLINE – AREN’T WE DOING THAT ALREADY?

Recently we reported that the government had announced the delay of Making Tax Digital for Business (MTDfB) to 2020 at the earliest but that quarterly VAT reporting, using the new system will be mandatory from 2019.

Surely we are doing that already you might say. However, currently businesses are only required to complete 9 boxes when they submit their quarterly, monthly, or annual VAT return online. Under the latest proposal for MTDfB the business will be required to submit the detailed transaction data supporting the output tax and input tax figures on a quarterly basis. This will therefore require those businesses affected to keep their accounting records digitally from the 2019 start date.

These changes won’t affect business that are not VAT registered such as buy to let landlords for whom MTDfB will not apply until 2020 at the earliest, and even then only if their gross rental income exceeds the VAT registration threshold.

VAT REGISTRATION FOR JOINTLY OWNED PROPERTIES

A client is a limited company, which also has a pension fund and both the company and the trustees of the pension fund are registered for VAT as separate entities.  Recently the company and the pension fund jointly have purchased a commercial property and the company has placed an option to tax on the property.  How do they deal with the VAT returns for each entity?

When a property is in joint ownership, the owners are treated by HMRC as a partnership for VAT purposes.  In this client’s case, each of the trustees of the pension fund and the limited company, as a corporate entity, are the ‘partners’ in a new VAT partnership and need to apply for VAT registration as that partnership entity. It is worth mentioning that where a partnership registration is required in this way for VAT, it does not necessarily follow that the partners in the VAT partnership will be viewed as a partnership for the Partnership Act 1890.

If the company and pension fund want the rentals of the property to be taxable supplies then the VAT partnership would need to make an option to tax for the property, irrespective of the limited company having its own option to tax in place.    The output tax on the rent would then be declared on the partnership’s VAT return.  Neither the company’s nor the pension fund’s, own VAT registration would deal with the VAT aspects of the jointly owned property.

If the company and the pension fund are not treating themselves as a partnership for accounting purposes in recording the income for the property, then care will need to be taken to ensure that rent transactions and any costs relating to the property can clearly be identified to enable the VAT return for the partnership to be completed