First time buyer relief

First Time Buyer Relief was introduced by the Chancellor on 22nd November 2017 and applies to all relevant transactions provided the effective date of the transaction is on or after that date.

The purchase must be of a single dwelling.

The relevant consideration must not be more than £500,000 and on a dwelling purchased by a first-time buyer intending to occupy the dwelling as the main residence or as the only residence.

There must be no linked transactions (Other than the purchase of a garden or grounds that subsist for the benefit of the dwelling).

A first-time buyer is an individual who has never previously acquired a major interest in a dwelling (or an equivalent interest in land) situated anywhere in the world. Such an interest could be acquired by inheritance or gift.  It does not apply to acquisition as a Trustee.  If the property is owned jointly, all of the purchasers must meet all of the conditions.

The effective date of the transaction is normally completion but can be earlier if the transaction has been substantially performed before that date.  For example, the buyer taking possession or the vendor receiving 90% of the sale proceeds.

The effect of the relief depends on the relevant consideration.

Up to £300,000,  no Stamp Duty Land Tax is payable.  For acquisitions over £300,000 and up to £500,000, Stamp Duty Land Tax is payable at 5% on the surplus over £300,000.

The relief must be claimed on a land transaction return using code 32 in the appropriate field of the return.

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Tax on retirement gifts?

Unfortunately, there is no specific exemption within the legislation for a gift to be made to an employee when they retire from their employment.  However, we may be able to utilise the Long Service Award (ITEPA 2003 Section 323) exemption depending on the type of gift made and meeting certain conditions.

If the gift consists of cash then the sum would always be treated as taxable (and NICable) under section 62 ITEPA 2003 because the gift is being received by reason of the employment.  However, if the company were to purchase a tangible gift for the employee, for example, a watch, this may meet the qualifying conditions for exemption as a Long Service Award.

Section 323 ITEPA 2003 contains an exemption for a non-cash award given to an employee that meets all of the following criteria:

  • The employee has worked for the company for more than 20 years,
  • The employee has not had a previous award in the last 10 years, and
  • The award is less than £50 per year of service.

Therefore, if an employee has 25 years of service he or she could receive a non-cash gift up to the value of £1250 without incurring a tax charge.  If the value of the gift exceeds £50 per year of service then the amount in excess would need to be reported on a P11d as a taxable benefit and would be subject to Class 1A National Insurance.

Changes to employment law!

As we begin a new year, what will be the key employment law issues for my clients?

2017 was a busy year for employment law and your clients would have had to come to terms with a number of different issues, from including normal voluntary overtime in holiday pay to assessing whether their dress code was sexist.

A number of key changes will take effect in 2018 whilst some areas will continue to be impacted by decisions from last year. Here’s an overview of what your clients can expect in 2018:

  • The number of tribunal claims your clients are facing is likely to increase. The removal of fees in July 2017 has already contributed towards a 64% increase in single claims during July – September 2017, compared to the same quarter in the previous year. Your clients may find themselves increasingly facing the risk of their employees, or ex-employees, bringing a claim against them to enforce their rights or resolve a complaint as there is no longer a financial barrier to do so.
  • Your clients will need to assess how they process their employee data to ensure they are not breaching the new General Data Protection Regulation. The new data protection laws will come in to force on 25th May 2018 and these seek to increase the rights of employees and place more obligations on employers who process data. Your clients need to be aware of the new rules as the financial penalty for a data protection breach will be significantly higher from May.
  • National Minimum and Living Wage are set to increase in April, with pay for those aged 25 and over rising from £7.50 to £7.83 per hour. Due to increasing awareness, and targeted enforcement by the HMRC, your clients need to ensure they are correctly paying their staff at least the legal minimum and are applying the new rates from April. A failure to do so could see them facing a substantial fine or being publicly named and shamed by the government.
  • The protection of caste discrimination may be finalised in 2018. The government has been considering how to protect against discrimination on the grounds of caste, specifically whether current case law provides this protection or if a newly protected characteristic should be inserted into the Equality Act. A consultation closed in September 2017 and the response is awaited.
  • The government will release their long-awaited response to the Matthew Taylor review on ‘Modern working practices’ early this year. The review made a number of key recommendations, including introducing legislation to make determining employment status easier, having an increased minimum wage for those without guaranteed hours and introducing penalties for those employers who ignore tribunal decisions.

Will you get an investigation on your Tax Return?

The enquiry selection process is underpinned by risk. HM Revenue & Customs (HMRC) risk assesses individual tax returns, it risk assesses business sectors and it even risk assesses geographical areas of the UK. The objective of the risk assessment is to determine whether there is a potential loss of tax or VAT which needs to be investigated further.

The Risk and Intelligence Service within HMRC brings together all of the data the department receives  and feeds it into Connect, the taxman’s award-winning computer software programme, which then integrates all the information for tax specialists to interrogate.

Apart from all the detail banks and building societies and other Government agencies provide to HMRC, reports to the Tax Evasion Hotline and mortgage referrals also form part of the risk assessment process.

Tax Evasion Hotline

HMRC receives letters, emails and telephone calls from people who suspect somebody else is not declaring all of their income.

Type 2014/15 2015/16 2016/17
Written/Post 17,640 14,281 11,482
Telephone 37,259 23,141 20,200
Email/Digital 29,952 38,918 48,521
Total 84,851 76,340 80,203

It is not unusual for jilted partners, wives or husbands, jealous neighbours or disgruntled former employees to contact HMRC with stories of undeclared income or to question how expensive cars or home extensions have been paid for. Whether true or not, all of these reports are entered into Connect and become part of the risk assessment process.

Mortgage Verification Scheme

Mortgage lenders contact HMRC when they have cause to doubt the level of income being declared on mortgage applications. HMRC check the referrals and either confirm or deny the income.

Year Number of referrals
2014/15 7763
2015/16 9257
2016/17 10806

If the income declared on the mortgage application is more than the income declared on the tax return, then that can trigger an enquiry too.

Property

Undeclared rental income is fertile ground for HMRC.

The Land Registry provides property transaction details, including purchase and sale prices, which HMRC checks against Voters List entries. If the Voters List points towards a property being occupied by several people, all with different surnames, HMRC knows the property in question is likely to be owned by a landlord. A check to see whether housing benefit is being paid to anyone in the property is checked next, before the decision is made to begin a tax enquiry.

Subcontractors

HMRC has always been suspicious about subcontractors, mainly because of the potential to earn cash but, more recently, due to the level of expenditure claimed against the income declared.

In a change of tactic, HMRC approaches firms of accountants who prepare and file large numbers of tax returns for subcontractor clients and asks to review a sample of their work. HMRC calls these accountants High Volume Agents (HVAs).

The review focuses on the business receipts the HVA has seen and the decisions made regarding use of home and travel expenditure claims in particular. With subcontractors generally on site all day, HMRC officers frequently challenge what work is being done at home or when it is being carried out. Journeys back and forth from home to site are also contested and argued to be habitual in nature and disallowable, if the same trips are being repeated on a regular basis.

HMRC will invite subcontractor clients of the HVA to participate in a voluntary amendment programme, where adjustments are agreed if some of the expenditure claimed is questionable. Favourable terms are offered, with adjustments restricted to two years and no penalty charged.

However, if the subcontractor does not agree to the voluntary adjustment, HMRC then proceeds to open enquiries into those who have refused, pursues as many years as possible and levies financial penalties on top of any extra tax and interest.

And finally

Tasked by the Government to maximise revenue, HMRC is doing just that, bringing in an extra £10.3bn a year from compliance activity compared to just five years ago. The last full financial year saw HMRC deliver a record £28.9bn in 2016/17 compared to £18.6bn in 2011/12.

Auto Enrolment to extend to 18-year-olds!

The UK Government has confirmed plans to extend its automatic enrolment scheme to ensure all employees aged 18 and over start saving for later life with a workplace pension.

The Department for Work and Pensions published the proposals, which will affect up to 900,000 young employees, after a consultation on the current scheme to ensure British people are setting aside enough funds for their retirement.

At present, auto-enrolment applies only to those working in private and public-sector organisations aged 22 and above, who earn more than £10,000 from one job. Contributions are typically calculated based on the amount an individual earns above the lower earnings limit of £5,876.

The recent consultation of the existing scheme recommended that pension contributions be measured from the very first pound earned, as opposed to the lower earnings threshold.

Removing the lower earnings limit and lowering the age limit to 18 would cost employers an additional £1.4 billion in pension contributions.

Individuals will continue to have the option to opt out of auto-enrolment if they wish, although in doing so they will not receive their employers’ contribution to their workplace pension.

The total minimum contribution for auto-enrolment is 2% of earnings –  of which at least 1% must come from employers, 0.8% from employees and 0.2% from Government tax relief. The minimum contribution figures are set to increase both in April 2018 and April 2019 respectively:

From April 2018 – Minimum contribution for auto-enrolment will rise to 5% of earnings (of which a minimum of 2% must come from employers).

From April 2019 – Minimum contribution for auto-enrolment will rise to 8% of earnings – 3% from employers, 4% from employees and 1% from Government tax relief.

These proposals also recommend annual reviews for suitable thresholds when auto-enrolment is triggered (currently £10,000 or more) and the use of technology to encourage Britain’s army of 4.8 million self-employed professionals to save for retirement.

Mike Cherry, National Chairman, Federation of Small Businesses (FSB), said: “Requiring employers to contribute from the first pound of earnings will mean that, by 2019, hundreds of thousands of small employers will have to pay up to £180 more per employee each year.”

However, David Gauke, Secretary of State for Work and Pensions, insists that while “the world of work is changing” it is “only right that pension saving does too”.

“We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire,” said Gauke.

“This ambitious package will see more people than ever before helped onto the path towards building a secure retirement.”

Failure for small businesses to enrol qualifying employees into a workplace pension scheme by their auto-enrolment staging date will result in hefty fines from The Pensions Regulator.

Small business rates relief!

There has been much lobbying from the small business sector to reduce business rates. The Chancellor stated that 600,000 small businesses currently benefit from small business rates relief.

In order to support the licensed trade from April 2017, pubs with a rateable value up to £100,000 are able to claim a £1,000 business rates discount for one year. This relief has now been extended until March 2019.