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Compensation limits for bank deposits

What happens if your bank becomes insolvent and you stand to lose any funds deposited?

The bank deposit guarantee limit is the amount of money that is guaranteed, for savers in UK banks and building societies, should the institution become insolvent. The Financial Services Compensation Scheme (FSCS) guaranteed amount is currently £85,000 per person, per authorised bank or building society.

There is additional protection available to savers with certain types of temporary high balances, for example proceeds from a house sale, benefits payable under an insurance policy and inheritances. The additional FSCS protection covers amounts of up to £1m per depositor per life event and is available for up to six months. The FSCS offers unlimited cover for personal injury claims.

The limit is enough to cover the deposits of more than 95% of all savers in the UK. However, savers with more than £85,000 should consider opening multiple bank accounts with separate banks and building societies in order to increase their guaranteed savings limits. The FSCS was set up mainly to assist private individuals, although some businesses and small local authorities (such as parish councils) are also covered. The compensation limit is doubled for joint account holders.

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Making Tax Digital (MTD)

Since April 2019, VAT registered businesses with a turnover above the VAT threshold need to keep digital records for VAT purposes using the Making Tax Digital (MTD) protocols. This means that businesses must keep their records digitally (for VAT purposes only) and provide their VAT return information to HMRC through MTD compatible software.

Businesses with a turnover under the VAT registration threshold (currently £85,000) are not mandated to use the MTD for VAT service but can opt to do so if they wish. There is also an exception for certain businesses that have until their first VAT Return period starting on or after 1 October 2019 to start using MTD for VAT. This includes businesses that are part of a VAT group or VAT division, use the annual accounting scheme or that make payments on account.

HMRC also has a number of other relaxations to help businesses adapt to MTD. For example, HMRC has agreed to give businesses until 1 April 2020 (or 1 October 2020 for deferred businesses) to make sure there are digital links between software products. This means that during the first year of MTD for VAT, businesses who use more than one software programme to keep their VAT records and prepare and file returns will not be required to have digital links between those software programmes. After this time, bridging or MTD-compatible software will be required so that this information can be digitally sent to HMRC with no manual intervention.

HMRC has updated its guidance for businesses that need to update exceptionally complex or legacy IT systems. These businesses may qualify for a time-limited extension to their 2020 deadline for having full digital links in place. An application needs to be made to HMRC and the qualifying criteria must be met.

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What is a Close Company?

A Close Company is broadly defined as a company that is controlled by:

  • five or fewer participators or
  • any number of participators who are also directors or
  • where more than half the assets of which would be distributed to five or fewer participators, or to participators who are directors, in the event of the winding up of the company.

A participator is broadly somebody who has a share or interest in the capital or income of a company such as having share capital, voting rights or a right to capital on winding up of the company. This can be a shareholder, director or a loan creditor.

Most small private companies will meet the definition of a Close Company and there are some specific tax rules that apply to these companies. This includes, for example, where a Close Company pays for personal expenses of a director or makes a loan to one of its participators.

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Tax deducted from payments by companies

Under certain circumstances, companies (including non-resident companies trading from a branch or agency in the UK and local authorities) can have a duty to deduct tax in connection with certain payments. In effect the company accounts for all or part of the tax liability on behalf of the recipient of the payment.

For example, from:

  • payments of yearly interest
  • annual payments
  • patent royalties
  • royalties etc to a person who lives abroad
  • the proceeds of a sale of patent rights paid to a non-UK resident
  • chargeable payments connected with exempt distributions
  • directions for deduction from payments to non-UK residents.

Companies (and various other entities) making these deductions are obliged to account for the amounts deducted using form CT61. HMRC is happy for the entries on these forms to give aggregated figures of amounts paid or credited and the tax deducted for the return period. However, the payments should be split for pre and post 5 April interest to reflect any change in the tax rate.

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Lump sums paid in continuing employment

A lump sum payment can sometimes be made in lieu of all or part of an employee’s salary, wage, commission or other amounts to which they are entitled by virtue of their employment. Under these circumstances, the lump sum payments are taxable as earnings. The lump sums are referred to in the legislation as ‘substituted remuneration’ to mean that one form of remuneration has been substituted for another.

A number of cases have illustrated this opinion. One of these cases, Bolam v Muller set the principle that a lump sum paid was remuneration for services to be rendered and was taxable as earnings. The Judge, Atkinson J in this 1947 case stated that:

'It seems to me so plain. It is obvious… that the bonuses he would have received if they had been paid under the agreement would have been profits from his employment, and the mere fact that they agree on another form of remuneration does not alter its character.'

The same principle also applies where the earnings given up is a benefit in kind.

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Tax implications for construction industry

If you run a construction business and secure the services of sub-contractors, or if you are a building sub-contractor, you will need to comply with a special set of tax rules collectively known as the Construction Industry Scheme (CIS). 

The CIS rules determine the tax and National Insurance treatment for those working in the construction industry. 

Under the scheme, contractors are required to deduct money from a sub-contractor’s payments and pass it to HMRC. The deductions count as advance payments towards the sub-contractor’s tax and National Insurance liabilities.

Contractors are defined as those who pay sub-contractors for construction work or who spent an average of more than £1m a year on construction over a three-year period. Sub-contractors do not have to register for the CIS, but contractors must deduct 30% from their payments as unregistered sub-contractors.

To avoid the 30% deduction, sub-contractors will need to register with HMRC and qualify for a 20% deduction or apply for gross payment status. If gross payment status is secured the contractor will not make a deduction and the sub-contractor will be responsible to pay all their tax and National Insurance at the end of the tax year.

The CIS covers all construction work carried out in the UK. Exceptions to the definition of construction work includes professional work done by architects and surveyors, carpet fitting, scaffolding hire (with no labour) and work on construction sites that’s clearly not construction. The CIS does not apply to construction work carried on outside the UK.

In addition, from 1 October 2020, sub-contractors will no longer add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This will be known as the Domestic Reverse Charge. The new rules will make the supply of construction services between construction or building businesses subject to the Domestic Reverse Charge. These rules were meant to come into effect from 1 October 2019 but have been delayed allowing the industry more time to prepare.

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What is a reasonable excuse?

There are a number of options if you find yourself in disagreement with a tax decision issued by HMRC. As a first step, it is usually possible to make an appeal against a tax decision. There is normally a 30-day deadline for making a claim, so time is of the essence. HMRC will then carry out a review, usually by using HMRC officers that were not involved in the original decision. A response to an appeal is usually made within 45 days but can take longer for complex issues.

In certain cases, it is possible to appeal against penalties on the grounds that you have a 'reasonable excuse' for not complying on time.

HMRC’s guidance lists the following examples of what may count as a reasonable excuse:

  • your partner or another close relative died shortly before the tax return or payment deadline
  • you had an unexpected stay in hospital that prevented you from dealing with your tax affairs
  • you had a serious or life-threatening illness
  • your computer or software failed just before or while you were preparing your online return
  • service issues with HMRC online services
  • a fire, flood or theft prevented you from completing your tax return
  • postal delays that you couldn’t have predicted
  • delays related to a disability you have

However, not receiving a reminder, relying on someone else or making a mistake are amongst the reasons not counted as reasonable excuses.

If you still disagree with HMRC’s review, there are further options available which include making an appeal to a tax tribunal or using the Alternative Dispute Resolution (ADR) process.

We can help. Call if you need guidance on the best way to proceed.

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Win while you save

HM Treasury has announced the trial launch of a new PrizeSaver account with participating credit unions. The new account was launched as part of the International Credit Union Day. Eligible savers who open the new account can win up to £5,000 a month by saving as little as £1 a month.

The Treasury has teamed up with 15 credit unions across the UK to launch the new accounts.  Accounts can be opened now with the initial group of participating credit unions. The first prize draws will take place in mid-December. Every month’s prize draw will see a top prize of £5,000 awarded to the winning saver, with a further 20 smaller prizes of £20 also awarded.

The launch of this pilot was announced at last year's Budget and is, according to HM Treasury, designed to help improve people’s financial resilience by encouraging greater saving for the future, as well as raise awareness of credit unions and the services they offer.

The launch of the new scheme was partly inspired by the 'Save to Win' scheme in the US, which has helped credit union members save $200m and has awarded $3.1m in prizes nationwide. The pilot will run until the end of March 2021 and will help inform understanding of the PrizeSaver model. If the pilot is successful, it is expected to be rolled out more widely across the country.

Credit unions are a type of member-owned cooperative, controlled and run by members. Most either serve specific local areas or certain professions like the police. Credit unions redistribute their profits to members through interest or dividends or by investing in new services to meet the needs of their members.

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31 October paper Self-Assessment filing deadline

The 2018-19 tax return deadline for submitting your paper Self-Assessment returns is 31 October 2019. Late submission of a Self-Assessment return will trigger a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid in full by 31 January 2020.

If you are still submitting paper tax returns, we would recommend that you consider the benefits of submitting the returns electronically. This extends the filing deadline by an additional three months (until 31 January 2020). You will also benefit from quicker repayments of any tax refunds you may be due and instant confirmation that a return has been filed.

Daily penalties of £10 per day will take effect if your tax return is still outstanding three months after the filing date up to a maximum of £900. If the return still remains outstanding further higher penalties will be charged from six months and twelve months.

If you received a letter informing you to submit a paper return after 30 July 2019, then you have an extended deadline which runs for three months from the date you received the letter requesting you to submit a paper return.

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What does the Queen’s Speech mean for employment law?

The Queen’s Speech 2019 outlined several Brexit-related Bills, including an Immigration and Social Security Co-ordination (EU Withdrawal) Bill, designed to end free movement within the UK after Brexit and to lay the foundation for a new, modern and global immigration system. The Bill will also reaffirm the government’s commitment to the right to remain for resident EU citizens “who have built their lives here in the UK”. The main elements of the Bill are:

  • Ending the free movement of EU citizens under UK law
  • The power to align the treatment of EU citizens arriving after January 2021 with non-EU citizens, and to maintain the treatment of EU citizens resident in the UK before exit day
  • Clarifying the immigration status of Irish citizens in the UK once the free movement rules are removed from UK law
  • Confirming the deadline for applications to be made under the EU Settlement Scheme
  • Giving EU citizens and their family members who apply a right of appeal against EU Settlement Scheme decisions.

Should the UK leave the EU without a deal, EU citizens moving to the UK after Brexit and on or before 31 December 2020 will be able to apply for a temporary immigration status, called European Temporary Leave to Remain, which will carry them into the new skills-based immigration system from 2021.

Looking specifically at employment law, the reform agenda was modest as the Speech included only one Bill. The Employment (Allocation of Tips) Bill will make sure that tips are kept in full by, or distributed fairly and transparently to, “those who work hard to earn them”.  The main elements of the Bill are:

  • A legal obligation on employers to pass on all tips, gratuities and service charges to workers without any deductions
  • A legal obligation on employers to distribute tips in a fair and transparent manner, where employers have control or significant influence over the distribution of tips
  • The requirement for an employer to follow a statutory Code of Practice when distributing tips – the Code will set out the principles of fair and transparent distribution of tips.

The government did, however, also confirm that it would continue to deliver on the commitments set out in the Good Work Plan, ensuring that UK employment practices keep pace with modern ways of working. In this regard, it committed to:

  • Increasing fairness and flexibility in the labour market by stopping employers and workers experiencing significantly different outcomes from flexible forms of working
  • Strengthening workers’ ability to get redress for poor treatment, including by improving the enforcement system
  • Increasing transparency and clarity for workers and employers, taking account of modern working relationships
  • Giving better support to working families and taking further steps to promote workplace participation for all
  • Increasing the national living wage (NLW) to two-thirds of median hourly earnings and lowering the age threshold for those who qualify from 25 to 21 within the next five years, with further details to be set out at the next Budget (due to be delivered on 6 November 2019 if the UK leaves the EU with a deal).