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The Harley Owners Group VAT battle

Archive for the ‘Tax planning’ Category

The Harley Owners Group VAT battle

Thursday, February 8th, 2018

The new year has brought with it reports of another victory for taxpayers in a mixed supply case. The case involves the VAT liable on membership fees paid to Harley-Davidson Europe Ltd by members of the Harley Owners Group (HOG).

HOG was not a conventional distinct legal entity, society or club, but rather a business unit of Harley-Davidson Europe Ltd. For the £55 annual subscription for full membership of HOG, members received a membership card; a hard copy magazine four times a year; a leather wallet; a touring map, including a guide to events; access to a number of websites, including the ability to publish photos; and opportunities for discounts at hotels and other businesses. The £55 payment was wholly standard rated as a supply of membership according to HMRC. However, the taxpayer argued that each specific benefit should be considered for individual VAT liability. For example, as printed matter, the magazines members received should be zero-rated.

Whilst cases such as these continue to be a grey area for VAT, each mixed supply case has four questions which need to be addressed:

  • Firstly, is each benefit or supply distinct and independent from the others?
  • Secondly, what does the typical customer consider he/she is buying?
  • Thirdly, is there a main supply, with other benefits being supplemental to this principal element?
  • Fourthly, are some supplies a way of enhancing the enjoyment of the main supply, or is each supply an aim in itself?

A good example to understand what this means is to compare a cheap flight during which the passengers are given complimentary tea or coffee, with a four course meal with wine on the Orient Express. The hot drinks are a way of helping passengers to enjoy their zero-rated flight, rather than a supply of standard rated catering. In contrast, a customer would rightfully complain if they didn’t receive their food and drink on the train journey, as they expect to experience both the journey and fine dining experience. As such, the flight and beverages are a single supply, whereas the Orient Express excursion and meal are clearly a mixed supply.

In the case of the HOG membership fee, the tribunal concluded that ‘the typical member… places real value on the tangible items’, meaning that the individual items received were more important than the esteem of the link to the Harley Davidson name. Additionally, the company carried out a survey of its members where 89% described the quarterly magazine as ‘somewhat or very important’, backing up the conclusion of the tribunal.

It’s also worth noting that, had Harley-Davidson Europe Ltc been a ‘not for profit’ organisation, the case would not have reached the tribunal as the magazine could have been zero-rated without issue. This is because of a concession which exists for splitting different VAT rates for benefits packages for members of such organisations, which include charities and members’ golf clubs.

4 tips for keeping your books in order in 2018

Thursday, February 8th, 2018

Whether you’re someone who prides themselves on having their accounts in order every year, or you’ve just had yet another last-minute scramble to submit your tax return before the deadline at the end of January, the start of a new calendar year is a great time to review your books and ensure they’re all in order for the twelve months ahead. Here are our top four tips for 2018 in terms of your accounts, ensuring your bottom line is secure and most likely giving it a bit of a boost too.

  1. Get the tax man on your side – okay, maybe you’re unlikely to be inviting ‘the tax man’ to the pub on a Friday night, but it’s a good idea to keep HMRC on side for your business. The HMRC website is the best way to get up to speed with everything you need to know and all the latest accountancy developments for your business. And, if you’re in doubt about anything, get in touch with the tax authorities sooner rather than later and find out the answer. Forewarned is forearmed, as they say.
  2. Make your accountant’s life as easy as possible – your accountant’s job shouldn’t be to make sense of your business’s incomplete and poorly kept books. Not only does keeping your records in a reasonable order for them keep your costs low and reduce the likelihood of any unexpected fines coming back to haunt you, but it also frees up the time you’re paying your accountant for – to offer advice and save your business money over time. So, with that in mind…
  3. … When it comes to finances, keep everything – all your receipts and invoices need to be logged and traceable. Digital technology makes this easier now than ever, as paperwork can often be provided electronically and anything that can’t, can be scanned and linked to your records. As long as you keep your records up to date, you shouldn’t find yourself turning your business upside down for that one vital receipt you can’t find come the next tax deadline.
  4. Simplicity is key – Keeping financial records doesn’t have to be complicated; in fact, the simpler you can make your system, the better. That way you’re not having to decipher your own labyrinthine puzzle to understand your own business accounts. This will also make it far less likely that you’ll miss any unpaid invoices and have to chase them several months down the line. If your records have got out of control, the new year is a great time to start afresh with a modern system that works for you and your accountant.

5 financial resolutions for 2018

Thursday, December 7th, 2017

Whether or not you’re the kind of person who sees the start of January as the time to set yourself resolutions and stick to them, the period after the excesses of Christmas and New Year is arguably one of the best times to actively get your finances into shape. Here are five great money-related resolutions it’s definitely worth committing to in order to make 2018 the year you take control of your money.

  1. Start a budget – The secret to financial security isn’t making lots of money, but sensibly managing the money you have. A budget is the best way to start doing this, ensuring you know where your money is going and sticking to the plan you lay out for yourself. It can feel intimidating at first if you’ve never budgeted before, but it will undoubtedly help you to cut out overspending and reduce your money worries.
  2. Manage your debt – Getting out of debt can seem a long way off if you don’t make plans for how you’re going to become debt-free. There are no shortcuts – it takes both time and sacrifice – but once you do manage to clear your debts completely, it’s a liberating feeling and opens up many more opportunities to help you grow some savings.
  3. Start saving regularly – Once you’ve got your debts and spending under control, building your savings is essential. You should aim to save at least 10% of what you earn every month. Again, you may have to make a couple of sacrifices here and there in order to do this, but when you have those savings earning you money in your nest egg, missing the occasional night out or frivolous treat will feel completely worthwhile.
  4. Increase your financial knowledge – This can be as simple as finding a book, magazine or reputable website and dedicating a little time each week to increasing your money know-how. Anyone who has financial security hasn’t done it through luck, but through understanding what to do with their money, so the more you learn the more secure your finances are likely to be.
  5. Start investing – Making some sound investments is often the crucial step from financial security to prosperity and success. However, you should only invest when you’re ready (i.e. once you’ve achieved the previous four goals). It’s worth getting good independent financial advice as well to ensure you make the right investments for your personal circumstances.

One for the kids? Switching to a Lifetime ISA could boost savings.

Thursday, December 7th, 2017

If you’re saving for a home through a Help To Buy ISA or know someone who is, it’s worth being aware of a planning opportunity which could boost your savings by an additional £1,100. But anyone hoping to take advantage of this opportunity needs to be quick, as it will only be available for just under four months more.

Any savings in a Help To Buy ISA which are transferred to the new Lifetime ISA before 5th April 2018 will benefit from a top up of 25% from the government. The opportunity has arisen thanks to the Help To Buy ISA small print relating to the transfer of money saved before the launch of the Lifetime ISA on 6th April 2017.

Lifetime ISAs have an annual limit of £4,000, which includes money transferred from another savings account. However, money transferred from a Help To Buy ISA within the first twelve months of Lifetime ISAs becoming available does not count towards the contribution limit for the 2017-2018 tax year. As such, any money transferred into the Lifetime ISA from the Help To Buy ISA will be boosted by the government top-up, potentially resulting in hundreds of pounds being added to your savings.

For example, someone who had saved the £4,400 maximum amount into a Help To Buy ISA before April 2017 could transfer this into a Lifetime ISA before 5th April 2018. As this wouldn’t contribute to their limit, they could then save a further £4,000 into the Lifetime ISA for a total of £8,400. The 25% bonus would then be added to the entire £8,400 in April next year, giving an additional £2,100. In any other year, the maximum top-up which could be earned from the Lifetime ISA would be £1,000.

So If you know anyone using a Help To Buy ISA to save towards a first home, transferring money to a Lifetime ISA to enjoy an additional top-up of up to £1,100 in April next year could make collecting the keys to their own place happen a little bit sooner.

Junior ISAs and what they offer

Thursday, November 30th, 2017

Junior ISAs (JISAs) have now been around for over six years and continue to grow in popularity. They allow parents to save money for their child, which will be accessed when they come of age. But, as with any savings product, there are pros and cons to saving for your son or daughter’s future using a JISA.

One of the key benefits of the account is the tax efficiency they offer. In the tax year 2017/18, the maximum that can be invested in a JISA is £4,128 and it was announced in the Autumn Budget that this will rise to £4,260 in April 2018. An account must be opened on the child’s behalf by a parent or legal guardian, but once it is open anyone can pay money in and any income or gains within the JISA are exempt from UK tax – no matter who makes the deposit.

Two types of JISA have been available over the past six years, with Cash JISAs having proven far more popular than Stocks & Shares JISAs. It’s perhaps not surprising that parents have largely opted for the JISA which guarantees their child won’t lose money, rather than taking a risk with their investment and betting on the stock market.

Whilst those who have gone for the Stocks & Shares JISA have reaped the benefits over the last few years as the stock market has consistently outperformed cash savings, there’s no way they could have known this when opening the account. Despite the potential for greater returns, opting for a Stocks & Shares JISA will always be a gamble, one which you may not want to take with money intended for your child’s future.

Another aspect of JISAs worth considering is the restricted access they offer. Once money has been paid into a JISA it belongs to the child; whilst they can manage the account themselves from the age of sixteen, the child is unable to access their savings until their eighteenth birthday. Whilst this will be seen as a positive for some, ensuring the money can grow and teaching their child about the benefits of saving over time, others will undoubtedly want their child to be able to access their savings before they turn eighteen.

One alternative is a regular children’s savings account, some of which actually pay higher rates of interest than JISAs. However, ordinary savings accounts are subject to the ‘£100 rule’ – if money paid in as a gift from a parent generates over £100 of interest in a year, all the interest will be taxed as if it belongs to the parent. JISAs are not subject to this rule, leaving it up to the parent to weigh up which they value more for their child’s savings: easy access or tax-free interest.

How will AI change your interactions with your accountant?

Thursday, November 9th, 2017

When you hear the words ‘artificial intelligence’, the first thing you think of is probably one of the many examples of computers and machines built to think, work and react like a human being in the movies. But AI is certainly no longer a fantasy restricted to the world of science fiction, with its application being explored in countless areas of real life, including accountancy. We might not be talking about a replicant from Blade Runner or The Terminator’s T-800 doing your tax return just yet, but it’s certainly worth considering the benefits and drawbacks of AI’s increasing application in an accountancy role.

Finance departments have seen automation increasingly become the norm in what they do, a move which has in many ways revolutionised their capabilities. However, this has so far always depended on fixed instructions being programmed into a computer tool at the start. AI allows computerised accountancy to take the next step through developing tools with learning and problem-solving capabilities.

Of course, advancing technology in this way means that roles performed by human beings twenty years ago are now being carried out by machines. Whilst there’s a temptation to adopt a Luddite mindset towards such developments, a far better approach is to embrace the inevitable, unstoppable creep of technology into the world of work and consider how you and your accountant can make yourself a part of it.

Whilst the numerical calculations and analysis inherent to the world of accountancy might be ideally suited to an intelligent computer, the reasoning and intuition a person brings to the role are unable to be replicated by AI. It’s in these areas that human accountants continue to bring value, shifting their role increasingly away from ‘number crunching’ and towards a business partnership. An experienced accountant should be able to take the work done by machines, translate it into meaningful commercial insight and, perhaps most importantly, add a human touch – something which a machine simply wouldn’t be able to provide.

What will the new Finance Bill contain?

Wednesday, October 18th, 2017

A second draft of the Finance Bill 2017 was introduced in September following the first draft released earlier in the year. The government used this second version to reintroduce measures that had been taken out of the earlier, shorter draft following Theresa May’s decision to call a snap election.

The new draft includes new penalties for those who allow the use of tax avoidance schemes which are subsequently defeated by HMRC, and changes to prevent artificial schemes being used by individuals to avoid paying the tax owed on their income. The rules surrounding company interest expenses have also been updated to ensure excessive interest payments can’t be used by big businesses to reduce their tax payments.

The new Bill ensures that people who have lived in the UK for many years pay tax to HMRC in the same way as UK residents through the abolition of permanent non-dom status. The dividend allowance has also been reduced from £5,000 to £2,000 effective from April 2018, a move which will bring the tax treatment of people working through their own company and those who are self-employed or employees further in line with each other. The Money Purchase Annual Allowance has also been lowered from £10,000 to £4,000 in order to limit an individual’s ability to recycle pension savings in order to receive additional tax relief.

As these are all measures which were dropped from the Finance Bill before the election in June, the Finance Bill is unlikely to have held any surprises for many people. The only measures which have been dropped are two clauses on Customs enforcement powers and a third on landfill tax. It is expected that the third Finance Bill of 2017, due in December, will contain significant landfill tax proposals following announcements made in September. Also of note in the Bill are clauses looking ahead to Making Tax Digital, with digital tax returns currently likely to become mandatory from 2020.

Wills for cohabiting couples

Wednesday, May 24th, 2017

There’s no denying the huge steps forward seen in creating equality for same-sex couples in the UK during the 21st Century, first with the Civil Partnership Act 2004 and then the Marriage (Same Sex Couples) Act 2013. However, as heterosexual couples have marriage as the only option open to them to make their relationship formal, there have been suggestions of a new inequality having now been created. A legal challenge by mixed-sex couple Rebecca Steinfield and Charles Keidan to be able to enter into a civil partnership instead of a marriage was unsuccessful earlier this year, meaning it’s unlikely the situation will change for heterosexual couples in the near future.

If a man and a woman in a relationship don’t want to marry, the only other option currently available to them is cohabitation. There are key financial implications for such couples, however, in particular those relating to inheritance tax (IHT). Whilst such couples might describe themselves or be described by others as being in a ‘common law marriage’, this is not a legal term and as such does not give them the same rights as those who are married or in civil partnerships.

Heterosexual couples in this situation must therefore make sure they have carefully planned every detail of what will happen should one of them die. Without a will in place, the death of one partner would result in intestacy rules coming into effect, which would mean the surviving partner would not be provided for, potentially leaving them in serious financial difficulty. Anyone cohabiting with but not married to their partner is therefore strongly advised to have a will in place which clearly lays out what should happen to their assets in the event of their death, as well as making plans for the IHT which is likely to be due.

It is also worthwhile cohabiting partners looking at any pension or life policies they may have, as well as the death-in-service benefits offered by their employers, to ensure any payments in the event of their death will go to the right person. Whilst spouses and civil partners are commonly recognised in all these cases, cohabiting partners are likely to lose out without a formal nomination.

25% charge on QROPS transfers

Wednesday, March 29th, 2017

In the Budget earlier this month, the Chancellor Philip Hammond announced a 25% charge for people moving their pension abroad via a QROP (a Qualifying Recognised Overseas Pension Scheme). If you’re planning to spend your retirement somewhere warmer and sunnier than the UK then the news may have worried you somewhat – will it end up stalling your dreams of life after work spent overseas?

The charge will affect qualifying recognised overseas pension schemes (QROPS) and has been introduced in an effort to prevent people from moving their pension savings overseas in order to avoid paying UK tax. As such, there are a number of exemptions to the new rules, which should mean that anyone legitimately planning to move abroad when they retire will be able to do so without parting with a hefty sum from their retirement pot.

There are three situations where an individual will be exempt from paying the new 25% charge: if both the QROPS and the individual are in the same country following the transfer; if the QROPS is in a country within the European Economic Area (EEA); or if the QROPS is sponsored by an employer and constitutes an occupational pension.

HMRC has stated that “only a minority” of QROPS transfers will be subject to the new policy which further backs up the idea that the 25% charge has been introduced to deter people from abusing the QROPS system to avoid paying UK tax. As such, anyone with plans to retire to a warmer climate shouldn’t worry about losing a quarter of their pension to do so.

It’s also worth noting a further change to the QROPS system, however. HMRC has stated that “payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident”. It’s definitely worth seeking professional financial advice regarding QROPS if the changes to the rules surrounding overseas pensions are likely to affect you in any way, so please get in touch with us directly to ask any questions you have.

An extra year before Making Tax Digital becomes law

Thursday, March 23rd, 2017

As part of the Spring Budget, the Chancellor Philip Hammond gave an update at the beginning of March on the plans for rolling out Making Tax Digital (MTD), the scheme by HMRC to make digital record keeping mandatory and implement a number of changes to modernise the tax system.

The key announcement was that many unincorporated businesses will now have another twelve months to prepare for the changes, including moving record keeping systems online and delivering quarterly updates. Those businesses with an annual turnover under £83,000, the VAT registration threshold, will now have until April 2019 before MTD becomes mandatory for them.

This will no doubt come as a welcome extension to the rollout for many, as it will make it easier for small businesses to manage the cost of investing in new accounting software and training for accountancy departments. Businesses with an annual turnover below £10,000 are already exempt from MTD, as are individuals who earn less than £10,000 in secondary income, such as landlords.

The decision by the chancellor to delay making MTD mandatory for small businesses has been praised by many in the financial and accountancy sectors, including the Chartered Institute of Taxation (CIOT), the Association of Chartered Certified Accountants (ACCA) and the Low Incomes Tax Reform Group (LITRG). However, some have suggested that the move to April 2019 may not go far enough, with calls to make the move to digital taxation as flexible as necessary to allow businesses to adapt to the new systems in a way that will not impact negatively on their finances.

Meanwhile, the additional year is unlikely to impact larger businesses which have already begun implementing new systems in preparation for MTD. This means that, despite the deferral for small businesses, 2017 is still set to be a pivotal year in the implementation of digital tax by HMRC. If you’ve not already begun looking at what your business needs to do to prepare for MTD, or even if you have started the process, it’s a good idea to ensure that you’re in a position to move to digital tax sooner rather than later.