A new Revenue and Customs Brief 7/18 has been published by HMRC concerning their policy on the VAT accounting treatment of promotions, where payments are said to be made by motor dealers to finance companies on behalf of the end customer. These are usually known as dealer deposit contributions (DDC) in the motor retail trade and have been the subject of different VAT accounting treatments by motor dealers.
HMRC views DDCs as a discount on the headline price charged by the dealer. The DDC is shown on the finance and sales documentation and is agreed by all the parties to the transactions before these take place. There is no retrospective adjustment to the amount the customer will pay, nor the amount the finance company will pay the dealer.
VAT is therefore due on the discounted amount actually charged to the finance company and the customer. Any VAT that has been miscalculated must be corrected. The dealer must either make a section 80 claim for overpaid output tax or adjust their VAT returns following the normal error correction process explained in VAT notice 700/45.
Finance houses do not have to make any corrective action. They can make a section 80 claim for overpaid output tax but must offset the input tax they claimed on the invoices from the dealer. There is therefore nil net tax to adjust.
This HMRC brief is not concerned with manufacturer deposit contributions (MDC), which are promotions where the manufacturer or importer of the vehicle make a contribution to reduce the amount that the customer has to pay for the vehicle.
The government’s plan to tackle disguised remuneration tax avoidance schemes was first announced as part of the Autumn Statement 2016. These types of schemes (including contractor loans), are used by employers and individuals and seek to avoid paying Income Tax and National Insurance contributions (NICs). This is usually done by utilising a loan or other payment from a third-party which is unlikely to be repaid.
A charge (known as the 2019 loan charge) will apply to all loans made since 6 April 1999 if they are still outstanding on 5 April 2019. The charge will not arise on outstanding loans if the individual has agreed a qualifying settlement with HMRC before 5 April 2019.
HRMC has accepted that payment of tax due, may have a significant impact on some taxpayers and is offering flexible payment arrangements to those having genuine difficulty paying what they owe. HMRC will allow scheme users to spread their payments over 5 years if their taxable income in 2018-19 is estimated to be less than £50,000, as long as they are no longer in avoidance. HMRC will look at other taxpayers on a case-by-case basis. The charge on outstanding loans is expected to raise £3.2bn for the government.
The only way to avoid the new loan charge, is by making a repayment of the loan balance or settling your tax liability with HMRC in advance. A settlement opportunity was launched to allow those affected to settle their tax affairs before the loan charge comes into effect. Users of disguised remuneration schemes, should register their interest in using the settlement opportunity as soon as possible. The final deadline for submitting all the required information remains 30 September 2018.
The statutory resident test (SRT) is used to determine if someone is resident in the UK for tax purposes when coming to the UK. Historically, residence in the UK was determined by being in the UK in excess of 182 days in any tax year (6 April to 5 April) or by being resident in the UK for an average of 91 days in any tax year, taking the average of the tax year in question and the three previous tax years.
This changed with the introduction of the SRT from 6 April 2013. The SRT consists of the three separate tests which are intended to provide greater certainty as to a taxpayers residency status. For the majority of taxpayers, it will be clear that they are resident in the UK if they:
- spend 183 or more days in the UK in the tax year
- have a home in the UK, and don’t have a home overseas
- work full-time in the UK over a period of 365 days
However, for taxpayers with complex circumstances there are further tests using the SRT that provide more clarity as to their residency status in the UK.
The three tests which comprise the SRT are as follows:
- An automatic non-residence test.
- An automatic residence test.
- A ‘sufficient ties’ test.
There are also special rules for those coming to work in the UK as an employee or as a self-employed person, as well as a special scheme for taxing the income of foreign entertainers and sportspersons who come to perform in the UK.
If you are concerned with your UK tax status, please call for advice.
Although the government is continually clamping down on non-taxable payment and benefits for employees, there remains an eclectic list of expenses that are tax exempt.
Some of the non-taxable benefits include the following:
- Annual parties. An annual Christmas party or other annual event offered to staff generally is not taxable on those attending, provided that the average cost per head of the function does not exceed £150. There are qualifying criteria that must be followed to ensure that there will be no taxable benefit charged to employees.
- Equipment for disabled employees. Benefits provided to employees with a disability to help them with their work aren’t taxable where there is private use. For example, a wheelchair or hearing aid.
- Goodwill gifts. Certain gifts received by employees from third parties (such as a gift voucher) are exempt, provided that the total value of the gift made by a donor is less than £250 in any one tax year. In addition, no tax is usually payable on goodwill entertainment provided by third parties (e.g. suppliers).
- Health-screening and medical check-ups. A maximum of one health-screening assessment and one medical check-up in any year can be tax exempt.
- Late-night taxis. An employee, who is occasionally required to work late, can be provided with a taxi home paid for by his / her employer. This taxi ride will qualify for tax exempt status if all qualifying conditions are met.
- Long service awards. Long service awards made to directors and employees as testimonials to mark long service where the service is not less than 20 years, and no similar award has been made to the same employee within the previous 10 years are likely to be tax exempt. The cost of an article must not exceed £50 for each year of service.
There is no requirement for employees to pay tax on benefits and expenses covered by concessions or exemptions, and there is also no need for them to be included on your tax return.
The Lifetime ISA has been designed to help those aged between 18 and 40 to save for a new home or for their retirement. Under the scheme, the government provides a 25% bonus on yearly savings of up to £4,000, and once you start saving before you are 40, you can continue using the scheme until you turn 50.
In total, this could see young savers investing up to £128,000 (over 32 years) and receiving a maximum government bonus of £32,000. The government bonus is paid annually at the end of the tax year. The £4,000 annual limit is part of the overall £20,000 ISA investment limit. Lifetime ISAs can hold cash, stocks and shares qualifying investments, or a combination of both.
The money held in a Lifetime ISA can be used to purchase a first home worth up to £450,000 anywhere in the UK or withdrawn tax-free after the saver’s 60th birthday. The money invested in a Lifetime ISA can be used for other purposes but will be subject to a 25% withdrawal charge. The only other exception is if a saver is terminally ill and given less than 12 months to live.
HMRC’s guidance has been updated to provide further information on the appeal rights available to Lifetime ISA investors.