USA Weekly Tax Update 15 December 2021
The latest tax update and VAT round up for the week.
Tax Update provides you with a round-up of the latest tax developments. Covering matters relevant to individuals, trusts, estates and businesses, it keeps you up-to-date with tax issues that may impact you or your business. If you would like to discuss any aspect in more detail, please speak to your usual Smith & Williamson contact. Alternatively, Ami Jack can introduce you to relevant specialist tax advisors within our firm.
1. General
1.1 Season’s Greetings
We wish all our readers a Merry Christmas and a happy and healthy New Year.
The next edition of Update will be published on 11 January 2022.
2. Private client
2.1 HMRC ‘nudge’ letters: claims for residential property finance costs
HMRC has announced a new campaign of ‘nudge’ letters, sent to taxpayers that have claimed deductions for residential property finance costs, possibly incorrectly. The letters aim to get them to correct errors without further intervention from HMRC, such as an enquiry, and signpost them to guidance.
These letters will be sent to taxpayers who included a claim for residential property finance costs in their 2019/20 self-assessment returns, for more than the 25% allowed as a deduction in that year. They will explain the restriction on relief for finance costs, and ask taxpayers to check that their claims were correct. If they identify an error they are asked to correct it by 31 January 2022 by amending their return. If they made an error in 2019/20 they will also be asked to check their returns for the previous two years, and declare any errors on them through the digital disclosure service.
The letters were to be sent in November and December 2021, with agents copied in where a taxpayer was represented. If this error is identified on a large number of an agent’s clients, the agent will receive a letter, not the individual clients. The letters include links to further guidance, and information on where to find support.
www.tax.org.uk/hmrc-s-one-to-many-letter-residential-property-finance-cost-deductions
3. PAYE and employment
3.1 Employer bulletin: December 2021
The latest Employer Bulletin from HMRC covers information and updates on matters including the tax administration and maintenance day announcements, and the health and social care levy.
It includes information on:
- the new health and social care levy;
- NICs for employers of veterans;
- Correcting payroll errors;
- PAYE reporting over the Christmas period;
- COVID-19 guidance such as how to declare support grants on tax returns;
- the tax administration and maintenance day announcements, including the new consultations; and
- helping contractors to spot the signs of tax avoidance.
www.gov.uk/government/publications/employer-bulletin-december-2021
4. Business tax
4.1 Taxpayer wins research and development case on subsidised costs
The FTT has allowed a claim for R&D relief under the SME scheme. It accepted that although the taxpayer’s R&D activities were factored into the price paid by clients as part of its commercial contracts to provide construction services, there was no clear link between the price paid and the R&D expenditure claimed.
The taxpayer was a building contractor that carried out R&D projects as part of the construction services provided to its clients for an agreed price. HMRC argued that the taxpayer was not entitled to R&D relief under the SME scheme as it received payments from its clients that were sufficient to cover the R&D expenditure claimed.
Expenditure that is otherwise met directly or indirectly by a person other than the company is subsidised, and not eligible for relief under the SME scheme. The taxpayer appealed HMRC’s decision on the basis that its clients paid for the finished construction work and so the R&D itself was not being subsidised.
The FTT ruled that the legislation regarding subsidised costs was not intended to apply to cases where there is no clear link between the price paid by the customer and the R&D expenditure. It considered that an SME should not be denied R&D relief solely because it seeks to recover some or all of the relevant costs under its commercial contracts with clients. This would be wholly out of kilter with the overall SME scheme. If HMRC’s approach were to be adopted, enhanced R&D relief would only be available where an SME has no prospect of exploiting the R&D for commercial gain. The taxpayer’s appeal was upheld.
Quinn (London) Limited v HMRC [2021] UKFTT 0437 (TC)
https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12273/TC%2008321.pdf
4.2 Updated guidance on plastic packaging tax
The plastic packaging tax (PPT) will come into effect in April 2022. It will apply to importers and manufacturers of plastic packaging. The new guidance sets out registration requirements and detailed examples of the tests and calculations.
HMRC has published several new guidance notes on PPT, which comes into force on 1 April 2022. It will apply to manufacturers and importers of plastic packaging that contains less than 30% recycled plastic and be charged at a rate of £200 per tonne. It will not apply to manufacturers and importers of less than 10 tonnes of finished plastic packaging each year. The new guidance covers:
- administrative requirements relating to registration, including how and when to register and group registrations;
- record keeping, including the creation of invoices and interaction with VAT;
- what to include on the PPT return;
- claiming plastic packaging tax credits for packing that has been exported or converted into different packaging; and
- examples of tests and calculations.
The requirement to include a statement with all invoices to show that PPT has been paid, which was due to commence in April 2022, will be delayed to provide businesses more time to prepare for the changes.
www.gov.uk/guidance/register-for-plastic-packaging-tax
www.gov.uk/guidance/examples-of-tests-and-calculations-for-plastic-packaging-tax
4.3 HMRC guidance on clearance applications for company purchase of own shares.
HMRC has republished its guidance on clearance applications and how to apply for advance clearance on an exempt distribution when a company purchases its own shares.
The guidance includes step-by-step explanations of the conditions that must be met before a payment can qualify as an exempt distribution, and be treated as consideration for the disposal of shares subject to CGT. It also provides practical advice on the process for making a clearance application, including checklists of information to include in different situations.
4.4 New guidance on enhanced capital allowances in a Freeport tax site.
HMRC has republished its guidance on clearance applications and how to apply for advance clearance on an exempt distribution when a company purchases its own shares.
The guidance includes step-by-step explanations of the conditions that must be met before a payment can qualify as an exempt distribution, and be treated as consideration for the disposal of shares subject to CGT. It also provides practical advice on the process for making a clearance application, including checklists of information to include in different situations.
5. Tax publications and webinars
5.1 Tax publications
The following Tax publications have been published.
5.2 Webinars
The following client webinars are coming up over the next week.
- 18 January 2022: S&W Sessions: Under HMRC’s spotlight: CJRS claims and other employer related matters
6. And finally
6.1 Tidings of good cheer
With Christmas almost here, some of us are running out of conversation topics that lack doom and gloom. Never fear, And finally is here to help. A lovely conversation starter with visiting small children, for example, is the time Santa went bankrupt. Yes, in 2015, unable to pay its tax bill, Santa’s office in Finland declared bankruptcy. Fortunately, although we cannot say we have read the Finnish accounts, the elves seem to have turned things around, and the office remains open. We can only speculate on how they raised the money – selling on all those mince pies and sherry, perhaps?
If this produces only tears and horror, you can always cheer them up by explaining that chimney tax was repealed, so unlike some Stuarts you won’t insist on having the chimney blocked up, or how Roman taxation led to children being cast as an ox in the nativity play.
Enjoy your festive season and, even if your bankruptcy anecdote falls flat, unlike 2,700 people in 2020 please do not celebrate Christmas Day by filing your tax return – HMRC always tells.
www.independent.co.uk/news/business/santa-claus-is-bankrupt-10465461.html
https://en.wikipedia.org/wiki/Census_of_Quirinius
https://en.wikipedia.org/wiki/Hearth_tax
www.gov.uk/government/news/2700-tax-returns-sent-in-on-christmas-day
Disclaimer
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.
