HR Expert – Vegan Employees

My client wants to know if they need to do anything, in particular, to support vegan employees at work?

Veganism seems to have become more widespread in recent years, with a growing number of individuals opting for a plant-based diet free from animal products. Although individuals’ dietary choices may not necessarily be high up on employers’ list of concerns, it is admirable that my client is considering the support they offer to vegan employees in the workplace.

After all, a tribunal judge has recently suggested that that veganism could qualify as a philosophical belief under the Equality Act 2010 in the future, stating their opinion that the belief consisted of ‘clear cogency and cohesion’. Under the Act, a philosophical belief will receive protection so long as it is genuinely held, is about a substantial aspect of human behaviour and is worthy of respect in a democratic society. Because of this, it may be that, in the future, individuals are protected from discrimination and harassment that is based on their veganism.

Therefore, to ensure that my client’s workplace remains inclusive for vegans, some thought is required. For example, as vegans abstain from the consumption of animal products, my client should pay close attention to the food on offer in any staff canteen or pre-arranged business lunch, ensuring there are always vegan options available.

My client should reconsider if any dress codes require vegans to wear items made from animal products, such shoes or belts made of leather, as doing so could potentially place them at a disadvantage. If so, your client should consider the materials used in uniforms and ensure that they do not pose a problem for vegan employees.

Specific tasks allocated to vegan employees may need to be adjusted if it would make the employee feel uncomfortable. For example, asking a vegan to design a marketing campaign for a butchers shop may not be appropriate.

As with all protected characteristics, employers should have a zero tolerance stance towards bullying and harassment of vegans and deal with any complaints swiftly and seriously. Anti-harassment training should be conducted by all employers to ensure employees are aware of what counts as unacceptable behaviour.

Overall, my client should look to create an inclusive workplace that does not marginalise any employee, regardless of their beliefs. By following this approach, they will reduce the likelihood of any issues occurring relating to veganism and allow staff to continue to perform at their best, without feeling hard done to at work.

Tax Question of the Week – When Do I Need to Fill in a Tax Return?

When do I need to fill in a tax return?

  • Individuals in the UK may need to complete a tax return, or self-assessment form, when they receive income other than payroll or a pension. This includes;
    • Sole employed or sole trader income, in excess of £1,000 in a tax year.
    • Partners in a business partnership.
    • Money from renting out a property.
    • Tips and commissions, not included in their payroll.
    • Income from savings, investments and dividends.
      • This includes directors of limited companies receiving dividends in excess of £2,000 in a tax year.
    • Foreign income.
    • You may also look to send in a tax return, to claim income tax reliefs or to return and pay the high income child benefit charge.
  • HMRC have a tool to test if you need to send in a tax return on the gov website (https://www.gov.uk/check-if-you-need-tax-return)

HR Expert: Government Pledge Living Wage Increase

My client has read in the news that the National Living Wage will be increasing to £10.50, what do they need to do about this?

Whilst some employers may have been surprised by the Government’s announcement to increase the National Living Wage, it is important that my client understands that it will not be taking place immediately. A phased approach will be used to implement higher rates over the course of the next 5 years. This was the pledge made by Chancellor Sajid Javid at the recent Conservative party conference.

In his statement, Javid promised that the NLW, which is the minimum hourly rate currently payable to workers aged 25 and over, will rise from its current hourly rate of £8.21 to £10.50. This will equate to a 27% increase in the hourly rate of those receiving NLW.

Whilst increases to the NLW are not particularly big news considering they normally happen every year, it was the second part of the Chancellor’s announcement that your client is less likely to have been prepared for. Thousands more younger workers will be entitled to receive the higher rate; it will apply to all those aged 21 and over. Again this will be phased in, with a drop from 25 to 23 in 2021 and a further drop to 21 from 2024.

From my client’s perspective, the good news is that they will have a significant amount of time to prepare for this change in minimum wage law and ensure provisions are in place to ensure staff continue to be paid the correct rate.

Another positive is that the removal of the separate 21-24 year old age band may make the system easier for my client to understand. After all, recent statistics released by the TUC suggest employers struggle to comply with the minimum wage rights of those aged 25 and under. Therefore, this should reduce the likelihood of pay discrepancies from occurring as all staff aged 21 and over will be entitled to receive the same minimum rate.

However, the fact is that my client will still face the prospect of paying staff more money, which is likely to have an impact their budget and operational costs. If our client is concerned about the prospect of paying higher salaries, they may consider offsetting this cost by reducing outgoings in other areas which could include the size of the workforce, the location of the work or other supplier costs, for example.

In addition, if our client already pays staff above the hourly NLW as part of a competitive employee benefits package then they may need to increase this accordingly in order to retain their competitiveness.

VAT Question of the Week – I Have Just Started a Business, Do I Have to Register for VAT?

You do not need to register for VAT when you begin trading until you reach the registration threshold of £85,000 (19/20) in a 12 month rolling period.

By rolling period we mean, you add the sales at the end of each month, if you reach the VAT threshold within 12 months, you need to register. Once you hit the 12 months you remove the figures from month 1 and add month 13, then the following month you remove month 2 and add month 14 and so on. Once your VAT turnover in the rolling 12 months reaches the VAT threshold, you need to register for VAT.

Feel free to get in touch for more info.

Tax Question of the Week – SDLT & Residential Property

My client is a company and the directors of the company are contemplating buying a property for £1M from the same vendor which consists of a dwelling and garden, stables, sheds and 10 acres of agricultural land. Should the acquisition be treated as “mixed use” and the tax chargeable in respect of the transaction be determined in accordance with non-residential or mixed used rates of SDLT?

There has been recent coverage in the tax press concerning what is “residential property” for SDLT purposes. In addition, HMRC have updated their guidance to publish their own views on residential property (see SDLTM00210 and specifically SDLTM00360 to SDLTM00480).There has also been a recent First Tier Tribunal case determining that a residence with substantial grounds was wholly residential property (Hyman v HMRC UKFTT 469). This definition is important as it affects the rates of SDLT payable under s55 FA 2003 i.e. the higher residential rates or the lower “non-residential or mixed” rates. In addition, if residential property is being acquired, the additional 3% rate may apply under Schedule 4ZA FA 2003.

However, when a company acquires an interest in land which includes a residential property, it is often forgotten that there is a separate rule in Schedule 4A FA 2003 which may result in a flat rate 15% SDLT charge. This is sometimes referred to as “ATED related SDLT” as a company which is within the scope of Sch. 4A will inevitably have to register for ATED purposes. Under this rule, even if the acquisition is “mixed use”, a just and reasonable apportionment is required to identify the residential property interest being acquired. If the residential property interest (the “higher threshold interest”) is £500,000 or more the 15% SDLT rate will apply unless one of the exclusions in paragraph 5 Sch. 4A apply (businesses of letting, trading in or redeveloping properties) which follow the ATED charge exclusions. HMRC’s guidance is at SDLTM09500.

Therefore, whether the property interest being acquired is “residential property” or “mixed use property” does not in itself determine the amount of the SDLT payable. Firstly a review of the interest being acquired by your client company is required to decide whether or not the entirety is wholly residential property or mixed use property. Unfortunately this cannot be established from the limited information provided. Secondly consideration needs to be given to whether the Sch. 4A charge applies.

Relief from the Sch. 4A charge is given by a claim on the SDLT Return which is generally prepared by the solicitor dealing with the property acquisition. Therefore you will have to liaise with the solicitor before the SDLT Return is filed if you want to be involved with the decision making process.

 

Tax Question of the Week – Structures & Building Allowances

My client has undertaken some development work and has queried whether he can claim the Structures and Buildings Allowances (“SBA”). Please could you outline the rules for the relief to apply?

My client may be entitled to claim SBA on the expenditure that they have incurred but, like all reliefs, there are a number of conditions to be met. A general outline of the rules has been published by HMRC at:

https://www.gov.uk/guidance/claiming-capital-allowances-for-structures-and-buildings

Broadly, SBA is available to any person who holds a relevant interest in a building or structure and has incurred qualifying expenditure on it after 28 October 2018. The allowance provides for relief at an annual rate of 2% on the total qualifying expenditure over a 50-year period. The legislation was finally enacted on 4th July 2019 by SI 20019/1087 which inserts new CAA 2001, Part 2AA, consisting of sections 270AA to 270IH.

Relevant Interest

Relevant interest includes a freehold interest as well as a lease of 35 years or more on the building and where the lessee pays a substantial premium, equivalent to two-thirds or more of the value of the property. Where the lease is for less than 35 years, the existing allowances remain with the lessor, but relief would still be available for any qualifying expenditure incurred by the lessee on new building works.

Qualifying/non-qualifying expenditure

Qualifying expenditure, provided all relevant construction contracts are signed for on or after 28 October 2018, is limited to the cost of physically constructing the building, including the costs of demolition or land alterations necessary for construction, as well as the direct costs required to bring the asset into existence. Foreign structures and buildings will also qualify where the business is within the charge to UK tax.

Please note SBA expenditure does not qualify for the AIA.

Non-qualifying expenditure includes the costs or rights over the land itself, landscaping or land reclamation, any financing costs or any costs that would continue to qualify for plant and machinery allowances.

Qualifying activities

The first use of the building or structure must also be for a qualifying activity in order to make the allowance available.

Qualifying activities are:

  • any trade, profession and vocation;
  • a UK or overseas property business (except for residential and furnished holiday lettings);
  • managing the investments of a company; and
  • mining, quarrying, fishing and other land-based trades such as running railways and toll roads.

Disposal of Assets

Sale of the asset will not result in a balancing adjustment and instead the purchaser, who undertakes a qualifying activity, will take over the remainder of the allowances written down over the remaining part of the 50-year period.

When determining the gain chargeable on sale of the asset, the seller’s allowable costs will be reduced by the SBA claimed. This will happen regardless of whether there is a gain or loss. This differs from the existing rules where there is no requirement to bring capital allowances into account in a capital gains computation unless there is a loss.

Claiming the SBA

Unlike other capital allowances, relief will be lost if it is not claimed. It will not be possible to carry forward relief to a later period and nor will expenditure qualify for SBA if it was incurred more than seven years before the commencement of the qualifying activity.

SBA is claimed on a tax return, but can only be claimed if you have an ‘allowance statement’. The first person to use the structure must create a written allowance statement that must include:

  • information to identify the structure, such as address and description;
  • the date of the earliest written contract for construction;
  • the total qualifying costs; and
  • the date the structure started to be used for a non-residential activity.

The buyer of a used structure will only be able to claim allowances if they get a copy of the allowance statement from the previous owner, before the claim for SBA is made.

It will be important for a tax-exempt buyer e.g. a charity, to make sure a written allowance statement is created, even though they will not be able to claim SBA. This will enable it to pass the benefit of the allowances to a future buyer of the building.

Tax Question of the Week – Duty to Deduct Tax

I have a company client and they have taken a number of loans in recent years that remain outstanding, business is improving and the company is going to start paying interest on those loans. They have a mixture of loans; one from the director, one from a UK company and one from a company abroad.

My question is: Does the company have to deduct tax before making the interest payments?

The duty to deduct tax in respect of interest payments will differ in each of the 3 scenarios so let’s have a look at each in turn.

The relevant legislation is contained within the Income Tax Act of 2007 (“ITA 2007”).

The duty to deduct basic rate (20%) income tax is set out in Section 874 ITA 2007 and imposes the duty to deduct income tax on ‘yearly’ interest paid in certain circumstances. There is no statutory definition of the term ‘yearly’ however, a useful discussion of the term can be found in various HMRC manuals. Please see INTM413210 and SAIM9075.

In our first scenario, where the company is paying interest to an individual. The company will have to deduct basic rate tax and it will also have to complete and submit form CT61 within 14 days of the end of the quarter return period. Further guidance can be found here.

In the second scenario where the company is paying another UK resident company, the payment can be made gross of tax as prescribed by Section 933 ITA 2007. Further guidance can be found here, CTM47540. It is worth noting that the guidance sets out an exception to this rule, for example when the person receiving the interest is only acting in the capacity of a nominee.

The third scenario involves a payment to a non-resident company. The basic position is that tax would need to be deducted at the basic rate. However, it is possible for a double taxation agreement (DTA) to override this basic position. That is to say that the obligation can be changed or removed where both a claim is made and the DTA allows for this. Often a DTA will allow for a reduced rate of tax to applied. The actual rate will vary country to country.

There is a requirement to make a claim, the treaty rate cannot simply be applied automatically. As the recipient is a non-resident company the claim is made via a form; ‘DT Company” which can be found here.

Alternatively, It is possible for a non-resident company to register for the Double Taxation Treaty Passport (DTTP) Scheme and then it would then be possible for the UK company to apply the treaty rate without the need to make an application.

Each DTA will bring its own peculiarities and the situation is a little more complex in respect of royalties. As such, we would ask that you call us to discuss these aspects further.

Finally, it is worth noting that the UK does not withhold tax in respect of dividends.

VAT Question of the Week: VAT Moss and No-Deal Brexit

My client is a chef and has built up a successful website subscription service supplied to individuals. In return for the subscription payments, customers can sign in to the website, download PDF recipe cards, watch pre-recorded content and receive other digital services. They have been successful in the UK for some time, but sales of subscriptions to individuals within the EU are ever increasing, and have just breached the £8,818 VAT MOSS threshold. They registered for VAT MOSS last month, but they have asked me the question about what happens if the UK leaves the EU without a deal on 31st October?

To firstly give some background, there are special rules surrounding B2C supplies of electronically supplied digital services. The general rule for B2C services is that the place of supply is where the supplier belongs; however, for B2C digital services, the place of supply is where the customer belongs.

As a consumer cannot reverse charge a transaction, ordinarily this would give the supplier a registration issue in the member state to which they have supplied their digital service. Whilst they can still choose to register in any member state in which they supply digital services, the VAT MOSS (Mini One Stop Shop) was introduced to simplify the process, with one registration (typically within the member state you are established) to declare digital supplies made to consumers in all EU member states.

If we leave the EU on 31st October without a deal, HMRC have confirmed that UK businesses will no longer be able to use the UK’s VAT MOSS service to declare sales of digital services.

The final UK VAT MOSS return period will run up to 31 December 2019; however only supplies made up to 31st October should be included on this return. The return must be submitted by 20 January 2020, and amendments can be made up until 14 February 2020.

After Brexit, UK suppliers of B2C digital services will have 2 options:

  • Register for VAT MOSS in any EU member state (only one registration will be required)
  • VAT register in each member state where you supply digital services to consumers

It’s important to note that the threshold of £8,818 that was introduced in January 2019, where businesses could treat the place of supply as being the UK where EU supplies did not exceed this threshold, will no longer apply, meaning VAT MOSS registration will be required as soon as the first sale is made in to any EU member state.

VAT MOSS registration will be required by the 10th day of the month following your first EU sale after Brexit. For example, if your first sale to an EU consumer after Brexit is 1st November 2019, you must have registered for VAT MOSS in a member state of your choosing by 10th December 2019. If your first EU sale is not until 12th December 2019, then your VAT MOSS registration must be done by 10th January 2020.

It would be advisable for your client to begin the process of deciding on a suitable member state to register for VAT MOSS, and appoint an appropriate tax representative in that member state.

Tax Question of the Week – Relief for Losses on Loans to Traders

My client, an individual, recently made me aware of a loan he had made to a trading company which has since ceased to trade and become insolvent. As a result there is a substantial sum left owing to him that he will never recover. I am aware that capital loss relief may be available in such circumstances and that the relief may be claimed in an earlier tax year. Can you please remind me of the conditions and limits in terms of how far the relief may be carried-back?

Section 253 of TCGA 1992 provides relief for irrecoverable amounts of loans made to traders in the form of a deemed capital loss, which can be relieved in the same way as an actual capital loss. Relief may therefore be claimed against capital gains of the year of claim or carried-forward to the first available gain(s) of subsequent tax years.

However, the legislation also permits a claim to specify an earlier date, not more than two years before the tax tear of the actual claim, provided that the amount was also irrecoverable at that earlier date. On this basis, my client could make a claim for the current tax year, but also for either of the two preceding tax years 2017/18 or 2018/19 if this were more beneficial, providing that it can be shown that the loan was irrecoverable in the earlier years.

The relief is claimed on the capital gains pages of the self-assessment tax return in the same way as an actual loss would be claimed.

HMRC’s view is that claims cannot be made for part-only of the amount outstanding at the time of claim, except in the following circumstances:

 “…a claim that a part of an outstanding amount of a loan has become irrecoverable may be admitted where:

  • the debtor has been placed in bankruptcy, receivership or liquidation: and
  • the receiver or liquidator has announced an anticipated dividend in respect of unsecured debts and has indicated that no further dividends are likely.’

(HMRC Capital Gains Manual, CG65956).

Relief under these provisions is also available to companies, but only where relief cannot be obtained under the Loan Relationships legislation (s.253(3) TCGA 1992).

Please note that for loans made before 24 January 2019 the borrower is required to be resident in the UK.  However, a proposed amendment in the 2019/20 Finance Bill is due to remove this condition so that claims can be made regardless of the borrower’s tax residency –  https://www.gov.uk/government/publications/capital-gains-tax-relief-on-loans-to-traders/capital-gains-tax-relief-on-loans-to-traders

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