HR Expert: Zero Hours & Good Work Plan

Q- My client has heard in the news that their zero hours’ staff may be able to ask for more stable contracts in the future. Is this right?

A- Judging from your client’s query it would appear that they are referring to a proposal taken from the government’s Good Work Plan, which outlines a series of future initiatives designed to grant additional rights to those working in unsecure employment.

As part of the plan it has been confirmed that all workers will have the right to request a more stable contract following 26 weeks’ service with the same employer. This means that your client’s zero-hours’ staff, who meet the service requirement, will be able to submit a request for a more fixed working pattern including a guaranteed number of hours each week or to routinely work on specific days e.g. Monday-Friday. Although the government are yet to confirm an implementation date, your client can expect this to come sometime after 2020, which should give them sufficient time to prepare.

Again, whilst it has not been confirmed, it is expected that the right to request a more stable contract will work in a similar way to the right to request flexible working. If so, then zero-hours’ staff will be expected to submit a request in writing to your client outlining their preferred conditions. Following this your client will be expected to review the request, consider whether they can agree to it and inform the employee within a timescale of three months.

When it comes to considering the request your client is advised to take into account the demands on the business in recent times as well as any future forecasts and genuinely assess if the request can be accommodated.  It is anticipated that they will be able to reject a request providing they can present a valid business reason for doing so. Therefore, if a zero-hours’ worker who routinely works 20 hours a week asks to change to a guaranteed 40 hours per week, it is likely that your client would have grounds to reject on the basis of insufficient availability of work. Whereas, if they were to ask for a guaranteed 20 hours per week, your client may have little ground to turn this down.

Ultimately, your client should consider how to prepare for receiving any requests for more stable hours. Whilst it isn’t the case that all workers on a ‘unstable’ contract will make a request, employers should ensure that they have the processes in place to deal with any that are made. This will include having clear records of working hours in the past and the ability to forecast how much work will be available in the future.

VAT Question of the Week: Dry January? Input Tax Recovery on Alcohol

Q- My client company is a wholesale vintner of long-standing reputation. To capitalize on the current popularity of botanical gins they have recently opened a micro-distillery. To promote and celebrate this new venture the company held a party for staff and business associates, both suppliers and customers. Hospitality was provided at the event in the form of bought-in catering, as well as alcohol from their own stock, some of which were consumed at the event and some of which was given as gifts to take away. Please, could you clarify the input tax recovery position? 

A- It is a common misconception that where the provision of alcohol is involved, input tax recovery is denied. This may be due to the direct tax rules, which are more restrictive, but for VAT purposes, the fact it is alcohol is not necessarily material to the VAT recovery position.

The VAT rules differentiate between the treatment of business entertainment classed as services, and business gifts classed as goods.

Article 176 of Directive 2006/112 allows the UK to restrict input tax claims on business entertainment via article 5 of The Value Added Tax (Input Tax) Order SI 1992/3222.

For the purposes of the Input Tax Order business entertainment means the free provision of any hospitality to persons who are not employees. For VAT purposes entertainment or hospitality can take many forms. Some common examples include:

  • the cost of giving away food and drink;
  • the cost of giving away accommodation, for example in hotels;
  • the cost of giving away theatre and concert tickets;
  • giving free entry to sporting events and facilities;
  • giving free entry to clubs, nightclubs etc., and
  • using yachts and aircraft to entertain.

However, VAT incurred on staff entertainment can be recovered in full, providing the staff are not merely acting as hosts. This includes the cost of any alcohol.

As your client’s event was attended by both employees and non-employees, they should apportion the VAT incurred on the cost of providing catering and any beverages consumed at the event. This would include any stock manufactured by the client in the distillery, whereby a fair and reasonable apportionment should be applied to any standard-rated costs of production and any wine taken from stock, where the input tax should be disallowed on the cost value.  Further information can be found at https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit43200.

With regard to gifts of goods, there is no input tax restriction, but the free disposal immediately triggers a charge under Schedule 4 paragraph 5(1). However, sub-paragraph 5(2) (a) provides that there is no supply if the cost value of the gift which, together with the cost of any other business gifts made to the same person in the same year, is not more than £50. Further information on business gifts can be found at https://www.gov.uk/guidance/business-promotions-and-vat-notice-7007#sect2.

HR Expert: Change in Working Hours

Q- My client has informed me that financial restrictions mean they will need to ask one of their employees to go from full time to part time in 2019 – How should they go about this?

A- Asking staff to shift from full-time to part-time work can be a difficult conversation to have, especially as this will typically require them to take a drop in wages. However, providing your client has a solid business reason and follows the correct procedure they should be able to do this with minimum fuss.

Before proceeding, your client should consider if they need the employee to switch to part-time due to a reduction in available work. If so, this is likely to be considered a redundancy situation and your client would need to follow the correct redundancy procedure. However, if there is no reduction in work and responsibilities will instead simply be shifted around your client should proceed with the restructuring.

Successfully switching from full-time to part-time work will require an amendment to the terms of an individual’s contract of employment. As the contract is an agreement between two parties, your client and their employee, terms can generally only be changed if both of them agree to it. Before they can come to any agreement your client must engage in consultation with the employee and explain how the proposed changes stand to impact them.

Employees will generally be more responsive to the consultation if your client explains the business reason behind the decision. As you have indicated that your client can no longer financially support a full-time contract, they should make this clear to the employee. It is also important that your client does not simply treat the consultation as a ‘box-ticking exercise’, instead of allowing the employee to suggest alternative arrangements over a series of meetings.

Providing the consultation goes well and both parties agree, your client may amend the contractual terms to reflect the new working arrangement. You must get a signed agreement to the changes from the employee, either in the form of an amended contract or a letter to confirm the changes. Your client should also consider when the change will be effective and ensure they give adequate notice to the employee.

However, if after the consultation both parties come to an impasse, your client could serve notice to terminate the existing contract and attempt to re-engage the employee on these new terms. When doing so your client must follow the correct dismissal process, including giving the employee a chance to appeal, to avoid any unfair dismissal claims. If the dismissed employee refuses to re-apply, then your client may seek alternative applicants who are prepared to work on a part-time basis.

Overall it is important that your client treads carefully when seeking to change contractual terms. Whilst they are entitled to act in favour of pressing business needs they must avoid forcing new terms upon individuals without proper consultation.

VAT Question of the Week: The Timeline and Compliance Requiremets for Making Tax Digital

Q- My client runs a small VAT registered business, whose taxable turnover is just over the VAT threshold. They have concerns about using Making Tax Digital (MTD) and the costs involved in ensuring they comply; they currently operate a very simple spreadsheet to keep their records, and do not want to spend thousands on new software.

A- Compliance with Making Tax Digital is mandatory for most businesses trading over the VAT threshold with effect from 1 April 2019. A small number of businesses have been deferred to October 2019. The timeline confirming those businesses that are deferred and those businesses eligible to join the pilot can be found here:

https://www.gov.uk/government/publications/making-tax-digital-for-business-stakeholder-communications-pack/making-tax-digital-for-business-stakeholder-communications-pack#the-mtd-timetable

In order to be compliant with MTD, traders or accountants will need to have the appropriate API (Application Programming Interface) enabled software. They will have 3 options:

  • Continue with their current software if this is already MTD compliant
  • Upgrade their existing software to an MTD compatible version
  • Record their digital records on a spreadsheet and use an API enabled bridging product to transfer the 9 box VAT return data to HMRC.

HMRC have a list of MTD compatible software.

https://www.gov.uk/guidance/software-for-sending-income-tax-updates#VAT

Software marked as ‘Digital record keeping’ means the software does everything that is needed to comply with MTD – from digital record keeping, to API VAT return submission. If the software doesn’t have this feature, then it means this is a ‘bridging product’, which is capable of transferring the VAT return data using API, from your existing non-API enabled software, i.e. you can link it to the spreadsheet that you use to keep your digital records and send the data through to HMRC.

There are 2 key elements to MTD:

  • Digital record keeping which means keeping a digital record of supplies made and received, reverse charge transactions and summary data (see VAT Notice 700/22 Section 3)
  • API transfer of your nine box VAT return data to HMRC.

The digital link to transfer your nine box VAT return data must be in place from the first return submitted under MTD. There also needs to be a digital link in place between your digital record keeping and nine box summary data. However, for the first 12 months, there is a soft-landing approach with this second digital link, meaning that whilst it is still recommended, this digital link is not mandatory until April 2020.

Examples of how this works in practice can be found in VAT Notice 700/22 Section 7.

Tax Question of the Week: SDLT and Wlesh Land Tax

Q- My client is buying five residential properties from the same seller. Three of the properties are in England but two of them are located in Wales. I am familiar with the “linked transaction” principle and understand that this is common to both taxes with similar rules, but how would this apply in this case, given the different rates and bandings in each jurisdiction?

A- Although Land Transaction Tax (LTT) in Wales replaced Stamp Duty Land Tax from 1 April 2018, both jurisdictions contain similar rules – which require a single calculation of tax based on the combined consideration of all the “linked transactions” where:

  • There is more than one transaction
  • the transactions are between the same buyer and seller or between people connected with either of them
  • the transactions form part of a single scheme or arrangement, or part of a series of transactions
    (s.108 Finance Act 2003 for England and Northern Ireland, and s.8 LTTADA 2017 for Wales respectively).

However, a close look at the respective legislation confirms in both cases that transactions are not required to be linked across jurisdictions, with similar mutual exclusions given in each as follows:

Stamp Duty Land Tax (England and Northern Ireland)

Section 108(1A) FA 2003 –

“A transaction is not a linked transaction if–
(a) the transaction relates to land in Scotland, or
(b) the transaction relates to land in Wales (whether by virtue of section 48A(2) or otherwise)”.

Land Transaction Tax (Wales)

Section 8 LTTADA 2017 – refers to a “land transaction” being “a linked transaction if it is one of a number of land transactions forming part of a single scheme, arrangement or series of transactions…”. Section 3 of the same Act defines the term “land transaction” as “an acquisition of a chargeable interest”. The term “chargeable interest” is defined at Section 4 as “and estate, interest, right or power in or over land in Wales….” This therefore excludes acquisitions of properties outside of Wales.

Although not relevant to your client on this occasion, the equivalent Scottish rules (LBTT) contain a similar exclusion from linked transactions in respect of property located outside of Scotland (s57 of LBTT(S)A 2013 refers to “transactions”, s3 “chargeable interests and s4 defines chargeable interests as “land in Scotland”).

I can therefore confirm that the transactions concerning the acquisition of property in England should not be regarded as linked-with the Welsh property acquisitions and vice versa.

VAT Question of the Week: Moss Changes

Q- My client is a dietician and weight loss specialist and she has produced an online course that she sells worldwide, comprising pre-recorded videos and downloadable PDFs. She is presently trading below the UK threshold but has had to register for VAT in order to complete MOSS returns in respect of her sales to the EU. What will happen after Brexit?

A- The Mini-One-Stop-Shop regime (MOSS) is an online service that allows EU businesses selling digital services to consumers (B-C) in other EU member states to report and pay VAT via a single return and payment in their home Member State. Businesses not established in the EU can also use the system by registering in an EU member state (non-Union MOSS). Alternatively, a business can register in each EU Member State where sales are made. You can find further information about registering for VAT in EU member states on the EU Commission website https://ec.europa.eu/taxation_customs/business/vat/eu-country-specific-information-vat_en

It is difficult to predict the outcome of present talks but it is likely that after Brexit, as the UK will no longer be part of the EU, different rules will apply and the UK will no longer be part of the Union MOSS scheme. UK businesses will then need to register for non-Union MOSS in one of the remaining member states.

Following a period of consultation and agreement at EU level, changes are being introduced with effect from 1 January 2019, which are intended to ease the administrative burden on businesses. Pending implementation of the post-Brexit treatment, these changes may benefit your client so that she no longer has to complete MOSS returns.

The legislation in the form of two statutory instruments was laid before Parliament on 19 November 2018. This will make two changes to the rules for businesses making sales of digital services to consumers across the EU.

Firstly, for EU established businesses, it will introduce a €10,000 threshold (sterling equivalent of £8,818) for total B-C sales of digital services to the EU in a year. This change means that businesses below this threshold will, unless they elect formally to do otherwise, treat the supply as a domestic supply made in the UK and charge UK VAT, accounting for VAT on their UK return rather than completing MOSS.

If your client’s sales to unregistered customers in other member states are below this threshold, she needs to consider if these sales when added to her UK turnover take her over the UK VAT registration threshold of £85000. If so, she will begin to account for her UK and EU B-C supplies on her UK VAT return. Conversely, if her total UK turnover, when these B-C supplies to the EU are taken into account, is still below the UK threshold, she could deregister from VAT.

If she is no longer required to submit MOSS returns because her B-C supplies are below the new threshold she can deregister from MOSS. The following link takes you to guidance on how to cancel a MOSS registration: https://www.gov.uk/guidance/register-and-use-the-vat-mini-one-stop-shop#if-you-want-to-leave-the-scheme

 It is important to note that while this threshold has been introduced for EU business, there is still no threshold for businesses established outside the EU and they will be required to account for VAT on their digital supplies regardless of the value of the sales.

The second change will give non-EU businesses registered for VAT in the EU for other purposes the option to use a MOSS scheme to account for VAT on their sales of digital services to consumers in EU member states. These businesses are currently excluded from the MOSS regime.

The second change will not affect your client, as I understand she is not VAT registered in any other member state. However, as the Directive that led to this change will be implemented in all member states it follows that other UK suppliers who are already registered in the member states for other reasons will be able to use non-Union MOSS after Brexit.

The following link takes you to updated information on Gov.UK:

https://www.gov.uk/guidance/the-vat-rules-if-you-supply-digital-services-to-private-consumers

An Important Update From HMRC on Self-Assessment

All Self Assessment customers need to file their 2017-18 return, make a balancing payment for 2017-18 and their first payment on account for 2018-19 by 31 January 2019. (if appropriate)

We are aware however that if a customer is affected by an exclusion they won’t be able to file online or get an accurate self-assessment income tax liability calculation for 2017-18.

In this instance customers should:

  • file their Self Assessment by paper return, along with a completed reasonable excuse claim by 31 January 2019.
  • make a reasonable effort to estimate their income tax liability for 2017-18 based on the information they have
  • make an appropriate balancing payment for 2017-18 and their first payment on account for 2018-19 by 31 January 2019.

Providing the return and payments are received by the deadline of 31 January 2019 HMRC will not charge a late filing penalty, late payment penalty and /or interest on the estimated amounts. Where we have been unable to stop the automatic issue of these we will accept being affected by an Exclusion as a reasonable excuse and the penalties will be withdrawn.

We will contact those customers who have needed to estimate their balancing payment to confirm their actual income tax liability. If this results in an additional amount being payable customers should pay any new amount due within 28 days of the notification to stop interest being added. As yet, we do not have a date for when this contact will be made, we will let you know once we have further information.

Where a customer is uncertain if their circumstances match an exclusion and their software allows successful online submission, they should:

  • still file their Self Assessment return online by 31 January 2019
  • pay their estimated balance for 2017-18 Self Assessment and their first payment for 2018-19 by 31st January 2019

HMRC will subsequently:

  • identify any cases filed online where the calculation is incorrect
  • make any required correction to the income tax liability calculation for 2017-18 and 2018-19 payment on account
  • inform the customer of the correct income tax liability calculation for 2017-18  and any revision to 2018-19 payment on account
  • advise when the revised amounts need to be paid
  • inform customers that they will not have to pay late payment penalties and/or interest attributable to any additional amount arising from the correction if it is paid before the revised due date

Tax Question of the Week: Electric Car Charging

Q- My client is an expanding local mobile care business and they are increasingly aware of the pollution that cars emit into the environment. With this in mind, they have been asked by their team whether they can look at changing the company cars to hybrid or electric cars and whether there are any incentives to do so.

Here we look at some of the recent changes and existing exemptions that may help them to make their minds up.

A- If an employer provides a vehicle battery charging point for use by employees, no additional benefit arises if the employee uses the charging point to charge a company car. The provision of electricity for an electric company car is not regarded as ‘fuel’, even if the employee uses the charged vehicle for private mileage. Consequently, no additional fuel benefit arises.

Currently, where an employee uses an employer-provided charging point to charge his or her own car, the provision of the electricity is taxed as a benefit. Draft legislation (s237a ITEPA 2003) will remove any income tax liability from 2018/2019 for the provision of charging facilities if the facilities are provided to employees generally and as long as the charging points are at or near work.

The exemption for workplace charging has now been published in Finance Bill 2018/19 and will have retrospective effect from 6 April 2018. The legislation is not yet enacted and is therefore subject to change.

The exemption will apply to charging facilities for all-electric and plug-in hybrid vehicles. The charging point can be used to charge a car in which the employee is a driver or a passenger without triggering an income tax liability.

Finance Bill 2018/19, as published on 7 November 2018, also brings good news for employers. If an employer installs an electric vehicle charging point then this will qualify for a 100% First Year Allowance (FYA). Qualifying expenditure must be made up to and including 31 March 2023 for corporation tax purposes and 5 April 2023 for income tax purposes. The updated Capital Allowances legislation can be found at s45EA CAA 2001.

Finally, ‘large’ petrol stations will also be required to install electric charging points…but remember that the proposed exemption for electric charging of an employee’s own car only extends to charging at or near the workplace rather than motorways as well.

VAT Question of the Week: Professional Fees and Design & Build Contracts

Q- My client is an architect, and always charges standard rate VAT as long as the property he is working on is in the UK. This has never been queried until recently when he invoiced a building contractor in respect of a new housing development. The contractor is saying that because this is a design and build contract, the professional services should be zero-rated. He is referring us to a paragraph in Notice 708 which he says backs up his request. Is he correct?

A- The reference to this in Notice 708 is section 3.4.

“3.4 Services excluded from zero-rating

 3.4.1 Architects, surveyors, consultants and supervisors

The supply of architectural, surveying, consultancy and supervisory services is always standard-rated.

These services are, however, procured in a number of ways:

  • design and build: Here the building client engages a contractor to carry out both the design and construction elements of the project. Where it is clear in the contract that any services of architects, surveyors or others acting as a consultant or in a supervisory capacity are no more than cost components of the contractors supply and are not specifically supplied on to the customer, then the whole supply can be treated as being eligible for the zero rate.”

The contractor has clearly interpreted this as meaning that the architect can zero-rate his supply if that supply is in connection with a design and build contract. This is incorrect. What it does mean is that the contractor with the design and build contract will incur those standard-rated services in the course of fulfilling his contract, and they will become cost components of his own zero-rated supply of construction services. The contractor should recover the VAT charged to him by the architect, and would zero-rate his supply of construction services which has been costed to take into account the design element.

An arrangement like this is generally advantageous when the developer is intending to retain and let the houses he develops so that any input tax would relate to exempt supplies rather than a zero-rated major interest. It is a way of legitimately minimising irrecoverable input tax.

Tax Question of the Week: Changes in Entrepreneurs Relief

Q- How do changes in the Entrepreneurs relief conditions following the budget affect me and when do they come into force?

A- The first key change was the definition of a personal company for Entrepreneurs’ Relief. Previously, a personal company was defined as one in which the shareholder:

  • is an office holder, director or employee of the company or group company; and
  • holds at least 5% of the ordinary share capital and of the voting rights of the company.

The shareholder will now also need to hold a 5% interest in the distributable profits and the net assets of the company for the relief to be available on the gain. Read More