In this CavanaghKelly Tax update, we outline new HMRC guidance on salary sacrifice and summarise the Institute of Chartered Accountants in England and Wales (ICAEW) calls for VAT reforms, specifically for property. HMRC has also launched a consultation on self-employed basis periods to delve into the best way to simplify the rules and regulations surrounding unincorporated trading businesses.
CavanaghKelly has a dedicated Tax Team with in-depth knowledge and expertise across all aspects of tax. Should you wish to discuss any of these changes further, our Tax Advisors would be happy to assist with your queries.
HMRC has opened a consultation to investigate how basis periods can be reformed for income tax for the self-employed. The UK Government has engaged with a cross-section of business stakeholders and representatives across a wide range and size of businesses across a variety of sectors, to estimate initial impacts.
This consultation has been launched to investigate the best way to implement a proposal to simplify the rules and regulations under which profits of unincorporated trading businesses are allocated to tax years using basis periods. This consultation has also opened to include suggestions surrounding transitional rules for moving to the new system.
HMRC is aiming to simplify the system before the introduction of Making Tax Digital (MTD) for income tax begins.
These proposals can affect those who are self-employed and members of partnerships with trading incomes. In addition, these proposals may mainly affect unincorporated businesses that do not draw up annual accounts to 31 March or 5 April and those that are trading in the early years of their business.
HMRC has suggest that it would like to gather opinions on the matter from businesses, advisers, tax software providers and representative bodies.
The consultation will run for 6 weeks until Tuesday 31 August 2021.
For further information on the consultation, click here.
Following HMRC's consultation on simplifying the rules surrounding land and property, the Institute of Chartered Accountants in England and Wales (ICAEW) has called for HMRC to put an end to all VAT exemptions and remove all VAT options.
The ICAEW has expressed the opinion that the VAT rules surrounding land and property are 'unnecessarily complex' and would benefit from simplification. In addition, the ICAEW has also suggested the need for a more fundamental review of all VAT exemptions.
The ICAEW believes that abolishing VAT exemptions would remove issues for businesses posed by partial exemption. The Institute has suggested that all land and property transactions should be subject to VAT, at the standard rate or reduced rate, other than those which relate to domestic property, which should remain zero-rated. This would remove many complexities associated with the current rules.
The ICAEW believes that, regarding the removal of all VAT options, for example to tax or exempt a transaction, can create complexity and uncertainty as there are two possible outcomes for the VAT liability of what is essentially the same type of supply.
To read further about the ICAEW's VAT representation, click here.
Recently, HMRC has withdrawn guidance on the salary sacrifice arrangements set up before 6 April 2017 as the transitional arrangement for calculating the value of the benefit came to a close on 5 April 2021.
A salary sacrifice is defined as an agreement to reduce an employee's entitlement to cash pay, usually in return for a non-cash benefit. Employers can set up salary sacrifice arrangements by adjusting the terms of the employee's contract and the employee must agree with this change.
This will impact tax and National Insurance contributions payable for any employee. The impact will depend on the pay and non-cash benefits that make up the salary sacrifice arrangement.
Employers are required to pay and deduct the correct amount of tax and National Insurance contributions for the cash and benefits which they will provide. For the cash component, this means operating the PAYE system correctly via payroll. For any non-cash benefits, an employer is required to calculate the value of the benefit.
If an employer creates a new salary sacrifice arrangement, they will also need to calculate the value of the non-cash benefit by using the higher of the:
- Amount of the salary given up
- Earnings charge under the normal benefit in kind rules.
For cars with CO2 emissions of no more than 75g/km, employers must use the earnings charge under the usual benefit in kind rules.
Please contact us if you are considering setting up salary sacrifice arrangements to ensure these are effective.
For further information, click here.
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Whilst every effort has been made by CavanaghKelly to ensure the accuracy of the information here, it cannot be guaranteed and neither CavanaghKelly nor any related entity shall have liability to any person who relies on the information herein. Information given here is for guidance only. Detailed professional advice should be taken before acting on any information contained herein. If having read the guidance here, you would like to discuss further; a member of our team would be pleased to help you.