Life continues as normal, despite the political turmoil of the last month and the prospect of BREXIT (whatever that means) at some indeterminate future date. On the plus side, we’re just slightly ahead of where we were last year on completed personal tax returns, but we’d like to be better. So if you can help us with this, please don’t hold back!
It’s clear enough that we’re not going to have the emergency Budget promised by George Osborne (whatever happened to him?!) which had the idea of turning the UK into an off-shore tax haven for Europe with a company tax rate of 15%. However, if previous enacted budgets are held, we’re heading down to 17% by 2020 – which is still cheaper than most respectable places other than Ireland. There are hints that the new Chancellor may be more open to increased borrowing to invest investment in infrastructure – but it’s early days as yet.
As such, it’s impossible to predict much detail of tax changes. We’ll need to wait for hints in the Autumn Statement. If you’d like something to worry about in the meantime, you might be glad to hear that the National Audit Office has asked for more scrutiny of the capital gains tax exemption on people’s main homes. It’s been sacrosanct, and maybe some people do abuse the system (buy a house, do it up, sell it tax-free and move, repeatedly) but it costs the exchequer £18bn each year – sounds tempting but unlikely.
So, while there’s not much topical to tell you about tax this month, you may be interested in some figures that I saw recently about tax paid in different parts of the UK. Apparently London contributes 30% of the main taxes, up 25% in the decade to 2014/15. This is as much as the next 37 cities combined, up from 24 in the last decade.
Aberdeen was the only city that had grown tax revenues faster than London – but of course that will have fallen back in the last year, due to lower oil prices. Cambridge, Oxford and, less expectedly, Ipswich were the next fastest growers.
Policy-makers suggest that there’s an undue reliance on London for taxes and that the other large – well, large-ish – cities need to be helped so that they can develop and contribute more. But not at the expense of London – we can’t let the golden goose get tarnished.
However, there are a number of Company Law changes coming. The first has already happened, and it has nothing to do with Brexit. Yes, we’re perfectly capable of making our own cumbersome legislation – in this case within the Small Business, Enterprise and Employment Act 2015, which came in on 1 April 2016. We’ve long had to remember that a company needs to submit at least two documents to the central registry at Companies house each year – the end-of-year accounts and the Annual Return. I say “we” advisedly, because most clients wisely delegate these to us.
Except that the Annual Return has changed. And the reminder wordings from Companies House are becoming ever more aggressive. The silly thing is that under normal circumstances they can’t even fine you for a late return, but they make very impressive threats. It’s now called the Confirmation Statement as from 1 July 2016 and for the first time it needs to show Persons of Significant Control, PSCs, and their details.
PSCs are individuals who control more than 25% of the shares or voting rights of the company, even though the actual shareholder in the company may be another company that they control. For example, Mr Smith has more than 50% of the shares in Smith Ltd which in turn has more than 25% of the shares in Smithson Ltd. Mr Smith will need to be shown as a PSC of Smithson Ltd. in the Confirmation Statement. In many cases, there’ll be no real change from the Annual Return, because normal shareholders needed to be shown there.
The idea – generally accepted as good – is for more transparency in the ownership of UK companies. The old Annual Returns used to give the immediate shareholders of the company, but if these were foreign they were still opaque – it was quite hard to track down the owners of some of these shareholdings.
For larger companies, there’s a bit more work because, in addition to the registers of members, directors etc, there’s a new register of PSCs and, before people are entered into it, they need to confirm their details. Ah well, I suppose that they’ll just get Chamberlains to do it and we’ll be forced to charge them a bit more!
BREXIT AND SMALL COMPANIES
As the Brexiteers were keen to emphasise, the UK will no longer be bound by regulations originating from the EU – a respectable and pretty-much non-xenophobic argument. So maybe we’ll get some deregulation and a potential reduction in regulatory costs , but we might struggle with those regulations that came from global initiatives . World trade agreements, for example, determined such-and-such an approach which was codified by the EU into a law for us and for the other members. If we’re not using the EU’s version, we’ll need to invent our own to cater for these cases. And our brilliant civil servants are probably just as fond of their pens (or their keyboards) as their Brussels counterparts…
There seems to be little doubt that Brexit will have a major impact on large companies with cross-border contracts or businesses with EU-based subsidiaries and interests. But they’ve got departments of people eager to fill in the new forms They’re all right, Jacques.
Small private limited companies selling to UK-based customers will largely be immune but there will be tax implications for those selling into Europe or buying from it. How will VAT work? It’s complicated enough as it is!
It will very much depend on which of the various models comes out of our negotiations. (I must admit that I rather enjoyed this little video from the FT – yes, they’ve got terribly modern nowadays. And now that they’re owned by the Japanese, they’ll probably start issuing games consoles to jazz-up our market-trading simulations. [News Alert – Chamberlains website revamp coming soon. The brilliant Jo P…– no, I can’t give you her name until we’ve talked commissions (I jest) – but she’s going to do wonderful things! You and your contacts will just come swarming to us!] I digress— try this: keep going past the initial bit of punk and enjoy the graphics: http://video.ft.com/5021373916001/Punk-FT-EU-models-for-a-post-Brexit-UK/mostpopular) However, as the FT also reported: “While only an estimated 6% of the UK’s 5.4m SMEs export to the single market, many more rely on it for workers or are part of EU-wide supply chains.”
Sober bit for a moment: Anyone negotiating contracts with EU members will need to resolve which country’s rules will apply. If the contract is written under UK law then Brexit will be limited in impact because the UK law of contract is based on English common law, developed and maintained by English courts, and as such will broadly unaffected by EU law. But will those pesky foreigners agree to be bound by UK law? Maybe, if we make it attractive enough, but, knowing them (*spits on sawdust floor of tapas bar*) they’ll want concessions…
Could data protection be left in limbo after Brexit? The current position has been that organisations that keep your details in digital form (as opposed to good old pen and paper) have to register for Data Protection. For most people, Chamberlains included, this means that we pay £35 per year (bargain!), keep our digital records of individual data passworded and don’t spread it around. I’ve been coping with that ever since I started up on my own over nine years ago – so far, so good. The Institute of Chartered Accountants in England and Wales (ICAEW)’s ethical principles specify confidentiality and, as a professional, it’s something that comes naturally – and I trust that that’s the personal image that I and my staff portray, The EU General Data Protection Regulations (DPA) was passed on 27 April 2016 but imposed a two-year transition period for implementation. As it is a directive, it did not require any enabling legislation to be passed by the UK parliament.
The new rules restrict the transfer of personal data to countries outside the EU. Following Brexit the UK will be outside of the EU and therefore considered a non-EU destination that would have to be approved as providing adequate protection for personal data by the European Commission. The worry is that the Commission may refuse to designate the UK as having adequate protection. Really?!
Harumph!! In practical terms, it probably means a big “0”. At Chamberlains we keep our data (eg. tax return info) in the cloud but on a server in the UK. Maybe I should do another article about data security, cloud accounting, etc. I can see you all sitting on the edge of your chairs… In legalistic terms, if you’re based outside the UK, maybe we need to consider whether we’re bothered. If I submit a UK tax return to HMRC in the UK for someone based in Spain, it could be argued that I’m sending in-EU info to an out-of-EU organisation. I think I’ll wait to hear more before I start lying awake at night…
So how about something specific? There will be an impact on all companies that own intellectual property. The rights to trademarks and designs are maintained in single Europe-wide registries, and plans are underway to create a similar European unitary patents registry up and running by 2017. (Less than six months away; Christmas is in the shops. Sounds like an unrealistic deadline…) The central register will mean that a European company will only need to register its design as its intellectual property in Luxembourg, and it will be protected across the EU.
Brexit means that UK companies will be unable to take advantage of this centralised register and hence will find it more difficult to protect its intellectual property in Europe (and vice versa for European businesses). Even if the UK parliament exactly mirrored the EU legislation, there would still be two sets of registries and two sets of rules to satisfy. Well maybe… It doesn’t affect many people that I know.
And finally, TAX ENQUIRY COVER
As you know, HMRC have been tasked with raising more taxes and with tightening up on what’s being paid. Part of this is done by looking at people’s tax returns for things that might have been missed inadvertently or deliberately. The HMRC computers produce reports of things that look odd. This includes mismatches, for example where a bank has told them of interest paid, but it’s missing from the tax return. If there’s something as obvious as this, they wonder about other omissions, and they may raise an enquiry. Other enquiries are started at random or because there’s been a big change from the previous year.
Unfortunately, it takes time to sort things out – to research the issue and to reply to HMRC in the appropriate fashion – and that will often mean extra charges to the poor client. For the last few years we’ve been offering low-cost policies to cover these extra fees – I’m about to send out details (some have already gone out, so apologies if this message is a duplicate for you), but if you’d like to make sure you’re covered please let me know.