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In order to qualify as a deduction for tax purposes we have to demonstrate that the expenditure was incurred “wholly and exclusively” for the purposes of our business or employment.

We will also need to consider a further criterion: where the expenditure has a duality of purpose.

In a 1980’s case, a barrister claimed for the cost of business suits which she insisted were only used for business purposes. To her delight, the lower courts agreed, but HMRC were having none of it and pursued their case to the House of Lords where the taxpayer’s claim and appeal was dismissed.

The barrister failed to secure her claim as she could not escape the conclusion that although she may have purchased the required “subdued” clothing for her practice, the clothes purchased could have been worn on a private occasion, even though she may have chosen not to do so.

As always this and other related cases, open the door to speculation: when does expenditure meet these stringent rules?

For example, if the barrister’s suits had carried a visible label – the name of her practice – would this have tipped the balance as she could argue the suit was a uniform and not appropriate to wear on private occasions?

Removing any private advantage may be more difficult than it would appear.

Unfortunately, we are required by legislation to comply with the “wholly and exclusively” rule and if there is a whiff of private advantage to the expenditure, then it will likely be disallowed. HMRC in their instructions to staff say:

You should disallow expenditure on ordinary clothing worn by a trader during the course of their trade. This remains so even where particular standards of dress are required by, for example, the rules of a professional body.

Although the Brexit issue is not yet decided it may be salutary for businesses to consider the changes they will need to face if we depart with a no-deal Brexit. We have touched on these issues in past articles posted on this blog, but today we have reproduced the present regulations you will need to consider if you import from outside the EU – with a no-deal Brexit these, or similar processes, will need to be applied to imports from the EU.

Within the EU most goods:

• are in free circulation,
• can be imported with minimal customs control,
• have no import duty or VAT to pay.

Imports from outside the EU are treated differently. You:

• must make an import declaration to customs,
• generally, have to pay import duty and import VAT (plus VAT on import duty).

Authorised Economic Operator (AEO)

If you’re already involved in international trade and have an Economic Operator Registration and Identification Number (EORI), you can register with HMRC as an Authorised Economic Operator (AEO).

The scheme isn’t compulsory, but companies that meet the requirements can take advantage of simplified customs procedures for the security and safety of their imported goods in transit.

Import declarations

You have to send a declaration to HMRC when you import goods into the UK from outside the EU. This is usually done using the Single Administrative Document (SAD), also known as form C88.

SADs can be submitted either electronically using the Customs Handling of Import and Export Freight (CHIEF) system, or manually (although manual submissions may take longer to process).

You need to include the:

• customs classification
• commodity code
• import value of your goods
• customs procedure code explaining what is being done with the goods, for example import to free circulation.

We could continue sketching these regulations in more detail. Sufficient to say that if you presently import, or indeed export, goods from or to the EU you should research the changes you will need to make to ensure your supply chains are maintained after March 2019.

We will be keeping a close eye on negotiations and will report again as and when the news breaks.

In the meantime, if you have concerns about possible disruptions to your supply chains post Brexit, please call for more information.

Companies House have published a list of bizarre excuses for the late filing of their statutory accounts. They include:

• “goats ate my accounts”
• “I found my wife in the bath with my accountant”
• “pirates stole my accounts”
• “we delivered the accounts to the betting office next door to Companies House”
• “a volcano erupted and prevented me from filing”
• “slugs ate my accounts”
• “it was Valentine’s Day”
• “my company was more successful than I thought it would be, so I was too busy to file”

As you would expect, Companies House issued late filing penalties and any appeals were swiftly quashed.

The level of the penalties charged depends on how late the accounts reach Companies House and is shown in the following table.

A private company’s set of acceptable accounts for the accounting period ending 30 September 2009 would need to be delivered by 30 June 2010 to avoid a late filing penalty. If they were not delivered to Companies House until 15 July 2010 the company will incur a late filing penalty of £150.

The penalties will be doubled if a company files its accounts late in 2 successive financial years beginning on or after 6 April 2008. This means that if a private company, has an accounting reference date of 30 September and the accounts for the period ending 30 September 2009 were delivered late and you delivered accounts for the subsequent period ending 30 September 2010 late, then you would incur a £300 late filing penalty.

Options for reducing the impact of taxation on our earnings are somewhat limited. That said, there are still opportunities that will keep you the right side of the law and will increase the take home pay of employees.

One such opportunity available to employers is to pay so-called trivial benefits. The benefits may be of small value, but never-the-less, even small tax-free payments will be gratefully received.

To qualify as tax-free, the benefits paid to employees need to fit the following criteria:

• they cost £50 or less to provide,
• the payments are not made in cash or by the use of cash vouchers,
• the benefits are not made as a reward for work or performance,
• the provision of the benefits is not required in the terms of contracts of employment.

You don’t need to pay tax or National Insurance or advise HMRC that qualifying payments have been made, however, you will have to pay tax and possibly National Insurance on any benefits that don’t meet all these criteria.

Directors of smaller companies can also avail themselves of this benefit, but in their case, these payments would be limited to a maximum £300 in a tax year. This restriction also applies to members of the director’s family and household.

The benefits can also apply where the trivial benefit is provided on behalf of the employer by a third party. For example, where the benefit is provided through a management services company within a group of companies or by a third party business where management services have been outsourced, provided the cost of the benefit is ultimately borne by the employer.

Further clarification provided by HMRC regarding the payment of trivial benefits includes:

• One of the conditions that has to be satisfied is that the cost of providing the benefit does not exceed £50. If the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.
• In determining the cost of the benefit for the purposes of the exemption, as for benefits in kind more generally, use the VAT inclusive.
• The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial.
• Usually it will be obvious what the cost of providing the benefit is. However, on occasions an employer will provide a benefit to a group of employees and it is impracticable to establish what the precise cost is per person. In such cases, when determining whether the monetary limit has been exceeded you should take the average cost per person of providing the benefit.
• In determining whether the average cost method should be applied, you should apply common sense, bearing in mind the circumstances, in deciding whether it is appropriate.

As we approach the festive season the following example may shed some light on how this scheme would work in practice.

An employer provides each of its 100 employees with a turkey at Christmas and the total bill comes to £4,500. There are a variety of sizes. Because the employer has made a bulk order, the turkeys have not been priced up individually but would cost in the region of £40 to £60 each. Employees are able to choose which bird they have. Rather than undertake a detailed analysis of the individual benefits, HMRC advise that you should accept that the cost per head is £45, reflecting an average amount of £4,500/100. The benefit can be covered by the exemption since the cost for each employee does not exceed the trivial benefit financial limit.

HMRC has about-faced regarding the ban on using spreadsheets to work out your VAT return data from 1 April 2019, when the new requirement to file VAT returns using Making Tax Digital (MTD) format is introduced.

Bowing to pressure from industry, the accountancy profession and Parliamentary committees, HMRC has now agreed that you can use spreadsheets for VAT purposes; unfortunately, there is a large “but”.

The rationale behind the development of MTD is that HMRC wants your returns of data through its MTD portal to be linked directly to the source material, the accounting entries that make up the returns. They do not want you to cut and paste data from your accounting records (including spreadsheets) into HMRC’s digital accounts.

Accordingly, they have agreed to the use of spreadsheets as long as the data is transferred using bridging software that is compatible with its MTD systems.

Software developers are now faced with creating this bridging solution and we will be reviewing solutions to settle on the best-fit option for clients.

Suppliers who sell goods and services to larger concerns often find that the terms of their supply, limits or bans the process of factoring the debts to release funds into cash flow.

Cynically, this could be seen as a method these larger customers have used to control options available to their smaller suppliers.

Unfortunately, suppliers who sell predominately to major buyers find themselves in a cleft stick: they generally have to wait for longer periods to be paid and as a result are constantly short of cash.

Invoice factoring or discounting allows say 80% of a sales invoice value to be received when the invoice is issued and accepted by the customer; a specialist finance company or bank steps in to provide the discounting service.

The good news is that there is to be a change in the law to ban these restrictive practices and allow smaller companies to gain access to the funds locked up in their trade debtors.

Under the new proposed laws, any such contractual restrictions entered into after 31 December 2018, with certain exceptions, would have no effect and could be disregarded by small businesses and finance providers, which will help stop larger businesses from abusing their market position.

HMRC is still required to obtain certain returns from you even if there is no income or tax to declare. Failure to submit will likely trigger late filing penalties and unfortunately, pleading ignorance of your obligations to file “nil” returns is not a reasonable excuse.

Which begs the question, what is a reasonable excuse?

HMRC had published what may, and what will not, be considered excusable. They say:

A reasonable excuse is something that stopped you meeting a tax obligation that you took reasonable care to meet, for example:

• your partner or another close relative died shortly before the tax return or payment deadline,
• you had an unexpected stay in hospital that prevented you from dealing with your tax affairs,
• you had a serious or life-threatening illness,
• your computer or software failed just before or while you were preparing your online return,
• service issues with HM Revenue and Customs (HMRC) online services,
• a fire, flood or theft prevented you from completing your tax return,
• postal delays that you couldn’t have predicted,
• delays related to a disability you have.

You must send your return or payment as soon as possible after your reasonable excuse is resolved.

What won’t count as a reasonable excuse are situations where:

• you relied on someone else to send your return and they didn’t,
• your cheque bounced, or payment failed because you didn’t have enough money,
• you found the HMRC online system too difficult to use,
• you didn’t get a reminder from HMRC,
• you made a mistake on your tax return.

Often, failure to file is not a deliberate act. Unfortunately, appealing against what you consider to be an unreasonable stance by HMRC is not that simple, and ignoring the issue is not the way to go.

If you find yourself in dispute with HMRC on a late filing challenge, we can help. Please call us so we can discuss your options.

Guidance on the use of a British passport to travel abroad after 29 March 2019, if there is a “no-deal” Brexit, was issued by government last month. The pertinent facts are reproduced below:

After 29 March 2019, if you’re a British passport holder (including passports issued by the Crown Dependencies and Gibraltar), you’ll be considered a third country national and under the EU Schengen Border Code you will need to comply with different rules to enter and travel around the Schengen area. Third-country nationals are citizens of countries (like Australia, Canada and the USA) which do not belong to the EU or the European Economic Area.

According to the Schengen Border Code, third country passports must:

• have been issued within the last 10 years on the date of arrival in a Schengen country, and
• have at least 3 months’ validity remaining on the date of intended departure from the last country visited in the Schengen area. Because third country nationals can remain in the Schengen area for 90 days (approximately 3 months), the actual check carried out could be that the passport has at least 6 months validity remaining on the date of arrival.

If you plan to travel to the Schengen area after 29 March 2019, to avoid any possibility of your adult British passport not complying with the Schengen Border Code we suggest that you check the issue date and make sure your passport is no older than 9 years and 6 months on the day of travel.

For example, if you’re planning to travel to the Schengen area on 30 March 2019, your passport should have an issue date on or after 1 October 2009.

If you are a parent or guardian:

• For 5-year child passports issued to under-16s, check the expiry date and make sure there will be at least 6 months validity remaining on the date of travel.
• For example, a child planning to travel to the Schengen area on 30 March 2019 should have a passport with an expiry date on or after 1 October 2019.
• If a child’s passport does not meet these criteria, they may be denied entry to any of the Schengen area countries, and you should renew their passport before travel.

For countries that are in the EU but not in the Schengen area, you’ll need to check the entry requirements for the country you’re travelling to before you travel.

The Schengen Area is an area comprising twenty-six European states that have officially abolished passport and all other types of border control at their mutual borders. The area mostly functions as a single jurisdiction for international travel purposes, with a common visa policy. The area is named after the Schengen Agreement. States in the Schengen Area have strengthened border controls with non-Schengen countries.

1 October 2018 – Due date for Corporation Tax due for the year ended 31 December 2017.

19 October 2018 – PAYE and NIC deductions due for month ended 5 October 2018. (If you pay your tax electronically the due date is 22 October 2018.)

19 October 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2018.

19 October 2018 – CIS tax deducted for the month ended 5 October 2018 is payable by today.

31 October 2018 – Latest date you can file a paper version of your 2018 self-assessment tax return.

1 November 2018 – Due date for Corporation Tax due for the year ended 31 January 2018.

19 November 2018 – PAYE and NIC deductions due for month ended 5 November 2018. (If you pay your tax electronically the due date is 22 November 2018.)

19 November 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2018.

19 November 2018 – CIS tax deducted for the month ended 5 November 2018 is payable by today.

As we will possibly live on until our 80s and beyond, and as that may involve coping with disability of one form or another, the need for consideration of support as we get older is ever more pertinent.

Readers will no doubt have heard the term “power of attorney”, but not many, we suspect, will have made the investment and appointed someone trusted to act as their representative if they become physically or mentally unable to look after themselves in old age.

If you did become infirm and unable to make sensible decisions about your health care or finances, and you had not appointed a lasting power of attorney (LPA), then management of health care and finances would pass to your doctors and the Court of Protection. Whilst these two outside-the-family institutions will no doubt try their best on your behalf, they may not do so in accordance with your wishes, or the wishes of your close family.

There are two types of LPA that will deal with:

1. Health and welfare, and

2. Property and financial affairs.

You can complete the forms to apply for the two types of LPA with the Public Guardian’s office, without professional assistance, but we suggest you invest in the required legal advice as part of a wider consideration of tax and inheritance issues.

LPAs, if properly considered, will give both you and your family a clearly defined structure to work within should you become incapacitated in old age. And as you would expect, you need to be able to demonstrate that you have the mental capacity to make you own decisions when you make an LPA.