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Larking Gowen weekly digest – latest news on direct/indirect tax, financial reporting and more…

Direct taxes

1. The Finance Bill 2017: legislation and explanatory notes have been released by HMRC.

2. Dividend allowance: Philip Hammond announced in the Spring Budget that from April 2018, the tax-free dividend allowance for shareholders will reduce from £5,000 to £2,000. Shareholders of SME's should note that if a dividend is not paid in this tax year the allowance for 2016/17 will be lost.

VAT and indirect taxes

1. Finance Bill 2017: The draft Bill has now been published, and contains the following legislation in respect of VAT:

Zero rating of adapted motor vehicles for the disabled – There has been a significant amount of fraud in this area, and updated legislation will be brought in to tighten up the rules. Changes include a restriction on the number of times a disabled person can make use of the relief, and a new penalty for individuals who supply incorrect information to car dealers.

Digital reporting and record keeping for VAT – Legislation will be introduced to require businesses to keep digital records and report digitally to HMRC. This is part of the Government's Making Tax Digital plans, and the requirements in respect of VAT are expected to come into force from 6 April 2019.

VAT avoidance schemes – The scope of the Disclosure of Tax Avoidance Schemes (DOTAS) rules will be widened to include indirect taxes, including VAT. The changes are due to come into effect on 1 September 2017, and penalties of up to £10,000 will be levied for non-compliance.

New penalties for VAT fraud – These will be levied on businesses and company directors where they knowingly enter into transactions connected to VAT fraud. The penalty will be a fixed 30% of the potential lost VAT.

2. Recruitment agencies – temporary workers – tripartie arrangements: The Upper Tribunal (UT) upheld the decision of the First Tier in the case of Adecco UK Limited. The UT agreed that the contractual arrangements between the agency and the workplace was not inconsistent with the economic reality, and that Adecco were supplying the services of the temporary worker, as opposed to simply an introductory service. The ruling means that an agency must charge VAT on the full value of its supply (including the worker's salary, PAYE, NI etc.) This impacts on partially exempt businesses that cannot recover all of the VAT they are charged. It is unclear at present whether Adecco will appeal the decision further.

3. ATED: The question has been asked about ATED and whether or not it is a tax deductible expense. Our view is that the ATED charge is a cost of running a property rental business, very similar to the payment of business rates. On that basis a tax deduction seems reasonable. This does appear to be an issue on which there is not a general consensus and so we recommend that a full disclosure is made in the tax computations, making it clear to HMRC that a deduction has been claimed.

Whilst every effort is made to ensure accuracy, information contained in this publication may not be comprehensive and recipients should not act solely on the basis of this information.