What's popular this month?

    Each month we review the emerging themes from the calls to our tax advice lines. Below is a short summary of the key points our team has been discussing with accountants in June.

    Law over guidance

    Our telephone advisors were delighted to read the outcome of the Mohammed Salem Kadhem First-tier Tribunal hearing because it supported the advice we have been giving for years! Company directors do not automatically have to submit tax returns.

    During the hearing, HMRC sought to rely on guidance published on GOV.UK which stated ‘As a director of a limited company you must register for Self-Assessment and send a personal Self-Assessment tax return every year.’

    The Tribunal considered the ‘guidance does not have the force of law and the appellant was under no obligation to follow it’, before clarifying ‘The Tribunal accepts that if a person receives a notice to file a return he is under an obligation to file a return by the due date, but that is not what the Government guidance says’.

    The pertinent paragraphs 25 and 26 are on page six of the decision.

    Tax-Free Childcare

    Tax-Free Childcare is a new Government supported scheme which gives eligible parents up to £2,000 per child, per year, towards their childcare costs. For every £8 a parent pays into their childcare account, the Government will pay in an extra £2. Parents can use the money to pay their childcare provider from their childcare account, so long as their childcare provider is signed up to Tax-Free Childcare.

    Eligibility criteria include:

    • The child must be under 12 years of age, or 17 if they are registered as having a disability.
    • The parent must be working, either as an employee or on a self-employed basis, earning on average at least £120 per week, but less than £100,000 a year.
    • Although the rules say both parents need to be in work and earning less than £100,000 a year each, it is still possible to qualify if one partner is receiving Carer's Allowance, Employment and Support Allowance, Incapacity Benefit or Severe Disablement Benefit.

    The Government has launched a new website called Childcare Choices which allows parents to apply for the scheme.

    Parents with a child, or children, under the age of four on 31 August 2017 can sign up now, as can parents of disabled children under the age of 17.

    Parents with older children can also register now for email alerts and they will be notified when they can formally apply. There should not be too much of a wait, as the scheme is due to cover all children by 31 December 2017.

    Only one parent can open the childcare account, but both can use it, with grandparents and other family/friends able to put money in too.

    Once a childcare provider - whether a breakfast club, nursery, playgroup, nanny, childminder or au pair – has registered for the Tax-Free Childcare scheme, they will appear on the Childcare Provider Checker.

    If the childcare provider is on the register, payments can be made between the parent's and provider's accounts via BACS.

    Further information is available here.

    Directors' loans and section 455

    Following the changes to dividend taxation from April 2016, when the rate of tax charged increased from 25% to 32.5%, callers are asking how HMRC would allocate any repayments.

    If there are separate loan accounts for, say, each accounting period, then the company and director can agree how to allocate any repayments between the different loan accounts.

    If there is just one loan account then the repayment is usually set against the earliest debt first, unless the parties specify which debt has been repaid – see the last paragraph.  

    What you have to watch out for are the two bed and breakfasting rules in s464C CTA 2010.  

    i) s464C(1) – this catches loan repayments in one accounting period where further loans to the participator of £5,000 or more are made in the next accounting period and the additional loan is made within 30 days of the repayment. The earlier repayment is matched with the later borrowing, so you still have to pay the s455 on the earlier loan.

    ii) s464C(3) – this section applies where the participator owed at least £15,000 to the company just before a repayment is made, they make a repayment, and at the time of the repayment, there is an agreement/understanding/arrangement that the participator can borrow back a further £5,000 or more. Again, the earlier repayment is matched with the later borrowings.

    If you need any more support with this technical subject please contact us on 0345 223 2727.