D J Macaulay

UK tax alerts

August 2009

New disclosure opportunity
Paying your tax
VAT Land and buildings update

New disclosure opportunity

So it's round two of HM Revenue and Customs (HMRC) attempts to encourage taxpayers - particularly those with offshore accounts - to come forward and bring themselves back into the tax fold if they have been under-declaring their UK tax liabilities.

As announced in this year's Budget, HMRC is launching a new disclosure opportunity (NDO) which will run from 1 September 2009 until 12 March 2010.

The Budget Report 2009 stated that:

"This will give holders of offshore accounts an opportunity to disclose, of their own accord, if they have unpaid tax or duties and to settle debts. HMRC will pursue those who do not disclose."

A further announcement on the HMRC website on 28 July states that:

"Those who choose not to take this opportunity and are subsequently found to have undeclared tax liabilities are likely to face a 30% or higher penalty and also run an increased risk of criminal prosecution."

Taxpayers wishing to take advantage of the NDO will have to make an initial notification of their intention to make a disclosure during the period from 1 September 2009 to 30 November 2009, but a facility to make a notification electronically will only be available from 1 October 2009 to 30 November 2009.

The deadlines for making the actual disclosure - with all the required detail - will be 31 January 2010 for disclosures made in paper form and 12 March 2010 for disclosures made on-line.

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Paying your tax

It’s that time of the year again! On the 31 July 2009 those of us with self assessment tax to pay will have made, or be considering, the payment of the second payment on account for 2009-10.

Failure to pay on time can have dire consequences.

Surcharges - Any tax owed for 2007-08, not covered by payments on account for that year, would have been due to be settled on the 31 January 2009. Any such amounts still unpaid on the 28 February 2009 would have a surcharge added of 5% of any prior year liability.

If this liability is still unpaid, or partly unpaid, on the 31 July 2009 a further 5% will be added.

Interest - Interest will always be charged on tax paid late. The rate of interest presently charged will depend on the type of tax in arrears; self assessment, corporation tax PAYE/NIC, VAT.

The current rates are:

• On late paid income tax, NIC and capital gains tax – 2.5%
• On late paid corporation tax not due by instalments – 1.5%
• On late paid corporation tax due by instalments – 1.5%
• On overpayments of income tax etc – 0%
• On overpayments of corporation tax – 0.25%

Set-off - set-off means that if HMRC owes a taxpayer a refund of one tax, they can apply that refund to payment of other taxes due by the same individual. This could be particularly difficult in the current economic environment as if you have made a loss carry back claim and are expecting a refund of tax previously paid, you may find that the repayment is instead set against, for example VAT due.

Business payment support service - launched in November 2008 this scheme allows businesses to contact HMRC in advance of the payments falling due and request an arrangement allowing an extended payment period. It is open to large and small businesses.

Once a time to pay arrangement has been reached, the business will not incur any late payment penalties provided the arrangement is adhered to.

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VAT Land and buildings update

Renting Land

Generally speaking the rent you pay for letting a piece of land is an exempt transaction; in other words no VAT is added to the rent charged.

However the owner of land may elect for any rents charged to be treated as a standard rated transaction. The election would not apply to all the property he owns just the particular plot or building subject to the election.

So if you are letting land for a short period, say if you are hiring a venue for an antiques fair, be sure to ask if the owner of the land/building will be charging you VAT. Otherwise you may be saddled with a 15% VAT charge that you may not be able to recover.

Option to tax – can it be revoked?

The option to tax, treat rentals, purchases and disposals of particular parcels of land or buildings as standard rated VAT transactions was introduced 1 August 1989. The election lasts for 20 years. Consequently the first elections made August 1989 could now be revoked. One reason you may want to consider this relates to stamp duty land tax.

Stamp Duty Land Tax (SDLT)

A purchaser of a property that is subject to an option to tax (for VAT purposes) will pay SDLT on the VAT inclusive price. This may have a significant impact on the amount of SDLT payable especially if the VAT charged moves the SDLT payable into a higher banding, from say 1% to 3%.

Charities

If a charity (not registered for VAT) purchases a building that is subject to an option to tax, on the face of it they will have to suffer the cost of the VAT added to the property purchase. However it may be possible to reduce the impact of the VAT charged if a proportion of the building is to be used for relevant charitable purposes. This is an issue that has to be investigated before the property is purchased.

If you would like our help with VAT planning for property matters please get in touch before you sign a contract or lease!