My understanding is that as a Non-UK resident, your client is ONLY taxable on Income received in the UK i.e. State & Occupational Pensions, Rental Income Bank Interest & Dividends etc. The Total UK Income together with that received from USA will required to be declared in your client's Spanish Tax Return subject to credit given for tax paid in the UK & USA against Spanish tax liability in accordance with the DTA between UK/Spain.
Many thanks to all members who have responded to my query. I would add that the private use of van is not expected to be insignificant and incidental. This is because director may use the van to tow caravan on holidays 5-6 times in a year. Each trip may last one week or longer. Would members consider such usage to be insignificant and incidental?
I have asked client to maintain a log of private journeys so as to enable me to calculate the reductions for periods when Van was not used for private purposes. I note from HMRC guidance that "reductions" are given for periods of at least 30 continuous days that the van is not available to director. It may mean that benefit charge amount will be reduced significantly if periods of private use only add up to say 6 weeks in a tax year.
I would clarify that car is being used for private use.
In calculating the ER NIC and Pension Contributions, HMRC calculator automatically used the Furlough period and Days Worked to be the same whereas monthly paid employees were Flexi furloughed for part of month. Also it made same errors for employees paid on variable hours basis and furloughed for part of month. It was correct for straight forward employees paid monthly fixed hours and furloughed for full month. I used HMRC guidance notes dated 1st July and 10th July to calculate figures.
Further to my earlier posting, I would add that Moneysoft software stopped providing the CJRS calculations facility wef 1st July 2020 and asks you to calculate the claim manually or to use HMRC online calculator. I found that HMRC calculator provided wrong answers for EEs with Flexi Furlough dates in July. I wonder whether other software houses have provided CJRS calculation facility and how members dealt with.
I have read this post and responses with great interest because I am also Moneysoft software user. This issue is specific with Moneysoft. Like many, I have followed the HMRC's original guidance and that provided by experts on AccountingWeb & also ICAEW in not claiming Employment allowance in March to May month until later in year. I made claims for ER NIC as part of CJRS and claimed EA in June.. However HMRC's s updated guidance notes in 12th June and 10th July now state that "When working out how much ER NIC you can claim back from the scheme, you should subtract any EA you have used in that pay period. If you have claimed the EA and you do not have to pay any ER NIC in a pay period, you should not claim for any employer NIC costs through the scheme....... Employers who delay their ER claim and have unused EA available at the end of tax year can use this to reduce other tax costs. ERs who have received grant for ER NIC costs through the scheme should deduct the amount of grant they have received from the amount of EA they have left before they use it, if not doing so would result in receiving relief for the same cost twice. Attempting to get relief for the same costs twice is a fraud and my resilt in claims being investigated". Thus it appears to me that in order to save penalties, one has to repay the ER NIC claimed for previous months by adjusting the ER NIC claim to be made in July. I would be interested to hear views on this.
I have tried to make correction but HMRC online claim page does not allow us to enter negative figure in the box ER NIC. Webchat with HMRC agent didn't provide any solution how to enter negative figure. Any solutions/suggestions would be appreciated. Thanks
Further to my previous posting, I would like to add that you should check whether the pension plan has been written in a Trust or a valid and current Nomination form is in place as many financial advisers do not do this. If the insurer company of pension policy allows it, ideally one should use the Individual Distrectinary Trust to write the benefits in a Trust rather than using Insurance company's Master Trust route. The insurance company will provide a standard Trust document for client to use. Of course writing the policy in trust will count as a Life-time Gift for IHT purposes and if the fund value on date of creating trust is below NRB then no Life time charge will become payable and also as a PET.
By so doing you will save your client IHT @ 40% on death. As you are dealing with client's Pension plan and if you as tax advisers do not inform the client about benefits of wriitig the policy in trust, he or she may have a claim against you.
I would like to add to what has already been said in the previous responses. In order for a company make a contributions to an Individual personal pension plan there has to be a contractual relationship established between the employer company and Pension provider Insurance company or SIPP else the contributions will be treated as settling director's pecuniary liability for NIC purposes and NIC is payable. This can be easily done by asking Pension provider to issue an application form for employer to complete with Direct Debit Mandate, it will be dangerous to rely on phone call or a letter as one will have to Gross up the payments. Please note that in some cases an employer cannot make contributions to a pension plan, depending on the Pension provider's policy conditions, eg. to a stakeholder pension plan or old style Sec226 Retirement Annuity Contracts. Thus it has to be a Personal Pension Plan. Therefore it is worth checking this with the Pension Provider. Please note that Annual contribution limit will apply to both personal & company contributions and further both director and employer company can make contributions at the same time therefore existing contributions need not stop. However it will be efficient both for Tax & NIC purposes for company to make TOTAL contributions because director will save EE NIC and employer will save ER NIC although corporation tax relief on pension contributions is given at lower rate which should not be an issue. Of course under new rules one can make a large single contributions to a Personal Pension Plan to cover the unused Pension contribution limits for previous 3 tax years. One further very important point I would like you to take note is WAIVER ON CONTRIBUTION BENEFIT (WOP), which a good financial adviser would have added at the start of personal pension plan, it can continue even if company contributions replace director's personal contribution. You will need to tick the box for this to continue whilst completing the company's application. This benefit can be worth a lot of money in the event that director is unable to work due to illness, accident or incapacitated until the selected Retirement age say eg 65, and this benefit will kick in and pay contributions after 6 months deferred period (check the policy conditions as in some cases 12 months) until one is able to go back to work. Thus protecting the pension provisions. If there is no WOP benefit in place at present, then this will be a correct opportunity to add it to the plan now, of course subject to the underwriting based on current health. Trust that this helps and clarifies.
Just to add that DOV is now renamed as a IOV (Instrument of Variation). Whilst allocation of funds/estate to surviving spouse is the first suggestion that springs to one's mind, but by so doing you may also loose an opportunity to undertake estate planning on 1st death albeit of small estate. I would not jump to this course of action straight away without giving due consideration to other factors. We are not told some pertinent facts such as the ages of deceased and husband, his health at present, children, make up of estate and value although house is main asset, number of executors etc. An IOV could leave deceased's 50% share in a Trust giving Life interest to husband and other 50% share husband will own in his own right. This way one would have protected at least 50% of house from Local authority's clutches should a need arises for husband to be admitted in a care home. Although no IHT will be saved because on second death value of 50% wife's share will form part of his estate but it will be off set by having two NRBs. There will not be any GWR or Preowned asset charge providing each party pays running costs properly documented. CGT may be an issue but Trustees can rely of an exemption providing husband continues to live in the house until his death. Further care must be taken whilst registering the Trustees co-ownership of 50% at HMLR because many lawyers mess this work by not using correct wording and forms. For this to work the ownership of house will have to be on Tenants in Common basis and it will require suitable Deed of Severance to be prepared, please note this can be done after the death but with suitable wording. With regard to you resigning as an Executor and trustee, I would caution you because there must always be two executors in a Will because property cannot be owned by one executor whilst estate is being administered and also most standard clauses in a Will appoint executors as trustees as well so you will be resigning both positions . Also whether there is a power contained in the Will for executors to appoint additional trustees, if not you may have to make an application to the Court for appointment another executor and trustee . You will need to complete IHT return even though it may be below the limit. I would not do the probate yourself. I would recommend that you seek services of a lawyer of at least 5 or 10 years experience in probate and estate matters preferably a STEP member. Don't be shy of asking the solicitors the experience they have and average high street firm will charge you 185 - 200 per hour for a person with such experience for this work. My estimate will be £1,000 - £1,500 for work. Trust that I have not confused. As an accountant I have worked on these matters and always engaged tax specialists/barristers to draft documents because many solicitors are out of their depth.
If director is claiming tax relief for loan interest paid to his bank against the Interest received from the company then there is no further tax relief would be due.
I would suggest that one should have a proper Loan agreement drawn up between the company and director stating the facts including the Interest rates. Like any bank, I normally secure the loan on the company's assets if the company has other shareholders and directors as well as to state a minimum interest rate which the company will pay on the loan. If the loan is unsecured or secured but with little security by way of assets or company is newly established, then I would charge a 1 or 2% higher margin that the bank is charging to the director. The rationale for this is that in the event that company goes in liquidation, the director will still be required to make repayments to bank and if falls into default te bank could persue the director personally.
Of course the director will have to pay tax on extra interest amount hewill receive from the company. Please note that director will only receive tax relief on loan interest paid to bank if he meets conditions & does not charge interest on his loan to company.
My answers
My understanding is that as a Non-UK resident, your client is ONLY taxable on Income received in the UK i.e. State & Occupational Pensions, Rental Income Bank Interest & Dividends etc. The Total UK Income together with that received from USA will required to be declared in your client's Spanish Tax Return subject to credit given for tax paid in the UK & USA against Spanish tax liability in accordance with the DTA between UK/Spain.
Many thanks to all members who have responded to my query. I would add that the private use of van is not expected to be insignificant and incidental. This is because director may use the van to tow caravan on holidays 5-6 times in a year. Each trip may last one week or longer. Would members consider such usage to be insignificant and incidental?
I have asked client to maintain a log of private journeys so as to enable me to calculate the reductions for periods when Van was not used for private purposes. I note from HMRC guidance that "reductions" are given for periods of at least 30 continuous days that the van is not available to director. It may mean that benefit charge amount will be reduced significantly if periods of private use only add up to say 6 weeks in a tax year.
I would clarify that car is being used for private use.
In calculating the ER NIC and Pension Contributions, HMRC calculator automatically used the Furlough period and Days Worked to be the same whereas monthly paid employees were Flexi furloughed for part of month. Also it made same errors for employees paid on variable hours basis and furloughed for part of month. It was correct for straight forward employees paid monthly fixed hours and furloughed for full month. I used HMRC guidance notes dated 1st July and 10th July to calculate figures.
Further to my earlier posting, I would add that Moneysoft software stopped providing the CJRS calculations facility wef 1st July 2020 and asks you to calculate the claim manually or to use HMRC online calculator. I found that HMRC calculator provided wrong answers for EEs with Flexi Furlough dates in July. I wonder whether other software houses have provided CJRS calculation facility and how members dealt with.
I have read this post and responses with great interest because I am also Moneysoft software user. This issue is specific with Moneysoft. Like many, I have followed the HMRC's original guidance and that provided by experts on AccountingWeb & also ICAEW in not claiming Employment allowance in March to May month until later in year. I made claims for ER NIC as part of CJRS and claimed EA in June.. However HMRC's s updated guidance notes in 12th June and 10th July now state that "When working out how much ER NIC you can claim back from the scheme, you should subtract any EA you have used in that pay period. If you have claimed the EA and you do not have to pay any ER NIC in a pay period, you should not claim for any employer NIC costs through the scheme....... Employers who delay their ER claim and have unused EA available at the end of tax year can use this to reduce other tax costs. ERs who have received grant for ER NIC costs through the scheme should deduct the amount of grant they have received from the amount of EA they have left before they use it, if not doing so would result in receiving relief for the same cost twice. Attempting to get relief for the same costs twice is a fraud and my resilt in claims being investigated". Thus it appears to me that in order to save penalties, one has to repay the ER NIC claimed for previous months by adjusting the ER NIC claim to be made in July. I would be interested to hear views on this.
I have tried to make correction but HMRC online claim page does not allow us to enter negative figure in the box ER NIC. Webchat with HMRC agent didn't provide any solution how to enter negative figure. Any solutions/suggestions would be appreciated. Thanks
Company pension contributions
Further to my previous posting, I would like to add that you should check whether the pension plan has been written in a Trust or a valid and current Nomination form is in place as many financial advisers do not do this. If the insurer company of pension policy allows it, ideally one should use the Individual Distrectinary Trust to write the benefits in a Trust rather than using Insurance company's Master Trust route. The insurance company will provide a standard Trust document for client to use. Of course writing the policy in trust will count as a Life-time Gift for IHT purposes and if the fund value on date of creating trust is below NRB then no Life time charge will become payable and also as a PET.
By so doing you will save your client IHT @ 40% on death. As you are dealing with client's Pension plan and if you as tax advisers do not inform the client about benefits of wriitig the policy in trust, he or she may have a claim against you.
Company pension contributions
I would like to add to what has already been said in the previous responses. In order for a company make a contributions to an Individual personal pension plan there has to be a contractual relationship established between the employer company and Pension provider Insurance company or SIPP else the contributions will be treated as settling director's pecuniary liability for NIC purposes and NIC is payable. This can be easily done by asking Pension provider to issue an application form for employer to complete with Direct Debit Mandate, it will be dangerous to rely on phone call or a letter as one will have to Gross up the payments. Please note that in some cases an employer cannot make contributions to a pension plan, depending on the Pension provider's policy conditions, eg. to a stakeholder pension plan or old style Sec226 Retirement Annuity Contracts. Thus it has to be a Personal Pension Plan. Therefore it is worth checking this with the Pension Provider. Please note that Annual contribution limit will apply to both personal & company contributions and further both director and employer company can make contributions at the same time therefore existing contributions need not stop. However it will be efficient both for Tax & NIC purposes for company to make TOTAL contributions because director will save EE NIC and employer will save ER NIC although corporation tax relief on pension contributions is given at lower rate which should not be an issue. Of course under new rules one can make a large single contributions to a Personal Pension Plan to cover the unused Pension contribution limits for previous 3 tax years. One further very important point I would like you to take note is WAIVER ON CONTRIBUTION BENEFIT (WOP), which a good financial adviser would have added at the start of personal pension plan, it can continue even if company contributions replace director's personal contribution. You will need to tick the box for this to continue whilst completing the company's application. This benefit can be worth a lot of money in the event that director is unable to work due to illness, accident or incapacitated until the selected Retirement age say eg 65, and this benefit will kick in and pay contributions after 6 months deferred period (check the policy conditions as in some cases 12 months) until one is able to go back to work. Thus protecting the pension provisions. If there is no WOP benefit in place at present, then this will be a correct opportunity to add it to the plan now, of course subject to the underwriting based on current health. Trust that this helps and clarifies.
IHT & IOV
Just to add that DOV is now renamed as a IOV (Instrument of Variation). Whilst allocation of funds/estate to surviving spouse is the first suggestion that springs to one's mind, but by so doing you may also loose an opportunity to undertake estate planning on 1st death albeit of small estate. I would not jump to this course of action straight away without giving due consideration to other factors. We are not told some pertinent facts such as the ages of deceased and husband, his health at present, children, make up of estate and value although house is main asset, number of executors etc. An IOV could leave deceased's 50% share in a Trust giving Life interest to husband and other 50% share husband will own in his own right. This way one would have protected at least 50% of house from Local authority's clutches should a need arises for husband to be admitted in a care home. Although no IHT will be saved because on second death value of 50% wife's share will form part of his estate but it will be off set by having two NRBs. There will not be any GWR or Preowned asset charge providing each party pays running costs properly documented. CGT may be an issue but Trustees can rely of an exemption providing husband continues to live in the house until his death. Further care must be taken whilst registering the Trustees co-ownership of 50% at HMLR because many lawyers mess this work by not using correct wording and forms. For this to work the ownership of house will have to be on Tenants in Common basis and it will require suitable Deed of Severance to be prepared, please note this can be done after the death but with suitable wording. With regard to you resigning as an Executor and trustee, I would caution you because there must always be two executors in a Will because property cannot be owned by one executor whilst estate is being administered and also most standard clauses in a Will appoint executors as trustees as well so you will be resigning both positions . Also whether there is a power contained in the Will for executors to appoint additional trustees, if not you may have to make an application to the Court for appointment another executor and trustee . You will need to complete IHT return even though it may be below the limit. I would not do the probate yourself. I would recommend that you seek services of a lawyer of at least 5 or 10 years experience in probate and estate matters preferably a STEP member. Don't be shy of asking the solicitors the experience they have and average high street firm will charge you 185 - 200 per hour for a person with such experience for this work. My estimate will be £1,000 - £1,500 for work. Trust that I have not confused. As an accountant I have worked on these matters and always engaged tax specialists/barristers to draft documents because many solicitors are out of their depth.
Loan Interest
If director is claiming tax relief for loan interest paid to his bank against the Interest received from the company then there is no further tax relief would be due.
Director's loan to company
I would suggest that one should have a proper Loan agreement drawn up between the company and director stating the facts including the Interest rates. Like any bank, I normally secure the loan on the company's assets if the company has other shareholders and directors as well as to state a minimum interest rate which the company will pay on the loan. If the loan is unsecured or secured but with little security by way of assets or company is newly established, then I would charge a 1 or 2% higher margin that the bank is charging to the director. The rationale for this is that in the event that company goes in liquidation, the director will still be required to make repayments to bank and if falls into default te bank could persue the director personally.
Of course the director will have to pay tax on extra interest amount hewill receive from the company. Please note that director will only receive tax relief on loan interest paid to bank if he meets conditions & does not charge interest on his loan to company.