eNews – September 2015
In this month’s eNews we report on how dividends will be taxed from 2016 and changes to ATED reporting requirements and increases in the NMW and the latest target for non compliance. We also update you on HMRC’s latest taskforce target, the new advisory fuel rates and an update on auto enrolment.
Please contact us if you would like further help or advice.
Taxing dividends from April 2016
In the Summer 2015 Budget, George Osborne announced fundamental changes to the way in which dividends are taxed and HMRC have issued a factsheet setting out examples of how the new regime will work.
An extract from the HMRC Factsheet states:
‘From April 2016 you have to apply the new headline rates on the amount of dividends you actually receive, where the income is over £5,000 (excluding any dividend income paid within an ISA).
The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.
Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.’
The changes will affect dividend receipts from 6 April 2016 however those who extract profits from their company as dividends may wish to consider whether to increase dividend payments before this date.
The table below shows a comparison between the current and prospective tax rates.
|Dividend falls into :||Basic rate band||Higher rate band||Additional rate band|
|Effective dividend tax rate now (taking into account notional tax credit)||0%||25%||30.6%|
|Rate from 6 April 2016||7.5%||32.5%||38.1%|
Please contact us if you would like advice on this issue.
Internet link: Factsheet
National Minimum Wage rates and National Living Wage
The National Minimum Wage (NMW) is a minimum amount per hour that most workers in the UK are entitled to be paid. NMW rates increases come into effect on 1 October 2015.
From 1 October 2015:
- the adult rate will increase by 20 pence to £6.70 per hour
- the rate for 18 to 20 year olds will increase by 17 pence to £5.30 per hour
- the rate for 16 to 17 year olds will increase by 8 pence to £3.87 per hour
- the apprentice rate will increase by 57 pence to £3.30 per hour.
Employers also need to be aware that from April 2016, the government will introduce a new mandatory National Living Wage (NLW) for workers aged 25 and above. This will initially be set at £7.20 which is a 50p increase in the adult rate of NMW coming into force in October 2015. This represents an increase of in excess of £1,200 per annum in earnings for a full-time worker on the current NMW.
The NMW will continue to apply for those aged under 25. The government has issued further details of the new NLW policy.
Penalties may be levied on employers where HMRC believe underpayments have occurred and HMRC may ‘name and shame’ non-compliant employers.
Please contact us if you would like help with payroll issues.
ATED updated procedures
Since 2013 a range of measures have been introduced to discourage the holding of residential property in the UK via companies, partnerships and collective investment schemes. In summary, these measures are:
- Stamp Duty Land Tax (SDLT) is payable at 15% on the acquisition on or after 20 March 2014 of properties costing more than £500,000
- an Annual Tax on Dwellings (ATED) applies at a fixed amount depending on value and
- Capital gains tax (CGT) at 28% is payable on a proportion of gains for the period that the property has been subject to ATED.
There are specific reliefs and exemptions for certain types of properties.
Changes in limits
Prior to 1 April 2015 the lower property value threshold for ATED was a value of more than £2m on 1 April 2012, or at acquisition, if later. With effect from 1 April 2015, residential properties valued at more than £1m and up to £2m on 1 April 2012, or at acquisition if later, were brought into the charge.
From 1 April 2016 another new valuation band comes into effect for properties valued at more than £500,000 but less than £1 million.
The threshold for ATED-related CGT disposal consideration has also reduced from £2m to £1m from 6 April 2015 and will further reduce to £500,000 from 6 April 2016.
ATED is reported and the tax paid through an annual return. The return periods run from 1 April to 31 March each year.
Normally an ATED return must be made within 30 days of the date on which the property first comes within the charge to ATED for any chargeable period. Where the property is within the scope of ATED on 1 April each year, the return must be filed by 30 April in the year of charge. Payment of the tax is due with the return.
There is a special rule for properties coming within the scope of ATED from 1 April 2015 under the lower threshold of £1m detailed above. The rule is that returns for the chargeable period beginning 1 April 2015 must be filed by 1 October 2015 if the property was held on 1 April 2015 or within 30 days of acquisition if this is later. Payment of the tax is due 31 October 2015.
The chargeable person must submit an ATED return for any property that is within the scope of ATED for the relevant chargeable period. There are reliefs available which may reduce the liability in part or to zero. However, all claims for reliefs must be made in a new ‘relief declaration return’ and these new returns to claim relief have now been made available.
Returns for properties falling within the lower band of £500,000 are due for the chargeable period 1 April 2016 to 31 March 2017. The normal filing dates apply to properties within this new band. For example, if you hold a property valued at more than £500,000 on 1 April 2016, you must file your return and pay the tax by 30 April 2016.
In addition, a new ‘relief declaration return’ is introduced. Broadly, for each type of ATED relief being claimed, the company can submit a relief declaration return stating that a relief is being claimed in respect of one or more properties held at that time. No details are required of the individual properties or the number of properties eligible. Where a property is acquired in-year which also qualifies for the same type of relief, the existing return is treated as also having been made in respect of that property.
A normal ATED return will still be required in respect of any property which does not qualify or ceases to qualify for a relief i.e. where tax is due.
ATED and the reliefs available are a complex area. Please contact us if you would like specific advice.
HMRC targets wealthy ‘tax cheats’ in Scotland
A taskforce which aims to tackle wealthy ‘tax cheats’ who are living beyond their means in Scotland has been launched by HMRC.
HMRC is identifying individuals with ‘badges of wealth’ such as large houses, investments, aeroplanes, boats and undeclared offshore bank accounts which are not in keeping with the information they report to HMRC.
HMRC expects the taskforce to recover nearly £4.5million. It will bring together specialist officers from across HMRC to identify wealth indicators and cross reference them with the data HMRC holds about their owners.
HMRC’s Michael Connolly, HMRC Taskforce Lead in Scotland, said:
‘HMRC’s intelligence shows that people being targeted by this taskforce have no intention of playing by the rules. They are deliberately failing to declare all their income to HMRC in a crude attempt to line their own pockets, and they will be investigated.
As a result of this behaviour, they could end up facing a heavy fine or even a criminal conviction. Those who pay the tax they are supposed to have nothing to worry about.
Using information we hold, we can target people whose lifestyle does not reflect the tax they are paying. It’s not fair that a small minority are living millionaire lifestyles as a result of not paying the tax they owe.’
Internet link: Press release
Auto enrolment ‘engagement’ and calculation tool
The Pensions Regulator (‘TPR’) has announced that following consultation they will develop a basic automatic enrolment tool. The basic tool should be available to download from TPR’s website by the end of 2015.
TPR consulted earlier this year on proposals to develop a basic tool to support those employers who use HMRC’s Basic PAYE Tools (BPT) to carry out their payroll function. HMRC’s BPT are used by many small employers to calculate PAYE, national insurance contributions and statutory payments such as Statutory Maternity Pay but has no pension function.
According to the TPR approximately 200,000 small and micro employers who use BPT are due to stage over the next two and half years and TPR’s experience indicates that using appropriate software either through payroll or pension provider systems helps employers to comply with their duties.
The majority of consultation responses were supportive of the TPR’s proposal, although some payroll firms and pension schemes were against the regulator developing a new tool.
Executive Director for Automatic Enrolment Charles Counsell said:
‘We will continue to recommend that BPT users consider using software with integrated automatic enrolment functionality, but by developing this basic contribution calculation tool we aim to ensure that BPT users have access to the help they need to support compliance.
The decision to develop a basic tool is recognition that significant numbers of BPT users will not seek a more integrated solution and will attempt manual calculations. This is another example of how The Pensions Regulator seeks to develop new ways to ensure we are meeting the needs of the diverse group of employers due to stage in the coming years.’
TPR has also issued the third edition of ‘Automatic enrolment: Commentary and analysis’, which reports on the impact of automatic enrolment and the increasing participation in workplace pension schemes. The commentary states:
- By March 2015, over 5.2 million workers had been successfully automatically enrolled since the reforms began in 2012, an increase of more than 2.2 million workers from 2014, and 4.2 million from 2013.
- Automatic enrolment is helping to turn around the decade-long decline in pension provision, with 59% of all employees now active members of a pension scheme, compared with just 47% in 2012. This increase suggests that pension saving is now becoming the norm.
- The pensions landscape has been transformed as the majority of people are enrolled into defined contribution schemes. We have witnessed the growth in master trusts – 94% of employers who chose a trust-based scheme opted for a master trust.
- We now expect that significantly more employers will be subject to automatic enrolment duties than originally anticipated, mainly due to an increase in the number of new companies that have started up, and fewer going out of business than was forecast. We have revised the staging profile accordingly, so that it reflects the 1.8 million employers we expect to help through the automatic enrolment process from now until 2018.
If you would like help with your payroll or advice on Pensions Auto Enrolment please contact us.
Advisory fuel rates for company cars
New company car advisory fuel rates have been published which took effect from 1 September 2015. Due to the reduction in fuel prices many rates have reduced this quarter so please take care to update your expenses payments. However, the guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.
The advisory fuel rates for journeys undertaken on or after 1 September 2015 are:
|1400cc or less||11p|
|1401cc – 2000cc||14p|
|1400cc or less||7p|
|1401cc – 2000cc||9p|
|1600cc or less||9p|
|1601cc – 2000cc||11p|
Other points to be aware of about the advisory fuel rates:
- Employers do not need a dispensation to use these rates. Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
- The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.
If you would like to discuss your car policy, please contact us.
Internet link: Advisory fuel rates