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Newsletter – August 2015

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Enews – August 2015

In this month’s eNews we report on HMRC’s time to pay arrangements, the launch of Tax-Free Childcare, the latest NMW campaign and changes to the rules for farmers averaging of profits. We also report on the introduction of the Alcohol Wholesaler Registration Scheme and TPR guidance on pension schemes for auto enrolment.

Please do contact us for further advice.

Tax-Free Childcare to launch in 2017 following court ruling

Time to Pay Arrangements – Mandatory Direct Debit

NMW campaign targets hair and beauty sector

Latest job market statistics

Alcohol Wholesaler Registration Scheme

Farmers Averaging of Profits

Pension Schemes for Auto Enrolment

Tax-Free Childcare to launch in 2017 following court ruling

The government has welcomed a judgment from the Supreme Court that found the proposals for delivering Tax-Free Childcare to be lawful. The new Tax-Free Childcare Scheme was being challenged by some of the providers of the childcare vouchers typically used in the current Employer Supported Childcare arrangements.

The scheme is now expected to launch from early 2017. The existing EmployerSupported Childcare scheme will remain open to new entrants until Tax-Free Childcare is launched.

Exchequer Secretary to the Treasury, Damian Hinds said:

‘We are pleased that the government’s proposals for delivering Tax-Free Childcare have been found to be clearly lawful. This government is absolutely clear on the importance of supporting families with their childcare costs.’

‘It is disappointing that some organisations involved in the existing scheme felt the need to take and persist in this costly and wasteful course of action, which has led to a delay in the launch of Tax-Free Childcare.’

If you would like advice on Employer Supported Childcare please contact us.

Internet link: GOV.UK news

Time to Pay Arrangements – Mandatory Direct Debit

Where a taxpayer has difficulty paying their tax liabilities HMRC may agree ‘time to pay arrangements’ whereby the taxpayer agrees to pay off the amount owing by instalments after the due date. These arrangements are only entered into where the taxpayer is genuinely unable to pay by the due date and is able to commit to agreed payments to bring their tax up to date.

HMRC have announced that where time to pay arrangements are agreed the payments will need to be made by Direct Debit. This has always been HMRC’s preferred method of collection but this became mandatory from 3 August 2015.

However, HMRC do state that:

‘We recognise that there will be exceptional circumstances where a customer is unable to set up a direct debit, perhaps because their bank account will not allow it. In such cases payment by other methods may be agreed.’

Internet link: GOV.UK blog

NMW campaign targets hair and beauty sector

HMRC are targeting employers in the hairdressing and beauty sectors who pay their staff below the national minimum wage (NMW).

HMRC and the Department for Business, Innovation and Skills (BIS), supported by the National Hairdressers’ Federation and the Hair and Beauty Industry Authority, will work with hair and beauty businesses to help them understand their pay obligations to their employees.

In a new approach HMRC will provide employers with tools and guidance to check if they are paying the correct amount.

Employers who take this opportunity to ‘self-correct’ will not have to pay penalties, nor will they be ‘named and shamed’. If employers choose not to comply with their NMW obligations, HMRC will take action to ensure that employees are paid what they are owed.

As detailed in the press release ‘BIS analysis shows that 42% of businesses in the sector do not pay level 2 and level 3 apprentices the correct minimum wage – the highest underpayment rate of any sector. Those paying under the minimum wage now have a chance to put things right. If they fail to do so it could result in their business being publicly ‘named and shamed’ and facing a fine of up to £20,000 per employee.’

Jennie Granger, HMRC Director General of Enforcement and Compliance, said:

‘This innovative campaign is about helping employees who have been underpaid get the money they are legally due back into their pockets. It will help them understand where they can report underpaying employers confidentially.

It is also about helping employers check if they are making mistakes, and self-correct if they are. Some employers will need a bit of a reminder to check they are getting it right, and some will need stronger action from us, so we are bringing in more enforcement officers to support this campaign.

I urge all employers and employees in the sector to check that salary is being paid correctly, as we will use these extra resources to find and investigate where it is not. Check you’re paying NMW correctly – it’s worth it.’

Employers in the hair and beauty sector are being asked to come forward as part of the National Minimum Wage Campaign by:

  • advising HMRC they want to take part in the campaign
  • disclosing details of arrears now paid to their workers and confirming that wages worth at least the NMW are now paid to all workers.

If you would like help with NMW issues please contact us.

Internet link: GOV.UK nmw campaign

Latest job market statistics

The Office for National Statistics (ONS) has released figures showing that the UK employment rate has dropped by 67,000 when compared to the three months to February 2015. As detailed in the press release the figures show:

  • There were 30.98 million people in work. This was 67,000 fewer than for the 3 months to February 2015, the first quarterly fall since February to April 2013. Comparing March to May 2015 with a year earlier, there were 265,000 more people in work (272,000 more people working full-time and 7,000 fewer people working part-time).
  • The proportion of people aged from 16 to 64 in work (the employment rate) was 73.3%, little changed compared with the 3 months to February 2015 but higher than for a year earlier (72.9%).
  • There were 1.85 million unemployed people. This was 15,000 more than for the 3 months to February 2015, the first quarterly increase since January to March 2013. Comparing March to May 2015 with a year earlier, there were 273,000 fewer unemployed people.
  • The proportion of the economically active population who were unemployed (the unemployment rate) was 5.6%, little changed compared with the 3 months to February 2015 but lower than for a year earlier (6.5%). Economically active people are those in work plus those seeking and available to work.
  • There were 9.02 million people aged from 16 to 64 who were out of work and not seeking or available to work (known as economically inactive), 30,000 more than for the 3 months to February 2015 and 104,000 more than for a year earlier.
  • The proportion of people aged from 16 to 64 who were economically inactive (the inactivity rate) was 22.2%, little changed compared with the 3 months to February 2015 but higher than for a year earlier (22.0%).
  • Comparing March to May 2015 with a year earlier, pay for employees in Great Britain increased by 3.2% including bonuses and by 2.8% excluding bonuses.

Internet link: ONS

 

Alcohol Wholesaler Registration Scheme

The Alcohol Wholesaler Registration Scheme (AWRS) is being introduced on 1 October 2015 by HMRC to tackle alcohol fraud. HMRC are advising that if you are an alcohol wholesaler or trade buyer, you need to prepare for the new registration scheme now.

Who the scheme applies to

HMRC are advising that the AWRS will apply to existing, and new, wholesalers of alcohol, trading at or after the point at which excise duty has become payable. In addition all businesses that trade in or retail alcohol will in future need to make sure that any UK wholesalers that they buy from are registered with HMRC. The types of business who will be affected include:

  • alcohol wholesalers
  • brokers
  • auctioneers
  • alcohol retailers.

The scheme will not apply to private individuals purchasing alcohol from retailers.

HMRC are advising that:

  • from 1 October 2015, all alcohol wholesalers must apply online to HMRC to register for AWRS
  • from 1 January 2016 HMRC will start to review all AWRS applications to decide whether businesses are ‘fit and proper’ to be accepted onto the register. Where a business fails the ‘fit and proper’ test, HMRC will remove its right to trade in wholesale alcohol
  • from 1 April 2017, all businesses that trade in, or retail, alcohol will need to make sure that any UK wholesalers that they buy from are registered with HMRC. HMRC will provide an online look up service so that trade buyers can ensure wholesalers they buy from are registered with HMRC.

Internet link: GOV.UK AWRS

Farmers Averaging of Profits

It was announced in the March 2015 Budget that the government plans to extend the period over which self-employed farmers can average their profits for income tax purposes from two years to five years. The government has launched a consultation which considers ways in which the extension could be designed and implemented.

The change to the averaging rules is expected to come into effect from 6 April 2016.

Internet link: GOV.UK farmers averaging

Pension Schemes for Auto Enrolment

The Pensions Regulator (TPR) has published some guidance aimed at the 1.3 million small and micro employers who are preparing for pensions auto enrolment. The guidance aims to help employers find a good quality pension scheme. TPR research suggests one in five (290,000) employers will not seek advice when choosing a pension scheme, while one in ten (130,000) do not know how to select a scheme, or think it will be difficult.

The information includes details of a list of ‘master trust’ pension schemes open to employers of all sizes, and which have been independently reviewed to help to demonstrate that they are administered to a high standard.

TPR have also made available a quick guide for small and micro employers on what to look out for when choosing a scheme suited to their needs. They have also updated their webpage guidance to advisors.

Lesley Titcomb, chief executive of The Pensions Regulator, said:

‘I strongly believe that the vast majority of the 1.3 million small and micro employers approaching automatic enrolment want to do the right thing. However, many will choose not to seek advice and will need additional support to meet their duties.

We are committed to providing them with the information they need to make confident choices when it comes to choosing a quality scheme for their employees.’

If you would like help complying with your auto enrolment duties please do get in touch.

Internet link:Press release

 

Newsletter – July 2015

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eNews – July 2015

In this month’s eNews we report on highlights of the Summer Budget. We also include an update on PAYE penalties, the latest jobs market statistics and the latest information on claiming the marriage allowance.

Please do contact us for further advice.

Budget announcements

Changes for ‘Buy to Let’ Landlords

Annual Investment Allowance certainty

The family home and IHT

National Living Wage

PAYE late filing penalties

Claiming the marriage allowance

Phishing emails HMRC examples

HMRC checking employees have paid the correct amount of tax on their pay

Statistics show employment rise in 2015

Budget announcements

George Osborne delivered his second budget of the year on 8 July 2015. Following the general election in May this was the first full Conservative budget since 1996. The budget focussed on reducing the budget deficit and moving from a ‘low wage, high tax, high welfare economy’ to a ‘higher wage, lower tax, lower welfare country.’ Brief details of some of the more significant proposals are set out below. Please contact us if you would like any further information on any of the issues.

Internet link: GOV Summer Budget

Changes for ‘Buy to Let’ Landlords

It was announced in the Budget that the government will restrict the amount of income tax relief landlords can claim on residential property mortgage interest costs to the basic rate of income tax.

This means that landlords will no longer be able to deduct all of their finance costs from their property income. They will instead be restricted to the basic rate. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.

This restriction will not apply to landlords of furnished holiday lettings and will not impact on basic rate tax paying landlords.

From April 2016 the government will replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings.

Internet link: TIIN landlords

Annual Investment Allowance certainty

The Chancellor announced that Annual Investment Allowance will be set permanently at £200,000 from 1 January 2016 providing certainty for businesses. The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business, up to an annual limit and is available to most businesses.

The AIA was increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses until 31 December 2015. However it was due to reduce to £25,000 after this date. The level of the maximum AIA will now be set permanently at £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.

Where a business has a chargeable period which spans 1 January 2016 there are transitional rules for calculating the maximum AIA for that period and there will be two important elements to the calculations:

  • a calculation which sets the maximum AIA available to a business in an accounting period which straddles 1 January 2016
  • a further calculation which limits the maximum AIA relief that will be available for expenditure incurred from 1 January 2016 to the end of that accounting period.

It is the second figure that can catch a business out as demonstrated by the following example:

If a company has a 31 March year end then the maximum AIA in the accounting periods to 31 March 2016 will be:

9 months to December 2015 three quarters of £500,000 £375,000
3 months from January 2016 one quarter of £200,000 £50,000
Total annual AIA using first calculation £425,000

This is still a generous figure. However if expenditure is incurred between 1 January and 31 March 2016 the maximum amount of relief for will only be £50,000. This is because of the restrictive nature of the second calculation. Alternatively, the business could defer its expenditure until after 31 March 2016. In the accounting period to 31 March 2017, AIA will be £200,000. However tax relief will have been deferred for a full year.

Please contact us for specific advice for your business.

Internet link: TIIN AIA

The family home and IHT

The government has announced the introduction of a new transferrable nil rate band for the family home. The additional band will apply where a residence is passed on death to direct descendants such as a child or a grandchild. This will initially be £100,000 in 2017/18, rising to £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21. The additional band can only be used in respect of one residential property which has, at some point, been a residence of the deceased.

The allowance is in addition to the inheritance tax nil rate band which is currently set at £325,000. By 2020/21 the total individual nil rate band will therefore total £500,000.

Any unused nil rate band may be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil rate band, are passed on death to direct descendants. This element will be the subject of a technical consultation and will be legislated for in Finance Bill 2016.

There will also be a tapered withdrawal of the additional nil rate band for estates with a net value (after deducting any liabilities but before reliefs and exemptions) of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The IHT nil rate band is currently frozen at £325,000 until April 2018. This is to remain frozen until April 2021.

Internet link: TIIN IHT

National Living Wage

The government has announced the introduction of a new National Living Wage (NLW) for working people aged 25 years and above. The NLW will introduce a premium on top of the national minimum wage (NMW). Initially the premium is set at 70p above the current NMW although this will fall to a premium of 50p when the NMW increase comes into effect in October 2015. Further increases are to be recommended by the Low Pay Commission in order to achieve the government’s objective of reaching 60% of median earnings by 2020.

John Cridland, Director-General of the CBI, commented:

‘Small shops, hospitality firms and care providers are the businesses that will face real challenges in affording the National Living Wage.’

‘Delivering higher wages can only be done sustainably by boosting productivity. Bringing politics into the Low Pay Commission is a bad idea.’

Internet link: CBI press release

PAYE late filing penalties

HMRC have now issued the first in-year penalties notices to employers with fewer than 50 employees who missed the deadline for sending PAYE information to HMRC.

Rather than issue late filing penalties automatically when a deadline is missed, HMRC have announced that they will ‘take a more proportionate approach and concentrate on the more serious defaults on a risk-assessed basis.’

This approach is in line with the likely direction of HMRC’s general approach to penalties, outlined in the HMRC penalties: a discussion document which they issued earlier this year. HMRC have confirmed that this ‘risk-based’ approach will apply to submissions that were late from:

  • 6 March 2015 for employers with fewer than 50 employees; and
  • 6 January 2015 for employers with 50 or more employees.

Penalties for 2015/16 will also continue to be risk-based.

HMRC had previously announced that they will not be penalising minor delays of up to three days.

HMRC are reminding employers:

‘Even if employers do not get a penalty, they are required by law to file on time and if they do not may be charged a penalty on a future occasion. The deadlines for sending PAYE information stay the same, including the requirement to send PAYE information on or before the time that employees are actually paid or due to be paid.’

HMRC have confirmed the process employers should use to appeal a penalty using the using the Penalties and Appeals System (PAS) on HMRC Online. Employers who receive a late filing penalty notice for tax year 2014/15 quarter 4 but who filed within three days of the reporting deadline may appeal and should use reason code A as set out in the What happens if you don’t report payroll information on time guidance.

Please contact us if you would like help with your payroll.

Internet link: GOV news

Claiming the marriage allowance

The Low Incomes Tax Reform Group published updated their guidance on how to apply for the new transferable personal allowance, known as the marriage allowance, for married couples and civil partners which came into effect on 6 April 2015.

The transfer of part of the personal allowance between spouses (or civil partners) allows eligible couples to save up to £212 tax in a year.

The marriage allowance enables an individual whose income does not allow them to make use of their full personal allowance, currently £10,600, to transfer 10% (£1,060) of this allowance to their partner. Their spouse or civil partner is then able to set their own personal allowance, plus the transferred part of their partner’s allowance, against their own income. This increase in usable allowances should result in a tax saving of up to £212 in a year for a couple (20% of £1,060).

The transfer can only be made if the spouse or civil partner who receives the transferred allowance is not a higher-rate taxpayer (meaning that in 2015/16 they have an income of more than £42,385.

Currently an individual can only claim to transfer the marriage allowance to their partner by registering online via GOV.UK. The individual will then be prompted to use GOV.UK’s Verify procedure to confirm their identity which requires the individual to have a UK passport or driving licence. A phone option is also available If the individual is unable to confirm their identity using Verify they will be advised to call HMRC’s PAYE helpline on 0300 200 3300.

Internet link: News

Phishing emails HMRC examples

HMRC have updated their list of examples of emails, letters, text messages and bogus calls used by ‘scammers’ and fraudsters to get taxpayers personal information.

This guidance provides examples of the different methods that fraudsters use to obtain personal information.

Internet links: Examples GOV news

HMRC checking employees have paid the correct amount of tax on their pay

HMRC have started to check that people have paid the right amount of tax in 2014/15, a process they refer to as the annual End of Year Reconciliation process.

They will be sending out forms P800 first which show details of the calculation showing the under or over payment. However, where an overpayment of PAYE has been made they should issue the cheque approximately two weeks later. For those who have underpaid tax for the year the P800 will detail how this tax will be collected, generally by adjustment of the PAYE tax code for 2016/17.

HMRC’s press release states:

‘This automated process ensures those who have had a change in circumstances during the last tax year (2014/15) that was not captured in their tax code have paid no more or less than they should. Any discrepancy could be because the taxpayer changed jobs, had more than one job for a time, a change of company car or received investment income that was not reported during the year.’

Where HMRC’s calculations show that the correct amount of tax has been paid for the year HMRC will not contact the individuals concerned. HMRC expect that the vast majority of PAYE taxpayers will have paid the right amount of tax for the year.

If you would like help reconciling your tax position please do get in touch.

Internet links: GOV news Understanding and checking your P800 Tax Calculation

Statistics show employment rise in 2015

The Office for National Statistics (ONS) has released figures showing that UK employment rates were up between February and April compared to the three months to January 2015. As detailed in the press release the figures show:

  • ‘There were 31.05 million people in work, 114,000 more than for the 3 months to January 2015 and 424,000 more than for a year earlier.
  • There were 22.74 million people working full-time, 362,000 more than for a year earlier. There were 8.31 million people working part-time, 63,000 more than for a year earlier.
  • The proportion of people aged from 16 to 64 in work (the employment rate) was 73.4%, up slightly from the 3 months to January 2015 (73.3%) and higher than for a year earlier (72.7%).
  • There were 1.81 million unemployed people. This was 43,000 fewer than for the 3 months to January 2015 and 349,000 fewer than for a year earlier.
  • Comparing February to April 2015 with a year earlier, pay for employees in Great Britain increased by 2.7% both including and excluding bonuses.’

Employment Minister Priti Patel said: ‘Today’s figures confirm that our long-term economic plan is already starting to deliver a better, more prosperous future for the whole of the country, with wages rising, more people finding jobs and more women in work than ever before’.

Neil Carberry, CBI Director for Employment and Skills, said:

‘These figures provide more evidence that the wage squeeze has eased, with private sector pay increasing almost as fast as it was before the crisis. At the same time, firms are creating more jobs.’

‘If we are to deliver sustainable higher wage growth, we need to see a rise in productivity. That means businesses investing in skills, and the Government helping firms innovate by supporting investment in next month’s Budget.’

‘These figures are testament to the strength of our flexible labour market, which has helped British firms create a strong number of permanent full-time jobs.’

Internet links: ONS bulletin Press release

The Second Budget 2015 – An Overview

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The Second Budget 2015

George Osborne presented the first Budget of this Parliament on Wednesday 8 July 2015. The speech set out his plans for the next five years ‘to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower welfare country we intend to create’.

Main Budget tax proposals

  • New taxation system for dividend receipts for individuals.
  • Proposals to restrict interest relief for ‘buy to let’ landlords.
  • Extension to the inheritance tax nil rate band available.

Other tax changes

  • An announcement of the amount of the Annual Investment Allowance available to businesses from January 2016.
  • Removal of the tax relief available on the acquisition of goodwill and customer related intangibles.
  • An increase in the amount of the NIC Employment Allowance.

The government also announced a number of changes to tax credits and Universal Credit as part of the welfare reforms aimed at reducing the growing expenditure in this area.

Our summary focuses on the tax issues likely to affect you, your family and your business. To help you decipher what was announced we have included our own comments.

If you have any questions please do not hesitate to contact us for advice.

The Budget proposals may be subject to amendment in a Finance Act. You should contact us before taking any action as a result of the contents of this summary.

 

Personal Tax

The personal allowance for 2015/16

For those born after 5 April 1938 the personal allowance is £10,600. For those born before 6 April 1938 the personal allowance remains at £10,660. The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200.

Commitments to increase the personal allowance

The Chancellor announced that the personal allowance will be increased to £11,000 for 2016/17 and to £11,200 in 2017/18. These allowances are higher than those previously announced in the March Budget.

Legislation to ensure a tax-free minimum wage

The government has an objective to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament.

The government has announced that the personal allowance will automatically increase in line with the equivalent of 30 hours a week at the adult rate of the national minimum wage once the personal allowance reaches £12,500.

Tax bands and rates for 2015/16

The basic rate of tax is currently 20%. The band of income taxable at this rate is £31,785 so that the threshold at which the 40% band applies is £42,385 for those who are entitled to the full basic personal allowance.

The additional rate of tax of 45% is payable on taxable income above £150,000.

Currently dividend income is taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. Where income exceeds £150,000, dividends are taxed at 37.5%. Dividend income is deemed to be paid net of a notional 10% tax credit.

Some individuals qualify for the 0% starting rate of tax on savings income up to £5,000. The rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

Commitment to increase the 40% income tax threshold

The Chancellor announced that the basic rate limit will be increased to £32,000 for 2016/17 and to £32,400 for 2017/18.

The higher rate threshold will rise to £43,000 in 2016/17 and £43,600 in 2017/18 for those entitled to the full personal allowance.

Personal Savings Allowance

The Chancellor announced in the March Budget that legislation will be introduced in a future Finance Bill to apply a Personal Savings Allowance to income such as bank and building society interest from 6 April 2016.

The Personal Savings Allowance will apply for up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income each year. The Personal Savings Allowance will not be available for additional rate taxpayers.

Dividend Tax Allowance and rates of tax

The government will abolish the dividend tax credit from 6 April 2016 and introduce a new Dividend Tax Allowance of £5,000 a year.

The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. While these rates remain below the main rates of income tax, those who receive significant dividend income, for example as a result of receiving dividends through a close company, will pay more.

Comment

The government expects these changes to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities.

The government also gives an example of a person who receives significant dividend income ‘due to very large shareholdings (typically more than £140,000)’ having to pay a higher rate of tax. It is unclear what this means.

Individual Savings Accounts (ISAs)

In 2015/16 the overall ISA savings limit is £15,240.

From 6 April 2016 the government will introduce the Innovative Finance ISA, for loans arranged via a peer to peer (P2P) platform. A public consultation has been launched on whether to extend the list of ISA eligible investments to include debt securities and equity offered via a crowd funding platform.

It was announced in the March Budget that regulations would be introduced in autumn 2015, following consultation on technical detail, to enable ISA savers to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription limit for that year. This change will have effect from 6 April 2016.

Help to Buy ISA

The government announced the introduction of a new type of ISA in the March Budget, the Help to Buy ISA, which will provide a tax free savings account for first time buyers wishing to save for a home.

The scheme will provide a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.

The government has now announced that Help to Buy ISAs will be available for first time buyers to start saving into from 1 December 2015. First time buyers will be able to open their Help to Buy ISA accounts with an additional one off deposit of £1,000.

Tax-Free Childcare scheme

The Tax-Free Childcare scheme will provide relief for 20% of the costs of childcare. The maximum relief will be £2,000 per child per year or £4,000 for disabled children. The scheme was scheduled to be launched in autumn 2015 but the launch date has been deferred to early 2017.

The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until the new scheme is available.

Employers’ workplace nurseries won’t be affected by the introduction of Tax-Free Childcare.

Comment

The scheme has been delayed due to a court case taken by some childcare voucher providers. The legal issues have now been resolved in favour of the government. So those people who are unable to use the current employer supported childcare scheme, such as the self-employed, will have to wait a bit longer to get support with childcare costs.

Free childcare

From September 2017 the free childcare entitlement will be doubled from 15 hours to 30 hours a week for working parents of 3 and 4 year olds. The government will implement this extension of free hours early in some local areas from September 2016. This free childcare is worth around £5,000 a year per child.

Restricting loan interest relief for ‘buy to let’ landlords

The government will restrict the amount of income tax relief landlords can get on residential property finance costs to the basic rate of income tax. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for their finance costs. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.

The restriction in the relief will be phased in as follows:

  • in 2017/18, the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

This restriction will not apply to landlords of furnished holiday lettings.

Comment

The restrictions on loan interest will be an unwelcome development for landlords paying higher or additional rate of tax. For many investors, the restriction on loan interest relief will materially alter their attitude to the amount of debt taken on.

Other changes to property taxation

From April 2016 the government will:

  • replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets.
  • increase the level of Rent-a-Room relief from £4,250 to £7,500 per annum.

Pensions – restriction on tax relief

The Annual Allowance provides an annual limit on tax relieved pension savings. It is currently £40,000. From April 2016 the government will introduce a taper to the Annual Allowance for those with adjusted annual incomes, including their own and employer’s pension contributions, over £150,000. For every £2 of adjusted income over £150,000, an individual’s Annual Allowance will be reduced by £1, down to a minimum of £10,000.

The government also wants to make sure that the right incentives are in place to encourage saving into pensions in the longer term. The government is therefore consulting on whether there is a case for reforming pensions tax relief.

 

Business Tax

Corporation tax rates

From 1 April 2015 the main rate of corporation tax is 20% and it is proposed that this rate will continue for the Financial Year beginning on 1 April 2016. The main rate of corporation tax will then be reduced as follows:

  • 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019
  • 18% for the Financial Year beginning on 1 April 2020.

Annual Investment Allowance (AIA)

The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business, up to an annual limit and is available to most businesses.

The maximum amount of the AIA was increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses until 31 December 2015. However it was due to return to £25,000 after this date. The level of the maximum AIA will now be set permanently at £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.

Where a business has a chargeable period which spans 1 January 2016 there are transitional rules for calculating the maximum AIA for that period. The maximum amount for the transitional period is the total of the time apportioned maximum AIA of £500,000 from the start of the chargeable period to 31 December 2015 plus the time apportioned maximum AIA of £200,000 from 1 January 2016 to the end of the chargeable period. However any AIA available on expenditure in the second period would be limited to the time apportioned maximum in that period.

Corporation tax relief for business goodwill

Where a company acquires goodwill or intangible assets, which are recognised in the accounts, a corporation tax deduction is available for the charge to profit and loss when the assets are written off. This deduction is only available on the acquisition of a business and not on the acquisition of shares in a company.

For acquisitions of goodwill and customer related intangibles made on or after 8 July 2015 this relief will no longer be available. In addition, there will be restrictions on the treatment of any allowable losses realised on subsequent disposals of goodwill or customer related intangibles which were acquired on or after 8 July 2015. There are no restrictions where a profit is made on a subsequent disposal.

Corporation tax payment dates

The government will introduce earlier dates for the payment of corporation tax for larger companies and groups, for accounting periods starting on or after 1 April 2017. For companies with annual taxable profits of £20 million or more, tax will be payable in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period. For groups the threshold is divided by the number of companies in the group.

Tax-advantaged venture capital schemes

This Budget also announces that the government will make amendments to the tax-advantaged venture capital schemes to ensure that the UK continues to offer significant and well-targeted support for investment into small and growing companies, with a particular focus on innovative companies.

 

Capital Taxes

Capital gains tax (CGT) rates and annual exemption

No changes have been announced in respect of CGT rates or the annual exemption.

Inheritance tax (IHT) nil rate band

The IHT nil rate band is currently frozen at £325,000 until April 2018. This is to remain frozen until April 2021.

IHT and the main residence nil rate band

An additional nil rate band is to be introduced where a residence is passed on death to direct descendants such as a child or a grandchild. This will initially be £100,000 in 2017/18, rising to £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21. It will then increase in line with CPI from 2021/22 onwards. The additional band can only be used in respect of one residential property which has, at some point, been a residence of the deceased.

Any unused nil rate band may be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil rate band, are passed on death to direct descendants. This element will be the subject of a technical consultation and will be legislated for in Finance Bill 2016.

There will also be a tapered withdrawal of the additional nil rate band for estates with a net value (after deducting any liabilities but before reliefs and exemptions) of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The current tax position of the non UK domicile

A UK resident and domiciled individual is taxed on worldwide income and gains. Non UK domiciles who are UK resident are currently able to claim the remittance basis of taxation in respect of foreign income and gains. This means that they are only taxed if foreign income and gains are brought into the UK. The non UK domicile is also favourably treated for IHT as they only pay IHT in respect of UK assets as opposed to their worldwide assets.

New proposals for non UK domiciles

The government intends to abolish non UK domicile status for certain long term residents from April 2017. This will only apply where an individual has been resident for at least 15 out of the last 20 tax years. Such individuals will be treated as deemed UK domicile for all tax purposes.

In addition, those who had a domicile in the UK at the date of their birth will revert to having a UK domicile for tax purposes whenever they are resident in the UK, even if under general law they have acquired a domicile in another country.

UK residential property held indirectly by non UK domicile persons

The government will legislate to ensure that, from April 2017, IHT is payable on all UK residential property owned by non UK domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure such as a trust or partnership.

 

Other Matters

Tax lock

The government will legislate to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and employer and employee Class 1 NIC rates, ensuring that they cannot rise above their current levels. The tax lock will also ensure that the NIC Upper Earnings Limit cannot rise above the income tax higher rate threshold and will prevent the relevant statutory provisions being used to remove any items from the zero rate of VAT and reduced rate of VAT for the duration of this Parliament.

National Living Wage

The government will introduce a new National Living Wage (NLW) for workers aged 25 and above, by introducing a premium on top of the National Minimum Wage (NMW). From April 2016, the NLW will be set at £7.20 an hour. This rate is 70p higher than the current NMW rate, and 50p above the NMW increase coming into effect in October 2015.

Employment allowance

From April 2016, the government will increase the NIC Employment Allowance from £2,000 to £3,000 a year. The increase will mean that businesses will be able to employ four workers full time on the new National Living Wage (NLW) without paying any NIC.

To ensure that the NIC Employment Allowance is focussed on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.

Tax avoidance

A raft of HMRC compliance initiatives are to be launched over the next few years. To quote the Chancellor:

‘We’re boosting HMRC’s capacity with three quarters of a billion pounds of investment to go after tax fraud, offshore trusts and the businesses of the hidden economy, tripling the number of wealthy evaders they pursue for prosecution – raising £7.2 billion in extra tax.’

Tax credits

A number of changes to tax credits and Universal Credit are announced as part of the welfare reforms aimed at reducing the growing expenditure in this area.

Key changes include:

  • From April 2016 the government will reduce the level of earnings at which a household’s tax credits and Universal Credit award starts to be withdrawn for every extra pound earned. There will also be an increase in the taper rate which applies to any excess income further reducing the tax credit award.
  • Limiting the Child Element of both tax credits and Universal Credit to two children so that any subsequent children born after April 2017 will not be eligible for further support. Some claimants will be protected from these changes.
  • Those starting a family after April 2017 will not be eligible for the Family Element in tax credits and equivalent in Universal Credit.

In addition tax credit allowances (with the exception of disability elements) will be frozen

Newsletter – June 2015

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eNews – June 2015

In this month’s eNews we report on a number of issues including the announcement of the date of the Summer Budget and the latest advisory fuel rates for company car drivers.

We also report on guidance issued to charities on VAT reclaims and payroll processing together with the end of the paper counterpart to the photo driving licence.

Please contact us if you would like further information.

Government announces date of Summer Budget

65+ Guaranteed Growth Bonds a success

HMRC issue guidance on VAT reclaims by qualifying charities

HMRC payroll guidance – harvest casuals and casual beaters

Driving licence paper counterpart no longer valid

Advisory fuel rates for company cars

Government announces date of Summer Budget

The Chancellor of the Exchequer George Osborne has announced that there will be a Summer Budget on Wednesday 8 July 2015.

Mr Osborne admitted that it was unusual to deliver two budgets in one year, but said he didn’t want to wait to ‘deliver on the commitments we have made to working people’.

‘It will continue with the balanced plan we have to deal with our debts, invest in our health service and reform welfare to make work pay.’

‘But there will also be a laser-like focus on making our economy more productive so we raise living standards across our country’ he added.

We will keep you informed of the pertinent Budget announcements.

Internet links: GOV.UK news BBC news

65+ Guaranteed Growth Bonds a success

HM Treasury has announced that the National Savings and Investments 65+ Guaranteed Growth Bonds have been bought by more than a million older savers, who made total investments of over £13 billion. These investment figures make the product the best-selling retail financial product in Britain’s modern history.

The ‘65+ Guaranteed Growth Bonds’ from National Savings and Investments went on sale in January 2015 and offered savers aged 65 and over an opportunity to boost the return on their savings by investing up to £10,000 per bond at fixed annual interest rates of 2.8% for one year bonds and 4% for three year bonds.

The Bonds are no longer available to purchase with the investment window closing on 15 May 2015.

Internet link: GOV.UK news

HMRC issue guidance on VAT reclaims by qualifying charities

HMRC have issued guidance on VAT reclaims by ‘qualifying charities’ under recent changes to the rules. ‘Qualifying charities’ for this purpose are those concerned with palliative care, air ambulance, search and rescue and medical courier charities.

The guidance details which charities are eligible to use the refund scheme to claim a refund of VAT incurred on goods and services used for their non-business activities. It also covers issues such as what to do when circumstances change, what falls within the scope of the refund scheme and how charities can make a claim.

If you would like any guidance on this or any other VAT or charity issue please do get in touch.

Internet link: GOV.UK news

HMRC payroll guidance – harvest casuals and casual beaters

HMRC have issued useful guidance for those employers who pay casual employees working outdoors harvesting perishable crops, or as casual beaters for a shoot.

The guidance outlines the specific circumstances which must apply in order for these employees to be paid without the deduction of tax. The guidance also stresses that their pay is still taxable income and these employees must ensure that any tax due is paid.

Monthly penalties (of between £100 and £400 depending on the size of the employer) now apply to broadly all employers who fail to submit necessary information to HMRC via the Full Payment Submission (FPS) on or before the time wages are paid to employees. It is therefore important that the rules are complied with and returns are submitted on a timely basis.

Please contact us if you would like help with payroll issues.

Internet links: GOV.UK news GOV.UK late return penalties

Driving licence paper counterpart no longer valid

The Driving and Vehicle Licensing Agency has announced that with effect from 8 June 2015 the paper counterpart to the photocard driving licence will not be valid and will no longer be issued. The paper counterpart was introduced to display driving licence details that could not be included on the photocard. These additional details include whether the licence holder is entitled to drive some additional vehicle categories and any endorsement/penalty points. The DVLA is advising that the paper counterpart should be destroyed after 8 June 2015. Licence holders still need to keep their current photocard driving licence.

Those with apaper driving licence (issued before the photocard was introduced in 1998) need to be aware that these licences will remain valid and should not be destroyed. However where a licence holder needs to update their licence photocard licences will be issued.

From 8 June 2015 new endorsements will be recorded electronically, and will not be printed or written on either photocard licences or paper driving licences.

This means that from 8 June 2015 neither the photocard driving licence nor the paper licence will provide an accurate account of any driving endorsements a licence holder may have. This information will instead be held on DVLA’s driver record, and can be checkedonline, by phone or post.

This change does not affect photocard licences issued by DVA in Northern Ireland.

Internet link: GOV.UK news

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 June 2015. Please take care to update your expenses payments and note that only some rates have been amended. 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 June 2015 are:

Engine size Petrol
1400cc or less 12p
1401cc – 2000cc 14p
Over 2000cc 21p

 

Engine size LPG
1400cc or less 8p
1401cc – 2000cc 9p
Over 2000cc 14p

 

Engine size Diesel
1600cc or less 10p
1601cc – 2000cc 12p
Over 2000cc 14p

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

Newsletter – May 2015

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May 2015 Enews

In this month’s eNews we report on a number of issues including recent warnings over pension scams, guidance on the things to avoid when completing forms P11D and the latest labour market statistics. We also include links to the latest Pensions Regulator auto enrolment guidance for employers with no workers and the updated VAT fuel scale charge rates.

Please contact us if you would like further information.

Parliamentary processes

Latest labour market statistics

Warning over pension scams

TPR guidance for small employers with no ‘staff’

Lack of awareness of VAT rules

P11D forms – don’t get them wrong

VAT fuel scale charges

VAT recovery on car-derived vans and combi vans

Parliamentary processes

With the political parties campaigning well underway in anticipation of the General Election on 7 May and Parliament having been prorogued there are few Government announcements to report this month. However by the time we issue next month’s eNews we will have a new Parliament.

For details of the relevant dates and formal procedures visit the following link.

Internet link: GOV.UK news

Latest labour market statistics

The Office for National Statistics has issued the latest labour market data for the three months to February 2015 which show that unemployment fell by 76,000 to 1.84 million.

Neil Carberry, CBI Director for Employment and Skills said:

‘It’s great to see 248,000 more people in work, the fastest rise in employment in just under a year – thanks to our flexible jobs market.

With real wage growth rising people have a little more money in their pockets. But we need to see a recovery in productivity before wages can rise faster.’

Internet links: ONS statistics CBI news

Warning over pension scams

Those approaching retirement are being urged to be aware of a rise in pension scams, as criminals seek new ways to defraud pensioners.

Savers have been urged to be aware of a rise in pension scams, as criminals seek new ways to defraud pensioners. A report produced by Citizens Advice looked at 150 cases where pensioners had fallen victim to fraudsters. The report identified common types of scams which include:

  • encouraging pensioners to move their savings into a ‘new’ pension
  • fake investment opportunities and
  • offering apparently ‘free advice’ and support which actually costs money.

In some cases pensioners are charged a fee for a service that isn’t required, while others are encouraged to part with personal information and bank details, either by email or phone.

Gillian Guy, Chief Executive of Citizens Advice said:

‘Scammers see pensioners as a prime target….‘There are many people looking to benefit from the new pension rules, including scammers. Fraudsters can ruin people’s retirement plans by taking a portion or all of a victim’s pension pots.’

The Pensions Regulator (TPR) has recently launched a campaign to alert people to the danger posed by fraudsters.

From 6 April 2015 individuals have more flexibility as to how they use their pension pot, including the option to choose to take all their savings as a cash lump sum. TPR has warned that scammers are exploiting this change by enticing those about to retire with promises of ‘one-off investments‘ or ‘pension loans’ or ‘upfront cash’, most of which are bogus.

Individuals who believe they are being targeted by a pension scam should contact the Pensions Advisory Service on 0300 123 1047. The Financial Conduct Authority’s website also has a list of known scams. Visit scamsmart.fca.org.uk.

Internet links: Citizens Advice publications Press release

TPR guidance for small employers with no ‘staff’

The Pensions Regulator (TPR) has updated its guidance on pensions auto enrolment including what businesses need to do when they have no workers.

If you would like help with auto enrolment please do get in touch.

Internet link: TPR guidance

Lack of awareness of VAT rules

According to research 36% of the UK’s smallest businesses are unaware of the rules governing VAT thresholds.

A third of the UK’s smallest businesses are unaware of the rules governing VAT thresholds, recent research has revealed.

This lack of understanding could mean that approximately 780,000 businesses are at risk of being fined by HMRC.

Meanwhile, according to the research, 9%% of small businesses intentionally limit their trading in order to avoid reaching the VAT threshold.

Under the current rules, where a taxable person (for example an individual, company or partnership) has VAT taxable turnover of more than the current registration threshold of £82,000 in a rolling 12 month period or where turnover is expected to exceed the registration threshold in the next 30 day period then they must register for VAT.

It is important to monitor turnover, as there is a penalty for late registration in addition to the tax payable.

Please contact us if you would like advice on VAT issues.

Internet links: icaew news GOV.UK news

P11D forms – don’t get them wrong

HMRC have published a list of common errors in the completion of forms P11D. The information is part of the latest Employer Bulletin and we have reproduced the guidance below.

  • Submitting duplicate P11D information on paper where P11D information has already been filed online to ensure ‘HMRC have received it’. These duplicates can cause processing problems.
  • Using a paper form that relates to the wrong tax year – check the top right hand corner of the first page.
  • Not ticking the ‘director’ box if the employee is a director.
  • Not including a description or abbreviation, where amounts are included in sections A, B, L, M or N of the form.
  • Leaving the ‘cash equivalent’ box empty where you’ve entered a figure in the corresponding ‘cost to you’ box of a section.
  • Completing the declaration on the final FPS/EPS submission accurately (for those employers whose software package requires them to be completed) or question 6 in section A of RT 4 form to indicate whether P11Ds are due.
  • Not advising HMRC either by paper form P11D(b) or electronic submission that there is no Benefits in Kind & Expenses return to make.
  • Where a benefit has been provided for mixed business and private use, entering only the value of the private-use portion – you must report the full gross value of the benefit.
  • Not completing the fuel benefit box/field where this applies. This means an amended P11D has to be sent in.
  • Incorrectly completing the ‘from’ and ‘to’ dates in the ‘Dates car was available’ boxes. For example entering 06/04/2014 to 05/04/2015 to indicate the car was available throughout that year. If the car was available in the previous tax year, the ‘from’ box should not be completed and if the car is to be available in the next tax year, the ‘to’ box should not be completed.

If you would like help with the completion of the forms P11D please contact us.

Internet link: Employer Bulletin 53

VAT fuel scale charges

HMRC have issued details of the updated VAT fuel scale charges which apply from the beginning of the next prescribed VAT accounting period starting on or after 1 May 2015.

VAT registered businesses use the fuel scale charges to account for VAT on private use of road fuel purchased by the business.

Please do get in touch for further advice on VAT matters.

Internet link: GOV.UK news

VAT recovery on car-derived vans and combi vans

HMRC have issued a list of makes and models of car derived vans and combi vans which VAT registered businesses can use to determine if the VAT paid on the purchase can be reclaimed as input tax.

The issue is that VAT will normally be claimable in full on the purchase of a commercial vehicle. However if the vehicle purchased is a passenger car VAT is not recoverable unless it is used ‘exclusively for the purposes of a business’. Generally cars are therefore VAT ‘blocked’ and no input VAT is recoverable.

The VAT guidance states

‘Motor car means any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

a) is constructed or adapted solely or mainly for the carriage of passengers; or

b) has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows’

Whether or not a vehicle is commercial is not specifically defined but instead the definition of a car excludes:

  • vehicles capable of accommodating only one person or suitable for carrying twelve or more people including the driver
  • vehicles of more than three tonnes unladen weight;
  • caravans, ambulances and prison vans
  • special purpose vehicles such as ice cream vans, mobile shops, hearses, bullion vans and breakdown and recovery vehicles
  • vehicles constructed to carry a payload of one tonne or more.

Many car-derived vans are not cars for VAT purposes as they have no rear seats, have metal side panels to the rear of the front seats and a load area which is highly unsuitable for carrying passengers etc.

HMRC have issued the clarification due to developments in the car-derived van market as some vehicles with a payload of less than one tonne, have ‘blurred’ the distinction between cars and vans.

If you would like help with this or any other VAT issue please contact us.

Internet link: GOV.UK news

 

Newsletter – April 2015

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eNews – April 2015

This month’s enews not surprisingly reflects Budget announcements. Some of the key announcements are set out in the following articles together with a round up of other news.

Please contact us if you would like any further information on any of these or any other issues.

Budget 2015

Personal tax rates and allowances

Proposed personal allowances to come

Help to Buy ISA

Pension freedoms for those with annuities

National Minimum Wage rises

Auto Enrolment guidance for small employers

Business rates system – have your say

Budget 2015

George Osborne presented the final Budget of this Parliament on Wednesday 18 March 2015.

In his speech the Chancellor reported ‘on a Britain that is growing, creating jobs and paying its way’.

Towards the end of 2014 the government issued many proposed clauses of Finance Bill 2015 together with updates on consultations. Due to the dissolution of Parliament on 30 March some measures have been legislated for in the week commencing 23 March, whilst others will be enacted by a Finance Bill in the next Parliament (depending on the result of the General Election).

The Budget proposed further measures, some of which may only come to fruition if the Conservative Party is in power in the next Parliament.

The articles which follow summarise some of the key changes.

Internet link: GOV.UK Budget

Personal tax rates and allowances

For those born after 5 April 1938 the personal allowance will be increased to £10,600. For those born before 6 April 1938 the personal allowance remains at £10,660.

The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 will continue. The reduction is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200.

Tax bands and rates for 2015/16

The basic rate of tax is currently 20%. The band of income taxable at this rate is being decreased from £31,865 to £31,785 so that the threshold at which the 40% band applies will rise from £41,865 to £42,385 for those who are entitled to the full basic personal allowance.

The additional rate of tax of 45% is payable on taxable income above £150,000.

Dividend income is taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. Where income exceeds £150,000, dividends are taxed at 37.5%.

Starting rate of tax for savings income

From 6 April 2015, the maximum amount of an eligible individual’s savings income that can qualify for the starting rate of tax for savings will be increased from £2,880 to £5,000, and this starting rate will be reduced from 10% to 0%. These rates are not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

This will increase the number of savers who are not required to pay tax on savings income, such as bank or building society interest. Eligible savers can register to receive their interest gross using a form R85.

Internet link: GOV.UK Budget

Proposed personal allowances to come

The Chancellor announced that the personal allowance will be increased to £10,800 in 2016/17 and to £11,000 in 2017/18. The Transferable Tax Allowance will also rise in line with the personal allowance, being 10% of the personal allowance for the year.

The higher rate threshold will rise in line with the personal allowance, taking it to £42,700 in 2016/17 and £43,300 in 2017/18 for those entitled to the full personal allowance.

Personal Savings Allowance

The Chancellor announced that legislation will be introduced in a future Finance Bill to apply a Personal Savings Allowance to income such as bank and building society interest from 6 April 2016.

The Personal Savings Allowance will apply for up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income each year. The Personal Savings Allowance will not be available for additional rate taxpayers.

These changes will have effect from 6 April 2016 and the Personal Savings Allowance will be in addition to the tax advantages currently available to savers from Individual Savings Accounts.

The Personal Savings Allowance will provide basic and higher rate taxpayers with a tax saving of up to £200 each year.

Internet link: GOV.UK News

Help to Buy ISA

The government has announced the introduction of a new type of ISA, the Help to Buy ISA, which will provide a tax free savings account for first time buyers wishing to save for a home.

The scheme will provide a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.

Help to Buy ISAs will be subject to eligibility rules and limits:

  • An individual will only be eligible for one account throughout the lifetime of the scheme and it is only available to first time buyers.
  • Interest received on the account will be tax free.
  • Savings will be limited to a monthly maximum of £200 with an opportunity to deposit an additional £1,000 when the account is first opened.
  • The government will provide a 25% bonus on the total amount saved including interest, capped at a maximum of £3,000 which is tax free.
  • The bonus will be paid when the first home is purchased.
  • The bonus can only be put towards a first home located in the UK with a purchase value of £450,000 or less in London and £250,000 or less in the rest of the UK.
  • The government bonus can be claimed at any time, subject to a minimum bonus amount of £400.
  • The accounts are limited to one per person rather than one per home so those buying together can both receive a bonus.
  • As is currently the case it will only be possible for an individual to subscribe to one cash ISA per year. It will not be possible for an account holder to subscribe to a Help to Buy ISA with one provider and another cash ISA with a different provider.
  • Once an account is opened there is no limit on how long an individual can save into it and no time limit on when they can use their bonus.

The government intends the Help to Buy ISA scheme to be available from autumn 2015 and investors will be able to open a Help to Buy ISA for a period of four years.

Internet link: GOV.UK factsheet

Pension freedoms for those with annuities

The Chancellor has announced a new flexibility for people who have already purchased an annuity. From April 2016, the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity for a capital sum.

Individuals will then have the freedom to take that capital as a lump sum, or place it into drawdown to use the proceeds more gradually.

Income tax at the individual’s marginal rate will be payable in the year of access to the proceeds.

The proposal will not give the annuity holder the right to sell their annuity back to their original provider. The government has begun a consultation on the measures that are needed to establish a market to buy and sell annuities and who should be permitted to purchase the annuity income.

The government recognises that for most people retaining their annuity will be the right choice. However, individuals may want to sell an annuity, for instance to pay off debts or to purchase a more flexible pension income product.

We will keep you informed of developments.

Internet link: GOV.UK News

National Minimum Wage rises

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

Penalties

Penalties may be levied on employers where HMRC believe underpayments have occurred and HMRC ‘name and shame’ non-compliant employers.

If you have any queries on the NMW please get in touch.

Internet links: GOV.UK News

Auto Enrolment guidance for small employers

The Pensions Regulator (TPR) has launched a new step-by-step guide to help small businesses get ready for their automatic enrolment duties.

According to TPR the online guide has been written specifically for employers with between one and 50 staff.

The guide which is broken down into 11 steps, considers the legal requirements and what employers need to do to comply with their obligations.

Executive director for automatic enrolment Charles Counsell said:

‘We are determined to do all we can to reach out to all small and micro businesses preparing for their automatic enrolment duties. We want to make the process as simple as possible so that employers can avoid the risk of non compliance.’

‘Our new online 11-step guide is a key part of a wide package of measures we are rolling out to give more than a million employers all the information they need, written and produced in a way they makes sense to them.’

‘Our message to employers is ensure you know when your automatic enrolment duties begin and start planning in good time. The regulator’s website should be the first port of call for all employers and their advisers as it offers essential information about each task an employer will need to accomplish in order to comply and avoid penalties.’

If you would like help with Auto Enrolment please do get in touch.

Internet links: step-by-step guide Press release

Business rates system – have your say

The government has launched a wide-ranging review of national business rates in England.

HM Treasury’s ‘wide-ranging review’ of England’s non-domestic rates system will report its findings before the 2016 Budget. The Treasury’s discussion paper invites responses from a wide range of stakeholders on issues such as commercial property use, how the rates system can be modernised, and whether business rates should continue to be based on property values.

Written responses will be accepted from the beginning of April until 12th June 2015.

Chief Secretary to the Treasury Danny Alexander said:

‘Our system of business rates was created nearly 30 years ago. Since that time, the worlds of commerce and industry have changed beyond recognition. I’ve been impressed by the representations made by the business community and I know that business rates are a considerable cost.

The government has taken measures to help businesses by capping rates and introducing reliefs for smaller businesses. But now the time has come for a radical review of this important tax. We want to ensure the business rates system is fair, efficient and effective.’

Internet link: GOV.UK News

Budget 2015 – An Overview

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The Budget 2015

George Osborne presented the final Budget of this Parliament on Wednesday 18 March 2015.

In his speech the Chancellor reported ‘on a Britain that is growing, creating jobs and paying its way’.

Towards the end of 2014 the government issued many proposed clauses of Finance Bill 2015 together with updates on consultations. Due to the dissolution of Parliament on 30 March some measures will be legislated for in the week commencing 23 March, whilst others will be enacted by a Finance Bill in the next Parliament (depending on the result of the General Election).

The Budget proposes further measures, some of which may only come to fruition if the Conservative Party is in power in the next Parliament.

Our summary focuses on the issues likely to affect you, your family and your business. To help you decipher what was announced we have included our own comments. If you have any questions please do not hesitate to contact us for advice.

Main Budget tax proposals

  • Increased personal allowances
  • The introduction of a new Personal Savings Allowance
  • Changes to ISAs including the introduction of a new type of ISA for First Time Buyers
  • Changes to pensions
  • Potential business rate reform in England
  • Entrepreneur’s Relief – changes to qualifying conditions

The Budget proposals may be subject to amendment in a Finance Act. You should contact us before taking any action as a result of the contents of this summary.

Personal Tax

The personal allowance for 2015/16

For those born after 5 April 1938 the personal allowance will be increased to £10,600. For those born before 6 April 1938 the personal allowance remains at £10,660.

Comment

The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 will continue. The reduction is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200.

Tax bands and rates for 2015/16

The basic rate of tax is currently 20%. The band of income taxable at this rate is being decreased from £31,865 to £31,785 so that the threshold at which the 40% band applies will rise from £41,865 to £42,385 for those who are entitled to the full basic personal allowance.

The additional rate of tax of 45% is payable on taxable income above £150,000.

Dividend income is taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. Where income exceeds £150,000, dividends are taxed at 37.5%.

Starting rate of tax for savings income

From 6 April 2015, the maximum amount of an eligible individual’s savings income that can qualify for the starting rate of tax for savings will be increased from £2,880 to £5,000, and this starting rate will be reduced from 10% to 0%. These rates are not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

Comment

This will increase the number of savers who are not required to pay tax on savings income, such as bank or building society interest. Eligible savers can register to receive their interest gross using a form R85.

The increase will also provide a useful tax break for director-shareholders who extract their share of profits from a company by taking a low salary and the balance in dividends. This is because dividends are taxed after savings income and thus are not included in the individual’s ‘taxable non-savings income’.

Transferable Tax Allowance

From 6 April 2015 married couples and civil partners may be eligible for a new Transferable Tax Allowance.

The Transferable Tax Allowance will enable spouses and civil partners to transfer a fixed amount of their personal allowance to their spouse. The option to transfer is not available to unmarried couples.

The option to transfer will be available to couples where neither pays tax at the higher or additional rate. If eligible, one partner will be able to transfer 10% of their personal allowance to the other partner which means £1,060 for the 2015/16 tax year.

Comment

For those couples where one person does not use all of their personal allowance the benefit will be up to £212 (20% of £1,060).

Eligible couples can now register their interest for marriage allowance at GOV.UK/marriageallowance. The spouse or partner with the lower income registers their interest in transferring some of their personal allowance by entering some basic details. HMRC will subsequently invite the couple to apply. Those who don’t register their interest will be able to make an application at a later date and still receive the allowance.

The personal allowance and tax bands for 2016/17 and beyond

The personal allowance will be increased to £10,800 in 2016/17 and to £11,000 in 2017/18. The Transferable Tax Allowance will also rise in line with the personal allowance, being 10% of the personal allowance for the year.

The higher rate threshold will rise in line with the personal allowance, taking it to £42,700 in 2016/17 and £43,300 in 2017/18 for those entitled to the full personal allowance.

Personal Savings Allowance

The Chancellor announced that legislation will be introduced in a future Finance Bill to apply a Personal Savings Allowance to income such as bank and building society interest from 6 April 2016.

The Personal Savings Allowance will apply for up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income each year. The Personal Savings Allowance will not be available for additional rate taxpayers.

These changes will have effect from 6 April 2016 and the Personal Savings Allowance will be in addition to the tax advantages currently available to savers from Individual Savings Accounts.

Comment

The Personal Savings Allowance will provide basic and higher rate tax payers with a tax saving of up to £200 each year.

The end of tax deduction at source on interest

Due to the changes to the starting rate for savings and the introduction of a Personal Savings Allowance, many individuals will no longer need to pay tax on their savings income. Currently, 20% income tax is automatically deducted from most interest on savings excluding ISAs.

From April 2016, the automatic deduction of 20% income tax by banks and building societies on non-ISA savings will cease.

Individual Savings Accounts (ISAs)

On 1 July 2014 ISAs were reformed and the overall annual subscription limit for these accounts was increased to £15,000 for 2014/15. From 6 April 2015 the overall ISA savings limit will be increased to £15,240.

The Chancellor announced in the Autumn Statement an additional ISA allowance for spouses or civil partners when an ISA saver dies. The additional ISA allowance will be equal to the value of a deceased person’s savings at the time of their death and will be in addition to the normal ISA subscription limit. Regulations will set out the time period within which the additional allowance will be used. In certain circumstances an individual will be able to transfer to their own ISA non-cash assets such as stocks and shares previously held by their spouse.

Comment

In most cases it is envisaged that the additional allowance will be used to subscribe to an ISA offered by the same financial institution that provided the deceased person’s ISA. As the new regulations will allow the transfer of stocks and shares directly into the new ISA, in many cases the effect will be that the investments are left intact and the spouse becomes the new owner of the deceased person’s ISA.

This measure applies for deaths from 3 December 2014 and takes effect from 6 April 2015.

As announced at Budget 2015, regulations will be introduced to extend the list of qualifying investments for ISAs and Child Trust Funds to include listed bonds issued by Co-operative Societies and Community Benefit Societies and SME securities that are admitted to trading on a recognised stock exchange, with effect from 1 July 2015.

The government will also consult during summer 2015 on further extending this list of qualifying investments to include debt securities and equity securities offered via crowd funding platforms.

It was announced at Budget 2015 that regulations will be introduced in autumn 2015, following consultation on technical detail, to enable ISA savers to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription limit for that year.

At Budget 2014, the Chancellor announced that peer-to-peer loans would be eligible for inclusion within ISAs. The government has consulted on the options for changes to the ISA rules to allow peer-to-peer loans to be held within them.

No start date has been announced.

Comment

Peer-to-peer lending is a small but rapidly growing alternative source of finance for individuals and businesses. The inclusion of such loans in ISAs will increase choice for investors and encourage the growth of the peer-to-peer sector.

Help to Buy ISA

The government has announced the introduction of a new type of ISA, the Help to Buy ISA, which will provide a tax free savings account for first time buyers wishing to save for a home.

The scheme will provide a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.

Help to Buy ISAs will be subject to eligibility rules and limits:

  • An individual will only be eligible for one account throughout the lifetime of the scheme and it is only available to first time buyers.
  • Interest received on the account will be tax free.
  • Savings will be limited to a monthly maximum of £200 with an opportunity to deposit an additional £1,000 when the account is first opened.
  • The government will provide a 25% bonus on the total amount saved including interest, capped at a maximum of £3,000 which is tax free.
  • The bonus will be paid when the first home is purchased.
  • The bonus can only be put towards a first home located in the UK with a purchase value of £450,000 or less in London and £250,000 or less in the rest of the UK.
  • The government bonus can be claimed at any time, subject to a minimum bonus amount of £400.
  • The accounts are limited to one per person rather than one per home so those buying together can both receive a bonus.
  • As is currently the case it will only be possible for an individual to subscribe to one cash ISA per year. It will not be possible for an account holder to subscribe to a Help to Buy ISA with one provider and another cash ISA with a different provider.
  • Once an account is opened there is no limit on how long an individual can save into it and no time limit on when they can use their bonus.

The government intends the Help to Buy ISA scheme to be available from autumn 2015 and investors will be able to open a Help to Buy ISA for a period of four years.

Junior ISA and Child Trust Fund (CTF)

The annual subscription limit for Junior ISA and Child Trust Fund accounts will increase from £4,000 to £4,080.

The government has previously decided that a transfer of savings from a CTF to a Junior ISA should be permitted at the request of the registered contact for the CTF. The government has confirmed the measure will have effect from 6 April 2015.

Bad debt relief on investments made on peer-to-peer lending

The government will introduce a new relief to allow individuals lending through peer-to-peer platforms to offset any losses from loans which go bad against other peer-to-peer income. It will be effective from 6 April 2016 and, through self assessment, will allow individuals to make a claim for relief on losses incurred from 6 April 2015.

Pensions saving

There is an overall limit, known as the lifetime allowance, on the total amount of tax relieved pension savings that an individual can have over their lifetime. The Chancellor has now announced that for tax year 2016/17 onwards:

The standard lifetime allowance will be reduced from £1.25 million to £1 million.

Fixed and individual protection regimes will be introduced alongside the reduction in the lifetime allowance to protect savers who think they may be affected by this change.

The lifetime allowance will be indexed annually in line with CPI from 6 April 2018.

Pensions – changes to access to pension funds

The Taxation of Pensions Act has recently been enacted. It provides that individuals aged 55 or over can access their money purchase pension savings as they choose from 6 April 2015.

In most cases access to the fund will be achieved in one of two ways:

  • Allocation of a pension fund (or part of a pension fund) to a ‘flexi-access drawdown account’ from which any amount can be taken over whatever period the person decides.
  • Taking a single or series of lump sums from a pension fund (known as an ‘uncrystallised funds pension lump sum’).

When an allocation of funds to a flexi-access account is made the member typically will take the opportunity of taking a tax free lump sum from the fund (as under current rules).

The person will then decide how much or how little to take from the flexi-access account. Any amounts that are taken will count as taxable income in the year of receipt.

Access to some or all of a pension fund without first allocating to a flexi-access account can be achieved by taking an uncrystallised funds pension lump sum.

The tax effect will be:

  • 25% is tax free
  • the remainder is taxable as income.

An annuity can, of course, be purchased with some or all of the fund as currently.

Comment

The fundamental tax planning point arising from the changes is self-evident. A person should decide when to access funds depending upon their other income in each tax year.

Pension freedoms to be extended to people with annuities

The Chancellor announced just before the Budget a new flexibility for people who have already purchased an annuity. From April 2016, the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity for a capital sum.

Individuals will then have the freedom to take that capital as a lump sum, or place it into drawdown to use the proceeds more gradually.

Income tax at the individuals’ marginal rate will be payable in the year of access to the proceeds.

The proposal will not give the annuity holder the right to sell their annuity back to their original provider. The government has begun a consultation on the measures that are needed to establish a market to buy and sell annuities and who should be permitted to purchase the annuity income.

Comment

The government recognises that for most people retaining their annuity will be the right choice. However, individuals may want to sell an annuity, for instance to pay off debts or to purchase a more flexible pension income product.

Taxation of resident non-domiciles

There will be some changes in the annual charge paid by non-domiciled individuals resident in the UK who wish to retain access to the remittance basis of taxation.

The charge paid by people who have been UK resident for seven out of the last nine years will remain at £30,000. The charge paid by people who have been UK resident for 12 out of the last 14 years will increase from £50,000 to £60,000. A new charge of £90,000 will be introduced for people who have been UK resident for 17 of the last 20 years.

The changes apply for 2015/16.

The government is consulting on making the election to pay the remittance basis charge apply for a minimum of three years.

Business Tax

Corporation tax rates

From 1 April 2015 the main rate of corporation tax, currently 21%, will be reduced to 20%.

As the small profits rate is already 20%, the need for this separate code of taxation disappears. The small profits rate will therefore be unified with the main rate.

It is proposed that the rate of corporation tax will continue at 20% for the financial year beginning on 1 April 2016.

Annual Investment Allowance (AIA)

The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business up to an annual limit and is available to most businesses. Where businesses spend more than the annual limit, any additional qualifying expenditure generally attracts an annual writing down allowance of only 18% or 8% depending on the type of asset.

The maximum annual amount of the AIA was increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses until 31 December 2015. However it was due to return to £25,000 after this date. The Chancellor announced that following conversations with business groups this would be addressed in the Autumn Statement and would be set at a much more generous rate.

Research and Development (R&D) tax credits

As previously announced, the government will increase the rate of the ‘above the line’ credit from 10% to 11% and will increase the rate of the SME scheme from 225% to 230% from 1 April 2015.

It is proposed to restrict qualifying expenditure for R&D tax credits from 1 April 2015 so that the costs of consumable items incorporated in products that are sold are not eligible. Following consultation the restriction will not apply where the product of the R&D is transferred as waste, or where it is transferred but no consideration is received.

A new voluntary advance assurance service lasting three years will be introduced for small companies making their first claim from autumn 2015. From 2016 the time taken to process a claim will be reduced. New guidance will be issued by HMRC aimed specifically at smaller companies, backed by a two year publicity strategy to raise awareness of R&D tax credits. HMRC will publish a document in the summer setting out a roadmap for further improvements to the scheme over the next two years.

Construction Industry Scheme (CIS) improvements

At Autumn Statement the government announced it would make a number of changes to the CIS. The aim of the changes is to reduce the administrative burden and related cost burden on construction businesses. The measures should result in more subcontracting businesses being able to achieve and maintain gross payment status, thus improving their cashflow. These changes are to be implemented in stages by the issue of Statutory Instruments.

From 6 April 2015 amendments will be made to the system including:

  • The requirement for a contractor to make a return to HMRC even if the contractor has not made any payments in a tax month is removed.
  • The requirements for joint ventures to gain gross payment status will be relaxed where one member already has this status and where that firm or company has a right to at least 50% of the assets or the income or holds at least 50% of the shares or the voting power in the joint venture.

From 6 April 2016 further changes are proposed:

  • Mandatory online filing of CIS returns will be introduced with the offer of alternative filing arrangements for those unable to access an online channel by reason of age, disability, remote location or religious objection.
  • The directors’ self assessment filing requirements will be removed from the initial and annual compliance tests.
  • The threshold for the turnover test will be reduced to £100,000 in multiple directorship situations.

From 6 April 2017 mandatory online verification of subcontractors will be introduced.

Comment

About two thirds of CIS contractors are also employers who therefore file Real Time Information PAYE returns online. It is no surprise that the government wants to extend the scope of mandatory online filing. The improvements to the online verification process would be welcome but the government is also proposing to remove the option of verifying subcontractors by telephone.

Class 2 National Insurance contributions (NIC)

From 6 April 2015 liability to pay Class 2 NIC will arise at the end of each year. Currently a liability to Class 2 NIC arises on a weekly basis.

The amount of Class 2 NIC due will still be calculated based on the number of weeks of self-employment in the year, but will be determined when the individual completes their self assessment return. It will therefore be paid alongside their income tax and Class 4 NIC. For those who wish to spread the cost of their Class 2 NIC, HMRC will retain a facility for them to make regular payments throughout the year. The current six monthly billing system will cease from 6 April 2015.

Those with profits below a threshold will no longer have to apply in advance for an exception from paying Class 2 NIC. Instead they will have the option to pay Class 2 NIC voluntarily at the end of the year so that they may protect their benefit rights.

The government has announced that Class 2 NIC will be abolished in the next Parliament and will reform Class 4 NIC to include a contributory benefit test. Consultation on these matters will take place later in 2015.

Corporation tax relief for goodwill on incorporation

Corporation tax relief may be available to companies when goodwill and intangible assets are recognised in the financial accounts. Relief is normally given on the cost of the asset as the expenditure is written off in accordance with Generally Accepted Accounting Practice or at a fixed 4% rate, following an election.

An anti-avoidance measure was announced at Autumn Statement to restrict corporation tax relief. The restriction applies where a company acquires internally-generated goodwill and certain other intangible assets used in a business from ‘related persons’. In particular, related persons includes individuals who are shareholders in the company.

In addition, individuals will be prevented from claiming Entrepreneurs’ Relief (ER) on disposals of goodwill when they transfer the business to a related company. Capital gains tax will be payable on the gain at the normal rates of 18% or 28% rather than 10%. Following consultation, the legislation will be revised to allow ER to be claimed by partners in a firm who do not hold or acquire any stake in the successor company.

These measures apply to all transfers on or after 3 December 2014 unless made pursuant to an unconditional obligation entered into before that date.

Comment

Prior to this announcement it was possible, for example, on incorporation of a sole trader’s business to a company which is owned by the sole trader, for the company to obtain corporation tax relief on the market value of goodwill at the time of incorporation. The disposal by the sole trader would qualify for a low rate of capital gains tax.

The government considers this is unfair to a business that has always operated as a company.

Diverted profits tax

At Autumn Statement, a new tax to counter the use of aggressive tax planning techniques by multinational enterprises to divert profits from the UK was announced. Legislation will be introduced in Finance Bill 2015 for a new Diverted Profits Tax using a proposed rate of 25% to apply from 1 April 2015.

Farmers averaging

The government will extend the period over which self-employed farmers can average their profits for income tax purposes from two years to five years. A consultation will be held later this year and the legislation to be introduced in a future Finance Bill will come into effect from 6 April 2016.

Changes to venture capital schemes

The government will make amendments to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), and Venture Capital Trusts (VCTs).

The government will, subject to EU State aid approval:

  • Require that companies must be less than 12 years old when receiving their first EIS or VCT investment, except where the investment will lead to a substantial change in the company’s activity.
  • Introduce a cap on total investment received under the tax-advantaged venture capital schemes of £15 million, increasing to £20 million for knowledge-intensive companies.
  • Increase the employee limit for knowledge-intensive companies to 499 employees, from the current limit of 249 employees.

The government will encourage the transition from SEIS to the other venture capital schemes by removing the requirement that 70% of the funds raised under SEIS must have been spent before EIS or VCT funding can be raised.

Business rates – England

Shortly before the Budget the government launched a wide-ranging review of national business rates in England.

The review, set to report back by Budget 2016, will examine the structure of the current system. The review will look at how businesses use property and how to modernise the system so it better reflects changes in the value of property.

Employment Taxes

Employer provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. Most cars are taxed by reference to bands of CO2 emissions. The percentage applied to each band has typically gone up by 1% each year with an overriding maximum charge of 35% of the list price of the car. From 6 April 2015 the percentage applied by each band goes up by 2% and the maximum charge is increased to 37%.

From 6 April 2016 there will be a further 2% increase in the percentage applied by each band with similar increases in 2017/18 and 2018/19. For 2019/20 the rate will increase by a further 3%. The 3% diesel supplement will be removed from 6 April 2016.

Comment

These increases may discourage businesses from retaining the same car. New cars will often have lower CO2 emissions than the equivalent model purchased by the employer, say three years earlier.

Zero emission vans

The van benefit charge exemption for zero emission vans is to be phased out from 6 April 2015. For 2015/16 a charge will apply equal to 20% of the normal van benefit charge. This will increase by a further 20% each year over the next three years up to 2018/19 and by a further 10% in 2019/20. From 6 April 2020 a normal 100% van benefit charge will apply to zero emission vans.

Comment

The charge for a zero emission van for 2015/16 will therefore be £630 (£3,150 x 20%).

Employer National Insurance contributions (NIC) for the under 21s

From 6 April 2015 employer NIC for employees under the age of 21 will be reduced from the normal rate of 13.8% to 0%. For the 0% rate to apply the employee will need to be under 21 when the earnings are paid.

This exemption will not apply to earnings above the Upper Secondary Threshold (UST) in a pay period. The weekly UST is £815 for 2015/16 which is equivalent to £42,385 per annum. Employers will be liable to 13.8% NIC beyond this limit.

Comment

The UST is a new term introduced for this new NIC exemption. It is set at the same amount as the Upper Earnings Limit, which is the amount at which employees’ NIC fall from 12% to 2%.

NIC for apprentices under 25

The government will abolish employer NIC up to the UST for apprentices aged under 25. This will come into effect from 6 April 2016.

Comment

Detailed regulations will be issued on the NIC for apprentices including the definition of an apprentice.

NIC Employment Allowance

The Employment Allowance was introduced from 6 April 2014. It is an annual allowance of up to £2,000 which is available to many employers and can be offset against their employer NIC liability.

The government will extend the annual £2,000 Employment Allowance for employer NIC to householders who employ care and support workers. This will come into effect from 6 April 2015.

Review of employee benefits

In 2014 the Office of Tax Simplification published recommendations on the tax treatment of employee benefits in kind and expenses. In response the government has issued draft legislation on four areas:

  • From 6 April 2015 there will be a statutory exemption for certain non-cash benefits in kind costing up to £50. An annual cap of £300 will be introduced for office holders of close companies and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of trivial benefits in kind each year exempt from tax.
  • From 6 April 2016 the £8,500 threshold below which employees do not pay income tax on certain benefits in kind will be removed. There will be new exemptions for carers and ministers of religion.
  • From 6 April 2016 there will be no tax liability on an employee for certain reimbursed expenses. This will replace the current system where employers have to apply for a dispensation to avoid having to report non-taxable expenses (on forms P11D). Also employees will automatically get the tax relief they are due on qualifying expenses payments.
  • HMRC will be able to issue Regulations to allow employers to include taxable benefits in pay and thus account for PAYE on the benefits. Employers will therefore not have to include these items on forms P11D.

Overarching contracts of employment and temporary workers

The use of overarching contracts of employment by employment intermediaries such as ‘umbrella companies’ can result in workers obtaining tax relief for home to work travel that would not ordinarily be available.

From April 2016 the government will change the rules to restrict travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user.

Capital Taxes

Capital gains tax (CGT) rates

The current rates of CGT are 18% to the extent that any income tax basic rate band is available and 28% thereafter. The rate for disposals qualifying for Entrepreneurs’ Relief is 10% with a lifetime limit of £10 million for each individual.

CGT annual exemption

The CGT annual exemption will increase to £11,100 for 2015/16.

CGT – Entrepreneurs’ Relief (ER)

Gains which are eligible for ER, but which are deferred into investments which qualify for the Enterprise Investment Scheme or Social Investment Tax Relief can now remain eligible for ER when the gain is realised. This applies to qualifying ER gains on disposals on or after 3 December 2014 which are deferred into either scheme.

CGT – Restricting ER

ER will not be available to reduce CGT on gains which accrue on personally owned assets used in a trading business carried on by a company or a partnership, unless they are disposed of in connection with a disposal of at least a 5% shareholding in the company, or a 5% share in the partnership assets. This measure will affect disposals on and after 18 March 2015.

Comment

To obtain ER on a personally owned asset used in a trading company or partnership there has to be a genuine withdrawal from participation in the company or partnership. The measure therefore clarifies what is allowed for a valid ER claim to be made.

CGT – ER on joint ventures and partnerships

Amendments are to be made for ER purposes to the definition of a trading company or holding company of a trading group. This will be determined by reference to that company’s own activities (or the activities of the group.)

The aim is to exclude the activities carried on by joint venture companies in which a company is invested, or of partnerships of which a company is a member. Therefore a company will need to have a significant trade of its own in order to be considered as a trading company. It does not, however, affect shareholdings in companies whose investment in a joint venture is part of their own trade. This measure will affect disposals on and after 18 March 2015.

CGT – non-residents and UK residential property

Following consultation the government has confirmed that from 6 April 2015 non-UK resident individuals, trusts, personal representatives and narrowly controlled companies will be subject to CGT on gains accruing on the disposal of UK residential property on or after that date. Non-resident individuals will be subject to tax at the same rates as UK taxpayers (28% or 18% on gains above the annual exemption). Non-resident companies will be subject to tax at the same rates as UK corporates (20%).

CGT – Principal Private Residence Relief (PPR)

The government has decided that some changes are required to the rules determining the circumstances when a property can benefit from PPR. The changes will apply to both a UK resident disposing of a residence in another country and a non-resident disposing of a UK residence.

From 6 April 2015 a person’s residence will not be eligible for PPR for a tax year unless either:

  • the person making the disposal was resident in the same country as the property for that tax year, or
  • the person spent at least 90 midnights in that property.

Comment

The main point of the changes to the PPR rules is to remove the ability of an individual who is resident in, say, France with a property in the UK as well as France to nominate the UK property as having the benefit of PPR. Any gain on the French property is not subject to UK tax anyway and, without changes to the PPR rules, the gain on the UK property could be removed by making a PPR election.

The good news is that the latest proposals retain the ability of a UK resident with two UK residences to nominate which of those properties has the benefit of PPR.

Changes to the tax treatment of pension funds on death

If an individual has not bought an annuity, a defined contribution pension fund remains available to pass on to selected beneficiaries. Inheritance tax (IHT) can be avoided by making a ‘letter of wishes’ to the pension provider suggesting to whom the funds should be paid. However, currently there are other tax charges to reflect the principle that income tax relief would have been given on contributions into the pension fund and therefore some tax should be payable when the fund is paid out. In some situations tax at 55% of the fund value is payable.

The government has introduced significant exceptions from the tax charges (in the Taxation of Pensions Act). Generally the changes take effect where the first payment to a beneficiary is on or after 6 April 2015.

Under the new system, anyone who dies under the age of 75 will be able to give their remaining defined contribution pension fund to anyone completely tax free, whether it is in a drawdown account or untouched. This is subject to the condition that the fund is transferred into the names of chosen beneficiaries within two years. The fund can be paid out as a lump sum to a beneficiary or monies taken out of the fund by the beneficiary when required.

Those aged 75 or over when they die will also be able to pass their defined contribution pension fund to any beneficiary who will then be able to draw down on it as income whenever they wish. They will pay tax at their marginal rate of income tax when the income is received. Beneficiaries will also have the option of receiving the fund as a lump sum payment, subject to a tax charge of 45%.

Changes to the tax treatment of annuities on death

Draft legislation has been issued which changes the tax treatment when an annuity continues to be paid after death. The changes mirror the changes to the treatment of pension funds passing to beneficiaries on death. For example beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free.

The changes apply where the first payment to a beneficiary is on or after 6 April 2015.

Inheritance tax and deeds of variation

The government will review the uses of deeds of variation as these can currently be used to avoid IHT charges.

Other Matters

Digital tax accounts

The government has announced some initiatives to ‘transform the tax system over the next Parliament’ by introducing digital tax accounts and removing the need for annual tax returns. A digital tax account will enable individuals and small businesses to see and manage their tax affairs online. As a first step, the government will:

  • publish a roadmap later this year setting out the policy and administrative changes needed to implement this reform
  • introduce digital tax accounts for five million small businesses and the ten million individuals by early 2016.

Gift Aid

It is proposed to increase the annual donation amount which can be claimed through the Gift Aid Small Donations Scheme to £8,000. This will allow charities and Community Amateur Sports Clubs to claim Gift Aid style top-up payments of up to £2,000 a year, with effect from April 2016.

VAT help for certain charities

As announced at Autumn Statement 2014 hospice, search and rescue and air ambulance charities will be eligible for VAT refunds from 1 April 2015. The Chancellor has now announced that blood bike charities will also be included.

Tax evasion

The government will toughen sanctions for those who evade tax by closing early the existing disclosure facilities. For example the Liechtenstein Disclosure Facility will close at the end of 2015, instead of April 2016. A tougher ‘last chance’ disclosure facility will be offered between 2016 and mid-2017, with penalties of at least 30% on top of tax owed and interest and with no immunity from criminal prosecutions in appropriate cases.

Tax avoidance

The government will introduce tougher measures for those who persistently enter into tax avoidance schemes that fail, and will develop further measures to publish the names of such avoiders and to tackle avoiders who repeatedly abuse reliefs.

Specific anti-avoidance measures

  • The government will introduce legislation, effective from 18 March 2015, to prevent companies from obtaining a tax advantage by entering contrived arrangements to turn historic tax losses of restricted use into more versatile in-year deductions.
  • Measures will be introduced to prevent partly exempt VAT businesses taking account of foreign branches when calculating how much VAT on overhead costs they can reclaim in the UK. This will take effect from 1 August 2015.
  • The government will introduce legislation, with effect from 26 February 2015, to clarify the effect of capital allowances anti-avoidance rules where there are transactions between connected parties or sale and leaseback transactions.

This summary is published for the information of clients. It provides only an overview of the main proposals announced by the Chancellor of the Exchequer in his Budget Statement, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this summary can be accepted by the authors or the firm.

Newsletter – March 2015

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eNews – March 2015

This month we report on the latest round of penalties issued by the Pensions Regulator and end of year filing and payment reminders for employers. We also include details of how to claim the new ‘Marriage Allowance’. Please contact us if you would like any further information on these or any other issues.

Fines for those who fail to comply with Pensions Auto Enrolment

Registration opens for new married couples tax break

Charities Digital Service launched

PAYE end of year – pay on time reminder

HMRC concession for late RTI returns and payments

Advisory fuel rates for company cars

Car benefits online

Fines for those who fail to comply with Pensions Auto Enrolment

The Pensions Regulator (TPR) has issued 166 Fixed Penalty Notices of £400 to employers who failed to meet their obligations in the last quarter of 2014.

The number of employers approaching the date when they must confirm that they have complied with new workplace pensions duties (known as a declaration of compliance) is now beginning to rise significantly as Auto enrolment is rolled out across all employers. In future months, TPR expects to see more employers who, despite the message to prepare early, leave it too late or do not comply at all.

The Pensions Regulator’s Director of automatic enrolment, Charles Counsell, said,

‘My message to all employers is that failing to declare within five months of your staging date means you risk being fined, which is why we recommend you start your automatic enrolment planning and preparation 12 months before staging.

It appears some medium employers waited for a prompt from the regulator before completing their automatic enrolment duties. Employers must complete all their duties including making their declaration of compliance to The Pensions Regulator.’

Experience to date also shows that employers should begin gathering the information they need to complete their declaration of compliance well in advance of their deadline.

If you would like help or advice with auto enrolment please get in touch.

Internet link: Press release

Registration opens for new married couples tax break

HMRC have announced that registration for the new ‘Marriage Allowance’ for married couples and those in civil partnerships is now open.

From 6 April 2015 certain married couples and civil partners may be eligible for a new Transferable Tax Allowance referred to by the Government as the ‘Marriage Allowance’. The allowance will enable eligible spouses and civil partners to transfer a fixed amount of their personal allowance to their spouse. The option to transfer is not available to unmarried couples.

The option to transfer will be available to couples where neither pays tax at the higher or additional rate. If eligible, one partner will be able to transfer 10% of their personal allowance to the other partner which means £1,060 for the 2015/16 tax year which could save them tax of up to £212 a year.

Couples can register their interest to receive the Allowance.

The government estimates that more than four million married couples and 15,000 civil partnerships will be eligible for the tax break.

Chancellor of the Exchequer George Osborne said:

‘We made a promise to introduce a recognition of marriage into our tax system – and now we’re delivering on that promise.

This includes updating the tax system so that it recognises marriage and civil partnerships.

Our new Marriage Allowance means saving £212 on your tax bill couldn’t be simpler or more straightforward.’

From April, HMRC will contact those who have already registered for the ‘Marriage Allowance’ to apply. People can register at any point in the tax year and still receive the full benefit of the allowance. It is also possible to claim the allowance after the end of the tax year where claimants are unsure if they will qualify.

Applying online is simple. One person in a couple will apply online to transfer the allowance to their spouse or civil partner, and HMRC will tell the recipient about the change to their Pay As You Earn (PAYE) tax code.

Internet link: GOV.UK

Charities Digital Service launched

HMRC have launched an online registration service for charities.

Until now charities have been required to complete a paper form (ChA1). Approximately 15,500 new charities are registered each year.

Chief digital and information officer at HMRC, Mike Dearnley, said:

‘We are completely changing the way we work with our customers – including charities. Our new digital services are straightforward, easy to use and convenient. The charities service minimises the risk of making mistakes, so applications are less likely to be returned to the organisation’.

All registration must now be completed online. Please contact us if you would like help with a charity.

Internet link: Charities Digital

PAYE end of year – pay on time reminder

HMRC are reminding employers that with the end of the 2014/15 tax year approaching they will soon need to make their final 2014/15 PAYE (RTI) submission.

For most employers, the final submission will be their final Full Payment Submission (FPS) which advises HMRC about the very last employee payments for 2014/15 and this needs to be made on or before 5 April 2015. Details of how to make the final submission can be found on the GOV.UK website using the link below. Alternatively if you would like help with your payroll please do get in touch.

HMRC are also advising employers to take extra care as the deadline for electronic payment of 22nd March falls on a Sunday.

HMRC are advising that employers should ensure their payment reaches HMRC on time, which means that cleared funds should be in HMRC’s account by the 20th unless employers are able to arrange a Faster Payment. For more details about paying HMRC electronically visit Pay PAYE tax.

Internet link: GOV payroll annual reporting Employer Bulletin

HMRC concession for late RTI returns and payments

HMRC have announced that employers will not incur penalties for delays of up to three days in filing RTI returns. There is no change to the filing deadlines and employers should generally file their full payment submissions (FPS) ‘on or before’ each payment date unless a concession applies.

HMRC are also advising any employer that has received an in-year late filing penalty for the period 6 October 2014 to 5 January 2015 and was 3 days late or less, to appeal online by completing the ‘Other’ box and add ‘Return filed within 3 days’.

In addition, to prevent unnecessary penalties being issued, HMRC will be closing around 15,000 PAYE schemes next month that have not made a PAYE report since April 2013 and which appear to have ceased.

HMRC will write to the affected schemes to tell them about the planned closure and what to do if they are, or should be, operating PAYE.

Employers with fewer than 50 employees are reminded that PAYE late filing penalties will apply to them from 6 March.

Internet link: News

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 March 2015. Due to the reduction in fuel prices many rates have reduced this quarter between two and three pence 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 March 2015 are:

Engine size Petrol
1400cc or less 11p
1401 cc – 2000cc 13p
Over 2000cc 20p

 

Engine size LPG
1400cc or less 8p
1401 cc – 2000cc 10p
Over 2000cc 14p

 

Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
Over 2000cc 14p

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: GOV.UK

Car benefits online

As part of HMRC’s digitisation campaign, an online trial allows company car drivers to make changes to car and fuel benefits that will affect their tax codes.

It is important to ensure the benefits included in your tax code are as accurate as possible or large under or overpayments of tax may arise. For information on how to amend your tax code visit the link below. Alternatively if you would like help checking your tax code please do get in touch.

Internet link: GOV.UK

Newsletter – February 2015

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eNews – February 2015

This month we report on changes to auto enrolment limits, the launch of Pension wise and the Fit for Work service. We also update you on the latest HMRC phishing scam emails and the success of Accelerated Payment Notices. Please contact us if you would like any further information on these or any other issues.

Government publishes guidance on new ‘Fit for Work’ service

Accelerated Payment notices

HMRC warn of phishing email scam

Auto enrolment letters and updated thresholds

Government wants suggestions for Budget 2015

Pension wise

Strong demand for National Savings ‘pensioner bonds’

Government publishes guidance on new ‘Fit for Work’ service

The Government has published guidance on its new Fit for Work service, which aims to help tackle the problem of long-term sickness absence.

The service is being introduced to facilitate the return to work of employees who have been off sick for a period of four weeks or more. The new service will enable employers to refer their employees, with the employee’s consent, for an occupational health assessment. Following the assessment, a return to work plan will be created, including recommendations for employers on how to assist the employee with getting back to work.

A benefit in kind tax exemption of up to £500 per year per employee will be available for employer spending on medical treatments recommended by the assessment which help employees to return to work.

The Department for Work and Pensions is advising employers to update their sickness policies to reflect the existence of the new service.

If you would like any help in this area please do get in touch.

Internet link: fit-for-work-employers-guide

Accelerated Payment notices

HMRC have announced that they have secured almost all of the disputed tax due from the first group of tax avoidance scheme users to receive Accelerated Payment notices (APNs). An APN forces the taxpayer to make payment to HMRC of tax currently under dispute within 90 days of being issued with a notice. APNs are being introduced to counteract the perceived cash flow advantage for the taxpayer of holding onto the disputed tax during an avoidance dispute.

Approximately 30 scheme users were advised in August 2014 that they had 90 days to pay a total of around £29 million of disputed tax upfront under the new Accelerated Payments regime.

HMRC have announced that over 99% of this money was paid within the deadline, with several payment arrangements also in place. HMRC have received £32 million in disputed tax to date.

Financial Secretary to the Treasury David Gauke said:

‘The high success rate for the first set of Accelerated Payments notices shows avoidance scheme users are having to face up to the reality that they should pay their tax upfront, like the vast majority of taxpayers.

As we move into 2015 and HMRC ramps up the number of notices it sends out, thousands more will get the message that Accelerated Payments has changed the economics of tax avoidance.’

Jennie Granger, Director General for Enforcement and Compliance, HMRC, said:

‘These results show HMRC is making good progress in tackling marketed tax avoidance. If anyone is concerned about being able to pay an Accelerated Payment notice, they should contact us as soon as possible to discuss their options.’

Internet link: Gov news

HMRC warn of phishing email scam

HMRC are warning taxpayers to be wary of the latest in a long line of email phishing scams that claims taxpayers have ‘made mistakes while completing their last tax form application’.

HMRC have updated their list of phishing email scams to include the latest bogus email being circulated. According to HMRC:

‘the email contains a link which should not be clicked as it may direct you to a phishing site or contain malware. Do not respond to this email. Forward it to phishing@hmrc.gsi.gov.uk then delete it.’

Internet link: HMRC examples

Auto enrolment letters and updated thresholds

The Pensions Regulator (TPR) is to write to all small and micro businesses in the coming months as part of a new campaign to give them key information on auto enrolment, including when the duties affect their businesses.

In addition the auto enrolment qualifying earnings bands and earning thresholds have been announced for 2015/16. These thresholds are relevant to employers complying with their automatic enrolment obligations to enrol and then make pension contributions for eligible employees. Employers must meet their obligations from their staging date which can be found by using TPR Website tool.

The revisions in the limits take effect from 6 April 2015 and follow the recommendations from consultation with interested parties.

TPR proposes to revise the limits to the following amounts:

  • £5,824 for the lower limit of the qualifying earnings band
  • £42,385 for the upper limit of the qualifying earnings band

These limits are used by employers to calculate how much pension contributions are due where band earnings are the basis of calculation.

The amount someone must earn to be automatically enrolled into a workplace pension (the earnings trigger) will remain at £10,000 per annum instead of being aligned with the personal allowance as it has been for previous years following concerns that low paid workers will miss out on pension contributions.

If you would like help with auto enrolment please do get in touch.

Internet links: Gov Press release

Government wants suggestions for Budget 2015

HM Treasury is encouraging groups, individuals and representative bodies to submit their ideas for consideration in advance of Budget 2015.

HM Treasury has also published guidance on the correct procedure for making a representation, which advises that ‘representations should contain policy suggestions for the upcoming fiscal event and explain the policy rationale, costs, benefits and deliverability of proposals’.

‘It should also be evidence based, providing clear arguments on how it contributes to the aims of the Budget.’

Written representations for the 2015 Budget can be submitted until Friday 13 February, via an online survey or by emailing budget.representations@hmtreasury.gsi.gov.uk.

Chancellor George Osborne will present Budget 2015 on Wednesday 18 March.

Internet link: News

Pension wise

The government has announced the launch of ‘Pension wise’ which will offer free and impartial guidance to people on the new pension freedoms which comes into effect in April.

Economic Secretary to the Treasury Andrea Leadsom has unveiled the name and logo of the new pensions guidance service.

Pension wise will offer free and impartial information and guidance to people with a defined contribution pension approaching retirement and will be available from April 2015 for individuals approaching retirement.

Economic Secretary to the Treasury Andrea Leadsom said:

‘People who have worked hard and saved all their lives will be free to choose what they do with their money from next April.

We want people to be empowered to make informed and confident choices and I’m delighted to announce Pension wise: Your money. Your choice as the brand name for the impartial guidance service we are building.

Pension wise will be a first port of call for people with a defined contribution pension who are approaching retirement. It is a distinctive brand, making it easy for consumers to know where to go for help and guidance.’

Internet link: News

Strong demand for National Savings ‘pensioner bonds’

The National Savings & Investments website and helpline are experiencing a high volume of enquiries following the launch of their 65+ Guaranteed Growth Bonds which are being referred to as ‘pensioner bonds’.

The bonds are available for a period of one or three years. The taxable bonds offer savers interest of 2.8% over one year and a fixed annual interest rate of 4% over three years with a minimum investment of £500. Investors are restricted to a maximum investment of £10,000 in each of the two products offered.

The new bonds cannot be held within a New Individual Savings Account (NISA) and only pay interest at the end of the savings term. Where investors cash in their investment early, a penalty equivalent to 90 days’ interest will be applied.

Internet link: NS&I bonds

Newsletter – January 2015

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eNews – January 2015

In this month’s eNews we report on a number of issues including an update on the calculation of holiday pay, construction industry changes ahead, guidance on VAT and digital services and the latest disclosure opportunity for solicitors.

Please do get in touch if you would like any further guidance on any of the areas covered.

Changes to the Construction Industry Scheme (CIS)

VAT and digital services

1,773 ‘happy returns’ at Christmas

Holiday pay and overtime update

Tax on the diverted profits dubbed the new ‘Google tax’

Solicitors’ Tax Campaign

RTI: filing penalties and appeals

Changes to the Construction Industry Scheme (CIS)

The government has announced that it will implement a package of improvements to the CIS. The stated aim of the changes is to reduce the administrative and related cost burden on construction businesses. The measures should result in more subcontracting businesses being able to achieve and maintain gross payment status so improving their cashflow. These changes are to be implemented in stages.

From 6 April 2015 the following amendments will be made to the system:

  • The requirement for a contractor to make a return to HMRC even if the contractor has not made any payments in a tax month will be removed. Contractors may make a voluntary nil return but will no longer be obliged to do so.
  • The requirements for joint ventures to gain gross payment status will be relaxed where one member already has this status and that firm or company has a right to at least 50% of the assets or the income or holds at least 50% of the shares or the voting power in the joint venture.
  • Earlier repayments can be made to liquidators in insolvency proceedings. Currently where a subcontractor is a company, no repayment of any amount deducted and paid over to HMRC by a contractor can be made to the subcontractor until after the end of the tax year in which the deduction was made. These rules will be amended so that in certain cases where the amount deducted by the contractor is excessive, a repayment can be made during the tax year.

From 6 April 2016 further changes are proposed:

  • Mandatory online filing of CIS returns will be introduced with the offer of alternative filing arrangements for those unable to access an online channel by reason of age, disability, remote location or religious objection.
  • The directors’ self assessment filing requirements will be removed from the initial and annual compliance tests.
  • The threshold for the turnover test will be reduced to £100,000 in multiple directorship situations.

From 6 April 2017 mandatory online verification of subcontractors will be introduced.

Internet link: CIS

VAT and digital services

HMRC have issued some additional guidance for small businesses which supply digital services to consumers in other EU Member States.

The guidance advises:

  • how to comply with new VAT rules on the place of supply of digital services that came into force on 1 January 2015
  • how to register for HMRC’s VAT Mini-One Stop Shop (MOSS) and still benefit from the UK’s VAT registration threshold for sales to UK consumers.

On 1 January 2015, the VAT rules for cross-border Business to Consumer supplies of ‘digital services’ (for example broadcasting, telecoms and e-services) changed. Broadly from that date, VAT must be accounted for in the Member State where the consumer normally is, rather than where the supplier of the service is established.

HMRC have also issued more general guidance on the change to all businesses which can be found here

If you would like further information on this issue please contact us.

Internet links: News Guidance

1,773 ‘happy returns’ at Christmas

HMRC have reported that they received 1,773 online tax returns on Christmas Day, with the busiest time for online returns on 25 December between midday and 1pm, when 148 Yuletide returns were delivered electronically.

Christmas Eve, which has traditionally been a much busier day for festive filing than Christmas Day, saw 17,644 online returns successfully submitted.

In total, 24,228 online returns were received over the three-day festive period (including Boxing Day) which was a 5% increase on the 2013 total.

HMRC Director General of Personal Tax, Ruth Owen, said:

‘You can file your online return at any time of day or night – even Christmas Day, if it suits you. But don’t leave it too late. Give yourself plenty of time to resolve any problems and if you need to call us, do it now, as our phone lines get much busier as the 31 January deadline approaches.’

The deadline for sending 2013/14 tax returns to HMRC, and paying any tax owed, is 31 January 2015.

Internet link: Gov news

Holiday pay and overtime update

We have previously reported that in the judgment an Employment Appeal Tribunal (EAT) decided that holiday pay should reflect non-guaranteed overtime.

Under the Working Time Regulations 1998 most workers are entitled to paid statutory annual leave. This is 5.6 weeks (28 days) if the employee works five days a week. A worker is entitled to be paid in respect of any period of annual leave for which they are entitled, at a rate of one week’s pay for each week’s leave.

The EAT considered three cases in which employees were required to work overtime if requested by their employees. The EAT referred to this type of overtime as non-guaranteed overtime. The Tribunal decided in the context of non-guaranteed overtime:

  • overtime payments must be taken into account in the calculation of holiday pay if there is a settled pattern of work
  • if the amount of overtime varies but is regularly paid, overtime payments must also be taken into account on an average basis.

Following fears that employers may face large backdating claims the Government has taken action to reduce potential costs to employers by limiting claims by introducing regulations which will mean that claims to Employment Tribunals on this issue cannot stretch back further than two years.

Employees can still make claims under the existing arrangements for the next six months which will act as a transition period before the new rules come into force. The changes apply to claims made on or after 1 July 2015.

Employers and employees can also contact the Acas helpline for free and confidential advice.

If you would like any help in this area please do get in touch.

Internet links: ACAS guidance Gov news

Tax on the diverted profits dubbed the new ‘Google tax’

The government has published draft tax legislation to implement the new tax on diverted profits which has been referred to as the ‘Google tax’. The introduction of a new Diverted Profits Tax which was announced in the 2014 Autumn Statement will target multinational enterprises with business activities in the UK who ‘enter into contrived arrangements to divert profits from the UK by avoiding a UK taxable presence and/or by other contrived arrangements between connected entities’.

The Diverted Profits Tax will be applied using a rate of 25% from 1 April 2015 and is expected to raise £1.4bn over the course of the next five years.

Commenting on the new measure, John Cridland, Director General of the CBI said:

‘International tax rules are in urgent need of updating but there is already an OECD process underway to do this. It is unfortunate that the UK has decided to go it alone with a Diverted Profits Tax outside this process, which will be a real concern for global businesses.’

‘The legislation will be complex to apply, and if other countries follow suit businesses will have a patchwork of uncoordinated unilateral rules to navigate, which risks undermining the whole OECD approach.’

Internet link: CBI News

Solicitors’ Tax Campaign

Solicitors are being given the chance by HMRC to bring their tax affairs up to date or face tougher penalties, as part of a new tax campaign.

The Solicitors Tax Campaign gives solicitors the opportunity to declare any undisclosed income by making a voluntary disclosure. The disclosure opportunity is available to those working within the legal profession either as a solicitor in a partnership or company, or as an individual.

Those affected have until 9 March 2015 to notify HMRC of the undisclosed income and need to complete a disclosure form and pay the outstanding liability by 9 June 2015.

Caroline Addison, Head of Campaigns, HMRC, said:

‘Information gathered by HMRC has allowed us to identify solicitors who thought they could operate without declaring income and paying the taxes that others have to pay. If you have not declared all of your income, you need to put your tax affairs in order. Take this chance to come forward and put things right in a straightforward way and on the best possible terms. It will be easier and cheaper for you to come to us than for us to come to you. Those who make a deliberate decision not to pay the taxes due could face a penalty of 100% or more of the tax due, or even a criminal prosecution.’

Internet links: Gov news1 Gov news2

RTI: filing penalties and appeals

In the latest Employer Bulletin HMRC are reminding employers that they are about to issue penalty notices to those employers who have failed to meet their RTI filing obligations.

Late filing penalties began on 6 October for employers with schemes of 50 or more employees. Those employers who have incurred these penalties will start to receive the penalty notices, which will be issued on a quarterly basis, from the beginning of February 2015.

The notice will be in the form of a ‘paper letter’, and will set out all filing penalties incurred for the third quarter of 2014/15 ( for tax months 7, 8 and 9 covering the period 6 October to 5 January 2015). The penalty notices may contain more than one penalty.

Agents are not sent a copy of this notice so if you receive one and would like guidance on whether the penalty is due or how to appeal against it please do get in touch as soon as possible. Further guidance on this issue can be found on page four of the latest Employer Bulletin.

Internet link: Employer bulletin