Category Archives: Newsletters

Newsletter – January 2017

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Enews – January 2017

In this month’s eNews we report on a number of issues including the Scottish Budget, the Apprenticeship Levy and Personal Tax accounts. We also look at the changes to National Insurance Contributions, SDLT online refund procedures and charity fines.

Scottish Budget

On 15 December, Finance Secretary Derek Mackay delivered the 2017/18 Scottish Draft Budget setting out the Scottish Government’s financial and tax plans.

Scottish Rate of Income Tax

On 6 April 2016, a fundamental change was made to the taxation system for Scottish resident individuals. The main UK rates of income tax were reduced by 10p for Scottish taxpayers and in its place the Scottish Rate of Income Tax (SRIT) was applied equally to all Scottish taxpayers. As the SRIT was set at 10p, the overall income tax rates are currently the same as in the rest of the UK. So, those who are resident in Scotland are currently liable to two types of income tax and pay SRIT at 10% on most mainstream sources of income such as PAYE income, pensions, rental profit and profits from self-employment.

The SRIT does not apply to income from savings such as building society interest or dividends. These rates are the same for all taxpayers across the UK.

The SRIT is in place for one transitional year and will no longer apply from 6 April 2017 as the Scottish Government have exercised their powers to set the tax rates and bands (excluding the personal allowance) on non-savings, non-dividend income of Scottish taxpayers.

Tax bands 2017/18

On 15 December, Finance Secretary Derek Mackay delivered the 2017/18 Scottish Draft Budget setting out the Scottish Government’s financial and tax plans.

For 2017/18, the Scottish Government is proposing to freeze the Scottish basic rate of income tax at 20% and also to freeze the Scottish higher and Scottish additional rates at 40% and 45% respectively. In addition, the higher rate income tax threshold will increase by inflation to £43,430 in 2017/18. The Scottish Government also confirmed that the higher rate income tax threshold will increase by a maximum of inflation in all future years of this Parliament.

The Scottish Government has therefore not followed the UK Government’s plans to extend the threshold for paying the higher rate level of income tax of 40% from £43,000 to £45,000 for 2017/18. This means that a Scottish higher rate taxpayer will pay £314 more tax in 2017/18 than a UK higher rate taxpayer, being £1,570 at the marginal rate of 20% (40% – 20%).

Internet link: Scottish Draft Budget 2017/18

Apprenticeship Levy

The Apprenticeship Levy is being introduced from 6 April 2017 and will be payable by large employers. The Levy will be 0.5% of the employer’s pay bill, which is explained later in this article, but there is an annual allowance of £15,000.The allowance will be given on a pro-rata basis throughout the tax year.

The recent HMRC guidance confirms employers will need to report their Apprenticeship Levy liability each month:

  • from the start of the tax year if:- their annual pay bill (including any connected companies or charities) in the previous tax year was more than £3 million- they believe their annual pay bill (including any connected companies or charities) for the tax year will be more than £3 million
  • if an employer’s annual pay bill (including any connected companies or charities) unexpectedly increases to more than £3 million. In which case the employer will need to start reporting when this happens.

An employer’s annual pay bill is all payments to employees that are subject to employer Class 1 secondary NICs. Broadly wages but excluding benefits and expenses. HMRC have confirmed that employers must include payments to employees for whom there are no employer NICs including:

  • all employees earning below the NIC lower earnings and secondary thresholds
  • employees under the age of 21
  • apprentices under the age of 25

The Apprenticeship Levy will need to be reported each month on the Employer Payment Summary (known as the EPS) and should include the following:

  • the amount of the annual Apprenticeship Levy allowance which has been allocated to that PAYE scheme
  • the amount of Apprenticeship Levy you owe to date in the current tax year

HMRC have confirmed that it is not necessary to report Apprenticeship Levy if the employer has not had to pay it in the current tax year.

If you would like advice on the Apprenticeship Levy or other payroll matters please contact us.

Internet Link: GOV.UK apprenticeship levy

Personal tax accounts ‘first birthday’

The government are celebrating the ‘first birthday’ of their award winning Personal Tax Account which recently won Digital Project of the Year at the annual UK IT Industry Awards

HMRC have announced that in its first year, the Personal Tax Account has attracted more than seven million users and there have been millions of transactions including:

  • 1.6 million Income Tax repayments, worth more than £800 million
  • 1 million tax credit renewals
  • 100,000 people checking or updating their company car details
  • 1.6 million people checking their tax estimate
  • 2 million people checking their state pensions.

The press release also states that the Personal Tax Account is designed to be one stop shop for all customer interactions with HMRC and taxpayers using it can:

  • check their state pension
  • complete and return a Self Assessment tax return
  • update tax credits circumstances as they change throughout the year to prevent under and overpayments
  • claim an Income Tax refund that will be paid straight into their bank account
  • check and update their Marriage Allowance.

If you would like advice on your personal tax affairs please contact us.

Internet link: GOV.UK news

National Insurance changes – winners and losers

Tax campaigners have warned that the abolition of Class 2 National Insurance contributions from April 2018 could result in the lowest earners among the self employed being hardest hit.[a]

Class 2 NICs are flat-rate weekly contributions paid by the self-employed to gain access to contributory benefits. The self-employed also pay Class 4 NICs on profits above the Lower Profits Limit. Class 4 NICs do not currently give access to contributory benefits. At Autumn Statement 2016 the Chancellor confirmed that Class 2 contributions would be abolished from 6 April 2018.[b]

At present, self-employed earners whose profits exceed £5,965 a year, the small profits threshold (SPT), are required to pay Class 2 NI contributions at £2.85 a week. These contributions then count towards their state retirement pension and entitlement to certain other contributory benefits. If their profits fall below the SPT, they have the option to make voluntary Class 2 payments.

When Class 2 is abolished, payment of Class 4 NI contributions will count towards state benefits. In order to protect some people on low incomes, Class 4 contributions will not be payable until annual profits reach £8,060. However, as long as profits exceed the SPT, the self-employed will be given Class 4 credits, so they will be treated as making contributions even though none was actually paid.

A point to note though is that, unlike Class 2, Class 4 NI cannot be paid on a voluntary basis meaning that the only way that self-employed people on profits below the Class 4 threshold will be able to build up a contribution record, if they did not obtain NI credits through receipt of other benefits, eg tax credits, child benefit or Universal Credit, will be by paying Class 3 voluntary contributions at £14.10 a week.[c][d]

Anthony Thomas, Chairman of the Low Income Tax Reform Group commented:

‘Some parts of these proposals are good news for self-employed workers on low earnings, but by no means all. Those with profits between £5,965 and £8,060 will be better off because they will pay no NI but be credited with contributions. Our concern is for those with lower earnings than £5,965 who would have to pay voluntary Class 3 contributions in the future to protect their benefits entitlement if they did not obtain NI credits through receipt of other benefits, for example tax credits, child benefit or Universal Credit. Class 3 contributions will cost almost five times the amount they are paying now (£14.10 per week compared to £2.85 per week) and may mean the cost is unaffordable, leading them to rely more on means-tested benefits in the future.’

Internet links: GOV.UK policy paper Low income tax group

Charity fines

An investigation by the Information Commissioner’s Office (ICO) has revealed that two national charities, the RSPCA and the British Heart Foundation, secretly screened millions of their donors so they could target them for more money. The ICO said that this practice breached the Data Protection Act as the charities failed to handle donors’ personal data in accordance with the legislation.

The charities also traced and targeted new or lapsed donors by piecing together personal information which was obtained from other sources. In addition, they traded data with other charities to create a pool of donor data which was available for sale. As the donors were not informed of these practices, they could not give their consent or object.

The investigation was one of a number by the ICO into the fundraising activities of charities sparked by media reports about pressure on donors to contribute. The Information Commissioner, Elizabeth Denham, fined the RSPCA £25,000 and the British Heart Foundation £18,000.

The ICO can take action, including penalties of up to £500,000, against organisations and individuals that collect, use and keep personal data. Anyone who processes personal information must comply with the eight principles of the Data Protection Act which make sure personal data is:

  1. fairly and lawfully processed
  2. processed for limited purposes
  3. adequate, relevant and not excessive
  4. accurate and up to date
  5. not kept for longer than is necessary
  6. processed in line with an individual’s rights
  7. secure and
  8. not transferred to other countries without adequate protection.

Internet link: ICO news

SDLT online refund procedures

HMRC have introduced an online service to apply for a repayment of the higher rates of Stamp Duty Land Tax (SDLT) for additional properties if the property sold was previously a main home.

From 1 April 2016 higher rates of SDLT are charged on purchases of additional residential properties.

The main target of the higher rates is purchases of buy to let properties or second homes. However, there will be some purchasers who will have to pay the additional charge even though the property purchased will not be a buy to let or a second home. The 36 month rules set out below will help to remove some transactions from the additional rates (or allow a refund).

Care will be needed if an individual already owns, or partly owns, a property and transacts to purchase another property without having disposed of the first property.

The higher rates are three percentage points above the normal SDLT rates. The higher rates potentially apply if, at the end of the day of the purchase transaction, the individual owns two or more residential properties.

Some further detail:

  • where a new main residence is purchased before disposing of a previous main residence the higher rate will be payable. They then have 36 months to dispose of their previous main residence and claim a refund.
  • purchasers will also have 36 months between selling a main residence and replacing it with another main residence without having to pay the higher rates
  • a small share in a property which has been inherited within the 36 months prior to a transaction will not be considered as an additional property when applying the higher rates.

The online refund process will allow those affected to apply for a repayment of the higher rate of SDLT if the property sold was a previous main home.

Internet Link: GOV.UK SDLT repayment of Higher Rate

Latest statistics show unemployment at 4.8%

The government has announced:

‘labour market has finished a record breaking year with unemployment down by over 100,000 people and the rate running at 4.8%’.

Other statistics include:

  • there continues to be 31.8 million people in work, up by 2.7 million since 2010.
  • the number of women in work is at a record high of almost 15 million
  • long-term unemployment has fallen to 418,000 and is the lowest it has been since 2008, down 31,000 on the quarter
  • youth unemployment is 587,000, a fall of 350,000 since 2010
  • 41% of the 420,000 people now receiving Universal Credit are in work.

Secretary of State for Work and Pensions, Damian Green said:

‘This year will be remembered as one when so many records were made – employment has consistently been running at an all-time high with more women, older workers and ethnic minority groups in work than ever before.

Encouragingly, this good news was extended right across the UK.

But there is more to do to help people of all backgrounds and abilities into work, which will remain a priority as we press ahead with our welfare reforms that are ensuring it always pays to be in work.’

Rachel Smith, CBI Principal Labour Market Adviser, said:

‘We see a mixed picture from the labour market over the last three months, with employment levels remaining more or less the same and unemployment seeing a slight drop.’

‘Although wage growth has gone up somewhat, so has inflation, hitting workers’ pay packets in real terms. Boosting productivity in every region and nation of the UK will be essential if firms are to further raise wages sustainably for their employees.’

Internet links: GOV. UK unemployment rate GOV.UK universal credit statistics CBI comment

Newsletter – December 2016

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Enews – December 2016

Autumn Statement update

On Wednesday 23 November the Chancellor Philip Hammond presented his first, and last, Autumn Statement along with the Spending Review.

His speech and the supporting documentation set out both tax and economic measures. Some of the pertinent tax and employee welfare measures announced were:

  • the government reaffirming the objectives to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament
  • a reduction of the Money Purchase Annual Allowance for pensions to £4,000
  • a review of ways to build on Research and Development tax relief
  • tax and National Insurance advantages of salary sacrifice schemes to be removed
  • anti-avoidance measures for the VAT Flat Rate Scheme including the introduction of a higher 16.5% rate for some businesses
  • autumn Budgets commencing in autumn 2017
  • National Living Wage to rise from £7.20 an hour to £7.50 from April 2017
  • Universal Credit taper rate to be cut from 65% to 63% from April 2017.

Internet link: GOV.UK autumn statement documents

Seasonal gifts to employees – make sure they are tax free

At this time of year some employers may wish to make small gifts to their employees.

For many years HMRC have been prepared to accept that trivial benefits were not taxable under certain circumstances. However a statutory exemption has been introduced from the start of the current tax year which should give employers certainty that the benefits provided are exempt and do not result in a reportable employee benefit in kind. In order for the benefit to be exempt it must satisfy the following conditions:

  • the cost of providing the benefit does not exceed £50
  • the benefit is not cash or a cash voucher
  • the employee is not entitled to the voucher as part of a contractual arrangement (including salary sacrifice)
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
  • where the employer is a ‘close’ company and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family, then the exemption is capped at a total cost of £300 in a tax year.

If any of these conditions are not met then the benefit will be taxed in the normal way subject to any other exemptions or allowable deductions.

One of the main conditions is that the cost of the benefit does not exceed £50. If the cost is above £50 the full amount is taxable, not just the excess over £50.The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial. Where the individual cost for each employee cannot be established, an average could be used. Some HMRC examples consider gifts of turkeys, a bottle of wine or alternative gift voucher.

Further details on how the exemption will work, including family member situations, are contained in HMRC manual.

However if you are unsure please do get in touch before assuming the trivial benefit you are about to provide is covered by the exemption.

Internet link: HMRC manual

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 December 2016. 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 December 2016 are:

Engine size Petrol
1400cc or less 11p
1401cc – 2000cc 14p
Over 2000cc 21p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 9p
Over 2000cc 13p
Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
Over 2000cc 13p

HMRC guidance states that the rates only apply when you either:

  • reimburse employees for business travel in their company cars
  • require employees to repay the cost of fuel used for private travel

You must not use these rates in any other circumstances.

If you would like to discuss your car policy, please contact us.

Internet link: GOV.UK AFR

‘No excuses’ for auto enrolment mistakes say TPR

The Pensions Regulator is reminding employers and their advisers, that they need to comply with their auto enrolment duties or face penalties:

‘Being ill or short-staffed isn’t a good enough excuse for your clients failing to comply with their legal duties. Our latest compliance and enforcement report shows that the number of small and micro employers receiving fines has risen after tribunal judges rejected what the employers claimed were ‘reasonable excuses’.

As with any other business activity, if an employer is too unwell to complete their AE duties, they’ll need to find someone else who can. Automatic enrolment is ultimately the employer’s legal responsibility, so whether it’s due to pension provider failings or illness, a judge won’t consider an excuse to be ‘reasonable’, if there’s something they or someone else could have done to remedy the situation in time.’

TPR’s latest ‘Compliance and enforcement Quarterly bulletin’ reports that instances of penalties have risen but so have the amount of employers who are ‘staging’ for auto enrolment.

They have also sent over 6,000 letters to employers reminding them that their deadline for compliance is 31 December 2016.

Please contact us if you would like any help with your duties.

Internet link: TPR bulletin

Making Tax Digital update

Over the summer HMRC published six consultation documents on Making Tax Digital. The six consultations set out detailed plans on how HMRC propose to fundamentally change the method by which taxpayers, particularly the self-employed and landlords, send information to HMRC. Two key changes proposed are:

  • From April 2018, self-employed taxpayers and landlords will be required to keep their business records digitally and submit information to HMRC on a quarterly basis and submit an End of Year declaration within nine months of the end of an accounting period (accounting periods are typically 12 months long).
  • HMRC will make better use of the information which they currently receive from third parties and will also require more up to date information from some third parties, such as details of bank interest. Employees and employers will see the updating of PAYE codes more regularly as HMRC use the data received from the third parties.

HMRC received over 3,000 responses to their consultations which are now closed.

The government has announced it will publish its response to the consultations in January 2017 together with provisions to implement the changes.

Meanwhile HMRC’s Tax Assurance Commissioner Jim Harra has written to the Financial Times stating HMRC’s point of view that ‘Digital tax should not be a burden to businesses’ in a move to allay the concerns that changes will place an additional burden on businesses and their agents.

We will keep you informed of developments.

Internet links: GOV.UK MTD GOV.UK Speech

Recognising genuine contact from HMRC – spotting phishing

HMRC have updated their guidance on how to spot genuine contact from HMRC, and how to tell when an email or text message is phishing or bogus.

Phishing is the fraudulent act of emailing a person in order to obtain their personal and financial information such as passwords and credit card or bank account details. These emails often include a link to a bogus website encouraging you to enter your personal details.

Internet link: Genuine HMRC contact

Autumn Statement 2016

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Autumn Statement 2016

On Wednesday 23 November the Chancellor Philip Hammond presented his first, and last, Autumn Statement along with the Spending Review.

His speech and the supporting documentation set out both tax and economic measures.

Our summary concentrates on the tax measures which include:

  • the government reaffirming the objectives to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament
  • reduction of the Money Purchase Annual Allowance
  • review of ways to build on research and development tax relief
  • tax and National Insurance advantages of salary sacrifice schemes to be removed
  • anti-avoidance measures for the VAT Flat Rate Scheme
  • autumn Budgets commencing in autumn 2017.

In addition the Chancellor announced the following pay and welfare measures:

  • National Living Wage to rise from £7.20 an hour to £7.50 from April 2017
  • Universal Credit taper rate to be cut from 65% to 63% from April 2017.

In the March Budget the government announced various proposals, many of which have been subject to consultation with interested parties. Some of these proposals are summarised here. Draft legislation relating to many of these areas will be published on IPT

5 December and some of the details may change as a result.

Our summary also provides a reminder of other key tax developments which are to take place from April 2017.

Personal Tax

The personal allowance

The personal allowance is currently £11,000. Legislation has already been enacted to increase the allowance to £11,500 for 2017/18.

Not everyone has the benefit of the full personal allowance. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000, which is £1 for every £2 of income above £100,000. So for 2016/17 there is no personal allowance where adjusted net income exceeds £122,000. For 2017/18 there will be no personal allowance available where adjustedk net income exceeds £123,000.

Tax bands and rates

The basic rate of tax is currently 20%. The band of income taxable at this rate is £32,000 so that the threshold at which the 40% band applies is £43,000 for those who are entitled to the full personal allowance.

Legislation has already been enacted to increase the basic rate band to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 in 2017/18 for those entitled to the full personal allowance.

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

Long term commitments to raise the personal allowance and higher rate threshold

The Chancellor has reaffirmed the government’s objectives to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament. He also announced that once the personal allowance reaches £12,500, it will then rise in line with CPI as the higher rate threshold does, rather than in line with the National Minimum Wage.

Tax bands and rates – dividends

Dividends received by an individual are subject to special tax rates. The first £5,000 of dividends are charged to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:

  • 5% for basic rate taxpayers
  • 5% for higher rate taxpayers
  • 1% for additional rate taxpayers.

 

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the £5,000 allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Comment
Many individuals do not have £5,000 of dividend income and so their dividend income is tax free irrespective of the tax rates payable on other income.

Individuals who regard themselves as basic rate taxpayers need to appreciate that all dividends received still form part of the total income of an individual. If dividends above £5,000 are received, the first £5,000 will use up some or all of the basic rate band available. The element of dividends above £5,000 which are taxable may well therefore make the individual a higher rate taxpayer with the dividends being taxed at 32.5%.

Tax on savings income

Savings income is income such as bank and building society interest. Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

In addition, from 2016/17 the Savings Allowance (SA) applies to savings income. Income within the SA is taxed at 0% (the ‘savings nil rate’). However, the available SA in a tax year will depend on the individual’s marginal rate of income tax. Individuals taxed at up to the basic rate of tax will have an SA of £1,000. For higher rate taxpayers, the SA is £500 whilst no SA is due to additional rate taxpayers.

Individual Savings Accounts (ISAs)

The overall ISA savings limit is £15,240 for 2016/17 but will jump to £20,000 in 2017/18.

Lifetime ISA

A new Lifetime ISA will be available from April 2017 for adults under the age of 40. Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.

Comment
The increase in the overall ISA limit to £20,000 for 2017/18 is partly due to the introduction of the Lifetime ISA. There will therefore be four types of ISAs for many adults from April 2017 – cash ISAs, stocks and shares ISAs, innovative ISAs (allowing investment into peer to peer loans) and the Lifetime ISA. Money can be placed into one of each kind of ISA each tax year.

 Pensions

Money Purchase Annual Allowance

The Money Purchase Annual Allowance will be reduced from £10,000 to £4,000 from April 2017.

Comment
The ‘annual allowance’ sets the maximum amount of tax efficient pension contributions. The normal annual allowance is £40,000. The Money Purchase Annual Allowance was introduced in 2015, to restrict the annual allowance to £10,000 when an individual over 55 has taken income from a pension scheme. The government will consult on the detail of the further restriction now announced.

Foreign pensions

The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones.

Universal Credit

Universal Credit is the new state benefit designed to support those on low income or out of work.

An individual’s entitlement to the benefit is made up of a number of elements to reflect their personal circumstances. Their entitlement is tapered at a rate of 65% where claimants earn above the work allowances. The current taper rate for those who claim Universal Credit means their credit will be withdrawn at a rate of 65 pence for every extra £1 earned.

From April 2017, the taper rate that applies to Universal Credit will be reduced from 65% to 63%.

Comment
The Chancellor stated this will let individuals keep more of what they earn and strengthen the incentive for individuals to progress in work. The government estimates that three million households will benefit from this change.

Business Tax

Corporation tax rates

Corporation tax rates have already been enacted for periods up to 31 March 2021.

The main rate of corporation tax is currently 20%. The rate will then be reduced as follows:

  • 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019
  • 17% for the Financial Year beginning on 1 April 2020.

Corporate tax loss relief

Currently, a company is restricted in the type of profit which can be relieved by a loss if the loss is brought forward from an earlier accounting period. For example, a trading loss carried forward can only relieve future profits from the same trade. Changes are proposed which will mean that losses arising on or after 1 April 2017, when carried forward, will be useable against profits from other income streams or other companies within a group. This will apply to most types of losses but not to capital losses.

However, from 1 April 2017, large companies will only be able to use losses carried forward against up to 50% of their profits above £5 million. For groups, the £5 million allowance will apply to the group.

Comment
The removal of the restrictions on the use of carried forward losses is very welcome. The existing rules can result in losses not being used, particularly where a company closes down a loss making trade. Over 99% of companies will be unaffected by the restrictions imposed on large company losses above £5 million.

Corporate interest expense deductibility

Rules will be introduced which limit the tax deductions that large groups can claim for their UK interest expenses from April 2017. These rules will limit deductions where a group has net interest expenses of more than £2 million, net interest expenses exceed 30% of UK taxable earnings and the group’s net interest to earnings ratio in the UK exceeds that of the worldwide group.

Corporation tax on non-resident companies’ UK income

The government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime.

Comment
The government wants to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules.

Research and development

The Chancellor highlighted that research and development is a key driver for economic growth and has committed to an extra £2 billion a year of additional funding by 2020/21. There are two types of tax reliefs for eligible expenditure. Under one of these, qualifying companies can claim a taxable credit of 11% in relation to eligible research and development expenditure. This is known as an ‘above the line’ tax credit. The government will review ways to build on this relief.

Class 2 NICs

Class 2 NICs will be abolished from April 2018, and following this, self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs. Self-employed people with profits below the Small Profits Limit (£5,965 for 2016/17) will be able to access Contributory Employment and Support Allowance through Class 3 NICs.

Substantial shareholding exemption

Where qualifying conditions are met, the disposal of a substantial shareholding in a company by a UK company is exempt from tax. From April 2017, the government intends to simplify the rules of this relief, remove the investing requirement and provide a more comprehensive exemption for companies owned by qualifying institutional investors.

Comment
The substantial shareholding exemption allows some groups of companies to restructure and make disposals of shareholdings without incurring a tax charge. Currently the qualifying conditions are complicated and restricted to trading groups, so the proposed changes may allow more groups to access this valuable relief.

Museums and galleries tax relief

At Budget 2016, the government announced the introduction of a tax relief for museums and galleries that would be available for temporary and touring exhibition costs.

The government has decided to broaden the scope to include permanent exhibitions. The relief will take effect from April 2017. The rates of relief will be set at 25% for touring exhibitions and 20% for non-touring exhibitions and the relief will be capped at £500,000 of qualifying expenditure per exhibition.

Social Investment Tax Relief (SITR)

From 6 April 2017, the amount of investment that social enterprises aged up to seven years old can raise through SITR will increase to £1.5 million. Investment in nursing homes and residential care homes will be excluded initially, however the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future. The limit on full-time equivalent employees for a qualifying social enterprise will be reduced from 500 to 250.

Comment
Individuals investing in a qualifying social enterprises can deduct 30% of the cost of their investment from their income tax liability, either for the tax year in which the investment is made or the previous tax year. The investment must be held for a minimum period of three years for the relief to be retained. In addition there is no capital gains tax on a disposal of the investment.

Disguised remuneration schemes

Recent tax changes have tackled the use of disguised remuneration schemes by employers and employees. Now the government will extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed.

Tackling the hidden economy

Consideration will be made by the government to introduce tax registration as a condition of access to some essential business services or licences.

First year allowances on electric charge-points

Expenditure incurred on or after 23 November 2016 on electric charge-point equipment for electric cars will qualify for a 100% first year allowance. This relief will expire on 31 March 2019 for corporation tax and 5 April 2019 for income tax.

Northern Ireland corporation tax rate

Devolution of power to the Northern Ireland Assembly allows the Assembly to set a Northern Ireland rate of corporation tax to apply to certain trading income. The Northern Ireland Executive has committed to setting a rate of 12.5% in April 2018. The government will amend the Northern Ireland corporation tax regime in Finance Bill 2017 to give all small and medium sized enterprises trading in Northern Ireland the potential to benefit. Commencement of the devolved power is subject to the Northern Ireland Executive demonstrating its finances are on a sustainable footing.

 Venture capital schemes

The government has proposed to make further changes to tax-advantaged venture capital schemes including the Enterprise Investment Scheme, the Seed Investment Scheme and Venture Capital Trusts to clarify some rules and provide some additional flexibility and certainty.

Employment Issues

Off-payroll working in the public sector

From April 2017, where workers are engaged through their own limited company to work for a public sector body, responsibility to apply the intermediaries rules (commonly known as the IR35 rules) will fall to the public sector body, agency or other third party paying the worker’s company. The public sector body, agency or other third party will be liable to pay any associated income tax and National Insurance.

Where individuals are working through their own limited company in the private sector, the existing rules will continue to apply.

To help the public sector body, agency or other third party to determine whether the intermediaries rules apply, HMRC will provide a new interactive online tool. The aim is to support the decision making process, not only for public sector employers, but also for individuals working through their own limited company in the private sector.

Apprenticeship levy and apprenticeship funding

Larger employers will be liable to pay the apprenticeship levy from April 2017. The levy is set at a rate of 0.5% of an employer’s pay bill, which is broadly total employee earnings excluding benefits in kind, and will be paid along with other PAYE deductions. Each employer receives an annual allowance of £15,000 to offset against their levy payment. This means that the levy will only be paid on any pay bill in excess of £3 million in a year.

Draft apprenticeship levy regulations make it clear that only where an employer has a levy liability, or expects to have a levy liability during the tax year, will they need to engage with reporting the apprenticeship levy to HMRC.

The levy will be used to provide funding for apprenticeships and there will be changes to the funding for apprenticeship training for all employers as a consequence. Each country in the UK has its own apprenticeship authority and each will be making changes to their scheme.

Alignment of income tax and National Insurance contributions (NICs)

Currently, liabilities to pay income tax and NICs are calculated in different ways for employees. Employers are also required to pay NICs on most of the wages and salaries paid to employees.

The Office of Tax Simplification (OTS) was tasked with a project to examine whether a closer alignment could be achieved between income tax and NICs. After its initial report in March 2016, the government asked the OTS to undertake further reviews on two recommendations from the initial report. The OTS has now published a further report on the recommendations.

The two recommendations are:

  • Moving to an annual, cumulative and aggregated assessment period for employees’ NICs on employment income, similar to PAYE for income tax. NICs would not be calculated separately on each employment but on all employments added together with one NIC free allowance split between them.
  • Basing employer NICs on whole payroll costs. At present, employer NICs are calculated at 13.8% of employees’ weekly or monthly pay, over a threshold of £156 per week. The OTS proposal is to break the link of employer NICs with the calculation of individual employees’ NICs and base the calculation of employers’ liabilities on total payroll costs. The OTS explored eight options of which the best would be to replace the employee threshold with a cumulative annual employee allowance per employer.

National insurance thresholds

From April 2017 the threshold above which employer and employee NICs will become payable will be aligned at £157 per week. This is as recommended by the OTS and should simplify the payment of NICs for employers.

National Living Wage and National Minimum Wage (NMW) rates

Following the recommendations of the independent Low Pay Commission, the government will increase the National Living Wage from £7.20 to £7.50 from April 2017. The government will also accept their recommendations to increase the NMW rates from April 2017 for:

  • 21 to 24 year olds from £6.95 to £7.05 per hour
  • 18 to 20 year olds from £5.55 to £5.60 per hour
  • 16 to 17 year olds from £4.00 to £4.05 per hour
  • apprentices from £3.40 to £3.50 per hour.

The NMW rates were last increased in October 2016.

The government has also announced that they will invest an additional £4.3 million per year to strengthen NMW enforcement. This will fund new HMRC teams to review those employers considered most at risk of non-compliance with the NMW. Other measures will provide additional support targeted at small businesses to help them comply and a campaign to raise awareness amongst workers and employers of their rights and responsibilities.

Legal support

From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support from their employer. This should help support all employees and ensure fairness in the tax system. Currently, only those requiring legal support because of allegations against them can use the tax relief.

Forms of remuneration review

Employers can choose to remunerate their employees in a range of different ways in addition to a cash salary. The tax system treats these different forms of remuneration inconsistently and the government will therefore consider how the system could be made fairer between workers carrying out the same work under different arrangements. The review will look specifically at how the taxation of benefits in kind and expenses could be made fairer and more coherent. The government will take the following action:

Salary Sacrifice

The tax and employer NICs advantage of salary sacrifice schemes will be removed from April 2017. This change will not apply to arrangements relating to pensions, childcare, Cycle to Work and ultra-low emission cars. This means that employees who exchange salary for benefits will pay the same tax as individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.

Valuation of benefits in kind

The government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017.

Employee expenses

The government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer.

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. There is a 3% diesel supplement. The maximum charge is capped at 37% of the list price of the car.

From 6 April 2017 there will be a 2% increase in the percentage applied by each band with a similar increase in 2018/19. For 2019/20 the rate will increase by a further 3%.

From 6 April 2017 the appropriate percentage for cars which have neither a CO2 emissions figure nor an engine cylinder capacity, and which cannot produce CO2 emissions in any circumstances by being driven, will be set at 9%. From 6 April 2018 this will be increased to 13% and from 6 April 2019 to 16%.

For 2020/21 new lower bands will be introduced for the lowest emitting cars whilst the appropriate percentage for cars emitting greater than 90 g/km will rise by one percentage point.

Capital Taxes

Capital gains tax (CGT) rates

The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties that do not qualify for private residence relief.

The rate for disposals qualifying for Entrepreneurs’ Relief is 10% with a lifetime limit of £10 million for each individual. Entrepreneurs’ Relief is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses. In 2016/17 a new relief, Investors’ Relief, was introduced which also provides a 10% rate with a lifetime limit of £10 million for each individual. The main beneficiaries of this relief are external investors in unquoted trading companies.

Example of CGT rates 2016/17
Annie, a higher rate taxpayer, will pay tax at these rates on the following chargeable gains after deduction of the annual exemption:

Type Amount of gain Tax rate
Eligible for Entrepreneurs’ Relief £100,000 10%
A residential property £30,000 28%
Other gains £10,000 20%

The annual exemption can be used in the most favourable way for the taxpayer – that is against the residential property gains in this example.

Inheritance tax (IHT) nil rate band

The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.

IHT residence nil rate band

An additional nil rate band is being introduced for deaths on or after 6 April 2017 where an interest in a main residence passes to direct descendants. The amount of relief is being phased in over four years; starting at £100,000 in the first year and rising to £175,000 for 2020/21. For many married couples and civil partners the relief is effectively doubled as each individual has a main nil rate band and each will potentially benefit from the residence nil rate band.

The additional band can only be used in respect of one residential property which does not have to be the main family home but must at some point have been a residence of the deceased. Restrictions apply where estates are in excess of £2 million.

Where a person dies before 6 April 2017, their estate will not qualify for the relief. A surviving spouse may be entitled to an increase in the residence nil rate band if the spouse who died
earlier has not used, or was not entitled to use, their full residence nil rate band. The calculations involved are potentially complex but the increase will often result in a doubling of the residence nil rate band for the surviving spouse.

Downsizing

The residence nil rate band may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the residence nil rate band, are passed on death to direct descendants.

Comment
The potential increase in the nil rate band is to be welcomed by many individuals but the increase has introduced considerable complexity to IHT. From April 2017 we have three nil rate bands to consider. The standard nil rate band has been a part of the legislation from the start of IHT in 1986. In 2007 the ability to utilise the unused nil rate band of a deceased spouse was introduced enabling many surviving spouses to have a nil rate band of up to £650,000. By 6 April 2020 some surviving spouses will be able to add £350,000 in respect of the residence nil rate band to arrive at a total nil rate band of £1 million. However this will only be achieved by careful planning and, in some cases, it may be better for the first deceased spouse to have given some assets to the next generation and use up some or all of the available nil rate bands.

 

For many individuals, the residence nil rate band will be important but individuals will need to revisit their wills to ensure that the relief will be available and efficiently utilised.

Employee Shareholder Status to be abolished

Employee Shareholder Status (ESS) was made available from 1 September 2013 and enables employee shareholders, who agreed to give up certain statutory employment rights, to receive at least £2,000 of shares in their employer or parent company free of income tax and NICs. They also benefit from a CGT exemption on the eventual gains on shares with an original value of up to £50,000. This was subject to a lifetime limit of £100,000 for arrangements entered into after 16 March 2016.

These tax advantages linked to shares awarded under ESS will be abolished for arrangements entered into on or after 1 December 2016. The government has also announced that the status itself will be closed to new arrangements at the next legislative opportunity.

Comment
This change is being made in response to evidence suggesting that the status is primarily being used for tax planning instead of supporting a more flexible workforce.

Other Matters

Making Tax Digital

On 15 August 2016 HMRC published six consultation documents on Making Tax Digital. The six consultations set out detailed plans on how HMRC propose to fundamentally change the method by which taxpayers, particularly the self-employed and landlords, send information to HMRC. Two key changes proposed are:

  • From April 2018, self-employed taxpayers and landlords will be required to keep their business records digitally and submit information to HMRC on a quarterly basis and submit an End of Year declaration within nine months of the end of an accounting period (accounting periods are typically 12 months long).
  • HMRC will make better use of the information which they currently receive from third parties and will also require more up to date information from some third parties, such as details of bank interest. Employees and employers will see the updating of PAYE codes more regularly as HMRC use the data received from the third parties.

The government has announced it will publish its response to the consultations in January 2017 together with provisions to implement the changes.

Non-UK domiciles

A number of changes are to be made from 6 April 2017 for individuals who are non-UK domiciled but who have been resident for 15 of the previous 20 tax years. Such individuals will be classed as ‘deemed’ UK domiciles for income tax, CGT and IHT purposes.

For income tax and CGT, a deemed UK domicile will be assessable on worldwide income and gains. There will be relieving provisions for some individuals who become deemed UK domiciled, such as the ability to rebase overseas assets on 5 April 2017 for CGT purposes, but conditions will be set.

A deemed UK domicile is chargeable on worldwide assets for UK IHT rather than only on UK assets if non-UK domicile. The effect of these reforms is that an individual will become deemed UK domiciled for IHT at the start of their sixteenth consecutive year of UK residence, rather than at the start of their seventeenth year of residence under the current rules.

Non-UK domiciles with UK domicile of origin

Individuals with a UK domicile of origin, who were born in the UK and who resume UK residence after a period of being non-UK domicile will be treated as UK deemed domicile whilst resident in the UK. A short grace period is proposed for IHT before the rule impacts but not for income tax and CGT purposes.

UK residential property

Changes are also proposed for UK residential property. Currently all residential property in the UK is within the charge to IHT if owned by a UK or non-UK domiciled individual. It is proposed that all residential properties in the UK will be within the charge to IHT where they are held within an overseas structure. This charge will apply whether the overseas structure is held by an individual or trust.

Business Investment Relief

The government will change the rules for the Business Investment Relief scheme from April 2017 to make it easier for non-UK domiciled individuals, who are taxed on the remittance basis, to bring offshore money into the UK for the purpose of investing in UK businesses. The government will continue to consider further improvements to the rules for the scheme to attract more capital investment in UK businesses by non-UK domiciled individuals.

VAT Flat Rate Scheme

An anti-avoidance measure will be included within the Flat Rate Scheme. A new 16.5% rate will apply from 1 April 2017 for businesses with limited costs, such as many labour-only businesses, using the Flat Rate Scheme. Businesses using the scheme, or considering joining the scheme, will need to decide if they are a ‘limited cost trader’.

A limited cost trader will be will be defined as one whose VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period
  • greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).

There will be exclusions from the calculation to prevent attempts to inflate costs above 2%.

Comment
The Flat Rate Scheme is only available to smaller businesses. The flat rate depends on the trade sector and the rates range from 4% to 14.5%. Some businesses will need to perform further calculations to determine whether the trade sector rate or the 16.5% rate applies.

Insurance Premium Tax

The standard rate of Insurance Premium Tax will rise from 10% to 12% from 1 June 2017.

Comment
The rate was recently increased from 9.5% to 10% on 1 October 2016.

The last Autumn Statement

Following the spring 2017 Budget, the Budget will be delivered in the autumn, with the first one taking place in autumn 2017. The Office for Budget Responsibility will produce a spring forecast from spring 2018 and the government will make a Spring Statement responding to that forecast. The Statement will review wider economic and fiscal challenges and launch consultations. The government will retain the option to make changes to fiscal policy at the Spring Statement if the economic circumstances require it.

 

Comment
As the Chancellor stated in his speech ‘No other major economy makes hundreds of tax changes twice a year, and neither should we’. This change should also allow for greater Parliamentary scrutiny of Budget measures ahead of their implementation. We shall see whether the Chancellor refrains from making late policy changes in spring of each year.

 

Disclaimer – for information of users

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 Autumn 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 – November 2016

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Enews – November 2016

In this month’s eNews we report on recent developments including the announcement that the plans to introduce a secondary market for annuities have been scrapped together with advice for employers on late filing penalties, avoiding incorrect RTI returns and the provision of childcare voucher provision and how to avoid incorrect RTI returns.

We also consider the latest tax gap statistics, updated phishing guidance from HMRC and a new website to help charities tackle fraud.

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

PAYE late filing penalties

HMRC have published the latest issue of the Employer Bulletin with articles on a variety of topics relevant to employers.

One article advises that HMRC have issued the Quarter 1 late filing penalty notices, which cover the period 6 April to 5 July 2016 and have confirmed that these penalties will continue to be issued on a risk assessed basis.

HMRC have confirmed that a late filing penalty will generally not be charged for delays of up to three days after the statutory filing date, but that they may contact employers who persistently file after the statutory filing date but within three days, and they risk being considered for a penalty.

The Bulletin includes advice on how to appeal against a penalty online and states:

‘If you receive a penalty notice which includes multiple penalty defaults and you believe you had a reasonable excuse for each, make sure you appeal against all of the defaults shown on your penalty notice, including any default with a zero charge. If your appeal is accepted, the un-penalised default can then be applied to a later month, reducing the value of any future penalty charges you might incur.’

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

Internet link: Employer Bulletin

Latest guidance for employers

Statutory Maternity Leave and Childcare Vouchers

Following the decision of an Employment Appeal Tribunal (Peninsula Business services v Donaldson) regarding Childcare Vouchers (CCVs), salary sacrifice and maternity leave, HMRC are considering what guidance is needed. In the interim they have confirmed:

If CCVs are provided under an employment contract, outside the scope of a salary sacrifice scheme, then the vouchers must continue to be provided during maternity leave and other periods of family leave (other than unpaid parental leave). There is legal authority that whether an employer must provide CCVs to a person participating in a salary sacrifice scheme in respect of a period when they are on family leave, depends on the terms of the contract of employment. In the Peninsula case, the contract said that an employee on maternity leave would not continue to receive CCVs. The judgment is only of direct relevance in dealing with similar contractual exclusions. Employers are free to continue making payments into a salary sacrifice scheme to buy CCVs on behalf of an employee on family leave if they wish. Use of CCVs that employees already have is not affected by the judgment.

Avoiding errors when reporting PAYE information to HMRC

This article is particularly concerned with incorrect reporting of CIS and statutory payments.

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

Internet link: Employer Bulletin

Tax gap falls to 6.5%

The Office for National Statistics has announced that the UK tax gap fell in 2014/15 to its lowest ever level of 6.5%.

The press release confirms that the UK tax gap, the difference between the amount of tax due and the amount collected, is one of the lowest in the world.

HMRC have reduced the tax gap from 8.3% in 2005/06. If the tax gap had remained at the 2005 to 2006 level of 8.3%, it would have grown to £47 billion and the country would have been £11 billion a year poorer.

HMRC believe that the tax gap has fallen, in part, due to digital reporting. In particular Real Time Information reporting for the PAYE system has led to more accurate recording of information on payroll taxes, and the shift to VAT online has helped bring the VAT gap in 2014/15 to its lowest level of 10.3% (£12.7 billion).

The Financial Secretary to the Treasury, Jane Ellison said:

This government is committed to tackling tax evasion and avoidance wherever it occurs.

The UK has one of the lowest tax gaps in the world. By investing £1.8 billion since 2010 in boosting HMRC compliance capabilities, we’ve brought our tax gap down to its lowest ever level. And to make it even easier for people to pay the right tax in the future, we’ve invested £1.3 billion in new digital tools.

Internet link: GOV.UK

HMRC update phishing guidance

HMRC have updated their guidance to taxpayers on how to spot phishing scam emails.

Phishing is the fraudulent act of emailing a person in order to obtain their personal/financial information such as passwords and credit card or bank account details. These emails often include a link to a bogus website designed to encourage the unwary to enter their personal details.

The HMRC guidance is designed to help taxpayers to recognise genuine contact from HMRC, and how to tell when an email/text message is phishing/bogus.

Internet link: GOV.UK recognising phishing emails

New website to help charities tackle fraud

The Charity Commission for England and Wales, together with members of the Charity Sector Counter Fraud Group, have launched a new website to help charities tackle fraud. The website is designed to provide guidance for trustees, staff and volunteers who want more information on tackling fraud in their charity, and includes guidance, tips and case studies, together with links to other organisations tackling charity fraud.

The new website has been launched to mark the start of Charity Fraud Awareness Week (24-28 October). The campaign reminds charities how to limit their fraud risk and aims to ensure that trustees and charity staff can recognise the warning signs of fraud and offers advice on an effective and proportionate response.

David Kirk, Chairman of the Fraud Advisory Panel, commented:

‘Fraud presents a serious threat to every organisation but unfortunately charities can be particularly vulnerable due to the high number of financial transactions they undertake. Fraud can manifest itself in many different forms and is constantly evolving – which is why we are urging everyone working with charities and not-for-profit organisations to join together and stop fraud against charities. Charity staff and trustees must stay alert to the risks and understand how to manage them.’

Internet links: www.charitiesagainstfraud.org.uk GOV.UK news

Plans to allow pensioners to sell annuities abandoned

The government has announced that it is shelving plans to allow pensioners to sell their annuities for a lump sum.

Many experts had predicted that those who sold their annuities would be likely to get a poor deal and the government has decided not to take forward the plans to introduce a secondary annuities market because the consumer protections required could undermine the market’s development.

It has become clear that creating the conditions to allow a competitive market to emerge could not be balanced with sufficient consumer protections.

The Economic Secretary to the Treasury, Simon Kirby, said:

‘Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.

It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited.

Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do.

The government has always been clear that for the majority of people keeping their annuity incomes will be their best option, estimating that only 5% of people who currently hold an annuity would take advantage of this reform.’

Internet link: GOV.UK news

Newsletter – October 2016

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Enews – October 2016

In this month’s eNews we report on recent developments including plans for the Autumn Statement, new National Minimum Wage rates, more detail on the Lifetime ISA and Tax Free Childcare. We also consider whether VAT is recoverable on a car following a recent Tribunal decision as well as updated Gift Aid guidance for charities.

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

Autumn Statement plans

The Chancellor of the Exchequer, Philip Hammond, will present his first Autumn Statement to Parliament on Wednesday 23 November 2016.

The Chancellor recently met with representatives from British business and business groups to listen to their views ahead of the Autumn Statement. The events, which took place at the Treasury and Downing Street, also provided the opportunity for discussions regarding leaving the EU.

The Chancellor said:

‘My message to businesses is clear: in our negotiations to leave the EU, we will work hard to get the best deal for Britain and that includes ensuring that British companies can continue to trade with the single market in goods and services.’

Carolyn Fairbairn, Director General of the CBI, commented:

‘Business wants the openness of the UK’s economy to be preserved – specifically access to markets, skills and trade – and to see an ambitious Autumn Statement that drives investment and growth, and delivers jobs and prosperity for all of the UK’s regions.’

We will keep you up to date with pertinent announcements from the Autumn Statement.

Internet links: GOV.UK News Gov.UK News

Tax Free Childcare

HMRC have announced further details of the new Tax Free childcare scheme which is to be introduced in 2017.

To be eligible, families will have to have all parents in work and each expecting to earn at least £115 per week and less than £100,000 a year and not be already receiving support through Tax Credits or Universal Credit.

The government will top up the account with 20% of childcare costs up to a total of £10,000 – the equivalent of up to £2,000 support per child per year (or £4,000 for disabled children).

HMRC are asking childcare providers to register for the scheme as soon as possible.

Tax-Free Childcare will be launched from early 2017. The scheme will be rolled out gradually to families, with parents of the youngest children able to apply first. Parents will be able to apply for all their children at the same time, when their youngest child becomes eligible. All eligible parents will be able to join the scheme by the end of 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 April 2018.

The existing system of employer supported childcare provides an income tax and national insurance contributions (NIC) relief. The maximum relief is an exemption from income tax and NIC on £55 a week. This relief is per employee so if both parents are in employment the maximum exemption is £110 per week. In the new scheme the limit is per child.

Throughout September and October 2016, letters are being sent to regulated and approved childcare providers asking them to sign up online for Tax-Free Childcare. Only childcare providers registered with a regulator (such as Ofsted) can receive Tax-Free Childcare payments.

The government will make more information available, including details of how parents can sign up, later this year.

Internet link: GOV.UK tax free childcare

Deadline for ‘paper’ self assessment tax returns

For those individuals who have previously submitted ‘paper’ self assessment tax returns the deadline for the 2015/16 return is 31 October 2016. Returns submitted after that date must be submitted electronically or they will incur a minimum penalty of £100. The penalty applies even when there is no tax to pay or the tax is paid on time.

If you would like any help with the completion of your return please do get in touch.

Internet link: GOV.UK Self Assessment

Increase in NMW rates

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 2016.

  • the rate for 21 to 24 year olds will increase by 25 pence to £6.95 per hour
  • the rate for 18 to 20 year olds will increase by 25 pence to £5.55 per hour
  • the rate for 16 to 17 year olds will increase by 13 pence to £4.00 per hour
  • the apprentice rate will increase by 10 pence to £3.40 per hour.

The mandatory National Living Wage (NLW) applies for workers aged 25 and above. This is £7.20 an hour.

NLW and NMW rates will in the future be uprated every April starting in April 2017.

Penalties

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

National Living Wage hits small business costs

According to research, 47% of small business owners blame increased wages following the introduction of the NLW as the main contributor to rising costs.

The research, carried out by the Federation of Small Businesses (FSB), revealed that a third of FSB members claim that the NLW has led to a small increase in their wage costs while one in five have said that their staff costs have increased significantly. Although 59% of FSB members absorbed the increased costs through reduced profitability, 35% have increased prices, 24% reduced staff hours and 23% cut investment.

Updated guidance

HMRC have updated their guidance on payroll reporting including what employers should include on the Full Payment Submission (FPS) and Employer Payment Summary (EPS) returns.

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

Internet links: ACAS article FSB press release Payroll guidance

VAT claim on company cars allowed

HMRC recently lost a first tier tribunal case on the recovery of VAT on the purchase of six cars.

Although most VAT registered businesses are able to recover the VAT on the purchase of commercial vehicles the rules for the recovery on a car state two conditions must be met:

  • the vehicle must be used exclusively for business purposes and
  • it is not made available for private use.

In the case of Zone Contractors Ltd the court accepted that six cars were not available for private use which allowed the business to successfully recover the VAT on the six cars.

The business had a strongly worded contract of employment that prevented employees from using company cars for private travel. This was the crucial factor in this case and allowed the business to recover over £27,000 in input VAT on the purchase of six new cars.

The tribunal was satisfied that the cars were wholly used for business purposes and were not available for private use. The tribunal also rejected HMRC’s argument that the company had failed to demonstrate that the cars were not available for private use.

Other factors which were relevant:

  • The Tribunal was satisfied that all employees signed a contract when they first joined the company, which included the following ‘It is hereby strictly forbidden for the Employee to use the Company vehicle for any personal use inside/outside their employment hours’.
  • The six cars were always kept overnight at the company’s offices or were left on site.
  • Zone Contractors carry out groundwork projects and the vehicles were appropriate for for site based work.
  • The taxpayer also successfully counteracted HMRC’s argument that the insurance cover of the vehicles included use for ‘social, domestic and pleasure’ (SDP), and was not just restricted to business use. But the tribunal accepted it was impossible to have a business only policy without the SDP clause.
  • HMRC also put forward an argument that private use of a car would include detours to buy ‘cigarettes or lunch while out on a business journey or even going off site to collect lunch’. The tribunal concluded that such use could be ignored as de minimis.
  • The intended use of the car at the time it is purchased is crucial. The private use issue means that either a legal restriction to prevent such use or a physical restriction must be in place.

HMRC may appeal against the decision.

Internet link: Tribunal decision

Updated guidance on Gift Aid

HMRC have updated their guidance for charities and community amateur sports clubs (CASC) on claiming Gift Aid on donations.

The guidance has been amended to reflect updated guidance on the retail Gift Aid process operated by charity shops on donated goods.

Internet link: GOV.UK guidance

Lifetime ISA

Following consultation the government has issued further details of the new Lifetime ISA account which is expected to be available from April 2017.

In summary the account will be available to adults under the age of 40 and individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account and can be withdrawn from age 60 completely tax free.

The new Lifetime ISA is designed to allow flexible saving for first time buyers and those wishing to save for their retirement.

Further details of the new Lifetime ISA are as follows:

  • Any savings an individual puts into the account before their 50th birthday will receive an added 25% bonus from the government.
  • There is no maximum monthly contribution and up to £4,000 a year can be saved into a Lifetime ISA.
  • The savings and bonus can be used towards a deposit on a first home worth up to £450,000 across the country.
  • Accounts are limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together.
  • Where an individual already has a Help to Buy ISA they will be able to transfer those savings into the Lifetime ISA in 2017/18, or continue saving into both. However only the bonus from one account can be used to buy a house.
  • Where funds are withdrawn at any time before the account holder is aged 60 they will incur a 25% government charge applied to the amount of the withdrawal. This returns the government bonus element of the fund (including any interest or growth on that bonus) to the government with a small additional charge applied.
  • After the account holder’s 60th birthday they will be able to take all the savings tax free.

Internet link: GOV.UK technical note

Newsletter – September 2016

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Enews – September 2016

In this month’s eNews we report on recent developments including HMRC consultations on Making Tax Digital and new sanctions for tax avoidance as well as guidance on the implications of new UK GAAP.

We also report on HMRC’s advice on spotting scams, how to complain online and industry concerns about the introduction of the new Lifetime ISA.

We also include guidance for employers and employees including the new advisory fuel rates and the latest Employer Bulletin.

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

HMRC outline Making Tax Digital plans

HMRC have issued a series of consultation documents outlining further plans for the government’s Making Tax Digital (MTD) initiative.

HMRC have published six consultation documents on MTD. The six consultations set out detailed plans on how HMRC propose to make tax digital and to simplify the tax system. The consultations look at the following areas:

  • How digital record keeping and regular updates will operate – this considers compulsory digital record-keeping and quarterly ‘updates’ to HMRC and an End of Year declaration within nine months of the end of the period of account.
  • Options to simplify tax for unincorporated businesses, including changes to basis periods, extending cash basis accounting and reducing reporting requirements for unincorporated businesses.
  • Extending cash basis accounting to unincorporated property businesses.
  • Voluntary pay as you go arrangements, where taxpayers can pay what they want when they want, subject to the normal payment on account rules. Regular direct debit arrangements and quarterly payments on account are also being considered.
  • Changes to tax administration, including changes to the enquiry regime, penalties for late submission of quarterly updates and End of Year declarations and also the late payment of tax.
  • How HMRC will make better use of the information which they currently receive from third parties, including updating of PAYE codes more regularly and coding out of bank interest via PAYE.

Commenting on the plans, Jane Ellison Financial Secretary to the Treasury said:

‘This new system will make the UK’s tax administration more efficient and straightforward and will offer businesses greater clarity when it comes to paying their tax bills.’

However professional bodies have expressed their concerns about HMRC’s proposals. Frank Haskew, Head of the Tax Faculty at the Institute of Chartered Accountants in England and Wales, said:

‘This is not the time to be rushing through fundamental changes to business processes that are likely to result in major upheaval and extra costs, especially when the business benefit to the UK has not been clearly demonstrated.’

Under the Government’s plans, the changes to the tax system will be introduced gradually between 2018 and 2020. We will keep you informed of developments.

Internet link: GOV.UK MTD

Government propose new sanctions for tax avoidance

The government has announced new proposals for sanctions for ‘enablers and users of tax avoidance which is defeated by HMRC’.

The consultation proposes a new penalty for those who enable tax avoidance and changes to the existing penalty legislation which applies to those who use avoidance.

The proposals are to introduce ‘sanctions for those who design, market or facilitate the use of tax avoidance arrangements which are defeated by HMRC and to change the way the existing penalty regime works for those whose tax returns are found to be inaccurate as a result of using such arrangements.’

The government is seeking views on proposals for sanctions against those who enable or use tax avoidance arrangements which are later defeated.

Internet link: GOV.UK consultation

Accounting standards and the tax implications of new UK GAAP

HMRC have updated their guidance on the tax implications of changes to the ‘generally accepted accounting practice’ used to prepare financial statements as many UK companies will be required to apply one of the EU-endorsed IFRS, FRS 101 or FRS 102 over the next few years.

HMRC have stated that the purpose of these two papers is to assist companies who are thinking of choosing or have already chosen to apply either FRS 101 or FRS 102. The guidance includes an overview of the key accounting changes and key tax considerations that arise.

Please contact us if you would like information on how these changes will affect you and your business.

Internet link: GOV.UK accounting standards

HMRC genuine and phishing/bogus emails and calls

HMRC have issued an update of their guidance on how to recognise genuine HMRC contact be it via email or text.

They have also issued a warning regarding two telephone scams that they are aware of.

The details of the two phone scams are as follows:

  • Taxpayers receive telephone calls claiming to be from HMRC requesting personal information in order to receive a tax refund, or to demand money for an unpaid tax bill.
  • A recorded message is left, allegedly from HMRC, advising ‘that HMRC are bringing a lawsuit against the individual and is going to sue them. The recipient is asked to phone 0161 8508494 and press “1” to speak to the officer dealing with the case.

HMRC are advising that taxpayers should not reply to the message and should report this to Action Fraud, or you can call Action Fraud on 0300 123 2050.

Internet links: HMRC guidance Employer Bulletin

Complain to HMRC – online

HMRC have always had complaints procedures and have extended these to now include an online form which can be used to make complaints about your self-assessment and PAYE. The guidance also includes other ways to complain.

If you would like help with PAYE or self assessment issues please contact us.

Internet link: GOV.UK guidance

Government urged to delay the launch of Lifetime ISA

The government is being urged by both pension providers and banks to delay the April 2017 launch of the new Lifetime ISA as they are warning that they will not be ready to offer the savings product by this time.

A new Lifetime ISA introduces a new type of savings account for adults under the age of 40. Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.

Further details of the new account, which is expected to be available from 2017, are as follows:

  • Any savings an individual puts into the account before their 50th birthday will receive an added 25% bonus from the government.
  • There is no maximum monthly contribution and up to £4,000 a year can be saved into a Lifetime ISA.
  • The savings and bonus can be used towards a deposit on a first home worth up to £450,000 across the country.
  • Accounts are limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together.
  • Where an individual already has a Help to Buy ISA they will be able to transfer those savings into the Lifetime ISA in 2017, or continue saving into both. However only the bonus from one account can be used to buy a house.
  • Where the funds are withdrawn at any time before the account holder is aged 60 they will lose the government bonus (and any interest or growth on this) and will also have to pay a 5% charge.
  • After the account holder’s 60th birthday they will be able to take all the savings tax-free.

In the article published by This is Money pension providers Aegon and Standard Life have stated that they have delayed their plans until final details regarding the Lifetime ISA are released.

The Financial Conduct Authority (FCA) is yet to consult on the initiative. Steven Cameron, Pensions Director at Aegon, stated that a consultation is ‘likely to take three months’ to carry out.

Meanwhile, a spokesperson for Standard Life said: ‘As we want the Lifetime ISA to be a success, we would prefer that its launch is delayed until providers receive more detail on the product and how it is to be implemented.’

The Treasury is expected to confirm full details in the autumn.

Internet link: Article

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which take effect from 1 September 2016. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 September 2016 are:

Engine size Petrol
1400cc or less 11p
1401cc – 2000cc 13p
Over 2000cc 20p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 9p
Over 2000cc 13p
Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
Over 2000cc 13p

The guidance states that the rates only apply when you either:

  • reimburse employees for business travel in their company cars
  • require employees to repay the cost of fuel used for private travel

You must not use these rates in any other circumstances.

If you would like to discuss your car policy, please contact us.

Internet link: GOV.UK AFR

Guidance for employers

HMRC have issued their latest guidance to employers in the August edition of the Employer Bulletin. This publication, which is issued every two months, includes articles on:

  • expenses and benefits in kind consultations
  • HMRC Toolkits – helping to reduce errors
  • Automatic penalties for late intermediary returns
  • the Apprenticeship Levy and apprentices
  • guidance on paying HMRC
  • student loan deductions
  • Automatic enrolment update
  • National insurance contributions for employees over State Pension age
  • Basic PAYE tools usage
  • the impact on tax codes of the Personal Savings Allowance.

For help with your payroll contact us.

Internet link: Employer Bulletin

Newsletter – August 2016

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Enews – August 2016

In this month’s eNews we report on forthcoming restrictions in interest relief on residential property, TPR statistics and HMRC’s latest ‘tax cheat’ targets. We also report on the latest labour market statistics, revised student loan deduction guidance for employers, ACAS guidance on working in hot temperatures, should we have any more, and the latest Charity annual return.

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

Residential property income and interest relief

The government has issued guidance and examples on the restriction of income tax relief for interest costs incurred by landlords of residential properties. The new rules, which are phased in from April 2017, only apply to residential properties and do not apply to companies or furnished holiday lettings.

From April 2017 income tax relief will start to be restricted to the basic rate of tax. The restriction will be phased in over four years and therefore be fully in place by 2020/21. In the first year the restriction will apply to 25% of the interest, then 50% the year after and 75% in the third.

The restriction may result in additional amounts of tax being due but will depend on the marginal rate of tax for the taxpayer. Basic rate taxpayers should not be substantively affected by these rules. A higher rate taxpayer will, in principle, get 20% less relief for finance costs. However the calculation method may mean that some taxpayers move into the higher rate tax brackets as the following example illustrates:

Consider the 2020/21 tax year when the transitional period is over. Assume that the personal allowance is £11,000, the basic rate band £32,000 and the higher rate band starts at £43,000.

Assume Ellisha has a salary of £28,000, rental income before interest of £23,000 and interest on the property mortgage of £8,000. Under the current tax rules, taxable rental income is £15,000. She will not pay higher rate tax as her total income is £43,000 – the point from which higher rate tax is payable.

With the new rules, taxable rental income is £23,000. So £8,000 is taxable at 40% – £3,200. Interest relief is given after having computed the tax liability on her income. The relief is £8,000 at 20% – £1,600. So an extra £1,600 tax is payable.

Other complications

It should be noted that the tax reduction cannot be used to create a tax refund. So the amount of interest relief is restricted where either total property income or total taxable income (excluding savings and dividend income) of the landlord is lower than the finance costs incurred. The unrelieved interest is carried forward and may get tax relief in a later year.

Child benefit is clawed back if ‘adjusted net income’ is above £50,000. Interest will not be deductible in the calculation of ‘adjusted net income’.

The personal allowance is reduced if ‘adjusted net income’ is above £100,000.

Please contact us if you would like advice on how these rules will affect you.

Internet links: News Examples

TPR latest pensions auto enrolment awareness

According to the latest research by the TPR, based on surveys carried out between February and April 2016, the understanding amongst small employers of their duties under pensions auto enrolment saw a significant rise from 68% to 81%.

Executive Director of Automatic Enrolment, Charles Counsell said:

‘More than 9 in 10 small employers are now aware of automatic enrolment, and there is now almost universal engagement from business advisers helping their clients to carry out their duties.

This is the first employers’ survey since large numbers of small and micro employers have begun to visit TPR’s website for help in meeting their duties. It’s great to see such positive feedback, with 79% of the employers who used our website finding all or most of what they needed.’

Other key findings from the employers’ survey were as follows:

  • Understanding remained largely unchanged for micro employers, rising from 56% to 60%.
  • Direct communications from TPR continued to be the main catalyst for employers to start preparing for automatic enrolment. Of those employers who stated that both TPR direct communications and advertising prompted action, nearly two thirds stated the advertising encouraged them to look again at the direct communications.
  • The vast majority (90%) of employers continued to express confidence in future compliance with automatic enrolment (93% in Autumn 2015).
  • The majority of employers continued to have positive perceptions of workplace pensions. However, automatic enrolment was still more likely to be perceived as a challenge among micro employers than among small employers.

The research can be found here employers’ research.

If you would like help with pensions auto enrolment please contact us.

Internet link: TPR press release

HMRC latest ‘tax cheat’ targets

HMRC have launched a new taskforce to tackle wealthy tax cheats who are living beyond their means in Northern Ireland and expect the campaign to recover approximately £18 million.

HMRC have announced that they are using Land Registry and Merchant Acquirer data to identify those with ‘badges of wealth’ such as large houses, aeroplanes, boats and undeclared offshore bank accounts which are not in keeping with the information they report to HMRC.

HMRC’s Ian McCafferty, Taskforce Lead, said:

‘Our intelligence shows that people being targeted by this taskforce have no intention of playing by the rules and could end up facing a heavy fine or even a criminal conviction. Those who pay the tax they are supposed to have nothing to worry about.

Using the information we hold, we can target people whose lifestyle does not reflect the tax they are paying. It’s not fair that a small minority are living the millionaire lifestyle as a result of them not paying their tax, while the rest of us live within our means and pay our fair share.

Earlier this year a separate taskforce used similar HMRC data to identify and prosecute Dr Francis Gerard D’Arcy, a Belfast ear, nose and throat consultant. After a successful prosecution, he was sentenced to four concurrent, two-year jail sentences for evading taxes of nearly £500,000. This new taskforce will be targeting similar wealthy individuals who have evaded their taxes.’

Other HMRC taskforces are in operation in various parts of the country. These can be viewed here

Internet link: News

Latest ONS labour market statistics

The ONS has announced that in the three months from March to May 2016, the number of people in work increased. The number of unemployed people and the number of people not working and not seeking or available to work (economically inactive) fell.

The statistics reveal that there were:

  • 31.70 million people in work (176,000 more than for the three months to February 2016 and 624,000 more than for a year earlier).
  • 23.19 million people working full-time (401,000 more than for a year earlier)
  • 8.52 million people working part-time (223,000 more than for a year earlier).

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.4%.

There were 1.65 million unemployed people (people not in work but seeking and available to work), 54,000 fewer than for the three months to February 2016.

Average weekly earnings increased by 2.3% including bonuses and by 2.2% excluding bonuses compared with a year earlier.

Rain Newton-Smith, CBI Chief Economist, said:

‘These figures confirm the UK labour market continued to create jobs ahead of the referendum vote, although there was some underlying uncertainty represented by falling vacancies and subdued wage growth.

Prospects for the labour market are now more uncertain following the UK’s decision to leave the EU. This highlights the need for continued labour market flexibility, and to ensure the National Living Wage remains affordable for businesses, reflecting the broader economic situation.

Ultimately, increasing productivity, including by ensuring everyone has the skills to meet their full potential, will help to share prosperity across all areas of the UK.’

Internet links: ONS Bulletin CBI news

Updated student loan deduction guidance

HMRC have issued updated guidance to employers on how to deal with student loan deductions via the PAYE system.

Employers should familiarise themselves with the guidance which has been updated to reflect the introduction of plan 2 loans which are repayable from a different threshold but at the same nine percent basis.

With effect from the 2016/17 tax year there are two plan types for student loan repayments:

  • plan 1 with a threshold of £17,495 (£1,457 a month or £336 per week)
  • plan 2 with a threshold of £21,000 (£1,750 a month or £403 per week)

The updated guidance includes the following advice on identifying the plan type:

‘Start making student loan deductions from the next available payday using the correct plan type if any of the following apply:

  • your new employee’s P45 shows deductions should continue – ask your employee to confirm their plan type
  • your new employee tells you they’re repaying a student loan – ask your employee to confirm their plan type
  • your new employee fills in a starter checklist showing they have a student loan – the checklist should tell you which plan type to use
  • HM Revenue and Customs (HMRC) sends you form SL1 ‘Start Notice’ – this will tell you which plan type to use

If your employee doesn’t know which plan type they’re on, ask them to contact the Student Loan Company (SLC). If they’re still unable to confirm their plan type, start making deductions using plan type 1 until you receive further instructions from HMRC.’

If you would like any advice or help with payroll matters please get in touch.

Internet link: Guidance

Working in hot temperatures

ACAS have some guidance on ‘hot weather’ working. The guidance confirms that:

‘In the UK there is no maximum temperature that a workplace is allowed to be, rather advice from the Health & Safety Executive (HSE) states ‘during working hours, the temperature in all workplaces inside buildings shall be reasonable’. What is reasonable depends on the type of work being done (manual, office, etc) and the type of workplace (kitchen, air conditioned office, etc).

The HSE offers further guidance on workplace temperatures including details on carrying out an optional thermal comfort risk assessment if staff are unhappy with the temperature – Health and Safety Executive (HSE) – Temperature.’

The ACAS guidance also covers issues such as getting to work, keeping cool at work, fasting during hot weather, vulnerable workers and dress code during hot weather.

Internet link: ACAS website

Charity news

Annual returns

The Charity Commission, which is the relevant body for charities registered in England and Wales, has announced that its latest annual return is now available and can be found on GOV.UK.

All registered charities, in England and Wales, with an income of more than £10,000 and all Charitable Incorporated Organisations reporting on their financial years ending in 2016 must complete the online form within ten months of the end of their financial year.

Part of the data submitted is used to populate the Charity Commission’s online public register of charities, which is a key source of data about charities in England and Wales.

The Charity Commission would like trustees to be aware that the function to view and amend details about a charity’s trustees, contact addresses and emails is now separate from the annual return, so charities can update these details at any time. Charities will also be asked to confirm that this information is correct before submitting their annual return.

David Holdsworth, Chief Operating Officer at the Charity Commission, said:

‘We are delighted to announce the official launch of the 2016 annual return in both English and Welsh. This is a first for the commission and is also part of our commitment to becoming a truly digital by default regulator. We have worked closely with the sector to ensure we are providing easy to use services that help trustees comply with their filing duties.

Although charities have 10 months from the end of their financial year to complete their annual return, we urge them not to wait until then. We also encourage them to take a minute to make sure their information is up to date, and to use the built in customer feedback to tell us what they think.’

The commission is also taking this opportunity to remind trustees that filing their charity’s annual return on time is essential so that:

  • they are accountable to the regulator,
  • transparent in their activities for the benefit of the public, and
  • demonstrate compliance to their donors.

Failure to file on time can result in the commission taking regulatory action.

Northern Ireland

For charities registered in Northern Ireland the Charity Commission for Northern Ireland is the relevant body and returns should be submitted via charitycommissionni/annual reporting. This applies to registered charities, not to those on the deemed list which have not yet been entered on the register.

Scotland

Please note that for charities registered in Scotland the equivalent return, should be submitted to the Scottish Charity Regulator within nine months of their year end OSCR/online-services.

Fundraising

In other charity news the Scottish Charity Regulator has announced the adoption of a new model for fundraising regulation for Scotland. In England, Wales and Northern Ireland the new Fundraising Regulator will oversee standards for fundraising and deal with complaints about charity fundraising.

In Scotland a new Independent Panel, with representatives from the public, fundraising professional bodies, charities, OSCR and the Scottish Government will fulfil this function. The aim is to have the panel in place by the autumn of 2016. In the meantime a Scottish fundraising complaints hub has already been set up.

Please contact us for further information on charity returns and accounts or any guidance in this area.

Internet link: News

Newsletter – June 2016

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Advisory fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 June 2016. 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 2016 are:

Engine size Petrol
1400cc or less 10p
1401cc – 2000cc 13p
Over 2000cc 20p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 9p
Over 2000cc 13p
Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 10p
Over 2000cc 12p

The guidance states that the rates only apply when you either:

  • reimburse employees for business travel in their company cars
  • require employees to repay the cost of fuel used for private travel

You must not use these rates in any other circumstances.

If you would like to discuss your car policy, please contact us.

Internet link: GOV.UK AFR

PAYE 3 days grace and risk based penalties to continue

HMRC have confirmed, in their updated guidance, that the three day easement and risk assessed approach to issuing penalties will continue to apply for 2016/17. As a result employers will not incur penalties for delays of up to three days in filing PAYE information during the 2016/17 tax year.

Late filing penalties will continue to be reviewed on a risk-assessed basis rather than be issued automatically.

Employers are required to file a Full Payment Submission (FPS) on or before each payment of wages is made to employees. Limited exceptions apply to this deadline which are set out at https://www.gov.uk/running-payroll/fps-after-payday’.

HMRC will not charge a late filing penalty for delays of up to three days after the statutory filing date, however employers who persistently file late, will be monitored and may be contacted or considered for a penalty.

If you would like help with payroll matters please do get in touch.

Internet link: GOV.UK Penalties

VAT Flat Rate Scheme guidance updated

HMRC have issued updated guidance on the operation of the VAT Flat Rate Scheme which allows taxpayers to calculate the VAT payable by applying a flat rate percentage to their VAT inclusive turnover, rather than netting off output and input VAT due on sales and purchases.

The revision in the guidance follows a number of unsuccessful visits to the First Tier Tribunal (FTT). HMRC has issued a revised version of VAT notice 733 Flat Rate Scheme to update their guidance in accordance with the FTT decisions.

The previous version of the notice listed a number of trades and professions (at paragraph 4.4 of the guidance) and indicated the relevant sectors and percentages that these types of business should choose. These had a higher percentage than the 12% rate which applies to ‘business services not listed elsewhere’.

The FTT was critical of HMRC in their rigid interpretation of their own guidance. Although this section of the guidance has not been removed, taxpayers are now advised to ‘use ordinary English’ and choose the sector which ‘most closely describes what your business will be doing in the coming year’. The new guidance confirms that HMRC will not change a business’s choice of sector retrospectively as long as the choice was reasonable.

Please contact us if you would like any advice on VAT matters.

Internet link: VAT Notice 733

NAO report says HMRC’s customer service quality ‘collapsed’

According to a report by the National Audit Office (NAO) the quality of service at HMRC ‘collapsed’ over an 18 month period between 2014 and 2015.

The report found that average call waiting times tripled in 2014/15 and in the first seven months of 2015/16. Call waiting times for self assessment tax returns peaked at 47 minutes last autumn, which resulted in HMRC having to bring in 2,400 extra staff for their tax helpline.

Using HMRC’s own criteria, the NAO valued people’s time at an average of £17 an hour, and, as a result, calculated that callers would have wasted a total of £66 million while waiting on the phone, £21 million while actually talking to HMRC and £10 million on the cost of the call itself.

The NAO report blames the poor performance on HMRC’s decision to cut 11,000 staff between 2010 and 2014 in the move to persuade more people to complete their tax returns online. The report claims that HMRC ‘misjudged the cumulative impact of its complex transition and released too many customer service staff before completing service changes’.

In other words, it greatly underestimated how many call centre staff would still be required to help taxpayers with self assessment queries.

Amyas Morse, head of the NAO, said:

‘HMRC’s overall strategy of using digitally enabled information to improve efficiency and deliver service in new ways make sense to the NAO. This does not change the fact that they got their timing badly wrong in 2014, letting significant numbers of call handling staff go before their new approach was working reliably.

This led to a collapse in service quality and forced a rapid expansion of headcount. HMRC needs to move forward carefully and get their strategy back on track while maintaining, and hopefully improving, service standards.’

HMRC said its service levels had improved since the period analysed in the NAO report, and that, over the last six months, call waiting times had averaged six minutes.

Ruth Owen, HMRC’s director general for customer services, said:

‘We recognise that early in 2015 we didn’t provide the standard of service that people are entitled to expect and we apologised at the time. We have since fully recovered and are now offering our best service levels in years.’

Internet links: NAO press release HMRC news

HMRC update phishing scam advice

HMRC have updated their guidance to taxpayers on how to spot phishing scam emails.

Phishing is the fraudulent act of emailing a person in order to obtain their personal/financial information such as passwords and credit card or bank account details. These emails often include a link to a bogus website designed to encourage the unwary to enter their personal details.

The HMRC guidance is designed to help taxpayers to recognise genuine contact from HMRC, and how to tell when an email/text message is phishing/bogus.

Internet link: HMRC guidance

HMRC urges claimants to renew tax credits online

HMRC are urging people to renew their tax credits claim well before the 31 July deadline.

HMRC have made improvements to the online renewal service and recommend claimants renew their claim online once they receive their renewal pack which is issued between April and June. The online service can now accommodate all changes in circumstances (working hours, childcare costs or income) which affect the amount of someone’s entitlement.

Nick Lodge, HMRC’s Director General, Benefits and Credits, said:

‘Our online service means that you can renew at any time of the day or night, and on any device, without having to call us. Online help can also answer most queries you may have and a web chat facility will be available to support people renewing online. We urge everyone who can to go online.

Our customers should check their details and renew early to ensure they get the right money. The sooner people renew their claim, the sooner we can check payments are correct, meaning we avoid paying too little money, or too much, which claimants then have to pay back.’

This year, claimants renewing online will be able to access further information, including viewing their next payment, through their own online Personal Tax Account.

Internet link: Press release

P11D deadline approaching

The forms P11D, and where appropriate P9D, which report details of expenses and benefits provided to employees and directors for the year ended 5 April 2016, are due for submission to HMRC by 6 July 2016. The process of gathering the necessary information can take some time, so it is important that this process is not left to the last minute.

Employees pay tax on benefits provided as shown on the P11D, either via a PAYE coding notice adjustment or through the self assessment system. In addition, the employer has to pay Class 1A National Insurance Contributions at 13.8% on the provision of most benefits. The calculation of this liability is detailed on the P11D(b) form. The deadline for payment of the Class 1A NIC is 19th July (22nd for cleared electronic payment).

HMRC produce an expenses and benefits toolkit. The toolkit consists of a checklist which may be used by advisers or employers to check they are completing the forms correctly.

If you would like any help with the completion of the forms or the calculation of the associated Class 1A NIC please get in touch.

Internet links: HMRC guidance Toolkit

Newsletter – May 2016

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Enews – May 2016

In this month’s eNews we report on various issues including a tribunal ruling that parking fines are not deductible. The latest HMRC guidance for employers, changes to the VAT Fuel Scale charges, an update on the uptake of Pensions Freedom and the introduction of new rules for the averaging of farming profits.

We also include details of the new rules for the taxation of savings income. Please contact us for further information on any of these areas.

Parking fines ruled not deductible

Farmers averaging

VAT fuel scale charges

Savings allowance

Pensions Freedom Update

HMRC guidance for employers

Parking fines ruled not deductible

A tribunal has ruled that security firm G4S cannot reduce its profits for tax purposes by deducting parking fines.

The company, G4S Cash Solutions, tried to reduce their corporation tax bill by approximately £580,000 but the first-tier tribunal has ruled in HMRC’s favour in rejecting the claim for the deduction of the fines.

The company G4S incurred a substantial amount of parking fines usually while delivering consignments of cash over the pavement. The business tried to claim these were a business expense and so could be used to reduce the company’s profits for tax purposes.

The tribunal ruled G4S staff consciously and deliberately decided to break parking restrictions for commercial gain.

The ruling upholds HMRC’s long standing view that fines for breaking the law cannot be used to reduce a tax bill.

HMRC’s Director General of Business Tax, Jim Harra, said:

‘We’ve always said fines incurred for breaking the law are not tax deductible. The tribunal has now established a clear precedent for rejecting any future such claims.’

If you would like advice on calculating your taxable profits and the deductibility of any expenditure please get in touch.

Internet links: Press release Tribunal decision

Farmers’ averaging

Changes have been made to the rules which allow farmers to average their profits for tax purposes. Under the new rules unincorporated farmers will be able to average their profits for income tax purposes over five years rather than the previous two years.

The amendment to the rules which took effect from 6 April 2016 is aimed at helping farmers with fluctuating profits better manage the ‘risk and the impact of global volatility which has become an inherent feature of the agricultural industry’.

Chancellor George Osborne said:

‘… reforms will provide farmers with additional security to plan and invest for the future, allowing them to spread profits over a longer period of time. Over 29,000 farmers can benefit from the changes, saving an average of £950 a year.’

As well as having the new option to average tax over five years, farmers will also retain the choice to average profits over two years.

If you would like guidance on how these rules will affect you please get in touch.

Internet link: Gov.uk publications

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 2016.

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 this or other VAT matters.

Internet link: Gov.uk Fuel scale charges

Savings allowance

A new savings allowance is available to basic and higher rate taxpayers for 2016/17. The amount available depends on the individual’s circumstances:

  • If any of the individual’s income for the year is additional rate income then the individual’s savings allowance for the year will be nil.
  • If any of the individual’s income for the year is higher-rate income and none of the individual’s income for the year is additional rate income, the individual’s savings allowance for the year is £500.
  • If none of the individual’s income for the year is higher rate income, the individual’s savings allowance for the year is £1,000.

No tax will be payable on savings income until the new savings allowance has been used up.

In a further change, banks and building societies will no longer deduct tax at source from interest at 20%. This means that non-taxpayers will no longer need to fill out an R85 to receive bank and building society interest gross. However, companies will still need to account for 20% at source on payments of interest.

The 0% savings starting rate also remains available on the first £5,000 of taxable savings income for those with the correct split of income. This would apply where non savings income, broadly pay, trade profits and property income are no more than the personal allowance. This means that for some, the effect of the personal allowance (£11,000 for 2016/17), the £5,000 starting rate band and the new savings allowance (£1,000 for basic rate taxpayers for 2016/17) means that it may be possible to receive up to £17,000 savings income tax-free in 2016/17.

In light of the above changes please contact us if you would like to review your tax position on savings income.

Internet link: Gov.uk Publication

Pensions Freedom Update

According to HMRC figures over 230,000 people have used the new pension freedoms introduced one year ago and accessed over £4.3 million in pensions saving.

In April 2015, the government introduced significant pension reforms giving people the ability to access their pensions savings how and when they want. The statistics show that in the first year of these new rules being available, more than 232,000 people have accessed £4.3 billion flexibly from their pension pots.

The Economic Secretary to the Treasury, Harriett Baldwin said:

‘It’s only right that people should have a choice over what they do with their money and in their first year our successful pension freedoms have already given thousands of people access and responsibility over their hard-earned savings.

We will continue to make sure that the pension freedoms work well for everyone, including through working with our partners to ensure consumers are protected and that there is simple information to help people understand their options.

The government has already taken action to ensure the new freedoms work for consumers and that they have the right information to make informed decisions.

It has announced that it will be capping early exit fees, allowing earlier access to Pension Wise guidance, and working with industry to introduce a Pensions Dashboard.

It has also announced that it is extending the popular freedoms even further, giving millions more people the right to sell their annuities if it’s best for them from April 2017.’

Since the pension flexibility rules took effect from 6 April 2015:

  • 232,000 individuals have accessed their money flexibly
  • People have flexibly accessed over £4.3 billion of their own money through 516,000 payments.
  • In the most recent quarter, 74,000 individuals withdrew £820 million. In the previous quarter, 67,000 individuals withdrew £800 million.
  • Figures are taken from information voluntarily reported to HMRC by pension scheme administrators from 6 April 2015 to 31 March 2016. It is not mandatory for scheme administrators to flag these up as pension flexibility payments until April 2016.
  • HMRC statistics cover ‘flexible payments’, which means partial or full withdrawal of the pension pot, taking money from a flexible drawdown account, or buying a flexible annuity.

If you would like advice on the tax implications of pensions freedom please contact us.

Internet links: Gov.uk Pensions flexibility Gov.uk News

HMRC guidance for employers

The April Employer Bulletin includes articles on:

  • reporting expenses and benefits in kind for 2015/16 using form P11D
  • Scottish Rate of Income Tax coding notice issues
  • Class 1 National Insurance contributions for apprentices under the age of 25
  • changes to Student Loans Deductions including the introduction of type 1 and type 2 loans and the reminders which HMRC will issue to employers who fail to make deductions.

The Bulletin also includes links to HMRC’s guidance on the restriction to Employment Allowance for Single Director Companies.

If you would like any help with payroll or P11D completion issues please contact us.

Internet link: Employer Bulletin