Newsletter – November 2017

Enews – November 2017

In this month’s eNews we report on Budget announcements and the introduction of new taxes in Wales and Scotland of Land Transaction Tax and Air Departure Tax. We also consider HMRC’s new method of Simple Assessment for certain taxpayers, the Criminal Finances Act, proposals for Help to Save Accounts and new guidance for employers.

Autumn Budget wishlist

With the Chancellor’s first Autumn Budget due to be presented on 22 November, professional bodies and business groups are setting out their Budget wishlists. Recommendations include changes to Business Rates, a ‘Brexit ready’ Budget, incentives for business and an appeal for changes to the Apprenticeship Levy. The ICAEW is urging that the government give sufficient attention to Making Tax Digital to ensure a successful roll out and making the necessary changes to accommodate Brexit.

Meanwhile, the Federation of Small Businesses (FSB) has urged Philip Hammond to deliver a ‘Brexit-ready’ Budget, which rules out any new business tax increases and maintains investment incentives.

We will update you on pertinent announcements.

Internet links: CBI FSB ICAEW autumn budget

Simple Assessment

HMRC have changed the way in which they will assess some taxpayers removing the need for these individuals to complete a Self Assessment Tax Return. These changes took effect from September 2017.

The affected taxpayers fall into one of two categories:

  • new state pensioners with income more than the personal tax allowance (£11,000) in 2016/17; and
  • employees or pensioners with PAYE tax codes who have underpaid tax and who cannot have that tax collected through their tax code because it is too high to code out.

HMRC have also confirmed that all existing state pensioners who complete a tax return because their state pension is more than their personal allowance will be removed from self assessment in 2017/18. This may mean that some clients are dropped out of self assessment and issued an assessment instead based on the information which HMRC hold. Of course, whether the assessment is actually correct will be a different matter.

HMRC state:

‘HMRC will write to customers from September 2017 with a tax calculation. This could be a P800 or a Simple Assessment letter (PA302).

The letter will show their:

  • income from pay
  • pensions
  • state benefits
  • savings interest
  • employee benefits.

Customers just need to check the information is correct, and if it is they can pay their bill online or by cheque by the deadline in the letter.

If a customer thinks any information is incorrect they have 60 days to contact HMRC. For instance, if they think amounts used are wrong or HMRC didn’t act on information received.

Should customers miss the deadline they should contact HMRC to discuss their circumstances or financial penalties will be applied in line with current policy.

If customers are not happy with the follow-up response from HMRC, they have 30 days to appeal against the decision.’

If you would like help with your personal tax affairs please get in touch.

Internet link: GOV.UK briefing policy paper

Welsh Land Transaction Tax

The Welsh Assembly has announced the proposed rates and bands for land transaction tax (LTT) which is to be introduced for land and property in Wales on 1 April 2018, replacing Stamp Duty Land Tax.

Under the new rates for LTT, Wales will have the highest starting threshold for the property tax in the UK. The proposed rates are as follows:

Residential Non-residential
0% £0 – £150,000 £0 – £150,000 0%
2.5% £150,001 – £250,000 £150,001 – £250,000 1%
5% £250,001 – £400,000 £250,001 – £1m 5%
7.5% £400,001 – £750,000 £1m plus 6%
10% £750,001 – £1.5m
12% £1.5m-plus

Announcing the rates and bands, Professor Mark Drakeford, Cabinet Secretary for Finance and Local Government, said:

‘From April, Wales will introduce the first Welsh taxes in almost 800 years, supporting first-time buyers and boosting business.

The devolution of tax powers provides us with the opportunity to reshape and make changes to improve existing taxes to better meet Wales’ needs and priorities. I have always been clear that we will use these powers to help improve fairness and support jobs and economic growth in Wales.

These new progressive rates and bands for land transaction tax and landfill disposals tax will make a real difference to people’s lives; help change behaviours and deliver improvements to communities across Wales. We are being bold but balanced and leading the way in creating a fair and progressive tax system.’

Internet link: GOV.UK Wales

Scottish Budget proposals

On 14 December, the Scottish Budget will set out the Scottish Government’s financial and tax plans.

Currently taxpayers who are resident in Scotland pay income tax on their non-savings and non-dividend income at rates and thresholds determined by the Scottish Government. Scottish higher and additional rate taxpayers may pay more income tax than those with similar income in the rest of the UK. The Scottish Parliament is considering plans to radically revise the bands and possibly to introduce some further income tax rates so that middle and higher earners pay additional tax.

The Scottish Parliament are also expected to announce the details of Air Departure Tax which takes effect for flights from Scotland from April 2018.

We will keep you up to date with pertinent announcements.

Internet links: BBC news

Criminal Finances Act

The Criminal Finances Act 2017 took effect on 30 September 2017. It makes companies and partnerships, a ‘relevant body’, criminally liable if they fail to prevent the facilitation of tax evasion being carried out by an employee, anyone acting on their behalf or someone acting as an agent. If found guilty, the business could face unlimited fines and potentially further consequential sanctions within their industry or profession.

This Act has the effect of creating an offence at corporate and partnership level which does not require the directors/partners to have had any knowledge of the offence in question. Broadly, the offence is the failure to prevent the crimes of those who act for or on behalf of the corporate body or partnership instead of the need to attribute criminal acts to that body.

For a firm to be criminally liable under the new Act, there are three elements of the offence:

  • There must be the execution of a criminal act of tax evasion.
  • The crime must have been facilitated or carried out by a person associated with a relevant body.
  • The relevant body failed to initiate adequate prevention procedures in relation to the act carried out by the associated person.

A defence is available when it can be shown that ‘reasonable prevention procedures’ were in place to prevent the associated person from committing or facilitating the crime; or that it would have been unreasonable or disproportionate to expect such procedures to be in place.

The government advises that any reasonable prevention procedures should be based on six guiding principles:

  1. Risk assessment – the relevant body should assess the nature and extent of its exposure to the risk of an associated person committing a criminal act;
  2. Proportionality – the procedures should take into account the nature, scale and complexity of the relevant body’s activities;
  3. Top level commitment – the management of the relevant body should be committed to preventing illegal acts and should foster a culture that tax evasion and its facilitation is never acceptable;
  4. Due Diligence – with appropriate procedures put in place with respect to all people who perform services for the relevant body;
  5. Communication – training staff and ensuring the message effectively gets across to all employees and agents;
  6. Monitoring and reviewing – ensuring that whatever procedures are put into place are regularly reviewed and updated and amended where necessary.

Please contact us if you require further information on this issue.

Internet link: GOV.UK Tackling tax evasion corporate-offence

Help to Save Accounts

The government have announced details of a new Help to Save saving scheme. The scheme is government backed and designed to support working people on low incomes build up their savings.

The scheme, administered by HMRC, will be open to working people who receive Working Tax Credits, and those who receive Universal Credit with a household income equivalent to at least 16 hours a week at the national living wage (currently £120 a week).

Over a four year period, savers can deposit up to £50 per month.

At the end of two years, savers will get a 50% bonus based on the highest balance achieved. Savers can then carry on saving for another two years and get another 50% bonus on their additional savings.

Over four years those saving the maximum amount of £2,400 will receive bonuses of £1,200.

Money paid into the account can be withdrawn at any time but will affect the final bonus payment.

The government has confirmed that all transactions, including checking the balance and paying in savings, will be managed in an online account available through GOV.UK and that further information will be available from early 2018.

Internet link: GOV.UK help to save

New guidance for employers

HMRC have issued the October 2017 Employer Bulletin which contains a number of articles relevant to employers on payroll related issues.

HMRC are advising that following the changes to the valuation of benefits in kind (BiK) where there is a cash option available, they will consult and then issue the necessary amendments to the PAYE Regulations. The guidance will also clarify the taxable amounts that need to be reported under Optional Remuneration and salary sacrifice arrangements.

Where a BiK is taken rather than the alternative cash option, the taxable value of the benefit is the higher of the cash foregone or the taxable value under the normal BiK rules. Transitional provisions apply for arrangements entered into before 6 April 2017.

The Bulletin also includes articles on:

  • Changes to Business Tax Account for employers, including new data on the Apprenticeship Levy and the introduction of monthly and annual statement pages
  • Data matters – ensuring RTI returns are submitted on or before the date the wages are paid, that the returns are accurate, cover all employees, including those that earn less than the National Insurance lower earnings limit
  • Paying HMRC at the Post Office – via transcash. This option will be withdrawn from 15 December 2017
  • Construction Industry Scheme – clarification of when CIS deductions should be reported via the Employer Payment Summary (EPS)
  • Student Loans – new income thresholds from April 2018 for Plan Type 1 and 2 loans
  • Apprenticeships benefit your business – includes links to help on finding apprenticeship training and recruiting an apprentice.

For help with payroll matters please get in touch.

Internet link: Employer Bulletin

Newsletter – October 2017

Enews – October 2017

In this month’s eNews we update you on the latest government announcements on Making Tax Digital for Business (MTDfB). We also include the announcement of the Budget dates by Philip Hammond and Derek Mackay. With HMRC offering a new support service for growing businesses, a new Trusts Registration Service, updated phishing guidance and the ‘paper’ tax return deadline looming, there is lots to consider.

Making Tax Digital for VAT

The government have issued information on how Making Tax Digital for Business (MTDfB) is expected to work for VAT once the rules are introduced in April 2019.

Under the proposed rules, which have been issued subject to consultation, VAT registered businesses with turnover over the VAT registration threshold will be required to submit their VAT return digitally using software. Businesses with a turnover above the VAT threshold (currently £85,000) will have to:

  • keep their records digitally (for VAT purposes only) and
  • provide their VAT return information to HMRC through Making Tax Digital (MTD) functional compatible software.

This software will either be a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API). The functions of the compatible software include:

  • keeping records in a specified digital form
  • preserving digital records in a specified digital form
  • creating a VAT return from the digital records and providing HMRC with this information digitally
  • providing HMRC with VAT data on a voluntary basis and
  • receiving information from HMRC via the API platform that the business has complied.

Businesses will need to preserve digital records in the software for up to six years. Further information on the required information can be found in Annex 1

The government will make the final detailed requirements available to the software providers by April 2018 to allow time for the software to be developed and tested prior to the rules coming into effect from April 2019.

VAT is the first tax to be reportable under MTD and businesses within the scope of MTD will need to keep their records digitally, using approved MTD functional compatible software, from 1 April 2019. The software will create the return from the digital records and this will need to be submitted under MTD for return periods starting on or after 1 April 2019.

We will keep you informed of developments in this area and ensure we are ready to deal with the new requirements. Please contact us for more information.

Internet link: GOV.UK MTD VAT legislation overview

Budget on Wednesday 22 November and 14 December

Chancellor Philip Hammond has announced that he will deliver the Autumn Budget on Wednesday 22 November.

The Autumn Budget will be the second Budget to be delivered this year, and will outline the government’s proposed tax changes and spending plans in response to forecasts from the Office for Budget Responsibility (OBR). The 2017 Autumn Budget will be the first of its kind under the government’s new fiscal timetable. During the 2016 Autumn Statement, the Chancellor announced that the annual Budget will now take place in the Autumn, as opposed to Spring.

Going forward Philip Hammond will make a Spring Statement each year, responding to a forecast produced by the OBR. The first Spring Statement will be delivered in 2018.

Meanwhile Finance Secretary Derek Mackay has confirmed the Scottish Draft Budget 2018/19 will be published on 14 December, three weeks after the Budget for the rest of the United Kingdom.

We will update you on pertinent announcements from the Autumn Budget and Scottish Budget in due course.

Internet links: GOV.UK News GOV.SCOT News

Deadline for ‘paper’ self assessment tax returns

For those individuals who have previously submitted ‘paper’ self assessment tax returns the deadline for the 2016/17 return is 31 October 2017. 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 deadline

HMRC offer tax support to growing businesses

HMRC have announced the introduction of a new service to directly help mid-sized businesses as they expand and grow. This is to be known as the Growth Support Service.

According to HMRC there are approximately 170,000 mid-sized businesses registered in the UK. The businesses with either a turnover of more than £10 million or more than 20 employees, that are undergoing significant growth, can now seek help from HMRC to access the services they need.

The Financial Secretary to the Treasury Mel Stride said:

Mid-sized businesses make vital contribution to the UK economy and I want to see them grow, succeed and prosper.

The Growth Support Service will help these expanding businesses access tailored tax assistance so that tax administration doesn’t stand in the way of their growth and ensures businesses can focus on finding new opportunities.

Businesses who meet the eligibility requirements can apply online; they will then be contacted by their dedicated growth support specialist at HMRC, to discuss their requirements. The bespoke service will generally last between three to six months.’

Smaller business can access the Small Business Online Forum.

Please do contact us for help and support.

Internet link: GOV.UK news

Trusts Registration Service

HMRC have launched a new Trusts Registration Service (TRS), so that trustees can register their trust online and provide information on the beneficial owners of the trust. The new service launched in early July for trustees and replaces the 41G (Trust) paper form, which was withdrawn at the end of April.

Under the existing self assessment rules, the trustees (or their agents) must register details of a trust with HMRC by 5 October of the year after a liability to Income Tax or Capital Gains Tax (CGT) first arises. The registration process, which will need completing via TRS, includes providing information about the beneficial owners of the trust.

In subsequent years, or where the trust is already registered for self assessment, the trustees (or their agent) of either a UK or non-UK trust that incurs a UK tax liability are required to provide beneficial ownership information about the trust, using the TRS, by 31 January following the end of the tax year.

The new service is not currently available to agents. HMRC have advised that agents will be able to register on behalf of trustees from October 2017 and agents and lead trustees can enter updates for changes of circumstances from early 2018.

HMRC have also confirmed that in this first year of TRS there will be no penalty imposed where registration is completed after 5 October but before 5 December 2017.

A Self Assessment Trust and Estate Tax Return (SA900) must still be submitted after the end of each tax year, reporting any income and gains.

If you would like help or guidance on trusts please contact us.

Internet link: GOV.UK trusts-and-estates

HMRC phishing and scam advice

HMRC have updated their list of examples of websites, emails, letters, text messages and phone calls used by scammers and fraudsters to obtain individual’s personal information.
The guidance can be used to help you decide if a contact from HMRC is genuine, this guidance provides examples of the different methods that fraudsters use to get individuals to disclose personal information.

You can also read about how to recognise genuine contact from HMRC, and how to tell when an email is phishing/bogus.

Internet link: GOV.UK phishing-and-bogus-emails-HMRC

Newsletter – September 2017

Enews – September 2017

In this month’s eNews we update you on the new General Data Protection Regulation and guidance from the Pensions Regulator on auto enrolment compliance changes. We also include updated fuel advisory rates, the latest guidance from HMRC on employer issues and the compensation service available for those affected by problems with the implementation of Tax-Free Childcare.

Get ready for the new data protection rules

The government is to introduce new data protection rules under the General Data Protection Regulation (GDPR) which takes effect from 25 May 2018.

Under the GDPR businesses will have increased obligations to safeguard the personal information of individuals which is stored by the business. These rules apply to the information of customers, suppliers or employees. Generally for those who are currently caught by the Data Protection Act it is likely that you will have to comply with the GDPR.

GDPR will apply to data ‘controllers’ and ‘processors.’ Processing is about the more technical end of operations, like storing, retrieving and erasing data, whilst controlling data involves its manipulation in terms of interpretation, or decision making based on the data. The data processor processes personal data on behalf of a data controller. Obligations for processors are a new requirement under the GDPR.

The GDPR applies to personal data which is wider than under the Data Protection Act (DPA).

One key change to the current DPA rules is that those affected will have to show how they have complied with the rules. Proof of staff training and reviewing HR policies are examples of compliance.

Under GDPR, higher standards are set for consent. Consent means offering people genuine choice and control over how their data is used.

Overall, the aims of GDPR are to create a minimal data security risk environment, and to protect personal data to rigorous standards. For most organisations, this will entail time and energy getting up to speed with compliance procedures. Reviewing consent mechanisms already in place is likely to be a key priority. In practice, this means things like ensuring active opt-in, rather than offering pre-ticked opt-in boxes, which become invalid under the new rules.

Organisations will also have to think about existing DPA consents. The ICO’s advice is that:

‘You should review how you seek, record and manage consent and whether you need to make any changes. Refresh existing consents now if they don’t meet the GDPR standard.’

Where the current consents do not meet the new GDPR then action will be needed.

The fines for non compliance are severe at up to 20 million euros or 4% of total worldwide annual turnover (if higher).

The Information Commissioner’s Office (ICO) has published some very useful information and a 12 step planning guide to help organisations get ready ahead of the May 2018 deadline.

Internet links: ICO getting ready GDPR 12 steps.pdf

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 September 2017. 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 2017 are:

Engine size Petrol
1400cc or less 11p
1401cc – 2000cc 13p
Over 2000cc 21p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 8p
Over 2000cc 13p
Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
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

HMRC online forum and webchat

HMRC have announced the introduction of a new online tax forum and webchat service for small businesses.

HMRC are advising that the new service called the Small Business Online Forum offers advice on tax matters as well as help with:

  • starting a business
  • support for growing a business – including taking on employees and expanding
  • buying and selling abroad
  • completing tax returns
  • tax credits.

Please contact us for specific tailored advice on any of these matters.

Internet link: https://online.hmrc.gov.uk/webchatprod/community/forums/list.page

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:

  • Reporting Pay As You Earn in real time
  • Optional Remuneration Arrangements
  • Tax codes – Get it right first time
  • PAYE penalties – continuation of the risk-based approach to charging penalties
  • PAYE Settlement Agreements
  • Expenses Exemption
  • Apprenticeship Levy
  • Paying HMRC
  • Construction Industry Scheme
  • Changes to Business Tax Account
  • Contacting HMRC
  • Keep up to date with changes
  • Automatic enrolment and ongoing duties – what employers need to know
  • GCSE exam results are coming out this month, what is changing?

For help with your payroll contact us.

Internet link: Employer Bulletin

Pensions Auto enrolment compliance

The Pensions Regulator (TPR) has begun carrying out employer spot checks to make sure employers are complying with their automatic enrolment duties and that they are giving their staff the workplace pensions they’re entitled to. According to the TPR these inspections help them to understand any challenges employers are facing, and whether TPR need to make any changes to their guidance. This also enables them to identify employers who fail to meet their duties, and take enforcement action where necessary.

TPR have confirmed that they will continue with their checks over the coming months generally sending a statutory notice to the employers they have selected ahead of their visits.

Get the process right

TPR are concerned that some employers are not following the correct procedures and during the course of their inspections have seen a number of instances of employers agreeing to opt staff out of a workplace pension before they have been enrolled. This is not in accordance with the auto enrolment rules. According to TPR:

‘Some employers claimed they were unaware as to the formality of their duties or process they needed to follow, and had simply been trying to do their staff a favour by offering them the option of opting out up front. But whether their motivation was genuine, or whether they were simply trying to get out of paying their staff the pension contributions they were due, the result was the same – they were in breach of their legal duties. Eligible staff need to be enrolled first, and can then opt out. One of the cornerstones of automatic enrolment is capitalising on inertia, and it has proved very successful so far in helping people who might never have saved for retirement before.’

Please contact us for advice on auto enrolment.

Internet link: TPR Quarterly bulletin

Auto enrolment for new employers

Under pensions auto enrolment employers have to enrol qualifying employees into a workplace pension. Duties include paying contributions for the employee. The process of auto enrolment has been phased in from October 2012 when the largest employers had to comply with the rules. However the rules are set to change and new employers will have to comply with their automatic enrolment legal duties, as soon as they employ their first member of staff.

TPR guidance to advisers states:

‘If your client becomes an employer for the first time on or after 1 October 2017, they will immediately have legal duties for their new member of staff. These duties apply from the first day the first member of staff started working for your client. This is known as their duties start date.

Your client must comply with their duties straight away.’

In contrast to the above rule an employer who first pays an employee from 2 April 2017 onwards will have a staging date of January or February 2018 depending on when the first employee was paid.

Employers are generally able to postpone some of their auto enrolment duties for up to three months but this needs to be dealt with correctly.

Please contact us for help with auto enrolment.

Internet links: TPR guidance new employer from 1 October TPR new employer to 30 September

Childcare Services compensation

The government are offering compensation to those who have been affected by problems with the implementation of Tax-Free Childcare.

Individuals who have been affected may be able to get a government top-up as a one-off payment for Tax-Free Childcare. The government will also consider refunding any reasonable costs directly caused by the service not working as it should, mistakes or unreasonable delays.

The government are advising that individuals may be eligible for these payments if they have:

  • been unable to complete their application for Tax-Free Childcare
  • been unable to access their childcare account
  • not received a decision about whether they are eligible, without explanation, for more than 20 days.

Tax-Free Childcare is the new government scheme to help working parents with the cost of childcare. The scheme launched at the end of April and is being rolled out to parents, starting with those parents with the youngest children first.

For every £8 a parent pays in, the government will pay in an extra £2. Parents can receive up to £2,000 per child, per year, towards their childcare costs making a total amount of £10,000. Higher limits of £4,000 and £20,000 apply for disabled children.

To qualify for Tax-Free Childcare parents and partners in the household must generally meet a minimum income level of on average £120 a week and each earn less than £100,000 a year.

The scheme will be available for children up to the age of 12, or 17 for children with disabilities. All eligible parents will be able to join the scheme by the end of 2017. Those eligible will be able to apply for all their children at the same time although the government rollout will start with the youngest children first. Parents will need to open an online account, which they can use to pay for childcare from a registered provider.

For those employers who currently offer Employer Supported Childcare, usually in the form of childcare vouchers, these schemes can remain open to new entrants until April 2018. Existing members have the option to remain in their existing scheme or change over to Tax-Free childcare as their child becomes eligible. It is not possible to benefit from tax-free childcare and employer supported childcare at the same time.

A calculator for parents comparing the options and guidance on the other government provided childcare are available on GOV.UK.

Internet links: GOV.UK Childcare Service compensation Childcare calculator Childcare choices

Newsletter – August 2017

Enews – August 2017

In this month’s eNews we update you on the latest developments in Making Tax Digital together with an update on the Taylor Review and the latest employment and pensions auto enrolment statistics. We also report on the new Fundraising Preference Service and how to spot scam HMRC emails.

New timetable for Making Tax Digital

The government has announced a revised timetable for the introduction of Making Tax Digital for Business (MTDfB).

MTDfB introduces extensive changes to how taxpayers record and report income to HMRC. Unincorporated businesses, including landlords, were expected to be the first to see significant changes in the recording and submission of business transactions but the government has announced a delay to the implementation of the new rules and some exceptions for smaller businesses.

The government had decided how the general principles of MTDfB will operate after receiving responses to their original ideas first published in August 2016. Some legislation was published in Finance Bill 2017 but this was removed due to the General Election.

Under MTDfB, businesses will be required to:

  • maintain their records digitally, through software or apps
  • report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
  • submit an ‘End of Year’ statement through their DTAs.

The new timetable is being introduced following concerns raised by the Treasury Select Committee, businesses and professional bodies about the implementation of the new rules and to hopefully ensure a smooth transition to a digital tax system.

Mel Stride, Financial Secretary to the Treasury and Paymaster General said:

‘Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.

We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.’

The government has confirmed that under the new timetable:

  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
  • they will only need to do so from 2019
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.

This means that businesses and landlords with a turnover below the VAT threshold will not have to move to the new digital system.

Ministers have also confirmed that the Finance Bill will be introduced as soon as possible after the summer recess and that all policies originally announced to start from April 2017 will be effective from that date.

The government has also confirmed that the proposed changes to VAT reporting will come into effect from April 2019. From that date, businesses trading above the VAT threshold will have to provide their VAT information to HMRC through Making Tax Digital software.

Internet link: GOV news

Taylor Review of employment practices

The long awaited Taylor Review of employment practices suggests that a national strategy is needed to help provide security in such areas as wages, quality of employment, education and training, working conditions, work life balance and the ability to progress at work.

One of the areas of focus relates to the ‘gig’ economy, with the report recommending the creation of a new category of worker, known as a ‘dependent contractor’, to provide additional rights and benefits for those who are currently classed as self-employed, but who work for businesses which have a ‘controlling and supervisory’ relationship with their workers.

The additional benefits would include sick pay, holiday entitlement and the minimum wage, and the new employment status would also oblige these businesses to pay national insurance contributions for these workers.

Business groups have given mixed reactions to the report’s findings, with many welcoming the focus on labour market flexibility, but also warning that some areas, including the plans to rewrite employment status tests, are a cause for concern.

However, the TUC warned that the review ‘is not the game-changer needed to end insecurity and exploitation at work’

Internet link: Taylor Review

Automatic enrolment reaches 8 million

The Pensions Regulator (TPR) has confirmed than eight million employees have signed up for a workplace pension since the launch of automatic enrolment.

The introduction of automatic enrolment was expected to lead to around eight million workers saving more for their retirement and this milestone has already been reached with hundreds of thousands more employers still to enrol staff over the coming months.

Minister for Pensions and Financial Inclusion Guy Opperman said:

‘Reaching this eight million figure is a formidable achievement and represents a huge number of people on the path to a more financially secure retirement.’

‘But we cannot be complacent and as contribution rates rise we know there is more to be done. That’s why our automatic enrolment review, which will report back later this year, is so vital to the future of this life-changing policy.’

TPR’s report shows that at the end of June 2017, 8,165,000 workers were enrolled in workplace pensions. Darren Ryder, TPR’s Director of Automatic Enrolment, said:

‘Tens of thousands more people every week are signing up to a new workplace pension through automatic enrolment. Employers are continuing to become compliant and to remain so, allowing their staff to get the pensions they are entitled to.’

‘There are more than 500,000 more employers whose duties are still to begin over the coming months. I would urge each and every one of them to check today that they know what they need to do and when they need to do it so they can seek our help if they need it.’

If you would like help or advice on complying with your Auto Enrolment duties please do get in touch.

Internet links: Press release Report

Latest labour market statistics

The latest labour market statistics for the period March to May 2017 showed a 175,000 rise in employment and 64,000 fall in unemployment.

Estimates from the Labour Force Survey show that, between December 2016 to February 2017 and March to May 2017, the number of people in work increased, the number of unemployed people fell, and the number of people aged from 16 to 64 not working and not seeking or available to work (economically inactive) also fell.

Some of the findings were:

  • There were 32.01 million people in work, 175,000 more than the previous quarter.
  • The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.9%, the highest since comparable records began in 1971.
  • Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 1.8% including bonuses, and by 2.0% excluding bonuses, compared with a year earlier.
  • Latest estimates show that average weekly earnings for employees in real terms (adjusted for price inflation) fell by 0.7% including bonuses, and fell by 0.5% excluding bonuses, compared with a year earlier.

For more details visit the link below.

Anna Leach, CBI Head of Economic Intelligence, said:

‘These figures underline the strength of the UK’s flexible labour market, which was recognised in …. Taylor Review. But declining real pay and productivity remain concerning, reinforcing the imperative that any changes following the review support the economy’s ability to create great jobs.’

‘Making real progress on productivity growth requires a modern industrial strategy, with real change on the ground on skills, infrastructure and innovation.’

Internet links: ONS employment statistics CBI news

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.

HMRC also provide advice on what to do if you have received a phishing/bogus email related to HMRC, or you are not sure if it is genuine, you can read about how to report internet scams and phishing to HMRC.

Internet link: HMRC guidance

Charities bound by new Fundraising Preference Service

A new service is now available for individuals who want to limit the contact they receive from charities. The Fundraising Preference Service (FPS) should give individuals greater control over how and when charities can contact them. The FPS, which launched on 6 July, allows individuals to select charities that they no longer want to receive communications from.

Under the FPS, where an individual opts out from a specified charity, this will apply to all forms of communication with a named individual including email, text, phone and addressed mail.

Although the FPS is primarily an online service a phone service is available to support those who are vulnerable or without IT. The Fundraising Regulator will notify specified charities of suppression (those people opting out) and monitor compliance. Charities need to ensure they comply with these new rules.

Internet link: FPS

Newsletter – July 2017

Enews – July 2017

In this month’s eNews we report on the Queen’s speech and the legislative process. We also include articles on recommendations to simplify corporation tax, the extended deadline for returns for employment related securities, the introduction of Land Transaction Tax in Wales and the latest fines and guidance issued by the Information Commissioner’s Office following cyber attacks. With HMRC’s latest Employer Bulletin and advice on holiday pay and entitlement there is lots to consider.

Queen’s Speech and proposed legislation

The Queen delivered the 2017 Queen’s Speech on 21 June which set out the government’s agenda for the coming parliamentary session. The speech outlined the government’s proposed policies and legislation.

This Queen’s speech announced that the government will focus on:

  • delivering a Brexit deal that works for all parts of the United Kingdom and
  • building a stronger, fairer country by strengthening our economy, tackling injustice and promoting opportunity and aspiration.

The supporting documentation confirms 27 Bills and draft Bills which are expected to be in the legislative programme, which will deliver on these themes. Details of the Bills that the government propose to introduce are available via the links at the end of this article.

The Speech and supporting documentation make little reference to delayed tax measures which were put on hold prior to the Election or the progress of the legislation on Making Tax Digital for Business. The reference to tax legislation states:

‘The programme will also include three Finance Bills to implement budget decisions. Summer Finance Bill 2017 will include a range of tax measures including those to tackle avoidance. The programme will also include a technical Bill to ratify several minor EU agreements and further Bills, which will be announced in due course, to effect the UK’s withdrawal from the EU. The government will also be taking forward a range of other measures which may not require primary legislation.’

We will update you on developments.

Internet links: GOV.UK summary what it means Speech GOV.UK background notes

Simplifying corporation tax

The Office for Tax Simplification has published their recommendations on simplifying the corporation tax computation.

This report sets out some significant steps towards creating a 21st-century corporation tax system in the UK, responding to calls from businesses of all sizes to make the calculation of corporation tax simpler, with fewer changes and more time to plan. The report looks at four broad themes:

  • simpler tax for smaller companies
  • aligning the tax rules more closely with accounting rules where appropriate
  • simplifying tax relief for capital investment
  • a range of further issues affecting the largest companies.

We will keep you informed of developments in this area.

Internet link: GOV.UK review CT

Employment Related Securities return deadline

HMRC are advising that there have been technical issues with their Employment Related Securities (ERS) annual returns online service. Employers have to complete returns for any schemes that have been registered on the ERS online service, such as Enterprise Management Incentives (EMI), a non-tax advantaged scheme or award, Company Share Option Plan, Save As You Earn Scheme and Share Incentive Plan

HMRC apologise for the difficulties which had prevented some returns from being submitted online. They have confirmed that the service is now working and allowing users to upload the necessary templates and files as part of the return process.

The deadline for filing annual returns is generally 6 July following the end of the tax year, so for the tax year 2016/17 it would usually be 6 July 2017. However, in view of the recent problems HMRC have extended the deadline to 24 August 2017 for the tax year 2016/17.

Penalties for late returns

Due to the change in deadline this year HMRC are advising that:

‘Penalties are charged if you file your return late. If your return isn’t filed by the extended deadline of 24 August 2017 the first late filing penalty of £100 will be issued on 25 August 2017.

Additional automatic penalties of £300 will be charged if the return is still outstanding 3 months after the original deadline of 6 July, and a further £300 if it’s still outstanding 6 months after that date. If a return is still outstanding 9 months after the 6 July, daily penalties of £10 a day may be charged.’

If you would like any help or guidance on share incentives or how these should be reported to HMRC please contact us.

Internet link: GOV.UK bulletin

Land Transaction Tax

From April 2018, Land Transaction Tax (LTT) will replace Stamp Duty Land Tax (SDLT) in Wales. Land and Buildings Transaction Tax (LBTT) already applies in Scotland.

Like SDLT (and LBTT), LTT will generally be payable on the purchase or lease of a building or land. The new tax may therefore be relevant to house buyers and sellers and businesses including builders, property developers and agents involved in the transaction process (such as solicitors and conveyancers).

Rates of the new tax

The proposed tax rates and bands will be announced by October 2017.

Additional residential properties

Higher rates of SDLT and LBTT apply to purchases of additional residential properties, including second homes. The National Assembly for Wales has confirmed these increased rates will continue to apply in Wales under LTT.

More details can be found at National Assembly for Wales.

Internet link: gov.wales/land-transaction-tax

Holiday entitlement

Now is the time of year when many of us turn our thoughts to holidays and it is important to get holiday entitlement and holiday pay right.

The June 2017 acas newsletter includes links to useful guidance on calculating holiday and holiday pay entitlements as well as guidance on hot weather working.

The GOV.UK website includes a useful calculator.

If you would like help with payroll matters please contact us.

Internet links: GOV.UK calculator acas newsletter

Latest guidance for employers

HMRC have issued the latest version of the Employer Bulletin. This edition has articles on a number of issues including:

  • P11D and P11D(b) filing and payment deadlines
  • Paying the right amount of tax through PAYE
  • Construction industry scheme repayment claims for limited companies
  • The Apprenticeship Levy and funding of apprenticeship training
  • Tax-free childcare rollout including guidance on dealing with employee opt outs of current childcare voucher schemes
  • Student Loan employer prompts where deductions have not been made
  • GCSEs in England – new grading system explained for employers.

If you have any queries on payroll matters please contact us.

Internet link: GOV.UK Employer bulletin

ICO warning as business fined £60,000 following cyber attack

The Information Commissioner’s Office (ICO) is warning SMEs to take care or face a fine. The warning comes after a company which suffered a cyber attack was fined £60,000.

The investigation by the ICO found Boomerang Video Ltd based in Berkshire failed to take basic steps to stop its website being attacked.

Sally Anne Poole, ICO enforcement manager, said:

Regardless of your size, if you are a business that handles personal information then data protection laws apply to you.’

‘If a company is subject to a cyber attack and we find they haven’t taken steps to protect people’s personal information in line with the law, they could face a fine from the ICO. And under the new General Data Protection Legislation (GDPR) coming into force next year, those fines could be a lot higher.’

‘Boomerang Video failed to take basic steps to protect its customers’ information from cyber attackers. Had it done so, it could have prevented this attack and protected the personal details of more than 26,000 of its customers.’

Further details of the case can be found using the links below together with guidance on data protection issues including guidance on the new General Data Protection Regulations which come into effect on 25 May 2018.

Internet links: ICO news ICO report Boomerang data protection reform updated toolkit for SMEs

Newsletter – June 2017

Enews – June 2017

In this month’s eNews we report on the roll out of tax free childcare and the guidance available for parents on the choices and support available, the latest advisory fuel rates and labour market statistics. With guidance on cyber security, the latest report from the Pensions Regulator and what the Small Business Taskforce wants following the election there is lots to consider.

Tax-Free Childcare and childcare options

Tax-Free Childcare, the new government scheme to help working parents with the cost of childcare launched at the end of April and is being rolled out to parents, starting with those parents with the youngest children first.

For every £8 a parent pays in, the government will pay in an extra £2. Parents can receive up to £2,000 per child, per year, towards their childcare costs making a total amount of £10,000. Higher limits of £4,000 and £20,000 apply for disabled children.

To qualify for Tax-Free Childcare parents and partners in the household must generally meet a minimum income level of on average £120 a week and each earn less than £100,000 a year.

The scheme will be available for children up to the age of 12, or 17 for children with disabilities. All eligible parents will be able to join the scheme by the end of 2017. Those eligible will be able to apply for all their children at the same time although the government rollout will start with the youngest children first. Parents will need to open an online account, which they can use to pay for childcare from a registered provider.

For those employers who currently offer Employer Supported Childcare, usually in the form of childcare vouchers, these schemes can remain open to new entrants until April 2018. Existing members have the option to remain in their existing scheme or change over to Tax-Free childcare as their child becomes eligible. It is not possible to benefit from tax-free childcare and employer supported childcare at the same time.

A calculator for parents comparing the options and guidance on the other government provided free childcare available are available on GOV.UK.

Internet links: Childcare calculator Childcare choices

Small Business Taskforce outlines priorities ahead of the General Election

The Small Business Taskforce has outlined its priorities ahead of the General Election.

The Taskforce which is made up of 14 organisations, including the Institute of Chartered Accountants in England and Wales (ICAEW), Enterprise Nation and the Entrepreneurs Network, has set out six key recommendations in its election manifesto to help ‘build a positive and progressive business case for Britain’.

The Taskforce is recommending the next government should provide an environment which ‘champions the role of small businesses’ and creates a tax system that supports businesses of all sizes.

They also call for the next government to provide an advantageous pensions and benefits system, supply procurement opportunities that are beneficial to all and create a workforce that is equipped for enterprise.

Clive Lewis, Head of Enterprise at the ICAEW, commented:

‘Whatever the outcome on 8 June, the incoming government must provide a solid platform for small businesses to flourish and grow.’

‘Currently businesses are cautious about the future and are holding back on investment, therefore it’s vital that, in the run-up to the General Election, all political parties spell out how they plan to encourage businesses to invest in long-term growth.’

To read more of the Small Business Taskforce’s manifesto visit the following link.

Internet links: economia news Manifesto

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 June 2017. 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 2017 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 14p
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 protects against ‘ransomware’ attacks

The National Cyber Security Council (NCSC) has published guidance for small businesses about how they can prevent, detect and respond to ransomware attacks following the widespread ‘WannaCry’ ransomware attack in early May.

Further guidance has been produced by the Charity Commission for England and Wales for charity trustees on this issue.

Internet links: https://www.ncsc.gov.uk/guidance/ransomware-latest-ncsc-guidance

https://www.gov.uk/government/news/ransomware-threat-keep-your-charity-safe

TPR name and shame those who fail to comply

The latest Compliance and Enforcement Bulletin from the Pensions Regulator (TPR) makes interesting reading as it sets out cases and the powers TPR have used relating to automatic enrolment and associated employer duties.

TPR are warning employers that ignoring TPR penalties could seriously damage a business’ reputation.

TPR are maintaining a tough approach towards those employers who try to get away with not giving their staff the pension that they are due. The latest development is to publish details of those who have paid their Escalating Penalty Notice (EPN) but remain non-compliant. We will also publish the details of those who failed to pay their EPN, and as a result have been made subject to a court order.

The details published will include the employer’s name, the penalty amount, and the first part of their postcode.

Internet links: TPR Bulletin EPN employer details

Rising employment statistics

The Office for National Statistics has published the latest employment statistics which reveal:

  • Estimates from the Labour Force Survey show that, between October to December 2016 and January to March 2017, the number of people in work increased, the number of unemployed people fell, and the number of people aged from 16 to 64 not working and not seeking or available to work (economically inactive) also fell.
  • There were 31.95 million people in work, 122,000 more than for October to December 2016 and 381,000 more than for a year earlier.
  • The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.8%, the highest since comparable records began in 1971.
  • There were 1.54 million unemployed people (people not in work but seeking and available to work), 53,000 fewer than for October to December 2016 and 152,000 fewer than for a year earlier.
  • The unemployment rate (the proportion of those in work plus those unemployed, that were unemployed) was 4.6%, down from 5.1% for a year earlier and the lowest since 1975.
  • There were 8.83 million people aged from 16 to 64 who were economically inactive (not working and not seeking or available to work), 40,000 fewer than for October to December 2016 and 82,000 fewer than for a year earlier.
  • The inactivity rate (the proportion of people aged from 16 to 64 who were economically inactive) was 21.5%, down from 21.8% for a year earlier and the joint lowest since comparable records began in 1971.
  • Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.4% including bonuses, and by 2.1% excluding bonuses, compared with a year earlier.
  • Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.1% including bonuses, but fell by 0.2% excluding bonuses, compared with a year earlier.’

Responding to the latest data, Alpesh Paleja, CBI Principal Economist, said:

‘Rising employment continues to reinforce the importance of the UK’s flexible labour market.’

‘However, weakening productivity and slower pay growth, coupled with rising inflation, will continue to squeeze real household earnings.’

‘Therefore maintaining the UK’s reputation as a great place to do business, for example by increasing R&D spend to 3% of GDP by 2025, will help boost the UK’s productivity. This is the only sustainable route to higher wages, and better living standards.’

Internet links: ONS statistics CBI news

Newsletter – May 2017

Enews – May 2017

In this month’s eNews we report on the short Finance Act which has been rushed through Parliament in advance of the General Election. We also include details of changes to the off payroll working rules that exclude some businesses from being unintentionally caught by the provisions. We also consider changes to the timing of issuing PAYE coding notices and the P11D deadline together with the launch of the latest National Savings and Investment Bond.

General Election and tax law

With the announcement of a snap General Election on 8 June the time available for scrutinising proposed legislation was short so the Finance Act was rushed through Parliament. Many clauses have not made it to the final legislation due to time constraints. These include the provisions to enable Making Tax Digital, changes for Non Domiciled individuals and corporate losses.

The clauses are likely to be reinstated after the General Election, when, hopefully, there will be more time to debate the measures in greater detail. The clauses that will make it through to the Finance Act are contained in the version of the Finance Bill introduced into the House of Lords.

Anita Monteith, tax manager at ICAEW said:

‘Making Tax Digital plans remain controversial and need more scrutiny by those who will be affected, and most importantly proper parliamentary debate – a clear roadmap as to how MTD will work in practice is needed.’

‘MTD is not coming into effect until April 2018, and the announcement of the general election on 8 June 2017 provided an opportunity to withdraw these clauses and schedule from the Finance Bill which will be debated today and likely to be enacted on 27 April.’

‘These seminal clauses and schedule can be reintroduced after the election which will allow more time for proper scrutiny.’

Internet links: ICAEW news Parliamentary Bill

Business response to General Election on 8 June

In response to the announcement of a General Election on 8 June Carolyn Fairbairn, CBI Director-General, said:

‘With a snap General Election now called, businesses will be looking to each political party to set out their plans to support economic stability and prosperity over the next Parliament in a way that is fair and sustainable for communities across the UK. ‘Distraction from the urgent priorities of seeking the best EU deal and improving UK productivity must be kept to a minimum.’

‘Firms will want to hear commitments from all parties to work in close partnership with business and back a new Industrial Strategy to make the UK economy the most competitive in the world by 2030.’

‘It is essential to get the UK’s foundations right, from building a skills base for the next generation, to investing in infrastructure, energy and delivering a pro-enterprise tax environment.’

‘As EU negotiations now get underway, firms are clear about the serious risks of failing to secure a deal and falling into World Trade Organisation rules. It is vital that negotiators secure some early wins and all parties should commit to working to ensure businesses can continue to trade easily with our EU neighbours, while seeking new opportunities around the world.’

‘Whoever forms the next Government, they should seek to build a partnership between business and government that is the best in the world, based on trust and shared interest.’

Internet link: CBI News

Off payroll working in the public sector rules amended

From 6 April 2017, new tax rules were introduced which potentially affect individuals who provide their personal services via their own companies (PSCs) to an organisation which has been classified as a ‘public authority’. Amendments have now been made to the definition of a public authority.

Where these rules apply:

  • the public authority (or an agency paying the PSC) calculates a ‘deemed payment’ based on the fees the PSC has charged for the services of the individual
  • the entity that pays the PSC for the services must first deduct PAYE and employee National Insurance contributions (NICs) as if the deemed payment is a salary payment to an employee
  • the paying entity will have to pay to HMRC not only the PAYE and NICs deducted from the deemed payment but also employer NICs on the deemed payment
  • the net amount received by the PSC can be passed onto the individual without paying any further PAYE and NICs.

The rules were intended to cover those engaged by public sector organisations including government departments and their executive agencies, many companies owned or controlled by the public sector, universities, local authorities, parish councils and the National Health Service.

However, prior to this amendment, private sector retail businesses including high street pharmacies and opticians would have inadvertently been within the scope of the off payroll working in the public sector measure. As a result, such businesses would have been required to consider whether the new rules applied to all contractors working for them through an intermediary. This was not the intention of this policy and the rules have been amended.

The rules operate in respect of payments made on or after 6 April 2017. This means that they are relevant to contracts entered into before 6 April 2017 but where the payment for the work is made after 6 April 2017.

If you would like any help with these new rules contact us.

Internet link: GOV.UK amendment

P11D deadline approaching

The forms P11D which report details of benefits and some expenses provided to employees and directors for the year ended 5 April 2017, are due for submission to HMRC by 6 July 2017. 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, generally via a PAYE coding notice adjustment or through the self assessment system. Significant changes were introduced to the rules for reporting expenses from 6 April 2016.

Some employers payrolled the benefits and in this case the benefits do not need to be reported on forms P11D but employers should advise employees of the amount of benefits payrolled.

In addition, regardless of whether the benefits are being reported via P11D or payrolled 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 (or 22nd for cleared electronic payment). As 22nd July is a Saturday it may be appropriate to ensure cleared payment is made by Friday 21st July unless you can arrange for faster 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

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 2017.

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

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

Internet link: GOV.UK fuel scale charges

Investment Bond launched

National Savings and Investments (NS&I) has recently launched a government-backed Investment Bond. The main details of the Bond are as follows:

  • minimum deposit of £100
  • balances on the account must be between £100 – £3000
  • applications can only be made online and up to April 2018
  • applicants must be aged 16+ years
  • fixed interest rate of 2.2% for three years paid yearly and without tax deduction
  • early withdrawals incur a penalty equal to 90 days’ interest on the amount cashed in.

According to Moneyfacts, the NS&I offering is a market leader on the interest rate with similar three-year fixed term bonds having an average interest rate of 1.24%. Competitors’ minimum investment thresholds are generally higher, typically starting upwards from £1,000 and caps on the maximum capital invested are significantly higher than the NS&I limit of £3,000.

Internet links: GOV.UK news NS&I Moneyfacts

Changes to the PAYE Tax system using Real Time Information

HMRC have announced that from the end of May 2017 they will be using Real Time Information (RTI) to make adjustments to employee tax codes in-year as and when the need arises.

HMRC states that this change in procedures will:

  • offer more certainty to employers and their employees
  • reduce the instances of unexpected tax bills arising
  • ensure that more employees end the tax year having paid the right amount of tax.

Details of the change in procedures can be found in the HMRC Policy Paper briefing ‘Changes to our PAYE Tax System – helping customers pay the right amount of tax on time’. Further information about the changes can be found on page 4 of the Employer Bulletin April 2017 (Issue 65).

The Policy Paper confirms that individuals will be issued with a new tax code if their circumstances change. This brings about a marked change from the current system which deals with adjustments after the tax year end and codes any underpayment out via a coding notice adjustment in a subsequent tax year.

Affected employees should shortly be in receipt of tax code notices explaining the changes to the system and what they can do if they need help and support to manage their taxes.

Under the new procedures, once HMRC are aware that an employee’s circumstances have changed, they will amend the individual’s tax code and follow it up with a notification of the amendment to the employee. A copy notification will also be sent to the employer. It is important for employers and employees to ensure that HMRC are made aware of any changes in an individual’s circumstances as soon as possible.

Employers are advised to expect, from 1 June onwards, some employee enquiries relating to tax code changes. In the longer term, HMRC envisages reduced contact from employees regarding under or overpayments of tax.

If you would like help with Payroll or checking your tax code please contact us.

Internet links: GOV.UK Briefing Employer Bulletin 65

Newsletter – April 2017

Enews – April 2017

In this month’s eNews we report on changes to the VAT Flat Rate Scheme which take effect from the start of April. We also consider minimum wage rises, gender pay gap reporting and the roll out of tax free childcare. We also report on three pertinent Budget announcements including the Class 4 NICs u-turn, changes to Making Tax Digital and the reduction in the Dividend Allowance.

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

VAT Flat Rate Scheme – Limited cost trader

Changes are being made to the Flat Rate Scheme (FRS) which take effect from 1 April 2017. These changes may mean that the FRS is less attractive to some businesses and this may result in these businesses deciding to no longer operate under the FRS. In some cases where a trader has voluntarily registered for VAT it may be appropriate to deregister from VAT.

A new higher 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 FRS, or considering joining the scheme, will need to decide if they are a ‘limited cost trader’.

Under the FRS a set percentage, determined by the business trade sector, is applied to the VAT inclusive turnover of the business as a one-off calculation instead of having to identify and record the VAT on each sale and purchase the business makes. The percentage rates are determined according to the trade sector of the business and these generally range from 4% to 14.5%.

A limited cost trader 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).

‘Relevant goods’, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

  • capital expenditure
  • food or drink for consumption by the flat rate business or its employees
  • vehicles, vehicle parts and fuel, except where the business is one that carries out transport services, for example a taxi business, and uses its own or a leased vehicle to carry out those services
  • payment for services, as these are not goods, this would include rent, accountancy fees, advertising costs etc

Examples of qualifying ‘relevant goods’ include stationery (and other office supplies), gas, electricity and cleaning products, but only where these are used exclusively for the business.

Businesses using the FRS will need to ensure that, for each VAT return period, they use the appropriate flat rate percentage, so the check to see whether a business is a limited cost trader will have to be carried out for each VAT return.

These rules come into force from 1 April 2017, so where a business has a VAT period that straddles 1 April 2017, the test to determine whether the business is a ‘limited cost trader’ will only apply to the period from 1 April 2017.

Please contact us if you would like advice on the FRS.

Internet link: GOV.UK VAT notice 733

Equality – Gender pay gap reporting

The government has introduced new requirements for all private and voluntary sector employers of over 250 people relating to equal pay reporting from April 2017.

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (SI 2017/172) mean that large employers must calculate and publish the difference in mean and median pay and bonuses between the men and women they employ. In addition, information must be given about the proportion of men and women receiving a bonus payment and the proportions of men and women in each quartile of their pay distribution.

Key stages for this are:

  • 5 April every year, starting in 2017 – take a snapshot of the data
  • bonus data is based on the previous 12 months leading up to 5 April 2017
  • by 4 April 2018 – the results must be published on the organisation’s website with a signed statement confirming their accuracy
  • both the results and statement must remain on the website for 3 years.

Organisations might choose to add some narrative with the results, but this is not part of the requirement.

Internet link: GOV.UK gender pay gap

Minimum wage rises again

Employers need to ensure they are paying their employees at least the appropriate National Minimum Wage (NMW) or National Living Wage (NLW) rate. The rates increase from 1 April 2017.

From

1 October

2016

From

1 April

2017

NLW rate for workers aged 25 and over £7.20* £7.50
the main rate for workers aged 21-24 £6.95 £7.05
the 18-20 rate £5.55 £5.60
the 16-17 rate for workers above school leaving age but under 18 £4.00 £4.05
the apprentice rate ** £3.40 £3.50

* introduced and applies from 1 April 2016

**for apprentices under 19 or 19 or over and in the first year of their apprenticeship

Going forward the NMW and NLW rates will be reviewed annually in April.

What are the penalties for non-compliance?

The penalties imposed on employers that are in breach of the minimum wage legislation are 200% of arrears owed to workers. The maximum penalty is £20,000 per worker. The penalty is reduced by 50% if the unpaid wages and the penalty are paid within 14 days. HMRC also name and shame employers who are penalised.

Internet link: GOV.UK NMW

Tax-Free Childcare to be rolled out from 28 April 2017

Tax-Free Childcare, the new government scheme to help working parents with the cost of childcare, will be launched from 28 April 2017.

For every £8 a parent pays in, the government will pay in an extra £2. Parents can receive up to £2,000 per child, per year, towards their childcare costs making a total amount of £10,000. Higher limits of £4,000 and £20,000 apply for disabled children.

To qualify for Tax-Free Childcare all parents in the household must generally meet a minimum income level, based on working 16 hours a week (on average £120 a week) and each earn less than £100,000 a year.

The scheme will be available for children up to the age of 12, or 17 for children with disabilities. All eligible parents will be able to join the scheme by the end of 2017. Parents will be able to apply for all their children at the same time although the government rollout will start with the youngest children first. Parents will need to open an online account, which they can use to pay for childcare from a registered provider.

For those employers who currently offer Employer Supported Childcare, usually in the form of childcare vouchers, these schemes can remain open to new entrants until April 2018. Existing members will have the option to remain in their existing scheme or change over to Tax-Free childcare as their child becomes eligible

A calculator is available on GOV.UK so that parents can check their eligibility for the new scheme and other government provided childcare available.

Internet link: Childcarechoices.gov.uk

Class 4 National insurance u-turn

One of the significant announcements Chancellor Philip Hammond made on Budget Day was the proposed increases to the main rate of Class 4 National Insurance Contributions (NICs) paid by self-employed individuals from 9% to 10% from April 2018 with a further increase planned from 10% to 11% from April 2019.

The Chancellor subsequently announced that the government will not now proceed with the proposed increase in Class 4 NICs rates . Self-employed individuals currently pay Class 2 and Class 4 NICs. Class 2 NICs are to be abolished from April 2018.

Internet link: BBC news

Making Tax Digital for Business update

Extensive changes to how taxpayers record and report income to HMRC are being introduced under a project entitled Making Tax Digital for Business (MTDfB) .

MTDfB is to be introduced in stages and the government has confirmed in the Budget the deferral of some of the obligations for one year. The result of this announcement is that unincorporated businesses and unincorporated landlords with annual turnover:

  • above the VAT threshold (currently £85,000) will need to comply with the requirements of MTDfB from the start of accounting periods which begin after 5 April 2018
  • at or below the VAT threshold but above £10,000 will need to comply from the start of accounting periods which begin after 5 April 2019.

Companies (and partnerships with a turnover above £10 million) will not come within MTDfB until April 2020.

The government has decided how the general principles of MTDfB will operate. Draft legislation has been issued on some aspects and more is contained in Finance Bill 2017.

Under MTDfB, businesses, self-employed people and landlords will be required to:

  • maintain their records digitally, through software or apps
  • report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
  • make an ‘End of Year’ declaration through their DTAs. The End of Year declaration will be similar to the online submission of a self assessment tax return but may be required to be submitted earlier than a tax return. Businesses will have 10 months from the end of their period of account (or 31 January following the tax year – the due date for a self assessment tax return – if sooner)

DTAs are like online bank accounts – secure areas where a business can see all of its tax details in one place and interact with HMRC digitally.

Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

Internet link: GOV.UK MTDfB

Reduction in the Dividend Allowance

It was announced in the Budget that the Dividend Allowance will be reduced from £5,000 to £2,000 from April 2018.

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:

  • 7.5% for basic rate taxpayers
  • 32.5% for higher rate taxpayers
  • 38.1% 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.

The government expect that even with the reduction in the Dividend Allowance to £2,000, 80% of ‘general investors’ will pay no tax on their dividend income. However, the reduction in the allowance will affect family company shareholders who take dividends in excess of the £2,000 limit. The cost of the restriction in the allowance for basic rate taxpayers will be £225 increasing to £975 for higher rate taxpayers and £1,143 for additional rate taxpayers.

Internet link: GOV.UK dividend allowance

Budget 2017

Budget 2017

The Chancellor Philip Hammond presented the last Spring Budget on Wednesday 8 March 2017

In his speech the Chancellor was keen to point out that he wanted the tax system to be fair, particularly in relation to the distinction between employed and self-employed individuals.

‘But a fair system will also ensure fairness between individuals, so that people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax.’

In the Budget speech the Chancellor announced that he has requested a report to be delivered in the summer on the wider implications of different employment practices. Also the Budget included changes to NICs and the Dividend Allowance.

In December and January the government issued a number of the clauses, in draft, of Finance Bill 2017 together with updates on consultations.

The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply from April 2017 and some take effect at a later date.

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

Main Budget tax proposals

Our summary concentrates on the tax measures which include:

  • increases to the Class 4 National Insurance rates
  • a reduction in the Dividend Allowance
  • changes to the timing of Making Tax Digital for smaller businesses.

Previously announced measures include:

  • increases to the personal allowance and basic rate band (a decreased band for Scottish residents)
  • the introduction of the Apprenticeship Levy
  • changes to corporation tax loss relief
  • the introduction of an additional inheritance tax residence nil rate band
  • changes for non-UK domiciled individuals.

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

Personal Tax

The personal allowance

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

Comment

A reminder that 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 adjusted 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.

In 2017/18 the band of income taxable at the basic rate will be different for taxpayers who are resident in Scotland to residents elsewhere in the UK. The Scottish government has decided to reduce the band of income taxable at the basic rate to £31,500 so that the threshold at which the 40% band applies remains at £43,000.

In the rest of the UK, 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.

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

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.

Reduction in the Dividend Allowance

The Dividend Allowance will be reduced from £5,000 to £2,000 from April 2018.

Comment

The government expect that even with the reduction in the Dividend Allowance to £2,000, 80% of ‘general investors’ will pay no tax on their dividend income. However, the reduction in the allowance will affect family company shareholders who take dividends in excess of the £2,000 limit. The cost of the restriction in the allowance for basic rate taxpayers will be £225 increasing to £975 for higher rate taxpayers and £1,143 for additional rate taxpayers.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance (SA) was first introduced for the 2016/17 tax year and applies to savings income. The available SA in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax 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, between ages 18 and 50, 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 Finance 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.

There is a fifth type of ISA – a Help to Buy ISA. Help to Buy ISAs are a type of cash ISA and potentially provide a bonus to savers if the funds are used to help to buy a first home.

Money Purchase Annual Allowance

The Money Purchase Annual Allowance (MPAA) will be reduced from £10,000 to £4,000 from 6 April 2017.

The MPAA counters an individual using the flexibilities around accessing a money purchase pension arrangement as a means to avoid tax on their current earnings, by diverting their salary into their pension scheme, gaining tax relief, and then effectively withdrawing 25% tax free. It also restricts the extent to which individuals can gain a second round of tax relief by withdrawing savings and reinvesting them into their pension. The MPAA is currently £10,000 and applies to individuals who have flexibly accessed their money purchase pension savings.

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 has taken income from a pension scheme.

Phased roll out of Tax-Free Childcare

The Chancellor has confirmed that Tax-Free Childcare will be rolled out from April 2017. Tax-Free Childcare will be gradually rolled out for children under 12.

Under the scheme the relief will be 20% of the costs of childcare up to a total of £10,000 per child per year. The scheme will therefore be worth a maximum of £2,000 per child (£4,000 for a disabled child). It is expected that all parents in the household will have to meet the following conditions:

  • meet a minimum income level based on the equivalent of working 16 hours a week at National Minimum Wage or National Living Wage rates
  • each earn less than £100,000 a year and
  • not already be receiving support through tax credits or Universal Credit.

The existing scheme, Employer-Supported Childcare, will remain open to new entrants until April 2018 to support the transition between the schemes.

Comment

The government has also confirmed that from September 2017, the free childcare offer will double from 15 to 30 hours a week for working families with three and four year olds in England. In total this is worth up to £5,000 for each child.

Universal Credit

Universal Credit is a 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%.

Property and trading income allowances

From April 2017, the government will introduce new £1,000 allowances for property and trading income. Individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance. The trading allowance will also apply to certain miscellaneous income from providing assets or services. Any income which attracts rent-a-room relief will not be eligible for either of the allowances.

Business Tax

Making Tax Digital for Business (MTDfB)

Extensive changes to how taxpayers record and report income to HMRC are being introduced under a project entitled Making Tax Digital for Business.

The government has decided how the general principles of MTDfB will operate. Draft legislation has been issued on some aspects and more will be published in Finance Bill 2017.

Under MTDfB, businesses, self-employed people and landlords will be required to:

  • maintain their records digitally, through software or apps
  • report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
  • make an ‘End of Year’ declaration through their DTAs.

DTAs are like online bank accounts – secure areas where a business can see all of its tax details in one place and interact with HMRC digitally.

Comment

The End of Year declaration will be similar to the online submission of a self assessment tax return but may be required to be submitted earlier than a tax return. Businesses will have 10 months from the end of their period of account (or 31 January following the tax year – the due date for a self assessment tax return – if sooner).

Exemptions

Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

Changes announced in the Budget

The government has now announced a one year deferral from the mandating of MTDfB for unincorporated businesses and unincorporated landlords with turnovers below the VAT threshold. For those that have turnovers in excess of the VAT threshold the commencement date will be from the start of accounting periods which begin after 5 April 2018.

Cash basis for unincorporated landlords

As part of the wider proposals for Making Tax Digital, the government has decided that, from April 2017, many unincorporated property businesses will compute taxable profits for the purposes of income tax on a cash basis rather than the usual accruals basis.

The cash basis means a business will account for income and expenses when the income is received and expenses are paid. The accruals basis means accounting for income over the period to which it relates and accounting for expenses in the period for which the liability is incurred.

For affected property businesses, the cash basis will first apply for the 2017/18 tax year which means that a tax return for 2017/18, which has to be submitted by 31 January 2019, will be the first one submitted on the new basis.

Not all property businesses will move to the cash basis:

  • property businesses will remain on the accruals basis if their cash basis receipts are more than £150,000
  • there is an option to elect out of cash basis accounting and to use accruals basis instead
  • the cash basis does not apply to property businesses carried out by a company, an LLP, a corporate firm (ie a partner in the firm is not an individual), the trustees of a trust or the personal representatives of a person.

Cash basis for unincorporated businesses

The government is also extending the cash basis option for the self-employed and trading partnerships. The cash receipts threshold for being able to move to the cash basis will increase from the current £83,000 to £150,000 and the threshold for having to move back to the accruals basis will increase to £300,000 from April 2017.

Currently, the rules for the calculation of profits under cash basis accounting do not allow a deduction for expenditure of a capital nature, unless that expenditure qualifies for plant and machinery capital allowances under ordinary tax rules. This results in taxpayers needing to consider whether items are capital in nature, and whether they qualify for capital allowances. New rules will be introduced that list types of expenditure which will or will not be allowed as a tax deduction.

It is proposed these changes will come into effect from the 2017/18 tax year.

Comment

There is no requirement for traders to switch to the cash basis. There are potential problems in adopting the cash basis including restrictions on interest relief on business finance and special calculations which need to be performed on moving to the cash basis. We can, of course, advise you of the issues involved.

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.

Class 4 National Insurance contributions (NICs)

It had already been announced in the 2016 Budget that Class 2 NICs will be abolished from April 2018. The government will now also legislate to increase the main rate of Class 4 NICs from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019.

Comment

Both employed and self-employed earners who reached state pension age from 6 April 2016 have access to the same flat rate state pension. This means that the self-employed have gained £1,800 a year more than under the previous system. The government therefore think it is fair that the NIC differential between them is reduced as employees are paying 12%.

Research and development (R&D)

There are two types of tax reliefs for eligible R&D expenditure. Under one of these, qualifying companies can claim a taxable credit of 11% in relation to eligible R&D expenditure. This is known as the Research and Development Expenditure Credit (RDEC). To further support investment, the government will make administrative changes to the RDEC to increase the certainty and simplicity around claims and will take action to improve awareness of R&D tax credits among small and medium-sized enterprises.

Appropriations to trading stock

From 8 March 2017, the government will remove the ability for businesses to convert capital losses into trading losses when appropriating a capital asset to trading stock.

Disposals of land in the UK

The government will amend legislation to ensure that all profits realised by offshore property developers developing land in the UK, including those on pre-existing contracts, are subject to tax, with effect from 8 March 2017. This extends legislation introduced in Finance Act 2016.

Substantial shareholding exemption (SSE) reform

Changes are proposed to some of the qualifying conditions for the SSE. The good news is that the changes remove some of the obstacles of qualifying for SSE.

  • The condition that the investing company is required to be a trading company or part of a trading group is being removed.
  • The condition that the investment must have been held for a continuous period, at a minimum of 12 months in the two years preceding the sale is being extended to a continuous period of 12 months in the six years preceding the sale.
  • The condition that the company in which the shares are sold continues to be a qualifying company immediately after the sale, is withdrawn, unless the sale is to a connected party.
  • For a class of investors defined as Qualifying Institutional Investors, the condition that the company in which the shares were sold is a trading company has also been removed. The draft legislation contains a list of Qualifying Institutional Investors.

The changes have effect for disposals on or after 1 April 2017.

Restrictions on residential property interest

Legislation has already been enacted to restrict interest relief for landlords.

From 6 April 2017, landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for these finance costs. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying loans or mortgages.

The restriction will be phased in with 75% of finance costs being allowed in 2017/18, 50% in 2018/19, 25% in 2019/20 and be fully in place for 2020/21. The remaining finance costs for each year will be given as a basic rate tax reduction but cannot create a tax refund.

These restrictions apply to:

  • UK resident individuals that let residential properties in the UK or overseas
  • non-UK resident individuals that let residential properties in the UK
  • individuals who let such properties in partnership
  • trustees or beneficiaries of trusts liable for income tax on the property profits.

UK and non-UK resident companies are not affected nor landlords of ‘Furnished Holiday Lettings’.

Enlarging Social Investment Tax Relief

Significant amendments to the Social Investment Tax Relief (SITR) will be legislated for in Finance Bill 2017 to:

  • increase the amount of investment a social enterprise may receive over its lifetime to £1.5 million, for social enterprises that receive their initial risk finance investment no later than seven years after their first commercial sale. The current limit will continue to apply to older social enterprises
  • reduce the limit on full-time equivalent employees to below 250 employees
  • exclude certain activities, including asset leasing and on-lending. 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 future
  • exclude the use of money raised under the SITR to pay off existing loans
  • clarify that individuals will be eligible to claim relief under the SITR only if they are independent from the social enterprise
  • introduce a provision to exclude investments where arrangements are put in place with the main purpose of delivering a benefit to an individual or party connected to the social enterprise.

The changes will take effect for investments made on or after 6 April 2017.

Employment Taxes

Off-payroll working in the public sector

As previously announced, from 6 April 2017, new tax rules potentially affect individuals who provide their personal services via their own companies (PSCs) to an organisation which has been classified as a ‘public authority’.

The effect of these rules, if they apply, will mean:

  • the public authority (or an agency paying the PSC) will calculate a ‘deemed payment’ based on the fees the PSC has charged for the services of the individual
  • the entity that pays the PSC for the services must first deduct PAYE and employee National Insurance contributions (NICs) as if the deemed payment is a salary payment to an employee
  • the paying entity will have to pay to HMRC not only the PAYE and NICs deducted from the deemed payment but also employer NICs on the deemed payment
  • the net amount received by the PSC can be passed onto the individual without paying any further PAYE and NICs.

Public sector organisations include government departments and their executive agencies, many companies owned or controlled by the public sector, universities, local authorities, parish councils and the National Health Service.

The new rules operate in respect of payments made on or after 6 April 2017. This means that they are relevant to contracts entered into before 6 April 2017 but where the payment for the work is made after 6 April 2017.

Comment

Where individuals are working through their PSC for private sector clients, the new rules will not apply to income from such work.

It is for the public authority to decide if the deemed payment rules apply. To help all parties determine whether these rules apply, HMRC have provided an online employment status tool. There is no formal right of appeal to HMRC or the Tax Tribunals by the individual or the PSC. If a new contract is entered into after 6 April 2017, the expectation would be that the PSC would agree the treatment within the initial contract. If it is an existing contract a discussion will need to take place with the public authority as to the reasons for its decision.

Apprenticeship levy and apprenticeship funding

Larger employers (or connected employers treated as large) 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.

Employers only need to report on the levy where they have a pay bill of £3 million in the current tax year or consider that the pay bill will be over £3 million during the 2017/18 tax year.

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 is making changes to its scheme.

Different forms of remuneration

The government is consulting on the following:

Taxation of benefits in kind

The government will publish a call for evidence on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind, in order to better understand whether their use in the tax system can be made fairer and more consistent.

Accommodation benefits

The government will publish a consultation with proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax and to support taxpayers during any transition.

Employee expenses

The government will publish a call for evidence to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer.

Comment

Employers can choose to remunerate their employees in a range of different ways but, in the view of the government, the tax system may treat these forms of remuneration inconsistently. The government is therefore considering how the tax system ‘could be made fairer and more coherent’.

Salary sacrifice

Legislation will limit the income tax and employer NICs advantages where:

  • benefits in kind are offered through salary sacrifice or
  • the employee can choose between cash allowances and benefits in kind.

The taxable value of benefits in kind where cash has been forgone will be fixed at the higher of the current taxable value or the value of the cash forgone.

The new rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, or Cycle to Work. Following consultation, the government has also decided to exempt Ultra-Low Emission Vehicles, with emissions under 75 grams of CO2 per kilometre.

This change will take effect from 6 April 2017. Those already in salary sacrifice contracts at that date will become subject to the new rules in respect of those contracts at the earlier of:

  • an end, change, modification or renewal of the contract
  • 6 April 2018, except for cars, accommodation and school fees, when the last date is 6 April 2021.

Comment

Employers and employees may wish to review their flexible remuneration packages prior to 6 April 2017.

Changes to termination payments

Changes from 6 April 2018 will align the rules for tax and employer NICs by making an employer liable to pay NICs on any part of a termination payment that exceeds the £30,000 threshold. It is anticipated that this will be collected in ‘real-time’.

In addition, all payments in lieu of notice (PILONs) will be both taxable and subject to Class 1 NICs. This will be done by requiring the employer to identify the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves the employment part way through their notice period. This amount will be treated as earnings and will not be subject to the £30,000 exemption.

Finally, the exemption known as foreign service relief will be removed and a clarification made to ensure that the exemption for injury does not apply in cases of injured feelings.

National Minimum Wage and National Living Wage increases

The Chancellor confirmed that the National Living Wage (NLW) rate will be increased from 1 April 2017. Increases are also being made to the National Minimum Wage (NMW) rates. The NLW applies to workers aged 25 and over. The NMW applies to other workers provided they are at least school leaving age.

Rate from: 1 October 2016 1 April 2017
NLW for workers aged 25 and over £7.20* £7.50
NMW main rate for workers aged 21-24 £6.95 £7.05
NMW 18-20 rate £5.55 £5.60
NMW 16-17 rate £4.00 £4.05
NMW apprentice rate** £3.40 £3.50

* introduced and applies from 1 April 2016
**the apprentice rate applies to apprentices under 19 or 19 and over and in the first year of their apprenticeship.

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.

CGT annual exemption

The CGT annual exemption is £11,100 for 2016/17 and will be increased to £11,300 for 2017/18.

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

Legislation has already been enacted to introduce an additional nil rate band 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

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.

Individuals will need to revisit their wills to ensure that the relief will be available and efficiently utilised.

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 or
  • where an individual was born in the UK with a UK domicile of origin and resumes UK residence having obtained a domicile of choice elsewhere.

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 arising income and gains. They will not be able to access the remittance basis. For IHT, a deemed UK domicile is chargeable on worldwide assets rather than only on UK assets.

Legislation will allow a non-UK domiciled individual who has been taxed on the remittance basis to transfer amounts between overseas mixed fund bank accounts without being subject to the offshore transfer rules. This will allow the different elements within the accounts to be separated, thereby allowing clean capital to be remitted to the UK in priority to income and gains.

The draft legislation also provides that the market value of an asset at 5 April 2017 will be able to be used as the acquisition cost for CGT purposes when computing the gain or loss on its disposal where the asset was situated outside the UK between 16 March 2016 and 5 April 2017. This will apply to any individual who becomes a deemed UK domicile in April 2017, other than one who is born in the UK with a UK domicile of origin.

Non-UK domiciles who set up an overseas resident trust before becoming a deemed UK domicile will generally not be taxed on any income and gains retained in that trust and the trust remains non chargeable property for IHT purposes. However, there are a number of changes which modify the tax treatment on the occurrence of certain events for settlor interested overseas asset trusts.

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.

Other Matters

Business rates

Business rates have been devolved to Scotland, Northern Ireland and Wales. The business rates revaluation takes effect in England from April 2017 and will result in significant changes to the amount of rates that businesses will pay. The government announced £3.6 billion of transitional relief in November 2016. The Chancellor has now announced £435 million of further support for businesses. This includes:

  • support for small businesses losing Small Business Rate Relief to limit increases in their bills to the greater of £600 or the real terms transitional relief cap for small businesses each year
  • providing English local authorities with funding to support £300 million of discretionary relief, to allow them to provide support to individual cases in their local area.

The government will also introduce a £1,000 business rate discount for public houses with a rateable value of up to £100,000, for one year from 1 April 2017. This is subject to state aid limits for businesses with multiple properties.

Tax avoidance and evasion measures

In addition to measures specifically referred to earlier in this summary, other measures announced include:

Qualifying recognised overseas pension schemes (QROPS)

The government will introduce a 25% charge on transfers to QROPS. This charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction. Exceptions will apply to the charge allowing transfers to be made tax free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area.

VAT: fraud in the provision of labour in the construction sector

The government will consult on options to combat missing trader VAT fraud in the provision of labour in the construction sector, in particular, applying the reverse charge mechanism so the recipient accounts for VAT.

Employment Allowance

HMRC are actively monitoring National Insurance Employment Allowance compliance following reports of some businesses using avoidance schemes to avoid paying the correct amount of NICs. The government will consider taking further action in the event that this avoidance continues.

 

Newsletter – March 2017

Enews – March 2017

In this month’s eNews we report on the new advisory fuel rates for company cars, year end tax planning, business hopes for the Spring Budget and the new off payroll working rules for those providing services to the public sector. We also include an update on pensions freedom, the new Lifetime ISA and ludicrous expense claims.

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

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 March 2017. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 March 2017 are:

Engine size Petrol
1400cc or less 11p
1401cc – 2000cc 14p
Over 2000cc 22p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 9p
Over 2000cc 14p
Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
Over 2000cc 13p

Other points to be aware of about the advisory fuel rates:

  • Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
  • The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC.

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

Internet link: GOV.UK AFR

Year end tax planning

With the end of the tax year looming there is still time to save tax for 2016/17. We have set out some points you may want to consider.

  • Make full use of your ISA allowance – ISAs can offer a useful tax free way to save, whether this is for your children’s future, a first home or another purpose. Individuals may invest up to a limit of £15,240 for the 2016/17 tax year. A saver may only pay into a maximum of one Cash ISA, one Stocks and Shares ISA and one Innovative Finance ISA per year. Savers have until 5 April 2017 to make their 2016/17 ISA investment.
  • Take advantage of capital allowances – By making the most of capital allowances, businesses may be able to write off the costs of capital assets against taxable profits. The Annual Investment Allowance allows businesses to claim a deduction of up to £200,000 of the year’s investment in plant and machinery (excluding cars). Businesses of any size and most business structures can make use of the AIA. However, there are provisions to prevent multiple claims.
  • Build a tax efficient retirement plan – Pension contributions must be paid on or before 5 April 2017 for them to be relieved against 2016/17 income. Annual contributions are limited to the greater of £3,600 (gross) or the amount of your UK relevant earnings may be eligible for tax relief. However, these will be subject to the annual allowance, which is generally £40,000. This is further reduced for those with net income over £110,000 and adjusted annual income (their income, plus both their own and their employer’s pension contributions) over £150,000. For every £2 of adjusted income over this figure, a person’s annual allowance is reduced by £1 (down to a minimum of £10,000).

This is only a selection of options that you may wish to consider as part of your tax planning strategy. For more information, and for advice on how we can help you to minimise your tax bill, please contact us.

Please contact us to discuss your personal situation.

What will the Spring Budget bring for business?

With two Budgets in 2017, and the Spring Budget scheduled for Wednesday 8 March 2017, the Confederation of British Industry (CBI) have written to the Chancellor Philip Hammond outlining what they would like to see in the Budget proposals.

The CBI’s letter calls for the government to ‘back businesses’ growth ambitions’ to help build prosperity across the UK, and to work alongside firms to ‘prioritise stability’ during periods of economic uncertainty.

The CBI has also urged the government to tackle the UK’s ‘outdated’ business rates regime and limit its ‘growing burden’ on businesses.

Elsewhere, the Federation of Small Businesses (FSB) has advocated for a ‘pro-business Budget’ that supports self-employed individuals, urging the government to help more people start up in business.

We will keep you informed of pertinent Budget announcements.

Internet links: CBI news FSB news

Self assessment expense claims

HMRC have released a list of the most outlandish items which have been claimed as expenses. These include:

  • Holiday flights to the Caribbean
  • Luxury watches as Christmas gifts for staff – from a company with no employees
  • International flights for dental treatment ahead of business meetings
  • Pet food for a Shih Tzu ‘guard dog’
  • Armani jeans as protective clothing for painter and decorator
  • Cost of regular Friday night ‘bonding sessions’ – running into thousands of pounds.
  • Underwear – for personal use
  • A garden shed for private use – plus the costs of the space it takes up in the garden
  • Betting slips
  • Caravan rental for the Easter weekend.

Ruth Owen, HMRC Director General of Customer Services, said:

‘Year after year we receive a number of ludicrous expense claims, ranging from international holiday flights to expensive designer clothing, which we would never uphold. Why should the honest taxpayer pick up the bill for others? HMRC will only accept those claims which are genuine, such as legitimate travel expenses or the cost of tools for the job.

For help with your tax affairs please do get in touch.

Internet link: GOV.UK news

Over £9.2 billion released by pension freedoms

Hundreds of thousands of savers have cashed in £9.2 billion from their pension pots since pension freedoms were introduced in April 2015.

In April 2015, the government introduced significant pension reforms giving people the ability to access their pensions savings how and when they want. Over 1.5 million payments have been made using pension freedoms, with 162,000 people accessing £1.56 billion flexibly from their pension pots over the last three months, according to HMRC figures.

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

‘Giving people freedom over what they do with their hard-earned savings, whether it’s buying an annuity or taking a cash lump sum, is the right thing to do. These figures show that people continue to take advantage of the choices on offer: choices ‎only made available since the government’s landmark pension freedoms were introduced in April 2015.

We are working with our partners, including Pension Wise, the regulators and pension firms, so that savers have the support they need to understand the options available to them.

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.’

Internet links: GOV.UK news Statistics

New Lifetime ISA

The Lifetime Individual Savings Account (ISA) is a longer term tax-free account that receives a government bonus. The accounts will be available from 6 April 2017. HMRC have produced a helpful guide on the account. Some of which is reproduced below:

Opening a Lifetime ISA

You can open a Lifetime ISA if you’re aged 18 or over but under 40.

As with other ISAs, you won’t pay tax on any interest, income or capital gains from cash or investments held within your Lifetime ISA.

Saving in a Lifetime ISA

You can save up to £4,000 each year in a Lifetime ISA. There’s no maximum monthly savings contribution, and you can continue to save in it until you reach 50. The account can stay open after then but you can’t make any more payments into it.

The £4,000 limit, if used, will form part of your overall annual ISA limit. From the tax year 2017 to 2018, the overall annual ISA limit will be £20,000.

Example

You could save:

  • £11,000 in a cash ISA
  • £2,000 in a stocks and shares ISA
  • £3,000 in an innovative finance ISA
  • £4,000 in a Lifetime ISA in one tax year.

Your Lifetime ISA won’t close when the tax year finishes. You’ll keep your savings on a tax-free basis for as long as you keep the money in your Lifetime ISA.

Lifetime ISAs can hold cash, stocks and shares qualifying investments, or a combination of both.

Government bonus

When you save into your Lifetime ISA, you’ll receive a government bonus of 25% of the money you put in, up to a maximum of £1,000 a year.

Withdrawals

You can withdraw the funds held in your Lifetime ISA before you’re 60, but you’ll have to pay a withdrawal charge of 25% of the amount you withdraw.

A withdrawal charge will not apply if you’re:

  • using it towards a first home
  • aged 60
  • terminally ill with less than 12 months to live.

If you die, your Lifetime ISA will end on the date of your death and there won’t be a withdrawal charge for withdrawing funds or assets from your account.

Transferring a Lifetime ISA

You can transfer your Lifetime ISA to another Lifetime ISA with a different provider without incurring a withdrawal charge.

If you transfer it to a different type of ISA, you’ll have to pay a withdrawal charge.

Saving for your first home

Your Lifetime ISA savings and the bonus can be used towards buying your first home, worth up to £450,000, without incurring a withdrawal charge. You must be buying your home with a mortgage.

You must use a conveyancer or solicitor to act for you in the purchase, and the funds must be paid direct to them by your Lifetime ISA provider.

If you’re buying with another first time buyer, and you each have a Lifetime ISA, you can both use your government bonus. You can also buy a house with someone who isn’t a first time buyer but they will not be able to use their Lifetime ISA without incurring a withdrawal charge.

Your Lifetime ISA must have been opened for at least 12 months before you can withdraw funds from it to buy your first home.

If you have a Help to Buy ISA, you can transfer those savings into your Lifetime ISA or you can continue to save into both – but you’ll only be able to use the government bonus from one to buy your first home.

You can transfer the balance in your Help to Buy ISA into your Lifetime ISA at any time if the amount is not more than £4,000.

In 2017/18 only, you can transfer the total balance of your Help to Buy ISA, as it stands on 5 April 2017, into your Lifetime ISA without affecting the £4,000 limit.

Internet link: GOV.UK news

Construction Industry – Subcontractor verifications

HMRC have confirmed in the latest Employer Bulletin that changes will be made to the verification of subcontractors in the construction Industry Scheme (CIS) from 6 April 2017.

From 6 April 2017, contractors must use an approved method of electronic communication to verify their subcontractors. So from 6 April 2017 HMRC will no longer accept any telephone calls to verify subcontractors and from then contractors must verify subcontractors using:

  • the free HMRC CIS online service, or
  • commercial CIS software.

This change is one of a series made to CIS to increase HMRC efficiency and accuracy, and to reduce administration. HMRC are also reminding contractors that they have also introduced additional features of the online system including the ability to amend returns online, and the addition of an online message/alert service.

Contact us for help with CIS issues.

Internet link: Employer Bulletin

Providing services to a public sector – off payroll working

In the latest Employer Bulletin HMRC advise those providing services to a public sector client through their own limited company to ensure they are ready for the new rules which take effect from 6 April 2017.

The new rules for off payroll working, commonly referred to as IR35 or the Intermediaries legislation, take effect from 6 April 2017.

These changes mean individuals working through their intermediary in the public sector will no longer be responsible for deciding whether the intermediaries’ legislation applies and then paying the appropriate tax and National Insurance contributions (NICs). This responsibility will instead move to the public authority client, agency, or third party that pays the worker’s intermediary, and they will also now become responsible for making sure that, where the rules apply, the relevant income tax and NICs are deducted and reported through PAYE in real time.

The public authority client is required to tell any agency or third party its view as to whether the rules apply. HMRC have been consulting on these new rules and the legislation has yet to be finalised.

HMRC confirm that ‘work is continuing on the development of the new Employment Status Service, and the online tool should be available for use in March. We have launched an off-payroll working in the public sector page on GOV.UK where you can find guidance for fee-payers, PSCs and public authorities to use, and links to material such as the technical note’.

If you have concerns in this area please contact us.

Internet links: Employer Bulletin Technical note