Tag Archives: MTD

Newsletter – April 2017

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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

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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 – February 2017

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Enews – February 2017

In this month’s eNews we report on changes for landlords which take effect from April 2017, increased NMW and NLW rates and progress on Making Tax Digital. We also include several announcements from HMRC on tax return excuses, a new Helpline and details of successful prosecutions.

We also include the latest announcements regarding Pensions Auto Enrolment. Please do get in touch if you would like any further guidance on any of the areas covered.

Making Tax Digital

The government published their responses to the six consultations on making tax digital (MTD).

In response to the consultations the government have decided the following:

  • businesses will be able to continue to use spreadsheets for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of Making Tax Digital for Business (MTDfB). This is likely to involve combining the spreadsheet with software
  • businesses eligible for three line accounts will be able to submit a quarterly update with only three lines of data (income, expenses and profit)
  • free software will be available to businesses with the most straightforward affairs
  • the requirement to keep digital records does not mean that you have to make and store invoices and receipts digitally
  • activity at the end of the year must be concluded and sent either by ten months after the last day of the period of account or 31 January, whichever of these is soonest
  • charities (but not their trading subsidiaries) will not need to keep digital records
  • for partnerships with a turnover above £10 million, MTDfB is deferred until 2020 due to the complexity of their tax affairs.

The MTD consultations also specifically explored the appropriate level of the initial exemption and deferral for the self-employed, landlords and businesses. Given the range of views expressed on this matter from respondents to the consultation, the government has decided to take more time to consider these issues alongside the fiscal impacts. Final decisions will be made before the law is finalised later this year.

In addition, HMRC will begin piloting digital record keeping and quarterly updates for a full year from April 2017, building up to working with hundreds of thousands of businesses and landlords before rolling the services out more widely. The stated aim of this pilot is to ensure the software is user-friendly and give individuals and businesses time to prepare and adapt. Piloting of the system had been recommended by the Treasury Select Committee.

Select Committee’s findings

The Treasury Select Committee has urged HMRC to implement a series of wide-ranging pilots in order to better test the government’s plans for the new digital tax initiative, Making Tax Digital (MTD), before it becomes compulsory for the majority of taxpayers.

The report found that, while the government had already carried out trials of the new initiative, those businesses which took part had done so at HMRC’s invitation.

The Committee stated that comprehensive pilots of MTD are ‘essential’, and that these need to be designed to collect information over the entire reporting cycle.

It also suggested that an evaluation of these pilots should be carried out before the full implementation of the scheme which is expected, for all but the smallest businesses to be implemented from April 2018 onwards.

Andrew Tyrie MP, Chairman of the Committee, said:

‘Without sufficient care, MTD could be a disaster. Implemented carefully, with long transitional arrangements where necessary, and, having drawn on information from fully inclusive pilots, MTD could be designed for the benefit both of the economy and of the tax yield. But with a rushed introduction, it will benefit neither.’

MTDfB will still be phased in from April 2018. We will keep you informed of developments.

Internet links: Parliament MTD GOV.UK MTD responses Consultations

Pay the NMW – no excuses

The government has revealed ten of the most bizarre excuses used by unscrupulous business owners who have been found to have underpaid workers the NMW.

These employers used excuses such as ‘only wanting to pay staff when there are customers to serve and believing it was acceptable to underpay workers until they had ‘proved’ themselves’.

The government has launched an awareness campaign to encourage workers to check their pay to ensure they are receiving at least the statutory minimum ahead of the NMW and NLW increases on 1 April 2017.

Employers need to ensure they are paying their employees at least the NMW and NLW.

Rate from 1 October 2016 Rate from 1 April 2017
NLW for workers aged 25 and over (introduced and applies from 1 April 2016) £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, for apprentices under 19 or 19 or over and in the first year of their apprenticeship £3.40 £3.50

This will be the second increase in six months for the NMW rates. Going forward the NMW and NLW rates will both be reviewed annually in April.

In a recent article in the Employer Bulletin, HMRC cite common errors:

  • not paying the right rate, perhaps missing an employee’s birthday,
  • making deductions from wages which reduce the employee’s pay below the NMW/NLW rate,
  • including top ups to pay that do not qualify for NMW/NLW,
  • failure to classify workers correctly, so treating them as interns volunteers or self employed and
  • failure to include all the time a worker is working, for example time spent shutting up shop or waiting to clear security.

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.

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

Internet link: GOV.UK NMW news

Landlords to receive less tax relief on interest

In a change that will impact residential landlords, the amount of income tax relief available on residential property finance costs will be restricted to the basic rate of income tax. This change will mean that landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

The restriction in the relief will be phased in over a four year period as follows:

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

These rules do not apply to residential properties held in companies.

In addition rules may further restrict the relief which is due where the individual’s property income or total income is less than the amount on which basic rate relief is due. The computation is complex so please do get in touch if you would like us to review your position.

Internet link: GOV.UK guidance

More silly taxpayer excuses from HMRC

HMRC have released more unusual excuses from taxpayers who failed to complete their self assessment tax return on time. These include:

  1. ‘My tax return was on my yacht…which caught fire’
  2. ‘A wasp in my car caused me to have an accident and my tax return, which was inside, was destroyed’
  3. ‘My wife helps me with my tax return, but she had a headache for ten days’
  4. ‘My dog ate my tax return…and all of the reminders’
  5. ‘I couldn’t complete my tax return, because my husband left me and took our accountant with him. I am currently trying to find a new accountant’
  6. ‘My child scribbled all over the tax return, so I wasn’t able to send it back’
  7. ‘I work for myself, but a colleague borrowed my tax return to photocopy it and lost it’
  8. ‘My husband told me the deadline was the 31 March’
  9. ‘My internet connection failed’
  10. ‘The postman doesn’t deliver to my house’

With the self assessment submission deadline of 31 January now past and an automatic penalty of £100 for failing to submit your return on time, please contact us if you need help bringing your affairs up to date.

Internet link: GOV.UK news

Tax cheats – HMRC’s criminal case highlights of 2016

HMRC have revealed their top ten most significant fraud and organised crime cases of the last year.

Simon York, Director of HMRC’s Fraud Investigation Service, said:

‘Day in, day out, HMRC is coming down hard on tax cheats. As these cases show, we’ll tackle anyone committing tax fraud, regardless of how well resourced, well advised, or well organised. These ten prosecutions are among the most significant cases we’ve handled this year, and they reflect the wide range of work carried out by HMRC.’

Internet link: GOV.UK news

Tax helpline for people affected by severe weather and flooding

HMRC have made available a telephone helpline (0800 904 7900) for anyone affected by severe weather or floods. The helpline allows anyone affected to get practical help and advice on a wide range of tax problems they may be facing. These could be financial issues regarding making payment, issues regarding lost or damaged records and may include cancelling penalties where deadlines are missed due to severe weather and flooding.

Internet link: GOV.UK helpline

Pensions auto enrolment

The Department for Work and Pensions has confirmed the thresholds for pensions automatic enrolment for 2017/18.

The main qualifying threshold or ‘trigger’ for employees to be automatically enrolled will be maintained at £10,000 per annum. The lower limit of the qualifying earning band and will be £5,876 and the upper limit £45,000.

The written statement also includes:

‘Automatic enrolment has been a great success to date with almost 7 million people enrolled by more than 293,000 employers. It will give around 11 million people the opportunity to save into a workplace pension and we expect this to lead to around 10 million people newly saving or saving more by 2018, generating around £17 billion a year more in workplace pension saving by 2019/20.’

With over a million micro (1 – 4 employees) and small (5 – 49 employees) employers reaching their staging date for auto enrolment in the last quarter of 2016/17 and throughout 2017/18 it is important to ensure employers comply with their obligations. The Pensions Regulator has confirmed the exceptions which apply to employers which can be found at on their website (see the TPR link below).

Please contact us if you would like help with auto enrolment compliance or to determine whether or not your business is exempt from auto enrolment.

Internet links: Parliament written statement TPR exemptions

Autumn Statement 2016

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Autumn Statement 2016

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

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

Our summary concentrates on the tax measures which include:

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

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

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

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

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

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

Personal Tax

The personal allowance

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

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

Tax bands and rates

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

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

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

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

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

Tax bands and rates – dividends

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

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

 

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

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

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

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

Tax on savings income

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

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

Individual Savings Accounts (ISAs)

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

Lifetime ISA

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

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

 Pensions

Money Purchase Annual Allowance

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

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

Foreign pensions

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

Universal Credit

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

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

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

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

Business Tax

Corporation tax rates

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

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

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

Corporate tax loss relief

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

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

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

Corporate interest expense deductibility

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

Corporation tax on non-resident companies’ UK income

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

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

Research and development

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

Class 2 NICs

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

Substantial shareholding exemption

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

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

Museums and galleries tax relief

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

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

Social Investment Tax Relief (SITR)

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

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

Disguised remuneration schemes

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

Tackling the hidden economy

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

First year allowances on electric charge-points

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

Northern Ireland corporation tax rate

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

 Venture capital schemes

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

Employment Issues

Off-payroll working in the public sector

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

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

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

Apprenticeship levy and apprenticeship funding

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

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

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

Alignment of income tax and National Insurance contributions (NICs)

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

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

The two recommendations are:

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

National insurance thresholds

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

National Living Wage and National Minimum Wage (NMW) rates

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

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

The NMW rates were last increased in October 2016.

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

Legal support

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

Forms of remuneration review

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

Salary Sacrifice

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

Valuation of benefits in kind

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

Employee expenses

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

Employer provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. Most cars are taxed by reference to bands of CO2 emissions. There is a 3% diesel supplement. The maximum charge is capped at 37% of the list price of the car.

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

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

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

Capital Taxes

Capital gains tax (CGT) rates

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

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

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

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

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

Inheritance tax (IHT) nil rate band

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

IHT residence nil rate band

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

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

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

Downsizing

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

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

 

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

Employee Shareholder Status to be abolished

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

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

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

Other Matters

Making Tax Digital

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

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

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

Non-UK domiciles

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

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

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

Non-UK domiciles with UK domicile of origin

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

UK residential property

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

Business Investment Relief

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

VAT Flat Rate Scheme

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

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

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

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

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

Insurance Premium Tax

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

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

The last Autumn Statement

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

 

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

 

Disclaimer – for information of users

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

 

Newsletter – September 2016

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Enews – September 2016

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

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

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

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

HMRC outline Making Tax Digital plans

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

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

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

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

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

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

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

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

Internet link: GOV.UK MTD

Government propose new sanctions for tax avoidance

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

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

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

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

Internet link: GOV.UK consultation

Accounting standards and the tax implications of new UK GAAP

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

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

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

Internet link: GOV.UK accounting standards

HMRC genuine and phishing/bogus emails and calls

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

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

The details of the two phone scams are as follows:

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

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

Internet links: HMRC guidance Employer Bulletin

Complain to HMRC – online

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

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

Internet link: GOV.UK guidance

Government urged to delay the launch of Lifetime ISA

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

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

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

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

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

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

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

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

Internet link: Article

Advisory fuel rates for company cars

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

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

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

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

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

You must not use these rates in any other circumstances.

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

Internet link: GOV.UK AFR

Guidance for employers

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

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

For help with your payroll contact us.

Internet link: Employer Bulletin