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Autumn Budget – Oct 2021

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Autumn Budget 2021

The Chancellor Rishi Sunak presented his third Budget on 27 October 2021. In his speech he set out the plans to “build back better” with ambitions to level up and reduce regional inequality.

Main Budget proposals

Tax measures include:

  • a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022/23
  • a change in the earliest age from which most pension savers can access their pension savings without incurring a tax charge. From April 2028 this will rise to 57
  • the retention of the £1 million annual investment allowance until 31 March 2023
  • individuals disposing of UK property on or after 27 October 2021 now have a 60 day CGT reporting and payment deadline, following the completion of the disposal.

Other measures include:

  • a complete overhaul of alcohol duties that will see drinks taxed on their strength
  • the cancellation of the previously announced rise in fuel duties
  • pubs supported with a reduction in draught beer and cider duty
  • increases in the National Living Wage and the National Minimum Wage rates
  • an ultra-long-haul band of air passenger duty introduced.

Some Budget proposals may be subject to amendment in the Finance Bill 2021-22. Should you need any further help or support please contact us.

Personal Tax

The personal allowance

The personal allowance is currently £12,570. The Chancellor announced in the March 2021 Budget that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.

The marriage allowance

The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate, to transfer £1,260 of their personal allowance to their spouse or civil partner.

 

Comment
The marriage allowance reduces the recipient’s tax bill by up to approximately £250 a year. To benefit from the marriage allowance one spouse or civil partner must normally have no income or income below the personal allowance for the year. The marriage allowance was first introduced for 2015/16 and there are couples who are entitled to claim but have not yet done so. It is possible to claim for all years back to 2017/18 where the entitlement conditions are met. The total tax saving for all years up until 2021/22 could be over £1,000. A claim for 2017/18 will need to be made by 5 April 2022.

Tax bands and rates

The basic rate of tax is 20%. In 2021/22 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.

At Spring Budget 2021, the Chancellor announced that the basic rate band will be frozen at £37,700 for the tax years 2022/23 to 2025/26. The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years.

Individuals pay tax at 45% on their income over £150,000.

Scottish residents

The tax on income (other than savings and dividend income) is different, for taxpayers who are resident in Scotland, from that paid by taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In 2021/22 there are five income tax rates which range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. The two higher rates are 41% and 46% rather than the 40% and 45% rates that apply to such income for other UK residents. Currently the 41% band applies to income over £43,662 for those who are entitled to the full personal allowance. The 46% rate applies to income over £150,000.

The Scottish Government will announce the Scottish income tax rates and bands for 2022/23 in the Scottish Budget on 9 December.

Welsh residents

From April 2019, the Welsh Government has had the right to vary the rates of income tax payable by Welsh taxpayers (other than tax on savings and dividend income). The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. For 2021/22 the Welsh Government has set the Welsh rate of income tax at 10 pence which has been added to the reduced rates. This means the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers.

The Welsh Government will publish its Draft Budget for 2022/23 on 20 December.

Tax on savings income

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

The Savings Allowance applies to savings income and the available allowance 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 allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

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, less allocated allowances and reliefs) exceeds £5,000.

Tax on dividends

The first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates for 2021/22:

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

In September 2021 the government announced an increase to the rates of dividend tax by 1.25% from 6 April 2022 to help fund the new planned investment in health and social care. The new rates will therefore be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% 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 Dividend Allowance.

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

 

Comment
Dividends on shares held in ISAs and pension schemes are not subject to dividend tax and thus will not be affected by the increase in rates.

Green National Savings and Investment (NS&I) product

In the Spring Budget 2021 the government announced  a green retail savings product through NS&I. The Bonds are now available to buy online and offer savers a chance to support green projects at a fixed rate of 0.65% pa over a three-year term. The Bonds are available to those aged 16 or over, with a minimum investment of £100 and a maximum limit of £100,000 per person. The interest is taxable in the tax year the Bond matures.

The UK’s inaugural sovereign green bond (or ‘green gilt’) was launched in September 2021, and was followed by a second issuance in October 2021. They are the first sovereign green retail product of their kind in the world.

Universal Credit

The Universal Credit taper rate is reduced from 63% to 55%, meaning Universal Credit claimants will be able to keep an additional 8p for every £1 of net income they earn.

Increase to the normal minimum pension age

The current earliest age at which most pension savers can access their pension savings without incurring a tax charge is age 55. From April 2028 this earliest age will rise to 57.

This measure will affect individuals born after 5 April 1973 whose earliest date to access their pension benefits will see a two-year delay to those born on or before that date.

Pensions – Scheme Pays

Although there are no limits to how much an individual can save or accrue in a registered pension scheme, there is an overall limit on the amount of an individual’s tax-relieved annual pension savings or accrual which includes employer contributions. This is known as the annual allowance and the standard annual allowance is currently £40,000, but in some circumstances this is reduced, with the maximum reduction taking it down to £4,000.

An individual’s unused annual allowance from the three previous tax years can be carried forward and added to the annual allowance. However, if the individual’s pension savings for the tax year exceed their annual allowance, the annual allowance tax charge is applied to the excess.

Although this tax liability would normally be the individual’s liability it is possible for them to elect for the pension scheme administrator to be jointly liable.

Where an individual has inputted more than £40,000 and their annual allowance charge exceeds £2,000 the individual can request that their pension company pays the charge for them in return for an equivalent reduction in the value of their pension pot. This is called mandatory Scheme Pays.

From April 2022 there will be a change to the rules for certain pension schemes to remove anomalies where the tax charge has arisen due to a retrospective change of facts, the tax charge is £2,000 or more and the individual requests the pension scheme pays the amount. This measure applies retrospectively from 6 April 2016.

 

Employment

National Insurance Contributions (NICs)

In September 2021 the government published its proposals for new investment in health and social care in England. The proposals will lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government will introduce a UK-wide 1.25% Health and Social Care Levy based on the NIC system but ring fenced for health and social care.

The Health and Social Care Levy Act provides for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates will decrease back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy.

Broadly, the new Health and Social Care Levy will be subject to the same reliefs, thresholds and requirements as NIC. However the Levy (as opposed to the temporary increase in NICs for 2022/23) will also apply to those above State Pension age who are still in employment.

Existing reliefs for NICs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.

The Employment Allowance, which reduces employers’ Class 1 NICs by up to £4,000, will also be available for the employers’ liability to the Levy.

 

Comment
A novel aspect of the Levy is the application to employees above State Pension age. This does not apply in respect of the temporary increase for 2022/23. The Levy will not apply to Class 2 (a flat rate paid by many self-employed) and Class 3 (voluntary contributions for taxpayers to fill gaps in their contribution records).

The main burden of the 1.25% increase falls on the collective shoulders of the employer and employee as each will have higher contributions to make. Those with property income will be relieved that they are not being included in the Levy.

National Living Wage (NLW) and National Minimum Wage (NMW)

Following the recommendations of the independent Low Pay Commission, the government will increase the NLW for individuals aged 23 and over by 6.6% from 1 April 2022. The government has also accepted the recommendations for the other NMW rates to be increased.

From 1 April 2022, the hourly rates of NLW and NMW will be:

  • £9.50 for those 23 years old and over
  • £9.18 for 21-22 year olds
  • £6.83 for 18-20 year olds
  • £4.81 for 16-17 year olds
  • £4.81 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.

 

Comment
In total, the annual gross earnings of a full-time worker on the NLW will have increased by over £5,000 since its introduction in April 2016.

Power to make temporary modifications of taxation of employment income

This will allow HM Treasury, under ministerial direction, to make regulations to make temporary modifications to existing legislation for a period of up to two tax years in the event of a disaster or emergency of national significance as determined by HM Treasury. This will enable the government to support taxpayers, for example by:

  • exempting benefits in kind of a specified description from income tax where appropriate
  • changing the qualifying conditions for exemptions on benefits in kind
  • exempting specified reimbursements from the charge to income tax
  • providing relief for specified expenses.

This will have effect on and after the date of Royal Assent to the Finance Bill 2021-22.

Business

Making Tax Digital for income tax

The Making Tax Digital (MTD) regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC. It had been expected that sole trader businesses and landlords with business income of more than £10,000 per annum would be required to enter the MTD regime for income tax purposes from 6 April 2023. However, HMRC recently announced that this will be deferred until 6 April 2024. Early adoption of digital record keeping and voluntary submission of MTD for income tax data remains possible.

Following the deferral for sole trader businesses and landlords, general partnerships will not be required to comply with MTD for income tax until 6 April 2025 and the date other types of partnerships (for example limited liability partnerships) will be required to comply will be confirmed in the future.

HMRC has also confirmed that the new system of penalties for the late filing and late payment of tax for income tax self assessment will be aligned with when a taxpayer becomes mandated into MTD for income tax. For individuals without trade or property income or otherwise exempt from MTD for income tax, the new penalty regime will apply to their income tax affairs from 6 April 2025.

MTD for corporation tax

HMRC has previously announced that MTD for corporation tax will not be mandated before 2026.

Accounting periods that are not aligned to tax years

Aligned to the revised start date for MTD for income tax, changes will be made to simplify the rules under which trading profits made by self-employed individuals and partnerships are allocated to tax years.

The changes mainly affect unincorporated businesses that do not draw up annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024.

Affected self-employed individuals and partnerships may retain their existing accounting period but the trade profit or loss that they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the chosen accounting date.  Broadly this will require apportionment of accounting profits into the tax years in which they arise.

 

Example
A business draws up accounts to 30 June every year. Currently, income tax calculations for 2024/25 would be based on the profits in the business’s accounts for the year ended 30 June 2024. The change will mean that the income tax calculations for 2024/25 will be based on 3/12 of the profits for the year ended 30 June 2024 and 9/12 of the profits for the year ended 30 June 2025.

This change will potentially accelerate when business profits are taxed but transitional adjustments in 2023/24 are designed to ease any cashflow impact of the change.

 

Comment
An estimated 93% of sole traders and 67% of trading partnerships draw up their accounts to 31 March or 5 April and thus the current rules are straightforward and the proposed changes will not affect them. Those with a different year end might wish to consider changing their accounting year end to simplify compliance with tax rules.

Corporation tax rates

The main rate of corporation tax is currently 19%. In the Spring Budget 2021, the Chancellor announced the rate would remain at 19% until 1 April 2023 but the rate will then increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

Capital allowances

Plant and machinery

Most corporate and unincorporated businesses are able to utilise a £200,000 annual investment allowance (AIA) to claim 100% tax relief on their qualifying expenditure on plant and machinery. The allowance was temporarily increased to £1 million for expenditure incurred on or after 1 January 2019 and was due to revert back to £200,000 from 1 January 2022. The £1 million allowance will now be retained until 31 March 2023.

Transitional rules will apply to accounting periods that span 1 April 2023.

For companies, this aligns the end of the temporary AIA with the end of the ‘super-deductions’ as announced by the government in Spring Budget 2021.

 

Reminder – super-deductions
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from new capital allowances, termed ‘super-deductions’ or ‘first year allowances’, as follows:

•         a super-deduction of 130% can be claimed on most new plant and machinery investments that ordinarily qualify for the 18% main rate writing down allowances

•         a first year allowance of 50% can be claimed on most new plant and machinery investments that ordinarily qualify for the 6% special rate writing down allowances.

These reliefs are not available for unincorporated businesses.

 

Comment
Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow. In 2023 not only will the tax relief rules for expenditure on plant and machinery change, for companies the percentage corporation tax relief saving on the expenditure may change as well.

Structures and Buildings

A Structures and Buildings Allowance (SBA) was introduced with effect from 29 October 2018 to relieve costs for new structures and buildings used for qualifying purposes. A business must hold an allowance statement containing certain information to be eligible to claim SBA. Minor changes will be made to the allowance statement requirements to clarify the information required to be kept.

Annual Tax on Enveloped Dwellings

The Annual Tax on Enveloped Dwellings (ATED) charges increase automatically each year in line with inflation. The ATED annual charges will rise by 3.1% from 1 April 2022 in line with the September 2021 Consumer Price Index.

Residential Property Developer Tax

A new tax will be applied from 1 April 2022 on company profits derived from UK residential property development. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million. For companies that are part of a group, the £25 million allowance will be allocated by the group between its companies.

Cultural relief

The government has announced that it will temporarily increase cultural tax reliefs for theatres, orchestras, museums and galleries across the UK from 27 October 2021 to 31 March 2024, increasing the relief organisations can claim as they invest in new productions and exhibitions.

Changes will also be introduced to better target the cultural reliefs and ensure that they continue to be safeguarded from abuse. These will apply from 1 April 2022.

Research and Development relief reform

Research and Development (R&D) tax reliefs for companies will be reformed to:

  • support modern research methods by expanding qualifying expenditure to include data and cloud costs
  • more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK
  • target abuse and improve compliance.

These changes will take effect from April 2023.

Cross-border group relief

Following the UK’s exit from the European Union (EU), the government is bringing the corporation tax group relief rules relating to European Economic Area (EEA) resident companies into line with those for non-UK companies resident elsewhere in the world. This applies to accounting periods ending on or after 27 October 2021 and will affect UK groups with subsidiary companies established in the EEA along with EEA-resident companies that are trading in the UK through a permanent establishment.

Online Sales Tax

The government has announced its plans to consult and explore the arguments for and against the introduction of an ‘Online Sales Tax’.

Should such a tax be introduced in future, it would raise revenue to fund business rates reductions.

Business rates review

Business rates have been devolved to Scotland, Northern Ireland and Wales.

The government announced at Budget 2020 that it would conduct a fundamental review of the business rates system in England. The government’s objectives for the review were reducing the overall burden on business, improving the current business rates system and allowing the consideration of more fundamental changes in the long term.

In March 2021, the government published the Interim Report of the review. The Final Report was published on 27 October 2021. Collectively, these set out the government’s commitments by:

  • Supporting local high streets as they adapt and recover from the pandemic by introducing a new temporary business rates reliefin England for eligible retail, hospitality and leisure properties for 2022/23. Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022/23.  This amounts to support worth more than double the relief that was announced pre-COVID for the 2020 to 2021 financial year and includes additional businesses such as hotels, gyms and bowling alleys.
  • Cutting the burden of business rates for all businesses by freezing the multiplierfor 2022 to 2023.
  • Introducing a new relief to support investment in property improvements, enabling occupying businesses to invest in expanding their properties and making them work better for customers and employees.
  • Introducing new measures to support green investmentand the decarbonisation of non-domestic buildings. This will provide exemptions for eligible green plant and machinery such as solar panels, wind turbines and battery storage used with renewables and electric vehicle charging points, as well as a 100% relief for low-carbon heat networks that have their own rates bill.
  • Making the system fairer by moving to three-yearly revaluations from 2023.
  • Providing stability ahead of the 2023 revaluation by extending Transitional Relief and the Supporting Small Business Scheme for 2022 to 2023to protect small businesses from significant bill increases in the final year of the current revaluation cycle.

Capital Taxes

Capital gains tax (CGT) rates

No changes to the current rates of CGT have been announced. This means that the rate remains at 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, with the exception of any element that qualifies for Private Residence Relief.

There is still potential to qualify for a 10% rate, regardless of available income tax basic rate band, up to a lifetime limit for each individual. This is where specific types of disposals qualify for:

  • Business Asset Disposal Relief (BADR). This is targeted at directors and employees who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met. It can also apply to owners of unincorporated businesses.
  • Investors’ Relief. The main beneficiaries of this relief are investors in unquoted trading companies who have newly-subscribed shares but are not employees.

Current lifetime limits are £1 million for BADR and £10 million for Investors’ Relief.

CGT annual exemption

The CGT annual exemption will be maintained at the current level of £12,300 for 2022/23 and up to and including 2025/26.

CGT reporting and payment following a property disposal

UK resident individuals who dispose of UK residential property are sometimes required to deliver a CGT return to HMRC and make a payment on account of CGT within 30 days of completion of the property disposal. Broadly, this only applies where the property disposal gives rise to a CGT liability and as such usually excludes the disposal of a property to which private residence relief applies.

Non-UK residents are subject to similar deadlines in respect of the disposal of all types of UK land and property.

In both cases, for disposals that complete on or after 27 October 2021, the reporting and payment deadline is extended to 60 days following the completion of the disposal.

From the same date, changes will clarify that for UK residents disposing of a mixed use property, only the portion of the gain that is the residential property gain is required to be reported and paid.

Inheritance tax (IHT) nil rate bands

The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2026. An additional nil rate band, called the ‘residence nil rate band’ (RNRB) is also frozen at the current £175,000 level until 5 April 2026. A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.

Other Matters

Tonnage Tax

The UK’s tonnage tax regime will be reformed from April 2022 to help the UK shipping industry grow and compete in the global market. The reform is intended to make it easier for shipping companies to move to the UK, ensure they are not disadvantaged compared with firms operating in other countries, and reduce unnecessary administrative burdens.

Landfill Tax

As announced at Spring Budget 2021 both the standard and lower rates of Landfill Tax will increase from 1 April 2022 in line with the Retail Prices Index (RPI).

Gaming Duty

The government will raise the bandings for Gaming Duty in line with inflation. The new bandings will affect Gaming Duty accounting periods commencing on or after 1 April 2022.

Vehicle Excise Duty (VED)

The government will increase VED rates for cars, vans, motorcycles, and motorcycle trade licences in line with RPI with effect from 1 April 2022.

For heavy goods vehicles, VED continues to be frozen in 2022/23. The HGV Levy is suspended for another 12 months from 1 August 2022.

Tobacco Duty

Increases in Tobacco Duty rates take effect from 27 October 2021 and the government will legislate in Finance Bill 2021-22 to introduce tougher sanctions to tackle Tobacco Duty evasion.

Alcohol Duty

Rates of Alcohol Duty were not changed in this Budget. The government is publishing a consultation on its detailed proposals for Alcohol Duty reform. These include:

  • changes to duty structures
  • new rates for some products sold on draught
  • extension of small producer reliefs
  • simplification of the administrative regime.

In addition alcohol duties have been frozen to February 2022.

Air Passenger Duty (APD)

The government will introduce a new domestic band for APD for reduced rate and standard rate travel, covering flights within the UK. In addition, a new ultra-long-haul band will be introduced, covering destinations with capitals located more than 5,500 miles from London. These changes will take effect from 1 April 2023.

Freeports

The government announced its plans for Freeports in 2020. Freeports are specified geographical areas that allow certain benefits to businesses operating within them. The main VAT benefit is that businesses selling goods within free zones will be able to zero-rate their supplies. Services carried out on goods in those zones may also be zero-rated subject to conditions. The government will introduce an additional element to the VAT free zone model for Freeports. This will implement a free zone exit charge to ensure businesses do not gain an unintended tax advantage from the zero-rate in the free zone model. The measure will take effect from 3 November 2021.

VAT on second-hand cars sold in Northern Ireland

In a measure that will be backdated to 1 January 2021, motor dealers in Northern Ireland will be able to include motor vehicles sourced from Great Britain in their second-hand margin scheme calculations. This measure will apply should a relevant agreement be reached with the EU.

Second-hand Motor Vehicle Export Refund Scheme

Under this scheme, businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export. The power will come into effect on Royal Assent of Finance Bill 2021-22. Legislation outlining the detail of the scheme will be introduced in 2022.

VAT treatment of fund management fees

A consultation will take place on options to simplify the VAT treatment of fund management fees.

VAT penalties

Budget documents confirm that the new late submission and late payment penalties for VAT will still come into effect for VAT registered businesses for accounting periods starting on or after 1 April 2022, as announced at Spring Budget 2021.

Plastic Packaging Tax

Draft legislation has been issued to establish a Plastic Packaging Tax. This is a new tax that applies to plastic packaging produced in or imported into the UK, that does not contain at least 30% recycled plastic. Plastic packaging is packaging that is predominantly plastic by weight.

The tax rate will be £200 per tonne of non-compliant plastic packaging. There will be an exemption for businesses that manufacture or import less than ten tonnes of plastic packaging per year. The tax will take effect from April 2022.

 

Newsletter – April 2021

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Enews – April 2021

In this month’s Enews we consider the extension of business rates relief to COVID-hit businesses outside of the retail, hospitality and leisure sectors, the announcements from the inaugural Tax Day and the details of the 2021 Finance Bill.

With guidance on the new Brexit fund aimed at SMEs, the fourth and fifth instalments of the support grant for the self-employed and minimum wage increases there is a lot to update you on.

Article Index

  • Business rates relief extended with £1.5 billion fund
  • Consultations launched on UK’s first Tax Day
  • Government publishes details of Finance Bill 2021
  • £20 million SME Brexit Support Fund opens for applications
  • HMRC publishes details of final grants for self-employed
  • National Minimum and Living wages increases
  • UK cuts electric vehicle grants by £500
  • ICAEW urges HMRC to rethink quarterly reports under MTD for corporation tax

Business rates relief extended with £1.5 billion fund

The government is to extend business rates relief with a £1.5 billion fund targeted at those businesses unable to benefit from the current COVID-19 support.

Retail, hospitality and leisure businesses have not been paying any rates during the pandemic, as part of a 15 month-long relief which runs to the end of June this year.

However, many businesses ineligible for reliefs have been appealing for discounts on their rates bills, arguing the pandemic represented a ‘material change of circumstance’ (MCC).

The government says that market-wide economic changes to property values, such as from COVID-19, can only be properly considered at general rates revaluations, and will therefore be legislating to rule out COVID-19 related MCC appeals.

Instead, the government will provide a £1.5 billion pot across the country that will be distributed according to which sectors have suffered most economically, rather than on the basis of falls in property values. It says this will ensure the support is provided to businesses in England in the fastest and fairest way possible.

Chancellor of the Exchequer Rishi Sunak said:

‘Our priority throughout this crisis has been to protect jobs and livelihoods. Providing this extra support will get cash to businesses who need it most, quickly and fairly.

‘By providing more targeted support than the business rates appeals system, our approach will help protect and support jobs in businesses across the country, providing a further boost as we reopen the economy, emerge from this crisis, and build back better.’

Internet link: GOV.UK 

Consultations launched on UK’s first Tax Day

The government has published over 30 updates, consultations and documents on the UK’s first ever Tax Day.

The announcements, which would traditionally be published at Budget, have been released later to allow for scrutiny from stakeholders.

It was announced that HMRC will tighten rules to force holiday let landlords to prove they have made a realistic effort to rent properties out for at least 140 days per year. There are suspicions that many simply declare that they will do this but leave the properties empty.

Declaring a home to be a holiday let means that it is exempt from council tax and owners pay business rates instead.

The Treasury plans to cut the rate of domestic Air Passenger Duty. The consultation also seeks views on supporting the UK’s commitment to net zero emissions by 2050 by increasing the number of international distance bands.

Inheritance tax (IHT) reporting regulations ‘will be simplified’ to ensure that from 1 January 2022 more than 90% of non-taxpaying estates will no longer have to complete IHT forms when probate or confirmation is required.

Jesse Norman, Financial Secretary to the Treasury, said:

‘We are making these announcements to increase the transparency, discipline and accessibility of tax policymaking.

‘These measures will help us to upgrade and digitise the UK tax system, tackle tax avoidance and fraud, among other things.

‘Many of today’s announcements form a key part of the government’s wider 10-year plan to build a trusted, modern tax system.’

Internet links: GOV.UK GOV.UK news

 

Government publishes details of Finance Bill 2021

The details of the Finance Bill 2021 have been published by the government.

The Bill outlines the key measures set to be brought into legislation, including many measures announced in the recent 2021 Budget.

In his Budget speech, Chancellor Rishi Sunak announced an extension of the stamp duty holiday in England; a super-deduction capital allowance; extensions of the Coronavirus Job Retention Scheme (CJRS) and the Self-employment Income Support Scheme (SEISS); and an extension of the VAT cut for the tourism and hospitality sectors.

The Bill will make sure the measures announced in the Budget take effect from 6 April 2021. It also legislates for tax changes that were previously consulted on and subsequently confirmed at the Budget.

Internet link: UK Parliament website

£20 million SME Brexit Support Fund opens for applications

The UK government has unveiled a £20 million Brexit support package to help small and medium-sized enterprises (SMEs) with changes to customs and tax rules when trading with the EU.

The SME Brexit Support Fund aims to help businesses prepare for the implementation of further import controls which come into force later this year.

Businesses who trade only with the EU and are therefore new to importing and exporting processes will be encouraged to apply for grants of up to £2,000 for each trader to pay for practical support, including training and professional advice, to ensure they can continue trading effectively.

Businesses must meet certain criteria, including having been established in the UK for at least 12 months, having fewer than 500 employees and no more than £100 million in turnover.

The closing date for applications is 30 June. HMRC states that the fund may close for applications earlier if the full £20 million is allocated.

Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), said:

‘We have been asking for proper financial assistance of this scale so that a cash-strapped small business can afford to buy-in expertise, training and practical support. The new fund will make a significant difference.’

Internet links: GOV.UK guidance GOV.UK press release

HMRC publishes details of final grants for self-employed

HMRC has published details of the eligibility criteria of the final two grants available under the coronavirus (COVID-19) Self-employment Income Support Scheme (SEISS).

At the 2021 Budget it was confirmed that the fourth SEISS grant will be set at 80% of three months’ average trading profits, paid out in a single instalment, capped at £7,500. It will cover the period from February 2021 to April 2021.

To be eligible for the fourth grant, self-employed workers must have filed their 2019/20 tax return by midnight on 2 March 2021. This includes those who became self-employed in 2019/20, provided they have filed according to the deadline.

Eligibility will be based on the 2019/20 self assessment tax return which may affect the amount of the fourth grant which could be higher or lower than previous grants.

The remaining eligibility criteria are unchanged so applicants must either be currently trading but impacted by reduced demand, or be temporarily unable to trade due to COVID-19. They must also declare an intention to continue trading.

Claims can be made from late April until 31 May 2021.

The fifth SEISS grant will cover the period from May to September 2021 and will be available from July.

It will be set at 80% of three months’ average trading profits, paid out in a single instalment, capped at £7,500, for those with a turnover reduction of 30% or more.

Alternately, it will be worth 30% of three months’ average trading profits, capped at £2,850 for those with a turnover reduction of less than 30%.

Further details of the fifth grant will be provided in due course.

Internet link: GOV.UK

National Minimum and Living wages increases

UK workers are set to benefit from rises in the National Minimum Wage (NMW) and the National Living Wage (NLW) rates that took effect from 1 April 2021.

The NMW which applies to 21 and 22 year-olds has risen from £8.20 to £8.36 and the NLW has risen from £8.72 to £8.91. 23 and 24-year-olds are now eligible for the NLW, prior to 1 April 2021, only workers aged 25 and over were eligible.

The rates for NMW and NLW for all employees are as follows:

  Previous rate Rate from April 2021 Increase
National Living Wage £8.72 £8.91 2.2%
21-22 year-old rate £8.20 £8.36 2.0%
18-20 year-old rate £6.45 £6.56 1.7%
16-17 year-old rate £4.55 £4.62 1.5%
Apprentice Rate £4.15 £4.30 3.6%

The change follows recommendations made to the government by the Low Pay Commission (LPC) and marks the first step towards the government’s target of the NLW reaching two-thirds of median earnings for workers aged 21 and over by 2024.

Commenting on the wage increases, Bryan Sanderson, Chair of the LPC, said:

‘This week’s increase in the NLW is our first step towards the government’s target of two-thirds of median earnings. It is a real-terms increase, meaning that an hour’s work can buy more than it could last year at the start of the pandemic.

‘Young people should be fairly rewarded for their work. We will seek to understand how young people’s pay and employment are affected by this in our consideration of a further reduction in the NLW age qualification to 21.’

The LPC will make recommendations to the government on the 2022 NMW and NLW rates in October.

Internet link: GOV.UK news

UK cuts electric vehicle grants by £500

The government has cut the Plug-in Car Grant and Van & Truck Grant by £500 and lowered the pricing cap on qualifying electric vehicles.

The Department for Transport will now provide grants of up to £2,500 for electric vehicles on cars priced under £35,000. This is a reduction from the current £3,000 available for vehicles costing up to £50,000.

This will mean the funding will last longer and be available to more drivers, the government statement said. Grants will no longer be available for higher priced vehicles, typically bought by drivers who can afford to switch without a subsidy from taxpayers.

The number of electric car models priced under £35,000 has increased by almost 50% since 2019 and more than half the models currently on the market will still be eligible for the grant.

However, Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders (SMMT), said:

‘The decision to slash the Plug-in Car Grant and Van & Truck Grant is the wrong move at the wrong time. New battery electric technology is more expensive than conventional engines and incentives are essential in making these vehicles affordable to the customer.

‘This sends the wrong message to the consumer, especially private customers, and to an industry challenged to meet the government’s ambition to be a world leader in the transition to zero emission mobility.’

Internet links: GOV.UK SMMT statement

ICAEW urges HMRC to rethink quarterly reports under MTD for corporation tax

The Institute of Chartered Accountants in England and Wales (ICAEW) has urged HMRC to rethink the requirement for companies to report quarterly under Making Tax Digital for corporation tax (MTD for CT).

In response to HMRC’s consultation on expanding the MTD initiative to corporation tax, the ICAEW suggested that HMRC should reconsider reporting requirements ‘at the very least for businesses below the VAT registration threshold’ and other organisations including those that require a senior accounting officer.

The Institute argued that quarterly reports would merely consist of cash in and out transactions.

The ICAEW said:

‘These reports will tell HMRC very little about the true accounting or tax results of the company for the quarter concerned.

‘The additional burden placed on companies in providing quarterly reports is not justified and should not be introduced until digital record keeping has become established and the software available is shown to work efficiently for companies and HMRC.’

Internet link: ICAEW website

Newsletter – March 2020

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Enews March 2020

In this month’s Enews we report on a change to the sick pay rules as a result of the coronavirus and confirmation that the off-payroll working rules will be rolled out from 6 April 2020. We also consider the latest HMRC guidance on minimum wage increases, new company car advisory fuel rates, help for business flood victims and a consultation on freeports. With calls to raise taxes in the forthcoming Budget and a reminder to consider year end tax planning, there are lots of issues to update you on.

Coronavirus measure: Statutory Sick Pay from ‘day one’

The Prime Minister, Boris Johnson, has announced that employees will be entitled to Statutory Sick Pay (SSP) from day one when self-isolating rather than having to wait until day four under the SSP waiting days rules.

The change will be included in a package of measures, to be introduced by emergency legislation, to deal with coronavirus.

Updating Parliament on the Government’s response to the virus, Prime Minister Boris Johnson told MPs:

‘I can today announce that the Health Secretary will bring forward, as part of our emergency legislation measures, to allow the payment of Statutory Sick Pay from the very first day you are sick instead of four days under the current rules.

‘No one should be penalised for doing the right thing.’

The Prime Minister had earlier said:

‘We are not at the point yet where we are asking large numbers of people to self-isolate, but that may of course come if large numbers have the symptoms.

‘If they stay at home, they are helping to protect all of us by preventing the spread of the virus.’

The press release advises that the change will be a temporary measure to respond to the outbreak and will lapse when it is no longer required. We will keep you updated on developments.

Internet links: GOV.UK news GOV.UK guidance

Review confirms off-payroll working rules to go ahead from April 2020

The government has confirmed that reforms to off-payroll working rules for the private sector will go ahead from 6 April 2020.

The off-payroll rules have applied to the public sector since 2017 and the government has carried out a review of the roll-out to the private sector. The review has now concluded, and the changes will go ahead alongside the implementation of measures to support affected businesses and individuals.

From 6 April 2020, the new tax rules will use the 2017 changes as a starting point for the extension to medium and large organisations in the private sector. These reforms will shift the responsibility for assessing employment status to medium and large organisations engaging workers via an intermediary, typically a Personal Service Company (PSC).

HMRC said it will take a ‘light touch approach’ and businesses will not have to pay penalties for inaccuracies in the first year, except in cases of deliberate non-compliance.

The government will also introduce a legal obligation on organisations to respond to requested information about their size from the agency or worker, to make it clearer who is responsible for determining the worker’s tax status.

Commenting on the changes, Jesse Norman, Financial Secretary to the Treasury, said:

‘It is only right that the off-payroll rules are applied consistently across all sectors. Two people sitting side by side doing the same work for the same employer should be taxed in the same way.

‘Following a review, the government is announcing a package of measures to help individuals and businesses implement these changes smoothly.’

Internet links: GOV.UK review GOV.UK news

IFS calls for Chancellor to raise taxes in upcoming Budget

The Institute for Fiscal Studies (IFS) has urged Chancellor Rishi Sunak to use the forthcoming Budget to raise taxes.

The think tank stated that the Chancellor either needs to raise taxes or ‘break a fiscal rule’ in order to avoid day-to-day spending cuts beyond 2021.

However, the Conservative Party’s election manifesto promised not to raise income tax, national insurance or VAT.

The IFS has also called on the Chancellor to abolish Entrepreneurs’ Relief and end the ‘ludicrously generous tax treatment of capital gains at death and of inherited pension pots’.

Commenting on the matter, Paul Johnson, Director of the IFS, said:

‘Rishi Sunak’s first Budget could be the most important fiscal event in years. It will set the direction of policy for the next five years. If this new government is going to make radical changes to taxes and spending, this surely is the time to do it.

‘There are plenty of tax rises which would both raise revenue from better off individuals and improve the coherence of the tax system.’

We will update you on pertinent Budget announcements.

Internet link: FS publications

Minimum Wage increases

The National Minimum Wage (NMW) and National Living Wage (NLW) are the legal minimum wage rates that must be paid to employees. Employers are liable to be penalised for not complying with the NMW and NLW rules.

There are different levels of NMW and NLW, depending on age and whether the employee is an apprentice. The rates are due to increase from 1 April 2020 as shown in the following table:

Rate from 1 April 2019 Rate from 1 April 2020
NLW for workers aged 25 and over £8.21 8.72
NMW main rate for workers aged 21-24 £7.70 8.20
NMW 18-20 rate £6.15 6.45
NMW 16-17 rate for workers above school leaving age but under 18 £4.35 4.55
NMW apprentice rate £3.90 4.15

The NMW apprentice rate applies for apprentices under 19 or 19 or over and in the first year of their apprenticeship.

There are no exemptions from paying the NMW on the grounds of the size of the business.

The government has announced that HMRC will continue publicly naming employers that fail to pay their workers the NLW or NMW, following a review of the scheme. The naming scheme will resume calling out businesses failing to pay their workers their minimum wage entitlements.

The government has also increased the threshold for naming employers from £100 to £500, meaning that employers owing arrears of more than £500 in NMW payments to their employees will now be named.

Business Minister Kelly Tolhurst said:

‘Anyone who is entitled to the minimum wage should receive it – no ifs, no buts – and we’re cracking down on companies that underpay their workers.

‘We also want to make it as easy as possible for employers, especially small businesses and those trying to do right by their staff, to comply with the NMW rules, which is why we’re reforming regulations.’

The government is also revising the pay arrangements available to employers engaging ‘salaried hours workers’. These are workers who receive an annual salary in equal instalments for a set number of contracted hours. Under the revised rules, workers who are often paid hourly or per day and consequently receive different amounts of pay every month, such as those in the retail industry, can be classified as salaried workers. The aim of the changes is to provide more flexibility in how salaried workers are paid without reducing protections for workers.

The changes also mean that employers employing these workers are less likely to caught out by the NMW legislation due to the differences in their hours from one month to the next.

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

Internet links: GOV.UK NMW GOV.UK news

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which take effect from 1 March 2020. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 March 2020 are:

Engine size Petrol
1400cc or less 12p
1401cc – 2000cc 14p
Over 2000cc 20p
Engine size LPG
1400cc or less 8p
1401cc – 2000cc 10p
Over 2000cc 14p
Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
Over 2000cc 13p

Hybrid cars are treated as either petrol or diesel.

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

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

The Advisory Electricity Rate for fully electric cars is 4 pence per mile. Electricity is not a fuel for car fuel benefit purposes.

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

Don’t forget to make tax efficient investments ahead of the tax year end

With the end of the tax year looming there is still time to save tax for 2019/20.

  • Make full use of your ISA allowance – ISAs can offer a useful tax free way to save, whether this is for your children’s future, a first home or another purpose. Individuals may invest up to a limit of £20,000 for the 2019/20 tax year. Savers have until 5 April 2020 to make their 2019/20 ISA investment.
  • Pensions provide significant planning opportunities. The annual allowance (AA) which is the maximum you can contribute to a pension and still get tax relief, is generally £40,000. Exceeding this can result in an AA clawback charge. However, in many circumstances individuals may have unused AA from the three previous tax years which can be used in 2019/20, providing the means of making a significant contribution without incurring a charge. Please contact us for advice specific to your circumstances.

These are only two suggestions that you may wish to consider as part of your tax planning strategy. Contact us for more information.

Internet links: GOV.UK ISAs Pensions Advisory Service AA

Freeports

The government has launched a consultation on proposals to create up to ten freeports across the UK which would have different customs rules than those which apply in the rest of the UK.

The government is considering a UK freeport model which would include multiple customs zones located within or away from a port, as well as a type of special economic zone (SEZ) designated over or around the customs zones and intends to work with the devolved administrations to develop proposals to allow freeports to be created in Scotland, Wales and Northern Ireland, in addition to those in England.

The proposals include the following customs and tariff benefits for businesses bringing goods into a freeport site:

  • duty suspension, with no tariffs, import VAT or excise to be paid on goods brought into a freeport from overseas until they leave the freeport and enter the UK’s domestic market
  • duty inversion if the duty on a finished product is lower than that on the component parts, allowing businesses to benefit by importing components duty free, manufacture the final product in the freeport, and then pay the duty at the rate of the finished product when it enters the UK’s domestic market
  • duty exemption for re-exports allowing businesses to import components duty free, manufacture the final product in the freeport and pay no tariffs when the final product is re-exported
  • simplified customs procedures for businesses accessing freeports.

Freeports are secure customs zones located at ports where business can be carried out inside a country’s land border but where different customs rules apply. Typically, goods brought into a freeport do not attract a requirement to pay duties until they leave the freeport and enter the domestic market. No duty is payable at all if the goods are re-exported.

Internet link: GOV.UK consultation

Additional financial support for flooding victims

The government has pledged thousands of pounds in additional financial support for victims of the recent floods.

The Government has announced that businesses in England affected by the floods will be eligible for 100% business rates relief for at least three months. It also stated that small and medium-sized enterprises (SMEs) that have experienced severe, uninsurable losses will be able to claim up to £2,500 from the Business Recovery Grant.

The government also announced that businesses affected by flooding will be able to apply for up to £5,000 to help make them more resilient to future flooding.

Commenting on the funding, Robert Jenrick, Secretary of State for Housing, Communities and Local Government, said:

‘Storm Dennis and Ciara have severely impacted a large number of households and businesses, and I recognise how destabilising this can be.

‘This extra support, including new funding, will help people in the worst hit areas to recover and get back on their feet as soon as possible.’

The announcement only applies to businesses in England. Flooding is a devolved issue for Wales, Scotland and Northern Ireland.

Internet link: GOV.UK news

Newsletter – June 2019

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Enews – June 2019

In this month’s Enews we report on the latest OTS report on simplification of everyday tax for smaller businesses as well as HMRC tackling dishonest dog breeders.

We also update you on the Welsh tax code ‘mix up’ as well as the consultations on various issues including Companies House reforms, Private Residence Relief and letting relief changes.

Finally, with the latest advisory fuel rates for company cars, the P11D deadline looming and non-compliance with minimum wage regulations, there is a lot to update you on.

OTS calls for simplifying everyday tax for smaller businesses

A report by the Office of Tax Simplification (OTS) calls on the government to prioritise action to ‘address long-standing concerns about the experience of smaller businesses’. The report considers the business lifecycle, especially those starting up and provides recommendations in five areas:

  • providing simple step-by-step guidance about the key things a business needs to do in its early days to help things run smoothly
  • improving the operation of the PAYE system
  • implementation of HMRC’s Agents Strategy
  • improving the mechanics of the Corporation Tax return process
  • ensuring that tax changes are built on an understanding of business processes.

If you would like any help with your taxes at any stage of your business life cycle, please do get in touch.

Internet link: GOV.UK simplifying tax

HMRC taskforce tackles dishonest dog breeders

A taskforce has recovered more than £5 million by tackling dishonest dog breeders selling pups on the black market. HMRC set up the taskforce in October 2015 after discussions with animal welfare groups that were concerned that tens of thousands of puppies were being reared in unregulated conditions and sold illicitly every year.

The taskforce uncovered fraudsters selling puppies on a mass scale, for a huge profit and due to the underground nature of the activity, failing to declare their sales.

Using civil and criminal enforcement powers, HMRC has recovered £5,393,035 in lost taxes from 257 separate cases since the formation of the taskforce in October 2015.

The breeders and traders targeted include:

  • two unconnected puppy breeders in the west of Scotland who were handed tax bills of £425,000 and £337,000
  • a puppy breeder in the Midlands who was a former Crufts judge, given a £185,000 bill
  • a dealer in Northern Ireland told to pay £185,000 in tax
  • a Somerset puppy breeder was given a £114,000 bill
  • a puppy dealer in the east of Scotland was handed a tax bill in excess of £400,000
  • a Swansea puppy breeder was given a £110,000 tax bill.

Financial Secretary to the Treasury, Mel Stride MP, said:

‘It is utterly appalling that anyone would want to treat puppies in such an inhumane way and on such a scale. It’s also deeply unfair to all of the legitimate businesses who do pay the right tax, and the total recovered by the taskforce is equivalent to the annual salaries for more than 200 newly qualified teachers.’

‘We continue to work hard with other government agencies and our partners to tackle these traders. We urge anyone with information about tax evasion to report it to HMRC online or call our Fraud Hotline on 0800 788 887.’

Internet link: GOV.UK news

Forms P11D – reporting employee benefits

The forms P11D which report details of benefits and some expenses provided to employees and directors for the year ended 5 April 2019, are due for submission to HMRC by 6 July 2019. The process of gathering the necessary information and completing the forms can take some time, so it is important that this process is not left to the last minute.

Employees pay tax on benefits provided as shown on the P11D, generally via a PAYE coding notice adjustment or through the self assessment system. Some employers ‘payroll’ benefits and in this case the benefits do not need to be reported on forms P11D but employers should advise employees of the amount of benefits payrolled.

In addition, regardless of whether the benefits are being reported via P11D or payrolled the employer has to pay Class 1A National Insurance Contributions at 13.8% on the provision of most benefits. The calculation of this liability is detailed on the P11D(b) form. The deadline for payment of the Class 1A NIC is 19th July 2019 (or 22nd for cleared electronic payment).

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

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

Internet links: HMRC guidance Toolkit

Welsh taxpayers income tax code mix-up

From April 2019, Welsh taxpayers were assigned new income tax codes beginning with the letter ‘C’. However, HMRC recently revealed that some Welsh taxpayers were mistakenly given Scottish income tax codes by their employers. As a consequence, Welsh taxpayers have been charged income tax using the Scottish income tax rates and bands.

For 2019/20 the Welsh rate of income tax is set at 10% and this is added to the UK rates, which are each reduced by 10%. Therefore, the overall tax payable by Welsh taxpayers continues to be the same as English and Northern Irish taxpayers.

The income tax rates and bands that apply to employment income, self-employed trade profits and property income are different for taxpayers who are resident in Scotland, with tax rates and bands ranging from 19% to 46% rather than the 20% to 45% which apply across the rest of the UK. Tax codes for Scottish taxpayers begin with the letter ‘S’.

HMRC stated that it does not know the full extent of the error or how many Welsh taxpayers have been affected but they will carry out a review of the operation of Welsh tax codes in June 2019.

Llyr Gruffydd, Chair of the National Assembly for Wales’ Finance Committee, said:

‘We raised concerns about the flagging process for identifying Welsh taxpayers during our enquiries into fiscal devolution and the Welsh government’s draft budget.

‘On each occasion, we were told the matter was in hand, and the lessons from the devolution of income tax powers to Scotland, where there were similar issues, had been soundly learned and would be put into effect. We are seeking an immediate explanation of how this has happened and will be asking representatives from HMRC to appear before this Committee in the near future.’

If you have any concerns about tax codes, please get in touch.

Internet links: HMRC letter Welsh Assembly news

Consultation on Companies House reforms

The government has launched a consultation on proposed reforms at Companies House, including a ‘major upgrade’ of its register.

The consultation aims to tackle misuse of the register. It also strives to provide business owners with ‘greater protection from fraud’.

The consultation seeks views on a series of reforms to limit the risk of misuse:

  • knowing who is setting up, managing and controlling companies
  • improving the accuracy and usability of data on the companies register
  • protecting personal information on the register
  • ensuring compliance, sharing intelligence and other measures to deter abuse of corporate entities

Louise Smyth, Chief Executive of Companies House, said:

‘This package of reforms represents a significant milestone for Companies House as they will enable us to play a greater part in tackling economic crime, protecting directors from identity theft and fraud, and improving the accuracy of the register.’

The consultation is open until 5 August 2019.

Internet links: GOV.UK consultation GOV.UK news

Consultation on ancillary capital gains reliefs

A capital gains tax (CGT) exemption applies when an individual disposes of a dwelling that has been used as their only or main residence under the Private Residence Relief (PRR) rules. The exemption applies as long as the relevant conditions are met throughout the total period of ownership. This relief is supplemented by ancillary reliefs that aim to deal with other related situations.

The government has previously announced and legislated to reform two of the ancillary reliefs to better target PRR at owner-occupiers. The reliefs which are being amended are:

  • the final period exemption will be reduced from 18 months to nine months, although the special rules that give those with a disability, and those in care, an exemption of 36 months will not change
  • lettings relief will be reformed so that it only applies where an owner is in shared occupancy with a tenant.

These changes will take effect from 6 April 2020. The government is now consulting on the changes in more detail and on how they will work in practice. It also invites views on some technical aspects of the PRR rules.

Internet link: GOV.UK consultation

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which take effect from 1 June 2019. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 June 2019 are:

Engine size Petrol
1400cc or less 12p
1401cc – 2000cc 15p
Over 2000cc 22p
Engine size LPG
1400cc or less 8p
1401cc – 2000cc 9p
Over 2000cc 14p
Engine size Diesel
1600cc or less 10p
1601cc – 2000cc 12p
Over 2000cc 14p

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

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

You must not use these rates in any other circumstances.

The Advisory Electricity Rate for fully electric cars is 4 pence per mile. Electricity is not a fuel for car fuel benefit purposes.

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

Internet link: GOV.UK AFR

Non-compliance with minimum wage regulations

A recent Low Pay Commission (LPC) report sets out its findings on the number of people being paid less than the statutory minimum wage.

The LPC found that, in April 2018, 439,000 workers were paid less than the National Minimum Wage (NMW). Of this amount, 369,000 were employees aged 25 and over, who were paid less than the National Living Wage (NLW), an increase from previous years. On 1 April 2019, the NMW and NLW rates rose to the hourly rates detailed below:

Minimum wage rate Hourly rate from 1 April 2019
National Living Wage (for workers aged 25 and over) £8.21
21-24 year-old rate £7.70
18-20 year-old rate £6.15
16-17 year-old rate £4.35
Apprentice rate £3.90
Accommodation Offset £7.55 per day: £52.85 per week

The LPC also revealed that women are ‘more likely’ than men to be paid less than the NMW, and that underpayment is common amongst younger and older workers. In addition, underpayment was more common in certain sectors including hospitality, retail, cleaning, maintenance and childcare.

Commenting on the findings, Bryan Sanderson, Chair of the LPC, said:

‘Our analysis reveals a worrying number of people are being paid less than the minimum wage. We recently celebrated 20 years of the minimum wage – it has raised pay for millions of workers, but it is essential that people receive what they are entitled to.’

‘It is also vital for businesses to be able to operate on a level playing field, and not be illegally undercut on wages.’

Contact us for help with payroll issues.

Internet link: GOV.UK news

Newsletter – March 2019

Posted on by

Enews – March 2019

In this month’s Enews we report on the ongoing Brexit uncertainties and latest HMRC advice. We also consider National Minimum Wage, National Living Wage and pension contribution increases and the latest guidance for employers.

With confirmed income tax bands for Scottish taxpayers, year end planning, a landline scam warning and new advisory fuel rates there are lots of areas to update you on.

HMRC advice – prepare for no deal

HMRC is urging business owners to make sure they are ready for a potential no deal Brexit.

Business owners are being urged to prepare now and take steps to ensure their businesses can continue to trade with the EU if the UK leaves the EU without a deal.

HMRC advise:

  • Businesses should register for an Economic Operator and Registration Identification (EORI) number. UK businesses that have only ever traded inside the EU will not have an EORI number. HMRC are advising that in the event of a no deal exit, businesses will be unable to continue trading with the EU without an EORI number. HMRC figures show that only 17% of potentially affected businesses have registered so far.
  • Businesses also need to decide how they intend to make the required customs declarations. HMRC advise that most businesses with customs obligations choose to use a customs agent to do this for them.
  • Businesses that import goods into the UK from the EU using roll on, roll off locations, may also wish to register for new Transitional Simplified Procedures (TSP). HMRC advise that ‘TSP will allow businesses to import without having to make a full customs declaration at the border, and postpone paying any import duties. For imports using other locations, and for exports, standard customs declarations will apply.’

Financial Secretary to the Treasury Mel Stride MP said:

‘We want businesses to be able to continue trading with minimal disruption in any scenario but we also know that people tend to leave things until the last minute and we would urge against that.’

Contact us for help in this area.

Internet link: HMRC news

Start date looming for Making Tax Digital for VAT

The Financial Secretary to the Treasury, Mel Stride, has made a statement to the House of Commons setting out HMRC’s progress on delivery of Making Tax Digital (MTD). He confirmed there would be no further delays in implementation.

For most businesses, compliance with the regulations is mandated for VAT return periods beginning on or after 1 April 2019. However, MTD for VAT for some ‘more complex’ businesses has been deferred until 1 October 2019. This deferral applies to trusts; not for profit organisations not set up as companies; VAT divisions; VAT groups; public sector entities such as government departments and NHS Trusts, which have to provide additional information on their VAT return; local authorities; public corporations; traders based overseas; those required to make payments on account; annual accounting scheme users.

Contact us for help and advice on MTD for VAT.

Internet link: Hansard debate MTD

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which take effect from 1 March 2019. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 March 2019 are:

Engine size Petrol
1400cc or less 11p
1401cc – 2000cc 14p
Over 2000cc 21p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 8p
Over 2000cc 13p
Engine size Diesel
1600cc or less 10p
1601cc – 2000cc 11p
Over 2000cc 13p

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

  • reimburse employees for business travel in their company cars or
  • 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

Scottish income tax bands confirmed for 2019/20

The Scottish Parliament has confirmed the income tax bands that will apply to Scottish taxpayers for 2019/20. The bands confirm the announcement made in the Draft Scottish Budget last December.

The 2019/20 income tax rates and bands for Scottish taxpayers on income (other than savings and dividend income) are as follows:

Scottish Bands £ Band name Scottish Rate
0 – 2,049 Starter 19%
2,050 – 12,444 Basic 20%
12,445 – 30,930 Intermediate 21%
30,931 – 150,000 Higher 41%
Over 150,000 Top 46%

Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK which for 2019/20 is £12,500. The allowance is reduced by £1 for every £2 of adjusted net income in excess of £100,000.

The UK higher rate tax point for 2019/20 is set at £37,500 and the tax rates for non-savings and non-dividend income are 20%, 40% and 45% respectively. The additional rate of 45% is payable on income over £150,000.

Internet link: GOV.SCOT income tax

Minimum Wage increases

The National Minimum Wage (NMW) and National Living Wage (NLW) are the legal minimum wage rates that must be paid to employees. Employers are liable to be penalised for not complying with the NMW and NLW rules.

There are different levels of NMW and NLW, depending on age and whether the employee is an apprentice. The rates are due to increase from 1 April 2019 as shown in the following table:

Rate from 1 April 2018 Rate from 1 April 2019
NLW for workers aged 25 and over £7.83 £8.21
NMW main rate for workers aged 21-24 £7.38 £7.70
NMW 18-20 rate £5.90 £6.15
NMW 16-17 rate for workers above school leaving age but under 18 £4.20 £4.35
NMW apprentice rate * £3.70 £3.90

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

There are no exemptions from paying the NMW on the grounds of the size of the business.

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

Internet link: GOV.UK NMW

Pensions auto enrolment contributions to rise

Minimum pension contributions are set to increase from 6 April 2019:

Duration Employer minimum Total minimum contribution
Current contributions 2% 5%
6 April 2019 onwards 3% 8%

The Pensions Regulator has produced guidance for employers on dealing with the increase including a letter template to advise employees of the change.

Contact us if you would like help with auto enrolment.

Internet link: TPR increases

Tax efficient investments ahead of the tax year end

With the end of the tax year looming there is still time to save tax for 2018/19.

  • Make full use of your ISA allowance – ISAs can offer a useful tax free way to save, whether this is for your children’s future, a first home or another purpose. Individuals may invest up to a limit of £20,000 for the 2018/19 tax year. Savers have until 5 April 2019 to make their 2018/19 ISA investment.
  • Pensions provide significant planning opportunities. The annual allowance (AA) which is the maximum you can contribute to a pension and still get tax relief, is generally £40,000. Exceeding this can result in an AA clawback charge. However, in many circumstances you may have unused AA from the three previous tax years which can be used in 2018/19, providing the means of making a significant contribution without incurring a charge. Please contact us for advice specific to your circumstances.

These are only a couple of options that you may wish to consider as part of your tax planning strategy. Contact us for more information.

Internet links: GOV.UK ISAs Pensions Advisory Service AA

Latest update for employers

HMRC has issued Employer Bulletin (February 2019) which includes a number of interesting articles on:

  • End of year reporting
  • Reporting expenses and benefits
  • Student Loan notices and a new type of Student Loan repayment that employers will need to be able to process via payroll (Post Graduate Loans)
  • Updates to the Starter checklist – used for new employees
  • Reporting the Disguised Remuneration Loan Charge
  • Updates to P9 Notices of Coding
  • Payrolling benefits in kind
  • Scottish Income Tax and
  • the Welsh Rate of Income Tax and new codes for Welsh taxpayers.

For help and advice with payroll matters please contact us.

Internet link: Employer Bulletin

Households with landlines should be vigilant

Over recent years HMRC has increasingly cracked down on email and SMS phishing, and a number of criminals are turning to cold-calling publicly available phone numbers to steal money from taxpayers. These calls are often made to landline numbers. According to Ofcom, nearly 26 million homes have a landline, many of which could be at risk from scams, especially if they are not ex-directory.

Fraudsters often target the elderly and vulnerable using HMRC name as it is well known and adds credibility to a call. HMRC received more than 60,000 reports of phone scams in the six months up to January 2019 (an increase of 360% when compared with the previous six months).

Financial Secretary to the Treasury, Mel Stride MP, said:

‘We have taken major steps to crack down on text and email phishing scams leaving fraudsters no choice but to try and con taxpayers over the phone.’

‘If you receive a suspicious call to your landline from someone purporting to be from HMRC which threatens legal action, to put you in jail, or payment using vouchers: hang up and report it to HMRC who can work to take them off the network.’

Head of Action Fraud, Pauline Smith, said:

‘Fraudsters will call your landline claiming to be from reputable organisations such as HMRC. Contact like this is designed to convince you to hand over valuable personal details or your money.’

‘Don’t assume anyone who calls you is who they say they are. If a person calls and asks you to make a payment, log in to an online account or offers you a deal, be cautious and seek advice.’

‘The tax authority will only ever call you asking for payment on a debt that you are already aware of, either having received a letter about it, or after you’ve told us you owe some tax, for example through a Self Assessment return.’

During the last 12 months, HMRC has worked with the phone networks and Ofcom to close nearly 450 lines being used by fraudsters.

Internet links: GOV.UK news HMRC examples

 

Autumn Budget 2018

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Budget 2018

The Chancellor Philip Hammond presented his second Autumn Budget on Monday 29 October 2018. In his speech he stated that ‘austerity is coming to an end – but discipline will remain’. He also promised a ‘double deal dividend’ if the Brexit negotiations are successful but stated that there may be a full-scale Spring Budget in 2019 if not.

Our summary focuses on the tax measures which may 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 contact us for advice.

Main Budget tax proposals

Our summary concentrates on the tax measures which include:

  • increases to the personal allowance and basic rate band
  • extending off-payroll working to medium/large organisations in the private sector
  • a temporary increase to the Annual Investment Allowance
  • freezing the VAT registration threshold for a further two years
  • changes to Entrepreneurs’ Relief and private residence relief
  • measures to tackle the plastic problem.

Previously announced measures include:

  • increases in car benefits
  • plans for Making Tax Digital for Business
  • extending the charge to gains on non-UK residents of non-residential UK property.

Some Budget proposals may be subject to amendment in the  2019 Spring Statement and subsequent 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 £11,850. The personal allowance for 2019/20 will be £12,500.

Comment
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 and the threshold has remained at this figure since its introduction for the 2010/11 tax year. The reduction is £1 for every £2 of income above £100,000. So for 2018/19 there is no personal allowance where adjusted net income exceeds £123,700. For 2019/20 there will be no personal allowance available where adjusted net income exceeds £125,000.

The marriage allowance

The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner.

Comment
The marriage allowance reduces the recipient’s tax bill by up to £238 a year in 2018/19. The marriage allowance was first introduced for 2015/16 and there are many couples who are entitled to claim but have not yet done so. It is possible to claim for all years back to 2015/16 where the entitlement conditions are met. A recent change to the law allows backdated claims to be made by personal representatives of a deceased transferor spouse or civil partner.

Tax bands and rates

The basic rate of tax is currently 20%. The band of income taxable at this rate is £34,500 so that the threshold at which the 40% band applies is £46,350 for those who are entitled to the full personal allowance. Additional rate taxpayers pay tax at 45% on their income in excess of £150,000.

The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland to taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In the 2018/19 Scottish Budget, the Finance Secretary for Scotland introduced five income tax rates as shown in the table of rates at the end of this summary. The income tax rates range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK.

Tax bands and rates 2019/20

The government has announced that for 2019/20 the basic rate band will be increased to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance. The additional rate of tax of 45% remains payable on taxable income above £150,000.

From April 2019, the Welsh Government has the right to vary the rates of income tax payable by Welsh taxpayers. The UK government will reduce each of the three rates of income tax paid by Welsh taxpayers by 10 pence. The Welsh Government has provisionally set the Welsh rate of income tax at 10 pence which will be added to the reduced UK rates. This means the rates of income tax paid by Welsh taxpayers will continue to be the same as those paid by English and Northern Irish taxpayers. The Welsh Government will need to confirm this proposal prior to their final Budget.

The Scottish Government will announce the Scottish income tax rates and bands for 2019/20 in the Draft Budget on 12 December 2018.

Tax on dividends

In 2018/19 the first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). The Dividend Allowance will remain at £2,000 for 2019/20. 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 Dividend Allowance.

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

Comment
In 2017/18 the Dividend Allowance was £5,000. The reduction in the allowance particularly affects family company director-shareholders who extract monies from the company by means of a small salary and the balance in dividends. The cost of the restriction in the allowance for basic rate taxpayers is £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, which was first introduced for the 2016/17 tax year, applies to savings income and the available allowance 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 allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

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 less allocated allowances and reliefs) exceeds £5,000.

Rent-a-room relief

Rent-a-room relief gives relief from income tax for up to £7,500 of income to individuals who let furnished accommodation in their only or main residence. Following consultation on the draft legislation and to maintain the simplicity of the system, the government will not include legislation for the shared occupancy test. The government will retain the existing qualifying test of letting in a main or only residence.

Comment
Rent-a-room relief was introduced 26 years ago to encourage individuals to make spare capacity in their homes available for rent rather than letting out their entire property. The emergence and growth of online platforms have made it easier than ever for those with accommodation to access a global network of potential occupants. The government wants rent-a-room relief to be better targeted to achieve its objective of incentivising individuals to share their homes.

Gift Aid – donor benefits

Draft legislation has been issued which simplifies the donor benefits rules that apply to charities who claim Gift Aid tax relief on donations. From 6 April 2019 the benefit threshold for the first £100 of the donation will remain at 25% of that amount. For gifts exceeding £100, charities can offer benefits up to the sum of £25 and 5% of the amount of the donation that exceeds £100. The total value of the benefit that a donor can receive remains at £2,500.

Comment
The new limits replace the current mix of monetary and percentage thresholds that charities have to consider when determining the value of benefit they can give to their donors without losing the entitlement to claim Gift Aid tax relief on the donations given to them.

Gift Aid Small Donations Scheme

The Gift Aid Small Donations Scheme (GASDS) applies to small charitable donations where it is impractical to obtain a Gift Aid declaration. GASDS currently applies to donations of £20 or less made by individuals in cash or contactless payment. The limit will be raised to £30 from 6 April 2019.

National Living Wage (NLW) and National Minimum Wage (NMW)

Following the recommendations of the independent Low Pay Commission (LPC), the government will increase the NLW by 4.9% from £7.83 to £8.21 from April 2019.

The government will also accept all of the LPC’s recommendations for the other NMW rates to apply from April 2019, including increasing the rates for:

  • 21 to 24 year olds by 4.3% from £7.38 to £7.70 per hour
  • 18 to 20 year olds by 4.2% from £5.90 to £6.15 per hour
  • 16 to 17 year olds by 3.6% from £4.20 to £4.35 per hour
  • apprentices by 5.4% from £3.70 to £3.90 per hour.

Universal Credit

The government has announced that the amount that households with children and people with disabilities can earn before their Universal Credit award begins to be withdrawn – the Work Allowance – will be increased by £1,000 from April 2019.

In addition the government has listened to representations made by stakeholders on Universal Credit, and has announced a package of extra support for claimants as they make the transition to Universal Credit.

Comment
The government remains committed to the introduction of Universal Credit. The set of measures announced in the Budget are worth £1.7 billion per year.

 

 

Business Tax

Making Tax Digital for Business: VAT

HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system. Regulations have now been issued which set out the requirements for MTD for VAT. Under the new rules, businesses with a turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.

The new rules have effect from 1 April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, or otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019. HMRC has recently announced that the rules will have effect for some VAT-registered businesses with more complex requirements from 1 October 2019. Included in the deferred start date category are VAT divisions, VAT groups and businesses using the annual accounting scheme.

HMRC has recently opened a pilot service for businesses with straightforward affairs and the pilot scheme will be gradually extended for other businesses in the next few months.

Keeping digital records and making quarterly updates will not be mandatory for taxes other than VAT before April 2020.

Comment
Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required. Software will not be available from HMRC. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements.

In the long run, HMRC is still looking to a scenario where income tax updates are made quarterly and digitally, and this is really what the VAT provisions anticipate.

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 19% and will remain at this rate for next year. The rate will fall to 17% for the Financial Year beginning on 1 April 2020.

Class 2 and 4 National Insurance contributions (NICs)

The government has recently announced that Class 2 NICs will not be abolished for the duration of this Parliament. The Chancellor confirmed in March 2017 that there will be no increases to Class 4 NICs rates in this Parliament.

Comment
The government’s proposed reform of Class 2 and 4 NICs has had a chequered history. The original proposal was to abolish Class 2 contributions and reform Class 4 contributions. The Chancellor had to backtrack on the Class 4 reform due to the reaction to a proposed increase in rates and the Class 2 abolition was deferred to April 2019.

However a significant number of self-employed individuals with the lowest profits would have seen the voluntary payment they make to maintain access to the state pension rise substantially and so the government decided it would not be right to proceed with the abolition of Class 2.

UK property income of non-UK resident companies

Changes are made for non-UK resident companies that carry on a UK property business either directly or indirectly, for example through a partnership or a transparent collective investment vehicle.

Following consultation, from 6 April 2020, non-UK resident companies that carry on a UK property business, or have other UK property income, will be charged to corporation tax, rather than being charged to income tax as at present.

Capital allowances

Annual Investment Allowance

The government has announced an increase in the Annual Investment Allowance for two years to £1 million in relation to qualifying expenditure incurred from 1 January 2019. Complex calculations may apply to accounting periods which straddle this date.

Other changes

A number of changes are made to other rules relating to capital allowances:

  • a reduction in the rate of writing down allowance on the special rate pool of plant and machinery, including long-life assets, thermal insulation, integral features and expenditure on cars with CO2 emissions of more than 110g/km, from 8% to 6% from April 2019. Complex calculations may apply to accounting periods which straddle this date
  • clarification as to precisely which costs of altering land for the purposes of installing qualifying plant or machinery qualify for capital allowances, for claims on or after 29 October 2018
  • the end of the 100% first year allowance and first year tax credits for products on the Energy Technology List and Water Technology List from April 2020
  • an extension of the current 100% first year allowance for expenditure incurred on electric charge-point equipment until 2023.

In addition, a new capital allowances regime will be introduced for structures and buildings. It will be known as the Structures and Buildings Allowance and will apply to new non-residential structures and buildings. Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 2% on a straight-line basis.

Change to the definition of permanent establishment

A non-resident company is liable to corporation tax only if it has a permanent establishment in the UK. Certain preparatory or auxiliary activities, such as storing the company’s own products, purchasing goods or collecting information for the non-resident company, are classed as not creating a permanent establishment.

From 1 January 2019, the exemption will be denied to these activities if they are part of a ‘fragmented business operation’.

Preventing abuse of the R&D tax relief for SMEs

To help prevent abuse of the Research and Development (R&D) SME tax relief by artificial corporate structures, the amount that a loss-making company can receive in R&D tax credits will be capped at three times its total PAYE and NICs liability from April 2020.

Comment
HMRC has identified and prevented £300 million of fraud linked to this relief and this change will help to address similar abuses in future. Almost 95% of companies currently claiming the payable credit will be unaffected.

Protecting taxes in insolvency

From April 2020, HMRC will have greater priority to recover taxes paid by employees and customers.

The changes appear to be mainly targeted at the distribution of funds to financial institutions as creditors. The rules will remain unchanged for taxes owed by the business and HMRC will remain below other preferential creditors such as the Redundancy Payment Service.

Comment
This will ensure that an extra £185 million in taxes already paid each year reaches the government.

A veiled comment also suggests that, at some stage in the future, directors and other persons involved in tax avoidance, evasion or phoenixism will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency.

Other measures

  • Changes to the tax treatment of corporate capital losses from 1 April 2020 to restrict the proportion of annual capital gains that can be relieved by brought-forward capital losses to 50%.
  • Changes to the Diverted Profits Tax from 29 October 2018.
  • An increase in the small trading tax exemption limits for charities from April 2019 from £5,000 per annum or, if the turnover is greater than £5,000, 25% of the charity’s total incoming resources, subject to an overall upper limit of £50,000, to £8,000 and £80,000 respectively.
  • The introduction of an income tax charge to amounts received in a low tax jurisdiction in respect of intangible property, to the extent that those amounts are referable to the sale of goods or services in the UK, from 6 April 2019, with targeted anti-avoidance rules for arrangements entered into on or after 29 October 2018.

Digital Services Tax

The government remains committed to reform of the international corporate tax framework for digital businesses. However, pending global reform, interim action is needed to ensure the corporate tax system is sustainable and fair across different types of businesses.

Therefore, the government has announced that it will introduce a Digital Services Tax (DST) which will raise £1.5 billion over four years from April 2020. The DST will apply a 2% tax on the revenues of search engines, social media platforms and online marketplaces where their revenues are linked to the participation of UK users.

Businesses will need to generate revenues of at least £500 million globally to become taxable under the DST. The first £25 million of relevant UK revenues are also not taxable.

Intangible fixed assets

The Intangible Fixed Assets regime, which was introduced from 1 April 2002, fundamentally changed the way the UK corporation tax system treats intangible fixed assets (such as copyrights, patents and goodwill). As the regime is now more than 15 years old, the government would like to examine whether there is scope for reforms that would simplify it and make it more effective in supporting economic growth.

Following a short consultation, the government will seek to introduce targeted relief for the cost of goodwill in the acquisition of businesses with eligible intellectual property from April 2019.

With effect from 7 November 2018, the government will also reform the de-grouping charge rules, which apply when a group sells a company that owns intangibles, so that they more
closely align with the equivalent rules elsewhere in the tax code.

VAT registration limits

The government had previously announced that the VAT registration and deregistration thresholds would be frozen at £85,000 and £83,000 respectively until April 2020.

The government has now announced that this freeze will continue for a further two years from 1 April 2020.

VAT fraud in labour provision in the construction sector

The government will pursue legislation to shift responsibility for paying VAT along the supply chain with the introduction of a domestic VAT reverse charge for supplies of construction services with effect from 1 October 2019. The long lead-in time reflects the government’s commitment to give businesses adequate time to prepare for the changes.

VAT treatment of vouchers

Draft legislation has been issued to insert a new tax code for the VAT treatment of vouchers, such as gift cards, for which a payment has been made and which will be used to buy something. The legislation separates vouchers with a single purpose (eg a traditional book token) from the more complex gift vouchers and sets out how and when VAT should be accounted for in each case. The new legislation is not concerned with the scope of VAT and whether VAT is due, but with the question of when VAT is due and, in the case of multi-purpose vouchers, the consideration upon which any VAT is payable.

VAT collection – split payment

The government wants to combat online VAT fraud by harnessing new technology and is consulting on VAT split payment. This will utilise payments industry technology to collect VAT on online sales and transfer it directly to HMRC. In the government’s view this would significantly reduce the challenge of enforcing online seller compliance and offer a simplification for business.

 

 

Employment Taxes

Off-payroll working in the private sector

The changes to IR35 that came into effect in April 2017 for the public sector will be extended to the private sector from April 2020. Responsibility for operating the off-payroll rules will be transferred from the individual to the organisation, agency or third party engaging the worker. Only medium and large organisations will be subject to this change.

Employment Allowance

The Employment Allowance provides businesses and charities with up to £3,000 off their employer NICs bill. From April 2020, the Employment Allowance will be restricted to those employers whose employers’ NICs bill was below £100,000 in the previous tax year.

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 normally announced well in advance. Most cars are taxed by reference to bands of CO2 emissions multiplied by the original list price of the vehicle. The maximum charge is capped at 37% of the list price of the car.

For this tax year there was generally a 2% increase in the percentage applied by each band. For 2019/20 the rates will increase by a further 3%.

A new development for the current tax year is an increase in the diesel supplement from 3% to 4%. This applies to all diesel cars (unless the car is registered on or after 1 September 2017 and meets the Euro 6d emissions standard) but the maximum is still 37%. There is no change to the current position that the diesel supplement does not apply to hybrid cars.

Charging facilities for electric and hybrid cars

Legislation is proposed to provide a new exemption from a taxable employment benefit where an employer provides charging facilities for employees’ all-electric and plug-in hybrid vehicles at or near the workplace. The exemption is backdated to have effect from 6 April 2018.

Employer provided cars and vans are already exempt from this benefit.

Exemption for travel expenses

Draft legislation has been issued which removes the requirement for employers to check receipts when making payments to employees for subsistence using benchmark scale rates. This will apply to standard meal allowances paid in respect of qualifying travel and overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel. This will have effect from April 2019.

The proposed legislation will also allow HMRC to put the existing concessionary accommodation and subsistence overseas scale rates on a statutory basis from 6 April 2019. Like benchmark rates, employers will only be asked to ensure that employees are undertaking qualifying travel.

Self-funded work-related training

The government had previously announced that it would consult on extending the scope of tax relief currently available to employees and the self-employed for work-related training costs. The government has now decided to make no changes to the existing rules. However the National Retraining Scheme is being launched to help those in work, including the self-employed, to develop further skills.

 

 

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 with the exception of any element that qualifies for private residence relief.

There are two specific types of disposal which potentially qualify for a 10% rate, both of which have a lifetime limit of £10 million for each individual:

  • Entrepreneurs’ Relief (ER). This 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
  • Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares.

CGT annual exemption

The CGT annual exemption is £11,700 for 2018/19 and will be increased to £12,000 for 2019/20.

Entrepreneurs’ Relief (ER)

Tackling misuse

With immediate effect for disposals on or after 29 October 2018, two new tests are to be added to the definition of a ‘personal company’, requiring the claimant to have a 5% interest in both the distributable profits and the net assets of the company. The new tests must be met, in addition to the existing tests, throughout the specified period in order for relief to be due. The existing tests already require a 5% interest in the ordinary share capital and 5% of voting rights.

Minimum qualifying period

The government will legislate in Finance Bill 2018-19 to increase the minimum period throughout which certain conditions must be met to qualify for ER, from one year to two years. The measure will have effect for disposals on or after 6 April 2019 except where a business ceased before 29 October 2018. Where the claimant’s business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period will continue to apply.

Dilution of holdings below 5%

Draft legislation has been issued to provide a potential entitlement to ER where an individual’s holding in a company is reduced below the normal 5% qualifying level (meaning 5% of both ordinary share capital and voting power). The relief will only apply where the reduction below 5% occurs as a result of the company raising funds for commercial purposes by means of an issue of new shares, wholly for cash consideration.

Where a disposal of the shareholding prior to the issue would have resulted in a gain which would have qualified for ER, shareholders will be able to make an election treating them as if they had disposed of their shares and immediately reacquired them at market value just before dilution. To avoid an immediate CGT bill on this deemed disposal, a further election can be made to defer the gain until the shares are sold. ER can then be claimed on the deferred gain in the year the shares are sold under the rules in force at that time.

The new rules will apply for share issues which occur on or after 6 April 2019.

Gains for non-residents on UK property

Draft legislation has been issued to charge all non-UK resident persons, whether liable to CGT or corporation tax, on gains on disposals of interests in any type of UK land, whether residential or non-residential. Certain revisions are to be made following a further technical consultation when the full legislation is introduced but the key points are covered here.

All non-UK resident persons will also be taxable on indirect disposals of UK land. The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities who hold a less than 25% interest.

All non-UK resident companies will be charged to corporation tax rather than CGT on their gains.

There will be options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019.

The CGT charge relating to the Annual Tax on Enveloped Dwellings will be abolished. The legislation will broadly have effect for disposals from 6 April 2019.

Comment
The main effect of the new legislation will be to extend the scope of UK taxation of gains to include gains on disposals of interests in non-residential UK property.

Previous legislation has focussed on bringing gains made by non-residents on residential properties within the UK tax regime.

Payment on account and 30 day returns

Draft legislation has been issued to change the reporting of gains and the associated CGT liability on disposal of property. The main change is a requirement for UK residents to make a return and a payment on account of CGT within 30 days following the completion of a residential property disposal on a worldwide basis. The new requirements will not apply where the gain on the disposal is not chargeable to CGT, for example where the gains are covered by private residence relief.

For UK residents, the measure will have effect for disposals made on or after 6 April 2020.

CGT private residence relief

It is proposed that from April 2020 the government will make two changes to private residence relief:

  • the final period exemption will be reduced from 18 months to 9 months. There will be no changes to the 36 months that are available to disabled persons or those in a care home
  • Lettings Relief will be reformed so that it only applies in circumstances where the owner of the property is in ‘shared-occupancy’ with a tenant.

The government will consult on the detail of both of these changes and other technical aspects.

Inheritance tax (IHT) nil rate bands

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

From 6 April 2017 a new nil rate band, called the ‘residence nil rate band’ (RNRB), has been introduced, meaning that the family home can be passed more easily to direct descendants on death.

The RNRB is being phased in. For deaths in 2018/19 it is £125,000, rising to £150,000 in 2019/20 and £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.

There are a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.

Downsizing

The RNRB 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 RNRB, are passed on death to direct descendants.

Changes to IHT RNRB

Amendments are to be introduced to the RNRB relating to downsizing provisions and the definition of ‘inherited’ for RNRB purposes. These amendments clarify the downsizing rules, and provide certainty over when a person is treated as ‘inheriting’ property. This will ensure the policy is working as originally intended. The changes will have effect for deaths on or after 29 October 2018.

Stamp Duty Land Tax (SDLT)

First time buyers relief

The relief for first time buyers will be extended to purchasers of qualifying shared ownership properties who do not elect to pay SDLT on the market value of the whole property when they purchase their first share. Relief will be applied to the first share purchased, where the market value of the shared ownership property is £500,000 or less.

Comment
The relief will apply retrospectively from 22 November 2017, meaning that a refund of tax will be payable for those who have paid SDLT after 22 November 2017 in circumstances which now qualify for first time buyers relief.

Higher rates for additional dwellings (HRAD)

A minor amendment will extend the time allowed to claim back HRAD where an individual sells their old home within three years of buying their new one.The measure also clarifies the meaning of `major interest` in land for the general purpose of HRAD.

Consultation on SDLT charge for non-residents

The government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.

 

 

Other Matters

Extension of offshore time limits

Draft legislation has been issued to increase the assessment time limits for offshore income and gains to 12 years. Similarly the time limits for proceedings for the recovery of inheritance tax are increased to 12 years. Where an assessment involves a loss of tax brought about deliberately the assessment time limit is 20 years after the end of the year of assessment and this time limit will not change.

The legislation does not apply to corporation tax or where HMRC has received information from another tax authority under automatic exchange of information.

The potential extension of time limits will apply from the 2013/14 tax year where the loss of tax is brought about by careless behaviour and from the 2015/16 tax year in other cases. The amendments will have effect when Finance Bill 2018-19 receives Royal Assent.

Comment
The current assessment time limits are ordinarily four years (six years in the case of carelessness by the taxpayer). The justification for the extension of time limits is the longer time it can take HMRC to establish the facts about offshore transactions, particularly if they involve complex offshore structures.

The legislation cannot be used to go back earlier than 2013/14. If there has been careless behaviour HMRC can make an assessment for up to 12 years from 2013/14 in respect of offshore matters but HMRC could not raise an assessment for 2012/13 or earlier (unless there is deliberate error by the taxpayer).

Penalties for late submission of tax returns

Taxpayers are required to submit tax returns by specified dates. When taxpayers submit their returns late they generally incur a penalty. Draft legislation has been issued which sets out a new points-based penalty regime for regular submission obligations. Returns have to be submitted more frequently in some circumstances. Depending on the frequency of the return submission obligation, a defined number of penalty points will accrue to a threshold. Once this threshold has been reached, a fixed penalty will be charged to the taxpayer.

After this each late submission will attract a fixed penalty, until the taxpayer meets all submission obligations by the relevant deadline for a set period of time. Once this happens, and a taxpayer has provided any outstanding submissions for the preceding 24 months, the points total will reset to zero. Points will generally have a lifetime of 24 months after which they expire, so if a taxpayer accrues points but does not reach the threshold, the points will expire after 24 months. Taxpayers will have a separate points total per submission obligation.

Penalties for late payment of tax

Draft legislation has been issued to harmonise the late payment penalty regimes for income tax, corporation tax and VAT. Late payment penalties are charged when customers do not pay, or make an agreement to pay, by the date they should, and do not have a reasonable excuse for the failure to do so.

The penalties will consist of two penalty charges, one charge based upon payments and agreements to pay in the first 30 days after the payment due date and another charge based upon how long the debt remains outstanding after the 30 days.

Interest harmonisation

Draft legislation has been issued to change the VAT interest rules so that they will be similar to those that currently exist for income tax and corporation tax.

This will mean:

  • late payment interest will be charged from the date the payment was due to the date the payment is received
  • HMRC will pay repayment interest when it has held taxpayer repayments for longer than it should.

The provisions are expected to take effect for VAT returns from 1 April 2020.

Tackling the plastic problem

As part of the government’s response to tackling plastic waste, the following announcements were made:

  • Single-use plastics will be addressed in the Resources and Waste Strategy later in the year for situations where recycling rates are too low and producers use too little recycled plastic.
  • The issue of excess and harmful packaging will be addressed with a tax on the production and importation of plastic packaging which does not contain at least 30% recycled plastic. This tax will be implemented in April 2022.
  • The Resources and Waste Strategy will also consider ways of reducing the environmental impact of disposable cups. The government does not believe that a levy would be effective at this time but will return to the issue if insufficient progress has been made by those businesses already taking steps to address the matter.

 

Newsletter – June 2018

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eNews June 2018

In this month’s eNews we report on new advisory fuel rates for company cars, the latest tax refund scam warnings, and National Minimum Wage enforcement from HMRC.

A new consultation has been launched on off-payroll working in the private sector, State Aid approval has been granted for Enterprise Management Incentive schemes and a report has been issued on Universal Credit and the self employed. We also report on the Welsh Assembly’s plans for Welsh income tax rates.

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which take effect from 1 June 2018. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 June 2018 are:

Engine size Petrol
1400cc or less 11p
1401cc – 2000cc 14p
Over 2000cc 22p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 9p
Over 2000cc 14p
Engine size Diesel
1600cc or less 10p
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

Tax refund scams warning from HMRC

HMRC has issued a warning to taxpayers regarding the latest tax refund scams. These scams are targeting individuals via email and SMS messages.

HMRC is currently processing genuine tax refunds for the 2017/18 tax year and the fraudsters are sending scam messages which claim that taxpayers are entitled to a rebate. These messages go on to request that they provide their personal and account details in order to make their claim.

HMRC is keen to stress that it will only ever inform individuals of a tax refund by post or through their employer, and never via email, text messaging or voicemail.

Commenting on the issue, Treasury Minister Mel Stride said

‘We know that criminals will try and use events like the end of the financial year, the self assessment deadline, and the issuing of tax refunds to target the public and attempt to get them to reveal their personal data’.

HMRC is advising taxpayers not to click on any links, download any attachments or provide any personal information, and to forward any suspect messages to HMRC.

Internet link: GOV.UK news

200,000 receive back pay as HMRC enforce National Minimum Wage

BEIS and HMRC are urging underpaid workers to complain about National Minimum Wage (NMW) and National Living Wage (NLW) underpayments. Recent figures show that the number of workers receiving the money they are owed has doubled.

During 2017/18, HMRC investigators identified £15.6 million in pay owed to more than a record 200,000 of the UK’s lowest paid workers. This is an increase on the previous years figures of £10.9 million for more than 98,000 workers.

HMRC launched its online complaints service in January 2017 and believes this has contributed to the 132% increase in the number of complaints received over the last year and the amount of money HMRC has been able to recoup for those unfairly underpaid.

The figures are published as the government launches its annual advertising campaign which encourages workers to take action if they are not receiving the NMW or NLW. The online campaign urges underpaid workers to proactively complain by completing an HMRC online form.

HMRC state that the types of business receiving most complaints include restaurants, bars, hotels and hairdressing.

Business Minister Andrew Griffiths said:

‘Employers abusing the system and paying under the legal minimum are breaking the law. Short changing workers is a red line for this government and employers who cross the line will be identified by HMRC and forced to pay back every penny, and could be hit with fines of up to 200% of wages owed.

I would urge all workers, if you think you might be being underpaid then you should check your pay and call Acas on 0300 123 1100 for free and confidential advice.’

Please contact us for help with payroll matters.

Internet link: GOV.UK news 200000 receive back pay

Off-payroll working in the private sector consultation

HMRC has launched a consultation on how to tackle non-compliance with the off-payroll working rules in the private sector and are asking for comments on the best way to do this.

HMRC estimates only 10% of PSCs that should apply the legislation actually do so, and the the cost of this is projected to increase from £700m in 2017/18 to £1.2bn in 2022/23.

This consultation provides an early evaluation of the public sector reform and invites responses on how best to deal with non-compliance in the private sector.

This consultation considers a number of potential options for tackling the non-compliance with the off-payroll working rules in the private sector. However, the fundamental principles of the off-payroll working rules, that the employment status test determines who should be taxed as employees, are not being considered as part of this consultation.

In respect of the public sector

‘HMRC has analysed PAYE data covering the first 10 months of the reform, from April 2017 to February 2018. This shows that in any given month since the reform was introduced, there are an estimated 58,000 extra individuals who are paying income tax and NICs undertaking work for a public authority above expected levels.

HMRC estimates that an additional £410 million of income tax and NICs has been remitted from these engagements, since the public sector reform was introduced.

On the basis of this evidence, the government’s assessment is that the public sector reform has been successful both in increasing tax compliance and resolving the compliance challenges faced by HMRC in enforcing the off-payroll working rules in the public sector.’

Private sector

‘The government considers extension of similar reform to the private sector to be the lead option which will effectively tackle non-compliance.’

The consultation closes on 10 August. We will keep you updated on this issue.

Internet link: GOV.UK consultation

Universal Credit and self employment

The government has published a report, Universal Credit: supporting self employment which considers the issues faced by self employed claimants.

The report considers the impact of the Monthly Income Floor (MIF) earnings requirement. To be eligible for Universal Credit (UC) claimants must earn the MIF. However, the MIF assumes self employed claimants earn a regular income at least equal to the National Minimum Wage, and makes no provision for those with income and expenditure that vary from month to month. The report states that the MIF has been designed with monthly paid employed individuals in mind rather than the self employed who may have more volatile earnings.

It also considers the current system which allows self employed individuals to be exempt from meeting the MIF for the first 12 months of self employment and whether this is sufficient. The report urges the Government to extend the exemption period.

Internet link: Universal Credit Self Employed report

State Aid approval granted for the Enterprise Management Incentive

It has previously been reported that the Enterprise Management Incentive State Aid approval lapsed on 6 April 2018. On 15 May EU approval was granted however HMRC have not confirmed expressly that this approval will be backdated to 6 April 2018.

The Enterprise Management Incentive (EMI) allows selected employees (often key to the employer) to be given the opportunity to acquire a significant number of shares in their employer through the issue of options. An EMI can offer significant tax advantages as the scheme allows options to be granted to employees which may allow the shares to be received without any tax bill arising until the shares are sold.

HMRC had previously warned that EMI share options granted in the period from 7 April 2018 until EU State Aid approval is received may not be eligible for the tax advantages afforded to option holders.

We await official confirmation on the position from HMRC.

Please contact us for specific advice on this issue.

Internet link: Europa press release

Wales to set devolved income tax rates

From April 2019, the National Assembly for Wales will be able to vary the rates of income tax payable by Welsh taxpayers.

Responsibility for many aspects of income tax will remain with the UK government, and the tax will continue to be collected by HMRC for Welsh taxpayers.

The process for setting Welsh rates of income tax

From April 2019, the UK government will reduce each of the three income tax rates: basic, higher and additional rate, paid by Welsh taxpayers by 10 pence.

The National Assembly for Wales will then decide the three Welsh rates of income tax, which will be added to the reduced UK rates. The combination of reduced UK rates plus the Welsh rates will determine the overall rate of income tax paid by Welsh taxpayers.

If the National Assembly for Wales approves each of the Welsh rates of income tax at 10p, this will mean the rates of income tax paid by Welsh taxpayers will continue to be the same as that paid by English and Northern Irish taxpayers. However the National Assembly for Wales may decide to set different rates ‘to reflect Wales’ unique social and economic circumstances’.

Internet link: GOV.Wales

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

Newsletter – April 2016

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Enews – April 2016

In this month’s eNews we report on pertinent Budget announcements. We also report on the introduction of the register of people with significant control and proposals for different Scottish tax bands.

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

Budget 2016

Register of people with significant control

National Minimum Wage rises

First Minister for Scotland plans to block UK tax ‘cuts’ in favour of public services

Personal allowances and tax bands

Reduction in corporation tax rate

Personal service companies in the public sector

Business rates

Lifetime ISA

Capital gains tax rates

Budget 2016

George Osborne presented his Budget on Wednesday 16 March 2016.

In his speech the Chancellor reported on ‘an economy set to grow faster than any other major advanced economy in the world’. Towards the end of 2015 the government issued many proposed clauses of Finance Bill 2016 together with updates on consultations. The Budget proposed further measures and some of the articles which follow summarise some of the key changes.

CBI Director-General, Carolyn Fairbairn, said:

‘After a year of surprises, this was a stable Budget for business facing global stormy waters. The Chancellor has listened to our concerns about the mounting burden on firms and chosen to back business to grow the economy out of the deficit.’

Internet links: GOV.UK CBI News

Register of people with significant control

From April 2016, rules are introduced which require companies to keep a register of People with Significant Control (PSC). In addition, the details of PSC will have to be filed with Companies House from 30 June 2016.

A PSC is defined as an individual that:

  • holds, directly or indirectly, more than 25% of the shares or voting rights in the company; or
  • holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company; or
  • has the right to exercise, or actually exercises, significant influence or control over the company; or
  • where a trust or firm would satisfy any of the above conditions, any individual that has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.

The details of the individuals which need to be entered on the register include:

  • name and address
  • usual residential address, country of residence and nationality
  • date of birth
  • date when they became a PSC
  • the nature of their control over the company.

Failure to comply with the requirements of the PSC regime could lead to the company or directors, or identified PSCs committing a criminal offence. The company and its directors could face a fine or imprisonment or both.

Further guidance can be found on the Companies House website or please contact us for more guidance in this area.

Internet link: Companies House

National Minimum Wage rises

The National Minimum Wage (NMW) rates will increase from 1 October 2016 as follows:

Current rate Rate from 1 October 2016
21-24 year olds £6.70 £6.95
18-20 year olds £5.30 £5.55
16-17 year olds £3.87 £4.00
Apprentice rate* £3.30 £3.40

From 1 April 2016 following the introduction of the National Living Wage all workers aged 25 and over are legally entitled to at least £7.20 per hour. Employers should ensure that all affected employees benefit from this new rate from 1 April 2016.

*This apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

Internet links: Parliament Living Wage

First Minister for Scotland plans to block UK tax ‘cuts’ in favour of public services

First Minister Nicola Sturgeon has announced plans that income tax rates in Scotland will be frozen, with no increases in the basic, higher or additional rates. However the significant cuts (reduction in income tax liabilities) which would result from the increases to the higher rate threshold proposed by the UK government would not be adopted in Scotland under the proposals. Their plans are that the higher rate threshold will be frozen in real terms and increased only in line with CPI inflation in 2017/18 and by no more than inflation until 2021/22.

The exact level of the higher rate threshold will be set out each year by the Scottish Government at the budget.

The Scottish Government’s believe their proposals are a more balanced approach which ‘will be fair to higher rate taxpayers while also generating additional revenue to be invested in Scotland’s public services such as the NHS’.

Under the proposals, the Scottish Government will ensure a Personal Allowance of £12,750 in 2021/22. If necessary, the Scottish Government will create a zero rate band to ensure that this protection for low income households is delivered.

Alongside the tax proposals, the First Minister published Scottish Government analysis that demonstrated any increase in the additional rate for top earners; whilst the UK rate remains at 45p; could put millions of pounds of revenue at risk. Accordingly, she confirmed that the additional rate will not increase in 2017/18, but that the analysis will be updated each year to inform decisions in future budgets.

Nicola Sturgeon said:

‘In setting out our proposals we have balanced the need to invest in and support our public services with a recognition that many households are still facing difficult economic challenges, and with the need to grow the Scottish economy.

We will not allow our public services to pay the price of an inflation busting tax decrease for the highest earning 10% of the population. We think that is the wrong choice and today we set out our alternative.

We will freeze the basic rate of tax for the duration of the next parliament. We do not believe it is right that those on low incomes are asked to pay for austerity. That does not tackle austerity, it simply shifts the burden to those who can least afford it.

No taxpayer will see their bill increase as a result of these Scottish Government proposals.

In 2017/18, instead of offering a large tax cut we will ensure the higher rate threshold rises only by inflation.

That means next year the threshold for higher rate taxpayers will go from £43,000 to £43,387’.

These proposals would introduce a difference between the amount of income tax payable by higher and additional rate taxpayers in Scotland to that paid by taxpayers with similar income in the rest of the UK.

Other parties have their own plans for the income tax rules for Scotland.

Internet link: Scotland Gov.News

Personal allowances and tax bands

For those born after 5 April 1938 the personal allowance is currently £10,600. Those born before 6 April 1938 have a slightly higher allowance. Legislation has already been enacted to increase the personal allowance to £11,000 in 2016/17. From 2016/17 onwards one personal allowance will apply regardless of age.

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 2015/16 there is no personal allowance where adjusted net income exceeds £121,200 (£122,000 for 2016/17).

Tax bands and rates

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

Legislation has already been enacted to increase the basic rate limit to £32,000 for 2016/17. The higher rate threshold will therefore rise to £43,000 in 2016/17 for those entitled to the full personal allowance.

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

Tax bands and personal allowance for 2017/18

The Chancellor has announced that the personal allowance will be increased to £11,500 and the basic rate limit increased to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 for those entitled to the full personal allowance.

Reduction in corporation tax rate

The main rate of corporation tax is currently 20% and this rate will continue for the Financial Year beginning on 1 April 2016. In the following years the rate of tax will fall 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.

The 17% rate from April 2020 is a reduction of 1% from the rate previously announced by the Chancellor in his Summer Budget in 2015.

CBI Director-General, Carolyn Fairbairn, said:

‘The reduction in the headline Corporation Tax rate sends out a strong signal that the UK is open for global business investment, and reforms to Interest Deductibility are rightly in line with the international consensus.’

Personal service companies in the public sector

From April 2017, individuals working through their own company in the public sector will no longer be responsible for deciding whether the intermediaries legislation applies and then paying the relevant tax and NIC. This responsibility will instead pass to the public sector employer, agency or third party that pays the worker’s intermediary. The employer, agency or third party will have to decide if the rules apply to a contract and if so, account for and pay the liabilities through the Real Time Information (RTI) system and deduct the relevant tax and NIC.

HMRC has announced they will will provide help for public sector employers and agencies with their new responsibilities. They plan to introduce clear, objective tests for employers to use to decide at the point of hire whether or not they need to consider the new rules and then identify those engagements that are caught by the rules.

For cases that are less clear cut, HMRC have announced that they will develop a simple digital tool. This will be designed to provide employers engaging an incorporated worker with a ‘real-time’ HMRC view on whether or not the intermediaries rules need to be applied.

Chris Bryce, Chief Executive of the Association of Independent Professionals and the Self Employed (IPSE), commented:

‘The Chancellor announced a number of measures today which are likely to impact independent professionals and the self-employed. His move to extend rules for off-payroll working in the public sector will create confusion and disruption. The engaging department or agency will be made responsible for any tax liability. This will result in genuine businesses having to jump through numerous hoops and will see the cost of engaging contractors increase. It will endanger the delivery of vital public services and important projects like HS2.’

Internet link: HMRC Off payroll working

Business rates

Business rates have been devolved to Scotland, Northern Ireland and Wales. The Chancellor has announced cuts on business rates for half of all properties in England from 1 April 2017. In particular the government proposes to:

permanently double the Small Business Rate Relief (SBRR) from 50% to 100% and increase the thresholds to benefit a greater number of businesses. Businesses with a rateable value of £12,000 and below will receive 100% relief, rateable values between £12,000 and £15,000 will receive tapered relief increase the threshold for the standard business rates multiplier to a rateable value of £51,000 taking 250,000 smaller properties out of the higher rate.

The government also proposes to modernise the administration of business rates to revalue properties more frequently and make it easier for businesses to pay the taxes that are due.

CBI Director-General, Carolyn Fairbairn, said:

‘Businesses will welcome the Chancellor’s permanent reforms to business rates – taking more small firms out of the regime and changing the uprating mechanism from RPI to CPI, which the CBI has long been calling for.’

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.

Further details of the new account, which will 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.

The Chancellor said in his speech:

‘My pension reforms have always been about giving people more freedom and more choice.

So faced with the truth that young people aren’t saving enough, I am today providing a different answer to the same problem.’

Internet link: GOV.UK lifetime-isa-explained

Capital gains tax rates

The current rates of capital gains tax (CGT) are 18% to the extent that total taxable income does not exceed the basic rate band and 28% thereafter.

The government is to reduce the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%. The trust CGT rate will also reduce from 28% to 20%.

The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private residence relief. In addition, the 28% rate still applies for ATED related chargeable gains accruing to any person (principally companies).

These changes will take effect for disposals made on or after 6 April 2016.

The rate for disposals qualifying for Entrepreneurs’ Relief (ER) remains at 10% with a lifetime limit of £10 million for each individual.