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Newsletter – January 2019

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Enews January 2019

In this month’s Enews we consider pertinent announcements from the Scottish Budget including changes to income tax and Land and Buildings Transaction Tax. Meanwhile, the Pensions Regulator is advising employers to get ready for increased pension contributions. With a reminder to employees to claim tax relief on their expenses and the latest list of deliberate tax defaulters, there are lots of issues to update you on.

Scottish Budget 2018 income tax changes

Finance Secretary Derek Mackay delivered the 2019/20 Scottish Draft Budget on Wednesday 12 December 2018 setting out the Scottish government’s financial and tax plans. The announcement had been timed to take place after Chancellor of the Exchequer Philip Hammond delivered the UK Budget on 29 October 2018. The Finance Secretary announced changes to Scottish income tax. Contact us for advice on how the Scottish Budget impacts you.

Scottish Income tax

The government has devolved powers to set the rates and bands of income tax (other than those for savings and dividend income) which apply to Scottish resident taxpayers. The Scottish Budget announced the following income tax rates and bands for 2019/20. These will be considered by the Scottish Parliament, and an agreed Scottish Rate Resolution will set the final Scottish Income tax rates and bands for 2019/20.

The current rates and bands for 2018/19 and the proposed rates and bands for 2019/20 on non-savings and non-dividend income are as follows:

Scottish Bands 2018/19 Scottish Bands 2019/20 Band Name Scottish Rates
Over £11,850* – £13,850 Over £12,500* – £14,549 Starter 19%
Over £13,850 – £24,000 Over £14,549 – £24,944 Scottish Basic 20%
Over £24,000 – £43,430 Over £24,944 – £43,430 Intermediate 21%
Over £43,430 – 150,000** Over £43,430 – 150,000** Higher 41%
Over £150,000** Over £150,000** Top 46%

* assuming the individual is entitled to a full UK personal allowance

** the personal allowance will be reduced if an individual’s adjusted net income is above £100,000. The allowance is reduced by £1 for every £2 of income over £100,000.

The personal allowance is currently £11,850 for 2018/19. The personal allowance for 2019/20 will be £12,500.

The UK higher rate tax point for 2019/20 is set at £50,000 (for those entitled to the full UK personal allowance) and the tax rates for non-savings and non-dividend income have been maintained at 20%, 40% and 45% respectively. The additional rate of 45% is payable on income over £150,000.

For 2019/20 Scottish taxpayers with employment income of approximately £27,000 will pay the same amount of income tax as those with similar income in the rest of the UK. For higher earners, with pay of £150,000, a Scottish taxpayer will pay approximately an extra £2,670 of income tax than those on similar income in the rest of the UK.

Internet link: GOV.SCOT budget

Scottish Budget 2018 property tax changes

In the 2019/20 Scottish Draft Budget, Derek Mackay announced changes to Scottish Land and Buildings Transaction Tax (LBTT) which are considered below.

The government’s stated policy priority for residential Land and Buildings Transaction Tax (LBTT) remains to help first-time buyers and to assist people as they progress through the property market. Since its introduction, this policy has ensured that over 80% of taxpayers benefit from LBTT by paying either no tax or less tax than in England. The current rates and bands are as follows:

Residential property Rate
0 – £145,000 0%
£145,001 – £250,000 2%
£250,001 – £325,000 5%
£325,001 – £750,000 10%
£750,001 and over 12%

The rates apply to the portion of the total value which falls within each band.

First-time buyer relief

A relief applies for first-time buyers of properties up to £175,000. The relief raises the zero tax threshold for first-time buyers from £145,000 to £175,000. First-time buyers purchasing a property above £175,000 also benefit from the relief on the portion of the price below the threshold.

Higher rates for additional residential properties

Higher rates of LBTT are charged on purchases of certain residential properties, such as buy to let properties and second homes. Although these are the main targets of the higher rates, some other purchasers may have to pay the higher rates.

The Additional Dwelling Supplement (ADS) potentially applies if, at the end of the day of the purchase transaction, the individual owns two or more residential properties and is not replacing their main residence. Care is needed if an individual already owns, or partly owns, a property and transacts to purchase another property without having disposed of the first property. An 18 month rule helps to remove some transactions from the additional rates (or allows a refund).

The Government announced an increase in the ADS from 3% to 4% from 25 January 2019, but this increase will not apply if the contract for a transaction was entered into prior to 12 December 2018. Existing arrangements allowing for the supplement to be reclaimed will continue.

Changes for non-residential rates and bands

The Government will reduce the lower rate of non-residential LBTT from 3% to 1%, increase the upper rate from 4.5% to 5% and reduce the starting threshold of the upper rate from £350,000 to £250,000. These changes come into force from 25 January 2019, but will not apply if the contract for a transaction was entered into prior to 12 December 2018.

The revised rates and band for non-residential LBTT transactions are as follows:

Non-residential transactions

Purchase price Rate Non-residential leases

Net present value of rent payable

 Rate
Up to £150,000 0% Up to £150,000 0%
£150,001 to £250,000 1% Over £150,000 1%
Over £250,000 5%

Contact us for advice on how the Scottish Budget impacts you.

Internet link: GOV.SCOT budget

HMRC reminder to employees to claim their tax deductible expenses

HMRC is reminding employees that they may be able to claim a tax rebate on their work related expenses. HMRC estimate that millions of employees, particularly those working in the service industry, could be entitled to a tax refund. Workers, including nurses, hairdressers, construction workers and those working in retail and food sectors, may be able to claim tax rebates.

Individuals in these types of roles sometimes have to pay for work-related expenses including car mileage, replacing or repairing small tools, or maintaining branded uniforms.

Where these types of expenses are incurred, employees may be entitled to claim a tax refund. HMRC is advising individuals to go directly to GOV.UK to check if they can claim extra cash back. HMRC advise taxpayers to log in to their Personal Tax Account to claim their tax relief online and that approved claims should be refunded within three weeks.

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

‘We know what a difference tax relief can make to hard-working customers, especially at this time of year. HMRC is keen to make sure customers get all the relief they’re entitled to, by using the online service.

Tax relief isn’t available for all employment expenses, so the online Check If You Can Claim tool is very helpful – then if your claim is approved, your full tax relief will be paid directly into your bank account.

The majority of claims are for repairing or replacing tools and branded uniforms, professional subscriptions and mileage. Healthcare workers, people working in food and retail, and those in the construction industry are among the top professions to claim from HMRC.

HMRC is advising that taxpayers may be able to claim tax relief on the cost of:

  • repairing or replacing small tools needed to do their job (for example, scissors or an electric drill)
  • cleaning, repairing or replacing specialist clothing (for example, a branded uniform or safety boots)
  • business mileage (not commuting)
  • travel and overnight expenses
  • professional fees and subscriptions.

Contact us if you would like help claiming tax relief on your expenses.

Internet link: GOV.UK news

Pension contribution increases ahead

The Pensions Regulator (TPR) is reminding employers that from 6 April 2019, the amount that will need to be paid into a workplace pension will increase to an overall minimum of 8%, with employers contributing at least 3% of this total amount.

TPR is now starting to write to all employers to remind them of their duties. TRP website provides further information on the increases and a link to a letter template advising employees of the increase.

TPR is advising employers that they should also check with their payroll software provider and pension provider to ensure plans are in place ahead of 6 April 2019.

Please contact us if you would like help with your payroll or pensions auto enrolment compliance.

Internet link: TPR increase

HMRC publish details of deliberate tax defaulters

HMRC have updated the list of deliberate tax defaulters. The list contains details of taxpayers who have received penalties either for:

  • deliberate errors in their tax returns
  • deliberately failing to comply with their tax obligations

HMRC may publish information about a deliberate tax defaulter where an investigation has been carried out and the taxpayer has been charged one or more penalties for deliberate defaults and the penalties involve tax of more than £25,000. Details are only published once the penalties are final.

Internet link: GOV.UK publications

Self assessment deadline approaching

The deadline for submitting your 2017/18 self assessment return is 31 January 2019. The deadline applies to taxpayers who need to complete a tax return and make direct payments to HMRC in respect of their income tax, Classes 2 and 4 National Insurance Contributions (NIC), capital gains tax and High Income Child Benefit Charge liabilities.

There is a penalty of £100 if a taxpayer’s return is not submitted on time, even if there is no tax due or the return shows that they are due a tax refund.

The balance of any outstanding income tax, Classes 2 and 4 NIC, capital gains tax and High Income Child Benefit Charge for the year ended 5th April 2018 is also due for payment by 31 January 2019. Where the payment is made late interest will be charged.

The first payment on account for 2018/19 in respect of income tax and any Class 4 NIC or High Income Child Benefit Charge is also due for payment by 31st January 2019.

HMRC revealed that more than 2,600 taxpayers filed their return on Christmas Day. If you would like help with your return or agreeing your tax liability please contact us.

Internet links: GOV.UK self assessment GOV.UK press release

Newsletter – December 2017

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Enews – December 2017

In this month’s eNews we report on pertinent Budget announcements. We also report on the advisory fuel rates for company cars, rules for tax free Christmas gifts for employees and the roll out of Tax free childcare. With changes to the deadline for the Trusts Registration Service, delays to the abolition of Class 2 NICs and increased workplace pension contributions on the horizon there is lots to consider.

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

Autumn Budget 2017

The Chancellor Philip Hammond presented his first Autumn Budget on Wednesday 22 November 2017. Some of the key announcements are set out below.

Increased limits for knowledge-intensive companies

The government will legislate to encourage more investment in knowledge-intensive companies under the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs). The government will:

  • double the limit on the amount an individual may invest under the EIS in a tax year to £2 million from the current limit of £1 million, provided any amount over £1 million is invested in one or more knowledge-intensive companies
  • raise the annual investment limit for knowledge-intensive companies receiving investments under the EIS and from VCTs to £10 million from the current limit of £5 million. The lifetime limit will remain the same at £20 million, and
  • allow knowledge-intensive companies to use the date when their annual turnover first exceeds £200,000 in determining the start of the initial investing period under the permitted maximum age rules, instead of the date of the first commercial sale.

The changes will have effect from 6 April 2018. This measure is subject to
normal state aid rules.

Proposed changes to Entrepreneurs’ Relief

The government will consult on how access to ER might be given to those whose holding in their company is reduced below the normal 5% qualifying level as a result of raising funds for commercial purposes by means of issues of new shares thus diluting their holding. Allowing ER in these circumstances would incentivise entrepreneurs to remain involved in their businesses after receiving external investment.

This proposal is welcome and addresses a particular problem which can arise. ER broadly requires a holding of 5% of the ordinary share capital. It may be that significant external investment is made which would reduce the holding to below 5%.

Improving Research and Development (R&D)

A number of measures have been announced to support business investment in R&D including:

  • an increase in the rate of the R&D expenditure credit which applies to the large company scheme from 11% to 12% where expenditure is incurred on or after 1 January 2018
  • a pilot for a new Advanced Clearance service for R&D expenditure credit claims to provide a pre-filing agreement for three years
  • a campaign to increase awareness of eligibility for R&D tax credits among SMEs
  • working with businesses that develop and use key emerging technologies to ensure that there are no barriers to them claiming R&D tax credits.

Business rates

Business rates have been devolved to Scotland, Northern Ireland and Wales. The business rates revaluation took effect in England from April 2017 and resulted in significant changes to the amount of rates that businesses will pay. In light of the recent rise in inflation, the government will provide further support to businesses including:

  • bringing forward the planned switch in indexation from RPI to CPI to 1 April 2018
  • legislating retrospectively to address the so-called ‘staircase tax’. Affected businesses will be able to ask the Valuation Office Agency to recalculate valuations so that bills are based on previous practice backdated to April 2010.

SDLT relief for first time buyers

The government has announced that first time buyers paying £300,000 or less for a residential property will pay no Stamp Duty Land Tax.

First time buyers paying between £300,000 and £500,000 will pay SDLT at 5% on the amount of the purchase price in excess of £300,000. First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.

The new rules apply to transactions with an effective date (usually the date of completion) on or after 22 November 2017. This measure does not apply in Scotland as this is a devolved tax. This measure will apply in Wales until 1 April 2018, when SDLT will be devolved to Wales.

Business rates

Business rates have been devolved to Scotland, Northern Ireland and Wales. The business rates revaluation took effect in England from April 2017 and resulted in significant changes to the amount of rates that businesses will pay. In light of the recent rise in inflation, the government will provide further support to businesses including:

  • bringing forward the planned switch in indexation from RPI to CPI to 1 April 2018
  • legislating retrospectively to address the so-called ‘staircase tax’. Affected businesses will be able to ask the Valuation Office Agency to recalculate valuations so that bills are based on previous practice backdated to April 2010.

For advice on how the Autumn Budget announcements will affect you and your business contact us.

Internet link: GOV.UK Autumn Budget

Employee gifts – tax free?

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

A tax exemption is available which should give employers certainty that the benefits provided are exempt and do not result in a reportable employee benefit in kind. In order for the benefit to be exempt it must satisfy the following conditions:

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

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

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

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

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

Internet link: HMRC manual

Advisory fuel rates for company cars

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

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

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

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

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

You must not use these rates in any other circumstances.

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

Internet link: GOV.UK AFR

Pension contribution increases and temporary staff

The Pensions Regulator is reminding employers that they need to comply with their auto enrolment duties.

Automatic enrolment still applies to temporary staff this Christmas

With the festive season fast approaching, employers may be planning to take on temporary staff to help their business survive the rush. Automatic enrolment applies to these employees in the same way as permanent employees, even if they will only be working for a short time.

Employers will still need to assess temporary staff and auto enrol any eligible employees into a qualifying pension scheme. Once auto enrolled both the employer and employee must make pension contributions.

It is possible to apply postponement to temporary employees, which has the effect of delaying some of the auto enrolment duties, but TPR are warning this must be dealt with correctly.

Are you ready to increase contributions?

TPR are reminding employers that they need to be ready to deal with the increased auto enrolment pension contributions which apply from April 2018. Employers and their employees need to be aware of how the changes will affect them, including checking that the employer’s payroll software is compatible.

Guidance is included on TPR website on this issue. From 6 April 2018, the minimum contributions employers and staff pay into their automatic enrolment pension goes up to 2% for employers and 3% for employees. This increase has been planned since automatic enrolment started. Further increases in rates are scheduled for April 2019.

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

Internet links: TPR increase in contributions TPR irregular

Delay to roll out of Tax free childcare

The government have announced a delay to the roll out of tax free childcare which was expected to be fully implemented by the end of the year. From 24 November 2017 the service is available to parents whose youngest child is under 6 or who has their 6th birthday on that day. Parents can apply online through the childcare service which can be accessed via the Childcare Choices website.

In April 2017, HMRC started rolling out the childcare service via a single website through which parents can apply for both 30 hours free childcare and Tax-Free Childcare. The roll out started with parents of the youngest children first. HMRC acknowledge that over the summer some parents didn’t receive the intended level of service when using the website and that they have subsequently made significant improvements. For those parents who have had difficulties in accessing the service, compensation may be available: see childcare service compensation.

Over the coming months, HMRC will gradually open the childcare service to parents of older children, whilst continuing to make further improvements to the system. HMRC hope this strategy of managing the volume of applications will result in prompt eligibility responses when parents apply, with ‘almost all parents receiving a response within five working days, and most getting their decision instantly’.

All eligible parents will be able to apply by the end of March 2018. Parents will be able to apply for all their children at the same time, when their youngest child becomes eligible.

Tax-Free Childcare is the new government scheme to help working parents, both employed and self employed, with the cost of childcare. For every £8 a parent pays in, the government will pay in an extra £2. Parents can receive up to £2,000 per child, per year, towards their childcare costs making a total amount of £10,000. Higher limits of £4,000 and £20,000 apply for disabled children.

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

The scheme will eventually be available for children up to the age of 12, or 17 for children with disabilities. Those eligible will be able to apply for all their children at the same time.

Employer Supported Childcare, usually by way of childcare vouchers, will remain open to new entrants until April 2018 to support the transition between the schemes and it will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. It is not possible to benefit from both Employer Supported Childcare and Tax Free Childcare at the same time.

Internet link: Tax free childcare for under 6

Trusts Registration Service

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

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

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

HMRC have advised that agents will be able to register on behalf of trustees from October 2017 and agents and lead trustees can enter updates for changes of circumstances from early 2018.

HMRC have also confirmed that in this first year of TRS there will be no penalty imposed where registration is completed by 5 January 2018 for trusts whose first tax assessment year is 2016/17.

A Self Assessment Trust and Estate Tax Return (SA900) must still be submitted after the end of each tax year, reporting any income and gains. A TRS update is required each year in parallel with income tax returns; however an update is also required when any tax charge arises for example IHT principal charges or SDLT.

From 17 November 2017 the method of registering a trust has been simplified such that an agent can access TRS directly rather than email HMRC for approval to access.

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

Internet links: GOV.UK trusts-and-estates GOV.UK news STEP comprehensive guidance STEP FAQs (November 2017)

Delay in the abolition of Class 2 NIC

The government has announced that it will introduce legislation, to abolish Class 2 national insurance contributions (NIC) and to make further proposed NIC changes in 2018.

The measures the legislation will implement, will now take effect one year later than previously announced, from April 2019. These measures include the abolition of Class 2 NIC paid by self employed individuals, reforms to the Class 1A NIC treatment of termination payments (the £30,000 rule) and changes to the NICs treatment of sporting testimonials.

On 2 November 2017 the Government announced a one year delay to the abolition of Class 2 NICs. Class 2 NICs will now be abolished from 6 April 2019 rather than 6 April 2018.

The government have stated that ‘the delay will allow time for the government to engage with interested parties and Parliamentarians with concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits’.

Internet links: GOV.UK abolition Class 2 National insurance Bill