Newsletter – August 2018

Enews – August 2018

In this month’s Enews we report on Making Tax Digital for VAT and the Bank of England interest rate rise. Meanwhile the Scotland Parliament introduces a tax relief for first-time buyers and the UK government has published the next round of draft tax legislation. With reminders that the Marriage Allowance and Tax-Free Childcare are under claimed there is lots to update you on.

Making Tax Digital for VAT

HMRC has published further information on Making Tax Digital for VAT (MTDfV). The VAT notice sets out some further details of the MTDfV regime, which will ultimately require taxpayers to move to a fully digital tax system.

Under the rules, businesses with a taxable turnover above the VAT threshold (currently £85,000) will be required to keep digital records for VAT purposes using ‘functional compatible software’ and provide their VAT return information to HMRC via an application programming interface.

This notice explains:

  • the digital records businesses must keep and the ways to record transactions digitally in certain special circumstances
  • what counts as ‘functional compatible software’, and when software programs do and do not need to be digitally linked where a combination of programs is used.

The new rules have effect from 1 April 2019, where a taxpayer has a ‘prescribed accounting period’ which begins on that date, and otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019.

Please contact us for advice and support on the introduction of MTDfV.

Internet link: GOV.UK MTD

Bank of England raise interest rate

The Bank of England has raised the interest rate from 0.5% to 0.75%. The quarter of a percentage point rise sets the rate at its highest level since March 2009.

The rise in the interest rate will no doubt increase the interest costs of residential mortgages that have variable or tracker rates. It will be interesting to see if the rise in the rate is passed on to savers.

In response to the increase in the rate Alpesh Paleja, CBI Principal Economist, said:

‘This decision was in line with our expectations. The case for another rate rise has been building, with inflationary pressures being stoked by a tight labour market and many indicators now suggesting that weak activity in the first quarter of 2018 was a blip.’

‘The Monetary Policy Committee has signalled further rate rises over the next few years, if the economy evolves as they expect. These are likely to be very slow and limited, particularly over the next year as uncertainty around Brexit takes its toll on business investment.’

Internet links: BBC news CBI news

Scotland introduces relief for first time buyers

First-time buyers in Scotland will be helped to purchase their first home through a new tax relief which applies to Scottish Land and Buildings Transaction Tax (LBTT).

According to the Scottish Parliament approximately 80% of first-time buyers will pay no LBTT once the LBTT First Time Buyer relief takes effect. The change sees the zero-rated LBTT threshold raised to £175,000 for first-time buyers. Those purchasing property at a higher value will have their tax reduced by a maximum of £600. The Scottish Parliament expect that around 12,000 first-time buyers will benefit each year.

Minister designate for Public Finance and Digital Economy Kate Forbes said:

‘From today, around 80% of first-time buyers will pay no LBTT, helping thousands of people across the country buy their first home.’

Internet link: GOV.SCOT news

Next round of tax draft tax legislation published

The government has published draft legislation for Finance Bill 2018-19 which is currently open for consultation, and ‘continues the government’s commitment to a competitive and fair tax system’.

The draft legislation could affect a range of taxes, from Stamp Duty Land Tax (SDLT) to income tax.

The draft legislation also outlines the government’s approach to the Making Tax Digital (MTD) penalty system, with HMRC outlining its intention to utilise a two-tier penalty model for businesses and individuals who fail to pay their tax on time.

The July publication of the Finance Bill 2018-19 draft legislation forms part of the government’s new fiscal timetable.

The consultation on the draft legislation will run until 31 August 2018. The final contents of ‘Finance Bill 2018-19’ will be subject to confirmation at Budget 2018, expected later this year in November.

We will keep you informed of developments.

Internet link: GOV.UK finance bill 2018-19

One million couples still eligible for £900 tax boost

HMRC has highlighted that three million UK couples have already taken advantage of Marriage Allowance but a million more are still eligible for the tax break.

The Marriage Allowance allows certain couples, where neither pay tax at more than the basic rate, to transfer 10% of their unused personal allowance to their spouse or civil partner, reducing their tax bill by up to £238 a year in 2018/19. The allowance was introduced in 2015 and it is possible to backdate the claim to earlier tax years.

Please contact us if you would like to know more about this allowance and whether you are eligible.

Internet link: GOV.UK news

Consultation on pensions cold calling ban

HMRC has launched a consultation on draft proposals to ban pensions cold calling.

Under the proposals, unsolicited marketing calls relating to pensions could be banned, alongside cold calls that offer a ‘free pension review’.

The government also outlined its intention to ban cold calls that promote retirement income products, such as drawdown.

The consultation closes on 17 August 2018.

Internet link: GOV.UK consultation

Use Tax-Free Childcare over the summer holidays

The Government is reminding ‘stressed out parents’ that help may be available for childcare costs during the summer holidays. According to a YouGov poll, 31% of parents feel stressed trying to arrange childcare for the school holidays.

The poll, for HMRC, also found that around 30% of parents worried about balancing their job and school holiday childcare. With 54% admitting they look forward to their children returning to school in September.

HMRC is reminding working parents with summer childcare costs, that they can use Tax-Free Childcare (TFC), which is worth up to £2,000 per child per year, to pay for regulated holiday clubs during the school holidays. Parents are advised that it is possible to pay into their account regularly and ‘save up’ their TFC allowance and use it for childcare during school holidays.

Internet link: GOV.UK news

Newsletter – February 2018

Enews – February 2018

In this month’s Enews we report on the roll out of Tax-free Childcare and the reduction in HMRC scam texts. We also consider the latest list of deductible subscriptions and rejected Self assessment expenses claims and excuses. With revised income tax bands for Scottish taxpayers there is lots to update you on.

HMRC rejected Self Assessment expenses and excuses

HMRC have released the latest list of imaginative excuses made by individuals who failed to submit their self assessment return by 31 January deadline in 2017. Excuses include alien sightings and being too busy touring with a one-man play.

HMRC’s annual list of outlandish excuses is used to publicise the self assessment deadline of 31 January following the end of the tax year. An automatic £100 penalty applies to those who have the obligation to complete a return and miss the filing deadline, regardless of whether the individual has a tax liability to pay or not.

Angela MacDonald, HMRC’s director general of customer services, said:

‘Each year we’re making it easier and more intuitive for our customers to complete their tax return, but each year we still come across some questionable excuses, whether that’s blaming a busy touring schedule or seeing aliens.’

Here are some of the recent excuses:

  1. I couldn’t file my return on time as my wife has been seeing aliens and won’t let me enter the house.
  2. I’ve been far too busy touring the country with my one-man play.
  3. My ex-wife left my tax return upstairs, but I suffer from vertigo and can’t go upstairs to retrieve it.
  4. My business doesn’t really do anything.
  5. I spilt coffee on it.

HMRC have also released details of some of the weirdest expense claims which include:

  1. A three-piece suite for my partner to sit on when I’m doing my accounts.
  2. Birthday drinks at a Glasgow nightclub.
  3. Vet fees for a rabbit.
  4. Hotel room service – for candles and prosecco.
  5. £4.50 for sausage and chips meal expenses for 250 days.

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

Internet link: GOV.UK news

Tax-free childcare roll out

The implementation of Tax-Free Childcare, the new government scheme to help working parents with the cost of childcare, is being rolled out to eligible parents in stages.

The scheme first made its debut in April 2017 and although there have been initial systems problems, HMRC’s aim is to have the scheme open to all eligible parents by 14 February 2018. Application is made online through the Childcare Choices site www.childcarechoices.gov.uk and applications can be made for all eligible children at the same time.

Under Tax-Free Childcare, for every £8 the parent pays, the government provides a £2 top-up, to a maximum of £2,000 per child each year – with a higher limit of £4,000 for disabled children. This gives a total childcare pot of £10,000, or £20,000 for disabled children. To be eligible, parents must generally have minimum weekly earnings of at least £120 each. There is also an upper earnings limit of £100,000.

Compensation may be available in certain circumstances where a parent:

  • is unable to complete an application for Tax-Free Childcare
  • is unable to access their childcare account
  • or doesn’t get a decision about whether they are eligible, without explanation, for more than 20 days.

Those employing a nanny should be able to use the childcare account to pay their PAYE tax and National Insurance. Delays in getting this system working may also give grounds for compensation. Application is made online GOV.UK childcare-service-compensation

Internet link: GOV.UK childcare under 9s

HMRC halts thousands of scam text messages

HMRC have announced that they have stopped thousands of taxpayers from receiving scam text messages ‘with 90 percent of the most convincing texts now halted before they reach their phones’.

HMRC’s press release states:

‘Fraudsters alleging to be from HMRC send text messages to unsuspecting members of the public. In these messages they will make false claims, such as suggesting they are due a tax rebate. Messages will usually include links to websites that harvest personal information or spread malware. This can in turn lead to identity fraud and the theft of people’s personal savings.’

HMRC have confirmed that they will never contact taxpayers who are due a tax refund by text message or by email.

HMRC’s Director of Customer Services, Angela MacDonald, said:

‘HMRC is focused on becoming the most digitally advanced tax authority in the world, and a big part of that relates to keeping our customers safe from online scammers.’

‘As email and website scams become less effective, fraudsters are increasingly turning to text messages to con taxpayers. But as these numbers show, we won’t rest until these criminals are out of avenues to exploit.’

‘We have made significant progress is cutting down these types of crime, but one of the most effective ways to tackle it is still to help the public spot the tell-tale signs of fraud.’

To read details of the measures taken by HMRC and other advice on spotting fraud visit the link below.

Internet link: GOV.UK scam-text-messages

Updated list of professional subscriptions

Employees are allowed to claim tax relief on their annual professional fees or subscriptions to some HMRC approved professional organisations. The costs are tax deductible generally where the individual must have membership to do their job or it is helpful for their work. Where the fees are paid by the individual’s employer this will not generally result in a benefit in kind charge.

HMRC have updated the list of approved bodies which also includes not only details of the professional bodies that are approved but details of qualifying annual subscriptions for journals.

Internet link: GOV.UK/professional-bodies

What will the Spring Statement bring?

We had two Budgets in 2017 and the Spring Statement is planned for Tuesday 13 March. The Chancellor Philip Hammond has previously stated that at the Spring Statement he will respond to the Office for Budget Responsibility forecast, consider longer-term tax challenges and start consultations on how they can be addressed. The government has the option to make immediate changes to tax policy at the Spring Statement if the economic circumstances require it.

The revised timetable of an Autumn Budget followed by a Spring Statement means changes to the legislative timetable which are set out in the link below.

We will keep you informed of pertinent Spring Statement announcements.

Internet link: GOV.UK new budget timetable

Scotland revise income tax bands

Derek Mackay, Scottish Finance Secretary, has made a change to the proposed Scottish income tax bands for 2018/19 which he announced in December 2017 in the Scottish Draft Budget.

The change is being made to ‘remove an anomaly that meant some higher rate taxpayers saw their bills fall while others on slightly lower incomes saw a rise, due in part to changes in the personal allowance’.

Scottish taxpayers income tax rates on income other than savings and dividend income are now expected to be as follows:

Scottish Bands Band name Scottish Rate
Over £11,850 – £13,850 Starter 19%
Over £13,850 – £24,000 Basic 20%
Over £24,000 – £43,430 Intermediate 21%
Over £43,430 – £150,000 Higher 41%
Over £150,000 Top 46%

Confirming the changes during the Stage 1 of the Budget debate, Mr Mackay said:

‘As a parliament of minorities, we must work across the chamber to find compromise and consensus in order to give support, sustainability and stimulus to our economy and to our public services …. Our changes to tax ensure Scotland has a progressive tax system – with 70% of taxpayers paying less next year than they do currently and 55% paying less than they would across the rest of the UK – while businesses benefit from support for investment.’

Internet link: GOV.SCOT/news

Newsletter – December 2017

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

Newsletter – June 2017

Enews – June 2017

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

Tax-Free Childcare and childcare options

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

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

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

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

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

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

Internet links: Childcare calculator Childcare choices

Small Business Taskforce outlines priorities ahead of the General Election

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

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

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

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

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

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

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

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

Internet links: economia news Manifesto

Advisory fuel rates for company cars

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

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

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

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

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

You must not use these rates in any other circumstances.

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

Internet link: GOV.UK AFR

Guidance protects against ‘ransomware’ attacks

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

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

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

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

TPR name and shame those who fail to comply

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

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

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

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

Internet links: TPR Bulletin EPN employer details

Rising employment statistics

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

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

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

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

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

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

Internet links: ONS statistics CBI news

Newsletter – April 2017

Enews – April 2017

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

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

VAT Flat Rate Scheme – Limited cost trader

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

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

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

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

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

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

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

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

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

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

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

Internet link: GOV.UK VAT notice 733

Equality – Gender pay gap reporting

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

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

Key stages for this are:

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

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

Internet link: GOV.UK gender pay gap

Minimum wage rises again

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

From

1 October

2016

From

1 April

2017

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

* introduced and applies from 1 April 2016

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

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

What are the penalties for non-compliance?

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

Internet link: GOV.UK NMW

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

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

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

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

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

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

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

Internet link: Childcarechoices.gov.uk

Class 4 National insurance u-turn

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

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

Internet link: BBC news

Making Tax Digital for Business update

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

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

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

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

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

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

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

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

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

Internet link: GOV.UK MTDfB

Reduction in the Dividend Allowance

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

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

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

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

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

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

Internet link: GOV.UK dividend allowance

Newsletter – October 2016

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Enews – October 2016

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

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

Autumn Statement plans

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

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

The Chancellor said:

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

Carolyn Fairbairn, Director General of the CBI, commented:

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

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

Internet links: GOV.UK News Gov.UK News

Tax Free Childcare

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

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

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

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

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

The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until April 2018.

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

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

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

Internet link: GOV.UK tax free childcare

Deadline for ‘paper’ self assessment tax returns

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

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

Internet link: GOV.UK Self Assessment

Increase in NMW rates

The National Minimum Wage (NMW) is a minimum amount per hour that most workers in the UK are entitled to be paid. NMW rates increases come into effect on 1 October 2016.

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

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

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

Penalties

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

National Living Wage hits small business costs

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

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

Updated guidance

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

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

Internet links: ACAS article FSB press release Payroll guidance

VAT claim on company cars allowed

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

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

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

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

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

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

Other factors which were relevant:

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

HMRC may appeal against the decision.

Internet link: Tribunal decision

Updated guidance on Gift Aid

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

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

Internet link: GOV.UK guidance

Lifetime ISA

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

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

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

Further details of the new Lifetime ISA are as follows:

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

Internet link: GOV.UK technical note

Budget 2016 – An Overview

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The Budget 2016

George Osborne presented the first Spring Budget of this Parliament 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 last year the government issued the majority of the clauses, in draft, of Finance Bill 2016 together with updates on consultations. Publication of draft Finance Bill clauses is now an established way in which tax policy is developed, communicated and legislated.

The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply immediately, others in April 2016 and some take effect at a later date.

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

Main Budget tax proposals

Our summary concentrates on the tax measures which include:

  • reductions in the rates of capital gains tax
  • introduction of a Lifetime ISA for under 40s
  • changes to Entrepreneurs’ Relief
  • abolition of Class 2 NIC
  • reduction in the corporation tax rate
  • reforms to corporate tax losses.

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

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

Personal Tax

The personal allowance

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.

Comment

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.

Tax bands and rates – dividends

Currently, when a dividend is paid to an individual, it is subject to different tax rates compared to other income due to a 10% notional tax credit being added to the dividend. So for an individual who has dividend income which falls into the basic rate band the effective tax rate is nil as the 10% tax credit covers the 10% tax liability. For higher rate and additional rate taxpayers, the effective tax rates on a dividend receipt are 25% and 30.6% respectively.

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

From 6 April 2016:

  • the 10% dividend tax credit is abolished with the result that the cash dividend received will be the gross amount potentially subject to tax
  • a new Dividend Tax Allowance charges the first £5,000 of dividends received in a tax year at 0%
  • for dividends above £5,000, new rates of tax on dividend income will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

 

Comment

Many individuals do not have £5,000 of dividend income so are potential winners in the new regime. The removal of any tax on dividends up to £5,000 increases the attractiveness of holding some investments which provide dividend returns rather than interest receipts. Use can then also be made of the CGT annual exemption by selective selling of investments.

Basic rate taxpayers in particular need to appreciate that all dividends received still form part of the total income of an individual. If dividends above £5,000 are received, the first £5,000 will use up some or all of any basic rate band available. The element of dividends above £5,000 which are taxable may well therefore be taxed at 32.5%.

Tax on savings income

Savings income is income such as bank and building society interest. In 2015/16 some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

The starting rate limit remains at £5,000 for 2016/17.

In addition, from 2016/17 the Savings Allowance (SA) will apply to savings income. Income within the SA will be taxed at a new 0% rate (the ‘savings nil rate’). However, the available SA in a tax year will depend on the individual’s marginal rate of income tax. Individuals taxed at up to the basic rate of tax will have an SA of £1,000.

For higher rate taxpayers, the SA will be £500 whilst no SA is due to additional rate taxpayers.

Alongside the introduction of the SA, banks and building societies will cease to deduct tax from account interest they pay to customers.

Comment

The new SA will exempt from tax interest receipts for many taxpayers. The government anticipates that around 95% of taxpayers will not have any tax to pay on their savings income. However, the allowance works in a complex way. For example, a taxpayer whose total non-savings income is near to £43,000 in 2016/17 (the point from which higher rate taxes are payable) needs to be aware that savings income is still added to other income to determine whether the SA is £1,000 or £500.

Individual Savings Accounts (ISAs)

The overall ISA savings limit is £15,240 for 2015/16 and will remain at this figure for 2016/17.

Two changes are proposed with effect from 6 April 2016. The following changes will be made to the existing ISA Regulations:

  • Savers will be allowed to replace cash they have withdrawn from their account earlier in a tax year, without this replacement counting towards the annual ISA limit for that year. This flexibility will be available in relation to both current year and earlier years’ ISA savings where provided for in the terms and conditions of a ‘flexible ISA’.
  • A third ISA, the Innovative Finance ISA, is being introduced for loans arranged via a peer to peer (P2P) platform.

The total an individual can save each year into all ISAs will be increased from £15,240 to £20,000 from April 2017.

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.

Comment

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

Help to Save

The government has announced the introduction of a new type of savings account aimed at low income working households.

Individuals in low income working households will be able to save up to £50 a month into a Help to Save account and receive a 50% government bonus after two years. Account holders can then choose to continue saving under the scheme for a further two years. The scheme will be open to all adults in receipt of Universal Credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage or those in receipt of Working Tax Credits.

Accounts will be available no later than April 2018.

Pensions consultation and reform

The government consultation ‘Strengthening the incentive to save’ looked at the way pensions are taxed. The consultation found that while the current system gives everyone an incentive to save into a pension, and people like the 25% tax free lump sum, it is also inflexible and poorly understood. Young people in particular are not saving enough, often because they feel they have to choose between saving for their first home and saving for retirement.

Comment

The Chancellor said in his speech:

Over the past year we’ve consulted widely on whether we should make compulsory changes to the pension tax system. But it was clear there is no consensus.’

The Chancellor is introducing the Lifetime ISA as a vehicle for younger people to save.

Pensions advice

The Financial Advice Market Review (FAMR) aims to support the provision of affordable and accessible advice. FAMR was a joint review between the Financial Conduct Authority and Her Majesty’s Treasury, and its recommendations were published on 14 March 2016.

The government commits to implement all of the recommendations for which it is responsible, and will:

  • Consult on introducing a single clear definition of financial advice to remove regulatory uncertainty and ensure that firms can offer consumers the help they need.
  • Increase the existing £150 Income Tax and National Insurance relief for employer arranged pension advice to £500. The new exemption will ensure that the first £500 of any advice received is eligible for the relief. It will be available from April 2017.
  • Consult on introducing a Pensions Advice Allowance. This will allow people before the age of 55 to withdraw up to £500 tax free from their defined contribution pension to redeem against the cost of financial advice. The exact age at which people can do this will be determined through consultation. This means that a basic rate taxpayer could save £100 on the cost of financial advice.

The government will also restructure the delivery of public financial guidance to make it more effective.

Phased rollout of Tax-Free Childcare

The government has announced it will introduce Tax-Free Childcare in early 2017. Tax-Free Childcare will be gradually rolled out to children under 12 with the parents of the youngest children being able to enter the scheme first. The scheme will be open to all eligible parents by the end of 2017.

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

Business Tax

Corporation tax rates

The main rate of corporation tax is currently 20% and this rate will continue for the Financial Year beginning on 1 April 2016. The main rate of corporation tax will then be reduced as follows:

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

Corporate tax loss relief

The government will introduce two reforms to corporate tax losses from April 2017. First, losses arising on or after 1 April 2017 will be useable, when carried forward, against profits from other income streams or other companies within a group. Second, from 1 April 2017, companies will only be able to use losses carried forward against up to 50% of their profits above £5 million. For groups, the £5 million allowance will apply to the group.

Capital allowances on business cars

The current 100% first year allowance (FYA) on businesses purchasing low emission cars will be extended to April 2021. A low emission car is one where the CO2 emissions do not exceed 75 gm/km and this threshold will fall to 50 gm/km from April 2018. In addition, the CO2 emission threshold for the main rate of capital allowances for business cars will reduce from 130 gm/km to 110 gm/km from April 2018.

Corporation tax payment dates

At the Summer Budget 2015, the government announced it would bring forward corporation tax payment dates for companies with taxable profits over £20 million. This measure has been deferred by two years and will now apply to accounting periods starting on or after 1 April 2019.

Loans to participators

The 25% rate of tax charged on loans to participators and other arrangements by close companies will increase to 32.5%.  This applies to loans made and benefits conferred on or after 6 April 2016. This increased rate mirrors the dividend upper rate. The government has noted that this will prevent individuals gaining a tax advantage by taking loans or making other arrangements to extract value from their company rather than remuneration or dividends.

Enterprise Zones – enhanced capital allowances

This measure extends the period in which businesses investing in new plant and machinery in ECA sites in Enterprise Zones can qualify for 100% capital allowances to eight years.

Removal of statutory renewals allowance

The government will withdraw the statutory renewals allowance, which provides businesses with tax relief for the cost of replacing tools. The changes ensure that tax relief for expenditure incurred on the replacement of tools will be obtained under the same rules as those which apply to other capital equipment. Businesses will be able to claim tax relief under the normal capital allowance regime or, in the case of residential landlords, for the cost of replacing domestic items such as furnishings and appliances. The withdrawal will come into effect for expenditure on or after 6 April 2016 for income tax purposes and from 1 April 2016 for corporation tax.

Company distributions

Legislation will be introduced with effect from 6 April 2016 to:

  • amend the Transactions in Securities legislation, which is designed to prevent tax advantages in certain circumstances. The amendments, for example, include liquidations as potentially coming within the scope of the legislation
  • introduce a new Targeted Anti-Avoidance Rule, which would prevent some distributions in a liquidation being taxed as capital, where certain conditions are met and there is an intention to gain a tax advantage.

Comment

In some situations shareholders of close companies can receive a payment from the company which is taxed as a capital gain instead of as dividend income. If Entrepreneurs’ Relief is available the gain will be subject to only 10% tax. The government is concerned that the new dividend tax rates introduced from 6 April 2016 will encourage shareholders to convert to capital what might otherwise be taxed as income.

Abolition of Class 2 National Insurance Contributions (NIC)

The government will abolish Class 2 NIC from April 2018. The government will publish its response to the recent consultation on state benefit entitlement for the self-employed in due course. This will set out details of how the self-employed will access contributory benefits after Class 2 is abolished.

Property and trading income allowances

From April 2017, the government will introduce a new £1,000 allowance for property and trading income. Individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance.

Making tax digital

From 2018 businesses, self-employed people and landlords who are keeping records digitally and providing regular digital updates to HMRC will be able to adopt pay-as-you-go tax payments. This will enable them to choose payment patterns that suit them and better manage their cash flow.

Reform of Substantial Shareholding Exemption (SSE)

SSE means that capital gains on corporate share disposals are not subject to UK corporation tax where certain conditions are satisfied. It was introduced in 2002 and was designed to ensure that tax does not act as a disincentive to commercially desirable business sales or group restructuring. There have been significant developments in the UK and international corporate tax landscape since the SSE was first introduced. The government will therefore consult on the extent to which the SSE is still delivering on its original policy objective and whether there could be changes to its detailed design in order to increase its simplicity, coherence and international competitiveness.

Petroleum Revenue Tax (PRT)

The rate of PRT will be permanently reduced to zero for all chargeable periods ending after 31 December 2015.

Anti-avoidance

The government will change the deduction of tax at source regime to bring all international royalty payments arising in the UK within the charge to income tax, unless those taxing rights have been given up under a double taxation agreement or the EU Interest and Royalties Directive.

Employment Taxes

NIC for apprentices under 25

From 6 April 2016 employer NICs are 0% for apprentices under 25 who earn less than the upper secondary threshold (UST) which is £827 per week (£43,000 per annum). Employers are liable to 13.8% NIC on pay above the UST. Employee NICs are payable as normal.

An apprentice needs to:

  • be working towards a government recognised apprenticeship in the UK which follows a government approved framework/standard
  • have a written agreement, giving the government recognised apprentice framework or standard, with a start and expected completion date.

Employers need to identify relevant apprentices and generally assign them NIC category letter H to ensure the correct NICs are collected.

Comment

The proposals exclude apprenticeships which do not follow government approved frameworks, also known as common law apprenticeships. A similar 0% rate of employer NIC already applies for employees under the age of 21.

Employee benefits and expenses changes from 6 April 2016

From 6 April 2016 a number of changes are introduced relating to the tax treatment of employee benefits in kind and expenses:

  • There will be a statutory exemption for certain expenses, such as travelling and subsistence expenses, reimbursed to an employee. This will replace the current system where employers have to apply for a dispensation to avoid having to report non-taxable expenses (on forms P11D).
  • Employers will be able to include taxable benefits in pay and thus account for PAYE on the benefits. However, in order to payroll benefits for 2016/17, employers will have to register with HMRC for the service before the start of the new tax year. Employers will then not have to include these payrolled benefits on forms P11D.
  • The £8,500 threshold below which employees do not pay income tax on certain benefits in kind will be removed. There will be new exemptions for carers and ministers of religion.

Comment

The statutory exemption for reimbursed expenses will mean that all employees will automatically get the tax relief they are due on qualifying expenses payments.

Another option is introduced which allows amounts based on scale rates to be paid or reimbursed, instead of the employee’s actual costs. The rates that can be used are either HMRC approved figures or figures specifically agreed with HMRC in writing.

The approved figures only cover meals purchased by an employee in the course of business travel.

Simplification of the administration of tax on employee benefits and expenses

The government will introduce a package of measures to further simplify the tax administration of employee benefits and expenses by:

  • extending the voluntary payrolling framework to allow employers to account for tax on non-cash vouchers and credit tokens in real time from April 2017
  • consulting on proposals to simplify the process for applying for and agreeing PAYE Settlement Agreements
  • consulting on proposals to align the dates by which an employee has to make a payment to their employer in return for a benefit-in-kind they receive to ‘make good’
  • legislating to ensure that if there is a specific statutory provision for calculating the tax charge on a benefit in kind, this must be used.

Employer provided cars

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

From 6 April 2016 there will be a 2% increase in the percentage applied by each band with similar increases in 2017/18 and 2018/19. For 2019/20 the rate will increase by a further 3%.

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

Van benefit charge for zero emissions vans

The van benefit charge for 2015/16 is £3,150 increasing to £3,170 in 2016/17.

The government will extend van benefit charge support for zero-emission vans so that from 6 April 2016 the charge will be 20% of the main rate in 2016/17 and 2017/18, and will then increase on a tapered basis to 5 April 2022. The government will review the impact of this incentive at Budget 2018 together with enhanced capital allowances for zero-emission vans.

Taxation of termination payments

From April 2018 the government will tighten the scope of the income tax exemption for termination payments to prevent manipulation.

Termination payments over £30,000 which are subject to income tax will also be subject to employer NIC. The government will undertake a technical consultation on tightening

the scope of the exemption.

Travel and subsistence expenses rules

In September 2015 the government published a discussion document aimed at modernising the tax rules for travel and subsistence (T&S). The government has analysed responses and concluded that, although complex in parts, the current T&S rules are generally well understood and work effectively for the majority of employees and has decided not to make further changes to the T&S rules at this time.

Employment intermediaries and relief for travel and subsistence

As announced at March Budget 2015, the government will introduce legislation in Finance Bill 2016 to restrict tax relief for home to work travel and subsistence expenses for workers engaged through an employment intermediary. This will bring the rules into line with those that apply to employees.

Simplifying the NIC rules

The government will commission the Office of Tax Simplification to review the impact of moving employee NIC to an annual, cumulative and aggregated basis and moving employer NIC to a payroll basis.

Disguised remuneration schemes

The government will introduce a package of measures to tackle the current and historic use of disguised remuneration schemes, which are used to avoid income tax and NIC. Legislation will be included in Finance Bill 2016 which will prevent a relief in the existing legislation from applying where it is used as part of a tax avoidance scheme from Budget Day.

The government will hold a technical consultation on further changes to the legislation which will be included in a future Finance Bill. This will include a new charge on loans paid through disguised remuneration schemes which have not been taxed and are still outstanding on 5 April 2019.

Employee share schemes: simplification of the rules

The government will make a number of technical changes to simplify the tax-advantaged and non-tax-advantaged employee share scheme rules.

Employment Allowance

The NIC Employment Allowance was introduced from 6 April 2014. It is an annual allowance which is available to many employers and can be offset against their employer NIC liability.

From April 2016, the government will increase the NIC Employment Allowance from £2,000 to £3,000 a year. The increase will mean that businesses will be able to employ four workers full time on the new National Living Wage without paying any NIC.

To ensure that the NIC Employment Allowance is focussed on businesses and charities that support employment, from April 2016 companies where the director is the sole employee will no longer be able to claim the Employment Allowance.

Employers who hire an illegal worker face civil penalties from the Home Office. The government will build on this deterrent by removing a year’s Employment Allowance from those receiving civil penalties, starting in 2018.

Salary sacrifice

The government is considering limiting the range of benefits that attract income tax and NIC advantages when provided as part of salary sacrifice schemes. However, the government’s intention is that pension saving, childcare, and health-related benefits such as Cycle to Work should continue to benefit from income tax and NIC relief when provided through salary sacrifice arrangements.

Off-payroll working in the public sector

From April 2017 the government will make public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll working through limited companies in the public sector. The rules will remain unchanged for those working in the private sector. Liability to pay the correct employment taxes will move from the worker’s own company to the public sector body or agency/third party paying the company.

The government will consult on a clearer and simpler set of tests and online tools.

Capital Taxes

Capital gains tax (CGT) rates

The current rates of CGT are 18% to the extent that any income tax basic rate band is available 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.

Example 2016/17

Annie, a higher rate taxpayer, has the following chargeable gains after the annual exemption:

•         Gains eligible for ER £100,000

•         A residential property gain £30,000

•         Other gains £10,000

The ER gain is taxable at 10%. The residential property gain will be taxed at 28% and other gains at 20%.

Goodwill on Incorporation and ER

New rules were introduced from 3 December 2014 which prevent individuals from claiming ER on disposals of goodwill when they transfer their business to a related company in which they, or a member of their family, held any shares whatsoever. This means that CGT became payable on the gain at the normal rates of 18% or 28% rather than 10%.

Revised legislation will be introduced in Finance Bill 2016 to allow ER to be claimed in respect of gains on goodwill where the individual holds less than 5% of the shares, and less than 5% of the voting power, in the acquiring company.

Relief will also be due where an individual holds 5% or more of the shares or voting power if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner.

This measure will have backdated effect and will therefore apply to disposals on or after 3 December 2014.

Associated disposals and ER

New rules were introduced in 2015 which were aimed at combatting abuse of ER. Whilst preventing the abuse, those rules also resulted in relief not being due on ‘associated disposals’ when a business was sold to members of the claimant’s family under normal succession arrangements.

Certain revisions are to be made so that ER will be allowed on a disposal of a privately-held asset when the accompanying disposal of business assets is to a family member.

In addition, under the 2015 rules an associated disposal can only qualify for ER if there is also a material disposal of 5% or more of the claimant’s share in a partnership or holding in a company. Under the proposals this is not to apply where the claimant disposes of the whole of his interest and has previously held a larger stake.

These changes will have a backdated effect for associated disposals made on or after 18 March 2015.

Joint ventures, partnerships and ER

Changes introduced in 2015 to combat abuse of ER also resulted in relief not being due to investors in some types of genuine commercial structures where tax avoidance was not a main motive. Those affected were companies with shares in joint venture companies and corporate partners with shares in trading companies because their investments were reclassified as non-trading activities. ER is only available to companies or partnerships which are predominantly trading so ER status was lost in a number of cases.

To enable genuine commercial structures to qualify for ER, this measure changes the definitions of a ‘trading company’ and a ‘trading group’ which apply for ER. Where the new definitions apply, a company which holds shares in a joint venture company will be treated as carrying on a proportion of the activities of that company corresponding to the investing company’s fractional shareholding in it. Also, the activities of a corporate partner in a firm will be treated as having their true nature (trading or non-trading) when determining whether the company is a trading company.

It will also be a requirement that the person making the disposal on which relief is claimed has at least a 5% interest in the shares of the joint venture company, and effectively controls at least 5% of the voting rights in that company. Where a partnership with a corporate partner is concerned, the person making the disposal must be entitled to at least 5% of the partnership’s assets and profits, and control at least 5% of the voting rights in the corporate partner.

The new definitions mean that, in some cases, whether a company is a trading company or the holding company of a trading group will depend on the size of the claimant’s shareholding in the company.

External investors and ER

ER will be extended to external investors (other than employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions will apply:

  • shares must be newly issued and subscribed for by the individual for new consideration
  • be in an unlisted trading company, or an unlisted holding company of a trading group
  • have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
  • have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for investors’ relief will be subject to a lifetime cap of £10 million.

Capital gains and employee shareholder agreements

The ‘employee shareholder’ was a new employment status made available from 1 September 2013. Employee shareholders who agreed to give up certain statutory employment rights received in exchange at least £2,000 of shares in their employer or parent company free of income tax and national insurance. Qualifying conditions do apply.

Any eventual gains on shares received with an original value of up to £50,000 are CGT free. However, a lifetime limit of £100,000 on the CGT exempt gains is introduced on disposals under Employee Shareholder Agreements entered into after 16 March 2016.

Other Matters

Stamp Duty Land Tax (SDLT) and Land and Buildings Transaction Tax (LBTT)

The Chancellor announced in the Autumn Statement that new rates of SDLT on purchases of additional residential properties would apply from 1 April 2016. Similar legislation was introduced in the Scottish Parliament for LBTT which applies to property transactions in Scotland. The LBTT legislation has now been enacted.

The new rates will be three percentage points above the current SDLT and LBTT rates. The higher rates will potentially apply if, at the end of the day of the purchase transaction, the individual owns two or more residential properties.

The SDLT proposals were subject to a consultation. The government has now announced:

  • purchasers will have 36 months rather than 18 months to claim a refund of the higher rates if they buy a new main residence before disposing of their previous main residence
  • purchasers will also have 36 months between selling a main residence and replacing it with another main residence without having to pay the higher rates
  • a small share in a property which has been inherited within the 36 months prior to a transaction will not be considered as an additional property when applying the higher rates
  • there will be no exemption from the higher rates for significant investors.

Comment

The main target of the higher rates is purchases of buy to let properties or second homes. However, there will be some purchasers who will have to pay the additional charge even though the property purchased will not be a buy to let or a second home. The proposed 36 month rules above will help to remove some transactions from the additional rates (or allow a refund). Care will be needed if an individual already owns, or partly owns, a property and transacts to purchase another property without having disposed of the first property.

LBTT has been enacted with the 18 month periods rather than 36 months.

SDLT on non-residential property

The government will change the calculation of SDLT on freehold and leasehold premium non-residential transactions, on and after 17 March 2016, so the rates apply to the portion of the purchase price within each band. The SDLT rates and thresholds for non-residential freehold and leasehold premiums will also change from the same date.

For new leasehold transactions, SDLT is already charged at each rate on the portion of the net present value (NPV) of the rent which falls within each band. On and after 17 March 2016 a new 2% rate for rent paid under a non-residential lease will be introduced where the NPV of the rent is above £5 million.

Comment

The LBTT on non-residential properties in Scotland is already based on a similar system to that proposed for SDLT.

VAT: overseas businesses and online marketplaces

Changes will be made to the existing rules which allow HMRC to direct an overseas business to appoint a VAT representative with joint and several liability. A new provision will then enable HMRC to hold an online marketplace jointly and severally liable for the unpaid VAT of an overseas business that sells goods in the UK via that online marketplace.

The measure will have effect from Royal Assent to Finance Bill 2016.

Comment

The objective of this measure is to give HMRC strengthened operational powers to tackle the non-compliance from some overseas businesses that avoid paying UK VAT on sales of goods made to UK consumers via online marketplaces. It is directed at getting overseas businesses, that are or should be VAT registered in the UK, paying VAT due either directly or through a VAT representative.

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 Small Business Rate Relief (SBRR) from 50% to 100% and increase the thresholds to benefit a greater number of businesses. Businesses with a property with a rateable value of £12,000 and below will receive 100% 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.

Insurance Premium Tax

The standard rate of IPT will be increased from 9.5% to 10% with effect from 1 October 2016.

General Anti-Abuse Rule (GAAR)

The government will legislate to introduce a new penalty of 60% of tax due to be charged in all cases successfully tackled by the GAAR. Small changes to the GAAR procedure will be made to improve its ability to tackle marketed avoidance schemes.

New soft drinks industry levy

The government will introduce a new soft drinks industry levy to be paid by producers and importers of soft drinks that contain added sugar. The levy will be charged on volumes according to total sugar content, with a main rate charge for drink above 5 grams of sugar per 100 millilitres and a higher rate for drinks with more than 8 grams of sugar per 100 millilitres. There will be an exclusion for small operators.

It is proposed to introduce the measure from April 2018.

 

Newsletter – August 2015

Enews – August 2015

In this month’s eNews we report on HMRC’s time to pay arrangements, the launch of Tax-Free Childcare, the latest NMW campaign and changes to the rules for farmers averaging of profits. We also report on the introduction of the Alcohol Wholesaler Registration Scheme and TPR guidance on pension schemes for auto enrolment.

Please do contact us for further advice.

Tax-Free Childcare to launch in 2017 following court ruling

The government has welcomed a judgment from the Supreme Court that found the proposals for delivering Tax-Free Childcare to be lawful. The new Tax-Free Childcare Scheme was being challenged by some of the providers of the childcare vouchers typically used in the current Employer Supported Childcare arrangements.

The scheme is now expected to launch from early 2017. The existing EmployerSupported Childcare scheme will remain open to new entrants until Tax-Free Childcare is launched.

Exchequer Secretary to the Treasury, Damian Hinds said:

‘We are pleased that the government’s proposals for delivering Tax-Free Childcare have been found to be clearly lawful. This government is absolutely clear on the importance of supporting families with their childcare costs.’

‘It is disappointing that some organisations involved in the existing scheme felt the need to take and persist in this costly and wasteful course of action, which has led to a delay in the launch of Tax-Free Childcare.’

If you would like advice on Employer Supported Childcare please contact us.

Internet link: GOV.UK news

Time to Pay Arrangements – Mandatory Direct Debit

Where a taxpayer has difficulty paying their tax liabilities HMRC may agree ‘time to pay arrangements’ whereby the taxpayer agrees to pay off the amount owing by instalments after the due date. These arrangements are only entered into where the taxpayer is genuinely unable to pay by the due date and is able to commit to agreed payments to bring their tax up to date.

HMRC have announced that where time to pay arrangements are agreed the payments will need to be made by Direct Debit. This has always been HMRC’s preferred method of collection but this became mandatory from 3 August 2015.

However, HMRC do state that:

‘We recognise that there will be exceptional circumstances where a customer is unable to set up a direct debit, perhaps because their bank account will not allow it. In such cases payment by other methods may be agreed.’

Internet link: GOV.UK blog

NMW campaign targets hair and beauty sector

HMRC are targeting employers in the hairdressing and beauty sectors who pay their staff below the national minimum wage (NMW).

HMRC and the Department for Business, Innovation and Skills (BIS), supported by the National Hairdressers’ Federation and the Hair and Beauty Industry Authority, will work with hair and beauty businesses to help them understand their pay obligations to their employees.

In a new approach HMRC will provide employers with tools and guidance to check if they are paying the correct amount.

Employers who take this opportunity to ‘self-correct’ will not have to pay penalties, nor will they be ‘named and shamed’. If employers choose not to comply with their NMW obligations, HMRC will take action to ensure that employees are paid what they are owed.

As detailed in the press release ‘BIS analysis shows that 42% of businesses in the sector do not pay level 2 and level 3 apprentices the correct minimum wage – the highest underpayment rate of any sector. Those paying under the minimum wage now have a chance to put things right. If they fail to do so it could result in their business being publicly ‘named and shamed’ and facing a fine of up to £20,000 per employee.’

Jennie Granger, HMRC Director General of Enforcement and Compliance, said:

‘This innovative campaign is about helping employees who have been underpaid get the money they are legally due back into their pockets. It will help them understand where they can report underpaying employers confidentially.

It is also about helping employers check if they are making mistakes, and self-correct if they are. Some employers will need a bit of a reminder to check they are getting it right, and some will need stronger action from us, so we are bringing in more enforcement officers to support this campaign.

I urge all employers and employees in the sector to check that salary is being paid correctly, as we will use these extra resources to find and investigate where it is not. Check you’re paying NMW correctly – it’s worth it.’

Employers in the hair and beauty sector are being asked to come forward as part of the National Minimum Wage Campaign by:

  • advising HMRC they want to take part in the campaign
  • disclosing details of arrears now paid to their workers and confirming that wages worth at least the NMW are now paid to all workers.

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

Internet link: GOV.UK nmw campaign

Latest job market statistics

The Office for National Statistics (ONS) has released figures showing that the UK employment rate has dropped by 67,000 when compared to the three months to February 2015. As detailed in the press release the figures show:

  • There were 30.98 million people in work. This was 67,000 fewer than for the 3 months to February 2015, the first quarterly fall since February to April 2013. Comparing March to May 2015 with a year earlier, there were 265,000 more people in work (272,000 more people working full-time and 7,000 fewer people working part-time).
  • The proportion of people aged from 16 to 64 in work (the employment rate) was 73.3%, little changed compared with the 3 months to February 2015 but higher than for a year earlier (72.9%).
  • There were 1.85 million unemployed people. This was 15,000 more than for the 3 months to February 2015, the first quarterly increase since January to March 2013. Comparing March to May 2015 with a year earlier, there were 273,000 fewer unemployed people.
  • The proportion of the economically active population who were unemployed (the unemployment rate) was 5.6%, little changed compared with the 3 months to February 2015 but lower than for a year earlier (6.5%). Economically active people are those in work plus those seeking and available to work.
  • There were 9.02 million people aged from 16 to 64 who were out of work and not seeking or available to work (known as economically inactive), 30,000 more than for the 3 months to February 2015 and 104,000 more than for a year earlier.
  • The proportion of people aged from 16 to 64 who were economically inactive (the inactivity rate) was 22.2%, little changed compared with the 3 months to February 2015 but higher than for a year earlier (22.0%).
  • Comparing March to May 2015 with a year earlier, pay for employees in Great Britain increased by 3.2% including bonuses and by 2.8% excluding bonuses.

Internet link: ONS

 

Alcohol Wholesaler Registration Scheme

The Alcohol Wholesaler Registration Scheme (AWRS) is being introduced on 1 October 2015 by HMRC to tackle alcohol fraud. HMRC are advising that if you are an alcohol wholesaler or trade buyer, you need to prepare for the new registration scheme now.

Who the scheme applies to

HMRC are advising that the AWRS will apply to existing, and new, wholesalers of alcohol, trading at or after the point at which excise duty has become payable. In addition all businesses that trade in or retail alcohol will in future need to make sure that any UK wholesalers that they buy from are registered with HMRC. The types of business who will be affected include:

  • alcohol wholesalers
  • brokers
  • auctioneers
  • alcohol retailers.

The scheme will not apply to private individuals purchasing alcohol from retailers.

HMRC are advising that:

  • from 1 October 2015, all alcohol wholesalers must apply online to HMRC to register for AWRS
  • from 1 January 2016 HMRC will start to review all AWRS applications to decide whether businesses are ‘fit and proper’ to be accepted onto the register. Where a business fails the ‘fit and proper’ test, HMRC will remove its right to trade in wholesale alcohol
  • from 1 April 2017, all businesses that trade in, or retail, alcohol will need to make sure that any UK wholesalers that they buy from are registered with HMRC. HMRC will provide an online look up service so that trade buyers can ensure wholesalers they buy from are registered with HMRC.

Internet link: GOV.UK AWRS

Farmers Averaging of Profits

It was announced in the March 2015 Budget that the government plans to extend the period over which self-employed farmers can average their profits for income tax purposes from two years to five years. The government has launched a consultation which considers ways in which the extension could be designed and implemented.

The change to the averaging rules is expected to come into effect from 6 April 2016.

Internet link: GOV.UK farmers averaging

Pension Schemes for Auto Enrolment

The Pensions Regulator (TPR) has published some guidance aimed at the 1.3 million small and micro employers who are preparing for pensions auto enrolment. The guidance aims to help employers find a good quality pension scheme. TPR research suggests one in five (290,000) employers will not seek advice when choosing a pension scheme, while one in ten (130,000) do not know how to select a scheme, or think it will be difficult.

The information includes details of a list of ‘master trust’ pension schemes open to employers of all sizes, and which have been independently reviewed to help to demonstrate that they are administered to a high standard.

TPR have also made available a quick guide for small and micro employers on what to look out for when choosing a scheme suited to their needs. They have also updated their webpage guidance to advisors.

Lesley Titcomb, chief executive of The Pensions Regulator, said:

‘I strongly believe that the vast majority of the 1.3 million small and micro employers approaching automatic enrolment want to do the right thing. However, many will choose not to seek advice and will need additional support to meet their duties.

We are committed to providing them with the information they need to make confident choices when it comes to choosing a quality scheme for their employees.’

If you would like help complying with your auto enrolment duties please do get in touch.

Internet link:Press release

 

The Second Budget 2015 – An Overview

The Second Budget 2015

George Osborne presented the first Budget of this Parliament on Wednesday 8 July 2015. The speech set out his plans for the next five years ‘to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower welfare country we intend to create’.

Main Budget tax proposals

  • New taxation system for dividend receipts for individuals.
  • Proposals to restrict interest relief for ‘buy to let’ landlords.
  • Extension to the inheritance tax nil rate band available.

Other tax changes

  • An announcement of the amount of the Annual Investment Allowance available to businesses from January 2016.
  • Removal of the tax relief available on the acquisition of goodwill and customer related intangibles.
  • An increase in the amount of the NIC Employment Allowance.

The government also announced a number of changes to tax credits and Universal Credit as part of the welfare reforms aimed at reducing the growing expenditure in this area.

Our summary focuses on the tax issues likely to affect you, your family and your business. To help you decipher what was announced we have included our own comments.

If you have any questions please do not hesitate to contact us for advice.

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

 

Personal Tax

The personal allowance for 2015/16

For those born after 5 April 1938 the personal allowance is £10,600. For those born before 6 April 1938 the personal allowance remains at £10,660. The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 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.

Commitments to increase the personal allowance

The Chancellor announced that the personal allowance will be increased to £11,000 for 2016/17 and to £11,200 in 2017/18. These allowances are higher than those previously announced in the March Budget.

Legislation to ensure a tax-free minimum wage

The government has an objective to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament.

The government has announced that the personal allowance will automatically increase in line with the equivalent of 30 hours a week at the adult rate of the national minimum wage once the personal allowance reaches £12,500.

Tax bands and rates for 2015/16

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.

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

Currently dividend income is taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. Where income exceeds £150,000, dividends are taxed at 37.5%. Dividend income is deemed to be paid net of a notional 10% tax credit.

Some individuals qualify for the 0% starting rate of tax on savings income up to £5,000. The rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

Commitment to increase the 40% income tax threshold

The Chancellor announced that the basic rate limit will be increased to £32,000 for 2016/17 and to £32,400 for 2017/18.

The higher rate threshold will rise to £43,000 in 2016/17 and £43,600 in 2017/18 for those entitled to the full personal allowance.

Personal Savings Allowance

The Chancellor announced in the March Budget that legislation will be introduced in a future Finance Bill to apply a Personal Savings Allowance to income such as bank and building society interest from 6 April 2016.

The Personal Savings Allowance will apply for up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income each year. The Personal Savings Allowance will not be available for additional rate taxpayers.

Dividend Tax Allowance and rates of tax

The government will abolish the dividend tax credit from 6 April 2016 and introduce a new Dividend Tax Allowance of £5,000 a year.

The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. While these rates remain below the main rates of income tax, those who receive significant dividend income, for example as a result of receiving dividends through a close company, will pay more.

Comment

The government expects these changes to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities.

The government also gives an example of a person who receives significant dividend income ‘due to very large shareholdings (typically more than £140,000)’ having to pay a higher rate of tax. It is unclear what this means.

Individual Savings Accounts (ISAs)

In 2015/16 the overall ISA savings limit is £15,240.

From 6 April 2016 the government will introduce the Innovative Finance ISA, for loans arranged via a peer to peer (P2P) platform. A public consultation has been launched on whether to extend the list of ISA eligible investments to include debt securities and equity offered via a crowd funding platform.

It was announced in the March Budget that regulations would be introduced in autumn 2015, following consultation on technical detail, to enable ISA savers to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription limit for that year. This change will have effect from 6 April 2016.

Help to Buy ISA

The government announced the introduction of a new type of ISA in the March Budget, the Help to Buy ISA, which will provide a tax free savings account for first time buyers wishing to save for a home.

The scheme will provide a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.

The government has now announced that Help to Buy ISAs will be available for first time buyers to start saving into from 1 December 2015. First time buyers will be able to open their Help to Buy ISA accounts with an additional one off deposit of £1,000.

Tax-Free Childcare scheme

The Tax-Free Childcare scheme will provide relief for 20% of the costs of childcare. The maximum relief will be £2,000 per child per year or £4,000 for disabled children. The scheme was scheduled to be launched in autumn 2015 but the launch date has been deferred to early 2017.

The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until the new scheme is available.

Employers’ workplace nurseries won’t be affected by the introduction of Tax-Free Childcare.

Comment

The scheme has been delayed due to a court case taken by some childcare voucher providers. The legal issues have now been resolved in favour of the government. So those people who are unable to use the current employer supported childcare scheme, such as the self-employed, will have to wait a bit longer to get support with childcare costs.

Free childcare

From September 2017 the free childcare entitlement will be doubled from 15 hours to 30 hours a week for working parents of 3 and 4 year olds. The government will implement this extension of free hours early in some local areas from September 2016. This free childcare is worth around £5,000 a year per child.

Restricting loan interest relief for ‘buy to let’ landlords

The government will restrict the amount of income tax relief landlords can get on residential property finance costs to the basic rate of income tax. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

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. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.

The restriction in the relief will be phased in 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.

This restriction will not apply to landlords of furnished holiday lettings.

Comment

The restrictions on loan interest will be an unwelcome development for landlords paying higher or additional rate of tax. For many investors, the restriction on loan interest relief will materially alter their attitude to the amount of debt taken on.

Other changes to property taxation

From April 2016 the government will:

  • replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets.
  • increase the level of Rent-a-Room relief from £4,250 to £7,500 per annum.

Pensions – restriction on tax relief

The Annual Allowance provides an annual limit on tax relieved pension savings. It is currently £40,000. From April 2016 the government will introduce a taper to the Annual Allowance for those with adjusted annual incomes, including their own and employer’s pension contributions, over £150,000. For every £2 of adjusted income over £150,000, an individual’s Annual Allowance will be reduced by £1, down to a minimum of £10,000.

The government also wants to make sure that the right incentives are in place to encourage saving into pensions in the longer term. The government is therefore consulting on whether there is a case for reforming pensions tax relief.

 

Business Tax

Corporation tax rates

From 1 April 2015 the main rate of corporation tax is 20% and it is proposed that this rate will continue for the Financial Year beginning on 1 April 2016. The main rate of corporation tax will then be reduced as follows:

  • 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019
  • 18% for the Financial Year beginning on 1 April 2020.

Annual Investment Allowance (AIA)

The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business, up to an annual limit and is available to most businesses.

The maximum amount of the AIA was increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses until 31 December 2015. However it was due to return to £25,000 after this date. The level of the maximum AIA will now be set permanently at £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.

Where a business has a chargeable period which spans 1 January 2016 there are transitional rules for calculating the maximum AIA for that period. The maximum amount for the transitional period is the total of the time apportioned maximum AIA of £500,000 from the start of the chargeable period to 31 December 2015 plus the time apportioned maximum AIA of £200,000 from 1 January 2016 to the end of the chargeable period. However any AIA available on expenditure in the second period would be limited to the time apportioned maximum in that period.

Corporation tax relief for business goodwill

Where a company acquires goodwill or intangible assets, which are recognised in the accounts, a corporation tax deduction is available for the charge to profit and loss when the assets are written off. This deduction is only available on the acquisition of a business and not on the acquisition of shares in a company.

For acquisitions of goodwill and customer related intangibles made on or after 8 July 2015 this relief will no longer be available. In addition, there will be restrictions on the treatment of any allowable losses realised on subsequent disposals of goodwill or customer related intangibles which were acquired on or after 8 July 2015. There are no restrictions where a profit is made on a subsequent disposal.

Corporation tax payment dates

The government will introduce earlier dates for the payment of corporation tax for larger companies and groups, for accounting periods starting on or after 1 April 2017. For companies with annual taxable profits of £20 million or more, tax will be payable in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period. For groups the threshold is divided by the number of companies in the group.

Tax-advantaged venture capital schemes

This Budget also announces that the government will make amendments to the tax-advantaged venture capital schemes to ensure that the UK continues to offer significant and well-targeted support for investment into small and growing companies, with a particular focus on innovative companies.

 

Capital Taxes

Capital gains tax (CGT) rates and annual exemption

No changes have been announced in respect of CGT rates or the annual exemption.

Inheritance tax (IHT) nil rate band

The IHT nil rate band is currently frozen at £325,000 until April 2018. This is to remain frozen until April 2021.

IHT and the main residence nil rate band

An additional nil rate band is to be introduced where a residence is passed on death to direct descendants such as a child or a grandchild. This will initially be £100,000 in 2017/18, rising to £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21. It will then increase in line with CPI from 2021/22 onwards. The additional band can only be used in respect of one residential property which has, at some point, been a residence of the deceased.

Any unused nil rate band may be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil rate band, are passed on death to direct descendants. This element will be the subject of a technical consultation and will be legislated for in Finance Bill 2016.

There will also be a tapered withdrawal of the additional nil rate band for estates with a net value (after deducting any liabilities but before reliefs and exemptions) of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The current tax position of the non UK domicile

A UK resident and domiciled individual is taxed on worldwide income and gains. Non UK domiciles who are UK resident are currently able to claim the remittance basis of taxation in respect of foreign income and gains. This means that they are only taxed if foreign income and gains are brought into the UK. The non UK domicile is also favourably treated for IHT as they only pay IHT in respect of UK assets as opposed to their worldwide assets.

New proposals for non UK domiciles

The government intends to abolish non UK domicile status for certain long term residents from April 2017. This will only apply where an individual has been resident for at least 15 out of the last 20 tax years. Such individuals will be treated as deemed UK domicile for all tax purposes.

In addition, those who had a domicile in the UK at the date of their birth will revert to having a UK domicile for tax purposes whenever they are resident in the UK, even if under general law they have acquired a domicile in another country.

UK residential property held indirectly by non UK domicile persons

The government will legislate to ensure that, from April 2017, IHT is payable on all UK residential property owned by non UK domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure such as a trust or partnership.

 

Other Matters

Tax lock

The government will legislate to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and employer and employee Class 1 NIC rates, ensuring that they cannot rise above their current levels. The tax lock will also ensure that the NIC Upper Earnings Limit cannot rise above the income tax higher rate threshold and will prevent the relevant statutory provisions being used to remove any items from the zero rate of VAT and reduced rate of VAT for the duration of this Parliament.

National Living Wage

The government will introduce a new National Living Wage (NLW) for workers aged 25 and above, by introducing a premium on top of the National Minimum Wage (NMW). From April 2016, the NLW will be set at £7.20 an hour. This rate is 70p higher than the current NMW rate, and 50p above the NMW increase coming into effect in October 2015.

Employment allowance

From April 2016, the government will increase the NIC Employment Allowance from £2,000 to £3,000 a year. The increase will mean that businesses will be able to employ four workers full time on the new National Living Wage (NLW) without paying any NIC.

To ensure that the NIC Employment Allowance is focussed on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.

Tax avoidance

A raft of HMRC compliance initiatives are to be launched over the next few years. To quote the Chancellor:

‘We’re boosting HMRC’s capacity with three quarters of a billion pounds of investment to go after tax fraud, offshore trusts and the businesses of the hidden economy, tripling the number of wealthy evaders they pursue for prosecution – raising £7.2 billion in extra tax.’

Tax credits

A number of changes to tax credits and Universal Credit are announced as part of the welfare reforms aimed at reducing the growing expenditure in this area.

Key changes include:

  • From April 2016 the government will reduce the level of earnings at which a household’s tax credits and Universal Credit award starts to be withdrawn for every extra pound earned. There will also be an increase in the taper rate which applies to any excess income further reducing the tax credit award.
  • Limiting the Child Element of both tax credits and Universal Credit to two children so that any subsequent children born after April 2017 will not be eligible for further support. Some claimants will be protected from these changes.
  • Those starting a family after April 2017 will not be eligible for the Family Element in tax credits and equivalent in Universal Credit.

In addition tax credit allowances (with the exception of disability elements) will be frozen

Newsletter – April 2014

In this month’s enews we report on pensions announcements and other issues pertinent to employers with many deadlines approaching.

Please contact us if you would like any further information.

 

 

HMRC guidance on new pension flexibility

Following the Budget announcements regarding pension flexibility HMRC have now issued some guidance for those individuals who may wish to review their pension options.

New rules are being introduced to ensure that people do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next, instead of buying a lifetime annuity.

Internet link: Pensions flexibility

Employers no longer able to reclaim SSP

The Percentage Threshold Scheme (PTS), which allows employers to reclaim Statutory Sick Pay (SSP) in certain circumstances, is abolished from 6 April 2014.

Under PTS employers have been able to reclaim SSP where the SSP paid is more than 13% of the Class 1 NIC due for the month. Employers are not entitled to recover any of the SSP paid to their employees unless they qualify for the reimbursement scheme.

The following example explains how the scheme worked for a tax month:

SSP paid = £630.00
Gross NI £3,704.29 x 13% = £481.56
SSP recoverable: (£630 – £481.56) = £148.44

From 6 April 2014 employers are unable to recover SSP however they will continue to be able to recover unclaimed SSP for previous years until 5 April 2016. Do contact us if you think this may apply to your business.

The government has announced that the current PTS funding will be moved into a new scheme to help employees who have been incapacitated for four weeks or more get back to work as part of the government’s Health Work and Wellbeing Initiative.

Internet link: Employer bulletin

Disclosure facility for those with undisclosed second incomes

The Second Incomes Campaign is an opportunity open to individuals in employment who have an additional untaxed source of income.

The new facility allows those with untaxed income to get up to date with their tax affairs in a simple, straightforward way and take advantage of the best possible terms.

If you would like any advice on this area please do get in touch.

Internet links: Second incomes campaign  Guide to disclosure

More guidance on Class 3A NIC

Further guidance has been issued on Class 3A National insurance contributions (NIC).

In the autumn of 2013 the Government announced plans to introduce a scheme to allow pensioners to top up their Additional State Pension by paying a new class of voluntary National Insurance contribution, to be known as Class 3A.

‘The scheme will open in October 2015 and will be available to all pensioners who reach State Pension age before the introduction of the new State Pension in April 2016. The scheme is expected to run for 18 months.’

‘Class 3A will give pensioners an option to top up their pension by up to £25 a week in a way that will protect them from inflation and offer protection to surviving spouses. In particular, it could help women, and those who have been self-employed, who tend to have low additional State Pension entitlement.’

Internet link: Publication

More HMRC guidance on the Employment Allowance

The Employment Allowance of up to £2,000 is available to most employers from 6 April 2014. Employers can reduce the amount of National Insurance contributions (NICs) they pay for their employees by up to £2,000. This is called the ‘Employment Allowance’.

Employers generally won’t have to pay any employer National Insurance contributions at all if they usually pay less than £2,000 a year.

HMRC has issued more guidance on the practicalities of claiming the allowance which can be found by visiting the link below.

For help with payroll matters please do contact us.

Internet links: Employment allowance detail  Employment allowance key facts

Tax-free childcare

Details of the new Tax-Free Childcare scheme which is to be launched in autumn 2015 have been announced.

The scheme will be worth a maximum of £2,000 per child per year. The maximum amount due is calculated on 20% of the costs of childcare (up to a total of childcare costs of £10,000 per child per year).

The scheme will be launched in autumn 2015. All children under 12 within the first year of the scheme will be eligible. To qualify for Tax-Free Childcare all parents in the household must:

  • meet a minimum income level based on working eight hours per week at the National Minimum Wage (around £50 a week at current rates)
  • each earn less than £150,000 a year, and
  • not already be receiving support through Tax Credits or Universal Credit.

Self-employed parents will be able to get support with childcare costs in the Tax-Free Childcare scheme, unlike the current employer supported childcare scheme. To support newly self-employed parents, the Government is introducing a ‘start-up’ period. During this period a newly self-employed parent will not have to earn the minimum income level.

The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until the new scheme is available.

It is proposed that parents register with the Government and open an online account. The scheme will be delivered by HMRC in partnership with National Savings and Investments, the scheme’s account provider. The Government will then ‘top up’ payments into this account at a rate of 20p for every 80p that families pay in.

Internet link: News

Increase in NMW rates

The Government has approved a rise in the National Minimum Wage rates which will come into effect on 1 October 2014:

  • a 19p (3%) increase in the adult rate (from £6.31 to £6.50 per hour)
  • a 10p (2%) increase in the rate for 18 to 20 year olds (from £5.03 to £5.13 per hour)
  • a 7p (2%) increase in the rate for 16 to 17 year olds (from £3.72 to £3.79 per hour)
  • a 5p (2%) increase in the rate for apprentices (from £2.68 to £2.73 per hour.

The rise will take effect in October 2014, as Business Secretary Vince Cable has accepted in full the independent Low Pay Commission’s recommendations for 2014, including plans for bigger increases in future than in recent years.

The Low Pay Commission (LPC) has said the rise, the first real terms cash increase since 2008, is manageable for employers and will support full employment.

Business Secretary Vince Cable said:

‘The recommendations I have accepted today (12 March 2014) mean that low paid workers will enjoy the biggest cash increase in their take home pay since 2008. This will benefit over 1 million workers on National Minimum Wage and marks the start of a welcome new phase in minimum wage policy.’

Meanwhile HMRC have revealed some of the excuses given for not paying the NMW.

Internet links: Press release  HMRC NMW excuses

Advisory fuel rates for company cars and fuel benefit charge

Where private fuel is provided by the employer for a company car then a separate benefit is assessable on the employee. This benefit charge is calculated by applying the same percentage figure used to calculate the company car benefit to a fixed figure which for 2014/15 is set at £21,700. The percentage is linked to the car’s CO2 emission figures.

Now is a good time to consider whether this benefit is value for money for both the employee and employer.

The alternative is to reimburse the employee for business miles using the company car advisory fuel rates. The current rates are:

Engine size Petrol
1400cc or less 14p
1401cc – 2000cc 16p
Over 2000cc 24p

 

Engine size LPG
1400cc or less 9p
1401cc – 2000cc 11p
Over 2000cc 17p

 

Engine size Diesel
1600cc or less 12p
1601cc – 2000cc 14p
Over 2000cc 17p

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

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

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

Internet link: HMRC advisory fuel rates

P11d deadline approaching

The forms P11D, and where appropriate P9D, which report details of expenses and benefits provided to employees and directors for the year ended 5 April 2014, are due for submission to HMRC by 6 July 2014. The process of gathering the necessary information can take some time, so it is important that this process is not left to the last minute.

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

HMRC have updated their expenses and benefits toolkit for 2013/14 and record keeping for 2014/15. The toolkit consists of a checklist which may be used by advisers or employers to check they are completing the forms P11D correctly.

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

Internet links: http://www.hmrc.gov.uk/payerti/exb/forms.htm  Toolkit