2016 January | Exchange Accountancy Services

Archive for January, 2016

Wasted opportunity

Thursday, January 28th, 2016

Most of the UK taxes have exemptions and allowances that apply for each tax year. Many are increased in each year in the March budget. Almost none are transferrable from one tax year to another.

If you don’t utilise an allowance, in most cases it is lost forever.

This article lists some of the basic allowances you should check out with your professional advisor before 6 April 2016, when the new tax year begins. There may be ways to utilise an allowance even if there is no obvious way to do this.

All rates quoted are for 2015-16.

  • Income tax personal allowance £10,600
  • Marriage allowance £1,020 – you can transfer part of your personal allowance to your spouse or civil partner as long as their income is between £10,601 and £42,385.
  • ISAs – the maximum you can save is £15,240.
  • Junior NISA – the maximum you can save is £4,080.
  • Pension annual allowance £40,000 – unused allowances in the past three tax years can also be utilised.
  • Capital gains tax annual exempt amount £11,100
  • Inheritance tax annual gifts allowance of £3,000. A previous year’s unused allowance can be claimed in the current year.
  • Inheritance tax gifts on marriage or civil partnership. £5,000 if given to a child; £2,500 given to a grandchild or great-grandchild; £1,000 if given to anyone else.

These are by no means all the opportunities to make sure you utilise tax allowances in 2015-16. Readers are advised to consult with their professional advisors to ensure that they make the most of tax reliefs on offer.

Pensions and tax relief

Tuesday, January 26th, 2016

At present, until 5 April 2016, there are opportunities to pay more into your pension fund and still qualify for tax relief. The maximum, for some tax payers, is doubled in 2015-16 from £40,000 to £80,000. This is due to a technical issue that aligns the pension input period with the tax year.

It is also possible to utilise unused allowances from earlier years in 2015-16.

From 6 April 2016 there are changes for additional rate (45%) tax payers (those with income in excess of £150,000). From this date, a restriction in the annual allowance of £40,000 will apply amounting to £1 for every £2 that adjusted income exceeds £150,000. This downward adjustment will continue until the annual allowance reaches £10,000.

Accordingly, if you pay income tax at 45% and your adjusted income exceeds £210,000 your annual allowance for pension relief purposes will be £10,000.

Most experts agree that the Treasury is also considering a move to a flat rate system where all taxpayers receive tax relief at the same rate. It is expected that the rate will be set somewhere between 20% and 40%: the higher the rate the less benefit to the Treasury so the eventual change will possibly be closer to 20% than 40%. This will incentivise basic rate taxpayers to save more in their pension schemes and be a disincentive to those paying income tax at the additional 40% rate.

 

The phrase “make hay while the sun shines” comes to mind.

 

If you have a private pension scheme you would probably benefit from a discussion with your pensions and tax advisors. The clock is ticking. Any further changes will likely be announced as part of the Budget speech on 16 March…

What is the current rate of capital gains tax

Thursday, January 21st, 2016

If you sell an asset that is subject to CGT the rate of tax you will pay will be 0%, 18% or 28%.

In the current tax year 2015-16, you are allowed to make gains of up to £11,100 tax free. In fact the first £11,100 of all gains are free of tax.

If all your taxable income, including any capital gain in excess of £11,100, is within the basic rate income tax band, (and gains are considered to be the top slice of income for this purpose), then the rate of CGT chargeable is 18%. The amount of the basic rate band for 2015-16 is £31,785.

If, however, any or all of a capital gain falls into the higher rate tax band the rate of CGT payable is 28%.

As gains tend to be made on a sporadic basis, and as the amount of CGT payable is calculated as part of an individual’s self assessment, no payments on account will have been made regarding the CGT due. Accordingly, the CGT payable will need to be paid on or before the 31 January following the end of the relevant tax year. For taxable gains declared for 2015-16 any CGT due will be payable 31 January 2017.

Example

Let’s say that your total taxable income is £20,000 and your total taxable gains are £22,100. From your gains, deduct the tax-free allowance of £11,100. This leaves £11,000 to pay tax on.

You’ve used £20,000 of the basic rate band (£31,785 for the 2015-2016 tax year) against your taxable income, so you have £11,785 left.

You have enough of the basic rate band remaining to cover your gains, so you pay Capital Gains Tax at 18% on £11,000. This means you’ll pay £1,980 in Capital Gains Tax 31 January 2017.

Readers who have made gains that are likely to be taxed in 2015-16 should take advice to estimate any CGT that may be due 31 January 2017. There are numerous reliefs that may apply to the gain you have made.

Gains made by companies are subject to corporation tax, currently 20%.

Right to rent checks

Tuesday, January 19th, 2016

From 1 February 2016 landlords and others involved in the rental of property will need to verify that their tenants have the right to be in the UK.

This is a further level of red tape that will need to be considered from next month. The details published by the Home Office are set out below:

What the new right to rent checks mean for private landlords and tenants. From 1 February 2016, all private landlords in England will have to make right to rent checks. This means checking that tenants have the right to be in the UK.

What this means for landlords

You need to make right to rent checks if you:

  • are a private landlord
  • have a lodger
  • are sub-letting a property
  • are an agent appointed by a landlord to make right to rent checks

Some landlords won’t need to make the checks.

How to make a right to rent check

  1. Check adult tenant(s) will live in the property as their only or main home
  2. Ask tenant(s) for the original document(s) that show they have the right to be in the UK
  3. Check the documents are valid with the tenant present
  4. Make and keep copies of the documents and record the date you made the check

Making a right to rent check with the Home Office

If a tenant has an outstanding immigration application or appeal with the Home Office, you can request a Home Office right to rent check.

What this means for tenants

All tenants with tenancy agreements for privately rented accommodation after 1 February 2016 will be checked by a landlord or agent to make sure they have the right to rent.

Tenants who sub-let their room will also need to make right to rent checks.

Documents tenants can provide

Landlords will need to see certain documents, which prove that the tenant has the right to be in the UK.

Acceptable documents include:

  • UK passport
  • EEA passport or identity card
  • permanent residence card or travel document showing indefinite leave to remain
  • Home Office immigration status document
  • certificate of registration or naturalisation as a British citizen

Landlords who don’t make the checks could be fined up to £3,000 if they rent out a property to someone who’s in the UK illegally.

Right to rent checks have been introduced as part of the government’s ongoing reforms to the immigration system.

A draft code of practice with more information can be downloaded from https://www.gov.uk/government/publications/right-to-rent-landlords-code-of-practice#history

Ways to save money in 2016

Thursday, January 14th, 2016

 HM Treasury have published a number of money saving strategies that are available this year. We have reproduced a number of the ideas below.

If you’re saving for a deposit for your first home, you can earn a bonus with the Help to Buy: ISA.

If you’re saving to buy your first home, you can put away up to £200 a month in the Help to Buy: ISA and the government will top it up by 25%, up to a maximum of £3,000.

This year, if you put away £3400 in your Help to Buy: ISA, your bonus will be £850 in December (save £1,200 in January and £200 every month after that).

You can take a Help to Buy: ISA out with one of 14 providers.

Switching your bank account could save you on average £70 a year

It’s a quick and easy way to switch your current account in 7 days – your direct debits and standing orders are transferred automatically, and there’s a switch guarantee, so you’re protected against financial loss if anything goes wrong when you switch.

Over 2.25 million switches have taken place since 2013. And it’s also available to 99% of small businesses.

There are more options for how to manage your pension

Since 6 April 2015, if you’re aged 55 and above, you can access your savings from your defined contributions pension scheme to invest or spend as you want under new pension reforms.

For example, you can take money direct from your pension pot without having to buy an annuity or put the money into drawdown, and 25% of this sum will be tax free – or you can use some or all of your funds to buy an annuity that will be payable for at least the rest of your life.

The government’s Pension Wise service can provide more guidance.

If you’re looking to buy a new build home you could benefit from the Help to Buy scheme

With the Help to Buy: Equity Loan scheme, if you’re able to put down at least a 5% deposit, the government will lend you up to 20% of the rest of the value of the property, alongside your mortgage of up to 75%.

And to reflect the current property market in London, those buying in Greater London will soon be able to benefit from up to a 40% loan.

Alternatively, from April 2016, if you have a household income of less than £80,000 outside London, and £90,000 inside London, Help to Buy Shared Ownership will allow you to buy a share of between 25% and 75% of a home.

The rent on the rest of the property won’t be more than 3% of the amount left and the scheme will apply across England.

Married couples could save up to £212 this year by applying for the marriage allowance

The Marriage Allowance lets you transfer £1,060 of your Personal Allowance to your husband, wife or civil partner.

This means that they could pay up to £212 less tax this tax year (from April 2015 to April 2016).

From April 2016, a new Personal Savings Allowance will take 95% of taxpayers out of savings tax altogether

From April 2016, a tax-free allowance of £1,000 (or £500 for higher rate taxpayers) will be introduced for the interest that you earn on your savings.

If you are a basic rate taxpayer (you have a total income of up to £43,000 in 2016-17), you will be eligible for a £1,000 tax-free savings allowance.

If you are a higher rate taxpayer (you have a total income in 2016-17 between £43,001 and £150,000), you will be eligible for a £500 tax-free savings allowance.

Warning, bogus Council Tax refund scams

Tuesday, January 12th, 2016

The Valuation Office Agency has issued the following warning regarding persons or organisations claiming to be able to reduce your council tax band for a fee.

“We are aware of a number of Council Tax refund scams that are currently operating around the country. Someone may telephone you, or appear personally at your door, claiming to be able to reduce your Council Tax bill. Examples of the tactics used by bogus agents to get you to part with your money include:

  • Charging an up-front fee with an added 20% of the reduction should they successfully reduce your council tax band.
  • Insisting you are definitely in the wrong band and are owed back payments on your Council Tax bill, when in fact your band is correct.
  • Saying they are from the local council or VOA and asking for your bank details so they can provide a refund. The fraudsters will then steal money from the bank account.
  • Claiming that the VOA charges you to challenge your Council Tax band; this is not correct, you can do this for free.
  • Claiming that taxpayers must, by law, be represented by an agent to challenge their band, when in fact anyone can do this.
  • Stating that they are on an approved list of agents recognised by the VOA, when in fact the VOA does not keep any such list.

How to avoid falling victim to this scam:

Strategies you could employ:

  • Remember that you can have your band checked free of charge by contacting the Valuation Office Agency.
  • Confirm over the phone with a cold-caller’s head office to check that they are legitimate. Ensure that if the cold-caller used the telephone, your last call ended properly before redialling the number,
  • If you receive a call offering to reduce your band, make sure you are getting a dial-tone before calling the council or the VOA to check their story.
  • Inform the police if you believe that anyone is impersonating staff from your local council or the VOA.
  • Dial 999 if a doorstep cold-caller refuses to leave your home.
  • Contact your local Trading Standards office if you feel you have been the victim of a Council Tax scam.

Whatever you do, DON’T:

  • Give your bank details to anyone.
  • Let anyone into your home without seeing appropriate identification.
  • Feel under pressure from a cold-caller to pay an immediate up-front fee. Take the time you need to think about it.
  • Accept cold callers’ claims about your band without seeing evidence or proof of what they are claiming.
  • Deal with anyone that is reluctant to give you their company address or contact details.

If you feel that your Council Tax band for your home is wrong, then all you have to do is contact the Valuation Office Agency and explain why you think it is incorrect. We will ask you to confirm that the details we hold about your home are correct. We will listen to your views and if, following a review, we agree that your band is wrong, we will change it. Please note that bands can occasionally go up as well as down.”

Review of airside VAT free shopping

Wednesday, January 6th, 2016

A review has been launched by George Osborne to make sure shoppers share in the reduction in VAT in future. At present, it seems that retailers, particularly the larger retailers, are pocking the cash benefits and not passing them on to customers.

Here’s what a recent announcement on this topic confirmed:

The Chancellor, George Osborne, has launched a review into airport sales to make sure VAT savings are being passed on to shoppers… the Chancellor confirmed that the extensive review will make sure that VAT relief in airports is leading to savings for shoppers, as it is intended to do.

Currently, some airside retailers are keeping up to an estimated 50p of every £1 of potential VAT savings instead of passing those savings on to shoppers.

The Chancellor has tasked HMRC to review airside VAT-free shopping to make sure that shoppers share more of the benefit in future. The review is expected to be completed by early 2016 and will also cover all other airside shopping taxes.

Chancellor of the Exchequer George Osborne said:

For families flying out of the UK for a winter-getaway, airports should be the ideal place to pick-up a bargain.

VAT relief at airports is intended to cut prices for those travellers – not be a windfall gain for shops.

But many people could be paying over the odds for their purchases because the Government’s VAT concession isn’t passed on.

This is simply unacceptable. I have launched a review to make sure that this VAT relief benefits those it’s intended for – consumers – whatever time of the year they are travelling.

This review will consider ways to ensure prices reflect VAT savings as well as savings on duty.

Tax Diary January/February 2016

Tuesday, January 5th, 2016

1 January 2016 – Due date for Corporation Tax due for the year ended 31 March 2015.

19 January 2016 – PAYE and NIC deductions due for month ended 5 January 2016. (If you pay your tax electronically the due date is 22 January 2016.)

19 January 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2016.

19 January 2016 – CIS tax deducted for the month ended 5 January 2016 is payable by today.

31 January 2016 – Last day to file 2014-15 Self Assessment tax returns online.

31 January 2016 – Balance of Self Assessment tax owing for 2014-15 due to be settled today. Also first payment on account for 2015-16 due today.

1 February 2016 – Due date for Corporation Tax payable for the year ended 30 April 2015.

19 February 2016 – PAYE and NIC deductions due for month ended 5 February 2016. (If you pay your tax electronically the due date is 22 February 2016.)

19 February 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2016.

19 February 2016 – CIS tax deducted for the month ended 5 February 2016 is payable by today.

Car fuel advisory rates changes

Tuesday, January 5th, 2016

 From 1 December 2015, the advisory fuel rates have changed to:

1400cc or less: petrol 11p per mile, LPG 7p per mile

1401-2000cc: petrol 13p per mile, LPG 9p per mile

Over 2000cc: petrol 20p per mile, LPG 13p per mile

Diesel rates:

1600cc or less: 9p per mile

1601-2000cc: 11p per mile

Over 2000cc: 13p per mile

 

These rates can be used from 1 December 2015 to calculate the petrol content of mileage rates paid to employees, or as a basis to repay private petrol provided by employers for the use of a company car.

Other changes proposed

Tuesday, January 5th, 2016

The government has also published its intention to change a number of other tax reporting issues. Some of the more impactful for smaller businesses and Self Assessment tax payers are reproduced below:

  1. Simple Assessment – legislation will be introduced in Finance Bill 2016 to provide a new power to allow HMRC to make an assessment of a person's Income Tax or Capital Gains Tax liability without them first being required to complete a Self Assessment return where it has sufficient information about that individual to make the assessment. This measure will have effect on and after the date of Royal Assent to Finance Bill 2016.
  1. PAYE – ‘On or Before’ Reporting Obligation Review – HMRC have carried out a review of the ‘On or Before’ reporting obligations for employers who use the Real Time information payroll filing process. Currently, existing micro employers (with 9 or fewer employees) using Real-Time PAYE may take advantage of a reporting relaxation to report all payments they make in a tax month ‘on or before’ the last payday in the tax month rather than 'on or before' each and every payday. This is a 2 year temporary relaxation which is legislated to come to an end on 5 April 2016: this measure confirms the temporary relaxation will end, as planned, aligning the treatment of existing micro employers with all other employers.
  1. Capital Gains Tax: payment on account – from April 2019 a payment on account of any Capital Gains Tax (CGT) due on the disposal of residential property will be required to be made within 30 days of completion of the disposal. Taxpayers will be able to reconcile their payment on account with their total CGT liability for the year, after the year end. Legislation will be introduced in Finance Bill 2017 and the government will publish draft legislation for consultation in 2016.
  1. Student loan repayments – As announced at Autumn Statement: From April 2016 the income threshold for loans taken out on or after 1 September 2012 is frozen at £21,000 until 5 April 2021, and from April 2019 employers will be asked to start deducting repayments from borrowers of postgraduate loans, at a rate of 6% alongside undergraduate repayments at the existing rate of 9%
  1. Data-gathering from Electronic Payment Providers and Business Intermediaries – Legislation will be introduced in Finance Bill 2016 to identify businesses who are not complying with their tax obligations by extending HMRC’s current data gathering powers. The extended powers will include business intermediaries who facilitate transactions, particularly online and electronic payment service providers who operate digital wallets, thereby future-proofing legislation to include emerging new data sources.
  1. Stamp Duty Land Tax: changes to the filing and payment process – As announced at Autumn Statement, the government will consult in 2016 on changes to the SDLT filing and payment process, including a reduction in the filing and payment window from 30 days to 14 days. These changes will come into effect in 2017 to 2018.