2016 October | Exchange Accountancy Services

Archive for October, 2016

Why is 30 December an important filing date

Thursday, October 27th, 2016

If you are obliged to file a self-assessment tax return for 2015-16, and if you have underpaid tax for this year, and if some of your income (including private pension receipts) is taxed under PAYE, then you can apply to have your tax code number adjusted downwards in a future tax year to repay this underpayment by instalments. In effect, your future income tax deductions will be increased.

Many tax payers will find this a palatable option as HMRC would be collecting the underpaid tax sometime in the future. For example, if you had an underpayment for 2015-16 of £2,400 HMRC would adjust your code number for 2017-18. Consequently, instead of paying the underpayment in one amount, on or before 31 January 2017, your income tax deductions from April 2017 would be increased by £200 a month until March 2018.

There are certain conditions that must be met in order to secure this deferred repayment option. HMRC will not allow the coded out payment process if this would unduly reduce your take home pay. There are also graduated limits on the amount of tax that can be recovered in this way.

What is certain, is that you must file your 2015-16 self-assessment tax return, online, before 30 December 2016 otherwise HMRC will not accept a claim to settle income arrears using this method.

Tax payers who have not yet filed their 2015-16 returns have the best part of two months, if they anticipate tax underpaid for the year, and want to spread the repayment cash flow over the tax year 2017-18.

10% corporation tax

Tuesday, October 25th, 2016

The UK already has plans in place to reduce corporation tax to 17%. Many small businesses will be intrigued by widespread publicity today that discloses the possibility of a reduction in the UK corporation tax rate to 10% if the EU does take a hard line in Brexit negotiations.

According to Reuters news agency:

The tax cut would be used to try and persuade the EU to grant "passporting" rights for financial services firms to continue operating across the EU…

If the government does act on this “threat” what are the likely consequences for small businesses?

Initially, we may see more self-employed business persons drawn into an incorporated structure, to take advantage of the lower tax rates (a 10% corporation tax rate would be half the present basic income tax rate) although many of these smaller business owners will need to withdraw all of their company profits to cover living expenses, in which case there would be no benefit. A lower corporation tax rate will likely benefit larger concerns who will be able to retain profits in their company at the lower 10% rate.

As far as the Treasury is concerned, a 10% rate would mean a direct loss of £20bn in corporation tax receipts. How will this be made up? More austerity, more quantitative easing, increases in other tax rates or fewer allowances?

The 10% rate may be no more than posturing, an attempt to influence the forthcoming Brexit negotiations. Whatever the outcome, it is larger, and possibly financial service firms who will be the major beneficiaries.

The halving of corporation tax rates will possibly lead to more legislative complexity if HMRC are instructed to minimise the loss of tax revenues to the Exchequer. If past experience is a guide to future expectation it will be smaller businesses that feel the pinch.

Business rates revalued

Thursday, October 20th, 2016

From 30 September 2016, anyone in England and Wales that pays business rates go online to check their new draft rateable value. From this they can estimate what their business rates will be from April 2017.

It only takes a couple of minutes to click, find and review a rateable value. If a ratepayer thinks the information held about their property is incorrect, they can ask us to update our records. To do this visit the Gov.uk website at https://www.gov.uk/correct-your-business-rates.

All you need to do is enter your postcode or street address.

All 1.96 million non-domestic properties in England and Wales have recently been revalued. These new rateable values are based on the rental value of properties on 1 April 2015, and will be used to calculate business rate bills from 1 April 2017.

Please note that various business rates relief are still available, but they are handled differently in all the regions of the UK.

If you qualify for:

·         Small business rate relief

·         Rural rate relief

·         Charitable rate relief, or

·         Enterprise zone relief.

You will need to apply to your local council.

The exempted buildings and empty buildings relief is automatically applied by your local council and some councils give extra discounts. For example, you may be able to get hardship relief or transitional rate relief if your business meets certain criteria.

If your premises are affected by local disruption, you may get a temporary reduction in your business rates (e.g. flooding, building or road works).

Contact the Valuation Office Agency (or your local assessor in Scotland) to find out if you can claim.

Dividend tax reminder

Tuesday, October 18th, 2016

From 6 April 2016, any dividends you receive up to £5,000 are tax-free. Dividends received in excess of this amount will be taxed as follows. If they form part of your:

·         Basic rate tax band – taxed at 7.5%

·         Higher rate tax band – taxed at 32.5%

·         Additional rate – taxed at 38.1%

Last year, up to 5 April 2016, dividends received that fell into your basic rate tax band were covered by a tax credit. Accordingly, tax payers with dividend income in excess of the new £5,000 limit will be paying more tax on their dividend income 2016-17.

Readers should also note that for 2016-17:

·         Dividends that fall within your personal tax allowance do not count towards the £5,000 dividend allowance.

·         If your dividends fall under the £5,000 allowance, there is no need to tell HMRC unless you are registered for self-assessment.

·         If your dividends received are between £5,000 and £10,000 you should tell HMRC by ringing their helpline, ask them to adjust your tax code, or enter the details on your tax return if you are required to file.

·         If your dividends are over £10,000 you should be registered for self-assessment. For the tax year 2016-17, you have until 5 October 2017 to register with HMRC.

There are still advantages to maintaining a high dividend, lower salary strategy if you are a director/shareholder of a small limited company. However, it is worth revisiting the calculations on an annual basis to ensure you are optimising the various allowances available.

Companies House filing deadlines and penalties

Friday, October 14th, 2016

A reminder that you will have to pay penalties if you don’t file your accounts with Companies House by the appropriate filing deadline. Generally speaking, accounts will need to be filed nine months after a company’s financial year end.

The penalties for private limited companies are set out below. The penalties apply after the expiry of the various periods listed (after the filing deadline has expired).

 

 

Up to 1 month

£150

1 to 3 months

£375

3 to 6 months

£750

More than 6 months

£1,500

Penalties for public limited companies are different.

The penalty is doubled if your accounts are late two years in a row.

You can be fined and your company struck off the register if you don’t send Companies House your accounts or annual return.

Appeal against a late filing penalty

If you want to appeal a penalty you must give a reason why you couldn’t file your accounts on time.

You must prove the circumstances were both out of your control and made it impossible for you to meet the deadline, if, for example, a fire destroyed your records a few days before your accounts were due.

According to Companies House you can’t appeal by claiming:

  • your company is dormant
  • you can’t afford to pay
  • it was your accountant’s (or anybody else’s) fault
  • you didn’t know when or how to file your accounts
  • your accounts were delayed or lost in the post
  • the directors live or were travelling overseas

You can send a letter to the address on the front page of the penalty invoice that Companies House send you, or send an email including the penalty reference to enquiries@companies-house.gov.uk. You should get a response within ten working days and the penalty will not be collected while your appeal is being considered.

Cherie Blair leads failed High Court bid

Tuesday, October 11th, 2016

The removal of mortgage interest relief from tax deductibles for the UK’s buy to let landlords is set to begin its remorseless impact on landlord’s cash flow from April 2017.

For Steve Bolton and Chris Cooper, this tax change was step too far. They approached Cherie Blair QC, to argue for a judicial review of the legislation in the High Court.

The judge was not impressed and refused permission for leave to proceed.

The Rental Landlords Association vice-chairperson, Douglas Haig, was at the hearing. He said:

“Whilst it is now being judged as a legal tax that doesn’t make it a just or fair tax and the Government still doesn’t seem to fully understand the impact it will have on housing supply and economic activity.

“While landlords will be affected the real losers with be the tenants as living costs continue to increase.”

Bolton and Cooper issued a joint statement following the hearing:

“It has completely missed the opportunity to protect tenants, landlords and the housing market from the disastrous consequences of Section 24.

“Sadly it will be tenants who are hit hardest; they are set to see unprecedented rent increases over the coming months and years, which will be a very clear and direct consequence of this ludicrous legislation.

“For many, it will also mean the loss of their homes because vast numbers of landlords will be forced to exit the market.

“Hard-working, responsible landlords will have their pension plans in ruins, but the large corporations and the wealthiest in society, who can buy property without the need for mortgage finance, are systematically excluded from this unfair tax policy.”

Are you paying rates on second homes or empty property

Thursday, October 6th, 2016

You may like to check out the following points. In many cases it would seem that local authorities have overall control over who can, or cannot, claim for reduced rates.

Second homes

You may pay less Council Tax for a property you own or rent that’s not your main home.

Councils can give furnished second homes or holiday homes a discount of up to 50%. Contact your council to find out if you can get a discount – it’s up to them how much you can get.

Empty properties

You’ll usually have to pay Council Tax on an empty home, but your council can decide to give you a discount – the amount is up to them. Contact your council to ask about a discount.

Your council can charge up to 50% extra Council Tax if your home has been empty for 2 years or more (unless it’s an annexe or you’re in the armed forces).

When you don’t pay Council Tax

If you’re selling an empty property on behalf of an owner who’s died, you only start paying Council Tax 6 months after you get probate.

Some homes don’t get a Council Tax bill for as long as they stay empty. They include homes:

  • of someone in prison (except for not paying a fine or Council Tax)
  • of someone who’s moved into a care home or hospital
  • that have been repossessed
  • that can’t be lived in by law, for example if they’re derelict
  • that are empty because they’ve been compulsory purchased and will be demolished

You may get a discount if your home is undergoing major repair work or structural changes, for example your walls are being rebuilt.

If your property’s been refurbished

Your council will tell you when you have to start paying Council Tax if you’ve been carrying out major home improvements on an empty property or building a new property.

You’ll get a ‘completion notice’ that tells you the date you must start paying Council Tax.

If your property’s derelict

Your property’s only considered derelict if it:

  • isn’t possible to live in it, for example because it’s been damaged by weather, rot or vandalism
  • would need major structural works to make it ‘wind and watertight’ again

You can apply to get a derelict property removed from the Council Tax valuation list. Follow the process for making a formal challenge to the VOA.

Tax Diary October/November 2016

Wednesday, October 5th, 2016

1 October 2016 – Due date for Corporation Tax due for the year ended 31 December 2015.

 

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

 

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

 

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

 

31 October 2016 – Latest date you can file a paper version of your 2016 Self Assessment tax return.

 

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

 

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

 

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

 

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

Tax and your home

Wednesday, October 5th, 2016

If you use your home for business purposes, rent out parts of your home whilst you are still in residence or if you rent out your home while you are resident elsewhere, you may need to consider the tax consequences. This article covers some of the tax issues that you may need to consider:

Use of home for business purposes

If the amount of space you use is limited to say one room, and if there is a duality of use (for example you may have a home office in the corner of a spare bedroom or your office may double as a hobbies room), then you should be able to charge your business a nominal amount to cover the “running costs” of the space occupied. Your claim will need to be restricted on a time basis to disallow the private use proportion.

Claims that fit into this category should cause you no personal tax issues as long as they are based on a realistic apportionment of actual costs and are discounted for private use.

It will also be unlikely that you will suffer any charge to Capital Gains Tax when you sell your home.

Renting a room

From 6 April 2016, you can let out a room or rooms in your house as furnished accommodation (not an office) and as long as the annual rents received do not exceed £7,500 per year (prior to 6 April 2016 the annual limit was £4,250) you will have no Income Tax to pay. If the rent is more than the limit, then only the excess is taxable. The “normal” basis (rents less allowable costs) can be claimed if this produces a better result.

If two persons are entitled to share the rental income, the above annual tax-free limits are halved.

Longer term lets when you are not in residence

If you let out your home, for example if you work abroad for a period of time, you will be subject to Income Tax on your rental profits.

When you subsequently sell your home there may also be Capital Gains Tax considerations. When you sell, a proportion of any gain that relates to the period (or periods) of letting may be taxable. 

However, provided the property was your home at some time, you can claim reliefs, including principal private residence relief for the time it was your main residence, plus the last 18 months of ownership. Also, there may be some “lettings relief” relating to periods your home was let as above.

Homeowners’ private residence relief (for CGT purposes) is worth protecting. If you are considering any financial transaction concerning your home that you are concerned may have Income Tax of CGT implications, please call. It is better to sound out professional advice before the event…   

Claiming back pre-trading costs

Wednesday, October 5th, 2016

Generally speaking, any business expenditure that you make up to seven years before you actually start trading, is treated for tax purposes as if it was incurred on the first day of trading.

This expenditure includes rent, rates, insurance, wages and other costs that you have had to pay.

You can also claim capital allowances for qualifying assets. Again, they are treated as being made on the first day of trading. However, assets that you have previously owned, that you introduce into your new business, will need to be valued at market value at the same date. These might include your car or personal computer.

Repairs can be a tricky item, as HMRC may want to treat them as improvements to your business property that were incurred to bring them to a working standard prior to commencement of trade. If they succeed in their argument HMRC would not allow a deduction as a revenue expense.

Repairs undertaken before commencement of trade should be allowed if the following three points apply:

1.    The costs are regular maintenance rather than improvements.

2.    The repairs were not incurred to make premises fit for trade.

3.    The price paid for premises was not reduced to account for repairs to be made.