2017 March | Exchange Accountancy Services

Archive for March, 2017

One week to go

Thursday, March 30th, 2017

Next week sees the end of the 2016-17 tax year. On the 6 April 2017, any action you take to minimise your tax liabilities for 2016-17 will be largely ineffective. So what, if anything, can you still action this week?

Capital gains tax (CGT)

The amount of tax free gains you can make during 2016-17 is £11,100. This exempt allowance is available to all UK resident tax payers, accordingly, married couples and civil partners both qualify.

If you have no gains chargeable to CGT thus far during 2016-17, there is still an opportunity to crystallise gains during this coming week, up to the annual exemption limit, and no tax will be payable. For example, if you have a shareholding that you have been considering for disposal, and you could sell a sufficient quantity of shares before 6 April 2017, the disposal would utilise your allowance without creating a tax liability.

The important matter to note is that this annual exemption is lost if you don’t use it; it cannot be carried forward and used in later years.

Inheritance tax (IHT)

There are a number of annual reliefs that you can use without creating a chargeable event for IHT purposes. For example, the exempted annual gifts you can make are:

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can carry any unused annual exemption forward to the next year – but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

Small gifts up to £250

You can give as many gifts of up to £250 per person as you want during the tax year as long as you haven’t used another exemption on the same person.

Company car users

If your employer pays for your private fuel this will create a fairly significant income tax charge for 2016-17. You may save money if you calculate the cost of the fuel provided and reimburse your employer. For 2016-17, you need to do this before 6 April 2017. (For 2017-18, the rules are being relaxed slightly and you will have until 6 July 2018 to make an equivalent reimbursement for 2017-18).

To make the calculation you will need your private mileage for 2016-17 and multiply this by the advisory fuel rate for your vehicle. These range from 7p to 22p per mile. See the published list at https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

These are just a few of the actions you could take to minimise your tax payments during what’s left of 2016-17. If you are unsure what your options may be, please call, we would be delighted to help.

New childcare funding choices

Tuesday, March 28th, 2017

The government have launched a new website aimed at parents who may be able to claim for support with childcare costs.

The web address is https://www.childcarechoices.gov.uk/.

How Tax-Free Childcare works

Working parents will be able to apply, through the childcare service, to open an online childcare account. For every £8 that families or friends pay in, the Government will make a top-up payment of an additional £2, up to a maximum of £2,000 per child per year (or £4,000 for disabled children). This top up is added instantly and parents can then send electronic payments directly to their childcare providers.

All registered childcare providers – whether nannies, nurseries or after school clubs – can sign up online now to receive parents’ payments through Tax-Free Childcare. Once childcare providers have signed up they will appear on the Childcare Provider Checker. This allows parents to check whether childcare providers have already signed up for Tax-Free Childcare.

How 30 hours’ free childcare works

Eligible parents will be able to apply online through the childcare service. They will receive a code – this will allow parents to arrange their childcare place ahead of September 2017. Parents can take their code to their provider or council, along with their National Insurance Number and child’s date of birth. Their provider or council will check the code is authentic and allocate them a free childcare place.

Parents can quantify the amount that they may be able to claim using the Gov.uk childcare calculator at https://www.gov.uk/childcare-calculator

Follow companies for free

Thursday, March 23rd, 2017

If you want to keep an eye on documents filed with Companies House for a particular company, you can register for a new service that will do just that at Companies House. The new service is called “Follow” and it allows you to receive email alerts.

Follow lets you receive email alerts of company transactions. The alert tells you instantly what has been filed as soon as it has been accepted. The email will contain a link to the filing history of the company where you’ll be able to download a copy of the document for free.

You will also receive an email alert when Companies House remove a transaction.

Follow this link to register for the Companies House Service if you want to be advised of new filings for specific company transactions.

Who to follow

You can follow any company registered at Companies House. For added security, you could choose to follow your own company.

How to follow

To begin following companies:

  • sign in once you’ve registered an email address and password
  • search for a company to follow
  • select the company
  • click on ‘Follow this company’

To see all the companies, you have chosen to follow click ‘Companies you follow’. To stop receiving email alerts for a company choose to ‘Unfollow’.

 

 

Reduction in the dividend allowance

Tuesday, March 21st, 2017

Unless there are further political objections, one of the few remaining revenue raising changes in the recent spring budget was the reduction in the £5,000 dividend allowance from April 2018.

From this date the allowance will drop to £2,000.

This measure will increase the tax charge for investors with significant, quoted share portfolios and the director/shareholders of private companies who minimise their tax and National Insurance by taking a low proportion of their remuneration as salary and any balance as dividends.

A person with annual dividends of £5,000 may see the following amounts added to their tax bill for 2018-19, dependant on where the dividends sit in their basic, higher and additional rate income tax bands:

  • Basic rate tax payers – an increase of £225.
  • Higher rate tax payers – an increase of £975, and
  • Additional rate tax payers – an increase of £1,143.

The current average dividend yield for FTSE 100 companies is close to 3%. Based on this estimate, holders of portfolios in excess of £67,000, may see an increase in their tax bill next year. There has been speculation in the press suggesting that affected investors (in quoted companies) may be able to use ISAs to shelter some of their dividend income from an income tax charge.

Director/shareholders who have adopted to the low salary high dividend approach will suffer a tax increase, but it is likely that the benefits of this strategy will still outweigh the tax and NIC cost of being self-employed.

 

Making Tax Digital – a step closer

Thursday, March 16th, 2017

Another matter that received some clarification last week was the government’s move to implement MTD for the self-employed from April 2018.

When the scope of MTD was first published it was proposed that the self-employed (including unincorporated property businesses) would need to commence the quarterly upload of summarised accounts data, direct to HMRC’s digital accounts, from April 2018.

In the budget last week, a relaxation of this deadline was introduced. Only self-employed businesses with taxable income in excess of the current VAT registration limit (£85,000 for 2017-18) will be required to comply with MTD uploads from April 2018. Those with income below the VAT threshold will now have until April 2019 to comply.

Whilst this is a welcome reprieve for smaller businesses, none of the other regulations regarding MTD have been relaxed. In particular, the need to comply with the quarterly uploads if income exceeds £10,000.

It was hoped that government would increase this threshold as it does require very small businesses into a compliance regime that seems out of proportion with their size. For example, a self-employed person with taxable income of just over £10,000 will have to comply with MTD from April 2019 even though their personal tax allowance will eliminate any tax liability for the year.

Clearly, MTD is a major change in the assessment of tax, probably the most impactful since the introduction of self-assessment 20 years ago. Readers affected, should ensure that they are ready to comply and in particular have identified a suitable format for keeping their business records that will facilitate the electronic transfer of data to HMRC.

If you are unsure which software or process to use, please contact us, we can help.

Self-employed NIC increase

Tuesday, March 14th, 2017

Although there was little of substance to Philip Hammond’s budget last week, one particular issue caused some political controversy. It was the proposal to increase the National Insurance contributions for the self-employed from 9% to 11% over a two-year period starting April 2018.

 

From this date, April 2018, the weekly Class 2 contributions will be scrapped and the scope of Class 4 contributions will be increased such that the entitlement to selected benefits is maintained.

 

The Chancellor’s justification for the increase was to reduce the gap between NI contributions made by employed persons and the self-employed. Typically, employed persons and their employers make more significant contributions than self-employed individuals earning the same level of income.

 

At present, the self-employed pay Class 4 NIC at the rate of 9% of profits between £8,060 and £43,000, for 2016-17, compared to 12% for an employee on earnings between the same thresholds. When employer’s NIC contributions of 13.8% are taken into account the imbalance in contributions are even more marked.

 

Historically, the benefits that an out of work, or retired self-employed person could claim were lower than an employed person, but with the advent of the new State Pension for persons who reach retirement age after 6 April 2016, many of these imbalances have been reduced.

 

The Treasury estimates that after the 2% increase has been factored in, only persons with self-employed earnings in excess of £16,250 will be paying more in NIC for 2019-20 as a direct result of the change.

 

Of course, the Class 4 NIC increase may not actually happen. This is a proposal published in a Finance Bill, and until parliament vote the change into law, the measure is ineffective. The Prime Minister has indicated that a final decision will be deferred to the Autumn Budget later this year.

Employment boost for older workers

Friday, March 10th, 2017

A new strategy is calling on employers to boost the number of older workers and ensure they are not writing people off once they reach a certain age, helping to build a country that works for everyone.

It’s estimated that by mid-2030s people aged 50 and over will comprise more than half of the UK adult population.

The government is encouraging people to take full advantage of the opportunities that work can bring, including seeking out a new career if they are feeling unfulfilled at work. A group of over 40 employers have spearheaded the new business approach to older workers.

As part of the new Fuller Working Lives strategy, ministers and business leaders have set out the social and health benefits of working longer. Highlighting the need for businesses to ‘retain, retrain and recruit’ older workers, the strategy outlines how a coalition of jobcentres and businesses can combine to support older workers to continue in their careers or take a new direction.

Secretary of State for Work and Pensions Damian Green said:

Most people are healthier for longer and so are able to extend their careers and take up new opportunities.

Staying in work for a few more years can make a significant difference not only to someone’s income but also their physical and mental health.

I urge all businesses to reassess the value of older workers. Nobody should write off hiring someone due to their age and it’s unacceptable that some older people are overlooked for roles they would suit completely.

The strategy also highlights that:

  • the average age of leaving the labour market has increased over the past 2 decades, but it is still lower than it was in 1950 and is not keeping pace with increases in life expectancy
  • 1 in 4 men and 1 in 3 women reaching state pension age have not worked for 5 years or more
  • by delaying retirement until 65 instead of 55 someone with average earnings could have £280,000 extra income and might increase their pension pot by 55%

 

To further support the employment of older workers, government is taking 4 main actions:

 

  • publishing a wide range of evidence to outline the benefits of working longer and harnessing the power of a truly multigenerational workforce
  • providing additional help for groups who may need more support getting into and staying in work, including people with long-term health conditions and disabilities
  • putting control of adult skills budgets in the hands of learners and employers, and achieving 3 million apprenticeship starts in England by 2020 – a commitment that apprenticeships are as accessible as possible to people of all ages and backgrounds
  • continuing to develop the support available through jobcentres for older workers, demonstrated by Older Claimant Champions being introduced in all Jobcentre Plus districts

Budget Statement 8 March 2017

Thursday, March 9th, 2017

Personal Tax and miscellaneous matters

Personal Tax allowance

The personal allowances for 2017-18 is £11,500 (2016-17: £11,000).

Transferrable allowances

The maximum amount of free personal allowance that can be transferred between spouses is increased to £1,150 in 2017-18. Couples can only make a claim if one partner has spare personal tax allowance and the other is a basic rate tax payer.

Income Tax rate bands

The levels for 2017-18 are:

  • For 2017-18 – £45,000 (the UK apart from Scotland)
  • For 2017-18 – £43,000 (Scotland)

If your income before allowances exceeds these amounts you will be paying 40% Income Tax on the excess (this assumes that you are only entitled to the basic personal allowance).

The threshold at which the 45% rate starts is unchanged at £150,000.

For yet another year there were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).

Dividend allowance to be reduced

From 6 April 2018, the tax-free dividend allowance of £5,000 is to be reduced to £2,000. Director shareholders of small companies that have adopted the strategy of minimising salary and maximising dividends will likely pay more Income Tax on their dividend income because of this change.

Capital Gains Tax (CGT)

There are no changes to the basic CGT rates for 2017-18. The CGT on the disposal of chargeable assets, apart from residential property, remains at:

  • 10% on disposals that form part of the basic rate band.
  • 20% on disposals that form part of the higher rate band.

The higher rates (18% and 28%) will continue to apply to disposals of residential property subject to this tax and carried interest. Gains on a disposal of your home will continue to be exempt. The annual exempt amount for 2017-18 is £11,300 (2016-17: £11,100).

Money Purchase Allowance reduced to £4,000 from £10,000

This will restrict the amount of tax relieved contributions that can be made by an individual, into a money purchase arrangement, who has accessed their pension savings from April 2017.

Reminder for non-doms to be bought into the IHT net

A reminder, that from April 2017, Inheritance Tax will be charged on all UK residential property even when indirectly held by a non-domiciled person through an off-shore structure.

Excise duties

Duty on wine, beer, spirits and alcohol will increase in line with the Retail Prices Index from 13 March 2017. These measures will typically add 2p to the price of a pint of beer, 1p to the price of a pint of cider, 36p to a bottle of whisky and 10p to a bottle of wine.

Tobacco duty rates

Changes to excise duties mean that a pack of twenty cigarettes will increase by an average of 35p, an additional 17p per 10 grams of cigars, and a 35-gram pouch of tobacco by 42p.

Fuel duty

There will be no increase in fuel duties. At the end of 2017-18 this will be the 7th year fuel duty has been frozen.

New National Savings investment clarified

From April 2017, individuals aged 16 years or older will be able to invest in the new NS & I Investment Bond. It will be available for one year from April 2017. Minimum deposit is £100, maximum deposit allowed £3,000. The rate of interest applied is 2.2%.

Lifetime ISA previously announced

From April 2017, any person aged from 18 to 40 will be able to save into a new Lifetime ISA until the age of 50.

Up to £4,000 can be saved each year and savers will receive a government bonus of 25% – that is a bonus of up to £1,000 a year.

Some or all of the money can be used to buy a first home, or it can be kept until age 60.

Accounts will be limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together. If a saver has a Help to Buy ISA it can be transferred into the Lifetime ISA in 2017, or savers can continue saving into both, but it will only be possible to use the bonus from one to buy a house.

After your 60th birthday you can take out all the savings tax-free. You can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 25% charge.

ISA limit from April 2017

The ISA savings limit for 2017-18 is confirmed as £20,000.

Business tax changes

Corporation Tax rate

The main rate of Corporation Tax from 1 April 2017 will be reduced to 19%. A further reduction has been announced to 17% from 1 April 2020.

NIC increases for the self-employed

To narrow the perceived imbalance in NIC charges for the employed and self-employed, Philip Hammond announced increases in the self-employed Class 4 NIC contributions.

The increases are:

  • From April 2018, an increase from 9% to 10%, and
  • From April 2019, a further increase from 10% to 11%.

The earlier increase is timed to coincide with the cessation of Class 2 contributions.

Business rates increases

In response to the negative publicity regarding increases in business rates in England, particularly for retailers, the Chancellor has stepped in with help for smaller businesses.

There are three areas of relief announced:

  1. Small businesses that find they are losing Small Business Rates Relief from April 2017, will have any annual rates increase capped at the higher of £600 or the transitional relief cap.
  2. Local authorities will be funded to provide an element of discretionary relief, and
  3. Public houses with a rateable value of up to £100,000 will benefit from a fixed £1,000 business rate discount – subject to State Aid limits if multiple properties are owned. This discount is available for one year from April 2017.

Local authorities will be fully compensated for any loss of income because of these measures.

Making Tax Digital

The Chancellor announced a one year deferral from Making Tax Digital for Business for unincorporated businesses and landlords with turnovers below the VAT threshold. This means that businesses, self-employed people and landlords with income of less than the VAT threshold will not have to start quarterly reporting until 2019.

Changes to trading and property income allowances

The two previously announced £1,000 tax-free allowances for small scale trading or letting will still be introduced from April 2017, but will now include restrictions if the income or rents are generated by dealings with companies or partnerships of which the recipient is a participator or partner.

Loss relief reform

Legislation is to be introduced to reform the rules governing corporate losses carried forwards from earlier periods. The changes will:

  • Allow more flexibility by relaxing the way companies can use carried forward losses from 1 April 2017.
  • Restrict the set-off of losses such that profits cannot be reduced by more than 50%. This restriction will apply to companies or groups with profits of more than £5m.

Corporation Tax relief for museums and galleries

Rates for 2017-18, already announced, are 25% for touring exhibitions and 20% for non-touring exhibitions. Following consultation, the draft legislation is to be amended to allow for exhibitions that have a performance element, but where the live performance is not the main focus of the exhibition.

VAT registration and deregistration limits

From 1 April 2017:

  • Registration threshold increased to £85,000
  • Deregistration threshold increased to £83,000

Avoidance and evasion

The government will continue to challenge and seek to overturn artificial arrangements whose sole purpose seems to be a reduction of tax.

The budget crystal ball

Wednesday, March 8th, 2017

Today Philip Hammond will present his first budget to parliament; forecasting any changes he may be considering to the UK tax system is perhaps unwise.

If he remains committed to austerity, anticipating any potential fall-out from the Brexit process and maintaining (or more likely slowing down) the repayment of national debt, it is difficult to see where savings can come from to fund tax give-aways.

Most of the annual tax allowances for 2017-18 have already been published so what we may see are commitments to ease taxation in future years. There have been rumours that the UK may be promoted as a low-tax area to draw non-EU business to the UK after Brexit. Perhaps we will see a promise to reduce corporation tax below 17%, the rate it is predicted to be from April 2020, or bring forward the reduction to 17%.

Other predictions include:

  • Increasing stamp duty thresholds for first-time buyers.
  • Setting a fixed rate for pensions tax relief – 33 per cent has been mooted.
  • Taking the sting out of the recently announced business rate increases.
  • Efforts to simplify tax compliance for businesses.

Additionally, we may see a start towards the alignment of rules for NIC and income tax, removing or closing the disparity between the overall tax and NIC payable by the self-employed and employed persons.

In some respects, tax payers, their advisors and HMRC have their hands full implementing tax changes already announced. Most impactful is Making Tax Digital and the necessity for the self-employed to make quarterly data uploads from April 2018.

Many of us are hoping that Mr Hammond will opt for a gently-gently approach. By this time next week, we will know if he agrees.

Marriage Allowance

Wednesday, March 8th, 2017

Although the financial impact of this allowance is relatively low, it is surprising that there has not been more uptake of the Marriage Allowance since its inception 6 April 2015. In fact, taxpayers that qualify can still backdate a claim for 2015-16 as well as make a claim for the current tax year, 2016-17.

Marriage Allowance lets you transfer £1,100 of your Personal Allowance to your husband, wife or civil partner – if they earn more than you. This reduces their tax by up to £220 in the tax year. To benefit as a couple, the lower earner must have an income of £11,000 or less.

If you were eligible for Marriage Allowance in the 2015-2016 tax year, you can backdate your claim to 6 April 2015 and reduce the tax paid by up to £432.

Who can apply

You can get Marriage Allowance if all the following apply:

  • you are married or in a civil partnership
  • you don’t earn anything or your income is under £11,000
  • your partner’s income is between £11,001 and £43,000

You can still apply for Marriage Allowance if you or your partner:

  • are currently receiving a pension
  • live abroad – as long as you get a Personal Allowance.

 

To apply, you will need you and your partner’s National Insurance numbers. You will also need a way to prove your identity. This can be one of the following:

  • the last 4 digits of the account that your child benefit, tax credits or pension is paid into
  • the last 4 digits of an account that pays you interest
  • details from your P60
  • details from any of your 3 most recent payslips
  • your passport number and expiry date

You’ll get an email confirming your application. The online application link is https://www.tax.service.gov.uk/marriage-allowance-application/eligibility-check?_ga=1.166134333.262204862.1487688115