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Archive for the ‘Personal Tax’ Category

Early bird filing

Tuesday, October 13th, 2015

Why would you want to file your tax return early?

The end of this month, for example, is the deadline for filing a paper version of the 2014-15 self assessment tax returns, and if you file online, the deadline is 31 January 2016.

A significant number of taxpayers still file after the deadlines and seem happy to pay the late filing penalties and interest on unpaid tax if any falls due. A remarkably larger number seem content to wait and file at the last minute. So what are the advantages of filing earlier? Two spring to mind:

  1. If any tax is due you will have more time to accumulate funds to pay it, and
  1. If you have overpaid tax you will get the money back sooner…

If you have a professional advisor there are additional benefits. It is possible to process your tax information and review your tax position prior to filing. This will ensure that no planning opportunities have been missed and any remedial actions can be taken before the return is sent to HMRC.

There are not many strategies that can be legitimately used in arrears, but there are a few. For example, in certain circumstances it is possible to pay charitable donations after 5 April 2015 and carry back the higher rate tax relief to 2014-15. If you want to make the most of the advice that we can give, give us time to research and plan. Bringing in your tax records in the last weeks of January to file the previous year’s tax return is counterproductive. The early bird really does get the benefit of reasoned tax advice and you will know, in advance, what your tax payments are likely to be for the next year.

Personal Savings Allowance

Thursday, October 1st, 2015

From April 2016, you won’t have to pay tax on interest received up to £1,000 (if you are a standard rate taxpayer), or £500 if you pay tax at the higher rate.

Therefore, to be eligible for this new allowance in 2016-17:

  • Your taxable income needs to be less than £42,700 a year to qualify for the £1,000 PSA, or,
  • Your income needs to be between £42,701 and £150,000 to qualify for the £500 PSA.

To facilitate this change, from April 2016 banks and building societies will stop automatically taking the 20% Income Tax from the interest earned on your non-ISA savings accounts.

Readers who receive substantial interest on their non-ISA savings should take this latter fact into account. For 2016-17 their investment income could create an increase in underpayments in their tax position as they will receive their interest gross, no tax deducted. For example, there will be those who haven’t had to pay tax to HMRC because all their income was taxed at source. This group may be required to pay their tax separately in future.

This could particularly affect certain pensioners and the like benefitting from the £5000 nil “savings rate” of tax applying for 2015-16 only.


Tax scheme generates 1bn in tax

Tuesday, September 15th, 2015

HMRC has collected £1 billion in tax payments from users of tax avoidance schemes as a result of the government’s new rules to collect disputed tax upfront, the Financial Secretary to the Treasury, David Gauke, announced 13 September 2015.

The Government introduced Accelerated Payments last year to radically change the economics of avoidance. Under these rules, disputed tax is paid up front by avoidance scheme users.

Financial Secretary to the Treasury David Gauke said:

“The Government will not tolerate tax avoidance and Accelerated Payments has been a real game changer.

It is no longer possible for these individuals to avoid tax and sit on the money while their affairs are investigated. This first £1bn received in Accelerated Payments shows that we are turning the tables on those looking to avoid paying their fair share.”

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

“Tax avoiders are running out of options. People now have to pay upfront and dispute later. We are winning around 80% of avoidance cases that people litigate. And many more are settling before litigation.”

More than 25,000 notices to pay disputed tax have been issued by HMRC since August 2014. By the end of 2016, HMRC expect to have completed issuing around 64,000 bringing forward £5.5 billion in payments for the Exchequer by March 2020.

Accelerated Payments were introduced in the Finance Act 2014 and the National Insurance Contributions Act 2015. They apply where avoidance schemes are subject to the Disclosure of Tax Avoidance Schemes rules or the General Anti-Abuse Rule, or where they are similar to a scheme that has already been defeated in the courts.

Self assessment payments on account

Wednesday, September 9th, 2015

If you are self-employed (as a sole trader or in partnership) you will normally make two payments on account of your self assessment tax liability at the end of January and July each year.

Normally, these payments on account are based on your total self assessment dues for the previous tax year. So, for 2015-16, you will be making payments on account at the end of January and July 2016, based on your total liabilities for 2014-15.

As long as your taxable income does not change significantly, year on year, this system will ensure that your tax liabilities are settled by the on account payments you make (plus or minus small differences if your income varies slightly).

But what happens if you know that your income for 2015-16 is going to be much lower than 2014-15? In this case any payments on account based on the previous tax year’s income will likely result in an overpayment of tax.

If your income is likely to be lower in 2015-16 you should elect to reduce the payments on accounts that you make January and July next year. Your advisor should be able to estimate the amount due, and the necessary reduction in your payments next year. In this way you can avoid overpayments of tax and minimise the cash flow impact on your business cash flow or savings.

If the opposite applies, your taxable income is likely to be more in 2015-16, there is no obligation to offer a higher payment on account. However, you will need to reserve funds to cover any underpayment for this year which will be payable 31 January 2017.

Do you own property in the EU

Tuesday, September 1st, 2015

If you own property in the EU you may be advised to revisit your Wills and make sure that you are not affected by the automatic succession rules that apply in many countries. For example, in France it is the usual practice to ensure that property is left to children rather than the surviving spouse.

Recent changes in EU law and practice mean that you can now nominate the jurisdiction that you wish your EU property to be ruled by. This may mean a change to your current Will in the UK, or by creating a second Will to cover your EU property.

In effect, citizens are able to choose whether the law applicable to their succession should be that of their last habitual residence or that of their nationality.

Paid too much or too little tax

Tuesday, August 18th, 2015

HMRC have issued a press release advising tax payers that they are sending out annual statements for the tax year to 5 April 2015.

The statements are styled P800 forms and summarise income and allowances for the year and the calculation of tax due and tax paid. If you have over paid tax the statement will trigger a repayment in most cases. If you have underpaid, HMRC will generally adjust your PAYE coding to recover the amount due during the tax year 2016-17. If this is not practical you will get a request to make a payment. HMRC have also acknowledged that is cases of financial hardship they will negotiate extended repayment terms.

Here’s what HMRC published to their website:

“This year, if you’ve paid too much or too little tax, we’re making the process as easy as possible for you.

We will tell you how we’re collecting any underpayment, or we’ll give you a cheque if we owe you money.

There is no need to contact us unless you think the details we’ve used are wrong.

What you need to do

If you get a P800 tax calculation, please check the details are correct.

You can:

  • compare the figures used with your own records, such as your P60, P11d, bank statements or letters from the Department for Work and Pensions (DWP)
  • use the HMRC tax checker to check how much tax you should have paid

You don’t need to do anything if the calculation is correct.

If you’ve underpaid tax

If you haven’t paid enough tax, we’ll usually change your tax code for the next year to collect the money you owe. This happens automatically so you won’t need to do anything and don’t need to contact us.

Sometimes we can’t collect the money you owe through your tax code, for example, if you’re now out of work. In this case, we’ll write to you explaining how to pay the money you owe.

If you’ve overpaid tax

If you have paid too much tax, we will automatically send you a cheque within 14 days of receipt of your P800. You won’t need to do anything and don’t need to contact us.”

However complex your tax affairs, it is advisable to check the P800 form when it arrives.

Summer Budget Statement 8 July 2015

Thursday, July 9th, 2015

 Personal Tax and miscellaneous matters

The Tax Lock

The Government are to legislate to set a ceiling for increases to various taxes. This will ensure that they cannot rise above their 2015-16 levels for the duration of the current parliament. The taxes affected are:

  • The main rates of Income Tax.
  • The standard and reduced rates of VAT.
  • Employer and employee Class 1 National Insurance Contribution (NIC) rates.

The NICs Upper Earnings Limit cannot rise above the Income Tax higher rate threshold and it will not be possible to remove any items from the zero or reduced rate of VAT.

Personal Tax allowance

The personal allowance will be increased to £11,000 from April 2016, with the promise of further yearly increases to meet the Government’s target of £12,500 by the end of the current parliament. The rates for the current and next two tax years are:

  • £10,600 for 2015-16
  • £11,000 for 2016-17
  • £11,200 for 2017-18

Income Tax rate bands

There was significant press commentary prior to the Budget predicting an increase in the threshold at which tax payers are liable to the 40% Income Tax rate. During the term of the current parliament it was promised this would rise to £50,000. As a first step the higher rate threshold will be increased to £43,000 from April 2016. For the current and following two tax years the thresholds are:

  • £42,385 in 2015-16
  • £43,000 in 2016-17
  • £43,600 in 2017-18

If your income before personal allowances exceeds this amount 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.

There were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).

Dividend tax credit to be abolished

From April 2016 Income Tax payers will no longer be able to claim a deduction for tax credits associated with the receipt of dividends.

In its place, a new Dividend Tax Allowance of £5,000 is to be introduced. If your dividend income is below this allowance you will pay no Income Tax. Dividends received in excess of £5,000 will be taxed as follows:

  • 7.5% if you are a standard rate (20%) tax payer
  • 32.5% if you are a higher rate (40%) tax payer
  • 38.1% if you are an additional rate (45%) tax payer

Abolition of non-domicile status

The Government is to legislate such that, from April 2017, any person who has been resident in the UK for more than 15 of the previous 20 years will be deemed to be domiciled in the UK for tax purposes.

Additionally, from April 2017, individuals who are born in the UK, to UK domiciled parents, will no longer be able to claim non-domiciled status whilst they are resident in the UK.

IHT – Main Residence Nil-rate Band (MRNB)

A new nil-rate band for IHT purposes is to be introduced. It will be available when a residence is left on death to direct descendants. The amount of the MRNB will be:

  • £100,000 in 2017-18
  • £125,000 in 2018-19
  • £150,000 in 2019-20
  • £175,000 in 2020-21

Any unused MRNB can be transferred to a surviving spouse or civil partner. The allowance will still be available if the tax payer downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent amount, up to the amount of the available MRNB, are passed on death to a direct descendant.

From April 2017, estates with a net value of more than £2m will be subject to a reduction of £1 in the available MRNB for every £2 the net estate exceeds £2m.

The basic nil-rate band of £325,000 will remain frozen at this level until April 2021.

Tax credits

As expected, George Osborne has made a few cuts to Tax Credits as part of his plan to reduce public expenditure. The following are the main changes:

  • From April 2016, the income threshold that applies to Tax Credits will be reduced from £6,420 to £3,850.
  • From April 2016, once a claimant earns above the income threshold, their Tax Credits award will be reduced by 48p for every additional £1 they earn. Presently, the taper rate is 41p for each additional £1 of income.
  • The child element in Tax Credits and Universal Credits claims will be restricted to the first two children. There will no longer be awards for third or subsequent children born after 6 April 2017. There will be exceptions for multiple births, disabled children and other exceptional circumstances.
  • The in-year income disregard (the amount by which a claimants income can increase in one year as compared to the previous year without affecting eligibility) is to be reduced from April 2016, from £5,000 to £2,500.

Insurance Premium Tax (IPT) hike

From 1 November 2015 IPT is to be increased from 6% to 9.5%

 Business Tax

Corporation Tax rate

The main rate of Corporation Tax is to be reduced from the current 20% to:

  • 19% from 1 April 2017, and
  • 18% from 1 April 2020.

These reductions are intended to maintain the UK’s competitive tax position and to compensate employers for the possible increases in their wages costs when the new National Living Wage for the over 25s is introduced from April 2016.

The National Living Wage arrives

It has fallen to a Conservative Government to make the important shift towards the implementation of a National Living Wage (NLW).

The long term goal is to set a rate of £9 per hour by 2020. As a first step, from April 2016, the NLW rate for over 25s will be £7.20.

Corporation Tax payment dates change for larger companies

For accounting periods ending on or after 1 April 2017, companies with taxable profits over £20m will be required to pay Corporation Tax in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting periods.

National Insurance Employment Allowance (EA)

The Government is to increase the EA from April 2016. The allowance is as follows:

  • £2,000 for 2015-16
  • £3,000 for 2016-17

This means that most employers will not pay the first £3,000 of employers NIC from April 2016.

Annual Investment Allowance (AIA)

The current AIA limit is £500,000. This allows businesses to write off up to this amount in qualifying asset purchases (commercial vehicles, plant and machinery and computers etc.) against their taxable profits.

This is a temporary increase and from 1 January 2016 the maximum was set to revert to the previous permanent level of £25,000. It is now intended to increase this permanent limit to £200,000 from 1 January 2016.

This is a welcome announcement as businesses contemplating investment in qualifying plant and machinery of up to £200,000 will now have more time to make a buying decision, past the end of this year, and not lose a tax advantage.

Tax relief on acquisition of goodwill to be restricted

Acquisitions of goodwill after 8 July 2015 will be subject to restrictions for Corporation Tax relief purposes.

Bank Corporation Tax Surcharge

An 8% supplementary tax is to be levied on banking sector profits from 1 January 2016. The tax will apply before deductions for carried forward losses.

The tax will not apply to the first £25m of profit within a group.

Nuisance calls clampdown

In a welcome announcement, the amount that can be claimed by claims management companies is to be capped. It is hoped that change will discourage cold calling to promote PPI and other similar claims.

Three million new apprenticeships

The Government intends that three million new apprenticeships will be created by 2020. The scheme will be funded by a levy on large employers and firms that commit to training will be able to get back more than they invest.

 Savers and investors (including property investors)

Wear and Tear Allowance (WTA)

The WTA presently compensates residential landlords by allowing them to deduct 10% of their gross rents received (adjusted for some direct charges) before tax due is computed. The allowance is intended to cover replacements of furnishing made from time to time.

From April 2016, this WTA will no longer be available. In its place the actual replacement cost will be deductible.

Capital allowances will continue to apply for owners of furnished holiday let properties.

HMRC will be issuing technical guidance on this change.

Basic rate restriction for landlord finance costs

Landlords of residential properties will have tax relief on finance charges, such as mortgage interest, restricted to the present 20% basic rate of tax. This will be phased in over four years from April 2017.

Rent-a-room relief increase

From April 2016 the present rent-a-room relief of £4,250 is to be increased to £7,500.

Pensions Lifetime Allowance to be reduced

This allowance is to be reduced from £1.25m to £1m from 6 April 2016.

Transitional arrangements will be in place to protect funds in excess of £1m, ensuring that the change will not be retrospective.

From 6 April 2018 the Lifetime Allowance will be indexed annually in line with the Consumer Price Index.

Pension’s annual allowance reduced for high income earners

The present £40,000 Annual Allowance for pension contributions is to be reduced for high income earners from April 2016.

Those with income in excess of £150,000 will see their allowance tapered down to a minimum of £10,000.

Tax Diary July/August 2015

Friday, June 26th, 2015

1 July 2015 – Due date for Corporation Tax due for the year ended 30 September 2014.

6 July 2015 – Complete and submit forms P11D return of benefits and expenses and P11D (b) return of Class 1A NICs.

8 July 2015 – The second Budget Day for this year.

19 July 2015 – Pay Class 1A NICs (by the 22 July 2015 if paid electronically).

19 July 2015 – PAYE and NIC deductions due for month ended 5 July 2015. (If you pay your tax electronically the due date is 22 July 2015)

19 July 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2015.

19 July 2015 – CIS tax deducted for the month ended 5 July 2015 is payable by today.

1 August 2015 – Due date for Corporation Tax due for the year ended 31 October 2014.

19 August 2015 – PAYE and NIC deductions due for month ended 5 August 2015. (If you pay your tax electronically the due date is 22 August 2015)

19 August 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2015.

19 August 2015 – CIS tax deducted for the month ended 5 August 2015 is payable by today.