Archive for October, 2017

Room to breathe

Tuesday, October 31st, 2017

The government are considering plans to offer people with serious debt issues time to consider their options.

They are seeking views to develop a way to provide individuals in debt with up to six weeks free from further interest, charges and enforcement action. This period would give those affected time to act by seeking financial advice about how to manage and relieve their debt burden.

Solutions that can be considered include:

  • informal repayment plans, and
  • debt write-off options,

The Economic Secretary to the Treasury, Stephen Barclay, said:

For many people in the UK problem debt seems impossible to escape. Its effects can be far-reaching, impacting all aspects of a person’s life and leaving them feeling helpless. That is why we are working to give people who are overwhelmed by debt more time to seek advice, find a workable solution, and help get their lives back on track.

Although many people can and do use credit successfully to manage their personal finances, for the minority who get into difficulties the government now wants to offer more support.

For example, the new scheme could include legal protections that would shield individuals from further creditor action once a plan to repay their debts is in place.

Problem debt, where people are falling behind on their financial repayments or see their debt as a heavy burden, now affects millions of people in the UK. Causes can range from the sudden loss of employment to a more gradual dependence on debt to make ends meet, with many people waiting 12 months or more before seeking help.

A six weeks’ grace period, where those suffering are safe from enforcement action and interest charges, could help give people the time and opportunity to seek debt advice.

The government is committed to getting this right and over the next twelve weeks will be meeting with key industry representatives from charities, debt advice organisations, lenders and creditors.

Could you claim a tax refund

Thursday, October 26th, 2017

If one party to a marriage or civil partnership has earnings below the personal tax allowance (£11,500 for 2017-18) and their spouse does not pay tax at the higher 40% rate, then they should be claiming the Marriage Allowance.

For 2017-18 this tax break is worth £230 in cash terms.

The allowance was introduced from 6 April 2015 so if you have not claimed in previous tax years you can back-date your claim to include the tax years 2015-16 and 2016-17. Together with the current tax year this should produce a combined tax refund of £662.

You will be eligible to make a claim if all the following conditions apply:

  • You are married or in a civil partnership
  • You currently have no earnings or your income is £11,500 or less
  • Your partner’s current income is between £11,501 and £45,000 (or £43,000 if you’re in Scotland)

It won’t affect your application for Marriage Allowance if you or your partner:

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

Your Personal Allowance will transfer automatically to your partner every year until one of you cancels the Marriage Allowance or your circumstances change, for example because of divorce or death.

According to HMRC, the take-up for this allowance has been slow to gain momentum. Applying is easy enough if you have internet access, the URL is https://www.tax.service.gov.uk/marriage-allowance-application/eligibility-check?_ga=2.13601205.366078670.1508664989-262204862.1487688115

Make sure you have the following information to hand:

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 has been received.

Gazumping to become a thing of the past

Tuesday, October 24th, 2017

The government seems to be taking steps to streamline the process of buying and selling your home. In particular, they are seeking views on ending the practice known as gazumping: where an offer can be accepted and then disregarded when a higher offer is received.

In many countries this is illegal, once an offer is accepted the sale is binding on both parties.

A press release issued 22 October 2017 says:

As part of a continued drive to make the housing market work better, we want to hear from everyone with an interest in home buying including estate agents, solicitors and mortgage lenders.

We want to ensure that we address issues across the whole sector, from ways to tackle gazumping and reduce time wasting to increase commitment to a sale.

Views will be taken on:

  • Gazumping – Buyers are concerned about gazumping, with sellers accepting a higher offer from a new buyer, we will look at ways this could be tackled.
  • Building trust & confidence – Mistrust between parties is one of the biggest issues faced, we want to look at schemes including ‘lock-in agreements’. Although 1 million homes are bought and sold in England each year, around a quarter of sales fall through and hundreds of millions of pounds are wasted, we want to increase confidence in the housing chain
  • Informing customers – How to provide better guidance for buyers and sellers, by encouraging them to gather more information in advance so homes are ‘sale ready’
  • Innovation – You can now search for a home online, but the buying process is too slow, costing time and money so we’re looking for innovative digital solutions including making more data available online

If followed through into legislation this will be a popular change to the present unpredictable process where buyers are in a state of anxiety until formal contracts are exchanged.

Not so trivial benefits

Wednesday, October 18th, 2017

According to HMRC you don’t have to pay tax or NIC on a benefit provided to an employee if:

  • it costs you £50 or less to provide (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person)
  • it isn’t cash or a cash voucher
  • it isn’t a reward for their work or performance
  • it isn’t in the terms of their contract

Unfortunately, this generous offering does not apply to directors or other office holders or their family. Where the employer is a private company and the benefit is provided to an individual, who is a director or other office holder of the company (or a member of their family or household), the exemption is capped at a total cost of £300 in the tax year.

Even so, by keeping to the rules this does provide a useful tax-free benefit. For directors who pay income tax at higher rates, the £300 annual benefit is equivalent to a taxable income of £500.

It is worth noting the following points:

  • One of the conditions that needs to be satisfied is that the cost of providing the benefit does not exceed £50. If the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.
  • In determining the cost of the benefit for the purposes of the exemption, as for benefits in kind more generally, use the VAT inclusive amount.
  • 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 1 or more employees can be treated as trivial.
  • Usually it will be obvious what the cost of providing the benefit is. However, on occasions an employer will provide a benefit to a group of employees and it is impracticable to establish what the precise cost is per person. In such cases, when determining whether the monetary limit has been exceeded you should take the average cost per person of providing the benefit.
  • In determining whether the average cost method should be applied, you should apply common sense, bearing in mind the circumstances, in deciding whether it is appropriate.

The following example published by HMRC may be pertinent as we approach the festive season:

Employer D provides each of its employees with a bottle of wine costing £25 at Christmas. However, as an alternative, it provides employees who do not drink alcohol with a £25 gift voucher for a national supermarket chain which they can exchange for an alternative non-alcoholic Christmas gift. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.

Food for thought?

Are you lending money to your company

Tuesday, October 17th, 2017

There is a whole raft of legislation that seeks to penalise directors and shareholders if they borrow money from their company. These regulations include possible benefit in kind charges for the director/shareholder, and additional corporation tax payments of 32.5% for the company.

In effect, the tax system discourages directors from using their company as a private bank account.

But what happens if the reverse situation occurs and a director/shareholder lends money to their company?

If a company requires long-term funding, this “loan” may be secured by the issue of shares in which case the shareholder may be entitled to a dividend. They would also share in the spoils if the company was subsequently sold or wound-up. Essentially, once capital is locked in to a formal shareholding arrangement, it is difficult for the shareholder to recover their investment without undertaking a complicated, and expensive, legal process.

An alternative approach, is to simply lend money to the company. This is best done by agreeing terms and setting up a formal loan agreement between the company and the person lending the funds. It should set out any terms for repayment, security offered by the company, and most important, any interest that will be paid by the company for the use of the funds.

The last point is significant. Many directors of smaller companies simply deposit funds in their company and take it back when it is no longer required, but they may be missing out on a possible tax-free – albeit small – income stream.

For example, depending on other sources of income, the person lending the money could be entitled to the £1,000 or £500 personal savings allowance. A loan of just £16,000, with an agreed interest rate of say 6%, would generate an annual income for the lender of just under £1,000. If the lender was a basic rate tax payer they would be entitled to the £1,000 tax-free allowance, and the company could deduct the interest payment from their taxable profits.

As always, the devil is in the detail. Please contact us for advice if you are considering a loan to your company or formalising any past loans made.

Bookkeeping in the cloud

Friday, October 13th, 2017

Smaller business owners, those with annual turnover below the current VAT registration threshold (£85,000 for 2017-18), will be relieved to know that the impending digitisation of tax by HMRC will not be a requirement when the process starts for business tax from April 2019.

You can register on a voluntary basis, but many smaller businesses may be advised to wait until the perceived benefits of the Making Tax Digital process are clearly demonstrated.

Many one-person businesses keep manual records and some use a spreadsheet to record business transactions. Others may have downloaded accounts software to their PC. In these cases, it would be necessary to take your records with you if you want your advisor to prepare your annual accounts or help you with a bookkeeping problem – where do I record this?

What is bookkeeping in the cloud? And how can it help?

Cloud based accounts software resides on a server that you access via your internet browser. Usually, you pay a small monthly fee for the use of this type of software, and there are significant advantages. They include:

  • The software providers take care of security and backup issues.
  • Your accountant can login and keep an eye on your financials, with your permission. This can vastly improve the speed with which accounts can be prepared and help provided with issues such as cash flow management, profit improvement and solvency.
  • You can access your accounts wherever you can access the internet, this might be your home PC, an iPad or even your phone.
  • There are lots of add-on tools that you can use, for example, the ability to scan receipts with your phone and push the information to your accounts.

Using this type of software is not for everyone, but if you are serious about growing your business having this ability to record and analyse information quickly will be of great benefit.

We can help. If you would like to see a demonstration of the software we recommend, please call for an appointment.

Avoid property fraud

Thursday, October 12th, 2017

Since September 2009, HM Land Registry has prevented 254 fraudulent applications being registered. The most common fraud is when someone pretends to be you and mortgages or even sells your property without your knowledge.

A simple and cost-effective way to counter this activity is to register with the award-winning Property Alert service. This is managed by HM Land Registry. You can:

  • monitor a property already registered with HM Land Registry
  • monitor the property of a relative, you don’t have to own a property to set up an alert
  • you can choose up to 10 properties to monitor.

You can do this online at https://propertyalert.landregistry.gov.uk/

What you need to know about the service:

  • The property you want to monitor must be situated in England or Wales and registered with HM Land Registry.
  • You must create a Property Alert account to use the service
  • You will receive a HM Land Registry email (please check spam inbox) to enable you to verify your email details
  • You must then sign in to your account to add a property
  • Email alerts are sent when official searches and applications are received against a monitored property
  • If you receive an alert about activity that seems suspicious you should take swift action. The alert email will signpost you to who to contact.
  • You don’t have to own a property to set up an alert
  • The same property can be monitored by different people.
  • Property, especially flats/apartments, can be registered with two titles. Blocks of flats are often owned by companies (Freehold), and the person owning the individual flat (Leasehold). When registering for this service please choose Leasehold title for individual flats/apartments.

You can also use the service if you are not online. Call the Property Alert team on 0300 006 0478.

 

Once you have registered your properties, HM Land Registry will send you an email alert each time there is significant activity on the property you are monitoring, such as if a new mortgage is taken out against it.

The alert will tell you the type of activity (such as an application to change the register or a notification that an application may be due), who the applicant is and the date and time it has been received.

Not all alert emails will mean fraudulent activity. If you don’t think the alert email is about any suspicious activity, you don’t need to do anything.

Signing up to Property Alert won’t automatically stop fraud from happening. You will need to decide if the activity on the property is potentially fraudulent and act quickly if so. The alert email will tell you who to contact.

Under 18s and tax

Monday, October 9th, 2017

Children (under 18s) can earn up to £11,500 in the current tax year and pay no income tax. This is the maximum that can be earned during 2017-18 and will include earnings from all sources subject to income tax. The most common are:

  • Income from employment
  • Income from self-employment
  • Bank interest and dividends received – although see comments below.

If you are aged 16 and over you may have to pay National Insurance if earnings with a single employer exceed £157 per week.

Parents are advised that if they gift shares in family companies to their under 18s children and then pay dividends on the gifted shares – with the aim of taking advantage of the annual tax-free dividends allowance and the possible lower rates of tax payable by the children – this strategy is unlikely to work as HMRC would seek to treat the dividends as if they had been received by their parent(s).

Once a child reaches the age of 18, then gifting shares in a family company to divert dividends from parents to the child would be possible. A word of caution however, this area of taxation is littered with anti-avoidance regulation so before transferring or issuing new shares, professional advice should be taken.

Parents also need to be clear that if they employ their under 18s in their business, then they need to pay a commercial rate for the job involved. Paying more than market rates would likely attract the attention of HMRC.

Capital Gains

Children under 18 years are entitled to claim the annual capital gains tax exemption of £11,300 for 2017-18, but only on the chargeable disposals of assets in which they have a legal title.

Junior ISAs

The under 18s can save in a tax-free fund by investing in a Junior ISA. The savings limit in these schemes for 2017-18 is £4,128. Parents can open an account but the money invested belongs to the child.

Children can take charge of the investment from age 16 but cannot withdraw funds until they reach 18 years.

Tax Diary October/November 2017

Tuesday, October 3rd, 2017

1 October 2017 – Due date for Corporation Tax due for the year ended 31 December 2016.

19 October 2017 – PAYE and NIC deductions due for month ended 5 October 2017. (If you pay your tax electronically the due date is 22 October 2017.)

19 October 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2017.

19 October 2017 – CIS tax deducted for the month ended 5 October 2017 is payable by today.

31 October 2017 – Latest date you can file a paper version of your 2017 self-assessment tax return.

1 November 2017 – Due date for Corporation Tax due for the year ended 31 January 2017.

19 November 2017 – PAYE and NIC deductions due for month ended 5 November 2017. (If you pay your tax electronically the due date is 22 November 2017.)

19 November 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2017.

19 November 2017 – CIS tax deducted for the month ended 5 November 2017 is payable by today.

Pay your VAT monthly

Tuesday, October 3rd, 2017

If you find it difficult to manage quarterly payments to HMRC to settle your VAT, why not consider the VAT Annual Accounting Scheme (AAS).

With the AAS you:

  • make nine payments on account towards your annual VAT bill – based on your last returns (or estimated if you’re new to VAT), and
  • submit one VAT Return a year.

When you submit your VAT Return you either:

  • make a final payment – the difference between your advance payments and actual VAT bill, or
  • apply for a refund – if you’ve overpaid your VAT bill.

The scheme wouldn’t suit your business if you regularly reclaim VAT because you’ll only be able to get one refund a year (when you submit the VAT Return). Also, you can only join the scheme if your estimated VAT taxable turnover is £1.35 million or less.

However, smoothing the cash flow impact of VAT payments can be helpful as is submitting one VAT return a year instead of four returns.

The annual return, and any balancing payment, need to be submitted within two months of the annual year end date for VAT purposes.

You can’t use the scheme if:

  • you left the scheme in the last 12 months
  • your business is part of a VAT registered division or group of companies
  • you are not up to date with your VAT Returns or payments
  • you are insolvent

You must leave the scheme if:

  • you’re no longer eligible to be in it
  • your VAT taxable turnover is (or is likely to be) more than £1.6 million at the end of the annual accounting year

Switch to our mobile site