Posts Tagged ‘HMRC’

Changes to taxable benefits from April 2017

Tuesday, May 23rd, 2017

The good news, the way in which benefits in kind are taxed – company cars, mobile phones, etc. – is unchanged for the tax year just ended, to 5 April 2017. Consequently, you can expect your tax position regarding any benefits you enjoy to be unchanged for 2016-17; as long as the benefits themselves have not changed.

Unfortunately, from April 2017, the taxman is tightening his grip, and many tax-free benefits will be taxed as if they were part of your salary – this will increase the combined income tax and National Insurance charges in many cases.

A number of benefits are not affected, and will continue to be classified as tax exempt. They are:

  • Cars with emissions between 0 and 75g CO2 per kilometre.
  • Childcare vouchers.
  • Workplace nurseries.
  • Employer pension contributions and pensions advice.
  • Cycles and safety equipment under the cycle to work scheme.
  • Intangible benefits that are not taxed, such as additional annual leave or flexible working hours.
  • Counselling and other outplacement services on termination.
  • Retraining courses.

It is fine for employers to continue providing other benefits after 5 April 2017, but there will no longer be any tax or National Insurance benefit in doing so – in other words, the benefits will be treated as if they were part of salary.

As always, when these changes occur there are transitional arrangements, a delay in the date on which the full tax and National Insurance charges will apply from. Where an arrangement is already in place on 6 April 2017, existing legislation will continue until the sooner of:

  • When the arrangements are varied, renegotiated, revised or renewed (including auto-renewal), and
  • 6 April 2021 for cars, vans, fuel, accommodation or school fees, or
  • 6 April 2018 for any other benefit.

Change in accounts filing for small companies

Wednesday, May 10th, 2017

Small companies are required to file a copy of their end of year accounts with Companies House. In the past, it has been possible to file abbreviated accounts – basically, a few notes and a Balance Sheet with very little data regarding profitability – for smaller companies this has restricted the amount of financial information available in the public domain, and thus, their exposure to competitors.

 

For accounting periods beginning on or after 1 January 2016, the format of accounts that will need to be filed has changed. An announcement posted to the gov.uk website is reproduced below:

If you’re a small company, you have 4 options for filing your accounts:

Micro-entity accounts

You must meet at least 2 of the following:

  • turnover is no more than £632,000
  • balance sheet total is no more than £316,000
  • average number of employees is no more than 10

Abridged accounts

You must meet at least 2 of the following:

  • turnover is no more than £10.2 million
  • balance sheet total is no more than £5.1 million
  • average number of employees is no more than 50

Full accounts with us and HMRC

These joint accounts are suitable for small companies who are audit exempt and need to file full accounts to us and HMRC. You can also file your tax return with HMRC at the same time.

Dormant company accounts

These accounts are suitable for companies limited by shares or by guarantee that have never traded and can be filed using our WebFiling Service.

We will be considering these options in the coming months and making recommendations to clients based on their available options.

Finance Bill reduced

Thursday, May 4th, 2017

In order to ensure that the Finance Bill 2017, introduced March 2017, is passed before the impending general election, huge chunks of the original, published bill have been removed. In the national press this has been referred to as a “wash-up”.

Significant legislation has been side-lined in the process. For example, the following charging provisions have been removed:

  1. Rules to introduce the further digitisation of tax payer records by requiring that certain sectors of the self-employed will need to upload quarterly data to HMRC from April 2018, all unincorporated businesses by April 2019. The so-called, Making Tax Digital processes.
  2. The reduction of the tax-free dividend allowance from £5,000 to £2,000 from April 2018.
  3. Many of the anti-avoidance, counter legislation changes.
  4. The reduction in the pensions money purchase allowance.

The national press is keen to speculate that some or all of these removed clauses will not be reintroduced after the election. Much will depend on who wins the election, but if Mrs May re-enters Downing Street, a second Finance Bill for 2017, to represent the missing clauses, seems likely.

Like so much in politics these days, we will have to wait until the ink has dried on the voting slips, and the count completed, before the re-introduced legislation or new tax changes are considered.

Business owners are to some extent in limbo as the Making Tax changes, although heavily promoted by HMRC, are now without charging provisions in the Taxes Acts. Many businesses, and their advisors, are presently trialling the electronic upload of data to HMRC, so it is difficult to see that this entire raft of legislation will be permanently withdrawn. We will have to wait and see.

Making Tax Digital

Wednesday, March 1st, 2017

We have now seen the response of HMRC to representations made by accountants and other interested parties to their Making Tax Digital (MTD) agenda.

A reminder that MTD will result in the gradual digitisation of small business (including landlords) reporting to HMRC. The present proposals will oblige smaller businesses to upload quarterly data to HMRC from April 2018.

HMRC’s response included a number of relaxations, primarily:

  • Confirmation that data can be uploaded from spreadsheets, and
  • Free software will be made available for smaller concerns.

Unfortunately, HMRC has not changed their approach to other key issues. For example:

  • They have not moved from their original intention to exempt small businesses whose taxable income is lower than £10,000. Representations made suggested that this limit was far too low and would place an unfair compliance cost on micro business owners who may not even be tax payers. There are rumours that HMRC is under pressure from parliamentary committees to lift this limit to at least the VAT registration threshold, currently £83,000. This is one of the “hot topics” that we expect to be resolved in the Chancellor’s announcements next week.
  • HMRC still intends to start MTD upload requirements from April 2018. Although this is still a year ahead, the changes required to accounting software, and presumably HMRC’s computer systems, are formidable. There is pressure on government to ease back their implementation timetable, and perhaps consider a voluntary trial of MTD for a period, in parallel with the existing Self Assessment processes. This would provide some comfort that the intended outcomes are achievable.

MTD will eventually replace Self Assessment. In principle, pushing the majority of the data that is required to calculate tax liability into an individual’s personal tax account with HMRC is probably more efficient than the present Self Assessment regime where data is sent to HMRC by the tax payer and then checked against data uploaded by third parties, banks and employers for example.

All eyes will be turned towards the fine print published on this issue next week. Let’s hope common sense prevails.

Personal tax and National Insurance changes for 2017-18

Wednesday, March 1st, 2017

In no particular order changes already announced include:

  • The personal tax allowance will increase to £11,500 and the higher rate threshold will rise to £45,000.
  • The annual ISA limit will increase to £20,000.
  • Both employers and employees will start paying NICs on weekly earnings above £157.
  • The government will legislate for a new Income Tax exemption and NICs disregard to cover the first £500 worth of pension advice provided to an employee in a tax year. It will allow advice on both pensions and general financial and tax issues relating to pensions.
  • The government will legislate in Finance Bill 2017 to set out a detailed method for calculating the taxable value (cash equivalent) of an asset provided to the employee which is made available for private use. This means that employees will just pay tax for those days on which the asset is available for private use. This will provide clarity for both employees and employers.
  • As announced at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to 2018 to extend the existing IHT exemption for donations to political parties to include donations made to qualifying political parties in the devolved legislatures and parties that have acquired representatives through by-elections. These changes will modernise the IHT exemption and reflect changes to the political landscape in which political parties operate.
  • Legislation will be introduced in Finance Bill 2017 to create 2 new allowances for individuals of £1,000 each, 1 for trading and 1 for property income. The trading allowance will also apply to certain miscellaneous income from providing assets or services.

No doubt there will be further changes announced next week.

Duty free limits

Thursday, February 16th, 2017

While we are members of the EU, it continues to be the case that there are no limits to the alcohol and cigarettes you can bring back to the UK. However, if customs officials believe you are bringing back goods to sell them in the UK they will take an interest. According to HMRC you will be more likely to be questioned if you bring back more than:

Type of goods Amount
Cigarettes 800
Cigars 200
Cigarillos 400
Tobacco 1kg
Beer 110 litres
Wine 90 litres
Spirits 10 litres
Fortified wine (e.g. sherry, port) 20 litres

If you are travelling back from outside the EU, the allowances are:

Alcohol allowance:

How much you can bring depends on the type of drink. You can bring in:

  • beer – 16 litres
  • wine (not sparkling) – 4 litres

You can also bring in either:

  • spirits and other liquors over 22% alcohol – 1 litre
  • fortified wine (e.g. port, sherry), sparkling wine and alcoholic drinks up to 22% alcohol – 2 litres

You can split this last allowance, e.g. you could bring 1 litre of fortified wine and half a litre of spirits (both half of your allowance).

You may have to pay Excise Duty on alcohol you declare.

Tobacco allowance

You can bring in one from the following:

  • 200 cigarettes
  • 100 cigarillos
  • 50 cigars
  • 250g tobacco

You can split this allowance – so you could bring in 100 cigarettes and 25 cigars (both half of your allowance).

You may have to pay Excise Duty on tobacco you declare.

Alcohol and tobacco allowances if you’re under 17

There are no duty-free allowances for tobacco or alcohol if you’re under 17. You can bring alcohol and tobacco to the UK for your own use but you’ll have to pay duty or tax on them when you get to customs.

Allowance for other goods

You can bring in other goods worth up to £390 (or up to £270 if you arrive by private plane or boat).

If a single item’s worth more than your allowance you pay any duty or tax on its full value, not just the value above the allowance.

All is fair, unless you expect HMRC to minimise your tax bill

Tuesday, February 14th, 2017

Although HMRC refer to taxpayers as customers, and thereby suggest a degree of customer service, in the real world this rarely extends to offering “customers” pro-active tax advice.

Historically, tax collectors are trained to maximise the assessment and collection of tax. Consequently, tax payers should be wary, they should check the tax statements that are delivered in brown envelopes and make sure that they have taken advantage of reliefs and allowances available to them.

Take for instance the personal tax allowance. Not much to go wrong here you might think. For 2016-17 your personal tax allowance amounts to £11,000 and this amount will be deducted from your taxable income before any calculation of taxes due is made; or will it?

Three planning issues for 2016-17 come to mind:

  1. Will your total income be under £11,000? Consider Peter and Jane. They are married, Peter’s income is below £11,000 and Jane is a basic rate, not a higher rate taxpayer. Peter could transfer up to £1,100 of any unused personal allowance to Jane. This would save Jane £220. HMRC are aware of Peter and Jane’s earnings and yet they require the couple to make an election and claim the relief. Which is fine if Peter and Jane are aware of the relief. HMRC are apparently surprised that a large number of couples who could claim the relief do not.
  2. If you are in business, there is a very generous allowance you can claim if you buy qualifying commercial vehicles or equipment. Since 1 January 2016, you can deduct the full costs up to £200,000. If you are self-employed there is a danger that claims such as this Annual Investment Allowance (AIA) could reduce your taxable income below the £11,000 personal allowance threshold. If this occurs, any unused personal allowance is lost – it cannot be carried forwards and claimed in the next tax year. What you could do is restrict your claim for the AIA such that your taxable income equals £11,000 and your personal allowance would be fully utilised. Any balance of capital expenditure could be carried forward and used in future years.
  3. If your income exceeds £100,000 you will lose your entitlement to claim the personal allowance at the rate of £1 lost for every £2 your income exceeds £100,000. This means that when your income for 2016-17 exceeds £122,000 you can no longer claim the £11,000 deduction. Readers who have an interest in numbers will be interested to know that income is taxed at a marginal rate of 60% in this £100,000 to £122,000 band. Tax payers heading for this outcome can take steps to reduce their earnings below the £100,000 trigger point, but HMRC will not advise you on the steps you could take.

The UK has one of the most complex tax codes and many tax payers run the risk of paying too much tax just because they are not aware of the allowances and strategies they could employ to minimise their expose to taxation. We are not suggesting any form of avoidance activity, we are only suggesting that you claim your full entitlement to allowances and reliefs that are available to you. Of course, we would be delighted to be part of the process – call any time for a consultation.

Wholly and exclusively

Thursday, February 9th, 2017

The title of this posting describes an important concept when considering claims for expenditure to reduce our tax bills.

By and large, HMRC will accept claims that have been expended wholly and exclusively for the purposes of running a business or fulfilling your employment obligations. But what does this phrase actually mean?

Certainly, if you are making claims based on your employment: subscriptions to professional bodies, travel costs, the cost of uniforms, all of which you have paid for, may qualify for a claim. Pound for pound these expenses will reduce your income subject to tax and your tax liabilities.

Obviously, if your employer or business has met the costs, you cannot make a further claim.

There are certain categories of expenditure that can be recovered in this way. For the self-employed they include:

  • office costs, e.g. stationery or phone bills
  • travel costs, e.g. fuel, parking, train or bus fares
  • clothing expenses, e.g. uniforms
  • staff costs, e.g. salaries or subcontractor costs
  • things you buy to sell on, e.g. stock or raw materials
  • financial costs, e.g. insurance or bank charges
  • costs of your business premises, e.g. heating, lighting, business rates
  • advertising or marketing, e.g. website costs

The test you need to apply is always: is the expenditure incurred wholly and exclusively for the purpose of your trade or employment.

HMRC recently published a list of the more outlandish claims they received as part of the 2014-15 tax returns. They included:

  1. Holiday flights to the Caribbean
  2. Luxury watches as Christmas gifts for staff – from a company with no employees
  3. International flights for dental treatment ahead of business meetings
  4. Pet food for a Shih Tzu ‘guard dog’
  5. Armani jeans as protective clothing for painter and decorator
  6. Cost of regular Friday night ‘bonding sessions’ – running into thousands of pounds.
  7. Underwear – for personal use
  8. A garden shed for private use – plus the costs of the space it takes up in the garden
  9. Betting slips
  10. Caravan rental for the Easter weekend.

Readers who are uncertain if the costs they have incurred can be included in their business accounts, or claimed by employees on their tax return, should call for advice. Although the wholly and exclusively rule applies in most cases, there are situations where the “exclusivity” part can be more of a grey area, for example where there is business and a private use element.

A step closer to Making Tax Digital

Wednesday, February 8th, 2017

We have advised readers in previous postings that HMRC seem to be intent on digitising the upload of small business accounting data from April 2018. From this date, affected self-employed traders (including landlords) will be required to upload details of their trading activities on a quarterly basis.

On the 31 January, HMRC responded to the consultation with interested parties regarding the way in which the MTD process will work in practice.

Many of the initial features remain unchanged:

  • The self-employed will be required to file from April 2018.
  • The lower income limit above which filing will be compulsory remains at £10,000 – although we are likely to see an increase in this figure when the legislation enacting MTD is published in the Finance Bill March 2017.
  • Traders will need to keep their accounting records in a format that can be uploaded to HMRC. Hopefully, spreadsheet templates and other small business software will be available, but traders will need to ensure that they are organised and ready to comply by the April 2018 start date.

Once the MTD process is activated, the need to file a self-assessment tax return each year will be discontinued. It will be replaced by the four quarterly uploads and an annual final check to ensure that all relevant reliefs and adjustments to accounts data are in place.

This is a huge change in the reporting of information to HMRC. As the April 2018 date approaches we will be working with clients to ensure they are fit for purpose. More than 600 accounting software providers are working with HMRC to ensure that their software will accommodate the uploads to HMRC.

Clients who are concerned by this change and want advice on the implications for their business are welcome to call for an update. Please bear in mind, that until we see formal legislation on this topic later in the year the precise details of who is affected, and how the upload process will work in practice, are still uncertain. What seems to the case, is that we have moved a step closer to Making Tax Digital.

Reminders of significant tax changes from April 2017

Thursday, January 19th, 2017

The first thing you can count on, is that taxation is here to stay. The second thing you can count on is that the tax rules will continue to change to meet the changing needs of our government to recover funds from the economy and restart the cycle of public expenditure that maintain services and oil the wheels of government.

Apart from increases in the basic personal tax allowance – from £11,000 to £11,500 – there are a number of key changes in tax legislation that it may be prudent to revisit before the start of the new tax year, from 6 April 2017. The following list is not exhaustive, but it does include a few of the significant changes:

  • Employees that want to reimburse their employers for the value of certain benefits, will need to make good their payments by the 6 July following the end of the relevant tax year.
  • From 6 April 2017, non-UK domiciled individuals resident in the UK in at least 15 of the past 20 years will be considered UK domiciled for income tax, capital gains tax and inheritance tax purposes. As part of the introduction of this change, non-doms will be able to revalue assets held outside the UK, for CGT purposes, as if they had been acquired on 6 April 2017.
  • The VAT Flat Rate Scheme is undergoing a significant change from 6 April 2017. Essentially, traders registered under the scheme, who have low levels of cost on which they have paid VAT, may be required to use a fixed Flat Rate Scheme rate of 16.5%. For many traders this may make continued registration under the scheme less attractive. Readers who already use this scheme should take professional advice to see if they are affected.
  • From 6 April 2017, landlords who are paying significant loan or mortgage interest payments will start to lose higher rate tax relief on these payments. The full impact of this change will not be completed for four years, but all landlords who have borrowed heavily to expand their rental portfolio should take advice; firstly, to see how they will be affected, and secondly, to see what strategies can be employed to offset the effects of higher taxation and reductions in available cash flow from their property businesses.

Readers who have concerns about any of the issues raised are welcome to call for further advice.

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