Archive for January, 2016

Wasted opportunity

Thursday, January 28th, 2016

Most of the UK taxes have exemptions and allowances that apply for each tax year. Many are increased in each year in the March budget. Almost none are transferrable from one tax year to another.

If you don’t utilise an allowance, in most cases it is lost forever.

This article lists some of the basic allowances you should check out with your professional advisor before 6 April 2016, when the new tax year begins. There may be ways to utilise an allowance even if there is no obvious way to do this.

All rates quoted are for 2015-16.

  • Income tax personal allowance £10,600
  • Marriage allowance £1,020 – you can transfer part of your personal allowance to your spouse or civil partner as long as their income is between £10,601 and £42,385.
  • ISAs – the maximum you can save is £15,240.
  • Junior NISA – the maximum you can save is £4,080.
  • Pension annual allowance £40,000 – unused allowances in the past three tax years can also be utilised.
  • Capital gains tax annual exempt amount £11,100
  • Inheritance tax annual gifts allowance of £3,000. A previous year’s unused allowance can be claimed in the current year.
  • Inheritance tax gifts on marriage or civil partnership. £5,000 if given to a child; £2,500 given to a grandchild or great-grandchild; £1,000 if given to anyone else.

These are by no means all the opportunities to make sure you utilise tax allowances in 2015-16. Readers are advised to consult with their professional advisors to ensure that they make the most of tax reliefs on offer.

Pensions and tax relief

Tuesday, January 26th, 2016

At present, until 5 April 2016, there are opportunities to pay more into your pension fund and still qualify for tax relief. The maximum, for some tax payers, is doubled in 2015-16 from £40,000 to £80,000. This is due to a technical issue that aligns the pension input period with the tax year.

It is also possible to utilise unused allowances from earlier years in 2015-16.

From 6 April 2016 there are changes for additional rate (45%) tax payers (those with income in excess of £150,000). From this date, a restriction in the annual allowance of £40,000 will apply amounting to £1 for every £2 that adjusted income exceeds £150,000. This downward adjustment will continue until the annual allowance reaches £10,000.

Accordingly, if you pay income tax at 45% and your adjusted income exceeds £210,000 your annual allowance for pension relief purposes will be £10,000.

Most experts agree that the Treasury is also considering a move to a flat rate system where all taxpayers receive tax relief at the same rate. It is expected that the rate will be set somewhere between 20% and 40%: the higher the rate the less benefit to the Treasury so the eventual change will possibly be closer to 20% than 40%. This will incentivise basic rate taxpayers to save more in their pension schemes and be a disincentive to those paying income tax at the additional 40% rate.

 

The phrase “make hay while the sun shines” comes to mind.

 

If you have a private pension scheme you would probably benefit from a discussion with your pensions and tax advisors. The clock is ticking. Any further changes will likely be announced as part of the Budget speech on 16 March…

What is the current rate of capital gains tax

Thursday, January 21st, 2016

If you sell an asset that is subject to CGT the rate of tax you will pay will be 0%, 18% or 28%.

In the current tax year 2015-16, you are allowed to make gains of up to £11,100 tax free. In fact the first £11,100 of all gains are free of tax.

If all your taxable income, including any capital gain in excess of £11,100, is within the basic rate income tax band, (and gains are considered to be the top slice of income for this purpose), then the rate of CGT chargeable is 18%. The amount of the basic rate band for 2015-16 is £31,785.

If, however, any or all of a capital gain falls into the higher rate tax band the rate of CGT payable is 28%.

As gains tend to be made on a sporadic basis, and as the amount of CGT payable is calculated as part of an individual’s self assessment, no payments on account will have been made regarding the CGT due. Accordingly, the CGT payable will need to be paid on or before the 31 January following the end of the relevant tax year. For taxable gains declared for 2015-16 any CGT due will be payable 31 January 2017.

Example

Let’s say that your total taxable income is £20,000 and your total taxable gains are £22,100. From your gains, deduct the tax-free allowance of £11,100. This leaves £11,000 to pay tax on.

You’ve used £20,000 of the basic rate band (£31,785 for the 2015-2016 tax year) against your taxable income, so you have £11,785 left.

You have enough of the basic rate band remaining to cover your gains, so you pay Capital Gains Tax at 18% on £11,000. This means you’ll pay £1,980 in Capital Gains Tax 31 January 2017.

Readers who have made gains that are likely to be taxed in 2015-16 should take advice to estimate any CGT that may be due 31 January 2017. There are numerous reliefs that may apply to the gain you have made.

Gains made by companies are subject to corporation tax, currently 20%.

Right to rent checks

Tuesday, January 19th, 2016

From 1 February 2016 landlords and others involved in the rental of property will need to verify that their tenants have the right to be in the UK.

This is a further level of red tape that will need to be considered from next month. The details published by the Home Office are set out below:

What the new right to rent checks mean for private landlords and tenants. From 1 February 2016, all private landlords in England will have to make right to rent checks. This means checking that tenants have the right to be in the UK.

What this means for landlords

You need to make right to rent checks if you:

  • are a private landlord
  • have a lodger
  • are sub-letting a property
  • are an agent appointed by a landlord to make right to rent checks

Some landlords won’t need to make the checks.

How to make a right to rent check

  1. Check adult tenant(s) will live in the property as their only or main home
  2. Ask tenant(s) for the original document(s) that show they have the right to be in the UK
  3. Check the documents are valid with the tenant present
  4. Make and keep copies of the documents and record the date you made the check

Making a right to rent check with the Home Office

If a tenant has an outstanding immigration application or appeal with the Home Office, you can request a Home Office right to rent check.

What this means for tenants

All tenants with tenancy agreements for privately rented accommodation after 1 February 2016 will be checked by a landlord or agent to make sure they have the right to rent.

Tenants who sub-let their room will also need to make right to rent checks.

Documents tenants can provide

Landlords will need to see certain documents, which prove that the tenant has the right to be in the UK.

Acceptable documents include:

  • UK passport
  • EEA passport or identity card
  • permanent residence card or travel document showing indefinite leave to remain
  • Home Office immigration status document
  • certificate of registration or naturalisation as a British citizen

Landlords who don’t make the checks could be fined up to £3,000 if they rent out a property to someone who’s in the UK illegally.

Right to rent checks have been introduced as part of the government’s ongoing reforms to the immigration system.

A draft code of practice with more information can be downloaded from https://www.gov.uk/government/publications/right-to-rent-landlords-code-of-practice#history

Tax helpline for those affected by severe weather and flooding

Monday, January 18th, 2016

HMRC have set up a helpline (number is 0800 904 7900) and will enable anyone affected to get practical help and advice on a wide range of tax problems they may be facing.

HMRC will also:

  • agree instalment arrangements where taxpayers are unable to pay as a result of the floods
  • agree a practical approach when individuals and businesses have lost vital records in the floods
  • suspend debt collection proceedings for those affected by the floods
  • cancel penalties when the taxpayer has missed statutory deadlines.

Self assessment deadline approaching

Monday, January 18th, 2016

The deadline for sending 2014/15 tax returns to HMRC, and paying any tax owed, is 31 January 2016.

HMRC have reported that:

  • a record breaking 24,546 people submitted their tax return online on New Year’s Eve
  • more than 11,467 people sent off their self assessment tax return on New Year’s Day
  • and in excess of 2,000 taxpayers submitted their tax returns on Christmas Day.

Ruth Owen, Director General of Personal Tax, HMRC, said:

‘As we all enjoy the festive season it’s easy to see how completing your tax return can be forgotten, but the 31 January deadline will be here quicker than we think.’

Please contact us if you need help with your self assessment return.

 

 

 

National Living Wage – employers advised to get ready

Monday, January 18th, 2016

The Department for Business, Innovation and Skills (BIS) is advising employers to begin preparing for the introduction of the National Living Wage (NLW) which comes into effect from 1 April 2016. The rate is £7.20 an hour and applies to employees aged 25 and over.

Businesses are being advised to prepare early for the changes on 1 April 2016, when the new wage will become law, and make sure they follow these 4 simple steps:

  • know the correct rate of pay – £7.20 per hour for staff aged 25 and over
  • find out which staff are eligible for the new rate
  • update the company payroll in time for 1 April 2016
  • communicate the changes to staff as soon as possible.

Business Minister Nick Boles said:

‘The government’s new National Living Wage will provide a direct boost to over two-and-a-half million workers in the UK – rewarding and providing security for working people.’

‘I am urging businesses to get ready now to pay the new £7.20 rate from 1 April 2016. With just under 4 months left, there are some easy steps employers can take to make sure they are ready.’

‘By taking these measures, companies will be able to properly reward their staff and avoid falling foul of the law when it takes effect.’

Please contact us if you would like help with payroll matters.

 

 

 

Dividend Allowance and rates of tax

Monday, January 18th, 2016

Further details have been provided of the new rates of income tax on dividends and the new Dividend Allowance which will apply to dividends received on or after 6 April 2016.

The rates of income tax on dividends will be:

  •    7.5% for dividend income within the basic rate band (ordinary rate)
  •    32.5% for dividend income within the higher rate band (upper rate)
  •    38.1% for dividend income within the additional rate band (additional rate)

There will also be a new Dividend Allowance of £5,000 where the tax rate will be 0% – the dividend nil rate. The Dividend Allowance applies to the first £5,000 of an individual’s taxable dividend income and is in addition to the personal allowance.

Where an individual receives dividend income, from UK or non-UK resident companies, that would otherwise be chargeable at the dividend ordinary, upper or additional rate, and the income is less than or equal to £5,000, the dividend nil rate will apply to all of the dividend income. Where the dividend income is above £5,000, the lowest part of the dividend income will be chargeable at 0%, and anything received above £5,000 is taxed at the rate that would apply to that amount if the dividend nil rate did not exist.

In calculating the tax band into which any dividend income over the £5,000 allowance falls, savings and dividend income are treated as the highest part of an individual’s income. Where an individual has both savings and dividend income, the dividend income is treated as the top slice.

The following example illustrates how the new Dividend Allowance and rates will work:

Patricia has a salary of £40,500 and dividend income of £7,000 in 2016/17. Her total income is therefore £47,500. The total of her personal allowance and basic rate band comes to £43,000. Therefore part of her dividend income would be taxed at the upper rate were it not for the operation of the new dividend nil rate.

So £5,000 will be taxed at 0% and £2,000 will be taxed at the upper rate of 32.5%

If you would like advice on how the new dividend rules will affect you please do get in touch.

 

 

 

Warning, bogus Council Tax refund scams

Tuesday, January 12th, 2016

The Valuation Office Agency has issued the following warning regarding persons or organisations claiming to be able to reduce your council tax band for a fee.

“We are aware of a number of Council Tax refund scams that are currently operating around the country. Someone may telephone you, or appear personally at your door, claiming to be able to reduce your Council Tax bill. Examples of the tactics used by bogus agents to get you to part with your money include:

  • Charging an up-front fee with an added 20% of the reduction should they successfully reduce your council tax band.
  • Insisting you are definitely in the wrong band and are owed back payments on your Council Tax bill, when in fact your band is correct.
  • Saying they are from the local council or VOA and asking for your bank details so they can provide a refund. The fraudsters will then steal money from the bank account.
  • Claiming that the VOA charges you to challenge your Council Tax band; this is not correct, you can do this for free.
  • Claiming that taxpayers must, by law, be represented by an agent to challenge their band, when in fact anyone can do this.
  • Stating that they are on an approved list of agents recognised by the VOA, when in fact the VOA does not keep any such list.

How to avoid falling victim to this scam:

Strategies you could employ:

  • Remember that you can have your band checked free of charge by contacting the Valuation Office Agency.
  • Confirm over the phone with a cold-caller’s head office to check that they are legitimate. Ensure that if the cold-caller used the telephone, your last call ended properly before redialling the number,
  • If you receive a call offering to reduce your band, make sure you are getting a dial-tone before calling the council or the VOA to check their story.
  • Inform the police if you believe that anyone is impersonating staff from your local council or the VOA.
  • Dial 999 if a doorstep cold-caller refuses to leave your home.
  • Contact your local Trading Standards office if you feel you have been the victim of a Council Tax scam.

Whatever you do, DON’T:

  • Give your bank details to anyone.
  • Let anyone into your home without seeing appropriate identification.
  • Feel under pressure from a cold-caller to pay an immediate up-front fee. Take the time you need to think about it.
  • Accept cold callers’ claims about your band without seeing evidence or proof of what they are claiming.
  • Deal with anyone that is reluctant to give you their company address or contact details.

If you feel that your Council Tax band for your home is wrong, then all you have to do is contact the Valuation Office Agency and explain why you think it is incorrect. We will ask you to confirm that the details we hold about your home are correct. We will listen to your views and if, following a review, we agree that your band is wrong, we will change it. Please note that bands can occasionally go up as well as down.”

Review of airside VAT free shopping

Wednesday, January 6th, 2016

A review has been launched by George Osborne to make sure shoppers share in the reduction in VAT in future. At present, it seems that retailers, particularly the larger retailers, are pocking the cash benefits and not passing them on to customers.

Here’s what a recent announcement on this topic confirmed:

The Chancellor, George Osborne, has launched a review into airport sales to make sure VAT savings are being passed on to shoppers… the Chancellor confirmed that the extensive review will make sure that VAT relief in airports is leading to savings for shoppers, as it is intended to do.

Currently, some airside retailers are keeping up to an estimated 50p of every £1 of potential VAT savings instead of passing those savings on to shoppers.

The Chancellor has tasked HMRC to review airside VAT-free shopping to make sure that shoppers share more of the benefit in future. The review is expected to be completed by early 2016 and will also cover all other airside shopping taxes.

Chancellor of the Exchequer George Osborne said:

For families flying out of the UK for a winter-getaway, airports should be the ideal place to pick-up a bargain.

VAT relief at airports is intended to cut prices for those travellers – not be a windfall gain for shops.

But many people could be paying over the odds for their purchases because the Government’s VAT concession isn’t passed on.

This is simply unacceptable. I have launched a review to make sure that this VAT relief benefits those it’s intended for – consumers – whatever time of the year they are travelling.

This review will consider ways to ensure prices reflect VAT savings as well as savings on duty.