Archive for November, 2016

Tax changes announced last week

Tuesday, November 29th, 2016

Last week, Philip Hammond presented his first Autumn Statement to parliament.

In some respects, it was a bit of a damp squid as there were no stand-out revelations. However, there were a few tax changes that are worthy of note:

Pension pot reinvestment

The over 55s have been making good use of George Osborne’s facility to flexibly access their pension savings. Many have also reinvested their pension pots in further pension arrangements and reaped the benefit of additional tax savings. To temper enthusiasm for this strategy the Money Purchase Annual Allowance (MPAA) was introduced. This effectively limited tax relief on reinvested funds to £10,000.

The government now believes this is too generous, and from April 2017 this MPAA will be reduced to £4,000.

Check with your pensions advisor to see how this change may affect your pension opportunities if you are considering, or have recently completed, flexible access to your pension pot(s).

VAT Flat Rate Scheme (FRS)

In order to curb what HMRC sees as aggressive use of the FRS, registered traders with limited costs subject to VAT may have to use a compulsory 16.5% FRS rate in place of their existing FRS rate from April 2017.

In certain circumstances, traders using FRS can make a cash “profit” from using the FRS. In particular, this benefits businesses who have low purchases of goods and overheads subject to VAT – HMRC describes these FRS users as a “limited cost trader”.

Businesses using the FRS will need to see if they are affected as continued use of the special scheme may be cash negative from April 2017.

The end of tax-free perks?

HMRC aim to limit the number of benefits provided by employers from April 2017, that are effective from a tax point of view.

The only benefits that will be exempt from the new reclassification are: pensions, pensions advice, childcare, cycle to work schemes and the use of ultra-low emission cars.

The idea is to curb the use of benefits as a means to sacrifice salary for tax perks, and save tax and National Insurance.

We may be witnessing the end of tax-free use of mobile phones and other benefits, although HMRC have said that benefits in place before April 2017 will be protected for at least one year, and in some cases, for four years.

Autumn Statement wish lists

Wednesday, November 23rd, 2016

Organisations across the UK have been publicising their wish lists for Philip Hammond’s first autumn statement later this week.

Amongst tax practitioners there seems to be a preference for increases in the Inheritance Tax threshold and the merger of income tax and National Insurance.

Northern business leaders are keen to see investment in roads and infrastructure, and incentives to invest and grow job opportunities.

There is a general consensus that we need to step up investment to improve access to super-fast broadband. Manufacturers would also like to see plant and machinery removed from business rate calculations.

Greens are hoping for investment incentives for green energy development and carbon capture.

In order to meet the increasing costs of care for the elderly, there is an expectation that a scheme will be announced to promote long term saving to meet these costs.

According to the pensions industry, less is more. They are hoping that Mr Hammond will leave them alone and resist the temptation to make the pensions’ tax rules ever more complicated.

Underlying all of these concerns is the uncertainty generated by the effects of our withdrawal from the EU. No doubt the Chancellor will aim smooth the transition, and on Wednesday this week we will finally see what number 11 is going to offer.

Buy to let lenders subject to new regulation

Tuesday, November 22nd, 2016

Just when it looked as if things couldn’t get any worse for prospective buy-to-let investors – in particular the gradual withdrawal of higher rate tax relief for finance charges – the Bank of England’s Financial Policy Committee (FPC) will be granted new powers by the government to help it protect the financial system from future risks in the buy-to-let mortgage market.

The FPC is responsible for identifying, monitoring and taking action to remove or reduce systemic risks in the financial system. The new powers of direction will enhance the FPC’s existing macro-prudential toolkit – the tools it has at its disposal to head off potential threats to financial stability should they arise.

From early 2017, the FPC will be able to direct the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to require regulated lenders to place limits on buy-to-let mortgage lending in relation to:

  • loan-to-value (LTV) ratios
  • interest coverage ratios (ICRs)

It follows the FPC recommending that it be given additional powers of direction over both the residential mortgage lending market and the buy-to-let mortgage market in September 2014. The government granted the FPC powers over the residential mortgage lending market in April 2015. The government consulted on the FPC’s recommended powers relating to the buy-to-let market from 17 December 2015 to 11 March 2016.

The consultation noted the positive impact of buy-to-let landlords in the economy, and the role they play in widening and balancing the overall housing market. They provide good quality accommodation for those who cannot at this point afford to buy a home, or who do not wish to commit to home ownership for personal or employment reasons. At the same time, the consultation set out the financial stability risks that buy-to-let lending may pose and how the FPC’s recommended tools would address these risks and ensure long-term economic stability.

The Chancellor of the Exchequer, Philip Hammond, said:

It is crucial that Britain’s independent regulators have the tools they need to keep our financial system as safe as possible.

Expanding the number of tools at the Financial Policy Committee’s disposal will ensure that the buy-to-let sector can continue to make an important contribution to our economy, while allowing the regulator to address any potential risks to financial stability.

The season to be merry

Thursday, November 17th, 2016

If you are involved in planning the staff Christmas party for your firm don’t forget to consider the income tax consequences. Here’s a short reminder of the points you should add to your check list.

The cost of an annual staff party or similar function is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of unincorporated organisations.

Also, as long as the criteria below are followed there will be no taxable benefit charged to employees:

1.      The event must be open to all employees at a particular location.

2.      An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the overall average cost per head of the functions does not exceed £150 p.a. (inc VAT). The guests of staff attending are included in the head count when computing the cost per head attending.

3.      All costs must be taken into account, including the costs of transport paid to and from the event, accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.

4.      VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.

 

If these limits are breached employers can pick up the tax cost by using a PAYE settlement agreement.

Making tax digital – nothing to worry about

Wednesday, November 16th, 2016

Readers will be relieved to note that their professional advisors and other interested organisations, have recently lobbied HMRC to temper their agenda for making tax digital (MTD).

In case you have not heard of MTD, HMRC intend to require businesses with income over a de minimis limit (presently set at £10,000), to upload summary accounting data on a quarterly basis from April 2018. The idea is to abolish the annual tax return and “push” all of the information that is required to work out our tax liability to our MTD account with HMRC.

This will involve all affected businesses (including those that let property) to keep their accounting records electronically, and more particularly, in a form that will allow data to be uploaded to HMRC.

Advisors have lobbied for an increase in the £10,000 limit, and a rethink on the quarterly upload of data.

The potential for lumbering small businesses and landlords with yet more red tape is one concern, as is the virtual enforcement of digitising accounting records – many clients prefer to use spreadsheets or manual record keeping.

A HMRC spokesperson, Jim Harra, published the following rebuttal in the Financial Times on 10 November:

HM Revenue & Customs will not be asking anyone to file accounts five times a year, nor will we be introducing in-year quarterly payments. Businesses will simply send in-year updates to HMRC using information collated automatically by the same software used to record day-to-day transactions. This will help businesses pay the right amount of tax, taking away the need to put things right at a later date.

Businesses already keeping their records digitally should see no additional costs at all. Free software will be there for businesses with the most straightforward affairs, and we are looking at additional assistance with transitional costs.

We fully recognise that this is a significant change for some businesses, which is why we’re introducing it gradually as well as exempting some of our smallest businesses, but at the heart of digital transformation is a simpler, more efficient tax system that frees business people from red tape and form-filling.

Based on past experiences of HMRC’s digitalisation of systems, there may well be delays in the implementation of MTD, but HMRC do seem to be resolute in their intention to scrap the annual tax return and have us upload data in order to quantify annual tax liabilities.

Plans to allow pensioners to sell annuities abandoned

Sunday, November 13th, 2016

The government has announced that it is shelving plans to allow pensioners to sell their annuities for a lump sum.

Many experts had predicted that those who sold their annuities would be likely to get a poor deal and the government has decided not to take forward the plans to introduce a secondary annuities market because the consumer protections required could undermine the market’s development.

It has become clear that creating the conditions to allow a competitive market to emerge could not be balanced with sufficient consumer protections.

The Economic Secretary to the Treasury, Simon Kirby, said:

‘Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.

It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited.

Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do.

The government has always been clear that for the majority of people keeping their annuity incomes will be their best option, estimating that only 5% of people who currently hold an annuity would take advantage of this reform.’

Internet link: GOV.UK news

Tax gap falls to 6.5%

Sunday, November 13th, 2016

The Office for National Statistics has announced that the UK tax gap fell in 2014/15 to its lowest ever level of 6.5%.

The press release confirms that the UK tax gap, the difference between the amount of tax due and the amount collected, is one of the lowest in the world.

HMRC have reduced the tax gap from 8.3% in 2005/06. If the tax gap had remained at the 2005 to 2006 level of 8.3%, it would have grown to £47 billion and the country would have been £11 billion a year poorer.

HMRC believe that the tax gap has fallen, in part, due to digital reporting. In particular Real Time Information reporting for the PAYE system has led to more accurate recording of information on payroll taxes, and the shift to VAT online has helped bring the VAT gap in 2014/15 to its lowest level of 10.3% (£12.7 billion).

The Financial Secretary to the Treasury, Jane Ellison said:

This government is committed to tackling tax evasion and avoidance wherever it occurs.

The UK has one of the lowest tax gaps in the world. By investing £1.8 billion since 2010 in boosting HMRC compliance capabilities, we’ve brought our tax gap down to its lowest ever level. And to make it even easier for people to pay the right tax in the future, we’ve invested £1.3 billion in new digital tools.

More information visit to Gov website:  GOV.UK

HMRC Latest Employee Bulletin

Sunday, November 13th, 2016

The HMRC have published the latest issue of the Employer Bulletin with articles on a variety of topics relevant to employers, including PAYE late filing penalties and Statutory Maternity Leave and Childcare Vouchers so instead of going into each topic in detail we thought we’d share the Bulletin in full.

 

employer-bulletin

 

 

Click here to download the latest Employee Bulletin

 

Any questions

If you have any queries on any of the topics raised then please do not hesitate to contact us to see how they may impact you.

 

 

Have you made your key tax declarations?

Sunday, November 13th, 2016

There are some key declarations that you’ll need to make sure you’ve included.

Have you declared your credit card sales?

Where credit card sales have been omitted from business takings, HMRC are encouraging taxpayers to come forward and make a disclosure of the income that has been omitted to avoid incurring interest and penalties on top of the unpaid tax.

As you may be aware HMRC now receive information from third parties such as banks and credit card companies and will then match that data with business accounts, and will then open detailed enquiries if the figures appear to be inconsistent. They can go back up to 20 years and the more serious cases can lead to criminal prosecution.

If you have other undeclared income or gains that don’t relate to credit card sales, there are other HMRC disclosure facilities to enable you to bring your tax affairs up to date.

Please get in touch with us if you wish to discuss this as full co-operation can help minimise penalties.

Have you declared your overseas income and gains?

Where an individual is resident in the UK, he or she is generally taxable on worldwide income and gains whether or not it is brought back into the UK. Again, there can be significant interest and penalties on top of the unpaid tax if HMRC find out.

HMRC now exchange information involving savings and investments overseas with about 90 other countries and again match that data with individuals’ tax returns.

There is a special HMRC worldwide disclosure facility to allow taxpayers to bring their tax affairs up to date.

Note that there are special rules for individuals who are resident but not domiciled in the UK and those people’s tax status is likely to change from April 2017. Please contact us if you need advice on this matter.

 

Any questions

If you’d like to discuss any taxation queries you may have, contact us today.

Christmas is coming – rules for gifts to staff

Sunday, November 13th, 2016

From 6 April 2016 new rules were introduced to allow employers to provide their directors and employees with certain “trivial” benefits in kind, tax-free.

The new rules were a simplification measure so that certain benefits in kind would not need to be reported to HMRC, as well as being tax free for the employee. There are of course a number of conditions that need to be satisfied to qualify for the exemption.

CONDITIONS FOR THE EXEMPTION TO APPLY:

• the cost of providing the benefit does not exceed £50
• the benefit is not cash or a cash voucher
• the employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme
• the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)

So this exemption will generally apply to small gifts to staff at Christmas or on their birthday.

Prior to this change in the rules, the benefit in kind would have had to be reported on the employee’s P11D form at the end of the year, or alternatively the employer would have dealt with the tax and national insurance under a PAYE settlement agreement. Under such an arrangement a £50 Christmas turkey to a higher rate taxpayer could end up costing the employer nearly £95!
Note that where the employer is a “close” company and the benefit is provided to an individual who is a director or other office holder of the company, the exemption is capped at a total cost of £300 in the tax year.

Any questions

Please feel free to contact us if you are considering taking advantage of this new exemption.