Archive for January, 2017

Tax planning options 2016-17

Tuesday, January 31st, 2017

There are just two months left before the end of the 2016-17 tax year. Those tax payers who have income from business or property sources, and have not yet considered their tax planning options for 2016-17, should do so as soon as possible.

Most tax planning options expire at the end of the tax year. You may lose an opportunity to ensure that you making the most of legislation that is legally available. For example:

  1. The timing of investments that attract capital allowances, new plant, equipment and commercial vehicles.
  2. VAT: are you using the most advantageous method to calculate VAT each quarter?
  3. Is there an opportunity to involve your family in the business?
  4. Should you take bonuses or dividends before or after the tax year end?

The same considerations will also apply to property owners that have rental income. Additionally, buy-to-let landlords who have borrowed heavily to grow their portfolios should be considering the effects of the gradual reduction in tax relief on their mortgage and finance interest from April 2017.

A review can, and probably should, include a realistic estimate of your various income sources for the tax year. For example, this would enable you to:

  1. arrive at a realistic estimate of profits for the current financial year,
  2. make decisions based on this estimate that will benefit your longer term goals,
  3. take time to consider the effects of the current year’s performance on your business investors, your bank, your staff,
  4. it will also give you space to consider the ability of your business to sustain your current and future remuneration and withdrawals from your business.

Another word for planning is forethought. If you don’t plan, you are apt to end up considering the reasons why things have not worked out as you expected – you will stare at the open stable door, and the empty stall, and wonder why you never repaired the lock.

Gifts and Inheritance Tax reliefs and exemptions

Thursday, January 26th, 2017

There’s usually no Inheritance Tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’.

There’s also no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime – as long as they live in the UK permanently.

Other gifts count towards the value of your estate. There may be Inheritance Tax to pay if you’ve given away more than £325,000, but only if you die within 7 years.

Inheritance Tax on gifts is paid by the person who received the gift (the ‘beneficiary’) – not the estate.

What counts as a gift?

A gift can be:

  • anything that has a value, such as money, property, possessions
  • a loss in value when something’s transferred, for example if you sell your house to your child for less than its worth, the difference in value counts as a gift

Exempted gifts

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can carry any unused annual exemption forward to the next year – but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great grandchild, £5,000 for a child)
  • normal gifts out of your income, for example Christmas or birthday presents – you must still be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

You can give as many gifts of up to £250 per person as you want during the tax year as long as you haven’t used another exemption on the same person.

The 7-year rule

If there’s Inheritance Tax to pay, it’s charged at 40% on gifts given in the 3 years before you die.

Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’, however, gifts are not counted towards the value of your estate after 7 years.

New Lifetime ISA available from April 2017

Tuesday, January 24th, 2017

The Lifetime ISA will be available for young adults from April 2017 as the Savings (Government Contributions) Bill receives Royal Assent. The Help to Save scheme to help people on low incomes will be available from 2018.

The Lifetime ISA, available from 6 April 2017, can be accessed to put towards a first home or once the account holder turns 60. Under this savings scheme, adults under 40 years of age will be able to save up to £4,000 a year, with the government giving them a 25% top up on their savings.

Help to Save, which will follow the Lifetime ISA in 2018, is aimed at supporting people on low incomes to build up their savings. It carries a 50% government bonus on savings up to £50 a month for up to four years. Help to Save will be available through NS&I to any adult who is receiving working tax credit, or Universal Credit with minimum household earnings equivalent to 16 hours a week at the National Living Wage.

To encourage people to save as much as they can, the bonus will be based on the highest balance achieved in the account, not the standing balance. Roughly four million people could benefit from this new scheme.

  • Help to Save example – Saving the full £50 a month for two years would mean a bonus of £600 on £1,200 of savings – and continuing to save the maximum amount for a further two years would mean another £600 bonus.
  • Lifetime ISA example – Savers will be able to contribute up to £4,000 every year and receive a bonus of up to £1,000 – they can withdraw the savings including the bonus to put towards a first home, or leave them in the account, getting tax-free investment growth, until they reach 60.
  • for 2017-18 only, savers will be able to transfer Help to Buy: ISA savings into a Lifetime ISA without them counting towards the £4,000 contribution limit

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.

Affected by severe weather or flooding

Tuesday, January 17th, 2017

It is unfortunate that HMRC have designated the 31 January as the filing deadline for self-assessment purposes as we are more likely to be adversely affected by extreme weather events at this time of the year.

There are not many businesses that can continue to trade if their premises, equipment or stock have been affected by severe weather, particularly flooding.

How do you manage your cash flow if your business records are destroyed or if you are unable to use stock or equipment ruined by water damage?

Readers affected will take some comfort from a recent announcement by HMRC. They have set up a helpline where you can get practical advice and help on tax issues you may be experiencing as a direct or indirect result of severe weather. HMRC will also:

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

The helpline is 0800 904 7900. The line is open seven days a week: Monday to Friday 8am to 8pm, and weekends 8am to 4pm. The line will not be open bank holidays.

When do you need to register for self-assessment

Thursday, January 12th, 2017

We are fast approaching the end of the 2015-16 tax return filing period – returns for this year should be filed electronically by 31 January 2017.

If you are not registered for self-assessment you may be wondering if you should consider registering for 2016-17. We have listed below HMRC’s list of who should be submitting a tax return:

  • you were self-employed – you can deduct allowable expenses
  • you got £2,500 or more in untaxed income, for example from renting out a property or savings and investments – contact the helpline if it was less than £2,500
  • your savings or investment income was £10,000 or more before tax
  • you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax
  • you were a company director – unless it was for a non-profit organisation (such as a charity) and you didn’t get any pay or benefits, like a company car
  • your income (or your partner’s) was over £50,000 and one of you claimed Child Benefit
  • you had income from abroad that you needed to pay tax on
  • you lived abroad and had a UK income
  • you got dividends from shares and you’re a higher or additional rate taxpayer – but if you don’t need to send a return for any other reason, contact the helpline instead
  • your income was over £100,000
  • you were a trustee of a trust or registered pension scheme
  • you had a P800 from HMRC saying you didn’t pay enough tax last year – and you didn’t pay what you owe through your tax code or with a voluntary payment

Certain other people may need to send a return (for example religious ministers or Lloyd’s underwriters) – you can check whether you need to. You usually won’t need to send a return if your only income is from your wages or pension.

Once registered, you must file your return even if you have no tax to pay. There are penalties payable if you are required to file a return and do not do so by the required filing deadline. The deadline to file a 2016-17 tax return will be 31 January 2018.

Service Excellence

Wednesday, January 11th, 2017

At Slaters & Co, we take pride in delivering professional friendly accountancy services to all our clients. Through our founding principles of service excellence, integrity and friendliness backed by the best financial systems, we seek to ensure that all our clients have the best possible experience with us.
Each year, we carry out a client satisfaction survey so that we can be aware of how we are doing and where we might improve. We thought you may be interested to see the results from our latest survey:

· 91% of clients are satisfied or very satisfied with the services they receive from Slaters
· Over 90% of clients are very satisfied with our customer service, communication and staff knowledge and professionalism
· 100% of clients would be likely to recommend Slaters

In terms of where we might improve, some clients expressed an interest in electronic post via e mail and also on line book keeping and bank reconciliation. We have listened to this feedback and can confirm that these services are now available to any client who wishes to use them. Please get in touch with us for further details of how to register for these services a no extra cost.

Telephone 01782 566101 or email contact@SlatersAccountants.co.uk

Advisory Fuel Rate for Company Cars

Wednesday, January 11th, 2017

These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 December 2016. Where there has been a change the previous rate is shown in brackets.

More on the new higher VAT Flat Rate Percentage

Wednesday, January 11th, 2017

As covered in the Autumn Statement newsletter a new VAT flat rate of 16.5% applies from 1 April 2017 for “limited cost traders”. This is being introduced as HMRC believe that the current system is being abused by some businesses providing their labour but who have very few costs.

The flat rate scheme was originally introduced as a simplification measure for small business as they merely pay a percentage depending on the type of business to their VAT inclusive turnover. For many businesses this process takes about 5 minutes but in future they may have to add up all the input tax on their expenses and deduct that from the output tax on their sales which will often take a lot longer!

Take for example a training consultant who bills his clients £100,000 a year, £120,000 inclusive of VAT. Using the flat rate scheme he currently pays 12% to HMRC = £14,400. If the VAT inclusive cost of his goods for the year is less than £2,400 (2%) excluding capital expenditure, food, fuel, vehicle costs then he would have to pay £19,800 to HMRC! It would almost certainly be beneficial for him to stop using the flat rate scheme.

If you are currently using the VAT flat rate scheme contact us to discuss whether the changes will apply to you.

Downsizing to a smaller property

Wednesday, January 11th, 2017

One of the features of the new inheritance tax rules for passing on the family home is that the relief is protected even when you downsize to a smaller property.

For example if a married couple currently live In a large house worth £800,000 and downsize to a flat worth £300,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property. They could even sell up completely and move into a rental property and get the inheritance tax relief!

This would very much depend on the timing of such planning and, as mentioned above, the rules are very complicated so contact us to discuss how this can apply in your family circumstances.