Archive for the ‘Business planning’ Category

Holiday entitlement

Wednesday, July 6th, 2016

Now is the time of year when many of us turn our thoughts to holidays and it is important to get holiday entitlement and holiday pay right.

The GOV.UK calculator has recently been updated and can be found by using the following link.

The acas website also includes useful guidance on calculating holiday and holiday pay entitlements.

If you would like help with payroll matters please contact us.

Internet link: GOV.UK calculator

March is here which means your year end is fast approaching….

Tuesday, March 1st, 2016

If your company has a 31 March year end, you only have a few weeks to consider available planning options that may save you tax for the current financial year 2015-16. There are also a number of practical matters that should be considered. They include:

Directors

• Are there any monies owed to the company by directors?
• If the amounts owed exceed £10,000 has interest been charged on any balances owing? If not, beneficial interest will need to be declared on form P11D for 2015-16.

Dividends

• Is the correct paperwork in place: dividend vouchers and board minutes?
• Have dividends been paid out of distributable reserves?
• Have all dividends voted been paid or credited to a loan account?

• Are you prepared for the Dividend Changes coming? Click here to learn more

Salaries

• Were any outstanding salaries or bonuses claimed in the 2014-15 accounts paid within 9 months of the year end? If not, the deduction for corporation tax will be disallowed.
• Have bonuses been considered for 2015-16? Would it be prudent to defer voting bonuses to assist with personal tax planning issues? For example, reducing taxable income for 2015-16 may save tax allowances if the intended bonus increased total income above the critical £100,000 ceiling.

Company car users

• Have steps been taken to recover the full cost of any private fuel paid to company car users during 2015-16? This needs to be completed by 5 April 2016 to avoid possibly significant car fuel benefit charges for the employee and NIC Class 1a contributions for the company.

Pension contributions

• Make sure that any company contributions for 2015-16 clear the company bank account before the yearend.

Deferring significant costs or fixed asset investment

• Consider deferring or bringing forward, significant revenue costs (for example allowable repairs to plant or other equipment).
• Consider deferring or bringing forward, significant capital costs (for example equipment or commercial vehicles).

Losses

• Consider tax strategies to take advantage of past or current year losses.

 

Get In Touch

This list is by no means conclusive, but if there is anything that you’d like to discuss further then do not hesitate to contact us on 01782 566101 if you would like to set-up a planning meeting.

The sooner the better – the clock is ticking…

Autumn Statement Summary

Tuesday, December 1st, 2015

Tax Credit U-Turn

In the Summer Budget the Chancellor proposed cutting the rates and thresholds for working and child tax credits. This would have reduced the income of many low-paid families significantly. The House of Lords blocked the legislation which was to have introduced this change.

The Chancellor has now announced that the rates and thresholds for tax credits will be frozen for 2016/17 at the 2015/16 levels. There is one exception – the disregard of rising income is to be brought in line with the disregard for falling income. Both will be set at £2,500 for 2016/17.

The Government is also proposing to review the rules concerning making single or joint claims for tax credits as this is an area where claimants are easily confused and many mistakes are made.

Property Investors hit with stamp duty and land tax increases

In the Summer Budget the Chancellor announced a restriction on the deductibility of interest from rental income for individual landlords of residential property. This restriction will be phased in from 2017/18 to 2020/21, and it may make letting uneconomic for landlords whose businesses are relatively highly geared. The latest attack on property investors is a proposed 3% increase in Stamp Duty Land Tax.

Landlords who can buy properties to let without a mortgage are not affected by the interest restriction. To discourage such cash-rich individuals from purchasing multiple properties to let or to hold as second homes, particularly in holiday areas like Cornwall, an additional SLDT charge of 3% will be payable by individual purchasers of residential properties worth over £40,000 from 1 April 2016. This supplemental SDLT charge won’t be payable by corporate purchasers (15 properties or more) or by funds such as Real Estate Investment Trust (REITS). The proposed rates are:

Purchase priceSDLT rate,  cumulative
Up to £125,0003%                      £3,750
£125,000 – £250,0005%                    £10,000
£250,000 – £925,0008%                    £64,000
£925,000 – £1,500,00013%                £138,750
£1,500,001 and over15%

SDLT is currently payable within 30 days of the completion of the purchase and the SDLT return must be filed within the same period. The Government is proposing to reduce the payment and filing period to just 14 days from the completion date of the sale, sometime in 2017/18.

Capital Gains Tax changes

CGT is normally payable by individuals by 31 January after the end of the tax year in which the gain arose. This gives the taxpayer between 10 and 22 months from receipt of the proceeds to calculate the tax due and pay it over to HMRC. From 6 April 2015 non-resident taxpayers have had a shorter time frame in which to report the sale of UK residential property and pay the tax due – only 30 days from the completion of the disposal. HMRC now propose to extend the 30 day reporting and CGT payment deadline to all UK taxpayers who make taxable gains when selling residential properties for disposals on or after 6 April 2019.

ISA Limits for 2016/2017 to stay the same

The annual limit for savings in an ISA has been frozen at £15,240 for 2016/17. The Junior ISAs limit has been frozen at £4,080.

Car and Fuel benefit charges

Diesel company cars currently carry a 3% supplement on the percentage of list price used to calculate the taxable benefit. This diesel supplement was to be removed from 6 April 2016, but it will now stay in place until 2020/21.

Employees and directors with company cars, and who also have some or all of their private fuel paid for by their employers, are subject to the fuel benefit charge – determined by multiplying a notional list price by the appropriate percentage for the car, based on its CO2 emissions. The car fuel notional list price will increase from £22,100 to £22,200 with effect from 6 April 2016. For a company car emitting between 111 to 115g CO2 per km, the scale charge would be 20% of £22,200 and this would result in taxable fuel benefit of £4,440 and £1,776 income tax for a 40% taxpayer. At 11p per mile the employee would need to drive 16,145 private miles to make having private fuel paid for worthwhile.

Private use of company vans

Where employees are provided with a company van, the taxable benefit increases from £3,150 to £3,170 for 2016/17 and there will be an additional taxable benefit of £598 where private fuel is provided by their employer.

Note that this charge does not apply to all company van drivers, only those who use the van for private journeys.

Company Car advisory fuel rates

Not part of the Autumn Statement, but you need to know that some of the rates are reduced from 1 December 2015 (previous rates are shown in brackets where there was a change):

engine sizepetroldieselLPG
1,400 cc or less11p7p
1,600 cc or less9p
1,401cc to 2,000cc13p (14p)9p
1,601cc to 2,000cc11p
over 2,000cc20p (21p)13p13p (14p)

National Insurance Rates frozen for 2016/2017

There will be no increase in the rates of national contributions (NICs) for employers, employees nor the Class 4 rate for the self-employed for 2016/17, although the Upper Earnings Limit for employee contributions and Upper Profits Limit for Class 4 contributions will be increased to £43,000, in line with the higher rate tax threshold.

Employees’ contributions will be payable at 12% on earnings between £155 per week and £827 per week and 13.8% employers contributions will start at £156 per week. The employment allowance increases to £3,000 for 2016/17 and will continue to be deductible from employers’ NIC, although it will no longer be available to one man companies.

Apprenticeship levy from 2017

A new apprenticeship levy will be introduced from 6 April 2017. Although all employers will be required to pay this new levy, set at 0.5% of their annual payroll cost, each employer will also have an annual credit equivalent to £15,000 to set against the levy, which means only the largest employers with payrolls of £3 million or more will actually pay the levy. Based on an average salary, this means that only employers with more than around 100 to 120 employees will be affected. It is not clear at this stage as to what is meant by payroll.

Employers who take on apprentices will receive vouchers funded by the apprenticeship levy to set against the cost of those apprentices.

Announcements for businesses

Support for smaller businesses

The Chancellor reported that the UK’s small and medium sized enterprises now employ 15.6 million people, up from 13.7 million in 2010. Over the last two years the number of small businesses employing someone other than the owner has grown by 100,000.

The government understands that small businesses need tailored support. Already, Start-Up Loans have provided £180 million of funding to 33,600 entrepreneurs and in the last Parliament, the government cut the cumulative burden of regulation by over £10 billion.

Other support for smaller businesses that have previously been announced include:

  • From April 2016 the Employment Allowance will rise to £3,000, benefiting over 1 million employers, and helping many businesses take on their first employee.
  • The cancellation of the planned September 2015 fuel duty increase means a small business with a van will have saved £1,357 by the end of 2015-16 compared to plans inherited by the government at the start of the last Parliament.
  • The government will meet its commitment to 75,000 Start-Up Loans by the end of this Parliament.

 

Small business rate relief

English firms can claim the small business rates relief if they only use one property and its rateable value is less than £12,000. This relief was due to end on 31 March 2016.

The Chancellor has announced today that the relief will be extended for a further year. Businesses will now get 100% relief until 31 March 2017 for properties with a rateable value of £6,000 or less. This means you won’t pay business rates on properties with a rateable value of £6,000 or less.

The rate of relief will gradually decrease from 100% to 0% for properties with a rateable value between £6,001 and £12,000.

Car benefit diesel supplement

The 3% supplement added to the benefit in kind charge for drivers of diesel powered company cars is to continue beyond April 2016 and will now cease to apply from April 2021.

Announcements for home owners

London help to buy loan scheme

The present help to buy loan scheme that applies across the UK, provides a 20% contribution from government, requires a 5% deposit from the buyer, with the balance funded by a 75% mortgage.

As house prices are running at much higher levels in London, from early 2016 qualifying buyers in London will still need to find a 5% deposit, but government will contribute up to 40% with the required mortgage funding dropped to 55%.

These government equity loans will now be available until 2021.

Help to buy shared ownership scheme to be extended

Shared ownership allows families in England, on lower incomes, to buy an interest in their home and rent the rest. People can buy between 25% and 75% of a home in this way.

The rent charge won’t be more than 3% of the non-purchased part of the property.

The qualifying income limits are to be changed. Current restrictions will be lifted from April 2016. Anyone who has a household income of less than £80,000 outside London, or less than £90,000 inside London, will be able to participate.

First time buyers’ starter homes discount

200,000 new homes are to be designated Starter Homes and developers will be able to offer them to first time buyers aged under 40 at a 20% discount.

Stamp duty increase for second homes and buy-to-lets

From 1 April 2016, individuals buying a second home or a buy-to-let property will face an extra 3% stamp duty charge above the current stamp duty land tax rates.

Housing Association tenants

Rights to buy to be extended to Housing Association tenants during 2016. Potentially, this could give 1.3 million households the opportunity to buy their own home.

Capital Gains Tax (CGT) on sale of residential property

From 2019, the government intends to require a payment on account, within 30 days of a sale, of any CGT due on the disposal of a residential property.

This will not apply where no CGT is payable, for example if covered by Private Residence Relief.

Announcements for individuals

Tax credits

As announced in the introduction to this statement the intended reduction in tax credits next year has been withdrawn. For 2016-17:

  • The rate at which a claimant’s award is reduced over the income threshold, will remain at 41% of gross income.
  • The income threshold will remain at £6,420.
  • The income threshold for child tax only claimants will remain at £16,105.
  • The income disregard will reduce from £5,000 to £2,500.

As the other elements that make up the payment of tax credits are also unchanged claimants should find their benefits from this source unchanged from April 2016, unless their personal circumstances or income levels have changed.

The Chancellor did comment that tax credits are being phased out in any event and replaced by universal credits.

Basic state pension increase announced

From April 2016, the basic weekly state pension will increase to £119.30, an increase of £3.35.

Part-time rail season tickets and money back…

Two new features to be introduced:

  1. Commuters will be able to buy part-time season tickets on selected routes, and
  2. Commuters will be able to claim money back if a train is more than 15 minutes late.

VAT raised on sales of women’s sanitary products

The UK is unable to zero rate VAT on these products under existing EU rules. Whilst representations are being made the Chancellor is to redirect the VAT revenue raised to selected women’s charities.

George Osborne said:

“300,000 people have signed a petition arguing that no VAT should be charged on sanitary products. We already charge the lowest 5% rate allowable under European law and we’re committed to getting the EU rules changed.

Until that happens, I’m going to use the £15 million a year raised from the Tampon Tax to fund women’s health and support charities. The first £5 million will be distributed between the Eve Appeal, SafeLives, Women’s Aid, and The Haven – and I invite bids from other such good causes.”

Warm home discount scheme extended

The present £140 discount from electricity bills for certain low income households is to be extended and can be claimed from suppliers to 2020-21.

Minor whiplash claims to be curtailed

In an attempt to curtail exaggerated whiplash claims the government is ending the right to claim cash compensation.

More injuries will be able to go to the small claims court as the upper limit is to be increased from £1,000 to £5,000.

This may reduce the cost of insurance for motorists – estimated falls of £40 to £50 a year can be expected.

Summer Budget Summary

Monday, July 13th, 2015

In this post we focus on tax changes announced in the Summer 2015 Budget which outlined the tax plans of the new Conservative government to be introduced over the next 5 years.

 

New “National Living Wage” Tax Credit Changes

The most radical announcement by the Chancellor on 8th July was a significant reduction in the amount the government plans to spend on tax credits and other State benefits. At the same time he announced that there would a new national living wage to be paid by employers, rising to £9 an hour by 2020. This strategy combined with the increase in the personal allowance to £11,000 for 2016/17, and eventually £12,500, means that employees will keep more of what they earn but the tax credits received to top up their income will be significantly reduced.

Employers will need to assess the impact of this change on the profitability of their business and we can help you consider this in more detail as there are other factors such the increase in the employment allowance to £3,000 next year and the planned reductions in the corporation tax rate that may also be relevant to your business.

 

Corporation Tax Rate to be cut to 18%

The current UK corporation tax rate of 20% is the lowest rate in the G20, the 20 major trading nations. This rate continues to apply until 2017 when it has been announced that the rate will be reduced to 19% and then 18% in 2020.

This appears to make trading via a limited company more attractive but note that there are significant changes to the taxation of dividends that take effect from 6 April 2016.

 

Changes to Taxation Dividends

The Chancellor has announced that from 6 April 2016 there will no longer be a notional tax credit associated with dividends received and the following rates will apply after a £5,000 tax free dividend allowance:

Basic rate taxpayers – 7 ½%
Higher rate taxpayers – 32 ½%
Additional rate taxpayers – 38.1%

This will mean that from 2016/17 individuals will be able to receive up to £17,000 tax free:

Personal allowance £11,000
Tax free interest £1,000
Tax free dividends £5,000

 

Impact of Changes to Dividend Taxation on Family Companies

A common strategy that we often advise to family company director/shareholders is that they extract profits from their company by way of dividends instead of paying themselves a salary. This is because there are no national insurance contributions on dividend payments and where the dividend income falls within the basic rate band (up to £42,385 for 2015/16) there is currently no income tax on dividends.

Where both husband and wife are directors and shareholders they will be able to pay themselves a salary of £11,000 each and then dividends of £5,000 each tax free. However the next £27,000 of dividends up to the new £43,000 higher rate threshold would be taxed at 7 ½ % resulting in income tax of £2,025 each being payable for 2016/17. Under the current rules there would be no tax on such dividends up to £42,385.

This measure has been introduced to counter tax-motivated incorporation to level the playing field between trading via a company versus an unincorporated business.

Note that dividends received in excess of the £43,000 higher rate threshold will be taxed at 32.5 % but without a notional credit thus increasing the effective rate from the current 25% to 32.5%.

 

 

Annual Investment Allowance set permanently at £200,000

The annual investment allowance (AIA) was due to be reduced from the current temporary level of £500,000 to just £25,000 from 1 January 2016.

The Chancellor has bowed to pressure from industry to stop tinkering with this allowance for expenditure on plant and machinery and set it at a permanent level so that businesses can plan their capital expenditure. He has decided on £200,000 for the new limit and businesses should consider bringing forward expenditure to before 1 January 2016 to benefit from the current higher allowance.

 

 

Buy to Let Landlords – Interest Relief to be Restricted to Basic Rate

The Chancellor announced that the amount of income tax relief landlords can get on residential property finance costs (such as mortgage interest) will be restricted to the basic rate of tax.

To give landlords time to adjust, the change will be phased in gradually over 4 years:

2017/18 – the deduction will be restricted to 75% of finance costs, with 25% being available as a basic rate tax reduction.

2018/19 – 50% finance costs deduction and 50% given as a basic rate tax reduction

2019/20 – 25% finance costs deduction and 75% given as a basic rate tax reduction

From 2020/21 – all financing costs incurred by a landlord will be given as a basic rate tax reduction.

 

Rent a Room Limited increased to £7,500

The current £4,250 limit for tax free rental income from lodgers is to be increased to £7,500 from 6 April 2016. The relief is only available where individuals rent out a room in their main residence and the allowance includes heating and other services provided to the lodger.

 

Pension Tax Relief Restricted for Higher Earners

As mentioned in the Conservative party manifesto, tax relief for pension contributions is to be restricted for those with income in excess of £150,000 a year. We were told that this is intended to fund the increase in the inheritance allowance for passing on the family home.

The current £40,000 pension annual allowance will be reduced by £1 for every £2 of income in excess of £150,000 down to a minimum of £10,000 at £210,000 of income. So, for example, where an individual has income of £170,000 in 2016/17, the £40,000 annual allowance would be reduced to £30,000.

Note also that, as already announced, the pension lifetime allowance is due to be reduced from £1.25 million to £1 million from 6 April 2016 with transitional protection for those with pension savings in excess of the new limit.

The Chancellor also announced in the July Budget that there would be a further review of pension savings and pensions taxation.

Contact us if you need advice on pension planning and how the new pension rules will impact on you personally.

 

Inheritance Tax and the Family Home

As mentioned last month the Chancellor has confirmed the introduction of an additional inheritance allowance that will be available in addition to the current £325,000 nil rate band which will, when fully phased in, allow a couple to pass on the family home tax free up to a value of £1,000,000. The additional allowance, which will also be transferrable to the surviving spouse, will start at £100,000 for 2017/18. The allowance will then increase to £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21.

Unfortunately the Chancellor also announced that the inheritance tax nil rate band will be frozen at £325,000 until 6 April 2021.

The main residence nil band is subject to a taper where the amount being left is more than £2,000,000 with £1 of the family home allowance being lost for every £2 of estate value over £2,000,000. This clawback is based on the value of the estate before reliefs such as business property relief and agricultural property relief and may result in some additional complications and redrafting of Wills.

If this change is likely to affect your family circumstances you may wish to arrange a meeting with us to consider the impact on your Will and your family’s inheritance tax position.

 

Changes Affecting Non-Domiciled Taxpayers

The Chancellor announced a number of important changes to the tax treatment of individuals who are resident but not domiciled in the UK. Such individuals currently benefit from a number of tax advantages such as exemption from UK inheritance tax (IHT) on assets situated outside the UK and in some cases only being taxed on overseas income and gains if those amounts are remitted to the UK.

From April 2017, IHT will be payable on all UK residential property owned by non-domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure.

From April 2017, individuals who are born in the UK to parents who are domiciled here, will no longer be able to claim non-domicile status whilst they are resident in the UK.

The government will also legislate so that from April 2017 anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for all tax purposes. This is being reduced from the current 17 year deemed domicile rule for IHT.

New additions at Slaters Chartered Accountants

Monday, July 6th, 2015

Slaters Chartered Accountants Exterior Signage
Slaters chartered accountants have appointed new recruit Steve Mastin who joins the practice as a tax assistant. Steve’s appointment follows recent new starter Dave Johnson, who joined the practice as senior accountant, increasing the workforce to a team of 16. Based on London Road in Chesterton, Newcastle-under-Lyme, Slaters is currently planning to expand its existing premises to accommodate the growing team.

Steve’s background is in the legal profession, prior to joining Slaters he worked for six years at Manchester law firm Pannone, where he was responsible for managing the personal tax affairs and investment portfolios of more than 300 high-net-worth individuals.

Practice owner Steve Slater said: “Steve’s addition to Slaters’ tax department greatly increases our capacity to offer additional tax services, both personal and business, but it also means that we can provide our existing clients with more of a personal service.”

Senior accountant Dave is responsible for client management, including accounts preparation, company formations and accounts finalisation meetings. He joins Slaters from Stoke-on-Trent solicitors J S Williamson & Co, where he spent eight years as an account senior.

Steve Slater added: “We’ve already started to build a portfolio of clients for Dave to manage. As a qualified certified accountant and a senior member of the team, he brings a wealth of knowledge and experience to his new role, which will be of great benefit to his clients, making their accounts more efficient and ultimately saving them money.

Slaters Chartered Accountants Team Picture“It’s great to see the business grow and everyone at Slaters is looking forward to the new skills that both Steve and Dave can bring.

“I’m personally pleased with how the company is progressing and I’m excited to see our plans for expansion be put into practice later this year. The extended office space will allow us to take on further members of staff; in particular we are hoping to add to our payroll department and also the accounts team.”

 

Slaters Chartered Accountant specialise in supporting all aspects of owner-managed businesses from sole traders to groups of limited companies. Its range of services includes accounts, management accounts, bookkeeping, payroll, VAT and taxation. The team are dedicated to delivering excellent services through a friendly but professional approach.

Government announces date of Summer Budget

Monday, June 8th, 2015

The Chancellor of the Exchequer George Osborne has announced that there will be a Summer Budget on Wednesday 8 July 2015.

Mr Osborne admitted that it was unusual to deliver two budgets in one year, but said he didn’t want to wait to ‘deliver on the commitments we have made to working people’.

‘It will continue with the balanced plan we have to deal with our debts, invest in our health service and reform welfare to make work pay.’

‘But there will also be a laser-like focus on making our economy more productive so we raise living standards across our country’ he added.

We will keep you informed of the pertinent Budget announcements.

The Conservatives Tax Policies

Tuesday, May 12th, 2015

Now that the outcome of the recent election has been confirmed we thought we’d take this opportunity to recap the Conservatives pledges on tax policies.

As announced in the Budget, the Conservative Party promise to increase the tax-free Personal Allowance to £12,500 and the 40p Income Tax threshold to £50,000.
The Conservatives will pass a new law so that nobody working 30 hours on minimum wage pays Income Tax on what they earn. At £8 an hour that would be £240 a week, or £12,480 a year. They also state that there will be no increases in VAT, National Insurance contributions or Income Tax.

The Manifesto states that they will set a new, significantly higher and permanent level for the

The Conservatives also pledged to take the family home out of tax for all but the richest by increasing the effective Inheritance Tax threshold for married couples and civil partners to £1 million, with a transferable main residence allowance of £175,000 per person in addition to the existing £325,000 nil rate band. This will be paid for by reducing the tax relief on pension contributions for people earning more than £150,000.

Let’s see how all of the above pledges transpire over their coming term in power.

New business start ups

Wednesday, May 6th, 2015

 This posting lists a few (but not necessarily all) of the tax issues you will need to consider when you are planning a new business:

  1. Get you business registered with HMRC, failure to do this can lead to penalties. If you are incorporating your business, HMRC generally pick up your business registration via their links with Companies House. But if you are aiming to be self employed, as a sole trader or in partnership, you will need to notify HMRC within certain time limits of your commencement date.
  2. In similar vein, if you need to employ staff you must register as an employer with HMRC.
  3. If you intend to register for VAT from the date you commence to trade you can still recover input VAT that you have paid on certain setup costs that you expended prior to the official start date.
  4. If you intend to register your business for VAT could you take advantage of one of HMRC’s special VAT schemes? For example:
  1. Cash accounting: pay over the VAT you have collected on your sales when you are paid by your customer, rather than when you issue your sales invoices. There are turnover limits to registration, but this option can have a significant impact on cash flow if the amounts you are owed is more than the amounts you owe.
  2. Flat rate scheme: using this scheme you calculate the amount you owe as a fixed percentage of your turnover each quarter (including VAT). For smaller businesses, who do not have significant VAT inclusive costs, this scheme can produce additional profits and simplify the calculation of your quarterly returns.
  3. Annual accounting: using this scheme you send in one VAT return a year instead of the usual four. Also for nine months of the year you make agreed payments on account to cover VAT due. The scheme is simple to administer, only one set of calculations per annum, and the monthly payments help to spread the cash flow impact of payments made.
  1. Invest in tax planning. The UK’s tax code is one of the most complex in Europe. We recommend that you take tax planning advice before you start in business and again at certain key moments in your trading year. At the very least you should discuss your trading results with your advisor before the end of your first trading year. It always pays to see what planning options are available before you take action to implement change.

If you are about to set-up a new business please call, we offer a no obligation first appointment to prospective new clients.    

Annual Investment Allowance

Thursday, April 30th, 2015

The most generous tax allowance presently available to businesses that encourages direct investment in new plant, equipment and commercial vehicles, is the Annual Investment Allowance (AIA).

If you buy qualifying assets you can write off the expenditure against your taxable profits in the same accounting period. The present limit to this allowance is generous, £500,000.

The AIA is due to reduce from 1 January 2016, and unless Parliament set a new limit from that date, it will revert to a paltry £25,000.

Consequently, business readers who are contemplating an investment in new plant and equipment should take this AIA into account when making a decision to invest.

Entrepreneurs that stand to gain the greater advantage are the self-employed: sole traders, partnerships and LLPs, who may be faced with income charges at the 40% or 45% rates in the tax year 2015-16.

For incorporated businesses and self-employed traders paying tax at the standard rate of income tax, the tax savings will be limited to 20% of qualifying expenditure.

Certainly, we do not advise making investment decisions based solely on any tax advantages that may flow from the investment. Due regard should be taken of the effects on profitability, cash flow and future business growth.

If you would like to discuss how this relief could benefit your business, we would be happy to discuss your options. Planning for large investments is key. Do not make decisions without considering all the effects. Please call if you would like to discuss these matters in more detail.

April – Monthly Round Up

Tuesday, April 7th, 2015

Budget 2015

George Osborne presented the final Budget of this Parliament on Wednesday 18 March 2015.

In his speech the Chancellor reported ‘on a Britain that is growing, creating jobs and paying its way’.

Towards the end of 2014 the government issued many proposed clauses of Finance Bill 2015 together with updates on consultations. Due to the dissolution of Parliament on 30 March some measures have been legislated for in the week commencing 23 March, whilst others will be enacted by a Finance Bill in the next Parliament (depending on the result of the General Election).

The Budget proposed further measures, some of which may only come to fruition if the Conservative Party is in power in the next Parliament.

The articles which follow summarise some of the key changes.

Internet link: GOV.UK Budget

Personal tax rates and allowances

For those born after 5 April 1938 the personal allowance will be increased to £10,600. For those born before 6 April 1938 the personal allowance remains at £10,660.

The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 will continue. The reduction is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200.

Tax bands and rates for 2015/16

The basic rate of tax is currently 20%. The band of income taxable at this rate is being decreased from £31,865 to £31,785 so that the threshold at which the 40% band applies will rise from £41,865 to £42,385 for those who are entitled to the full basic personal allowance.

The additional rate of tax of 45% is payable on taxable income above £150,000.

Dividend income is taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. Where income exceeds £150,000, dividends are taxed at 37.5%.

Starting rate of tax for savings income

From 6 April 2015, the maximum amount of an eligible individual’s savings income that can qualify for the starting rate of tax for savings will be increased from £2,880 to £5,000, and this starting rate will be reduced from 10% to 0%. These rates are not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

This will increase the number of savers who are not required to pay tax on savings income, such as bank or building society interest. Eligible savers can register to receive their interest gross using a form R85.

Internet link: GOV.UK Budget

Proposed personal allowances to come

The Chancellor announced that the personal allowance will be increased to £10,800 in 2016/17 and to £11,000 in 2017/18. The Transferable Tax Allowance will also rise in line with the personal allowance, being 10% of the personal allowance for the year.

The higher rate threshold will rise in line with the personal allowance, taking it to £42,700 in 2016/17 and £43,300 in 2017/18 for those entitled to the full personal allowance.

Personal Savings Allowance

The Chancellor announced that legislation will be introduced in a future Finance Bill to apply a Personal Savings Allowance to income such as bank and building society interest from 6 April 2016.

The Personal Savings Allowance will apply for up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income each year. The Personal Savings Allowance will not be available for additional rate taxpayers.

These changes will have effect from 6 April 2016 and the Personal Savings Allowance will be in addition to the tax advantages currently available to savers from Individual Savings Accounts.

The Personal Savings Allowance will provide basic and higher rate taxpayers with a tax saving of up to £200 each year.

Internet link: GOV.UK News

Help to Buy ISA

The government has announced the introduction of a new type of ISA, the Help to Buy ISA, which will provide a tax free savings account for first time buyers wishing to save for a home.

The scheme will provide a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.

Help to Buy ISAs will be subject to eligibility rules and limits:

  • An individual will only be eligible for one account throughout the lifetime of the scheme and it is only available to first time buyers.
  • Interest received on the account will be tax free.
  • Savings will be limited to a monthly maximum of £200 with an opportunity to deposit an additional £1,000 when the account is first opened.
  • The government will provide a 25% bonus on the total amount saved including interest, capped at a maximum of £3,000 which is tax free.
  • The bonus will be paid when the first home is purchased.
  • The bonus can only be put towards a first home located in the UK with a purchase value of £450,000 or less in London and £250,000 or less in the rest of the UK.
  • The government bonus can be claimed at any time, subject to a minimum bonus amount of £400.
  • The accounts are limited to one per person rather than one per home so those buying together can both receive a bonus.
  • As is currently the case it will only be possible for an individual to subscribe to one cash ISA per year. It will not be possible for an account holder to subscribe to a Help to Buy ISA with one provider and another cash ISA with a different provider.
  • Once an account is opened there is no limit on how long an individual can save into it and no time limit on when they can use their bonus.

The government intends the Help to Buy ISA scheme to be available from autumn 2015 and investors will be able to open a Help to Buy ISA for a period of four years.

Internet link: GOV.UK factsheet

Pension freedoms for those with annuities

The Chancellor has announced a new flexibility for people who have already purchased an annuity. From April 2016, the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity for a capital sum.

Individuals will then have the freedom to take that capital as a lump sum, or place it into drawdown to use the proceeds more gradually.

Income tax at the individual’s marginal rate will be payable in the year of access to the proceeds.

The proposal will not give the annuity holder the right to sell their annuity back to their original provider. The government has begun a consultation on the measures that are needed to establish a market to buy and sell annuities and who should be permitted to purchase the annuity income.

The government recognises that for most people retaining their annuity will be the right choice. However, individuals may want to sell an annuity, for instance to pay off debts or to purchase a more flexible pension income product.

We will keep you informed of developments.

Internet link: GOV.UK News

National Minimum Wage rises

The National Minimum Wage (NMW) is a minimum amount per hour that most workers in the UK are entitled to be paid. NMW rates increases come into effect on 1 October 2015:

From 1 October 2015:

  • the adult rate will increase by 20 pence to £6.70 per hour
  • the rate for 18 to 20 year olds will increase by 17 pence to £5.30 per hour
  • the rate for 16 to 17 year olds will increase by 8 pence to £3.87 per hour
  • the apprentice rate will increase by 57 pence to £3.30 per hour

Penalties

Penalties may be levied on employers where HMRC believe underpayments have occurred and HMRC ‘name and shame’ non-compliant employers.

If you have any queries on the NMW please get in touch.

Internet links: GOV.UK News