Headed up by our chartered accountants, Jane Frith and James Foxton, Townend English is a growing accountancy practice established in the centre of Pocklington. Jo McCorrie and Abbi Tinson complete the team with their roles in bookkeeping/payroll and practice administration respectively.
James Foxton FCA
Following a brief stint on the family farm, James decided a career in accountancy was the best option for him. After qualifying as a Chartered Accountant with PricewaterhouseCoopers in 2003, James held a number of senior roles in large multi-national organisations as well as the public sector. As a director at Townend English, James now enjoys being part of the local business community and supporting small and medium sized enterprises fulfil their ambitions. Outside of work, he is kept on his toes by his two boys Alfie and Jack, and enjoys the seemingly polar opposites of fishing and fast cars.
Jane Frith BSc PhD CA
After a former life as a geologist, Jane qualified as a Chartered Accountant with PricewaterhouseCoopers in 2005. Jane moved on from PwC to become the financial accountant for GDF Suez, a leading UK energy provider in the commercial sector. After setting up her own accountancy practice in 2012, she now enjoys life as a director at Townend English and the joys and challenges of working with a range of diverse and interesting businesses. Outside of Townend English, she’s mainly kept busy by the demands of her twin boys, but loves to play the piano and climb the odd mountain!
After spending 8 years living in Australia, Jo returned to the UK. While living in Australia she achieved a degree in law (Hons) and spent 3 years working as a Lawyer in Brisbane. Jo has over 25 years of experience working within office and accounting environments and is currently doing further studying in bookkeeping. Jo supports her fellow team members and the practice with accounts preparation, bookkeeping, Vat, payroll and pensions. Outside work Jo has two grown up children so now enjoys her free time and loves to travel.
Abbi joined Townend English to provide part-time administrative assistance to the accounting team. However, her role has developed to include a wider scope of tasks such as company secretarial and practice management. Prior to joining Townend English Abbi spent over 10 years working in the building industry, progressing up to Assistant Branch Manager level. The wealth of knowledge gained from being responsible for the day to day running of a busy branch is proving invaluable as Townend English continues to expand. Abbi is kept busy outside of work by her young daughter, enjoys keeping fit, and can often be spotted roaming around our local countryside when the weather permits!
Welcome to our monthly newswire. We hope you find this newsletter useful. Please contact us if you would like to discuss any matters further. For a printer friendly version click Tax-Newsletter-UK-November-2017 (1).
CHANGES TO PENSION TAX RELIEF IN THE BUDGET?
There is again speculation about further restrictions to tax relief on pensions in the Chancellor’s Autumn Budget. With the Chancellor looking to increase tax revenues without increasing tax rates, a raid on pension savings is an easy target as the cost of pension tax relief is estimated to be in excess of £35 billion a year.
Currently individuals can generally obtain tax relief at their marginal tax rate on up to £40,000 each tax year. Thus, for a higher rate taxpayer, a £10,000 gross pension investment costs only £6,000 after tax relief. Consider increasing your pension savings just in case?
FURNISHED HOLIDAY LETTING BUSINESS IS NOT A BUSINESS FOR IHT RELIEF
A furnished holiday letting business is treated as a trade for most tax purposes. For example, capital allowances are available on furniture, and CGT entrepreneurs' relief is available on disposal of the business.
However, a recent tax case has determined that a holiday letting business in Cornwall did not qualify for inheritance tax business property relief.
Despite the provision of a range of services to customers, the judge agreed with HMRC that the business was wholly or mainly that
of making or holding of investments and as such ineligible for any relief from inheritance tax.
Note that the restricted deduction for interest that started to apply to buy-to-let businesses from 6 April 2017 does not apply to furnished holiday lets.
There are special rules for a rental business to qualify as furnished holiday lettings, in particular the property must be available for letting for 210 days a year, and actually let for 105 days.
NEW RESTRICTION FOR THOSE IN PENSION DRAWDOWN
One of the measures affecting pensions announced in the Spring 2017 Budget that was not included in the first Finance Act, concerns a new £4,000 pension input limit for those who are drawing income from their money purchase pension fund.
The new flexible drawdown rules introduced from 6 April 2015 has allowed those with money purchase schemes such as Self Invested Personal Pension schemes (SIPPs) to draw as much or as little as they wish each year. Other than the 25% tax free lump sum, the amounts withdrawn are taxed as income on the Individual. The new £4,000 (previously £10,000) annual limit in the latest Finance Bill is intended to be an anti-avoidance measure to deter pension "recycling" where the amounts withdrawn are reinvested in the pension scheme to obtain further tax relief.
Please contact us if you wish to discuss any aspects of pension planning.
AND INCREASED CONTRIBUTIONS FOR WORKPLACE PENSIONS IN 2018
Auto-enrolment of staff in workplace pension schemes now applies to even the smallest of employers, although there are exclusions. The current minimum contributions are 1% from the employer and 1% from the employee but these limits are scheduled to increase to 2% and 3% respectively from 6 April 2018.
The contributions will then increase to 3% from the employer and 5% from the employee from 6 April 2019. Employees will have a further opportunity to opt out of auto-enrolment.
HMRC HAVE UPDATED THEIR GUIDANCE ON SALARY SACRIFICE SCHEMES
The rules for salary sacrifice arrangements changed with effect from 6 April 2017 and HMRC have updated their guidance for employers. Apart from 5 exceptions the amount assessed as employment income for new salary sacrifice arrangements is now the greater of the salary foregone and the taxable benefit as set out in the tax legislation.
Fortunately, the two most common arrangements are unaffected by the changes - childcare vouchers and pension contributions. The HMRC guidance reminds us of the importance of amending the employee's contractual salary before the next salary payment. Remember also that the employee's salary cannot be reduced below National Minimum Wage.
HMRC TACKLES EMPLOYERS WHO USED EBTs SCHEMES
With tax planning schemes as with many things in life, what looks too good to be true generally turns out to be so. This seems to be true for tax avoidance schemes using Employee Benefit Trusts (EBTs) as during the summer HMRC won a landmark case at the Supreme Court against Glasgow Rangers Football Club concerning the payment of players and other employees via EBTs. Rangers had argued that the payments were not liable to PAYE and national insurance. The court has agreed with HMRC that the payments should have been treated as remuneration.
The government have been trying to block such schemes for many years with anti-avoidance legislation but various alternative planning strategies have been devised to sidestep the anti-avoidance rules.
As a consequence of the Rangers Supreme Court decision, HMRC are now pursuing employers who have used similar payment arrangements, including Employer Funded Retirement Benefit Schemes (EFURBS), and in appropriate cases will be issuing follower notices and accelerated payment notices to collect the PAYE, NICs, interest and penalties.
MANY WILL NOT GET A SELF ASSESSMENT TAX RETURN NEXT YEAR
The government are gradually phasing out the self-assessment tax return and replacing it with an individual tax account pre-populated with data supplied by employers, pension companies and State Pension figures from DWP.
With effect from April 2017, HMRC will have the power to assess income tax or CGT liabilities using information they already hold. This new system will be called “Simple Assessment” and will initially apply to two groups:
Firstly, new state pensioners with income more than the personal tax allowance in the tax year 2016/17.
Secondly, PAYE customers, who have underpaid tax and who cannot have that tax collected through their tax code.
Taxpayers will have 60 days in which to challenge incorrect information in a simple assessment.
We have concerns about the accuracy of this data so please contact us if you drop out of self-assessment and would like us to check the HMRC figures in future.
DIARY OF MAIN TAX EVENTS
NOVEMBER / DECEMBER 20171 November - Corporation tax for year to 31/01/17, unless quarterly instalments apply
19 November - PAYE & NIC deductions, and CIS return and tax, for month to 5/11/17(due 22 December if you pay electronically)
1 December - Corporation tax for year to 28/02/17, unless quarterly instalments apply
19 December - PAYE & NIC deductions, and CIS return and tax, for month to 5/12/17(due 22 December if you pay electronically)
30 December - Deadline for filing 2016/17 tax return online in order to request that HMRC collect outstanding tax via the 2017/18 PAYE code
3rd October 20173rd October 2017
Welcome to our monthly newswire. We hope you find this newsletter useful. Please contact us if you would like to discuss any matters further. For a printer friendly version click Tax-Newsletter-UK-October-2017 (1)ARE SPOUSES WAGES FULLY DEDUCTIBLE?
HMRC have recently won a tax tribunal case where they were seeking to challenge the deduction for a wife’s wages in arriving at the profits of her husband’s business. The judge agreed with HMRC that the amount allowed as a deduction should be limited based on the hours spent and appropriate rate for the work done.
The general principle here is that the expense must be incurred wholly and exclusively for the purpose of the trade. Traditionally when the personal allowance was fairly low (e.g. £6,475 in 2010) it was quite easy to justify the wages paid to the spouse at around that level. However, there have been significant increases in the personal allowance in recent years to £11,500 in the current tax year and it is important that wages paid to the spouse can be justified.
WHEN IS A COMPANY VAN NOT A VAN?
The P11d benefits on company vans are generally much lower than company cars and where private use of the van is merely incidental to its business use by the employee, then there is no taxable benefit at all. But when is a van not a van?
In a recent tax tribunal case, the judge agreed that a VW Kombi van that had been converted so that it had two rows of seats for passengers was a company car not a van.
Under the employee benefit rules, a van is a vehicle where its primary construction is for the conveyance of goods or burden. Kombi vans and those similar have not previously been thought to fall into this category due to them being designed to carry both goods and people. Historically, HMRC has offered a concession from 2002/2003 onwards for vehicles of a very similar construction, double cab pickups (including both uncovered and covered models), if the payload capacity of the pickup exceeds a metric tonne. HMRC accepts that these vehicles can be treated as a van for benefit in kind purposes.
The judge decided that the primary construction of the kombi van was not for the conveyance of goods alone but rather that its purpose was for the conveyance of both goods and people equally. This means that the Kombi did not meet the requirement to be considered to be a van and therefore for benefit in kind purposes it was a car. The same judge however decided that Vauxhall Vivaro vans converted so that they had two rows of seats were vans!
Similar rules apply for VAT purposes so contact us first if you want to check the correct tax treatment of the vehicle you are planning to buy.
MUST OWN 5% OF ORDINARY SHARES TO QUALIFY FOR CGT ENTREPRENEURS RELIEF
In order for a shareholder to qualify for CGT entrepreneurs relief on the disposal of their shares, they must be an officer or employee of the company (or group) and hold 5% or more of the company's ordinary share capital and voting rights for 12 months prior to the disposal. The company must also be a trading company or the holding company of a trading group throughout the same 12 month period.
In a recent tax case, the judge agreed with HMRC that in determining whether or not the shareholders held the required 5% of the ordinary share capital, all of the company's shares should be considered except those with a fixed rate of dividend (preference shares). A lower court had previously decided that shares with no entitlement to dividends and voting rights could be disregarded.
ADVISORY FUEL RATE FOR COMPANY CARS
These are the suggested reimbursement rates for employees' private mileage using their company car from 1 September 2017.
Where there has been a change the previous rate is shown in brackets.
1400cc or less
1600cc or less
1401cc to 2000cc
1601cc to 2000cc
RECLAIMING FOREIGN VAT ON EXPENSES
If your business has suffered VAT on expenses incurred in another EU country, for example overseas hotel and restaurant bills, then it is possible to reclaim the foreign VAT.
The foreign VAT must not however be reclaimed on the UK VAT return but by using HMRC 's VAT online services system.
The foreign VAT refund claims can be made either quarterly or annually but there is a de-minimis amount that may be reclaimed quarterly.
The conditions for being able to reclaim the foreign VAT are that the business must:
• be VAT registered in the UK
• not be registered for VAT in the EU country nor have a place of business there
• not make supplies of goods or services in that EU country, except for transport services
We can assist with your refund claims if this applies to your business.
THERE MAY BE MORE TAX TO PAY ON YOUR DIVIDENDS IN JANUARY
The rules for taxing dividends changed radically from 6 April 2016 with the removal of the 10% notional tax credit and the introduction of new rates of tax on dividends. For many taxpayers there will be more tax to pay on those dividends on 31 January 2018.
Up until 5 April 2016, the 10% dividend credit meant that basic rate taxpayers paid no tax at all on dividend income as the 10% tax on dividends was covered by the 10% tax credit. For example, where a basic rate taxpayer received £9,000 dividends, this would be treated as £10,000 gross income but the 10% tax of £1,000 would be covered by the £1,000 tax credit. From 6 April 2016 the same £9,000 dividend would now be taxed at 7.5% once the £5,000 dividend allowance has been used making £300 tax due on 31 January.
Where dividends are received by a higher rate taxpayer, the loss of the 10% tax credit means that the full 32.5% rate applies to dividends in excess of the £5,000 allowance.
Thus, if a higher rate taxpayer received £30,000 of dividends, £25,000 of those dividends would be taxed at 32.5% meaning £8,125 due on 31 January 2018. Last year the tax on the same dividends would have been £7,500 after deducting tax credits.
If you can let us have all of your tax documents as soon as possible, we can let you know how much tax you need to pay next January so that you can set aside sufficient funds.
DIARY OF MAIN TAX EVENTS
OCTOBER / NOVEMBER 20171 October - Corporation tax for year to 31/12/16, unless quarterly instalments apply
5 October - Deadline for notifying HMRC of chargeability for 2016/17 if not within Self-Assessment and receive income or gains on which tax is due
19 October - PAYE & NIC deductions, and CIS return and tax, for month to 5/10/17(due 22 October if you pay electronically)
1 November - Corporation tax for year to 31/01/17, unless quarterly instalments apply
19 November - PAYE & NIC deductions, and CIS return and tax, for month to 5/11/17(due 22 November if you pay electronically)
7th September 20177th September 2017
Welcome to our monthly newswire. We hope you find this newsletter useful. Please contact us if you would like to discuss any matters further. For a printer friendly version click Tax-Newsletter-UK-September-2017 (2)NEW COMPANY LOSS RULES TO GO AHEAD
The Finance Bill due to be debated in early September will finally include the new rules for the set off of company losses that were originally announced in March 2016.
As a result of the first Finance Act being rushed through due to the snap General Election the legislation to introduce the new company loss relief rules were dropped. This led to considerable uncertainty as to the start date of the new rules but it has now been confirmed that the new rules will apply from 1 April 2017 after all.
So if your company diversifies into a new business activity the losses of one activity incurred after 1 April 2017 can be carried forward and set off against future profits of the new business. Previously such losses would have been ring fenced against future profits of the activity that incurred the losses.
There are new restrictions for companies and groups with profits in excess of £5 million and also changes to the set off of losses within a group.
We can of course assist you in ensuring that relief for losses is obtained in the most beneficial way.
IS YOUR COMPANY CARRYING OUT RESEARCH AND DEVELOPMENT?
Many companies are still missing out on valuable tax breaks for expenditure on research and development (R&D). Revenue and Customs (HMRC) have recently updated their guidance on claiming R&D tax credit relief and have reminded companies that it is possible to obtain advance assurance that the R&D activities are eligible to make a claim.
If you are a Small or Medium Enterprise (SME), broadly with fewer than 500 full-time employees and either an annual turnover below 100 million euros or a balance sheet total under 86 million euros, then the tax relief is 230% of the amount spent on R&D. So if your company spent £100,000 on R&D then the profits would be reduced by a further £130,000.
In many cases this enhanced deduction will create or increase a loss which can be set off against other profits or carried forward against future profits. However it is also possible to obtain “cash back” from HMRC at the rate of 14.5%. So if the £130,000 tax relief above has the effect of turning a £50,000 profit into an £80,000 loss then HMRC would refund £11,600 in tax to the company rather than have to wait until future profits are made.
In order to make a claim for R&D tax relief the R&D project must seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty. Contact us if you think that some of the work being carried out by your company’s technical staff might qualify as R&D and we can help you make a claim for this generous tax relief.
REPORTING VAT ONLINE - AREN’T WE DOING THAT ALREADY?
Last month we reported that the government had announced the delay of Making Tax Digital for Business (MTDfB) to 2020 at the earliest but that quarterly VAT reporting, using the new system will be mandatory from 2019.
Surely we are doing that already you might say. However, currently businesses are only required to complete 9 boxes when they submit their quarterly, monthly, or annual VAT return online. Under the latest proposal for MTDfB the business will be required to submit the detailed transaction data supporting the output tax and input tax figures on a quarterly basis. This will therefore require those businesses affected to keep their accounting records digitally from the 2019 start date.
These changes won’t affect business that are not VAT registered such as buy to let landlords for whom MTDfB will not apply until 2020 at the earliest,and even then only if their gross rental income exceeds the VAT registration threshold.
REPORTING EXPENSES AND BENEFITS PROVIDED TO EMPLOYEES
HMRC have recently updated their toolkit dealing with the reporting of expenses and benefits provided to employees and directors in the light of significant recent changes in this area.
HMRC toolkits are designed to help minimise the risk of errors in returns and computations and their use, although voluntary, will be taken into consideration in determining whether or not reasonable care has been taken in the completion of a return such as a form P11d reporting expenses and benefits.
Reminder: It is no longer necessary to obtain a reporting dispensation from HMRC for certain reimbursed expenses such as travelling and subsistence. But it is still important for the employer to keep records to demonstrate that such expenses have been reviewed to ensure that they have been incurred wholly, exclusively and necessarily in the performance of the employee’s duties. The toolkit reminds us to keep a record of the date and details of the expenses and benefits provided with associated documentation and also a record of any contributions made by a director or employee towards the cost of expenses and benefits provided to them. This recording also includes the new exemption for the provision of trivial benefits to employees.
Remember that from 6 April 2016, benefits are exempt from tax and NICs if all the following conditions are satisfied:
• 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 their employment conditions; and
• the employer does not provide the benefit in recognition of particular services provided by the employee
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 (or to a member of their family or household) the exemption is capped at a total cost of £300 in the tax year.
CHANGING YOUR COMPANY CAR? WHAT ABOUT A HYBRID NEXT?
The next Finance Bill will include legislation to reduce significantly the taxable benefit on the provision of low CO2 emission cars from April 2020.
From 2020 there will be a 2% benefit in kind for company cars that emit no CO2 such as electric and hydrogen powered cars. At the same time the system for taxing hybrid company cars will also be significantly changed. For example a hybrid car emitting less than 50g CO2 per kilometer will also have a 2% P11d benefit provided it has a range on its electric motor of at least 130 miles. For example a BMW i3 hybrid costing £30,980 has a range of 181 miles so will qualify for the 2% benefit rate resulting in a taxable benefit of just £620 a year. Such a vehicle would also qualify for a 100% first year allowance which means that the £30,980 cost of the company car would be deducted in full against business profits.
Contact us if you would like to discuss the tax implications of your next business vehicle.
DIARY OF MAIN TAX EVENTS SEPTEMBER / OCTOBER 20171 September - Corporation tax for year to 30/11/16
19 September - PAYE & NIC deductions, and CIS return and tax, for month to 5/9/17 (due 22 September if you pay electronically)
1 October - Corporation tax for year to 31/12/16
5 October - Deadline for notifying HMRC of chargeability for 2016/17 if not within Self-Assessment and receive income or gains on which tax is due
19 October - PAYE & NIC deductions, and CIS return and tax, for month to 5/10/17(due 22 October if you pay electronically)
2nd August 20172nd August 2017
Welcome to our monthly newswire. We hope you find this newsletter useful. Please contact us if you would like to discuss any matters further. For a printer friendly version click Tax-Newsletter-UK-August-2017.
MAKING TAX DIGITAL FOR BUSINESS DELAYED
The Government has responded to pressure from accountants and other interested parties and announced the delay of Making Tax Digital for Business to 2020 at the earliest.
Quarterly VAT reporting using the new system will be mandatory from 2019.
In a further U-turn, three million small businesses and buy to let landlords below the VAT threshold will now not be required to keep digital accounting records but will be able to move to the new system for keeping tax records at a pace that is right for them. For such businesses, Making Tax Digital will be voluntary.
Mel Stride, the new Financial Secretary to the Treasury and Paymaster General, announced that the roll out for Making Tax Digital has been amended to ensure businesses have plenty of time to adapt to the changes. Under the revised timetable:
• Only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records, and initially only for VAT purposes from 2019
• Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020
As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.
All businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes. This deferral will give much more time for businesses, supported by their advisers, to identify for themselves, at their own pace, the benefits of digital record keeping. It will also ensure that many more software products can be developed and tested before the system is mandatory.
SECOND FINANCE BILL THIS AUTUMN
It has also been announced that the second Finance Bill will legislate for all policies that were included in the pre-election Finance Bill but had to be dropped in order to rush through the Finance Act 2017 before the snap general election in June.
The Government has re-confirmed that all policies originally announced to start from April 2017 will be effective from that date.
This means that the planned changes to corporation tax such as the new losses rules, will take effect from 1 April 2017 after all, as will the changes to deemed domicile which will take effect from 6 April 2017.
NEW GOVERNMENT CHILDCARE SCHEMES
Working parents can start applying for two new Government childcare schemes launching this year – Tax-Free Childcare which begins immediately and 30 hours free childcare which starts in September.
This means that working parents of children, aged under 4 on 31 August 2017, can now apply through the new digital childcare service for Tax-Free Childcare and receive a Government top-up of £2 for every £8 that they pay into their Tax-Free Childcare account. This will apply to children under 12 years old but parents of disabled children under 17 will also be able to apply for Tax-Free Childcare.
This new scheme is designed for working families, including the self-employed, in the UK. For every £8 you
pay in, the government will add an extra £2, up to £2,000 per child, or £4,000 per year for disabled children under 17 years old. The special account is then used to pay for childcare with an OFSTED registered nursery or childminder.
In addition, parents of 2-3 year olds, who will be eligible for a 30 hours free childcare place in September 2017, can apply through the childcare service and start arranging a place with their childcare provider.
WORKING IN THE “GIG” ECONOMY
The House of Commons Work and Pensions Committee has recently published a report calling on the Government to close the loopholes that allow “bogus” self-employment practices, which burden the welfare state but reduce the tax contributions needed to sustain it.
This follows the “Matthew Taylor” inquiry which took evidence during February and March 2017 from witnesses including representatives of companies such as Uber, Amazon, Hermes and Deliveroo. Most of the people working for such organisations were not on the payroll and have limited workers rights and are paid for each delivery or “gig”. The Committee recommended a default assumption of “worker” status, rather than “self-employed”, and said that the incoming Government should set out a roadmap for equalising the NICs paid by employees and the self-employed.
Mr Taylor was also asked to produce a report on the status of such workers and suggested that a new category of “dependent contractor” should be established, but the report did not conclude on how such a worker should be taxed.
HMRC BEAT GLASGOW RANGERS IN SUPREME COURT
A scheme using Employee Benefit Trusts (EBTs) as a means of remunerating directors and staff has been defeated by HMRC in a recent Supreme Court case.
Such schemes had been used by many employers to avoid PAYE and national insurance contributions (NICs) and involved complicated trust structures and “loans” to the employees. The Supreme Court judges have ruled that these loans were in substance employment earnings when payments were made to the trusts and are thus ineffective in avoiding PAYE and NICs.
The anti-avoidance rules have also been strengthened in the latest Finance Act with the intention of blocking the use of similar schemes including the transfer of the liabilities to the employee.
Many employers were awaiting this decision and must now decide whether or not to settle with HMRC for the outstanding tax due. If you have been involved in such schemes please contact us to discuss what action you now need to take.
THINKING OF WINDING UP YOUR COMPANY?
Up until 6 April last year, the distribution of cash to shareholders on the winding up of a trading company by a liquidator, was usually taxed as a capital gain, potentially taxed at just 10% with the benefit of entrepreneurs’ relief.
However, last year’s Finance Act introduced a targeted anti-avoidance rule that may tax such a distribution as a dividend at income tax rates up to 38.1% under certain circumstances.
HM Revenue and Customs have recently issued guidance in an attempt to clarify when the new anti-avoidance rule would apply.
Broadly the anti-avoidance is intended to catch situations where the old company is wound up and a similar business is carried on by a connected business. Note however, the distribution would only be taxed as a dividend at income tax rates if one of the main purposes of the transaction was to avoid tax. This is a complex area so please contact us to discuss your plans so you do not fall foul of the new anti-avoidance rule.
DIARY OF MAIN TAX EVENTS
Date What’s Due
1/08 Corporation tax for year to 31/10/16 (unless pay quarterly)
19/08 PAYE & NIC deductions, and CIS return and tax, for month to 5/8/17 (due 22/08 if you pay electronically)
1/09 Corporation tax for year to 30/11/16 (unless pay quarterly)
19/09 PAYE & NIC deductions, and CIS return and tax, for month to 5/9/17 (due 22/09 if you pay electronically)
3rd July 20173rd July 2017
For a printer friendly version please click hereIMPLICATIONS OF HUNG PARLIAMENT
The result of the General Election has left Teresa May and the Conservative Party clinging on to power with support from the Democratic Unionist Party (DUP) in Northern Ireland. This leads to a period of significant uncertainty for the country as the BREXIT negotiations are just about to start.
Following the General Election there have been important Cabinet reshuffles. Although Philip Hammond retained his position as Chancellor of the Exchequer, Jane Ellison MP the Chief Secretary to the Treasury lost her seat in Battersea. Ms Ellison was day-to-day lead for Making Tax Digital, so it’s not clear if her demise might lead to another delay, while her replacement Liz Truss gets up to speed. David Gauke has also moved from the Treasury to become Work and Pensions Secretary.
So what will happen to those measures in the original Finance Bill that did not make it into the first Finance Act 2017?
The planned changes to corporation tax such as the new losses rules were due to take effect from1 April 2017.
The changes to deemed domicile were also due to start 6 April 2017. This has put tax planning on hold for companies and individuals affected by the changes.
WHAT IS THIS “DEMENTIA TAX”?
The Conservative Party Manifesto announcement and subsequent U-Turn on the requirement to pay for social care may have caused many voters to switch their allegiance in the June Election. Although this so-called “Dementia tax” is not strictly a tax, paying for social care has become more important than Inheritance Tax for many families. If a local authority arranges for an individual to enter a care home on a permanent basis the individual will be means tested to see whether or not they should make a contribution towards the cost of their care. The individual may want to pass on savings or other capital to children or others during their lifetime, but it can affect eligibility for local authority assistance with care fees and Pension Credit.
Under current rules if an individual’s capital adds up to more than £23,250, the local authority may assess them as being able to meet the full cost of their care.
The Coalition Government published a White Paper on the reform of adult social care in July 2012. This proposed to implement the recommendations contained in the Commission on the Funding of Care and Support (known as the Dilnot Commission). The Coalition Government proposed a cap on the maximum that an individual / family would be required to contribute. A figure of £76,000 was suggested to be introduced in 2016 but the Conservative Government elected in 2015 deferred this until 2020 at the earliest.
In their 2017 Election Manifesto the Conservative party announced that the £23,250 threshold would be raised to £100,000 and would also be the threshold for assessing whether the local authority would pick up the bill for Care in the Community. There was however no mention of any cap on Social care costs. This resulted in a very rapid U-Turn following the launch of the manifesto. We are now told that there will be yet another Green Paper to consider a cap on care fees. This issue will need to be closely monitored as it will have a significant impact on any planning undertaken.
Inheritance tax planning such as transferring an asset out of your name does not necessarily mean that it will not be taken into account in a means test. Both the local authority and the Pension Service can, when assessing a resident’s eligibility for assistance, look for evidence of deliberate, or intentional, deprivation of capital such as a property transfer. Deliberate deprivation occurs when an individual transfers an asset out of his or her possession to put him or herself in a better position regarding the means test for care home accommodation.
This is a complex matter so please contact us to discuss the implications for you and your family’s assets.
ONE BUSINESS OR TWO FOR VAT?
A recent VAT Tribunal had to decide whether two hairdressing businesses should be treated as a single business for the purposes of VAT registration.
The distinction was critical as the two separate businesses were operating below the registration limit (currently £85,000) and the combined operation would have exceeded the limit meaning that VAT would need to be charged.
Note that HMRC have been successful in a number of cases aggregating the turnover of two businesses carried on by the same person(s).
However, in this recent case it was established that the couple had never intended to run a single business in partnership. There was also physical separation of the premises, separate of clientele, different stylists worked for each salon and separate books were kept.
Note that where the same person carries on several businesses, the combined turnover of all of those businesses need to be considered in deciding whether or not the VAT registration threshold is exceeded.
MOTOR RACING SPONSORSHIP WAS TAX DEDUCTIBLE
In order for an expense to be deductible against business profits it must be incurred “wholly and exclusively” for the purposes of the trade.
In a recent tax case, a hotel owner near Silverstone sponsored his grand-daughter’s career as a racing driver by making payments through his company. The argument was that this would promote the motorsport credentials of the hotel, rebranded as Silverstone Hotel. The granddaughter was well known in motor racing circles and her endorsement of the hotel was designed to promote the company’s business.
HMRC sought to disallow the expense on the grounds that there was a “duality of purpose” and consequently not incurred wholly and exclusively for the purposes of the hotel trade. However, the Tax Tribunal allowed the company’s appeal and consequently the payment was tax deductible.
ADVISORY FUEL RATE FOR COMPANY CARS
These are the suggested reimbursement rates for employees' private mileage using their company car from 1 June 2017.
Where there has been a change the previous rate is shown in brackets.
1400cc or less
1600cc or less
1401cc to 2000cc
1601cc to 2000cc
You can continue to use the previous rates for up to 1 month from the date the new rates apply.
DIARY OF MAIN TAX EVENTS
JULY/ AUGUST 2017
Corporation tax for year to 30/09/16 (unless quarterly payments apply)
Last date for agreeing PAYE settlement agreements for 2016/17 employee benefits
Deadline for agents and tenants to submit returns of rent paid to non-resident landlords and tax deducted for 2016/17
Deadline for forms P11D and P11D(b) for 2016/17 tax year
PAYE & NIC deductions, and CIS return and tax, for month to 5/7/17 (due 22/07 if you pay electronically)
50% payment on account of 2017/18 tax liability due
Corporation tax for year to 31/10/16 (unless pay quarterly)
PAYE & NIC deductions, and CIS return and tax, for month to 5/8/17 (due 22/08 if you pay electronically)
Townend English are expanding!
14th June 201714th June 2017
Townend English are pleased to announce that we have merged with DGF Accounts. The company will move forward directed by James Foxton and Jane Frith as a two partner practice.
The merger of the companies presents a strategic opportunity to develop the existing professional relationship established by working in such close proximity to each other over a number of years, to afford clients access to an approachable, driven and experienced team.
James and Jane gained Chartered Accountant status whilst training with the highly regarded PricewaterhouseCoopers, before working in various business sectors, and going on to form successful accountancy practices within Pocklington. Now merged, the pair share a combined wealth of accountancy knowledge coupled with first-hand experience of what it takes to start-up and grow a business.
Building upon the common goals and values of both directors, Townend English strive to deliver a forward thinking and bespoke service, embracing the digital age and recognising that no two clients are the same! As a firm which offers cloud based accounting, and are Advanced ProAdvisors for QuickBooks, we are well placed to offer assistance in the increasingly digital world.
Appreciating that time is important, Townend English endeavour to be as accessible as possible to our clients both near and far. Using a range of communication tools including telephone, e-mail, cloud based document sharing, social media or good old-fashioned face to face meetings we aim to tailor our service and availability to each individual client’s requirements.
James and Jane would like to take this opportunity to thank existing loyal clients for their business and support. Follow us on Facebook and Twitter to keep up to date with the latest exciting developments at Townend English.
9th May 20179th May 2017
Welcome to our newsletter for May 2017. We hope you enjoy reading this newsletter and find it useful. Please contact us if you would like to discuss any matters further.
U-TURN ON SELF-EMPLOYED NICs - FOR NOWIn his first Budget on 8th March, the new Chancellor Phillip Hammond announced that he would level the playing field between employees and the self-employed by increasing Class 4 National Insurance Contributions (NICs) from 9% to 10% from 6 April 2018 and then to 11% from 6 April 2019. His justification is that the self-employed are now entitled to more generous State Benefits than in the past, and thus NIC rate should be increased towards the 12% Class 1 NIC employee rate.
However, this was contrary to the Conservative Party manifesto pledge not to raise national insurance contributions during the life of the Parliament and the Government have bowed to political pressure and decided not to proceed with this proposal. Look out for a possible increase after the next election, which is now June 8th!
As previously announced, flat rate Class 2 NIC contributions, now £2.85 a week, cease on 5 April 2018.
SHOULD WE GIVE SHARES TO CHILDREN AND PAY £5,000 DIVIDENDS TAX FREE?The introduction of the £5,000 tax free dividend allowance has tempted many family company shareholders to give shares to other family members so that they can be paid £5,000 a year tax free. (Note that this allowance reduces to £2,000 from 6 April 2018).
Such a strategy needs to be carefully structured as there can be Capital Gains Tax on the gift of shares, and HMRC may also seek to tax the dividend as employment income under certain circumstances. The dividend will also be taxed on the parents if received by a child who is a minor.
If you are considering giving shares to other family members and then paying dividends, please come and talk to us first so that we can deal with this correctly.
BETTER TO PAY INTEREST ON YOUR LOAN ACCOUNT THAN DIVIDENDS IF HIGHER RATE TAXPAYER Ever since the introduction of the 7.5% increase in the rate of tax on dividends in April 2016, it has been more tax efficient for owner managed business shareholders to pay interest on their loans to the company rather than pay themselves dividends.
The interest would be deductible against the company's profits saving corporation tax at 19% (was 20%), whereas dividend payments are not tax deductible. A higher rate taxpayer would end up with more post tax cash, despite the rate being 40% compared to the 32.5% rate on dividends.
The table below assumes that the shareholder is a higher rate taxpayer and has already taken a dividend of £5,000 tax free.
The above calculation also assumes that the shareholder has £500 of other interest so that the savings allowance has already been used. Note also that the company is currently required to deduct 20% tax at source and report the interest on form CT61.
DOES THE NEW 16.5% VAT FLAT RATE PERCENTAGE APPLY TO YOUR BUSINESS?
The new VAT flat rate of 16.5% started to apply from 1 April 2017 for “limited cost traders”.
A "limited cost trader" is one using the VAT flat rate scheme but where the VAT inclusive cost of goods for a year is less than 2% of VAT inclusive turnover, excluding certain specified items.
Those specified items include capital expenditure, food, fuel, and vehicle costs.
If you are currently using the VAT flat rate scheme contact us to discuss whether the changes will apply to you.
ADDITIONAL IHT RELIEF FOR PASSING ON FAMILY HOME STARTED 6 APRILFor deaths on or after 6 April 2017 there is now an additional £100,000 inheritance tax (IHT) allowance where the family home is passed on to direct descendants. This was originally announced on 8 July 2015 and that date is relevant where the deceased has downsized to a lower value property.
This additional relief increases to £175,000 in 2020, and where the relief was not used on the death of the first spouse, it is available on the death of the surviving spouse.
This means that after 6 April 2020 a married couple can potentially pass on assets worth up to £1,000,000 without paying IHT as there would be £350,000 relief against the value of the family home in addition to the combined £650,000 nil rate bands (2 x £325,000).
Note however that the Labour Party have announced that if elected they will reverse this generous measure!
It may be necessary to review your will and estate planning to ensure that you take full advantage of this new relief.
SELLING LAND TO A DEVELOPER - IS THAT TRADING OR A CAPITAL GAIN?Farmers and other landowners will often be approached by developers seeking to obtain planning permission to build on the land. Great care is needed to avoid unnecessary tax charges on the transaction. HMRC have recently updated their guidance on transactions in land clarifying that under certain circumstances some of the eventual profit can be taxed as income not a capital gain. For individual property owners that could mean 45% income tax as opposed to just 28% CGT.
For example, a landowner sells some land to a developer for £5 million plus 10% of any profit on the development over £6 million. If the profit on the project was £8 million then the additional £200,000 would be taxed as a trading profit.
The tax rules in this area are complex. If you are involved in such a deal contact us so we can advise on the best way of structuring the transaction.
NEW TAX FREE ALLOWANCES STARTED ON 6 APRILThe £5,000 dividend and savings allowance of up to £1,000 have been with us since 6 April 2016. There are now two further allowances available since 6 April 2017. There are concerns that these have not been widely publicised and not properly understood.
The first £1,000 allowance is against self-employed income. This is a deduction from gross income so will only be of benefit to those with a small amount of self-employed income - for example a part time yoga teacher. If their gross self-employed income is less than £1,000 a year then it will now be tax free and will not need to be reported to HMRC. If the income is marginally above £1,000, say £1,200, then only £200 will be taxable. For many self-employed it will continue to be more beneficial to compute profits by deducting their allowable expenses from their gross income.
The other new allowance is a £1,000 deduction from gross income from property. For example a couple might receive £700 in charges for parking on their drive in Wimbledon during the tennis tournament.
Joint owners of property could receive £1,000 tax free each, however you can’t claim the allowance on income from letting your own home under the Rent a Room Scheme.
DIARY OF MAIN TAX EVENTSMAY/JUNE 2017
Corporation tax for year to 31/07/16 (unless quarterly payments apply)
PAYE & NIC deductions, and CIS return and tax, for month to 5/5/17 (due 22/05 if you pay electronically)
Corporation tax for year to 31/8/16 (unless pay quarterly)
PAYE & NIC deductions, and CIS return and tax, for month to 5/6/17 (due 22/06 if you pay electronically)
Spring Budget 2017 Round Up
13th March 201713th March 2017
On 8th March Chancellor Philip Hammond presented the Spring Budget. Here’s a quick summary of the pertinent features:
During 16/17 the dividend allowance applies a zero rate of tax on the first £5,000 of dividends received by each individual UK-resident taxpayer. This allowance will be cut to £2,000 from 6 April 2018 and will cost most owner-directors £225 in extra tax per year.
The main rate of Class 4 NIC (paid by the self-employed) will increase from 9% to 10% from 6 April 2018, and will increase again to 11% from 6 April 2019.
Although this sounds like bad news, self-employed individuals won’t pay Class 2 NIC of £148.20 per year anymore, and as Class 4 NIC is only payable on profits over the lower profits limit (£8,164 for 2017/18), individuals with self-employed profits of less than £16,250 should pay less NIC from April 2018.
The annual tax free exemption rises to £11,300 on 6 April 2017.
The personal allowance (i.e. the amount you can earn tax free) will increase to £11,500 from April 2017 and to £12,500 by 2020.
Savings and Pensions
The reduction of tax-free dividends allowance was prompted in part by the increase to the tax-free personal allowance and the increased ISA allowance to £20,000.
The compulsory VAT registration threshold increases by £2,000 to £85,000 on 1 April 2017.
Making Tax Digital
The biggest change for businesses, which has yet to come into effect, is reporting under Making Tax Digital. There will now be a one year deferral of MTD for smaller unincorporated businesses and landlords until April 2019.
The government is reviewing:
Partnership tax, and will release a consultation paper later this year
Rent a room relief may well be reformed from April 2018
Employee benefits and expenses, and in particular employer-provided accommodation.
All of these topics are due to be covered in the next Budget Statement in the Autumn of 2017.
Auto enrolment pensions
17th June 201617th June 2016
If you are an employer, you should have received a letter from the Pensions Regulator in connection with the new obligation for employers to set up a pension scheme for their employees. There is no way of escaping having to do something here. Even if you, as Director of your own company, are the only employee, you still need to take some form of action with regard to auto enrolment.
As a firm of accountants, we are not allowed to provide pensions advice, however we can provide you with an outline of your auto enrolment obligations, and actions you need to take. In addition, we work closely with a firm of Financial Advisors who are currently willing to help my clients on a no-fee basis.
Don’t delay, as the longer you leave this, the more risk there is of missing your deadline and receiving penalty notices from the Pensions Regulator.
For a free no obligation chat, please don’t hesitate to contact me.
First staff member joins the team
15th June 201615th June 2016
I am delighted to announce that Jo McCorrie has been appointed as Accounts Assistant at Townend English.
Jo brings a wealth of experience gained in accounts and office roles over the last 25 years. Jo has just returned to the UK after spending the last 8 years living in Australia where she achieved a degree in Law (Hons) and spent 3 years working as a Lawyer in Brisbane. Jo is currently studying towards her ICB in Bookkeeping and will be supporting the practice with accounts preparation, bookkeeping, VAT and payroll.
Buy to let landlords – Restriction of loan interest relief
15th June 2016
If you are a buy to let landlord, you should be aware that income tax relief will be restricted to the basic rate of tax in the future. This is being phased in from 17/18 to be fully implemented in 20/21.
What does this mean? - if you are a higher rate (40%) tax payer, and you have a buy to let on which you have a mortgage, you won't get the same tax relief for the interest on your mortgage payments you used to get. This means your taxable profits on the buy to let will be higher, and you will pay more tax.
If the above is a concern for you, and you would like to discuss what options you may have, then please don't hesitate to contact me.
Ltd company dividends
18th December 201518th December 2015
Anybody who is currently operating as a limited company, and who has been extracting profits through a combination of dividends and salary needs to be aware of the impending changes to how dividends are taxed from the 6th April. This could have serious implications on the amount of income tax you pay.
Up until April 16, divis in the basic rate band were notionally “tax free” – these will now be subject to 7.5% on anything over £5000 and 32.5% for higher rate tax payers.
If this affects you, you may consider paying a dividend before these changes come into place on the 6th April 2016. This will need some planning however.
If you would like to discuss this, or any other tax or accounting topic, please don’t hesitate to give me a call.
Help to Buy ISA
18th December 2015
The government has recently announced a new product to help first time buyers.
In summary, people saving for their first home can do so through a Help to Buy ISA. You can save up to £200 per month and the Government will then top this up by 25% (up to £3,000). This seems like a no brainer – why wouldn’t you want £3,000 towards a deposit on your first home?
If you would like to discuss this, or any other tax or accounting matter, then please don’t hesitate to contact me.
Transferable allowance for (some) married couples
18th December 2015
If you are a basic rate (i.e. 20%) tax payer, and your husband, wife or civil partner isn’t using all of their personal allowance (i.e. earning less than £10,600), be sure to make use of the transferrable allowance for married couples and reduce your overall tax bill.
Basically, by taking 10 minutes to complete an online form to HMRC, your partner can switch £1,060 of their personal allowance to you, thus increasing your own personal allowance and reducing the tax you pay by up to £212.
If you would like to discuss this or any other accounting or tax matter, then please don’t hesitate to contact me.