Making Tax Digital

Details: Published: Tuesday, 27 September 2016 11:40; Written by Louise Tattershall

In March 2015 the Chancellor, George Osborne announced an initiative which will see a major leap in the modernisation of the tax system, by way of the development of ‘digital tax accounts’. This change may lead to a reduction and potentially signals the end of the Self-assessment tax return as we know it.

What does it mean for individuals?

The initial proposal suggested that by 2016 all individuals will have their own online ‘Personal Tax Account’. The online account will hold information from third parties, such as employers, pension providers and banks. This information will be updated on a regular basis.

An individual can login into their own online secure account and review, update and check the information held.

The benefit to the individual is that all the information held will be in ‘real time’. This will enable the individual to monitor the amount of tax due at any given time. Additionally, repayments will be identified early and steps can be taken to reclaim this over the remainder of the tax year. The whole system is deemed to make it easier to file, pay and update your tax information online at any time.

An individual will be able to authorise their agent to monitor and review their ‘Personal Tax Account’ on their behalf.

However, on the contrary to this, the automatic system may not apply certain tax reliefs where applicable, due to the specific eligibility guidelines, therefore many individuals who may enter their information and may think it as a more cost effective way to do so, may not claim all of the tax reliefs available. This is particularly relevant for capital gains disposals and the application of tax reliefs such as rollover or entrepreneurs relief. Thus for those who do not seek advice, this ‘easy’ option could prove a less cost efficient option.

What does it mean for businesses?

The initiative is for businesses to be able to link their business accounting software to their personal online tax account. The Government has announced that compatible software will be free of charge to small businesses. For some ‘small businesses’ this may be their first experience of reporting their business activities on accounting software. Additionally, the software may not be suitable for all businesses.

Businesses will be required, although full details are yet to be disclosed, to submit ‘summaries’ of their income and expenditure on a quarterly basis through their online account.

It is anticipated that small, non-VAT registered businesses and landlords will be required to make submissions for accounting periods starting after April 2018. All VAT registered businesses will need to be compliant from April 2019 and companies from April 2020.

Advantages to small business

The quarterly reporting will enable small business to plan more effectively and manage cash flow. There will be an option for businesses to align all taxes and pay on a quarterly basis.

Disadvantages to small business

Further compliance in respect of filing accounting information

Tax reliefs which the business may be eligible for may not be automatically applied due to the specific rules for eligibility

Time and resources in producing further data for reporting purposes

Overhaul of current accounting processes in order to comply with new regulations

Quarterly reporting is unlikely to take into account certain tax adjustments, such as capital allowances, private use adjustments. These adjustments can make significant differences when calculating potential tax liabilities. This could result in under or overpayments of taxes, thus overriding the reason for real time reporting.

Therefore the long term proposal for a new tax system, which aims to make it easier for all taxpayers — individuals and businesses — to manage their tax affairs and pay the right tax at the right time, should be promising from a cash flow perspective, although it may not be as cost effective as initially suggested, as there will undoubtedly still be a need to check and apply for specific tax reliefs where available.

If you are using the new personal tax account, and you would like to seek advice on any forms of tax relief that the online account is not currently applying, please do not hesitate to contact the team at Spirare.

Annual Confirmation Statement to replace current Annual Return for Limited Companies

Details: Published: Friday, 10 June 2016 11:53; Written by Sinead Byrne

From 30th June 2016, the current Annual Return for limited companies (an annual administrative requirement) will be replaced by the new Confirmation Statement. The Confirmation Statement serves a similar purpose as the Annual Return - to supply information for inclusion on the public register - and is also filed once every 12 months.

So what’s different?

Rather than providing a current statement of data at the time of submission, the requirement will be to simply ‘check and confirm’ the information held is correct. Any changes or updates to information can be reported with the Confirmation Statement throughout the year.

The date of which a Confirmation Statement is to be filed can be chosen, providing at least one statement every 12 months is delivered. Positive implications of this would be that the filing date can be aligned with other statutory filing dates for administrative ease, although it is important to be aware that the initial deadline will be 12 months from the last annual return submission or before. Once submitted, the next due date will be twelve months from the day of submission. For example, if your first confirmation statement is due on 1st September 2016, but you submit the statement on 1st August 2016, the following year’s deadline will be 1st August 2017.

A key important change to be aware of is that filing must now be completed within 14 days of the due date as opposed the Annual Return’s 28 days leniency.

Once filed, unlike the Annual Return, you can update the information as many times during the year as needed without paying any additional fees. The yearly filing fee to Companies House remains the same; £13 when filed online or £40 when filed on paper.

Another difference, particularly notable for its introduction in 2016, is that the Confirmation Statement includes the information held in an entity’s PSC register.

What is a PSC Register?

From April 6th 2016, companies, Limited Liability Partnerships (LLPs) and Societates Europaeae (SEs) must start keeping details of People with Significant Control (PSC). The PSC Register has been introduced as part of the Small Business, Enterprise and Employment (SBEE) Act 2015, with the intended purpose being to improve corporate transparency to the public by disclosing who owns and controls UK-registered corporations. A person with significant control can be defined by meeting one or more of the conditions listed:

Owns in excess of 25% of the company’s issued shares
Holds 25% or more of the company’s voting rights
Has the right to appoint or remove the majority of the board of directors

Further, less common, conditions include:

Any individuals who have the right to, or actually exercise significant control or influence over the company
Where a firm or trust meets one of the initial three statements, PSC’s are individuals with significant control or influence over that trust or firm

Changes to PSC details should be reported on submission of the Confirmation Statement. Failure to keep the information up to date can result in a criminal offence. Any companies incorporated after 30th June will need to complete a statement of initial control containing the company’s PSC information when registering.

Overall therefore the abolition of the Annual Return and the introduction of the Confirmation Statement will undoubtedly result in a more transparent view of all companies registered in the UK, as the percentage of interest and personal details of previously undisclosed individuals (and legal entities) will now require disclosure on public record. It will also undoubtedly further the administrative requirements of UK registered companies.

If you require any further information on the above changes, please do not hesitate to contact a member of the Spirare team.

The Start of the New 2016/17 Tax Year: How does it affect you?

Details: Published: Wednesday, 06 April 2016 11:08; Written by Holly Masters

Today, 6th April 2016, witnesses the start of another new tax year. As with any new tax year, the usual changes in personal taxation will come into force (such as the fluctuations in the personal allowances and tax thresholds), but the 2016/17 tax year will also introduce some unexpected changes, therefore it is important to consider the impact of these changes on both your personal and business circumstances.

This is particularly the case for limited company director-shareholders with the new dividend tax regime effective from today, and for buy to let investors with changes in stamp duty, exemptions from the new decreases in capital gains tax rates for the sale of their residential buy-to-let properties, and the abolition of the ‘wear and tear’ allowance.

Key changes effective for the new tax year from 6 April 2016 are summarized as follows:

Personal Taxation

The tax-free personal allowance has risen to £11,000 for the 16/17 tax year (from £10,600 for the 15/16 tax year)
All individuals will be entitled to the same personal allowance regardless of their date of birth
The threshold at which individuals pay 40% tax (the basic rate band) has risen to £43,000 (from £42,385 for the 15/16 tax year)
The upper profits limit for class 4 national insurance contributions has risen to £43,000 (from £42,385)
Capital gains tax has been reduced considerably from 28% to 20% for higher rate taxpayers, and from 18% to 10% for basic rate taxpayers, but the new rates do not apply to transactions involving residential property or carried interest. Capital gains tax rates for these will continue to be 18% and 28% respectively
The personal savings allowance has been introduced. This is set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Individuals can earn this much in interest before any tax is therefore due
The new dividend taxation regime has started, which entitles individuals to a £5,000 tax free dividend allowance and abolishes the old 10% tax credit system (therefore dividends will be stated on an individual’s personal tax return at the net amounts rather than grossed up). However, the use of the £5,000 does form part of an individual’s basic rate band, and any dividend income in excess of the allowance will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers
Class 2 NIC will be collected through your personal tax return (as opposed to a monthly or quarterly charge)
ISA limits will continue at £15,240 (as per the 15/16 tax year) until April 2017 when they will rise
The marriage allowance has increased to £1,100 (from £1,060 for the 15/16 tax year)
The car fuel benefit charge multiplier has increased to £22,200 (from £22,100 for the 15/16 tax year)
The van benefit charge has increased to £3,170 (from £3,150 for the 15/16 tax year)
The new ‘single rate’ state pension becomes payable for individuals who reach state pension age after today. Those individuals will be encompassed in the new single tier state pension system under which a single payment replaces the current set up of a basic state pension plus a ‘second’ state pension
There is a new tax on top earners’ pension which states that those with income in excess of £150,000 have a reduced pension contribution limit which has decreased to £10,000 (from £40,000 for the 15/16 tax year)
Stamp duty has increased for buyers of additional residential properties (including buy to lets and second homes). Buyers will now have an extra 3% payable in stamp duty (effective from 1 April 2016)
The removal of the ‘wear and tear’ allowance. Previously, a landlord could claim 10% of their rent as tax relief for wear and tear, but this is no longer the case. Instead, the allowance is being be replaced by a system that only allows landlords to claim tax relief when they replace furnishings

Business Taxation

Employers to legally pay the National Living Wage to individuals aged 25 and over, amounting to £7.20 per hour (effective from 1 April 2016)
The Employment Allowance has increased to £3,000 (from £2,000 for the 15/16 tax year). However, further anti-avoidance rules will come into force today including the potential exclusion of single director companies
Corporation tax to remain at 20%
New stamp duty rates on commercial properties (effective from 17 March 2016) The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000. Therefore buyers of commercial property worth up to £1.05 million will pay less in stamp duty this tax year
Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million.

If you require further information on any of the above, please do not hesitate to contact a member of the Spirare team.

Introduction of the National Living Wage effective from 1 April 2016

Details: Published: Friday, 01 April 2016 10:03; Written by Louise Tattershall

The highly publicized National Living Wage (NLW) which was announced in last Summer’s budget has come into effect today, 1 April 2016.

The mandatory NLW requires employers to pay workers aged 25 and over a minimum of £7.20 per hour.

The policy was introduced by the Chancellor in an effort to create a higher-wage, lower-welfare economy, and it is estimated that it will provide 1.3 million workers with an immediate pay rise.

Employees aged 21 to 24 will continue to be entitled to the National Minimum Wage of £6.70 an hour.

The intention is for the NLW to rise to more than £9 an hour by 2020.

The independent Office for Budget Responsibility has warned that 60,000 jobs could be lost as a result of the above as businesses struggle to pay the new higher wages.

This will undoubtedly have a detrimental effect on small businesses, particularly following the new tax changes on dividends which will be effective from 6 April 2016.

The Living Wage Foundation, which inspired the idea of the NLW (although does not set the level of the NLW) welcomed the introduction today, and further urged businesses to "aim higher" and pay more than the statutory minimum, which some employers have advised they shall do so.

However, the Foundation did point out that it is still lower than it’s own suggested level of pay - £8.25 an hour and £9.40 in London.

Today’s increase in the minimum pay per hour for over 25’s, combined with the new auto-enrolment rules which are starting to come into force for small to medium sized businesses will undoubtedly have a detrimental impact on the labour market and employability factor. It is however important to consider the positive tax implications of employing workers, such as the abolition of employers national insurance contributions for apprentices aged under 25 from 6 April 2016, the apprenticeship schemes available (which reduce hourly rates and can provide access to grants), and of course the employers national insurance allowance which increases from £2,000 to £3,000 from 6 April 2016.

Should you require further information on the above please contact the Spirare team.

The Budget Summary March 2016

Details: Published: Wednesday, 16 March 2016 15:37; Written by Holly Masters

Personal Taxation Surprises and the Introduction of the Sugar Tax

As Mr Osborne’s eighth budget commenced, there were some surprises, particularly from a personal taxation perspective including decreased capital gains tax rates and the increased higher tax rate threshold.

According to the Chancellor, this budget sees the Government "Act now so we don’t pay later", which is particularly the case for the introduction of the new sugar tax on soft drinks in two years’ time in an effort to combat childhood obesity issues. He introduced his speech by stating that Britain is "not immune to slowdown and shocks" and that the "financial markets are turbulent", which is likely to have impacted the key changes surrounding business rates.

It is important to note that the economic forecasts (which the Chancellor would have taken into consideration when introducing the changes below) were predicted based on the UK remaining within the European Union. Therefore the outcome of the EU referendum in June may have a further impact later in 2016 on some of the more general changes.

Key points from the Chancellor’s budget were as follows:

Personal Taxation

The tax-free personal allowance to rise to £11,500 in April 2017 (an increase of £500 compared to originally stated)
New state backed savings scheme for low-paid workers, worth up to £1,200 over four years
The threshold at which individuals pay 40% tax will rise from £42,385 to £45,000 in April 2017
Capital Gains tax to be reduced considerably from 28% to 20% for higher rate taxpayers, and from 18% to 10% for basic rate taxpayers
Class 2 NIC to be abolished effective from 2018

Savings/Pensions

The annual ISA limit will rise from £15,240 to £20,000
New ‘lifetime’ ISA for individuals aged under 40 with the government contributing £1 for every £4 saved (maximum of £1,000 top up)
New state backed savings scheme for low-paid workers, worth up to £1,200 over four years

Business Taxation

Corporation tax (currently at a rate of 20%) will fall to 17% by 2020
Annual threshold for small business rates tax relief to be raised from £6,000 to a maximum of £15,000, exempting 600,000 firms, and the higher rate from £18,000 to £51,000
Business rates will also be linked to CPI, the official measure of inflation which has historically been lower than the RPI rates (which is what rates are currently linked to)
Anti-tax avoidance and evasion measures to raise £12bn by 2020

General

0.5% increase in insurance premium tax
Fuel duty to be frozen for sixth year in a row
Beer, cider and spirits duties to be frozen
Excise duties on tobacco to rise by 2% above inflation
The Money Advice Service, which has provided financial advice to consumers since 2010, is to be abolished
New tax free allowances for "micro-entrepreneurs" who rent their homes or sell their services through the internet
Supplementary charge for oil and gas producers to be halved from 20% to 10%
Petroleum revenue tax to be "effectively abolished’"
£9bn to be raised by closing corporate tax loopholes
Use of personal service companies by public sector employees to reduce tax liabilities to end
Commercial stamp duty changes effective from midnight as follows: 0% rate on purchases up to £150,000, 2% on the following £100,000, and 5% top rate above £250,000. New 2% rate for high value leases with a net present value above £5m
New sugar levy tax on the soft drinks industry to be introduced in two years’ time
Plan for 25% of secondary schools to stay open after 3.30pm
Plan for all schools in England to become academies by 2022
Plans to enable pupils to study maths until 18
£700m available for flood defence schemes
Tolls on Severn River crossings to be halved by 2018
Disability benefits bill to increase in real terms
Tax on the North Sea oil is being cut and will be back dated, effective from the start of the year
New elected mayors for cities and towns in Southern England

If you require further information on any of the above, please do not hesitate to contact a member of the Spirare team.

PROPERTY INCOME AFTER APRIL 2016: THE GOOD NEWS AND THE BAD NEWS

Details: Published: Sunday, 21 February 2016 17:58; Written by Holly Masters

I own a buy to let property and/or rent a room in my main residence. What do the new Budget changes from 6 April 2016 mean for me?

Last year’s Summer Budget announced on 8 July 2015 introduced key changes for individuals with property income. If you rent a room in your main residence or own a buy to let property, the following changes are key for your end of year tax return:

Rent a Room: The Good News

For those who ‘rent a room’ to a lodger in your main residence, from 6 April 2016 you will benefit from the budget’s announcement to increase the rent a room allowance (the amount of tax free income you can receive from your lodger) from £4250 to £7500 per annum. Therefore you can receive an additional £3250 income tax free every year from renting a room in your main residence, which represents a substantial tax saving for a basic rate tax payer of £650 per year.

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