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industry related news

Annual Tax on Enveloped Dwellings

 What is ATED? 

ATED is a tax paid annually on UK residential properties that are owned by companies or other ‘non-natural persons’ such as collective investment schemes or partnerships where one of the partners is a company. Such entities will need to complete an ATED return if they own a property, or have shares in a property, that is; in the UK, classified as a dwelling, and was valued in excess of £500,000 at 1 April 2012 or at acquisition if later.

 

ATED was initially introduced in 2013, with the intention of discouraging ‘enveloping’ residential properties of high value within special purpose vehicles (SPVs) enabling sale of the property by means of share sales so that the purchaser did not have to pay stamp duty. At introduction, ATED only applied to properties with a value of more than £2 million, this has since been lowered twice and become more relevant to a larger amount of companies.

How much do I have to pay?

The ATED tax liability depends on which banding the property falls into. So that the charge can be correctly assessed, properties needs to be revalued every five years. As the last valuation date was 1 April 2012, the next date for revaluation is 1 April 2017, applicable to all properties subject to ATED.

 

Property value 1 April 2012 or acquisition

ATED Charge

2016/17

ATED CHARGE

2017/18

 

Over £500,000 but less than £1m

£3,500

£3,500

Over £1m but less than £2m

£7,000

 

£7,050

Over £2m but less than £5m

£23,350

 

£23,550

 

Over £5m but less than £10m

£54,450

 

£54,950

 

Over £10m but less than £20m

£109,050

 

£111,100

Over £20m

£218,200

 

£220,350

 

What are the reliefs?

Various reliefs are available that can reduce or eliminate the tax charge but these are not automatically given. This should be claimed on filing of an ATED return. Reliefs are available if your property is; 

+ Let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner

 

+ Open to the public for at least 28 days a year

 

+ Being developed for resale by a property developer

 

+ Owned by a property trader as the stock of the business for the sole purpose of resale

 

+ Repossessed by a financial institution as a result of its business of lending money

 

+ Being used by a trading business to provide living accommodation to certain qualifying employees

 

+ A farmhouse occupied by a farm worker or a former long-serving farm worker

 

+ Owned by a registered provider of social housing

When do I need to submit a return?

Submissions of ATED Returns and payments are subject to very tight deadlines. For companies already in the regime, a return must be filed and payment made within 30 days of 1 April, so for those submitting a return for the 17/18 year, the deadline is 30 April 2017.

Different deadlines are applicable where a company comes within the scope of ATED for the first time within a financial year; although the filing deadline is normally within 30 days of the property coming within the charge.

Failure to notify promptly, even if no tax is payable due to a relief, will result in late filing penalties which typically amount to £1,300 per year, so it is important to be aware of the value of your property/s and whether or not you need to submit a return.

 

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

Detailed guidance can be found at https://www.gov.uk/government/publications/stld-annual-tax-on-enveloped-dwellings-ated/annual-tax-on-enveloped-dwellings-returns-guidance

 

National Minimum Wage Increases from April 2017

As announced in Chancellor Philip Hammond’s Autumn Statement, the National Minimum Wage is set to increase from the April 2017. This also includes an increase in the National Living Wage for over 25-year olds with the view to getting this up to £9 by 2020.

The National Minimum Wage for over 25’s will be increasing by 4% from £7.20 to £7.50. With the other age ranges also increasing as shown in the table below.

Whilst looking at the changes in minimum wage, and with the school holidays approaching, it may also be useful to consider the employment regulations for under 18’s. Below are some of the key points to note when employing children:

During term time, children can only work a maximum of 12 hours a week. This includes:

  • The youngest age a child may work is 13 (with the exception of areas such as television and modelling).

  • A maximum of 2 hours on school days and Sundays.
  • A maximum of 5 hours on Saturdays for 13 to 14 year olds and 8 hours for 15 to 16 year olds.

During school holidays, 13 to 14 year olds can only work a maximum of 25 hours a week. This includes:

  • A maximum of 5 hours on weekdays and Saturdays.

  • A maximum of 2 hours on a Sunday.

During school holidays, 15 to 16 year olds can only work a maximum of 35 hours a week. This includes:

  • A maximum of 8 hours on weekdays and Saturdays.

  • A maximum of 2 hours on a Sunday.

For children under the age of 16, there is no entitlement to minimum wage, no NI liability, no need to pay through PAYE and you are not required to include them on payroll unless their total income exceeds the personal allowance.

For children over 16, they will be liable for NIC if the thresholds are met. If they are being paid over £112 a week you must be registered as an employer and operate PAYE and if you’re a registered employer, they must be included in the payroll.

If you would like more information on the National Minimum Wage increases or on employment regulations for under 18’s, please contact the team at Spirare.

U-Turn on Class 4 National Insurance Contribution Increase

The Chancellor has announced a U-turn on the planned National Insurance Class 4 contributions increases that he originally announced in the Spring Budget on 8th March 2017.

There was a planned increase in the amount of NIC Class 4 payable (which is payable on the profits for self-employed individuals) from 9%, to 10% in April 2018 and 11% in April 2019. However, many argued, and the Chancellor has agreed, that this move was a breach of the ''spirit'' of the Conservative 2015 election manifesto.

This has been a welcome U-turn for many of the self-employed. Originally designed to close the taxation gap between the employed and the self-employed, many argued that the self-employed do not benefit from the advantages that employees do, such as paternity pay, sick pay, and holiday pay. These benefits are being reviewed this summer for the self-employed, but for the time being the U-turn represents a welcome move for sole traders and partnerships.

The Spring Budget 2017: A Summary

On 8 March 2017 the chancellor Philip Hammond announced his first (and last) Spring Budget.

Post Brexit vote, the Chancellor stated that this budget aimed to build the ‘‘foundations of a stronger, fairer, more global Britain’’. He stated that despite higher employment levels, Britain’s productivity remained low. Therefore, with these opening comments, it was initially expected that the Chancellor would be incentivising businesses (and business owners) who operate in Britain, whether they trade through limited companies, partnerships or sole trader entities. 

Some announcements in the budget did this, in terms of potential reliefs available on business rates, lower administrative burdens for the research and development scheme, and more incentives for childcare costs. However, these advantages were significantly outweighed by the increase in Class 4 National Insurance contributions for the self-employed (sole traders and partners of partnerships), and by the reduction of the dividend allowance to £2,000 (which has an impact on owner managed director-shareholder companies).

We have summarised the key changes as follows:

Personal Taxation

  • The main rate of Class 4 National Insurance contributions (which are based on profits for self-employed sole traders and partners) are to increase from 9% to 10% in April 2018 and to 11% in April 2019
  • Class 2 National Insurance, a separate flat rate contribution paid by self-employed individuals making a profit of more than £5,965 a year, will be abolished (as previously announced) in April 2018
  • No changes to National Insurance paid by the employed and employers or to income tax or VAT
  • Personal tax-free allowance to rise (as previously announced) to £11,500 for the 2017/18 tax year and increase to £12,500 by 2020
  • The higher rate threshold to be set at £45,000 for the 2017/18 tax year (as previously announced) and increase to £50,000 by 2020
  • Reduction in the tax-free dividend allowance from £5,000 to £2,000 (effective from April 2018)
  • Dividend income paid on shares held in a stocks and shares ISA will remain tax free
  • Measures to tackle abuse of overseas pension schemes will be introduced

Businesses

  • Administrative requirements for the research and development scheme are to be reduced (measures to be announced)
  • The effect of the 2017 business rates revaluation is to be mitigated by a potential reform of the revaluation process. Thresholds will be raised on rates so that 600,000 small businesses are excluded from having to pay rates
  • No business (losing small business rate relief) will see their rates bill increase next year by more than £50 per month, and subsequent increases will be capped at either transitional relief cap or £50 per month (whichever is higher)
  • Pubs with a rateable value of less than £100,000 to get a one-year £1,000 discount in 2017 on rates they would have paid (according to the Chancellor this will affect 90% of pubs)
  • The Chancellor has advised that the government will find a way of taxing the digital economy
  • Measures to be introduced to stop businesses converting capital losses into trading losses
  • Introduction of UK VAT on roaming telecoms services outside the EU
  • Privately-owned SMEs with turnover below the VAT registration threshold will get extra year to prepare for tax digitisation and quarterly reporting
  • Review of taxation of North Sea oil producers
  • No increases in alcohol or tobacco duties on top of those previously announced
  • A new minimum excise duty on cigarettes based on a packet price of £7.35
  • Tobacco will rise by 2% above Retail Price Index (RPI) inflation, with a packet of 20 cigarettes costing 35p more
  • Duty on beer, cider, wine and spirits will increase in line with RPI inflation. This will equate to 2p on a pint of beer, 1p on a pint of cider, 36p on a bottle of whisky and 32p on a bottle of gin
  • Fuel duty frozen for a further year
  • Vehicle excise duty rates for hauliers and the HGV Road User Levy frozen for another year
  • Most sugary soft drinks to be taxed at 24p per litre as part of plans to reduce childhood obesity

Other Announcements

  • Parental benefits for the self-employed to be reviewed this summer. Presently self-employed fathers cannot receive paternity pay/allowance and it is thought this may change
  • Next month the introduction of the Tax Free Childcare Policy will allow working families to receive up to £2000 per year in childcare costs for each child under 12 (for eligible parents only)
  • From September, working parents with 3 and 4 year olds will have free childcare entitlement doubled to 30 hours per week
  • Regarding the funding of care for the elderly, the Chancellor will set out the options for this funding in the Green Paper this year. He has confirmed that those options will not include an additional death tax (Labour had previously proposed an additional 15% death tax levy to the 40% inheritance tax rate to fund social care for the elderly)
  • From July 2017 financial penalties will be imposed on professionals who enable a tax avoidance arrangement that is later defeated by HMRC
  • £300m to support 1,000 new PhD places and fellowships in STEM (science, technology, engineering and maths) subjects
  • Free school transport extended to all children on free school meals who attend a selective school
  • £320m of funding for 110 new free schools and grammar schools
  • Number of hours of training for technical students aged 16 to 19 increased by more than 50%, including a high-quality, three-month work placement
  • £100m to place more GPs in accident and emergency departments for next winter
  • Additional £325m to allow the first NHS Sustainability and Transformation Plans to proceed
  • Transport spending of £90m for the North of England and £23m for the Midlands to address pinch points on roads
  • £690 million competition fund for English councils to tackle urban congestion
  • £270m for new technologies such as robots and driverless vehicles
  • £16m for 5G mobile technology and £200m for local broadband networks
  • £250m in funding for Scottish Government, £200m for Welsh Government and £120m for Northern Ireland Executive
  • Funding of £5m to support people returning to work after a career break

Should you have any queries on the above, please do not hesitate to contact a member of the Spirare team.

The VAT Flat Rate Scheme: What’s changing from 1 April 2017?

 

In November 2016, the Autumn Statement announced significant changes for businesses who use the flat rate scheme for VAT. These changes will be brought into effect from 1 April 2017, and will impact businesses with costs which are predominantly for services, as opposed to goods.

The flat rate scheme is a VAT scheme which essentially simplifies VAT for smaller businesses and allows for a set industry based percentage to be applied to the gross sales figure to ascertain the VAT payable. Previously, this therefore had advantages for service based businesses. However, this will change on 1 April 2017.

Any business that is defined as a ‘limited cost trader’ will be subject to the new 16.5% flat rate percentage with effect from 1 April 2017. Therefore, businesses can continue to use the flat rate scheme, although the business could be subject to the new rate if defined as a ‘limited cost trader’.

What is a ‘limited cost trader’?

A limited cost trader is defined as one whose VAT inclusive expenditure on goods is either:

  • Less than 2% of their VAT inclusive turnover in a prescribed accounting period

  • Greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year

Please note that the above relates to goods NOT services.

Furthermore, goods for the purposes of this measure must be used exclusively for the business, and exclude the following items:

  • Capital expenditure (asset additions)

  • Food or drink for consumption by the flat rate business or its employees

  • Vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services)

     

Who will this affect?

This will affect labour-intensive businesses where the amount of expenditure on goods is minimal. For example, this may effect consultants, architects, IT firms, hairdressers, estate agents, agricultural workers, recruitment agencies, builders who provide services only, and other tertiary sector businesses.

 

If you are a business and you would like further advice on the flat rate scheme and flat rate scheme changes, please contact a member of the Spirare Team.

The Autumn Statement: A Summary

The Chancellor of the Exchequer Philip Hammond has delivered his first Autumn Statement. Avoiding what he referred to as ‘‘rabbit out of hat’’ announcements, there have been comparatively few surprises.
The predominant surprise being that this will be the final Autumn Statement, and it will be replaced with an annual budget, from Autumn 2017 onward, followed by a Spring fiscal statement.
The Chancellor has advised that his priority is to ensure that Britain remains the number one destination for business.
We have summarised the key announcements and confirmations from today’s Autumn Statement as follows:

Businesses
• Corporation tax will decrease to 17% from 2020 (the lowest rate of corporation tax in the G20)
• Business rates reduction package has been confirmed - transitional relief cap lowered, and there will be an increase of rural rate relief to 100% providing small businesses in rural areas a tax break
• Corporation tax loss relief - changes to rules with effect from April 2017
• Employers National Insurance Contributions on redundancy payments- If an employee is made redundant, the first £30,000 of termination payments will remain tax free, however from April 2018 termination payments over £30,000 which are already subject to income tax will also be subject to Employers National Insurance Contributions
• Capital allowances will be available at 100% on the installation on charging stations for electric cars
• Further investment in research and development

Individuals (including employees)
• The personal allowance will rise to £11,500 in April 2017, and to £12,500 by 2020, thereafter rises will be in line with CPI
• The point at which individuals will start paying the higher rate for tax will be increased to £50,000 by 2020, £45,000 from April 2017
• National insurance contributions for employees and employers will aligned to £157 per week from April 2017
• Class 2 NIC for the self-employed to be scrapped from April 2018, as previously announced
• Tax advantages for employees who previously benefitted from salary sacrifice services such as mobile phone salary sacrifice schemes will be removed. However, childcare, cycle to work and ultra-low emission car schemes will be unaffected, as will saving for your pension in this way
• Insurance premium tax to increase from 10 to 12% from June 2017
• National Living Wage will be raised to £7.50 from £7.20 from April 2017
• Universal Credit taper rate will be reduced from 65% to 63%
• New savings bond through NS&I with 2.2% interest rate over three years. Savers will be able to deposit up to £3,000. There will be more detail on this in the Budget next year
• Tax free childcare roll-out will begin in 2017, and will be kept under review to ensure it is "delivering the support it needs to working families". Mr Hammond has advised this would represent a saving of £2,000 per child.
• No fuel duty increase for the seventh successive year, saving motorists £130 a year
• A ‘‘triple lock’’ on the state pension will remain
• The annual allowance for those who have started to ‘‘draw down’’ their pension savings will be cut from £10,000 to £4,000
• The tax treatment of foreign pensions will align more with UK tax treatment rules (currently there are opportunities to extract money without paying UK tax)

Tax Avoidance
• Tax advantages for employee shareholder schemes are to be reviewed
• The use of the flat rate scheme for businesses use is to be targeted- The government announced it will bring in "a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses. This will help level the playing field, while maintaining the accounting simplification for the small businesses that use the scheme as intended."

Other
• Letting agent’s fees charged to tenants are to be banned. This will result in letting agents charging the landlords costs for services such as credit and immigration checks
• The Help to Buy ‘‘equity loan’’ and the Help to Buy ISA will remain in force
• Right-to-buy for housing association tenants
• Working families will be eligible for 30 hours a week of free childcare for all 3 and 4 year olds from September 2017
• No further welfare savings measures

Should you require any further details, please do not hesitate to contact a member of the Spirare team.