Category Archives: Tax

2020 Vision For Making Tax Digital

 

 

 

An announcement yesterday from HM Treasury delayed the timetable for the Making Tax Digital (MTD) initiative imposing quarterly tax returns on businesses. The change in policy has been driven by concerns from business owners and professional bodies regarding the pace of the proposed changes. The new timetable gives business owners until 2020 to adapt to keeping digital records and updating HMRC for other taxes. Those businesses below the VAT threshold will be able to voluntarily file digitally for other taxes should they chose to do so.

From April 2019 businesses with turnover above the VAT threshold (currently £85,000) will have to keep digital records for VAT purposes only, filing returns with an MTD compatible software. Critically however businesses will not be asked to keep digital records, or to update HMRC quarterly until at least 2020.

The government’s original plan, laid out in the March 2015 Budget, required unincorporated businesses with turnover above the VAT threshold to submit quarterly returns to HMRC from April 2018 and those with lower turnover to follow suit from April 2019. Limited companies of all sizes we due to follow these rules from April 2020.

If you would like to discuss any Cloud Accounting requirements or find out about how Making Tax Digital will affect your business, please contact Jill Morris (jill.morris@pmm.co.uk)

Tax confusion due to Finance Bill changes

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The original Finance Bill 2017 published in March amounted to 762 pages and contained draft legislation on a whole range of tax changes which were due to take effect from 1 April this year for companies and 6 April this year for individuals.  However, the imminent general election has caused all that to change.

Vast swathes of legislation have been dropped from the Bill –  72 out of 135 clauses and 18 out of 29 schedules have been dropped.  The volume of the bill has effectively decreased by over 80%. This is to allow time for the Bill to be debated and passed before parliament shuts down in the run-up to the General Election.

This has caused confusion and uncertainty for many taxpayers who were expecting to be affected by tax changes taking effect from 1 or 6 April or who were hoping to use the new legislation to carry out tax planning transactions.

Some of the key pieces of legislation removed from the Bill were:

  • Making tax digital – the Government has reaffirmed its commitment to making tax digital but it is not known whether the intended start date of 1 April 2018 will be delayed.  This is an enormous project and uncertainty for taxpayers is increasing as we get nearer to 1 April 2018 with no clear idea of what the requirements of the new system will be.
  • Changes to corporate loss relief – new rules were due to take effect bringing increased flexibility for brought forward tax losses and restrictions on the use of losses for large companies.  It is not now clear when those rules will take effect and this is causing uncertainty for many companies as to their tax position.
  • Restrictions to corporate interest deductibility – due to commence on 1 April 2017 but now uncertain.
  • The relaxation of the Substantial Shareholdings Exemption which allows the tax-free sale of qualifying shareholdings by companies – a major widening of these rules was due to commence on 1 April 2017 and a number of groups of companies were planning to restructure their holdings utilising the new rules.
  • The reduction of the dividend allowance from £5,000 to £2,000 due in 2018/19 – as yet there is no indication that this will change.
  • The £1,000 tax-free allowance for property and sundry income which was due to come into effect on 6 April 2017.
  • First year allowances on electric vehicle charging points – due from 1 April 2017.

Assuming no major surprises in the election result, it is expected that the government will legislate at their earliest opportunity at the start of the new parliament.  However, it is unlikely that such legislation will be retrospective in respect of the proposals due to start on 1 April 2017 but this has not been confirmed.  In the meantime, our advice is to hold fire on any planning under the new rules and keep a close eye on developments.

For further advice on any of the above issues contact Claire Astley on Claire.astley@pmm.co.uk or Jonathan Cunningham on jonathan.cunningham@pmm.co.uk

Making Tax Digital (MTD) Update

shutterstock_508146895Following the spring budget, the chancellor has announced that MTD for unincorporated businesses and landlords with an annual turnover between £10,000 and £85,000 will now take effect from April 2019 as opposed to the original implementation date of April 2018. This delay will no doubt be a welcome postponement for smaller businesses.

Unincorporated businesses and landlords who have turnover exceeding £85,000 will need to submit quarterly returns digitally to HM Revenue & Customs from April 2018. There is no change to the scheduled start date of April 2020 for limited companies.

If you have any questions on how MTD will affect you, please do not hesitate to contact one of our dedicated MTD team.

Andrew Cowking - New Website
Andrew Cowking
Partner
Email: andrew.cowking@pmm.co.uk 
Telephone: 01254 679131

Julie Walsh - New website
Julie Walsh 
Tax Manager
Email: julie.walsh@pmm.co.uk
Telephone: 01254 679131

Jill Morris - New Website
Jill Morris
Run My Business Director
Email: jill.morris@pmm.co.uk 
Telephone: 01254 679131

Lucy O Gorman - New wesbite
Lucy O’Gorman
Run My Business Manager
Email: lucy.ogorman@pmm.co.uk
Telephone: 01254 679131

 

 

 

 

 

Tax Year End Planning For Individuals

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The tax year end is fast approaching, so the PM+M tax team have put together some useful tips for individuals who need some guidance with their tax planning.

Tax planning can be complicated but the PM+M team are here to help. To download our individual tax planning helpsheet, click on the button below. Should you have any questions, please do not hesitate to call a member of the tax or wealth management teams on 01254 679131.

HELPSHEET

Looking forward to ATED

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If you own residential property in a company and its worth more than £500,000, then you may need to comply with the Annual Tax on Enveloped Dwellings (ATED) rules.

The rules require an annual tax return to be submitted by 30 April covering the forthcoming year.  The ATED charge for the forthcoming year must also be paid on that date.

Who needs to file an ATED return?

ATED returns must be filed and an ATED charge paid every year by non-natural owners of residential properties located in the UK, where the property is worth more than £500,000, and one of the reliefs or exemptions has not been claimed for the property.

A non-natural person can be defined as one of the following:

–       Any company wherever it is registered;
–       A partnership where one or more of the partners is a company;
–       A collective investment scheme.

There are exemptions from the charge, for example for properties which are commercially let, but there is still a requirement to submit the annual ATED return and claim the exemption, even if you have nothing to pay.

The rates

The new rates have recently been revealed for the chargeable year beginning 1 April 2017. The charge for the period will need to be paid by 30 April 2017.

Property value £ 2016/17 £ 2017/18 £
500,001 – 1,000,000 3,500 3,500
1,000,001 – 2,000,000 7,000 7,050
2,000,001 – 5,000,000 23,350 23,550
5,000,001 – 10,000,000 54,450 54,950
10,000,001 – 20,000,000 109,050 110,100
Over 20,000,000 218,200 220,350

The valuation band is determined by the properties’ market value as at 1 April 2012. If the owner acquired the property since that date, the value to use is the open market value at the date of acquisition.

If the property falls within 10% of a valuation band, the owner can apply to HMRC for a pre-return banding check. These checks can take at least 30 days to process, so it is best to apply as soon as possible.

For more information on ATED or if you’re worried about the above rates, please get in touch with our tax team by emailing tax@pmm.co.uk or by calling 01254 679131.

 

Salary Sacrifice Changes From April 2017

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New rules are coming in on 6 April 2017 for certain benefits in kind where they are provided by salary sacrifice.

If you provide benefits to your employees in exchange for salary sacrifice or have a flexible benefits package where your employee can choose a benefit or cash, or where you provide benefits but offer your employee a cash alternative then you need to know about these changes.

Benefits impacted are those which are currently taxable, like cars and white goods, and those currently tax exempt, like mobile phones and workplace parking.

You don’t need to do anything if your employees are only sacrificing salary for:

  • Pensions or pensions advice,
  • childcare vouchers,
  • workplace nurseries,
  • directly employer contracted childcare,
  • cycle to work or
  • ultra-low emission company cars (emissions of or under 75 g CO2 / km).

The new rules start on 6 April 2017. Salary sacrifice contracts entered on or before 5 April 2017 will be protected up until the contract hits a trigger point. From 6 April 2017, the normal trigger point is when the salary sacrifice contract renews, auto-renews, starts, ends or is modified or changed. At this point you must use the new rules. This should align with your normal contractual arrangements.

If an employee starts a contract on or after 6 April 2017, then you will need to immediately use the new rules for that employee. This will apply to any new recruits who adopt the arrangements.

For a better understanding of what is changing and what you need to do next, please click the button below to view our help sheet.

HELPSHEET

Buy-to-let – the new rules are coming

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If you cast your mind back to the 2015 summer budget, you may remember the significant changes that will impact all landlords. The implementation date of these changes is drawing ever closer and it will eat into landlords’ profits and, in some cases, may wipe them out completely.

With the slashed tax relief and added stamp duty, you may feel that someone has got it in for buy-to-let landlords. The question is what can you do about it?

What does the loss of tax relief mean?

This is one of the biggest changes to buy-to-let and now means that people buying to let residential property will no longer be able to claim tax relief on their mortgage interest payments at their marginal rate of tax. Before the changes this meant that basic rate taxpayers would get 20% tax relief, but those at a higher rate would receive 40% or 45% in tax relief.

What’s changing?

The changes mean that the tax relief will be a flat rate of 20%. Basic rate taxpayers, in most cases, will not see any changes, but those on higher incomes will find themselves losing much more in mortgage interest payments.   Also, more landlords may find themselves unexpectedly moving up into the higher rate tax bracket because of the way the new rules work.

To provide some perspective, here’s an example:

A landlord with a £150,000 buy-to-let mortgage on a property worth £200,000, with a monthly rent of £800, would currently have a net profit after tax of around £2,160 a year. With the lower tax relief, the net after-tax profit would be reduced £960.

Overall, the higher the interest you pay, the more you will feel the changes.

However, the full impact of the new rules is not felt immediately, as these changes will be gradually phased in from 6 April 2017, with transitional rules in place until April 2020. During the transition, the amount of interest directly deductible from rents will reduce and the proportion deducted as a fixed 20% credit will increase. This means in the transitional period landlords will be able to claim:

Tax year Interest deductible from profits Interest at fixed basic rate credit
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%

Income tax on property gains!

New rules announced last year, designed to target non-resident companies and individuals from escaping UK tax on profits made from the sale of UK properties, could inadvertently impact UK landlords. The new rules seek to charge the profits on selling UK property to UK income tax rather than CGT when the ownership of the property is more in the nature of a trade than a fixed investment.

When the changes were announced, there was widespread concern that UK landlords could be affected.

HMRC have now addressed this by releasing a 64-page guidance document to help clarify how they will seek to operate the rules.  In the guidance, they state that the new rules will not apply to businesses which buy properties in order to generate rental income, even if these businesses also enjoy an uplift in market value of the property. So the average UK buy-to-let landlord should not be subject to income tax on the gains he makes when he sells properties which were acquired for letting.

Whilst this is good news, it is only HMRC guidance and not law. For those particularly concerned about this new legislation, the position can be clarified with HMRC under their non-statutory clearance application process.

 

 

Trivial benefits in kind exemption may not be so trivial

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It’s Christmas and the annual minefield of gifts and Christmas parties for employers to navigate. If you are giving your employees gifts to create goodwill, the last thing you want to do is destroy that goodwill with an unexpected tax bill.

However, help is at hand from the new trivial benefits rules.

Previously, the rules were subjective. HMRC allowed exemptions for reasonable gifts but there were no clear thresholds, making it difficult to have certainty about tax treatment.

Under the new rules, benefits and gifts can be tax-free providing that:

–       They cost no more than £50 per benefit and
–       They are not cash or a cash voucher (gift vouchers e.g. for a shop, are allowed).

There is no limit on the number of trivial benefits that can fall into the new rules for employees, providing that they do not form part of the employee’s remuneration for their job or part of a salary sacrifice arrangement.

Special rules apply for directors to limit the overall total for a tax year to £300 of tax-free trivial benefits.

The new rules are good news for generous employers who can now have clarity about what is and is not tax-free, not just at Christmas, but throughout the year. Also, employers who were previously providing vouchers and paying the tax under a PAYE settlement agreement may no longer need to that.

And don’t forget the £150 per person tax exemption for events such as Christmas parties. But do be aware that the limit can only apply to one event, not spread across multiple ones and it includes the extras such as employer funded travel.

The VAT inclusive cost needs to be used when considering if the tax-free limit is reached for both trivial benefits and the annual events exemption.

For more information in trivial benefits, please contact our tax team by emailing tax@pmm.co.uk or by calling 01254 679131.

Inheritance Tax And The New Residence Nil Rate Band

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Much of my time is spent advising clients on inheritance tax, both the current liability on their estates, and what can be done to address it. It’s an emotive subject, with many clients feeling aggrieved that the wealth they have created over their lifetime is being taxed again on death.

In response to this, the former Chancellor, George Osborne introduced additional measures to potentially reduce the tax take for the treasury, and allow people to pass on more of their money to their families on death.

On death, if you leave assets to anyone other than your spouse, inheritance tax is paid at a rate of 40% on any assets you hold above the nil rate band; this currently stands at £325,000 each (£650,000 for couples).

It has long been the objective of the Conservative Party, to increase the point at which inheritance tax becomes payable by couples to above £1 million. The simplest way to address this would have been to increase the nil rate band to £500,000 each. However, for political and financial reasons this was not the solution George Osborne devised.

An additional nil rate band was created of up to £175,000 each, relating to the family home.  This will be phased in over 4 years from 6 April 2017, starting at £100,000 each and increasing by £25,000 per year over 3 years. This is in addition to the existing nil rate band. Thus, if you as a couple have a home worth £350,000, you may eventually be able to pass on a joint estate of £1 million without being subject to inheritance tax.

This all sounds good news but it should be noted that not everyone will qualify.  Here are a few key points:

  • If your estate is worth more than £2m your entitlement to the residence nil rate band starts to disappear;
  • The rules stipulate that homes must be passed on to direct descendants, by which it means children and grandchildren;
  • I’ve had to inform clients who are leaving all their assets to nephews and nieces that they won’t get this additional relief;
  • Step-children and adopted children are counted in the definition as children so that is welcome;
  • If leaving the property into a trust, it must be one that creates a fixed entitlement to the property to a direct descendant, it can’t be wholly discretionary;
  • If one spouse doesn’t use their residence nil rate band, it can be passed on to the other spouse to use on the second death in the same way as the ‘normal’ nil rate band;
  • It can only be claimed against one property so two properties totalling £350,000 may require you to claim this relief against the higher value property only; and
  • There are also a myriad of rules relating to downsizing, which will probably require further revision by the Government to ensure they work in the way intended.

Inheritance tax is an area where many people will require advice. If you wish to receive advice on the Residence Nil Rate Band or any other inheritance tax matter, please get in touch.

Written by Richard Hesketh
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Richard Hesketh 
Client Manager
Email: richard.hesketh@pmm.co.uk
Direct: 01254 604340

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Jane Parry 
Managing Partner & Head of Tax
Email: jane.parry@pmm.co.uk 
Direct: 01254 604329

 
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PM+M Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority.

The Apprenticeship Levy

shutterstock_305418650The new apprenticeship levy will have its challenges but have you considered the benefits of this new legislation when it comes into effect in April 2017?

The Government have already made their mark by abolishing the employers’ National Insurance Contribution (NIC) for apprentices under the age of 25 back in April 2016. This new levy is part of their commitment to increase the quality and quantity of apprenticeships available in England  in order to reach their goal of 3 million by 2020.

The Levy will be payable on payroll bills of over £3 million per year at 0.5%. This will affect many businesses, who perhaps haven’t even considered apprenticeships for some time.

All employers will receive an allowance of £15,000 to be offset against the payment of the levy.  This levy “pot” is then to be used on apprenticeship training and assessments from an approved provider only.

The Government will top up levy contributions by 10%.

The payments for apprentices studying English and Maths will be paid direct to the providers and not taken from the levy payments.

This is essentially another tax. However, businesses can benefit from this by utilising the levy to upskill existing team members. There is a huge employment demand upon us with nearly 21,000 people due to retire in the next few years.

Don’t waste this opportunity – look into your options now and prepare.

If you’re not sure whether the levy will affect you and want advice on this or other payroll matters, please contact Julie Mason at julie.mason@pmm.co.uk or call 01254 679131.