Archives for 2016

From April 2017, the National Living Wage (NLW) for the over 25s is being increased to £7.50 per hour. This is an increase from the current NLW rate set in October 2016 of £7.20 an hour. For the over 25s, this will represent a wage increase of just over 4%.

The National Minimum Wage (NMW) will also increase from the same date to:

• For 21 to 24 year olds – from £6.95 to £7.05 per hour
• For 18 to 20 year olds – from £5.55 to £5.60 per hour
• For 16 to 17 year olds – from £4.00 to £4.05 per hour
• For apprentices – from £3.40 to £3.50 per hour

The government will also be spending an additional £4.3m to ensure that employers are complying with their legal obligation to pay the NMW.

 

HMRC is to introduce an additional test that will determine the flat rate percentage used by traders. It would seem that HMRC presently considers the benefits obtained by certain businesses to be excessive and not in accord with the intentions of Parliament.

Traders that meet the new definition of a “limited cost trader” will be required to use a fixed rate of 16.5%. This will include traders who are already using the FRS scheme, and many at rates lower than 16.5%.

From 1 April 2017, FRS traders who meet the following definitions will be considered “limited cost traders” and will be obliged to use a new 16.5% rate. A limited cost trader will be 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 £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000)

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

• capital expenditure
• 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)

Businesses using the FRS will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.

VAT traders using the FRS should review their position before April 2017 to ensure that there are still advantages to using the scheme.

Salary sacrifice is a term applied to benefits taken in place of salary. In many respects these benefits provide employees with higher “take home” value than if the benefits were treated the same as cash income. Mr Hammond is mindful to curb this practice as it is intended that the change will add £1bn a year to tax revenues by 2020.

No definitive list of benefits affected has been published, but benefits that may no longer be tax effective are:

• Mobile phones and tablets
• Car parking
• Gym membership, and possibly
• Health check-ups

There are a number of benefits that will not be affected by these changes. They are:

• Pensions
• Child care
• Cycle to work schemes
• Ultra-low emission cars (CO2 emissions up to 75g/km)

Benefits in place before April 2017 will be protected from restrictions for 1 year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to 4 years.

For those who contribute towards or make-good their benefits to reduce the taxable amounts, they will have until the 6 July after the tax year to do so – starting 6 July 2017. This only applies to benefits not already taxed as income through payroll.

Readers who are concerned they will be affected by these changes should consider a review of their salary sacrifice/benefits arrangements prior to the April 2017 cut-off date.

 

Mr Hammond surprised listeners to his autumn statement speech when he said:

This is my first Autumn Statement as Chancellor. After careful consideration, and detailed discussion with the Prime Minister, I have decided that it will also be my last.

And then quickly followed with:

Mr Speaker I am abolishing the Autumn Statement. No other major economy makes hundreds of tax changes twice a year, and neither should we. So the spring Budget in a few months will be the final spring Budget.

Starting in autumn 2017, Britain will have an autumn Budget, announcing tax changes well in advance of the start of the tax year.

From 2018 there will be a Spring Statement, responding to the forecast from the OBR, but no major fiscal event. If unexpected changes in the economy require it, then I will, of course, announce actions at the Spring Statement, but I won’t make significant changes twice a year just for the sake of it.

This change will also allow for greater Parliamentary scrutiny of Budget measures ahead of their implementation.

Mr Speaker, this is a long-overdue reform to our tax-policy making process and brings the UK into line with best practice recommended by the IMF, IFS, Institute for government and many others.

Accordingly, 2017 will be a busy year for legislation. In effect, there will be two budgets, one in April 2017, and one in the autumn.

This is a welcome change as it will provide Parliament and tax advisors with time to absorb changes announced each autumn, before most of the changes become law in the following April – though this won’t stop them being effective from the date of announcement as is often the case, now.

 

It may be possible to delay paying Capital Gains Tax (CGT) if you sell a business asset that is subject to a charge to CGT, but you use all or part of the proceeds to buy new business assets. The relief you can claim is called Rollover Relief.

This relief means you won’t usually pay any CGT until you sell the new, replacement asset. Depending on the circumstances of the replacement asset sale, you may then need to pay CGT on the gain from the original asset.

You can also claim provisional Rollover Relief if you are planning to buy new assets with your proceeds of sale, but haven’t done so as yet, or if you use the proceeds to improve assets you already own.

To qualify for Rollover Relief, the following circumstances must apply:

• you must buy the new assets within 3 years of selling or disposing of the old ones (or up to one year before)
• your business must be trading when you sell the old assets and buy the new ones
• you must use the old and new assets in your business

You can claim relief on assets including land and buildings, fixed plant or machinery – and space stations! The old and new assets don’t have to be the same kind.

Different rules apply if you only reinvest part of the proceeds from selling the old assets, if the old were only partly used in your business, or if you use the proceeds to buy ‘depreciating assets’ (fixed plant or machinery, or assets expected to last for less than 60 years when acquired).

The devil as always is in the detail. If you are considering the sale of an asset that would normally be subject to a CGT charge, and you are aiming to replace the asset, we would suggest that you call to discuss the transactions to make sure you make the most of this relief.

From 6 April 2013, the total amount of certain Income Tax reliefs that can be used to reduce your total taxable income is limited to £50,000, or 25% of your adjusted total income, if higher.

The main reliefs subject to this limit are:

• trade loss relief against general income and early trade losses relief – claimed on the self-employment, Lloyd’s underwriters or partnership pages
• property loss relief (relating to capital allowances or agricultural expenses) – claimed on the UK property or foreign pages
• post-cessation trade relief, post-cessation property relief, employment loss relief, former employee’s deduction for liabilities, losses on deeply discounted securities and strips of government securities – claimed on the additional information pages
• share loss relief, unless claimed on Enterprise Investment Scheme (EIS) or Seed Enterprise Investment
• Scheme (SEIS) shares – claimed on the capital gains summary pages
• qualifying loan interest – claimed on the additional information pages

These restrictions do not apply to Gift Aid relief; nor pension contributions which have their own limits.

It is worth considering these restrictions as they may limit your ability to recover a proportion of cash lost by claiming a reduction in tax payable on future or past income and/or gains.

 

The length of time you need to keep tax records depends on the types of income you earn and the types of tax you are paying. A list of time limits is set out below:

Income Tax and Capital Gains Tax

1. If you are not in business
   One year from the 31 January following the end of the tax year. For 2016-17, you would need to keep your records until 31 January 2019.
2. If you are in business – which includes rental income
   Five years from the 31 January following the end of the tax year. For 2016-17, you would need to keep your business and other tax records until 31 January 2023.

A company subject to Corporation Tax
Six years from the end of an accounting period. For the year ending 31 December 2016 you would need to keep records until 31 December 2022.

VAT
You should keep records for at least six years.

PAYE
You should keep payroll records for three years after the end of a tax year. For 2016-17 this would be until 5 April 2020.

These deadlines can be extended. For example, if:

• You file your return late.
• A return is subject to an enquiry or compliance check.
• Records relate to a transaction spanning more than one year.

An asset is bought which is expected to have a life longer beyond the time limit.

We have received enquiries from a number of clients, concerned that HMRC is going to try and tax them for the small amounts of cash that they make from pursuing hobbies. For example, buying and selling on eBay or setting up stalls at their local drive in markets – car boot sales.

If you establish a regular pattern of making money in this way, and in fact turn in a profit, then you probably need to consider if your hobby is a business that you need to declare to HMRC. Each case needs to be considered on its own merits.

HMRC follows a number of guidelines called “the badges of trade” that help them reach a conclusion: is a part-time hobby, that creates an income stream, a business that needs to be declared on an annual tax return? These badges of trade are listed below:

1. An intention to make a profit supports trading, but by itself is not conclusive.
2. Is the asset of such a type or amount that it can only be turned to advantage by a sale? Or did it yield an income or give ‘pride of possession’, for example, a picture for personal enjoyment?
3. Transactions that are similar to those of an existing trade may themselves be trading.
4. Was the asset repaired, modified or improved to make it more easily saleable or saleable at a greater profit?
5. Was the asset sold in a way that was typical of trading organisations? Alternatively, did it have to be sold to raise cash for an emergency?
6. Was money borrowed to buy the asset? Could the funds only be repaid by selling the asset?
7. Assets that are the subject of trade will normally, but not always, be sold quickly. Therefore, an intention to resell an asset shortly after purchase will support trading. However, an asset, which is to be held indefinitely, is much less likely to be a subject of trade.
8. An asset that is acquired by inheritance, or as a gift, is less likely to be the subject of trade.

These criteria are not the only aspects of activity that will be considered. Please call if you are concerned that your hobby may be considered a trade.

Also, please note that from April 2017, the government is to introduce a new £1,000 allowance for property income and a £1,000 allowance for trading income. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance. So, if your hobby does not produce income above £1,000, it can be ignored for tax purposes after 5 April 2017.

1 October 2016 – Due date for Corporation Tax due for the year ended 31 December 2015.

19 October 2016 – PAYE and NIC deductions due for month ended 5 October 2016. (If you pay your tax electronically the due date is 22 October 2016.)

19 October 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2016.

19 October 2016 – CIS tax deducted for the month ended 5 October 2016 is payable by today.

31 October 2016 – Latest date you can file a paper version of your 2016 Self Assessment tax return.

1 November 2016 – Due date for Corporation Tax due for the year ended 31 January 2016.

19 November 2016 – PAYE and NIC deductions due for month ended 5 November 2016. (If you pay your tax electronically the due date is 22 November 2016.)

19 November 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2016.

19 November 2016 – CIS tax deducted for the month ended 5 November 2016 is payable by today.

The good news is you can reclaim VAT added to certain expenditure that was paid out prior to your business registration for VAT. HMRC’s instructions on this issue confirm:

There is a time limit for backdating claims for VAT paid before registration. From your date of registration, the time limit is: 4 years for goods you still have, or that were used to make other goods you still have, and 6 months for services. It may also be possible to improve matters by backdating registration in some cases – although you would need to take into account potential output tax liability on sales not previously liable to VAT.

You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.

You should reclaim them on your first VAT Return (add them to your Box 4 figure) and keep records including: invoices and receipts, a description and purchase dates and information about how they relate to your business now.

You can’t reclaim VAT for:

• anything that’s only for private use
• goods and services your business uses to make VAT-exempt supplies
• business entertainment costs
• anything you’ve bought from other EU countries (you may be able to reclaim VAT charged under the electronic cross-border refund system)
• goods sold to you under one of the VAT second-hand margin schemes

You will need to reduce your claim if goods or services have a mix of business and private use. There are also special rules for reclaiming VAT on single pieces of computer equipment, aircraft, ships and boats costing more than £50,000; or land and buildings costing £250,000 or more (before VAT).