Archives for 2017

The end of January, Self Assessment filing deadline, and the approaching tax year end seem to stimulate fraudulent activity focussing on tax issues.

In particular, increasingly convincing attempts are made to get tax payers to part with their personal bank details or other personal information for nefarious purposes.

HMRC will never ask for your personal details, particularly your bank or credit card information, by email. Accordingly, if you receive an email requesting this sort of data do not respond.

On their website HMRC confirms that they will never use texts or emails to:

• tell you about a tax rebate or penalty
• ask for personal or payment information

They also advise that you should forward suspicious text messages to 60599 or forward suspicious emails to HMRC’s phishing team at [email protected]

Directors have a responsibility to maintain, preserve and deliver records that are adequate to explain the financial position of their company. If they fail to do so, they run the risk of being disqualified from acting as a director.

In a recent Insolvency Service investigation, a director was banned for seven years. His transgressions are illuminating. They included:

• He was unable to explain payments taken for his personal benefit amounting to £35,500.
• He was unable to explain the reasons for 83 cheque payments totalling £30,734.
• He authorised payments of almost £100,000 that were made when the company was insolvent, or caused it to become insolvent.

A disqualification order has the effect that without specific permission of a court, a person with a disqualification cannot:

• act as a director of a company
• take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership

be a receiver of a company’s property

Business owners may be considering their options for investment in new equipment especially if their trading year end is March, as is often the case. There are a number of considerations:

1. Cash flow, can the business afford the cost or fund loan or other financing arrangements?
2. Will the new equipment make a positive impact to the bottom line?
3. What are the tax breaks?

Points one and two can be accommodated by revising business plans, including cash flow budgets.

The major tax break for qualifying equipment purchases is the Annual Investment Allowance (AIA).

Assets that qualify for AIA include:

• Motorcycles, lorries, trucks and vans.
• Equipment that you buy to use in your business, plant, computer and office equipment etc.

You can’t claim AIA on the purchase of cars, items that have been gifted to your business and items you owned for another reason before you started using them in your business.

From 1 January 2016, the maximum value of capital purchases that you can write off in any period of account is £200,000.

This remains a very generous investment allowance for smaller businesses. Sole traders and partners who are taxed on their business profits at higher rates (40% or 45%) will be eligible to claim a maximum tax reduction of up to £80,000 (at 40%) or £90,000 (at 45%) against their taxable income.

Planning for all of these issues needs to be carefully considered. Apart from the issues we have outlined above, the timing of transactions can also be critical. We would be happy to assist. Professional advice is well worth the further investment as the benefits of a well thought out strategy will help you maximise, not only the tax relief available, but also the practical benefits of your new acquisition.

Costs that businesses incur to clean up after the recent storms, that affected the north and east coasts in particular, need to meet the usual qualifying criteria that they are incurred “wholly and exclusively” for business purposes in order to be a legitimate write-off for tax purposes.

If the costs are covered by insurance, no tax relief would be due. If costs are discovered to be partially covered by insurance, then only the unrecovered costs would be allowable for tax purposes.

If you have extended your business cover to include loss of profits, you can hopefully recover not only the direct costs of cleaning up but also any profits lost due to the disruption.

There are also a number of tax based risks that are not insured, but directly due to the consequences of being unable to trade after a bad weather incident. For example:

• Facing fines due to late filing of Income Tax, Corporation Tax or VAT returns;
• Loss of business accounting records;
• Adverse cash flow, unable to meet tax payments on-time.

HMRC has recently opened a new help line to assist with these consequential tax effects. They would help to:

• agree instalment arrangements where taxpayers are unable to pay as a result of severe weather or flooding
• agree a practical approach when individuals and businesses have lost vital records as a result of severe weather or flooding
• suspend debt collection proceedings for those affected by severe weather or flooding
• cancel penalties when the taxpayer has missed statutory deadlines

The helpline is 0800 904 7900. The line is open seven days a week: Monday to Friday 8am to 8pm, and weekends 8am to 4pm. The line will not be open bank holidays.

1 January 2017 – Due date for Corporation Tax due for the year ended 31 March 2016.

19 January 2017 – PAYE and NIC deductions due for month ended 5 January 2017. (If you pay your tax electronically the due date is 22 January 2017)

19 January 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2017.

19 January 2017 – CIS tax deducted for the month ended 5 January 2017 is payable by today.

31 January 2017 – Last day to file 2015-16 Self Assessment tax returns online.

31 January 2017 – Balance of Self Assessment tax owing for 2015-16 due to be settled on or before today. Also due is any first payment on account for 2016-17.

1 February 2017 – Due date for Corporation Tax payable for the year ended 30 April 2016.

19 February 2017 – PAYE and NIC deductions due for month ended 5 February 2017. (If you pay your tax electronically the due date is 22 February 2017)

19 February 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2017.

19 February 2017 – CIS tax deducted for the month ended 5 February 2017 is payable by today.

All UK taxpayers may benefit from pausing, taking a deep breath, and considering their planning options as we approach the run-up to yet another tax year end.

Individuals

The prime areas for consideration are where income levels are threatening to break through into the higher rates of Income Tax. For 2016-17, these are:

• If your taxable income exceeds £32,000 (after deducting your £11,000 personal allowance) you will pay Income Tax on any excess at 40%.
• If your taxable income exceeds £150,000 you will pay Income Tax on any excess at 45%.
• And if your income is between £100,000 and £122,000 you will pay income tax at a marginal rate of up to 60%. This is due to the gradual loss of your personal allowance in this income band.

These tax rates are for general income – for dividends see Businesses below.

You could, for instance, consider:

• Increasing pension contributions
• Salary sacrifice opportunities before the rules change from April 2017
• Gift Aid donations
• Transferring income producing assets into joint ownership with your spouse
• Deferring bonus payments until after 5 April 2017, especially if your income for 2017-18 is planned to drop as compared to 2016-17.

Apart from these strategies, there are other legitimate planning opportunities you may be able to employ in order to minimise your exposure to the higher rates. The key is to take a hard look at the numbers before 5 April 2017.

Businesses

For businesses with March 2017 year ends, it’s all about timing and an in-depth look at trading results for the first three quarters BEFORE the end of the tax year.

Items that could be considered are:

• The timing of capital acquisitions to maximise use and impact of tax allowances. For example, would it be more beneficial to delay the purchase of new plant until after March 2017, and claim against profits for 2017-18, when planned profitability is expected to increase, as compared to 2016-17? Or advance the purchase and thus tax relief?
• Deferring or bringing forward expenditure – this could include tax allowable refurbishments, maintenance to equipment and similar costs.

If your business is a company, consider retaining profits within it rather than extracting them as dividends in excess of the annual tax free allowance of £5,000. In this way you could retain cash in your business after paying 20% Corporation Tax, rather than creating an additional dividend tax charge (for dividends drawn in excess of £5,000) of between 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).

From 1 December 2016, the advisory fuel rates have changed to:

1400cc or less: petrol 11p per mile, LPG 7p per mile
1401-2000cc: petrol 14p per mile, LPG 9p per mile
Over 2000cc: petrol 21p per mile, LPG 13p per mile

Diesel rates:

1600cc or less: 9p per mile
1601-2000cc: 11p per mile
Over 2000cc: 13p per mile

These rates can be used from 1 December 2016 to calculate the petrol content of mileage rates paid to employees, or as a basis to repay private petrol provided by employers for the use of a company car (see previous article).

This is also an appropriate time of the year to consider your CGT position if you have already disposed of (or are considering a disposal) of an asset subject to CGT during 2016-17.

Most of our readers will be aware that they can make chargeable gains of up to £11,100 in the tax year 2016-17 and pay no CGT. This exemption cannot be transferred to a future tax year or carried back to a previous tax year if it is not utilised.

Many will also remember that it is no longer feasible to sell shares before 6 April 2017 in order to crystallise a CGT loss or a gain that is covered by the above exemption, if those shares, or part of them, are reacquired within 30 days of the disposal. However, it is still possible to reacquire holdings, within the 30 days period, if you use an ISA or self-invested personal pension (SIPP) to make the buy-back.

Transfers of chargeable assets for CGT purposes are exempt between spouses and civil partners. Also, the annual exemption is available to both parties. This combination means that couples may be able to share the gain on a disposal of assets and reduce their overall CGT charge.

This strategy, of transferring partial ownership to a spouse, can also reduce an overall CGT charge if the transferring partner/spouse is due to pay CGT at the higher 20% or 28% rate (as their gains fall to be taxed in the higher rate tax band) and the receiving partner/spouse would only be liable to pay CGT at the lower 10% or 18% (as their share of a transferred gain would fall into their free basic rate band).

The 10% and 20% rates apply from April 2016, but do not apply to disposals of residential property or carried interest – for these latter items, disposals are taxed at 18% to 28%, dependent on where the gains sit in the basic or higher rates bands.

And don’t forget, CGT is assessed and payable as part of your Self Assessment. Any tax payable for 2016-17 will be due for payment 31 January 2018. On the same day you will also have to pay any other underpayment of Income Tax for 2016-17 and your first payment on account for 2017-18.

If you own assets that are subject to CGT on disposal, and you, and possibly your spouse, are struggling to fully utilise your CGT annual exemption, or you would like to discuss ways to minimise any CGT payable, please call to discuss your options.

It is worth repeating an article we first published March 2016 that highlighted the cash benefit to company car drivers and their employers, of reimbursing the cost of fuel provided for private motoring. The rates have been updated for 2016-17.

Since the tax on private fuel provided with company cars is so high, many employers now have an arrangement whereby they no longer pay for private fuel. In this case, the employee must reimburse the employer for private fuel included in petrol bills paid by the employer. Otherwise, the employee may face a tax charge.

Consider the following example:

If your private mileage is currently 560 miles a month, and you drive a 1900cc diesel engine car, the rate per mile to cover fuel charges, as quoted in the latest rates published by HMRC, is 11p per mile. Accordingly, you should repay £61.60 a month to your employer.

Based on the above example, if the vehicle’s list price when new was £25,000, and the car benefit charge rate was 26% (based on a 130g/km CO2 rating) the benefit in kind charge for the year would be £6,500. With no repayment of private fuel, there would also be a £5,772 car fuel charge. Both these amounts would be added to your taxable income for the year. If you were a higher rate tax payer the car fuel charge would cost you £2,308.80 a year in additional tax (£5,772 x 40%). This amounts to £192.40 per month.

If your actual private mileage proved, on average, to be 560 miles a month, you would therefore save £130.80 per month (£192.40 – £61.60).

Employers will also benefit as they will no longer be subject to a National Insurance charge on the amount of the car fuel benefit. In the above example, it would reduce NIC costs by £796.54 (£5,772 x 13.8%).

It is worth crunching the numbers. Obviously, the lower your private mileage, the more likely a repayment system will save you money, but you will need to take action before the 5 April 2017.