To January’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice on your own specific circumstances. We’re here to help!
Changes to the VAT flat rate scheme
In a surprise announcement in the 2016 Autumn Statement, the Chancellor announced that changes are to be made to the existing flat rate scheme for VAT (FRS) in order to tackle perceived ‘aggressive abuse’. The changes, which will take effect from 1 April 2017, are designed to ‘reduce the incentive for firms and agencies to move employees to self-employment to exploit VAT simplification aimed at small businesses’. The subsequent HMRC policy paper published on 5 December sets out the details of the changes, which will affect any users, or prospective users, of the FRS.
The FRS is a simplified VAT accounting scheme for small businesses, which currently allows users to calculate VAT using a flat rate percentage by reference to their particular trade sector. From 1 April 2017 a new 16.5% FRS rate will be introduced for businesses with limited costs. Interestingly, HMRC’s policy paper on this change comments that ‘many labour only businesses’ may be affected. Although not yet clarified, this may mean the adjustments will not apply to service-related businesses such as journalists, architects or engineers. – read more>>
Abolition of Class 2 NICs
Originally announced at Budget 2016, the 2016 Autumn Statement confirmed that Class 2 National Insurance Contributions (NICs) will be abolished from April 2018, hopefully achieving the desired effect of simplifying National Insurance for the self-employed and making the system fairer for employed and self-employed individuals.
At the same time as the abolition of Class 2 NICs, the system for Class 4 NICs will also be reformed to include a new threshold – to be called the ‘small profits limit’ (SPL). The amount of the SPL for 2018/19 is yet to be confirmed but is likely to be around £6,025.
Payment of Class 2 NICs by the self-employed – a standard weekly contribution of £2.80 per week in 2016/17, rising to £2.85 per week from April 2017 – gives eligible individuals access to certain contributory benefits such as contribution-based employment and support allowance, basic state pension and bereavement benefits. – read more>>
Company cars: ultra-low emissions vehicles
At Budget 2016, the government said it would consult over the summer on changes to the ultra-low emission vehicles (ULEV) bands for taxing company cars to ‘focus incentives on the very cleanest cars’. As a result of the consultation, HMRC have now published details of eleven new bands, which will be introduced for ULEVs with emissions below 75gCO2/km from 2020/21, including a separate zero emission band.
Some of the lowest CO2 bands are based on the ‘electric range’ of the vehicle, as well as the CO2 emissions. This is the maximum distance the vehicles can travel in pure electric mode without recharging the battery or using the combustion engine of the plug-in vehicle. The aim is to distinguish between ULEV’s with different plug-in hybrid technologies and improved battery range, which will focus incentives on the very cleanest cars that allow most journeys to be zero emissions. – read more>>
Disguised remuneration and the self-employed
Following the announcement in the Autumn Statement, HMRC have published the details of a measure designed to tackle the future use of avoidance schemes currently being used by some self-employed people to avoid paying income tax and NICs on their income.
The measure will also tackle the existing use of schemes involving loans with a new charge (a ‘loan charge’) on outstanding loans taken out as part of avoidance arrangements. This charge will apply if tax is not paid on the loan and the loan is not repaid by 5 April 2019.
Various ‘disguised remuneration’ avoidance schemes currently exist, but they commonly result in a loan from a third party that is on such terms that mean it is unlikely to ever be repaid. At Budget 2016 the government announced that legislation would be introduced in Finance Bill 2017 to tackle this perceived tax avoidance by the self-employed. This announcement goes alongside a similar package of measures to curtail current and future use of disguised remuneration avoidance schemes by employees. – read more>>
Nearly half of all buy-to-let landlords intend to expand their property portfolios despite the April tax changes
There were always likely to be consequences for the buy-to-let sector following former Chancellor, George Osborne’s ‘rebalancing’ of the rental/ownership market in 2015. The then Chancellor proposed that from April, 2017 the offset of mortgage interest available to higher rate taxpayer-landlords would be gradually reduced to the basic rate by means of a four-year withdrawal of the relief: in 2017/18 landlords would only be able to apply the existing relief rules to 75 per cent of their finance costs with the remaining 25 per cent using the basic rate reduction. In the following three years the relief would be reduced by a further 25 per cent each year before the basic rate cap applies in full from 2020/21. – read more >>
Late corporation tax payments continue to rise year-on-year according to new research by Funding Options
Although HMRC’s crackdown on tax avoidance has been working effectively over the last couple of years, netting an additional £400 million in tax receipts in 2016 alone; the same success has proved to be elusive when it comes to corporation tax. The latest figures show that businesses across the UK now owe £1.8bn in late corporation tax payments, amounting to a 15 per cent increase year-on-year.
The latest figures come from new research conducted by Funding Options, one of three government recommended finance platforms for its bank referral scheme: Funding Options works with trusted advisors like accountants, finance professionals and trade federations in order to make it easier for SMEs to get access to finance. The bank referral scheme is specifically aimed at businesses who have been rejected for a loan by traditional high street banks, referring them instead to a panel of alternative funding sources. – read more>>
January Question and Answer
Q. I am thinking of renting out a small outbuilding that I own to a friend so that he can store his work equipment in it when he’s not using it. The rent is likely to be less than £1,000 a year. Will I have to declare this income to HMRC on a self-assessment return? My tax affairs are quite straight-forward – I am employed and currently I don’t need to send in a tax return.
A. Two new annual tax allowances of £1,000 each are being introduced from April 2017. One allowance is for trading income and the other is for property income. If your income from property is less than the annual limit, you will not have to declare it to HMRC or pay tax on it.
The new allowances will apply to all types of property and trading income of an individual but not to partnership income from carrying on a trade, profession or property business in partnership where special rules apply.
It is also worth noting that the allowance will not apply in addition to relief given under the rent-a-room rules (currently £7,500 per annum).
Q. Several of my employees have expressed an interest in purchasing electric cars but have pointed out that as our office is situated in a remote location they will be unable to make their whole commute without charging. If the business pays for an electric charging point to be installed at the business premises, would capital allowances be available for the expenditure incurred?
A. As luck would have it, the Autumn Statement announced that from 23 November 2016, businesses (large and small) can claim a 100% first-year allowance (FYA) for qualifying expenditure incurred on the acquisition of new and unused electric charge-points. Initially the allowance will be available until 31 March 2019 for corporation tax purposes and 5 April 2019 for income tax purposes.
Whilst this measure sounds like a big ‘giveaway’ from the government, prior to the change, the expenditure could have been covered by the capital allowances annual investment allowance (AIA), which means that, in practice, it impacts only on those businesses with qualifying plant and machinery expenditure above the level of the AIA (currently £200,000).
Do note however that there are separate workplace grants available for businesses who install electric charge points for use by their employees. It may be worth investigating this further.
Q. Ten years ago my husband inherited a share of his father’s property when he died as a joint owner with his partner. My father-in-law’s will specified that his surviving partner could continue living in the property for as long as she wanted. Both my husband and my deceased father-in-law’s partner are on the deeds for the property. The partner has recently died and the property is empty. Will my husband have to pay capital gains tax on his share when it is sold, even though he could not live there because the partner was in residence?
A. I am assuming that your husband is now in possession of the whole property, even though originally the partner owned half of it. If so, she must have transferred her half to him. When your husband sells the property, for capital gains tax purposes he will effectively be making two sales, namely the half which he inherited on his father’s death and the half he has recently acquired from the deceased partner. I’m afraid he will be liable to capital gains tax on the half he has owned for the last ten years, even though the partner was still living there. He will also be liable to capital gains tax on the recently acquired half. However, the base cost for the second half will be the market value of that half at the date the partner transferred it to him. The higher base cost should help reduce the chargeable gain on that part.
December Key Tax Dates
1 – Due date for payment of Corporation Tax for the year ended 31 March 2016
14 – Return and payment of CT61 tax due for quarter to 31 December 2016
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/1/2017 or quarter 3 of 2016/17 for small employers
31 – Deadline for filing 2016 Self Assessment personal, partnership and trust Tax Returns – £100 first penalty for late filing even if no tax is due or tax due is paid on time
– Balancing self assessment payment due for 2015/16
– Capital gains tax payment due for 2015/16
– First self assessment payment on account due for 2016/17
– Interest accrues on all late payments
– Half yearly Class 2 NIC payment due
– Further penalty of 5% of tax due or £300, whichever is greater for personal still not filed for 2014/15
– 5% penalty for late payment of tax unpaid for 2014/15 self assessment