To December’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
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HMRC clarify pre-registration of VAT policy
HMRC have recently published Brief 16 (2016), entitled Treatment of VAT incurred on assets that are used by the business prior to VAT registration. Broadly, the brief aims to clarify when, and to what extent, VAT is deductible and what to do if the correct treatment has not been applied.
A business registering for VAT may recover tax incurred on goods and services before their effective date of registration (EDR). This allows the recovery of VAT against goods and services as long as they are used by the taxable person to make taxable supplies once registered.
Services must have been received less than six months before the EDR for VAT to be deductible. This time limit is a simplification of the rules and means that detailed calculations of the use before and after EDR are not required. This excludes services that have been supplied onwards. VAT on services received within the relevant time limit can be recovered in full. – read more>>
Employment Allowance consultation launched
HMRC have launched a technical consultation on proposals to restrict the Employment Allowance (EA) from employers of ‘illegal workers’. The consultation is open for comments until 3 January 2017.
Budget 2016 announced that from April 2018, the EA would be removed for one year from those who receive civil penalties for employing illegal workers. Broadly, the allowance entitles the vast majority of businesses, charities, and community amateur sports clubs to a reduction of up to £3,000 per year on their employer National Insurance Contributions (NICs) bill. Whilst the allowance has very broad eligibility, the Government believes that those who break the law by employing illegal workers should not benefit from it. The purpose of the restriction therefore is to ensure the allowance focuses on employers who are providing legitimate employment.
The proposed change will only impact employers who have received a civil penalty from the Home Office for employing workers subject to immigration control and have exhausted their Home Office appeal rights in relation to that civil penalty. Early estimates suggest that around 2,000 employers will be affected.
Voluntary living wage increase takes effect
The official living wage rate has increased by 20p per hour to £8.45 an hour (£9.75 in London), which is higher than the UK-wide official National Living Wage for those over 25, currently set at £7.20, while those under 25 must be paid the national minimum wage (NMW).
The Living Wage is independently-calculated each year based on what employees and their families need to live. Employers can choose to pay the real Living Wage on a voluntary basis but it is currently paid by a third of FTSE 100 companies.
The rates apply to all workers over 18 in recognition that young people face the same living costs as everyone else.
These figures are calculated annually by the Resolution Foundation and overseen by the Living Wage Commission, based on the best available evidence on living standards in London and the UK.
Caps on income tax relief
In general terms, providing a business is undertaken on a commercial basis with a view to making a profit, tax relief should be available for trading losses incurred. It is usually possible to offset the loss against other taxable income from the same year, or the previous year. Other taxable income may include for example, a former employment (where tax was deducted under PAYE) or a pension.
This relief may be particularly beneficial for someone who is self-employed on a part-time basis. For example, where an individual earns £30,000 a year from employment, and makes a £2,000 loss from his or her part-time business, their tax bill for the year will be based on income of £28,000. – read more>>
Federation for Small Businesses calls for urgent action on damaging late payment practice
What costs the economy £2.5 billion and is responsible for the premature closure of 50,000 potentially viable businesses each year? Well, it’s not poor productivity or a lack of investment as some might suspect: it’s actually late payments. That’s the conclusion of the Federation of Small Businesses in its recently published dossier – ‘Time to act: the economic impact of poor payment practice. – read more >>
New Small Business Taskforce promises to be the true ‘voice’ of the UK’s SME community
If you run a small business it’s all too easy to feel that somehow you’re being left behind in what is undoubtedly a fast-changing world. Economic policies swing one way then another, and seemingly stuck in the middle with little or no voice are small businesses. The government had pledged to tackle this feeling of impotence and powerlessness: in fact, back in April it went a far as saying that it would appoint a small business commissioner to deal with the issue. However, to date that promise has failed to materialise. The good news that will be welcomed by SMEs and accountants is that the sector has now decided to take the initiative and launch its own taskforce – the Small Business Taskforce. – read more>>
December Question and Answer
Q. My wife doesn’t work. Can she transfer her unused personal tax allowance to me?
A. Since April 2015, it has been possible for a spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year, to transfer part of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate.
The transferor’s personal allowance will be reduced by the same amount. For 2015/16 the amount that could be transferred was £1,060, rising to £1,100 for 2016/17. The spouse or civil partner receiving the transferred allowance will be entitled to a reduced income tax liability of up to £220 for 2016/17 (£212 for 2015/16). Note, however, that married couples or civil partnerships entitled to claim the married couple’s allowance are not entitled to make a transfer.
Q. I am currently in the process of purchasing a property which includes a separate granny annex. Since there is only one title number for the whole property, can I apply for stamp duty land tax multiple dwelling relief (MDR)?
A. Broadly, if the granny annex is an independent dwelling, then it will count for MDR. If it cannot exist independently of the main house, then MDR will not be available.
The HMRC Stamp Duty Land Tax Manual states (SDLTM29955):
‘For the purposes of the relief a “dwelling” means a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use.’
Special rules apply to certain types of dwellings, including halls of residence and ‘off plan’ transactions. See the HMRC Stamp Duty Land Tax Manual for further information.
Q. I bought a flat in 2000 and paid £100,000 for it. I left the UK in November 2003 to work overseas and it has been rented out since then. I have not returned to the UK since I left and I now live permanently in France. I am thinking of selling my UK flat, which is now valued at £300,000. What are the tax implications of doing this?
A. The tax implications for non-UK residents selling UK residential properties changed in relation to disposals after 5 April 2015. Prior to then, there would have been no UK capital gains tax to pay. Unfortunately, after that date, the disposal will be subject to capital gains tax based on the value of the gain between 6 April 2015 and the date of sale. There are different ways of calculating the gain and you can use HMRC’s online calculator to work out the amount of tax due. You must tell HMRC within 30 days of conveyance, for example no later than 31 July if you convey on 1 July. HMRC may impose penalties where the reporting deadline is missed and interest will be payable on tax not paid by the normal due date. See the HMRC website at https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-uk-residential-property for further information.
December Key Tax Dates
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/12/2016
30 – Deadline for 2015/16 self assessment online returns to be filed if you are an employee and want tax underpaid to be collected by adjustment to your 2017/18 PAYE code (for underpayments of up to £3,000 only)