To March’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 IR35 rules confirmed
HMRC have recently announced changes to the way the intermediaries legislation (known as the ‘IR35 rules’) will be applied to off-payroll working in the public sector. In particular, contractors who provide their services to a public authority through an intermediary will need to be aware for the changes, which take effect from 6 April 2017.
Broadly, from 6 April 2017, responsibility for deciding whether the legislation should be applied will move from the worker’s intermediary to the public authority the worker is supplying their services to. – read more>>
Tax-free access to pension advice
The Treasury has confirmed details of the new Pension Advice Allowance, which will take effect from April 2017, and which will enable people to withdraw £500, on up to three occasions, from their pension pots tax-free to put towards the cost of pensions and retirement advice.
Following an eight-week consultation period, the Economic Secretary to the Treasury, Simon Kirby, confirmed that the £500 allowance:
– can be used a total of three times, only once in a tax year, allowing people to access retirement advice at different stages of their lives, for example when first choosing pension or just prior to retirement;
– will be available at any age, allowing people of all ages to engage with retirement planning;
– can be redeemed against the cost of regulated financial advice, including ‘robo advice’ as well as traditional face-to-face advice; and
– will be available to holders of ‘defined contribution’ pensions and hybrid pensions with a defined contribution element, not ‘defined benefit’ or final salary type schemes.
According to recent research, UK savers with a pension pot of £100,000 save an average of £98 more every month and receive an additional income of £3,654 every year of their retirement if they take financial advice.
Salary v dividend
The questions surrounding the issue of how best to extract profits from a company in a tax-efficient manner remain as popular as ever. Despite the introduction of the dividend allowance, and the personal savings allowance, extraction by as remuneration and by way of dividend remain the two most widely used methods. The tax effects of these methods may be broadly contrasted as follows:
– Provided the amount is justifiable, remuneration is generally allowed as a deduction in arriving at the taxable profits of the company. The recipient is taxed on the remuneration through the PAYE system at the date of payment including a charge to NIC.
– Dividends are not deducted in arriving at the taxable profits.
It must be remembered here that payment of a salary will give rise to a liability to National Insurance Contributions (NICs), whereas payment of a dividend does not. – read more >>
Changes to company carry-forward of losses confirmed
Initially announced at the time of the 2016 Budget and following a period of consultation, Finance Bill 2017 contains provisions to reform the tax treatment of certain types of carried-forward loss for corporation tax purposes with effect from 1 April 2017.
Losses arising from 1 April 2017, when carried forward, will have increased flexibility and can be set against the total taxable profits of a company and its group members (referred to as the ‘loss relaxation’).
For all carried-forward losses, whenever they arose, companies will be able only to use the losses against up to 50% of profits (known as the ‘loss restriction’). Each standalone company or group will be entitled to a £5 million annual allowance. Profits within the allowance will not be restricted, ensuring 99% of companies are unaffected by the restriction. – read more>>
Self-employed professionals urged to check their NICs and their subsequent pension eligibility
The Institute of Chartered Accountants in England and Wales (ICAEW) has raised concerns that the UK’s self-employed community could be in danger of missing out on future pension payments because the lines of communication between HM Revenue and Customs (HMRC) and the National Insurance office regarding Class 2 National Insurance contributions and the manner of their collection aren’t functioning smoothly.
So what exactly is the problem according to the ICAEW, and where did it originate? Well, in April 2016 the rules regarding the collection of Class 2 NICs were changed. Self-employed professionals were previously required to pay their Class 2 NICs through direct debit: however, from April last year the rules were changed so self-employed professionals now pay their Class 2 NICs through their self-assessment read more >>. –
IPSE urges limited freelancers to public sector services to file invoices before March to avoid the new April tax changes
Are you a freelancer providing services to the public sector through your own limited company? Then Steven Glicher accountants have some important news to tell you about courtesy of the Association of Independent Professionals and the Self-Employed (IPSE).
The IPSE is urging freelancers who provide this sort of service to get their invoices submitted before the 6th March. Why, you’re probably wondering? Well, it believes that unless self-employers workers submit their invoices before that date, the ‘punitive’ tax changes which will be introduced at the start of the next financial year will mean that it is unlikely they will get paid before the end of this tax year.
So what tax changes is the IPSE referring to specifically? Well, from the start of the 2017/18 tax year, all payments made by public sector clients, or recruiters in contractual agreements with public sector end users, may be made via Real-Time Information (RTI): a system previously reserved just for staff. – read more>>
March Question and Answer
Q. Will I have to pay stamp duty land tax on a property I am about to inherit?
A. Stamp duty land tax (SDLT) is generally payable on land transactions. There is a land transaction when land passes to a beneficiary under a will, or by virtue of the law on intestacy. However, the legislation governing SDLT (Finance Act 2003, Schedule 3, para. 3A) provides that the acquisition of property by a person:
– in or towards satisfaction of his entitlement under or in relation to the will of a deceased person,
– on the intestacy of a deceased person
is exempt from SDLT.
You should note though that this exemption does not apply where the beneficiary gives consideration other than the assumption of secured debt or the acceptance of an obligation to pay inheritance tax. Secured debt is debt that, immediately after the death of the deceased person, was secured on the land. The most common example of this is a mortgage to the extent that the mortgage is not paid off on death.
The exemption applies whether the transfer is to a sole beneficiary or to joint beneficiaries.
Q. I run a small business but I am registered for VAT. What are the advantages and disadvantages of using the annual accounting scheme?
A. The annual accounting scheme aims to help small businesses by allowing them to submit only one VAT return annually. During the course of the year, fixed sums are paid to HMRC – based on the previous year’s liability – and a balancing payment is made, if necessary, once the annual return has been prepared.
Key points of the scheme are as follows:
– A business can join the scheme providing its taxable turnover does not exceed £1,350,000 per annum.
– The business must stop using the scheme if its taxable turnover exceeded £1,600,000 per annum in the previous accounting year of the scheme.
– The business makes nine monthly payments of 10% of the total paid in the previous year or, if newly registered, the amount it is expecting to pay in the next 12 months. Alternatively, it can choose to pay 25% quarterly.
– HMRC may agree to alter the level of interim payments if the business trading pattern changes.
– A business may not obtain approval to use the scheme if it owes a significant debt to HMRC.
– Payments start on the last working day of the fourth month of the scheme’s accounting year and must be made by standing order, direct debit, or other electronic means.
– The annual VAT return, together with any balance due to HMRC, is submitted two months from the end of the scheme’s accounting year. This means that a business gets an extra month over the time limit applicable to a normal return.
– The scheme may assist some businesses with cash flow, particularly where the business is seasonal. For example, if the busiest trading period is in the summer, a scheme year ending, say, 31 January, will spread the payments, thus assisting cash flow. It may also be more convenient to produce both the annual VAT return and the annual accounts at a quieter time of the year.
– It is generally felt within the accountancy profession that the discipline of preparing a quarterly VAT return helps businesses to keep their records up to date and on top of their financial affairs.
Q. I live in a leasehold flat in a property in which there are six other leasehold flats. The opportunity has arisen for the leaseholders to buy the freehold reversion from the landlord and all of the leaseholders have agreed to contribute equally towards the purchase. Our solicitor has advised a limited company should be set up to buy the freehold. Are there any tax consequences involved here?
A. The Law of Property Act 1925 stipulates that a maximum of four persons can be the legal owners of land and property, which is likely to be the reasoning behind your solicitor suggesting the use of a company. This restriction, however, only applies for legal ownership, which means that named persons could hold the ownership as trustees for other persons too. Tax is usually based on beneficial ownership, not legal ownership and a ‘bare trust’ is often used in cases where one or more persons would hold the freehold reversion as bare trustee for all the leaseholders. For tax purposes, the tenants would be deemed to own their share of the freehold absolutely. A similar arrangement can exist in a company providing the company is a ‘nominee company’ which is the corporate equivalent of a bare trust. This too would have the same consequences as a bare trust.
March Key Tax Dates
8 – Spring Budget 2017
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/3/2017