To November’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 in your own specific circumstances. We’re here to help!
Restriction of tax relief on finance costs for individual landlords
New provisions will take affect from April 2017, which will see tax relief for finance costs on residential properties being gradually restricted over a period of three years, until, by 2020/21, all financing costs incurred by a landlord will be restricted to the basic rate of income tax.
Such finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan. – read more>>
NMW increases take effect
New rates for the National Minimum Wage (NMW) took effect from 1 October 2016, and employers must ensure that they implement them accordingly. The rates are as follows:
– 25 and over – £7.20 per hour;
– 21- to 24-year-olds – £6.95 an hour;
– 18- to 20-year-olds – £5.55 an hour;
– 16- to 17-year-olds £4.00 an hour; and
– Apprentice rate – £3.40 an hour.
The increased NMW penalty took effect from 1 April 2016 and applies to any notice of underpayment relating to a pay reference period beginning on or after that date. Broadly, the penalty percentage which may be imposed for non-compliance has been increased from 100% to 200%. The maximum penalty is a hefty £20,000 per worker, although it may be reduced by 50% if the unpaid wages and the penalty are paid within 14 days.
For further information on the NMW, see the GOV.UK website at https://www.gov.uk/national-minimum-wage-rates.
The Savings (Government Contributions) Bill is currently making its way through Parliament, having had its second reading in the House of Commons on 17 October 2016. Broadly, if enacted, the Bill will introduce two new schemes – the lifetime ISA and Help-to-Save – both of which are designed to support more people as they try to save for the future.
Help-to-Save will target working families on the lowest incomes to help them build up their savings. The scheme will be open to some 3.5 million adults in receipt of Universal Credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or those in receipt of Working Tax Credit. It will work by providing a 50% government bonus on up to £50 of monthly savings into a Help-to-Save account. The bonus will be paid after two years with an option to save for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200. Savers will be able to use the funds in any way they wish. – read more>>
Self-assessment and disclosure
Finance Act 2016, which became law on 15 September 2016, contains provisions designed to help clarify the time allowed for making a self-assessment.
The time limit is four years from the end of the tax year to which the self-assessment relates. This is the same time limit as for assessments by HMRC. The provisions will have effect on and after 5 April 2017, although there are transitional arrangements for years previous to this, as follows:
– for tax years prior to 2012/13, taxpayers have until 5 April 2017 to submit a self- assessment;
– for 2013/14, the deadline is 5 April 2018;
– for 2014/15, the deadline is 5 April 2019; and
– for 2015/16, the deadline is 5 April 2020. – read more>>
The appointment of a Small Business Commissioner is a matter of urgency, claims IPSE
In June this year the government announced its backing for the Prompt Payment Code (PPC). It also announced its intention to appoint a Small Business Commissioner to provide help and advice to businesses. However, whilst the government stated that it wished to work with larger employers to strengthen the voluntary prompt payment code, it stopped short of committing to a strict enforcement of the 30-day payment rule under the Prompt Payment Code (PPC). – read more >>
UK businesses learn more about the first business rate revaluation since 2010
During the last Autumn Statement, former Chancellor, George Osborne, pledged to commit to a full review of the business rates regime. Although he may not be Chancellor any more, some of his promises were finally honoured last week when the Valuation Office Agency (VOA) released details about the new system. Whilst SMEs and accountants may have held different views on what changes needed to be made, they both agree that not only are the changes are long overdue; they also believe the impact of the changes to business rates will be significant.
Mr Osborne had called for an extension of double relief for small firms and a continuing cap on inflation-linked increases. He claimed that by doubling this small business rate relief 500,000 firms would benefit, and that 300,000 would pay no rates whatsoever. He also called for inflation-linked increases to be capped at two per cent: he argued that with such a cap in place high-street shops, public houses and cafes would see a £1,000 discount on rates increased to £1,500 in subsequent years. – read more>>
November Question and Answer
Q. I have recently set up my own business after having been employed for many years. Although I am hopeful that I will eventually make a profit, I anticipate that I am likely to make a small loss in each of my first three years of trading. What is the best way for me to utilise these losses for tax purposes?
A. If a business is being carried on on a commercial basis with a view to making a profit, it is generally possible to claim relief for a trading loss in one tax year against other taxable income (for example PAYE income or a pension) from the same year, or the one before. You will be free to decide which year to claim the losses against. You should note that HMRC will restrict loss relief if you carry on a trade but spend an average of less than ten hours a week on commercial activities.
Where a loss is incurred in any of the first four tax years of a new business, the loss can be carried back against total income of the three previous tax years, starting with the earliest year. Therefore, if you paid tax in any of the previous three years, you should be entitled to a repayment of tax, which may be especially welcome in those often difficult early years of trade. You must offset the maximum for each year – it is not permissible to offset just a proportion of the loss in order to spread the loss across three years to take advantage of beneficial tax rates. Again, relief will not be available unless you were trading on a commercial basis with a view to making a profit within a reasonable timescale. In practice, this requirement may be difficult to prove in the case of a new business and you may need a viable business plan to support a claim.
A cap on relief was introduced in April 2013, which applies to certain previously unlimited income tax reliefs that may be deducted from income. Trade loss relief against general income, and early trade losses relief, as outlined above, are two areas where this relatively new restriction will apply. The cap is set at £50,000 or 25% of income (calculated using a specific formula), whichever is greater.
Where a trader makes a loss in a year, but does not have any other income against which the loss can be set, he or she can carry it forward indefinitely and use it to reduce the first available profits of the same business in subsequent years.
A taxpayer can also set any losses arising from a business against any chargeable capital gains. The relief can be claimed for the tax year of the loss and/or the previous tax year. However, the trading loss first has to be used against any other income the taxpayer may have for the year of the claim (for example, against earnings from employment) in priority to any capital gains.
Q. My wife and I are both directors of a company and we are soon to relocate to another part of the country to set up a new branch. The existing branch will continue to be run by the two other company directors. Will be both be entitled to the £8,000 relocation expense exemption?
A. As long as you are both employees of the company in your own right, the exemption provisions in ITEPA 2003, s 287 should render you both eligible for the £8,000 exemption. Further information on relocation costs for tax purposes can be found on the GOV.UK website at https://www.gov.uk/expenses-and-benefits-relocation.
Q. I use the Flat Rate Scheme for VAT purposes. Can I claim back the VAT I have recently paid on some new equipment I have bought for the business?
A. If you use the Flat Rate Scheme, you can reclaim the VAT you have been charged on a single purchase of capital expenditure goods where the amount of the purchase, including VAT, is £2,000 or more. You reclaim the input tax suffered by making an entry in box 4 of your VAT return. If the costs cover more than one purchase and the total is less than £2,000, or the purchases relate to a supply of services, then no VAT is claimable, as this input tax is already taken into account in the calculation of your flat rate percentage. Further information on the Flat Rate Scheme for VAT can be found on the GOV.UK website at https://www.gov.uk/vat-flat-rate-scheme.
November Key Tax Dates
2 – Last day for car change notifications in the quarter to 5 October – Use P46 Car
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/11/2016