Making Tax Digital, an Overview
This is an initiative from HMRC to, in their view, simplify the way the tax system works. Each tax payer (both incorporated & unincorporated) will have one tax account covering all taxes. Each tax payer should be able to see all their liabilities & payments & offset over payments in one against others. Initially taxpayers with turnover or gross rents of less than £10,000 will be exempted.
Taxpayers will have to file details of income & expenditure each quarter & in some cases make payments & although HMRC say annual tax returns will be scrapped some form of year end accounts will also have to be filed. Returns will have to be made in a prescribed form using free HMRC software, commercial programs or in some cases spread sheet in a prescribed format. This will inevitably involve some taxpayers in additional substantial cost in time & money.
Initially from April 2018 all unincorporated business & individuals with turnover in excess of the VAT threshold (currently £84,000) will have to comply with the new system, those with turnover between £10,000 & the Vat threshold from April 2019 & companies from April 2020.The idea is that the tax account will be updated with information from 3rd parties (bank & building society interest, dividends from public companies, salary & tax details etc) automatically.
It will be the responsibility of the taxpayer with assistance from agents to ensure this information is correct.HMRC will be downgrading their alreaady inadequate telephone support & expect taxpayers to obtain any help online.
A very short budget with only a few changes affecting small businesses.
The main points are:
. The increase in Class 4 (self employed) National Insurance Contributions has been scrapped after it was realised that this broke an election pledge, NIC's will now not be amended before the next general election.
. The allowance against the new dividend tax introduced from 6th April 2016 is reduced from £5,000 per annum to £2,000. This applies to dividends from all sources whether investment in the stock market or from a personal trading company or both.
. A business rate revaluation came into force from 6th April 2016, businesses operating from properties with rateable values of less than £12,000 will be exempted. Any businesses losing small business relief will have the monthly increase capped to £50. Additionally money has been made available to help pubs with a £1,000 discount for those with a rateable value of less than £100,000.Please read this in conjunction with the summer budget 2015.
The main points are:
- From 6th April 2017 the individual tax free allowance will rise to £11,500 & higher rate tax will become due on income exceeding £45.000 (see below for allowances from 6th April 2016)
- A Savings Allowance on bank & building society income means that the first £1,000 of interst received by basic rate tax payers will be taxed at 0%, higher rate the first £500 with no allowance for those on the top rate. This income is included when determining whether the allowance is £1,000, £500 or nil.
- The rate of Corporatio Tax will fall from the current rate of 20% to 19% for the financial year commencing on 1st April 2017 & to 17% bcommencing 1st April 2020.
- Class 2 (self employed) National Insuramce contributions are abolished from April 2018. Details of how the self employed will access contributory benefits will be issued in due course by the government.
- From April 2017 a new allowance of £1,000 for property & trading income wherby individuals will not have to declare or pay tax. Those with income above the allowance will calculate their taxable profit either in the normal way or by deducting the relevant allowance.
- Capital Gains Tax rates, currently 18% to the extent that the income tax basic rate is unused & 28% thereafter is to be reduced to 10% % 20% for any gains other than those from properties not qualifying for Principal Private Residence relief & carried interest which remain the same. The 28% rate still aplies to ATED related chargeable gains accruing.
- Procedural changes to benefits & expenses apply from 6th April 2016, there will be a statutory exemption for payment of certain expenses such as travelling & subsistence removing the requirement for them to be declared on form P11D. The £8,500 threshold below which employees did not pay income tax on benefits has been removed.
- The NIC Employment Allowance is increased from April 2016 from £2,000 to £3,000 but are no longer available to companies where the owner/director is the sole employee although the second employee can be a part time employee such as the spouse providing administrative support.
- From April 2017 public sector bodies & agencies responsible for operating the tax rules for off-payroll working through limited companies Liability to pay the correct taxes moves from the workers own company to the body or agency/third party paying the company. A clearer & simpler set of tests are to be introduced.
- A change to Stamp Duty Land Tax applies fro 1st April 2016 whereby a surcharge of 3% ia added to the rates on all residential property purchases over £40,000 where the purchase owns another property. If there is only one other property which sold within 18 months of the new purchase this 3% is reclaimable from HMRC. This is aimed at buy to let purchases but will affect the financing of purchases wher an individuals home is not sold either when or before the new home is purchased.
Small businesses are now approaching their staging dates. If they don't have arrangements in place thay can be subject to fines of £400. If you haven't done anything yet ring this office immediately
The main points are:
- The tax on dividends will increase by 7.5% from 6th April 2016, a personal dividends allowance of £5,000 will be introduced but will utilise taxpayers tax free & basic rate allowances.
- Interest paid on rental properties will be restricted to basic rate from April 2017. This change will also mean that interest paid is not a deduction when calculating child benefit eligibility.
- The 10% wear & tear allowance for furnished rental properties is to be abolished & replaced with a statutory renewals basis from April 2016. Consultation is currently taking place.
- The Annual Investment Allowance is to be reduced from £500,000 to £200,000for expenditure incurred after 1st January 2016.
- The personal tax allowance is fixed at £11,000 for 2016/17 & 11,200 for 2017/18 while the basic rate upper threshold is set at 32,000 & 32,400 respectively.
- The rate of corporation tax will be 19% for the financial years commencing 1st April 2017 until it decreases to 18% from 1st April 2020.
- The Inheritance tax nil rate band is fixed at £325,000 until April 2021 but a new home related nil band allowance of £100,000 is to be introduced from April 2017 & is to rise to £175,000 by 2020
Famously we were promised a 'tax lock' during the election on the rates of income tax, VAT & national insurance, some of the above provisions show that these can be skirted round if the Chancellor so decides.
As from April 5th 2015 individuals over 55 can withdraw all of their defined contribution pension fund to spend as they wish. Individuals should be aware that while the first 25% of their fund can be drawn tax free the balance will be taxed as additional income ie. added to other incomr received in the tax year & taxed at marginal rates. This could lead to funds being taxed at 40% or even 45% & losing their personal tax allowance.
The government has also indicated that individuals who draw & spend their fund will not qualify for pensioner support benefits.
Advice should be sought before taking any action, please contact this office for assistance.
Businesses are now receiving notification from the pensions regulator of their staging date & asking them to 'nominate a ccontact' to whom details & compliance requirements will be sent. This dioes not transfer responsibility for compliance from the business if somebody other than the business is nominated.
Single director companies that have no other employees are exempt from auto-enrolment.
Contact us for more information.
HMRC Let Property Campaign
HMRC are currently targeting unreported property income. As part of the campaign they are offering reduced penalties for voluntary disclosure of previously undeclared income but will take a hard line if they approach you first. For more information or assistance contact us now before it is too late!
PPI & other financial compensation
When received the payment is made up of two elements, compensation which is not taxable & interest which is. If he amount of interest is substantial HMRC are notifified directly & are currently checking returns to ensure that ithe interest eleent has been declared. As the interest is often paid without a tax deduction the liability including interest for late payment & penalty can be considerable. If you have received such compensation in telast few years you should contact us immediately to ensure that yourreturn was complete.
RTI Penalties
Due to issues causing HMRC to incorrectly issue penalty notices they have announced that automatic penalties will be delayed. From October late submission panalties will be charged and from April 2015 late payment penalties will be charged.
Real Time Information (RTI) will mean that employers will have to inform HMRC online about employees wages & deductions every time they make payment! This is to be introduced for most employers in April 2013 & all by October. This system enables the goverment to get information direct about benefit claimants but also enable them to identify late payment of PAYE & issue penalty notices much more quickly. Because information is sumitted on a regular basis the P35 end of year return will no longer be required although employees must still be issued with P60's forms P11D returns of benefits will still be required.
Very small employers (9 or less employees) will be able to use the HMRC free basic PAYE tool, every body else will require their own software to be updated . Contact us for more details.