A summary of tax changes from April 2018

Changes to tax and NIC from April 2018

MTD

From the beginning of April 2018 the personal tax allowance will increase to £11,850 per year.   Tax rates will be:

England and Wales
Basic rate 20% On the next £34,500 above the personal tax allowance
Higher rate 40% On £34,501 to £150,000 (the personal allowance reduces once earnings reach £100,000)
Additional rate On earnings above £150,000

 

Scottish rates and bands

On the 20 February 2018 the Scottish Parliament set the following income tax rates and bands for 2018/19.

Bands Band name Rates (%)
Over £11,850*-£13,850 Starter Rate 19
Over £13,850-£24,000 Basic Rate 20
Over £24,000-£43,430 Intermediate Rate 21
Over £43,430-£150,000** Higher Rate 41
Above £150,000** Top Rate 46
Tax on Dividends

The dividend allowance of £5,000 at 0% personal income tax, will reduce to £2,000 per year from April 2018.  Shareholders will be worse off by £225, £975 or £1,143 a year depending on whether they pay tax at the basic rate, higher rate or the additional rate.   Dividend tax rates have not changed, and the rate of tax on dividends remains at 7.5% for basic rate taxpayers, 32.5% above the higher rate threshold and 38.1% for those in the additional rate band (ie. Earning over £150,000).    For many owner-directors, the dividend/salary split will still be the most tax efficient method of remuneration, but it may not suit all.

Corporation tax remains at 19%

National Insurance

Self-employed people will continue to pay Class 4 and Class 2 National Insurance Contributions (NIC).  The abolition of Class 2 NIC was scheduled for this April, but it has been delayed until April 2019.  Class 4 NIC will be 9% on profits over £8,424. Class 2 NIC will be £2.95 per week, to be added to your 2018/19 tax bill as one total for the tax year.

Other changes

The national living and minimum wage rates increase from 1st April 2018 to:

Category of worker Hourly rate
Aged 25 and above (national living wage rate) £7.83
Aged 21 to 24 inclusive £7.38
Aged 18 to 20 inclusive £5.90
Aged under 18 (but above compulsory school leaving age) £4.20
Apprentices aged under 19 £3.70
Apprentices aged 19 and over, but in the first year of their apprenticeship £3.70
Pension Contributions

Minimum auto-enrolment (workplace pension) contributions have been 1% from both the employee and employer.  From 1st April this changes to 3% contributions paid by the employee, and 2% paid by the employer.  This will change again in April 2019.

GDPR

Something not directly related to tax and accountancy, but that will affect all businesses will be the introduction of the General Data Protection Regulation (GDPR).  This is a fairly significant upgrade from the Data Protection Act 1998, which just wasn’t sufficient for the online environment that we use now.  The GDPR comes into effect from 25th May 2018.  There is no exemption for small business, and fines for non-compliance will be from 4% of turnover.

Businesses complying with the DPA 1998 shouldn’t have too much trouble preparing for 25th May, but assessing the data you hold, documenting what you do with it, rewriting policies and communicating with data subjects (customers, suppliers, employees) can be time consuming.   The ICO website is a good place to start, if you’ve not already looked at this.

Making tax Digital (MTD)

Making tax digital (aka quarterly accounting), has been delayed for a couple of years.  It will start for VAT only from April 2019.  The new rules will encompass VAT registered businesses with a turnover above the VAT threshold (currently £85,000)  From 1st April 2019 records will need to be kept using ‘functional, compatible’ software. Compatible meaning it must be able to upload information direct to HMRC each quarter.

MTD for income tax, corporation tax etc. will follow after 2019.  It will mean 5 updates to HMRC being made each year, instead of the one annual tax return.  There will be an obligation to keep records electronically.  You’ll upload sales, expenses and profit figures each quarter, then a 5th report (if necessary) will be used to claim allowances and reliefs that are not included in normal day-to-day bookkeeping.

The well-known software companies are developing solutions, as well as some of the lesser known software houses. HMRC has said it will not be providing free software, as it currently does for both VAT and personal self-assessment tax returns.

This is a very brief summary, and there could be many other factors to consider in your own business. If you’d like any help with your tax, bookkeeping or accountancy, please get in touch.

A Welcome Delay for Making Tax Digital

The government today announced a welcome delay to Making Tax Digital (MTD).

Under the new timetable:
  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
  • they will only need to do so from 2019
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

The original plan would have forced small businesses and landlords to report their finances to HMRC quarterly from April 2018.  Given that little information has been forthcoming as to what will be required, the timescale for that would have been difficult for many businesses to meet, and most likely caused problems for HMRC.

The Treasury document states that:

  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes;
  • they will only need to do so from 2019; and
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.

We still need to be prepared for digital record-keeping and quarterly reporting, and the full-blown MTD is expected to be in place by 2020.   For help with digital record-keeping, please get in touch.

 

Spring Budget 2017 – What you need to know

In yesterday’s Spring Budget 2017 the government announced that its aims are to:

  • help young people from ordinary working families across the country get the skills they need to do the high-paid, high-skilled jobs of the future, vital for a competitive workforce,
  • give more children the chance to go to a good or outstanding school that sets them up to succeed,
  • support the social care system with substantial additional funding, so people get the care they deserve as they grow older, and support both local NHS plans and improvements to Accident and Emergency with new capital investment,
  • invest in cutting-edge technology and innovation, so Britain continues to be at the forefront of the global technology revolution,
  • continue to bring down the deficit so the UK gets back to living within its means.

I think most of us will read that with cynicism, and we want to cut through the chancellor’s jibes and digs at the opposition and find out how we’ll be affected.   There was little in the way of surprises, or measures to help small businesses.   I’m not going to address every aspect of the budget, but here is a brief round up of the main headlines relevant to small businesses:

Income Tax

From April 2017 the personal tax allowance will be £11,500. The higher rate threshold increases to £45,000.

National Insurance

For self-employed people:  from April 2018 class 4 NIC increases from 9% to 10% on taxable profits above the lower profits limit.  The lower profits limit in 2017/18 will be £8,164.  Class 2 NIC will be abolished from April 2018.

Self-employed people earning a taxable profit of over £16,250 will pay more NIC from April 2018.

Making Tax Digital

From April 2018 small businesses must to report financial data to HM Revenue and Customs quarterly.  This won’t be implemented until April 2019 for those with a turnover below the VAT threshold.   Businesses with a turnover of £10,000 or less will not need to change to quarterly reporting.

VAT

The registration limit will increase to £85,000 from April 2017, and the de-registration limit will be £83,000

Business Rates

Increases will be capped at £50 for businesses coming out of Small Business Rate Relief.  There will be a £300 million discretionary fund for local authorities to help businesses affected by rates revaluation.

National Minimum and Living Wage

Increases will apply from April 2017

Spring Budget 2017: Living and minimum wage rates UK
Changes to the National Living and Minimum Wage

Consumer protection

Something to be aware of – a new green paper will be published on protecting consumer rights. Changes will include new protections against unfair clauses, unexpected fees when subscriptions renew or free periods end, and steps to simplify terms and conditions.

Spring Budget 2017: Limited Companies

Dividend Allowance

The dividend allowance will be reduced from £5,000 to £2,000 per year from April 2018.  Costing from £225 for owner/directors of small limited companies.

Corporation tax

A little good news for limited companies will be the fall in corporation tax rate to 19% from April 2017, and to 17% in April 2020.

R&D Tax credits

The government will make administrative changes to the Research and Development Expenditure Credit, to increase the certainty and simplicity around claims. They have also promised to take action to improve awareness of R&D tax credits among SMEs.

Summary

The Spring Budget 2017 was the last time a budget will be held in spring.  From 2018 there will be a Spring Statement and the budget will be held in autumn.

In the short-term it could be beneficial for some self-employed people to incorporate their business. Traders would gain a little control over their remuneration, splitting between salary and dividend payments. However, the trend over the last couple of years has been for the government to try to reduce the difference in taxation between different business vehicles.  It could be just a matter of time before we see an increase in tax on dividends, or the introduction of an NI charge on dividend income.

The government budget documents provide further information.

If you’re concerned about how any of the changes in the Spring Budget 2017, please get in touch.

 

Making Tax Digital

Making Tax Digital for Business (MTD)

Last minute. Every year. You make it through the festive season, get back to work, kids at school, New Year resolutions already forgotten. A pile of paperwork crammed into a box, shuffled off to the accountant just in time for the January deadline.

Then something worse happens. It’s not once a year any more. You’re going to have to report your finances every three months. Really?

Bookkeeping for MTD
HMRC said ‘just press a button’

Well, maybe. Maybe not.  Small businesses with sales of up to £10,000 per year will be exempt.  There have been calls for this threshold to be higher, and HMRC have said they’ll consider that.   We’ll have to wait and see.

So what does ‘Making Tax Digital’ mean?   Briefly, it’s a change from the annual tax return, to quarterly reporting with a final year-end check.   So business owners will need to tell HMRC their sales and expenses each quarter.  The requirement will be phased in from April 2018.

HMRC believe that everyone uses a computer, keeps everything perfectly up to date, consequently they think we will ‘just press a button’ to upload data.  We know differently. Your focus is on running your business and making sales while engaging with customers. Any energy left goes into running your life.  Quarterly reporting is going to happen, but it doesn’t need to be too painful.

Unfortunately we don’t yet know exactly what HMRC will be asking for. We don’t know what free software or apps will be available.  If you already use bookkeeping software, it should be updated in time.  If you use spreadsheets, or paper records, that’s fine.   A lot of the information we have on MTD is vague, but yes, really, businesses will need to update records every three months.

We help with bookkeeping, finding software, quarterly reporting and the year-end check of your tax liability.  Please get in touch if you’d like to discuss any of this.

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Tax update – Autumn Statement 2015

Summary

The Chancellor, George Osborne, delivered his Spending review and Autumn Statement Speech on 25 November 2015. This article outlines the changes relevant to small-business owners.  The few ‘headlines’ were

  • an extra 3% stamp duty land tax charge on the purchase of additional residential properties from 1 April 2016
  • a requirement to make a payment on account in respect of capital gains tax within 30 days of the disposal of residential properties from April 2019
  • the changes announced to tax credits in Summer Budget 2015 have been abandoned.

More information on the tax proposals scheduled for inclusion in Finance Bill 2016 will be published in the Government’s ‘Overview of Legislation in Draft’ on 9 December.

Making tax digital

As announced at Summer Budget 2015, the government wants to digitise the tax process. The aim is to modernise the tax system and provide a more real-time working basis of individual and business tax affairs, which one would expect, will lead to the advance of tax payments in many cases in due course. Key details so far are:

  • digital tax accounts are to be introduced for all small businesses and individuals by 2016/17
  • by 2020 most businesses, landlords and the self-employed will be required to update HMRC quarterly regarding their tax affairs. The details of how this will work in practice have not yet been decided
  • the intention to consult on ways to simplify tax payments with suggestions of tax payable as profits arise (as announced for capital gains tax arising on the disposal of residential property with payment due 30 days after completion from April 2019).

Employees and pensioners will not be required to update their digital tax accounts quarterly unless they have secondary incomes of more than £10,000 per year.

Simple assessment

The Government is to simplify the tax payment process for taxpayers within the Self-Assessment system where HMRC already holds all the data it needs to calculate the tax liability. Rather than requiring the taxpayer to file a return, instead HMRC will send a legally enforceable payment demand, which the taxpayer can challenge or appeal. This is expected to be introduced from 2016/17.

Residential property

An additional 3% on top of current SDLT rates from 1 April 2016 will be charged on the purchase of additional residential property (e.g. buy to lets and second properties over £40,000), though exclusions to certain corporates and funds are expected.

Dividends for company owners

There was no further commentary with respect to the Summer Budget 2015 announcement regarding the increase in dividend tax rates and the dividend allowance due to apply from April 2016, so the expectation is that these will be introduced in the Finance Bill 2016 as previously announced

Pensions

Further to the announcement at Summer Budget 2015, the Government has now consulted on fundamental changes to pension tax relief. One of the options is that instead of receiving tax relief on the contribution, the savings would work more like an ISA, with a Government top-up and tax-free extraction on retirement.

The Government will provide an update on this at Budget 2016.

Self-Assessment time limits

Draft legislation is to be published ahead of Finance Bill 2016 to clarify that the time allowed for making a self-assessment is four years from the end of the tax year. No further information is included in Autumn Statement documentation but it is possible that this has been prompted by a recent case on tax administration.

Conclusion

There wasn’t a great deal in the Autumn Statement that we didn’t know about, or expect. This article is not a comprehensive review, but concentrated on the issues relevant to small-business owners. If you’d like to know more you can read the government’s documents here.  If you’re concerned that any of the changes mentioned may affect you please get in touch.