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.

 

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 after the EU referendum

EU_UK_FlagsFollowing the EU referendum on 23rd June, we have seen plenty of opinions, positive and negative, on how leaving the EU will affect us.  We are seeing changes in the political arena, but there will not be any immediate changes to the legal and regulatory environment.  The government will not be holding an emergency budget, although there could be one in or soon after October.

Taxation is largely a member state competence, and changes to taxation when the UK leaves the EU are likely to be less significant than other policy changes.  In terms of direct taxes (income tax, corporation tax) a number of EU directives have been incorporated into UK law, and they will continue in place. If we were to become members of the European Economic Area, of which Iceland, Liechtenstein and Norway are current members, then we would have similar sorts of tax obligations as we currently have as members of the European Union.    Indirect taxes are slightly different – especially VAT.  VAT falls under a substantive body of EU law which establishes common rules across all 28 member states.

VAT

Businesses selling and/or buying goods or services to/from other EU countries are likely to be the ones most affected by the UK leaving the EU.  We don’t yet know exactly what will happen when the UK leaves the EU, but the following changes are possible:

  • Abolition of Intrastat for movement of goods to and from the UK;
  • Abolition of EC Sales Lists for sales from the UK to the remaining EU countries;
  • Introduction of import and export rules for supplies between the UK and the remaining EU countries;
  • Increase in duty deferment facility to cover import VAT and possibly customs and excise duties relating to imports from EU countries;
  • The distance selling thresholds will no longer apply for small value of exports to remaining EU countries;
  • Changes to the Mini One Stop Shop – VAT will still need to be charged and accounted for in relation to affected supplies to customers in the remaining EU countries. This may mean registering for the non-Union Mini One Stop Shop scheme in a remaining EU country if HMRC is unable to continue operating a UK scheme;
  • Refunds of VAT incurred within the EU may become more difficult, having to rely upon the 13th Directive refund scheme;
  • EU VAT law and rulings of the CJEU will cease to have direct effect, with the UK law and courts becoming the ultimate;
  • In theory, VAT rates could change up or down, including items currently subject to VAT at 5% could becoming zero-rated, although such changes are not currently permitted under the UK VAT Lock legislation;
  • The tour operators’ margin scheme could be changed or abolished.

VAT is an important source of revenue for the government, accounting for 17% of all government receipts, so we are unlikely to see significant changes to rates or reliefs.

Chancellor’s summary

In his statement the Chancellor said the following: “As I said before the referendum, [leaving the EU] will have an impact on the economy and the public finances – and there will need to be action to address that. Given the delay in triggering Article 50 and the Prime Minister’s decision to hand over to a successor, it is sensible that decisions on what that action should consist of should wait for the Office for Budget Responsibility (OBR) to assess the economy in the autumn, and for the new Prime Minister to be in place.”

Business Interests

A new business engagement inter-ministerial group, chaired by the Business Secretary, Sajid Javid and bringing together ministers from across government to co-ordinate engagement with the business community, was established on 30 June 2016.

The new group will provide an opportunity for ministers to discuss the views, thoughts and concerns from large businesses of all types and in all sectors across the UK and ensure their concerns are represented. It will feed into the new EU Referendum Unit established within the Cabinet Office.

Secretary of State for Business, Sajid Javid, said: “Now more than ever, businesses need certainty so it’s vital that the government maintains an open and continuous dialogue. We must work together to make sure the world knows that the UK is still open for business and remains an attractive place with which to trade and invest. Working with ministers across government, I will make sure businesses have the information they need and work with them to identify opportunities as they open up.”

Given the challenges ahead, the inter-ministerial group will provide an opportunity for ministers to come together and make sure they are providing businesses with the information they need and how they can limit the uncertainty in the transition period of the UK’s exit from the EU.

Small Business

The needs and concerns of small businesses, following the referendum, will be represented by several member organisations including:  the Federation of Small Businesses (FSB); The British Chambers of CommerceThe Confederation of Business IndustryThe Institute of Directors, and professional associations including the accountancy and tax professions.

Referendum conclusion

The conclusion is that, at present, there is no conclusion. The referendum has not triggered any immediate changes to regulations and legislation, so we carry on as normal.

 

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.

Budget Spring 2015

Budget Spring 2015

We’re all aware that this budget comes very soon before the general election on 7th May 2015. The proposals in this budget may not become law, and anything could be amended. Many of the announcements related to changes we already know about, but there were one or two surprises.

Personal Taxation

Basic Personal Allowance and Transferable Allowance for 2015/16

The personal allowance for those born after 5 April 1938 will be £10,600 for 2015/16. As a corollary, the transferable allowance for married couples and civil partners (10% of the personal allowance) will be £1,060. This is available to certain couples, subject to qualifying criteria.

The higher rate threshold (i.e. the aggregate of the personal allowance and the basic rate limit) will be £42,385.

Personal Savings Allowance

It is proposed that a new Personal Savings Allowance be introduced from 6 April 2016. For a basic rate taxpayer, this will exempt from income tax the first £1,000 of savings income, such as bank and building society interest. For a higher rate taxpayer, only the first £500 will be exempted.

The Personal Savings Allowance will not be available to additional rate taxpayers. At the same time, the deduction of basic rate tax at source from interest paid by banks and building societies will be abolished for all savers.

Online Tax Accounts

Over the last decade or so, we’ve seen a steady decrease in the numbers of paper forms being submitted to all governmental departments, and an increase in online services. The government seems keen to extend the transition by planning to abolish the paper tax return for millions of individuals and small business through the introduction of digital tax accounts. A roadmap setting out the policy and administrative changes will be published later this year.

In addition, the Government will consult on a new payment process to support the use of digital tax accounts that allow tax and National Insurance contributions to be collected outside of PAYE and self-assessment. This will be legislated for in the next Parliament.

How (or if) this will work in practice we have yet to find out.  The principles of NI and taxation are not changing, but the new methods of reporting and paying could be significant changes for self-employed people.

Direct Recovery of Debts due to HMRC from Taxpayers’ Bank Accounts

Again, this is not a new announcement, and the government intends to legislate for it in a firure finance bill. It is something to be aware of if your tax affairs are not up-to-date.  HMRC will be able to collect payment of tax and duties directly from credit balances in debtors’ bank and building society accounts, including ISAs, without first having to apply to the courts. HMRC will only take action against debtors who owe over £1,000 of tax or tax credits. They will always leave a minimum aggregate of £5,000 across debtors’ accounts, and will only put a hold on funds up to the value of the debt. Secondary legislation to be published shortly will set out details of the process and safeguards for taxpayers.

This is intended to be used when taxpayers fail to pay on time, and by the time things reach this stage, any taxpayer should be fully aware of all attempts made by HMRC to recover the debt.

Employment Taxation

Abolition of the £8,500 Threshold for Benefits in Kind

The £8,500 earnings threshold that determines whether employees pay income tax on all of their benefits in kind and expenses, and whether employers pay Class 1A National Insurance contributions (NICs), is to be abolished for 2016/17 onwards.

Currently, an employee whose earnings for the tax year are less than £8,500  pays tax only on certain employee benefits. The abolition of the threshold will mean all employees will be taxed on their benefits and expenses in the same way. The employer’s NICs treatment will follow the income tax treatment.

Statutory Exemption for Trivial Benefits in Kind

A statutory exemption is to be introduced for 2015/16 onwards that will allow employers to identify and treat certain low value benefits provided to employees or former employees as trivial. These benefits will then be exempt from income tax and Class 1A National Insurance contributions and will not need to be reported to HMRC. A benefit will be trivial if it meets all the following conditions:

  • the benefit is not cash or a cash voucher;
  • the cost of providing it does not exceed £50;
  • the benefit is not provided under salary sacrifice arrangements or any other contractual obligation; and
  • it is not provided in recognition of particular services performed, or to be performed, by the employee.

An annual cap of £300 will be introduced for office holders of close companies (broadly those controlled by 5 or fewer people) and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of exempt trivial benefits each year.

Employee Expenses: Dispensations

The current system whereby an employer can apply to HMRC for a dispensation to pay expenses free of tax in certain circumstances will be scrapped for 2016/17 onwards. Instead, expenses provided to employees will automatically be exempt in any case where the employee would have been eligible for a deduction had he incurred and paid the equivalent expense himself. The exemption will also allow the employee to be paid a scale rate rather than be reimbursed the actual expense he has incurred. This can either be a rate set by HMRC or a rate that the employer has agreed with HMRC. The exemption will also apply to benefits in kind provided by employers in respect of expenses incurred by their employees It will not apply to expenses/benefits provided as part of a salary sacrifice arrangement or in conjunction with other arrangements that seek to replace salary with expenses. Similar rules will apply for NIC purposes.

Collection of Tax on Benefits and Expenses through Voluntary Payrolling

Legislation is to be introduced to allow HMRC to make changes to the PAYE Regulations to provide for voluntary payrolling of certain benefits in kind. The intention is that employers will be able to opt to payroll benefits for cars, car fuel, medical insurance and gym membership for 2016/17 onwards. Where employers do so, they will not have to make a return on Form P11D for these benefits. Instead, they will report the value of the benefits through Real Time Information, and that value will count as PAYE income liable to deduction using the PAYE Tax Tables. The amended Regulations will determine the value to be placed on the benefit for this purpose.

Van Benefit Charge for Zero Emission Vans

The van benefit charge for zero emission vans will increase from £nil, beginning in 2015/16. The van benefit charge for such vans will be 20% of the van benefit charge for vans which emit CO2 in 2015/16, 40% in 2016/17, 60% in 2017/18, 80% in 2018/19 and 90% in 2019/20. From 2020/21, the van benefit charge for zero emission vans will be the same as the van benefit charge for vans which emit CO2.

National Insurance Contributions

NICs for the Self-Employed

Class 2 contributions will be abolished in the next Parliament. Class 4 contributions will be reformed to introduce a new contributory benefit test. The Government intends to consult on the proposals later in 2015.

Business Taxation

Research and Development

Legislation will be introduced to restrict qualifying expenditure for research and development (R&D) tax credits so that the cost of consumable items incorporated in products that are sold in the normal course of a company’s business are not eligible for R&D relief, with effect from 1 April 2015. Qualifying expenditure on consumable items will be limited to the cost of only those items fully used up or expended by the R&D activity itself which do not go on to be sold as part of a commercial product. This restriction will not apply where the product of the R&D is transferred as waste, or where it is transferred but no consideration is given.

In addition, from 1 April 2015, the rate of the above the line credit for large companies will increase from 10% to 11% and the rate of the relief for the SME scheme will increase from 225% to 230%.

 VAT

VAT Registration Thresholds

With effect from 1 April 2015, the VAT registration threshold will be increased from £81,000 to £82,000. The deregistration threshold will be increased from £79,000 to £80,000. The registration and deregistration thresholds for acquisitions from other EU member states will be increased from £81,000 to £82,000.

This is a summary of announcements most likely to affect owners of small UK businesses.  Things could change after the general election but in the meantime if you’d like more information on how the changes may affect you please get in touch.