Archive for February, 2017

Tax free pensions advice

Tuesday, February 28th, 2017

People planning their retirement will be able to withdraw up to £1,500 from their pension pots tax-free to pay for financial advice, under recent plans unveiled by the government.

 

The new Pension Advice Allowance, first announced at Autumn Statement 2016, will enable people to withdraw £500 up to three occasions from their pension pots tax-free to put towards the cost of pensions and retirement advice from April 2017.

 

Following an 8-week consultation, the Economic Secretary to the Treasury, Simon Kirby, has today 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
  • 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

 

Pension providers will be able to offer the allowance to their members from April 2017.

 

Research has found that when approaching retirement only 22% of people know the value of their pension pot and only 14% of people would be confident planning their retirement goals without financial advice.

 

According to Unbiased, 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.

Source: New feed

Buy-to-let and the changing tax landscape

Monday, February 27th, 2017

Buy-to-let property owners have been singled out in recent budgets for some quite draconian tax changes.

One of the most pervasive starts 6 April 2017. From this date, tax relief for the cost of borrowing – predominately interest charges – will be progressively withdrawn and replaced with a basic rate tax credit.

Between now and the 6 April 2020 relief will be tapered as follows:

 

2017-18

The deduction of allowable finance costs will be restricted to 75%, with 25% being available as a basic rate income tax deduction.

2018-19

The deduction of allowable finance costs will be restricted to 50%, with 50% being available as a basic rate income tax deduction.

2019-20

The deduction of allowable finance costs will be restricted to 25%, with 75% being available as a basic rate income tax deduction.

 

A worked example: consider the case of Linda, who has a buy to let with an annual mortgage interest charge of £10,000. Up to April 2017 she will be able to deduct the full amount, £10,000, from her property income before she pays tax. Obviously, the higher her rate of income tax the more tax relief she will currently receive.

 

The table below sets out the effective loss of tax relief if Linda is a higher rate or additional rate taxpayer. If Linda only pays tax at the basic rate there is no change in her income tax position.

 

 

2016-17

2017-18

2018-19

2019-20

2020-21

Finance cost allowed

10,000

7,500

5,000

2,500

0

If additional rate taxpayer:

Additional rate 45% relief

4,500

3,375

2,250

1,125

0

Basic rate deduction

0

500

1,000

1,500

2,000

Total tax relief

4,500

3,875

3,250

2,625

2,000

Net finance costs paid

5,500

6,125

6,750

7,375

8,000

If higher rate taxpayer:

Additional rate 40% relief

4,000

3,000

2,000

1,000

0

Basic rate deduction

0

500

1,000

1,500

2,000

Total tax relief

4,000

3,500

3,000

2,500

2,000

Net finance costs paid

6,000

6,500

7,000

7,500

8,000

 

Because the amount of tax relief is gradually reduced, from April 2017 to April 2020, the cash flow impact is progressively negative for higher rate or additional rate tax payers. In our example, if Linda is a higher rate taxpayer her net finance costs (after deduction of tax relief) increase from £6,000 in 2016-17, to £8,000 in 2020-21.

A further consequence of this change is that the rental income for tax purposes increases with no increase in rents: the finance costs are added back. In some circumstances this may mean that basic rate taxpayers become higher rate tax payers.

Buy-to-let property owners who have not yet considered how this change will affect their property business should set aside some time with their advisors as soon as possible. We would be delighted to help.

Source: New feed

Lifetime ISAs

Monday, February 20th, 2017

A reminder that from 6 April 2017 Lifetime ISAs are available as an alternative tax-free investment.

The lifetime Individual Savings Account (ISA) is a longer term tax-free account that receives a government bonus.

Details published 17 February 2017 are:

You can open a lifetime ISA if you are aged 18 or over but under 40. You must be either:

  • resident in the UK
  • a Crown Servant (for example a diplomat or civil servant)
  • the spouse or civil partner of a Crown Servant

As with other ISAs, you won’t pay tax on any interest, income or capital gains from cash or investments held within your lifetime ISA.

Saving in a lifetime ISA

You can save up to £4,000 each year in a lifetime ISA. There is no maximum monthly savings contribution, and you can continue to save in it until you reach 50. The account can stay open after then but you can’t make any more payments into it.

The £4,000 limit, if used, will form part of your overall annual ISA limit. From the tax year 2017 to 2018, the overall annual tax limit will be £20,000.

For example, you could save:

  • £11,000 in a cash ISA
  • £2,000 in a stocks and shares ISA
  • £3,000 in an innovative finance ISA
  • £4,000 in a lifetime ISA in one tax year

Your lifetime ISA won’t close when the tax year finishes. You’ll keep your savings on a tax-free basis for as long as you keep the money in your lifetime ISA.

Lifetime ISAs can hold cash, stocks and shares qualifying investments, or a combination of both.

Government bonus

When you save into your lifetime ISA, you will receive a government bonus of 25% of the money you put in, up to a maximum of £1,000 a year.

Withdrawals

You can withdraw the funds held in your lifetime ISA before you’re 60, but you’ll have to pay a withdrawal charge of 25% of the amount you withdraw.

A withdrawal charge will not apply if you are:

  • using it towards a first home
  • aged 60
  • terminally ill with less than 12 months to live

If you die, your lifetime ISA will end on the date of your death and there won’t be a withdrawal charge for withdrawing funds or assets from your account.

Transferring a lifetime ISA

You can transfer your lifetime ISA to another lifetime ISA with a different provider without incurring a withdrawal charge. If you transfer it to a different type of ISA, you will have to pay a withdrawal charge.

Saving for your first home

Your lifetime ISA savings and the bonus can be used towards buying your first home, worth up to £450,000, without incurring a withdrawal charge. You must be buying your home with a mortgage.

You must use a conveyancer or solicitor to act for you in the purchase, and the funds must be paid direct to them by your lifetime ISA provider.

If you are buying with another first time buyer, and you each have a lifetime ISA, you can both use your government bonus. You can also buy a house with someone who isn’t a first time buyer but they will not be able to use their lifetime ISA without incurring a withdrawal charge.

Your lifetime ISA must have been opened for at least 12 months before you can withdraw funds from it to buy your first home.

If you have a Help to Buy ISA, you can transfer those savings into your lifetime ISA or you can continue to save into both – but you will only be able to use the government bonus from one to buy your first home.

Source: New feed

Duty free limits

Thursday, February 16th, 2017

While we are members of the EU, it continues to be the case that there are no limits to the alcohol and cigarettes you can bring back to the UK. However, if customs officials believe you are bringing back goods to sell them in the UK they will take an interest. According to HMRC you will be more likely to be questioned if you bring back more than:

Type of goods

Amount

Cigarettes

800

Cigars

200

Cigarillos

400

Tobacco

1kg

Beer

110 litres

Wine

90 litres

Spirits

10 litres

Fortified wine (e.g. sherry, port)

20 litres

If you are travelling back from outside the EU, the allowances are:

Alcohol allowance:

How much you can bring depends on the type of drink. You can bring in:

  • beer – 16 litres
  • wine (not sparkling) – 4 litres

You can also bring in either:

  • spirits and other liquors over 22% alcohol – 1 litre
  • fortified wine (e.g. port, sherry), sparkling wine and alcoholic drinks up to 22% alcohol – 2 litres

You can split this last allowance, e.g. you could bring 1 litre of fortified wine and half a litre of spirits (both half of your allowance).

You may have to pay Excise Duty on alcohol you declare.

Tobacco allowance

You can bring in one from the following:

  • 200 cigarettes
  • 100 cigarillos
  • 50 cigars
  • 250g tobacco

You can split this allowance – so you could bring in 100 cigarettes and 25 cigars (both half of your allowance).

You may have to pay Excise Duty on tobacco you declare.

Alcohol and tobacco allowances if you’re under 17

There are no duty-free allowances for tobacco or alcohol if you’re under 17. You can bring alcohol and tobacco to the UK for your own use but you’ll have to pay duty or tax on them when you get to customs.

Allowance for other goods

You can bring in other goods worth up to £390 (or up to £270 if you arrive by private plane or boat).

If a single item’s worth more than your allowance you pay any duty or tax on its full value, not just the value above the allowance.

Source: New feed

All is fair, unless you expect HMRC to minimise your tax bill

Tuesday, February 14th, 2017

Although HMRC refer to taxpayers as customers, and thereby suggest a degree of customer service, in the real world this rarely extends to offering “customers” pro-active tax advice.

Historically, tax collectors are trained to maximise the assessment and collection of tax. Consequently, tax payers should be wary, they should check the tax statements that are delivered in brown envelopes and make sure that they have taken advantage of reliefs and allowances available to them.

Take for instance the personal tax allowance. Not much to go wrong here you might think. For 2016-17 your personal tax allowance amounts to £11,000 and this amount will be deducted from your taxable income before any calculation of taxes due is made; or will it?

Three planning issues for 2016-17 come to mind:

  1. Will your total income be under £11,000? Consider Peter and Jane. They are married, Peter’s income is below £11,000 and Jane is a basic rate, not a higher rate taxpayer. Peter could transfer up to £1,100 of any unused personal allowance to Jane. This would save Jane £220. HMRC are aware of Peter and Jane’s earnings and yet they require the couple to make an election and claim the relief. Which is fine if Peter and Jane are aware of the relief. HMRC are apparently surprised that a large number of couples who could claim the relief do not.
  2. If you are in business, there is a very generous allowance you can claim if you buy qualifying commercial vehicles or equipment. Since 1 January 2016, you can deduct the full costs up to £200,000. If you are self-employed there is a danger that claims such as this Annual Investment Allowance (AIA) could reduce your taxable income below the £11,000 personal allowance threshold. If this occurs, any unused personal allowance is lost – it cannot be carried forwards and claimed in the next tax year. What you could do is restrict your claim for the AIA such that your taxable income equals £11,000 and your personal allowance would be fully utilised. Any balance of capital expenditure could be carried forward and used in future years.
  3. If your income exceeds £100,000 you will lose your entitlement to claim the personal allowance at the rate of £1 lost for every £2 your income exceeds £100,000. This means that when your income for 2016-17 exceeds £122,000 you can no longer claim the £11,000 deduction. Readers who have an interest in numbers will be interested to know that income is taxed at a marginal rate of 60% in this £100,000 to £122,000 band. Tax payers heading for this outcome can take steps to reduce their earnings below the £100,000 trigger point, but HMRC will not advise you on the steps you could take.

The UK has one of the most complex tax codes and many tax payers run the risk of paying too much tax just because they are not aware of the allowances and strategies they could employ to minimise their expose to taxation. We are not suggesting any form of avoidance activity, we are only suggesting that you claim your full entitlement to allowances and reliefs that are available to you. Of course, we would be delighted to be part of the process – call any time for a consultation.

Source: New feed

Wholly and exclusively

Thursday, February 9th, 2017

The title of this posting describes an important concept when considering claims for expenditure to reduce our tax bills.

By and large, HMRC will accept claims that have been expended wholly and exclusively for the purposes of running a business or fulfilling your employment obligations. But what does this phrase actually mean?

Certainly, if you are making claims based on your employment: subscriptions to professional bodies, travel costs, the cost of uniforms, all of which you have paid for, may qualify for a claim. Pound for pound these expenses will reduce your income subject to tax and your tax liabilities.

Obviously, if your employer or business has met the costs, you cannot make a further claim.

There are certain categories of expenditure that can be recovered in this way. For the self-employed they include:

  • office costs, e.g. stationery or phone bills
  • travel costs, e.g. fuel, parking, train or bus fares
  • clothing expenses, e.g. uniforms
  • staff costs, e.g. salaries or subcontractor costs
  • things you buy to sell on, e.g. stock or raw materials
  • financial costs, e.g. insurance or bank charges
  • costs of your business premises, e.g. heating, lighting, business rates
  • advertising or marketing, e.g. website costs

The test you need to apply is always: is the expenditure incurred wholly and exclusively for the purpose of your trade or employment.

HMRC recently published a list of the more outlandish claims they received as part of the 2014-15 tax returns. They included:

  1. Holiday flights to the Caribbean
  2. Luxury watches as Christmas gifts for staff – from a company with no employees
  3. International flights for dental treatment ahead of business meetings
  4. Pet food for a Shih Tzu ‘guard dog’
  5. Armani jeans as protective clothing for painter and decorator
  6. Cost of regular Friday night ‘bonding sessions’ – running into thousands of pounds.
  7. Underwear – for personal use
  8. A garden shed for private use – plus the costs of the space it takes up in the garden
  9. Betting slips
  10. Caravan rental for the Easter weekend.

Readers who are uncertain if the costs they have incurred can be included in their business accounts, or claimed by employees on their tax return, should call for advice. Although the wholly and exclusively rule applies in most cases, there are situations where the “exclusivity” part can be more of a grey area, for example where there is business and a private use element.

Source: New feed

A step closer to Making Tax Digital

Wednesday, February 8th, 2017

We have advised readers in previous postings that HMRC seem to be intent on digitising the upload of small business accounting data from April 2018. From this date, affected self-employed traders (including landlords) will be required to upload details of their trading activities on a quarterly basis.

On the 31 January, HMRC responded to the consultation with interested parties regarding the way in which the MTD process will work in practice.

Many of the initial features remain unchanged:

  • The self-employed will be required to file from April 2018.
  • The lower income limit above which filing will be compulsory remains at £10,000 – although we are likely to see an increase in this figure when the legislation enacting MTD is published in the Finance Bill March 2017.
  • Traders will need to keep their accounting records in a format that can be uploaded to HMRC. Hopefully, spreadsheet templates and other small business software will be available, but traders will need to ensure that they are organised and ready to comply by the April 2018 start date.

Once the MTD process is activated, the need to file a self-assessment tax return each year will be discontinued. It will be replaced by the four quarterly uploads and an annual final check to ensure that all relevant reliefs and adjustments to accounts data are in place.

This is a huge change in the reporting of information to HMRC. As the April 2018 date approaches we will be working with clients to ensure they are fit for purpose. More than 600 accounting software providers are working with HMRC to ensure that their software will accommodate the uploads to HMRC.

Clients who are concerned by this change and want advice on the implications for their business are welcome to call for an update. Please bear in mind, that until we see formal legislation on this topic later in the year the precise details of who is affected, and how the upload process will work in practice, are still uncertain. What seems to the case, is that we have moved a step closer to Making Tax Digital.

Source: New feed

Are you claiming the costs that you incur on behalf of your employer

Monday, February 6th, 2017

HMRC have the following advice to offer:

“You may be able to claim tax relief if you have to use your own money for travel or things that you must buy for your job. You must have paid tax in the year you spent the money. How much you can claim depends on the rate you pay tax.

You can only claim relief on things that are used just for your work, and which you don’t use in your private life.

You can’t claim relief on things you’ve spent money on if your employer has already provided you with an alternative.

You must keep records of what you’ve spent, and claim within 4 years of the end of the tax year that you spent the money. If your employer has paid back your expenses, you can’t claim tax relief.”

Expenses that you may incur and that you can claim back include:

  1. Uniforms, work clothing and tools.
  2. A mileage allowance for the use of your own car on business trips (but not home to work mileage).
  3. If you have a company car but you have incurred running costs that your employer has not reimbursed, then you may be able to make a claim.
  4. You may be able to reclaim business travel expenses that have not been reimbursed. For example:
  1. Public transport
  2. Hotel accommodation
  3. Food and drink
  4. Congestion charges and tolls
  5. Parking fees
  6. Business phone calls
  1. You may also be able to claim for the cost of approved professional fees and subscriptions.

This is by no means an exhaustive list. And if you feel that you may have a claim we would be happy to advise.

HMRC seem to be developing a sense of humour. This is a list of failed claims for expenses that they recently published on their website:

Source: New feed

Tax Diary February/March 2017

Wednesday, February 1st, 2017

1 February 2017 – Due date for corporation tax payable for the year ended 30 April 2016.

19 February 2017 – PAYE and NIC deductions due for month ended 5 February 2017. (If you pay your tax electronically the due date is 22 February 2017)

19 February 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2017.

19 February 2017 – CIS tax deducted for the month ended 5 February 2017 is payable by today.

1 March 2017 – Due date for corporation tax due for the year ended 31 May 2016.

2 March 2017 – Self assessment tax for 2015/16 paid after this date will incur a 5% surcharge.

19 March 2017 – PAYE and NIC deductions due for month ended 5 March 2017. (If you pay your tax electronically the due date is 22 March 2017)

19 March 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2017.

19 March 2017 – CIS tax deducted for the month ended 5 March 2017 is payable by today.

 

Source: New feed

Beware internet phishers

Wednesday, February 1st, 2017

The end of January, self-assessment filing deadline, and the approaching tax year end seem to stimulate fraudulent activity focussing on tax issues.

In particular, increasingly convincing attempts are made to get tax payers to part with their personal bank details or other personal information for nefarious purposes.

HMRC will never ask for your personal details, particularly your bank or credit card information, by email. Accordingly, if you receive an email requesting this sort of data do not respond.

On their website HMRC confirm that they will never use texts or emails to:

  • tell you about a tax rebate or penalty
  • ask for personal or payment information

They also advise that you should forward suspicious text messages to 60599 or forward suspicious emails to HMRC’s phishing team at phishing@hmrc.gsi.gov.uk.

Source: New feed

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