Paying tax bills

From 13 January 2018, HMRC will no longer be accepting payments from personal credit cards to pay tax liabilities. This will include payments for personal tax liabilitiesVAT, and PAYE.

That means that if you are planning on settling your personal tax liability that is due by 31 January 2018 and was planning on using a credit card, you will need to make payment before 13 January 2018. If you are self-employed, you should assess your finances now to consider how you are going to pay any tax liability that is due by 31 January 2018.

The rule changes have come in due to EU restrictions which prohibits merchant fees being recharged to payers. HMRC cannot currently take payments at a cost to the public finances, so this will mean they are no longer able to accept credit card payments.

 

Marriage Allowance

The Marriage Allowance could help to save you money, if you are married or in a civil partnership and your spouse has taxable earnings under the personal allowance threshold. For the current tax year, you can transfer up to £1,150 of your personal allowance.

Claims can also be backdated to previous tax years if the eligibility criteria is met.

 

How much is the personal allowance?

The personal allowance changes each year. The following allowances applied in the years below;

5 April 2018        £11,500

5 April 2017        £11,000

5 April 2016        £10,600

 

If both you and your spouse file tax returns, you should make sure that the correct sections of your tax returns have been completed to claim the allowance. We can advise on whether you are eligible for the allowance.

 

More information can be found at the following links;

https://www.gov.uk/married-couples-allowance

https://www.gov.uk/marriage-allowance

 

Making Tax Digital – TIMETABLE UPDATE

An announcement has been made today on a new timetable for Making Tax Digital. The announcement can be read here.

The new timetable will mean that;

  • From April 2019, businesses with turnover above the VAT threshold (which is currently £85,000 a year), will start reporting quarterly through cloud based software to HMRC.
  • All over businesses will not need to start reporting quarterly through cloud based software until “at least 2020.”

This is at least some good news, as it will give businesses more time to prepare for the changes. When the election was called, large amounts of the finance bill were removed, which left some uncertainly as to what would happen with Making Tax Digital. The changes to the timetable will be legislated for as part of the Finance Bill 2017.

 

 

 

 

IR35 in the Public Sector

New rules mean that the responsibility for deciding the correct IR35 status from 6 April 2017, will lie with public sector bodies, rather than individual companies. Accordingly, the liability to account for the correct taxes will transfer from the individuals company to the public sector body.

If the public sector body decide that IR35 legislation does apply, they will deduct tax and national insurance from fees and pay net amounts to the company, as they would do for employees. It will also mean that public sector bodies will need to pay any employers national insurance that is due at 13.8%.

HMRC have provided guidance to check if the engagement falls within these rules here.

You can read more on the new rules here.

Making Tax Digital – Election Update

In the last budget, the timetable was announced for introducing quarterly reporting (Making Tax Digital). There are still a number of unanswered questions which HMRC are consulting on. The timetable from the budget will mean that;

  • From April 2018 any sole traders, partnership businesses, or landlords with an annual turnover above the VAT threshold (currently £85k), will need to start reporting quarterly to HMRC.
  • From April 2019 any sole traders, partnership businesses, or landlords with an annual turnover below the VAT threshold (currently £85k), will need to start reporting quarterly to HMRC.
  • From April 2020 for any limited companies.

 

We have been responding to the HMRC consultations about our concerns to the changes in reporting to HMRC, and the speed at which the changes are planned to be introduced. We are particularly concerned about the lack of clarity that HMRC has given on certain issues.

The government has released some guidance on the legislation that says;

“The government is keen to ensure that stakeholders have an opportunity to comment on the draft regulations. Therefore, the government will also publish a full version of the draft regulations in the summer of 2017 for technical consultation.”

Now that an election has been called for 8 June, it may lead to a delay in the final legislation that will set out the details for making tax digital, which were intially expected in summer. It may even lead to a new government or a new chancellor.

Alternatively, Treasury Committee Chair Andrew Tyrie said that “when an election is called, large sections of the budget are excised in hurried negotiations between the [government and opposition] front benches and a concertinaed finance bill is pushed through on an agreed basis, in order to ensure that the public finances are not put at risk.”

We will be advising clients on how to prepare for quarterly reporting and updating them on any information that is necessary in helping to support them. We have been working with software providers to get the best solutions for clients and offering discounts.

 

 

 

 

 

 

Making Tax Digital – Timetable Update

In the last budget there was a further announcement for the timetable on which businesses will be expected to start reporting quarterly through online software to HMRC.

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We can offer advice on the most suitable bookkeeping packages that can be used to comply with the new reporting requirements. We can also offer discounts on certain bookkeeping packages, where a number of businesses sign up at the same time.

 

VAT Flat Rate Scheme Changes

Back in November, it was announced that changes will be made to the Flat Rate VAT Scheme, due to what was termed aggressive abuse of the scheme. The changes will take effect from 1 April 2017.

The flat rate scheme was introduced to simplify VAT returns for businesses that fall within the scope (turnover limit) to use the scheme. The changes will mean that any businesses registered to use the flat rate scheme will have to consider if they are “limited cost businesses” and whether the new flat rate percentage of 16.5% will need to be used.

This change will affect businesses that are mostly “labour only,” which a number of contractors will be.

 

VAT Notice 733 has sections that gives more information on who is considered a limited cost business.

Sections 4.4 says;

You’re a limited cost business if the amount you spend on relevant goods including VAT is either:

  • less than 2% of your VAT flat rate turnover
  • greater than 2% of your VAT flat rate turnover but less than £1000 per year

If your return is less than one year the figure is the relevant proportion of £1000. For a quarterly return this is £250.

 

The notice goes on to describe what is and what is not a relevant good;

Examples of relevant goods

This isn’t an exhaustive list:

  • stationery and other office supplies to be used exclusively for the business
  • gas and electricity used exclusively for your business
  • fuel for a taxi owned by a taxi firm
  • stock for a shop
  • cleaning products to be used exclusively for the business
  • hair products to use to provide hairdressing services
  • standard software, provided on a disk

Relevant goods are goods that are used exclusively for the purposes of your business, but don’t include:

  • vehicle costs including fuel, unless you’re operating in the transport sector using your own, or a leased vehicle
  • food or drink for you or your staff
  • capital expenditure goods of any value, see paragraph 15.1
  • goods for resale, leasing, letting or hiring out if your main business activity doesn’t ordinarily consist of selling, leasing, letting or hiring out such goods
  • goods that you intend to re-sell or hire out, unless selling or hiring is your main business activity
  • any services

Examples of supplies that aren’t relevant goods

This isn’t an exhaustive list:

  • accountancy fees, these are services
  • advertising costs, these are services
  • an item leased/hired to your business, this counts as services, as ownership will never transfer to your business
  • food and drink for you or your staff, these are excluded goods
  • fuel for a car this is excluded unless operating in the transport sector using your own, or a leased vehicle
  • laptop or mobile phone for use by the business, this is excluded as it is capital expenditure see paragraph 15.1
  • anything provided electronically, for example a downloaded magazine, these are services
  • rent, this is a service
  • software you download, this is a service
  • software designed specifically for you (bespoke software), this is a service even if it is not supplied electronically

 

As services are not considered a relevant good, it will likely mean that a number of businesses will be caught by the change. For example, a business that has high sub-contractor costs may fall in to the limited cost business definition, as sub-contractors costs are considered services.

For businesses that use the flat rate scheme, it may be more beneficial to move to another scheme. We can advise on the other VAT schemes that are available and what needs to be done to change.

Landlord Tax Update

There have been a number of changes recently to tax for the purchase of a second residential property and expense claims against rental income for landlords. There are a number of considerations to be made when looking at these changes.

What Has Changed? 

Stamp Duty changes mean that if you purchase a second residential property, that is not your main residence, you will pay an additional rate of 3% on top of the normal rates of stamp duty. You may be eligible for a refund of the additional rate of Stamp Duty paid, if you sell your previous main residence within 36 months.

Another consideration is with regards to a change to expense claims against rental income. A group of landlords lost their court case in October 2016, which means that from April 2017, there will be new rules on how mortgage interest relief is calculated. This will apply to individuals that receive rental income from properties of which a mortgage or form of finance has been taken out to purchase the property.

Using a Company

There are a number of articles online that suggest that transferring property to a company can help to save tax, if the mortgage interest relief changes will lead to a higher personal tax liability. A company is currently still entitled to claim all mortgage interest costs against rental income, but we would always recommend speaking to us before deciding to transfer a property, as there can be a number of potential tax implications to consider.

When you transfer a property from personal ownership or beneficial ownership (through a deed of trust) to a related company, it will trigger a capital gain or loss. The gain or loss is calculated at the market value of the property at the time it is transferred to the company, less the cost of purchase and any enhancement expenditure on the property. This should be considered before you decide to do this. Any gain in the value of the property up to the date it is transferred is still tied up in the property, which could lead to a potential tax liability on transfer before any gains on the final sale have been realised. 

One other consideration is stamp duty, which may be due if the property is transferred to a company that is controlled by the same individuals that owned the property before the transfer took place.

It may still be beneficial to use a company, but it is always best to seek advice before making any decisions. There are some reliefs that could potentially be available.

We can advise on the best solutions with property investments and whether it will be beneficial to purchase property with a company, or transfer property to a company.

Please feel free to contact us for a free initial consultation.

 

 

 

 

 

OTS to review gig economy

The office of tax simplification has released details of a focus paper which will look in to tax issues surrounding the gig economy.

The gig economy is a term that has been used a lot recently to describe working patterns and conditions. It has mainly been used to describe individuals who are currently classing themselves as self-employed and provide services to tech companies, such as Uber and Deliveroo. There are positives and negatives to each treatment for workers, which will vary depending on individual circumstances.

HMRC have a particular interest in this, as ultimately the tax receipts they receive are affected by the treatment. Usually HMRC consider the overall picture in each case to decide on whether someone is self-employed or employed.

One difference with companies such as Uber and Deliveroo is the scale on which individuals have classed themselves as self-employed. When drivers were treated as self-employed it meant they were not entitled to holiday pay or the national minimum wage.

All self-employed individuals can claim allowable business expenditure against their income on their tax returns.  If HMRC rules that drivers should be given employment status, this may mean they disallow a number of expenses that have been claimed, which may ultimately lead to higher tax liabilities for drivers and Uber for unpaid Employers NIC`s.

It may also affect other cases, as HMRC will need to consider facts of the case that lead them to apply the employment status. The principles that drive each decision may be considered in deciding whether the overall picture is one of employment or self-employment.

If HMRC decide that Uber drivers should be treated as employed, it will also affect customers. It may even ultimately force Uber to consider the business model it uses in the UK. If the drivers are employed by Uber and the customer is provided a service by Uber, VAT will be charged on the fare, whereas currently they receive the service from the driver. This means if the driver is not over the VAT threshold (or registered for VAT) then no VAT will be charged on the fare.

We can advise on the correct status of employment or self-employment to make sure the treatment given is correct. HMRC can go back and challenge the treatment for previous tax years if they believe the wrong treatment has been applied.