2019/20 tax year: personal tax rate changes and allowances

A roundup of all the personal tax changes which come into force from the 2019/20 tax year including, an increase to the personal allowance and higher rate threshold, changes to residential inheritance tax and capital gains tax regime for non-UK residents

Personal allowance and higher rate threshold

The personal allowance increases on 6 April 2019 to £12,500 from £11,850. This will lead to a reduction in tax of £130 a year for most people. The threshold for paying the higher rate of income tax (which is 40%) will increase to £50,000 from £46,350.

Income tax rates

UK and Northern Ireland

Scotland – Scottish rate of income tax (SRIT)

Wales

Other Allowances


*Available to persons born before 6 April 1935. Relief limited to 10%. Reduced to minimum allowance by £1 for every £2 over income limit. Minimum allowance reduced by £1 for every £2 income over £100,000 after applying personal allowance reduction.

Inheritance Tax

Disguised remuneration loan charge

The deadline for settling loan charges with HMRC is 5 April 2019. In April 2019, all outstanding loans from disguised remuneration schemes will become subject to an income tax and national insurance contributions (NICs) charge under Income Tax (Earnings and Pensions) Act 2003 ITEPA 2003, Pt 7A. The loan charge is an anti-avoidance measure which targets the payment of remuneration in a form (in this case, as a loan) that avoids tax and NIC.

The new loan charge was introduced by Finance (No. 2) Act 2017 on all disguised remuneration loans, eg, loans made via company employee benefit trusts (EBTs) or EBT sub-trusts, or similar via employer-financed retirement benefits scheme (EFRBS) made on or after 6 April 1999 and still outstanding at 5 April 2019.

Pensions, loans and savings

Student loans

The Department for Education has confirmed that from 6 April 2019 the Plan 1 threshold increases to £18,935 from £18,330 and the Plan 2 threshold to £25,725 from £25,000 but the rate of deduction for both remains 9%.

Individual savings accounts (ISAs)

From 1 April there will be a small adjustment to the annual Child Trust Fund and Junior ISA savings limit with a £108 rise from £4,260 to £4,368 from 6 April 2019, equivalent to 2.5%. The interest and gains received on money saved in a CTF and Junior ISA is tax free as per standard ISA rules.

An estimated 907,000 Junior ISAs were paid into during 2017-18 tax year.

Personal pensions

The tax-free amount you can pay into a personal pension remains at £40,000 per tax year. The lifetime allowance for pension savings increases from 6 April 2019 to £1,055,000 (from £1,030,000)

Workplace pensions

The minimum amount you need to pay into your employee’s auto-enrolment workplace pension increases from 6 April 2019. This means the total amount of employer and employee contributions must be a minimum of 8% of your employee’s qualifying earnings.

Capital gains tax

The capital gains tax (CGT) annual exempt amount for individuals increases to £12,000 from £11,700.

Non-resident CGT

Non-UK residents will be pulled into the capital gains tax CGT regime for the first time on 6 April if they dispose of UK land and property.

Currently, non-UK residents are only taxed on disposals of residential property, but from 6 April 2019, all UK land (including commercial property) will come within the scope of UK taxation.

In addition, non-UK residents will also be subject to UK tax on the disposal of assets that derive at least 75% of its value from UK land, so called ‘property-rich’ companies.

With the new CGT regime, a new compliance system is being introduced, which non-UK residents will have to follow in reporting disposals of UK land and paying the associated tax.

Non-UK residents disposing of UK land (or assets that derive at least 75% of its value from UK land) must file a return within 30 days following the completion of the disposal, and a payment on account must be made at the same time.

The amount of tax to be paid is calculated under the normal rules, including using any allowable losses at the date of disposal.

Property tax

Interest relief for buy to let mortgages

Since April 2017, the government has phased in the removal of interest for buy to let landlords. Now in the fourth year of implementation, the restriction will be fully in place from 6 April 2020.

The finance costs that will be restricted include interest on mortgages, loans - including loans to buy furnishings and overdrafts.

Stamp duty land tax (SDLT) – UK and Northern Ireland

Residential

Non-residential

SDLT: first-time buyers

Residential only


SDLT rate effective from 22/11/17 for purchases by first time buyers only

Scotland – Land and Building Transaction Tax (LBTT)

LBTT rates and bands for residential and non-residential property transactions

Wales – Land Transaction Tax (LTT)


These rates came into force on 6 April 2018.

Cars

Company cars

From 6 April 2019, benefit in kind (BiK) tax rates are increasing for company cars. The percentage applied to the list price of the car will increase based on the CO2 emissions published by the Vehicle Certification Agency.

Tax free mileage allowances

The following rates will remain the same from 6 April 2019:

National Insurance Contributions (NICs)

Class 1 NICs

Employees

Employers

- Class 1A and Class 1B – 13.8%
- Class 2 (self-employed) – Flat rate £3 a week. Small profits threshold £6,365 a year.
- Class 3 (voluntary contributions) - £15 a week.
- Class 4 (self-employed) – 9% of profits between £8,632 and £50,000 a year. 2% of profits above £50,000 a year.

Source: Accountancy Daily - Report by Amy Austin.

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Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

HMRC call centre connection times deteriorate

One in five taxpayers are not satisfied with HMRC’s digital services despite the tax authority’s push to move all services online, while wait times to speak to an adviser worsened in February with nearly a third of callers waiting more than 10 minutes to speak to an adviser

At the same time, call centre response times have worsened this month, with the average speed of answering a call worsening from five minutes 14 seconds to six minutes, 27 seconds, well above HMRC’s target five-minute waiting time. This is nowhere near the performance in 2015-16 when average answer times were 12 minutes but HMRC did work to improve this with substantial investment in technology, automated call services and more call centre staff to improve response times.

However, although taxpayers are getting through to the service, they face longer waits to actually speak to an adviser as response times only illustrate time waiting to reach the automated service. Nearly a third of callers – 29% - have to wait more than 10 minutes to speak to an HMRC official, which is nearly double the number waiting this long in 2017-18. The call wait worsened significantly in February, up from 19.8% to 29% of taxpayers waiting more than 10 minutes, compared with HMRC’s target connection time of five minutes.

Pressures of Brexit queries and Making Tax Digital implementation dates have contributed to the deterioration in service as the tax authority has been reassigning staff to Brexit transition and no deal planning and preparation.

An HMRC spokesperson told Accountancy Daily: ‘Over the past 12 months, the average wait times for our helplines have been around our target of five minutes. We know that at busy times some customers have to wait longer, and we are doing all we can to keep all waiting times as low as possible.

Despite the push to online services, HMRC is still having to deal with large volumes of post and is falling well behind its target of dealing with 80% of post within 15 days of receipt. It received more than one million items of post in February for which customers require a response.

HMRC dealt with 64.8% of customer post within 15 days, leaving over 300,000 letters unanswered.

Despite the level of dissatisfaction with digital services, there has been good take-up of personal tax accounts, HMRC reported.

While company registration for Making Tax Digital for VAT has been slow with the majority of companies required to report VAT digitally still not registered, there has been strong interest in HMRC’s digital tax accounts with nearly half of taxpayers now signed up for the service.

The number of individuals signing up for personal tax accounts has hit 18.8m, up nearly 25% on the same time last year when total number stood at 14.7m, out of 30.3m UK wide taxpayers. Digital tax accounts were first launched in 2015 and are optional for taxpayers; each account amalgamates records for taxpayers including tax and NICs from different employment sources and income streams.

‘The numbers of customers using our digital services continues to increase, and we carry on improving these services in line with customer feedback,’ HMRC added.

Source: Accountancy Daily - Report by Sara White.

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Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

HMRC sends late filing penalties earlier than expected

The Association of Taxation Technicians (ATT) is alerting taxpayers that HMRC is starting to issue late filing penalties for self-assessment income tax returns this week

The penalty for missing the filing deadline of 31 January 2019 for a 2017/18 return is £100.

HMRC announced in February 2019 that, due to Brexit-related pressures, the issue of late filing penalty notices would be delayed.

At the time HMRC said that individuals who filed late will still be charged the penalty; but the notice would be delivered later than normal. It will still issue daily penalties to individuals who have still not filed three months after the deadline, in appropriate cases, at the normal time.

Previously, ATT raised concerns about the delay, pointing out that the £100 penalty notice is an important prompt to taxpayers that their return is outstanding as well as reminding them that they risk incurring an additional penalty of £10 per day if the return is still outstanding after three months from the 31 January due date.

ATT was concerned that if the penalty notices were not received until late April or into May, the £10 daily penalties will be unavoidable.

Jon Stride, co-chair of the ATT’s technical steering group, said: ‘The ATT is pleased that HMRC have now started to issue penalty notices and have not delayed the exercise to the end of April, which was originally a possibility. However, it will take HMRC until 12 April 2019 to issue all the penalty letters. This gives taxpayers a little over two weeks to submit their return before the daily penalty regime commences.

‘Anyone who has yet to file their 2017/18 tax return should do so as a matter of urgency. They will not be able to avoid the £100 penalty unless they have a reasonable excuse for being late, but getting the return filed online by no later than 30 April 2019 will mean that they will avoid the additional £10 per day.’

Source: Accountancy Daily - Report by Amy Austin.

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Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Property income allowance gives £1,000 tax relief

Property owners who receive an income from rent could be missing out on a recently introduced tax-free allowance potentially worth hundreds of pounds provided they have low rental income.

Taxpayers can claim the property income allowance, which came into effect in April last year, giving the property owner £1,000 of tax relief on their rental income, provided they have few or no expenses. The allowance is worth up to £1,000 each tax year in tax-free allowances for property or trading income from 6 April 2017.

‘Depending on circumstances, this can be a fairly generous tax break for individuals who rent out their property, including land owners, for example farmers. A basic rate taxpayer can save up to £200, while higher rate taxpayers can save up to £400 by claiming the allowance,’ said Annalise Lovett FCCA, partner at chartered accountants Newby Castleman.

‘Because many landlords and property owners fill out their own tax returns, they may well have overlooked the property income allowance, especially as it only came into effect last year, and the 2017/18 tax return is the first time it can be claimed.’

The new allowance can be particularly beneficial to joint owners of property and land, for example married couples, as both parties are able to claim the allowance, ie, up to £1,000 each.

Where the allowance covers all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income.

Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 national insurance contribution purposes.

The allowance does not apply to partnership income from carrying on a trade, profession or property business in partnership. They cannot be used in conjunction with the relief available under the rent-a-room relief rules.

Lovett said: ‘It’s a relatively straightforward way of claiming back a potentially generous amount from the taxman, and if you’re completing your own tax return it might be easy to miss.’

The relief was introduced as part of Finance Act 2017, and introduced a new Part of Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), to give relief for two new annual tax allowances for individuals of £1,000 each, a trading allowance and a property allowance.

Source: Accountancy Daily - Report by Sara White.

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Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

HMRC delays Making Tax Digital for VAT trial for businesses

HMRC has assessed 18 software suppliers as having met its requirements for Making Tax Digital for VAT, ahead of the mandatory deadline for online filing next April, while its public trial for businesses who will have to keep and submit digital records will not now start until later this year.

HMRC has published a stakeholder communications pack offering guidance about the requirements of Making Tax Digital, which will see VAT-registered businesses with a taxable turnover above the registration threshold required to keep and submit digital VAT business records and make digital VAT returns from 1 April 2019.

HMRC launched a private pilot of Making Tax Digital for VAT in April 2018, working with software providers in order to test its systems and their products. The guidance suggests this will become a public trial ‘later in 2018’, having previously indicated it could begin this summer.

HMRC will not be offering its own software products, but will provide the application programming interfaces (APIs) that commercial software developers will use to develop a range of applications that will enable businesses to keep their records digitally and integrate with HMRC systems.

The guidance describes the VAT trial as ‘a private pilot available to invited volunteer VAT businesses and their agents’ and says that ‘for now, we are limiting the number and types of business we invite into the pilot.’

According to HMRC’s latest update, more than 130 software suppliers have told HMRC that they are interested in providing software for Making Tax Digital for VAT, of which over 35 have said they will have software ready during the first phase of the pilot, which involves small numbers of invited businesses and agents.

So far, 18 suppliers including Intuit, IRIS, PwC, Xero and Sage, are listed as having tested their products in HMRC’s test environment and having demonstrated a prototype of their software to HMRC.

The guidance states: ‘We’ve invited a small number of volunteer VAT businesses who meet a specific set of eligibility criteria to join. Some are represented by agents and others are unrepresented. As we continue testing, we’ll increase the numbers and start to invite businesses with more complex features.’

HMRC also says it will provide more detailed guidance about the operation of Making Tax Digital for VAT after the launch of the public service later this year.

In March 2018 HMRC launched a pilot for Making Tax Digital Income Tax pilot on a voluntary basis. It will not be mandatory for businesses until at least 2020.

Businesses can sign up if they are a sole trader with income from one business and/or are landlords (except those with furnished holiday lettings).

If a business that signs up to Making Tax Digital for income tax has no other income to provide to HMRC they will not need to complete a separate self assessment return for 2018/19.

The stakeholder communications pack says: ‘Where additional personal income needs to be reported, such as employment income, bank and building society interest, dividends and gift aid, additional functionality will be made available in the coming months to allow software providers to build this into their products, meaning many more businesses will be able to send all of their additional personal income details using MTD.’

It also states that the income tax pilot ‘continues to be developed and additional functionality to allow more business to join will be released in the coming months’. This will include the ability to report other sources of income through software e.g. bank interest and dividends.

Currently there are four approved suppliers on HMRC’s list for Making Tax Digital for income tax: Absolute, Forbes, IRIS and Rhino.

HMRC says the communication pack provides information for firms, agents and others, who can use the contents to inform their own communications activity and key messages for their clients, customers or members.

As well as explaining the background to Making Tax Digital, it includes details of the pilots and encourages stakeholders to get involved in these, and to ensure that they and their clients are aware of new digital requirements.

Source: Accountancy Daily - Report by Pat Sweet.

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Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Two-tier Making Tax Digital penalty regime confirmed

The penalty system for Making Tax Digital will kick in within 15 days of an overdue payment and will be a two-tier system, the government has confirmed in the draft Finance Bill 2018-19, although there will be an initial grace period for late filers

The government has admitted that there were numerous complaints in the consultation responses stating that the system for Making Tax Digital penalties was overly complicated with effectively a two-tier system, but it will go ahead regardless.

HMRC has confirmed that the penalties for failure to keep digital records will come into force immediately from April 2019, while there will be a grace period for those who file late. Penalties for late filing will come into force in April 2020.

Making Tax Digital for VAT reporting for business is due to come into force from April 2019, although the wider project for corporation tax and property tax has been delayed until at least 2020-21.

Penalties will be calculated on debts remaining due after 15 days from the payment due date although on a mitigated basis where payment is made or a Time to Pay arrangements (TTP) has been set up until 30 days after the due date.

Where a successful TTP agreement is made, the government will take the date of contact with HMRC as the effective date for the purpose of late payment penalties.

The government intends to introduce the late payment penalties based upon the two charge model consulted on as it believes that a two charge system is fairer to the vast majority who comply with payment dates and prompts better compliance behaviours for the small minority who do not in a proportionate manner:

It says that the system will encourage taxpayers to get in touch earlier with HMRC when they have payment problems and will directly link the penalty to the amount of time a debt is outstanding.

Two-charge model

Two charge model will work as follows:

- If a payment or TTP is made or treated as made within 15 days of the due date no penalty will be charged;
- Between 16 and 30 days half a penalty will be charged;
- After 30 days a full penalty will be charged plus a further penalty which will then accrue daily until payment is made or a TTP treated as made.

VAT repayment interest

Some specific concerns were raised about VAT repayment interest not being paid where there are missing returns or for periods of reasonable enquiry.

In response, the government has decided that where a repayment return is received and there are other outstanding returns HMRC will pay interest from the date any outstanding returns are submitted, subject to reasonable enquiry.

The government rejected concerns about using differential rates for corporation tax Quarterly Instalment Payments (QIPS), stating that only those paying corporation tax have to estimate their current year’s tax liability before the year is finalised and make payments based on those estimations.

Once the payment date for the year, nine months and one day after the end of the accounting period has elapsed, the usual rates apply. As a result, there will be no change to the current interest rate differential for QIPS, the government confirmed.

Source: Accountancy Daily - Report by Sara White.

Are you aware that you can keep up to date with the latest developments and news using our new mobile application. Download for Android and iPhone.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Buy-To-Let, Another Twist On Company Ownership

You’re considering getting into the buy-to-let market. You’ve read that because of changes to the rules in April 2016 it is now more tax efficient to buy the property through a company. Is this correct?

Landlords Under Attack

The Chancellor has made no secret of his intention to increase tax on profits & capital gains made by landlords in the buy-to-let market. However, not all the changes which affect individuals apply to companies. This has fuelled the long running debate over whether or not residential buy-to-let properties should in future be bought personally or through a company.

What Are The Changes?

Since 2015 three major changes have been announced which affect the taxation of residential rental properties:

* The restriction of higher rate tax relief on loans & finance costs for individuals. This will be phased in from 6 April 2017. Companies aren’t affected.

* A 3% stamp duty land tax (SDLT) (LBTT in Scotland) surcharge applies from March 2016 to purchases of residential property by companies &, if it is their second or subsequent residential property, to individuals.

* Exclusion from the general reduction in capital gains tax (CGT) rates by 8% for gains made after 5 April 2016. This does not affect companies who are liable to corporation tax on gains.

Corporate Advantage?

As you can see the changes don’t hit companies as hard as individuals. Companies also have another advantage over individuals. When they sell a property & make a gain they are entitled to reduce the amount liable to tax to take account of inflation. This is known as indexation. On the other hand, getting the rental profits & gains out of a company triggers personal tax liabilities which can significantly reduce the amount you actually end up with.

A Guessing Game

Personal or company ownership is a tax conundrum which experts have been arguing about for a long time. This is because there are so many factors involved, any one of which can sway the outcome one way or the other. To name just a few:

* the rate of increase in property values

* inflation

* the rate of interest on money borrowed to buy the property

* how much other income you have?

In order to assess the consequences, you’ll have to predict each of these factors & more for the whole period you expect to own the property.

Conclusion:

Notwithstanding the above, one factor which might be a game changer is that since 6 April 2016 it’s been possible to extract property rental income & gains from a company at zero tax cost. By extracting money from the company as dividends of £5,000 per year or less, the tax cost will be zero. What’s more, if you’re buying a property with your spouse, unmarried partner or children (aged 18 plus), they too can share in the income & gains from the property rental company at zero tax cost.

The changes don’t automatically make company ownership a better option. However, a change in the general income tax rules from 6 April 2016 means that you & the other property owners can take up to £5,000 per year of income or gains tax free. This could tilt the balance in favour of company ownership.

For more information on the Tax services we provide, please visit our Tax Compliance services page here.

If you require more detailed information on these proposed changes & the potential impact it could have on you, then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers on our website here, together with our featured page on ‘The Best of Thetford’ website.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Residential Property Income Tax Changes

Individuals who let residential property face a number of changes to their tax position in the next few years.

The Changes

Currently, letting residential property (even by individuals) is treated as a ‘property business’ for the purposes of calculating the taxable profit. Therefore, using normal business tax rules, interest paid on a loan to finance the purchase of a property which is subsequently let can be deducted 100% from the rental income received within the property business. For individuals who are landlords, the Government has decided to change this longstanding rule. In future, instead of deducting the interest from the letting profit before that profit is taxed, the individual will only be allowed an income tax deduction at the basic rate (20%) on the interest paid.

The Details

This is a major change for landlords, & the Government has stated that it does not wish to cause substantial short term disruption to the private rentals market. Therefore, the change will be phased in from the 2017/18 tax year, with transitional rules until 2020/21.

During the transitional years, the amount of the tax deduction from rents will reduce and the proportion of loan interest that will only qualify for basic rate tax relief will increase. In these transitional year’s landlords will be able to claim the following relief:

* 2017/18 - 75% of the interest against rents, 25% basic rate tax relief

* 2018/19 - 50% of the interest against rents, 50% basic rate tax relief

* 2019/20 - 25% of the interest against rents, 75% basic rate tax relief

However, any unrelieved interest can be carried forward to future tax years. HMRC have confirmed that the changes will have no effect where a property meets all the criteria to be a furnished holiday let.

What Are the Implications?

The change will likely affect higher & additional rate taxpayers who let out highly geared residential properties. Additionally, there are currently no proposals to change the eligibility criteria for tax relief on letting related borrowing. For example, it should still be possible to release equity on a buy to-let property by increasing the mortgage secured on it & still claim relief for all of the interest (albeit eventually only at the basic rate tax relief of 20%).

Individuals who currently pay tax at 40% or 45% on letting profits will pay more tax as a result of this change, although the increases planned for personal allowances & the basic rate band up to 2020 will help to mitigate the impact slightly. Landlords will need to consider these tax changes carefully when setting rent levels in future.

What Options Are Available to Mitigate the Tax Changes?

Ownership through a limited company could be a favourable option for some as the changes will have no direct impact on those who own & let residential properties through this method. Companies will continue to deduct loan interest as a business expense & get effective tax relief at up to 20% (although this will fall in future as the rate of corporation tax falls). However, by 2020, this change will remove the interest relief disincentive to holding buy-to-let properties through a company. Similarly, the ability to take income flexibly in the form of dividends will be more attractive to landlords who might otherwise lose their personal allowance. Of course, the effective rate of tax on dividend income has changed from 6 April 2016. Those taking low levels of dividends may suffer a lower effective rate because of the new £5,000 allowance, but those taking higher dividends may pay more as the rate of tax on dividends rises.

Conclusion:

As there are many issues to consider, deciding on the most tax efficient way to hold buy-to-let properties is not straightforward. The best option will depend on individual circumstances & long term objectives. Incorporation of an existing property letting business may not be practicable in many cases, including where this would result in a large stamp duty land tax liability.

For more information on the Tax services we provide, please visit our Tax Compliance services page here.

If you require more detailed information on these proposed changes & the potential impact it could have on you, then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers on our website here, together with our featured page on ‘The Best of Thetford’ website.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Budget 2015 – The End of Tax Motivated Incorporation?

The Summer Budget 2015 contained some key measures that were a thinly veiled attack on small business owners. What do you need to be aware of?

Dividends:
Perhaps the most controversial announcement was the overhaul of tax on dividend payments. From April 2016 the notional tax credit system (which sees basic rate taxpayers pay no tax on dividends) will be abolished & instead replaced by a new dividend allowance of £5,000. Any dividend payments received above that will be taxed at the following rates;

• 7.5% Basic rate taxpayer
• 32.5% Higher rate taxpayer
• 38.2% Additional rate taxpayer

Initially there had been some confusion as to how this allowance would work in practice but HMRC have confirmed that all taxpayers, regardless of their individual tax rate, will benefit from the first £5,000 of dividend income being tax free. Essentially it is a special type of personal allowance.

Small companies will be severely affected by this change. Those following the traditional accountant advice of taking a small salary & topping up to the basic rate tax band with dividends will potentially see their tax bill increase by up to £1,800 (enough to trigger payments on account).

Employment Allowance:
In a second swipe at micro companies, it was also announced that the allowance which reduces the Employers National Insurance liability by up to £2,000 per annum for companies will no longer be available where the only employees are the directors (one-man bands, husband & wife set ups etc.). This will come into effect from April 2016.

Goodwill Amortisation:
Finally, the announcement that there will be no allowable tax deduction for the cost of purchasing the goodwill element of another business or trade from 8 July 2015 will affect businesses that buy the trade of small competitors or retiring persons.

Conclusion:
Many small business clients are likely to be frustrated at these changes, with many commenting that the government have simply failed to recognise the financial risks that small companies have to take on.
It’s likely that small company client’s tax positions will worsen significantly next year.

Our client’s will be receiving detailed information on how the Budget changes will affect them, together with individual discussions so they can consider all options available to them.

For more information on the Taxation services we provide, please visit our Tax Compliance services page at https://www.emeraldaccountants.com/tax-compliance/.

If you require more detailed information on the Budget & the potential impact it could have on both you & your business then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Budget 2015 – Small Firms Facing Tax Shake-Up

On 8 July 2015, The Chancellor delivered his budget to Parliament. Like all budgets there are ‘Winners & Losers’ but this Budget in particular has provided plenty ‘food for thought’ amongst accountants as we look at ways of minimising the impact to our clients.

Our main focus in this blog is regarding the impact the Budget will have on small firms & the shake-up within the taxation rules associated with it.

As such, one of the main advantages of incorporation was to reduce tax but the tipping point at which incorporation starts to deliver significant tax savings has clearly gone up. It looks as if incorporation at earnings even as high as £30,000 will now deliver a very marginal benefit.

Thinking of this in broad terms, the advantage of incorporation has been that much of the income could be received as a tax-free dividend. Of that £30,000, something like £20,000 could be taken as dividend (using the personal allowance to cover salary).

From the 6 April 2016 that £20,000 will create additional income tax of £1,125 (£15,000 x 7.5%) - Each taxpayer will receive a £5,000 tax free Dividend Allowance, hence the reduction to £15,000. That is a significant increase whereas, broadly speaking, the self-employed will see little change. Additional tax at that level would make incorporation much less attractive.

With the tax benefits of incorporating being reduced (& I expect them to be further reduced in the coming years) there is a lot to be said for them to remain as self-employed. Also it’s worth mentioning here that for self-employed people the view to incorporate generally reduced the need for payments on account upon cessation of their trade for the following tax year & as such provided those with a tax break period upon incorporation. With Dividend income to be taxed from 6 April 2016 this could potentially throw another spanner in the works for those considering incorporation at this time!

For those who are already incorporated, there will be different considerations. Some will be happy to operate in corporate form but others may start to wonder whether it is time to disincorporate.

So what do we say to clients about these changes & the further ones that are almost certain to come?

The first thing is to remind clients that the dividend tax does not come into effect until next year, so there is nothing to do immediately. For clients who are considering incorporation, it might be best to put any plans on hold until the position is clearer.

This is certainly the case if the benefits are only marginal or if there are concerns about the additional complexity. Clients will be forewarned that next year’s tax is likely to be higher than this year’s, despite all the talk of tax cuts in the Budget.

For those with significant income, where the dividend tax will make a big difference, we will start thinking about timing of dividend payments next spring to ascertain if more tax-efficient.

HMRC can be expected to look closely at the timing of dividends paid in March and April next year, so getting the paperwork right will be essential.

Our client’s will be receiving detailed information on how the Budget changes will affect them & advice also on how to tackle them as each case will differ dependant on their circumstance.

For more information on the Taxation services we provide, please visit our Tax Compliance services page.

If you require more detailed information on the Budget & the potential impact it could have on both you & your business then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…