A summary of the issues we think are relevant now and going forward. It’s not exactly titillating but there’s quite a lot going on. Please read it and I can provide more detail where required, unless HMRC haven’t made up their mind yet.
The tax free allowance goes up to £11.5k from April. Individuals with income over £100k lose this on a sliding scale of £1 for every £2 until they get to £123k. So income between £100k and £123k actually gets taxed at 60%. To be avoided.
The point at which the 40% tax rate applies, is £45k, ignoring the things that increase that level, such as pension contributions and charitable donations. The additional rate sticks at 45% on income exceeding £150k.
Going forward the government have promised to increase the tax free allowance to £12,500 and the 20% tax band to £50k by 20/21.
Interest on savings up to the £1,000 is tax free. For HR taxpayers they get the first £500 tax free and additional rate taxpayers don’t get any allowance.
The new tax rates started 12 months ago. The impact will be felt from now on when we start completing tax returns and the higher tax pops out. Businesses which have been merrily paying dividends to non taxpayers will find that many more individuals fall within the tax loop and need to complete annual Returns. I’m thinking of those businesses where dividends are paid to married couples.
Transfer of allowances between couples
Married couples where one person has unused tax relief can transfer up to £1,100 to the other and save a maximum of £220. This only works where neither of you is a higher rate taxpayer.
Capital Allowances No change: 100% relievable spend is, apparently, now fixed at £200k per annum.18% thereafter, or maybe 8%.
Down to 19% for accounting periods starting 1st April 2017. Due to go down to 17% and perhaps even lower.
Still repayable where one of the household has income over £50k
Tax free childcare
To be phased in early this year. For every £8 paid into a childcare account the government will pay in £2 up to a maximum of £500 for 3 months. You will not qualify if you expect to earn more than £100k in the year.
Mortgage applications – income verification
NB HMRC have access to these to check that their record of your income ties in with what you’re telling the B Soc.
Aside from that, lenders should now accept our version of the SA302 along with the HMRC tax year overview all of which I can provide instantly (assuming I’m not skiing 😄 )
Clearly HMRC do not like investment in property. The additional 3% stamp duty on second properties started in April 2016.
Finance Act 2016 introduced a charge placed on profit generated from sales of land and property in the UK. The charge will be to income tax or corporation tax where the land was acquired with a view to making a profit.
Employer allowance: £3k per annum, but single employee companies can’t have it.
National living wage: applies from April to employee age 25 and above. £7.50 per hour from 1 April 2017.
Payments under salary sacrifice change from 1st April. Pensions and childcare are fine. Most other arrangements are not: gym memberships will be taxable. Existing arrangements can stay in place until April 2018 but going forwards will be taxable.
HMRC do not like the current way that benefits are calculated in respect of houses provided by employers. Anyone who does benefit from this, needs to expect an increase in the tax bill.
There will be an update for the end of the (tax) year. Please download it in plenty of time. If you don’t, you may not be able to do the payroll end of year process and you’ll panic.
£1000 tax relief for small businesses
This has been introduced to keep very small enterprises out of the tax system. So if you run a small business or receive rent and the turnover is £1000 or less it is covered by the allowance. Any business can claim this but for most it will not make sense because they cannot claim for any expenses under this scheme.
Inheritance tax relief re homes
Starts from April 2017. The existing relief of £325k each will be supplemented by a further £100k each, increasing incrementally to £175K over 4 years in respect of homes passed to children/grandchildren. Downsizing relief will be available in respect of houses sold on or after 8.7.15. Apparently the calculation would challenge S Hawking.
Making Tax Digital
The requirement to report income and expenses to HMRC quarterly from 5 April 2018. This is happening and HMRC are not giving way on the start date. As yet the detail of how this will work has still to be provided. Companies will be expected to join from 2020.
Common reporting standards
It sounds harmless but it is an unassuming name for an aggressive plan by HMRC to tackle overseas tax avoidance. Overseas financial institutions will report overseas assets held by UK individuals to HMRC.
HMRC have promised to follow all of these leads to ensure that any relevant income has been reported.
In the meantime HMRC have announced an amnesty to run until 30 September 2018. It’s not particularly benign but it’s significantly kinder than the regime that will operate if HMRC discover wrong doing from then on.
Accountants are obliged to flag this issue to any clients to whom they have given any advice on overseas tax. This has to be carried out by 31st August 2017 and HMRC are threatening fines so we will be sending out these warnings like confetti.
Enablers of tax avoidance
Individuals and organisations who promote tax avoidance will be fined and their names made public. Clearly this is meant to deter the sale of tax schemes but as ever the legislation has been drawn to cover a wide range of situations and we can see over zealous inspectors looking to penalise traditional tax planning advice.
Once you’ve started to draw on your pension the most you can put in annually has gone down to £4k per annum from 1st April. This is a reduction from £10k per annum which (apparently) was being abused.
HMRC do not like the fact that businesses have incorporated to reduce their tax bills. Over time they have eroded the benefits by taxing dividends, removing the ability to claim Entrepreneurs Relief on the transfer in and restricted it on wind up.
The Chancellor has stated his intention to ensure that tax is paid at the same level regardless of the business structure.
The Office for Tax Simplification has looked at taxing small companies as if they were partnerships so the profit lands on the shareholders and is taxable to income tax. Their conclusion is that it would not ‘simplify’, but that does not mean that HMRC will not do it.
The OTS did like the idea of limited liability for sole traders (SEPA: Sole Enterprise with Protected Assets) which would remove one of the attractions of incorporation ie the ability to protect your home if something goes wrong. It remains to be seen whether this will be adopted.
What’s the difference between death and taxes? Answer: The Treasury doesn’t think up ways every year to make death worse