Tax Diary August/September 2017

1 August 2017 – Due date for Corporation Tax due for the year ended 31 October 2016.

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

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

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

1 September 2017 – Due date for Corporation Tax due for the year ended 30 November 2016.

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

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

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

Making Tax Digital E common sense prevails

Making Tax Digital (MTD) is the government’s latest attempt to fully digitise the process of collecting data from taxpayers so they can speed up the process of calculating how much tax you owe.

Until recently, we were facing radical changes to the tax system to accommodate this objective. Businesses (including landlords) were to be required to upload summarised accounts data from their accounts software on a quarterly basis. This information, plus details of other income was to be collected in a personal tax account which would automatically calculate future tax liabilities.

The process was timed to commence April 2018 and be completed April 2020.

The accountancy profession was united in opposition to the undue haste of the implementation process and the obligation that all businesses with turnover more than £10,000 would be required to invest in acceptable accounts software and make quarterly uploads.

It would seem the government has listened. Last week they announced:

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

Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.

This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.

As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.

It seems clear from this announcement that MTD is proceeding, but at a much more sensible pace.

VAT registered traders will need to have MTD compatible software in place by April 2019, and all businesses including property businesses with turnover above the VAT registration threshold (currently £85,000), will need to be ready to make the quarterly uploads of accounts data by April 2020.

Businesses with turnover below the VAT threshold will be under no obligation to use the MTD process, but can join in on a voluntary basis.

We will continue to work with clients to ensure they are ready to meet their obligations. It is gratifying to see the pace of change in this area slow down. This will give affected business owners and their advisors more time to implement the changes required and make more considered decisions about the software they will use to implement their links to HMRC’s MTD systems.

Director minimum salary levels 2017-18

Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions, and in some case Income Tax.

The planning strategy is to pay a salary at a level that qualifies the director for State benefits, including the State Pension, but does not involve payment of any NI contributions.

For 2017/18 the NI contribution rate is set at 0% for annual earnings in the range of £5,876 to £8,164 inclusive. Earnings in this band range qualify for NIC credit for State benefit purposes. At £112.99 per week (£5,875 p.a.) no NI credit is obtained for State benefit purposes. At £157.01 plus per week (£8165 p.a.) NI contributions start to be paid at the rate of 12%.

Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band which depends on the actual date appointed. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC.

Directors resigning during the year still have the full annual earnings band quoted above, and so care is needed to ensure that earnings for the whole tax year are within the range of £5,876 to £8,164.

Directors considering their planning options for the first time are advised to take professional advice as there are a number of considerations to take into account when setting the most tax/NI efficient salary. We, of course, would be delighted to help.

Rangers tax scheme kicked into touch

There has been a long running tax case rumbling through the lower courts on the use of a device called an Employee Benefit Trust (EBT) by Glasgow Rangers Plc. HMRC have considered the use of the EBT a scheme to avoid PAYE and NIC.

The case has now been considered by the Law Lords in the Supreme Court, who decisively ruled in favour of HMRC.

An EBT collects payments from employers and makes these available to employees as a loan – this process means that funds are made available, in the Rangers’ case to players, without a charge to tax or NIC.

Whilst it was acknowledged that the individual processes in the set up and management of the EBT were carefully drawn to keep within current legislation, the overall strategy was the avoidance of tax and NIC. In their judgement, the Supreme Court judges were satisfied that this “purposive” approach, the purpose for which the EBT had been created, was the avoidance of PAYE and NIC and therefore they dismissed Glasgow Rangers Plc’s appeal.

A growing number of cases, where HMRC had challenged the use of EBTs by other concerns, will now be pursued by HMRC based on this judgement. This decision probably marks the end of the EBT as a legitimate tax planning device.

Possible changes to tax rules for companies

There is a government department, the Office for Tax Simplification (OTS), that has been charged with investigating ways that the UK’s tax rules can be changed to make them easier to understand and easier to use.

The OTS has recently issued a new report on the proposal to simplify the Corporation Tax assessment process for companies, particularly smaller concerns.

Their report sets out some significant steps towards creating what they describe as “a 21st-century Corporation Tax system in the UK”. The aim is to make the calculation of Corporation Tax simpler, with fewer changes and more time to plan. The report also recognises the importance of reducing the burden on small businesses, and “keeping this country an attractive destination for trade and investment in a post Brexit world”.

The report takes an in-depth and innovative look across four broad themes:

  • simpler tax for smaller companies
  • aligning the tax rules more closely with accounting rules where appropriate
  • simplifying tax relief for capital investment
  • a range of further issues affecting the largest companies

It also highlights the links with HMRC’s work on Making Tax Digital, which offers a real impetus to move towards a simpler system by use of technology.

The OTS recommendations are not legislative changes, they are suggestions. These will now have to be taken up by the Treasury and HMRC to consider changes to tax law in future Budgets.

Uniforms, work clothing and tools

It is possible to claim for the cost of repairing or replacing small tools you need to do your job as an employee (for example, scissors or an electric drill), or cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots).

If you need to buy other equipment to use in your employment, you can claim capital allowances instead. A capital allowance is an agreed percentage of the cost of the equipment, that can be deducted from your taxable income. In most cases, this sort of claim should enable you to write off the full cost of any qualifying expenditure made.

What you can claim.

You can claim for the amount you have spent, or a ‘flat rate deduction’.

If you are claiming for the amount you have spent you will need to keep a receipt.

Flat rate deductions are fixed amounts that HM Revenue and Customs has agreed are typically spent each year by employees in different occupations. They range from £60 to £140 depending on listed occupations.

If your occupation isn’t listed, you may still be able to claim a standard annual amount of £60 in tax relief.

You don’t need to keep records of what you’ve paid for if you claim a flat rate deduction.

Tax credits renewals deadline 31 July 2017

The deadline to renew a claim for tax credits is 31 July 2017. This time last year, HMRC announced that over 400,000 claimants had still not filed their renewals, and as a direct result, had their payments stopped or amended.

One week before this year’s deadline, HMRC says that over 900,000 claimants have failed to renew.

Readers who claim tax credits and wish to continue receiving these benefits should make sure they have attended to the renewals process before the end of July 2017. According to HMRC, the online process is now the preferred option, being easier to use and more accessible. It allows claimants to track the progress of their renewals application, receive an email confirmation when submitted, and removes the need to scan or type in a bar code number from the back of the renewals pack.

Changes in circumstances that need to be disclosed include:

  • Changes in working hours, and
  • Changes in income and childcare costs.

Applicants who have no access to a computer can call the Tax Credits Helpline, 0345 300 3900.

It is worth underlining that failure to renew before 31 July may result in a reduction in benefits, it may also mean that some or all the benefits you have received since the beginning of April 2017, will have to be repaid.

To avoid hardship, we recommend that you complete the online renewal process, or call the Help Line without delay.

Reminders for landlords

Making Tax Digital

Until a recent announcement, landlords were going to be drawn into the requirement to upload quarterly details about their property businesses to HMRC under the Making Tax Digital obligations.

The date that did apply was April 2018 or April 2019 depending on the level of your rental income. We are now told that the only MTD filings required before April 2020 are VAT returns (from April 2019). As property rents are a predominantly exempt supply for VAT purposes property businesses can take a deep breath, at least until April 2020.

From April 2020, only businesses with turnover (rents in the case of landlords) more than the VAT registration threshold will be required to make quarterly uploads. Landlords with smaller rental receipts will no longer be required to concern themselves with MTD, although they could do so on a voluntary basis.

Tax relief on interest payments

For income tax purposes, 2017-18 is the first year that part of your finance charges will be disallowed and replaced with a basic rate tax credit – 25% will be converted in this way. If your interest charges are £20,000 during 2017-18, you will be able to claim £15,000 as a deduction from your profits, the balance of £5,000 will create a basic rate tax credit that you can deduct from your tax bill.

Further 25% slices will be changed in this way during 2018-19 and 2019-20 such that by April 2020 none of your finance charges will qualify for tax relief, and instead, will be replaced with a basic rate tax credit.

This will negatively impact the tax liability of higher rate tax payers, and certain highly geared landlords with significant interest charges.

Take advice

If you have not yet spoken to us about either of these matters please call and let’s consider your options.

Excessive credit card charges to be axed

The government is unveiling new rules that will mean card-charging in Britain – where people can be charged 20% extra for purchases like a flight just for paying with a credit card – will come to an end in January 2018.

‘Surcharging’ is common practice across the country – with businesses ranging from takeaway apps to global airlines charging people to make card payments or for other services such as PayPal. While many industries have acted to absorb the cost and not pass these on to consumers, these rules will bring an end to the practice entirely.

The rules will also tackle surcharging by local councils and government agencies.

In 2010, the total value of surcharges for debit and credit cards was an estimated £473 million.

The Economic Secretary to the Treasury, Stephen Barclay, said:

Rip-off charges have no place in a modern Britain and that’s why card charging in Britain is about to come to an end.

This is about fairness and transparency, and so from next year there will be no more nasty surprises for people at the check-out just for using a card.

These small charges can really add up and this change will mean shoppers across the country have that bit of extra cash to spend on the things that matter to them.

The government has previously capped the costs that businesses face for processing card payments, and will engage with retailers to assess if there is more that can be done to help.

One interesting twist to this announcement is that HMRC charge up to 2.4% if you want to settle your tax bill by credit card. They won’t be able to continue this practice once the new regulations start January next year.

Finance Bill No2 2017

To accommodate the May 2017 election, the government rolled-over items in the Mach 2017 budget for consideration later this year.

HMRC have now confirmed that these “in abeyance” items from the March budget will be reconsidered when parliament reconvenes after the summer recess.

Those items deferred that were due to be effective from April 2017, will still apply from that date. The confirmed list of topics that will be reconsidered include:

  • Taxable benefits: time limit for making good
  • Pensions advice
  • Legal expenses etc.
  • Money purchase annual allowance
  • Business investment relief
  • Calculation of profits of trades and property businesses
  • Trading and property allowances
  • Carried forward losses
  • Deemed domicile: income tax and capital gains tax
  • Deemed domicile: inheritance tax
  • Employment income provided through third parties
  • Trading income provided through third parties
  • Disguised remuneration schemes: restriction of income tax relief
  • Disguised remuneration schemes: restriction of corporation tax relief
  • First year allowance for expenditure on electric vehicle charging points

This is not a complete list and readers should be advised that the House of Commons and Lords will still need to debate and consider possible changes as the Bill winds its way through the various remaining committee and report stages.