Abolition of self-employed NIC to be deferred

The Low Incomes Tax Reform Group (LITRG) has welcomed a recent announcement by the Government that there will be a one-year delay before the removal of Class 2 National Insurance contributions (NICs) to enable consultation on the impact of its abolition on the self-employed with low incomes.

If Class 2 NICs were abolished, those with profits below the small profits threshold (currently £6,025) would currently have to pay Class 3 contributions, which are five times as much as Class 2 contributions, if they want to build up an entitlement to contributory benefits such as the state retirement pension. LITRG is keen for a way to be found for the low-income self-employed to continue to be able to make affordable savings towards their pension at a rate like the present Class 2, perhaps by introducing a lower rate of Class 3.

LITRG Chair Anne Fairpo said:

“We welcome the announcement by the Government that they intend to consult with organisations such as ours which have concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits. We look forward to working with the Government to lessen the risk of unintended consequences.

“The abolition of Class 2 NICs will be a significant change to how people contribute to qualify for certain benefits and the State Pension.

“We welcome the breathing space on this matter because of our concerns that the abolition of Class 2 was being rushed through without adequate further consultation, together with a lack of publicity and guidance for the people affected.”

The delay means the measures in the unpublished NIC Bill will now take effect one year later, from April 2019. This includes the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and changes to the NICs treatment of sporting testimonials.

Smaller businesses to be drawn into the VAT net

The Office of Tax Simplification (OTS) published a report setting out a range of proposals for simplifying VAT. According to the OTS the tax is showing its age. What was meant to be a simple tax has become highly complex and it has not kept pace with changes in society.

The most significant issue identified in the report is the VAT registration threshold – the turnover level above which a business must enter the VAT system and charge VAT on its sales. At £85,000 the UK has one of the highest levels in the world.

By enabling many small businesses to stay out of the VAT system the high threshold is a form of simplification, but it’s an expensive relief, costing around £2bn per annum, and evidence strongly suggests that many growing businesses are discouraged from expanding beyond this point. The report looks at options for reducing the current ‘cliff edge’ effect resulting in a very visible bunching of businesses just before the VAT threshold, and an equally large drop off in the number of businesses with turnovers just above the threshold. Also examined are the advantages and disadvantages of lowering or increasing the threshold.

VAT has many ‘quirks’. For example, it is well known that a Jaffa cake is a cake (zero-rated) rather than a chocolate-covered biscuit (taxed at 20%). Less well known is that while children’s clothes are zero-rated, including many items made from fur skin, items made from Tibetan goat skin are standard-rated. And a ginger bread man with chocolate eyes is zero-rated but if it has chocolate trousers it would be standard rated. VAT zero rates cost over £45bn per annum to maintain. EU law limits options to make changes in this area but there is a longer-term opportunity to significantly improve the efficiency, simplicity and fairness of the UK VAT system.

The OTS report, will need to be examined in some detail. It will be interesting to see if we could achieve a real simplification of this complex tax or if, yet again, smaller businesses are required to absorb more red tape and tax burden while larger concerns with stronger lobbies and resources continue to avoid liability.

Clampdown on child maintenance cheats

If a parent owes child maintenance, deductions to recover that debt can currently only be made from a bank or building society account held solely by them.

Unfortunately, a small minority of parents are cheating their way out of supporting their children by putting their money into a joint account with a partner.

New laws will be brought in to allow deductions to be made from joint accounts to recover child maintenance arrears.

It is believed that by closing this loophole this could stop many parents getting away with not paying their child maintenance each year – leading to more than £390,000 additional child maintenance being collected.

The recent government’s response to a public consultation on joint account deductions has been published. This sets out how deduction orders against joint accounts will work and the safeguards that will be in place to protect the other holder of the joint account.

These include:

  • a deduction order only being imposed on a joint account when the paying parent does not have their own account, or there is not enough money in their own account
  • only funds belonging to the paying parent being targeted, as before a deduction order is made on a joint account, data on that bank account will be collected and bank statements examined to establish which money in the account belongs to the paying parent
  • existing safeguards already in place for deduction orders for child maintenance will apply to this new power, including the maximum deduction rate on regular orders being set at 40% of the paying parent’s weekly income
  • both account holders will be given the right to make their case before a deduction order is made

The new power will come into effect early next year.

Tax Diary November/December 2017

1 November 2017 – Due date for corporation tax due for the year ended 31 January 2017.

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

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

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

1 December 2017 – Due date for corporation tax due for the year ended 29 February 2017.

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

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

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

30 December 2017 – Deadline for filing 2016-17 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2018-19.

Corporation tax payment deadline for March year end companies

Many companies have adopted the end of March each year as their accounting year end date.

Corporation tax is payable by most smaller companies nine months and one day after the end of their accounts year end. Accordingly, companies that have adopted a 31 March date will need to pay any corporation tax liability for the year to 31 March 2017 on or before 1 January 2018; just a few weeks away.

The same dates also determine the payment of additional corporation tax if certain overdrawn director’s loans (at 31 March 2017) are not repaid before the end of the year. Additional corporation tax due will be based on 32.5% of any applicable director’s or shareholder loans affected by this ruling. The tax can be recovered, but there will be a delay. Repayments cannot be made until the effective payment date for the accounting year during which the loans were cleared. Effectively, if the loans are paid back May 2018, a refund will not be made until 1 January 2020.

Carry back charitable donations

One of the few remaining options to carry back tax allowable payments to a previous tax year is the facility to set off certain charitable donations made after 5 April 2017, to the tax year 2016-17.

Allowable donations have the effect of extending the amount of income you can earn at the basic rate of income tax – the donations extend the basic rate tax band. This can be a useful planning device if say your income for 2016-17 included a one-off boost that meant you paid higher rate tax (40%), but your income for 2017-18 would only be taxed at basic rate (20%). By carrying back any charitable donations made after 5 April 2017, you would decrease your higher rate tax liability for 2016-17.

You automatically qualify for basic rate income tax relief on your gift aid donations, you effectively pay a net of tax figure to the charity and they reclaim the deemed basic rate tax from HMRC. Accordingly, this carry back option will have no impact on your tax liabilities if you are a basic rate tax payer in both years. The carry back will also have no effect on the charities’ finances.

Taxpayers need to be careful when considering their options as you can only qualify for relief if your tax payments in a year equal or exceed the deemed basic rate tax credits deducted from your donations. HMRC notes confirm:

But for Gift Aid, you can also claim tax relief on donations you make in the current tax year (up to the date you send your return) if you either:

  • want tax relief sooner
  • won’t pay higher rate tax in current year, but you did in the previous year

You can’t do this if:

  • you miss the [filing] deadline (31 January [2018] if you file online [for 2016-17])
  • your donations don’t qualify for Gift Aid – your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year.

If you feel that you may benefit from this strategy we would be delighted to check out the numbers for you.

Paying self-assessment tax by instalments

If you file your 2016-17 self-assessment tax return on or before 30 December 2017, you can elect to spread the repayment of any underpayment of tax for 2016-17 to the tax year 2018-19. This is done by amending your tax code for 2018-19 such that any arrears are repaid by increasing your tax payments each pay period.

There are caveats to the use of this facility, one of which we have already mentioned, that you need to file your 2016-17 return online by 30 December 2017 (if you still file a paper return the filing deadline has passed, 31 October 2017, and so this option would not be available unless you filed prior to this date).

There are two further limitations:

  • You owe less than £3,000 for 2016-17, and
  • You pay tax via PAYE on your employed earnings or on a private pension.

Additionally, you won’t be able to repay outstanding tax via your tax code if:

  • You would pay more than 50% of your PAYE income in tax, or
  • You would be paying more than twice as much tax as you usually do.

If you can use this scheme it would spread your tax repayments over a twelve-month period (6 April 2018 to 5 April 2019).

Room to breathe

The government are considering plans to offer people with serious debt issues time to consider their options.

They are seeking views to develop a way to provide individuals in debt with up to six weeks free from further interest, charges and enforcement action. This period would give those affected time to act by seeking financial advice about how to manage and relieve their debt burden.

Solutions that can be considered include:

  • informal repayment plans, and
  • debt write-off options,

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

For many people in the UK problem debt seems impossible to escape. Its effects can be far-reaching, impacting all aspects of a person’s life and leaving them feeling helpless. That is why we are working to give people who are overwhelmed by debt more time to seek advice, find a workable solution, and help get their lives back on track.

Although many people can and do use credit successfully to manage their personal finances, for the minority who get into difficulties the government now wants to offer more support.

For example, the new scheme could include legal protections that would shield individuals from further creditor action once a plan to repay their debts is in place.

Problem debt, where people are falling behind on their financial repayments or see their debt as a heavy burden, now affects millions of people in the UK. Causes can range from the sudden loss of employment to a more gradual dependence on debt to make ends meet, with many people waiting 12 months or more before seeking help.

A six weeks’ grace period, where those suffering are safe from enforcement action and interest charges, could help give people the time and opportunity to seek debt advice.

The government is committed to getting this right and over the next twelve weeks will be meeting with key industry representatives from charities, debt advice organisations, lenders and creditors.

Could you claim a tax refund

If one party to a marriage or civil partnership has earnings below the personal tax allowance (£11,500 for 2017-18) and their spouse does not pay tax at the higher 40% rate, then they should be claiming the Marriage Allowance.

For 2017-18 this tax break is worth £230 in cash terms.

The allowance was introduced from 6 April 2015 so if you have not claimed in previous tax years you can back-date your claim to include the tax years 2015-16 and 2016-17. Together with the current tax year this should produce a combined tax refund of £662.

You will be eligible to make a claim if all the following conditions apply:

  • You are married or in a civil partnership
  • You currently have no earnings or your income is £11,500 or less
  • Your partner’s current income is between £11,501 and £45,000 (or £43,000 if you’re in Scotland)

It won’t affect your application for Marriage Allowance if you or your partner:

  • are currently receiving a pension
  • live abroad – if you get a Personal Allowance.

Your Personal Allowance will transfer automatically to your partner every year until one of you cancels the Marriage Allowance or your circumstances change, for example because of divorce or death.

According to HMRC, the take-up for this allowance has been slow to gain momentum. Applying is easy enough if you have internet access, the URL is https://www.tax.service.gov.uk/marriage-allowance-application/eligibility-check?_ga=2.13601205.366078670.1508664989-262204862.1487688115

Make sure you have the following information to hand:

You will need you and your partner’s National Insurance numbers. You will also need a way to prove your identity. This can be one of the following:

  • the last 4 digits of the account that your child benefit, tax credits or pension is paid into
  • the last 4 digits of an account that pays you interest
  • details from your P60
  • details from any of your 3 most recent payslips
  • your passport number and expiry date

You’ll get an email confirming your application has been received.

Gazumping to become a thing of the past

The government seems to be taking steps to streamline the process of buying and selling your home. In particular, they are seeking views on ending the practice known as gazumping: where an offer can be accepted and then disregarded when a higher offer is received.

In many countries this is illegal, once an offer is accepted the sale is binding on both parties.

A press release issued 22 October 2017 says:

As part of a continued drive to make the housing market work better, we want to hear from everyone with an interest in home buying including estate agents, solicitors and mortgage lenders.

We want to ensure that we address issues across the whole sector, from ways to tackle gazumping and reduce time wasting to increase commitment to a sale.

Views will be taken on:

  • Gazumping – Buyers are concerned about gazumping, with sellers accepting a higher offer from a new buyer, we will look at ways this could be tackled.
  • Building trust & confidence – Mistrust between parties is one of the biggest issues faced, we want to look at schemes including ‘lock-in agreements’. Although 1 million homes are bought and sold in England each year, around a quarter of sales fall through and hundreds of millions of pounds are wasted, we want to increase confidence in the housing chain
  • Informing customers – How to provide better guidance for buyers and sellers, by encouraging them to gather more information in advance so homes are ‘sale ready’
  • Innovation – You can now search for a home online, but the buying process is too slow, costing time and money so we’re looking for innovative digital solutions including making more data available online

If followed through into legislation this will be a popular change to the present unpredictable process where buyers are in a state of anxiety until formal contracts are exchanged.