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.

Making Tax Digital – 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 last week, 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:

Mel Stride, Financial Secretary to the Treasury and Paymaster General said:

Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.

We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.

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.

Tax payments due 31 July 2017

If you are self-employed, or registered for self-assessment, we are approaching “that” time of the year: your second instalment on account for 2016-17, is due for payment at the end of the month, 31 July 2017.

Any payment due will be based on your self-assessment liability for the previous tax year (2015-16) so it is worth underlining that this is a payment on account, and even though it is the second you will have made for 2016-17, it may not cover your total liability for this tax year.

There are two possibilities:

  1. That your income or profits have increased during 2016-17, and that as your payments on account (January and July 2017) were based on your previous year’s income, you may have underpaid tax and NIC. If this is so any balance outstanding will fall due for payment 31 January 2018.
  2. That your income and profits have fallen during 2016-17. In this case if we leave your payments on account with no change, you will likely have overpaid tax and be due a refund.

If the second option applies in your case, it may be worth calculating what your payments on account should be, based on your estimated, lower income for 2016-17. This may well reduce or perhaps eliminate any second payment on account due at the end of this month.

If you think your income or profits have decreased during 2016-17 (or the accounts ending in that tax year) please call so that we can deal with a formal application to have your payments of account reduced for 2016-17.

Life in the Cloud

There seems to be a trend supporting the movement of our computer software and data to the “cloud”. Not the fluffy white variety, but servers that are based off-site.

Even our tax system is pushing us in that direction. If and when the government’s objective to Make Tax Digital is finally realised, each of us registered to pay tax in the UK will have an online Personal Tax Account, and all our income sources and other details will be connected to it. So instead of waiting for us to submit an annual tax return to gather data, HMRC will receive everything it needs to know about our business and personal financial affairs via a direct, computer link.

Making Tax Digital for Business is just one aspect of that gradual change process.

Based on current plans, HMRC aim to require all businesses to link up their accounts data with its computer servers during the next three to four years. These data transfers will be required quarterly rather than annually. The aim is to provide you with an estimate of future tax payments based on real time data rather than prior year figures.

Although this process will eventually mean that annual tax return submissions are abandoned, the actual process of maintaining and checking records, and then making the data transfers, will create more work for business owners and their advisors, not less.

Initially, business owners (and this will include landlords) will have to consider how they are going to record their business transactions in a format that can link to HMRC’s computer networks. Most accounting software providers now offer a cloud based solution that will eventually have the functionality to cope with the demands of Making Tax Digital.

And there are other advantages to using cloud based software. For example, as advisors, it is a simple process for us to login to your software and help you with any queries you may have, or to keep an eye on your trading situation. This could be extended in due course to monitoring your accounts data before uploading summaries to HMRC.

If you are still considering your software options, we would be happy to help. The old maxim “be prepared” is still relevant, in fact more so in this electronic age.

What is tax free these days

Surprisingly, there is quite a lot. As long as you are resident in the UK for tax purposes you will probably qualify for the following tax reliefs and allowances for the 2017-18 tax year:

  • The first £11,500 of your personal taxable income is free of income tax, although you will pay 12% NIC on earnings above £8,164 per year.
  • The first £5,000 of dividend income is tax free.
  • The first £11,300 of capital gains are also tax free.
  • There are various savings allowances that you may be able to claim.

Apart from these basic allowances, there are a number of income types and gains that are exempt from income tax and capital gains tax. Currently, they include:

Tax-free income:

Tax-free capital gains:

  • Gifts to your spouse, a civil partner or a charity
  • Gains when cashing in ISAs or PEPs.
  • Sale of government gilts and premium bonds
  • Betting lottery or pools winnings
  • Any profit on the sale of your car, unless you have used it in a business
  • Any personal assets that have a limited lifespan, less than 50 years, and the sale proceeds are below £6,000.
  • In most cases, the sale of your own home

Also, when you inherit an asset, any inheritance tax is usually paid by the estate. So you will get the use of the asset tax free, but you may have to pay capital gains tax if you subsequently sell it.