From April 2016, you won’t have to pay tax on interest received up to £1,000 (if you are a standard rate taxpayer), or £500 if you pay tax at the higher rate.

Therefore, to be eligible for this new allowance in 2016-17:

• Your taxable income needs to be less than £42,700 a year to qualify for the £1,000 PSA, or,
• Your income needs to be between £42,701 and £150,000 to qualify for the £500 PSA.

To facilitate this change, from April 2016 banks and building societies will stop automatically taking the 20% Income Tax from the interest earned on your non-ISA savings accounts.

Readers who receive substantial interest on their non-ISA savings should take this latter fact into account. For 2016-17 their investment income could create an increase in underpayments in their tax position as they will receive their interest gross, no tax deducted. For example, there will be those who haven’t had to pay tax to HMRC because all their income was taxed at source. This group may be required to pay their tax separately in future.

This could particularly affect certain pensioners and the like benefitting from the £5000 nil “savings rate” of tax applying for 2015-16 only.

In the last two editions of this newsletter we have outlined the impact of the changes to the taxation of dividends that will commence 6 April 2016.

This month we want to continue to look at this major change as it affects the shareholder directors of private limited companies.

For 2015-16 any dividends drawn by shareholders that form part of their income taxed at the standard rate, will attract no personal tax on amounts taken. If the dividends form part of their income taxed at 40% or 45%, then the additional personal tax due is calculated as 32.5% or 37.5% respectively – of the gross dividend received – less the present 10% tax credit.

As previously discussed, from 6 April 2016, the way dividends are being taxed will change. The 10% tax credit is being abolished and each individual will have available a flat rate dividend allowance of £5,000. Any dividends received by an individual in excess of £5,000 will be taxed as follows:

• 7.5% if your dividend income is within the standard rate (20%) band
• 32.5% if your dividend income is within the higher rate (40%) band, and
• 38.1% if your dividend income is within the additional rate (45%) band

A director shareholder who presently receives a £27,000 net dividend as part of his remuneration package, and all of this income falls to be part of their standard rate band, then no additional tax is payable. With no change in strategy, for 2016-17 the same dividend will create an extra personal tax liability of £1,650.

 This amount will usually form part of the director’s Self Assessment underpayment for 2016-17 and be due for payment 31 January 2018. On the same date the director will be required to make a payment on account for 2017-18; accordingly, the extra tax of £1,650 coverts into tax payable of £2,475 on 31 January 2018 (£1,650 plus 50% of this amount as payment on account for 2017-18), with a further 50% or £825 payable as a second payment on account 31 July 2018.

 Should you compensate for this tax increase by increasing your salary? The answer would generally be no, as that would mean 12% employees’ NICs and 13.8% employers’ NICs. It may be possible to offset any additional employers’ NICs due by claiming the £2,000 Employment Allowance (£3000 from April 2016, but beware new restrictions from this date for “one-man” companies).

Unfortunately, in most, if not all cases, where dividend income is a significant part of your remuneration package, this change in legislation is likely to mean that you will pay more personal tax from April next year.

 Interestingly, a higher rate tax payer receiving the same £27,000 cash dividend will only be £400 worse off.

 It should also be noted that the £5,000 allowance is not an exception but a nil rate tax band. The full dividends still count as income e.g. for calculating the effect on personal tax allowances.

 There are limited planning options, including changing the scale of dividends taken before 6 April 2016. Business owners need to plan for these tax increases and we recommend that you seek professional advice as soon as possible.

UK businesses were recently warned about the growing risk of cyber attacks as Minister for the Digital Economy, Ed Vaizey, urged businesses across the country to protect themselves by taking up the Government’s Cyber Essentials scheme.

Whilst businesses are reaping the benefits of operating online and now earn £1 in every £5 from the Internet, cyber attacks are now considered a serious threat to UK businesses. The latest figures reveal that 74 per cent of small businesses, and 90 per cent of major businesses, has had a cyber breach of security in the last year.

Speaking at the Financial Times Cyber Security Europe Summit, the Minister revealed more than 1,000 businesses have now adopted Cyber Essentials – the UK Government’s leading scheme which protects businesses against the most common threats on the Internet. Intel Security, part of multinational technology firm and chip manufacturer Intel, are among the firms who have recently achieved Cyber Essentials certification.

Speaking at the conference, the Minister also announced a new £500,000 fund to help universities and colleges develop innovative teaching and learning to provide the cyber security skills needed to protect the UK now and in the future.

Digital Economy Minister Ed Vaizey said:

Good cyber security underpins the entire digital economy – we need it to keep our businesses, citizens and public services safe. The UK is a world leader in the use of digital technologies but we also need to be a world leader in cyber security.

Trust and confidence in UK online security is crucial for consumers, businesses and investors. We want to make the UK the safest place in the world to do business online and Cyber Essentials is a great and simple way firms can protect themselves.

Since launching the National Cyber Security Programme in 2011, Government has invested £860m to protect and promote the UK. Based on analysis by GCHQ which showed how cyber criminals were exploiting basics weaknesses in company IT systems, Cyber Essentials sets out five technical controls which will protect firms against the majority of internet threats, like viruses, malware and hacking.

Readers might be interested to know that HMRC have been consulting with various parties, including the accountancy profession, regarding the way in which they charge penalties to taxpayers who don’t meet their filing obligations. We have listed below a number of the conclusions HMRC have reached thus far.

 HMRC’s published responses:

 We recognise the need to distinguish between the vast majority of customers who are generally compliant and those who are not.

At the same time the penalty system needs to work effectively to encourage those who make one off errors back into full compliance, and counter the activities of careless or intentionally non-compliant customers. So the ultimate goal for the future is to charge fewer penalties, and for penalties to be well-targeted where we do charge them and to take account of the customer’s compliance history across all of the taxes they are involved with.

That, together with automating and simplifying the penalty process as much as possible, should release resource within HMRC to focus its attention on tackling serious non-compliance.

 Late filing and payment

Time based failures to file tax returns or pay by particular dates relate to high frequency, mechanical obligations. They tend to produce large volumes of low-value penalties with a high incidence of successful appeals and they generate significant levels of contact between customers and HMRC.

 Reform of these penalties will be our first priority.

 In developing a new model for late filing penalties we will explore options

for:

• not charging a penalty where no tax is due and where the circumstances for not charging are appropriate;
• not charging a penalty where the period of lateness is very short;
• not charging a penalty for the first default;
• taking account of the customer’s compliance history across all of the taxes they are involved with;
• increasing opportunities for and use of mitigation in recognition of the circumstances surrounding the default and HMRC’s desire to encourage future good compliance; and
• using notifications to remind the customer that their return is due (before the due date is reached) and draw their attention to the default and its consequences for penalty purposes (after the due date has passed).

 While we are currently keeping all of these options in consideration the new penalty model we consult on might not contain all of them.

HMRC’s opinion on qualifying travel costs is clearly set in their employee travel guide. For instance:

The sort of travel that qualifies for tax relief is travel that is ‘on the job’, as distinct from travel ‘to the job’. The most common example is travel between one workplace and another in connection with a single employment. The cost of such travel is incurred in actually carrying out the duties of the employment, although the treatment may be different where one of the workplaces is the employee’s home.

Example

Amanda is a senior manager in a sales consultancy company. She manages teams in offices in Leicester and Nottingham and is regularly required to travel between the two. Tax relief is available for the full cost of the travel between the 2 workplaces because it is undertaken in the performance of Amanda’s duties. No relief is available for travel from her home to the offices or her return home from the offices as this is ordinary commuting.

Another example is where travel is integral to the performance of the duties. Typical examples are a commercial traveller, or a service engineer who moves from place to place during the day carrying out repairs to domestic appliances at clients’ premises. Such employees are sometimes described as having travelling appointments.

Example

Tony is a service engineer working for a company that services and maintains white goods for the commercial sector. He visits up to 10 customers each day throughout the UK. He has no normal workplace and is emailed his job list each evening for the following day. Travel is an integral part of his job and he carries out the duties of his employment at each customer’s premises. Tax relief is available for the cost of all Tony’s business travel, including from his home to his first appointment and from his last appointment to his home.

If you are unsure if your travel costs qualify for tax relief please call for more information.

 Parents considering shared parental leave may like to consider the following notes.

 You may be able to get Shared Parental Leave (SPL) and Statutory Shared Parental Pay (ShPP) if:

• your baby is due on or after 5 April 2015
• you adopt a child on or after 5 April 2015

 If you’re eligible for SPL you can use it to take leave in blocks separated by periods of work, instead of taking it all in one go.

 To start SPL or ShPP the mother must end her maternity leave (for SPL) or her Maternity Allowance or maternity pay (for ShPP). If she doesn’t get maternity leave (but she ends her

Maternity Allowance or pay early) her partner might still get SPL.

 If you’re adopting then you or your partner must end any adoption leave or adoption pay early instead.

 If you’re eligible you can take:

• the remaining leave as SPL (52 weeks minus any weeks of maternity or adoption leave)
• the remaining pay as ShPP (39 weeks minus any weeks of maternity pay, maternity allowance or adoption pay)

 If neither of you is entitled to maternity or adoption leave then SPL will be 52 weeks minus any weeks of maternity pay, Maternity Allowance or adoption pay.

 You can share SPL and ShPP between you if you’re both eligible.

 Example A mother and her partner are both eligible for SPL and ShPP. The mother ends her maternity leave and pay after 12 weeks, leaving 40 weeks available for SPL and 27 weeks available for ShPP. The parents can choose how to split this.

SPL and ShPP must be taken between the baby’s birth and first birthday (or within one year of adoption).

Readers are reminded that late filing or late payment of VAT returns can result in costly penalties – in VAT speak they are referred to as default surcharges.

Each time you default HMRC will send you a Surcharge Liability Notice, or Surcharge Liability Notice Extension. These will warn you that if you default in respect of an accounting period ending within a specified period (the surcharge period) you may be liable to a surcharge.

The surcharge period begins on the date of the notice and ends twelve months from the end of the latest period in default.

If you default during a surcharge period, and there is VAT outstanding for the tax period in default, HMRC will charge you a default surcharge.

If you make payments on account and default on any payment, you will be sent a Surcharge Liability Notice or Surcharge Liability Notice Extension at the end of the quarterly accounting period.

Special arrangements are in place if your taxable turnover is £150,000 or less to help when you first have difficulties paying your VAT on time. You will be sent a letter offering help and support rather than a Surcharge Liability Notice the first time you default. This is to help you sort out any short-term difficulties before formally entering the default surcharge system. If you default again within the following twelve months HMRC will issue you with a Surcharge Liability Notice.

The surcharges levied can be cumulative.

The surcharge is calculated as a percentage of the VAT that is unpaid at the due date. If you don’t send in your return HMRC will assess the amount you owe and the surcharge will be calculated as a percentage of that amount.

For the first late payment during a surcharge period the surcharge will be 2% of the VAT outstanding at the due date.

The rate of surcharge will then increase progressively to 5%, 10% and 15% for further payment defaults in a surcharge period.

HMRC has collected £1 billion in tax payments from users of tax avoidance schemes as a result of the government’s new rules to collect disputed tax upfront, the Financial Secretary to the Treasury, David Gauke, announced 13 September 2015.

The Government introduced Accelerated Payments last year to radically change the economics of avoidance. Under these rules, disputed tax is paid up front by avoidance scheme users.

Financial Secretary to the Treasury David Gauke said:

“The Government will not tolerate tax avoidance and Accelerated Payments has been a real game changer.

It is no longer possible for these individuals to avoid tax and sit on the money while their affairs are investigated. This first £1bn received in Accelerated Payments shows that we are turning the tables on those looking to avoid paying their fair share.”

Jennie Granger, Director General for Enforcement and Compliance, HMRC, said:

“Tax avoiders are running out of options. People now have to pay upfront and dispute later. We are winning around 80% of avoidance cases that people litigate. And many more are settling before litigation.”

More than 25,000 notices to pay disputed tax have been issued by HMRC since August 2014. By the end of 2016, HMRC expect to have completed issuing around 64,000 bringing forward £5.5 billion in payments for the Exchequer by March 2020.

Accelerated Payments were introduced in the Finance Act 2014 and the National Insurance Contributions Act 2015. They apply where avoidance schemes are subject to the Disclosure of Tax Avoidance Schemes rules or the General Anti-Abuse Rule, or where they are similar to a scheme that has already been defeated in the courts.

HMRC have published the following fact sheet regarding the wide ranging changes to the taxation of dividends from April 2016:

From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.

 The allowance is available to anyone who has dividend income.

 Headline rates of dividend tax are also changing.

 You’ll pay tax on any dividends you receive over £5,000 at the following rates:

• 7.5% on dividend income within the basic rate band
• 32.5% on dividend income within the higher rate band
• 38.1% on dividend income within the additional rate band

 This simpler system will mean that only those with significant dividend income will pay more tax.

 If you’re an investor with modest income from shares, you’ll see either a tax cut or no change in the amount of tax you owe.

 Dividends received by pension funds that are currently exempt from tax, and dividends received on shares held in an Individual Savings Account (ISA), will continue to be tax free.

From April 2016 you have to apply the new headline rates on the amount of dividends you actually receive, where the income is over £5,000 (excluding any dividend income paid within an ISA).

 The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.

Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.

 All company directors that have a dividend policy that favours dividends over salary should take tax planning advice as soon as possible as they may need to change the mix of dividends v salary from April next year.

 The clock is ticking…

There are now a number of ways that charities can encourage donations by promoting the various tax schemes available.

Over the last five years the government has brought in a range of changes to the tax system to make it simpler for charities to make the most of tax reliefs, so that more money can go to good causes.

It’s now easier for charities to receive gift aid

Charities online, a system that helps charities to claim gift aid faster, was introduced in 2013. Instead of having to submit paper claims for tax reliefs through the post, charities can now submit them online.

Almost 95% of charities now use charities online to claim gift aid. The majority of claims are processed within five working days, down from around 15 days.

It’s now simpler for charities to receive government support on small donations

If someone donates a small amount of money to a charity – for example, by giving it to a charity vendor in a high street – it’s often not possible (or practical) for the donor to provide formal consent for gift aid to be claimed on that donation.

Through the gift aid small donations scheme charities can now claim a gift aid-style top-up on these small donations, up to a limit of £5,000 per year. This limit will increase to £8,000 per year from April 2016.

An outreach team now helps charities claim tax relief

To date, HMRC’s outreach team has delivered face-to-face presentations to over 650 represented charities to spread awareness, increase take-up, and help charities to successfully claim tax relief.

Works of art donated to the nation now receive tax relief

The cultural gifts scheme was introduced in 2013 and allows taxpayers to pay a tax bill by donating eligible works of art to the nation.

People donating to charity in their will can now benefit from a lower rate of inheritance tax

If people leave at least 10% of the net value of their estate (its worth, minus any debt, other liabilities and reliefs) to charity, then 36% inheritance tax can be paid instead of 40%. This was introduced in 2012.

Local amateur sports clubs can now claim gift aid on donations too

The government has amended the law so that local sports clubs registered as community amateur sports clubs can receive corporate gift aid, to help these clubs to benefit their local communities.

A new tax relief has been created to encourage investment in social enterprises

The social investment tax relief scheme has been created to encourage people to invest in social enterprises, including charities.

Individuals making an eligible investment will be able to deduct 30% of the cost of that investment from their income tax liability.