Self assessment payments on account

If you are self-employed (as a sole trader or in partnership) you will normally make two payments on account of your self assessment tax liability at the end of January and July each year.

Normally, these payments on account are based on your total self assessment dues for the previous tax year. So, for 2015-16, you will be making payments on account at the end of January and July 2016, based on your total liabilities for 2014-15.

As long as your taxable income does not change significantly, year on year, this system will ensure that your tax liabilities are settled by the on account payments you make (plus or minus small differences if your income varies slightly).

But what happens if you know that your income for 2015-16 is going to be much lower than 2014-15? In this case any payments on account based on the previous tax year’s income will likely result in an overpayment of tax.

If your income is likely to be lower in 2015-16 you should elect to reduce the payments on accounts that you make January and July next year. Your advisor should be able to estimate the amount due, and the necessary reduction in your payments next year. In this way you can avoid overpayments of tax and minimise the cash flow impact on your business cash flow or savings.

If the opposite applies, your taxable income is likely to be more in 2015-16, there is no obligation to offer a higher payment on account. However, you will need to reserve funds to cover any underpayment for this year which will be payable 31 January 2017. 

Tax Diary September/October 2015

 1 September 2015 – Due date for Corporation Tax due for the year ended 30 November 2014.

 19 September 2015 – PAYE and NIC deductions due for month ended 5 September 2015. (If you pay your tax electronically the due date is 22 September 2015.)

 19 September 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2015.

 19 September 2015 – CIS tax deducted for the month ended 5 September 2015 is payable by today.

 1 October 2015 – Due date for Corporation Tax due for the year ended 31 December 2014.

 19 October 2015 – PAYE and NIC deductions due for month ended 5 October 2015. (If you pay your tax electronically the due date is 22 October 2015.)

 19 October 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2015.

 19 October 2015 – CIS tax deducted for the month ended 5 October 2015 is payable by today.

  31 October 2015 – Latest date you can file a paper version of your 2015 Self Assessment tax return.

Do you own property in the EU

If you own property in the EU you may be advised to revisit your Wills and make sure that you are not affected by the automatic succession rules that apply in many countries. For example, in France it is the usual practice to ensure that property is left to children rather than the surviving spouse.

Recent changes in EU law and practice mean that you can now nominate the jurisdiction that you wish your EU property to be ruled by. This may mean a change to your current Will in the UK, or by creating a second Will to cover your EU property.

 In effect, citizens are able to choose whether the law applicable to their succession should be that of their last habitual residence or that of their nationality.

Vehicle Excise Duty changes from April 2017

If you are concerned about the annual cost of a VED license you may want to consider your car replacement options before the new VED regime starts April 2017. It will apply to all cars first registered after 1 April 2017.

From this date, VED will still be based on CO2 emissions, but the present generous rates for low CO2 vehicles will largely disappear. The only exception is zero emission vehicles which will continue to have a £0 charge.

VED will be split into two bands: a starter band, which will apply for the first year, and a standard rate, which will apply to subsequent years of ownership.

The rates gradually increase for the initial starter band. For emissions between 1 to 50g/km the starter rate is just £10. At the other extreme, cars with a CO2 rating in excess of 255g/km, the starter rate is a significant £2,000.

Owners of all vehicles with a CO2 emission rate in excess of 0g/km will then pay an annual, standard rate of £140 for the second and subsequent years of ownership.

Finally, cars with a list price above £40,000 will pay a supplement of £310 a year for the first 5 years at which the standard rate is applied. i.e. the annual standard rate for these vehicles will be £450 not £140.

Sunday trading review

The Government is undertaking a review of the Sunday Trading legislation. The review aims to deal with the concerns of larger high street retailers, who are concerned that they cannot compete effectively with online retailers unless they are open seven days a week at normal opening hours.

The Government is consulting on plans to give local areas the power to allow large shops to open for longer on Sundays.

The reforms would give metro mayors and local authorities the power to determine Sunday trading rules that reflect the needs of local people and allow shops and high streets to stay open longer and compete with online retailers.

Local authorities would have the discretion to zone which part of their local authority area would benefit from the longer hours, allowing them to boost town centres and high streets.

The existing Sunday trading laws were introduced more than 20 years ago before high-street shops faced competition from online retailers. The law currently prevents large stores from opening for more than 6 hours. Small shops covering less than 3,000 sq ft can open all day.

The Government is committed to giving the UK’s major cities the power to compete for international tourism while increasing consumer choice. Paris has recently extended Sunday trading opening hours in areas of international tourism, and Dubai and New York shops open into the evening 7 days a week.

More on the dividend tax

As we mentioned in last month’s newsletter, from April 2016, the present dividend tax credit of 10% is being abolished and is being replaced with an annual dividend allowance of £5,000.

To recap, dividends received in excess of the £5,000 allowance will be taxed at increasing rates according to your highest rate of Income Tax:

  • 7.5% if you are a basic rate taxpayer
  • 32.5% if you are a higher rate tax payer, and
  • 38.1% if you are an additional rate tax payer.

These changes will make a difference to all limited company shareholder/directors who presently receive a small salary and large dividends. Many will be paying more tax as a result.

We recommend that all affected readers undertake a review of their tax position from April 2016 so that they are aware of the financial impact on their personal disposable income.

But what about tax payers who receive significant dividend income from diverse investments and do not, necessarily, run their own company?

If your dividend income is likely to exceed the £5,000 limit you could consider the following actions to minimise any additional dividend tax:

 

  1. Make sure you use the ISA limit to transfer high dividend yield shares into this tax free environment.
  2. Each person will be entitled to the £5,000 relief so spouses could consider equalising their share holdings in an attempt to make the most of their individual £5,000 allowance.
  3. As the additional tax, on dividends received in excess of the £5,000 limit, is at higher rates for higher rate and additional rate income tax payers, consider transferring shares to a lower taxed spouse to restrict tax to the lower 7.5% rate.
  4. If you are a higher or additional rate tax payer and you have significant dividend income, you could look for ways to reduce your overall taxable income and therefore reduce an additional dividend tax charge. For example, by deferring withdrawals from a drawdown pension.

 

If it is likely that you will be crossing the £5,000 Rubicon next year, now is the time to plan an effective tax mitigation strategy. Please call if you would like our assistance.   

Higher rate of film tax relief has been given the go ahead.

Britain is set to attract the production of more films like The Theory of Everything, Gravity and Avengers: Age of Ultron after the Chancellor of the Exchequer, George Osborne announced a new higher rate of film tax relief has been given the go ahead.

 

Under the new plans the £1.4 billion film industry will receive a tax credit of 25% on all qualifying expenditure bringing it in-line with TV tax relief. This means a British film costing £40 million will receive an additional £1 million towards productions costs from the change.

 

The Chancellor announced the scheme, which will be backdated to apply from April 2015, whilst visiting the set of Agatha Raisin, a new British TV series being filmed in Wiltshire that is benefiting from the government’s high-end TV tax relief. Under the scheme the government provides a tax credit of 25% on qualifying British TV productions.

 

Chancellor of the Exchequer George Osborne said:

 

“British made films are watched and celebrated all over the world – last year alone we saw eight British made films nominated for an Oscar.

 

A key part of our long term economic plan is supporting our creative industries that contribute billions to the economy and provide millions of jobs.

We want to see more films, like Gravity and Avengers: Age of Ultron, made in Britain and that’s why we’ve made our film tax relief even more generous.”

 

The government’s film tax relief has supported almost £8 billion of production expenditure since its introduction, including films such as Oscar winning Gravity, Maleficent and Harry Potter. It supported 222 films in 2014 alone. In the March 2015 Budget, the government announced that it would further support the film industry by increasing the rate of film tax relief to 25% for all qualifying productions. Previously, the rate was 25% for the first £20 million of qualifying expenditure and 20% for spending above this threshold. The scheme has just been given State Aid approval by the EU which means it can now go ahead as planned.

Benefit in kind changes

From 6 April 2016 HMRC are introducing an exemption from paying tax and National Insurance contributions (NICs) on qualifying paid or reimbursed expense payments to employees. This means that where an employee is entitled to claim a fully matching tax deduction (i.e. if they incur a business expense they can claim it back from their employer) employers will no longer need to apply for a dispensation, or report those expenses on form P11D. All other non-allowable expenses will still be subject to tax and NICs as they are now. Employees will still be able to claim tax relief from HMRC in respect of non-reimbursed expenses.

This new exemption will not, however, apply to expenses or benefits in kind provided under a relevant salary sacrifice arrangement. This includes any arrangement where employees give up the right to receive earnings in return for tax free expenses payments, or where the level of their earnings depends on the amount of any expenses payment. After 5 April 2016 any expenses payments you pay to employees under these arrangements will need to be paid after deducting tax and NICs.

 All current dispensations agreed with HMRC will no longer apply after 5 April 2016.

 Advisory Mileage Allowance payment (AMAP) and Advisory Fuel Rates (AFRs)

If you have employees who travel for work purposes (excluding normal commuting) in their own vehicle you will still be able to reimburse them using the AMAP rate. (Currently, up to 45p per mile for the first 10,000 business miles and 25p per mile thereafter.) Employees receiving less than the AMAP rates for business travel will still be able to claim Mileage allowance relief (MAR) on the difference. Employees carrying out business travel in a company car, and not getting employer provided fuel, will still be able to receive fuel payments based on our AFRs. Employees can claim a tax deduction for non-reimbursed fuel costs using the existing rules.

 

Couple banned from acting as directors

Mark and Janet Styler have been disqualified from acting as directors for six years for withdrawing funds from Window & Conservatory Options Limited after they had been told the company was insolvent and could not afford to continue the level of payments to them.

The company, which began trading in March 2009, sold and installed double-glazing and conservatories to domestic customers throughout the Tameside, Peak District and Derbyshire areas.

An insolvency service investigation found that:

  • In June 2011, Mr & Mrs Styler approved accounts which showed that the company was insolvent. At the time, accountants warned them about the risk of continuing to trade and that their level of drawings from the company exceeded the profits, as they owed the company £95,862
  • The directors received draft accounts on 6 February 2012 for the period ending 30 September 2011, which showed the company was still insolvent. The accountants again warned the directors about their level of drawings of £133,448 for that year
  • A few days later, on 10 February 2012, the directors instructed new accountants to re-do the 2011 accounts. The new accountants amended the accounts based on information provided by Mr & Mrs Styler. The revised accounts showed that the company remained insolvent. However, the amount that the directors owed to the company had disappeared
  • From 11 February 2012 to 17 September 2013 the directors received further payments of £172,715.50 from the company
  • The directors ignored the warnings and continued to withdraw funds from the company, and as a result the company could not make payments to its creditors. On 27 September 2013 the company was placed into Liquidation

Commenting on the disqualification, Cheryl Lambert, Chief Investigator at the Insolvency Service, said:

Directors who abuse limited liability and use company funds to meet their personal expenses can expect to be investigated by the Insolvency Service and enforcement action taken to remove them from the market place. Mr & Mrs Styler repeatedly ignored warnings from professional advisors and used company funds as their own.

Taking action against Mr & Mrs Styler is a warning to directors of their responsibilities and requirements to act for the good of the company and its creditors.

Paid too much or too little tax

 HMRC have issued a press release advising tax payers that they are sending out annual statements for the tax year to 5 April 2015.

The statements are styled P800 forms and summarise income and allowances for the year and the calculation of tax due and tax paid. If you have over paid tax the statement will trigger a repayment in most cases. If you have underpaid, HMRC will generally adjust your PAYE coding to recover the amount due during the tax year 2016-17. If this is not practical you will get a request to make a payment. HMRC have also acknowledged that is cases of financial hardship they will negotiate extended repayment terms.

 Here’s what HMRC published to their website:

“This year, if you’ve paid too much or too little tax, we’re making the process as easy as possible for you.

We will tell you how we’re collecting any underpayment, or we’ll give you a cheque if we owe you money.

There is no need to contact us unless you think the details we’ve used are wrong.

What you need to do

If you get a P800 tax calculation, please check the details are correct.

You can:

  • compare the figures used with your own records, such as your P60, P11d, bank statements or letters from the Department for Work and Pensions (DWP)
  • use the HMRC tax checker to check how much tax you should have paid

You don’t need to do anything if the calculation is correct.

If you’ve underpaid tax

If you haven’t paid enough tax, we’ll usually change your tax code for the next year to collect the money you owe. This happens automatically so you won’t need to do anything and don’t need to contact us.

Sometimes we can’t collect the money you owe through your tax code, for example, if you’re now out of work. In this case, we’ll write to you explaining how to pay the money you owe.

If you’ve overpaid tax

If you have paid too much tax, we will automatically send you a cheque within 14 days of receipt of your P800. You won’t need to do anything and don’t need to contact us.”

However complex your tax affairs, it is advisable to check the P800 form when it arrives.