MAKING TAX DIGITAL IS NOW A REALITY

Making tax digital (MTD) is now law for all VAT registered businesses with turnover over £85,000. This new law requiring Digital record keeping and filing of VAT returns via the MTD portal came into force on the 1 April 2019. This means change for many businesses but also a huge opportunity.

Do you want to reduce your running costs and streamline your accounting?

There are significant advantages to going “Digital” and we’ve been working with a number of our clients to help them streamline the way they do their accounts. Just suppose you:

•              Had a system where your bank fed receipts and payments a directly into your accounts on a DAILY basis;

•              Took a photo on your phone of a purchase or expense item invoice and it was posted automatically; and

•              Could see your results, who owes you money, who you owe and your business bank balance 24/7, 365 from your smart phone!

We have a new and exclusive Digital system for helping business owners comply with the law and to give you:

•              A clear picture of your current financial position, in real-time

•              Automatic updates that mean you can spend more time doing what you enjoy

•              Your accounts are 100% online, so there’s no software to install and everything is backed up automatically.  Updates are free and instantly available

•              Upfront accounting software costs are eliminated – upgrades, maintenance, system administration costs and server failures are no longer an issue!

If you want to take your business to a new level please contact us for a demonstration. You are going to love this new way of doing things!

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HIGH INCOME CHILD BENEFIT CHARGE AND STATE PENSION

Last month we looked at tax planning to minimise or eliminate the high income child benefit to keep both husband and wife (or civil partners) looking after a child below the £50,000 threshold.

Where the income of one of the individuals exceeds £60,000 such that the whole of the child benefit is taxed they may be tempted not to claim child benefit at all. This may however limit the amount of State pension and other benefits at a later date. Under current rules Individuals must make National Insurance contributions for 35 years to receive a full State Pension. Individuals may claim Child Benefit and choose not to receive the payments, which means they do not have to pay the charge but still receive the associated National Insurance Credits for that year and protect their State Pension entitlement.

Note that grandparents who have ceased working and are looking after their grandchildren may also claim NIC credits for that year which would count towards their 35 year contribution history. Remember that you can check your National Insurance record online on the DWP website to see:

  • what you’ve paid, up to the start of the current tax year (6 April 2019)
  • any National Insurance credits you’ve received
  • if gaps in contributions or credits mean some years do not count towards your State Pension (they are not ‘qualifying years’)
  • if you can pay voluntary contributions to fill any gaps and how much this will cost

You can check your State Pension online at any time for a forecast of how much you could get. The service will also confirm when you will reach State Pension age, under the law as it stands. Note that Government proposes to increase the State Pension age to 68 from 2037.

REQUEST THAT THE PENSION CHARGE IS PAID BY YOUR FUND BY 31 JULY

The Pension Annual Allowance tax charge depends on the individual’s marginal rate of tax. Where their income exceeds £150,000 it would be at 45%. Thus if the pension input for 2018/19 Was £40,000 and the limit is tapered to £10,000 the excess of £30,000 would incur a £13,500 tax bill on top of their normal tax liability.

You can ask your pension provider to pay HMRC out of your pension fund if you’ve gone over your annual allowance and the additional tax is more than £2,000. The deadline is 31 July 2020 for the 2018/19 tax year.

PERSONAL SERVICE COMPANY CHANGES FROM APRIL 2020

 

PERSONAL SERVICE COMPANY CHANGES FROM APRIL 2020

In the Autumn Budget the Chancellor announced that the “off payroll” workers rules that currently apply in the public sector would be rolled out to the private sector in 2020. The government have now issued a consultation paper that sets out proposed tax and national insurance changes that will impact on those supplying their services through personal service companies.

End users will be required to determine whether the rules apply to the services provided by the worker via his or her personal service company. This will be a significant additional administrative burden on the large and medium-sized businesses who will be required to operate the new rules. The current CEST (Check Employment Status for Tax) online tool would be improved before the proposed start date.

No change for “Small” Employers

“Small” businesses will be outside of the new obligations and services supplied to such organisations will continue to be dealt with under the current IR35 rules with the worker and his or her personal service company effectively self-assessing whether the rules apply to that particular engagement.  The definition of “small” has been widely awaited and the Government have confirmed that it intends to use the existing Companies Act 2006 definition. That is where the business satisfies 2 or more of the following features:

•              Annual turnover of £10.2 million or less

•              Balance Sheet total of £5.1 million or less

•              50 employees or less

The new obligations to determine whether the rules apply, deduct tax and national insurance, and report payments under RTI will apply to the agency or intermediary making payments to the personal service company where the end user is large or medium-sized. There will be an obligation to pass details of the status determination up and down the labour supply chain.

The liability for tax and national insurance will be the responsibility of the entity paying the personal service company, however if HMRC are unable to collect the tax from that entity the liability will pass up the labour supply chain thus encouraging those entities further up the supply chain to carry out due diligence to police compliance.  Please contact us if you would like to discuss how the proposed changes are likely to impact on your business.

 

DOCTORS LOBBYING FOR PENSION TAX CHANGES

Hospital doctors and GPs are lobbying the government to amend the pension tax rules as the current system of restricting tax relief on pension contributions means many doctors paying almost all of the extra salary back in tax if they take on additional responsibilities or work additional shifts. This is an issue that doesn’t just affect doctors as it potentially restricts the tax relief available to other individuals with high income.

The NHS Pension Service have alerted members of the NHS Pension Scheme that they could receive a tax bill if their pension savings exceed limits set by HM Revenue and Customs (HMRC). These limits are known as the annual allowance, which is calculated each year, and the lifetime allowance, which is calculated based on overall pension savings.

The normal annual pension allowance is currently £40,000 each tax year and limits the amount of pension contributions which qualify for tax relief. The limit covers the combined contributions paid by the taxpayer and their employer. A tapered annual allowance was introduced in April 2016 with the intention of reducing pension tax relief for high earners.

It applies to those with adjusted incomes of over £150,000 and threshold income in excess of £110,000. The rate of reduction in the annual allowance is by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000 at £210,000. This is a complex calculation and we can help you plan to minimise the impact of the rules as the individual is taxable on the excess pension contributions over the annual limit.

“RENT A ROOM” RELIEF TO CONTINUE FOR AIR BNB LANDLORDS

Last year HMRC carried out a review of rent a room relief and it was proposed that the availability of this generous relief would be restricted to situations where the taxpayer was resident for at least part of the time when the “lodger” was paying rent. The scheme currently exempts from tax gross rents up to £7,500 where rooms within the taxpayers’ main residence are rented out.

HMRC were concerned that the relief was being “abused” by letting out the entire property using websites such as Airbnb and living elsewhere temporarily whilst the tenants were in the property. An example would be renting out a house in south London during Wimbledon fortnight and potentially receiving up to £7,500 tax free.

Note that the Autumn Budget announced that the proposed restriction was not now being introduced.

BUT POSSIBLE CHANGES TO CGT PRIVATE RESIDENCE RELIEF

The government is currently consulting on important changes to private residence relief that are likely to be introduced from 6 April 2020.

The two possible changes, announced in the Autumn 2018 Budget are:

Firstly to limit to just 9 months the period prior to disposal that counts as a period of deemed occupation

The second is to limit “letting relief” to periods where the taxpayer is in shared occupation with the tenant.

Final period exemption to be reduced

The final period exemption was for many years three years and was always intended cover situations where the taxpayer was “bridging” and waiting to sell their previous residence. However, 36 months was felt to be too generous and was allegedly being abused by a strategy known as “second home flipping”. As a result the final period relief was restricted to the current 18 month period of deemed occupation a couple of years ago. The latest proposal is to restrict still further to 9 months although it will remain at 36 months for those with a disability, and those in or moving into care.

Possible Lettings Relief Changes

Lettings relief currently provides a further exemption for capital gains of up to £40,000 per property owner. The additional relief was introduced in 1980 to ensure people could let out spare rooms within their property on a casual basis without losing the benefit of PRR, for example where there are a number of lodgers sharing the property with the owner.

In practice lettings relief extends much further than the original policy intention and also benefits those who let out a whole dwelling that has at some stage been their main residence. It is those situations that the government appear to be attacking under the proposed changes.

Note that those who are renting their property temporarily whilst working elsewhere in the UK or working abroad are unlikely to be affected by this change as there are alternative reliefs available under those circumstances.

Please check with us if you are likely to be affected by the proposed changes as it may be worth considering disposing of the property before the new rules are introduced from 6 April 2020.

TAX PLANNING TO MINIMISE THE HIGH INCOME CHILD BENEFIT CHARGE

The substantial increase in the higher rate threshold to £50,000 is good news for many taxpayers. However, that same figure is the point at which child benefit starts being clawed back and there has been no increase in that threshold since the High Income Child Benefit Charge was introduced in 2013/14.

The charge applies if you have adjusted net income over £50,000 and either:

  • you or your partner get Child Benefit
  • someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep

It does not matter if the child living with you is not your own child. Adjusted net income is your total taxable income before any personal allowances and less things like Gift Aid and pension contributions.

The charge is 1% for every £100 that adjusted net income exceeds £50,000 multiplied by the child benefit claimed in respect of the children. Child benefit continues to be paid at the rate of £20.70 a week for the eldest child and £13.70 for each additional child.

Example

A couple with 2 children would receive £1,789 a year in child benefit. If the husband, a sole trader, made a profit of £55,000 (also his adjusted net income) after paying his wife a salary of £12,000 he would have to pay the high income child benefit charge of £894 (for 2018/19) in addition to his normal income tax and NIC bill.

If he brought his wife into partnership and they shared profits equally their income would be £32,500 each and there would be no high income child benefit charge. Similarly, if the business was a limited company they would be able to equalize their income so that the charge would not be payable