Digital Tax is Coming!

Her Majesty’s Revenue and Customs (HMRC) has issued plans to make businesses file quarterly information with them. How individuals and businesses interact with HMRC is changing.

Keeping your financial records will become increasingly digital and most businesses, the self-employed and landlords will need to use software or apps to keep business records - the days of manual record keeping will be over!

There are exemptions, but for most businesses with turnover above £10,000 you will need to start planning for Digital Tax now.

So, what’s the good news?

We’ve teamed up with a major Cloud software company to provide our clients with the best possible fully compliant accounts package, and there are significant benefits to your business if you use our recommended package:

• It’s on the cloud so you can get a clear view of your finances any time any place;
• You will never need to do back- ups of your accounting software ever again;
• Run your business from work, home or on your mobile;
• It automatically grabs bank receipts and payments in real time;
• Use your mobile to photograph purchase invoices and expenses and upload these to the software; and
• Automatically generate and submit VAT returns and other reports with one click!

Just suppose you could see your results, who owes you money, who you owe and your business bank balance 24/7 from your smart phone!

Over the next few months we will be contacting all our clients to discuss the new HMRC rules and to demo how easy the new system is. In the mean- time, if you are “Good to go”, contact us and we will be delighted to help you comply with Digital tax and streamline take your business to a whole new level.

PJ | ☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com

New Tax Rules Starting April 2017!

New Rules For IR35 Workers In The Public Sector Start  6 April 2017

There are significant changes that commence on 6 April 2017 for workers in the public sector supplying their services via their own personal service companies or other intermediaries.

From 6 April 2017 the public sector employer or agency that engages the worker will have to review the employment status of the worker and decide whether or not to deduct tax and national insurance from payments to the worker even though he or she invoices for the services through their own company.

An online tool called “The Employment Status Service” is expected to be made available by the end of February 2017 and can help them make that decision. The tool can be used if the worker uses either an employment agency, or other third-party to get work.

These changes come on top of the restrictions on the tax deductibility of travelling expenses for IR35 workers that came into effect on 6 April 2016.

Please contact us if you want to discuss whether or not these rules affect you or your organisation.

Making Tax Digital To Start In April 2018 

Legislation to introduce Making Tax Digital (MTD) will be included in the Finance Bill 2017 and despite many objections that it was too soon, the new system of quarterly reporting will commence in April 2018 for the self-employed and property landlords.

There were 1200 responses to the consultation documents issued in summer 2016 and a number of changes have been made to the original proposals.

Much of the detail will be introduced by secondary legislation and there will be further consultation on a number of measures but the key proposals are:

Businesses will be allowed to use spreadsheets to keep their accounting records.

Businesses eligible for three line accounts will be able to submit a quarterly update with only three lines of data (income, expenses and profit).

Free software will be available to businesses with more straightforward affairs.

Businesses will not have to make and store invoices and receipts digitally.

There will be no late filing penalties in the  first year of the new system.

The deadline for finalising taxable profit for a period will be the earlier of:

• 10 months after the last day of the period of account, or
• 31 January following the year of assessment in which the profits for that period of account are chargeable

Businesses and property landlords with a turnover up to £150,000 will be able to prepare accounts on a cash basis

Digital quarterly reporting for companies and larger partnerships will not be introduced until April 2020. These changes will have a significant impact on how you keep your business accounts and communicate with HMRC. Please contact us to discuss the impact of these changes on the way that you keep your accounts.

New Company Loss Relief Rules Start On 1 April 2017

New rules that will allow greater flexibility in the way that companies obtain relief for losses will apply to losses incurred from 1 April 2017 onwards.

These rules have been introduced to encourage  companies to diversify as the losses may be available to offset against profits of another activity in a future period and even those of a company in the same group.

The proposed new rules were consulted on last summer and are included in the latest Finance Bill.

Although there will be greater flexibility for “new” losses arising after 1 April 2017, “old” trading losses incurred prior to that date  will continue to be restricted and will only be available to be offset against future profits from that same trade. The new rules are very complicated and we will of course work with you to ensure that your company obtains relief for  losses in the most advantageous way.

Buying A Company With Losses 

The new flexible loss relief rules coming into effect from 1 April 2017, will make the purchase of a loss-making company attractive. For many years there has been anti-avoidance to block the use of such losses and it is proposed that these rules will continue to apply.

The draft clauses in Finance Bill 2017 will continue to block such losses where within a five year period there is both a change in the ownership of the company and a major change in the nature or  conduct of the trade carried on by the acquired company.

Don’t Lose Your Personal Allowance!

For every £2 that your adjusted net income exceeds £100,000, the £11,000 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.

The restriction applies between £100,000 and £122,000 adjusted net income. Another way that you could avoid this trap would be to agree with your employer to sacrifice some of your salary in exchange for a tax free benefit in kind. These rules are changing from 6 April 2017 but employer pension contributions and childcare vouchers will continue to be effective.

New Tax Rules Starting April 2017!

New Rules For IR35 Workers In The Public Sector Start  6 April 2017

There are significant changes that commence on 6 April 2017 for workers in the public sector supplying their services via their own personal service companies or other intermediaries.

From 6 April 2017 the public sector employer or agency that engages the worker will have to review the employment status of the worker and decide whether or not to deduct tax and national insurance from payments to the worker even though he or she invoices for the services through their own company.

An online tool called “The Employment Status Service” is expected to be made available by the end of February 2017 and can help them make that decision. The tool can be used if the worker uses either an employment agency, or other third-party to get work.

These changes come on top of the restrictions on the tax deductibility of travelling expenses for IR35 workers that came into effect on 6 April 2016.

Please contact us if you want to discuss whether or not these rules affect you or your organisation.

Making Tax Digital To Start In April 2018 

Legislation to introduce Making Tax Digital (MTD) will be included in the Finance Bill 2017 and despite many objections that it was too soon, the new system of quarterly reporting will commence in April 2018 for the self-employed and property landlords.

There were 1200 responses to the consultation documents issued in summer 2016 and a number of changes have been made to the original proposals.

Much of the detail will be introduced by secondary legislation and there will be further consultation on a number of measures but the key proposals are:

Businesses will be allowed to use spreadsheets to keep their accounting records.

Businesses eligible for three line accounts will be able to submit a quarterly update with only three lines of data (income, expenses and profit).

Free software will be available to businesses with more straightforward affairs.

Businesses will not have to make and store invoices and receipts digitally.

There will be no late filing penalties in the  first year of the new system.

The deadline for finalising taxable profit for a period will be the earlier of:

• 10 months after the last day of the period of account, or
• 31 January following the year of assessment in which the profits for that period of account are chargeable

Businesses and property landlords with a turnover up to £150,000 will be able to prepare accounts on a cash basis

Digital quarterly reporting for companies and larger partnerships will not be introduced until April 2020. These changes will have a significant impact on how you keep your business accounts and communicate with HMRC. Please contact us to discuss the impact of these changes on the way that you keep your accounts.

New Company Loss Relief Rules Start On 1 April 2017

New rules that will allow greater flexibility in the way that companies obtain relief for losses will apply to losses incurred from 1 April 2017 onwards.

These rules have been introduced to encourage  companies to diversify as the losses may be available to offset against profits of another activity in a future period and even those of a company in the same group.

The proposed new rules were consulted on last summer and are included in the latest Finance Bill.

Although there will be greater flexibility for “new” losses arising after 1 April 2017, “old” trading losses incurred prior to that date  will continue to be restricted and will only be available to be offset against future profits from that same trade. The new rules are very complicated and we will of course work with you to ensure that your company obtains relief for  losses in the most advantageous way.

Buying A Company With Losses 

The new flexible loss relief rules coming into effect from 1 April 2017, will make the purchase of a loss-making company attractive. For many years there has been anti-avoidance to block the use of such losses and it is proposed that these rules will continue to apply.

The draft clauses in Finance Bill 2017 will continue to block such losses where within a five year period there is both a change in the ownership of the company and a major change in the nature or  conduct of the trade carried on by the acquired company.

Don’t Lose Your Personal Allowance!

For every £2 that your adjusted net income exceeds £100,000, the £11,000 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.

The restriction applies between £100,000 and £122,000 adjusted net income. Another way that you could avoid this trap would be to agree with your employer to sacrifice some of your salary in exchange for a tax free benefit in kind. These rules are changing from 6 April 2017 but employer pension contributions and childcare vouchers will continue to be effective.

Latest UK Tax News & Updates!

Income Tax Not CGT On Property Sale

Finance Act 2016 brought in new rules to ensure that overseas property traders and developers are subject to UK income tax or corporation tax when they dispose of UK properties from 5 July 2016. However the way in which the legislation is drafted may catch some buy-to-let landlords.

The new rules treat UK property sales/development of land as part of a trade and therefore potentially taxed at income tax rates up to 45% instead of the 28% rate that would apply to capital gains. There would also be class 2 and class 4 national insurance contributions due if the transaction is deemed to be part of trading.

The transaction is taxed as trading if:
a) One of the main purposes in acquiring the land was to realise a profit on its disposal; or
b) One of the main purposes in acquiring the property which derives its value from land was to realise a profit on its disposal; or
c) The land is held as trading stock; or
d) One of the main purposes of developing the land was to realise a profit on its disposal when developed

There will be no change in tax treatment for individuals or partnerships already operating as property dealers or developers.

However, it is felt that those buy-to-let investors who acquired a property with a view to ultimately selling on at a profit may be brought within the scope of the new rules by condition (a).

100% Tax Relief For Low Emission Cars To Continue 

Currently 100% capital allowances are available when a business buys a motor car with CO2 emissions of no more than 75 grams per kilometer. Legislation has now been passed to reduce the threshold to just 50 grams from April 2018 but also to continue the tax relief for 3 years until 2021.

Normally motor cars only receive a writing down allowance at the rate of 18% or 8% on a reducing balance basis, which means it can take several years to get tax relief for the cost of the vehicle. The cost of a low CO2 car can therefore be immediately written off against business profits.

Note: The motor car must be new and bought either for cash or on hire purchase to get the 100% tax relief.

Where the car is provided for use by a director or employee of the business then there would be a Benefit in Kind taxable on the individual based on the CO2 emissions and original list price of the car.

Another 100% Tax Relief Ends Next Year - Act Soon 

Currently the business premises renovation allowance provides 100% tax relief for the cost of renovating a commercial property located in one of the 2,000 or so designated disadvantaged areas, provided it has been out of commercial use for at least 12 months. The premises should then be brought back into commercial usage or rented out to a business to use within its trade or profession. Unfortunately this generous tax break is due to end in April 2017 so get in quick if you are considering renovating such a property. It may be an office block, factory or warehouse that you already own or a property on the market that has been out of use for at least 12 months.

Typical qualifying costs would include building works, architectural and design services, survey and engineering costs, planning application costs and other statutory fees. The works must now be completed within 36 months of the expenditure being incurred as many renovation projects involved the payment of certain costs in advance.

Provided the premises are retained for at least 5 years there is no claw back of the tax relief given.

Proposed Changes To UK Domicile Rules

Where an individual is resident but not domiciled in the UK there are special rules that apply to that person's overseas income and capital gains.  Plus only their UK assets are charged to inheritance tax. The government has been consulting this summer on possible changes to the rules from 6 April 2017.

Currently the UK domicile rules provide that where an individual’s father is non-domiciled then his children automatically take on the father’s domicile (domicile of origin). However, it is proposed that from 6 April 2017, an individual is deemed domiciled for income tax and capital gains tax  if he meets either of two conditions:

• was born in the UK and has a UK domicile of origin. The individual must also be UK resident in the tax year under consideration.
• must have been UK resident for tax in at least 15 out of the 20 years preceding the tax year under consideration.

The 15/20 year rule will also replace the current 17/20 year rule that currently applies for inheritance tax so that there is a common definition for all three taxes.

Inheritance Tax Implications Of New Domicile Rules

Individuals who are domiciled in the UK are subject to inheritance tax (IHT) on their worldwide assets wherever situated. Non-UK domiciled individuals are currently only subject to IHT on their UK assets.

Classic planning for non-doms was to hold UK assets, particularly UK houses, through an offshore trust or company. The consultation on proposed changes suggests that such a structure will be ineffective in future with the underlying UK house being chargeable to IHT.

These changes are extremely complex so please contact us if they are likely to affect you.

Penalties for Careless Errors in Accounting Records

Where additional tax is payable as the result of an HMRC enquiry and it is shown that the additional tax is due to poor accounting records, the maximum penalty that can be imposed is 30% of the additional tax for failure to take reasonable care. Where the error is deliberate, the penalty will be between 20% and 70% of the extra tax due, rising to 100% where the matter is deliberate and concealed by the taxpayer.

We can negotiate lower penalties on your behalf as the penalty can usually be reduced if we tell HMRC about the error. HMRC may make further reductions depending on the quality of the disclosure and if we help HMRC work out what extra tax is due.

It is also possible to have the penalty suspended if the introduction of internal controls or additional checks can minimise the risk of the error recurring.

We can of course work with you to introduce procedures to minimise the risk of errors in your accounting records so that such penalties do not arise in the first place.

Contact us if you need more information or business help:
PJ | ☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com

Have You Declared All Of Your Credit Card Sales & Your Overseas Income And Gains?

Credit Card Sales

Where credit card sales have been omitted from business takings, HMRC are encouraging taxpayers to come forward and make a disclosure of the income that has been omitted to avoid incurring interest and penalties on top of the unpaid tax.

As you may be aware HMRC now receive information from third parties such as banks and credit card companies and will then match that data with business accounts, and will then open detailed enquiries if the figures appear to be inconsistent. They can go back up to 20 years and the more serious cases can lead to criminal prosecution.

If you have other undeclared income or gains that don’t relate to credit card sales, there are other HMRC disclosure facilities to enable you to bring your tax affairs up to date.

Please get in touch with us if you wish to discuss this as full co-operation can help minimise penalties.

Overseas Income And Gains:

Where an individual is resident in the UK, he or she is generally taxable on worldwide income and gains whether or not it is brought back into the UK. Again, there can be significant interest and penalties on top of the unpaid tax if HMRC find out.

HMRC now exchange information involving savings and investments overseas with about 90 other countries and again match that data with individuals’ tax returns.

There is a special HMRC worldwide disclosure facility to allow taxpayers to bring their tax affairs up to date.

Note that there are special rules for individuals who are resident but not domiciled in the UK and those people’s tax status is likely to change from April 2017.

Please contact us if you need advice on this matter: 
APJ Accountancy | ☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com

Christmas is Coming - New Rules for Gifts to Staff!

From 6 April 2016 new rules were introduced to allow employers to provide their directors and employees with certain “trivial” benefits in kind, tax-free.

The new rules are a simplification measure so that certain benefits in kind will not need to be reported to HMRC, as well as being tax free for the employee. There are of course a number of conditions that need to be satisfied to qualify for the exemption.

Conditions for the exemption to apply:
• the cost of providing the benefit does not exceed £50
• the benefit is not cash or a cash voucher
• the employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme
• the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)

So this exemption will generally apply to small gifts to staff at Christmas or on their birthday.
Prior to this change in the rules, the benefit in kind would have had to be reported on the employee’s P11D form at the end of the year, or alternatively the employer would have dealt with the tax and national insurance under a PAYE settlement agreement. Under such an arrangement a £50 Christmas turkey to a higher rate taxpayer could end up costing the employer nearly £95!

Note that where the employer is a “close” company and the benefit is provided to an individual who is a director or other office holder of the company, the exemption is capped at a total cost of £300 in the tax year.

Please feel free to contact us if you are considering taking advantage of this new exemption.

-PJ 
☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com

UK Tax Changes: October-November 2016!

Changes To Farmers Averaging:

From 2016/17 onwards farmers now have the option to smooth out their profits over two or five tax years as the result of a change in Finance Act 2016.

Farmers’ and market gardeners’ profits often fluctuate wildly from one year to the next and the tax rules for many years have allowed them to average their profits in order to smooth out those fluctuations.

It is expected that there could be even greater fluctuations as the result of changes to subsidies and support payments following Britain’s exit from the EU so 2 or 5-year averaging will need to be carefully considered. We can of course assist you in this decision process.

Paying 20% Instead Of 28% On The Sale Of Property:

The latest Finance Act has retained the 28% CGT rate for sales of residential property, whereas the general rate was reduced to 20% for higher rate taxpayers.

It has been suggested that it is possible to reduce the rate from 28% to 20% by deferring the gain temporarily into qualifying EIS company shares.

The tax planning opportunity arises because reinvesting the property gain in Enterprise Investment Scheme (EIS) company shares defers the gain until the shares are sold when the gain comes back into charge at the general rate of CGT, currently 20% for a higher rate taxpayer.

There is no minimum holding period for EIS deferral relief, however where the investor is seeking income tax relief and CGT exemption on the sale of the shares they need to be an unconnected investor and retain the EIS shares for at least 3 years.

The reinvestment in EIS shares must take place during the period of 12 months before to 36 months after the date of disposal of the property.

Shares in EIS qualifying companies are risky investments and specialist investment advice should be taken. There is also a chance that HMRC may block this tax planning strategy in the future.

Advisory Fuel Rate For Company Cars:

These are the suggested reimbursement rates for employees' private mileage using their company car from 1 September 2016. Where there has been a change the previous rate is shown in brackets.

Engine Size	Petrol	Diesel	LPG
1400cc or less	10p		7p
1600cc or less		9p (8p)
1401cc to 2000cc	13p (12p)		9p (8p)
1601 to 2000cc		10p
Over 2000cc	20p (19p)	12p (11p)	13p

You can continue to use the previous rates for up to 1 month from the date the new rates apply.

VAT Implications of Employee Mileage Claims:

Note that where employers reimburse their employees 45p per mile for using their own cars they are able to reclaim input VAT based on the amounts shown in the table. 

In the case of a 1600cc diesel car that would be 1.5 pence per mile.  (9p x 20/120). Such a claim needs to be supported by a receipt from the filling station.

Contact us if you need business help:
PJ | ☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com

Monthly UK Tax Updates - May/June 2016

Changes Next Year for Public Sector Workers “Off Payroll”

It was announced in the March Budget that Finance Bill 2017 will include measures to change the rules for those workers supplying their services to public sector bodies via their own company. The current rules require the intermediary to consider whether or not the IR35 rules apply to the engagement, and if so apply PAYE and National Insurance (NIC) to the income paid via the intermediary company.

If the proposed changes go ahead the public sector body will be required to assess whether the IR35 rules apply and operate PAYE and NIC.

For these purposes public sector includes central Government departments, Local Authorities, the NHS, schools and other bodies such as the BBC.

Tax Relief for Travel Expenses For IR35 Workers

Another measure affecting such workers, and those in the private sector, concerns tax relief for travel and subsistence expenses. New legislation in the current Finance Bill 2016 seeks to deny relief for travel and subsistence expenses incurred by workers caught by the IR35 rules. The restriction will also apply to agency workers where there is supervision, direction and control (SDC) over the worker by the end user client.

According to updated HMRC guidance the SDC test will be the only test used to determine whether the new rules will apply and ignores the other employment status factors. The HMRC examples suggest that if there is no expertise within the end user organisation then there is likely to be limited SDC and the worker will continue to be entitled to relief for travelling to the client’s premises.

Possible New “Look Through” Entity Will Change Small Company Taxation

The Chancellor announced in his Budget Speech that the Government is considering further major changes to small company taxation following a review by the Office of Tax Simplification (OTS).

As in many small companies the directors are also shareholders the OTS believe that it would simplify matters if the shareholders of such companies were to be taxed on their share of profits made by the company in proportion to their shareholdings. In other words the shareholders would be subject to income tax in a similar way to members of a partnership or LLP and there would be no corporation tax paid by the company. This would clearly level the playing field between limited companies and unincorporated businesses. However it is likely to result in more tax payable than under the current rules!

We will monitor further discussions on this possible future change and keep you updated.

Changes to Construction Industry Scheme (CIS) Reporting

Following the abolition of monthly paper CIS returns from 6 April 2016 HMRC have indicated that some leniency will be allowed for late returns for the first three months of the new tax year. Contractors and other businesses required to operate CIS now have to submit their returns online.

It is proposed that from April 2017 contractors will also be required to verify subcontractors online.

Remember that it is not just mainstream contractors that are required to operate CIS. The system extends to property developers who pay plumbers, electricians, and others in the building trade. However CIS does not apply to home owners and property investors who renovate a property prior to renting out to tenants.

Thinking of Building Your Own House? You Can Reclaim The VAT

You can apply to HMRC for a VAT refund on building materials and services if you are building a new home, or converting a property into a home. In order to qualify the home must be separate and self-contained, be for you or your family to live or holiday in, and not be for business purposes (although you can use one room as a work from home office). Builders working on new buildings should zero rate their work anyway and you won’t pay any VAT on their services.

Where there is an existing dwelling on the site you will normally need to demolish the existing building, however it will count as a new build where a single façade is retained if that is a condition of the planning consent. You may also claim a refund for builders’ work on a conversion of non-residential building into a home, or a residential building that hasn’t been lived in for at least 10 years.

When you make your claim you must supply a copy of the planning permission, a full set of building plans, the invoices - including tenders or estimations if the invoice isn’t itemised, and proof the building work is finished. Please contact us if you need advice or assistance on this or any other VAT matters.

Scottish Taxes

In these newsletters we tend to focus on tax matters that apply generally throughout the UK. However, under powers devolved to the Scottish Government there is now a different system of tax for the transfer of property in Scotland instead of SDLT.

Please contact us if you are considering buying a property in Scotland. We will also keep you up to date with other Scottish tax developments from time to time. 

3 points to note on New Rules For Dividends From 2016/17

Summer Budget 2015 came up with the new taxation of dividends that will apply from 6 April 2016. Further guidance has now been published by HMRC setting out how the new rules will operate and it seems the rules don’t work as many people expected.

1. As previously reported, there will be no 10% credit against the tax on dividends which means there will be a 7½ % increase in the rate of tax on dividends once the £5,000 dividend allowance has been used up.

2. Currently dividends falling into the basic rate band are effectively tax free. However the £5,000 allowance needs to be taken into consideration in determining the rate of tax on your dividends.

For example if you have salary and other non- dividend income of £40,000 next year and £9,000 in dividends, the £4,000 of taxable dividends are taxed at 32.5%, not £3,000 at 7.5% then £1,000 at 32.5%. This is because the £5,000 is added to the £40,000 income pushing the taxable dividends into the higher rate band.

3. If you own your own company it may be beneficial to bring forward dividend payments from next year to save the additional 7.5%. However, it would be important to consider all of the tax implications of such actions so come and talk to us to discuss your options.




Feel free to contact us for further advice.
☎ 020 89310165 | 📱 07900537459 | ✉ info@apjaccountancy.com