Our Year End Tax Planning Guide is now available!

report-front-cover-thumbnailOur Tax team have worked together to create a Year End Tax Planning Guide. Our year end guide summarises some key tax and financial planning tips which should be considered prior to the end of the tax year on 5 April 2017 or for companies, the end of the financial year on 31 March 2017.

The report covers the following topics:

  • Income Tax
  • Capital Gains Tax
  • Tax Favoured Investments
  • Property Investment Business
  • Inheritance Tax
  • Financial Planning
  • Corporation Tax
  • Capital Allowances
  • Enhanced Tax Reliefs
  • Making Tax Digital

Read the full guide: 2016/17 Year End Tax Planning Guide

If you have any questions or would like some advice with regards to your year end tax planning, please email Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Tax team.

Don’t miss out on R&D tax relief!

The government is concerned that many small companies are missing out on generous Research and Development (R&D) tax credits. For the last year HMRC have been offering companies an advance assurance scheme to check whether or not their activities qualify before they make a claim. So far over 200 applications for advance assurance have been made.

There is a general misconception that R&D involves scientists in white coats, but it should be remembered that R&D includes the development or improvement of a product or process. This means that some of the work by your engineers or technical staff may qualify as R&D. For Small and Medium-sized Enterprises (SMEs) the tax credit is 230% of the expenditure on qualifying R&D, and where the company incurs a trading loss, HMRC will provide an immediate cash refund rather than waiting until there is a profit in a future period.

By applying for advance assurance the company’s R&D claim will not be subject to an HMRC enquiry and HMRC will then accept the first three years of claims.

Companies eligible to apply for advance assurance:

  • Turnover below £2m
  • Fewer than 50 employees
  • No previous R&D claims

If the R&D results in a product or process that can be patented, there is a further tax break available. The “Patent Box”, introduced in 2013, will provide a 10% rate of tax on profits derived from that product or process.

MHA member firms have saved clients over £11million in successful R&D tax credit claims. If you have any queries or would like to discuss this in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Tax team.

This article originally appeared on the blog of our member firm, Carpenter Box.

Don’t miss out on R&D tax relief!

The government is concerned that many small companies are missing out on generous Research and Development (R&D) tax credits. For the last year HMRC have been offering companies an advance assurance scheme to check whether or not their activities qualify before they make a claim. So far over 200 applications for advance assurance have been made.

There is a general misconception that R&D involves scientists in white coats, but it should be remembered that R&D includes the development or improvement of a product or process. This means that some of the work by your engineers or technical staff may qualify as R&D. For Small and Medium-sized Enterprises (SMEs) the tax credit is 230% of the expenditure on qualifying R&D, and where the company incurs a trading loss, HMRC will provide an immediate cash refund rather than waiting until there is a profit in a future period.

By applying for advance assurance the company’s R&D claim will not be subject to an HMRC enquiry and HMRC will then accept the first three years of claims.

Companies eligible to apply for advance assurance:

  • Turnover below £2m
  • Fewer than 50 employees
  • No previous R&D claims

If the R&D results in a product or process that can be patented, there is a further tax break available. The “Patent Box”, introduced in 2013, will provide a 10% rate of tax on profits derived from that product or process.

MHA member firms have saved clients over £11million in successful R&D tax credit claims. If you have any queries or would like to discuss this in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Tax team.

This article originally appeared on the blog of our member firm, Carpenter Box.

Making Tax Digital: Some Questions & Answers

HMRC’s vision of the future is that all dealings with tax payers and agents will be digital.

The proposals for the new digital world were introduced in the March 2015 Budget. Then, in August 2016, six consultation documents were published and the closing date for responses is 7th November 2016.

It is expected that there will be more detail in the Chancellor’s Autumn Statement and also in the Budget next year.

Here is a summary of what we know so far:

What is it?

Making tax digital is a complete change to the way businesses currently report their income and expenditure to HMRC.

Under the current system, businesses prepare one set of accounts and report the information on the annual tax return, so there is one submission of information to HMRC.

Under the new system, there will be quarterly reporting of profits and then a further annual declaration, making a minimum of five submissions to HMRC each year.

When does it start?

April 2018

It is possible that the smallest businesses will be able to defer until April 2019 – this is one of the topics covered in the consultation documents – but for most business and landlords the start will be April 2018.

Who will be affected?

Unincorporated businesses and landlords.

Quarterly reporting is not confined to businesses. Landlords will also be required to report quarterly if annual rents will be in excess of £10,000. This will apply even if your main source of income is a salary or a pension and the rental income is just an extra.

Limited companies will be included later – in April 2020.

What will you have to do?

Use software or apps to keep your business records and provide regular (at least quarterly) updates of information to HMRC. These updates will be a summary of income and expenditure only – each transaction will not be shown.

The proposed time limit for submission of each update is 1 month from the end of the period.

Is anyone exempt?

  • Those with turnover of under £10,000. Note that business turnover and rental income will be added together so if you have self employed earnings of £6,000 and rental income of £5,000, your total income will be £11,000 which is over the threshold and you will be required to report quarterly.
  • Charities.
  • Those who “cannot engage digitally”. This means people whose religious beliefs prevent them from using electronic communications and people for whom online filing is not reasonably practical for reasons of disability or age, for example.

Do we like it?

Making Tax Digital represents a seismic shift in how businesses and landlords record their financial transactions and interact with HMRC.

Where a person wants to stick with current methods, whether paper records or spreadsheets, the new regime will create an extra layer of work. However, where taxpayers and/or their accountants embrace new ways of working, and in particular digital record keeping and cloud accounting, Making Tax Digital has the potential to bring benefits.

What do you need to do now?

Many accountants, tax practitioners and professional bodies have already responded to the consultation documents. At MHA, we will certainly be making our views known. However, you don’t have to be a firm of accountants to respond – the process is open to anyone who will be affected.

The consultation closes on 7th November, so if you would like to make your voice heard, please click here.

As more information becomes available, we will continue to develop our strategy for coping with the change and minimising the stress of changing to the new system for our clients (and ourselves!). We will provide you with regular updates, so watch this space.

If you would like any further information or advice, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Digital Tax team.

This article originally appeared on the blog of our member firm, Tait Walker.

Making Tax Digital: Some Questions & Answers

HMRC’s vision of the future is that all dealings with tax payers and agents will be digital.

The proposals for the new digital world were introduced in the March 2015 Budget. Then, in August 2016, six consultation documents were published and the closing date for responses is 7th November 2016.

It is expected that there will be more detail in the Chancellor’s Autumn Statement and also in the Budget next year.

Here is a summary of what we know so far:

What is it?

Making tax digital is a complete change to the way businesses currently report their income and expenditure to HMRC.

Under the current system, businesses prepare one set of accounts and report the information on the annual tax return, so there is one submission of information to HMRC.

Under the new system, there will be quarterly reporting of profits and then a further annual declaration, making a minimum of five submissions to HMRC each year.

When does it start?

April 2018

It is possible that the smallest businesses will be able to defer until April 2019 – this is one of the topics covered in the consultation documents – but for most business and landlords the start will be April 2018.

Who will be affected?

Unincorporated businesses and landlords.

Quarterly reporting is not confined to businesses. Landlords will also be required to report quarterly if annual rents will be in excess of £10,000. This will apply even if your main source of income is a salary or a pension and the rental income is just an extra.

Limited companies will be included later – in April 2020.

What will you have to do?

Use software or apps to keep your business records and provide regular (at least quarterly) updates of information to HMRC. These updates will be a summary of income and expenditure only – each transaction will not be shown.

The proposed time limit for submission of each update is 1 month from the end of the period.

Is anyone exempt?

  • Those with turnover of under £10,000. Note that business turnover and rental income will be added together so if you have self employed earnings of £6,000 and rental income of £5,000, your total income will be £11,000 which is over the threshold and you will be required to report quarterly.
  • Charities.
  • Those who “cannot engage digitally”. This means people whose religious beliefs prevent them from using electronic communications and people for whom online filing is not reasonably practical for reasons of disability or age, for example.

Do we like it?

Making Tax Digital represents a seismic shift in how businesses and landlords record their financial transactions and interact with HMRC.

Where a person wants to stick with current methods, whether paper records or spreadsheets, the new regime will create an extra layer of work. However, where taxpayers and/or their accountants embrace new ways of working, and in particular digital record keeping and cloud accounting, Making Tax Digital has the potential to bring benefits.

What do you need to do now?

Many accountants, tax practitioners and professional bodies have already responded to the consultation documents. At MHA, we will certainly be making our views known. However, you don’t have to be a firm of accountants to respond – the process is open to anyone who will be affected.

The consultation closes on 7th November, so if you would like to make your voice heard, please click here.

As more information becomes available, we will continue to develop our strategy for coping with the change and minimising the stress of changing to the new system for our clients (and ourselves!). We will provide you with regular updates, so watch this space.

If you would like any further information or advice, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Digital Tax team.

This article originally appeared on the blog of our member firm, Tait Walker.

Making Tax Digital – Explained

Individuals, partnerships, sole traders, and landlords will be the first to join HMRC’s brave new digital world in 2018. This will revolutionise the way many businesses keep their books and accounts. It is HMRC’s hope that by 2020 the tax return as we know it will have been entirely abolished.

All individuals and small businesses will have access to digital tax accounts, with the information HMRC needs already automatically uploaded. HMRC believe that you should never have to tell them of information they already have and therefore under and over payments should be reduced. Digital accounts will give you a single, personalised view of your tax position across all liabilities and entitlements.

From April 2018, all but the very smallest of unincorporated businesses and landlords (turnover less than £10,000) will be required by law to keep their records on accounts software. Many people already do that – but there will be an additional requirement in that, the software must be capable of sending information to HMRC every three months. At present, there is no software on the market capable of doing that, but we know that the major software developers such as QuickBooks and Sage are working on it.

HMRC call this project “Making Tax Digital” (MTD). The idea is that everyone will use MTD-compatible software to record all their business transactions. Every three months the software will (“at the push of a button”) send the data to HMRC. These three monthly uploads will not be accounts as such, and will not include such things as stock valuations or tax adjustments. HMRC are therefore proposing that businesses and landlords will have nine months after their last quarter to make any tax and accounting adjustments required to calculate their tax payable.

While information will be submitted quarterly to HMRC there is no intention at present to make the payment of tax quarterly. The payments date of 31 January, and 31 July if payments on account are required will remain. Taxpayers can, however, make more frequent payments if they chose on a voluntary pay-as-you-go (PAYG) basis. HMRC are currently looking at various incentives to encourage PAYG payments of tax.

VAT returns are of course already submitted quarterly, and HMRC is looking at whether the VAT return will be combined with the quarterly MTD submission.

MTD will be a massive change for all taxpayers, but particularly so for those who have always kept their records manually (or on computer spreadsheets), and give their records to their accountant once a year. After April 2018, everyone will be required to use accounting software of some sort, and keep records in real time. In fact, many businesses are doing this already, and finding it easier than they first thought! Cloud-based systems also offer the advantage of allowing the accountant to ‘log in’ to review how things are going throughout the year. Also, it is surprisingly inexpensive. HMRC have also promised that free software will be available for smaller businesses.

MTD is a huge project for HMRC. They have published six separate consultation papers, and will be drafting new legislation to put it into effect. There are lots of questions to be answered and details to be ironed out. There have been suggestions that the April 2018 start date will be put back a year. But MTD is coming, so do watch this space for further information.

If you have any queries or would like to talk to us about the implications, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Digital Tax team.

This article originally appeared on the blog of our member firm, Moore & Smalley.

 

Making Tax Digital – The consultation documents are out!

It has been long anticipated, but HMRC have finally released the 6 consultation documents relating to Tax Digitalisation that were expected the week of the referendum. These are some of the biggest changes to the way tax operates since PAYE was brought in during the second world war!

The documents cover:

  • Bringing business tax into the digital age
  • Simplifying tax for unincorporated businesses
  • Simplified cash basis for unincorporated property businesses
  • Voluntary pay as you go
  • Tax administration
  • Transforming the tax system through better use of information

The documents confirm that businesses will need to keep their records digitally and that quarterly updates of summary information will be mandatory, although the level of detail of these quarterly updates is one of the areas subject to consultation. The time limits look a bit more reasonable but will still be tight – with some businesses and landlords starting in 2018 and most of the others by 2020.

While it was expected that quarterly payments of tax would naturally follow on from quarterly reporting, this has not been suggested in the consultation documents but rather a voluntary pay as you go system has been proposed.

Generally, businesses and landlords with a turnover of less than £10,000 will not be obliged to produce quarterly reports or keep their records digitally and further exemptions are being considered for a limited group of businesses and landlords with annual incomes above that threshold, although the appropriate threshold is still under consultation.

Our member firm MHA MacIntyre Hudson is conducting a detailed review of the consultation documents and is considering the impact Making Tax Digital will have on clients and how they can assist and advise clients through the transition.

The consultation period runs until 7 November 2016 so please let us know if there are specific points you would like us to raise, as we are heavily involved in working with our institutes and directly to try to get HMRC to put a workable framework together for this radical new system.

To view the consultation documents please click here.

If you have any queries about anything raised in this article or to be put in contact with a member of our team, please contact Hannah Farmborough or call on 0207 429 4147.

This article originally appeared on the blog of our member firm, MHA MacIntyre Hudson.

 

Making Tax Digital – Simple Assessments

HMRC’s vision of the future is that all dealings with tax payers and agents will be digital.

As a first step in this process, the 2016 Finance Bill contains clauses for the introduction of a new system of Simple Assessment for taxpayers with “straightforward” affairs. Straightforward means where HMRC already hold all the information they need to calculate an individual’s tax position without the need for any further information to be supplied on a tax return. The idea is that this will remove many people from the self-assessment system.

The new provisions will enable HMRC to issue these taxpayers with an assessment (a simple assessment) showing the information which has been used to calculate the tax and the amount of tax payable. It will then be up to the taxpayer to tell HMRC if they think the assessment is incorrect. HMRC will then confirm, amend or withdraw the simple assessment. If you cannot reach agreement you will have a period of 60 days to lodge a formal appeal against the assessment. However, HMRC hope that it will be possible to settle most queries at the query stage without the need to go through the formal appeal process.

The system applies from the 2016/17 tax year onwards, which means that the first simple assessments will start to be issued in April or May 2017. Simple assessment is intended to cover income and capital gains, although how HMRC will obtain the information to enable them to correctly assess capital gains tax due on things like shares which have been held for many years, is yet to be seen.

The payment dates for the tax assessed under simple assessment will be the same as under self-assessment i.e. 31 January following the end of the tax year. In addition, the same interest and late payment penalties regime which currently applies to self-assessment is also likely to apply to simple assessment, although the legislation is not yet in place.

HMRC’s press release on simple assessment states that “the main benefit for individuals will be an improvement in the customer experience. In particular these customers no longer need to complete a Self-Assessment tax return.” It goes on to say that “The Simple Assessment will reduce the need for customers to contact HMRC because they are experiencing difficulties completing their tax return” and “this measure will reduce the number of customers who incur a penalty or have to pay interest because they have not sent a return in on time”.*

We are aware of many instances at the moment where HMRC are unable to correctly tie up PAYE and self-assessment records for our clients, resulting in incorrect tax calculations and, in some cases, incorrect tax repayments being sent to clients. Undoubtedly, HMRC will have improved their systems by next year. However, we would suggest that anyone who receives a simple assessment next year should check it carefully to make sure it is correct rather than just assuming that it is.

If you have income or capital gains which are not included on the simple assessment, the onus is on the taxpayer to ensure that this income is declared to HMRC in the normal way. Non-declaration will result in the same exposure to penalties as under the self-assessment regime.

Trying to bring simplicity to one of the most complex tax codes in the world is laudable and time will tell if simple assessment will prove to be so simple.

For more information about any of the issues raised in this article or to be put in contact with your local representative, please contact Hannah Farmborough or call on 0207 429 4147.

* Source: gov.uk

This article originally appeared on the blog of our member firm, Tait Walker.

Important payroll tax changes commencing from 6 April 2016

Our member firm, Tait Walker’s Payroll Compliance Manager Claire Brown, talks you through the payroll tax changes coming into effect from April 2016…

Tax Bands

From 6 April the new personal allowance for tax will increase to £11,000 per annum regardless of an individual’s date of birth and the basic rate income limit will be increased to £32,000. Therefore for all employees who are presently on a tax code of 1060L this will be increased by 40 points to 1100L.

National Insurance Contributions (NIC)

From 6 April 2016, the monthly salary that can be paid without incurring tax or national insurance will remain at £672.00 per month.

This year there also continues to be a difference between the primary threshold for employees NIC and the secondary threshold for employers NIC. The difference is £4.00 and the secondary threshold remains at £676.00.

Employer National Insurance Contributions for employees under 21 and apprentices under 25

Employers are not currently required to pay employers class 1 NIC on earnings up to the upper earnings limit for employees who are under the age of 21.

From 6 April, if you employ an apprentice you may not be required to pay employer class 1 NIC on their earnings below £827 a week (£43,000 per annum) if you’re apprentice is under 25 years old and is following an approved UK government statutory apprenticeship framework.

Statutory rates

The standard rate for Statutory Maternity, Paternity and Adoption Pay will remain at £139.58 per week and the rate of Statutory Sick Pay will also remain at £88.45 per week.

To be entitled to these statutory payments, an employee’s average earnings must at least be equal to the lower earnings limit which remains at £112.00 per week.

The New National Living Wage (NLW)

From April, the Government’s New National Living Wage will become law. Employers need to make sure that they’re paying employees correctly from the 1st April 2016, as the NLW will be enforced as strongly as the current National Minimum Wage.

If any of your employees are aged 25 or over and not in the first year of an apprenticeship, they will be legally entitled to at least £7.20 per hour.

Scottish Rate of Income Tax

The Scottish rate of income tax will be 20% and it will be calculated by the UK income tax rates being reduced by 10 percentage points for employees living in Scotland. They will then pay the Scottish rate of 10% on top of their UK rate.  For example, if an employee pays tax at the basic rate of 20% this will be reduced to 10%. They will then pay the Scottish rate of 10% on top of this giving a total of 20%.

There is no overall change to the income tax rate they pay whether they pay the basic, higher or additional rates but some of the tax will be collected under the Scottish rate and this will fund the Scottish Government, and the rest will continue to fund the UK government.

Employment Allowance

The employment allowance will increase from £2,000 to £3,000 from April 2016. If there are any other companies/groups, charity structures which are connected then only one PAYE scheme can claim the allowance. The basic rule for determining if two companies or more are connected with each other is if one of them has control of the other or if they are under the control of the same person or persons.

Auto Enrolment

Employers are responsible for in excess of 200 duties in relation to planning, implementation and ongoing governance of the workplace pension scheme. Employers should begin to consider their options at least 12 months prior to their staging date, so please contact our Wealth Management Team to ensure that you understand your obligations and reduce any exposure to penalties.

For further advice regarding any of the topics mentioned in this blog post, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

Source: This article originally appeared on the blog of our member firm, Tait Walker

Investment opportunities in year end tax planning (2015/16)

Here we are in March with potentially big changes ahead in 2016 in respect of personal finances and financial planning opportunities. Below we have provided three top tips for what to do to ensure you are making the most of your investment opportunities whilst you can.

Use your ISA allowance

You can invest a maximum of £15,240 per year in your ISA. That amount resets at the start of each tax year, and there is no way of carrying over any allowance that you haven’t used. Simply put, if you don’t use it, you’ll lose it. Remember, if you have both a cash ISA and a stocks and shares ISA, the £15,240 is the total of the combined accounts. However, you can now choose how you divide the allowance between the two accounts, something you couldn’t do until a couple of years ago.

Pension Contributions and Flexible Pension Preparation

It’s worth checking your pension contributions every year, especially towards the end of the tax year. Pension contributions can often be a sensible way to look after your tax liabilities, but don’t forget you should always do this whilst keeping in mind your full financial plan. You should also be mindful of the lifetime pension allowance, currently £1.25 million but set to be reduced to £1 million from April 2016. Any pensions totalling more than that amount can be subject to further tax, which may impact on your financial planning overall. Make sure you check the current size of your pension if you’re considering making additional payments, as you may inadvertently push yourself into a taxable amount if you’re not careful.

Savings for your children

It’s remarkably easy to overlook the fact that your children can benefit from virtually all of the above. The allowance for Junior ISAs this year is £4,080, so make use of as much of that as you can before it resets. Capital Gains Tax Allowance is the same for children as it is for adults, and it’s also possible to set up pension contributions for them. All worthwhile ways to make the most of your tax allowances before the end of the financial year.

If you would like to discuss year end tax planning in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

Source: This article originally appeared on the blog of our member firm, Carpenter Box