SIGNATURE TAX MARCH 2019 NEWSLETTER

March Newsletter 2019

As we approach the end of the tax year, April 2019 will bring some interesting key changes to the tax sector. Some of the main changes include, the introduction of Making Tax Digital for VAT and the April 2019 loan charge. In this newsletter we shall be covering these two key changes and what tax reliefs can be claimed before April 2019 kicks in.

Making Tax Digital (MTD)

 In line with HMRC's vision to digitalise the UK tax system, from April 2019, the transformation will be well underway by the introduction of Making Tax Digital (MTD) for VAT with the view of extending this to various other sectors in tax. Tax payers and agents will be required to keep digital records and submit the relevant information to HMRC using the software. MTD will start with VAT but who knows maybe in the near future the entire tax system will be have moved into the digitalised era !


It is worth having a look into Furnished Holiday Lettings (FHLs) ?

 

FHLs have many tax advantages in comparison to other longer term rental properties. one of the major advantages of FHLs is that they benefit from Entrepreneurs' Relief (ER) which has a massive tax benefit as this means any capital gains on the sale of the property is taxed at a flat rate of 10%, whereas on the sale of residential property the capital gains tax to be paid is at 18% or 28% depending on the taxpayer's bracket.

With mortgage interest also now becoming a bigger tax problem this again benefits having a look into purchasing an FHL. In the 18/19 tax year only 50% of mortgage interest is an allowable expense and the remaining 50% is available for basic rate relief, however for FHLs any mortgage interest is fully deductible from the rent on the property. 

For landlords it may be worth reviewing their rental properties and see if maybe they can be restructured in to a short-term lettings in order for it to meet the qualifying conditions for an FHL. Rather than selling the rental properties in the current uncertain property market it may be more beneficial to set up the rental properties in this way.

However the landlord may prefer the security of having a long-term tenant over the constant changeovers an FHL brings with it. The location of a property is also a key factor as this needs to be a realistic location for an FHL for example a house in Blackburn is less likely to be regarded as an FHL than a flat in central London.

 

Planning for the year end

 

There are many reliefs and exemptions that can be considered before the year end, here are a few reliefs you may be eligible to claim and we're sure you don't want to miss out on them !

Charitable donations

Tax relief is available on cash gifts to UK registered charities and certain other charitable organisations throughout the EU. When a taxpayer makes a cash donation to charity under the 'Gift Aid' scheme the charity may reclaim 25% of your donation from HMRC (surely you'd rather your tax money do some good), which benefits the taxpayer as the donor will receive a tax relief of the amount donated grossed up by 20%.

Pensions

Each individual is entitled to tax-deductible pensions savings of up to £40,000 a year. For those taxpayers where the pension contributions has been less than the annual allowance, for the past 3 years, there may be scope for catching up on these savings in the current year. For the pension contribution to be deductible individual must be a member of a UK registered scheme for the relevant tax years.

CGT annual exemption

Individuals are entitled to annual exemptions for CGT (£11,700 for 18/19). However this annual exemption cannot be carried forward and is essentially lost for that tax year. Everyone is entitled to this tax-free allowance so why not use it, it's £11,700 of tax-free money all in your pocket at the end of the day.

Changes to SDLT from 1st March 2019

 

As of the beginning of this month the period for submitting the Stamp Duty Land Tax Return and paying the duty has changed, following the completion of a property purchase, from 30 days to 14 days including non-working days. Failure to meet this 14 day deadline may result in interest and penalties for the taxpayer. However this deadline change does not apply to Scotland or Wales, which remains at 30 days.

This change was initially announced in in the Autumn 2015 Statement, the aim being to increase efficiency and reduce the compliance burden for both HMRC and the taxpayers. where the advantage to HMRC is clear the advantage to the taxpayer is somewhat blurred as it provides less time to organise the returns and make payment.

The plans were officially confirmed in the 2018/19 Finance bill with the changes coming into effect from the beginning of this month. the new timescales apply to those land transactions with an effective date of 1st March 2019 or later, or those land transactions with the effective date of before 1st March 2019 but only became notifiable to HMRC from 1st March 2019.

The 30 day window will still apply to those that are required to fill in a further SDLT return following the filing of a previous SDLT return.

Signature Tax Newsletter February 2019

SigTax Newsletter February

With the tax return deadline having come to a close on 31st January, have a little chuckle at some of these excuses people have used to try and avoid any late return penalties:

  • My mother-in-law is a witch and put a curse on me  

  • I’m too short to reach the post box

  • I was just too busy – my first maid left, my second maid stole from me, and my third maid was very slow to learn

  • Our junior member of staff registered our client in Self Assessment by mistake because they were not wearing their glasses

  • My boiler had broken and my fingers were too cold to type

We hope you never had to resort to any of these silly excuses, however HMRC do offer help for those people with genuine excuses. If you require any assistance on your 2019 self-assessment please do not hesitate to get in touch with us at info@signaturetax.co.uk

Do you have Commercial Property?

Under UK Tax Legislation, a company or business which has expenditure on capital assets, is not allowed to make a deduction for expenditure in it’s accounts. Instead, businesses are provided with a tax relief called Capital Allowances (CA). 

Pools? 
In order to claim capital allowances, taxpayers must group items into "pools" of capital expenditure on which the taxpayer has not previously claimed capital allowances. These pools attract different rates of allowances: most plant and machinery falls within the main pool (18% rate), but integral features and items which have a life of more than 25 years will fall within the special pool (8% rate).

Purchasing Property ?
Commercial or semi-commercial property, whether it is owned privately or as a limited company, there may be a scope to claim capital allowances, which can be used against your profits immediately. For this reason Capital Allowances are a highly valuable form of relief. 
Capital Allowances must be identified and recorded at the point of purchase which is agreed and passed down by a s.198 election, which determines the CA amount passed over from the Seller to the buyer, this removes the possibility of the CA being claimed twice on the same asset.
If parties make a s198 election at Tax Written Down Value(“TWDV”), the seller will unable to claim further allowances.

Own Residential Property ?
You can only claim CA for items in residential property if your business qualifies as a furnished holiday lettings business. In each year the property must be:

  • available for holiday letting for 210 days

  • let for 105 days or more

What can I claim on ?
Capital Allowances are generated from expenditure on fixtures and when you buy assets that you keep to use in your business, known as Plant and Machinery–
·         Equipment
·         Machinery
·         Integral Features

Capital Allowances are generally calculated by writing down the cost of the qualifying asset (e.g. the heating system) at a fixed rate on a reducing balance basis. The rate is determined by the type of asset and this generally means the tax relief is spread over a number of years

Integral features
Integral Features attract CA at a rate of 8% per year over the useful life of the asset.
Integral Features include –
·         Lifts & escalators
·         Air-conditioning
·         Electrical systems 
·         Water heating systems


Fixtures 
Fixtures attract CA at a rate of 18% per year over the useful life of the asset
·         Fitted Kitchens
·         Bathroom Suites
·         Fire Alarm and CCTV systems


If you believe you have a potential Capital Allowances claim please do not hesitate to contact us on 0161 850 0648 or email us at info@signaturetax.co.uk

Changes to Entrepreneur's Relief


In the Budget speech, important changes were proposed to the definition of 'Personal Company' for the purposes of entrepreneur's relief.  The changes are put in to place to target the relief at ‘genuine entrepreneurs’ by way of limiting the relief to individuals who’s interest in the company just passed the minimum threshold. The existing requirement of holding at least 5% of the ordinary shares with a 5% voting right has been added to in which 5% of the profits available for distribution to the ‘Equity Holders’ must be held. These conditions must be met on original investment and again met throughout one year prior to disposal (two years from 6 April 2019). 

Research and Development


R&D tax credits were introduced for SMEs in 2000 and extended to large companies from 2002 and every year since, tens of thousands of pounds are being lost in tax relief by eligible companies who fail to submit a claim for tax relief which they are perfectly entitled to. This reflects the misconception that Research and Development (R&D) is confined to global tech giants or research laboratories and people in white coats. Businesses are often undertaking R&D every day, driving innovation and moving the UK economy forward without realising, which is precisely why the Government want to incentivise you for doing so.
 

R&D tax relief is the Government’s way of rewarding UK businesses that invest in innovation. This innovation can be in the form of developing new, or appreciably improving existing products, processes, services, devices and materials. The project must seek to achieve an advance in science or technology and doesn’t always have to be completed. An attempt to resolve a technical uncertainty and subsequently failing, will also fall within the HMRC guidelines.
 

Signature Tax are market leaders and specialists in R&D tax credits with a very experienced team of Tax Advisors, Accountants, Report Writers and Industry specialists. We will investigate your business activities, produce and submit a fully compliant report to HMRC and answer any queries raised on your behalf. Refunds are typically paid within 60 days of submission.
 

Our in-house specialist Steve can be contacted on info@signaturetax.co.uk or 07921 841 724 who would be pleased to speak with you on a no obligation basis to answer any queries you may have.

HM Treasury - Autumn Budget 2018

HM Teasury.jpg

The 29th of October 2018 marked the final Budget before Brexit and the first time since 1962 that a budget has been delivered on any other day than a Wednesday. The budget was also held a few weeks earlier than usual to avoid any clash with the final months of Brexit negotiations. There were the usual announcements on personal allowances and tax thresholds, but other than that, the announcements were not overwhelming, the highlight being the Annual Investment Allowances being increased from £200,000 to £1m and the controversial £420m spent on potholes.  

   

The below sets out some of the key announcements from Chancellor Philip Hammond:   

Personal Tax  

• Tax-free Personal Allowance is set to rise to £12,500 in April (a £650 increase) and the higher rate threshold to £50,000. These 2 rates will continue to rise in line with inflation. 

• The Capital Gains Tax (CGT) annual exemption will increase in line with Consumer Prices Index to £12,000 (2018/19: £11,700) 

• The rates for income tax and CGT are to remain the same. 

• The National Living Wage will increase from £7.83 to £8.21 from April 2019. 

• The minimum qualifying period for Entrepreneurs Relief will increase from 12 months to 2 years.   

Corporate Tax 

• VAT registration threshold will not be reduced but a consultation will be carried out on the design. 

• The Chancellor has stated he will halve the contribution to the apprenticeship levy for smaller firms from 10% to 5% in a £695m package to support apprenticeships.

 • From April 2019, the UK will apply income tax to royalties relating to digital retail sales in the UK. 

• To prevent abuse of the R&D tax credits scheme from April 2020 the amount of payable credit to loss-making companies will be capped at three times the company’s total PAYE and NICs liability for that year. 

• Employment Allowance is set to be targeted at small and medium businesses with an Employer NICs bill under £100,000 a year from April 2020. The threshold for VAT registration is to remain unchanged for a further two years. 

• Reforms to IR35 payroll rules are to be extended to large and medium-sized firms in the private sector from April 2020. 

• A 2% UK digital services tax will come into force in April 2020 and is expected to raise £400million a year.    

 

Property 

• Further to the highlight of the Autumn 2017 Budget of Stamp duty land tax being abolished for all first time buyers, those first time buyers purchasing shared equity homes up to £300,000 will be eligible for the first-time buyer’ relief. Where the purchase price is between £300,001 and £500,000, SDLT is only payable on the value over £300,000. 

• From April 2019, any non-resident (whether an individual or an entity) disposing of an interest in UK commercial property will be subject to UK CGT. Currently, only disposals by non-residents of interests in UK residential property have been subject to UK CGT. 

• From April 2019 items that qualify for annual investment allowance (AIA) will be greatly increased from £200,000 to £1,000,000 for 2 years. 

• Lettings relief is limited to those properties in which the owner has a shared occupancy with the tenant.   

Tax Abuse and Insolvency 

• Following Royal Assent of Finance Bill 2019-20, directors and other persons involved in tax avoidance, evasion or phoenixism will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency

 • There aren’t many further details than the above at the moment, and it will be some time before Finance Bill 2019-20 is published (Royal Assent could be as late as Nov 2019). However, it seems that this would constitute a significant extension of the powers HMRC has to transfer liabilities from companies to director/shareholders under the thresholds set by PAYE Reg 80/81.  

Other Points of Interest  

• Self Employed or Employee – recent reforms were made to the public sector to tighten the rules aimed at treating self-employed contractors as employees. The Government is looking to open a consultation on the expansion of the reforms into the private sector. This will no doubt put greater responsibility on those who hire contractors to decide whether they should be treated as employees.  

 

• Within the Autumn Budget policy paper, the government states their intention to open a consultation on how individuals can still receive Entrepreneur’s Relief (ER) in instances where, as a consequence of further investment in their company, their shareholding is diluted to below 5%. One of the conditions of the current ER rules is that the individual must hold a ‘material stake’ in the business, being 5% or more.    


Signature Tax Newsletter August 2018

SigTax Newsletter August

Are you a Landlord?

Considering Incorporation ?

UK residential property has been a target for legislators in recent years. Immediately springing to mind are the provisions of ATED; ATED CGT; the 3% SDLT surcharge; CGT for non residents; the 8% “surcharge” on CGT rates; the restriction of relief for finance costs; the abolition of the wear and tear allowance; and the widening of the scope of Inheritance Tax.

Of all the recent tax changes the most controversial has been the introduction of Mortgage Interest Relief. Previously, individuals who took out a mortgage on a property were able to make a full deduction from gross profit of the interest payments to arrive at Net Profit. This is a huge disadvantage if you own property which is significantly geared. As the interest relief restrictions are being phased in over the years, more of your income will be subject to tax. In the Tax Year 2020/2021 only a 20% deduction will be allowed. However, the same deduction does not apply to companies* where the interest costs meets the wholly and exclusively condition.

Considering Incorporation?
If you own a property business through a partnership you will be able to transfer your rental business to a company but not without incurring CGT or SDLT charges. However, you may be able to transfer your business if certain conditions are met without incurring these charges.

Summary
A thorough analysis of the position on whether to incorporate a business should be undertaken. It is advisable to carry out a financial modelling exercise of the business as well as to factor in legal, commercial, taxation, administrative and refinancing costs.

R&D tax credits and GDPR

The Government has stated that data breaches are significant, whether they are minor and/or unintended regardless of the size of the company. Fines are likely to be significant as NCC Group, a global cyber security expert body, estimates that the total value of fines to UK businesses for data breaches in 2016 of just over #880k would have been more than #69 million under the incoming GDPR rules.

Our in-house expert, Steve Deighan explains; ‘There are often serious challenges finding data in (multiple) legacy software systems and actually finding where it has been stored. Additionally, deleting data is not as easy as it sounds as we have witnessed from Google’s experience following the EU court ruling which gave individuals a ‘right to be forgotten’. Again, there are technical issues in getting legacy systems to ‘forget’ individuals and their data and therefore, developing a robust IT security system is imperative to avoiding this.

What many of our Clients are not aware of is that research and development (R&D) into IT security systems and data deletion can often be eligible for R&D tax relief by simply adhering to the new rules and identifying appropriate qualifying expenditure.
R&D tax credits can help offset the expense involved in complying with GDPR, however you need to use an adviser who understands both the technical issues and the tax rules to be sure that your claim is eligible’
 

Steve can be contacted on info@signaturetax.co.uk

Requirement to Correct

What is the Requirement to Correct? 
HMRC has introduced new legislation called the Requirement to Correct. This requires UK taxpayers to make sure that all their foreign income and assets, where there might be tax to pay, have been declared to HMRC before the 30th September 2018. From the 1st October 2018, new, substantially higher penalties will apply for those who have failed to pay all the tax due on foreign income and assets. To avoid these new penalties, action must be taken now.  

Does it affect me? 
Many people may not realise that some straightforward actions, such as renting out a property abroad or transferring income or assets from one country to another, could mean having to pay tax in the UK. This includes having income from or an asset in the Channel Islands, Isle of Man, the Republic of Ireland, the EU or anywhere else in the world. These must all be declared to HMRC. 
Although the Requirement to Correct applies to people who pay tax in the UK, it could still affect you if you live abroad and pay tax outside of the UK, for example people who rent out their UK home whilst living in another country.  

What action should I take? 
If you are concerned that you haven’t told HMRC about foreign income or assets, or that you have transferred UK income abroad without paying the UK tax on it, you should make a disclosure to HMRC before the 30th September 2018.  
If you are confident that your tax affairs are in order, then you do not need to worry. If you are unsure, we recommend you seek advice from a professional tax advisor or agent. 

How do I make a correction to my tax affairs? 
The main route to let HMRC know about previously undeclared income or assets is the Worldwide Disclosure Facility through the Digital Disclosure Service. This is the final opportunity to make a disclosure before the penalties rise.  

Why act now? 
A disclosure or discovery after the Requirement to Correct deadline will be subject to much tougher Failure to Correct penalties. These penalties are much higher than the present penalties and start from a minimum penalty of 100% of the tax owed. There is also an Asset Based Penalty of up to 10% of the underlying asset for serious cases; and an additional penalty for situations in which HMRC can show the taxpayer moved their assets to avoid reporting.  

We would also like to make you aware that HMRC is beginning to receive an unprecedented amount of information about foreign income and assets under the Common Reporting Standard (CRS) exchange of information. By September 2018, more than 100 jurisdictions will be exchanging data with the UK under the CRS. The CRS data will provide HMRC with information on UK taxpayers’ bank accounts, investments and trusts held around the world. HMRC will use this information to open tax enquiries, issue tougher penalties, and take forward criminal prosecutions against those who avoid paying the tax they owe.  The Requirement to Correct period, from now until 30th September 2018, is the last opportunity to put things right before HMRC receives the CRS data and the new penalties apply.

Hammond’s Autumn Statement 2016: No more Autumn Statement?

In his first –and last– Autumn Statement, the new Chancellor outlined prospective plans for the British economy, in light of the decision to leave the EU. There was a great deal of interest surrounding the announcement, as it was also the first formal economic address of the Theresa May Government.

The statement was received positively by some, who felt that Hammond bore early Christmas presents: increases to tax allowances, the national living wage, and a new savings bond. It also included major overhauls of housing and benefits.

Autumn Statement 2016: Key Measures

The Autumn Statement is to be abolished. From 2017,  it will be replaced by an Autumn Budget; Spring Statements will begin in 2018.

Tax

  • Tax-free Personal Allowance is set to rise to £11,500 in April and £12,500 by the end of parliament.

  • The Basic Rate threshold will increase to £50,000 by 2020.

  • Corporation Tax is to fall to 17% as planned.

  • The National Living Wage will increase from £7.20 to £7.50 in April 2017.

  • Measures will be introduced to clamp down on tax avoidance schemes.

  • Insurance premium tax is set to rise from 10% to 12%.

  • Tax savings on salary sacrifice and benefits in kind are to be stopped.

  • Rural Rate Relief is to be increased to 100%, giving SMEs a tax break worth up to £2,900. 

  • The charges for Annual Tax on Enveloped Dwellings (ATED) will rise in line with inflation for 2017/18.

Savings

  • A new savings bond will be introduced by NS&I. Savers can deposit up to £3000, with an interest rate of 2.2% over three years. Two million account holders are expected to benefit.

Benefits

  • The Universal Credit earnings taper rate is set to fall from 65% to 63% from April 2017. The rate affects the amount of support paid out to workers on in-work benefits. This is expected to cost the economy £700m.

NI

  • NI contributions made by employers and employees are to be equalised at £157 per week from April 2017.

Public Finances and Spending

  • Borrowing will be higher due to lower growth. The Office for Budget Responsibility has forecasted that government borrowings will total £68.2bn this year. It predicts £59bn to be borrowed in 2017/18, subsequently falling to £46.5bn, £21.9bn, £20.7bn and reaching £17.2bn in 2021/22.

  • Public spending this year is to constitute 40% of GDP – down from 45% in 2010.

  • Plans for a Budget surplus by 2020 have been scrapped, in view of the uncertainty facing the economy and slower growth forecasts.

  • There is to be a £23bn fund for innovation and infrastructure over the next 5 years.

  • An additional £400m will be poured into venture capital funds, to help start-ups develop, and unlocking £1bn of new finance for growing firms.

  • From April 2017, there are to be restrictions for corporate interest relief.

  • Research and development (R&D) will see an extra £2bn a year in funding by 2020.

Motoring

  • Fuel duty rise has been frozen for the seventh year, at a cost of £850 million. This will save the average driver £130 a year.

Housing

  • A housing infrastructure fund of £2.3bn will be introduced for 100,000 new houses in areas of high demand.

  • £1.4bn is to be aimed at delivering 40,000 affordable new homes.

  • £1bn will be used to help upgrade Britain’s broadband to “full fibre” to benefit people in rural areas. £400m is to be used for the purpose of innovation.

  • Upfront fees to tenants, often imposed by lettings agents in England, are to be banned. This will happen ‘as soon as possible’, the chancellor said.

 

If you require any tax advice on changes on the budget, feel free to give us a call for a no obligation chat with one of our specialists!

Budget 2016: significant changes to tax announced

The Chancellor has delivered the budget for the 2017 financial year with some significant tax changes being announced. Here are some of the key changes to be aware of:

  • The higher rate threshold for income tax (the amount that individuals start paying tax at 40%) will increase to £45,000 from April 2017.
     
  • From April 2017, there will be a new £1,000 tax free allowance for property rental income.
     
  • Capital Gains Tax rates will be lowered to 20% for higher and additional rate taxpayers, and 10% for basic rate taxpayers. The rates are currently 28% and 18% respectively. The changes will be effective from the tax year 2016/2017. However, the lower rates will not apply to gains on the sale of residential property.
     
  • Corporation tax will be cut to 17% by 2020.
     
  • Class 2 National Insurance contributions will be scrapped from April 2018. From April 2018, individuals will only have to make Class 4 National Insurance contributions in respect of their self-employment income.
     
  • Stamp Duty Land Tax rates will be reformed  for commercial property from 17 March 2016. The current rates apply to the whole transaction value, but this will be reformed so that the rates apply to the value of the property over each band in a similar way to residential property. The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000.
     
  • Entrepreneurs’ relief will be extended to external investors in unlisted trading companies. This will remove the requirement to be an employee or hold 5% or more of the shares for unquoted shareholdings.

  • The rate of tax charged on loans to participators (currently 25%) will be 32.5% from 6 April 2016.

  • Non-residential property developers will be brought into the scope of UK tax on the profits earned from developing UK property, regardless of the residence of the company carrying on the trade. This will ensure that a non-resident is subject to tax on profits from a UK property trade.

No Need to Google it: the myths of the google tax deal explained

After The Commons’ Public Accounts Committee stated that HMRC’s £130 million settlement with Google for underpaid corporation tax was ‘disproportionately small’, the spotlight on Google’s relatively small corporation tax bills continue to anger politicians and the general public.

Despite the recent publicity, many are still unsure as to how Google was able to engineer such a favourable deal, given the size and success of the company. It is easy to forget that Google’s tax affairs are compliant with UK tax law and consistent with international tax agreements.

HMRC’s View
A recent HMRC policy paper, Taxing the profits of companies that are not resident in the UK,  states the following:

Having a UK website does not mean that a non-resident company has either a fixed place of business in the UK or a dependent agent in the UK. All of the trading activity could be taking place outside the UK.

 Most multinational businesses are not single companies, but a group of companies, only some of which will be operating in the UK.

 For example, sometimes a company from outside the UK sells to UK customers via the internet. Another group company in the UK provides warehousing, distribution or other services and support to the selling company. Where this takes place, the UK service company will be taxed only on the profits of its own business, i.e. the services it provides to the selling company.

 This is not tax avoidance: it is simply the way that Corporation Tax works, i.e. it applies to individual companies.

 By making this statement, HMRC have virtually conceded that there is very little they can do to prevent the tax arrangements of multinational companies such as Google, so long as the arrangements are allowed by current UK tax law.

Google and Ireland
As hinted by HMRC, the problem with Google’s products from a tax perspective is that they are not tangible – the services are all online-based, meaning they cover every country in the world. Therefore, assessing the UK profit is difficult.

In Google’s case, the UK sales are made by and recorded by its Irish subsidiary, which owns licenses to Google’s intellectual property.

The Settlement
Contrary to public opinion, the recent settlement with Google had very little to do with challenging the main element of their tax structure outlined above.

The crux of the settlement was focused on one key aspect of the relationship between Google’s UK company and Google Ireland; the amount that the UK company pays the Irish company to carry out its engineering work.

The ‘transfer pricing’ rules in the UK restrict the manipulation of pricing in order to obtain a tax advantage between entities in different countries (by, for example, charging more or less than the commercial rate to show a particular profit). The settlement has agreed to rectify this, without touching on any other aspect of the relationship with Google’s Irish company or its other subsidiaries.

So despite the uproar, the settlement is the result of one particular technicality, which explains why, in the grand scheme of things, it is far short of what most people were perhaps expecting.   

Closing the door on residential tax relief

In recent months, the government has made announcements that will see significant changes to tax and residential property:

Non-residents and Capital Gains Tax
Subject to certain exemptions, all non-residents will be subject to UK CGT on gains arising post 5 April 2015 on the disposal of UK residential property. The only concession is that the cost of the properties for CGT purposes will be rebased to their market value at 5 April 2015, meaning no tax will be paid on an increase in value prior to that date.

Restriction on interest deductions
New measures have been introduced that restrict relief for finance costs on let residential properties. These are being introduced gradually from 6 April 2017. From 2020, tax relief will only be given at the basic rate, meaning the measures will have a harsh impact on higher and additional rate tax payers.

Unlike the current rules which stipulate that mortgage interest can be deducted in arriving at the profit or loss on a property, the new rules will calculate relief for the mortgage interest separately. For higher and additional rate taxpayers, this will work to reduce the allowable deduction for mortgage interest, so that any relief is restricted to the basic rate band (20%).

Inheritance Tax and Foreign Domiciled Individuals
From April 2017, all UK residential property held directly or indirectly by foreign domiciled persons will be brought into charge for Inheritance Tax ("IHT") purposes, even when the property is owned through an indirect structure such as an offshore company or partnership. This could result in foreign domiciled persons being liable to pay a 40% tax liability in respect of the market value of UK residential properties held (directly or indirectly) by them on their death.

Additional 3% Stamp Duty
Under proposals announced in the Autumn Statement, additional Stamp Duty charges could apply to the purchase of second homes. From 1 April 2016, a surcharge will be added to all Stamp Duty rates for residential property, where the purchaser already owns one or more UK properties. The stamp duty surcharge will lift each band by 3%. For instance, properties worth between £125,000 and £250,000 currently attract stamp duty of 2%, but the changes mean those with more than one property will pay 5%.

It is proposed that the higher rates will apply to all contracts entered into after 25 November 2015, where completion takes place on or after 1 April 2016.

 

Finance Bill 2016: A Summary of the Key Tax Changes

Now that the draft Finance Bill 2016 has been introduced, we have taken the opportunity to recap on the key tax changes that have been proposed: 

Savings and Dividends

  • New ‘Personal Savings Allowance’ - This will apply a 0% tax rate for savings up to £1,000 , such as interest, paid to an individual (or £500 for individuals with any higher rate income). The PSA will not be available to individuals with any additional rate income.
  • Dividend Taxation – The dividend tax credit will be repealed and replaced by a new ‘dividend allowance’, similar to a personal allowance but specific to dividend income, of £5,000. The dividend tax rates thereon will be 7.5% at the basic rate, 32.5% at the higher rate and 38.1% at the additional rate.

Benefits in Kind

  • Benefits worth £50 or less, paid for by an employer, will no longer trigger a tax and national insurance bill for staff.

Interest Relief

  • Tax relief for mortgage interest – the amount of mortgage interest that buy-to-let landlords can deduct in calculating their taxable rental income will be restricted to the basic rate band. Currently, landlords can deduct the full amount of interest paid when calculating their taxable profits. However, the higher rate relief will be phased out gradually over a period of 5 years, until 2021 when relief will only be given at basic rate (20%).

Pensions

  • The lifetime allowance (the amount of pension savings that can attract tax relief in an individual’s lifetime) will be reduced to £1 million from the 2016-2017 tax year. The limit will then increase in line with the Consumer Price Index. 

Capital Allowances

  • Enterprise Zones – The Autumn Statement confirmed that legislation will be introduced to establish 26 new Zones, ten of which will provide for enhanced capital allowances for qualifying expenditure. The enhanced capital allowances will be available for expenditure incurred on or after 25 November 2015.
  • Wear and Tear Allowance - The Wear and Tear Allowance will be replaced by a new provision for a deduction for the replacement of furnishings. Instead of W & T (which allowed for a flat 10% deduction from rental income), a deduction will be available in calculating the profits of a property business for expenditure on furniture, furnishings, appliances (including white goods) and kitchenware, where the expenditure is on a replacement item provided for use in the dwelling. The deduction will be available for expenditure incurred on or after 1 April 2016 for corporation tax payers and 6 April 2016 for income tax payers. This deduction will not be available for furnished holiday lettings because capital allowances will continue to be available for them.

Inheritance Tax

  • Domicile - The existing deemed domicile provisions for inheritance tax will be brought in line with the proposed new deeming rules for non-domiciled individuals who are long term resident in the UK. This means that an individual will be deemed UK domicile if they are resident in the UK for 17 out of the previous 20 tax years. The legislation will also ensure that anyone born in the UK with a UK domicile at birth and who later acquires a domicile of choice elsewhere, will be deemed to be UK domiciled for tax purposes if they are resident in the UK in at least one of the previous two tax years.
  • Residence Nil Rate Band - A residence nil-rate band will be available when a person downsizes or ceases to own their main residence. In addition to the £325,000 nil rate band already available (the amount an individual can receive tax free) there will be an additional nil-rate band where a family home is passed on to the surviving children.  

Stamp Duty

  • As announced at Autumn Statement, the government will introduce higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties, including buy to let properties and second homes, from 1 April 2016. The higher rates will be 3 percentage points above the current SDLT rates. 

Update: R & D and Small Companies

It will be easier for small companies to make claims for research and development tax relief, under new HMRC proposals.

From November 2015 HM Revenue and Customs (HMRC) are introducing Advance Assurance for companies that claim or want to claim Research and Development (R&D) tax relief.

If Advance Assurance is granted, for the first 3 accounting periods of claiming for R&D tax relief, HMRC will allow the claim without further enquiries.

Applying for Advance Assurance is voluntary and you can do this at any time before the first claim for R&D tax relief.

Companies will still be able to apply for R&D tax relief without Advance Assurance.


Advantages                                                                 

  • Companies will know whether or not their activities qualify for tax relief in advance, allowing them to plan ahead. This may also increase the chances of investment and funding.
  • Advance Assurance will remove the time-consuming burden of resubmitting claims, for a three year period.

Conditions

Your company can apply for Advance Assurance if it’s planning to carry out, or has previously carried out R&D. It has to meet certain conditions which are that:

  • it has not previously made an R & D claim;
  • it is classified as a ‘small company’, that is, it has an annual turnover of £2 million or less and has fewer than 50 employees.

HMRC won’t offer Advance Assurance if your company:

  • entered into a Disclosable Tax Avoidance Scheme (DOTAS)
  • is a corporate serious defaulter

Application

An application can be made by either the company or a registered agent who deals with their tax affairs.

To apply, complete form CT R&D (AA), at the following link:

https://public-online.hmrc.gov.uk/lc/content/xfaforms/profiles/forms.html?contentRoot=repository:///Applications/CorporationTax/1.0/CTRD&template=CTRD.xdp

When HMRC contacts you to discuss your application, they’ll need to talk to a company director or an employee (for example, research manager), however your agent will be able to contribute.

When making an application, you'll need to include:

  • your company accounts;
  • your company registration documents (from Companies House);
  • HMRC correspondence;
  • previous company tax returns (not needed for new companies);
  • the name of a main contact - someone with a direct knowledge of your company R&D (for example, research manager or company director) and who may be required to discuss the application with HMRC.

For future periods, HMRC will contact someone at the company. This is to check that the R&D matches the details in the Advance Assurance application form.

Decision

If HMRC is satisfied that your company activities are within the rules of the scheme they’ll send a letter confirming their decision.

If your company is granted Advance Assurance for 3 accounting periods HMRC will send you an agreement letter. This letter will explain your company responsibilities.

If your company is not given Advance Assurance you will receive a letter giving you the reasons why.

Autumn Statement: changes to stamp duty announced

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One significant tax announcement in the Chancellor’s Autumn Statement was the plans to further increase the tax burden on those planning to buy additional homes in the UK.

From April 2016, a surcharge will be added to all Stamp Duty rates for residential property, where the purchaser already owns one ore more UK properties. The stamp duty surcharge will lift each band by 3%. For instance, properties worth between £125,000 and £250,000 currently attract stamp duty of 2%, but the changes mean those with more than one property will pay 5%.

It is not yet clear how a second home will be defined and exactly who will be caught. For example, married couples may only be entitled to one home as they are likely to co-own their existing property.

But the measures will definitely hit buy-to-let landlords who are looking to expand their property portfolios. In addition to the stamp duty changes, buy-to-let landlords will also see tax relief restricted for mortgage interest from April 2017.

Dates For Your Diary

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Here are some tax and accounting deadlines you need to be aware of over the next three months:

25 November 2015

  • The Chancellor will deliver this year's Autumn Statement.

 30 November 2015

  • Corporation tax self-assessment returns for accounting periods ended 30 November 2014 need to be filed with HMRC.
  • Private companies with accounting periods ended 28 February 2015, and public companies with accounting periods ended 31 May 2015, need to file their accounts with Companies House.

 30 December 2015

  • Deadline for filing a 2014/15 Income Tax Return online in order for HMRC to collect any tax underpaid via the 2016/17 tax code, if the amount owed is less than £3,000.

 31 December 2015

  • Corporation tax self-assessment returns for accounting periods ended 31 December 2014 need to be filed with HMRC.
  • Private companies with accounting periods ended 31 March 2015, and public companies with accounting periods ended 30 June 2015, need to file their accounts with Companies House.

 31 January 2016

  • Deadline for filing Income Tax Self Assessment returns.
  • Deadline to make Income Tax balancing payments for the 2014/15 tax year and first payment on account for 2015/16 tax year.
  • Corporation tax self-assessment returns for accounting periods ended 31 January 2016 need to be filed with HMRC.
  • Private companies with accounting periods ended 30 April 2015, and public companies with accounting periods ended 31 July 2015, need to file their accounts with Companies House.

 If you miss any of the above deadlines, you could be liable to pay penalties.

Video Game Tax Relief: Making The Most Of A Claim

Video games tax relief (VGTR) is a generous relief available for video game development companies. The following summarises some of the key areas to think about for companies that are eligible for the relief:

  1. Establishing clear divisions in labour - the relief applies to expenditure incurred on designing, producing and testing the video game. To simplify the allocation of expenditure it is wise to separate each stage of the development process.
     
  2. The costs that don’t qualify - initial concept design, debugging and maintenance should be undertaken as cost-effectively as possible to mitigate the fact that they do not qualify as costs for VGTR.
     
  3. Loss separation - it is worth keeping income-generating activities distinct from loss-making activities so that any loss can easily be quantified and used. The ‘surrenderable loss’ as a result of VGTR can provide a cash flow advantage to the business, in the form of a repayable tax credit.
     
  4. Subcontractor limitations - a cap of £1 million applies to the amount of the relief that can be claimed for sub-contracted work carried out.
     
  5. Key deadlines - VGTR claims may be made up to the first anniversary of the company’s filing date for the accounting period in question.
     
  6. The interaction with R & D – many video game companies are also entitled to claim research and development tax relief. However, for SMEs, this cannot be claimed in addition to VGTR, so a cross-benefit analysis of each relief may have to be undertaken when deciding which to claim.  Large companies eligible for the R&D must claim that relief in priority to the VGTR when eligible for both. 
 

Talking Tax

Next week we launch a series of tax events across the UK, with our experts and guest speakers breaking down a range of complex tax issues that may affect you in the coming months.

Topics covered will include:

 - the overhaul of the non-UK domicile legislation
 - buy-to-let landlords
 - Inheritance Tax
 - international offshore structures relating to UK property development
 - changes to dividends

There will also be a Q&A session, giving you the chance to speak directly to our Chartered Tax Advisors and experts.

All events start at 6.30pm, followed by drinks and canapés. To find out more, and RSVP please select your preferred location below. 

Please note these events have a limited capacity, and book up quickly. We encourage you to RSVP to avoid any disappointment.
 

Plans to make R & D claims easier for small businesses

The Government has launched a new plan outlining how it proposes to make it easier for small businesses investing in research and development (R & D) to claim tax relief. Small and Medium Enterprises (SMEs) accounted for over 80% of all R & D claims in 2013-14, an increase of 19%.

The two-year plan is a response to an HMRC consultation on R & D, and aims to increase take-up of R & D tax relief through raising awareness of the relief among small businesses, as well as making it easier for them to make a claim.

R & D tax relief rewards companies for investment in research and development through either an enhanced deduction of corporation tax or repayable tax credit.

The Plan 

The plan, ‘Making R & D Easier: HMRC’s plan for small business R & D tax relief’, sets out the following details:

  • From November, small companies (those with a turnover under £2 million and fewer than 50 employees) will be able to seek advance assurance on R & D tax relief. This will give them greater certainty and enable them to plan their finances effectively.
  • HMRC will explore ways to improve its communication around R & D tax relief, including looking at ways to use data and work with other Government agencies to identify companies that have carried out R & D but have not claimed relief.
  • Interactive guidance will be developed with stakeholder involvement

An HMRC evaluation on R & D showed that for each £1 of tax foregone by R & D tax relief, there was between £1.53 and £2.35 of additional R & D investment. Given these statistics, the Government is keen for more small businesses to take advantage of the reliefs available.

Enterprising Investment that is also tax efficient

EIS presents a great opportunity for the company and investor, and here’s why…

The Enterprise Investment Scheme has been in existence for a number of years, and presents a very tax efficient method of investment.

EIS provides tax relief for a subscription of shares in a qualifying company, and could yield the following benefits for the individual:

  • 30% income tax relief on the amount invested;
  • A capital gains tax exemption when disposing of the shares;
  • A deferral of other capital gains when the equivalent amounts are reinvested in a qualifying EIS company; and
  • If the disposal of shares results in a capital loss, that loss can be offset against general income such as a salary and bank interest.

For a 45% taxpayer, the combination of EIS income tax and loss relief can limit the maximum economic loss to 38.5% for an EIS investment.

The scheme is predominantly aimed at smaller companies involved in riskier industries. These companies often require an investment of capital to kick-start their business. Therefore, EIS provides a synergy in its benefits to both the investor and target company.

As the requirements are very specific in targeting smaller companies involved in trading activities, the scheme is actively encouraged by the Government as a way of bringing about investment.

Increase in Inheritance Tax Receipts

The latest figures on tax receipts show that the 2012/2013 tax year saw an increase of 15% in the amount of Inheritance Tax collected by HMRC, compared with the previous tax year.

However, whilst the total Inheritance Tax paid rose from £2.65 billion to £3.05 billion in 2012-13, the overall proportion of estates that are liable for IHT has remained about the same.

Of all the estates above the £325,000 threshold (the amount which is free from Inheritance Tax) 42 per cent were from London and the south east, meaning those areas remain the hot spot for Inheritance Tax in the UK.

In the Summer Budget the chancellor announced that from April 2017 individuals will be entitled to a family home allowance in addition to the existing £325,000 inheritance tax allowance.

The family home allowance will be phased in and will be up to £1 million for a married couple or civil partnership by the 2020/2021 tax year.

But despite the reforms, it is still crucial to plan for Inheritance Tax in advance to avoid an unnecessarily large tax bill.

Great news for property investors & developers!

Brandon Lewis,    Minister of State for Housing and Planning

Brandon Lewis, 
Minister of State for Housing and Planning

The Government has announced that it will make 'permitted development' permanent. Originally permitted development rights were due to expire in May 2016.

Permitted development rights have enabled offices to be converted to new homes without having to apply for planning permission.

In addition the Housing and Planning Minister Brandon Lewis today announced the government will expand the scheme to a allow offices to be demolished, not just converted, and extended to light industrial and launderettes for new homes.

The move will provide thousands of new homes, and make the best use of existing buildings including some that are underused and neglected – while at the same time protecting the green belt.

It is estimated that since they were first announced in 2013 over 4,000 conversions were given the go-ahead.

In addition those who already have permission will have three years in which to complete the change of use – ending potential uncertainty for developers and enabling the development of much needed homes.

Those areas that are currently exempt from the office to residential permitted development rights will have until May 2019 to make an Article 4 direction if they wish to continue determining planning applications for the change of use.

For clients who are property investors and developers this is creates a lot of new opportunities which Signature Tax can help with both in sourcing the deals, arranging the finance and working with our partners to structure the deals.

For further information contact Signature Tax on info@signaturetax.co.uk or 020 3815 707

New Grants For the Video Game Industry

The Government has announced that UK video game businesses are to receive a £4 million funding boost to aid the industry’s growth.

The fund is particularly aimed at helping start-ups and will reinforce the government’s message in backing the industry.

Over the four years from 2015 to 2019, the Video Games Prototype Fund will offer grants to support video games projects.

As part of the plans, grants of up to £25,000 will be available to help new games development businesses create working prototype games, and up to £50,000 for a limited number of projects to take their ideas beyond the prototype phase.

The grants will form part of wider government-backed tax relief for the sector, the most eye-catching of which allows businesses to surrender their losses in video game development for significant tax credits.

It is hoped that the measures will attract further investment in an industry that is already worth £76.9 billion per year to the UK economy.