The New 'State Pension Top Up' Begins Today

From today, a new scheme is being launched helping anyone reaching State Pension age before 6 April 2016 to safeguard their long-term financial security.

The new 'State Pension top up' scheme allows people reaching state pension age before 6 April 2016 to top up their additional state pension by means of a new Class 3A voluntary National Insurance contribution. The class 3A contribution will be made in the form of a lump sum payment. Guidelines on how much the lump sum payment will yield can be found using the calculator at the following link:                                                                                                               

https://www.gov.uk/state-pension-topup.

Each class 3A contribution will result in the acquisition of a unit of extra pension that will increase the contributor’s additional state pension by £1 a week up to a cap of £25. It is being introduced as an option for existing pensioners to increase their state pensions, ahead of the introduction of the new State Pension in April 2016.

Those expected to benefit most are low-earning workers, carers and the self-employed, who have always been excluded from the state second pension and state earnings related pension scheme.

Class 3A will not replace the existing Class 3 Voluntary National Insurance Contributions, but will sit alongside it as an additional voluntary National Insurance.

Eligibility

People are eligible if they are entitled to a UK State Pension and have already reached their State Pension age or reach it before 6 April 2016. This includes men born before 6 April 1951 and woman born before 6 April 1953.

It is available from 12 October 2015 until 5 April 2017 and is an opportunity for people to increase their guaranteed retirement income for the years ahead.


The end of Income Tax self-assessment as we know it?

Earlier this year, the previous government announced that the annual self-assessment tax return will be replaced with individual digital accounts. With the Conservatives taking a majority government in the 2015 election, the plans will now have to be put into practice.

The move could take effect as early as next year and the government claim it will cut the time required to produce an income tax return from 40 minutes to 10 minutes.

How will it work?

HMRC will digitally combine the tax data for millions of people through one programme, which can be checked by users online at their leisure. At the centre of this will be the option to link a tax account to an individual’s bank account, eliminating the need for end of year turmoil.

It is intended that HMRC will automatically use the information it holds, along with data from third parties, to populate the digital accounts, with the aim that taxpayers simply log-in and check the details are correct. Business accounts are also expected to be engulfed by 2020.

The service will work via a website. Taxpayers will be able to sort their affairs at any point during the year online, avoiding the dreaded last-minute rush. However, it will also be reassuring to many that agents will still be able to manage their affairs through the digital account to ensure that the information is correct.

What if I still want to send paper returns?

For now, there are no plans to scrap paper returns completely. If taxpayers still wish to file their self-assessment in this way, then they will be able to, but the earlier deadline will still apply.

What is yet to be announced

HMRC are expected to issue further information later this year. The questions that are yet to be answered are:

  • How frequently will information need to be uploaded/checked/confirmed on the digital accounts?
  • Will there be penalties if taxpayers approve data which HMRC have inputted in error?
  • Will there still be a deadline date?
  • How will HMRC be able to provide confidence that errors will be minimised?

At this stage, the finer details are still unknown, but the move to digitisation is clearly an incoming tide that cannot be held back.

 

Are your capital allowances short lived?

If you are buying assets with a short economic life, a ‘short life asset’ election may be beneficial to you.

 Short life asset elections are an alternative form of capital allowances available on assets that are only expected to be in use by the business for 8 years or less. The most common type of asset is computer equipment, but may even extend to certain types of machinery and tools with a short usage span.

The relief is designed for assets with a high rate of depreciation. Where this is the case,  short life assets can be a more beneficial way of claiming capital allowances as relief will be accelerated where the asset is sold or scrapped from the business.

In this situation, it is likely that the business will benefit from a ‘balancing allowance’, whereby the difference between the disposal value and any leftover capital allowances is brought into account, effectively accelerating the tax relief for the asset in one tax period. If an SLA election is not made, relief will be restricted to a much slower rate, and may still be catching up after the asset is sold.

Example

A business buys machinery that needs renewing every 3 years for £270,000. It then sells the machine 3 years later for £20,000. The depreciation suffered is £250,000, but if the asset was placed in a general plant and machinery capital allowances pool, the relief after 3 years would have only been £121,000.

The short life asset election brings forward the remaining available allowances, by applying a balancing allowance equal to the difference between the disposal proceeds and any remaining allowances available. An additional £129,000 of tax relief is then given in the year of disposal, meaning the tax relief catches up with the depreciation suffered.

Making a claim

To make a claim on a particular asset:

  • The asset should be put into a separate capital allowances pool;
  • The election must be made within two years of the chargeable period in which the asset was bought; 
  • It must specify the asset, the cost and the date of expenditure.

Short life assets may be particularly attractive for businesses that have used up their annual investment allowance in a tax year (currently £500,000 for the period 1 April 2014-31 December 2015 and £200,000 for periods after) . If AIA is available, there is no merit in using an SLA election as AIA gives 100% relief up front. But in years where businesses incur high capital expenditure, it is a very useful alternative. 

Dates for your diary

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

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30 September 2015

  • Corporation Tax Self-Assessment returns for accounting periods ended 30 September 2014 need to be filed with HMRC.
  • Private companies with accounting periods ending 31 December 2014, and public companies with accounting periods ending 31 March 2015 will need to file their accounts with Companies House.
  • Deadline for businesses to submit claims to reclaim EU VAT incurred during 2014 

 1 October 2015

  • Returns for properties now caught by ‘Annual Tax on Developed Dwellings’ (ATED) meaning those with values between £1 million and £2 million, will need to be submitted for 2014/15 tax year.

 5 October 2015

  • Deadline to notify HMRC if you need to file an income tax self-assessment return for the tax year ended 5 April 2015.

 31 October 2015

  • Deadline to file paper income tax self-assessment returns for 2014/15 tax year. The deadline is extended to 31 January 2016 if you are able to file electronically.
  • Deadline to pay ATED for properties of values between £1 million and £2 million.
  • Corporation tax self-assessment returns for accounting periods ended 31 October 2014 need to be filed with HMRC.
  • Private companies with accounting periods ended 31 January 2015, and public companies with accounting periods ended 30 April 2015, need to file their accounts with Companies House.

 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.

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

Received an ‘accelerated payment notice’? – here are ten things you need to know:

An accelerated payment notice (APN) is a requirement to pay an amount on account of tax or National Insurance Contributions (NICs), issued to taxpayers that are involved in avoidance schemes disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, or counter-acted under the General Anti Abuse Rule (GAAR).

The effect of the notice is to pay an amount calculated by HMRC relating to the tax advantage up front. This removes the cash flow advantage enjoyed by users of tax avoidance schemes.

Here are ten things you need to know if you have received an APN:

1. You must pay within 90 days
You have 90 days to pay the amount shown on the APN, unless you make representations, in which case the period may be longer. The payment doesn’t have to be made in one go as long as it is all paid by the due date.

2. Don’t ignore it
Failure to pay an APN by the due date could lead to late payment penalties or surcharges becoming due and potential enforcement action being taken to recover the tax or NICs. So make sure that you take action and pay the APN promptly.

3. Problems paying
If you think you will have problems paying the APN you should contact the HMRC telephone number shown on the notice, and they may be able to arrange a payment plan with you.

4. You may not get all your APNs at once
APNs are being issued on a scheme by scheme basis and so, if you are in a number of schemes, you may not get all of the APNs that HMRC plans to issue at the same time.

5. You can receive more than one APN
APNs are sent out for each year of the avoidance scheme you are in and for each type of tax involved. For example if you have used an employment scheme for two years and that scheme gives both a tax and national insurance advantage you may receive up to four APNs.

6. Paying the APN is not settling your tax affairs
The APN will only cover the tax or NICs advantage relating to the specific avoidance scheme covered by the APN. The amount shown may not be the final liability agreed, which may be larger or smaller than the amount of the APN. It will not include any interest, penalties or other tax that may be due in the year. Therefore when the enquiry or appeal is finalised, there may be additional amounts to pay.

7. Appeal rights
You have a right to make representations against the APN. You also have a right to appeal against the underlying tax or NICs that are in dispute.

8. You can object to an APN under specific circumstances
If you feel the amount quoted is incorrect or the conditions have not been met, you may make a representation which HMRC will consider. Representations should be made in writing to the address shown on the notice, within the 90 days before payment becomes due. If you do make a representation, HMRC will write to you setting out the results of their review. The response to your representation will tell you what you need to do next.

9. The amount due on an APN may be different to a settlement opportunity calculation
If you receive an APN at the same time as a settlement opportunity is in place, the value of the APN will not necessarily be calculated on the same terms offered in the settlement opportunity. Settlement opportunity calculations may also include interest and penalties, and will therefore, not necessarily be the same figure.

10. You can still settle your affairs after you’ve received an APN
If you want to settle your tax affairs and you’ve received an APN, you should contact HMRC as soon as possible. You must still pay the APN by the due date to avoid late payment penalties, but any payment received will be treated as a payment on account of the final liability and will stop the interest accruing on the underlying debt from the date it was received.

 

Keeping it in the family: changes to inheritance tax on the family home

One of the more welcoming announcements in the summer budget was the introduction of a new nil-rate band for inheritance tax on residential property. The relief will apply to family homes and will potentially increase the tax free element to £1 million.

How will it work?
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. This band will begin at £100,000 for the tax year 2017/2018 and increase gradually until 2020 to £175,000. However, the band will be scaled down where the value of an estate exceeds £2 million.

Where an estate consists of more than one property, there is flexibility to nominate the property that the additional band will apply to (provided the nominated property has been the residence of the deceased at some point).

Both nil-rate bands can be transferred between spouses, giving a potential relief of £1 million by 2020.

When will it be introduced?
Once the Finance Bill is passed, the measure will take effect from 6 April 2017.

Happy Eid!

Happy Eid to all those celebrating! 

VAT refund scheme - claims due by 30 September

If your business incurred overseas VAT in another EU country during 2014, you may be entitled to a refund through the ‘VAT refund scheme’. A claim must be made by 30 September 2015.

The claims can be made by businesses that:

  • Are not VAT-registered in the relevant EU country;
  • Don’t have a place of business in the EU country;
  • Make no supplies other than those relating to the transport of goods, and the recipient pays VAT on them.
 

WHAT CAN BE REFUNDED
A refund is available for the VAT incurred on most goods and services bought for the business. However, the amount that can be reclaimed depends on the other EU country’s rules for reclaiming VAT, and each EU country has set a minimum amount that can be reclaimed.

Refunds are not available where goods are brought into the UK from another EU country, or on goods bought for resale in the UK.

MAKING A CLAIM
Claims can only be made by the business or their accountants using the HMRC online VAT services. HMRC then pass the claim on to the respective EU country in which VAT has been incurred. 

Working in the creative industries..? Tax relief may be available.

If you work in the creative industries you could be entitled to specific tax reliefs. Also known as cultural industries, creative industries refers to a range of economic activities such as video games, design, new media, television and film production, theatre and orchestra.

The creative industries is now worth £76.9 billion per year to the UK economy, and the government is keen to encourage more creative business activity through a variety of tax reliefs. Specific tax reliefs already exist to encourage further investment in creative industries. These work in a similar way to the less specific R & D tax reliefs, but are often left unclaimed by businesses who are simply not aware of the potential tax savings.

What you could be claiming

Provided the company meets the requirements of a qualifying creative sector company, it could be entitled to:

  • An enhanced deduction from taxable profits or;
  • If it is loss making, a repayable tax credit.

The costs that are taken into consideration are those associated with, for example, pre-production, design and testing.  Therefore, it is just as important to retain the records of such expenditure if you are going to make a claim for the reliefs.

These reliefs are actively encouraged by the government and provide a great cash flow opportunity through potential tax savings.

Current Consultations - will you be affected?

HMRC are holding a number of consultations before new government legislation is enacted. This is your opportunity to provide any feedback on the following areas:

 

Wear and tear
Clarification has also been sought for changes to the wear and tear allowance announced in the summer budget. The government wants to scrap the nominal 10% relief for a ‘replacement furniture relief’, which will give relief based on costs actually incurred. The deadline for this consultation is 9 October 2015.

https://www.gov.uk/government/consultations/replacing-wear-and-tear-allowance-with-tax-relief-for-replacing-furnishings-in-let-residential-dwelling-houses


Large business tax compliance
This will focus on measures that will deter businesses from aggressive tax planning or refusal to co-operate with HMRC in an open way. The deadline for this is 14 October 2015.

https://www.gov.uk/government/consultations/improving-large-business-tax-compliance


Termination payments
The tax laws surrounding the treatment of termination payments is currently very complicated. This consultation looks at proposals that will replace the current rules with a simpler smaller initial exemption, that would depend on length of service. The consultation will end on 16 October 2015.

https://www.gov.uk/government/consultations/simplification-of-the-tax-and-national-insurance-treatment-of-termination-payments


Offshore tax evasion
The measures for clamping down on offshore tax evasion have been growing in the last couple of years. There is currently a four-part consultation on the issues regarding the strengthening of the powers to deal with evaders, focusing on new criminal offences and civil sanctions. The deadline for these consultations is 8 October 2015.

https://www.gov.uk/government/consultations/tackling-offshore-evasion

A full list of HMRC consultations can be found at:
http://bit.ly/1lYXgjx

Unpacking the changes for buy-to-let landlords

George Osborne announced significant changes in the recent budget for buy-to-let landlords. The changes will affect the amount of tax relief landlords are able to claim on their let properties.

Previously, landlords who had acquired a property that was financed by a mortgage, were able to deduct the costs of the mortgage interest when calculating their taxable profit. This left many people in a favourable position, as the interest element of a mortgage was usually quite considerable.

But for many, the relief will be clawed back. Osborne’s announcement means that the amount landlords are able to deduct will be restricted to the basic rate tax band (20%). As the majority of buy-to-let landlords are likely to be higher rate payers, this will affect a lot of people. The higher rate relief will be phased out gradually over a period of 5 years, until 2021 when relief will only be given at the 20% band. It is worth pointing out that this is exactly the same relief that a company would be entitled to, as it mirrors the current corporation tax rate.

The restrictions on claiming mortgage interest were announced in conjunction with changes to the wear and tear allowance. Previously, wear and tear could only be claimed if the residential letting was on a furnished basis. However, the new rules override the importance of whether a property is furnished or unfurnished, as all landlords of residential dwelling houses, no matter what the level of furnishing, will be able to claim the cost of replacing any furnishings. The downside is that the costs have to actually be incurred, whereas before, a flat 10% of the gross rent could be deducted from a furnished letting business.

There was also good news for those looking to rent rooms in their existing house. The ‘rent a room limit’ (the amount an individual can receive from renting a room in their house without paying tax) will increase from £4,250 to £7,000 from April 2016. So if you charge £583 per month for a room in your house, there will be no tax due at all on the rent.

Clearly, the politics behind these changes concerns the current housing shortages. Whilst the government wants to discourage wealthy landlords from profiting from this, it is more than happy for individuals to make use of the space in their existing homes.

 

UNSURE ABOUT HOW THE BUDGET WILL AFFECT YOU?

Later this year we’ll be hosting a series of seminars on the budget, giving you the opportunity to ask our tax specialists any questions you may have about how the changes will affect you. 
 

Accelerated Payment Notices are here to stay

A claim was made by 154 members of Film Limited Liability Partnership schemes which were promoted by Ingenious Media PLC, made a case to the high court for judicial review over the legality of accelerated tax payment notices.

The claim has failed, opening the way for a HMRC to issue a further estimated 64,000 APN’s to individuals who have participated in tax avoidance schemes, by the end of 2016.

The legislation enacted last year following the budget gave HMRC the power to make tax payers pay any disputed sums of tax before any case was heard. Should the tax payer ultimately win the case the money would be refunded with interest.

David Richardson, Director of Counter Avoidance at HMRC commented; “This is an important result, and good news for the vast majority of taxpayers who do not try to avoid paying their fair share of tax.

Those who use tax avoidance schemes need to know they can no longer hold on to the money while their affairs are investigated. They have to pay their tax up front like everybody else.

We expect to complete the issue of around 64,000 notices tax by the end of 2016 bringing forward £5.5bn in payments for the Exchequer by March 2020.

HMRC wins 80% of all avoidance cases that people litigate, and many more are settling before things get to that stage.”

In 2014/15, around 10,000 APNs were issued generating £568 million (net after refunding £28 million following legal challenges).

Congratulations Esmail Jasat, MAAT

Congratulations to our Business Development Manager, Esmail Jasat, who became a Full Member of the Association of Accounting Technicians (AAT) last week!

The MAAT qualification confirms that he is now a qualified accounting professional, as well as giving him a greater breadth and depth of knowledge across accounting, finance and tax. Esmail is now looking to start a Association of Tax Technicians qualification (ATT) in September which will build on his tax knowledge and enable him to progress further in this field.

Our Budget 2015 seminars launching soon...

Later this year we'll be hosting a special series of events across the UK, discussing the 2015 Budget.  A perfect opportunity to speak with our specialists on how the changes will affect you and your business.

Dates and locations to be confirmed but watch this space for more details soon.