Budget 2016: Move over Ranieri, there’s a new “Tinker Man” in town!

On Wednesday 16 March 2016, George Osborne delivered his eighth Budget.  I will be the first to admit that I was expecting this to be a spending- rather than tax-focussed budget.  In fact, I was wondering how much there would be for me to write a blog about, particularly as we have the “tax lock” where the Government have promised not to raise the rates of the major taxes!  It seems though (it happens occasionally) that I was wrong!  There were some surprising giveaways for both individuals and companies alike; of course balanced by a couple of sneaky rises for some.  Our full, official (and slightly less cynical) Budget Summary is available on our website, but the key tax developments are summarised below.

Personal Tax

The Government’s plan is to get the Personal Allowance (the tax free amount most individuals get to use against income) to £12,500 over the course of this Parliament, with the higher rate threshold at £50,000 – this took a major step forward in the Budget.  We already knew that from 6 April 2016 there will be a personal allowance of £11,000 and the higher rate limit will be £43,000, however the limits from 6 April 2017 increase to £11,500 and £45,000, respectively – we are definitely heading in the right direction here.

Changes have already been made to Class 2 National Insurance payable by self employed individuals, in that from 2015/16 it will be collected via Self Assessment, rather than direct debit.  This was a welcome simplification, and George has simplified it further by scrapping it altogether from April 2018.  The issue is that Class 2 NI gives self employed people entitlement to state benefits, such as state pension, and therefore Class 4 NI (the other form of NI paid by the self employed) will need to be updated to ensure the self employed continue to be entitled to those benefits.  I wouldn’t rule out a rise in the rate of Class 4 NI to compensate for the lack of Class 2 NI in the future, though – watch this space!

A new ISA has been introduced (yes, another one!) being the Lifetime ISA.  Operating in a similar way to the Help to Buy ISA, individuals between 18 and 40 can open one of these accounts from April 2017, put in up to £4,000 per year and receive a 25% bonus from the Government, plus tax-free interest.  The savings can be used towards purchasing a first home, or drawn out tax-free after turning 60.  Early withdrawals will forfeit the 25% bonus (and any interest/growth on this) and be subject to a 5% charge.  It’s free money though, and I like free money!

Over the course of this Parliament, slowly but surely, George Osborne has taken small amounts of various types of income out of tax completely, examples being the Personal Savings Allowance and Dividend Allowance which both come into effect 6 April 2016.  Well he’s come up with another one!  From April 2017 there are two new £1,000 allowances for property and trading income.  Individuals with income below the level of the allowance will no longer need to declare or pay tax on that income.  Those with income over £1,000 can simply deduct the allowance rather than calculating their exact expenses (the choice, as they say, is yours!).  Some people that will benefit from this include those selling small amounts of handmade goods at a craft fair or goods on eBay, those renting their houses for small amounts of time via Airbnb, and those with expenditure of less than £1,000.

Corporate Tax

The Chancellor announced last year that the corporation tax rate would be cut over the course of this parliament.  When the Conservatives came to power in 2010, the rates of corporation tax were 21% and 28% for small and large companies, respectively.  By 2020, the current flat rate of 20% for all companies will be down to 17%, giving the UK the lowest corporate tax rate in the G20 (in comparison, in the US they pay 40%, so we get off pretty lightly here!)

Following the dividend tax revolution in last year’s Summer Budget, George has increased the tax due on “loans to participators” from 25% to 32.5% – this isn’t a surprise, as the tax is designed to mirror the effective rate of tax on dividends for higher rate taxpayers in order to make loans from close companies less attractive.  What this broadly means is that director/shareholders borrowing money from their companies either in the form of a loan, or as an overdrawn director’s current account, will have to pay 32.5% as a withholding tax if the loan is not repaid to the company within 9 months of the year end – ouch!

An unexpected giveaway is that corporation tax losses incurred after 1 April 2017 will be able to be offset against different types of income streams (for example trading loss against rental profit) – this so called “sideways loss relief” is only currently available for current year, rather than brought forward losses.  This is only applicable in a small number of situations, but nevertheless will be useful for some.

Capital Gains Tax

George Osborne hiked Capital Gains Tax after coming into office in 2010, introducing a two-tier system for basic and higher rate taxpayers, where previously there had been a flat rate.  While basic rate taxpayers with small gains that kept them in basic rates were not affected, higher rate taxpayers suffered an extra 10% tax on their gains.  In this Budget, George has retained the two-rate system, but dropped both of the rates by 8% to 10% and 20%, respectively.  There is however, a big but!  It’s become pretty clear over the past year that landlords of residential property aren’t at the top of George’s Christmas card list, and this measure is a continuation of his assault on the buy-to-let industry because the lower rates will not apply to gains on residential property – the current rates of 18% and 28% will apply.  It isn’t yet clear how this will work in practice if there are multiple gains in the year, taxable at different rates, however I am hopeful (sometimes I can be positive) that we will be able to utilise the annual exemption against the gains that are taxable at the highest rate first, reducing the overall tax due.  The measure (along with the extension to Entrepreneurs’ Relief coming next) is designed to provide an incentive for individuals to invest in companies, rather than residential property.

Introduced back in 2008 by the then Chancellor, Gordon Brown, Entrepreneurs’ Relief made capital gains on “entrepreneurial assets” e.g. goodwill in unincorporated businesses and shares in personal companies, subject to a preferential rate of tax, effectively 10%.  The amount of gain that can benefit from this reduced rate has increased from £1m when introduced by Labour to £10m under the Conservatives (they do stress that they have a wider policy of supporting enterprise and entrepreneurship).  The 2016 Budget extends this 10% rate to long-term investors in unlisted companies (not just those who are directors/employees and 5% shareholders in those companies, as is the current rule).  The relief only applies to new shares issued after 17 March 2016 that have been held for at least 3 years after 6 April 2016.

Property Tax

Back in 2014, the Chancellor changed the calculation of Stamp Duty Land Tax (SDLT) on residential property from the slightly bizarre “slab” system (paying at one rate on the total price of the property) to one where buyers pay tax on the amount between bands.  This was a welcome change, as it removed the cliff-edge effect which skewed property sales around each limit, but it was always a bit odd that the change only applied to residential property.  Don’t get me wrong, SDLT rates are different between residential and non-residential purchases, but wouldn’t it at least make sense to calculate them on the same basis? My wish was George’s command!  While the rates have increased from 17 March 2016, they are only payable on the amount of the purchase price that falls within the band, so that buyers of commercial property worth up to £1.05m will pay less SDLT.

It was announced in the Autumn Statement that a 3% supplement would be payable on purchases of “additional residential property” – while I am focussing this blog on the changes announced yesterday, this warrants a comment on the basis that we actually have a bit more information now!  The additional 3% will apply to both individuals that, at the end of the day of a transaction, will own more than one residential property, and also companies.  The unintended (I would hope) consequence of this is when there is a gap between purchasing your new home and selling your old one – if this is the case, you will have to stump up the extra 3%, but the good news is that if you sell the old property within 36 months, you can have a refund (isn’t George kind?!).  For companies, the concept of “additional residential property” doesn’t apply, and the purchase of the first residential property by a company will be subject to the charge.  The Government are going to consult on possible relief for large-scale investors.

Company Cars

I’m pretty sure I’ve mentioned this previously, but the Government consistently say they want to encourage use of Ultra Low Emissions Vehicles and general energy efficient machinery.  When people go out and buy these ULEVs and get the generous tax rates associated with them, the Government don’t like it as it’s costing them money!  They constantly move the goal posts of what is deemed to be low emission, making it harder each year to benefit from the low tax rates.

For example, a car with CO2 emissions of 75g/km would give rise to the following benefit in kind charges (on list price) over the coming years:

  • 2015/16 – 9%
  • 2016/17 – 11%
  • 2017/18 – 13%
  • 2018/19 – 16%
  • 2019/20 – 19%

So over the course of 5 years, the company car tax will double on the same car! A car that previously gave a very low income tax charge suddenly becomes a lot more expensive.

The same is the case with Capital Allowances when a business purchases a car – at the moment a “dirty car” is one that has emissions of over 130g/km (not too long ago this was 160g/km), but from April 2018 this will be reduce to 110g/km – the implication is that cars over this attract just an 8% rather than 18% allowance each year, and it takes a very long time to write off the cost of a car at 8% a year, on a reducing balance basis.  The 100% First Year Allowance for new cars that is currently available for cars with less than 75g/km will drop to 50g/km from April 2018, so get your order for that new car in way before then!

Closing Thoughts

The problem with a lot of the measures that were announced is that they are long-term, relating to events happening way in the future.   With the amount of tinkering that George is doing each Budget, who is to say that the measures outlined above won’t be repealed in one of his future Budgets, or for the very long-term items (such as the Lifetime ISA) who will even be in Government when you are planning for the measure to benefit you!  We don’t have any stability in tax at the moment, which makes it very difficult to do meaningful long term planning.  Perhaps that’s the intention – the Government currently seems to be against tax planning, likening it to tax avoidance (which is completely legal) and even tax evasion (definitely not legal!).

It’s not all doom and gloom though… the duty on beer, cider and Scottish whisky was frozen….. I’ll drink to that! Cheers!

If you want to discuss any of this further then please get in touch.

Katie Kettle, Technical Manager Katie Kettle Colour

National Insurance & Apprentices.

From 6 April 2016, HMRC have introduced a new relief which is designed to save Employers money if they employ Apprentices.

If you employ an apprentice you will not need to pay employer Class 1 national insurance contributions (NICs) on their earnings up to £827 a week (£43,000 per annum) which will obviously save you money.  To be eligible for this relief you should have evidence that the apprentice is under 25 years old and:

  • be following an approved UK government statutory apprenticeship scheme.
  • have a written agreement between you, the apprentice and a training provider, which meets the conditions incorporating a start date and an expected completion date.

Employees will continue to pay the standard rate of Class 1 NICs through their salary.  They won’t see any reduction in their payments.  It is employers who benefit from this change.

Do you:

  • Have existing employees under an apprenticeship?

Check the apprentice meets the conditions, ensure you have evidence to allow the relief and from 6th April 2016 adjust the employee’s NIC category to H. 

  • Have existing employees looking for training? Consider an apprenticeship

Firstly consider your business and what your needs are.  There are now over 200 types of apprenticeships across many sectors; apprenticeships are not just about learning traditional trades like plumbing or hairdressing.  There are apprenticeships in all types of work including areas like IT, business and finance and care work, with new roles being created all the time. 

The training provider will usually sort out all of the paperwork, so start by Finding a training organisation  which offers apprenticeships for your industry in your area – contact a relevant training provider and they will help you through the process including handling your apprentice’s training, qualification and assessment.  They will also see if you are eligible for a £1,500 apprenticeship grant.

  • Think you will be hiring someone new?

Hiring an apprentice is simple and now with employers benefiting financially from it, you should seriously consider it for your business when you look to recruit.  As for ‘existing employees looking for training’ above, the first step is to consider your business needs and then to find a training organisation.  They will be able to advise on the apprenticeship options available for when you recruit and may even be able to help you recruit a suitable candidate

The National Apprenticeship Service is holding National Apprenticeship Week from 14th to 18th March 2016 and is there to support employers and has made it easier than ever to employ an apprentice.  Their employer teams are on hand to guide you through the simple process of hiring an apprentice.  There has never been a better time to employ an apprentice.  For more information, visit the website at www.apprenticeships.org.uk or phone 08000 150 600.

Please contact us if you require further guidance or advice.

Becky Edwards , Payroll Manager 

THE IMPORTANCE OF SUBMITTING FORMS ON TIME TO COMPANIES HOUSE

Most people don’t realise how important it is to keep submitted documentation up to date at Companies House.  There have been recent subtle changes too which makes it easier for Companies House to strike a company or LLP from the register.

What happens if the company record is not kept up to date?

If the accounts or annual return are not filed on time, the registrar may take steps to strike the company or LLP from the register.  A forced strike off by Companies House will remain noted on the company record even if the record is brought up to date by submitting overdue documents.  As you can imagine, reference to a possible forced strike off on the public record would not be desirable for a company which continues to trade.

Up until recently the process to strike off a company used to take 3 months, giving a chance for objections to the strike off to be logged.  This period of time has now been reduced to 2 months, which means that a company can be dissolved a lot quicker.

Will there be a financial cost to a company for forms filed late?

Accounts received late incur an automatic financial penalty which increases with the period of delay:

Length of delay

(measured from the date the accounts are due)

      Penalty for private company

          & LLP

Not more than 1 month              £150
More than 1 month but not more than 3 months              £375
More than 3 months but not more than 6 months              £750
More than 6 months           £1,500

 

Furthermore, the above penalties will double if the company or LLP had also filed its accounts late for the previous financial year.  This can lead up to a maximum penalty of £3,000!

What should you do if you have overdue documents?

Don’t despair and bury your head in the sand if you have overdue documents.  The most important thing is to act quickly as it will most likely be less costly if you act sooner than later.

As you can see from the above, the situation can very quickly get out of hand.  Don’t delay if you have overdue documents and contact us if you would like any further advice.

Beth Judd, Accounts & Tax 

The Ins and Outs of Mileage Rates

As HMRC seem to have a vendetta against cars, it is often not tax efficient for a business to own a car and pay for all of the running costs, when it is made available for private use, unless you want a low emissions car (below 95 g/km), and who wants one of those?

It is often easier, and more tax efficient, for directors and employees to use their own private cars and then repay them a mileage rate for any business mileage they may incur. The approved rate for this is a maximum of £0.45 per mile, for the first 10,000 miles, followed by £0.25 per mile for anything over the 10,000.

One common mistake that is made is thinking that the 10,000 miles relates to the year end of the business, it does not, it in fact relates the tax year (6th April to 5th April following).

If a director or employee has private use of a company car but has to pay for all of the fuel themselves, they can be reimbursed for fuel used on business mileage, just at a lower rate set by HMRC dependent on engine size and fuel type of the car.  For example a 1,995cc diesel car would attract a mileage rate of £0.10 and a 1,995cc petrol car would attract a mileage rate of £0.12.  To see how other engine sizes and fuel types compare, please use the following link https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016.

One of the downfalls of claiming for business mileage is the need to keep detailed records which should include:

  • Date the journey was made
  • How many business miles were covered
  • Brief description of why the journey was made

Now this doesn’t seem like a lot, but if a lot of business miles are incurred by many employees then it can become an administrative nightmare!

If you would like to discuss any of _DSC1606the items discussed above then please contact us.

Phil Hinde, Accounts & Tax 

What Changes in April 2016? (Part 3 – Property Tax)

The last of our blogs in this series is upon us! Let’s take a look at the changes in the area of property tax, starting with a little gem that was announced in December 2015’s Autumn Statement….

From 1 April 2016, there will be a 3% higher rate of Stamp Duty Land Tax (SDLT) on the purchase of additional residential property (i.e. the rates charged will be 3% above the usual rates).  This will apply to second homes as well as buy-to-let properties, but will also affect those who are moving home where there is a time difference between buying their new house and selling the old one – the higher rate SDLT will be payable on the purchase of the new house, but will be refunded if the old one is sold within 18 months.

Tax planning tip: If you are looking to buy a second home or buy-to-let property, complete the transaction before 1 April 2016 to avoid the additional tax.

From 6 April 2016, Wear and Tear Allowance (which was only available to landlords of furnished properties) will be scrapped and replaced with a new relief which allows all residential landlords to deduct the actual cost of replacing furnishings.  The key word here is “replace” – no relief is available for the initial purchase.

Tax planning tip: If your rental property needs any of the furnishings replacing, delay the expenditure until 6 April 2016 or later – that way you will get the tax relief.

You’ve probably heard about the new restrictions being brought in for mortgage interest relief on buy-to-let residential properties – this doesn’t come in until April 2017, so we will blog about this specifically at a later date.  For a bit more detail on it now, check out our Spring 2016 News Focus at http://www.torrwaterfield.co.uk/news/newsletters/spring-2016.

Katie Kettle, Technical Manager Katie Kettle Colour