When Do I Have To Register for VAT?

If you are aware of an increase in turnover, or are unsure about whether you should be VAT registered or not, the following points should help:                                                      

  • If your turnover exceeds the registration threshold of £85,000 over a rolling 12 month period then you will need to register for VAT; you will then need to calculate at what point your turnover broke this threshold.
  • Once you know when you exceeded the registration threshold, you need to register by the end of the following month. For example, if the threshold was breached on 31 August, you have to register by 30 September and will be registered from 1 October.
  • If you expect you will breach the registration threshold in a single 30 day period, you must register for VAT immediately.
  • If you are late registering for VAT, then you must pay what you owe from the point at which you should have registered; as well as interest there may be penalties which depend on what you owe and how late your registration is.
  • It is possible to get an exception from registering if your turnover goes over the threshold temporarily. To do this you need to write to HMRC with evidence as to why you believe your net turnover won’t go over £83,000 (de-registration threshold) in the next 12 months. HMRC will then respond confirming whether an exception has been granted or not – this is not always guaranteed – and if denied, they will register you for VAT.
  • You can also register at any point voluntarily – you must pay HMRC any VAT you owe from the date that you become registered.

If you are unsure, there is a helpful link online (www.gov.uk/vat-registration/overview) which explains in further detail the steps you should take when registering for VAT.

If you have any queries or concerns with regards to any aspect of VAT, feel free to give our office a ring on 0116 242 3400 and we will be happy to discuss this with you. 

Jake Dempsey, Accounts & Tax

RESTRICTION ON INTEREST RELIEF ON RESIDENTIAL BUY TO LET PROPERTIES

As many owners of rental properties will be aware, from 6 April 2017 there is a restriction on the tax relief available on mortgage interest on residential Buy to Let (BTL) loans. The restriction, which is being phased in over 4 tax years to 2020/21, will eventually limit tax relief to the basic rate of income tax, currently 20%.

For a 40% tax payer (usually taxable income over £44,000) the staggering of the restriction means that over the next 4 years, tax relief on interest will be reduced by 1/8 each year to 50% of its 2016/17 level by 2020/21. For example, a 40% taxpayer paying £2,000 in BTL mortgage interest each year will currently be entitled to £800 of tax relief; this will reduce by £100 a year to £400 by 2020/21. As income is assessed before interest is deducted, more people will find themselves in the 40% tax bracket.

This, combined with the extra 3% Stamp Duty applying to additional residential homes being purchased, amounts to a significant increase in the tax burden relating to owning residential rental property.

The tax relief restriction does not apply to companies letting residential properties, so we are experiencing an increase in requests by individuals and couples wishing to set up a limited company to acquire properties they would like to buy for rental purposes. However, the increase in Stamp Duty still applies and commercial BTL mortgage rates tend to be higher than personal rates.

In some very restricted circumstances, it is possible to transfer existing rental properties into a limited company, taking advantage of incorporation relief to hold over Capital Gains, and in even more limited cases, to avoid payment of Stamp Duty on such a transfer.

If you would like to know more, please email peter.morris@torrwaterfield.co.uk or call 0116 2423400

Construction Industry – Subcontractor verification changes from 6 April 2017

Construction Industry – subcontractor verification’s

HMRC have confirmed in the latest Employer Bulletin that changes will be made to the verification of subcontractors in the construction Industry Scheme (CIS) from 6 April 2017.

From 6 April 2017, contractors must use an approved method of electronic communication to verify their subcontractors. So from 6 April 2017 HMRC will no longer accept any telephone calls to verify subcontractors and from then contractors must verify subcontractors using:

  • the free HMRC CIS online service, or
  • commercial CIS software.

This change is one of a series made to CIS to increase HMRC efficiency and accuracy, and to reduce administration. HMRC are also reminding contractors that they have also introduced additional features of the online system including the ability to amend returns online, and the addition of an online message/alert service.

Please contact us for help with CIS issues. 0116 2423400

Are you a parent? What are your childcare choices?

In our Winter 2016 newsletter we led with an article about the new Tax-Free Childcare scheme that was expected to be launched in early 2017.

HM Revenue and Customs have today launched the Childcare Choices website which can be reached from the related article:

https://www.gov.uk/government/news/uk-families-will-soon-see-bills-cut-as-date-announced-for-the-launch-of-tax-free-childcare

The article also gives details of the availability of up to 30 hours of free childcare for 3 to 4 year olds from September this year.

We understand that parents can pre-register from Wednesday, with the new scheme launching at the end of April.

If you require any further information or advice then please contact us 0116 2423400 

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More Personal Tax to pay in January 2018?

No one wants to pay more tax, but from 6th April 2016, individuals who receive dividends will be taxed under new legislation. To explain how much this new measure could cost you we have created a short helpful video. 

Please visit our YouTube channel here to watch.  

Having viewed the video, if you would like to know how this will personally affect you in January 2018, please click here. 

Have you paid your self-assessment bill?

Tax Payments – How late can you be?

With the madness of the January tax return deadline, it may have slipped some of your minds to actually pay your self-assessment bill. If this is the case then you may be wondering how you will be penalised for doing so.

For those that have filed their self-assessment tax return before the deadline but have not paid the bill, there will be interest accruing at 2.75% pa for the first 30 days.

However, after 30 days from the deadline the full amount of tax due will be subject to a 5% penalty. This means that if you had a liability of £5,000 unpaid by midnight on 2 March 2017, there would be an immediate fine of £250 added to your account.

Similarly, if after 6 and 12 months from the filing deadline you have not paid the full balance, then there would be additional 5% penalties on the tax outstanding at those dates.

Furthering the example above, should there still be an outstanding debt of £5,000 on 1 August 2017 then an additional £250 penalty will be accrued and if the debt has still not been settled by 1 February 2018 then another £250 will be added. This means that within just 12 months, a £5,000 tax bill will have penalties totaling £750.

On top of this there will also still be interest accruing on both the tax and penalties. Making the estimated amount owing on 1 February 2018 £5,887.

Sam Jefferson, Accounts & Tax 

If you need further help please contact us.

ARE YOU THINKING OF SELLING YOUR BUSINESS?

Selling a business can be a lengthy and stressful process. A sale may be considered due to pending retirement, illness, a lifestyle change, or a host of other reasons. The better and more time you have to prepare for a sale, the less stressful the experience will be.

Here at Torr Waterfield, we can help you with the process, from start to finish. Here are a few pointers to help you on your way…..

  • Review the strengths and weaknesses of your business. A SWOT analysis will help you to identify and address the weaknesses and threats, and improve the strengths and opportunities before sale
  • Consider the Key Performance Indicators (KPIs) of the business, and how these can be identified and reviewed both by you and a potential buyer
  • What do you think the business is worth and what is the minimum value you would be prepared to sell it for? Just as importantly, are there likely to be potential buyers willing to pay that minimum price?
  • Consider ways to increase sales and reduce costs in the immediate period prior to sale. A business is often valued on a price to earnings ratio or earnings multiple method, so recent increased profitability can increase its value
  • Consider the infrastructure and management profile of the business, and whether the necessary skills and knowhow are sufficient in the event of your retirement/removal
  • Consider your own tax position and ensure the sale method is the most suitable to you e.g. Entrepreneur’s Relief is available for business asset and share sales fitting certain criteria. This relief allows chargeable gains on sales to be taxed at 10%, even for higher rate tax payers. Other sales methods, such as sale of assets and goodwill, may be more appropriate
  • Consider employee issues in the event of a sale; e.g. does TUPE (transfer of employment rights) apply? How will your employees react prior to and after a sale? Do you advise them of your plans and keep them up to date with progress?
  • Ensure that the position, legal or otherwise, and potential impact on a sale of any minority shareholders or partners has been taken into account
  • Consider what may happen to the business premises; will they be part of the sale? Are they owned by your Personal Pension, in which case it may be worthwhile continuing to lease the premises to the purchaser?
  • Appoint professional advisors and expert help to assist with your valuation, to help with any legal agreements that need to be drawn up and to review your tax position prior to and after the sale

You only sell your business once, so it must be done properly to ensure you get full benefit.

If you would like to find out more about selling your business, please speak to me at Torr Waterfield

Peter Morris , Director _DSC4779

 

The New Marriage Allowance

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The marriage allowance allows you transfer £1,100 of your Personal Allowance to your husband, wife or civil partner – if they earn more than you.

This reduces their tax by up to £220 in the tax year (6 April to 5 April the next year).

In order to benefit as a couple, you (as the lower earner) must have an income of £11,000 or less.

If you are eligible for marriage allowance in the 2015/2016 tax year, you can backdate your claim to 6 April 2015 and reduce the tax paid by up to £432.

Who can apply?

You can get marriage allowance if all the following apply:

  • You are married or in a civil partnership
  • You don’t earn anything, or your income is under £11,000
  • Your Partner’s income is between £11,001 and £43,000

You can also apply for marriage allowance if you or your partner:

  • Are currently receiving a pension
  • Live abroad – as long as you get a Personal Allowance

If you or your Partner were born before 6 April 1935, you might benefit more as a couple by applying for Married Couple’s Allowance instead.

If you would like to discuss this please get in touch. 

Paula McIntosh, Administration  

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Tax return deadlines – Are you ready?


tax-return-imageAs you may know, the tax return deadline is getting closer with the final date of submission and payment for electronically submitted tax returns being 31 January 2017.

Collect tax through PAYE code:

When filing a tax return you can opt to pay your overdue tax by collecting it through PAYE (This means your tax code would bechanged to collect the tax each month straight from your wages). If this is something that you are interested in, the tax return deadline is brought forward to 30 December 2016. The advantage of this is that your tax will be collected over 12 months rather than a single payment on 31 January 2017.

Please note: This only applies if the tax you owe is less than £2,000.

Late submission of tax return:

If your tax return is submitted late there are different types of penalties that you will face depending on how late it is:

Time scale Amount due
After 31 January 2017 Flat rate of £100
Three months after deadline £10 per day for 90 days (maximum £900)
Six months after deadline The higher of £300 or 5% of the tax due
Twelve months after deadline The higher of £300 of 5% of tax due

These are all on top of the previous penalty, for example if you file your tax return on 31 May 2017 you will owe £100 for the first three months plus 31 days x £10 per day = £310 meaning your total penalty would be £410 on top of the tax that is due on your late return.

In serious cases HMRC could request for you to pay 100% of the tax due on top of the original tax- meaning you would be paying double the tax you owe.

There is an option to appeal against these penalties if there is a reasonable excuse that can be provided.

Late payment of tax:

If the tax is paid late HMRC can charge interest on the tax due; at the minute this stands at 2.75% (from 23 August 2016).

As well as interest, there are also late payment penalties:

Time scale %of tax paid late
Over 30 days late 5%
Over 6 months late Further 5%
Over 12 months late Further 5%

As you can see there are many penalties that can arise if your tax return is not submitted and paid on time, therefore please try and get your tax return information to us as soon as possible so that these can be avoided.

If you would like any more advice on tax return submission, payment or calculations, please get in contact.

Jessica Cooper, Accounts & Tax 

Autumn Statement 2016

On Wednesday 23 November 2016 our new Chancellor of the Exchequer, Philip Hammond, delivered his first (and last) Autumn Statement. 4221396001_5220447677001_5220145961001-vs

“No other major economy makes hundreds of tax changes twice a year, and neither should we” – this is perhaps the most welcome measure announced in the Autumn Statement.  In recent years the Autumn Statement has been a mini-Budget, meaning that many, sometimes significant, tax changes were being announced twice a year.  This has been problematic in terms of giving taxpayers a reduced degree of certainty regarding planning their tax affairs (plus it means I have to write an extra blog each year) so for this announcement alone, Philip Hammond gets a ‘thumbs up’ from me!

Following the spring 2017 Budget, the Budget will be delivered each autumn – spring will be reserved for a statement from the Office of Budget Responsibility to respond to their previous forecast.  The odd tweak of fiscal policy may be made each spring, if economic circumstances require it – personally I think this option has been retained so the Government are able to be more flexible in response to the future impact of Brexit (you can infer from that what you will…I’m taking it as that they have no idea what the impact will be).  I’m also hoping that an autumn Budget will give more time for us all to absorb the changes before they come into force the following April.

Our full Autumn Statement roundup can be found on our website here, but below are the main points that I think are relevant to our clients and their businesses.  A lot of the announcements aren’t new, but are instead Philip Hammond confirming that he plans to keep some of his predecessor’s policies.

Personal Tax Rates and Allowances

The personal allowance is currently £11,000 and will increase to £11,500 from April 2017.  The reduction in personal allowance for those with higher income (‘adjusted net income’ over £100,000) remains so that, from April 2017, there will be no personal allowance available where ‘adjusted net income’ is over £123,000. 

The higher rate threshold will increase from £43,000 currently to £45,000 from April 2017, for those who are entitled to the full personal allowance.

Philip Hammond confirmed his intention to keep George Osborne’s policy to increase the personal allowance to £12,500, and the higher rate threshold to £50,000, by the end of this Parliament.

Corporation Tax Rates and Allowances

The new corporation tax rates from April 2017 to March 2021 were announced at the Budget and have now been enacted – the rate will be reduced from 20% to 19% from April 2017 and a further 2% to 17% from April 2020, which will be welcomed by small and large businesses alike.

Again, this was announced in the Budget but has been kept by the new Chancellor – corporate losses (excluding capital losses) arising after 1 April 2017, when carried forward, will be able to be used against future profits from other streams.  Currently there are restrictions on how the losses can be relieved, which is restrictive for certain types of business.

National Insurance Contributions (NIC)

Previously payable by the self-employed, Class 2 NIC is being abolished from April 2018 – we knew this was coming, however what we didn’t know was how self-employed taxpayers would get entitlement to basic state pension and other contributory benefits and allowances, as payment of Class 4 NIC (also paid by the self-employed) has not in the past been ‘contributory’.  From April 2018, Class 4 NIC will become ‘contributory’ and those paying it will be entitled to state pension etc.  Those with income below the Small Profits Limit (£5,965 in 2016/17) will be able to pay Class 3 NIC, currently £14.10 per week to ‘top-up’ their entitlement.  There will no longer be the option for these individuals of voluntarily paying Class 2 NIC, for which the current rate is a mere £2.80 per week!

The Office for Tax Simplification are tasked with – you guessed it – making tax simpler.  One of their recommendations that is being implemented is the alignment of the thresholds at which employees and employers pay Class 1 NIC.

Other Payroll Matters

Having only been increased in October 2016, The National Living Wage is increasing from £7.20 to £7.50 from April 2017 and smaller increases to the National Minimum Wage are also coming in – full details on our website here

I mentioned in a blog post on 11 October 2016 that the Government have been consulting on the use of salary sacrifice schemes and on Wednesday, the Chancellor outlined the changes to be introduced from April 2017.  Salary sacrifice arrangements (other than relating to pensions, childcare, cycle to work and ultra-low emission cars) entered into after this date will no longer enjoy tax and national insurance savings – however agreements entered into before this date will remain tax and NI-free until April 2018, so subject to the administrative hurdles that have to be jumped for an effective salary sacrifice, there’s still some mileage left in them yet!

Philip Hammond continues George Osborne’s assault on company car drivers with a further 2% increase in the percentage applied to each band of company car from April 2018, and a further 3% from April 2019.  From April 2017, pure electric cars will be charged at 9%, rising to 13% in April 2018 and 16% in April 2019 – a huge increase from the 7% benefit in kind in the current year.  I can only assume this is a reaction to the amount of employers who have provided these cars to employees, and benefited from the low rate.  I do find it a little disappointing that tax incentives are introduced to encourage certain behaviours (such as the provision of electric cars) and then as soon as people actually take the Government up on their offer, it effectively gets withdrawn – this is especially harsh when it relates to company cars as many of these will be leased over a number of years and therefore the business and employees are stuck with the cars that no longer afford them the low tax charges that were in place when the vehicles were first provided.

VAT Flat Rate Scheme Anti-Avoidance

 Businesses registered for VAT under the flat rate scheme pay over VAT at a specific rate (currently between 4% and 14.5%) as determined by their type of business – it simplifies the accounting for VAT as these businesses pay VAT over to HMRC at a lower rate than the 20% they charge to customers, but do not reclaim VAT on most expenses.  For many small businesses, this can be both time-saving and money-saving.  From April 2017 a new 16.5% rate will apply to businesses with limited costs (i.e. labor-only businesses) using the flat rate scheme.  The details on which businesses will be affected by this are on our full Autumn Statement update here

Making Tax Digital

HM Revenue & Customs are consulting on various measures intended to bring the UK tax system into the digital age.  A major change is that from April 2018, most self-employed taxpayers and landlords will be required to keep their records digitally, update HMRC at least quarterly, plus submit a year end declaration.  While HMRC are keen to emphasis that this does not mean five tax returns per year, we eagerly await the details on how the proposals will work in practice when HMRC issue their response to the consultations in January 2017.

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

Katie Kettle, Chartered Certified Accountant

Technical Manager

 Katie Kettle Colour