employment allowance

Employment Allowance Increased by 50 Percent

Introduced in April 2014, Chancellor of the Exchequer George Osborne announced in July’s emergency (summer) Budget that the Employment Allowance is due to increase from £2,000 to £3,000 in April 2016.

This full 50 percent increase is designed to help small and medium-sized business (SME) owners to reduce the cost of their wage bill and to offset the increased costs they may start to occur due to the new mandatory National Living Wage (NLW), also to be introduced in April 2016.

employment allowanceFrom next April the Employment Allowance will allow you to take up to £3,000 off your secondary Class 1 National Insurance Contributions (NICs) throughout the year until you receive back the full £3,000, or until the tax year comes to an end. You may not roll over any unused Employment Allowance to a new tax year, and you may only claim Employment Allowance for one PAYE (Pay as You Earn) scheme.

In the same Budget the Chancellor also announced that, from April 2016, if you’re the director and sole employee of your business you will no longer be eligible to claim the Employment Allowance on your own National Insurance bill.

Exclusions

You’re eligible to receive the Employment Allowance if you’re a business or charity (including, as is often the case, community amateur sports clubs) paying employers’ Class 1 National Insurance, or you’re an individual who employs a care or support worker.

There are several exclusions however, as secondary Class 1 National Insurance Contributions are known as ‘excluded liabilities’, meaning you cannot claim Employment Allowance on them if:

  • - you’re personally employing somebody for household or domestic work, unless they’re a care or support worker,
  • - you do more than half of your work in the public sector, unless you’re a charitable organisation,
  • - you operate a service company which has only deemed payments of employment income under IR35.

How to Claim

The easiest, quickest, and arguably most efficient way to claim for the Employment Allowance is to do so through your accountant. Applying for the Employment Allowance is something your accountant will have done time and again for their clients, therefore even with the increased allowance providing a slight change to proceedings, your accountant will know how to get you started with ease.

If you don’t yet have an accountant (and you’re still looking around for the perfect pairing) you can claim for the Employment Allowance on your own behalf through your payroll software, if you have it, or by using HM Revenue and Customs (HMRC)’s Basic PAYE Tools.

Though directions will vary between different payroll softwares, the main thing you’re looking for is an option to ‘change employer details’ followed by a search for any field referencing the Employment Allowance, and a careful read of the options given to you.

Experienced Accountants

To speak with a professional accountant to discuss the new Employment Allowance, and how we help you to take advantage of it, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.


Five Tax Saving Tips for Entrepreneurs

pink piggy bank with coins around it Whether you’re a seasoned entrepreneur looking for your next challenge, or this is the first time you’ve traded as a start-up, when you begin a new venture you should waste no time in looking into ways in which you can save money on your tax bill at every step of the way.

Below we’ve complied five of our best tax saving tips for entrepreneurs. This list is perfect to get your new venture started on the right foot:

1) Keep Track of Your Expenses

There are few tax saving tips that will benefit entrepreneurs more in the long run than keeping track of your expenses from the very beginning (and your employees, should you have any). If you don’t keep track of your expenses from day one you’re only cheating yourself, as any expenses you fail to claim for will come directly out of your pocket.

Keep in mind that you can also claim for pre-trading expenses from up to seven years before you started your new venture, so long as the expenses are wholly and exclusively for the purpose of your new venture.

2) Gain Financing Through the SEIS

Launched in April 2012, the Seed Enterprise Investment Scheme (SEIS) makes it easy for start-ups to gain financing by encouraging individuals to support new ventures and small businesses by handing them significant tax savings in exchange for their investment.

Your start-up may also be able to benefit from the Enterprise Investment Scheme (EIS), which, though older, offers similar tax saving tips for entrepreneurs and investors alike.

3) Check if You Qualify for Research and Development Relief

If your new start-up is already paying Corporation Tax, you may be able to qualify for Research and Development Relief should you currently be undertaking qualifying revenue expenditure in a Research and Development (R&D) project that’s directly related to your start-up’s trade, or an area of trade which you’re considering expanding into.

Though it’ll never be your intention, if you make a loss during a tax year in which you’re claiming Research and Development Relief you’ll be given tax credits rather than Corporation Tax relief, credits which you can use in upcoming tax years.

4) Consider the Flat Rate Scheme for VAT

While not an obvious tax saving tip, the Flat Rate Scheme for Value Added Tax (VAT) can dramatically simplify the accounting process for your start-up while it grows.

Instead of having to write down the amount of VAT charged on every sale or purchase you make, when you opt to work under the flat rate scheme you won’t need to keep track of these figures, with you paying a flat rate of 4-14.5% overall VAT, depending on your start-up’s sector.

5) Meet With an Accountant

You don’t need to hire them, at least not right away, but meeting with a qualified, experienced accountant when you’re beginning a new venture will allow you to understand the importance of having your finances in order from the moment you start trading. You never know, they may even supply some tax saving tips on the house!

To speak with a professional accountant to discuss how you can save money on your tax bill with your new start-up, or for any other questions, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.


What is the 24 Month Rule for Contractor Expenses?

Contractor AccountantsThe 24 month rule for contractor expenses is a law that allows contractors to receive tax relief on travel expenses should you be required to travel from your home to a temporary working location for a period of 24 months (two years) or less.

If you qualify for such relief it will be paid to you, tax free, directly by your employer. Under the law, travel expenses refer to all reasonable costs that are incurred as a direct result of you having to travel from your home (permanent residence) to your temporary working location.

The Rule Defined

The 24 month rule for contractor travel expenses only applies towards the first 24 months of you being asked to work from a temporary working location if the contract is expected to last for no more than 24 months.

If the contract signals a permanent move, or the move is to last for more than 24 months, no relief will be available for any period. If, however, halfway through a shorter contract your temporary location becomes permanent, or the contract is extended so the total time at your temporary location will exceed 24 months, relief is no longer available from that point on, but relief claimed up until that point may be kept.

Similarly, if you’re asked to work full-time from a temporary location for longer than 24 months, but several (or many) months into your contract at this location your time there is shortened to less than 24 months, you’ll be able to claim relief on the remaining months you have at your temporary location, but you won’t receive relief for the months up to that point, as at that time your contract was intended to be longer than the two year threshold.

What is a Temporary Working Location?

A temporary working location, for the purpose of the 24 month rule, is any location that you aren’t expected to be at (and ultimately aren’t at) for longer than two years.

You should note, however, that if your temporary working location is close enough to your permanent work location that it doesn’t prompt a dramatic change in the journey you take or the cost incurred to get there, with your journey from home remaining largely the same, you won’t be able to claim relief, regardless of how short your temporary working contract is.

Qualifying Exceptions

There are, of course, exceptions to the rule.

If you’re required to work one day a week from a temporary location for a period longer than 24 months you’ll still be able to claim relief for your weekly journeys to your temporary working location because you won’t be spending more than 40 percent of your working time in this temporary location (you’ll be spending just 20 percent, in this example).

If you’re in your job for less than two years, or you’re moved to a new permanent working location, you cannot claim relief as at every stage your working location is considered to be permanent.

How to Take Advantage of the 24 Month Rule for Contractor Expenses

Hiring an accountant to take care of (and organise) your contractor expenses is a necessary business investment if you wish to spend less time worrying about what you’re owed, and more time focusing on your work.

To speak with a professional accountant to discuss the the process of claiming for contractor expenses, or for any other questions, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.


Three Advantages of Operating as a Sole Trader

123_TaxAgility Accountants LondonIf you’re a small (or micro) business owner who plans on keeping things this way for the foreseeable future, there’s a good chance that setting up as a sole trader will be in your best interest going forward.

When you operate as a sole trader there are a large number of advantages that make it an ideal option for smaller businesses, both when it comes to setting up your business and registering with HM Revenue and Customs (HMRC), and once you’ve been trading below a certain threshold for a number of years.

Three of the most significant advantages of operating as a Sole Trader are:

Complete Control

When you’re a sole trader you have complete control over the running of your business, both in terms of your daily workload and the strategic decision making that takes place to determine the direction and (potential) growth strategy of your business.

It’s a common misconception that when you operate as a sole trader you can’t take on staff members. This isn’t true; though you’re the only entity (person or company) that can have a stake in your business, you can take on staff to help you complete your work. Of course, once you take on more than a couple of staff members you may find that incorporating into a Limited Company (Ltd) is a more tax-efficient alternative for your business.

Less Paperwork

Sole traders have to complete far less paperwork than those who run (and are thus director of) a Limited Company. As a sole trader you have no annual accounts to prepare, as your income and expenses are simply entered into an annual Self-Assessment tax return, where you’ll be required to pay Income Tax and National Insurance Contributions (NICs).

If you’ve not done so already you should consider hiring an accountant as soon as possible, as they’ll be able to walk you through the process of registering your business and applying for Self-Assessment in no time, leaving you free to work on making your business a success.

Easy Access to Your Income

One rarely spoken of advantage of operating as a sole trader rather than as a Limited Company is the fact that you have easy access to the revenue you make. Whether it’s paid into a business bank account or your personal account, you can extract this income with ease.

Directors of Limited Companies can only receive the income from their business as a salary, dividend, or loan once your company pays Corporation Tax on it, as the profits your company make are technically owned by your company, not you, a process which slows down your ability to access your income.

Small and Medium-Sized Business (SME) Accountants

There are, of course, several disadvantages of operating as a sole trader compared to operating as a Limited company, many of which we discussed in our recent article on whether you should operate as a sole trader or Limited Company.

To speak with a professional, experienced accountant to discuss whether the advantages of being a sole trader stack up for your business, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.


Tax Tips and News for August 2015

This issue … Tax-free Childcare; Rent a Room; Help to Buy ISAs; Employment Allowance; August Questions and Answers; August Key Tax Dates

Tax-free Childcare

Tax-free childcare is part of the government's long-term plan to support working families and will provide up to 1.8m families across the UK with up to £2,000 of childcare support per year, per child, via a new online system. It was originally planned that the scheme would launch in Autumn 2015, but, as a result of a direct legal challenge from a small group of childcare voucher providers, development of the scheme was suspended. However, the Supreme Court has recently ruled that government proposals for delivering tax-free childcare are lawful, which means that the scheme can go ahead and is now expected to launch in 2017.

Here are some of the key points of the scheme:

  • the scheme will be available for children up to the age of 12, and for children with disabilities up to the age of 17
  • to qualify for tax-free childcare, parents will have to be in work, earning just over an average of £50 a week and not more than £150,000 per year. Unlike the current rules for employer-supported childcare, eligibility for tax-free childcare is not dependant on the employer offering the scheme
  • self-employed parents will be able to qualify for tax-free childcare. For newly self-employed parents, there will be a 'start-up' period during which there will be no minimum income level requirement
  • the scheme will be available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave

Anyone wishing to use the scheme will need to open an online account via the government website (www.GOV.uk) and pay in money to the account to cover the cost of childcare with a registered provider.

The government will top up accounts with 20% of childcare costs, up to a total of £10,000 - the equivalent of up to £2,000 support per child per year (or £4,000 for disabled children). So, for every 80p invested, the government will top up with a 20p contribution.

HMRC will re-confirm a claimant's circumstances every three months via a simple online process.

Where circumstances change, and the parent no longer wishes to pay into the account, it will be possible to simply withdraw any funds that have built up. However, where funds that have already attracted tax relief are withdrawn, the government will also withdraw its corresponding contribution.

There are no particular rules regarding when and how much can be saved in the new accounts. The scheme is designed to give as much flexibility as possible regarding savings. This means that parents can build up a balance in their account to use at times when they need more childcare than usual, for example, over the summer holidays.

Rent a Room

In the Summer Budget 2015, the government announced that the level of rent-a-room relief will be increased from the current level of £4,250 to £7,500 from April 2016. This means that from 6 April 2016, an individual will be able to receive up to £7,500 tax-free income from renting out a room or rooms in their only or main residential property. The relief also covers bed and breakfast receipts as long as the rooms are in the landlord's main residence.

To qualify under the rent-a-room scheme, the accommodation has to be furnished and a lodger can occupy a single room or an entire floor of the house. However, the scheme doesn't apply if the house is converted into separate flats that are rented out. Nor does the scheme apply to let unfurnished accommodation in the individual's home.

The rent-a-room tax break does not apply where part of a home is let as an office or other business premises. The relief only covers the circumstance where payments are made for the use of living accommodation.

If additional services are provided (cleaning and laundry etc.), the payments must be added to the rent to work out the total receipts. If income exceeds £4,250 a year in total, a liability to tax will arise, even if the rent is less than that.

There are two options if the individual is receiving more than the annual limit a year:

  • the first £4,250 is counted as the tax-free allowance and income tax is paid on the remaining income
  • renting the room is treated as a normal rental business, working out a profit and loss account using the normal income and expenditure rule

In most cases, the first option will be more advantageous.

The principal point to bear in mind is that those using the rent-a-room scheme cannot claim any expenses relating to the letting (e.g. insurance, repairs, heating).

To work out whether it is preferable to join the scheme or declare all of the letting income and claiming expenses via self-assessment, the following methods of calculation need to be compared:

  • Method A: paying tax on the profit they make from letting worked out in the normal way for a rental business (i.e. rents received less expenses).

Method B: paying tax on the gross amount of their receipts (including receipts for any related services they provide) less the £4,250 exemption limit.

Method A applies automatically unless the taxpayer tells their tax office within the time limit that they want method B.

Once a taxpayer has elected for method B, it continues to apply in the future until they tell HMRC they want method A. The taxpayer may want to switch methods where the taxable profit is less under method A, or where expenses are more than the rents (so there is a loss).

The individual has up to one year after the end of the tax year when their income from lodgers went over £4,250 to decide the best option to take, so it is worth taking a bit of time to work out which route produces the lowest tax bill, we can help you with this.

Help to Buy ISAs

The new help-to-buy ISA, which is expected to be available from Autumn 2015, will enable first-time buyers to save up to £200 a month towards their first home. Investors will receive £50 from the government for every £200 saved, up to a maximum of £3,000. This means that the maximum that can be saved in a help-to-buy ISA is £12,000. The government bonus is added to this amount, so total savings towards the property purchase can be up to £15,000.

Accounts will be limited to one per person rather than one per home, which means that those buying together can both receive a government bonus. A couple will be entitled to hold an ISA each, meaning that a total of £24,000 could be built up across two accounts. With the addition of the government bonus, a total of £30,000 can be built up by a couple under the scheme.

An initial deposit of £1,000 may be made into the account, in addition to regular monthly savings limits. This initial deposit also qualifies for the 25% boost from the government.

The minimum bonus payable by the government will be £400 and the maximum £3,000 per person.

The bonus can be claimed once savings have reached the minimum amount of £1,600. Under the scheme it will take investors just over four and a half years to qualify for maximum bonus of £3,000, if desired.

Help-to-buy ISAs will be available to individuals aged 16 and over. The bonus will only be available to first-time buyers purchasing UK properties.

New accounts will be available for four years, but once opened, there will be no limit on how long an account can be held.

The bonus will be paid when the property is purchased. It will be available on home purchases of up to £450,000 in London and up to £250,000 outside London.

There are certain restrictions under the new scheme, including:

  • help-to-buy ISAs cannot be used if the property is to be rented out;
  • purchases of overseas property do not qualify under the scheme;
  • only one help-to-buy ISA may be held by an individual; and
  • investors cannot open a help-to-buy ISA and a normal cash ISA in the same tax year.

Employment Allowance

The Summer Budget 2015 contained two announcements affecting the employment allowance (EA).

Broadly, the EA potentially cuts every company's NIC payments by allowing businesses and charities to offset up to £2,000 (2015-16) against their employer (secondary) PAYE NIC liabilities.

From April 2016, eligible employers will be able to reduce their employer Class 1 NICs liability by up to £3,000 per tax year, instead of the current £2,000.

Secondary Class 1 NICs are 'excluded liabilities', and therefore do not qualify for EA, if they are incurred:

  • employing someone for personal, family or household work, such as a nanny, au pair, chauffeur, gardener. Prior to 6 April 2015 this category also included care support workers, but from 6 April 2015 where all an employee's duties are performed for a person who needs support because of old age, mental or physical disability or past or present alcohol or drug dependence, illness or mental disorder any Secondary Class 1 NICs are not 'excluded liabilities';
  • on deemed payments of employment income for workers supplied by personal and managed service companies;
  • by an employer who has had a business, or part of a business, transferred to them in the relevant tax year and the payments relate to an employee employed (either wholly or partly) for purposes connected with the transferred business, or part business; or
  • as a result of avoidance arrangements.

The Summer Budget 2015 also announced that from April 2016, companies where the director is the sole employee will no longer be able to claim the employment allowance.

August Questions and Answers

Q. I have realised that I made a mistake on my most recent VAT return. What should I do?

A. You can adjust your current VAT account to correct errors on past returns if the error:

  • was below the reporting threshold (broadly, less than £10,000, or up to 1% of your box 6 figure (up to a maximum of £50,000);
  • was not deliberate; and
  • relates to an accounting period that ended less than 4 years ago.

When you submit your next return, add the net value to box 1 for tax due to HMRC, or to box 4 for tax due to you. Make sure you keep good accurate records relating to the adjustment.

Q. A friend has told me that I may be entitled to a larger state pension if I pay Class 3A national insurance contributions. What are they and how do I know if paying them is worthwhile?

A. Class 3A is a new voluntary type of national insurance contribution (NIC) that is being introduced from 12 October 2015. Broadly, between then and 5 April 2017 certain people will be able to make a contribution to top up their state pension by up to £25 per week. Men born before 6 April 1951 and women born before 6 April 1953 will be eligible to make top up payments. The cost of the contribution will depend on how much extra pension the applicant wants to qualify for (between £1 and £25 per week), and how old they are when they make the contribution. A top up calculator is available on the GOV.uk website at www.gov.uk/state-pension-topup/y. The calculator will help you work out whether it is worthwhile you making Class 3A contributions.

Q. I have assets worth around £600,000, including my home. I am single, have never been married and have no children. I intend leaving my estate to my siblings. Will they qualify as 'direct descendants' and, in turn, will I qualify for the extra £175,000 family home inheritance tax allowance that was announced in the Summer Budget?

A. The draft legislation and guidance on this issue states that the relief will only be available where the family home is passed to children. This includes stepchildren, adopted and foster children, plus grandchildren. Therefore the family home allowance will not be available.

August Key Tax Dates

2 - Last day for car change notifications in the quarter to 5 July - Use P46 Car

19/22 - PAYE/NIC, student loan and CIS deductions due for month to 5/8/2015

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

If you need further assistance just let us know – we're here to help!

Contact us today on 020 8780 2349 to discuss how any of the above affects your personal or business finances or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


New £500,000 Inheritance Tax Threshold from 2017

Save_TaxAgility-Accountants-LondonChancellor of the Exchequer George Osborne announced during the emergency (summer) Budget earlier this month that the current Inheritance Tax threshold is set to increase from 2017, adding an extra £175,000 allowance per-person on homes left to children or grandchildren.

This figure will be added to the current tax-free threshold of £325,000, for a total per-person, tax-free allowance of £500,000. As both allowances are transferable between your spouse or partner (should you die before your spouse or partner, they will receive your allowance on top of their own), if you choose to pass your home down to your children or grandchildren from 2017 you’ll be able to pass on up to £1 million free from Inheritance Tax.

Speaking at the House of Commons on 8 July, Mr. Osborne said:

The wish to pass something on to your children is about the most basic, human and natural aspiration there is. Inheritance tax was designed to be paid by the very rich. Yet today there are more families pulled into the inheritance tax net than ever before – and the number is set to double over the next five years. It’s not fair and we will act.”

Tax Rate to Remain

Under the new rules, estates valued between £1-2 million will pay tax at 40 percent over the £1 million mark, or the £500,000 mark for single parents or grandparents if their spouse or partner used their allowance previously, or didn’t pass their unused allowance on to them.

It should be noted that the new £500,000 per-person threshold will ‘taper’ away for estates worth more than £2 million. With that said, should you choose to downsize your home you won’t lose your tax-free allowance from your previous property.

Current Inheritance Tax System

Under the current system, individuals receive a tax-free threshold of £325,000, with spouses and partners being able to combine their allowances. The only difference between the current system and the new one, due to be phased in in 2017, is the new system adds an extra £175,000 allowance per person, thus increasing it to £500,000.

The original £325,000 threshold is fixed until the end of the 2020-21 tax year, after which there is potential for its renegotiation.

In its current form, Britain has some of the strictest Inheritance Tax rates in the developed world, with The Telegraph reporting that a parent splitting their £1 million estate (£800,000 property, £200,000 cash) between two children currently results in a £270,000 tax bill. Under the new system, this bill will reduce to £200,000 in the same scenario, making it lower than the Inheritance Tax paid on an equivalent inheritance in both France and Japan.

More Information on Inheritance Tax Threshold

To speak with a professional accountant to discuss what the new Inheritance Tax threshold means for you, your property, and those you wish to inherit it, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.


The Advantages of Completing Your Tax Return Early

Tax Time_TaxAgility Accountants LondonNobody enjoys the hassle of having to file their Tax Return, especially when you’ve left it to the last minute and find yourself having to rush around (amid panicked phone calls to your accountant) to get everything sent over to HM Revenue and Customs (HMRC) before the 31 January, online, or 31 October, paper, deadline.

If, as a small or medium-sized (SME) business owner, you recently received a letter in the post telling you it’s time for you to complete your annual Tax Return, you may want to consider getting it done early this year in order to avoid the otherwise inevitable rush.

And if that doesn’t convince you, maybe the following four points will:

You’ll Get a Tax Refund Faster

If you complete your Tax Return early, and pay any tax owed, you’ll receive a tax refund much sooner (assuming you’re owed tax back) than if you submit your Tax Return and money owed in January; especially towards the end of the month nearing the 31 January online deadline.

There’s no downside to receiving a tax refund sooner; and though interest rates may not be the highest they’ve ever been, the sooner you receive your tax return the sooner it can be sat back in your bank account earning interest!

You Can Manage Your Cash Flow Better

With that said, if you complete your Tax Return early you don’t have to pay the tax you owe until the 31 January deadline (and the 31 July second payment deadline, should this apply to you).

This buffer between filing and payment allows you to manage your cash flow better, as, depending on the size of your tax bill, you can make a budget to ensure you put a certain amount aside each month up until January ahead of making your payment.

You’ll Avoid Any Potential Penalties

If you file your Tax Return late (or send a payment late) you’re automatically issued with a £100.00 penalty; even if you miss the mark by just a few hours.

For this reason, when you submit your Tax Return and payment early you’ll avoid a wealth of expensive fees and penalties that could have otherwise come your way if you’d filed late, including a:

  • £100.00 late filing penalty,
  • £10.00 daily penalties after 3 months, up to £900.00,
  • £300.00, or 5 percent of your tax due after 6 months,
  • £300.00, or 5 percent of your tax due after 12 months.

You Can (Potentially) Use a Tax Code

If you’re a small business owner who owes less than £3,000 in tax payments and you complete your Tax Return by 30 December, you can opt to have your tax collected through your tax code over the coming year in a bid to spread out your payments.

If your business’s small size means you’re currently receiving tax credits or benefits, consider submitting your Tax Return before 31 July in order to send the Tax Credit Office real, up to date income figures (rather than estimates) to help you receive the tax credits or benefits you’re owed sooner.

Experienced Tax Accountants

To speak with a professional to discuss how to complete your Tax Return (both the collection and submission process), or for any other reason, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.


Take Advantage of Your Capital Gains Tax (CGT) Allowance

Calculator_TaxAgility Accountants LondonYour Capital Gains Tax (CGT) Allowance, also known as your Exemption Limit or Annual Exempt Amount, is the amount of profit you can make on the sale of property or an investment in a given year before you pay Capital Gains Tax on the amount above this figure.

You can find out your personal capital gains amount in a given year by deducting any losses and reliefs from the gains you made, thus uncovering your capital gains profit.

For the current, 2015-16, tax year the tax-free allowance is set at £11,100 for individuals (and trustees of disabled individuals; defined as somebody who has mental health problems or receives middle or higher rate of Attendance Allowance or Disability Living Allowance), and £5,550 for other trustees.

Making Use of Your Capital Gains Tax (CGT) Allowance

As everybody who is liable to pay Capital Gains Tax can receive this allowance, it’s possible for you and your spouse or partner to make effective, legal use of your combined allowances to ensure you pay as little tax on your capital gains as possible by transferring assets between you, or placing them in joint names before an impending sale.

This method is deemed wholly legal by HM Revenue and Customs (HMRC) as couples are often looked upon as a joint unit, despite the fact that each partner receives an individual Capital Gains Tax Allowance.

Another way you can make best use of your allowance, should you be expecting to make a particularly large gain, is to spread the monetary release of this gain over a number of tax years so to make full use of your tax exemption limit, assuming this is an acceptable option for you.

Capital Gains Tax (CGT) Rates

Any capital gains profit you make in a given year that’s over your Capital Gains Tax Allowance will be taxed at the Capital Gains Tax rates for that year.

The rates for the current, 2015-16, tax year haven’t changed since 2013, with the rate you have to use depending on the total amount of taxable income you make in the year in question (including profit from your small business, dividends, and salary payments). These rates are currently:

  • 18% or 28% for individuals
  • 28% for trustees or representatives of someone who has died
  • 10% for capital gains that qualify for Entrepreneurs’ Relief

Experienced Capital Gains Tax (CGT) Accountants

Whether you’re a small to medium-sized business (SME) owner, or you’re looking to sell some property or investments in the near future, consider using our free Capital Gains Tax Calculator to estimate your capital gains liability, once your tax-free allowance has been deducted.

To speak with a professional tax accountant to discuss how to make the most of your (and your spouse/partner’s) Capital Gains Tax Allowance, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.


How the Emergency Budget Impacts Individuals and SME Owners

Budget TaxAgility Accountants LondonOn Wednesday Chancellor of the Exchequer George Osborne delivered an emergency (summer) Budget, just four months after Budget 2015 was delivered on 18 March, ahead of the general election.

The Budget focused, for the first time in almost twenty years by a Conservative government, on a surprise rise in the minimum wage. Also looking at an increase in the Employment Allowance, a cut in Corporation Tax, and a host of welfare reforms, the key points for individuals and small business owners from this week’s emergency Budget are outlined below.  For a more indepth summary, read our Summer Budget newsletter:

New National Living Wage

“Let me be clear: Britain deserves a pay rise and Britain is getting a pay rise.” Those were the words of George Osborne on Wednesday ahead of the introduction of the new National Living Wage.

Promising a minimum wage (for workers aged over twenty-five) of £7.20 an hour from April 2017, rising to £9.00 an hour by 2020 (with 6 percent a year average increases between these two dates), Mr. Osborne claimed that the new National Living Wage will increase the wages of 2.7 million workers across the United Kingdom.

Employment Allowance Increased to £3,000

From April 2016 the Employment Allowance will be increased to £3,000 from £2,000, allowing small business owners to cut a further £1,000 from their National Insurance bill. Combined with the new National Living Wage, from next year small business owners will be able to employ four members of staff, full time, while not paying any National Insurance.

Personal Allowance Increased to £11,000 in April 2016

We knew it was coming, yet on Wednesday the Chancellor confirmed that the tax-free Personal Allowance will increase to £11,000 for the 2016-17 tax year, with the higher rate tax threshold increasing to £43,000.

Corporation Tax Cut to 18% by 2020

Seen as an olive branch to businesses large and small that will, inevitably, be affected by the higher new National Living Wage, Mr. Osborne’s plan to cut Corporation Tax by 1 percent to 19 percent by 2017, and a further 1 percent to 18 percent by 2020, may help heal some open wounds.

Annual Investment Allowance

From January 2016 the annual investment allowance will be permanently increased to £200,000 (it was previously increased on a short-term basis), meaning business owners can reduce the full cost of a number of items (including machinery costs) up to £200,000 of their pre-tax profits per year.

If you use the Tax Agility app, we’ve already added this change in the ‘Main Capital and Other Allowances’ section.

Welfare Reforms

In the emergency Budget the Chancellor announced a number of reforms to the welfare system that will make it, in the Government’s words, “fairer for taxpayers who pay for it, while continuing to support the most vulnerable.”

These reforms included a four year freeze on working-age benefits (including tax credits and Local Housing Allowance) from 2016-17, and household benefit caps being reduced to £20,000, or £23,000 in London.

New £5,000 Tax-Free Dividend Allowance

The new £5,000 tax-free dividend allowance means only individuals who make over £5,000 dividend income per year from shares will have to pay tax on this income, though tax rates will be increased for those making over this amount.

Experienced Personal and Small Business Accountants

To speak with a professional to discuss how the emergency Budget may affect you personal finances, or those of your business, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.


Summer Budget July 2015

Welcome to the 8th July Summer Budget edition of Tax Tips & News.

In this analysis, we have mainly concentrated on the tax measures that will directly affect individuals, employers and small businesses.

Summary

Chancellor George Osborne has delivered the first Budget by a wholly Conservative government in almost 20 years. The March 2015 Budget provided some clues as to possible new measures and of course, the Conservative election manifesto contained a wide range of commitments to be introduced during the course of the current parliament.

The Chancellor said that this is a Budget for working families in a 'one-nation society'. In 'a big Budget for a country with big ambitions', he focused on how the government will continue with its deficit-reduction plans, whilst giving the promised support to 'hard-working families'. He said that whilst the deficit would be cut at the same pace as under the previous government, it would be a bold budget containing bold new measures.

As predicted, savings in welfare spending of around £12bn, and increases in revenue from tax avoidance and evasion to yield around £5bn made an early couple of headlines in the Chancellor's speech.

The welfare savings are to be funded by:

  • ensuring those aged 18 to 21 who receive Universal Credit apply for an apprenticeship or traineeship, gain work-based skills, or go on a work placement 6 months after the start of their claim;
  • subjecting benefit payments to a regional cap (£23,000 per year in London and £20,000 in other areas - cut from £26,000 a year);
  • limiting child tax credits to two children for new claimants;
  • working-age benefits, including tax credits and Local Housing Allowance, will be frozen for 4 years from 2016-17 and
  • reducing rents for social housing by 1% a year for 4 years. Tenants on higher incomes (over £40,000 in London and over £30,000 outside London) will be required to pay market rate, or near market rate, rents.

With regards to tax avoidance and evasion, HMRC is to be given significant extra investment - some £60m between now and 2020 - for increased work on tackling evasion and non-compliance. It will be interesting to see how and where this money will be spent.

The Conservative manifesto pledged to introduce a new law within the first one hundred days of a Conservative government to prevent any rises in income tax, VAT or national insurance in the next parliament and it seems that this promise is now to be delivered. Broadly, a five-year 'tax lock' will guarantee no increases in income tax rates; no increases in VAT, nor an extension of its scope; and no increase in national insurance, nor an increase in its ceiling above the higher rate threshold. However, the Chancellor could still move the goalposts - there will still be plenty of scope to raise more revenue without increasing tax rates by widening the definitions of what is taxed, or by withdrawing tax reliefs.

This newsletter provides a summary of the key tax points from the July Budget, based on the documents released on 8 July 2015. It is possible that changes will be made between now and the publication of the draft legislation, which is due to be published on 15 July 2015. We will keep you informed of any significant developments.

Individuals

Tax rates and the personal allowance

Although the personal allowance for 2016-17 was set at £10,800 by the first Finance Act 2015, it has now been confirmed that it will rise from its current level of £10,600 to £11,000 for 2016-17. The government plans to increase the personal allowance to £12,500 by 2020.

The personal allowance will automatically increase in line with the equivalent of 30 hours a week at the national minimum wage for individuals over 21, once the personal allowance has reached £12,500. The Chancellor of the Exchequer will have a legal duty to consider the level of the national minimum wage in setting the personal allowance each year, until it reaches £12,500.

Increases to the personal allowance since 2010, when it was £6,475, mean that a typical taxpayer will be £905 a year better off in 2016-17.

The basic rate limit will be increased to £32,000 for 2016-17 and to £32,400 for 2017-18. As a result, the higher rate threshold will be £43,000 in 2016-17 and £43,600 in 2017-18.

National living wage

From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020.

Dividends

The dividend tax credit (which reduces the amount of tax paid on income from shares) is to be replaced with a new £5,000 tax-free dividend allowance for all taxpayers from April 2016.

Tax rates on dividend income will also be increased. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Non-domiciled individual

Whilst the Chancellor stopped short of Labour's proposals to completely abolish non-dom status, he said that 'it is not fair that people live in this country for very long periods of their lives, benefit from our public services, and yet operate under different tax rules from everyone else.'

From April 2017 anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for tax purposes and will therefore be required to pay UK tax on their worldwide income. A technical consultation on the finer points of this change will be published later this year.

It is unclear how many individuals will be affected by the new rules. Those resident in the UK for more than seven years are currently required to either pay UK tax, or pay an annual charge that ranges from £30,000 to £90,000, depending on how long the individual has lived in the UK. The latest figures show that in 2012-13, some 5,080 paid the annual charge.

Inheritance tax on the family home

Currently, inheritance tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another. From April 2017, each individual will be offered a family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017-18. Broadly, the family home allowance will be added to the existing £325,000 IHT threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020-21. The new allowance will be tapered away from those leaving more than £2 million with the intention that those leaving more than £2.35m will not benefit from the new allowance. The tapering policy does, however, have a major flaw -where a home worth £175,000 is included in an estate with a value of between £2m and £2.35m, an effective rate of 60% will be payable.

Property income

Currently, individual landlords can deduct their costs - including mortgage interest - from their profits before they pay tax, giving them an advantage over other home buyers. Wealthier landlords receive tax relief at 40% and 45%. This tax relief will be restricted to 20% for all individuals by April 2020.

Landlords will be able to obtain relief as follows:

  • in 2017-18 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
  • in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.
  • in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.
  • from 2020-21 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

In addition, from April 2016, the 'wear and tear allowance', which allows landlords to reduce the tax they pay (regardless of whether they replace furnishings in their property) will also be replaced by a new system that only allows them to get tax relief when they replace furnishings.

Rent-a-room relief

The rent-a-room relief limit is to be increased from the current level of £4,250 to £7,500 from April 2016. This means that from 6 April 2016 a person will be able to receive up to £7,500 tax-free income from renting out a room or rooms in their only or main residential property. The relief also covers bed & breakfast receipts as long as the rooms are in the landlord's main residence.

Tax-free childcare

From September 2017, working families with three and four-year-olds will receive 30 hours of free childcare - an increase from the 15 hours they are currently offered.

In addition, from 2017, parents will benefit from up to £5,000 worth of free childcare a year in a policy designed to help parents work. The government will also fund 15 hours a week of free childcare for all disadvantaged two-year-olds, worth £2,500 a year per child.

Taxation of lump sum death benefits

A change is being made to the pensions tax rules to reduce the tax charge that applies to taxable lump sum death benefits paid from registered pension schemes or non-UK pension schemes. Broadly, the rate of tax payable will be reduced from 45% to the recipient's marginal rate of income tax. This change will apply in relation to lump sums paid on or after 6 April 2016.

2015 Anniversary Games

Non-UK resident sportspeople will be exempt from UK income tax on any income received as a result of their performance at the 2015 Anniversary Games which are taking place at the Queen Elizabeth II Olympic Park and stadium between 24 and 26 July 2015.

Councillors' travel expenses

In relation to payments made on or after 6 April 2016, travel expenses paid to councillors by their local authority will be exempt from income tax and NICs.

Tax-advantaged venture capital schemes amendments

Amendments are to be made to the existing Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rules. Broadly, the changes are as follows:

  • The first measure specifies the age of a company that is eligible for investment under EIS and VCT. Companies must raise their first investment under EIS, VCT or other risk finance investment within 7 years of making their first commercial sale or 10 years if the company is a knowledge-intensive company. However, no age limit will apply to companies raising an investment where the amount of the investment is at least 50% of the company's annual turnover, averaged over the previous five years. The age limit will apply also to any business that has been owned previously by another company.
  • In addition to the existing cap on annual investments of £5 million, there will be a new cap on the total amount of investments a company may raise under EIS, VCT or other risk finance investment, of £12 million or £20 million for knowledge-intensive companies (see below). Any risk finance investments used by a business previously owned by another company will count towards the total funding limit.
  • If an individual subscribes for shares in a company and that individual already holds shares in the company, the new shares will not be eligible for EIS unless the individual has made a risk finance investment in the company before Royal Assent or the individual's shares in the company (excluding founders' shares) were a risk finance investment. A risk finance investment is an investment under EIS, SEIS or Social Investment Tax Relief.
  • There will be a new requirement for the money to be used for the growth and development of the company (or subsidiary company).
  • The rule prohibiting the use of money for the acquisition of shares will be extended to all investments made by VCTs on or after the operative date and will therefore apply to non-qualifying holdings.
  • A new rule will prevent companies from using EIS and VCT investments to acquire a business.
  • Higher limits are being introduced on total investment, age of company and number of employees to provide support for knowledge-intensive companies that are particularly likely to struggle to access finance. A knowledge-intensive company is a company:
  • whose costs of research and development or innovation are at least 15% of the company's operating costs in at least one of the previous three years, or at least 10% of the company's operating costs in each of the previous three years and either
  • which has created, is creating or is intending to create, intellectual property or
  • which has employees with a relevant Masters or higher degree who are engaged in research and development or innovation and who comprise at least 20% of the company's total workforce.

For knowledge-intensive companies, the limit on employees will be raised from less than 250 to less than 500 employees.

  • The following measures will be introduced with the intention of smoothing the interaction between SEIS and EIS:
  • companies will no longer need to use at least 70% of SEIS funds before raising funds under EIS or VCT respectively;
  • the EIS relief of investors in companies that redeem the shares of SEIS investors will no longer be reduced, so long as the SEIS relief on the redeemed shares is repaid;
  • the legislation will be amended to clarify that farming outside the UK is not an eligible activity for EIS, SEIS, VCT and Enterprise Management Incentives.

The measures will have effect from April 2014 for the change to the rule on redemption of shares of SEIS investors; 6 April 2015 for the provision removing the requirement for 70% of SEIS funds to be used before a company may raise funds under EIS or VCT; and Royal Assent for shares issued under EIS and for investments made by VCTs and for determining whether investments held by the VCT are to be regarded as qualifying holdings.

Possible pension reform

The Chancellor indicated that there are major changes afoot in the pension tax regime. Changes to the current regime may mean that in future, pension savings operate along similar lines to ISAs - where money is invested, the government makes top-ups to the investment, and the proceeds can eventually be taken out tax-free. There are no further details on this at present but a pension reform Green Paper is to be published for consultation, so we will be monitoring this area for further developments.

Investment managers Capital Gains Tax treatment of carried interest

Carried interest arises from an individual's participation in an investment vehicle, typically a partnership, and they will normally be charged to capital gains tax on the full amounts they receive in respect of that interest. In relation to all carried interest arising on or after 8 July 2015, whenever the arrangements were entered into, deductions will only be allowed in respect of sums actually given by the individuals as consideration for acquiring the right to that carried interest. This change will not affect genuine investments in funds made by managers on an arm's length basis (known as 'co-invest').

Businesses

Annual investment allowance

The annual investment allowance (AIA), which has previously been increased temporarily to £500,000 until 1 January 2016, will be set permanently at £200,000 from that date.

Broadly, the AIA allows businesses to deduct the full value of certain items, including equipment and machinery, up to a total value of £200,000 from their profits before tax. This helps them with cash flow because it means the full tax relief is given in the year that items are purchased, rather than over several years. Any businesses considering making large investment on items qualifying for the AIA should now consider the timing of such spending.

Personal service companies

The government is concerned that the IR35 rules are not effective enough and non-compliance in this area is estimated to cost over £400 million a year. The government has therefore asked HMRC to liaise with business on how to improve the effectiveness of existing IR35 legislation. We can expect to see further developments in this area.

Extending averaging for farmers

As announced in the Spring Budget, the averaging period for farmers will be extended from two years to five years from April 2016. A consultation on the measure has now been published.

Corporation Tax

Reduction in corporation tax rate

The main rate of corporation tax has already been cut from 28% in 2010 to its current rate of 20%. The Chancellor has announced that the main rate will now be cut further from 20% to 19% in 2017, and then to 18% in 2020, benefiting over a million businesses.

Business goodwill amortisation

Corporation tax relief for the cost of purchased goodwill will be restricted for acquisitions and disposals on or after 8 July 2015. This measure will be enacted in Summer Finance Bill 2015.

Research and development tax credits

Universities and charities will no longer be able to claim the research & development expenditure tax credit with effect from 1 August 2015. This corrects an anomaly in the legislation and restores the original policy intention. This measure will be enacted in Summer Finance Bill 2015.

Orchestra tax relief

The Government will go ahead with its proposed new tax relief for orchestras with effect from 1 April 2016. Corporation tax relief will be available at a rate of 25% on qualifying expenditure. This measure will be enacted in Finance Bill 2016.

National Insurance

Employment allowance

Businesses will have their employer national insurance bill cut by another £1,000 from April 2016, as the employment allowance rises from £2,000 to £3,000. This increase means that from April next year, businesses will be able to employ four people full time on the national living wage and pay no national insurance at all.

Also from April 2016, companies where the director is the sole employee will no longer be able to claim the employment allowance.

Abolition of Class 2 NICs and reform of Class 4

The government has confirmed that it will consult in autumn 2015 on abolishing Class 2 NICs and reforming Class 4 NICs for the self-employed.

VAT

VAT on services used and enjoyed in the UK

The VAT "use and enjoyment" provisions will apply so that from next year, all UK repairs made under UK insurance contracts are subject to UK VAT.

Also, the government will consider a wider review of off-shore based avoidance in VAT-exempt sectors, with a view to introducing additional "use and enjoyment" measures for services such as advertising in the following year.

VAT refunds for shared services

The Finance Bill 2016 will provide for refunds to eligible public bodies of VAT incurred on specified shared services.

Tax Simplification

Office for Tax Simplification

Legislation will be included in Finance Bill 2016 to put the Office for Tax Simplification (OTS) on a statutory basis and it will become a permanent office of HM Treasury.

The OTS are to review:

  • the closer alignment of income tax and National Insurance contributions; and
  • the taxation of small companies.

Taxation of employee benefits and expenses

A new statutory exemption for trivial benefits in kind costing less than £50 will be introduced with effect from April 2016. This was first announced at Autumn Statement 2014 as part of a package of measures intended to simplify the taxation and reporting of employee benefits and expenses. Although the other measures were included in Finance Act 2015, this measure has been held over for inclusion in Finance Bill 2016.

Simplified expenses

Finance Act 2013 introduced simpler rules that can be used by unincorporated businesses to claim relief for some business expenses. Legislation will be included in Finance Bill 2016 to amend those rules to ensure that partnerships can fully access the provisions in respect of the use of a home and where business premises are also a home.

Simplification of the treatment of termination payments

The government will consult on the tax and NICs treatment of termination payments with a view to making the rules simpler and fairer.

Reviewing the rules for tax relief on travel and subsistence expenses

A discussion paper will shortly be published outlining proposals for new rules for tax relief on travel and subsistence expenses.

HMRC debtor and creditor interest rate

Currently, different rates of interest apply to tax-related debt depending on whether or not it follows from court action. Legislation will be included in the Summer Finance Bill 2015 to ensure that rates of interest payable on tax-related debts to which HMRC is a party are all contained within tax legislation.

With effect for interest accruing on and after 8 July 2015, the government will set the rate of interest which applies on taxation-related debts payable under a court judgment or order by HMRC to a rate equal to the Bank of England base rate plus 2%; and it will apply the late payment interest rate of 3% to taxation-related debts owed to HMRC under a court judgment or order.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

If you need further assistance just let us know – we're here to help!

Contact us today on 020 8780 2349 to discuss how any of the above affects your personal or business finances or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.