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Tax Tips and News for 2016

This issue … Making Tax Digital: Launch of PTAs; VAT Partial Exemption Changes Following Le Credit Lyonnais; 2016 Fuel and Van Benefit Rates Set; Introducing Innovative Finance ISAs; January Questions and Answers; January Key Tax Dates

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[gdlr_tab title="Making Tax Digital: Launch of PTAs"]

As part of a £1.3bn investment to transform HMRC into one of the most digitally advanced tax administrations in the world, HMRC have published a report and discussion paper setting out how new procedures for interacting with HMRC and paying tax will be implemented under the Making Tax Digital banner.

It is intended that by April 2016, every individual and small business will have access to their own secure digital tax account that enables them to interact with HMRC digitally. By 2020, businesses and individual taxpayers will be able to register, file, pay and update their information at any time of the day or night, and at any point in the year, to suit them. For the vast majority, there will be no need to fill in an annual tax return.

The government is also to consult on the issue of payment - on options to simplify the payment of taxes, align payment arrangements and bring payment dates closer to the time of the activity or transactions generating the tax liability. HMRC will be running a series of consultation events in January and February 2016 to discuss these issues with stakeholders.

The Making Tax Digital project has also presented the opportunity to align payment arrangements across different taxes and to provide a more joined-up service for taxpayers. The government has already brought the collection of Class 2 National Insurance Contributions (NICs) for the self-employed into the arrangements for self-assessment, which means that from April 2015, Class 2 NICs are being collected alongside Class 4 NICs for most. The government is also consulting on the abolition of Class 2 NICs and reform of Class 4 to further simplify the system (see www.gov.uk/government/consultations/consultation-on-abolishing-class-2-national-insurance-and-introducing-a-contributory-benefit-test-to-class-4-national-insurance-for-the-self-employed/the-abolition-of-class-2-national-insurance-introducing-a-benefit-test-into-class-4-national-insurance-for-the-self-employed for further details).

HMRC have now officially launched Personal Tax Accounts (PTAs), which enable UK taxpayers to manage their tax affairs online. More than a million customers completing their self-assessment electronically will be directed to their online PTA which will:

- provide a clear and joined-up view of the tax they pay and benefits they are entitled to;
- enable customers to update their tax details as they occur in real time, removing the need to resubmit information; and
- make it easier and more efficient to contact HMRC officials through services like web chat and virtual assistant.

Between now and May 2016 HMRC will continue to add new services to the PTA, including:

- improvements to the 'Check your tax estimate service' so customers can look a year ahead and back on their current, future and previous tax position;
- a new online payment and repayment service;
- expanding the opportunity for non-self-assessment customers to choose to stop receiving paper from HMRC;
- integration of the tax credits online service in time for 2016 renewals;
- introducing change of circumstances for the marriage allowance service; and
- introduction of the new national insurance/state pension service.

Further information on the Making Tax Digital project can be found atwww.gov.uk/government/publications/making-tax-digital.
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[gdlr_tab title="VAT Partial Exemption Changes Following Le Credit Lyonnais"]

In Brief 22/15 HMRC confirm changes to the VAT Regulations 1995 to ensure that UK law is aligned with EU law following the decision of the European Court of Justice (ECJ) in the case Le Credit Lyonnais (C-388/11). The changes take effect from 1 January 2016.

In Le Credit Lyonnais, the ECJ found that the VAT Directive could not be interpreted so as to allow a company to take into account the turnover of its foreign branches when calculating how much input tax it can deduct in the member state where it has its principal establishment, using a 'single pot' calculation. It also found that a sector in a partial exemption method could not be based on a geographic location. To reflect that decision, the March 2015 Budget announced proposals to exclude supplies made by overseas branches from partial exemption methods. As a result of feedback on the subsequent consultation, HMRC have narrowed the scope of changes, which are now set out in Brief 22/15.

Brief 22/15 can be found at www.gov.uk/government/publications/revenue-and-customs-brief-22-2015-changes-to-vat-regulations-following-judgment-in-the-case-of-le-credit-lyonnais-c-38811/revenue-and-customs-brief-22-2015-changes-to-vat-regulations-following-judgment-in-the-case-of-le-credit-lyonnais-c-38811.
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[gdlr_tab title="2016 Fuel and Van Benefit Rates Set"]

The Van Benefit and Car and Van Fuel Benefit Order 2015 (SI 2015/1979) comes into force on 31 December 2015 and takes effect for the tax year 2016-17 and subsequent tax years. The Order contains provisions for the following:

- the cash equivalent of the van benefit will rise from £3,150 to £3,170 for 2016-17;
- the van fuel benefit will increase from £594 to £598; and
- the cash equivalent of the benefit of fuel for a car is calculated by applying the 'appropriate percentage' (normally calculated by reference to the CO2 emissions of the car) to the figure in ITEPA 2003, s 150(1). SI 2015/1979 provides that this figure will rise from its current level of £22,100 to £22,200 for 2016-17.

Provisions in Finance Act 2015, s. 10 phase out the nil van benefit charge for zero emission vans which was available for the tax years 2010-11 to 2014-15 inclusive. This is being phased out between 6 April 2015 and 5 April 2020 and means that employees using zero emission vans for more than insignificant private use will now be liable for the charge on a tapered basis until the full charge applies from 2020-21 onwards.

The cash equivalent of the benefit of a van for a tax year is calculated as follows:

- if the employee uses the zero emission van for insignificant private use for the tax year, the cash equivalent is nil;
- if that condition is not met for the tax year then,

(a) if the van cannot in any circumstances emit CO2by being driven and the tax year is any of the tax years 2015-16 to 2019-20, the cash equivalent is the 'appropriate percentage' of £3,150 (rising to £3,170 in 2016-17), and

(b) in any other case, the cash equivalent is £3,150 (2015-16 rate; rising to £3,170 in 2016-17).

The 'appropriate percentage' is:

20% for 2015-16;
40% for 2016-17;
60% for 2017-18;
80% for 2018-19; and
90% for 2019-20.

SI 2015/1979 can be viewed online at www.legislation.gov.uk/uksi/2015/1979/contents/made.
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[gdlr_tab title="Introducing Innovative Finance ISAs"]

From 6 April 2016, a new type of Individual Savings Account (ISA) will be launched - the Innovative Finance ISA. This new ISAs will be able to hold peer-to-peer (P2P) loans, which often pay significantly higher returns than cash accounts. Broadly, P2P lenders act as middlemen by matching people who wish to invest cash with those who want to borrow money. From 6 April 2016, interest and gains from P2P loans will qualify for tax advantages where these loans are made through an Innovative Finance ISA.

There are currently two types of ISA - cash ISA and stocks and shares ISA. The ISA Regulations specify which investments qualify for each of these accounts. P2P loans are currently not eligible for either type of ISA, other than where they are included within an investment trust or similar product that is eligible to be held within a stocks and shares ISA. The ISA Regulations also set out which financial institutions can offer ISAs, and specify the information that ISA providers must supply to HMRC. These regulations also specify other rules and features of ISA, including those concerning the ownership, transfer and withdrawal of ISA investments. The ISA Regulations will be amended by secondary legislation to establish a third ISA type - the Innovative Finance ISA. Accounts will be available to investors aged 18 or over. Along with loan repayments, interest and gains from peer to peer loans will be eligible to be held within this new type of ISA, without being subject to tax.

P2P lending platforms with full regulatory permissions from the Financial Conduct Authority (FCA) will be eligible to offer the Innovative Finance ISA in accordance with the ISA Regulations. Like other ISA providers, these platforms will be required to supply HMRC with certain information about the accounts they provide. Various account requirements set out in the ISA Regulations will be updated or modified to accommodate the Innovative Finance ISA.

As a result of these changes, an ISA investor will be entitled to subscribe new money each year to a maximum of one Innovative Finance ISA, one cash ISA and one stocks and shares ISA. The amount of new money paid into all of the ISAs held by an investor must not exceed the overall ISA subscription limit for the year.

For further information, see the GOV.UK website at www.gov.uk/government/publications/income-tax-innovative-finance-individual-savings-account-and-peer-to-peer-loans/income-tax-innovative-finance-individual-savings-account-and-peer-to-peer-loans.
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[gdlr_tab title="January Questions and Answers"]

Q. What is our IHT position following a change of ownership?

A. In 2014, my partner and I changed the ownership status of our house from joint tenants to tenants-in-common. At that time, my share of the equity was reduced from 50% to 25% and my partner's was, in turn, increased to 75%. Does this count as a lifetime gift for inheritance tax purposes (IHT)?

If you are married to you partner (spouse or civil partners), then the change will not count as a lifetime gift (a potentially exempt transfer (PET)) as it will be treated as an inter-spouse/civil partner transfer (assuming that your partner is domiciled in the UK). If, however, you are not married, the transfer will be treated as a PET, and you will need to live for seven years after the transfer date for it to be completely ignored for IHT purposes.

Q. CGT annual exemption and entrepreneurs' relief. Can the annual capital gains tax (CGT) exemption be utilised against a capital gain that qualifies for entrepreneurs' relief?

A. Yes it can.

If your qualifying net gains exceed the lifetime limit applicable to the time you make that disposal, no further relief is due and the excess over that amount is wholly chargeable at the CGT rate (18% or 28% for disposals made on or after 23 June 2010). The annual exempt amount is allocated in the most beneficial way, so is set first against gains having the highest rate of CGT. If you make a subsequent business disposal in a later year which qualifies for entrepreneurs' relief, the total relief (for all years) is still limited to your lifetime limit. Any gains exceeding that limit are wholly chargeable at the normal rate of CGT.

See the HMRC factsheet HS275 for further details (www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-entrepreneurs-relief-2015).

Q. Can I claim for laundering my uniform? My employer provides me with a uniform that bears our company logo. I am required to maintain the uniform at my own expense without a contribution from my employer. Can I claim tax relief for the costs of keeping it clean?

A. You may be entitled to a uniform tax allowance if your work requires you to wear a uniform that is provided by your employer and bears a company logo. Depending upon your employment, this could be anything from a polo shirt with the company's logo on it, to a high-visibility jacket and overalls. If you are then required to maintain that uniform at your own expense without a contribution from your employer, you are likely to be entitled to the allowance.

Flat rate expenses for cleaning costs have been negotiated for operatives in particular industries (including shop workers wearing a branded uniform). You can find a full list of flat rate expenses on the HMRC website at www.hmrc.gov.uk/manuals/eimanual/EIM32712.htm. There are also separate flat rate expenses available for nurses and other health care workers.

The cost of clothing worn at work has been considered by the Courts on a number of occasions and in many cases they have ruled that the cost of work clothing is not incurred wholly and exclusively in the performance' of the taxpayer's duties. In general terms, you will not be able to claim a clothing allowance for the cost of upkeep, replacement and repair of ordinary clothing, even if you only wear it for work.
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[gdlr_tab title="January Key Tax Dates"]

1 - Due date for payment of Corporation Tax for the year ended 31 March 2015

14 - Return and payment of CT61 tax due for quarter to 31 December 2015

19/22 - PAYE/NIC, student loan and CIS deductions due for month to 5/1/2016 or quarter 3 of 2014/16 for small employers

31 - Deadline for filing 2015 Self Assessment personal, partnership and trust Tax Returns - £100 first penalty for late filing even if no tax is due or tax due is paid on time
- Balancing self assessment payment due for 2014/15
- Capital gains tax payment due for 2014/15
- First self assessment payment on account due for 2015/16
- Interest accrues on all late payments
- Half yearly Class 2 NIC payment due
- Further penalty of 5% of tax due or £300, whichever is greater for personal tax returns still not filed for 2013/14
- 5% penalty for late payment of tax unpaid for 2013/14 self assessment
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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.

by Donovan

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.

by Robin Brown