Money Matters – Spring 2018 – Newsletter from Hodgsons

//Money Matters – Spring 2018 – Newsletter from Hodgsons

Money Matters – Spring 2018 – Newsletter from Hodgsons

Introduction

Business regulation continues to increase with the introduction of a new data protection law in May 2018.

The tax environment is evolving with changes to stamp duty, self-assessment, the continuous adjustment of tax legislation and all in the context of Brexit. However change can also create opportunities.

 

Introducing ‘Simple Assessment’

In September 2017, HMRC began rolling out its new Simple Assessment system, with the stated aim of simplifying the tax collection process.

Simple Assessment allows HMRC to assess the income tax and capital gains liability for certain taxpayers, without the need for them to complete a self assessment tax return.

HMRC will instead use the data it already holds to calculate the tax owed.

Who is affected?

Back in the 2015 March Budget, the previous Chancellor, George Osborne, announced the government’s intention to phase out the self assessment tax return, in favour of a digital personal tax account, or PTA.

However, Simple Assessment currently only applies to two groups of taxpayers:
• New recipients of the State Pension, who have income which exceeds the personal allowance for the 2016/17 tax year.
• Individuals who have underpaid PAYE tax, and whose payments cannot be collected via their tax code.

These individuals will no longer need to complete a self assessment tax return. HMRC will write to affected individuals with a Simple Assessment calculation (SAC), in the form of either a P800 or a Simple Assessment letter (PA302).

How it works

The SAC will work out an individual’s liability to tax based on the information provided to HMRC by third parties, such as employers, banks and pension providers. This includes any earnings under PAYE, state or employer pensions, employee benefits and expenses, and savings interest.

The SAC will detail the amounts chargeable to income tax and capital gains tax, the amount payable and how this has been calculated, together with the date payment is due and how the payment can be made.

Taxpayers must carefully check the details on the SAC and pay any tax due by the deadline. Any queries relating to the information provided must be raised with HMRC within 60 days of the issue of the SAC.

Existing state pensioners who have received a notice to file a tax return for the 2016/17 tax year must complete their return in the normal way. In 2017/18 they will receive a Simple Assessment notification from HMRC.

Although we cannot currently access your PTA, we can help with any queries you may have relating to your personal income, as well as offering advice on the correct tax treatment and a range of strategies to help maximise your income.

 

Strategies for saving tax

As the new tax year approaches, now is the time to make sure that you have made the most of the available allowances and exemptions. Here, we outline some key measures to help boost your business and personal wealth.

Business strategies

* Consider the company car

Many businesses choose to make use of company cars – however, have you considered whether a company car is the most tax-efficient option for your needs?

In 2017/18, car benefit and car fuel benefit is calculated at up to 37% of the list price (car), and by the same percentage on a notional £22,600 (fuel).

Every year, the percentages increase, and further changes to the rules are set to come into effect in April 2018, so now may be the  ideal time to review your company car policy.

TIP: Paying employees for business mileage in their own vehicles may prove more advantageous, especially if their business mileage is high. You may also wish to consider a company van. We can discuss the options with you.

* Extract business profits tax-efficiently

There are a number of ways in which you can extract profits from your business tax-efficiently.

Some business owners may opt to take a dividend rather than a salary or a bonus. While a salary or bonus can carry up to 25.8% in employer  and employee national insurance contributions (NICs), dividends are paid free of NICs. Dividends are not, however, tax deductible for the
company. This area requires careful consideration, so please speak to us.

TIP: The Dividend Allowance is being cut from £5,000 to £2,000 from 6 April 2018, so it may be beneficial to take dividends before the 2017/18 tax year end. If feasible, funds can then be loaned back to your company paying a commercial rate of interest, thus taking advantage of your savings allowances.

 

Personal strategies

* Make tax-efficient savings

Over the years, Individual Savings Accounts (ISAs) have proved to be a popular way to save. The overall annual ISA subscription limit is currently £20,000.

The new Lifetime ISA, available to adults aged under 40, allows first-time buyers and those saving for retirement to deposit up to £4,000 into an account each year. The government will add a 25% bonus on any savings put into the account before their 50th birthday.

TIP: Make sure you have fully utilised your ISA allowance, ahead of 5 April.

* Maximise your retirement income

If you are not currently in an appropriate employer pension scheme, it is important to make your own pension arrangements.

Relief is available on annual  contributions limited to the greater of £3,600 (gross) or the amount of UK relevant earnings eligible for tax relief, and subject also to the annual allowance, which is generally £40,000.

TIP: Pension contributions must be paid on or before 5 April 2018 to be applied against 2017/18 income.

* Maximise your retirement income

If you are not currently in an appropriate employer pension scheme, it is important to make your own pension arrangements.

Relief is available on annual contributions limited to the greater of £3,600 (gross) or the amount of UK relevant earnings eligible for tax relief, and subject also to the annual allowance, which is generally £40,000.

TIP: Pension contributions must be paid on or before 5 April 2018 to be applied against 2017/18 income.

 

A new era for stamp duties

The stamp duty regime has seen some significant changes in recent times, and there are further measures in the pipeline.

* New exemption for first-time buyers

In the 2017 Autumn Budget, Chancellor Philip Hammond announced a new exemption from stamp duty land tax (SDLT) for most first-time buyers. A first-time buyer is an individual or individuals who have never owned an interest in a residential property in the UK or elsewhere, and who will occupy the property as their main residence.

From 22 November 2017, first-time buyers in England, Wales (until April 2018) and Northern Ireland paying £300,000 or less for a residential property no longer pay SDLT.

Those paying between £300,000 and £500,000 pay SDLT at 5% on the amount of the purchase price in excess of £300,000.

Those purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates. The rates applying in England, Wales and Northern Ireland are:

Residential Rate Non-residential Rate
Up to £125,000 0% Up to £150,000 0%
£125,000 – £250,000 2% £150,000 – £250,000 2%
£250,000 – £925,000 5% Over £250,000 5%
£925,000 – £1,500,000 10%
Over £1,500,000 12%

The rates apply to the portion of the total value which falls within each band. Additional duty of 3% may apply to the purchase of additional residential properties.

 * The new Land Transaction Tax 

From 1 April 2018, Wales will roll out its own stamp duty equivalent, the Land Transaction Tax (LTT), which preserves the essential structure of SDLT but with some key differences, including a higher starting threshold, together with higher rates of duty for some residential properties with a greater value. The existing first-time buyer exemption will also be removed. The proposed new LTT rates are:

Residential Rate Non-residential Rate
Up to £180,000 0% Up to £150,000 0%
£180,000 – £250,000 3.5% £150,000 – £250,000 1%
£250,000 – £400,000 5% £250,000 – £1,000,000 5%
£400,000 – £750,000 7.5% Over £1,000,000 6%
£750,000 – £1,500,000 10%
Over £1,500,000 12%

 

Are you prepared for the new data protection regulation?

The new General Data Protection Regulation (GDPR) is set to come into effect on 25 May 2018, and will require all organisations that deal with individuals living in an EU member state to protect the personal information belonging to those individuals, and have verified proof of such protection.

Under the new regulation, firms must be accountable for their data usage, and must identify a lawful basis for processing personal data. The GDPR builds on existing principles under the Data Protection Act, and also introduces some additional rights.

The new regulation applies to processing carried out by organisations operating in the EU, and also to those offering goods or services to individuals who reside in the EU. The UK’s decision to leave the EU will not affect the introduction of the GDPR, so it’s essential that your
business is prepared. Businesses are strongly advised to review their data privacy and security practices, to help ensure they are compliant. You may wish to provide GDPR training to your employees, and review your procedures relating to consent, requesting fresh consents from customers where necessary.

The financial penalties for non-compliance with the GDPR are severe, with fines costing up to £20 million, or up to 4% of total annual worldwide revenue, whichever is the greater. 

 

New National Minimum Wage and National Living Wage rates

In the 2017 Autumn Budget, Chancellor Philip Hammond announced increases in both the National Minimum Wage (NMW) and the National Living Wage (NLW). The new rates will apply from April 2018.

Please note, there are separate minimum  wage rates for agricultural workers. Visit: www.gov.uk/agricultural-workers-rights/pay-and-overtime for more information.

Employers can also choose to pay their employees the Voluntary Living Wage (VLW), which is set by the independent Living Wage Foundation.

The VLW is calculated based on workers’ actual living costs, and the wage currently stands at £8.75 per hour, with the London VLW being £10.20 an hour.

 

Abolition of Class 2 NICs is delayed

The government has delayed the abolition of Class 2 national insurance contributions (NICs) by a year, to 6 April 2019.

Under the reforms, which had been due to take effect in April 2018, Class 2 NICs will be abolished and Class 4 contributions will be reformed to include a new threshold, the ‘Small Profits Limit’.

The government stated that ‘the delay will allow time for [it] to engage with interested  parties and parliamentarians with concerns relating to the impact of the abolition of Class 2 NICs on selfemployed individuals with low profits’.

Access to contributory benefits for the self-employed is currently gained through Class 2 NICs. After the abolition, those with profits between the Small Profits Limit and Lower Profits Limit will not be liable to pay Class 4 contributions, but will be treated as if they have paid Class 4
contributions for the purposes of gaining access to contributory benefits. All those with profits at or above the Class 4 Small Profits Limit will gain access to the new State Pension, contributory Employment and Support Allowance and Bereavement Benefit.

Those with profits above the Lower Profits Limit will continue to pay Class 4 contributions.

 

HMRC considering plans for new points-based penalty system

HMRC has announced its intention to reform the current penalty system for late or missing tax returns, as part of its review of tax administration and compliance.

Under the proposed new system, taxpayers who miss the self assessment filing deadline could receive driving licence-style points instead of an immediate fine. Taxpayers would only be penalised once their points reach a specified level. Points would also be wiped from an individual’s records after a set period of time.

Under the current system, taxpayers who fail to submit their tax return by the 31 January deadline are liable to an instant £100 fine, with further penalties applying for prolonged delays.

The new ‘holistic’ approach is intended to focus on taxpayers who persistently break the rules, rather than those who make genuine errors of judgement.

Outlining its plans, the Treasury said: ‘The government will reform the penalty system for late or missing tax returns, adopting a new points-based approach. It will also consult on whether to simplify and harmonise penalties and interest due on late payments and repayments.

‘This will ensure that the system is fair, simple and effective across different taxes. Final decisions on both measures will be taken following this latter consultation.’

By | 2018-05-16T13:28:07+00:00 May 16th, 2018|Money Matters|0 Comments