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2016 saw a considerable number of property taxation changes hit the buy to let investor and unfortunately the changes don’t stop there.
As from the 6th April 2016 the purchase of an additional residential property has been liable to a stamp duty supplement of 3% in addition to the current stamp duty land tax rate. The wear & tear allowance was abolished and replaced with a ‘replacement of domestic items relief’ and the reduction in capital gains tax rates was denied to the residential landlord.
As from 6th April 2017, we will see probably the most significant change begin to take effect, the restriction to financial costs.
This restriction will have a three-year phased introduction and will see the deduction available for mortgage interest and finance costs restricted to the basic rate of tax.
Year % of costs deducted from profits % of costs available as a basic rate reduction
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%
2020/21 0% 100%
Unfortunately, due to the method of application of this new measure more tax payers may be effected than is first thought. Many current basic rate taxpayers, may become a higher rate taxpayer once mortgage interest is restricted in the rental accounts.
Micro-traders are to benefit from new tax breaks!
With effect from 6th April 2017, two new allowances will come into effect thanks to the rise in eBay trading and Airbnb.
To try and remove some of the confusion that surrounds when a ‘hobby’ becomes a trade the government have announced two £1,000 allowances to be known as:
• Micro Entrepreneurs Allowance and
• Property Allowance
So how will this work?
Well, any individual who receives gross income of less than £1,000 a year from a small trade or land and property will no longer be required to tell HMRC and will not need to register for a self-assessment tax return. Alternatively, if their income exceeds £1,000, then they can opt to make a deduction from gross earnings of £1,000 and report no expenses, this is particularly useful for a micro trader with limited expenses.
These new reliefs were created with the online trader in mind but of course, may benefit many small traders from cake decorators to dog walkers.
On the 15th August 2016, HMRC published one of their most controversial consultation documents in recent times, Making Tax Digital!
The proposal put forward by HMRC is that from 2018 all businesses, the self-employed and landlords will be required to use software to maintain their business records and transmit this information to HMRC on a quarterly basis, rather than once a year on a personal self-assessment tax return as currently happens.
Why is tax going digital?
HMRC’s vision is that tax will operate more closely to ‘real time’ and that we will be in a position where a taxpayer should never have to tell HMRC information that it already knows. In other words, information that HMRC needs will be automatically uploaded to a digital account. All tax information will then be in one place bringing an end to the tax return. Of course, this ‘real time’ account will also mean that tax can be paid based on business activity during the year rather than on estimates based on the previous years trading.
What are the key issues to consider with making tax digital?
• Digital skill – Do all businesses have the digital awareness to be able to implement making tax digital, many may struggle.
• Cost – The cost of implementing a new accounting system can be significant particularly to the micro business.
• Time – Does a small business proprietor have the time available to be implementing a new accounting system particularly when they already have one in place (maybe excel spreadsheets) that is working sufficiently well.
• Additional work – Will businesses now need to provide HMRC with information four times a year rather than once?
Whatever happens with Making Tax Digital we here at Stafford based Accountants Cheadles are ready and waiting to help. We are partnered with cloud accounting software provider Xero to be able to offer our clients the benefits of the cloud for simpler processing of the quarterly tax statements. We also have a range of other accounting solutions available so that our clients are able to choose the best and most cost-effective solution for them.
Are you a ‘low cost’ trader?
If you currently use the VAT Flat Rate Scheme then the changes announced by The Chancellor in the Autumn Statement may effect you.
As from 1st April 2017 a new flat rate percentage category will be created for businesses with limited expenditure. All businesses that fall within this category will be required to account for VAT using a 16.5% flat rate percentage against their gross turnover. The effect of this is that businesses will ultimately pay over almost all the VAT that has been charged to customers (19.8% of net).
According to HMRC a low cost trader is a business whose VAT inclusive expenditure on goods is:
• Less than 2% of their VAT inclusive turnover for the period; or
• Greater than 2% of turnover but less than £1,000 per annum
Well what counts as goods I hear you ask, according to HMRC ‘goods’ must be exclusively used for business purposes and does not include:
• Capital expenditure
• Food & drink for the consumption of the business or its employees
• All costs associated with motor vehicles
• Services
If you currently use the VAT Flat Rate Scheme and are likely to now fall into the ‘Low Cost Trader’ category then you have a few options to consider:
1. You could voluntarily de-register from VAT (if you VAT turnover is below the VAT de-registration limit)
2. You remain VAT registered but leave the Flat Rate scheme. Standard VAT accounting will allow you to recover input VAT on your expenditure however the increased administrative burden may need to be considered here.
3. You remain VAT registered and continue to use the VAT Flat Rate scheme applying the new percentage of 16.5% from 1st April 2017.
The proposed changes to IR35 announced in the 2016 Budget will come into effect from April 2017 tadalafil tablets. ‘Public sector bodies and agencies will be responsible for operating the IR35 tax rules that apply to off payroll working in the public sector. The rules will remain unchanged in the private sector.’ Consultation on the new changes ran from 26th May 2016 – 18th August 2016 and responses to the consultation are currently being considered.
Where workers are engaged through an intermediary, (either their own personal service company – PSC, individual or partnership), the public sector body, agency or other third party engaging them will be liable to apply the IR35 intermediaries rules and pay any associated Income Tax and National Insurance if necessary. Taxes will be reported through the Real Time Information PAYE system.
To determine whether the intermediaries rules apply, HMRC has developed a new digital tool which should give a definitive HMRC view on whether the rules apply to PSC’s working in the public and private sector. The bases on which the rules are applied have not been amended.
There will be a statutory right to appeal where a PSC or engager disagrees with the determination of the new rules. They will be able to request a formal review of the decision and appeal that decision to the tribunal.
Full details and information on the consultation can be found here
Limited Companies
The accounts for the first year of a new Limited Company need to be filed with Companies House within 21 months of the date of incorporation.
Following on from this, annual accounts need to be filed within nine months of the accounting period end date.
Penalties for late filing of accounts with Companies House
Not more than 1 month £150
More than 1 month but not more than 3 months £375
More than 3 months but not more than 6 months £750
More than 6 months £1,500
Penalties are doubled if a company files its accounts late in 2 successive financial years. Penalties can only be appealed under exceptional circumstances.
Payment of Corporation Tax
Payment needs to be made within nine months and one day of the accounting period end date.
Interest will be charged on late payment of tax.
Filing of Corporation Tax Returns with HMRC
The Corporation Tax Return (CT600) must be filed with HMRC within 12 months after the accounting period end date.
Penalties for late filing of CT600 with HMRC
Missed filing deadline £100
3 months £100 (additional)
6 months HMRC will estimate your Corporation Tax liability and add a penalty of 10% of the unpaid tax.
12 months Another 10% of any unpaid tax
If your tax return is late three times in a row, the £100 penalties are increased to £500 each.
Penalties can be appealed if you have a reasonable excuse.
Sole Traders and Partnerships
Self-Assessment and Partnership Tax Returns
Paper tax returns are to be filed with HMRC by midnight on the 31st October following the tax year end (5th April). Online returns can be filed by midnight on the 31st January following
the tax year end.
Example – For the tax year ended 5th April 2016
Paper returns need be filed by 31st October 2016
Online returns need to be filed by 31st January 2017
For Self-Assessment Tax Returns, if the tax and NIC owing is £3,000 or less, and is to be paid via a PAYE coding notice then the tax return needs to be filed by the 30th December following
the tax year end.
Any tax and NIC owing is to be paid to HMRC by the 31st January following the end of the tax year.
Payments on Account
If tax and NIC owing is greater than £1,000, HMRC requires that payments on account are made towards the following year’s tax bill (except in certain circumstances). The 1st payment on account
is to be made by the 31st January following the tax year end and the 2nd payment on account by the 31st July following that.
Penalties for late payment of Self-Assessment tax
30 days late 5% of tax due
6 months 5% of outstanding tax
12 months 5% of outstanding tax
Penalties for late filing of Self-Assessment Tax Return
Missed filing deadline £100
After 3 months late £10 per day (starting 1st February for paper submissions/1st May for online submissions – max £900)
6 months late 5% of tax due or £300 if greater
12 months late 5% of tax due or £300 if greater
More details on HMRC penalties
More details on Companies House <a href="https://www navigate to this website.gov.uk/annual-accounts/penalties-for-late-filing”>penalties
To see whether your staff falls into this category review our blog “Auto Enrolment – Worker Categories”
Once you have categorised your member of staff as an Entitled Worker you need to notify them of this by letter, if they wish to join a pension scheme you must enrol them into a scheme of your choice. The employee would then have to make contributions but as an employer you have no legal obligation to contribute too.
If you have any questions relating to whether your staff are Entitled Workers and what implication this has to your business please feel free to contact us here at Cheadles. We can advise what correspondence needs sending to your staff and what to do if they decide they want to contribute to a pension fund.
To see whether your staff falls into this category review our blog “Auto Enrolment – Worker Categories”
Once you have categorised your member of staff as a Non-Eligible Jobholder you need to notify them of this by letter. They can then opt-in to the scheme if they wish.
If you have any questions relating to whether your staff are Non-Eligible Jobholders and what implication this has to your business please feel free to contact us here at Cheadles. We can advise what correspondence needs sending to your staff and what to do if they decide they want to contribute to a pension fund.
Try not to panic, there are things that can be done! Firstly you need to review what contributions should have been made.
We also suggest you notify your professional advisor as they can give you specific advice to your situation.
Finally; make a voluntary disclosure to The Pension Regulator. They are there to help not to penalise for genuine mistakes that have happened.
If you need advice on this and some reassurance give Cheadles a call. Based in Stafford we can help go through the problems and find solutions to minimise if not remove all penalties that you could incur for not meeting your employer obligations on time.
To see whether your staff falls into this category review our blog “Auto Enrolment – Worker Categories”
Once you have categorised your member of staff as an Eligible Jobholder you need to notify them of this by letter have a peek at these guys.
The contributions to be made to the employee’s pension fund are as follows:
| Er | Ee | Total | |
| From October 2012 | 1.0% | 1.0% | 2.0% |
| From October 2017 | 2.0% | 3.0% | 5.0% |
| From October 2018 | 3.0% | 5.0% | 8.0% |
If you have any questions relating to whether your staff are Eligible Jobholders and what implication this has to your business please feel free to contact us here at Cheadles. We can advise what correspondence needs sending to your staff and what steps to take next.