Category Archives: Tax News

HMRC to implement changes to how it is paid

HM Revenue & Customs (HMRC) is to change the way that taxpayers and their agents can make payments.

From 15 December 2017 and 13 January 2018, the pay at the post office service will be withdrawn and HMRC will no longer accept payment by personal credit card.

However, the Revenue has confirmed that taxpayers will still be able to use debit cards and corporate credit cards to pay their tax bill.

Apologising for the inconvenience that is likely to be caused, HMRC has said that there will still be many ways to pay, including:

  • Direct Debit
  • Online or telephone banking (including Faster Payments, Bacs and CHAPS)
  • Debit/Corporate Credit card online or by telephone.

HMRC says that the change will make payments more secure and will save taxpayers the time and expense of going to a post office or bank.

This change is likely to have a significant impact on businesses and individuals, so it is important that they seek advice if they are uncertain about how they should pay their tax bill.

LINK: Paying HMRC

OECD calls on UK to increase tax on self-employed

A report from the Organisation for Economic Co-operation and Development (OECD) has called on the UK Government to revive its plans to increase National Insurance Contributions (NICs) for the self-employed.

Earlier this year, during the Spring Budget, the Chancellor of the Exchequer, Philip Hammond, announced that the Government would seek to abolish Class 2 NICs for the self-employed and instead subject them to Class 4 NICs, which are set to rise from 2018.

He argued that the current arrangements created inequality within the National Insurance regime, but he was quickly forced to perform a U-turn by the press and opposition MPs after it was claimed that the move broke the Conservative Party’s “triple tax lock” pledge made in 2011, which said VAT, National Insurance, and income tax would not rise during the life of the Parliament.

However, now that there is effectively a new Parliament in place, following the general election in June, the OECD is calling on the Chancellor to rethink the measure.

“To improve fairness in tax policy and reduce risks for the financing of the social insurance system, the authorities should gradually reduce the gap between NICs for self-employed and employees,” the OECD said.

The OECD has also called on the Government to further devolve powers to local authorities to allow them to set their own rates of council tax and business rates.

“Further decentralisation of these taxes – as started by the New Homes Bonus initiative – could provide more incentives for approving real estate developments,” it said.

“If carried out successfully, such decentralisation could broaden the local tax base by creating a virtuous circle between greater investments in infrastructure and skills, and higher attractiveness of businesses.”

Concluding, the OECD added that Britain faced “serious economic uncertainties” due to Brexit, which is why the country should focus on “maintaining the closest economic relationship with the European Union … for the trade of goods and services, as well as the movement of labour.”

LINK: OECD Economic Survey of the United Kingdom 2017

The future of company vehicles

The UK Government has pledged that by 2040 all new cars sold will need to be either electric or some form of plug-in hybrid.

However, before this deadline was even announced many within the motor industry believed that by 2025 as many as one in three cars will incorporate an electric power plant.

Much of this has been spurred on by new research which shows the damage that vehicles are doing to the environment and people’s health.

The drive to go electric is therefore growing at a rapid pace, which raises the question, what will happen to the company car in the future?

Company cars are considered a ‘Benefit In Kind’ (BIK), as the use of the car is considered by HM Revenue & Customs (HMRC) to have ‘monetary value’. For this reason company car owners are expected to pay tax on the vehicle if they use it privately. The rate of tax is based on a number of factors including its value and the type of fuel it uses.

However, there are some tax reductions available if:

  • It is only owned part-time (such as if the vehicle is shared by another person)
  • The employee pays some of its purchase cost
  • It has low or no CO2 emissions.

Company car tax bands are not the same as normal Vehicle Excise Duty (VED) tax bands as there are currently 30 different levels based upon emissions, compared to just 13 for VED.

The regime works so that the least polluting company car models pay a lower BIK rate, while the highest polluters pay more.

However, each tax year the rate changes. For example, from April 2016, electric vehicles (EVs) and ultra-low emission vehicles, which were once exempt, have faced a seven or 10 per cent BIK rate.

In the past, rules on emissions saw many owners switch to diesels with lower CO2 emissions, but they now face a three per cent surcharge over petrol models with similar emissions, because they emit more harmful particulates.

As a guide, BIK tax rates are likely to increase by around 2-4 per cent within each CO2 band year-on-year from 2017 to 2020.

However, it is important to note that by 2020 the maximum 37 per cent rate is reached at just 165g/km for petrol cars and 150g/km for diesel.

To work out the tax cost employees will also need to look at the P11D value, which takes into consideration the list price of the car, including options, but less non-taxable items.

If the car costs less to buy than the official P11D value, it won’t save you tax, as HMRC still says the BIK value is the same.

To complicate matters further, changes are currently taking place if the car has been offered as part of a salary sacrifice scheme, or if cash has been offered as an alternative to a car.

From April this year, those who choose the latter will be taxed either on the BIK value of the car offered or on the value of their cash alternative, whichever is higher.

This means that drivers who select a car with a low P11D value and/or a car with low CO2 emissions may no longer benefit from a reduced tax bill.

Similar changes will also take place for those who benefit from salary sacrifice schemes.

Previously they were taxed on the BIK value of the vehicle and, depending on the choice of vehicle, were able to make income tax savings by paying for the car out of their gross salary.

From 6 April 2017, drivers are now taxed on the higher value of either the amount of cash forgone or the BIK value of the car, meaning that they will suffer the same fate as those who would choose a cash alternative and will see their tax liability rise as they will have to pay income tax on the full amount of the cash foregone.

For drivers of existing salary sacrifice scheme cars, or those who ordered a new car before 6 April 2017, the existing tax arrangements stay in place until 5 April 2021 or until a ‘change in arrangements’ has taken place.

LINK: HMRC Company Car Tax Calculator

Over-50s cutting back on essentials to leave inheritance

According to new data from Populus, nearly half of people aged over 50 are willing to forgo luxuries in later life to leave a larger inheritance for their children.

The study, commissioned by Saga Money, also found that 80 per cent of over 50s intended to pass some form of inheritance on to their children.

As well as leaving an inheritance, around 40 per cent of those questioned said they wanted to provide gifts to their families while they are still alive, by helping out with house deposits or wedding costs.

Around a quarter of retirees nationally said they would like to spend their money on maximising their lifestyle in retirement as well.

Shockingly, despite many wanting to pass on an inheritance, a third thought they would not have enough money to leave an inheritance.

Unsurprisingly, property was identified as the largest asset in most inheritances, with 70 per cent of parents saying that their home would make up the bulk of any capital left.

With so many people intending to leave wealth to the next generation, it is important that they consider how it might affect their Inheritance Tax liabilities.

Thanks to the introduction of the Residence Nil Rate Band, couples will be able to pass on up to £1 million to direct descendants, where property is included in the inheritance, from 2020/21.

LINK: Populus Inheritance Survey

Cricket club stumped by VAT dispute

An Oxfordshire cricket club has been left having to stump up a hefty tax bill after losing a VAT dispute.

Despite the common misconception that charitable organisations are exempt from VAT, Eynsham Cricket Club was forced to pay 20 per cent VAT in respect of works to construct its new pavilion.

A ruling by a Tax Tribunal found that the club was liable for VAT on the cost of the builder’s services. As the club was not VAT registered, it could not reclaim the tax paid.

To be exempt from VAT, the club would need to be considered a charity, the building should be used for charitable purposes or, crucially, as a ‘village hall’ or similar and it would need to issue a certificate to the builder to confirm its exemption from VAT.

The club, as a Community Amateur Sports Club (CASC) said that, despite not being a registered charity, it should be treated as such because it aims to promote participation in sport. This argument was rejected by the Tribunal, meaning that VAT should be applied to the transaction.

When it comes to VAT it pays to get advice from a specialist to ensure that your actions are compliant with current legislation. Failing to meet the VAT rules could result in significant financial penalties and further investigations into your business or organisation.

Link: Cricket club caught out in VAT dispute

Students could be entitled to a tax refund as they head back to university

Students who have been heading back to university in recent weeks could be entitled to a helpful tax refund, according to HM Revenue & Customs (HMRC).

Those who worked through their summer holidays may have been taxed through PAYE, as if they were earning at that level year-round, but it is unlikely that their earnings will have exceeded the personal tax-free annual allowance of £11,500.

Where this is the case, students will need to sign up for an online personal tax account to apply for a refund using a P50 form.

However, if a student also works during term time, they may have earnings which exceed the £11,500 threshold and so will have to pay tax on any amount above this.

In a blogpost advising students to check whether they might be eligible to receive taxed earnings back, the Revenue also reminded students that holiday income will not count towards student loan repayments, so long as they are still studying.

Link: Have you been taxed for your summer job?

Dividend Tax changes set to hit small business owners and investors

Changes to the Dividend Tax regime, which will see the existing tax-free allowance fall from £5,000 to £2,000 from April next year, are set to hit small business owners and investors.

The changes currently being considered by MPs as part of the Finance Bill 2017-19 had been delayed when what is now the Finance Act 2017 was dramatically cut down in order to secure its passage through Parliament ahead of June’s snap General Election.

The Government estimates that the change will generate an additional £930 million annually for the Treasury coffers, but at an additional cost to shareholders of £225, £975 or £1,143 annually for basic, higher and additional rate taxpayers respectively.

The changes will not affect the rate of Dividend Tax, with rates of 7.5 per cent for those who pay Income Tax at the basic rate, 32.5 per cent for those paying at the higher rate and 38.1 per cent for those paying at the additional rate.

Depending on their specific circumstances, there are a number of strategies that those affected by the reduced allowance will be able to employ to minimise the impact of the change. For investors, this includes the use of ISAs, while small business owners may be able to bring forward dividend payments to take place before the allowance is cut.

Link: Spring Budget 2017: Documents

Moore Thompson’s free property tax video clears up confusion for buy-to-let landlords

In recent years, the UK’s property tax framework has been growing increasingly complex and confusing, thanks to recent changes made to the likes of mortgage interest tax relief, Stamp Duty Land Tax (SDLT) and more.

Budding investors and portfolio landlords looking to expand their operations have a lot to keep up with if they want to stay fully compliant and tax-efficient at all times against today’s backdrop of seemingly never-ending tax and legislative shake-ups.

This is why our experts at Moore Thompson have put together a free property tax video to help clear up any confusion regarding property tax here in the UK.

Moore Thompson are widely experienced in advising buy-to-let landlords on tax-efficient property investments and on how to manage property portfolios in a fully compliant, tax-efficient way.

We can assist landlords and buy-to-let investors of all shapes and sizes in Spalding, Wisbech, Market Deeping and further afield, supporting them with tailored property tax advice.

For more information about any of our property tax services, please contact us.

HMRC dynamic coding causes issues for taxpayers

From July this year, HM Revenue & Customs (HMRC) has been utilising its new system of dynamic coding, which allows for in-year adjustments (IYAs) of a person’s tax code.

Under the new regime, codes can be adjusted by the Revenue to reflect sudden changes in an employee’s circumstances as soon as HMRC becomes aware of the changes, rather than waiting to reflect this in the following tax year.

In order to make the IYAs, HMRC relies on two important concepts, estimated pay and trigger points, to calculate the new code.

Estimated pay is effectively a person’s annualised year to date pay and this is used to perform the calculations to arrive at the new tax code. The same procedure is used for monthly paid employees, but based on average monthly income.

However, the PAYE code will only be amended if employers notify HMRC of a trigger point, where an employee’s circumstances have changed.

This could include an individual changing their personal tax account, or an employer notifying the Revenue of a change, which will typically take place during a payroll report or through a number of different forms.

Bonuses and one-off payments must be included in an employee’s estimated income for the year. However, many are finding that current payroll software does not contain a facility to tell HMRC that a payment is a one-off, which has led to the misinterpretation of payments.

In response, the Institute of Chartered Accountants in England and Wales (ICAEW) is warning employees and employers to check their tax code where a bonus or one-off payment has been made to ensure it doesn’t cause unwarranted restrictions of personal allowances or overpayments of tax.

LINK: HMRC’s guidance on tax codes

Taxpayers begin to receive simple assessment requests (PA302)

Taxpayers across the UK will have begun to receive a simple assessment (form PA302) from HM Revenue & Customs (HMRC), which will ask for payment of tax that cannot be coded out under PAYE.

A simple assessment is a tax assessment made by HMRC, which was launched with the aim of taking taxpayers out of the self-assessment regime where they have a small amount of income or gains which is not taxed under PAYE. These taxpayers will have begun to receive a simple assessment from mid-August 2017.

However, if the taxpayer has received notice to file a self-assessment tax return, HMRC must withdraw that notice before issuing a simple assessment to the taxpayer. HMRC has up to four years from the end of the tax year to issue a simple assessment.

This has led to concerns from some pensioners with income that just exceeds their personal allowance. They remained under the self-assessment regime for 2016/17, but HMRC have said they will be taken out of self-assessment and put into the simple assessment regime for 2017/18.

If a taxpayer receives a simple assessment (PA302 form) they have up to 60 days to query it or such longer period as HMRC allows.

It is vitally important that anyone who receives an assessment contacts HMRC within this period if they have concerns, as after this date assessments become binding and the tax liability becomes payable.

Normal tax payment dates will still apply, but if the simple assessment is issued after 31 October following the tax year, the tax will be payable three months after the date of the assessment.

LINK: Income Tax: simple assessment