Category Archives: Tax News

Government’s coffers set to increase as a result of Inheritance Tax

Latest figures suggest that an additional £900million in Inheritance Tax (IHT) will be collected by the Government between now and 2022.

Documents which were released as part of the recent Autumn Budget revealed that the Treasury expects to receive a larger than expected amount from IHT over the next five years.

Back in March, the Office for Budget Responsibility (OBR) estimated that around £32.4billion would be received by the Treasury coffers during this time period.

But the forecast has now been adjusted upwards, with analysts expecting that IHT payments will now increase by almost £1billion.

The OBR has said that the adjustment takes account of the fact the increasing number of people who die each year, coupled with the fact that property prices are rising, which has led to an increase in the number of individuals falling within the IHT bracket.

It is believed that more rigorous enforcement by HM Revenue & Customs’ (HMRC) team of tax investigators has also had an impact on the figures.

Previous statistics revealed that IHT receipts rose to £4.8 billion in the 2016/17 financial year and it is widely expected that this figure will edge over the £5 billion mark within the next 12 months.

The rules surrounding Inheritance Tax are complex and confusing, so it is important to seek specialist IHT planning advice to suit your specific circumstances, sooner rather than later, and thus ensure you do not hand over to the taxman more than is necessary.

To find out how the experts at Moore Thompson can help you, please contact us. 

Don’t forget the Self-Assessment deadline

While most people will be focused on the festive celebrations at this time of the year, businesses and their owners must not forget the all-important Self-Assessment deadline.

The deadline for sending 2016-17 tax returns to HMRC is midnight on 31 January 2018.

The penalty regime for missing the 31 January filing deadline includes an initial £100 penalty, which applies even if there is no tax to pay, or if the tax due is paid on time.

Any tax due from the previous year must also be paid by midnight on 31 January, or penalties may also be issued for late payment of tax.

It is important that you do not leave submission until the last minute, as from experience HM Revenue & Customs tends to take a more careful view of those returns submitted near to the deadline.

If you haven’t submitted your tax return yet or provided information to your accountant to assist them with the necessary preparations, now is the time to act!

LINK: Self-Assessment deadlines

Class 2 and 4 NIC merger delayed until 6 April 2019

The abolition of Class 2 National Insurance Contributions (NIC) will now be delayed until 6 April 2019, according to a new written statement to the House of Commons.

HM Treasury has written to MPs to let them know that the move has been delayed to allow additional consultation with interested parties, particularly in respect of the effect of the abolition of Class 2 NIC for lower earners.

Currently, self-employed workers that have profits below the small profits threshold (£6,025 for 2017/18) can protect their rights to the state pension and certain other state benefits by paying voluntary Class 2 contributions – this includes 967,000 people, according to the Office of National Statistics, who had income below the threshold.

However, those workers with profits between the Class 2 and Class 4 thresholds (£8,164) only pay Class 2 NICs of £148.20 per year to gain a full year’s NI credit, whereas Class 4 NIC currently provides the taxpayer with no NI credits, as it is a tax on profits.

The abolition of Class 2 NIC and a subsequent reform to class 4 NIC would leave some low earning taxpayers paying into the more expensive Class 3 NIC (£714 for 2017/18), to retain entitlement to the same state benefits.

There are also concerns amongst some professionals that the need to make a Class 3 NIC payment may create barriers and discourage lower earners from protecting their state benefit entitlements.

However, a system of NI credits would be provided for no payment where the individual has profits between the current small profits threshold and the higher Class 4 NIC threshold.

With all this in mind, it is apparent why the Treasury has decided to delay the abolishment of Class 2 NIC until thorough consultations have been completed.

LINK: Update on the National Insurance Contributions Bill

Simple by name, but not necessarily by nature

Earlier this year, HM Revenue & Customs (HMRC) introduced Simple Assessments for some taxpayers who have, until now, been required to complete Self-Assessment Tax Returns.

Those affected are taxpayers with relatively straightforward financial affairs where HMRC considers that it already has sufficient information to be able to calculate the tax owed.

The first groups to be subject to the Simple Assessment regime are people who started to receive a State Pension in 2016-17, where their income exceeds the personal allowance, and PAYE taxpayers who have underpaid tax that cannot be collected through their tax code. An example of the latter is where the amount owed is more than £3,000.

Because neither of these groups were already within Self-Assessment, no one has yet been taken out of the regime.

Existing state pensioners, with incomes above the personal allowance, will have been within the Self-Assessment regime until now. They will receive Simple Assessment notifications in respect of this year’s (2017-18) income early in 2018.

If you receive a Simple Assessment notification, you will have just 60 days in which to request an amendment, if any of the information in the notification is incorrect. It is also important to check whether there are any reliefs you are entitled to. This could be in respect of Gift Aid or employment-related expenses, for example. These will need to be included on the form and it is worthwhile seeking professional advice at this stage, as identifying which reliefs you are entitled to can be a complex task, yet the tax savings can be significant.

The deadline for the payment of tax under the Simple Assessment regime is the same as that for Self-Assessment; 31 January. The exception to this is where the notification is received after 31 October 2017, in which case payment will be due three months after the date of the notification.

Payment in respect of tax under the Simple Assessment regime can be made either by way of a cheque or by logging into your Personal Tax Account online.

Link: How simple is Simple Assessment?

Chancellor fails to deliver on Office for Tax Simplification’s VAT simplification recommendations

The Office for Tax Simplification (OTS) recently published its findings following a review intended to ensure the VAT system remains relevant.

On the basis of its findings, the OTS made eight core recommendations:

  1. The Government should examine the current approach to the level and design of the VAT registration threshold, with a view to setting out a future direction of travel for the threshold, including consideration of the potential benefits of a smoothing mechanism.

  2. HM Revenue & Customs (HMRC) should maintain a programme for further improving the clarity of its guidance and its responsiveness to requests for rulings in areas of uncertainty.

  3. HMRC should consider ways of reducing the uncertainty and administrative costs for businesses relating to potential penalties when inaccuracies are voluntarily disclosed.

  4. HM Treasury and HMRC should undertake a comprehensive review of the reduced rate, zero-rate and exemption schedules, working with the support of the OTS.

  5. The Government should consider increasing the partial exemption de minimis limits in line with inflation and explore alternative ways of removing the need for businesses incurring insignificant amounts of input tax to carry out partial exemption calculations.

  6. HMRC should consider further ways to simplify partial exemption calculations and to improve the process of making and agreeing on special method applications.

  7. The Government should consider whether Capital Goods Scheme categories other than land and property are needed, and review the land and property threshold.

  8. HMRC should review the current requirements for record keeping and the audit trail for options to tax, and the extent to which this might be handled online.

Several of these points refer to the threshold or exemptions that allow businesses or organisations to remain outside of the current VAT regime or pay less tax.

However, in his Autumn Budget on 22 November, the Chancellor did not announce any measures to bring the OTS recommendations into effect.

The UK has one of the developed world’s highest registration thresholds for value-added tax, which effectively provides the country’s businesses with £2 billion worth of relief, by allowing them to remain outside of the regime.

In comparison to the UK’s £85,000 threshold, the EU has an average VAT threshold of £20,000, while the global average is around £15,000.

It is feared that the UK’s high threshold not only prevents the Revenue from collecting additional tax but also actively discourages businesses from expanding above the threshold.

Many businesses see VAT registration as an obstacle to competitiveness and profitability, as in most cases they will not be able to pass on the increase in their costs to customers, which provides unregistered businesses with an advantage.

LINK: OTS report on routes to simplification for VAT is published

Autumn Budget 2017

When Chancellor Philip Hammond stepped up to the despatch box, he would have been acutely aware of the pressure he was under.

Some 24 hours before the Chancellor was due to open his famous red box, the Office for National Statistics (ONS) confirmed a wider deficit than anticipated for October.

Ahead of the Budget, business leaders had urged Mr Hammond to get to grips with Brexit headwinds and the UK’s productivity problem, while his party’s own MPs were demanding action on issues such as housing and social care – which many believed had played a major part in the shock loss of the Government’s majority in June.

There was personal pressure too. Some eight months ago, the Chancellor’s previous Budget unravelled at alarming speed (unpopular plans to increase National Insurance contributions for some self-employed workers were dropped within seven days). He could ill afford another flagship policy disintegrating.

All things considered, Mr Hammond had the difficult task of delivering a financial statement which was both radical enough to reset the political agenda and robust enough to avoid a repeat of the spring’s hasty u-turn. Could the Chancellor – whose fondness for figures has earned him the nickname “Spreadsheet Phil” – deliver?

Economic overview:

Opening his address to MPs, Mr Hammond argued that the UK economy continues to “confound those who talk it down” and said that he was determined to invest in technological advances and seize the opportunities on offer.

He acknowledged that ongoing negotiations with the EU were at a crucial stage and with this in mind he would put aside an additional £3billion for Brexit preparations over the course of the next two years. He assured the House that the Treasury was drawing up plans for every possible outcome.

Outlining forecasts by the Office for Budget Responsibility (OBR), Mr Hammond said that the organisation was predicting that another 600,000 people would be in work by the 2020s.

Worryingly, the nation’s productivity has not improved and the predictions for growth have been cut substantially. The OBR now projects growth of 1.5 per cent this year (downgraded from two per cent in March). The forecast for next year is 1.4 per cent, and 1.3 per cent for both 2019 and 2020.

There was better news on borrowing, with Mr Hammond confirming that the forecast for this year is £49.9billion (£8.4billion less than had been projected in the spring).

And as regards the deficit, he said that the OBR figures suggested that the Government was on track to meet its target of reducing the deficit to below two per cent of GDP by 2020-21.


Business and enterprise:

Ahead of the speech there had been no small amount of speculation that the VAT threshold for businesses was to be lowered.

But the Chancellor confirmed that the registration threshold will in fact remain at its current level (£85,000) for the next two years, shying away from a contentious change.

Mr Hammond did hint that he would be considering some form of reform and said he would hold a consultation as to whether the system could be altered to “better incentivise growth”.

In relation to business rates, Mr Hammond said he had listened to concerns from business leaders. With this in mind, he has decided to bring forward the switch from the Retail Price Index (RPI) to the Consumer Prices Index (CPI) by two years. The change will now take effect in April 2018 and is expected to be worth £2.3billion to businesses over the next five years. In addition, the discount for pubs (rateable value less than £100,000) is to be extended to March 2019.

In another boost for businesses, Mr Hammond announced that he would be allocating an additional £2.3billion for investment in research and development (R&D). The main R&D tax credit will be increased to 12 per cent.

These measures were described as “the first strides towards the ambition of our industrial strategy to drive up R&D investment across the economy to 2.4 per cent of GDP.”

Amid uncertainty over the impact of Brexit, the Chancellor also confirmed that the Government would be prepared to replace money from the European Investment Fund if necessary.


Transport and infrastructure:

Mr Hammond said the Government was committed to supporting electric vehicles. Among the measures announced by the Chancellor were a £400million charging infrastructure fund.

As far as diesel cars were concerned, the Chancellor confirmed that vehicle excise duty for new vehicles that don’t meet the latest standards will increase from April 2018. The money raised will be invested in a £220million clean air fund.

£30million will be made available to enhance digital connectivity on the trans-Pennine route and councils will be able to stake a claim to £1billion for high-investment projects.

A new rail card for commuters aged 26 to 30 will enable around 4.5million travellers to get a third off rail fares.


Personal tax:

To cheers from his own benches, Mr Hammond confirmed that Stamp Duty would immediately be abolished for first-time buyers for homes worth up to £300,000 (and on the first £300,000 of properties up to £500,000). There are hopes this will stimulate a slowing property market.

There was good news for the majority of air passengers, with the announcement that from April there would be a freeze on short-haul air passenger duty and long-haul duty for those in economy. The measures will be funded by increasing taxes on private jets.

The threshold for the basic rate of income tax will rise to £11,850 in April 2018, with the higher rate threshold to climb to £46,350.

An increase to the National Living Wage, set to take effect in April, was also confirmed. It will rise from £7.50 an hour to £7.83.

Duties on beer, wine, cider and spirits will be frozen, although tobacco tax will continue to rise at inflation plus two per cent.


Public spending:

More money is to be made available to the devolved administrations (£2billion for Scotland, £1.2billion for Wales and £650million for Northern Ireland). As had been trailed beforehand it was confirmed that both Police Scotland and the Scottish Fire Service would be made exempt from VAT going forward.

Facing increasing demands to address the growing strain on the health service, Mr Hammond outlined plans for an extra £10billion in capital investment over the course of this Parliament. There was also a commitment to make additional money available to improve pay levels for NHS workers.


Welfare

The introduction of Universal Credit has come in for considerable criticism in recent weeks, with many opposition politicians urging the Government to pause roll-out of the changes.

Mr Hammond acknowledged that many Britons were facing a squeeze on their finances and, in an effort to address the controversy, confirmed that £1.5billion would be spent on efforts to make the system more generous.


Housing:

The Stamp Duty announcement has stolen the headlines, but the Chancellor announced a number of measures apparently designed to show he was taking problems facing the property market seriously.

The Chancellor admitted that young people were concerned about their prospects. While he said there was no “magic bullet” to fixing some of the problems, Mr Hammond gave a commitment that £44billion would be made available over the next five years to address some of the major problems.

It was also announced that councils will be given powers to charge a 100 per cent premium on council tax on empty properties. This is something which a number of local authorities have been lobbying for.


Tax evasion, avoidance and aggressive tax planning:

Hard on the heels of the Paradise Papers controversy, the Chancellor said that HM Revenue & Customs (HMRC) would redouble its efforts to tackle offshore tax avoidance. This strategy is calculated to raise £200million a year.


Summary:

Ahead of any Budget, the media often speculate about whether the Chancellor will pull “a rabbit from the hat”; announcing an audacious policy decided to win favour with voters. The Stamp Duty changes certainly fit the bill and are likely to dominate the headlines in the days ahead.

As far as businesses are concerned, there will no doubt be relief that the changes to the VAT threshold which had been rumoured in advance of the speech failed to materialise.

Critics may say that the Budget otherwise erred on the side of caution, with an emphasis on prudence over particularly radical announcements.

And the Treasury will no doubt be mindful that the OBR forecasts, which suggest the economy is rather weaker than was thought back in March, could mean that challenging times lie ahead.


View official documents and full Statement

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