Taxing Times – April 2016

After the March break (which was more than adequately filled by our updates from the Budget!) welcome to the third edition of Taxing Times for 2016.  And of course, Welcome to the New Tax Year!

We’ll have a look at the following in this edition: Tax Opps

  • Tax changes cause complexity and confusion
  • Gift Aid clarification
  • Another blow for buy to letters
  • HMRC focus on small businesses
  • The new LISA: part of your retirement planning strategy?
  • Payroll update

As usual we’ll also have a quick round up of what’s new in the world of tax.

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Tax changes cause complexity and confusion: Lords select committee criticises HMRC’s lack of communication over tax changes

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The House of Lords Economic Affairs Committee has accused HMRC of an ‘inadequate’ communications strategy which has left many taxpayers in the dark about key upcoming changes to the tax system relating to savings and dividend payments.  It also criticised plans to move to quarterly online tax updates as part of HMRC’s Making Tax Digital strategy.

The committee called changes to the taxation of savings and dividends ‘complex, confusing and poorly communicated’. It also criticised the volume of tax changes, which it says will be costly and add to the compliance burden.

From 2016/17 onwards, banks will no longer automatically deduct tax from most interest before it is paid.  The committee says most taxpayers are unaware of the change, and whether or not they may have to file a tax return and pay tax. HMRC has made information available on this change at banks and building societies, and on the gov.uk website – but this relies on people spending their free time reading such information – and if they don’t know about the change, how will they know to research it?

The committee also wants to see HMRC take ‘urgent action’ to clarify its plans for implementing the digital tax account regime.  It highlighted particular concerns about the quality of the data from third parties which will be used by HMRC to pre-populate tax returns.  It wants HMRC to take steps to ensure this data is robust and accurate before proceeding with the new arrangements.

Lord Hollick, chairman of the committee, said: ‘Changes to how we are taxed can have a huge impact on financial planning including savings and pension arrangements. It is vital that taxpayers know what it is expected of them and how much they will be taxed. We are concerned that the Government’s consultation and communication about important changes has been so poor.’

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HMRC clarifies gift aid rules for family donations

4945074_lHMRC has issued a clarification on the tax relief status of online donations to charity websites with messages signed by more than one person.  The clarification comes after reports that multiple donors to sites such as Justgiving, which were shown as being from ‘Mum and Dad’ or a similar list of family members, were not applicable for gift aid rules because these are available for an individual’s donation only.

HMRC says this is ‘absolutely not the case…HMRC’s position has always been that gift aid can be claimed when an individual donor, who pays tax in the UK, makes a donation, even if additional names are added in a supporting message”.

However, HMRC points out that where gifts are made by groups of people, such as work collections or large groups of friends, gift aid is not due and should not be claimed.

So be aware of this when posting those messages.

This is another indication that HMRC are very technologically savvy and will use social media, message boards and various forums to look for leads into avenues which may increase their tax take.

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Life gets harder for buy-to-let landlords Buy to let

David Cox, director of the Association of Residential Letting Agents, has added his concerns to the growing criticism of higher taxes for landlords. In the recent Budget the Chancellor announced that rates of Capital Gains Tax (CGT) from 6 April 2016 would be lowered – many buy to letters thought that was a bit of good news at last – but in the next breath George Osborne announced that the CGT reduction would NOT apply to gains made on residential property. It follows the announcement in the 2015 Autumn Statement that higher rates of stamp duty will apply to buy-to-let or second property purchases from 1 April  2016. “The sector has been punitively taxed, with stamp duty on buy-to-let properties, mortgage interest relief and now capital gains tax changes. It’s an outright assault on the sector,” said Mr Cox.  A lot of people would agree he has a point.

Despite the rule changes, Matthew Lynn in the Telegraph argues that the attempt to strangle the buy-to-let industry will not work and will only distort the housing market further. The solution, he says, is to build more homes, rather than amend existing rules.

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HMRC collects additional £470 million tax from small businesses

HMRC raised nearly half a billion pounds from investigations into the tax affairs of small businesses last year, according to data revealed by UHY Hacker Young.  On the other hand, the takings from large business tax probes fell by 13% last year, from £4bn to £3.5bn.

The firm warned that SMEs are a soft target for HMRC because budgetary constraints mean small businesses do not tend to have tax specialists in-house, making it harder for them to challenge tax bills.

As part of its drive to improve its compliance take from small business, HMRC is putting in place a wider range of specialist taskforces with a focus on the small business sector, and even on specific issues like corporate entertainment.  Small discrepancies and the often used approach of managing cash flow by not paying tax debts until they have been chased several times may trigger HMRC’s attention.

In addition, HMRC is set to miss its target of collecting more than £1bn from offshore tax evaders because of a lack of resources at the tax office.  This could mean that HMRC will focus even more effort on “softer” targets such as employment status enquiries and the small businesses mentioned above, which may be easier pickings for HMRC and could affect taxpayers who do not consider themselves to be tax avoiders.

Following on from this target shortfall and in the light of the fallout from the leaked Mossack Fonseca, there have been calls for George Osborne to ensure HMRC is sufficiently funded to investigate such data leaks and collect the right amount of tax from tax evaders.

Tax Penalty

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The new LISA

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The new Lifetime Isa or ‘Lisa’ will allow savers, who must be under 40 when they open a Lisa, to save up to £4,000 a year with the promise of a 25% bonus from the Government. The pensions minister, Baroness Altmann has said that she welcomed the Lisa as a way of people saving money to climb onto the property ladder, but she expressed concern about some of its possible implications for later on. At present, the income tax that pensioners pay when they withdraw money from their pensions can act as a brake on spending. Baroness Altmann is afraid that, by contrast, Lisa-holders could in theory withdraw all the money at the age of 60 tax-free.

Perhaps the LISA should be just one part of your retirement planning armoury.  If you require any retirement planning advice and want to consider your options please contact Nathan Glaister, our IFA at Dodd Wealthcare.

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Payroll Update

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March saw the Chancellor of the Exchequer announce his budget for the “next generation” and it is clear that the payroll industry is a fundamental part of delivering the successful outcome of the budget promises.  A summary of announcements were:

Expenses and Benefits

The government will introduce a package of measures to further simplify the tax administration of employee benefits and expenses by extending the voluntary payrolling framework to allow employers to account for tax on non-cash vouchers and credit tokens in real time from April 2017.

National Minimum Wage (NMW)/National Living Wage (NLW)

The government will set the main rate of the NMW, which applies for workers aged between 21 and 24, at £6.95 from October 2016, in line with the Low Pay Commission’s recommendations.  The government has also accepted the LPC’s recommendations for the youth and apprentice rates. October 2016 will see the following increases:

  • 21 to 24 year olds (from £6.70 to £6.95 per hour)
  • 18 to 20 year olds (from £5.30 to £5.55 per hour)
  • 16 to 17 year olds (from £3.87 to £4.00 per hour)
  • apprentices (from £3.30 to £3.40 per hour)

The government will align the National Minimum Wage and National Living Wage so that both rates are amended in April each year. This will take effect from April 2017.

Salary Sacrifice

The Government is still concerned about the growth of salary sacrifice schemes and is therefore considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes.  However, the Government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.  The Government will introduce Tax- Free Childcare in early 2017 and it will be gradually rolled out to children under 12.  Parents of the youngest children will be able to enter the scheme first and it will be open to all eligible parents by the end of 2017.  The existing scheme, will remain open to new entrants until April 2018 to support the transition between the schemes.

Shared Parental Leave

The government will launch a consultation in May 2016 on how to implement its commitment to extend Shared Parental Leave and Pay to working grandparents. The consultation will also cover options for streamlining the system.

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Tax Administration and Simplification

The Office of Tax Simplification (OTS) has produced a lengthy report on income tax and NICs alignment and are currently reviewing two specific proposals regarding moving employee NICs to an annual, cumulative and aggregated basis, and moving employer NICs to a payroll basis.

Termination Payments

The Government is to tighten and clarify the rules on which types of payments will be treated as salary and which will be subject to the termination payment rules. This will ensure that the rules are applied consistently and fairly. These changes include:

  • clarifying that all payments in lieu of notice (regardless of whether they are contractual or not) will be subject to income tax and National Insurance Contributions (NICs) in the same way as other payments of earnings
  • tightening the rules to ensure that certain contractual payments cannot be paid as damages, instead such payments will be treated as earnings and subject to tax and NICs

Additionally, the Government will be aligning employer NICs with the income tax treatment, so the elements of a termination payment over £30,000 will be subject to employer NICs if they are subject to income tax.  These changes will come into effect from April 2018.

If you need any help with your payroll queries please contact Julie Campbell

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What’s new in the world of tax?

Want to be a millionaire? Your ISA could be the key

Savers could become ISA millionaires if they save £20,000 a year starting from April 2017 when the new £20,000 limit comes into place.  This assumes that a couple is saving the maximum ISA contribution of £20,000 each and therefore £40,000 in total and that their ISA portfolio grows by 5% a year, a typical assumption made in the financial services industry.  This is a nice thought for those who have enough spare cash to invest in the first place!

Dividend changes mean higher tax bills for many

The new tax year brings a new dividend tax regime.   There is a new £5,000 dividend allowance for 2016/17, but dividends that don’t fall within that will be taxed at 7.5% for basic rate taxpayers (previously nil), 32.5% for higher-rate taxpayers (previously 25%) and 38.1% for additional rate payers who earn over £150,000 (previously 30.6%).  Money bags 2This will result in higher tax bills for many owner managed businesses.  Alternative methods of extracting profits from companies should therefore be considered and discussed with your accountant (hopefully us!).

Super-rich caught out by social media

The super-wealthy are unwittingly exposing their families to scrutiny from fraud investigators and criminals by flaunting their lavish lifestyles on social media. Sites such as Instagram have increasingly become the place for affluent youngsters to boast of their family wealth, with leading cybersecurity firms saying they now use social media posts as evidence in around 75% of all litigation cases. In one debt recovery case cited by the Telegraph, a man claimed to have no items of significant value only for one of his children to give the game away by posing on the family’s £12m super-yacht in the Bahamas.

Moral of the story – beware of what you post (even if you don’t have a super yacht)!

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Accountants worst on the road

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Insurer First Central has found that accountants are the most accident-prone drivers in Britain, responsible for more than 16,000 claims a year. They are followed by solicitors on 15,000. Roofers were linked to just 3,850 last year, putting them ahead of farm workers and builders in the top three most reliable motorists by trade.

That’s because we accountants are always thinking about some new tax rule or other!

 

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