Taxing Times – June 2016

Welcome to Taxing Times this month. If you can bear to tear yourselves away from the lovely sunshine and back to the computer, in this edition you can read about the following:
Tax Opps

  • New savings and dividend tax rules
  • VAT scale charges
  • HMRC debt recovery powers
  • Payroll update
  • What’s new in the world of tax?

Taxing Times will be taking a break for the summer and will reconvene with the September edition (something to look forward to after your holidays!)

In the meantime have a great July and August, and remember to come and see us at the Cumberland Show on 11th June, the Penrith Show on 23rd July and the Dumfries Show on 6th August!

Show Footer 2016

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Guide to the new savings and dividend tax rules

The Lower Incomes Tax Reform Group (LITRG) has published a guide to the new (and quite complex) rules on taxing savings income (including interest) and dividends, which came into force on 6 April 2016.22801064_s

In 2015 it was announced that there would be a new tax free ‘personal savings allowance’ of £1,000 (or £500 for higher rate taxpayers) and a new tax free ‘dividend allowance’ of £5,000.  The personal savings allowance is a welcome change for some low-income savers; the dividend allowance makes no difference at all for those with small amounts of dividends but can mean an extra 7.5% tax charge compared with previous years where dividend income is over £5,000 (nicely lucrative for the Treasury!).  The changes sound simple in principle, but as always the devil is in the detail! Crucially, the “allowances” are not tax allowances at all. They do not ‘come off’ your income before tax is worked out. Your savings income and dividends falling within the allowances are still taxed, but at 0%.  This makes the interaction with the tax position on your other kinds of income quite convoluted.  Luckily, negotiating this kind of maze is what our personal tax department are here for!

Key points to bear in mind:

  • Banks and building societies no longer deduct tax from the interest on your savings. This means:
    Non-taxpayers no longer need to use form R85 to stop tax being deducted.
    Non-taxpayers might no longer need to fill in form R40 to claim back tax.
    If your savings income is not covered by the 0% starting rate or personal savings allowance, you might have to tell HMRC and pay tax through your Pay As You Earn code, or direct to HMRC.
  • Some savings income will still have tax deducted – for example, the income element of a purchased life annuity, or interest paid on PPI compensation. But this income will qualify for the 0% starting rate for savings and the personal savings allowance. This means that depending on your overall income, you might need to claim tax back if you receive savings income with tax deducted.
  • Dividends no longer come with a tax credit, so the amount you get is the taxable amount. Above the £5,000 tax-free allowance, dividends are taxed at 7.5% if they fall within the basic rate band, 32.5% for higher rate taxpayers (and 38.1% for additional rate taxpayers with income over £150,000 a year). If you have dividend income greater than £5,000, you will have to tell HMRC and pay tax on the excess.
  • Watch out if you make charitable donations under Gift Aid (including where some visitor attractions ask you to Gift Aid your entry fee). You need to be a taxpayer so that the charity can claim back tax on your donation. If the savings and dividend tax changes mean that you no longer pay any tax, HMRC could send you a bill for tax reclaimed by the charity.

If you are a personal tax client already then we will calculate your tax position using the new rules for the 2016/17 tax year.  If you have any queries or concerns about these new rules please contact your usual Dodd & Co contact.

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Time to check your VAT Scale Charges!

If your business is VAT registered and reclaiming VAT on road fuel which may be used for private journeys, then a scale charge must be added onto the outputs on your VAT return.

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From 1 May 2016 HMRC have changed the scale charge values, which are determined according to a car’s CO2 emissions. The new scale charges apply to the first full VAT period beginning on or after the 1st May 2016. You need to apply a scale charge for each car which has private fuel paid for by the business, so you may need to apply more than one scale charge to your VAT return.

The alternative to having to apply a scale charge is to not claim the VAT on road fuel for any vehicle, or to pay a rate per mile rather than putting the fuel bills through the business.

Please contact Faye Armstrong or Emma Forrester on 01768 864466 if you would like to discuss the best option for your business. Click here to see a table of the VAT Scale Charges.

Did you know? VAT was designed by French tax expert Maurice Lauré in the postwar years and first levied in the UK on April Fools’ Day 1973.

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HMRC powers: Direct Recovery of Debts (DRD)

Despite objections and concerns raised, HMRC now have DRD powers. That means they can take funds direct from bank accounts without authorisation.

Don’t put your head in the sand! If HMRC have issued a tax demand you must deal with it even (or more accurately, especially) if you don’t think it is due.  HMRC have put various safeguards in place but prevention is better than cure and what you don’t want to do is address the issue after HMRC have invoked the DRD.  These powers make it even more vital for taxpayers to keep their affairs in order and to seek help from their accountant/tax adviser if they receive something they don’t understand or don’t agree with from HMRC.

Money bags 2While many taxpayers do use the tried and tested route of holding back tax due until they have been chased a number of times, to assist with cash flow, this method becomes more “dangerous” with the DRD powers, not to mention potentially flagging them up for HMRC scrutiny on other matters.

If taxpayers are in cash flow difficulties they should consider getting an agreed Time to Pay arrangement in place with HMRC sooner rather than later.

To paraphrase a lottery ad on the TV at the minute…please, don’t let it be you! If you have any concerns over correspondence you have received from HMRC or over tax payments which are shortly due/are overdue please contact your usual Dodd & Co contact.

The full text of HMRC’s government web update on DRD is set out below – please note it is of course written from HMRC’s point of view….

From gov.uk

The vast majority of taxpayers pay their taxes in full and on time, but a minority are persistent in choosing not to pay, even though they have the means to do so.

This briefing explains how we will level the playing field by recovering tax or tax credit debt directly from the bank and building society accounts of that minority. It details how this will work in practice, and the robust safeguards we will apply.

1. Why is recovering debt important?

Individuals and businesses need to pay the tax that is due, or return a tax credit overpayment, otherwise it is unfair on the honest majority. The money we collect is vital to fund public services.

The vast majority of people pay their taxes in full and on time. Last year, we brought in £517.7 billion from about 45 million individual taxpayers and 5.2 million businesses. About 90% was paid on time but around £50 billion was not, and became a debt.

Some people require an additional prompt or reminder to pay what they owe, and a significant number of people pay once we begin to pursue the money owed. Last year, we made around 16 million contacts with debtors by letter, phone, text message or other means, including face-to-face visits.

Direct Recovery of Debts (DRD) affects a small number of individuals and businesses who are making an active decision not to pay, or to delay paying, the money they owe, even though they have sufficient funds in their accounts. We estimate using these powers in a very small minority of cases (around 11,000 times a year among more than 50 million taxpayers).

Many other tax authorities around the world already do this. In the UK, the Department for Work and Pensions (DWP) already uses a similar power for those who fall behind on child maintenance payments.

2. What’s happening now?

The government announced in the 2014 Budget that it planned to allow HMRC to recover tax and tax credit debts from people and businesses directly from their bank accounts using DRD. A consultation on the proposals ran from 6 May to 29 July 2014, receiving 124 responses.

Following the consultation, the government made a number of changes to how DRD will be introduced. The government also consulted on draft legislation and made subsequent revisions following considerable helpful discussions with external stakeholders.

3. How it will work

This policy will allow HMRC to recover cash directly from the bank and building society accounts, and funds held in cash in Individual Savings Accounts (ISAs), of debtors who owe £1,000 or more (subject to the safeguards that are detailed in section 4). Following discussions with stakeholders, the government confirmed that debt recovery through DRD will not apply to stocks and shares ISAs.

Our own research reveals that the debtors who will be affected by DRD owe, on average, more than £7,000. Almost half of those debtors have more than £20,000 in their accounts.

4. The safeguards that will be in place

15431411_lThe government is including very stringent safeguards to ensure that debtors do not suffer undue hardship once money is taken directly from their accounts and that adequate protection is in place for vulnerable customers. This includes:

  •  only taking action against those who have established debts, have passed the timetable for appeals, and have repeatedly ignored our attempts to make contact – anyone who disputes the amount owed has the automatic right to appeal
  • guaranteeing that every debtor will receive a face-to-face visit from HMRC agents before their debts are considered for recovery through DRD, this meeting will provide a further opportunity for us to:
    • personally identify the taxpayer and confirm it is their debt
    • explain to debtors what they owe, why they are being pursued for payment, and discuss payment of the debt
    • discuss options to resolve the debt, including offering a Time to Pay arrangement to the debtor, where appropriate
    • identify debtors who are in a vulnerable position and offer them the support from a specialist team to help them settle their debts
  • only debtors who have received this face-to-face visit, have not been identified as vulnerable, have sufficient money in the bank and have still refused to settle their debts will be considered for debt recovery through DRD
  • only considering the use of DRD on those with tax and tax credits debts of more than £1,000
  • always leaving a minimum of £5,000 in the debtor’s accounts, so that we do not put a hold on money needed to pay wages, mortgages or essential business or household expenses

The government has also strengthened independent oversight of DRD and recognised the need for debtors to have clear procedures in place if they want to appeal their case. This includes:

  • providing a 30-day window (once debt recovery has been initiated) for debtors to lodge an objection to us – money will be held in the account, but no funds will be transferred to us until this period has passed and a decision will be made on objections within 30 days
  • introducing an option for debtors to appeal against our decision to a county court on specified grounds, including hardship and third party rights
  • strengthening our governance procedures for DRD, including oversight by the commissioners of HMRC
  • committing to enhanced transparency on this power and publishing statistics on the number of times this power is used and appeals that are raised
  • reviewing DRD fully after the policy has been operational for two years, and laying this report before parliament

We will have a dedicated telephone line for appeals and for people to make other arrangements to pay their debts.

5. Helping those in genuine difficulty

We know some people experience genuine financial difficulty paying their tax or clearing a debt. This often happens when their life is affected by a major personal event, their business develops a problem, or they have received a tax credit overpayment which must be repaid.

We routinely take a sympathetic approach to those who need additional support.

When people realise they are not going to be able to pay on time, or if they require additional assistance with their taxes, we encourage our customers to get in touch as soon as possible.

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Did you know?

SuffragetteSuffragette Dora Montefiore refused to pay income tax until women had the vote, and started a famous (in its day) siege in 1906 against the bailiffs who tried to seize her belongings against unpaid tax. She barricaded herself in her house for six weeks and locals passed her food over the back wall and did her washing for her during that time.  Eventually though the taxman won out and the bailiffs were allowed to force entry (which they did). So ended the suburban Siege of Montefiore. At this point women did not have the vote so the siege was a bit of a failure.  But the point was made.  A few years later the Women’s Tax Resistance League was formed, with members demonstrating various methods of resistance, from the ladylike (when the Duchess of Bedford refused to pay and had a silver cup seized instead) to the more direct (when Emily Davison broke the windows of the chancellor!) Now the DRD powers mean refusal to pay is not an option….

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Payroll Update

Auto-enrolment tip-offs soar

The Pensions Regulator received over 2,500 auto-enrolment compliance whistleblowing reports during the 2015-16 tax year, a 29% rise on the previous year. The regulator launched more than 8,800 enforcement actions over the year. The Pensions Regulator said more than 95% of the first small employers required to provide workplace pensions have complied with the law, but warned that the number of “escalating penalty notices” it issues is rising, which obviously adds cost, hassle and stress for the employer.  If you are still concerned about auto-enrolment, please don’t put your head in the sand – talk to our friendly payroll team led by Julie Campbell.

Are employee pensions at risk?14969151_s

The Work and Pensions Committee has stated that there is concerning evidence regarding gaps in pension law and regulation, which has allowed potentially unstable master trusts onto the market. Should one of these trusts collapse, there is a very real danger that ordinary scheme members could lose retirement savings. There is also a risk that faith in auto-enrolment as a whole will be undermined.  The committee is conducting inquiries into pensions automatic enrolment and pensions regulation, using the collapse of BHS as a case study.

UK owes workers £68m

Employers have underpaid workers by £68m since 1999, according to the National Audit Office (NAO). In the fiscal year to March, the number of workers owed arrears more than doubled to 58,000 from 26,000 in 2014-15.  Since 2013, the government has named-and-shamed 490 employers for failing to pay the minimum wage, and over the past six years HMRC has imposed fines totalling £5.6m on non-compliant employers.

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What’s new in the world of tax?

CFO secrets to keeping life balanced

The CFO of Pernod Ricard, the maker of ABSOLUT Vodka and Malibu, Gilles Bogaert says “There is not a single way to be balanced in your life, but I genuinely believe you are a better professional if you have fun. It clearly delivers superior scores of engagement, team work, productivity and added value.”

So… Eat, drink & be merry for tomorrow we have tax returns to do!

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No sexiness in the city

A petition started by actress Nicola Thorp, who was sent home from her temporary receptionist job at PwC for not wearing high heels, was signed by almost 110,000 people in less than 48 hours. Ms Thorp was hired by an outsourcing firm Portico and was told she had to wear heels two to four inches high or go home. Portico has now changed its policy. Responding to the petition, Business secretary Sajid Javid tweeted: “No woman should be forced to wear high heels. Responsible employers shouldn’t need the law to tell them that.”

Do as I say not as I do

Duncan Bannatyne has denied accusations of hypocrisy after it emerged that he intends to own part of his health clubs empire through a tax haven following the £300m flotation of Bannatyne Group. In 2010, the former Dragons’ Den star refused to go into business with James Caan, his fellow dragon, for using a vehicle based in the Cayman Islands.

HMRC call delays may mean 3.2m paid wrong tax

Call waiting times at HMRC tripled to 47 minutes last October as it shed too many customer service staff when rolling out its digital strategy, the NAO has said. In order to improve call centre performance HMRC moved 2,400 staff from maintaining PAYE records which in turn meant they had to defer essential work to maintain PAYE records. This meant that the number of discrepancies between PAYE and self-assessment returns doubled, leaving a risk that 3.2m people had paid the wrong amount of tax.  Ruth Owen, HMRC’s director general for customer services, said: “We recognise that early in 2015 we didn’t provide the standard of service that people are entitled to expect and we apologised at the time. We have since fully recovered and are now offering our best service levels in years.”

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