Taxing Times – August 2015

Welcome to the August edition of Taxing Times.  Well, what an interesting month it has been! There are lots of stories to report, and, given the Summer Budget, more changes to the tax system. So here goes…Tax Opps

In this edition we’ll look at:

  • The new dividend tax rate
  • New buy to let rules
  • PAYE related changes
  • HMRC news – changes and updates
  • What’s new in the world of tax?

Don’t forget: We have some more free seminars coming up in September tackling auto enrolment! There will be one at the George Hotel in Penrith on Wednesday 16 September followed by one at the Cairndale Hotel, Dumfries on 30 September. For further information click here or to book your place please contact Debs Hirst on 01768 864466 or email

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The new dividend tax rate

A surprising new tax was birthed at the Summer Budget on 8th July – the “dividend tax”.  This was largely overlooked by the national media who didn’t immediately understand the impact the new tax will have on a particular, but hugely important, sector of the business community, those of family owned companies.  Any individuals who have a family company, where their remuneration pattern has been pay themselves a combination of a fairly small salary topped up by dividends, will see a real increase in their personal tax bill.  Why? From 6 April 2016, there is a new tax that will apply solely to dividend income above £5,000 pa (as £5k is given as a free allowance within which the dividends tax will not apply).  The new tax will be charged at 7.5% (within a person’s basic rate band), 32.5% (up to the additional rate threshold of £150k) and then 38.1% thereafter.


And they talk about tax simplification…! Oh, the irony.

Frustratingly, the legislation which will underpin this new tax has not yet been written (or at least, it wasn’t released in the Finance Bill so we are not expecting it now until the Autumn Statement).  So no one is precisely sure how the calculations will work – just that it will undoubtedly make life more expensive for family company owners. In fact, this new dividends tax is estimated to raise additional revenue for the Government in the region of £2 billion per annum – and it is the family business which will pay for it.

See our dividend tax flyer attached here for more details. And don’t hesitate to get in touch to discuss how the new dividends tax will affect your family business remuneration strategy and whether you can do things slightly differently going forward.

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New buy to let tax rules

On Budget day, the Government also announced restrictions to the amount of tax relief that residential buy- to-let landlords can claim for financing costs, which means goodbye to the good old days of claiming all your mortgage interest against your rental income. The rules will be phased in over 4 years, starting from April 2017, with a gradual restriction of relief to the basic rate of tax. The idea is that both basic rate and higher rate taxpaying landlords will be in the same boat, with one not effectively getting a bigger tax relief than the other.  The way the restrictions are proposed, with the “phasing out” of relief, makes this a surprisingly complex change to the tax rules for landlords – but on the other hand, higher rate taxpayers will be thankful that they won’t lose all their higher rate tax relief in one go, having until April 2021 before they see it disappear completely. Buy to let

The rules are so convoluted that the Chartered Institute of Taxation has specifically called for them to be publicised and explained properly in order to avoid confusion amongst a very large number of landlords. Watch this space to see what information and guidance is produced nearer to April 2017.

(Again with the tax “simplification”…thank goodness nobody asked them to try and make it more complicated!) Dotted Line



PAYE Updates

Budget – Employment Allowance increased

In the July Budget George Osborne announced national insurance contributions would be cut further for employers. From 2016 the new Employment Allowance will be increased by 50% to £3,000, which as employers already know, is a permanent measure.  This will have little effect on large employers but will be welcome for many small employers – as the well know supermarket catchphrase goes, “every little helps”.

Budget – salary sacrifice arrangements untouched

Salary sacrifice arrangements were untouched in the July Budget. However, the budget document does hint at changes in the future as the cost to the taxpayer is rising. The government will actively monitor the growth of these schemes.

Tax-free childcare launch postponed to 2017

crying babyA new childcare scheme, “Tax Free Childcare”, was originally planned to launch in Autumn 2015, but as a result of a direct legal challenge from a small group of childcare voucher providers, development of the scheme was suspended. Tax-free childcare is part of the government’s long-term plan to support working families and will provide up to 1.8 million families across the UK with up to £2,000 of childcare support per year, per child, via a new online system.  The Supreme Court has now ruled that the government’s proposals for delivering the new tax-free childcare scheme are lawful, which means that the scheme can go ahead.  It is now expected to launch in early 2017.

This means a reprieve for the current system of employer provided Childcare Vouchers, which was going to close to new entrants this year once the new scheme was launched. It will now remain available until Tax Free Childcare is launched in 2017 and parents who wish to remain in Employer-Supported Childcare once Tax-Free Childcare is launched will be able to, as long as their current employer continues to offer the voucher scheme.

Auto Enrolment for Smaller Employers 

Summer Budget crop

A report from the Pension Regulator states that more business start-ups and lower numbers of closures mean around half a million more small and micro employers will have auto-enrolment duties than previously estimated over the next three years.  The report also states that as at the end of March 2015, a total of 5.2 million eligible job holders were automatically enrolled and 1,682 non compliance notices, 424 fixed penalty notices and 5 escalating penalty notices had been issued.  The sharp rise in the number of employers due to stage for auto-enrolment over the next two years has prompted fears of a “capacity crunch”, with many in the industry predicting suppliers and advisers will struggle to keep up with demand.  We are already seeing an increase in businesses who are not already payroll clients coming to us asking for advice about what they need to do.  We are very happy to do what we can to help.  Please contact Julie Campbell.

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HMRC misses customer service targets

509970_lAccording to HMRC’s annual report, it failed to meet its targets for handling calls and answering post in the last tax year, 2014-15.  Figures reveal 18 million calls were missed – with 10.5m calls going to an answering machine while 7.4m customers hung up in frustration at being left on hold. The percentage of calls answered dropped to 72.5% from 79% in 2013-14. HMRC also missed its 80% target for turning around post within 15 working days, falling to 70% from 83% in the previous 12 months.  This will not surprise tax agents, who have been frustrated that some post was at one point taking over an astonishing 3 months to be dealt with. These statistics have led HMRC to announce that £45 million is to be allocated to specific improvements in customer service. The allocation is paying for around 3,000 additional staff to join customer service teams.

HMRC Chief Executive Lin Homer acknowledged that : “Our customer service levels slipped this year, but the work we are already doing on digitising our services, using real-time information, and creating online tax accounts for individuals and businesses will help us to improve customer service, as well as improve voluntary compliance…. our call performance hasn’t been up to scratch and we apologise to all those customers who have struggled to get through to us”. 15431411_l

Paul Aplin, of The Institute of Chartered Accountants in England & Wales, said: “Telephone response times have been getting steadily worse and have reached totally unacceptable levels….It’s good that HMRC has acknowledged the scale of the problem and that it has allocated 3,000 extra people to the task. But it’s essential that this resource remains in place long-term”.

While waiting for things to improve, taxpayers (and agents) are being pushed towards online services – which seem to work better than the old fashioned telephone approach admittedly and reduce levels of frustration.  But as the Low Incomes Tax Reform Group has pointed out in the past, it seems rather unfair that those who want to communicate with HMRC by phone or by post are being dissuaded from doing so through poor service.

Let’s hope that these statistics and the £45 million committed investment will restore phone and post services to appropriate levels soon.

Powers of direct recovery

Documents published alongside the Summer Budget set out new powers to allow HMRC to recover tax debts directly from taxpayers’ bank accounts and cash held in ISAs.  The changes, which will allow HMRC to collect debts of more than £1,000 from current and savings accounts without court approval, were floated last year but were delayed following widespread criticism. The Government says the measure, which was first proposed last September, will be subject to “robust safeguards” – such as face-to-face visits before money can be taken.  But concerns remain, not least because some wonder how HMRC, which has lost two fifths of its staff over the last decade and is failing to meet other targets due to staff pressures (see above), will cope with correctly wielding its new powers – and with putting right any instances of incorrectly applying those powers….

Investment into countering tax avoidance & evasion 


It is clear that the Government’s campaign to close tax loopholes and make tax avoidance increasingly difficult is showing no sign of slowing down.  It is a lucrative source of revenue (the steps the coalition government has undertaken since 2010 is forecast to raise more than £12 billion over the lifetime of this Parliament).  And many believe that it is only right that the rich are not on a better footing than others just because they can afford to spend huge amounts of money making use of complex tax structures. Under new rules, persistent avoiders who continue to use failed avoidance schemes will be named and could even have access to tax reliefs restricted. And the Summer Budget announced that HMRC are to be given major extra investment – a huge sum of some £60m by 2020-21 – for increased work on tackling evasion and non-compliance. HMRC will “be stepping up criminal investigations into serious and complex tax crime particularly focusing on wealthy individuals and corporates”, with the aim of raising £600m by the end of the Parliament.

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What’s new in the world of tax?

Forgive us our trespasses…….Vatican accountant uncovers €1bn in hidden assets

Cardinal George Pell, the Australian cardinal charged with cleaning up the Vatican’s accounting procedures, has found more than €1bn in assets hidden off the books. He also uncovered previously unannounced liabilities totalling €222m. Cardinal Pell said jealousy and rivalry between departments, rather than corruption, was to blame for the discrepancies.


Dull? No way…Finance is fun!

Quentin Livingston is a former election campaign roadie for Margaret Thatcher who retrained as an accountant at 49. He completed his Association of Accounting Technicians (AAT) qualification last year and now works as a finance assistant. Mr Livingston said his friends think he is “far too vibrant to do something regarded as dull as finance. But that shows how wrong people are about accountancy. It is very vibrant and exciting.”

Yes Quentin, yes it is

Beautiful people – Ugly accountants disappear!

The Times columnist Lucy Kellaway described a recent address she gave to new recruits at one of the big four accountancy firms. “As I surveyed the crowd I noticed something odd. Among the 80 faces turned towards me, there was not a single ugly one,” she states.

Nudge nudge wink wink – Britons respond to “nudges”

A team set up to “nudge” Britons into making better decisions made back more than 20 times its original investment, says its chief executive David Halpern. The team –spun out of Whitehall some 18 months ago – identified savings of at least £300m over a five-year period by using behavioural psychology to help improve tax collection.  As evidence of the unit’s success, Mr Halpern pointed to the fact that HMRC now has its own behavioural insights team.

That is not necessarily indicative of success, Mr Halpern…and we wouldn’t dream of suggesting that instead of having its own team of psychologists HMRC should have spent the money on call handlers given it failed to answer 18 million calls last year……..

And finally….

Albert Einstein once said, “the hardest thing in the world to understand is the income tax”.

After this Budget, don’t we know it…..

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Takeaway thought from this edition

Understanding your tax position, the reliefs you are entitled to and how you can structure your personal financial and business affairs effectively from a tax point of view is only sensible! And with the tax system getting more complex you may need help to demystify what you can do and when.  So please speak to us if you need any more information on what the changes above mean for you – or on any other  tax issues!


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