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Emergency budget 2015

Published: 08 Jul 2015

Updated: 20 Mar 2016

 

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It is characteristic for the first budget of a new government to be tough, and the announcements today made this budget no exception.  In the first conservative only budget since 1996, "Britain still spends too much, borrows too much" Mr Osborne stated.  Through a range of measures, the chancellor set our proposals designed to reduce welfare spending by £35 billion and gain tax revenues of' £47 billion by 2020.

 

National minimum wage hike

 

The minimum wage, which is currently £6.50 an hour for over 21s, is set to increase.  For workers aged over 25 the wage will rise to £7.20 from April 2016 and in stages to £9 per hour by 2020. For Under 25s the minimum way will be set by the Low Pay Commission.  The minimum wage is intended to partly offset the cut in working tax credit for those on the lowest income.

 

Personal allowance to rise

 

The income at which a person starts to pay tax, or the personal allowance, is set to increase from its current level of £10,600 to £11,000 from April 2016.  When Mr. Osborne took office as chancellor in 2010/11 the allowance was £6,475, and it has increased every year since.

 

The allowance is set to further increase to £12,500 by 2020, in keeping with the Conservative election promise.  The previous intention was to raise the allowance to £10,800 in 2016/17 and £11,000 by 2016/17 and therefor this announcement brings forward the tax relief.

 

Basic rate tax threshold up

 

In April 2016, the income level at which a person starts to pay tax at 40 percent will also go up, from £42,385 to £43,000.  Due to previous cuts this threshold is still lower than where it stood at £43,875 in 2010/11.  The election promise is to raise the threshold to £50,000 by 2020/21.

 

Tax credits fall

 

Tax credits are a government payment for people on low incomes. Where the household income is low, a working person can be eligible for working tax credit.  A household is eligible for child tax credit where income is low and it has children to support.

 

Child tax credits, and universal credits, will only be paid for the first two children.  This will take effect for children born after April 2017.

 

Tax credit will start to reduce when families are earning just £3,850.  This is a steep cut from the existing threshold of £6,420.

 

Benefits cut

 

The cap on housing benefits that a person can receive will be set at £20,000 outside London, and £23,000 for Londoners.  This is reduction from the current level of £26,000.  Housing benefit will no longer be available to the under 25s.

 

The TV license will be free for over 75s.

 

Currently students from a family with a household income of less than £25,000 can apply for a grant.  However from the 2016/17 academic year, university grants will no longer be available, although loans available to students will increase.  All benefits for people of working age are to be frozen for the next four years.

 

People on incomes of over £30,000 outside the capital, or £40,000 in London will have to pay the market rate for rent in social housing.

 

Child care

 

From 2016, for working parents with three and four year olds, free, state childcare will be provided for up to 30 hours a week.  This is an increase in the current 15 hour a week provision.


The child care fund, which was due to be introduced from September this year will now be delayed until September 2017.

 

Inheritance tax rising to £1 million

 

From April 2017, the government will reduce inheritance tax via a family home allowance.  The rate will be phased in over four years, in 2019/20 reaching £175,000 per person.  The current nil rate band is £325,000 per person and therefore £650,000 per married couple.  An individual can therefore pass on their home to their children or grandchildren and the first £500,000 will be free of inheritance tax.  For a married couple, the allowance is effectively increased to £1 million on the family home.


The family home allowance will be gradually tapered for estates valued at more than £2 million.  The additional family home allowance will be withdrawn at a rate of £1 for every £2 that the estate exceeds £2 million.

 

The nil rate band has not changed since 6 April 2009.  With rises in property prices since 2009 this had led to a greater number of families exposed to inheritance tax.  The rate of £325,000 is expected to stay fixed until 2021.

 

In order to keep the tax liability as low as possible the £325,000 allowance should be allocated firstly to assets in the estate which are not the family home.  For instance, an individual passing on a home worth £175,000 and other assets worth £325,000 will pay no inheritance tax under the new rules.  By comparison, an individual passing on £500,000 of assets none of which qualify for the family home allowance would pay tax at 40% on £175,000 of the estate, or £70,000.

 

A nuance of the rule will allow an individual or couple to keep an ‘inheritance tax credit’ if they downsize.  This credit is designed so that the rules do not discourage grandparents from passing on a property which could more suitably accommodate the larger family of their children.

 

Non-domiciled status phased out

 

Under the current system a UK resident can be domiciled elsewhere.  Domicile is usually determined by the place in which a person is born.  From April 2017, a person who has been living in the UK for 15 years out of the last 20 years will no longer keep their non-domiciled status.  The ruling mainly benefits the most wealthy of foreign born residents, who can pay a ‘remittance basis charge’ to reduce liability to UK tax.  A person will no longer be able to choose to be non-domiciled if person born in the UK to UK domiciled parents.

 

 The non-domcilied rules will also apply for inheritance tax purposes.  A person who is not UK domiciled will no longer be able to exclude UK assets from liability to UK inheritance tax.

 

Bank levy changes

 

The current bank levy, introduced in 2011, is based on the balance sheets of banks.  The rate of this levy will be reduced over the next six years.  The levy will be replaced by an additional 8 per cent tax on the bank’s profits from UK earnings.

 

Drop in corporation tax

 

The rate of corporation tax, currently 20%, will be cut to 19% in 2017 and to 18% in 2020.  The main rate of corporation tax was 28% when the conserve rates came to power as a coalition in 2010/11, and has gradually reduced since then.

 

Employers’ annual allowance

 

Under current rules, the first £2,000 of employers’ national insurance that an employer would otherwise have to pay is exempted by an employment allowance.  From next year, the allowance will increase to £3,000 from 2016.  A business could employ four employees on the minimum wage without having to pay national insurance.

 

A director of his or her own limited company will no longer be able to benefit from the employment allowance.

 

The annual allowance

 

The annual investment allowance will stay at £200,000 from January 2016.  The allowance enables the deduction of capital expenditure (such as on computer equipment) from taxable profits in the same period in which the expenditure is incurred.

 

Tax relief on pensions to be lowered

 

Pension contributions are a tax efficient method of saving for retirement.  Employee pension contributions are deducted from taxable pay and employer contributions are deducted from company profits (and are not treated as taxable income for the employee.)  The most which can be contributed to a pension is the amount of earnings, although this is capped at £40,000.  This cap is due to gradually tapering from £40,000 to £10,000 for people with incomes of over £150,000. The tapering will be introduced from April next year.

 

The lifetime allowance is the total value of the pension fund which will be free from tax.  Currently the allowance is £1.25 million.  However this is set to be reduced to £1 million, also from April 2016.

 

A consultation will also begin as to whether pensions should be treated like ISAs. Pension contributions will instead be made from after tax pay. However, pension income will not be subject to tax.

 

Tax deduction restricted for interest paid for rental property

 

A landlord is able to deduct the cost of providing accommodation from rental profits.  The largest type of expense is usually interest on mortgage used to finance the property.

However, the chancellor announced that the tax relief on interest payments will be restricted to basic rate only.  The current basic rate of tax 20%.  This will raise the tax liability of landlords who are also higher rate taxpayers.  The measure will be brought in gradually over four years starting in April 2017.

 

Landlords will no longer be able to claim the wear and tear allowance.  Currently landlords can deduct 10% of rents received from taxable profits if the property is let furnished.  From 2016/17 only the actual costs incurred on furniture can be deducted from profits.

 

Mr Osborne maintained to be addressing an unfairness in the current system which allows tax relief on interest for landlords but not for homeowners.  The forthcoming restrictions on landlords is likely to cool house price inflation.

 

There is no indication that the restriction on interest relief would apply to companies.  This may increase the appeal of a moving a property to a company as a method for saving tax.  However the change to the taxation of dividends, explained below, could also eliminate the tax saved through company ownership.

 

Rent-a-room-relief

 

A live–in landlord has two options for calculating taxable profits.  The first is to deduct a proportion of expenses, say based on floor area occupied by their lodger.  The second is to deduct a flat rate from their rent in calculating taxable income.  The rent-a-room scheme has been at the same level of £4,250 since 1997.  It is due to increase to £7,500 from April 2016.

 

Dividend tax credit abolished

 

The tax credit on dividends will be replaced from April 2016 with a £5,000 tax free dividend allowance.  As a consequence many investors who pay tax at a higher rate and shareholders of their own companies could face a higher tax liability.

 

Under the current system, a credit is given for dividends which are paid out of after tax profits. Therefore, there is no tax to pay on dividends for basic rate taxpayers, the rate is effectively 25% for higher rate taxpayers and 30.5% for those with income over £150,000.  Following the proposal, the first £5,000 of dividend income will be tax free. Thereafter basic rate taxpayers will pay 7.5%, higher rate taxpayers 32.5% and additional tax payers 38.1%.

 

Tax relief for amortisation to be abolished

 

Tax relief will no longer be available for goodwill on company acquisitions.  Until now a company has been able to deduct the cost of buying a business from its company profits.  The cost is usually spread out over a number of years, depending on the useful economic life of the business which has been acquired.  The deduction from yearly, tax-adjusted profits, known as amortisation, was at least 4% a year.  However for acquisitions made on or after 8 July 2015, this tax relief will be abolished.  In view of the forthcoming changes, a share purchase (rather than an assets purchase) may be a more beneficial for a company considering an acquisition.

South London accountants

Published: 05 Jul 2015

Updated: 05 Jul 2015

 

Written by

 

From shop fronted premises in East Dulwich, we offer a convenient and accessible method for people to visit us from nearby areas.

 

Transport links

 

The main office in Dulwich can be accessed via train with an average journey time of twelve minutes to London Bridge and via various bus routes, the P13, 40, 197, 185 and 12, 37, 363 and 63.  Buses towards central London mainly to go via Demark Hill and Elephant and Castle. Nearby Peckham Rye runs trains to London Bridge, Victoria and Blackfriars.  A short bus ride away is Forest Hill which is part of the new East London tube line.  Car parking is free outside the office.

 

International business

 

Our specialism in UK tax, and extensive experience on the practicalities of dealing with HMRC, gives us the ability to advise and assist people from anywhere in the world.

 

Through our IT system it is possible to view and sign key documents via an online portal.  This keeps our service available regardless of our visitor’s whereabouts.
For clients that come via referral, or where it is not convenient to reach our office, an initial meeting by telephone or Skype is practical alternative.  Our initial meeting is free.

 

Local clientele

 

By appointment, we can be reached easily for a face to face meeting.  Consequently, we are accountants and tax advisers in Dulwich, but also the surrounding areas of Sydenham, Camberwell, Forest Hill, Herne Hill, Peckham, Honor Oak and West Dulwich. By postcode, our business is concentrated in the areas of SE21, SE22, SE15, SE26, SE23 and SE24.

 

Areas of specialism

 

Our clients typically include:

 

 

We would be please to assist with your query. Please contact us to arrange an initial meeting.

Auto-enrolment

Published: 12 Jun 2015

Updated: 16 Sep 2015

 

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With wide coverage in the media, many people will now have heard the term auto-enrolment. Until now it has affected only larger companies however, it is now becoming a legal requirement for businesses of all sizes. In this guide we cover frequently asked questions.

 

The automatic enrolment of an employee into a workplace pension will become a consideration for employers of all sizes.

 

Which businesses are subject to the rules?

 

The requirement applies to any employer with employees who ordinarily work in the UK. It applies to temporary staff, although there is some facility to postpone for staff who have worked less than three months. The rules apply regardless of any other pension contributions made by, or on behalf of, the employee, such as by contributions by a different employer.


Any employee paid up to £486 a month has a right to join the pension scheme if they wish. An employer must oblige an employee’s request but is not bound to make any contributions.


An employee paid between £486 and £833 a month has a right to opt in. If an employee makes a request to join the pension scheme then the employer must make contributions according to table below.


Any employee who is between 22 and the state retirement age (currently 67) and earning over £833 a month will be automatically enrolled. Regardless of any request made by the employee, each employee is enrolled in the company pension and the pension is funded according to the table below. An employee does not have to give permission to be enrolled.


If an employee who has been auto-enrolled does not wish to be a part of the pension scheme then this person will have to specifically opt out.


From when does auto enrolment apply to small businesses?

 

The staging date is the date from which an employer must start to comply with auto-enrolment rules. Where applicable, this would be the date from which contributions will be made to the employee’s pension.

 

For business with 30 employers or fewer, the staging date ranges between 1 June 2015 and 1 April 2017. Newer employer may have a staging date as late as 1 February 2018. If you are an employer, the Pensions Regulator will write to you to let you know the date from which your obligations arise.


It is only possible to auto-enrol from the staging date. However it is possible for a business to make a request for their staging date to be brought forward.

 

How much will I need to contribute?

 

Contributions are a percentage of ‘qualifying earnings.’ These are employment earnings between the lower and upper national insurance limit. It is therefore not possible for the minimum contribution alone to exceed the annual allowance for pensions.

 

The following table sets out the minimum requirements.


  Until 1 October 2017 Between 1 October 2017 and 30 September 2018 From 1 October 2018
Employer contributions 1% 2% 3%
Employee contributions 1% 3% 5%
Total contributions 2% 5% 8%

 

The employee’s contribution will be deducted from gross pay. Therefore it is the amount after deduction of employee’s pension contribution that will be subject to tax. 

There are a number of tax advantages to a pension contribution.

 

It is acceptable to provide employees with more than the minimum requirement.

 

Defined Contribution or Defined Benefit

 

A pension is a method of saving for retirement. Unlike usual savings the money cannot be accessed until the pension holder reaches retirement age. A Defined Contribution (or DC) pension fund increases in value when contributions are made. The contributions are invested with the aim of further increasing its value. This contrasts with a defined benefit scheme, where the pension benefit is known in advance. The benefit is based on earnings and length of time in employment. DC schemes are far more common in practice. The value of investments can go up as well as down.

 

What pension do I provide?

 

As an employer, it is a requirement to set up a pension scheme for the contributions to be paid into.

 

Coman & Co. Ltd are not financial advisers and therefore cannot advise on pension schemes. Many ‘household name’ insurers offer workplace pension schemes. However, some pension providers do not offer a service for that can satisfy the requirements of automatic enrolment.

 

What is a default investment fund?

 

Most pension providers offer a default investment fund. This is the fund that is chosen by the pension provider for any employees who have not stated the investments to be made with their pension money. It is specifically for employees who are either unwilling or unable to make investment decisions about their pension.


According to government reports more than four in five employees opt for the default fund provider. A typical approach by the insurance company is to invest in the stockmarket for younger pension holders. The aim is to grow the value of the pension. As retirement nears the pension will be invested in lower risk assets, such as bonds and gilts. This is to protect the value of the pension.

 

What is the alternative to a default provider?

 

It is possible to invest a pension in a host of funds, shares, bonds and other securities. A Self-Invested Pension Plan (or SIPP) allows its pension holders to take charge of how investments are made. Broadly, SIPPs allow the pension holder greater freedom to choose what, when and how much is invested in the fund.


Even if you are self-employed or a one-person company owner a SIPP or other pension may be suitable. SIPPS can even be used to purchase the commercial premises from which your business operates.

 

My employee does not wish to auto-enrol

 

If an employer has enrolled an employee in the scheme, it is a requirement that the employee remains a member of the workplace pension. However, it is possible for the employee to opt out of making any contribution to the pension.

 

Providing a workplace pension is costly to the employer. Nevertheless, an employer is not allowed to offer any incentive to prevent staff from joining the scheme. Employers are obliged to explain auto-enrolment to staff. The Pension Regulator has provided a template for this purpose. The benefit of employer contributions must be explained.

 

Notwithstanding, an employee may choose to opt out. Employees may, for instance, prefer greater take home pay, even if this means foregoing the extra amount paid into their pension by their employer.

 

If an employee opts out within one moth of joining the scheme a full refund for the employee’s contributions must be made.

 

I am a one person company, or a company where everyone is a director.

 

Provided no more than one of the directors has an employment contract is not necessary to operate a workplace pension. Unless the director specifically wrote an employment contract it is unlikely to exist. A letter from the Pension Regulator regarding any requirement to auto-enrol can be cancelled by following this link:

http://www.thepensionsregulator.gov.uk/employers/What-if-I-dont-have-any-staff.aspx

 

I have my own company, but have not received a letter from the Pension Regulator.

 

Correspondence would probably not be sent by the Pension Regulator to businesses that have indicated they will not be operating a workplace pension. This can be specified on the application to register as an employer.

 

Therefore no further action is necessary.

 

I am not required to operate a workplace pension, but appreciate the retirement planning implication of not having any pension.

 

Consider the benefits (helped by the tax system) of making pension contributions. The most tax efficient method as a one-person-company is to make contributions as an employer.

 

How is auto-enrolment operated via the payroll?

 

The deductions from an employee’s pay and total pension contributions are included on the payslip. Most payroll software will automatically link to the pension provider. The contribution information is transferred to the pension fund and the employer settles the contribution into the pension fund accordingly.

 

Coman & Co Ltd. operate a payroll service for small businesses. As part of payroll we will assist with generating the electronic file sent to your pension provider to meet the compliance requirements. We can ensure that the submission made by the software follows the format acceptable to your pension provider.

 

After the staging date

 

Once auto-enrolment has started, there are further requirements.

 

The employer is required to explain to staff the relevant implications of auto enrolment and the pension fund that the employer has selected on behalf of the company. The Pension Regulator provide a template for this purpose.

 

The pension regulator has stipulated that employers file a compliance declaration within five months of the staging date.

 

It is a requirement to keep auto-enrolment records for six years, and opt out requests for four years.

 

Fines apply for non-compliance.

 

Tax implications

 

Employer contributions can be deducted from profits chargeable to corporation tax.

 

The amount contributed by the employer is not a taxable benefit. Contributions by the employee are deducted from earnings subject to tax and national insurance. More information can be found here.

 

Up to £150 incurred on pension advice provided to an employee is a tax free benefit.  The additional costs of employer contributions will be partly offset by the recent employment allowance, a benefit mainly for small businesses.

2015 Budget

Published: 20 Mar 2015

Updated: 21 Mar 2015

 

Written by

 

With just 50 days before the election, the Chancellor's announcements included a number of tax-saving proposals. The Budget statements are made in the context of a strengthening British economy, helped (as Mr Osborne grants) "by falling world oil and food prices."  His speech declared a national "comeback", with:

 

 

  • A growth in the UK economy of 2.6% in 2014, the fastest in the G7 group of nations.
  • The number of people in work at a historical high.
  • Britain measuring its lowest recorded level of inflation.

 

 

ISA

 

 

Starting 6 April 2015, the limit on the yearly amount that can be invested in an ISA increases by £240 to £15,240.  The annual limit for a junior ISA also increases to £4,080 up £80 from 2014/15.

 

ISA rules will be more flexible from 2015/16.  Previously the limit was measured with regard only to the amount paid into the ISA.  However, under new rules the limit will be measured by net contributions in the year.  It will be possible to draw funds out the ISA and re-invest them, provided the difference between what is invested and what is withdrawn, the same tax year, does not exceed the limit.

 

 

Help to Buy ISA

 

 

A new type of ISA will be available for first time buyers from Autumn this year.  Under the Help-to-Buy scheme, the government will add £50 to the ISA for every £200 contributed by the saver.  An investment can be made up to an overall yearly limit of £15,000.  The maximum is therefore £12,000 contributed by the saver and £3,000 contributed by the government.  The limit is 10% of £150,000 which is the Treasury estimate of about the average UK property price.

 

 

Savings

 

 

The chancellor announced that from 6 April 2016, there will be no tax payable on the first £1,000 of interest income. Currently, 20% tax is deducted at source from most interest, and 40% taxpayers are therefore required to pay back an additional 20% in tax.  The limit is reduced to £500 for higher rate taxpayers so that the relief is no greater for those on higher income.  The measure is expected to relieve 95% of taxpayers from the burden of tax on their interest.

 

 

Pensions

 

 

There is a lifetime allowance on the amount that can be invested, tax free, in a pension.  The value of the pension is measured against this limit when it vests.  A pension usually vests when the pension holder starts drawing on the pension. There is a tax charge on the value of the pension over the lifetime allowance on the vesting date.  The government proposes to reduce the annual limit from £1,250,000 to £1,000,000 from April 2016.

 

A pensioner will also no longer be forced to buy annuity from next April.  In other words, a pensioner will no longer have to receive a fixed annual payment, calculated partly by reference to life expectancy.  Instead pension holders will be able to access their pension funds as cash withdrawals.

 

Under the current rules, a taxpayer would have to pay tax at a rate of 55% when they sell their annuity.  This will be altered so that a taxpayer will pay tax at their marginal rate (for instance, at 20% if a basic rate taxpayer.)

 

 

Personal allowance

 

 

The personal allowance, or the amount of income that a person can receive tax free, is set to increase over the next three years.  With effect from 6 April 2016, the personal allowance will rise to £10,800, a £200 increase from 2015-16.  The personal allowance is also set to rise again to £11,000 on 6 April 2017.

 

 

Basic rate

 

 

So that higher rate taxpayers are no worse off following the personal allowance, an increase the basic rate threshold is also due to rise.  Starting 6 April 2015, an individual must earn £42,385 before paying tax at the higher rate of 40%.  This basic rate tax threshold will rise by £315 in 2016-17, and by £600 in 2017-18.  The basic rate band will therefore be £43,300 in 2017-18.  The escalation in the limit is above inflation and therefore prevents us paying more in real terms, an effect known as fiscal drag.

 

 

Married couples' allowance

 

 

Where a spouse has income less than the personal allowance, they can transfer some of their allowance to their married partner.  Consequently, the married partner can benefit from a higher tax free amount that their spouse is not using.  From 6 April 2015, the amount of allowance that can be transferred will rise to £1,100.

 

 

Class 2 NICs

 

 

Class 2 national insurance is a fixed amount payable by self-employed individuals.  The government has announced that it will abolish this tax from the next Parliament.

 

 

Under 21 NICs

 

 

From next April, there will be no employers' national insurance liability arising from salary paid to an employee under twenty one.

 

 

Company cars

 

 

Where an employer provides a company car, the employee is taxed on this benefit in kind.  The higher the Carbon Dioxide emissions of the car the more benefit the employee is deemed to have received.  This is to encourage companies to provide more fuel efficient work vehicles.  The government announced, that in 2019/20 the rate applicable to low-emission vehicles will be lower than previously announced.  On the other hand, the rate for other vehicles will increase 3%.

 

 

Tax returns

 

 

From early 2016, the government plans to scrap the Tax return, and instead introduce digital tax accounts.  Further details are awaited.

 

 

 

Annual investment allowance

 

 

There is currently an annual allowance in place to enable business to immediately deduct the cost of purchasing assets, such as computer equipment, from taxable profits.  The rate is currently £500,000 but due to fall to £25,000 at the end of this year.  In his speech the chancellor confirmed that this considerable drop will not occur.

 

 

Corporation tax

 

 

As part of a previously announced measure the rate of corporation tax will lower again to 20% from 1 April 2015.  Britain will have one of the lowest company tax rates of any major economy in the world.

 

 

 

2014 Budget

Published: 19 Mar 2014

Updated: 03 Apr 2014

 

Written by

 

Delivered at 12.30 today, the chancellor's fifth budget contains a number of tax incentives for so called 'doers, makers and savers.' A round up of the main changes is explained below.

 

Stamp duty on property worth over £500,000

 

The threshold for stamp duty on residential property purchased via a company will lower from £2 million to £500,000. The new threshold takes effect from midnight (19 March 2014.) The measure provides a further disincentive to owning a property via a company.

 

Up to £2,000 state help with childcare costs

 

From September 2015, families where both parents work will be able to obtain government support for the cost of childcare on any of their children aged 11 or younger. Eligible couples will be able to open an online 'tax-free childcare' account which will be administered by HMRC in conjunction with NS&I. The government will contribute 20 pence for every 80 pence paid into an account. Under new proposals, up to £8,000 can be contributed by parents into the fund. Where the maximum is contributed, £2,000 of childcare subsidy would be obtained.

 

The scheme is open to all parents, except where both parents are earning over £150,000.

 

Parents using a childcare voucher scheme can continue to use the scheme as an alternative until their child reaches 15 years old. This will be particularly beneficially for parents with children between 12 and 15 who have not moved employer.

 

Premium bond limit lifted to £50,000

 

The cap on amounts that can be invested in a premium bond will be raised in June from the current threshold of £30,000 to £40,000. A further increase in the limit to £50,000 will be introduced from 2015/16. Premium bond pay-outs are tax free, but the limit of £30,000 has been in place since 2003.

 

ISAs limit increase to £15,000

 

From 1 July 2014, the limit that can be invested in an ISA will increase from to £11,520 to £15,000 and the full amount can be invested in cash. The previous rules restricted the amount that could be invested in cash (to £5,760 for 2013/14.)

 

Pension annuities to be abolished

 

From 5 April 2015, pensioners will no longer be required to convert their pension into an annuity. Previously, pensioners had to purchase of an annuity from their pension pot on reaching age 75. An annuity is a guaranteed income for life which is based mainly on the value of the pension fund, prevailing interest rates and life expectancy. It is hoped that greater choice for pensioners will improve the competitiveness of annuity products.

 

The alternatives of fixed term annuities or income draw-down may leave surplus funds in the pension to be transferred on death.

 

Most pensioners will have a cap placed on the amount that can be withdrawn. A few pensioners, which sufficient other income, will be able to drawdown unlimited amounts from their pension.

 

10 pence savings rate to be scrapped

 

The budget contained welcome news for low income savers, with the abolition of the 10% tax rate.


Where a person's total income is less than the personal allowance and the starting rate, savings income has been taxed at 10%. For 2013/14 the personal allowance was £9,440 and the starting rate was £2,790. Therefore in 2013/14, an individual with total income of £12,230 of which £2,790 was bank interest, would have a tax liability of £279.

 

Following the budget announcement, a new starting rate of 0% will be introduced for savers and will apply to the first £5,000 of taxable income. This is almost double the current limit.

 

Further rises to the personal allowance

 

The chancellor announced that the personal allowance will increase again to £10,500 on 6 April 2015. However unlike previous increases in the personal allowance there is no corresponding decrease in the amount taxed at the basic rate. Therefore all taxpayers with an income up to £100,000 will benefit. The personal allowance is clawed back when income exceeds £100,000.

 

Social investment and film tax relief

 

From 6 April a 30% tax relief will be available for investment into social enterprise, such as charities and community interest companies. There are increases to film tax relief and tax relief for theatre productions.

 

Annual investment allowance to double

 

The annual investment allowance (AIA) will be increased from £250,000 to £500,000 with immediate effect and until the end of 2015. The AIA determined the amount that can be invested in capital assets and deducted from profits in the year of investment. All but the very largest business will therefore be able to obtain immediate tax relief for capital investment.

 

Abolishing class 2

 

The flat rate of national insurance payable by sole traders and partners will be abolished. The change will reduce an administrative burden on the self-employed.

 

Employment allowance

 

As previously announced the government will be introducing the employment allowance of particular benefit to small business employing staff.

 

With experience in dealing with a range of tax issues, Coman & Co. would be pleased to assist with your tax compliance or tax advice requirements. Please contact us for an initial consultation.

Tax rates for 2014-15

Published: 06 Apr 2014

Updated: 06 Apr 2014

 

Written by Ray Coman

 

With a general election fixed for 7 May 2015, this will be the last full tax year of the current coalition. Many of the changes to take effect from today were announced in the 2014 Budget, although some had been scheduled from much earlier. The main changes effective 2014-15 include:

 

 

The changes include good news for savers and people with pensions and further stimulus for business. However, at a time where property and assets values in certain areas have risen sharply, the lack of change in the tax thresholds creates risk for investors.

 

 

In summary, the freeze on capital taxes will expose greater numbers to an increased burden of tax on wealth and property.
 

Coman & co are pleased to offer a summary of the new rates and allowances, which are key references for tax planning in the coming year.  Please contact us for a further discussion about your upcoming tax requirements.

Capital gains tax on property sale

Published: 28 Feb 2014

Updated: 06 Apr 2014

 

Written by

 

With the London property market soaring, exposure to capital gains tax is sharply on the rise. Tax accountant, Ray Coman replies to the questions this raises.

 

When I sell my property will I have to pay tax?

 

 

You will only pay tax on the sale of property that has not been your home.

 

How much could my tax liability be?

 

 

A gain for tax purposes is the increase in value between buying your house and selling it. This taxable gain can be reduced by costs of purchase, of sale and improvement to the property. Any losses you have made previously, and your annual allowance, currently £10,900, could further reduce the taxable gain. Most of the gain would probably be taxed at 28%.

 

How is my tax reduced if the property used to be my home?

 

 

The proportion of gain during which a property was your Principal Private Residence (PPR) will be exempt from tax.

 

You will be treated for tax purposes as living in the property during certain periods of absence, such as when required to temporarily relocate for work. However, you can only have one PPR at any time. For a final period, you are deemed to live a property, even if you actually lived elsewhere, and did not return to live in it. For properties exchanged before 6 April 2014 the final period is 36 months, however it then reduces to 18 months.


If you let a property that was once your home any gain is further reduced by up to £40,000, per owner.

 

Would I save tax owning a property through a company?

 

 

There is rarely any tax benefit to owning a property in a company. Any gains are subject to corporation tax, and when taking gains out of the company, further tax liability is likely to arise on dividends. A company is not eligible for PPR relief or an annual exemption.

 

Should I transfer the property into joint names with my husband or wife before selling it?

 

An acquiring spouse 'inherits' the actual and deemed periods of occupation of the transferring spouse. Transferring a property can, therefore, save a couple tax. However, a person, or a married couple, can only have one PPR at any time. Therefore, if the transferee spouse was previously a homeowner, the transfer could create a significant tax liability.


Transfers between spouses are exempt from capital gains tax.

 

I had two homes, what happens if I sell one of them.

 

 

The fortunate few who have two homes at the same time could benefit by nominating one of the properties as a PPR.

 

How is my tax position affected if the property market does not increase?

 

If price stagnate, the effectiveness of PPR will diminish. If you sell your home for less than you bought it for, the loss cannot be used to reduce any taxable gains you make in the future.

 

Coman & Co can advise on the tax implications of your property investment plans. Please contact us for a free consultation.

 

Final period of deemed occupation to reduce

Published: 22 Feb 2014

Updated: 28 Feb 2014

 

Written by Ray Coman

 

As from 6 April 2014 the rules change affecting taxpayers who own property that was previously their home.

 

Each person is entitled to dispose of a property occupied as their home without suffering any capital gains tax. However, for any other property an exposure to capital gains tax arises. The tax system will allow a person to continuing to treat their former home as exempt from capital gains tax during certain periods of absence. These periods are referred to as deemed periods of occupation.

 

One deemed period of occupation is the final period of ownership. The final period of ownership would provide exemption from capital gains tax in the situation where a person has moved home but their pervious place is still on the market. The final period used to be 36 months, but for properties exchanged after 6 April 2014 it will reduce to 18 months.

 

Principal Private Residence relief can significantly reduce a person’s tax liability. The reduction in effectiveness of the relief will increase the potential tax burden on eventual disposal of a property. Please contact Coman & Co if you are concerned about the impact of the proposals on your exposure to capital gains tax.

Magazine Articles

Published: 21 Dec 2013

Updated: 21 Dec 2013

 

Ray Coman writes on the topic of taxation for a number of magazines.

 

This section includes a selection of offline articles in publication.

Sole trader or company

Published: 21 Dec 2013

Updated: 30 Jan 2014

 

When you are self-employed a limited company is often worth considering. To help you decide, an accountant responds to some of the usual queries.

 

I am not sure whether the tax savings will make it worthwhile.

 

A company can be suitable for various reasons. Your accountant should help you to understand if and when a company would be right for you.

 

Is having a company going to take up a lot of my time?

 

You would probably spend an extra hour a year being a company rather than a sole trader. This could be a worthy investment of time when compared with the benefits and tax savings of having a company.

 

There would be more penalties

 

Yes, there are penalties for late filing of accounts with Companies House, which would not apply to a sole trader. The deadline for company accounts is typically nine months after the year end, which is about the same as for a personal Tax Return. Most companies are able to meet the deadlines, and so avoid any penalties.

 

The tax would be more complicated

 

If anything company tax is simpler to understand. There is often no national insurance liability and, in many cases, no payments on account. Sole traders typically have to make payments on account to HMRC for estimated, future tax liabilities. As such, the system for sole traders can make liabilities harder to predict and bring about cash flow shortages.

 

If I am registered as a company, does that mean I also have to be registered for VAT?

 

No, the VAT registration threshold (currently £79,000) applies to both sole traders and Companies alike.

 

All my business details would be public

 

Your can register your company at your accountant's address. Therefore, your home address would not be on any public record. For businesses with a turnover less than £6.5 million, the accounts which get filed with Companies House are abbreviated and as such do not include a profit and loss.

 

Don't I lose out on state pensions with a company?

 

There is a risk that you could forfeit state pension by changing the business to a company. However, if the company is arranged properly to pay you a salary each month then your social security should stay protected.

 

It's not as easy to close the business down

 

The procedure for closing down a limited company is now straightforward.

 

Is there now a lot of paperwork when I want to pay myself from the company?

 

Not really, you can simply transfer money from the company bank account to your personal bank account at any time. The money you withdraw will be treated as a mixture of salary and dividend. Most of the reporting of dividends takes place once-a-year after the year end. Usually, the only restriction is to keep about a fifth in the company bank for tax.

 

I would like a further discussion

 

At Coman & Co., we can respond to your query by email and, if suitable, arrange for a free, initial meeting.

HMRC offer incentive to bring Tax Returns up to date

Published: 25 Jul 2013

Updated: 25 Jul 2013

 

Written by Ray Coman

 

HMRC have this month put forward an incentive to taxpayers with overdue Tax returns. A new facility, 'My Tax Return Catch Up', has been made available for filing a tax return for any year up to 2011-12.


By taking advantage of the facility, penalties that would otherwise be due will be significantly reduced. Although late filing penalties, late payment penalties and interest would still apply, HMRC have offered the best terms available for those that file using the 'Catch Up' facility. In particular, HMRC have announced that they would not apply the highest penalty to those taking part in the campaign. This is a late filing penalty of equal to 100% of the tax due for Tax returns which are more than 12 months' late.


In addition to being spared the higher penalty, participants in the initiative would also avoid:

 

  • Determinations. A determination is essentially an estimate of tax liability made by HMRC;
  • Referral to debt collection which could result in unwanted telephone calls and visits; and
  • Possible court action.


With the aide of intelligence gathering software, Connect, HMRC is expected to contact relevant individuals. The proposal is aimed at taxpayers who have received a notice to file a tax return for any tax year up to and including 2011-12. The 'Catch Up' offer will expire on 15 October 2013.
Coman & co can assist:

 

  • Prepare your Tax Returns for outstanding tax years.
  • Take advantage of the offer made by HMRC in the 'My Tax Return Catch Up' campaign.
  • Calculate any tax payable or repayable, late filing late payment penalties and any interest thereon.


Please contact us to discuss how we can assist with the above

High income benefit charge

Published: 09 Dec 2012

Updated: 20 Dec 2012

 

Written by Ray Coman

 

From 7 January 2013, a tax charge will be introduced for people on high incomes. The charge applies if either:

 

  • you receive child benefit, or
  • your partner receives child benefit, or
  • another person receives child benefit on behalf of a child who lives with you.

 

In this case a partner includes your spouse, civil partner or any other person who lives with you as if they were a spouse or civil partner, even if they are not the parent of the child on which benefit is received.

 

The tax charge applies to whichever partner has an income exceeding £50,000. If both incomes exceed £50,000 the tax charge would apply to the partner with the higher income. If neither partner has an income exceeding £50,000 then no charge would apply.

 

The charge is an amount equal to 1% of the child benefit for every £100 that income exceeds £50,000. In effect, the child benefit is tapered away until it reaches nil for individuals with an income of £60,000 or above. Individuals with total income over £60,000 who receive child benefit would suffer a tax charge equal to the benefit received.

 

It is possible to notify HMRC that you no longer wish to receive child benefit from 7 January 2013 and therefore no charge would apply.
The income tax charge is collected via self-assessment and there is no option for it to be collected via a tax code. Therefore if the income tax charge applies, a Tax return should be completed which includes the amount of the charge. Alternatively, a Tax Return would not be required if you have opted out of receiving child benefit, unless you already complete a tax return for another reason.

 

There may be an advantage to completing a child benefit claim, even if the tax charge cancels any benefit. The reason could be that you would receive a national insurance credit which would help protect entitlement to state pension.

 

For the purposes of the tax charge income includes most taxable income. However, there are deductions available for trading losses, pension contributions and gift aid payments. The tax benefits of reducing income between £50,000 and £60,000 are greater for people claiming child benefit.

 

We are specialists in assisting individuals with personal and family tax matters. Please contact us for an initial consultation which would be free at our offices.

2013 Budget commentary

Published: 20 Mar 2013

Updated: 01 Apr 2014

 

Written by

 

In his first Budget since the loss of Britain’s credit rating, the chancellor has put forward accelerated plans for encouraging growth, spending and employment in the economy.  The personal allowance increase and the corporation tax rate cut will both occur a year sooner than previously announced.  Tax savings will also come to smaller businesses in the form of an employment allowance.

 

The most significant announcement came in the form of a new tax break for employers.  Starting from 6 April 2014, all businesses will be entitled to an Employment Allowance which will cover the first £2,000 of employers’ national insurance liability.

 

As an illustration, employers would pay no national insurance on a £22,400 salary paid to one of their employees.  This results from a rate of employer’s national insurance equal to 13.8% on any payments over approximately £7,900.  To provide another example, the effect of the allowance is the same as eradicating national insurance on the hiring of four staff at the minimum wage (of say £11,525 per year.)

 

The announcement will be particularly helpful to small business seeking to hire their first employee.  The incentive is well designed to relieve unemployment which remains stubbornly high among jobseekers in the 18-24 age band.

 

There was good news for larger business as well.  The full rate of corporation tax is now to reduce by a further 1% to 20% starting in April 2015.  In previous announcements the full rate of corporation tax was set to be reduced to 23% in April 2013, to 22% in April 2014 and 21% in April 2015.  Following the budget proposal of today, the rate will be further reduced to 20% in April 2015.

 

The overall rate has so far dropped 2% a year since the year starting in April 2010 when it was 28%.  Eventually, the most recent scheduled tax cut will put Britain’s rate of corporation tax the lowest in the Western world; lower than Luxembourg at 21%.

 

The personal allowance will increase from 6 April 2014 to £10,000.  As a result, the increase is now taking place one year sooner than previously announced.

 

From April 2015, parents will be able to have up to 20% of their childcare costs paid tax free, subject to a yearly maximum £1,200 per child.

 

With a triple dip looming in the economy, the further cuts announced today are hoped to re-spirit the economy over the remaining term of the coalition.  Opportunities will arise among individuals, families and small business to take advantage of these tax cuts.  Please contact us if you would like to discuss your tax plans in further detail.

Real Time Information

Published: 26 Nov 2012

Updated: 01 Nov 2015

 

Written by Ray Coman

 

What to report

Preparaing for payroll alignment

Implication for director of own company

Implementation

Objectives

 

The real time information (RTI) reporting system for payroll will be introduced from April 2013. Under the RTI regulations, Pay-As-You-Earn (PAYE) information should be reported electronically to HMRC on or before any payment is made. This replaces the current system, in which PAYE information is submitted once a year. RTI represents the most significant change to the PAYE system since it was introduced in 1944.


With real time reporting, it will no longer be a requirement to electronically file an employer's annual return to HMRC, which is currently summarised on forms P35 and P14. All the information, otherwise on the P35, would be relayed to HMRC on the payment reports for that year. An individual should still be sent a P60 which contains information that they may need to complete a personal Tax return. Similarly, there will no longer be an obligation to send HMRC P45s and P46s which are used to notify about starters and leavers. This is because information about starters and leavers will be automatically related to HMRC on the next payment occasion. Unchanged, however is the requirement for employers to provide P45s to leavers and use the P45 provided by a starter to update their payroll records.


Under the new regulations, most employers will have to start using Real Time Information (RTI) from April 2013, although employers with over 5,000 employees will have until October 2013 to be fully compliant. HMRC have indicated that they will notify employers when to start using the new system.


What to report

 

A Full Payment Submission (FPS) is the name given to the report which is required to be electronically communicated to HMRC on or before a payment is made to an employee. The FPS will include:

 

  • Full name, address, date of birth, national insurance number and gender of each employee.
  • The amount paid to every employee, including wages, overtime and bonuses.
  • Any deductions made for tax, national insurance and student loan repayments.
  • Statutory sick pay and all statutory maternity, paternity and adoption pay.

 

Under the existing system of e-filing for employers' annual returns, the above information is already reported to HMRC, however there are two additional pieces of information to be included on the RTI

 

  • Number of contracted hours (within certain bands) for each employee. This information is for the purpose of calculating entitlement to tax credits, in real time.
  • An indication that an employee has had an irregular pattern of pay, for instance, due to unpaid leave. This would confirm to HMRC that the employee is still employed, but not being paid for a while.

 

The FPS would also indicate the final payment before 5 April, as the year-end returns are no longer reported. Similarly, the leaving date and starting date are indicated on the following FPS, as P45s are no longer separately reported to HMRC. Form P11d for benefits-in-kind are still reported to HMRC under the existing arrangement. Payment dates will remain as 22nd of each month (or each quarter where the employer makes quarterly payments.)


Preparing for payroll alignment

 

It is a requirement of RTI reporting for PAYE information conveyed by the employer to be aligned with that held with HMRC. Consequently, employers should review the accuracy of all staff information, and summarise hours worked in time for when the first FPS is to be sent to HMRC. The first FPS may include information which would not be included on future FPSs, such as employees who have worked since 5 April of that year, but have since left. For most employers this may not be a practical hurdle, since the initial submissions will probably be shortly after April 2013.


It is the responsibility of employees to let HMRC know about any relevant change in personal details, such as change of address. HMRC may not automatically accept change of details related by an employer for data protection purposes. Nevertheless, the employer would still be liable to HMRC for any errors in the RTI. In practice, incorrect information on the FPS could lead to it being rejected, and therefore eventually late, and subject to penalties. It may therefore be prudent to review contracts to oblige employees to notify their employer in addition to HMRC regarding any change in details. It may be appropriate to review and update a new starter checklist. Name and address details for new employees should be externally checked with an official source, such as a passport. HMRC offer a national insurance verification process.


Implication for director of own company

 

An FPS would include all payments including those below the lower earnings limit for national insurance. Where no monthly returns have been submitted, HMRC would estimate any PAYE due, and pursue the employer for the outstanding amount, even if there is no tax due. However, as before, there is no requirement to register as an employer if all payments made to employees in the year are below the national insurance limit. In practice, therefore, it would make sense not to register as an employer, unless a director was in a position to make a monthly FPS with showing no deductions. Coman & Co. do not offer a monthly 'nil return' service. Voluntary national insurance contributions may be a suitable alternative for directors of one person companies. This is because the social security benefits (including the state pension) would not accrue to a person who is not being paid above the lower earnings limit or is otherwise paying national insurance. For entitlement to the universal credit, a director, in the one-person-company-minimum-salary scenario should notify the Department of Work and Pensions (DWP.)

 

Implementation

 

Employers can implement RTI reporting either through payroll software or via a payroll bureau. HMRC have published an approved list of software providers. HMRC also offer their own software, which by their own admission, has key limitations in dealing with many irregularities. The HMRC software does not produce payslips, P60s or P45s, or record any pay deduction which is not related to PAYE.


As the new RTI system will be heavily reliant on technology, employers should consider reviewing contingency arrangements, such as recourse to a separate payroll bureau. It is possible to send information to HMRC in advance of payday, where for instance computer system downtime is anticipated.

 

It is still the responsibility of the employer to submit a correct RTI, regardless of whether the service has been outsourced to a payroll bureau.

 

Most payroll software providers offer tax tables which automatically update, and a service which allows the pay information to be forwarded in real time.

 

Objectives

 

The objective of RTI are to:

 

  • Reduce the administrative burden for employer, by removing the requirement to file year end returns and P45s
  • Improve the currency of information held by the government.
  • To allow for the introduction of the Universal Credit, by providing real time information on working hours and pay. The government will be able to assess entitlement to social security benefits based on up-to-date information about income and hours worked.
  • Reduce overpayments and underpayments of tax made to individuals, caused by misalignment of PAYE information.

 

Our service

 

Coman & Co. are able to assist with your tax and accounting requirements as an employer. We can help with accounting software selection and payroll advice. We can offer payroll assistance to clients for whom we already provide a range of services, although we do not offer payroll as a stand-alone service. Please contact us for a consultation.