Tax Newsletter June 2019

Welcome to this month's issue of the Clarkson Cleaver & Bowes Ltd newsletter. 

We hope you find our articles of interest.

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Newsletter June 2019


 

Will your gift aid donations create a tax bill?

The Gift Aid scheme is available to all UK taxpayers. The charity or Community Amateur Sports Clubs (CASC) concerned can take a taxpayer’s donation and provided all the qualifying conditions are met, can reclaim the basic rate tax allowing for an extra 25p of tax relief on every pound donated to charity.

 

Higher rate and additional rate taxpayers are eligible to claim tax relief on the difference between the basic rate and their highest rate of tax. This can be actioned through their Self Assessment tax return or by asking HMRC to amend their tax code.

 

For example:

 

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can claim additional tax back of:

 

  • £125 if they pay tax at 40% (£625 × 20%),
  • £156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%).

 

Beware this potential tax trap

 

However, an awkward situation can arise if you gift too much to charity as one of the conditions of gaining tax relief is that you must have paid enough tax (or any tax) in the relevant tax year. The rules state that your donations will qualify for tax relief as long as they are not more than four times what you have paid in tax in that tax year. If you have claimed more tax relief than you are entitled to you will need to notify the charity and pay back any excess tax relief to HMRC.

 


Want to pay-off your student loan in full?

Student Loans are part of the government’s financial support package for students in higher education in the UK. They are available to help students meet their expenses while they are studying, and it is HMRC’s responsibility to collect repayments where the borrower is working in the UK. The Student Loans Company (SLC) is responsible for collecting the loans of borrowers outside the UK tax system.

 

Whilst many ex-students are happy to continue paying back their loans at the lowest level possible, it is of course an option to pay-off you student loan in full. This might be done for a number of different reasons that could include peace of mind by removing an ongoing debt repayment and reducing your monthly debt repayments. It is important to note that the interest rate payable on student loans varies and typically those started before 01 September 2012 pay lower rates.

 

Unlike many other debts, there are no penalties for clearing your student loan early so if you have other debts with significant penalties for making early repayments, this may be a good one to tackle first. However, if you have other debt with higher interest rates and no early repayment penalties then it might be more beneficial to tackle those debts first.

 

If you want to pay off your student loan you must first call the SLS to get an up-to-date settlement figure. If you have been making student loan repayments through your salary, then you should have your last P60 and all your payslips for the current financial year to hand when you call. This will allow the SLC to calculate an accurate figure for you.

 


 

Landlords, time to consider your options?

Two changes to the way Private Residence Relief works are due to come into effect from April 2020. These changes could reduce the amount of CGT relief available on the sale of a private residence. The government has said that the measures are being introduced to better focus Private Residence Relief at owner-occupiers and the changes will mostly affect home owners who let out their home, or part of their home at some time.

 

The current private residence rules and forthcoming changes

 

Currently, if a property has been occupied at any time as an individual’s private residence, the last 18 months of ownership are disregarded for CGT purposes. This relief applies even if the individual was not living in the property when it was sold. From April 2020, this final exempt period will be reduced from 18 months to 9 months.

 

The intention of this relief was to protect those who had difficulty selling their original home after purchasing a new home. However, the long exemption period allows all qualifying home owners to accrue CGT reliefs on two properties at the same time. The government is concerned that this relief is being used by some homeowners / landlords who intentionally hold on to a property they have lived in to benefit from the CGT reliefs available.

 

There will be no change to the 36 months exempt period available for those that are disabled or moving into care homes.

 

Home owners that presently let all or part of their house may not benefit from the full private residence relief but can benefit from letting relief of up to £40,000 (£80,000 for a couple). The relief is not available on a 'buy to let' property in which the owner has never lived.

 

From April 2020, lettings relief will be reformed. The change will mean that lettings relief will only be available to those property owners who are in shared occupancy with a tenant.

Are you considering a property sale?

 

If you have two properties on which you can take advantage of Private Residence Relief then it might be time to consider your options and look to possibly sell one of these properties before April 2020.

 

Also, it is important to note that these changes from April 2020 do not affect landlords who have never lived in a rented property.

 


 

CGT and chattels

A charge to Capital Gains Tax (CGT) usually arises after an asset is sold. However, there are special rules concerning the sale of certain personal assets that are worth considering.  That is because these assets or possessions with a predictable useful life of 50 years or less are normally exempt from CGT. A chattel is a legal term that defines an article of movable personal property. Chattels include items like household furniture, paintings, antiques, items of crockery and china, plate and silverware, motor cars, lorries, motorcycles and items of plant and machinery not permanently fixed to a building.

 

The gains on any chattels you sell are exempt if the proceeds do not exceed £6,000 per item. In addition, marginal relief may be available where the proceeds are between £6,000 and £15,000. The taxable gain is calculated as the lower of the actual gain or 5/3rds of the excess over £6,000. The disposal proceeds will normally be the amount of money you received when you disposed of the chattel.

 

There are also special rules for sets of chattels. A set is two or more chattels together which are similar and complementary to each other, and worth more together than separately. Examples include matching ornaments or a set of chess pieces. Where a set is sold, the £6,000 limit applies to the set and there are special rules to sets that have been broken up and sold separately.

 

Please call if you are concerned about the CGT consequences of an impending disposal.

 

 


 

What is business relief for Inheritance Tax purposes?

Inheritance Tax (IHT) is levied on a person’s estate when they die and can also be payable during a person’s lifetime on certain trusts and gifts. Currently, no tax is payable when a person’s estate is worth £325,000 or less.

 

Certain business assets may be exempt

 

There are a number of reliefs available that can reduce liability to IHT if you inherit the estate of someone who had died. One of these reliefs is known as Business Relief and is a valuable tax relief for taxpayers with business interests, offering either 50% or 100% relief from IHT on the value of the business assets if certain conditions are met.

 

  • 100% Business Relief can be claimed on a business or interest in a business or on shares held in an unlisted company.
  • 50% Business Relief can be claimed on:
    - shares controlling more than 50% of the voting rights in a listed company
    - land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
    - land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

 

Relief is only available if the deceased owned the business or asset for at least 2 years before they died. There are a number of restrictions to the relief, for example, if the company in question mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments. In some cases, partial Business Relief may be available.

 

The question of whether or not Business Relief is available can be complex and we would recommend that business owners pay attention to the facts to ensure their descendants IHT bill is as low as possible. We can of course help review the facts and advise accordingly.

 


 

Submitting P11Ds is just the start of your obligations

We would like to remind employers that the deadline for submitting the 2018-19 forms P11D, P11D(b) and P9D is 6 July 2019. P11D forms are used to provide information to HMRC on all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) unless the employer has registered to payroll benefits.

 

This is known as payrolling and removes the requirement to complete a P11D for the selected benefits. However, a P11D(b) is still required for Class 1A National Insurance payments regardless of whether the benefits are being reported via P11D or payrolled. It is important to be aware that the deadline for paying class 1A NICs is 22 July 2019 (or 19 July if paying by cheque).

 

The Optional Remuneration Arrangements (OpRA) legislation was introduced with effect from 6 April 2017. The legislation means that the tax and NICs advantages of benefits where an employee gives up the right to an amount of earnings in return for a benefit are largely withdrawn. This includes flexible benefit packages with a cash option, cash allowances and salary sacrifice. The taxable value is now the higher of the cash foregone or the taxable value under the normal BiK rules.

 

Don't ignore the forms...

 

Where no benefits have been provided from 6 April 2018 to 5 April 2019 and a form P11D(b) or P11D(b) reminder is received, employers can either submit a 'nil' return or notify HMRC online that no return is required. Employers should ensure that they complete their P11D accurately, including all the details of cars and loans provided. There are penalties of £100 per 50 employees for each month or part month a P11D(b) is late.  There are also penalties and interest if you are late paying HMRC.

 

Need assistance with the form filling?

 

Please call if you need help either completing the individual P11D forms, or any of the associated forms.

 

 


 

Have you adopted the new minimum wage rates?

The new National Minimum Wage (NMW) and National Living Wage (NLW) rates came into effect on 1 April 2019. The NLW first came into effect on 1 April 2016 and is the minimum hourly rate that must be paid to those aged 25 or over. The new rate for the NLW is £8.21 which is a 38p or almost 5% increase over the previous year.

 

The hourly rate of the NMW (for 21-24 year olds) increased to £7.70 (a rise of 32p). The rates for 18-20 year olds increased to £6.15 (a rise of 25p), and the rate for workers above the school leaving age but under 18 increased to £4.35 (a rise of 15p). The NMW rate for apprentices increased by 20p to £3.90.

 

Penalties may be levied if you get this wrong

 

It is important that you ensure that you have adopted the new rates as there are significant penalties for employers who are found to have paid workers less that they are entitled to by law. If you have underpaid an employee, you must pay any arrears immediately. There are penalties for non-payment of up to 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment can be up to £20,000 per employee and employers who fail to pay face a possible 15-year ban from being a company director as well as being publicly named and shamed.


 

Beware Limited Cost Test if you use the VAT Flat Rate Scheme

The VAT Flat Rate Scheme (FRS) has been designed to simplify the way a business accounts for VAT and in so doing, reduce the administration costs of complying with the VAT legislation. The scheme is open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000.

 

In April 2017, HMRC introduced a limited cost test that can increase the VAT flat rate percentage used by VAT registered businesses that use the Flat Rate scheme. It appears that HMRC considered the benefits obtained by certain businesses to be excessive. Businesses that meet the definition of a 'limited cost trader' are required to use a fixed rate of 16.5%. The highest 'regular' rate is 14.5%.

 

Why should I be concerned about this change?

 

A limited cost trader is defined as one whose VAT inclusive expenditure on goods is either:

 

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period;
  • greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).

 

For some businesses - for example, those who purchase no goods, or who make significant purchases of goods – the outcome of the test will be self-evident. Other businesses need to complete a simple test, using information they already hold, to work out whether they need to use the higher 16.5% rate. Businesses currently using the scheme are expected to ensure that, for each accounting period, they use the appropriate flat rate percentage. Any businesses adversely affected by the test should consider whether it is more beneficial to leave the FRS and account for VAT using the normal rules.

 

How do I check this out? 

 

The number crunching can be complicated and you need to get this right otherwise you may have to repay VAT underpaid to HMRC. Please call if you would like us to check out this for you.

 


 

Less is more – MTD regulations relaxed

Starting from April 2019, most VAT-registered businesses that have a taxable turnover over £85,000 are required to keep their VAT records digitally and use Making Tax Digital (MTD) compatible software to submit their VAT return information to HMRC.

 

There are exceptions for certain businesses that have until the first VAT Return period starting on or after 1 October 2019 to start using MTD for VAT. This includes businesses that are part of a VAT group or VAT division, use the annual accounting scheme or that make payments on account. If your business has a turnover under the VAT registration threshold, you are not currently mandated to use the MTD for VAT service but can opt to do so if you wish.

 

HMRC also has also announced a number of other relaxations that will help businesses adapt to MTD. For example, HMRC has agreed to give businesses until 31 March 2020 to make sure there are digital links between software products. This means that during the first year of MTD for VAT, businesses who use more than one software programme to keep their VAT records and prepare and file returns will not be required to have digital links between those software programmes. From March 2020, bridging or MTD-compatible software will be required so that this information can be digitally sent to HMRC with no manual intervention.

 

It has also been confirmed that where a supplier issues a statement for a period, you may record the totals from the supplier statement (rather than the individual invoices) provided all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown. Although, HMRC is keen to point out that it is best practice to record the individual supplies digitally as this means less risk of invoices either being missed completely or being entered twice (as an invoice and as part of a statement).
        


 

Minimum wage underpayment is on the rise

A new report from the Low Pay Commission (LPC) has found that the number of workers paid less than the statutory minimum wage in the UK increased in 2018. In April 2018, 439,000 workers were paid less than the hourly minimum wage rate they were entitled to. Of these, 369,000 were workers aged 25 and over paid less than the National Living Wage (NLW). This is an increase of around 30,000 on the previous year’s level of underpayment of the NLW, or a two percentage point rise in the share of workers entitled to that rate.

 

The report also found that women are more likely than men to be paid less than the minimum wage, and underpayment is higher for the youngest and oldest workers. The largest numbers of underpaid workers work in hospitality, retail, cleaning and maintenance, with childcare being the occupation with the highest proportion of underpaid workers.

 

The LPC has recommended that the government continues to invest strongly in communications to both workers and employers around minimum wage compliance and enforcement. 

 


 

Be Data Aware campaign

The Information Commissioner's Office (ICO) has launched a new "Be Data Aware" campaign to help people understand how organisations might be using their personal data to target them online and why, and how people can control who is targeting them. This includes, understanding how organisations use people’s data to reach them with social media adverts to market their goods or services and for political marketing.

 

One of the recommendations from the ICO's investigation into the use of data analytics for political purposes, was to continue to educate the public on the impact of new and developing technologies and on the use of data analytics in political campaigns. The Be Data Aware campaign is intended to do just that.

 

The campaign includes a number of resources, such as downloadable factsheets on social media privacy settings (with individual fact sheets available covering each of the main social media websites, e.g. Facebook, Twitter and LinkedIn), how online microtargeting works and political campaigning practices.

 


 

 

The Pensions Regulator targets law-breaking employers

Employers who flout their automatic enrolment pension duties are being targeted with short-notice inspections by The Pensions Regulator (TPR). TPR is using data to pinpoint specific employers across the UK who are suspected of breaking the law, including those who fail to put staff into a pension scheme or who make no, or incorrect, pension contributions.

 

It is mandatory for employers to take part in the inspections – obstruction of an inspector and failing to provide information when required to do so are criminal offences. Non-compliance could also result in fines or court action.

 

The inspections will continue over the summer across the UK. Previous rounds of spot checks targeted employers by region, from at-risk business sectors and from random test samples – as well as employers where there was evidence of non-compliance. TPR will also be directly contacting other employers suspected of non-compliance by phone to validate the information held related to them meeting their duties, to ensure they are complying fully.

 


 

 

Claim for money owed to you

If you are owed money by an individual or business, there is a procedure you can use called making a court claim. This was more commonly referred to as taking someone to a 'small claims court'.

 

Before making a claim, you should try to contact the person or organisation to try and resolve the issue by discussion or by using a specialist mediation service.

 

If this is unsuccessful and you are making a court claim for a fixed amount, this can be done online or by paper. An online claim can be made at www.gov.uk/make-money-claim. If you are making a claim for an unspecified amount you must download and complete the N1 claim form.

 

Paper forms need to be sent to the following address:

 

County Court Money Claims Centre
PO Box 527
Salford
M5 0BY

 

There are court fees to pay when making a claim. The amount of the fee depends on the size of the claim and whether the claim is made online or by paper. The fees can range from £25 to £10,000.

 

You may be required to go to court if the person or business you are claiming from denies owing you the money. If you are successful in obtaining judgement, but do not get paid, there are further steps that can be taken including the use of bailiffs to try and get what you are owed.

 


 

 

Tax Diary June/July  2019

 

1 June 2019 - Due date for Corporation Tax due for the year ended 31 August 2018.

19 June 2019 - PAYE and NIC deductions due for month ended 5 June 2019. (If you pay your tax electronically the due date is 22 June 2019)

19 June 2019 - Filing deadline for the CIS300 monthly return for the month ended 5 June 2019. 

19 June 2019 - CIS tax deducted for the month ended 5 June 2019 is payable by today.

1 July 2019 - Due date for Corporation Tax due for the year ended 30 September 2018.

6 July 2019 - Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2019 - Pay Class 1A NICs (by the 22 July 2019 if paid electronically).

19 July 2019 - PAYE and NIC deductions due for month ended 5 July 2019. (If you pay your tax electronically the due date is 22 July 2019)

19 July 2019 - Filing deadline for the CIS300 monthly return for the month ended 5 July 2019. 

19 July 2019 - CIS tax deducted for the month ended 5 July 2019 is payable by today.

 


DISCLAIMER - PLEASE NOTE: The ideas shared with you in this email are intended to inform rather than advise. Taxpayers circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this newsletter, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.