Tax Newsletter July 2019

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Newsletter July 2019


 

Selling the family heirlooms

There are special rules concerning the payment of Capital Gains Tax (CGT) on the sale of personal possessions also known as 'chattels'. Personal possessions are generally defined as possessions with a predictable useful life of 50 years or less and are exempt from CGT up to a value of £6,000.

 

Personal possessions include items like jewellery, paintings, antiques and coins and stamps. Marginal relief may be available where the proceeds of sale 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 item.

 

There are different rules for sets of personal possessions. A set is two or more items 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 collectively. Special rules apply to sets that have been broken up and sold separately.

 

You are only required to report Capital Gains as and when you have a liability to pay CGT. Of course, calculations should be prepared (and held on file) to establish whether there is a liability to CGT. If the proceeds exceed £15,000 then any chargeable gain should be calculated using the normal CGT rules.

 

 


Claiming Entrepreneurs’ Relief when selling your business

Entrepreneurs' Relief (ER) can be a valuable relief when selling your business, your shares in a trading company or your interest in a trading partnership. Where ER is available Capital Gains Tax (CGT) of 10% is payable in place of the standard rate. CGT on the disposal of chargeable assets is usually chargeable at 20%. There are a number of qualifying conditions that must be met in order to qualify for Entrepreneurs' Relief.

 

There is a lifetime limit that means that you can qualify for ER more than once, subject to an overriding total limit of £10m of qualifying capital gains. There are time limits that must be met to make a claim. To qualify for relief you should be either an officer or employee of the company and own at least 5% of the company and have at least 5% of the voting rights. There are also other qualifying conditions that must be met in order to qualify for the relief.

 

In a recent change, the minimum period during which certain conditions must be met in order to qualify for ER increased from one to two years (from 6 April 2019). If you are looking to sell your business, you need to be mindful of meeting all the necessary conditions in order to qualify for ER.

 

There is also a sister relief called Investor’s relief which has a separate £10 million lifetime cap. This is useful for investors who do not meet the officer or employee requirement for ER.

 


 

Gifts with strings attached

The majority of gifts made during a person's life are not subject to tax at the time of the gift. These lifetime transfers are known as 'potentially exempt transfers' or 'PETs'. These gifts or transfers achieve their potential of becoming exempt from Inheritance Tax if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor dies between three and seven years after the gift is made.

 

The effective rates of tax on the excess over the nil rate band for PETs is:

 

  • 0 to 3 years before death 40%
  • 3 to 4 years before death 32%
  • 4 to 5 years before death 24%
  • 5 to 6 years before death 16%
  • 6 to 7 years before death 8%

 

However, the rules are different if the person making the gift retains some 'enjoyment' of the gift made. This is usually the case where the donor does not want to give up control over the assets concerned. These gifts fall under the heading of 'Gifts With Reservation of Benefits rules' or 'GWROBs'.

 

A common example is a person giving their house away to their children but continuing to live in it rent-free. Under these circumstances, the taxman would contend that the basic position of the donor remained unchanged and that this is a GWROB. If this is the case, HMRC will not accept that a true gift has been made and the 'gift' would remain subject to inheritance tax even if the taxpayer dies more than 7 years after the transfer.

 

A GWROB can usually be avoided in this type of situation if the donor pays full market rent for the use of the asset gifted. We would be happy to help you understand what options are available to reduce your liability to inheritance tax whilst at the same time protecting your assets.

 


 

Working past retirement age

There are many taxpayers who have reached the State Pension age and continue to work. In most cases they no longer need to pay any National Insurance Contributions (NICs).

 

At State Pension age, the requirement to pay Class 1 and Class 2 NICs on employed or self-employed earnings ceases. However, you will remain liable to pay any NICs that were due to be paid on earnings before you reached the State Pension age. If you continue working, you usually need to provide your employer with proof of your age to make sure you stop paying National Insurance. If you would rather not provide proof of age to your employer you can request a letter (known as an age exception certificate) from HMRC confirming, you have reached State Pension age and are no longer required to pay NICs. Your employer remains liable to pay secondary Class 1 employer NICs.

 

Certain jobs have a compulsory retirement age after which you are no longer allowed to work. An employer must have a good reason for setting a compulsory retirement age, for example, if there is an age limit set by law, or the job requires certain physical abilities. However, apart from these special circumstances there is no official retirement age and you usually have the right to work as long as you wish. There is also no requirement to provide your date of birth when applying for a new job.

 

If you are self-employed you will need to pay Class 4 NICs for the remainder of the year in which you reach State Pension age but will be exempt from the following year. We can help you check if you think you may have overpaid NICs and arrange for a refund of any overpaid NICs.

 

 


 

On your e-bike

The Cycling Minister, Michael Ellis, has announced a number of changes to the Cycle to Work scheme in an announcement that was timed to coincide with Bike week. Bike week is an annual celebration to showcase cycling across the UK and runs from 8 – 16 June.

 

The Cycle to Work scheme was introduced almost 20 years ago to help promote the use of healthy ways to commute to work using an environmentally friendly and more active mode of transport. This can also speed up commuting time and cut travel costs for many employees.

 

The changes to the scheme will encourage the use of electronic bikes known as e-bikes. E-bikes have an integrated motor that helps a cyclist pedal, allowing them to reach speeds of up to 15.5 mph in the UK. The use of these bikes widens the appeal of biking to a wider demographic including those that are older or less fit and encourages a new way to commute to work. The use of e-bikes is increasingly popular and 70,000 were sold in the UK last year.

 

New government guidance will also make it easier for employers to provide cycles and equipment including e-bikes worth over £1,000 by making it clear that FCA authorised third party providers are able to run the scheme.

 

Planning note

 

Employers of all sizes across the public, private and voluntary sectors are eligible to take part in the scheme to provide (technically loan) bicycles and cyclists’ safety equipment to employees as a tax-free benefit. Where the scheme conditions are satisfied, employees can benefit from a tax and National Insurance Contributions (NICs) reduction of between 32% and 42% through a salary sacrifice scheme. In addition, there is no employer liability to NICs.


 

How ISAs work

An ISA is a tax exempt savings account available to UK residents. Whilst the amount invested in an ISA does not benefit from tax relief the income and gains are free from most taxes including Income Tax and Capital Gains Tax. Eligible holdings include cash ISAs, stocks and shares ISAs and innovative finance (including peer-to-peer loans) ISAs.

 

There is no minimum period for which an ISA must be held, and you can make withdrawals at any time without the loss of tax relief. The maximum amount that can be invested in an ISA in the current tax year is £20,000. The £20,000 limit can be used in one account or multiple accounts.

 

It is also possible for qualifying taxpayers to invest up to £4,000 of the £20,000 ISA limit in a Lifetime ISA. The Lifetime ISA is available to those aged between 18 and 40 to save for a new home or for their retirement. Under the scheme, the government provides a 25% bonus on yearly savings of up to £4,000 and once you start saving before you are 40, you can continue using the scheme until you turn 50. If you are approaching the age limit cut-off it is well worth opening a Lifetime ISA as you can continue saving until the day before you turn 50. The money invested in a Lifetime ISA can be used for purposes other than saving for a new home or retirement, but will be subject to a 25% withdrawal charge.

 

There are also Junior ISAs available for under 18’s which were introduced to encourage children to save money. The returns from Junior ISAs are also tax-free and are usually locked until the child reaches 18. The annual subscription limit for Junior ISAs is currently £4,368.

 

 


 

2020 May bank holiday will be moved to mark 75th anniversary of VE Day

The government has announced that the date of next year’s early May bank holiday is to move from Monday, 4 May to Friday, 8 May to mark the 75th anniversary of VE Day. This is only the second time ever that the early May bank holiday has been moved – the first was in 1995 to mark the 50th anniversary of VE Day. There will be commemorative events taking place across the country over the three-day weekend to honour the sacrifice made by men and women during the Second World War. VE Day was first celebrated on 8 May 1945 when Allied Forces formally accepted Germany’s surrender.

 

The early May bank holiday will move in England, Wales and Northern Ireland, where it is achieved by a Royal Proclamation made under the Banking and Financial Dealings Act 1971. Bank holidays are a devolved issue in Scotland. However, Scottish Ministers have also confirmed the change of date on the Scottish government’s website.


 

The tax consequences of social events

The cost of a staff party or other annual entertainment is generally allowed as a deduction for tax purposes. If you meet the various criteria outlined below there is no requirement to report anything to HMRC or pay tax and National Insurance. There will also be no taxable benefit charged to employees.

 

  1. An annual Christmas party or other annual event offered to staff generally, is not taxable on those attending provided that the average cost per head of the function does not exceed £150.
  2. The event must be open to all employees. If a business has multiple locations, then a party open to all staff at one of the locations is allowable. You can also have separate parties for separate departments, but employees must be able to attend one of the events.
  3. There can be more than one annual event. If the total cost of these parties is under £150 per head, then there is no chargeable benefit. However, if the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt and the others taxable. Note, the £150 is not an allowance and any costs over £150 per head are taxable on the full cost per head.
  4. It is not necessary to keep a running total by employee but a cost per head per function. All costs including VAT must be taken into account. This includes the costs of transport to and from the event, food and drink and any accommodation provided.

 

It is highly recommended when planning a staff party or other annual event to try and stick to the tax rules above. This should ensure that your party does not have an extra tax cost for you or your employees. If you need help in crunching the numbers to make sure you do not exceed the allowable limits, please call.


 

New crackdown on funeral plans

 

The government has announced new plans to crackdown on high pressure and bullying tactics to sell pre paid funeral plans. These tactics are often used to target those who are old and vulnerable and unaware exactly what they are buying. In some cases, the funeral plans are sold with misleading promises and to maximise the salesperson's commission.

 

Demand for funeral plans has grown significantly over recent years and last year over 177,000 plans were sold and cost on average between £2,500 and £5,000. A regulator does currently exist to oversee these plans, which operate on a purely voluntary basis and firms are not required to sign up to the rules. Under new proposals published earlier this month the regulation of the sector would be moved to the Financial Conduct Authority (FCA).

 

The FCA will seek to ensure that funeral plan providers are clear and fair in their treatment of customers and will also offer access to the Financial Ombudsman Service, enhancing consumer protection. Under the new plans, anyone found breaching the regulations can have their authorisation revoked, face fines and even criminal charges. The consultation on the proposed changes is open for comment until 25 August 2019.

        


 

HMRC blocks phone fraudsters

Fraudsters have been blocked from using HMRC’s most used helpline numbers after the introduction of new defensive controls. These fraudsters had been able to make calls to taxpayers across the UK which appeared to be coming from HMRC by mimicking helpline numbers. These fraudsters are usually operating as part of large criminal gangs with deep pockets and cutting-edge technological to target taxpayers.

 

This scam worked as taxpayers would receive calls and, on checking the numbers online, would find they appeared to belong to HMRC. This led many people to believe the fake calls were real and thus enabled fraud. In the last year alone, HMRC received over 100,000 phone scam reports.

 

The new controls, created in partnership with the telecommunications industry and Ofcom, will prevent spoofing of HMRC’s most used inbound helpline numbers and are the first to be used by a government department in the UK. This does not mean that the fraudsters will be completely stopped but does mean they will have to use less credible numbers that should be easier to spot.

 

HMRC also confirms that they will only ever call about a debt that has already been the subject of a letter from HMRC or that you have been otherwise notified. You will also no longer be required to read aloud your card details to HMRC over the phone.


 

Free television licences scrapped for over-75s

The TV licence fee has not been payable by those aged 75 or over since 2001. During 2015, the government reached an agreement with the BBC as part of the last charter renewal that it will take on the cost of free television licences for over-75s by 31 May 2020 as part of the fee settlement. 

 

The BBC estimated that the change would have reduced their licence fee income by around £745m a year, a fifth of the BBC’s annual budget. The BBC board has now announced that following a consultation period, free TV Licences for most over 75s are to be scrapped. Under the new rules, only low-income households where one person receives the pension credit benefit will remain eligible for a free licence. In these cases, the BBC will foot the bill.

 

If you are over 75 and have a free over 75 licence, you will be covered until 31 May 2020. The BBC has said they will be writing to all free over 75 licence holders in good time before 31 May 2020 to let them know how they may be affected and what they will need to do. Once the new rules come into effect, there will be penalties for non-compliance and even those aged over 75 and living in a residential care home, supported housing or sheltered accommodation will be required to hold a licence.

 

This announcement by the BBC and the government’s part in the change has been criticised by many charities working with the elderly. This includes Age UK, who have launched a campaign to have the government take back responsibility for funding free TV licences for everyone over 75.

 


 

 

Tax Diary July/August  2019

 

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.

 

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

 

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

 

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

 

19 August 2019 - CIS tax deducted for the month ended 5 August 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.