Making Tax Digital

Overview

Over the past few years the government has been setting out its plans to transform the tax system, known as Making Tax Digital (MTD).

The proposals introduce digital record keeping and quarterly updating to HMRC by businesses, the self-employed and landlords for Income Tax Self Assessment, VAT and Corporation Tax.

Timescales

The MTD requirements will apply to VAT registered businesses (where their turnover is over the compulsory registration threshold of £85,000) from April 2019. For Income Tax Self Assessment and Corporation Tax it will not be before April 2020 at the earliest.

What does this mean for your business

MTD for VAT will mean businesses must keep their VAT records digitally and provide their return information to HMRC via MTD compatible software. The software will need to link with HMRC so that information can be exchanged both ways. Spreadsheets will be classed as digital record keeping but will not be able to link with HMRC without bridging software. It is therefore expected many small businesses will need to move their record keeping across to compatible software in time to meet the requirements.

Where can we help

At present detailed information of what will be required is limited and many software providers are still working on making their software compliant. We will be communicating with our clients via post, telephone and in person (as well as through further posts on here) to keep you updated as things progress. We are talking with our software providers about what they will be providing as well as familiarising ourselves with what we expect will be the most commonly used pieces of software.

The service we provide will vary according to each clients requirements and we will be discussing this in the coming months. In the mean time if you have any questions on MTD please feel free to contact us.

Dividend Tax Changes

As announced in the budget on 8th July 2015 changes to the way dividends are taxed will be introduced from 6 April 2016.

The old system of the dividend tax credit will be abolished and there will be the introduction of a new dividend tax allowance of £5,000 a year. The new rates of tax on dividends above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

This change obviously has an impact on owner managed limited companies where dividends are used as part of remuneration. We will therefore need to look at each case individually to assess the impact and advise how this may be reduced.

The Second Budget 2015

On 8th July 2015 the Chancellor presented his first budget of this Parliament.

Business Tax
Corporation Tax will be reduced by 1% to 19% for the years beginning on 1.4.17, 1.4.18 and 1.4.19. A further 1% reduction will apply from 1.4.20 making the rate 18%.

Annual Investment Allowance has been changed with the rate set at £200,000 per year commencing from 1.1.16. The current allowance of £500,000 remains in place until 31.1.15.

Personal Tax
The personal allowance will increase to £11,000 on 6.4.16 and £11,200 on 6.4.17.

The higher rate (40% tax) threshold will increase to £43,000 on 6.4.16 and £43,600 on 6.4.17.

A new personal savings allowance will be introduced from 6.4.16 and will mean basic rate taxpayers can receive up to £1,000 of savings income tax free while higher rate tax payers can receive £500.

From 6.4.16 a change to the way dividends are taxed will be introduced. The current tax credit will be removed and replaced with a £5,000 dividend allowance. Dividends above £5,000 will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate (45%) taxpayers. Please see our separate article to follow.

On buy to let properties the amount of income tax relief on finance costs will be restricted to the basic rate. This will be phased in from 6.4.17 over the following four years. The restriction will not apply to furnished holiday lettings. Also from 6.4.16 the Wear and Tear allowance on furnished residential property will be replaced by the actual costs of replacing furnishings. There will also be an increase in Rent-a-Room relief from £4,250 to £7,500 from 6.4.16.

Inheritance Tax
An additional nil rate band where a residence is passed down to direct descendants will be introduced. From 6.4.17 this will be £100,000, from 6.4.18 £125,000, from 6.4.19 £150,000 and from 6.4.20 £175,000. These allowances can be transferred to the surviving spouse or civil partner. This potentially increases the the IHT nil rate band to £1 million for a couple from 6.4.20.

Other Changes
From 6.4.16 a new minimum wage will be introduced for those aged 25 and above. This will be set at £7.20 per hour.

The Employment Allowance will increase from 6.4.16 to £3,000 per year but will no longer be available to companies where the director is the sole employee.

Flat Rate VAT – Can you benefit?

We have recently worked with a few of our clients to help make VAT registration work for them.

As a small business VAT registration whether compulsory or voluntary can be a daunting task but what if you could vastly reduce the work involved and even profit from registering?

If your turnover is less than £150,000 then you can use the flat rate scheme. Under the scheme you still charge VAT to your customers in the normal way but instead of knocking off VAT on your purchases a percentage of your VAT inclusive turnover is paid to HMRC. The flat rate percentage varies by trade but for example using a 10% flat rate, on £1,000 of sales, VAT of £200 would be charged and only £120 would be payable to HMRC, therefore retaining £80.

If you are below the VAT registration threshold but most of your sales/services are to other VAT registered businesses then you could benefit the most.

Please contact us to discuss this further if it is of interest.

Marriage Allowance

From 6 April 2015 married couples and civil partners will be able to transfer some of their personal allowance to their spouse or civil partner.

Where a spouse or civil partner does not pay tax (their earnings are below £10,600) they can transfer up to £1,060 of their personal allowance to the other spouse or civil partner as long as they are within the basic rate of income tax.

If the full £1,060 of allowance is transferred then tax of £212 can be saved.

You can register your interest before April using the following https://www.gov.uk/marriage-allowance and HMRC will then contact you.

Chancellors Budget 18 March 2015

Tax Year 2015/16

Income Tax

Tax rates are:

0% between £0 and £10,600
20% between £10,600 and £42,385
40% between £42,385 and £150,000
45% above £150,000

Personal allowance:

£10,600 aged under 75
£10,660 aged 75 and over

Note 1 – where income exceeds £100,000 the personal allowance is reduced by £1 for every £2 of income above £100,000
Note 2 – from 6.4.15 married couples and civil partners will be able to transfer up to £1,060 of their personal allowance to their spouse where both people don’t pay above the 20% rate. Please use the following link if you would like to register for this www.gov.uk/marriage-allowance

National Insurance
Self-employed
Class 2’s £2.80 per week but can be exempt if profits below £5,965
Class 4’s 9% between £8,060 and £42,385
Class 4’s 2% above £42,385
Employees
Class 1’s 12% between £155 and £815 per week
Class 1’s 2% above £815 per week
Employers
Class 1’s 13.8% above £156 per week

Please note that self-employed class 2’s for 2015/16 will be paid in January 2017

Corporation Tax

From 1 April 2015 there will be a single rate of corporation tax of 20%

VAT

Compulsory registration if taxable supplies are above £82,000 within the previous 12 months. The de-registration threshold is £80,000
The flat rate scheme can be opted into where turnover is £150,000 or less and the scheme must be left if turnover goes above £230,000
The cash accounting scheme can be used where turnover is less than £1.35m and the scheme must be left if turnover goes above £1.6m

Capital Allowances

The annual investment allowance remains at £500,000 until 31.12.15. The chancellor will announce the new allowance in the autumn statement
Writing down allowances remain at 18%
There are special rules for cars:
Cars with CO2’s up to 75g/km                                       100%
Cars with CO2’s between 75g/km and 130g/km      18%
Cars with CO2’s above 130g/km                                   8%
For leased cars above 130g/km there is a 15% disallowance for tax

Capital Gains Tax

The annual allowance for individuals increases to £11,100 from 6.4.15
The CGT rates are as follows:
Where normal income + gains are less than £42,385              18%
Where normal income + gains are more than £42,385            28%
For sales of businesses up to £10m of lifetime gains                 10%

Inheritance Tax

The nil rate band of £325,000 (£650,000 for married couples and civil partners) remains the same. The rate of tax remains at 40%.

Ride the Ride

On the 31st May Dan will be taking part in ‘Ride the Ride’  which is a 68 mile bike ride from Edwinstowe to Skegness. The ride has been organised to raise money for the Andrew Duffil Fund (Andy is a close friend of the family who suffered a serious head injury from a motor accident in December 2013) and has been setup to assist with Andy’s care and rehabilitation.

If you are able to help this great cause by sponsoring Dan even just a small amount your support would be greatly appreciated by all concerned. Please contact us at the office for details.