YEAR END AND BEYOND PERSONAL TAX PLANNING
There are a number of areas to consider by 5 April 2018, including:
- Ensuring that full use is made of available personal tax allowances (£11,500) and the basic rate tax band (£33,500).
- If dividends are paid, ensure that the ‘tax free’ amount of £5,000 is paid. Note that this limit drops to £2,000 from 6 April 2018.
- Consider whether the capital gains tax exemption for 2017-18 (£11,300) has been used and, if not, whether any disposal can be made to use this.
- If child benefit has been claimed and there is a clawback through the high income child benefit charge for one partner in a couple earning over £50,000, has consideration been given to changing how income is received to reduce the charge? If this is not possible, has the child benefit recipient considered continuing with the claim but asking for it not to be paid to ensure any national insurance credits are given? This may be appropriate if it is known that all of the child benefit will be claimed back from the higher earner.
- The proportion of interest and finance charges that can be set against ‘buy to let’ rental income drops from 75% to 50% from 6 April 2018 with the remainder only giving a 20% tax credit. Has consideration been given to rearranging how property income is apportioned to minimise the effect of this change? Note that there will be further 25% reductions in the following two tax years. This restriction also has the effect of increasing taxable income for high income child benefit charges making it more likely that taxpayers will suffer this charge in future.
- If it is likely that a significant inheritance tax liability exists, has consideration been given to ways of reducing the value of the estate, for example by using the various gifts reliefs? Please contact us if you would like to discuss this further. In this respect is it also worthwhile ensuring that your Will is up to date and appropriate.
- Has the possibility of making pension contributions been considered? This should be discussed with a suitably qualified independent financial advisor to ensure that contributions are appropriate for each persons individual circumstances.
- If appropriate to your circumstances, has the ISA allowance been used?
Please contact us if you wish to discuss any of these points.
NATIONAL MINIMUM WAGE RATES INCREASE
The national minimum wage and national living wage rates are due to increase from 1 April 2018. The new rates can be found at the web address shown at the end of this newsletter. Action is taken against employers who do not meet these requirements and therefore you should check that based on the hours worked by all employees these rates are met.
Care must be taken that any deductions from pay do not result in the amount actually paid falling below the relevant rate.
AUTO ENROLMENT RATES
The contributions payable for and by employees under the auto enrolment scheme increase from 6 April 2018 as follows:
Employer contributions up from 1% to 2%
Employee contributions up from 1% to 3%
IR35 “OFF-PAYROLL” RULES MAY BE EXTENDED TO PRIVATE SECTOR
Although not mentioned in the Budget speech, the other documents released on Budget day mention the possible extension of the rules for personal service companies in the public sector to workers in the private sector.
The government will consult in 2018 on how to tackle non-compliance with the intermediaries legislation (commonly known as IR35) in the private sector. The legislation, described below, which currently only applies in the public sector, seeks to ensure that individuals who effectively work as employees are taxed as employees, even if they choose to structure their work through a company.
The system introduced for the public sector effectively means that the organisation at the top of the chain decides if the limited company contractor is indeed an independent contractor, or is caught by the IR35 regulations. It is feared that these organisations will decide that the contractors are caught to avoid the organisation becoming responsible for the additional PAYE and NI costs.
However, experience in the public sector suggests that key workers operating through their own limited companies are either moving elsewhere to avoid having PAYE and NI deducted from their fee invoices, or are looking for higher rates to compensate them for this.
Outside of the public sector, currently compliance with IR35 is determined by the limited company that employs the individual providing the personal service.
MAKING TAX DIGITAL UPDATE
Making Tax Digital starts with businesses having sales above the VAT registration limit of £85,000 for the first “accounting period” commencing on or after 1 April 2019. The key points are:
- There will be quarterly returns required plus an ‘end of year’ return.
- These returns have to be sent digitally to HMRC.
- The records maintained by the business have to be in an electronic format which is automatically linked digitally to the return sent to HMRC.
We shall be contacting all clients affected by these proposals over the coming months with our assessment of their readiness for Making Tax Digital and suggestions for change if appropriate.
GENERAL DATA PROTECTION REGULATIONS
On 25 May 2018 the General Data Protection Regulations will come into force, which are likely to impact upon many businesses. Although the Data Protection Regulations have been in place for many years, the General Data Protection Regulations require further action by businesses. The fines for failures are extreme, up to £20m or 4% of annual turnover, whichever is the larger.
The regulations relate to the processing and retention of personal data.
It is suggested that all organisations that control or process data familiarise themselves with the requirements set out on the information commissioner’s office website at https://ico.org.uk/for-organisations/guide-to-the-general-data-protection-regulation-gdpr/.
In particular organisations should:
- Appoint someone senior to oversee General Data Protection Regulations readiness.
- Enhance cyber security.
- Review data processed and the reason.
- Review contracts with processors, controllers and information storage providers to ensure compliance.
- Write data protection policies.
- Train staff to ensure compliance.
FACILITATING TAX EVASION
It is now a criminal offence in the UK if a business fails to prevent its employees, or any person associated with it, from facilitating tax evasion under the Criminal Finances Act 2017 (CFA 2017). Businesses need to take action to minimise their risk of exposure.
A business will have a defence if it can prove that it had put in place reasonable prevention procedures to prevent the facilitation of tax evasion taking place, or that it was not reasonable in the circumstances to expect there to be procedures in place. This might include:
- Undertaking a risk assessment.
- Demonstrating that there are risk-based prevention procedures.
- Demonstrating management commitment to the procedures.
- Communicating the procedures to those connected with the business.
- Monitoring the business activities.
Where an employer provides a company car, but the employee pays for the fuel, the employer may pay a mileage allowance for business journeys. HMRC accepts that payments not exceeding the ‘advisory fuel rates’ are reimbursements of expenses, not subject to income tax or Class 1 national insurance contributions.
These rates may be used to reclaim input VAT in respect of fuel used for business journeys (remembering that VAT receipts to cover the amount claimed are required). These rates are scheduled to change quarterly and the current rates can be found at: https: //www.gov.uk/government/publications/advisory-fuel-rates.