Tuesday 29 March 2016

Director's loan, Relaxed Entrepreneurs' Relief, Online Access

The dust-up over the Budget has settled, for now, but you should expect more tax changes to be announced in the Autumn Statement. In the meantime there are two Budget-related issues to discuss with your micro-company clients: directors' loans and entrepreneurs' relief. We also have an update on some new security measures for accessing HMRC's online services. 

This is an extract from our topical tax tips newsletter dated 24 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>


Directors' loans
When a close company makes a loan to its directors or shareholders, or associates of those people, it must pay a corporation tax charge set at 25% of the loan. This is the charge under CTA 2010, s 455 (formerly ICTA 1988, s 419), and it will increase to 32.5% on 6 April 2016. 
  
All your client companies are likely to be “close” (an old meaning of “secret”), as the legal definition is: a company controlled by its directors or by five or fewer participators. The participators are the shareholders, and certain creditors. The s 455 charge is only payable when the loan remains outstanding nine months and one day after the company's year end. The new rate of 32.5%, will apply to loans made and benefits conferred (under CTA 2010, s 464A) on or after 6 April 2016. 
  
Where your clients have taken loans from their companies before 6 April 2016, the s 455 charge will apply at 25%. However, it will require some careful accounting to prove exactly when a new loan is taken out in respect of directors' accounts that wander in and out of credit on a day to day basis. 
  
On 20 March 2013 anti-avoidance rules were introduced that treat a loan as continuing if £5,000 or more is repaid and borrowed again within 30 days. Where the loan is £15,000 or more the 30-day rule doesn't apply, and the loan is treated as continuing if there are arrangements in place for the repaid loan to be replaced. We will have to check the details of the new legislation to see if those anti-avoidance provisions will be over-ruled in favour of taxing the new loan at 32.5% rather than at 25%. 
  
This increase in the tax charge is to discourage directors who pay higher rate tax from taking a loan instead of a dividend from their company. It will not apply to loans made to a charity.


This is an extract from our topical tax tips newsletter dated 24 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday 22 March 2016

Digital accounting records, Entrepreneurs' relief, S codes revisited

Last week's Budget contained a lot of promises and vague statements, which we will distill down for practical advice next week. In the meantime the pressure to move towards digital tax reporting can't be ignored, so we examine how you can prepare your clients. We also have advice about shareholdings which qualify for entrepreneurs' relief and an update on the issue of S codes  

This is an extract from our topical tax tips newsletter dated 17 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Digital accounting records 
The Government wants all businesses to send HMRC a summary of their accounting records every quarter. This data will update the “digital tax account” for that business held by HMRC, and will enable the taxpayer to see what tax they should be paying much earlier than would be the case when submitting an annual tax return.    
  
This is not a fairy tale, but a representation of the vision set out in the HMRC document: Making Tax Digital. There is no appreciation in that document of the effort involved to turn raw accounting data into accounts which show a taxable profit or loss. HMRC believe that all such issues will be solved by accounting software and the submission of data to HMRC will be as easy as one click. 
  
To enable this future fantasy to become a reality, every business, and every landlord who receives more than £10,000 of income, will have to maintain their accounts using software that can communicate directly with HMRC. That excludes electronic spreadsheets, and of-course paper based accounting records. 
  
An ICAEW commissioned survey has found that only 25% of businesses use accounting software to maintain their accounting records, and just 18% of sole-traders use such software. So to achieve the Government's target of businesses making quarterly updates to HMRC, some 75% of businesses, and 82% of sole traders will have to change the way they keep their accounting records. The small businesses need to convert to digital accounting within two years, as businesses with turnover below VAT threshold will be required to submit quarterly updates from April 2018. 
  
You need to start conversations with those clients who are not currently using accounting software, and persuade them that the Government is serious about this digital future. You will also have to examine the processes within your own practice and make some decisions about which forms of accounting packages you will deal with. For some businesses “cloud accounting” will provide the answer, others will need bespoke accounting software.


This is an extract from our topical tax tips newsletter dated 17 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday 15 March 2016

Apprentices, Scottish rate of income tax, PAYE penalties

As we head into a new tax year there are two payroll issues to address; the new NIC rate for apprentices and the Scottish rate of income tax. We also have a heartening story about PAYE penalties that shows you can win against HMRC if you read the legislation really carefully. 

This is an extract from our topical tax tips newsletter dated 10 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Apprentices 
This week (14 - 18 March) is National Apprentice week, and it is also Budget week, so you may well be having conversations with your clients or sending them newsletters. The employment of apprentices is promoted by Government but it is surrounded with misunderstandings. 
  
Apprentices are employees who must be paid the NMW, but there is a special lower NMW rate for apprentices who are aged under 19 or in the first year of their apprenticeship. There is no age limit for an apprentice, but Government grants are normally only available for those aged 16 to 18. When the individual is aged 19 to 24 the adult NMW must be paid, and when they reach age 25 the living wage rate must be paid for pay periods starting on or after 1 April 2016. 
  
Where the apprentice is aged under 25, and is paid less than £43,000 per year, a zero rate of employer's class 1 NI will be due from 6 April 2016. An employer can't designate all his employees who are under 25 as “apprentices”, to qualify for the zero rate of class 1 NIC, the employee must be enrolled in a statutory apprenticeship. Note that the rules for statutory apprenticeships are different in England, Scotland, Wales and Northern Ireland, as it is a devolved issue. 
  
If you like the idea of taking on a young apprentice in your own practice, there is help and guidance available through Associate of Tax Technicians (ATT) - see link below. 
  
The Apprenticeship levy will add an extra 0.5% to the employer's payroll costs with effect from 6 April 2017. The levy will be relieved by a £15,000 allowance per employer, which will work much like the current employment allowance. Where the total payroll cost is less than £3 million the effect should be that no apprenticeship levy is paid. 
  
However, where the employer runs several payroll schemes or is part of a group, only one £15,000 allowance will be given, so some levy will end up being paid. Groups of companies may have to reorganise their payrolls so that all employees across the group are paid through one company. You have a year to sort out that little problem.


This is an extract from our topical tax tips newsletter dated 10 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday 8 March 2016

Planned dividends, Death penalties, HMRC bank accounts

Last week we returned to the topic of the new dividend tax, as without forward planning many shareholders will see their tax bills increase in 2016/17 by at least 7.5%. We also explored the problems that can arise from errors in a deceased person's tax return, and updated accountants about the new HMRC bank accounts.

This is an extract from our topical tax tips newsletter dated 3 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

HMRC bank accounts 
HMRC is moving it's bank accounts again, for the third time in 15 years. This is part of the open tendering policy under which key Government contracts are regularly reviewed. For banking facilities this appears to occur every seven years. 
  
This time the accounts are moving from the RBS and Citi Banks to Barclays Bank, but most taxpayers won't have to do anything different. The account numbers and sort codes of the HMRC accounts are moving to the new bank, so all UK electronic payments will proceed as normal. Also all cheques sent to HMRC will be processed as normal. 
  
However, taxpayers who pay HMRC from a bank account situated outside the UK will have to use a new IBAN number, the details of which are shown in the links below. Overseas HMRC “customers” are being informed about this bank account change via a personalised letter, but you could tell your non-resident clients by email rather quicker. 
  
The next big tax payment date which will be important to overseas residents is 30 April 2016 when the ATED charge for 2016/17 is due. ATED is payable by companies or other non-natural persons who hold UK residential properties which are worth over £500,000 (threshold reduces from £1 million on 1 April 2016). This can include companies or partnerships with corporate members which are resident outside the UK. 
  
To pay the ATED charge the taxpayer must quote their ATED reference number. However, to get an ATED reference number the taxpayer must first submit an ATED return, which is due on the same day: 30 April 2016. So if this is the first year the taxpayer is due to pay the ATED charge, the ATED return must be submitted early in order to get a reference number to pay the ATED charge on time. 

This is an extract from our topical tax tips newsletter dated 3 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday 1 March 2016

Paying interest to the director, Pensions lifetime allowance, RTI reporting

Last week we explored the tax implications of paying interest to a director of an owner-managed company. We looked ahead to the reduction in the pension lifetime allowance from 6 April 2016, which may catch-out those who plan to retire shortly after that date. The reporting requirements for RTI are also changing for micro businesses on 6 April 2016.

This is an extract from our topical tax tips newsletter dated 25 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

RTI reporting 
HMRC believe that all employers should be familiar with the RTI reporting system now, so they are removing the relaxation for late filing of the FPS (full payment submission) by micro businesses. This was expected, but you may need to remind your clients about the detailed rules for reporting on or before the date of payment. 

Employers with fewer than 10 employees, who were registered for PAYE before 6 April 2014, are currently permitted to submit their FPS on or before the last payment date in the month, rather than on or before each day employees are paid in the month. Thus this relaxation only affects small employers who pay their employees more frequently than monthly. From 6 April 2016 those employers will have to submit an FPS for each payday in the month, on or before those payment dates. 

There are other RTI relaxations that continue after 6 April 2016 (see link below), including for casual employees such as harvest workers who are paid according to their efforts on the working day. If the FPS is submitted later than the payment day it's important to include a code in the late reporting reason field. For the harvest workers this would be code F. 

The latest Employer Bulletin (no. 58) explains what the law determines to be the payment date for PAYE (ITEPA 2003 s 686 rules 1&2). This is the earlier of:
  • the time the payment is made; and
  • the time the employee becomes entitled to the payment.
This means that if the employee is paid later than the day they are entitled to be paid, the regular pay day should still be reported. Bank holidays that fall around the end of the month, such as Christmas and Easter, can mess-up payment dates. Page 3 of Employer Bulletin no. 58 includes a handy grid to determine the reportable payment date, when employees are paid just before or just after the Easter holiday. 


This is an extract from our topical tax tips newsletter dated 25 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>