Tuesday 23 February 2016

PAYE coding notices, The right structure for entrepreneurs' relief, Changing domicile rules

The PAYE coding notice for 2016/17 contains a nasty shock for taxpayers who receive interest or dividends, as we explain below. A recent tax case illustrates that capital gains arising from business deals may not qualify for entrepreneurs' relief. Finally we have advanced warning of a change in the domicile rules, which could affect your clients earlier than you think. 

This is an extract from our topical tax tips newsletter dated 18 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

PAYE coding notices 
When your owner/director clients receive the form P2 that sets out their PAYE code for 2016/17, they are likely to be confused by the following new deductions: 
  
Untaxed interest 
All bank interest will be “untaxed” in 2016/17 as tax won't be deducted by the bank. However, basic and higher rate taxpayers will have a savings allowance of £1,000 or £500 which should be set against the interest received. Only interest exceeding the savings allowance should be set against the personal allowance in the PAYE code. 
  
Dividend tax 
The notes on the back of the P2 say this deduction: “is to collect the basic rate of tax due on your dividend income.” However, dividends won't be taxed at the basic rate of tax: 20%, the tax rate will be 7.5% for a basic rate taxpayer. For higher rate taxpayers the P2 notes may refer to higher rate tax. 
  
To check the dividend tax deduction multiple it by the taxpayer's highest marginal tax rate. This how much dividend tax HMRC believes the taxpayer will be due to pay in 2016/17. Perform your own calculation of the taxpayer's dividend tax for 2016/17 based their expected dividend income for 2016/17. If the two figures are approximately the same, the PAYE code is roughly correct. 
  
The taxpayer can object to having dividend income or interest included in their PAYE code. To get the PAYE code changed you can ring HMRC, or complete the online form on behalf of your client. 

This is an extract from our topical tax tips newsletter dated 18 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>>>

Tuesday 16 February 2016

Dividend tax, CIS and payrolled benefits, Warning about tax avoidance schemes

The 2016/17 tax year will see the introduction of new tax on dividends, and the elimination of more paper tax return forms, this time for CIS. We have advice on how to talk to clients about both of these changes. You may also want to discuss payrolling of benefits, and the latest warnings from HMRC about tax avoidance schemes. 

This is an extract from our topical tax tips newsletter dated 11 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>


Dividend tax 
We explained the mechanics of the new dividend tax in our newsletter on 20 August 2015, but that was before the draft Finance Bill was published on 9 December 2015. We now have a better idea of who will be affected, and which clients you need to talk to before 6 April 2016.

Company owners 
Shareholder/directors may want to advance a dividend payment into 2015/16 to save the additional 7.5% dividend tax that will payable on the same dividend in 2016/17. However, you need to work with each client to ensure they won't lose their personal allowances in 2015/16 (income over £100,000), or have their child benefit clawed-back (income over £50,000). 
  
The company must also have the distributable profits available to pay the accelerated dividend, so you may need to draw up management accounts to prove there are adequate profits. 
  
Some PAYE coding notices issued for 2016/17 include an estimated amount of tax in respect of the 7.5% dividend tax. It makes sense for HMRC to collect the extra tax due through PAYE rather than wait until the balancing amount of SA tax is paid on 31 January 2018. You should discuss with your client whether the level of estimated tax is reasonable and in line with the dividends they expect to receive in 2016/17. 
  
Basic rate taxpayers 
Shareholders with income within the basic rate band may not complete an SA tax return, as there currently is no additional tax to pay on their dividend income. If those shareholders receive more than £5,000 of dividends in 2016/17 there will be tax to pay, and they will have to register for self-assessment. Check the tax profile of the non-director shareholders in your family company clients, who don't currently file an SA return.     
  
Generous donors 
The dividend tax credit is counted as part of the tax paid in respect of donations made under gift aid. When the dividend tax credit disappears on 6 April 2016 taxpayers need to check that their total tax bill actually covers the tax they have declared they pay when making gift aid donations. Those same taxpayers may also receive significant amounts of interest taxed at 0% from April 2016, so their total tax bill may be close to zero.

This is an extract from our topical tax tips newsletter dated 11 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>>>

Tuesday 9 February 2016

Owner managed company, Alcohol wholesalers and producers, Labour providers warning

Now is a good time to help your clients plan their taxable income in 2016/17. The rules for NIC, and tax on dividends are changing, so all arrangements for extracting profit from owner-managed companies must be reviewed. Clients who sell alcohol wholesale need register with a new Government scheme, which you can help them prepare for. Finally, we pass on a warning about VAT fraud in labour supply chains.

This is an extract from our topical tax tips newsletter dated 4 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Owner managed company 
The combination of tax and regulation changes coming into effect in 2016/17 mean that every small company should review the remuneration strategy for its owners. Let's look at each factor briefly: 
  
Salary 
Paying a salary just below the NIC primary threshold of £8060 will preserve entitlement to the state pension, and incur no employee or employer's NIC. Any payment above the secondary threshold (£8112) will incur employer's NIC, but where the company has only one employee the employment allowance won't be available to cover that NIC.   
  
Dividends 
Any dividends received by a shareholder in excess of £5,000 will create a tax charge for that person being 7.5% more than they paid on the same cash dividend in 2015/16. As the 10% dividend tax credit is abolished, the shareholder will be able to receive more cash as a dividend before tipping into higher rates of tax (32.5% on dividends). 
  
Rent 
Rent is taxed at the normal rates of: 20%, 40% and 45%, but without NIC. Where the premises the company trades from are owned personally by the shareholders, a payment of rent should be considered as an alternative to some dividends. The company will receive a tax deduction for the rent paid. But entrepreneurs' relief on the gain arising on the premises could be restricted, if the building is sold alongside company shares in the future.     
  
Pensions 
As a person aged 55 and over has complete flexibility to withdraw cash from their pension fund (subject to charges), employer pension contributions are a very attractive option for the older director. The contribution is tax deductible for the company and attracts no tax or NIC for the employee, as long as the individual's pension annual allowance is not exceeded. This favourable treatment of pension contributions may not last.   
  
The ideal combination of these factors will vary for each owner/ director, according to their personal income needs and the profitability of their company. Our personal tax advisers will be happy to talk through the implications of each type of payment in greater detail. 

This is an extract from our topical tax tips newsletter dated 4 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>>>

Tuesday 2 February 2016

Flooding relief for SA filing, ATED expanded, Trivial Benefits

If you or your clients have been struggling to file SA tax returns due to disruption caused by flooding or other extreme weather conditions, we have some good news for you. Looking ahead to April 2016; you need to warn clients about the expansion of the ATED charge, and explain the new rules for trivial benefits.

This is an extract from our topical tax tips newsletter dated 28 January 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

ATED expanded 
The annual tax on enveloped dwellings (ATED) was restricted to properties worth over £2 million when it was introduced on 1 April 2013. From 1 April 2016 it will apply to residential properties worth over £500,000 which are owned by non-natural persons (companies and mixed or corporate partnerships). 
  
According Land Registry data collected in November 2015, the average price of a home in London is £506,724. If your client owns residential property through a company (or another vehicle), you need to check whether the ATED applies. 
  
Note the relevant value for ATED is not the value as at 1 April 2016, but the value at 1 April 2012. If the property was not held by the current owner on 1 April 2012, you must use the valuation at the date of acquisition. If you are not sure about the value at 1 April 2012 you can ask HMRC to undertake a pre-return banding check. 
  
However, you can't ask for a banding check if the ATED charge will be reduced to nil by one of the reliefs. This is typical muddled thinking by HMRC. They provide a mechanism to make life easier (valuation check) but block the use of it if there is no tax to pay. HMRC doesn't consider the cost of completing the ATED return to claim the relief. 
  
Don't overlook the need to submit an ATED return. Where the property falls within the ATED regime because of its value and ownership, an ATED return must be submitted. If a relief eliminates the ATED charge you must submit a relief declaration return - there is a different relief declaration form for each type of relief claimed. 
  
The ATED return must normally be filed by 30 April within the year to which the charge relates: 30 April 2016 for 2016/17. However, there is generally an extension to 1 October for properties which fall within ATED for the first time due to a new banding. The Gov.uk website hasn't been updated on this point yet. 
  
There are penalties for late submission of ATED returns which apply the same level of penalties as for late submission of self-assessment tax returns.
 
This is an extract from our topical tax tips newsletter dated 28 January 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>>>