Spring Budget 2017 Announcements

The Chancellor promised that he would deliver a ‘light’ Budget and he kept his promise, with relatively few tax changes compared to prior years.  The key tax changes announced are summarised below.

Self-Employed Individuals

While there were very few headline-grabbing announcements, the one that has drawn significant interest is an increase in class 4 national insurance contributions by 1% from April 2018 and a further 1% in April 2019.  This will increase class 4 national insurance from the current 9% to 10% from April 2018 and to 11% from April 2019.  The justification for this is that unlike in the past, self-employed individuals are now entitled to the same state pension benefits as employees and so the playing field needs to be levelled so that both employees and self-employed individuals are taxed in the same way.  Employees currently pay a main rate of national insurance of 12% and the government’s aim is to align self-employed national insurance contributions with this.  The Budget announced an increase to 11% in April 2019 but it wouldn’t surprise us if a further 1% increase to 12% is introduced in the following year so that the rate is exactly aligned with employee national insurance contributions.Continue reading

HMRC Late Filing Penalties

If the 31 January self assessment/tax return deadline is missed, HMRC will automatically issue a £100 penalty irrespective of whether any tax was actually due to be paid. Late filing penalty letters are issued in mid-February and normally start to land on doormats at the end of February and early March.  We’re not quite sure why it takes so long for HMRC mail to arrive in the post, but that is another matter!

Additional penalties at £10 per day will start to be charged once the tax return becomes more than three months late, i.e., from 1 May for online returns. The daily penalty can be charged for a maximum of 90 days, i.e., until 31 July at which point £900 of penalties will have accrued in addition to the initial £100 penalty. A further £300 penalty will be charged when the tax return becomes six months overdue and again when it becomes 12 months overdue.  A maximum penalty of £1,200 could therefore be charged if a self assessment is not submitted and interest charges on any tax payments that should have been made by 31 January will also be incurred.Continue reading

How the VAT flat rate scheme has changed

VAT Flat Rate Scheme and Service BusinessesIn the Autumn Statement on 23 November 2016 a surprise announcement was made about the VAT flat rate scheme with the introduction from 1 April 2017 of a new flat rate of 16.5% for those businesses with very low costs. The new rate has been introduced to target micro-businesses who were using the flat rate scheme for financial gain rather than to genuinely save on administration time, but it unfortunately also catches out businesses that are legitimately using the scheme.  Businesses either currently using the flat rate VAT scheme or thinking of doing so in the future will therefore need to consider whether the new 16.5% rate will apply to them and what the implications of this would be. Continue reading

Key tax implications of the Autumn Statement 2016 – at a glance

Coral Accountancy Services' Autumn Statement UpdateThis was the new chancellor’s first and last Autumn Statement as he announced that he was abolishing it. Music to our ears! We agree with his view that we really don’t need two fiscal announcements per year, as it just increases complexity and administration for all involved. From next year we will just have an annual autumn Budget, which allows plenty of time to plan and implement tax changes before the start of the next fiscal year.

Given the large number of tax changes introduced over the past few years, we are pleased to report that there weren’t too many tax announcements in this latest Autumn Statement. We highlight the key tax announcements below.Continue reading

Inheritance Tax Planning

The inheritance tax paid on an individual’s estate upon their death is charged at a hefty 40% rate on the value of their estate after deducting the tax-free inheritance tax threshold, known as the ‘nil rate band’. The value of an estate is comprised of all of the deceased person’s assets, including property, shares and savings. The inheritance tax nil rate band is currently £325,000 and an additional property allowance of £175,000 on top of this is being brought in for those owning a main property that is being passed to their direct descendants, bringing the overall total to a potential £500,000 per individual or £1 million for married couples and civil partners.  The additional rate is being phased in over four years from 2017 at £100,000 until it reaches £175,000 in April 2020.  Note that any unused nil rate band can be transferred to a surviving spouse or civil partner.

For those with an estate valued above this level, a number of steps can be taken throughout their lifetime to minimise the amount of inheritance tax that will become payable upon their death. While no one likes to think about death, careful planning will ensure that as much as possible of an individual’s hard-earned estate is left to their intended beneficiaries rather than it going to HMRC’s coffers.Continue reading

Property Tax Update

There is no doubt that property landlords are on the government’s radar and have been targeted in recent Budget announcements. These have resulted in some substantial changes to the way income from properties is taxed and we have provided a recap of all the various changes due to take place below.

Stamp Duty Land Tax (SDLT)

In the 2015 Autumn Statement it was announced that from 1 April 2016, individuals purchasing an ‘additional’ residential property such as a second home or buy-to-let property would be subject to an extra 3% of stamp duty above the regular rate of stamp duty that would normally be applicable to the property.  Property Tax

The additional stamp duty is payable on the entire purchase price if the buyer owns more than one residential property at the end of the day on which the property purchase occurs.  Buyers who purchase a home before selling their old one will therefore be caught but note that if the old home is sold within 3 years of the purchase of the new property, the additional 3% duty can be refunded. Note that married couples and civil partners are treated as a single unit when it comes to determining whether the purchase constitutes an ‘additional’ property.Continue reading

HMRC’s Let Property Campaign

HMRC Let Property Campaign | Coral Accountancy ServicesHMRC’s Let Property Campaign is aimed at individuals who own and rent out property but have not been declaring the rental profits to HMRC.  Landlords have the opportunity to voluntarily come forward and notify HMRC of the previously undeclared rental profits and will be offered more lenient terms as a result.  However, those that have not reported the income or made a voluntary disclosure are starting to get caught out as HMRC sends out letters to property owners who it believes have unreported rental income.

The ‘Let Property Campaign’ was announced in September 2013 and is still ongoing. Its aim is to encourage landlords who let out their property but don’t report the income to HMRC to come forward and bring their tax affairs up-to-date.  Making a voluntary ‘disclosure’ in this way is likely to result in more favourable terms than if HMRC discover the unreported rental income first.Continue reading

Why have I received a P800 tax calculation letter from HMRC?

P800 tax calculation letter

Why have I received a P800 tax calculation letter from HMRC?

After the end of each tax year HMRC review the income and PAYE information that they receive from employers, pension providers and banks to ensure that the correct amount of tax has been deducted from an individual’s income.  In most cases, the correct tax has been deducted, with no further action required.  However, in some cases HMRC discover that the correct tax hasn’t been paid, which means they will send a P800 tax calculation letter to the individual concerned to notify them of the shortfall or excess tax paid.  The letter is normally sent sometime between June and September following the end of a tax year.

Discrepancies in the amount of tax paid are likely to be caused by a change in jobs, working for multiple employers or receiving pensions from several sources.

If you receive a P800 calculation it is important to check the calculation to ensure that you agree with it. HMRC don’t always get it right!  Check the calculation against the following documents as appropriate:  P60, P45, P11D, tax deduction certificates from banks, dividend vouchers and a PAYE coding notice if you received one (refer to our blog on PAYE coding notices here).

In many cases underpayments arise due to incorrect PAYE codes or employer mistakes.  If you disagree with HMRC’s calculation it is important to challenge it by contacting HMRC.  If your employer made a mistake without taking ‘reasonable care’, HMRC may ask them to pay the tax instead.  If HMRC is at fault you will still have to pay the tax, unless they made mistakes in prior tax years too, in which case it may be possible to get the tax liability cancelled.

How the employment allowance benefits small businesses

A new ‘Employment Allowance’ became available from 6 April 2014 to cut up to £2,000 of employer’s class 1 national insurance contributions per year on employees’ or directors’ earnings.  It is important to point out here that employer’s class 1 national insurance is a direct cost to employers on top of an employee’s gross salary and this will therefore be a very welcome tax break for small businesses.

Banknotes

The allowance is available to businesses or charities of all sizes with one or more employees.  There are specific rules for groups of companies and charities under common control as well as for employers running more than one PAYE scheme so that the employment allowance is only available once.  Certain employers such as carers and nannies cannot claim the allowance.

The allowance can be offset against the employer’s national insurance liability each week or month until the full £2,000 is used up.  This could mean that some employer’s will benefit from the full £2,000 allowance in the first month of the tax year while other smaller employers will benefit gradually throughout the year.Continue reading

I’m ready to start a business – what next?

Should I operate as a sole trader or limited company?We come across so many people that have decided to start their own business but have no idea how to go about it.  They may have the business idea and have done the research and number crunching to ensure that it is a viable idea but don’t know how to get started in practical terms.  Here, we provide a quick overview of five key steps that need to be taken when starting a new business.

1. Name

It is important to come up with a good business name early on as this will help with your marketing efforts and create a brand identity.  If you are likely to need a website then it helps to check whether the website domain name is available and to secure it as soon as possible.  Similarly, if you are planning on setting up a limited company (more on this here) either straight away or at some point in the future, it is a good idea to check the availability of the company name and register it with Companies House from the outset.  Any delays in purchasing the website domain name or registering the company name with Companies House may lead to website domain registrars or company formation agents completing this process before you and then attempting to resell to you at a premium.  Once you’ve registered a domain name and limited company name you don’t need to actually create a website or trade through the limited company until you are ready to do so.Continue reading