The Mini Finance Bill Reply

The Finance Bill 2017 was to be the largest at 762 pages but in order to rush it though it was cut to 148 pages!

That’s an 80% reduction dropping 72 out of the 135 clauses and 18 out of 29 schedules.

One of the items dropped was Making Tax Digital (MTD).

But its widely expected that following the general election there will be another bill to bring in all the items that were dropped.

Our tax system is already far too complex:

  • 6,102 pages of legislation (according to Tolleys in 2012)
  • 639 monetary values
  • 425 thresholds
  • 214 penalties

Its a shame they couldn’t cut all the tax rules by 80%!

 

steve@bicknells.net

Why have we made UK Tax so complicated! Reply

Here are the facts:

  • 6,102 pages of legislation (according to Tolleys in 2012)
  • 639 monetary values
  • 425 thresholds
  • 214 penalties

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/603469/OTS_Focus_paper_on_complexity_final.pdf

The Office of Tax Simplication have been working on ways to simply things since 2010 but it seems to me every time we change things we just create more rules!

How will tax payers be able to cope with Making Tax Digital and the introduction of Quarterly and eventually Monthly reporting!

steve@bicknells.net

Ways to save tax before 5th April 2017 Reply

There are now only a few days left until the end of the tax year, so what can you do save tax?

Dividends

The Dividend Allowance was introduced in April 2016 and it allows you to take £5,000 in dividends tax free.

As announced at Spring Budget 2017, the government will legislate in Finance Bill 2017 to reduce the tax-free allowance for dividend income from £5,000 to £2,000.

So in 2016/17 and 2017/18 you need to take the £5,000 because in 2018/19 its dropping to £2,000 and most people expect it to disappear in 2019/20.

Dividends above the allowance are taxed as follows:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

Marriage Allowance

Marriage Allowance lets you transfer £1,100 of your Personal Allowance to your husband, wife or civil partner – if they earn more than you.

This reduces their tax by up to £220 in the tax year (6 April to 5 April the next year).

To benefit as a couple, you (as the lower earner) must have an income of £11,000 or less. You can calculate how much tax you’ll pay as a couple.

Personal Allowances

You can earn £8,060 without paying any Tax or National Insurance or £11,000 Tax Free.

If you own a company and haven’t taken these allowances why not?

steve@bicknells.net

Are you going to buy a car before April to avoid the Road Tax Increases? Reply

The rates explained

Vehicle tax for the first year is based on CO2 emissions.

After the first year, the amount of tax that needs to be paid depends on the type of vehicle. The rates are:

  • £140 a year for petrol or diesel vehicles
  • £130 a year for alternative fuel vehicles (hybrids, bioethanol and LPG)
  • £0 a year for vehicles with zero CO2 emissions

Auto Express have made some useful comparisons

You can read their full article by clicking here http://www.autoexpress.co.uk/car-news/consumer-news/88361/tax-disc-changes-everything-you-need-to-know-about-uk-road-tax

Highest proportionate increase CO2 emissions Current First Year Rate New First Year Rate Three years’ tax current rate Three years’ tax new rates % change three year ownership
Peugeot 208 1.2 PureTech (82) Allure 104g/km £0 £140  £40 £420 950%
Ford C-Max 1.5TDCi (120) Zetec 105g/km £0 £140 £40 £420 950%
VW Passat 1.6 TDI S 105g/km £0 £140 £40 £420 950%
Nissan Qashqai 1.6 dCi  (130) N-Connecta  115g/km £0 £160  £60 £440 633.3%
Lowest proportionate increase
SEAT Alhambra 1.4 TSI (150) 150g/km £145 £200 £435 £480 10.3%
Ford Mondeo 1.5 EcoBoost Titanium  

134g/km

 

£130

 

£200

 

£390

 

£480

 

23.1%

Jaguar XE 2.0i R-Sport (auto)  

179g/km

 

£355

 

£800

 

£815

 

£1,080

 

35.8%

Toyota Verso 1.6 V-Matic Icon 154g/km £185 £500 £555 £780 40.5%
Honda CR-V 2.0 i-VTEC SE 4WD 173g/km £300 £800 £720 £1,080 50%

Why has government changed the rates?

Basically too many cars are now low in CO2 that not enough tax is being collected!

New VED system – for cars registered from April 2017
Emissions (g/CO2/km) First year rate Standard rate*
0 £0 £0
1-50 £10 £140
51-75 £25 £140
76-90 £100 £140
91-100 £120 £140
101-110 £140 £140
111-130 £160 £140
131-150 £200 £140
151-170 £500 £140
171-190 £800 £140
191-225 £1200 £140
226-255 £1700 £140
over 255 £2000 £140
*cars over £40,000 pay £310 supplement for 5 years

steve@bicknells.net

 

Take your £5,000 Dividend Allowance while you still can! Reply

The Dividend Allowance was introduced in April 2016 and it allows you to take £5,000 in dividends tax free.

As announced at Spring Budget 2017, the government will legislate in Finance Bill 2017 to reduce the tax-free allowance for dividend income from £5,000 to £2,000.

So in 2016/17 and 2017/18 you need to take the £5,000 because in 2018/19 its dropping to £2,000 and most people expect it to disappear in 2019/20.

Dividends above the allowance are taxed as follows:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

What are the requirements for a legal dividend?

Companies Act 2006 Section 830 – Distributions to be made only out of profits available for the purpose

(1)A company may only make a distribution out of profits available for the purpose.

(2)A company’s profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.

(3)Subsection (2) has effect subject to sections 832 and 835 (investment companies etc: distributions out of accumulated revenue profits).

A distribution must be justified by

  1. The Company’s last published accounts
  2. Interim Accounts
  3. Initial Accounts

In small businesses having the right paperwork is vital should HMRC raise any questions, you will need:

  • Board Minutes
  • Dividend Vouchers

steve@bicknells.net

What does your accountant know about property investment and tax? 3

To Let

Property Investment is probably one of the most complicated tax and accounting activities that exists, it can involve:

  • Stamp Duty (SDLT)
  • Income Tax
  • Corporation Tax
  • ATED
  • Capital Gains

And some activities also involve Pensions, Capital Allowances, VAT, CIS…. the list goes on and on

The internet is full of experts but often their advice is conflicting and some of the advice is actually wrong!

Experience gained from working with investors is the key to knowledge and continuous training and updating is vital. We have written hundreds of blogs on tax and accounting.

One of the biggest recent changes is Section 24 restricting interest relief

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:

  • in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

The rules don’t apply to companies

I also think that having actual property and construction experience is beneficial.

Back in 2003, we started investing in property with a group of friends and colleagues.

We started by forming a limited company and our first purchase was 3 shops (eastern Eye, Maximum and LMJ) with 8 HMO’s above, there is a picture below

510

We then went on to buy 6 shops with flats above on long leaseholds, we did a title split and put 3 of the shops into SIPP Pensions

691

We then formed another company and purchased a block or 7 HMO’s.

We also bought an Office Block, Industrial Unit and Shops into SIPP and SSAS pensions.

We sold our investment in the companies and focused on commercial property investments in pensions.

steve@bicknells.net

When do you pay Capital Gains Tax on a Property Sale? 1

One family house for sale

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.

It’s the gain you make that’s taxed, not the amount of money you receive.

So it doesn’t apply to Property Developers, their profits are trading income not investment income.

Disposing of an asset includes:

If you sell a property that your have lived in you will probably qualify for Principle Private Residence Relief

https://stevejbicknell.com/2015/04/13/how-does-principle-private-residence-relief-work/

Even it it wasn’t your Principle Private Residence but you did own it personally you will still get an allowance of £11,100 tax free.

Companies get an indexation allowance

https://stevejbicknell.com/2012/06/17/capital-gains-tax-for-companies/

Residential properties don’t qualify for business asset rollover relief.

Once you have worked out your gain, the choices for individuals are:

Report your gain and pay straight away

You can use the Report Capital Gains Tax online service for the 2016 to 2017 tax year (6 April 2016 to 5 April 2017) if you’re a UK resident.

You’ll need a Government Gateway account – you can set one up from the sign-in page.

You don’t need to wait for the end of the tax year – you can use this service as soon as you’ve calculated your gains and the tax you owe.

Report in a Self Assessment tax return

Use Self Assessment to report your gain in the tax year after you disposed of assets.

If you don’t usually send a tax return, register for Self Assessment by 5 October following the tax year you disposed of your chargeable assets.

If you’re already registered but haven’t received a letter reminding you to fill in a return, contact HMRC by 5 October.

You must send your return by 31 January (31 October if you send paper forms).

Report Company Capital Gains in a Corporation Tax Return

Report your gains to HM Revenue and Customs (HMRC) when you file your Company Tax Return. How much tax you pay depends on any allowances and reliefs you claim.

steve@bicknells.net

Autumn Statement 2016 Reply

fictitious newspapers

Phillip Hammond gave his first Autumn Statement on 23rd November 2016

As expected Brexit is forecast to reduce growth and borrowing will be higher.

But let’s focus on the Business related key points:

Employment

  • National Living Wage increasing to £7.50 from £7.20 in April 2017
  • Personal Allowances will increase to £11,500 in April and to £12,500 by the end of the Parliament
  • The Higher Rate Threshold will increase to £50,000 by the end of this Parliament
  • Salary Sacrifice is to be restricted to Childcare, Cycle to Work and Ultra-low Emmission Cars
  • Employee Share Scheme lose their income tax relief and capital gains tax exemption
  • New rules will take effect in April 2017 regarding Assets made available without transfer of ownership
  • From April 2018 termination payments could be subject to employers NIC

Corporation Tax

  • Corporation tax rates are reducing
    • Financial year 2017 19%
    • Financial year 2018 19%
    • Financial year 2019 19%
    • Financial year 2020 17%
  • From April 2017 new rules will create a restriction meaning that losses of up to 50% of profits can be offset with a £5m allowance per company
  • From April 2017 corporation tax relief for interest will be restricted where the interest is over £2m

VAT & Insurance Premium Tax

  • Insurance Premium Tax is going up to 12% in June 2017
  • A new 16.5% Flat Rate will be applied to businesses in the Flat Rate Scheme with limited expenses such as Labour Only Contractors, the new rate starts in April 2017

Tax Avoidance

  • Changes to the Flat Rate Scheme should generate £695m by 2021/22
  • The Government will push ahead with the introduction of a new penalty for a person who enables another person or business to use a tax avoidance scheme that is defeated by HMRC
  • HMRC will increase the number of court cases

Property

  • The introduction of £1,000 property income allowance from April 2017
  • Letting Agents will no longer be able to charge renters fees

steve@bicknells.net

HMRC raids increase by 28% in the last year! Reply

Regretful businessman in prison

In the last year HMRC have increased their raids on business premises by 28% and that’s a 53% increase over 5 years.

761 properties were raided last year!

HMRC possesses powers to raid premises with a search warrant granted by a judge or magistrate.

During August 2016 (Consultations end in October 2016) they issued 3 new consultations:

Tackling the hidden economy: Sanctions

Tackling the hidden economy: Extension of data – gathering powers to Money Service Businesses

HMRC have always been keen to seek out those who fail to register for tax, since 2011 they have been using CONNECT.

According to Accounting Web:

It uses a mathematical technique to search previously unrelated information and detect otherwise invisible ‘relationship’ networks. Using Connect, HMRC sifts through information on property transactions at the Land Registry, company ownerships, loans, bank accounts, employment history, voting and local authority rates registers and compares with self-assessment records to spot taxpayers who might be under-declaring or not declaring income.

Connect has made links between tax records and third party data from hospitals, pharmaceutical companies, insurers and even gas SAFE registrations. DVLA records and the shipping and Civil Aviation Authority registers help identify owners of cars and planes who declare income that the computer suggests cannot support such purchases.

If you have undeclared tax now would be a good time to tell HMRC.

steve@bicknells.net

Changing your mind on whether to keep a development or sell it? beware of the tax Reply

Beware

Buying properties into you own property development company is very popular and there are lots of TV programs that tell you how much you could make.

Property Development is a trade where as property investment isn’t.

So what happens if you develop a property and then decide to keep it as an investment rather than sell it?

This known as reclassification and there would be an immediate deemed disposal under TCGA 1992, s 161 as a result a taxable trading profit would calculated based on the market value. The tax would be payable even though the property had not been sold and a profit had not been realised.

 

cgt-s161

The courts have looked for the following evidence of reclassification:

  1. Balance Sheet reclassification moving the asset from Trading Stock to Fixed Assets
  2. Transfer of the property to an investment vehicle including Group Companies
  3. Board resolution that property is being held as an investment

fictitious newspapers

If the market value is below carrying value at the time of appropriation, this would create a trading loss which can be offset against other profits in the year or group profits.

steve@bicknells.net