The launch of HMRC’s Making Tax Digital for Business programme has been pushed back until 2020. HMRC had planned to mandate the use of digital tax records for businesses by April 2018, but concerns were raised that the deadline did not provide enough time for businesses to prepare. As part of the changes, only businesses with a turnover above the VAT threshold will “have to keep digital records, and only for VAT purposes” from 2019, and businesses will not be asked to keep digital records for other taxes until “at least 2020”. The government also said that for small businesses, digital tax returns will be voluntary.
The Government’s “Making Tax Digital” policy has been dropped from the Finance Bill after opposition from taxpayers, business groups and senior political figures across all parties. The initiative would have forced millions of businesses and self-employed people to file multiple tax returns each year. Anita Monteith, tax manager at ICAEW, said: “This is a sensible decision by government. Making Tax Digital plans remain controversial and need more scrutiny by those who will be affected, and most importantly proper parliamentary debate – a clear roadmap as to how MTD will work in practice is needed”. The system was due to be rolled out next April and pilot schemes were already under way. Mike Cherry of the FSB said the next government will be asked to rethink the plans carefully following the election while Chas Roy-Chowdhury, head of tax at the ACCA, said the delay would provide space for a proper debate. A spokesman for Phillip Hammond would not confirm that the plans would be reintroduced once the election was over. A tax on dividend incomes and new rules for non-doms were also removed from the Bill, leading to accusations that the Conservatives were breaking their promise to crack down on tax avoidance.
Here are the key points at a glance:
- Personal tax-free allowance to rise as planned to £11,500 this year and to £12,500 by 2020.
- Tax-Free Childcare will soon be available to working parents. It will provide up to £2,000 a year in childcare support for each child under 12. Parents will be able to receive up to £4,000 for disabled children up to the age of 17. Parents of younger children will be able to apply for the scheme first, with all eligible parents able to access the scheme by the end of the year. Working parents in England will also be able to apply for an additional 15 hours of free childcare for three and four year olds, bringing the total to 30 hours a week.
- The Lifetime ISA will be available from 6 April this year. The Lifetime ISA will allow younger adults to save up to £4,000 each year and receive a bonus of up to £1,000 a year on these contributions. Funds can be withdrawn tax-free to put towards a first home or saved until a person turns 60.
- Small Businesses and landlords under the VAT threshold will have an extra year to prepare for Making Tax Digital (MTD). Unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold will have until April 2019 to prepare before MTD becomes mandatory. Under MTD, businesses will use digital software to keep tax records and update HMRC quarterly.
- The main rate of National Insurance Contributions (NICs) for the self-employed will increase. Currently, the self-employed may have to pay both Class 4 and Class 2 NICs: Class 4 NICs at 9% are paid on profits between £8,060 and £43,000. Class 2 NICs are paid on profits of £5,965 or more. From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019. Taken together, only a self-employed person with profits over £16,250 will have to pay more as a result of these changes. This change reflects the fact that the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016. In the summer, the government will also consider whether there is a case for greater consistency in parental benefits between the employed and self-employed.
- Tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018. This will reduce the tax difference between the self-employed and those working through a company. Typically, general investors will need over £50,000 worth of stocks and shares outside an ISA to be affected.
Here are the key points at a glance:
- Income tax threshold to be raised to £11,500 in April 2017
- Higher rate income tax threshold to be increased to £45,000 from April 2017
- Removal of tax and NI benefits of salary sacrifice schemes with the exception of ultra-low emission cars, pensions, childcare vouchers and cycle to work
- National Living Wage for employees over the age of 25 to rise from £7.20 an hour to £7.50 from April next year
- Annual ISA allowance to be increased to £20,000 for 2017/18
- Employee and employer National Insurance thresholds to be equalised at £157 per week from April 2017
- Insurance premium tax to rise from 10% to 12% next June
- Introduction of a new investment bond
- From April 2018 termination payments in excess of £30,000 will also be subject to national insurance
- Commitment to cut corporation tax rate to 17% by 2020
- Reform of trade loss relief
A few of our clients will receive a letter through the post shortly to remind them the deadline for submitting their self assessment tax return online is 31 January 2017.
Please let us have your accounting records before 31 December so we can ensure your return is filed before the deadline.
Any returns submitted after this date incur an automatic £100 penalty from HMRC, an additional 5% of tax due is added after 30 days and if your return is still not submitted after 3 months, you will be charged further penalties of £10 a day.
National minimum wage (NMW) rates will increase on 1 October by between 3% and 4.7% for workers under the age of 25 and apprentices, and employers need to make sure the new rates are implemented for all hours worked from that date.
|NMW: age/status||Current rate||New rate from October 2016|
|21 to 24||£6.70||£6.95|
|18 to 20||£5.30||£5.55|
|16 to 17||£3.87||£4.00|
From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.
The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.
The allowance is available to anyone who has dividend income.
Headline rates of dividend tax are also changing.
You’ll pay tax on any dividends you receive over £5,000 at the following rates:
- 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
This simpler system will mean that only those with significant dividend income will pay more tax.
If you’re an investor with modest income from shares, you’ll see either a tax cut or no change in the amount of tax you owe.
Dividends received by pension funds that are currently exempt from tax, and dividends received on shares held in an Individual Savings Account (ISA), will continue to be tax free.
From April 2016 you have to apply the new headline rates on the amount of dividends you actually receive, where the income is over £5,000 (excluding any dividend income paid within an ISA).
The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.
Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.
HMRC is cracking down on tax avoidance – and they can help you spot the signs of avoidance and advice you on the risks involved in using tax avoidance schemes.
These risks have increased greatly in the last two years, with the introduction of new legislation to combat avoidance.
We are seeing a number of avoidance schemes and arrangements being marketed to individuals and businesses as legitimate tax planning. This can give potential users the false reassurance that HMRC will not challenge their use of the scheme. Such schemes are often marketed as wealth management products, or dressed up as exciting investment opportunities.
If you have recently been tempted by tax avoidance scheme, please look at the following pages of Gov.uk which contain HMRC’s latest information on tax avoidance, set out in simple and straightforward terms.
- Ten things about tax avoidance series gives customers the plain facts about specific areas of tax avoidance in simple terms – see their recently published Ten Things about contractor loan schemes
- Tax avoidance schemes currently in the spotlight gives the latest information on schemes that HMRC believes are being widely offered to help those using them to avoid tax – see their recently published Spotlight 29: don’t fall for it – misleading claims by tax avoidance scheme promoters
- Tempted by tax avoidance gives advice on how to spot a tax avoidance scheme .
There is a new obligation on employers to report to HMRC information about employees where the employers has implemented a DOTAS disclosed tax avoidance scheme which benefits either their employees or themselves and is related to the employment of those employees. The employer must submit details about each employee in relation to whose employment the scheme operates by 19 April following the end of the tax year. The new requirement relates to tax year 2015/16 onwards irrespective of when the scheme was first entered into. Further information is available here.
Budget 2016: everything you need to know
Last week George Osborne, the Chancellor of the Exchequer, delivered a Budget that delivered tax cuts for businesses and individuals. Here are the key points:
Personal tax – As expected, Osborne raised the lower threshold for income tax to £11,500 and the higher threshold to £45,000 – a larger increase than expected. These new thresholds will come into effect in April next year.
More surprising was the cut in Capital Gains Tax. The basic rate CGT was cut from 18% to 10%, with the higher rate cut from 28% to 20%.
Osborne also announced that Class 2 National Insurance contributions will be abolished, with will give self-employed workers a tax cut of more than £130 when it comes into force in 2018.
It wasn’t all cuts, however. Insurance premium tax was increased from 9.5% to 10%. This increase will be used to fund improvements in flood defences.
Business tax – Some good news for small businesses: the annual threshold for 100% small business rate relief increased from £6,000 to £12,000. The higher rate threshold will rise from £18,000 to £51,000. The headline rate of Corporation Tax is also being cut to 17%.
He also snuck in a rise in tax on loans to participate, up from 25% to 32.5%, which follows on from the Dividend Tax and will inevitably hit small businesses harder.
Pensions and savings – The biggest announcements were around ISAs: the annual ISA limit will increase from £15,240 to £20,000. A new ‘lifetime ISA’ for the under 40s will be introduced from April next year, with the government putting in £1 for every £4 saved. The Chancellor said that this is an alternative to a pension fund for the young, who find pensions “confusing.”
Over 85% of contractors are already sending HMRC their CIS returns online, but from April 2016 everyone will have to use the online service. HMRC will no longer be accepting any paper forms from that date.
To increase filing accuracy, this change will see the introduction of online amendments, online messaging and alerts.
HMRC are also improving the online verification service for contractors, as from April 2017 everyone will also have to use the online service, HMRC will no longer accept telephone verifications from that date.
For contractors currently sending paper returns, you’ll need to register for HMRC’s online services as an ‘Organisation’ ahead of the April 2016 deadline. To register online you’ll need your HMRC employer reference and Accounts Office (AO) reference.
Alternatively, Jet Accountancy can submit your CIS return online on your behalf, contact us for more information.