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Read Our Accountancy Newsletters from 2015 and Onwards

At Stephen W Jones FCA we hope that the information provided below in our latest newsletter is of assistance. Please do not hesitate to contact us on any matter that may affect you.

April 2015

What's New for the New Tax Year?
If you are a director or employee, this will be a year to pay particular attention to your PAYE code. The standard tax code for 2015/16 will be 1060L. This gives £10,600 tax-free pay, so if your tax code is different, make sure you know why. As your tax adviser is no longer sent a copy of the notice of coding, if you think it may be wrong, let us know. Two of the reasons why a tax code could be different from the standard 1060L are:

1. The New Marriage Allowance: If you have a spouse or civil partner who is not a taxpayer, or who has savings income, the new 'marriage allowance' means that you may be able to save tax by transferring 10% of his or her personal allowance (£1,060) to the partner with the higher income. There are two main conditions:

- Neither of you must be liable to pay tax at 40% or 45%.
- You are both under the age of 80 on 5 April 2015.

Some publicity has said that the lower income spouse must have income of under £10,600 a year for the marriage allowance to be 'claimed', but this is misleading. From 6 April 2015, the first £5,000 of savings income is taxed at 0%, so the lower income partner could have significant savings income and still not be a taxpayer. 'Savings income' includes bank and building society interest, but not dividends paid by PLCs or private companies. The timescale for this allowance is not completely straightforward. Although there has been a lot of advance publicity about the allowance, the online system will probably launch about the time you receive this newsletter, and it is unlikely to be fully functional before the summer.

2. Owing money to HM Revenue and Customs (HMRC): HMRC has long had a power to collect money owing to it by changing PAYE tax codes. This can be a useful way of paying smaller tax bills, but from 6 April 2015 the limits increase. HMRC will be able to recover much larger debts through PAYE, up to £17,000 a year for those on incomes of £90,000 or over. Make sure you know what you owe HMRC and how you are paying it.

Looking After the Children
Most of us have got used to the topsy-turvy rules for child benefit and higher earners. Typically this is where one member of a couple receives child benefit in full, and the other may have to pay part of it back to the government through self-assessment, if earnings are over £50,000 a year. This is called the 'high income child benefit charge'.

It works like this: Jean and Ken have one child. Jean is the main carer and gets child benefit of £20.50 a week (in 2014/15). Ken earns just over £52,000 a year and has to pay back £213 of the child benefit through self-assessment. But it is still possible for the detailed rules to catch people out.

Are You Missing Out?
The basic principles are clear enough. Where a single parent, or a member of a couple, has income of over £50,000 a year, there will be a high income child benefit charge. The charge is 1% of the child benefit due, for every £100 of income over £50,000. This means, mathematically, that all the child benefit will have been clawed back where income reaches £60,000. In consequence, where earnings are over £60,000 a year, it simplifies the administration if the person entitled to the child benefit (who may not be the higher earner of the couple), makes an election to forgo the child benefit.

But now for the surprises: income here means 'adjusted net income'. This is a technical term meaning that you deduct the gross equivalent of pension contributions that have received basic rate tax relief at source, and gift aid payments. So if the 'high earner' makes significant pension contributions or gift aid payments during the year, you may find that you have a net child benefit entitlement after all.

If this happens, you are allowed to restart your child benefit claim, but the high earner will now be liable to pay the child benefit charge through self assessment. You can change your mind within two years of the end of the tax year, in which you would have been entitled to child benefit. Unfortunately, if you delay, this could mean changes to your self assessment return and possible interest and late payment penalties.

Who Pays the Piper?
Another hazard for couples is where both members of the couple earn close to the £50,000 or £60,000 limits. It may seem like a technicality, but HMRC doesn't just want the money; it wants the money from the right person.

For example, Jack and Jill have two children. Their child benefit entitlement in 2014/15 is £20.50 a week for the elder child, and £13.55 a week for the younger child (£1,770.60 a year in total). Jack paid the high income child benefit charge in 2013/14.

In 2014/15, Jill earns £52,000 as an employee and is not registered for self-assessment. Jack is self-employed. He usually earns about £55,000 a year, but in 2014/15 he invested in a new computer system for the business and his taxable profit falls to £51,000.

As Jill is the higher earner for 2014/15, she will need to register for self assessment (before 5 October 2015) and pay the high income child benefit charge by 31 January 2016. The rules apply to all couples whether married, civil partners, or simply living together. Exceptionally, the high income child benefit charge can even apply where the child is living with someone else, but you are supporting them and claiming child benefit. All in all, whoever is looking after the children, if someone is claiming child benefit and you are connected with that person, it's time to talk to your tax adviser.

Beating the System
In a world where there are penalties for everything, people can be tempted to try and beat the system. Some employers have attempted to avoid late filing penalties for PAYE RTI returns by all sorts of ruses: asking for employee hours earlier in the month; carrying overtime forward to the next month; or otherwise using approximate figures. Figures tweaked like this can lead to inaccuracies in the payroll, increased National Insurance costs, and lower benefit entitlement for some lower paid workers. Remember:

- It is possible to send an earlier period update without incurring a penalty.
- Paying a worker for fewer hours than they actually worked one month, and adding the hours onto the following month, could mean that the employee is paid below the lower earnings limit one month, and so misses out on National Insurance credits. It also means that the National Insurance cost in the following month will be higher than if earnings had been spread evenly.
- Tweaking the figures is inadvisable and can have a sting in the tail.

Have You Been Turned into an Intermediary?
How many UK businesses would think they were affected by new rules for 'offshore employment intermediaries'; or, for that matter, 'onshore' employment intermediaries? After the dust has settled on the government consultation, new rules are here for 'employment intermediaries', and you may, unwittingly, be one.

Owner-managed businesses that are run as limited companies or as partnerships can be affected. This is because the rules now treat anyone who is a link in the chain between an 'end-user client' and a worker as an 'intermediary'. If your business structure involves an 'employment intermediary', there are two sets of rules to watch out for:

- Agency rules which could make you an employee of your own business, or challenge your remuneration split.
- Reporting rules which would require you to make quarterly reports to HMRC of people who work for you and who are not treated as employees.

As we have come to expect, there are penalties for failure to make returns, or to apply PAYE as required. The reporting rules apply from 6 April 2015. The rules are complex, so it is worth taking advice if you think the rules could apply to you. The reporting rules require you to make returns to HMRC if you are an 'employment intermediary' as described above, and you supply more than one worker to an end-client. How this works is best seen by looking at two examples:

1. How You Could be Taxed as an Employee: William Wallace is a partner in a restaurant business, 'Haggis and Neeps'. However, he also worked for two weeks in another restaurant business, 'The Bruce and Spider', to provide holiday cover. If William is under supervision, direction, or control when he provides holiday cover at The Bruce and Spider, he is caught by the revised agency rules, and is taxed as an employee.

His own partnership, Haggis and Neeps, would become his employer for the holiday cover work and it would be liable to deduct PAYE from his earnings from The Bruce and Spider. Such income would then become William's personal income for tax purposes, and not that of the Haggis and Neeps partnership.

On the other hand, if William provides holiday cover as head chef, he might not be subject to supervision, direction, or control. In this case, earnings from The Bruce and Spider would be partnership income of Haggis and Neeps. The dividing line can be very fine, and the consequences of getting it wrong could be substantial.

2. When You Might Need to Make Returns: Malcolm trades via his own limited company, Malcolm IV Ltd. He supplies his services to Daylight Holdings plc. He is not subject to supervision, direction, or control.

In May 2015, David joins the team at Malcolm IV Ltd, and assists on the contract with Daylight Holdings plc. As Malcolm IV Ltd now supplies two workers, it needs to consider the new reporting requirements.

If you work through your own partnership, such as a farming partnership carrying out contract work for other farms, the reporting rules could also apply. There are exceptions to these rules, but these are narrowly drawn. As the PAYE deductions and reporting requirements apply now, this cannot wait until your usual year end accounts. As so much depends on the detail of the arrangement, we would recommend that anyone concerned about these issues gets in touch.

This newsletter deals with a number of topics which, it is hoped, will be of general interest to clients. However, in the space available it is impossible to mention all the points which may be relevant in individual cases, so please contact us for personal advice on your own affairs.

January 2015

Autumn Statement
In his autumn statement to Parliament at the beginning of December, the Chancellor of the Exchequer said that the law will be changed, so that when someone dies, their husband or wife will be able to inherit their ISA and keep its tax free status. The official briefing papers explained that this will apply where the ISA holder dies on or after 3 December 2014. His or her wife, husband, or civil partner will be allocated an additional ISA investment allowance equal to the value of the savings in the deceased's ISA account. This can then be used by the surviving spouse to transfer the inherited investments into an ISA account in his or her own name.

It will not be possible to make the reinvestment in the surviving spouse's ISA until 6 April 2015. Later this year, additional legislation will preserve the tax-free status of the original ISA investments during the administration of the estate.

There was also some good news for employers of personal carers. From 6 April 2015, they will qualify for 'employment allowance', which means they will be exempt from the first £2,000 of the employer's National Insurance contributions otherwise payable each year. The carer him- or herself will continue to pay the employee's contributions in the normal way.

HMRC have emphasised that the relief applies only to carers employed to look after people requiring care because of disability, frailty, injury, or illness. It will not apply, for example, to families employing a nanny to look after healthy children.

The Chancellor also announced the government-backed student loans of up to £10,000 [for] all young people undertaking postgraduate Masters degrees. These loans will be available from the 2016/17 academic year, for students under 30 undertaking a postgraduate taught Masters course. Subject to consultation, they will be repayable (with interest at RPI+3%) at 9% of income over £21,000. These repayments will have to be made in addition to any undergraduate loan repayments, so potentially a total of 18% of gross earnings.

No More Mr Nice Guy
Employers with 49 or fewer employees should note that automatic penalties will apply if their PAYE RTI submissions are not up to date by Thursday, 5 March 2015, and thereafter kept up to date. Larger employers became subject to penalties last October, and the first penalty notices will be issued early in February. Penalties will be imposed:

- Where a Full Payment Submission (FPS) is filed late - that is to say, is not filed by the day the employees are paid or, if the employer qualifies for the concession for some employers with nine or fewer employees, by the last pay day in the tax month.
- Where an employer fails to file a nil Employer Payment Summary (EPS) for a month in which no payments to employees were made by the nineteenth day of the following month (so by 19 March for the tax month to 5 March).

The first default each tax year will be ignored, but otherwise the penalty will be ?100 if the employer has nine or fewer employees; or ?200 if he has between 10 and 49. Where a submission is three months late, HMRC will additionally be able to impose a 5% surcharge on the tax and National Insurance contributions payable. They say that this will be used only for the most serious and persistent failures.

From April, the screw will be tightened yet further, for all employers, with the existing penalties for late payment of monthly or quarterly PAYE remittances being made automatic and applied in all cases. The penalty will be between 1% and 4% of the tax due, depending on how many times, in the tax year, the employer pays late.

Capital Allowances
Annual Investment Allowances (AIAs) allow the whole cost of machinery and vehicles (other than cars) to be written off, for tax purposes, in the year of purchase. There is an annual ceiling on the maximum qualifying expenditure, which is currently £500,000, but which is scheduled to fall by 95%, to just £25,000, on 1 January 2016.

The important point to bear in mind is that the allowance is apportioned to accounting years. For example, if a company's accounting date is 30 September, the maximum qualifying expenditure for the year to 30 September 2015 will be £500,000, but that for the year to 30 September 2016 will be only £143,750 (3/12ths of £500,000 plus 9/12ths of £25,000). Thus it is certainly not the case that every company has until 31 December 2015 to make a qualifying £500,000 investment.

There are also some very complicated rules for determining when expenditure is, for capital allowance purposes, incurred, it is not, normally, either the date you place the order or the date you sign the cheque. Accordingly, if you are planning a programme of capital expenditure, or a significant asset purchase, we strongly urge you to contact us for detailed advice at the earliest possible stage.

Withdrawals from Pension Plans
In his March 2014 budget, the Chancellor of the Exchequer announced that, from April 2015, people aged 55 or more will be able to withdraw as much as they like, whenever they like, from their personal pensions and similar retirement saving plans. That is a simple enough concept, but the new arrangements will be governed by detailed and complex rules. There have been some 'scare stories, for example, incorrect reports that the traditional 25% tax-free lump sum will no longer be available.

Very broadly speaking, from April, somebody wishing to draw money from a pension plan will have three choices:

1. The traditional package of a 25% tax free lump sum and an annuity for life.
2. Taking 25% as an immediate tax free lump sum, and designating the balance as a 'flexi-access drawdown fund'. Withdrawals from this fund can be taken at any time, but will be taxed as income of the year in which they are taken.
3. Not taking an immediate tax-free lump sum, but taking a series of 'Un-Crystallised Funds Pension Lump Sums' (UFPLS). Each such payment will be treated as 25% tax free and 75% taxable income of the year in which it is taken.

It will also be possible to split total pension savings into separate 'pots', so that (for example) the individual has both an annuity and a 'flexi-access drawdown fund'. There is no right answer for everybody. For example, some pension plans (especially those taken out in the 1980s or earlier) offer a 'guaranteed annuity rate', which may seem very attractive in today's low-interest rate environment, making the traditional annuity still the best option. Watch that the guaranteed rate is usually only available if the annuity begins on the normal retirement date specified by the policy.

The 25% immediate tax-free lump sum may be the best choice if the policyholder needs a capital sum - for example, to pay off or reduce a mortgage. Otherwise, the UFPLS route may be preferable, because as the pension fund continues to grow in value, the amount available to be taken as the tax-free part of future withdrawals will rise proportionately.

As withdrawals (other than tax-free withdrawals) will count as income of the year in which they are taken, there will be an art in timing them, so as not to waste the income tax personal allowance, or incur a higher-rate charge. As a rough guide, a higher rate tax charge will be incurred if taxable withdrawals plus any other income (pensions, including the National Insurance retirement pension, earnings, interest and dividends, etc) exceed £42,385 a year (at 2015/16 rates).

And finally, two words of warning. The first is that these notes are a very brief introduction to a very complex subject and most people, especially if they have substantial pension savings, are likely to need expert professional advice. The second is that the small-print on many pension plans states that an annuity will automatically be bought if the plan holder does not give notice to the contrary before his normal retirement date.

Your Home and Capital Gains Tax
In the last edition of this newsletter (August 2014) we warned that the government intended to abolish, with effect from April 2015: a homeowner's right to elect which of two or more properties he owns (or has the use of) is to be treated as his 'principal private residence' and so exempt from capital gains tax.

We are pleased to report that the government has now withdrawn this proposal. Instead, there is to be a new rule, that a property cannot be treated as the individual's principal private residence for 2015/16 and future years of assessment, unless either he is resident for tax purposes in the country in which that property is situated, or he is present in the property at midnight on at least 90 days in that year. This means, for example, that a United Kingdom resident could not claim that his holiday home in France was his principal private residence unless he is dual resident (in both France and the United Kingdom) for tax purposes, or meets the 90 midnights test. It would of course be a good excuse for leaving a boring dinner party: "Sorry, I must be home by midnight, or today won't count!"

The more usual case, however, is the individual who owns (or has the use of) two properties in the United Kingdom. Here the right to elect which is to be treated as his principal private residence will remain. However, it is vital to remember that the election must be made within two years of acquiring the second property. If you have two or more properties, and have not already discussed your capital gains tax position with us, we strongly recommend that you do so without delay.

Company Cars and Vans
In principle, the usual scale charge for a director's or employee's private use of a company car or van may be reduced by any payment the director, etc, is required to make for that private use. In many cases, especially for directors, it has been the practice for the payment to be made after the tax year end.

However, for 2014/15 and future years, there is a strict statutory rule that payments will not be taken into account unless they are made before the end of the tax year to which they relate - and HMRC have put us on notice that this rule will be rigorously enforced. Any company operating such arrangements should, therefore, ensure that payments are now made in good time.

This will not affect the longstanding easement under which no fuel scale benefit is charged where the director or employee fully reimburses the cost of fuel used for private motoring, even if (for example) the mileage-based payment for March is not made until (say) the end of April.

This newsletter deals with a number of topics which, it is hoped, will be of general interest to clients. However, in the space available it is impossible to mention all the points which may be relevant in individual cases, so please contact us for personal advice on your own affairs.

Contact us, in Halesowen, West Midlands, to speak to our approachable accountants about the expert solutions we provide.