Practice News

What's changing in the new tax year?

We are now at the beginning of the new tax year, and new rates and regulations are to be introduced.

So how will this affect you? WBV director, David Rowe explains.

Personal taxes

The income tax personal allowance (how much you can make without paying any income tax) is to increase to £11,500, and the threshold for the 40% higher rate of income tax is to increase to £45,000 (£43,000 in Scotland). The Government is committed to raising the income tax personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament (May 2020). It is worth noting that the personal allowance is withdrawn for incomes over £100,000, and the High Income Child Benefit Charge remains in place for those earning more than £50,000.

Capital Gains Tax

The Capital Gains Tax annual exemption threshold is being increased to £11,300.

Inheritance taxes

The threshold for inheritance tax is currently frozen at £325,000 until April 2018. Coming into effect is a policy announced in George Osborne's July 2015 Budget Statement, which details a tax-free allowance for inheritance tax on family homes, starting at £850,000 this year and rising by £50,000 until it reaches £1million. Once the estate is worth over £2million, the £1million tax-free allowance is gradually tapered away. However, all residential property indirectly held through an offshore structure will be liable to inheritance tax.

Individual savings accounts (ISAs)

The maximum limit of payment into an ISA will jump from £15,240 to £20,000 for the 2017-2018 tax year. A newly-introduced Lifetime ISA will allow under-40s to save up to £4,000 per year, with a 25% bonus from the government to fund first-time property purchase or to save for retirement.

Tax avoidance

In an effort to combat aggressive tax avoidance schemes, the Government is bringing in the serial tax avoider's regime. Individuals using schemes that are defeated by HMRC after 6 April 2017, will be liable to sanctions such as penalties, restrictions to direct tax relief or public ‘naming-and-shaming'. It's more important than ever before to ensure that your assets are not held in an inappropriate or artificial scheme.

If you would like advice on of the any areas featured here please contact WBV on 01792 652108 / 01639 635555

Autumn Statement 2016

What Will Change for Your Business?

Chancellor Philip Hammond's first Autumn Statement to Parliament set out the government's fiscal policy objectives, including a £23 billion investment in infrastructure over the next five years to combat a lack of unaffordable housing, the UK's low productivity and revised-down growth forecasts.

Flagship policies such as this are likely to have an indirect effect on SMEs in the UK, but the changes to taxation and regulation announced later in the Chancellor's speech are likely to have a more direct effect on the UK's SME community.

There are a number of areas where the Autumn Statement is likely to affect small businesses, as WBV director David Rowe explains.

Corporation tax

"The government's commitment to lowering corporation tax from 20% to 17% in 2020 is encouraging, as a good proportion of small businesses are set up as limited companies, and stability is always welcome. In April, there was an increase in personal tax on dividends and this drop in corporation tax will help to partly offset the effect of that for business owners. We already have one of the lowest corporation tax rates in the developed world, so it's an important incentive for foreign businesses looking to set up here."

Employment taxes

"There have been changes to tax on salary sacrifice, where an employee exchanges part of his or her cash salary for certain benefits. These benefits have traditionally been taxed less than the cash salary would have been. This won't apply to things like pensions or childcare, but the concern here is that if you sacrifice your salary you will still be taxed on the cash you sacrifice, irrespective of how tax advantaged the benefit would have been.

"Employers want to make their employees pay packets as tax-efficient as possible, but they could then end up with a situation in which two employees have the same package but they are taxed in different ways. The regulations are also being tightened so that fewer and fewer employee benefits are tax-free.

"The Chancellor said that National Insurance will be aligned between the employer and the employee, so the threshold for paying National Insurance will be the same for both. This is done for reasons of tax simplification."

Incorporation

"In his statement the Chancellor highlighted ‘the growing cost to the Exchequer of incorporation'. He went on to say that ‘the government will consider how we can ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax-base as the economy undergoes rapid change.' It looks like we will see a review of the tax rules for companies and maybe higher taxation for those who choose to operate as a limited company.

"We have already seen more taxes being imposed on the owners of companies such as the new dividend tax, restrictions on capital gains tax, entrepreneurs' relief and income tax on disposal of shares through liquidation involving ‘phoenixing'.

"Whilst there can be legitimate justification to stop abuse of the tax system, there is a high risk that changes may catch the innocent businessperson. Also, additional tax charges can act as a disincentive to the use of limited companies even though they make good commercial sense as the vehicle of choice for most SMEs."

Tax planning

"The government, amongst other bodies, is looking to close in on aggressive tax avoidance schemes. Very recently, seven leading accountancy bodies in the UK established new ethical guidelines for their members that prohibit them from recommending aggressive tax planning. Although the professional bodies aren't recommending tax planning, Philip Hammond still thinks it's necessary to penalise accountants if they do.

"There is also a suggestion from the government that taking reasonable care to do things properly will no longer preserve businesses from penalties. This will not only affect people using avoidance schemes but also, potentially, people who genuinely think that they have the correct processes in place.

"There are also more specific rules to counter areas where HMRC think the rules are being exploited. For example, take the VAT flat rate scheme. Companies receive VAT on their sales and pay VAT on their costs. Once a quarter, they add up all of the VAT they have received, subtract the VAT they have paid out and pay the difference to HMRC. The VAT flat rate scheme makes assumptions about that ratio for simplicity. In the freelance sector, whose VAT costs tend to be extremely low, the Chancellor has announced that they will have to use a special rate. This is significant because a freelancer, who makes, for example, £100,000 per year, used to keep £3,800 of their VAT per year. Following the changes in the Autumn Statement, they will now keep only £200. There is a question whether this is a proportionate response."

Insurance premium tax

"The Autumn Statement included an increase in insurance premium tax, from 10% to 12%. Insurance premium applies to the payment consumers and businesses make to insurers. With respect to car insurance, Philip Hammond also announced that, due to a crackdown on fraudulent claims within the industry, the average motorist would save £40 per year on their premium. For the vast majority of drivers, this will outweigh the increase in insurance premium tax."

IR35 and working for the public sector

"IR35 prohibits freelancers from forming a limited company so that they pay less tax on payments from their client, when their relationship in all other aspects is one of employer and employee.

"For freelancers who work for public sector clients, the government is going to continue with the idea that it is the client or agency that decides whether this particular tax applies to the freelancer, not the freelancer themselves. From April 2017, for those working in the public sector, the government will make it the decision of their agency or client to decide whether this legislation applies to them.

"There is also a suggestion of extending IR35 to the self-employed. This is a significant step, partly because it's another extension of HMRC's crackdown on perceived tax avoidance, and partly because it's going to be extremely complicated to try to implement. The IR35 approach is to look at the underlying commercial substance: this is all very well in simple cases, but as the regime is extended it will catch more complex businesses, and become much harder to administer. It may be better to look at why there are differences between the employed, the self-employed, and small companies in the first place."

If you would like advice on any area featured in the Autumn Statement please contact WBV on 01792 652108 / 01639 635555

 

National Minimum Wage: How Does the Increase Affect You?

Following theincrease in the National Minimum Wage for young people in the UK by the government, WBV director David Rowe looks at what the changes mean for employers, and some of the common mistakes made by business owners.

Do you know what the difference is between the National Minimum Wage and the National Living Wage?

In fact it is very little - the National Living Wage applies to working people over the age of 25, whereas the National Minimum Wage concerns the earnings of those who are 24 and younger.

Here are the new minimum wage rates:

  • £6.95 per hour for workers aged 21 – 24
  • £5.55 per hour for workers aged 18 – 20
  • £4.00 per hour for workers under the age of 18 who have finished compulsory education
  • £3.40 per hour for apprentices under 19 years old, or in the first year of their apprenticeship

One issue that can be easily avoided is a lack of information about wages for apprentices.

Small, owner-managed businesses have sometimes seen an apprenticeship scheme as a great way of giving a young person a start to their career, taking on young talent and paying a relatively low wage for the trouble.

When taking on an apprentice, many don't realise though that the minimum wage for an apprentice can rise significantly after one year, depending on age.

If the apprentice is aged 16 when taken on, they can be paid the apprenticeship minimum wage until they turn 19. However, if the apprentice is 19 when taken on, after a year of employment they would be entitled to £5.55 per hour, the minimum wage for workers aged 18 to 20.

Another fact which is often overlooked by business owners is that the apprentice must be paid for time spent training or studying for a relevant qualification, whether while at work or at a training organisation.

There are risks associated with underpayment of employees: including knock-on effects such as a potential loss of motivation and productivity, and difficulty in hiring new workers and retaining existing ones.

Furthermore, there is potential for the firm's reputation to be damaged, especially by the government, which has the right to 'name and shame' those who underpay their staff.

If you'd like to discuss the National Minimum Wage changes, and how to ensure that your business is conforming to regulations, or assistance on future wage planning, please feel free to speak to one of our team here at WBV on 01792 652108 or 01639 635555.

For more information about how WBV Chartered Accountants can help you, please contact us.