BUDGET NEWS (AUTUMN STATEMENT OCT 18:
A big piece of news for landlords that previously lived in their house prior to renting:
1. Lettings allowance for CGT purposes will be scrapped from April 2020 (£40000) off the income for CGT purposes and if you are a 40% tax payer that is very bad news - additional CGT will be £11,200 on sale of your property.
2. Residential allowance (currently 18 months) will be restricted to 9 months! that increases your CGT by 9 months of the time that you were eligible for tax relief (if you sold your rented property).
3. On top of the tax reduction for interest relief on your mortgage, this also is bad news if you are a 40% tax payer
Simply put, the revenue are targeting people who rent out houses!
Personal allowance will increase to £12500 from April 2019
Tax threshold for 40% tax payers will be increased to £50000 from April 2019
National living wage will increase to £8.21 - not necessarily great news for benefit claiments as you will find that HMRC will cut benefits and you will be no better off - just putting the emphasis on the employer to pay more so that the revenue pays less!
MAKING TAX DIGITAL (MTD)
From April next year all VAT registered businesses will be required to send VAT returns VIA book keeping software i.e. SAGE. South Shore Accountants can provide the software at a cheaper rate (as an agent for SAGE). MTD compliance is coming so please seek advice from us.
DIECTOR'S TAX RETURNS
The revenue request a tax return if you are a Director. However, if you are only paid by PAYE (wages through the Company) the revenue may say you no longer need to complete a return. The important issue is to register in the first instance and let HMRC decide later. Do not assume you do not need to complete a return!
UNIVERSAL CREDIT CLAIMANTS
If you are self employed and claim benefits then please read on.... HMRC have incorporated MIF (minimum income floor) - essentially, you will need to declare your income and expenditure online monthly and prove to the job centre each month that you are actually running a 'true' business by way of sales invoices and expense receipts etc.
If your income is below the 'floor' then you will not receive any extra benefit... if you are above the 'floor' then you will have your benefits cut. Essentially, you have to prove you are earning at least £1000 per month. HMRC argue that if you do not earn this then you should 'get a job' and your benefits will be stopped unless you hit this target.
If you have a 'seasonal' business I.e. in Blackpool for example, this may become an issue.
Please read this link:
Two of the main announcements 08/03/2017
1. Class 4 NI for self employed - rising 1% to 10% in 2018 tax year and a further 1% from 2019 tax year (despite promise earlier for no increases) NOW ON HOLD - REVERSED!!!!!
2. Dividends - £5000 allowance will be cut to £2000 from 2017-2018 tax year. Anything above will cost you in self assessment tax. This assumes the Company has paid Corporation Tax on profit prior to the 'distribution'.
Basically, HMRC are trying to narrow the gap between being self employed or a sole Director versus being employed by another Company. It seems they totally forgot full time employed staff receive 5.6 weeks holiday pay and full sickness benefits etc.
Whilst writing, as a matter of fact... if you have your own business and you employ staff... did you know you cannot claim sick pay back from HMRC? You may have to pay someone £89.55 per week for 28 weeks and then take someone else on to cover their work based on Minimum pay or the living wage!
INSURANCE FOR ACCOUNTANCY COSTS AGAINST TAX OR VAT ENQUIRIES
We are pleased to advise that we can offer insurance against significant accountancy costs to deal with any tax enquiry - we have seen costs from other accountants escalating to £20k plus! Investigations can go on for months if not years.
HMRC can go back 6 years and as you will see below, they are recruiting heavily to review client tax and VAT affairs.
Insurance costs are around £300 per annum - please call to discuss (01253 343542 / 07973 297958).
VAT VISITS AND PRE REGISTRATION CLAIMS ETC
We have just had another successful VAT visit for one of our larger clients (£50m turnover!) ... you can expect a visit every 5 years and if you are due a refund on your first return (like many clients) you can expect a visit after quarter 1. Other factors may include sales trends and inconsistent returns for HMRC to visit, although they still do 'random' visits. HMRC are recruiting inspectors all the time.. in the midlands, they have just recruited 30 new staff so they are definitely planning more visits.
Whilst not wishing to give you restless nights, any deliberate attempt to reduce your liability will be construed as money laundering and you could be reported to the national crime agency for further review and possible crime proceedings. i.e. attempts to create false purchase invoices. All VAT numbers are easily checked and identifiable by this website used by HMRC and you should also check any new suppliers by using this site.....
You can back claim VAT on stock you still hold at the commencement of VAT registration...
1. Stock held at the start of registration previously purchased within 4 years of registration.
2. Services purchased within 6 months of registration (i.e. accountancy costs etc).
CLAIMS AGAINST TAX
From 2016/17 tax year, there are now 'flat rate claims' for Use of Home as office and Laundry costs etc.
Married Couples Allowance (including civil relationships):
It applies if you are married or in a civil partnership, you are living with your spouse or civil partner, and one of you was born on or after April 6, 1935
“Four million people are eligible for this new allowance but three million don’t realise and haven’t claimed. If you are eligible, this could save you £220 in tax this year alone.
Be aware, the 10% wear and tear allowance is withdrawn for 2016/17 tax year for furnished properties.
Also, there is now a phase of 'tapering' mortgage interest allowance from 2017/18 tax year. Simply put, you will be able to claim less finance charges against any loan including Mortgages / Bank overdrafts or credit card borrowing for tax purposes - we can complete your return for around £60 so ring now! It is advised your returns are submitted via an agent. You are much less likely to get an investigation.
This will affect 40% tax payers in the main as the tax allowance will be restricted to 20% - there are better allowances available for Companies as the tapering is not affected! - it is very complicated hence why you need to ring us for the proper advice...
The income from rental income is now grossed up for tax purposes so you may have been in the 20% bracket for tax and now find yourself in the 40% bracket (complicated as mentioned so please contact us).
HMRC CONNECT SCHEME - we have been warning our clients about this for a good while due to a contact we have 'inside'
HMRC know what interest you receive - even if is £2 if it is not entered on your return their verdict suggests 'what else is missing' and you will face an investigation. Here at South Shore Accountants, we provide a very thorough tax questionnaire to ensure you do not miss anything. An investigation can cost £1000's!
They have access to DVLA, LAND REGISTRY ETC - carry on reading although the main area in our opinion are things:3
Who lives where?
What benefits are being claimed?
Can the income declared justify the lifestyle (property, cars etc.)
This was published 08/01/2017:
What does the taxman know about you, your finances and your lifestyle? HMRC's impressive new software trawls billions of items of data from dozens of sources in its hunt for underpaid tax – and it's about to have access to even more information, which can be shared with 60 other countries.
The offices of the taxman are not usually credited with efficiency and success. But there is one aspect of HM Revenue & Customs which is highly – some would say terrifyingly – efficient, and that is its powerful computer program which is accessing and trawling databases of personal financial information on an unprecedented scale.
The software, called "Connect", has been developed at a cost of £80m over seven years. Its basic job is to scour vast databanks of personal and commercial information, seeking to unearth links between individual taxpayers and businesses, income, assets and transactions.
It then matches its findings against the information the taxpayer has provided through their return. Discrepancies are flagged and could prompt a tax investigation.
The searches take mere seconds and are undertaken repeatedly to capture new information.
The reach of the "Connect" project, and the speed with which the databanks can be interrogated, are both increasing. More than a billion items of data from 30 sources already fall within its scope, according to the accountancy group BDO, which has just published a report on HMRC's "digital evolution".
These sources include public sector records – such as the Land Registry or DVLA, see below – as well as a growing number of private businesses or trade associations.
From next year Connect's powers will extend further still. September 2016 is when HMRC starts having access to files held by banks and other financial firms based in British overseas territories, such as the Channel Islands; and from 2017 Connect goes truly global with access to data in a further 60 countries.
A success? Yes, in that the numbers of investigations initiated by Connect are growing, and in that £3bn extra tax has been clawed in as a result of Connect since its launch in 2008.
But many have their doubts. Not only is there a possibility that some of the data could be erroneous or incomplete – triggering spurious tax investigations or worse, possible prosecutions – but there are also fears about security.
And then, of course, the niggling anxiety about so much of our personal information residing in the hands of the state.
What can HMRC find out about you?
Your income and pensions ...
One of Connect's biggest jobs is to hunt for income disparities. It will process information about your bank account balances and income, and match this with other information – mainly your tax return and, for example, and your PAYE data submitted by your employer.
If the information doesn't tally, start preparing your answers.
Richard Morley, BDO partner and expert on Connect, said: "HMRC is using Connect to find undeclared tax but also to go further, and shed light on other activities or assets which are not being properly taxed."
An example he gives is where Connect detects income from overseas. "The taxman will want not only that income to be properly taxed, but information about its source. Is there a business or property generating that income and if so are other taxes due?"
Your bank accounts, savings and investments ...
Banks and other financial firms report to HMRC the interest paid to individuals across scores of millions of accounts, and this data is fed into Connect. The main object is to spot undeclared, taxable savings income.
But Connect can go further, identifying, for example, whether investors have exceeded their annual Isa allowance.
If you are claiming tax relief on pension contributions, and entering this on your tax return, Connect will be wanting to see a parallel increase in the balance held by your pension provider.
Your property ...
HMRC has for years had access to Land Registry databases, but it can now conduct searches faster than ever before.
The Land Registry typically holds details of the price you paid for a property and your mortgage lender, if there is one.
By cross-referencing stamp duty records with the Land Registry's files Connect can identify where capital gains tax is thought to be owing, for example.
Multiple property ownership where the taxpayer isn't also declaring rental income could be another trigger for investigation.
HMRC has not yet – according to a number of accountants representing large landlords – made blanket demands of estate agencies to provide lists of clients and the rents paid to them.
But this would be within its powers under "Schedule 36", wide-ranging legislation which gives the taxman power to force third parties to disclose data where it believes there is a lot of "underreporting" of tax.
Your lifestyle and shopping ...
HMRC uses data-collecting programs or "robots" to patrol popular online marketplaces such as eBay or Gumtree to see whether your level of activity is suspiciously high.
"To manually compare the data would take years, but Connect can do it virtually instantly," Mr Morley said.
Your business ...
For genuine small businesses Connect has other weapons at its disposal, such as an ability to plough through a staggering four years of credit card transactions.
Again, without hefty computing power such exercises would have been impossible. Now Connect can crank into action to check that your stated sales fit with this electronic record of card takings.
Your car ...
Connect, and the 150 HMRC analysts who pore over the results it generates, deploy something called "lifestyle profiling" in their efforts to unearth anomalies – and unpaid tax.
If you drive an expensive vehicle – according to records held by the DVLA – Connect will want to see income to match.
Again, as Mr Morley points out, one question leads to another. "You might be able to satisfy HMRC that the vehicle was bought with a cash gift," he said, "but you can then expect to it ask who gave you the gift, and if it was an inheritance whether the appropriate tax was paid."
Your social media ...
Entries on Facebook and Twitter are not routinely trawled by Connect, experts say, but if you become the subject of an investigation you can expect these to be examined for evidence of spending, travel, or ownership of property and other assets.
Could it all go wrong?
Apart from information gathered by HMRC being incorrect or incomplete, there is also the problem of sending and storing the data securely.
This is likely to become far more of an issue in the next two years as other countries' tax systems integrate their own versions of Connect with ours, to facilitate what one commentator has dubbed "a global swapshop of everyone's personal financial data."
WORRIED? PLEASE RING MARK CRAMPTON 07973 297958 / 01253 343542 FOR AN 'OPEN AND FRANK DISCUSSION TO HELP SORT YOUR TAX AFFAIRS OUT'
Tax Digital Accounts - from 2018 for sole traders (2020 for Companies), HMRC are insisting that sole traders complete quarterly returns (no free software despite promises) to submit to HMRC instead of the annual self assessment return. At South Shore Accountants we are here to help and we can complete the necessary book keeping or returns for you. HMRC are allowing a 5th return for amendments so that we can adjust for after date expenditure etc. and to ensure your accounts and tax are correct.
We are really concerned about those people who wish to try and complete their own returns... e.g. do you know the difference between capital and expenses? What do you need to 'add back'?........
What percentage can you claim on your assets? What VAT can you claim on your car expenses / rules on leasing / hp? What is a scale charge? How much should we charge for depreciation? What can you claim for use of home as office?...... the list goes on and on. there is a reason why an accountant is an accountant and a builder is a builder and a hair dresser is a hair dresser..... do you get the point?
Give us a call - see below to discuss.
Budget News - the important bits.
The new personal allowance for the 2016-17 tax year is £11000. Would suggest salaries optimise the allowance for Directors.
No changes to Ni bands though so more 'tax' will be paid.
Auto Enrolled staff will be paid 1% from the employer and 1% from their own wages by deduction for the year commencing April 2016 rising each year for the next two years (employee 5% employer 3%).
Dividend tax is here to stay! .. take over £5k and there is a 7.5% dividend tax now in force (we believe the revenue are trying to reduce the gap between sole traders total tax - i.e. class 4 NI.
Company tax is lowered to 19% from 01/04/2016 - it is still recommended to be a Company on income over £25k although accountancy fees are higher and all your Company information is 'public'.
What we called minimum wage is now the 'national living wage' at £7.20 per hour from 01/04/2016. On top of this there is the new pension legislation - please check your staging date as the obligations are necessary and avoidance is painful (fines) - give us a ring to discuss. Too much too soon? By 2020 the living wage will be £9.00 per hour! .. what they failed to tell the public is that anyone claiming benefits will be cut and therefore the onus is on the employer and not the government!
Capital gains tax is going down though and great news - the 18% band is being reduced to 10% and for the higher 28% band that is going down to 20%
Class 2 NI ('the stamp') for the self employed is now taxed on your self assessment (by way of additional tax if you 'qualify' for payment.
The annual ISA limit is being increased to £20k by April 2017 but the savings are not great at the moment - most ISA's offer around 1%. A new lifetime ISA is being introduced for savers (for the under 40's) - will this be the end of state pension?
Stamp duty for second homes and the tax relief on the rental income for higher tax payers is now costly! A complex area depending on if your properties are for investment etc. - again, you need proper advice - please call to discuss.
HAVE YOU MISSED YOUR SELF ASSESSMENT FILING?
There is an automatic fine of £100 on the 1st Feb 2016 - however, if there is a 'reasonable excuse' we can appeal against this.
The fines rack up quite considerably - after 3 months, HMRC add £10 per day - ending up with a £1300 fine plus interest!
We can 'wind back the clock' with a letter and 'reasonable excuse' so please call and we can put things right..........
We have had many conversation's where clients 'bury their heads in the sand' and that is very understandable when stressed and don't know where to turn.. We can put in a 'provisional return' to stop the fines and amend later when you have spoken to us and given us the information we need to correct the self assessment return.... there is always a solution so please get in touch sooner rather than later.
We are here to Help!
If you wish to change accountant, it is a simple process. We write to your old accountant for 'professional clearance' .. As long as you have settled your fee, they will send us the information we need to take over.
SECOND PROPERTIES (NOT JUST RENTED)
For second properties, stamp duty is about to affect you! also, capital gains. New rules commence 01/04/2016.
Remember that you need to declare profits from renting out properties (relief is also restricted for tax payers in the higher bracket).
Only interest can be reclaimed against a mortgage meaning that with the current low interest rates, the tax payable is greater.
Finance costs (i.e. mortgage or overdraft costs / credit cards) are being tapered from 2018 each year by 25% so eventually you will no longer be able to claim these costs. This is on top of the withdrawal of the wear and tear allowance for furnished properties withdrawn for this current tax year (10% of income). You will therefore find your tax on rental income will be much higher in the future, designed to deter people from multi property ownership.
The rules are getting complex.
Don't think you can ignore this. ....you will find yourself having an investigation and the costs for accountancy can be massive although we can insure you against this (please call to discuss). We can back date your returns if necessary to ensure full compliance.
As a sole trader, unless you have a commercial vehicle, we recommend that you record your business mileage and we can then claim a mileage allowance on your behalf. We can claim £0.45 per mile for the first £10k mileage and all of our calculations suggest that this is the best route and avoids 'tax add backs' for private usage. It can include visits to the post office, picking up staff and visits to suppliers and Accountants etc.
For Companies, if you have a car paid by the Company, you will have to pay a 'benefit in kind' (the same tax as if you had a salary) This can be very expensive depending on the car list price and CO2's.. Again, depending on the commercial aspect, it can be beneficial either way (bought outright you can claim an annual investment allowance) - (bought by lease you can claim 10% of the VAT and as an expense against profits) It is a huge talking point and the only way to get proper advice is to get in touch with us.
It really depends on how you wish to buy your vehicle and the trading entity.
SMALL COMPANY ADVICE
We suggest you review your wages income versus dividends due to the new rules from April 2016 - it may be beneficial to increase your salary and reduce dividends! A tax of 7.5% now applies to dividends taken over £7.5k.
For PEACE OF MIND - please call or email (see below).