17thDec
News article

Minimising your tax liability ahead of the year end

Tax-saving measures to implement ahead of the 5 April year end.

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With the end of the 2018/19 tax year rapidly approaching, now is the ideal time to ensure you are making the most of the available allowances and exemptions. Here we highlight some key areas to consider by 5 April 2019.

Making the most of capital allowances

When capital equipment, such as plant or machinery, is purchased by a business, the cost of the equipment can be offset against profits by claiming capital allowances.

Most businesses are able to claim a 100% Annual Investment Allowance (AIA) on the first portion of expenditure. Please note that special rules apply for cars and certain 'environmentally friendly' equipment. The AIA applies to businesses of any size and most business structures: however, provisions are in place to prevent multiple claims.

During the 2018 Autumn Budget, Chancellor Philip Hammond announced an increase in the AIA from its current level of £200,000 to £1 million. The increase will apply to expenditure incurred from 1 January 2019 to 31 December 2020. Accounting periods which straddle these dates will be subject to complex calculations: therefore, it is vital that purchases are timed carefully.

Making use of your ISA allowance

A range of ISAs are available to savers, including the Lifetime ISA for those under the age of 40; the Help to Buy ISA for first-time homebuyers; and the Junior ISA for individuals aged under 18.

Savers are able to invest in any combination of cash or stocks and shares, up to the overall annual subscription limit of £20,000. An individual may only pay into a maximum of one Cash ISA, one Stocks and Shares ISA, one Help to Buy ISA, one Lifetime ISA and one Innovative Finance ISA. Savers have until 5 April 2019 to make their 2018/19 investment.

Retaining more of your profit

The Dividend Allowance reduced to £2,000 in April 2018, and the question of whether it is better to take a salary/bonus or a dividend requires careful consideration. Dividends are taken after corporation tax has been paid, while a salary or bonus is generally tax deductible for the business. However, a salary or bonus can carry up to 25.8% in combined employer and employee contributions.

Other tax-efficient ways of extracting profit might include considering incorporation, or making pension contributions.

Maximising personal allowances

Individuals are entitled to their own personal allowance (PA), which is set at £11,850 for 2018/19 (rising to £12,500 for 2019/20). If your spouse or partner has little or no income, you may want to consider transferring income or income-producing assets to them. However, care is required: the legislation governing 'income shifting' states that any transfer made must be an outright gift, given with 'no strings attached', so speak to us before taking any action.

Certain married couples may also be able to make use of the Marriage Allowance, which allows those eligible to transfer up to 10% of their PA to their spouse. The Marriage Allowance is available to married couples and civil partners where one spouse has income below the PA and neither spouse pays tax at the higher or additional rate. Up to £1,190 can be transferred in 2018/19, which could help to reduce a couple's tax liability by up to £238.

The strategies outlined above detail some of the ways in which you may be able to minimise your tax liability ahead of the 5 April tax year end. We are able to advise on these and many other tax-saving initiatives – please contact us for more information.

27thNov
News article

Making Tax Digital for VAT: the latest developments

Recent changes to the MTD for VAT initiative.

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With the introduction of Making Tax Digital for VAT (MTD for VAT) rapidly approaching, new developments may affect how certain businesses prepare for the measure. We take a look at the latest changes to the MTD for VAT regime.

MTD for VAT is set to come into effect from 1 April 2019 for businesses which have a taxable turnover above the current VAT registration threshold of £85,000. As part of the initiative, businesses must keep some records digitally, and must submit their VAT returns via an Application Programming Interface (API).

Any business making use of MTD for VAT whose turnover subsequently falls below the VAT threshold must stay in the regime, unless they deregister for VAT. Any firm exceeding the registration threshold after 1 April 2019 must comply with MTD for VAT, and is given 30 days to ensure that the appropriate digital software is in place.

Deferral for certain businesses

In October, HMRC's MTD for VAT guidance was updated, outlining a significant deferral of the initiative for certain businesses and organisations. A small group of taxpayers with 'more complex' requirements will be given an additional six months to prepare for MTD for VAT, and will therefore not be mandated to use the system until 1 October 2019.

The deferral applies to: not-for-profit organisations that are not set up as a company; trusts; VAT divisions; VAT groups; local authorities; public corporations; and traders based overseas. Public sector entities required to provide additional information on their VAT return, those who must make payments on account, and annual accounting scheme users are also covered by the deferral.

Meanwhile, HMRC also launched its second pilot scheme for MTD for VAT, inviting more than half a million UK firms to test the system ahead of its April introduction. The pilot is open for businesses with 'up-to-date and straightforward' financial affairs. HMRC intends to extend the pilot to 'most other business types'.

MTD for VAT 'encouragement letters'

HMRC recently sent businesses within the scope of MTD for VAT so-called 'encouragement letters'.

These letters were sent to 200,000 firms which are eligible to join the pilot scheme, and some VAT-registered businesses with a turnover just below the VAT registration threshold.

HMRC stated that it is 'committed' to writing to everyone within the scope of MTD for VAT.

When should I start to prepare for MTD for VAT?

Businesses are advised to begin preparing for the initiative now. Firms will need to ensure that they are using digital accounting records as soon as possible.

As part of MTD for VAT, every business will be required to make use of an online Business Tax Account (BTA). Firms which do not currently have a BTA are advised to set an account up ahead of the MTD for VAT start date. The first step is to generate a Government Gateway ID – this can be done here.

Preparing for and complying with MTD for VAT will undoubtedly prove to be challenging for many businesses. As your accountants, we are always on hand to answer any questions you may have – simply contact us for more information.

31stOct
News article

Taxing the tech giants: the new Digital Services Tax

Analysing the government's new Digital Services Tax.

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In his 2018 Autumn Budget speech, Chancellor Philip Hammond unveiled a so-called 'Digital Services Tax' (DST), which is set to come into effect from April 2020. The DST will require specific digital businesses to pay tax on sales generated in the UK. Here, we outline what we know so far in regard to the DST.

Taxing international digital businesses: a background

Over the past few years, a handful of large international companies have been subject to criticism for paying only small amounts of tax on their UK profits. The Chancellor previously stated that international agreements 'need to be put into place' to help tackle the issue; however, the Organisation for Economic Co-operation and Development (OECD), the body responsible for co-ordinating economic policy, has reportedly struggled to come to a decision on the matter.

The European Commission (EC) separately proposed an EU-wide 3% digital tax, but has so far failed to convince some EU member states.

Outlining the DST

From April 2020, the DST will apply a 2% tax to the revenues of certain digital businesses. The tax will raise £1.5 billion over four years, according to the government.

A double threshold will exist, meaning that businesses will have to generate revenues from in-scope business models of at least £500 million globally to become taxable under the DST. Government documentation states that the first £25 million of relevant UK revenues are not taxable. Small businesses will therefore not be within the scope of the tax.

Under ordinary principles, the DST will be an allowable expense for corporation tax purposes: however, it will not be within the scope of double tax treaties, and therefore it won't be creditable against corporate tax in the UK.

Who will be affected?

The DST will apply to large search engines, social media platforms and online marketplaces where their revenues are linked to the participation of UK users. The government is keen to emphasise that the DST is not a tax on online sales of goods, but rather a tax on the revenues earnt from intermediating such sales.

According to official documentation, financial and payment services, the provision of online content, sales of software and hardware, and television and broadcasting services will not be subject to the DST.

The DST: a temporary solution

The government expects the DST to be an interim solution, having effect only until an international decision is reached in regard to taxing digital services firms. A review clause will exist in order to allow a formal review to take place in 2025, to determine whether the DST is still required in light of international developments.

A consultation will be launched by the government to establish the finer details of the DST. By doing so, the government will make sure that all key concerns and challenges are addressed, and will also ensure the DST operates as intended, and does not place 'unreasonable burdens' on businesses.

The introduction of the DST in the UK will undoubtedly affect other countries' decisions in regard to the way they tax digital services firms. Commenting on the matter, Glyn Fullelove, Chair of the Technical Committee at the Chartered Institute of Taxation (CIOT), said: 'The best outcome would be that the announcemet... spurs the international community to find a globally-agreed solution to taxing digital multinational companies by 2020 so that this UK DST is never actually introduced.'

The DST will be legislated for in the 2019-20 Finance Bill.

24thSep
News article

Taking a look at the NICs regime

In an unexpected move, the government recently announced that it will not be abolishing Class 2 national insurance contributions (NICs) during this Parliament. With this in mind, we provide an overview of the current NICs regime.

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An update on national insurance contributions

In an unexpected move, the government recently announced that it will not be abolishing Class 2 national insurance contributions (NICs) during this Parliament. With this in mind, we provide an overview of the current NICs regime.

What are NICs?

NICs are a tax on earned income. Under the regime, income is divided into various classes, including Class 1 contributions, which are payable on earnings from employment, and Class 2 and 4 contributions, which apply to the profits of self-employed individuals.

Who must pay NICs?

Under the NICs regime, employees are required to pay Class 1 NICs on their earnings. Employers must pay a secondary contribution.

In 2018/19, employees need only pay NICs when their earnings exceed the £162 per week 'primary threshold'. The amount payable is 12% of the earnings above this threshold, up to the Upper Earnings Limit (UEL) of £892 per week. An additional 2% charge applies for weekly earnings above the UEL.

Employers are required to pay secondary contributions of 13.8% of earnings above the £162 per week 'secondary threshold'. No upper limit exists for employer contributions.

For employees aged under 21, employer NICs are reduced from 13.8% to 0%: however, the worker must be aged under 21 when the earnings are paid for this rate to apply. Similarly, employer NICs are reduced to 0% for apprentices aged under 25 who earn less than the Upper Secondary Threshold (UST) of £892 per week (2018/19).

NICs and the self-employed

Depending on their profits, self-employed individuals are required to pay Class 2 and Class 4 NICs. However, special rules apply to those in specific jobs (such as invigilators, ministers of religion who do not receive a stipend and people who run land or property businesses).

The self-employed pay a flat rate Class 2 contribution, alongside a variable amount based on the business's taxable profits (Class 4). Class 2 NICs are usually collected as part of the final self assessment payment. Those with profits below the £6,205 Small Profits Threshold are not required to pay Class 2 NICs, but can do so voluntarily.

In 2018/19, Class 4 NICs are payable at 9% on profits between £8,424 and £46,350, with an additional 2% added on profits above this amount.

Abolition of Class 2 NICs

In September 2018, the government announced that the planned abolition of Class 2 NICs will now not take place during this Parliament. Former Chancellor George Osborne originally announced the tax cut during the 2016 Budget, and stated that abolishing Class 2 NICs would benefit an estimated 3.4 million self-employed workers.

Class 2 NICs were due to be abolished in April 2018, but in November 2017 the plans were put on hold until 6 April 2019.

Announcing its latest decision to scrap the plans entirely, the government cited the potential 'negative impacts' the abolition of Class 2 NICs could have on low-earners. It plans to keep the matter 'under review' in the context of the wider tax system.

Voluntary contributions

Some individuals may choose to pay Class 3 NICs at a rate of £14.65 per week (2018/19). These provide individuals with an entitlement to the State Pension, Bereavement Benefit, Maternity Allowance and contributory Employment and Support Allowance for self-employed workers.

As your accountants, we can help you in ensuring your business is compliant with the NIC regulations. Please contact us for more information.

28thAug
News article

Making Tax Digital for VAT: an update on digital links

Reviewing VAT Notice 700/22, and the advice regarding digital links.

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Making Tax Digital for VAT (MTD for VAT) is set to come into effect from 1 April 2019 for businesses which have a taxable turnover above the VAT registration threshold (currently £85,000). In VAT Notice 700/22, published on 13 July 2018, HMRC outlined further details and confirmed its intention to give some respite to taxpayers who may struggle with the digital requirements.

Eventually, all businesses will be required to keep their records in a digital format and to have digital links between the software programs they use. However, in the first year of mandation, businesses will not be required to have digital links in place between MTD-compatible software programs.

Firms will, nevertheless, need to file VAT returns digitally using HMRC’s Application Programming Interface (API) platform.

What are digital links?

VAT Notice 700/22 states that a digital link is ‘an electronic or digital transfer or exchange of data between software programs, products or applications’. Under MTD for VAT, taxpayers are permitted to use more than one piece of software, as long as the programs are digitally linked.

The VAT notice gives some examples of digital links. HMRC will accept digital links as:

  • linked cells in spreadsheets
  • emailing a spreadsheet with digital records to an agent so that they can import the data into software in order to carry out a calculation (such as for partial exemption)
  • transferring digital records to a portable device, such as a USB stick, to give to an agent to import into their software
  • XML and CSV import and export, and the download and upload of files
  • automated data transfer
  • API transfer.

HMRC is keen to emphasise that this list is not exhaustive. The Notice also states that ‘the use of cut and paste does not constitute a digital link’. However, in the first year of mandation, HMRC will ‘accept the use of cut and paste as being a link’ for the relevant VAT periods. In time, however, taxpayers will need to ensure that digital links are available between the software programs they use.

Filing VAT returns

VAT returns must be filed digitally through API-enabled software, and not through HMRC’s current portal.

Businesses with up-to-date digital records will find that their chosen software can collate and prepare VAT returns with ease; firms will then be able to declare that the information is correct, and submit the return to HMRC.  

HMRC will not be providing software to enable taxpayers to file their VAT returns. It has, however, compiled a list of MTD-compatible software providers. The list can be found here, and will be updated as more software providers develop MTD-compatible software programs.

Next steps

With MTD for VAT set to take effect in April next year, VAT-registered businesses will need to ensure that they are digitally compliant. If you do not already use compatible software, this may be the first thing you will need to address and begin making use of.

It is vital to ensure that you are prepared for the forthcoming introduction of MTD for VAT. We will be keeping you up-to-date with the latest information.

24thJul
News article

Cybercrime and the impact on business

Highlighting strategies for businesses to utilise in order to safeguard against cyber-attacks.

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Recently published figures have suggested that HMRC has ‘saved the public more than £2.4 million’ by combating cybercriminals and cybercrime. However, such crime remains a serious problem for businesses, with potentially significant consequences. Here, we take a look at strategies you may wish to utilise to ensure your business and personal finances are adequately protected against malware, phishing attacks and ransomware.

Cybersecurity: getting the basics right                                                                              

As a fundamental rule, business owners must ensure that their cybersecurity protections are up-to-date and effective. Firms are advised to:

Use strong passwords

It may seem obvious, but making use of strong passwords on your work computer, laptop, smartphone and tablet is crucial. Using a combination of upper-case and lower-case letters, alongside numbers and symbols, will ensure that your password is strong and unique, and therefore difficult for cybercriminals and thieves to guess.

Make sure software updates are downloaded

Ensuring that any available software updates are downloaded and installed onto your work devices is essential: doing so will help protect your gadget against harmful malware. Businesses are also urged to install updates to their anti-virus software, where these are available. 

Back up data

Making regular back-ups of critical data is highly advisable. Consider how reliant you are on your data, such as payment details, customer information, quotes and orders. Businesses should aim to identify the essential data they need to back up, and keep their back-ups separate from their main devices: in the event that a business is affected by ransomware, an isolated back-up may prove invaluable. Victims of ransomware attacks often experience their files becoming encrypted, or their computer becoming locked. The criminal will then request payment in return for decrypting or unlocking the victim’s files or devices.

Keeping essential data backed up to a separate device, drive or cloud solution may potentially aid firms, should the worst happen.

Identify fraudulent communications before it’s too late

Spotting phishing communications before they are opened or responded to is vital. ‘Phishing’ refers to the practice whereby a criminal poses as a recognisable company or organisation (including major banks, HMRC and telecommunication companies), and contacts an individual or business to request them to supply sensitive information or payment.

Phishing victims are often contacted via email, telephone or text message, and are asked to provide personal data, such as banking and credit card details. Cybercriminals then use the information to their advantage, installing malicious software onto computers or posing as the victim, thereby stealing their identity.

Businesses are urged to exercise caution when it comes to responding to calls, emails or text messages that request that a payment be made. Refrain from clicking on links within unsolicited emails – if in doubt, the safest course of action is to visit the company’s website of your own volition. 

It is important to note that the government, banking institutions and large organisations will never contact you to request access to your personal account, or to request that you send them personal information.

Train staff members and keep them up to date

All members of staff should receive appropriate training in order to understand and successfully identify the ways in which their firm could be at risk from cyber-attacks and data breaches. A range of programs exist for employers to make use of, including free educational courses and resources, as supplied by the government. These can be found here.   

Making sure that you have adequate cybersecurity measures in place is of the utmost importance. Taking appropriate action sooner rather than later could help to safeguard your business and personal finances now and in the future.

25thJun
News article

Spotlight on inheritance tax

Considering the UK's inheritance tax system and taking a look at some recent developments.

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Recent reports have suggested that the UK’s current inheritance tax (IHT) system is ‘unnecessarily complicated’, with one business group going so far as to suggest abolishing the tax altogether. Here, we provide an overview of the IHT system, outline some of the recent suggestions, and highlight ways in which you can help to minimise your liability to the tax.

IHT is the tax payable on a deceased individual’s estate: in 2018/19, IHT is payable where a person’s wealth is in excess of £325,000 - otherwise known as the ‘nil-rate band’.

IHT is currently charged at 40% on the proportion of the individual’s estate that exceeds the nil-rate band. Both the value of chargeable assets held at death and the value of chargeable lifetime gifts made within seven years of death are included within the estate.

The Residence Nil-Rate Band (RNRB)

On 6 April 2017, the RNRB came into effect, permitting some individuals to escape the IHT net.

The RNRB applies where a residence is passed on death to a direct descendant, such as a child or a grandchild. For 2018/19, the RNRB is set at £125,000 and is set to rise annually thereafter, reaching £175,000 in 2020/21.

The RNRB is in addition to an individual’s nil-rate band, and can only be used in regard to one residential property which has been, at some time, a residence of the deceased. The RNRB is tapered at a withdrawal rate of £1 for every £2 for estates with a net value of more than £2 million.

Making the most of IHT reliefs

Planning to minimise your liability to IHT is crucial. Here, we explore some of the key areas to consider.

Individuals may wish to make IHT-exempt transfers between themselves and their spouse. Such transfers are generally exempt from IHT, no matter whether they are made during a person’s lifetime or on death. Both the nil-rate band and the RNRB may be transferred between spouses and civil partners.

Making lifetime gifts can also help to reduce the IHT liability on an individual’s estate. Provided that the person survives the gift by seven years and no longer benefits from it themselves, the gift will escape IHT.

A ‘taper relief’ may also apply where lifetime gifts are made between three and seven years before death. However, this relief applies to the tax on the gift, as opposed to the gift itself.

IHT reliefs on agricultural and business property also exist, which can help to take such property outside of the IHT net.

Recent developments

In a recently published review, the Association of Accounting Technicians (AAT) stated that IHT is ‘unnecessarily complicated’ and ‘widely misunderstood’. The AAT called for several IHT exemptions to be abolished, including gifts on marriage and gifts to political parties, arguing that the general public are ‘largely unaware’ of these exemptions.

Meanwhile, in a separate report, think tank the Resolution Foundation suggested that IHT should be abolished in its entirety, and replaced with a new ‘Lifetime Receipts Tax’. This would be set at a considerably lower rate than the current 40% standard rate of IHT, and would permit each individual to have a lifetime allowance of £125,000, after which tax would be payable at a rate of 20%, up to £500,000.

As your accountants, we can help you to minimise the IHT due on your estate. The sooner you act, the better - please get in touch with us for further advice and support.

29thMay
News article

Tackling the late payments epidemic

Outlining strategies firms can use to help them to get paid on time.

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Research published by the Prompt Payment Directory has suggested that many small business owners are ‘struggling financially’ as a consequence of late payments, with 23% of businesses facing bankruptcy or liquidation as a result of such payments. Here, we take a look at some strategies small firms can utilise in order to help them to get paid on time.

Seeking the Small Business Commissioner’s help

In October 2017, the first Small Business Commissioner, Paul Uppal, was appointed by the government. The Commissioner seeks to ‘empower small businesses in the UK’ and help to ‘drive a change in payment practices’.

Mr Uppal is tasked with helping to resolve payment disputes between small businesses and larger companies.

Businesses struggling with late payments are able to access the Small Business Commissioner’s website, which provides information on dealing with an unpaid invoice.

Utilising the Prompt Payment Code

The Prompt Payment Code (PPC) is an initiative administered by the Chartered Institute of Credit Management on behalf of the Department for Business, Energy and Industrial Strategy (BEIS). It sets minimum standards for payment practices, and monitors and enforces these rigorously. The PPC requires its signatories to commit to pay their invoices within a maximum of 60 days, and to work towards adopting 30 days as the norm.

Signatories of the PPC undertake to pay their suppliers on time within the terms of the contract, and without attempting to change these terms retrospectively. They also commit to giving ‘clear guidance’ to suppliers in regard to their payment procedures, and encouraging good practice.    

During the 2018 Spring Statement, Chancellor Philip Hammond announced that a government Call for Evidence would be launched to gather information on the ways in which unfair payment practices can be eliminated. The government intends to collect views on measures such as the PPC, and consider how these can be enhanced to help tackle the issue of late payments.  

Performance reporting for large businesses

Under the Small Business, Enterprise and Employment Act 2015, the largest businesses and limited liability partnerships (those with more than 250 employees or £36 million in annual turnover) in the UK are required to report on their payment practices and performance on a half-yearly basis.

Businesses must report the standard length of time for payment of invoices, the maximum contractual payment period and any changes to the standard payment terms within the reporting period. In addition, statistics on the length of time taken to make payments must also be reported, alongside the percentage of payments made in 30 days or fewer.

The data must be submitted to the government via an online service that it provides, and is made available to the general public.  

Non-compliance with the payment reporting requirements is a criminal offence, and those who fail to comply will be subject to prosecution.

As your accountants, we can supply you with tailored advice in regard to improving your cashflow. For more information, simply contact us.

23rdApr
News article

Making Tax Digital: where are we now?

Considering the latest Making Tax Digital position.

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With Making Tax Digital for VAT (MTD for VAT) set to be introduced in April 2019, the government has published legislation setting out the requirements for the initiative. Meanwhile, HMRC recently launched an MTD for income tax pilot for self-employed taxpayers. Here we outline the latest position.

MTD for VAT – an overview

Starting from 1 April 2019, businesses with a turnover above the VAT registration threshold (currently £85,000) will be required to keep digital records for VAT purposes and submit VAT returns to HMRC using MTD functional compatible software.

If a business’s turnover subsequently falls below the VAT registration threshold, the MTD requirement will remain.  

Making digital returns and keeping digital records will not be made compulsory for taxes other than VAT before April 2020.

Businesses that are run by a practising member of a religious society or order whose beliefs are incompatible with using electronic communications will be exempt from using MTD for VAT. Similarly, a business to which an insolvency procedure has been applied will be exempt from MTD, alongside individuals who may be exempt on grounds of age, disability or remoteness of location.

Reviewing the new legislation

The Value Added Tax (Amendment) Regulations 2018 outline the requirements for MTD for VAT.

The legislation stipulates that businesses within the scope of MTD must keep digital records using functional compatible software. VAT returns will be calculated using an Application Programming Interface (API), and returns can be submitted using software, bridging software or API-enabled spreadsheets.

However, HMRC has outlined that the transfer of data from the compulsory digital records must be carried out digitally, and manual transfer or disposition of the data will not be permitted.

The government defines ‘functional compatible software’ as a program or set of programs which can:

  • record and preserve records in an electronic form
  • supply HMRC with information in an electronic form from these records, via the API platform
  • receive information from HMRC using the API platform.

At the time of issuing draft guidance, HMRC stated that options for the digital transfer of information to HMRC will include XML import/export, macros and linked cells.

In addition, guidance previously issued by HMRC suggested that adjustments (such as for partial exemption) can be calculated outside of the digital records, and transferred in either digitally or manually, as long as the records are ultimately submitted to HMRC in a digital format. The guidance also suggested that HMRC will allow digital records to be contained within multiple pieces of software, provided that a digital link exists between the types of software used.

The government is yet to legislate on these details, but has stated that there will be a ‘soft landing’ period when penalties for incorrect record keeping will not apply, granting businesses additional time to update their systems in order to be compliant. 

The MTD for VAT pilot

From April 2018 onwards, HMRC is live piloting MTD for VAT. Participating businesses will be given the opportunity to submit VAT returns using the new digital system, and will have access to assistance.

MTD income tax pilot for the self-employed

In March, HMRC launched a new MTD pilot for income tax for self-employed taxpayers. Sole traders taking part in the pilot will be required to send HMRC income and expenses summaries every three months using MTD-compliant software. Taxpayers will also need to send HMRC a final report to confirm all income and expenses for the year, and to claim any allowances or relief the business may be entitled to.

Just two software providers are included on the list as being able to support the MTD for income tax pilot, although HMRC has stated that this will be updated as more become available. The list can be found on the government’s website.

MTD represents a fundamental change to the way businesses keep their records. As your accountants, we can advise you in regard to your MTD requirements.

26thMar
News article

Measures coming into effect in the new tax year

Reviewing the changes to tax and business legislation taking effect from April 2018.

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The 2018/19 tax year starts on 6 April 2018, and along with it some changes to tax and business legislation will come into effect. Here, we outline some of the key measures.

Increase in employers’ auto-enrolment contributions

Currently the pension auto-enrolment legislation requires employers to contribute at least 1% on qualifying earnings. From 6 April 2018, employers may be required to increase the contribution they pay into their automatic enrolment workplace pension scheme. Affected employers will be required to pay a minimum of 2% from this time. A further increase to 3% is set to take place from 6 April 2019 onwards. 

Reduction in the Dividend Allowance

The Dividend Allowance is set to reduce to £2,000 on 6 April 2018 from its current level of £5,000. This reduction comes just two years after the legislation was first introduced, and is being implemented in order to ‘address the unfairness associated with director-shareholders’ tax advantage’.

If you are a director of your own company, you will need to use tax planning strategies to optimise how you extract profit from your business - please contact us for more information.

Increase in National Minimum Wage (NMW) and National Living Wage (NLW) rates

From 1 April 2018, the NMW will increase to £7.38 per hour for workers aged 21-24, and to £5.90 an hour for workers aged 18-20. For workers who are aged 16-17, the NMW will rise to £4.20 per hour, and for apprentices, the rate will rise to £3.70 an hour. An apprentice is an individual who is aged under 19, or 19 and over and in the first year of their apprenticeship. Meanwhile, the NLW for employees aged 25 and over will increase to £7.83 per hour.

The Land Transaction Tax (LTT)

For those seeking to purchase a residential property in Wales, there will be no tax to pay on a home worth up to £180,000 from 1 April 2018. This benefits all buyers, not just first-time buyers. Individuals purchasing property worth between £180,000 and £250,000 will need to pay LTT at 3.5%, and those buying property worth between £250,000 and £400,000 will pay 5%. Further increases in LTT are 7.5% for properties worth between £400,000 and £750,000, 10% for properties worth between £750,000 and £1,500,000, and 12% for properties worth more than £1,500,000.

The new Scottish income tax bands

From 6 April 2018, tax on income will be different for taxpayers who are resident in Scotland to those elsewhere in the UK. In the 2017 Scottish Budget, the Finance Secretary for Scotland, Derek Mackay, announced two new income tax bands, bringing the total to five. The new Scottish income tax rates range from 19% to 46%. However, savings and dividends income is still taxed at the UK rate, and Scottish taxpayers are entitled to the same personal allowance as the rest of the UK.

Rise in the pensions Lifetime Allowance (LTA)

The LTA is the maximum amount an individual can save into their pension scheme (excluding the state pension) and still benefit from tax relief at their marginal rate. The LTA has increased in line with the Consumer Price Index (CPI), and for 2018/19 it will rise from £1,000,000 to £1,030,000. You can continue to save into a pension scheme, but any income above the LTA will be liable to tax.

When there is a pay-out from your pension scheme, its value is compared against the remaining LTA to calculate any outstanding additional tax.

As your accountants, we can advise you on how the measures taking effect from April 2018 could affect your business or personal finances. Please get in touch with us for more information.