Tuesday 30 August 2016

Winding-up the company, Lifetime allowance protection, Supporting a student

Each of life's mile-stones has tax implications; marriage, having children, going to university, closing the family business, retiring and finally meeting one's maker. Last week we had advice relevant to three of those occasions; winding-up the company, drawing benefits from pension fund, and supporting a student through university.

This is an extract from our topical tax tips newsletter dated 25 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Lifetime allowance protection 
The pensions lifetime allowance reduced to £1m from £1.25m on 6 April 2016. This threshold is tested when an individual starts to take their pension benefits. If the pension fund value exceeds the lifetime allowance this triggers a tax charge of 55% on the excess value taken (where those benefits are taken as a lump sum) or a tax charge of 25% in other circumstances. 

Clients who have retired since 5 April 2016, or expect to do so shortly, need to assess whether their pension pots exceed £1m. An expert pension valuation from a qualified IFA may be required to do this. 

Where the total value of their pension funds does exceed £1m the individual should consider applying for fixed protection 2016 (FP2016) or individual protection 2016 (IP2016). These protections fix their lifetime allowance at the lower of their pensions value at 5 April 2016 and £1.25m. The application for either type of fixed protection must be done online, and it is not clear whether an agent can do this on behalf of a client. 

You may be surprised at how many of your clients have built up total pension funds of £1m or more, as that total can be easily achieved by making regular pension contributions over 30 to 40 years. If you do not advise your clients about the possibility of applying for fixed protection, and they suffer an unnecessary tax charge at 55%, they will not thank you for your silence.

This is an extract from our topical tax tips newsletter dated 25 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained the remainder of this item plus links to related source material and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday 23 August 2016

Employer-supported bus services, Threshold income for student loan repayments, Making Tax Digital


Last week we looked at the exemption for employer-supported bus service and the findings in a recent tribunal case. We also considered what constitutes total income for the purposes of triggering student loan repayments. Finally, in a week in which HMRC published six consultation documents on different aspects of their Making Tax Digital strategy we provided a warning that it is never too early to start preparing clients for the far-reaching changes ahead.

This is an extract from our topical tax tips newsletter dated 18 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Employer-supported bus services 
The First-Tier Tax Tribunal recently considered whether the purchase of a bus pass for an employee constituted financial support for a public transport road service within the context of the exemption for employer supported bus services in ITEPA 2003, s. 243. The Tribunal also examined whether a zonal bus pass fell within the terms of the exemption. 

Provided that certain conditions are met, no liability to income tax arises in respect of the provision of financial support for a public transport road service. 

The main issue was whether the purchase of a bus pass constituted financial support for a public bus service or whether more was needed. The appellant argued that buying the bus pass supported the service as the cost of the pass included an element of profit. HMRC contended that the financial support had to be substantial and that the employer must take some responsibility, financial or otherwise, for running the service. Having considered the issues, the tribunal found that simply purchasing a bus pass was not financial support and that something more was required. However, they did not consider what that `something more’ may be. 

When advising clients seeking to make use of this exemption, reference can be made to the guidance published by HMRC in April 2013 which confirmed that bulk buying of tickets did not count as financial support. However, support in the form of the provision of a bus shelter, putting in extra stops, running a service later at night, investing in bus lanes and suchlike would qualify. 

The Tribunal also confirmed that as ticketing in the UK is now on a zonal basis, zonal bus passes can qualify for the exemption. 


This is an extract from our topical tax tips newsletter dated 18 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 
The full newsletter contained the remainder of this item plus links to related source material and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday 16 August 2016

Use EIS to defer and reduce CGT, VAT annual scheme, Access to tax refund

Last week we shared an idea on how to defer and reduce CGT payable on the sale of residential property. We also had a warning about the VAT annual accounting scheme, and have news of how HMRC are nudging taxpayers into using their personal tax accounts.

This is an extract from our topical tax tips newsletter dated 11 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

VAT annual scheme 
Taxpayers opt to use the VAT annual accounting scheme because they want to complete only one VAT return once a year, instead of four. You may have arranged to process that one VAT return for your client, which will work well if the client pays all the VAT instalments as agreed and on time. 

If the taxpayer doesn't pay the VAT as due, HMRC will unilaterally take the business out of the annual accounting scheme, and will write to inform them that quarterly VAT returns and payments are due. You may not get a copy of that letter. 

This is what happened to Angela Spence, a solicitor on the VAT annual accounting scheme. She failed to pay the full amount as agreed for her VAT instalments on four occasions, so HMRC sent her two warning letters. She didn't read those letters properly and claimed she didn't receive the final letter which removed her from the annual accounting scheme.      

As Miss Spence didn't appreciate she was no longer in the annual accounting scheme, she carried on paying VAT by instalments and didn't complete quarterly VAT returns. This lead to HMRC issuing estimated VAT assessments and three default surcharges. It took a year of such correspondence before she rang HMRC to find out what had gone wrong. 

If you let your clients deal with their own VAT affairs, impress upon them that they must read carefully and respond to any letters they receive from HMRC.


This is an extract from our topical tax tips newsletter dated 11 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained the remainder of this item plus links to related source material and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday 9 August 2016

Student loan deductions, Login for HMRC accounts, Dividends and deceased estates

Employers inevitably have to shoulder the administration burden of payroll deductions, and so it is with student loan repayments. We have an update on the new loan repayment structure effective from April 2016, and additional changes expected later this year. Accessing the HMRC online accounts is becoming more complicated as we explain below. There is also a difficulty with dividends received by estates of deceased persons.  

This is an extract from our topical tax tips newsletter dated 4 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
  
Dividends and deceased estates 
All dividends are now taxed in the hands of individuals and trustees at 7.5%, 32.5% or 38.1% depending on the taxpayer's total level of income. This applies to estates of deceased persons as well as to living taxpayers. 

The problem is that estates in administration (and trusts) are not entitled to the dividend allowance of £5000, so all dividends received after 5 April 2016 must be taxed at 7.5% at least. There is no de-minimise amount which can be ignored, as applies to interest received (see our newsletter 5 May 2016). 

When the dividend income received by the estate is distributed to a beneficiary, the cash amount must be grossed up at 7.5% and carry a repayable credit for the tax deducted at that rate. The form R185 (Estate Income) will be revised shortly, but meanwhile Box 18 on the current form may be used to show the position. 
  
The situation is more complicated where the estate has received dividend income in 2015/16 or earlier, and distributes that income in 2016/17 or later. HMRC's current position is that the 10% non-repayable tax credit for earlier years may be used to frank the 7.5% tax due in 2016/17. 
 
This is an extract from our topical tax tips newsletter dated 4 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained the remainder of this item plus links to related source material and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday 2 August 2016

P800 calculation, Travel and subsistence and umbrella companies: the SDC test, Partial exemption

Last week we took a look at the P800 calculation and why you should check  that your clients’ P800s are correct. We also explored changes to the travel and subsistence rules insofar as they affect workers who provide their services through umbrella companies. Finally, we took a look at the risk areas in relation to VAT returns for partially exempt clients.


This is an extract from our topical tax tips newsletter dated 28 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

P800 calculation 
HMRC’s annual PAYE reconciliation process for 2015/16 is now underway and your clients will be receiving their P800 calculations between now and November. As HMRC can and do make mistakes, it is important that you encourage your clients to pass their P800 on to you and that you check it to make sure everything is in order. During the reconciliation process, HMRC compare the tax that they think is due with what has actually been paid and send out a P800 to taxpayers who show and overpayment or and underpayment. 
  
So, what should you look for when checking the P800? 
  
The P800 shows the total income, which according to HMRC’s records, the taxpayer should have paid tax on. This will include wages or salary, any benefits in kind, any pension or taxable state benefits received and any interest on savings. Check the figures against the your client’s P60, P11D, bank statements etc to verify that they are correct. If the figures are wrong, you will need to tell HMRC. 
  
The P800 calculation may show that your client has paid too much or too little tax. There are various reasons why this may be the case and in checking whether the figures are right you should consider whether: ..........

This is an extract from our topical tax tips newsletter dated 28 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
  
The full newsletter contained the remainder of this item plus links to related source material and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>