Welcome to the February 2016 edition of ‘Hillmans Tax Tips & News’,
our newsletter designed to bring you tax tips and news to keep you one step
ahead of the taxman.
If you need further assistance just let us know or you can send us a
question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in
tax than is necessary and they receive useful tax and business advice and
support throughout the year.
Please contact us for advice in your own specific circumstances. We're
here to help!
February 2016 Contents
· Stamp Duty Land Tax (SDLT) on additional properties
· HMRC prepare for National Living Wage (NLW)
· Simplification of VAT MOSS for small businesses
· Could EA exemption be avoided?
· February Questions and Answers
Stamp Duty Land Tax (SDLT) on
additional properties
Proposals to bring in higher rates of stamp duty land tax (SDLT) on
purchases of additional residential properties are expected to be finalised in
time for the forthcoming Spring Budget on 16 March 2016.
SDLT is paid on the purchase of residential property in increasing
portions of the property price above £125,000. Current rates are as follows:
- SDLT for a property with purchase price of up to £125,000 is
currently 0%; the proposed additional properties rate in this band is 3%.
- SDLT on the next £125,000 of the purchase price is currently 2%; the
proposed additional properties rate in this band is 5%.
- SDLT on the next £675,000 of the purchase price is currently 5%; the
proposed additional properties rate in this band is 8%.
- SDLT on the next £575,000 of the purchase price is currently 10%; the
proposed additional properties rate in this band is 13%.
- SDLT on the remaining amount of the purchase price (portion above
£1.5m) is currently 12%; the proposed additional properties rate in this band
is 15%.
The proposed higher rates will only apply to purchases of additional
residential property which complete on or after 1 April 2016. If contracts are
exchanged after 25 November 2015 then the higher rates will apply if the
purchase is completed on or after 1 April 2016. However, if contracts were
exchanged on or before 25 November 2015 but not completed until on or after 1
April 2016, the higher rates will not apply.
The higher rates will not apply if at the end of the day of the
transaction an individual owns only one residential property, irrespective of
the intended use of the property.
If at the end of the day of the transaction an individual purchaser
owns two or more residential properties, whether the purchaser pays the higher
rates or not will depend on whether they are replacing their main residence. If
the purchaser has sold a previous main residence within 18 months before the
day of the transaction and the transaction is a purchase of a new main
residence, the purchaser will be considered to be replacing a main residence.
Where an individual is replacing a main residence the higher rates of SDLT will
not apply.
However, if the purchaser is not replacing a main residence (either
because they have not sold a previous main residence within the last 18 months
or the property being acquired is not a new main residence), the higher rates
will apply.
Recognising that there may be certain circumstances where purchasers
experience difficulties with conveyance transactions, there will be a refund
mechanism for those who sell their previous main residence within 18 months of
the purchase of the new main residence.
A potential problem may arise where two or more unmarried people own or
purchase property jointly. The proposals currently state that if, at the end of
the day of a transaction, any of the joint purchasers has two or more
properties and is not replacing a main residence, the higher rates will apply
to the entire consideration for the transaction. This is designed to provide
simplicity and aligns with other areas of the tax system. However, as the
purchased property may be a first property for one or more of the joint
purchasers, the government is currently considering whether the current
proposals will produce the fairest outcome.
HMRC prepare for National Living
Wage (NLW)
The government has recently launched its campaign to promote the
introduction of the new national living wage (NLW), which will take effect from
1 April 2016. From that date workers in the UK aged over 25 earning the minimum
rate of £6.70 per hour will see a 50p increase in their minimum hourly rate,
which is set to rise to £7.20 per hour.
The NLW will be enforced by HMRC alongside the national minimum wage
(NMW), which they have enforced since its introduction in 1999.
The NMW is the minimum pay per hour most workers are entitled to by
law. The rate to which they are entitled depends on a worker's age and whether
they are an apprentice.
The rates from 1 October 2015 are:
- £6.70 for workers 21 and over;
- £5.30 aged 18-20;
- £3.87 for those aged 16-17, who are above school leaving age but
under 18; and
- £3.30 for apprentices under 19, or 19 or over who are in the first
year of apprenticeship.
There are a number of people who are not entitled to the NMW,
including:
- self-employed people;
- volunteers or voluntary workers;
- company directors; and
- family members, or people who live in the family home of the employer
who undertake household tasks.
All other workers including pieceworkers, home workers, agency workers,
commission workers, part-time workers and casual workers must receive at least
the NMW.
The compulsory national living wage (NLW) is the national rate set for
people aged 25 and over. Whilst the NMW rates for those aged under 25 normally
change on 1 October every year, the NLW rate for those aged 25 and over will
change (where applicable) every year on 1 April. The rate for the NLW has been
set at £7.20 per hour from 1 April 2016. The current NMW for those under the
age of 25 will continue to apply from 1 April 2016.
The NMW is reviewed annually by the Low Pay Commission and any changes
to the rate are normally introduced in October each year.
As with the NMW, the NLW will be reviewed annually by the Low Pay
Commission who will recommend any future rises.
Generally all those who are covered by the NMW, and are 25 years old
and over, will be covered by the NLW. These include:
- employees;
- most workers and agency workers;
- casual labourers;
- agricultural workers; and
- apprentices who are aged 25 and over.
Following the recent Spanish case of Federacion de Servicios Privados
del sindicato Comisiones Obreras v Tyco Integrated Security SL (Tyco) (Case
C-266/14), there could potentially be NMW claims if, taking into account
travelling time, a mobile worker's hourly pay rate falls below the minimum
rate. The UK professional bodies are currently assessing the impact of the
European Court of Justice (ECJ) decision in this case on the NMW and further
guidance is expected in due course.
Compliance
The government is continuing to raise awareness to businesses to make
sure they are ready to pay the new wage on 1 April 2016. As part of this, a
four-step guide for businesses has been published on a new dedicated website
(www.livingwage.gov.uk), which asks firms to:
- check they know who is eligible in their organisation;
- take the appropriate payroll action in advance of the commencement
date;
- let employees know about their new pay rate; and
- check that staff under 25 are earning at least the right rate of NMW.
The penalty for non-payment of the NLW will be 200% of the amount owed,
unless the arrears are paid within 14 days. The maximum fine for non-payment
will be £20,000 per worker.
Employers need to take action over the coming weeks to ensure they are
ready for the launch of the NLW on 1 April.
Simplification of VAT MOSS for
small businesses
HMRC Brief 4/2016 entitled VAT MOSS - simplifications for businesses
trading below the VAT registration threshold, outlines simplifications
available to businesses trading below the UK's VAT registration threshold
(currently £82,000) that make supplies of digital services (telecommunications,
broadcasting or electronically supplied services) to consumers in other EU
member states. Some simplifications are already in place and Brief 4/2016
announces two new areas of help for the smallest businesses.
Businesses need to determine where their customer is located. There are
specific rules in place for certain types of transactions (see the gov.uk
website here for further details). For all other supplies of digital services,
the normal rule is that businesses must collect two pieces of non-contradictory
information to evidence their customer's location.
HMRC have previously allowed UK businesses that are below the UK VAT
registration threshold and registered for VAT MOSS, to base their customer
location decisions on a single piece of information provided to them by their
payment service provider. HMRC introduced this simplification in response to
feedback from small businesses that said that they found it difficult to obtain
two pieces of evidence. However, in the latest guidance, HMRC say that they
recognise that some small businesses have still found this difficult.
Consequently, they have now said that they will allow businesses below the UK
VAT registration threshold to 'exercise their best judgement'. This means
businesses can rely on any single piece of information, such as the address
provided by the customer, to determine where their customer is located. This
additional flexibility should provide additional help for businesses below the
UK VAT registration threshold.
Brief 4/2016 can be found on the gov.uk website here.
Could EA exemption be avoided?
The Chartered Institute of Taxation (CIOT) has recently warned that
Government plans to exclude one-person businesses from claiming the national
insurance Employment Allowance (EA) from April 2016 will be too easy to dodge.
The Institute says that the planned curbs are easily avoided, either by
appointing another director, such as a spouse, civil partner, other family
member or friend, and paying that person a token wage; or by arranging payments
of earnings so that the worker is not a director when at least one of the
payments is made. The CIOT suggests that the legislation should include a
connected persons test to prevent any limited company where there are two
directors who are connected persons, and no other employees, from benefiting
from EA.
There is another possible problem with the Government's proposal, which
relates to how payments are made. The CIOT believes the exclusion is also open
to abuse in that making a single payment after the director has resigned would
seem to enable the company to escape the exclusion and hence qualify for
Employment Allowance. That former director could then even go as far as getting
themselves re-appointed as director of the same company.
No doubt the Government will wish to address these potential issues and
further clarification can be expected in due course.
February Questions and Answers
Q. Did my extended leave constitute a cessation of trade? I have been
the sole director of a trading limited company for many years. Last year, I
decided to take a long holiday and travelled around the world with my wife -
indeed, we got on so well that we stayed away for around 12 months! Whilst I
was away the company continued to collect outstanding payments, but it received
no other income. I have now taken on another director/shareholder (50%) and
company trading has resumed. Should I have informed HMRC that I was going away
and how should the losses in the period of temporary non-trading be treated?
A. According to the HMRC Business Income Manual (para BIM80500
onwards), your 'intention' to continue to trade at a later date will be an
important factor in deciding whether there was a cessation. The Manual states:
'...if activity is recommenced, and the question is whether the new
business is a continuation of the old, evidence of the proprietor's intention
will be relevant (BIM80580).
A mere decision to wind down or dispose of the business does not of
itself amount to a permanent discontinuance if trading activity in fact
continues after the decision (J & R O'Kane & Co v CIR (1922) 12TC303).'
If HMRC rule that the old trade did not cease, and therefore a new
trade has not commenced, then any losses can simply be carried forward and set
off against future profits from the same trade. Also, if it is decided that
there was no cessation of trade, there is no requirement to notify HMRC.
Q. Should I transfer my rental property to my wife? I own a flat which
has a buy-to-let type mortgage on it. I am a higher rate taxpayer, but my wife
doesn't work and doesn't pay tax. Can we arrange things so that she receives
the rental income and responsible for any tax due?
A. If you want your wife to receive the income from the flat, you will
need to transfer the property to her, so that she owns it. You could do this by
a formal conveyancing, or less formally, by using a deed of trust, which should
work for income tax purposes. Information on trusts of this nature for tax
purposes can be found in the HMRC Trusts, Settlements and Estates Manual at
para. TSEM9520.
You should also be aware of the stamp duty land tax (SDLT) implications
here. If you transfer the responsibility of the mortgage to your wife, but the
mortgage is less then £125,000, there will be no SDLT to pay. Above this
amount, you will have to factor in the additional expense.
Q. Is my season ticket loan taxable? My employer says he will give me
an interest-free loan to purchase my annual rail fare ticket. This is very kind
of him, but as the annual cost of the ticket is £6,000 I am worried that I will
have to pay tax on the loan.
A Strictly, the taxable benefit on cheap or interest-free loans is the
difference between any interest paid and the interest payable at the 'official
rate' (currently 3.00%). However, there is no charge where the total of all
beneficial loans made to an employee do not exceed £10,000 at any time in the
tax year.
You should note that tax is charged on the amount written off of any
loans, whether or not the recipient of the loan is still employed.
February Key Tax Dates
2 - Last day for car change notifications in the quarter to 5 January -
Use P46 Car
19/22 - PAYE/NIC, student loan and CIS deductions due for month to
5/2/2016
28 - Talk to us about year end and pre-budget planning
First 5% penalty surcharge on any 2014/15 outstanding tax due on 31
January 2016 still unpaid
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