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April 2016
· OTS recommends
simplifications for small companies
· Close alignment of
income tax and NICS
· National minimum wage
increases announced
· Guidance on SDLT Budget
reforms
· April Questions and
Answers
OTS recommends simplifications
for small companies
The Office of Tax
Simplification (OTS) has unveiled a package of recommendations aimed at making
the tax system simpler and easier to use for small companies. The report,
entitled Small company taxation review contains a mix of long range structural
change ideas and simpler short term administrative improvements.
The recommended
administrative changes include:
- aligning filing and
payment dates, e.g. VAT and PAYE, and annual returns and corporation tax;
- HMRC providing extra
support at weekends and evenings when more small company owners deal with their
tax affairs;
- stopping companies
providing the same information to various government departments who instead
should share the information; and
- looking at the
feasibility of having advance clearances for VAT.
The report sets out three
main areas for further work:
- testing whether taxing
the profits from the smallest companies on the shareholders rather than the
company ('look-through') could be simpler for some companies as well as
addressing distortions in the system;
- developing an outline
for an new 'sole enterprise protected asset' (SEPA) vehicle which will give
some limited liability protection without the need to formally incorporate; and
- simplifying the
corporation tax computation, eliminating many sundry tax allowances and
potentially calculating corporation tax on a cash basis for the smallest
companies.
Close alignment of income
tax and NICS
The Office of Tax
Simplification (OTS) has published its recommendations on closer alignment of
income tax and national insurance contributions. The report contains some bold
recommendations for what would be a major reform of the UK's tax rules.
At summer Budget 2015, the
government asked the OTS to look at options for aligning Income Tax (IT) and
National Insurance Contributions (NICs). This followed on from recommendations
made by the OTS as far back at 2011, and the latest report builds on earlier
work of the OTS including the reviews of small business taxation and employee
expenses and benefits.
Key recommendations made
in the report include:
- moving to an annual,
cumulative and aggregated assessment period for employees' NICs similar to that
for PAYE income tax;
- replacing employers'
NICs with a flat rate charge on employer's total remuneration costs. The
Employment Allowance would be retained to remove some small businesses from the
charge;
- aligning NICs rates and
thresholds between the employed and self-employed. This may mean the
self-employed paying more NICs in return for better access to welfare benefits;
- aligning the rules for
IT and NICs for employees; for example, a common definition of earnings;
similar treatment of business expenses; and the extension of Class 1 NICs to
benefits in kind;
- running IT and NICs as
common, parallel systems. HMRC are encouraged to bring their IT and NICs teams
closer together and to improve their guidance; and
- making NICs more
transparent. Few of us understand how our NICs are calculated, what they fund
and what we are entitled to. Once this is addressed (perhaps as part of HMRC's
digital plans) a decision should be taken on the future of the contributory
principle.
If enacted, these measures
would significantly change the calculation and collection of NICs, bringing
NICs more in line with IT and simplifying the UK's tax system as a result. But
this would mean major upheaval and create winners and losers – the OTS
estimates that moving to an annual, cumulative and aggregated assessment period
for employees' NICs would mean 7.1 million workers paying less NICs (an average
of £175pa) and 6.3 million workers paying more (an average of £275pa).
The OTS acknowledges that
it will take time to achieve what would be a major reform of the UK's tax
rules, and that a significant amount of additional work will be required to
fully understand all of the implications of the proposed changes. The
government will now consider the recommendations made by the OTS and we can
expect a further update shortly.
National minimum wage
increases announced
Following recommendations
made by the Low Pay commission, the government has announced increases in the
national minimum wage (NMW), which will take effect from October 2016.
The new rates will be as
follows:
- The rate for 21- to
24-year-olds will rise by 3.7% to £6.95 an hour.
- The rate for 18- to
20-year-olds will rise by 4.7% to £5.55 an hour.
- The rate for 16- to
17-year-olds will rise by 3.4% to £4.00 an hour.
- The apprentice rate will
rise by 3% to £3.40 an hour.
For further information,
see the GOV.UK website here.
Guidance on SDLT Budget
reforms
Following announcements
made in the 2016 Budget on 16 March, HMRC have published further guidance on
the changes that are being made to stamp duty land tax (SDLT), and how they
affect non-residential property transactions from 17 March 2016.
The changes mean that:
- on or after 17 March
2016, the SDLT rate for non-residential freehold and leasehold transactions
will only be payable on the portion of the consideration which falls within
each band (rather than tax being due at one rate on the entire value);
- SDLT on the rental
element of non-residential leasehold transactions is already taxable on the
portion of the consideration that falls within each band. From 17 March 2016 a
new 2% rate applies for transactions with a net present value (NPV) above £5
million;
- from 17 March 2016, the
'£1,000 rule' no longer applies.
In addition, HMRC have
also published further guidance on the changes that are being made to stamp
duty land tax (SDLT), announced in Autumn Statement on 25 November 2015, which
apply from 1 April 2016 to purchases of additional residential properties, such
as second homes and buy-to-let properties.
Broadly, higher rates will
apply, which will be 3% above the standard rates of SDLT but will not apply to
purchases of property under £40,000 or purchases of caravans, mobile homes and
houseboats.
The guidance can be found
here.
April Questions and
Answers
Q. Can I transfer my
personal allowance?
I work part time and don't
earn enough to pay tax, but my wife earns £25,000 a year from her full time
job. I have been told that I can transfer some of my personal allowances to her
so she can save some income tax. Is this true?
A. Claiming the marriage
allowance can save married couples or civil partners up to £220 in 2016/17, but
many couples have not claimed it yet.
The allowance was
introduced from 6 April 2015, and enables married couples or civil partners to
transfer £1,100 of personal allowance (2016/17 rate; £1060 for 2015/16) from
one spouse or partner to the other, provided that the recipient does not pay
tax at a rate higher than basic rate.
To process a claim, HMRC
will need the national insurance numbers for each spouse/civil partner. In addition,
if the claim is made online or by phone, HMRC will have to check the identity
of the person making the claim and will ask for information from the claimant
such as the last four digits from bank accounts that any state benefits (such
as pension or child benefit) are paid into or from bank accounts that pay
interest. Alternatively HMRC may ask for information from employment such as
information contained on a P60 (the form given to all employees at the end of a
tax year).
The claim should not be made
if one spouse was born before 6 April 1935. Instead, the couple may be entitled
to claim married couple's allowance which is more favourable.
Q. Do I have to repay
claimed VAT?
In July 2014 I purchased a
commercial unit for £50,000, and as the building was registered for VAT, I
notified HMRC, applied for a transfer as a going concern, and did not pay any
VAT. At the time of purchase, the premises were let to a tenant but they moved
out and the building was empty when the transaction was completed. In September
2014, I applied to de-register for VAT as I was receiving no income. I have
since converted the unit into residential flats and I have applied to HMRC for
a change of use. Do I need to pay back the VAT previously claimed?
A. This is a complex and
questionable scenario. Since the business of renting out the property did not
continue after you bought it, it will be difficult to argue that there was a
transfer of a going concern (TOGC). However, you intended to continue to rent
out the property and it was only because of circumstances beyond your control
(i.e. the tenant moved out) that you didn't continue to rent it out. There is
also a further point worth noting - VAT Public Notice 742: opting to tax land
and buildings (at section 3.2) states there is an exemption from VAT where a
previously commercial building is adapted to use as a dwelling (see VAT Notice
708 for an explanation of 'designed as a dwelling'). This exemption may be
relevant to your scenario but I would recommend that you request a written
ruling from HMRC.
Q. Do I have to pay CGT on
the sale of a rented property?
I own a buy-to-let
property, and over the last five years, its value has risen from £150,000 to
£250,000. I understand that if I sell it now, I would have to pay capital gains
tax (CGT) on a gain of £100,000. Can I sell this property and use all the money
to buy another property rather than pay the tax now?
A. Unfortunately your plan
to buy another house and thereby reduce the CGT payable on the first house is
not allowed. 'Rollover' or 'holdover' relief from CGT is not available for
investment properties, except for furnished holiday lettings, or compulsory
purchase.
April Key Tax Dates
5 - End of 2015/16 tax
year. Last day to use up your annual exemptions for capital gains tax,
inheritance tax and ISA's
14 - Return and payment of
CT61 tax due for quarter to 31 March 2016
19 - Deadline for finial
submission of the year - 19th April. Penalties for late submission.
19 - PAYE/NIC, student
loan and CIS deductions due for month to 5/4/2016 or quarter 4 of 2015/16 for
small employers. Interest will run on any unpaid PAYE/NIC for the tax year
2015/16
30 - Additional daily
penalties of £10 per day up to a maximum of £900 for failing to file
self-assessment tax return due on 31 January 2016
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