Welcome, to December's 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 on your own
specific circumstances. We're here to help!
December 2016
· HMRC clarify pre-registration of VAT
policy
· Employment Allowance consultation
launched
· Real living wage increase takes effect
· Caps on income tax relief
· December questions and answers
· December key tax dates
We wish all our clients, suppliers and
contacts a very merry Christmas and a happy prosperous new year.
NB:
Please note our offices will close for the Christmas and New Year Period on
Friday 23rd December and reopen on Tuesday 3rd January.
HMRC clarify pre-registration of VAT
policy
HMRC have recently published Brief 16
(2016), entitled Treatment of VAT incurred on assets that are used by the
business prior to VAT registration. Broadly, the brief aims to clarify when,
and to what extent, VAT is deductible and what to do if the correct treatment
has not been applied.
A business registering for VAT may
recover tax incurred on goods and services before their effective date of
registration (EDR). This allows the recovery of VAT against goods and services
as long as they are used by the taxable person to make taxable supplies once
registered.
Services must have been received less
than six months before the EDR for VAT to be deductible. This time limit is a
simplification of the rules and means that detailed calculations of the use
before and after EDR are not required. This excludes services that have been
supplied onwards. VAT on services received within the relevant time limit can
be recovered in full.
Goods have a four-year time limit for
deduction that is consistent with the general VAT 'capping' provisions. Again,
this excludes goods that have been supplied onwards or consumed before EDR.
However, VAT on fixed assets purchased within four years can be recovered in
full.
HMRC believe that the word 'consumed'
has been interpreted inconsistently over time, particularly in relation to
business assets and HMRC. The purpose of Brief 16 is therefore to clarify the
policy position, which HMRC stress, has not changed. The policy is as follows:
Subject to the normal rules on VAT
deduction:
- VAT on services received within six
months of EDR and used in the business at EDR is recoverable in full;
- VAT on stock is deductible to the
extent that the goods are still on hand at EDR (for example apportionment may
be required);
- VAT on fixed assets purchased within
four years of EDR is recoverable in full, providing the assets are still in use
by the business at EDR.
Full recovery only applies if the
business is fully-taxable. Businesses who are partly-exempt, have non-business
activities, or need to restrict VAT deduction for any other reason, will need
to take that into account when calculating deductible VAT.
HMRC will accept corrections for
overpayment of VAT in the following circumstances:
- the business has reduced the VAT it
deducted on fixed assets, to account for pre-EDR use;
- HMRC have raised an assessment of tax
to account for pre-EDR use of fixed assets;
- HMRC have reduced a repayment claim to
account for pre-EDR use of fixed assets.
HMRC will consider claims for repayment
of penalties and interest charged as a result of assessments.
Employment Allowance consultation
launched
HMRC have launched a technical
consultation on proposals to restrict the Employment Allowance (EA) from
employers of 'illegal workers'. The consultation is open for comments until 3
January 2017.
Budget 2016 announced that from April
2018, the EA would be removed for one year from those who receive civil
penalties for employing illegal workers. Broadly, the allowance entitles the
vast majority of businesses, charities, and community amateur sports clubs to a
reduction of up to £3,000 per year on their employer National Insurance
Contributions (NICs) bill. Whilst the allowance has very broad eligibility, the
Government believes that those who break the law by employing illegal workers
should not benefit from it. The purpose of the restriction therefore is to ensure
the allowance focuses on employers who are providing legitimate employment.
The proposed change will only impact
employers who have received a civil penalty from the Home Office for employing
workers subject to immigration control and have exhausted their Home Office
appeal rights in relation to that civil penalty. Early estimates suggest that
around 2,000 employers will be affected.
Real living wage increase takes effect
The official living wage rate has
increased by 20p per hour to £8.45 an hour (£9.75 in London), which is higher
than the UK-wide official National Living Wage for those over 25, currently set
at £7.20, while those under 25 must be paid the national minimum wage (NMW).
The Living Wage is
independently-calculated each year based on what employees and their families
need to live. Employers can choose to pay the real Living Wage on a voluntary
basis but it is currently paid by a third of FTSE 100 companies.
The rates apply to all workers over 18
in recognition that young people face the same living costs as everyone else.
These figures are calculated annually by
the Resolution Foundation and overseen by the Living Wage Commission, based on
the best available evidence on living standards in London and the UK.
Caps on income tax relief
In general terms, providing a business
is undertaken on a commercial basis with a view to making a profit, tax relief
should be available for trading losses incurred. It is usually possible to
offset the loss against other taxable income from the same year, or the
previous year. Other taxable income may include for example, a former
employment (where tax was deducted under PAYE) or a pension.
This relief may be particularly
beneficial for someone who is self-employed on a part-time basis. For example,
where an individual earns £30,000 a year from employment, and makes a £2,000
loss from his or her part-time business, their tax bill for the year will be
based on income of £28,000.
Where a loss is incurred in any of the
first four tax years of a new business, the amount of the loss can usually be
carried back and offset against total income of the three previous tax years,
starting with the earliest year. Therefore, where an individual has paid income
tax in any of the previous three years, he or she is likely to be entitled to a
repayment of tax. The maximum amount must be offset each year - it is not
possible to offset a proportion of the loss in order to spread the loss across
three years to take advantage of beneficial tax rates. Again, relief will not
be available unless the individual was trading on a commercial basis with a
view to making a profit within a reasonable timescale. In practice, this
requirement may be difficult to prove in the case of a new business and HMRC may
want to see a viable business plan to support a claim.
It is worth noting that the income tax
legislation sets out various specific reliefs that may be deducted in the
calculation of income tax liability, including reliefs which can be relieved
against general income. Before 6 April 2013 there was generally no upper limit
on the amount of income tax relief which could be claimed. However, from 6
April 2013 certain restrictions apply to the amount of loss relief available.
The primary reliefs affected by the cap are the trade loss reliefs outlined
above, property loss reliefs that can be relieved against general income, and
qualifying loan interest relief. A small number of other reliefs will also be
affected. The cap is set at £50,000 or 25% of income, whichever is greater.
'Income' for the purposes of the new cap
will be calculated 'total income liable to income tax'. This figure will then
be adjusted to include charitable donations made via payroll giving and to
exclude pension contributions - this adjustment is designed to create a level
playing field between those whose deductions are made before they pay income
tax, and those whose deductions are made after tax. The result, known as
'adjusted total income', will be the measure of income for the purpose of the
cap.
The cap will apply to the year of the
claim and any earlier or later year in which the relief claimed is allocated
against total income. The limit will not apply to relief offset against profits
from the same trade or property business.
Anyone wishing to make a claim for loss
relief needs to be aware of the time limits for doing so -HMRC must be informed
within 12 months following 31 January after the end of the loss-making business
year.
December questions and answers
Q. My wife doesn’t work. Can she
transfer her unused personal tax allowance to me?
A. Since April 2015, it has been
possible for a spouse or civil partner who is not liable to income tax or not
liable above the basic rate for a tax year, to transfer part of their personal
allowance to their spouse or civil partner, provided that the recipient of the
transfer is not liable to income tax above the basic rate.
The transferor's personal allowance will
be reduced by the same amount. For 2015/16 the amount that could be transferred
was £1,060, rising to £1,100 for 2016/17. The spouse or civil partner receiving
the transferred allowance will be entitled to a reduced income tax liability of
up to £220 for 2016/17 (£212 for 2015/16). Note, however, that married couples
or civil partnerships entitled to claim the married couple's allowance are not
entitled to make a transfer.
Q. I am currently in the process of
purchasing a property which includes a separate granny annex. Since there is
only one title number for the whole property, can I apply for stamp duty land
tax multiple dwelling relief (MDR)?
A. Broadly, if the granny annex is an
independent dwelling, then it will count for MDR. If it cannot exist
independently of the main house, then MDR will not be available.
The HMRC Stamp Duty Land Tax Manual
states (SDLTM29955):
'For the purposes of the relief a
"dwelling" means a building or part of a building which is suitable
for use as a single dwelling or is in the process of being constructed or
adapted for such use.'
Special rules apply to certain types of
dwellings, including halls of residence and 'off plan' transactions. See the
HMRC Stamp Duty Land Tax Manual for further information.
Q. I bought a flat in 2000 and paid
£100,000 for it. I left the UK in November 2003 to work overseas and it has
been rented out since then. I have not returned to the UK since I left and I
now live permanently in France. I am thinking of selling my UK flat, which is
now valued at £300,000. What are the tax implications of doing this?
A. The tax implications for non-UK
residents selling UK residential properties changed in relation to disposals
after 5 April 2015. Prior to then, there would have been no UK capital gains
tax to pay. Unfortunately, after that date, the disposal will be subject to
capital gains tax based on the value of the gain between 6 April 2015 and the
date of sale. There are different ways of calculating the gain and you can use
HMRC's online calculator to work out the amount of tax due. You must tell HMRC
within 30 days of conveyance, for example no later than 31 July if you convey
on 1 July. HMRC may impose penalties where the reporting deadline is missed and
interest will be payable on tax not paid by the normal due date. See the HMRC
website at https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-uk-residential-property
for further information.
December key tax dates
19/22 - PAYE/NIC, student loan and CIS
deductions due for month to 5/12/2016
30 - Deadline for 2015/16 self
assessment online returns to be filed if you are an employee and want tax
underpaid to be collected by adjustment to your 2017/18 PAYE code (for
underpayments of up to £3,000 only)
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