Latest Tax News
Government Confirms Largest Ever Increase in UK Minimum Wage
The National Living Wage (NLW) will see its largest increase since it was introduced. The NLW will increase by 6.2% for workers aged 25 or over and between 4.6 and 6.5% for workers under 25, depending on age. The NLW will increase from its current rate of £8.21 to £8.72 per hour.
The new rates, which will come into effect from 1 April 2020, will result in an increase in wage of £930 annually for 2.8 million full-time workers earning the NLW.
HMRC received nearly half a million requests for tax refunds for the tax year 2018/19
According to insurer Royal London, 460,000 taxpayers requested income tax refunds from HMRC in the tax year 18/19.
Following a Freedom of Information (FOI) request, the insurer found that the main reasons for tax being overcharged included individuals changing jobs and taxpayers being subject to changes to taxable benefits.
Repayments to taxpayers in 2018/19 totalled £5.1 billion.
Commenting on the data, Becky O'Connor, Personal Finance Specialist at Royal London, said: 'This goes to show it's a good idea not to assume the taxman is always right about what he says you owe.
'Always check your tax statement for the year and keep a note of any unusual changes to your income that might mean you have overpaid.'
Employers are advised to take tax implications of seasonal parties into account
With the festive season upon us, the Institute of Chartered Accountants in England and Wales (ICAEW) has advised employers to be aware of the tax implications associated with a seasonal party.
Many employers are planning such parties for their employees and these count as benefits and can attract the attention of HMRC. To avoid seasonal staff parties being treated as taxable benefits, the cost per head must be £150 or less. If the sum spent is more than £150 per head, then the full amount will become liable to national insurance and income tax for both employee and employer.
The event must also be annual, such as a Christmas party or a summer barbecue, and it must be open to all employees.
HMRC releases updated version of IR35 checking tool
HMRC has released an updated version of the Check Employment Status for Tax (CEST) tool, which is used to determine whether a contractor should be classed as self-employed in line with IR35 legislation.
In 2017, HMRC introduced new off-payroll rules to the public sector, which saw some contractors' net income cut significantly. From April 2020, these rules will be extended to medium and large organisations in the private sector.
Responsibility for compliance has also shifted from the individual contractor to a public body or recruitment agency.
The CEST tool has been criticised as being not fit for purpose as it 'fails to provide definitive answers' in many cases. In a bid to improve the CEST tool before April's extension of IR35, HMRC has consulted stakeholders and tested the tool against case law and settled cases.
On the matter, Andy Chamberlain, Deputy Director of Policy at the Association of Independent Professionals and the Self-Employed, commented: 'We have grave reservations about CEST. We've looked at the updated version and spoken to HMRC and we're still not satisfied it is accurate.
'It still does not test the mutuality of obligations, which is a key tenet of recent IR35 cases.'
Office of Tax Simplification calls for changes to Personal Tax Accounts
The Office of Tax Simplification (OTS) has called for an overhaul of HMRC's Personal Tax Accounts (PTAs) in a bid to make them easier to use for taxpayers.
In a new report, the OTS has suggested that merging Personal Tax Accounts and Business Tax Accounts (BTAs) to form a new Individual Tax Account will allow taxpayers to view information about their different types of income separately in one place.
In the report, the OTS stated that the government should 'explore the potential for HMRC to offer a fully integrated Individual Tax Account, providing an end-to-end tax reporting and payment service'.
According to the OTS, Individual Tax Accounts would offer taxpayers a 'running calculation of the additional tax that the individual may be required to pay in relation to the year to date'. This calculation would be generated by looking at the information held in the Individual Tax Account.
'The key recommendation in this report is for HMRC to continue its work on the PTA further, to enhance its capabilities and integrate it with the BTA,' said Bill Dodwell, Tax Director at the OTS.
'Previous work from the OTS has established that many self-employed taxpayers want additional help in reporting and paying tax. In some sectors, third-party reporting could help. Further in-depth work is needed to test this and potentially develop a workable plan.'
Sole trader vs limited company... which is right for your business?
Lets look at some comparisons to help you decide.
Firstly let us look at a Sole Trader:
As a sole trader you are personally liable for any debt of the business.
Sole traders pay tax on their business profits via a self-assessment tax return.
The deadline for filing online self-assessment returns to HMRC is
31 January after the end of the tax year. The personal allowance for the
tax year 2019/20 is £12,500.
The Basic rate of 20% is paid on income from £12,501 up to £50,000, the Higher rate of 40% is paid on income between £50,001 and £150,000 and the
additional rate of 45% is paid on income over £150,000.
Losses can be offset against other income in the same year, carried back
and offset against previous year's profits or carried forward and
offset against future profits.
National Insurance (NI)
A sole trader pays Class 2 NI contributions and Class 4 NI contributions of 9% on
profits in excess of £8,632 (2019/20).
Accounts and Tax Returns
Sole Traders and Partners are not legally required to file annual accounts.
They must, however, keep records of income and expenses for the
purpose of completing their tax returns.
Now let us look at a Limited Company:
A limited company is a separate legal entity, so as a shareholder your personal
liability is limited to your shareholding.
A director of a company may take a salary from a limited company and this is
taxed at source under the Pay As You Earn tax system (PAYE).
Unless they have absolutely no pay or benefits then a director MUST
file a tax return. This is regardless of whether tax is owed or not.
A limited company pays corporation tax on its profits which is charged
at 19% from 1 April 2019 and is payable 9 months and 1 day
after the accounting period end. A company tax return must be
filed 12 months after the accounting period end.
The dividend allowance (the value of dividends that shareholder can receive
tax free) currently stands at £2,000. For dividends above the dividend
allowance the following tax rates apply: 7.5% at the Basic rate, 32.5% at the
Higher rate and 38.1% at the Additional rate.
Losses can be carried forward and offset against future profits or carried back
and offset against the previous year's profits.
National Insurance (NI)
Class 1 National Insurance may be payable on directors' salaries and bonuses
depending on the level of income. Employers National Insurance at
13.8% may also be paid on directors' salaries and bonuses.
Accounts and Tax Returns
A director of a limited company has certain legal responsibilities, including:
Your newly set up limited company must be registered at Companies House.
Annual accounts and confirmation statements must be filed with Companies
House every year.
Statutory accounts must be filed with HMRC every year.
A Corporation tax return must be completed each year and filed with HMRC.
We can form your limited company and complete all necessary legal requirements, leaving you to get on with running your business.
Chancellor hints that Inheritance tax could be scrapped
Chancellor Sajid Javid has hinted that the government may scrap inheritance tax (IHT).
Inheritance tax is levied on a person's estate when they die (40% where chargeable) as well as certain gifts made during an individual's lifetime (20% where chargeable). For the tax year 2019/20, the first £325,000 chargeable to IHT is within the nil-rate band and chargeable at 0%.
A reduced rate of IHT (40% reduced to 36%) is applied in cases where 10% or more of a deceased individual's net estate (after deducting IHT exemptions, reliefs and the nil-rate band) is left to charity.
Speaking at the Conservative Party Conference, the Chancellor revealed that he is considering scrapping IHT.
He said: 'I understand the arguments against that tax. You pay taxes already through work or through investments, and your capital gains in other taxes. There is a real issue with then asking them to, on that income, pay taxes all over again.
'Sensible changes have already been made but it's something that's on my mind.'
Expert have raised concerns that abolishing IHT could be 'hugely expensive’ with the tax raising £5.3 billion for the Treasury in 2018.
120,000 VAT-registered businesses miss first MTD for VAT deadline
According to HMRC, 120,000 VAT-registered businesses have failed to meet the 7 August deadline for signing up for Making Tax Digital (MTD) for VAT. HMRC have in response sent out reminder letters urging them to do so before next month, but will not be issuing fines or penalties at present.
Over 1.1 million businesses have now signed up for MTD and over 1.2 million VAT returns have been successfully submitted through the service to date.
HMRC has stated that it will take a light touch approach to fines and penalties during the first year, especially where businesses are doing their best to comply with MTD.
An HMRC spokesperson said: ‘We want businesses to join MTD without fear of getting it wrong – HMRC are not penalising those transitioning.
British public have poor understanding of the UK tax system
A survey commissioned by accountancy firm Deloitte has found that the British public have a poor understanding of the UK tax system and personal tax issues.
Tax codes and income rates were the least understood with 80% of respondents not knowing what the top rate of income tax in the UK was and almost half not knowing that the tax code 1250L referred to the annual tax free personal allowance of £12,500. Gift Aid was another area where people struggled to understand the rules.
Respondents to the nationwide survey of 2000 people were awarded points based on their answers with a maximum score of 30 points available. An average score of 10.6 was attained with almost half scoring under 10.
When does Inheritance Tax become payable?
When does Inheritance tax become payable? Inheritance tax may be payable on a deceased person's estate on the amount above a specified threshold. Currently that threshold is £325,000 and the standard Inheritance Tax rate is 40%. If the estates's value is below the threshold, it will still need to be reported to HMRC. Should a person leave any amount above the threshold to their spouse, civil partner,charity or community amateur sports club, then there would normally be no Inheritance Tax to pay.
'Bank of Mum and Dad now one of the UK's biggest mortgage lenders
Gifts and loans from parents helping their children to get on the property ladder have made the 'Bank of Mum and Dad' one of the UK's biggest mortgage lenders, according to research.
According to Legal & General, the average parental contribution for homebuyers this year is £24,100, up by more than £6,000 compared to last year. In total, UK parents have given £6.3 billion, high enough to rank the 'Bank of Mum and Dad' 10th if it was a mortgage lender. This would place it £500 million behind Virgin Money, the UK's 9th largest mortgage lender, and £1.3 billion ahead of Clydesdale Bank, which is 10th. Legal & General's research, which is based on a poll of 1,600 parents, found that almost a fifth said they were helping because they 'felt a personal responsibility to do so'.
4 out of 10 SME's increasing prices as a result of higher wages
According to the Federation of Small Businesses (FSB), 4 out of 10 small firms are having to increase their prices as a results of higher wages. According to a survey published by the FSB, small businesses are having to cut profits and investments in order to absord 'inflation-beating wage increases'. Many business owners have taken pay cuts in order to be able to accomodate increases in the National Living Wage (NLW). 71% lowered costs or absorbed profits, 45% increased prices and 29% delayed investment. An FSB survey of more than 1000 businesses surveyed found that 51% of small businesses were paying their staff at least £8.21 prior to April when this became the NLW.
Federation of Master Builders (FMB) urge HMRC to delay VAT changes
The Federation of Master Builders urge HMCR to delay potentially disruptive HMRC changes in order to avoid constructive chaos. The VAT domestic reverse charge for building and construction charges comes into effect on 1st October 2019. The reverse charge changes the way VAT is accounted for rather than changing the VAT liability. In the future, the recipient of the services, rather than the supplier, will account for the VAT on specific building and construction services. Date published by the FMB, suggests that 69% of construction businesses have not even heard of reverse charge VAT.
Will the 40% tax threshold be increased to £80,000?
Boris Johnson has now won the Conservative Party leadership contest and will take over as Prime Minister from Theresa May tomorrow. During his campaign he pledged that he will raise the 40% tax threshold from £50,000 to £80,000. He also intends to raise the point at which people start to pay National Insurance Contributions (NIC). Research from the Institute of Fiscal Studies (IFS) claimed the tax cut would cost £9bn and benefit the top 10 per cent of households in Britain.
HMRC urges firms to sign up for MTD for VAT before August
HMRC is urging businesses to register for Making Tax Digital for VAT (MTD for VAT) before the 7 August VAT filing date.
HMRC stated that 'many of the 1.2 million businesses affected by MTD for VAT will be required to submit their first quarterly return using compliant software by 7 August'. Firms paying by direct debit must register by 27 July.
Under MTD for VAT, businesses with a taxable turnover above the VAT registration threshold (currently £85,000) must keep some records digitally, and must submit their VAT returns via an Application Programming Interface (API).
According to HMRC, around 10,000 businesses are registering for MTD for VAT every day, and more than 600,000 have signed up in total. Nearly 400,000 submissions have already been successfully made using MTD software.
'Now is the time for businesses with an August quarterly filing deadline to sign up and join the hundreds of thousands already experiencing the benefits of MTD,' said Theresa Middleton, Director of MTD at HMRC.
'During this first year, we won't be issuing filing or record-keeping penalties to businesses doing their best to comply.'
61% of UK small firms have experienced a cyber-attack in the last year
Data published by insurer Hiscox has revealed that 61% of UK small firms have experienced a debilitating cyber-attack in the last year.
According to Hiscox, Belgian businesses are the most likely to be targeted, and US businesses the least likely.
The data found that the cost of dealing with a cyber-attack has risen considerably for many small businesses. Hiscox suggested that attackers are increasingly shifting their attention from large firms to small and medium-sized enterprises (SMEs).
Two-thirds of small businesses stated that they are planning on increasing their spending on cyber security by 5% or more in the upcoming year.
Commenting on the issue, Gareth Wharton, Cyber CEO, said: 'The old adage 'prevention is better than cure' springs to mind, and being aware of these threats is half the battle. From our experience... business email accounts being compromised is currently the main cause of cyber claims, followed by ransomware.'
HMRC repays tax penalties worth £1.8 million to nearly 5,000 parents
HMRC has now repaid £1.8 million in tax penalties to nearly 5,000 parents who were fined for failing to register for the High Income Child Benefit Charge.
The High Income Child Benefit Charge is payable by a taxpayer who has 'adjusted net income' in excess of £50,000 where either they or their partner, if they have one, are in receipt of Child Benefit.
HMRC reviewed 35,000 cases where fines had been issued, and wiped fines for 6,000 taxpayers who had a 'reasonable excuse' for failing to notify liability to the charge.
Commenting on the issue, Becky O'Connor, Personal Finance Specialist at insurers Royal London, said: 'The bulk refund of penalty charges is an unprecedented move by HMRC and was the right thing to do. It is also an attempt to draw a line under complaints. However, there are many more law-abiding parents who did not realise that they should have paid the charge and who have not had a refund.
'The way the charge was introduced was unfair and confusing, and these refunds do not go far enough.'
HMRC tax investigations taking up to three years to complete
Data published by law firm Pinsent Masons has suggested that government tax investigations into large businesses are taking 'three and a half years' to complete.
According to the law firm, HMRC's litigation and settlement strategy makes it difficult for government investigators to settle for less than the full amount.
Commenting on the issue, a spokesperson for HMRC said: 'The tax we collect funds the UK's vital public services. We've secured over £62 billion in additional tax revenue from large businesses since 2010 – tax that would otherwise have gone unpaid.
'Over 85% of our investigations conclude within 18 months, but some cases are more complex and so will take longer to resolve and even require us to litigate.'
However, experts argue that tax investigations are often 'very disruptive' for businesses.
'HMRC's inflexible approach to tax avoidance is driving delays as it frequently aims to win every point against the business,' said Jason Collins, Partner at Pinsent Masons.
'HMRC's latest disclosure facility shows that HMRC is clamping down on what it views as businesses diverting profits from the UK through aggressive, out-of-date or erroneous transfer pricing.'
HMRC scam targets the elderly and vulnerable
A scam used by criminals in 2018 is now doing the rounds again. Criminals purporting to be from HMRC are targeting the elderly and vulnerable people including those with dementia.
The scam involves telling the target that HMRC have a warrant out for their arrest as they haven’t paid the correct tax.
The Low Incomes Tax Reform Group shared some key points for those targeted by the fraudsters:
HMRC sometimes use phone calls or automated messages but generally use a reference number that you recognise. You can find a current list of digital and other contacts issued from HMRC on the GOV.UK website
Telephone numbers can be faked and you should never trust a number you see on your display, even if it looks like an official HMRC number. If you receive a suspicious call, end it immediately. Remember to double check the number before moving forward – you can confirm the official call centre numbers on GOV.UK. You can then call HMRC directly to check if it is a genuine call.
You should report all incidents to Action Fraud or call them on 0300 123 2040 . They are open Monday to Friday 9:00 – 18:00
You should also report the full details to HMRC (date, time, phone number used and content of the call) via email [email protected].
HMRC warns young people in the UK to 'stay vigilant'
According to HMRC, criminals often target young individuals or the elderly as these groups of people are 'more likely to be less familiar with the UK tax system'.
HMRC has warned taxpayers to be especially vigilant about so-called 'Springtime refund scams'. In the Spring of 2018, 250,000 reports of tax scams were received by HMRC.
Criminals often bombard taxpayers with tax refund scams during the months of April and May – the time when HMRC processes legitimate rebates.
Individuals have been warned to be wary of text messages, calls and voicemails purporting to be from HMRC. These are often designed to extract personal or financial information from the taxpayer.
Commenting on the issue, Angela MacDonald, Head of Customer Services at HMRC, said: 'We are determined to protect honest people from these fraudsters who will stop at nothing to make their phishing scams appear legitimate.
'HMRC is currently shutting down hundreds of phishing sites a month. If you receive one of these emails or texts, don't respond and report it to HMRC so that more online criminals are stopped in their tracks.'
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