Private landlord? Don’t wait for a knock on the door.

Are you a private landlord letting out a residential property? If so, you may want to take advantage of a scheme operated by HMRC, writes Tracy Henson of Barnett & Turner. The HMRC Let Property Campaign was launched at the end of 2013 with the aim of allowing landlords to bring their tax affairs up to date.

Think of it as a way of rewarding you for coming forward and admitting that you have tax to pay. The idea is that if you make a voluntary declaration of undisclosed income and underpaid tax, you’ll be treated more leniently than if HMRC discover your circumstances subsequently.

Although it was launched with some fanfare, many people assume that perhaps it has died a death. The reality, however, is that the programme is still operational and you can still take advantage of it. Some 10,000 landlords did just that in the two years after its launch, netting some £50m in recovered tax for the Revenue.

You could potentially owe tax on a residential property you let, regardless of whether it is in the UK or abroad, even if you’re just renting out a room in your main property.  So my advice is to talk to your accountant and take advantage of the scheme.

There’s a two-stage process. First of all you fill out a form and notify HMRC that you believe you have tax to pay. They then send you some correspondence and a disclosure form, which you need to complete within three months. You, or your agent, quantify the tax due and calculate interest using a straightforward formula.

It’s even possible for you to suggest what penalty you should receive. Perhaps there are mitigating circumstances, for instance?

Remember, HMRC has access to a great deal more data now and is being passed the names and addresses of landlords by letting agents. So the message is to let them know about your property income before they come knocking on your door.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Simplified tax? We’re still waiting!

The creation of the Office of Tax Simplification should have made tax... well, a little simpler. When it comes to allowances, however, Tracy Henson of Barnett & Turner Accountants says that things have actually become more complicated. The Office of Tax Simplification (OTS) was set up in 2010 and became a permanent independent office of HM Treasury in the summer of 2015. In theory, it provides Government with advice on the areas of the UK tax system which are overly complex and collects evidence with a review to reform.

In the eyes of many accountants, however, there seems to be more complexity than ever in terms of the issues confronting many of our clients. Before we can answer a straightforward question on their tax liability, we have to wade through a whole checklist of allowances. Even calculations for lower earners have become problematic, when traditionally they were usually pretty straightforward.

Put simply, allowances reduce the amount of tax you have to pay. Some give you full relief and allow you to earn a certain amount of money before paying any tax. Others give restricted relief and reduce your tax bill by a tenth of their nominal amount.

Today, in tax year 2016/17, these are the specific allowances available:

Personal Allowances – taper at £100,000

Married Couple Allowance - only for those born before 1935

Marriage Allowance – only for basic-rate taxpayers

Personal Savings Allowance - £1,000 or £500 or £0

Savings Rate of Income Tax – 0% on the first £5,000

Dividend Allowance - £5,000

Micro Trading Allowance - £1,000

Micro Property Allowance - £1,000

Rent a Room Allowance - £7,500

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

WHAT’S DRIVING CHANGE IN THE WORLD OF COMPANY CARS?

Company cars are only going to make financial sense in the coming years if they’re very low or zero-rated on CO2 emissions, writes Tracy Henson of Barnett & Turner. Personal car allowances and personal contract hire may be the way forward. It’s true to say that the company car was a nice perk in the past, but as benefit calculations have become more and more aggressive over time, its attractiveness started to wane.

Regardless of the amount you actually pay, it’s the new vehicle list price, inclusive of optional extras, that is important for tax purposes.  In addition, the CO2 emissions, fuel type and HMRC benefit multiplier are required to calculate the value of the car benefit in kind.   For diesel vehicles, there is an additional 3% added to the benefit multiplier percentage.

So the calculation is then reasonably straightforward as shown below:

Car	List price	HMRC	Company car taxable benefit for the year ended…
	Including  extras	benefit multiplier	5 April 2016	5 April 2017	5 April 2018	5 April 2019	5 April 2020
	£	%	£	£	£	£	£
Ford Focus	18,000	21	3,780
(Diesel)		23		4,140
		25			4,500
		27				4,860
		30					5,400
Value of car benefit in kind			3,780	4,140	4,500	4,860	5,400
Tax due on car benefit		20%	756	828	900	972	1,080
Tax due on car benefit		40%	1,512	1,656	1,800	1,944	2,160
Annual increase in tax payable				9.5%	8.7%	8.0%	11.1%

The problem is that the HMRC benefit multiplier is set to increase quite dramatically in the coming years, which may pose challenges for businesses and their employees. (The ostensible justification for the rises is the green agenda of reducing polluting vehicles, but we are already in the position where fully electric cars are being taxed, so there’s some room for debate over the true motivations.)

A company that contract hires its fleet may well be locked into an arrangement they can’t escape, which will leave workers out of pocket. In 2016-17, the tax due at basic rate on our Ford Focus would be £828. And it keeps rising year-on-year until 2019-20, when it reaches £1,080. Higher-rate tax payers would find themselves shelling out £2,160.

It seems likely that many businesses may choose to move to a car allowance instead, encouraging their staff to buy or hire a vehicle themselves – perhaps with an instruction that it needs to be less than five years old for the sake of reliability and appearance. Personal contract hire is now easier than ever. Big deposits are no longer required and it’s possible to pick up a car for a competitive price per month, particularly where the user has low annual mileage.

It’s worth bearing in mind that the figures in the table above completely exclude fuel. You have an additional calculation to make if an employee is getting free petrol or diesel.

The long and the short of it is that things are getting tougher and traditional company car arrangements are becoming progressively less attractive. It may be time for you to think ahead.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Customer service? We’re still waiting for the Revenue’s answer…

If you’re trying to get hold of the taxman, but failing, you’re probably not alone. HMRC customer service has come under a great deal of scrutiny recently. And your accountant may be having exactly the same difficulties as you. We’re all used to battling with call centres, whether we’re trying to upgrade a phone, pay an outstanding bill or complain about poor service. When our query or request is about tax, however, we understandably get a little more edgy. If we can’t speak to a representative of HMRC, it’s often impossible to resolve problems, causing a lot of difficulty for both businesses and individuals.

A recent report by parliamentarians on the Commons Public Accounts Committee highlighted the fact that half the calls to HMRC were being left unanswered. Last year, the Revenue managed to pick up over 72% of the incoming phone traffic, but this had dropped to around 50% in the first half of 2015.

Spokesmen for HMRC have pointed out that some 3,000 new staff have been hired and that the service issues have not affected the organisation’s ability to collect tax, although doubts clearly still remain among individual taxpayers, the business community and their accountants. The trade union representing the civil servants at HMRC says the equivalent of 11,000 full-time jobs have actually been lost since 2010.

You might think that your accountant has a magical hotline to the Revenue, but many professional advisers are, in fact, experiencing exactly the same difficulties as their clients.

It is perhaps ironic that while HMRC are after tax avoiders, so much time is spent time avoiding tax payers’ calls!

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

A New Era for Tax Reporting

As the dust settles in accountants’ offices up and down the country after the annual January rush to meet the deadline for Self Assessment tax returns, it’s the perfect time to look ahead to the new Digital Tax Accounts that were first announced back in the March 2015 Budget writes Tracy Henson of Barnett & Turner, Chartered Accountants & Chartered Tax Advisers. The Government have set out plans to modernise the current tax system, making the current returns a thing of the past.  Instead, there will be a digital online account for millions of individuals and businesses, where all tax affairs can be viewed, giving an up-to-date tax position at any time.  The thought process behind this is to ensure that people can stay on top of their tax affairs rather than having a sudden liability after they produce their year-end return.

The idea has not gone down well with everybody though.  Concerns have been raised over the additional burden of reporting, with initial details revealing that the online accounts should be updated “at least quarterly”.  With the promise of penalties for those who fail to comply, the thought will send shudders down the spine of the less organised amongst us.

There may be further concerns about what HMRC are planning to do with the additional wealth of information that they will have at their disposal.  Few could argue that the new plans are not considerably more intensive and possibly intrusive than those currently in place, but whether this leads to an increase in Tax Enquiries remains to be seen.

Enough people have been willing to make their thoughts known on the subject, with a Parliamentary debate taking place on 26^th January 2016, following 110,300 signatures on an online petition against the plans.  It seems that this will not be enough to dampen proceedings though, with the Government response stating that “Making Tax Digital will not mean ‘four tax returns a year’. Quarterly updates will largely be a matter of checking data generated from record keeping software or apps and clicking ‘send’.”

As we await further details throughout 2016 following consultation, it remains to be seen whether their “Bold vision for a new, modern tax system, which will make it easier for all taxpayers” can live up to its own billing, especially in the eyes of those not currently keeping regular management accounts on computerised systems, and those none too excited at the prospect of making more regular tax payments.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Dividend changes: are you ready?

In his 2015 Budget, Chancellor George Osborne introduced significant changes to the taxation of dividends. Owners of small businesses need to take note according to Jonathan Wilson of Chartered Accountants and Chartered Tax Advisers Barnett & Turner. It’s quite usual for directors of small companies to extract profits as dividends, which form a regular income. The main reason is tax efficiency, as when the dividend is paid out to an individual, it is treated differently from other income. There’s a notional tax credit of 10%, which means that if you’re on the basic rate, the effective tax due is zero. Higher-rate tax payers pay 25% on a dividend receipt.

From the start of the 2016 – 2017 tax year, company directors will have some more difficult choices to make. The tax credit is abolished, so that any cash received as a dividend will be subject to tax. Three new bands of tax on dividend income will be introduced at the same time:

• 5% for basic rate
• 5% for higher rate
• 1% for additional rate

On the positive side, a new Dividend Tax Allowance will remove the first £5,000 of dividends from tax each year.

Clearly, it’s likely that small business owners are going to end up with a higher tax liability under the new regime. Most individuals are, however, likely to remain incorporated, as – on balance – there’s still going to be annual tax saving and an advantage in taking dividends in lieu of salary.

Some people may be considering increasing dividends in the last few months of the tax year 2015 – 2016, but it’s important to look at the bigger picture. If your adjusted net income tops £100k, for instance, you will lose the personal tax allowance. You also have to think about whether you have sufficient funds available in the company to pay the dividend in the first place.

It’s a subject which is still in the spotlight, as only limited information is available on the new regime. That means that it’s in your interests to take professional advice. Your accountant should be able to give you a good idea of how the changes will affect you as more detail becomes available.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Buy to let: still an attractive proposition?

If you’re someone who rents out residential property – or you’re considering it – it’s important to take stock of some important changes in the July Budget, writes Tracy Henson of chartered accountants Barnett & Turner. ‘Buy to let’ tend to be the three little words to make investors go weak at the knees. For a number of years now, becoming a landlord has been seen as a clever ploy. Indeed, people purchasing property with the aim of renting it to tenants have almost certainly been playing a significant part in the recent property boom.

The Chancellor’s announcements in the July Budget, however, mean that the financial calculations will be a little more complex. Higher-rate tax payers may have particular cause for concern, because there are now going to be restrictions on the amount of tax relief applicable to mortgage interest.

The changes will be phased in from 2017/18 and the following four years, allowing time for landlords to adjust. In the first year, 75% of the interest can be relieved at the higher rate, while the remaining 25% is allowed at 20%, which will come off the person’s net liability as a tax reducer. The tax reducer may also be restricted by some limitations. Any excess finance costs may, however, be carried forward in certain circumstances.

In 2018-9, the ratio becomes 50/50. That means that 50% of the interest is relieved at the higher rate and the other 50% at the 20% rate. The year afterwards, the percentages are 25/75 and by the time we reach the tax year 2020-1, there is no higher-rate relief at all.

There’s another issue which you may want to discuss with your accountant too.

From April 2016, the ‘wear and tear’ allowance for landlords will be abolished. This straightforward system previously meant that when a property had been let fully furnished, the landlord could claim 10% of the rent as a deduction in profit – in lieu of white goods and furnishings supplied to the tenant. This could happen each year as a matter of course, regardless of the actual state of the furnishings. Under the new rules, you’re only allowed the cost of actual replacement of goods – a new fridge freezer, for example.

If you’re planning on becoming a landlord on a smaller scale, however, and are just intending to rent out a room in your home, there’s some good news. Whereas previously only £4,250 of the annual rental income was tax free, the figure is rising to a more realistic £7,500. An incentive perhaps from the government to help solve wider issues in the housing market.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Why trusts are giving way to Family Investment Companies

For people with significant wealth, Family Investment Companies are now a more fashionable way of planning for the future, argues David Wilson of Barnett & Turner Accountants. Trusts have for many years been an option when looking at tax-efficient ways of planning for the future and helping children and grandchildren. Recent changes, however, have limited what you’re able to put into trust – in most cases to £325,000 in a seven-year period. This is one of the reasons we’re seeing more and more interest in Family Investment Companies (FICs) today, despite the fact that the concept has actually been around for many years.

To start with, just think of a FIC as a company, into which you can build different shares, rights and restrictions. It doesn’t have to trade. It can just hold different assets as an investment and it might be possible to transfer an existing portfolio of investments into your FIC, depending on whether this creates any tax charges.

So why bother? Well, assets can grow and income then becomes taxable within the company at 20% rather than at the higher rate of income tax. With certain investments – dividends from most other companies, for instance – no tax is payable at all within the FIC. You can choose then whether you want to take some income from the FIC, which shares dividends are declared upon, or perhaps you simply “draw down” some of the loan you used to set it up.

There are, of course, some downsides. You have the costs and administration associated with setting up a limited company and, in theory, your accounts are a matter of public record, which anyone is free to inspect. It could be that in the longer term, if the company pays tax on gains and you then take that out as a dividend, that you could pay more tax overall, and obviously tax rules can change in future.

So setting up a FIC isn’t necessarily an obvious and straightforward decision. I recommend doing the due diligence beforehand, and sitting down not only with your accountant, but also a financial adviser and a lawyer. There may, for instance, be implications for your will and you do need to decide when setting the FIC up who you want to be shareholders, and what benefits you want each person to get in future. By and large, however, savings in income tax will often outweigh the potential risks, and there can be longer-term inheritance tax savings too.

Here are some frequently asked questions:

How do I fund an FIC?

If you create a large director’s loan account, the company founder should be able to withdraw funds in later years with no tax implications. You may want to partly fund by loan and partly fund by share capital.

How does the tax position compare between assets I hold myself and in an FIC?

Corporation tax is currently 20% (income tax up to 45%) and there’s no tax on UK dividends received in a FIC. There are some other benefits that companies can take advantage of, as well as the differing tax rates.

How is a FIC structured?

A lot depends on what you want to achieve – one of the great aspects of FICs is they are flexible. You may have a founder shareholder, for example, who keeps tight control over the FIC, and then different classes of shares for each family member, allowing flexibility over dividends and future asset growth.

You could also still use a family trust – many FICs have trusts as shareholders. As noted earlier, there is a great deal of choice when setting up a FIC.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Prepare to share

Before May’s election, many businesses were uncertain about whether they would pursue shareholder status for key employees. Now, observes Tracy Henson of accountancy firm Barnett & Turner, there’s a definite flurry of interest. One initiative of the Coalition government back in 2013 was the introduction of ‘employee shareholder status’ or ESS. With Labour signalling that it was likely to scrap the provision – which allows staff to trade employment rights for equity – there was relatively little take-up. But with the election of a majority Conservative government in May 2015, companies now have a reasonable degree of certainty that the policy is here to stay.

The essential idea is that a business owner may want to tie in employees by giving them shares. The new regime allows employers to do this in a tax advantageous manner.

For example, you might want to reward a particularly impressive Finance Director and ensure that she stays for the long term. You issue new shares to her and she pays nothing for them, as the ‘consideration’ in legal terms is created by giving up certain employment rights (see below).

These shares must be worth a minimum of £2,000. If that’s all you choose to offer, no income tax is payable by the recipient, although if you offer more, tax is due straight away on the amount above the £2,000 threshold. (While this charge obviously belongs to the individual, it’s perfectly legitimate to offer a bonus that would help to compensate the employee for the upfront bill.)

If the amount you offer is worth more than £50,000, there are restrictions on the tax advantages. There is no tax on sale at exit up to this cap, but if the shares were worth, say, £100k when they were first offered, only half would be tax free on disposal.

Although valuation is obviously a very difficult issue in many businesses, it is possible to agree figures with HMRC up front to avoid any potential dispute. It’s important to work closely with your accountants, who will be able to make the calculations – there is a prescriptive process to go through with HMRC in order to get this agreed.

A tax-free exit can seem very appealing and the owner may be looking to part with fewer shares than they would otherwise have to. It’s worth bearing in mind that entrepreneurs’ relief only applies if someone has 5% of the company, whereas under ESS they can have a smaller % and pay 0% on an exit, not 10% under entrepreneurs’ relief.

What rights does an employee give up as ‘consideration’ for shares?

• Unfair dismissal rights (unless the dismissal is related to discrimination or health and safety)
• Statutory redundancy pay
• The statutory right to request flexible working (with the exception of the two weeks after return from parental leave)
• Certain statutory rights to request time off to train

Other rights, including statutory sick pay, paid annual leave and maternity/paternity leave, remain in place.

So it’s not for everyone, and clearly as an employer you are giving away equity if you do this, but one advantage of ESS is that it is very flexible and there are not the restrictions over which type of company can do this, which there are with a number of other tax favoured schemes such as the enterprise management incentive scheme.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Back to the future (Part 2)

In the second of his articles on ‘reverse planning’ and the need to avoid end-of year surprises, Jono Wilson of Barnett & Turner turns his attention to businesses and the self-employed. If you have responsibility for staff, it really pays to be keeping track of the latest changes in the tax and NI regime. Rather than wait until the last minute, do some planning in conjunction with your accountant. You’ll find that it can reduce your levels of stress and inconvenience quite noticeably.

Here’s one particular talking point from April 2015. If you employ someone who’s under 21, you will no longer have to pay employers’ NI if they earn less than the Upper Earnings Limit of £815 per week. It’s something you’ll need to take into account when dealing with your payroll. And from next April, this tax break will be extended to the wages paid to apprentices under the age of 25. These tax breaks can impact upon the plans a business may have for recruitment, so taking note of them at the earliest opportunity is very wise.

I’ve also been highlighting a new exemption that was to have been introduced from April 2015 for trivial benefits in kind. It would have allowed you to pass non-cash gifts of up to £50 a year to your employees without any tax liability arising. Ideal for recognising birthdays and similar events, whilst creating some good feeling with your staff along the way.

Unfortunately, the Government decided to delay the introduction of the new rule – perhaps concerned about the amount of time available in the run-up to the general election. More information should be around later in the year, but it’s possible you might be able to come to some kind of informal arrangement with HMRC in the meantime. Uncertain, but worth considering and perhaps posing the question.

If you’re self-employed, meanwhile, direct debits of Class 2 NIC should stop after the last payment for tax year 2014/15, which would be around 10^th July 2015. It’s important to check that you’re not inadvertently still making payments from your bank account and therefore it could be wise to cancel the direct debit after the final payment. Of course it should also be noted that there will be an increase to your usual tax bill in future returns because HMRC will now use the                self-assessment system to collect Class 2 NIC.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk