Abbey

Chartered Tax Advisers
Old Bishops' College
Churchgate
Cheshunt
Hertfordshire
EN8 9XP

T: 01992 642024

E: abbey@abbeyaccountants.com

Smiling businessmen and women

  TAX E-NEWS - December 2015


Happy Christmas everyone and wishing you all a prosperous New Year.

Attached is our usual newsletter which this month highlights some key tax announcements in the Chancellor’s Autumn Statement on 25 November 2015.

We hope you enjoy reading the newsletter; remember, we are here to help you so please contact us if you need further information on any of the topics covered.

Peter McDaid CTA ATT TEP
Director

PROPERTY INVESTORS HIT WITH STAMP DUTY LAND TAX INCREASES

As explained in last month’s newsletter the Chancellor announced in the Summer Budget a restriction on the deductibility of interest from rental income for individual landlords of residential property. This restriction will be phased in from 2017/18 to 2020/21, and it may make letting uneconomic for landlords whose businesses are relatively highly geared. The latest attack on property investors is a proposed 3% increase in Stamp Duty Land Tax

Landlords who can buy properties to let without a mortgage are not affected by the interest restriction. To discourage such cash-rich individuals from purchasing multiple properties to let or to hold as second homes, particularly in holiday areas like Cornwall, an additional SLDT charge of 3% will be payable by individual purchasers of residential properties worth over £40,000 from 1 April 2016. This supplemental SDLT charge won’t be payable by corporate purchasers (15 properties or more). The proposed rates are:

Purchase price

SDLT rate,  cumulative

Up to £125,000

3%                      £3,750

£125,000 - £250,000

5%                    £10,000

£250,000 - £925,000

8%                    £64,000

£925,000 - £1,500,000

13%                £138,750

£1,500,001 and over

15%


SDLT is currently payable within 30 days of the completion of the purchase and the SDLT return must be filed within the same period. The Government is proposing to reduce the payment and filing period to just 14 days from the completion date of the sale, sometime in 2017/18.

CGT TO BE PAID EARLIER?

CGT is normally payable by individuals by 31 January after the end of the tax year in which the gain arose. This gives the taxpayer between 10 and 22 months from receipt of the proceeds to calculate the tax due and pay it over to HMRC. From 6 April 2015 non-resident taxpayers have had a shorter time frame in which to report the sale of UK residential property and pay the tax due - only 30 days from the completion of the disposal. HMRC now propose to extend the 30 day reporting and CGT payment deadline to all UK taxpayers who make taxable gains when selling residential properties for disposals on or after 6 April 2019.

FROM 2020 MOVE TO QUARTERLY TAX RETURNS.

The Chancellor announced that by 2020 most businesses, sole traders and landlords will have to make quarterly returns to HMRC. It is proposed that everything will be done digitally online and every taxpayer and business will have a digital tax account. The intention is to have the most digitally advanced tax administrations in the world. With the government history of mega IT projects which nearly all end up in chaos, watch this space!

The majority of our clients struggle to firstly do a tax return and set of accounts once a year and secondly to get it completed on time. If we have to carry out this exercise four times a year it’s going to be a real struggle for everyone involved.

Businesses do of course now send in quarterly VAT returns, monthly CIS returns and RTI/PAYE reports online. There is a huge penalty issue here which will I suspect be even greater when this quarterly reporting system is implemented.
PAYROLLING OF BENEFITS IN KIND

Legislation to require employers to report Benefits in Kind in real time as opposed to the end of year form P11D was included in the first Finance Act of 2015. However, there are concerns amongst accountants that this should not be mandatory until 2017/18 at the earliest, as many employers are only just getting to grips with real time processing of basic wages and salary data.

The new system will require employers to calculate the cash equivalent of the Benefit in Kind and effectively spread it over the tax year. The tax due on benefits will then be collected by adding a notional value to the employee’s payroll, rather than reporting the Benefits in Kind separately on the end of year form P11D.

COMPANY DISTRIBUTIONS

There has been a new consultation paper issued by HMRC reviewing the position on distributions from a company where capital treatment applies. Capital treatment means that the distribution will be subject to capital gains tax rather than income tax on the recipient. One of the areas that HMRC are looking to address is on the winding up of the company. Normally on a winding up, all the funds extracted from the company are treated as capital distributions. These capital distributions are subject to capital gains tax and given the right circumstances entrepreneurs relief applies resulting in only a 10% tax charge. If these distributions were instead treated as an income distribution it would be subject to income tax at possible rates of up to 38.5%.

What we are looking at here is the winding up of a company when:

A company has been used as a moneybox. This is where money has been retained in excess of the company’s working capital requirements.

The owner is setting up “phoenix” companies. This is where one company is closed down and Its value is extracted by way of capital distributions. Shortly thereafter a new company is set up carrying on substantially the same business.

A company is a special purpose vehicle. Here a business is capable of being sub divided for example a building company carrying out a specific development.

For all three scenarios there may well be very good commercial reasons rather than tax reasons for structuring a business in this way and closing companies down.

What HMRC are proposing is a new targeted Anti-Avoidance Rule (TAAR). In these scenarios if the individual concerned is involved in a similar trade or activity within two years of a winding up and one of the main purposes is to obtain a tax advantage then the distribution will be taxed as income rather than capital.

We won’t know how exactly how this will unfold but our advice to anyone who is considering closing down their company is to do this sooner rather than later.



TAX DATES AND PAYMENTS


Date What's Due
19 December PAYE & NIC deductions, and CIS return and tax for month to 05/12/2015 (due 22 December if you pay electronically).
1 January Corporation tax for year to 31/03/2015.
19 January PAYE & NIC deductions, and CIS return and tax for month to 05/01/2016 (due 22 January if you pay electronically).
31 January Deadline to file 2015 SA tax return online.
31 January Income tax balancing payment for 2014/15, plus CGT for 2014/15.
31 January Income tax 1st payment on account for 2015/16.