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 - February 2016


Welcome to our first newsletter of the year.

Although some of the topics here have been covered in past newsletters because of the changes in law that are happening at the end of this tax year I thought it best to revisit so that people can plan accordingly.

Peter McDaid CTA ATT TEP
Director

7.5% INCREASE IN INCOME TAX ON DIVIDENDS TO PROCEED


The legislation to introduce the new system of dividend taxation announced in the Summer Budget has now been included in the draft Finance Bill. Although individuals will be able to receive £5,000 of dividend income tax free each year from 2016/17, once that has been used up there will be a 7.5% increase in the rate of tax on dividends across the board.

For the small owner managed companies (OMC) for this year's year end planning it is now vitally important to carry out a full financial review and serious consideration be taken to the extraction of funds from the company via additional dividend payments before 6th April 2016.

Each company’s position and that of its shareholders and directors is different. Our thinking at the moment is, that for a large number of companies, it may be advantageous to declare sufficient dividends in the 2015/2016 tax year to clear the surplus funds held in the company and pay the higher rate tax arising on it. The shareholders can if necessary lend the dividend distributions back to the company if the company requires a minimum level of working capital.

The Chancellor may well take the opportunity to increase the additional 7.5% tax on dividends in future years and this could be the last opportunity to take the dividends from the company so cheaply.

TAX RELIEF ON PENSION CONTRIBUTIONS

During this tax year (2015/2016) it is possible to obtain tax relief on pension contributions on the lower of up to 100% of your earnings or a £40,000 annual allowance.

Any unutilised annual allowance form the previous three years can be carried forward and used in this year.

If the employer (perhaps your own company) pays the contribution direct the restriction on the tax relief on contributions that applies is only with relevance to the annual allowances and an individual's earnings are ignored.

From April 2016 the £40,000 annual allowance will be reduced if you have income over £150,000. Income for these purposes not only includes earnings but also an individual's other personal income from investments, property etc. So for people in this bracket the tax relief on pension contributions will be seriously curtailed.

The annual cost to the government on pension tax relief is £35 billion and the government is therefore looking to seriously reduce this cost. They have issued a consultation paper and the expectation is that in the March budget they will go a great deal further to reduce tax relief on pension contributions than what has already been announced.

We therefore strongly recommend that consideration be made to make pension contributions before the tax year end as for many individuals we suspect this may well be the last opportunity to get full tax relief on any contributions made.

SINGLE DIRECTOR COMPANIES EXCLUDED FROM £3,000 NIC EMPLOYMENT ALLOWANCE

From 6th April 2016 the Employment Allowance increases from £2,000 to £3,000, but if you’re the only employee in a company, and also the director, your company will no longer be eligible for the NICs Employment Allowance.
HMRC is currently consulting on the draft legislation for this change which will mean that the £3,000 allowance will not be available to offset against the employers’ NIC liability of such companies.

CONSULTATION ON 3% SDLT SUPPLEMENT ON SECOND HOMES FROM APRIL 2016

HMRC are carrying out a four week consultation on the details of the higher rates of stamp duty land tax (SDLT) on purchases of additional residential properties announced in the 2015 Autumn Statement. The Government will include detailed rules in the Budget on 16th March 2016. The higher rates will not apply if at the end of the day of the transaction an individual owns only one residential property, irrespective of the intended use of the property.

There will be an 18 month period between sale of a previous main residence and purchase of a new main residence for the purpose of determining whether the higher rates apply.

It should be self evident to if possible endeavour to have any purchases of additional residential properties concluded before midnight on the 31st March 2016.

RENEWALS BASIS IS BACK FOR BUY TO LET LANDLORDS

Following the restriction of tax relief for mortgage interest (mentioned in a previous newsletter) and the 3% increase in Stamp Duty Land Tax there is a small chink of light for landlords.

From 6th April 2016 tax relief for the replacement of furnishings is to be reintroduced. On this basis the original cost of initially furnishing a property is disallowed but the cost of any subsequent replacements of the furnishing will be wholly allowable. This will apply to both furnished and unfurnished lettings and will mean that the cost of replacing items such as free standing cookers and washing machines will again qualify for relief.

The simpler, 10% wear and tear allowance will be withdrawn from 6th April 2016 for those letting properties fully furnished.

So any new replacement expenditure on furnishing should be delayed until after 5th April 2016 so that full tax relief can be claimed.

NON TAX- LANDLORD OBLIGATIONS

From the 1st February 2016 Landlords, including anyone renting a room in their own house to a lodger, have a new legal obligation to ensure that their tenant(s) have a legal right to live in the UK.

The Landlords must have access and check the validity of the relevant documents, note the date the check was made and take copies. The copied documentation must be retained for at least one year after the tenancy agreement comes to an end.

Relevant documents are up to date passports which where relevant, include pages containing information indicating the holder has a right to live or remain in the UK. In addition, where relevant a Biometric Residence Permit.

Failure to do this will result in a fine of up to £3000.

TAX DATES AND PAYMENTS


Date What's Due
19 February PAYE & NIC deductions, and CIS return and tax for month to 05/02/2016 (due 22 February if you pay electronically).

28 February Surcharge of 5% on 2014/15 self -assessment tax still unpaid.
1 March Corporation tax for year to 31/5/15
19 March PAYE & NIC deductions, and CIS return and tax for month to 05/03/2016 (due 22 March if you pay electronically).