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 2017


Welcome to the first monthly tax newsletter of the year. These newsletters are designed to keep you informed of the latest tax issues.

Please contact us if you need further information on any of the topics covered.


Peter McDaid CTA ATT TEP
Director


MAKING TAX DIGITAL (MTD)
MTD is the Government's plans for all businesses and landlords to only be allowed to electronically submit accounts/tax returns etc. online to HMRC. No paper returns will be allowed.

In addition, instead of annual accounts/tax returns there will be a requirement to submit reports of income and expenses on a quarterly basis. Not surprisingly there is a lot of protest arising on this proposal.

It is envisaged that businesses/landlords will have to use specialised accounting software to comply with this requirement.

The initial proposal was that this system would be up and running from 6th April 2018, with small to medium businesses being required to comply from April 2019 and all businesses will be compulsorily required to report to HMRC on a quarterly basis by 2020. It is only very small businesses with turnover of less than 10K that may escape the quarterly reporting requirement.

I suspect that the next step to be implemented after this system comes fully into force will be the requirement to pay any tax due on a quarterly basis.

This will significantly increase burdens on small businesses. and is being introduced far too quickly.

At the time of writing we are awaiting the Government response to the November 2016 consultation and we will keep you updated about the implications for your business.

PROPERTY SALES – TRADING OR CAPITAL GAIN?
Overseas property traders and investors pay no UK tax on the gains arising on disposals of commercial properties and only UK tax on the gains accruing post 6th April 2015 on disposal of domestic properties. This has given them a major advantage over UK property traders and investors.

The Finance Act 2016 brought in new rules to ensure that overseas property traders and developers are subject to UK income tax or corporation tax when they dispose of UK properties from 5th July 2016.

The new rules treat UK property sales/development of land as part of a trade and therefore potentially taxed at income tax rates up to 45% instead of the 28% rate that would apply to capital gains. There would also be class 2 and class 4 national insurance contributions due if the transaction is deemed to be part of trading.

THE TRANSACTION IS TAXED AS TRADING IF:

- one of the main purposes in acquiring the land was to realise a profit on its disposal; or
- one of the main purposes in acquiring the property which derives its value from land was to realise a profit on its disposal; or
- the land is held as trading stock; or
- one of the main purposes of developing the land was to realise a profit on its disposal when developed.

There will be no change in tax treatment for individuals or partnerships already operating as property dealers or developers.

Just before Christmas, HMRC issued guidance to clarify the scope of the new rules. The legislation as enacted in the Finance Act 2016 was drafted in such a way that it could be interpreted as catching certain disposals by buy-to-let landlords. The HMRC guidance states that the new rules do not apply to businesses which acquire and repair properties in order to generate rental income, even if those businesses also enjoy capital appreciation from those properties. So the average buy-to-let landlord should not be subject to income tax on the gains he makes when he sells properties which were acquired for letting.
NEW GOVERNMENT SAVINGS SCHEME STARTS IN APRIL 2017
From April 2017, adults under the age of 40 will be able to open a Lifetime ISA (LISA) and pay in up to £4,000 each tax year. They will be able to continue making contributions up to the age of 50. The government will add a 25% bonus to these contributions. This means that individuals who save the maximum will receive a £1,000 bonus each year from the Government.

The tax-free funds, including the Government bonus, can be used to help buy a first home worth up to £450,000 at any time from 12 months after first saving into the account. The funds, including the Government bonus, can be withdrawn from the LISA from age 60 tax-free for any purpose. LISA holders will also be able to access their savings if they become terminally ill.

If savers make withdrawals before age 60 for other purposes a 25% charge will apply to the amount of withdrawal. This returns the bonus element of the fund (including any interest or growth on that bonus) to the Government.

“Help to Save”, aimed at supporting people on low incomes to build up their savings will follow in 2018. That scheme will add a 50% Government bonus on savings up to £50 a month for up to four years. Help to Save will be available through NS&I to any adult who is receiving working tax credit or universal credit with minimum household earnings equivalent to 16 hours a week at the National Living Wage.

DON’T FORGET YOUR 2016/17 ISA ALLOWANCE
The current ISA allowance is £15,240, rising to £20,000 for 2017/2018. Remember that there is no longer a 50% restriction on the amount that you can invest in a cash ISA; the £15,240 annual limit covers all ISA investments which could be in shares, bonds, cash or certain other investments.

MAKE PENSION PAYMENTS BEFORE 6th APRIL
The current annual pension limit remains at £40,000. In addition, unused relief from the previous three tax years may be utilised once the current £40,000 limit has been used. However, the relief from 2013/2014 will lapse on 6th April 2017.

If, for example, you have £10,000 unused allowance from 2013/2014 you would need to make pension contributions of at least £50,000 by 5th April 2017 to avoid losing your 2013/2014 relief. Remember also that pension savings continue to qualify for higher rate tax relief and may help to reduce your tax payments on account.


TAX DATES AND PAYMENTS


Date What's Due
19 February PAYE & NIC deductions, and CIS return and tax, for month to 05/02/2017 (due 22 February if you pay electronically).

28 February Surcharge of 5% on 2015/16 self -assessment tax still unpaid.
1 March Corporation tax payment for year to 31/5/16 (unless quarterly instalments apply)
19 March PAYE & NIC deductions, and CIS return and tax, for month to 05/03/2017 (due 22 March if you pay electronically).