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 - March 2016


Welcome to our monthly newsletter for March 2016.

This month, as the tax year end is fast approaching, we are focusing on year end planning and what 2016/2017 brings in tax changes.

Peter McDaid CTA ATT TEP
Director

CONSIDER PAYING DIVIDENDS BEFORE 6 APRIL 2016

Something that we have mentioned in previous newsletters for those running their own companies is to consider paying dividends before 6 April 2016 when the new system of dividend taxation starts. Although the first £5,000 of dividends will be taxed at 0% from 2016/17, once that has been used up there will be a 7.5% across the board increase in the rate of tax on dividends. Please contact us if you would like to discuss this further.

BUY NEW EQUIPMENT BEFORE 6 APRIL?

Those running a business and making up accounts to 5 April should consider buying plant and machinery to take advantage of the Annual Investment Allowance (AIA) of £200,000. The AIA provides a 100% tax write off for equipment used in your business. This tax relief extends to fixtures and fittings within business premises such as electrical, water and heating systems. There is also 100% tax relief if you buy a new car that emits no more than 95g CO2 per kilometer and an increasing number of cars now fall below that limit.

NEW LIVING WAGE

Please note that on top of the existing national minimum wage (NMW) rules, as from the 1st April a new national living wage (NLW) will apply for employees of 25 and over of £7.20 per hour. The NLW will be enforced as strongly as the NMW. Employers will have to pay close attention to employee’s birthdays and when they attain the age of 25 in case they miss this with possible drastic consequences. The penalty that can be charged for failing to pay the correct wage is up to £20,000 per employee!

INDIVIDUALS AND THEIR TAXABLE INCOME

An individual’s annual level of income dictates what income tax he/she pays. When the income level reaches certain points it triggers various tax consequences and some of these result in sudden large jumps in tax. Let’s look at these trigger points using the 2015/2016 year rates:

The personal allowance is £10,600 and once the income exceeds this, the excess income is taxed at 20% for all of the basic rate band (£31,785).

Once the income level exceeds £42,385 (£10,600 + £31.785), the excess income is subject to higher rate tax at 40%

When the income level reaches between £50,000 and £60,000, any child benefit claimed will be partly or fully clawed back. This can give rise to a serious financial loss depending on the level of the child benefit that was originally claimed.

When the income level reaches between £100,000 and £121,200, the personal allowance is partly or fully withdrawn. What this means is the band of income between these two figures is taxed at an effective rate of 60%.

Between £121,200 and £150,000 the tax rate reverts back to 40%.

Above £150,000 the tax rate applicable is 45%

The £50,000 child benefit and the £100,000 personal allowance withdrawal thresholds are particularly punitive. If these trigger points are being reached it would be advisable where possible to try and mitigate the position before the tax year end.

It should be possible to shift income such as salary/bonuses dividends etc. from one year to another. Consideration should be made to make pension payments or Gift Aid charity denotations. Each person’s position is different but in many circumstances if these trigger points are being reached small tweaks in their affairs can give rise to considerable tax savings.

YEAR END CAPITAL GAINS TAX PLANNING

Have you used your 2015/16 £11,100 annual exemption? Consider selling shares where the gain is less than £11,100 before 6 April 2016. Also, if you have any worthless shares, consider a negligible value claim to establish a capital loss. You may even be able to set off that capital loss against your income under certain circumstances.

INHERITANCE TAX (IHT) PLANNING BEFORE 6 APRIL 2016

Have you made use of your annual Inheritance Tax (IHT) exemptions? The annual exemption is £3,000 per donor (plus last year’s £3,000 exemption if you did not use it). Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not normally subject to IHT.

MAKE CHARITABLE PAYMENTS UNDER GIFT AID TO SAVE MORE TAX

Higher rate taxpayers should make any charitable payments under Gift Aid so that they obtain additional tax relief. The charity will also be able to reclaim the basic rate tax from HMRC making it even better.


USED YOUR 2015/16 ISA ALLOWANCE?

Your maximum annual investment in ISAs for 2015/16 is £15,240. Your investment needs to be made before 6 April 2016.

THE 2015/2016 JUNIOR ISA

For all those grandparents, godparents, aunts and uncles contributing to a Junior ISA (maximum of £4,080) is a very good option. The money is locked away until the child reaches 18 and with compound tax free interest even small sums invested can build up to a tidy sum during a period of time.

YEAR END CAPITAL GAINS TAX PLANNING
OTHER TAX EFFICIENT INVESTMENTS


If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS)? These investments in certain qualifying companies allow you to set off 30% of the amount invested against your tax bill as well as capital gains tax (CGT) deferral.

An even more generous tax break is available for investment in a qualifying Seed EIS company where income tax relief at 50 per cent is available and in addition it is possible to obtain relief against your 2015/16 capital gains.

Both EIS and Seed EIS also provide a CGT exemption when the shares themselves are sold after three years. Note however that qualifying EIS companies tend to be risky investments so professional advice should be taken.

A 30% income tax break is also available by investing in a Venture Capital Trust.


TAX DATES AND PAYMENTS


Date What's Due
19 March PAYE & NIC deductions, and CIS return and tax for month to 05/03/2016 (due 22 March if you pay electronically).

1 April Corporation tax for year to 31/06/15
5 April End of 2015/2016 tax year, many tax actions need to be taken by this date (see above).
19 April PAYE & NIC deductions, and CIS return and tax for month to 05/04/2016 (due 22 April if you pay electronically).