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 - May 2017


Welcome to the May tax newsletter. We hope you enjoy reading and find it useful. 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




2017 FINANCE BILL


The snap election by Theresa May on the 8th June 2017 has resulted in there being no time to debate the proposed full Finance Bill. As a result, out of 135 clauses 72 have been deleted and out of 29 schedules 18 have been removed.

Included in the deletions are the making tax digital provisions, the newly deemed domicile rules and the restriction in the dividend allowance from £5,000 to £2,000.

It is expected that the dropped legislation will be incorporated into the next Finance Bill following the election but the new government may well take the opportunity to make some changes to the legislation that it has removed.

IR35 (anti-avoidance legislation)
If you are a contractor working for the Public Sector via a company then he/she may be affected by the new changes to IR35 that apply from the 6th April 2017.

Basically, if the work that the contractor carries out comes within the scope of IR35 it is the Public-Sector clients that now have the responsibility to determine that this is the case and if it is, they must deduct income tax and national insurance from any payments made to the contractor.

This is a fundamental change in the way IR35 operates.

NEW TAX FREE ALLOWANCES STARTED ON 6TH APRIL

The £5,000 dividend and £1,000 savings allowances have been with us since 6th April 2016. There are now two further allowances available since 6th April 2017.

The first £1,000 allowance is against self-employed income. This is a deduction from gross income so will only be of benefit to those with a small amount of self-employed income, for example, a part time yoga teacher. If their gross self-employed income is less than £1,000 a year then it will now be tax free and will not need to be reported to HMRC. If the income is marginally above £1,000, say £1,200, then only £200 will be taxable. For many self-employed it will continue to be more beneficial to compute profits by deducting their allowable expenses from their gross income.

The other new allowance is a £1,000 deduction from gross income from property. For example, a couple might receive £700 in charges for parking on their drive in Wimbledon during the tennis tournament.

Joint owners of property could receive £1,000 tax free each, however you can’t claim the allowance on income from letting your own home under the Rent a Room Scheme.

GIVE SHARES TO CHILDREN AND PAY £5,000 DIVIDENDS TAX FREE?
The introduction of the £5,000 tax free allowance has tempted many family company shareholders to give shares to other family members so that they can be paid £5,000 a year tax free.

Such a strategy needs to be carefully structured as there can be Capital Gains Tax on the gift of shares, and HMRC may also seek to tax the dividend as employment income under certain circumstances. The dividend will also be taxed on the parents, if received by a child who is a minor.

If you are considering giving shares to other family members and then paying dividends, please discuss this with us first.


Give us a call on 01992 642024


ADDITIONAL IHT RELIEF FOR PASSING ON FAMILY HOME STARTED 6 APRIL

For deaths on or after 6th April 2017 there is now an additional £100,000 inheritance tax (IHT) allowance where the family home is passed on to direct descendants. This was originally announced on 8th July 2015 and that date is relevant where the deceased has downsized to a lower value property.

This additional relief increases to £175,000 in 2020, and where the relief was not used on the death of the first spouse, it is available on the death of the surviving spouse.

This means that after 6th April 2020 a married couple can potentially pass on assets worth up to £1,000,000 without paying IHT as there would be £350,000 relief against the value of the family home in addition to the combined £650,000 nil rate bands (2 x £325,000).

Note however that the Labour Party have announced that, if elected, they will reverse this generous measure!

As mentioned in previous newsletters, it may be necessary to review your will and estate planning to ensure that you take full advantage of this new relief.

SELLING LAND TO A DEVELOPER - IS THAT TRADING OR A CAPITAL GAIN?

Landowners will often be approached by developers seeking to obtain planning permission to build on the land. Great care is needed to avoid unnecessary tax charges on the transaction. HMRC have recently updated their guidance on transactions in land clarifying that under certain circumstances some of the eventual profit can be taxed as income not a capital gain. For individual property owners that could mean 45% income tax as opposed to just 28% CGT.

For example, a landowner sells some land to a developer for £5 million plus 10% of any profit on the development over £6 million.

If the profit on the project was £8 million then the additional £200,000 would be taxed as a trading profit.

The tax rules in this area are complex. If you are involved in such a deal, please contact us so we can advise on the best way of structuring the transaction.

DOES THE NEW 16.5% VAT FLAT RATE PERCENTAGE APPLY TO YOUR BUSINESS?

The new VAT flat rate of 16.5% started to apply from 1 April 2017 for “limited cost traders”.

A "limited cost trader" is one using the VAT flat rate scheme but where the VAT inclusive cost of goods for a year is less than 2% of VAT inclusive turnover, excluding certain specified items.

Those specified items include capital expenditure, food, fuel, and vehicle costs.

If you are currently using the VAT flat rate scheme do contact us to discuss whether the changes will apply to you.


TAX DATES AND PAYMENTS


Date What's Due
19 May

PAYE & NIC deductions, and CIS return and tax, for month to 5/5/2017 (due 22 May if you pay electronically)

1 June Corporation tax for year to 31/08/2016
19 June PAYE & NIC deductions, and CIS return and tax for month to 05/06/2017  (due 22 June if you pay electronically).
1st July Corporation tax for year to 31/09/2017

If you have any questions about this newsletter please contact us, we will be happy to help.