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 - October 2017


Welcome to the October monthly tax newsletter.  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



THERE MAY BE MORE TAX TO PAY ON YOUR DIVIDENDS IN JANUARY

As reported in previous newsletters the rules for taxing dividends changed radically from 6 April 2016 with the removal of the 10% notional tax credit and the introduction of new higher rates of tax on dividends.

For many taxpayers the 2016/2017 tax year will be the first year that there will be a higher tax liability arising on dividends and this will be payable on 31 January 2018.

Up until 5 April 2016, the 10% dividend credit meant that basic rate taxpayers paid no tax at all on dividend income as the 10% tax on dividends was covered by the 10% tax credit.

For example, where a basic rate taxpayer (i.e. in receipt of total income less than £45,000 p.a.) received £9,000 dividends, this would be treated as £10,000 gross dividends but the 10% tax of £1,000 would be covered by the £1,000 tax credit.

From 6 April 2016 the same £9,000 dividend would now be taxed at 7.5% once the £5,000 dividend allowance (soon to be reduced to £2,000) has been used making £300 tax due on 31 January 2018.

Where dividends are received by a higher rate taxpayer (i.e. in receipt of total income of more than £45,000 p.a.), the loss of the 10% tax credit means that the full 32.5% rate applies to dividends in excess of the £5,000 allowance.

Thus, if a higher rate taxpayer received £30,000 of dividends, £25,000 of those dividends would be taxed at 32.5% meaning £8,125 due on 31 January 2018. Last year the tax on the same dividends would have been £7,500 after deducting tax credits.

A number of taxpayers will have either a personal tax liability for the first time or a much larger tax liability for the 2016/2017 tax year. In addition, however because of the requirement for payments on account to be made for the 2017/2018 year the size of the 31 January 2018 tax payment due may come as a surprise.

In the circumstances we strongly suggest that you let us, or the accountants acting for you, have all your tax documents as soon as possible, so that it can be determined how much tax has to be paid next January and enable you to set aside sufficient funds.

WHEN IS A COMPANY VAN NOT A VAN?

The P11d taxable benefits on company vans are much lower than company cars and where private use of the van is merely incidental to its business use by the employee, then there is no taxable benefit at all. But when is a van not a van?

In a recent tax tribunal case, the judge decided that a VW Kombi van that had been converted so that it had two rows of seats for passengers was a company car not a van.

Under the employee benefit rules, a van is a vehicle where its primary construction is for the conveyance of goods or burden. Kombi vans and those similar have not previously been thought to fall into this category due to them being designed to carry both goods and people.

Historically, HMRC has offered a concession from 2002/2003 onwards for vehicles of a very similar construction, double cab pickups (including both uncovered and covered models), if the payload capacity of the pickup exceeds a metric ton. HMRC accepts that these vehicles can be treated as a van for benefit in kind purposes. Our understanding is that if the load area is covered this reduces the load capacity to under a ton and the vehicle will then be treated as a motor car.

The judge decided that the primary construction of the kombi van was not for the conveyance of goods alone but rather that its purpose was for the conveyance of both goods and people equally. This means that the Kombi did not meet the requirement to be considered a van and therefore for benefit in kind purposes it was a car.





ARE SPOUSES WAGES FULLY TAX DEDUCTIBLE?

HMRC have recently won a tax tribunal case where they were seeking to challenge the deduction for a wife’s wages in arriving at the profits of her husband’s business. The judge agreed with HMRC that the amount allowed as a deduction should be limited based on the hours spent and appropriate rate for the work done.

The general principle here is that the expense must be incurred wholly and exclusively for the purpose of the trade. Traditionally when the personal allowance was fairly low (e.g. £6,475 in 2010) it was quite easy to justify the wages paid to the spouse at around that level. However, there have been significant increases in the personal allowance in recent years to £11,500 in the current tax year and it is important that wages paid to the spouse can be justified.

We must also stress that spouse's wages must be physically paid to the spouse.

MUST OWN 5% OF ORDINARY SHARES TO QUALIFY FOR CGT ENTREPRENEURS RELIEF

In order for a shareholder to qualify for capital gains tax (CGT) entrepreneur's relief on the disposal of their shares and pay tax at a rate of 10%, they must be an officer or employee of the company (or group) and hold 5% or more of the company's ordinary share capital and voting rights for 12 months prior to the disposal. The company must also be a trading company or the holding company of a trading group throughout the same 12-month period.

In a recent tax case, the judge agreed with HMRC that in determining whether or not the shareholders held the required 5% of the ordinary share capital, all of the company's shares should be considered except those with a fixed rate of dividend (preference shares). A lower court had previously decided that shares with no entitlement to dividends and voting rights could be disregarded.


ADVISORY FUEL RATE FOR COMPANY CARS

These are the suggested reimbursement rates for employees' private mileage using their company car from 1 September 2017.
Where there has been a change the previous rate is shown in brackets.

Engine Size

Petrol

Diesel

LPG

1400cc or less

11p

 

 

7p

1600cc or less

 

9p

 

1401cc to 2000cc

13p (14p)

 

8p (9p)

1601 to 2000cc

 

11p

 

 

Over 2000cc

21p

 

12p (13p)

13p (14p)



You can continue to use the previous rates for up to 1 month from the date the new rates apply.

DIARY OF MAIN TAX EVENTS

 

Date

What’s Due

19th October

PAYE & NIC deductions, and CIS return and tax, for month to 5/10/17 (due 22/10 if you pay electronically)

 

1st November

Corporation tax for year to 31/01/17 (unless paid quarterly)

19th November

PAYE & NIC deductions, and CIS return and tax, for month to 5/11/17 (due 22/11 if you pay electronically)


I
f you have any questions about this newsletter please contact us, we are happy to help.