Autumn Statement 2014 Review

So you would all have seen some sort of media coverage of the Chancellors Autumn Statement but most of what is in the press is just the headline grabbing key items.  In fact as usual there was a vast array of tax areas covered.  A lot, in fact most, of the changes do not affect the majority of people hence you won’t have seen them mentioned in the press.

Here’s my review of the main topics that will cover most of you and the topics that will cover at least one of my clients but there was much more.

If there are any areas that anyone wants me to elaborate on please email me directly.

Income Tax        

The Personal Allowance for 2015/16 will increase to £10,600.

As this exceeds the age allowance this will apply to everyone born after 6 April 1938.

The Personal Allowance for those born before 6 April 1938 will be £10,660.  As this is only £60 more than the standard personal allowance, those whose income exceeds £27,700 will only lose £60 from the age allowance write down.

20% rate band increases to £31,785 meaning the 40% rate band starts at earnings from £42,385, a much needed increase.  Threshold for the 45% rate band remains at £150,000.

National Insurance

No rate changes for Class 1 & Class 4 but the upper earnings limit has been bought into line with the 40% income tax threshold of £42,385.

The rates for Class 2 & Class 3 will be increased.

Class 2 will be bought into the self assessment tax system and be paid with your tax bill from 2015/16 so no more monthly or quarterly direct debits for the self employed.

Employers will not have to pay secondary Class 1 NIC on the pay of employees under the age of 21 years unless they earn over £815 per week.  This is extended to apprentices under 25 years old.

Extension to the £2000 employment allowance which reduces employers secondary Class 1 contributions.  This will now also include domestic care and support workers.

Pensions

Abolition of the 55% charge on death.

• When an individual dies before age 75, the pension fund may pass tax free to the nominated beneficiary.
• When an individual dies over the age of 75, the pension fund, when withdrawn, will be taxed at the beneficiary’s marginal rate of income tax or 45% if taken as a lump sum.

This is extended to Annuities as well.

Overseas Matters

The proposal to restrict the personal allowance to non residents has been delayed until at least 2017.

Non-domiciliary  Remittance Basis Charge (RBC)

Resident in the UK but not domiciled here for:

•    7 out of last 9 years – charge £30,000 per yr unchanged
•  12 out of last 14 years –charge now £60,000 per yr
•  17 out of last 20 years – charge now £90,000 per yr

Property Owners

Stamp Duty Land Tax on residential property has been reformed.  Before if you were buying a property which falls into the 3% bracket you would have to pay 3% on the whole value, now you just pay the appropriate % on the value over each threshold.  Rates as follows:

• Upto £125,000                                 0%
• £125,001 to £250,000                      2%
• £250,001 to £925,000                      5%
• £925,001 to £1.5m                         10%
• £1.5m +                                          12%

Annual tax on enveloped dwellings (ATED)

Came into effect in 2013 and has raised 5 times more revenue than the government expected.

Applies to properties owned by ‘non-natural persons’ ie companies.  These businesses are structured in a way to avoid paying Stamp Duty on purchased and/or Capital Gains Tax on sale.  The ATED charge fills this gap.  Rates as follows:

• Properties worth £2m to £5m       – charge £23,350
• Properties worth £5m to £10m     – charge £54,450
• Properties worth £10m to £20m   – charge £109,050
• Properties worth £20m+                – charge £218,200

Business Owners

Intangible assets transferred on incorporation.  2 measures bought in to reduce the amount of tax relief available on incorporation of a business.

• Entrepreneur’s relief will not be available on the disposal of goodwill where an individual or partnership incorporates their trade.
• Corporation Tax relief is restricted on internally generated goodwill and customer-related intangible assets acquired from a related party on incorporation.

Employees

Simplification of expenses and benefits system.

Business Rates

The current doubling of Small Business Rate Relief will continue as will the 2% cap on the multiplier.

Shops, pubs, cafes & restaurants with a rateable value of less than £50,000 will see their current £1000 discount rise to £1500 pa.

Corporation Tax

The main rate will be bought into line with the small profits rate – both will be 20% from 2015/16.

Capital Gains Tax

Threshold increases to £11,100 for 2015/16

Inheritance Tax

No changes, it’s expected the current nil rate band will stay frozen until at least 2018/19.

ISAs

The annual savings allowance will increase to £15,240, currently £15,000.

ISAs are currently exempt from inheritance tax if passing to a surviving spouse but are taxable in the hands of the spouse.  Now the spouse will receive a tax free allowance to cover the ISA amount so no income or capital gains tax will be payable.

Travel Expenses for Local Authority Councillors

Mileage allowance will now be capped at the Approved Mileage Allowance Payment rates.

Peer to Peer Lending

Growing in popularity due to various new websites

New relief to offset losses from bad debts against other P2P profits.

Other

Numerous other areas which have had some reform, if you want to know more please contact me.

• Non tax-advantaged share schemes
• Anti-Avoidance, Fee income on fund managers
• Special Purpose Share Schemes
• Miscellaneous Loss Relief
• General anti-abuse rule (GAAR)
• Serial tax avoiders
• Offshore tax penalties – now 200%
• Disclosure of tax avoidance schemes (DOTAS)
• Venture Capital schemes
• High risk promoters
• HMRC direct recovery of debts and the power to close aspects of an enquiry.
• Research and Development relief schemes

VAT

VAT on Prompt Payment Discounts – you normally calculate vat assuming customer will take the prompt payment discount.  Now you will have to account for vat on the amount actually paid so will have to re-invoice for the extra vat if discount wasn’t taken.

VAT refunds for search & rescue and air ambulance charities, hospices, various government departments and the Highways Agency which will shortly be replaced by a government owned company.

Air Passenger Duty exemption for under 12 year olds, extending to 16 year olds in 2016.

Fuel duty of 7.9p per litre put on Aqua Methanol.

 

Data from Tolley via Association of Accounting Technicians

Picture courtesy of Unsplash

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A Bit On The Side

A Bit on the Side

No, not what you’re thinking, I’m talking about the Side Gig, Side Hustle, Moonlighting, Homers, whatever you want to call it, it can be a very good idea.

Initially I built up my accounts practice on the side of my day job before leaving that job to grow my business full time.

More and more people are moonlighting on the side of their day job – so why is this such a good idea?

Test the waters

If you eventually want your side job to become your full time job, growing it on the side gives you time to test the waters, experiment and learn.  It lets you try out different strategies to see what works and allows you to fail, all whilst keeping the financial security of your day job.

Not having to rely on your side gig for income allows you to focus on the long term success rather than short term income.

Extra Income

You’ll no doubt make some money from your side gig to compliment your full time income.  Whether you use this extra income to grow the business, save or dig yourself out of debt is up to you but the extra cash will always be nice.

Cash lets you fund your own start up or take a pay cut when you eventually want/need to ditch the full time job and make your side job the full timer.

Money can make you feel that you have options, that you have some backup, that you can afford to fail.  In other words it makes you feel safe, and if you feel safe you are more likely to take the small risks necessary to start up.

What to do

You need to establish what your side gig is going to be – what are you good at, what do you know how to do, what would you like to do, what would others pay you to do.

Getting started

Once you’ve decided what you are going to do you need to work out how you are going to get clients/customers.  How are you going to get the word out about what you are doing and what platforms are you going to use to do this.

Keeping it going

Office management – even if your side job is something low tech such as dog walking, don’t think you don’t need to get involved in office management.

A side gig doesn’t have to be about money.  It can be for fun, to gain experience or self education.   However, if money is the main objective you need to take it seriously.  Dealing with administrative tasks, paperwork, income, expenses, taxes and marketing all need to be done.  If you are making money you have a legal obligation to declare this for tax which requires some record keeping.

Stay Organised

If you’re working 9–5 and then moonlighting on the side, you are going to be busy.  You must stay on top of the admin and if you are making money you need to stay on top of the finances.  Keep track of all income, expenses, bank and paypal accounts.  You may need to develop systems for tracking this, customer/client relationship management and other items relevant to your line of work.  These systems can be anything from notebook scribbles or spreadsheets to specialised software.  The more you have going on, the more you need to attend to these back office tasks.

Word of warning

If your side gig is something that could tread on the toes of your full time employers business, you should get their permission first as there may be clauses in your employment contract to stop employees setting up in competition against them or stealing their clients.

Photo Credit: Splitshire.com

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New Annual Tax Statements

So October is just a handful of days away, and this October not only allows us to throw our car tax discs away but for some of you lucky folk October also brings you the New Annual Tax Statement.

One of the Coalitions promises back in 2010 was that every tax payer would be sent a statement of their tax position, including National Insurance and where the money is spent. Four years on and they are nearly here – but not for everyone.

Initially the statements will only cover your tax position for 2012/13 and will only go out to those paying tax under self assessment and are registered for HMRCs online services; or if you pay PAYE and receive a P2 Notice of Coding or a P800 tax calculation.

If you do receive one of these you don’t need to do anything with it, as it’s just for information purposes but it would be good to check through it.

One very handy use for this statement will be to check your NI contributions. There are new State Pension rules coming into effect in April 2016 and to receive the full State Pension you need to have paid the correct amount of NI contributions for 35 years. You will be able to check that you have paid enough with these statements.

We await their arrival!!

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HMRCs Home Office Policies

How much can you claim, for using a room in your home for business purposes?

HMRCs guidance uses typically vague words such as ‘fair & reasonable’ and ‘modest or excessive’. The trouble is someone earning mega money will think one figure is fair and reasonable but to most of us the same figure would seem excessive.

HMRC believes just £4 per week is all that should be claimed for the use of a home office. This measly amount is deemed as a ‘significant’ expenses and any claim over this amount must be justified by providing records or demonstrating your calculations.

How to can claim over the £4 per week

One way to prove your claim is reasonable is to calculate your monthly outgoings for gas, electric, rent, water etc then divide this by the number of rooms in the property (excluding kitchens & bathrooms).  For example if you have 5 rooms (Lounge, Dining Room, 3 Bedrooms) and one is used as an office take 1/5^th of these bills.

If this amount seems too substantial for your business use you could divide it down further by the number of hours you spend in it working each day eg, 8/24 hrs or by the number of days per week that you work or by square meterage if known.

Beware

Be careful if claiming for more than one room as you will need more justification but it is possible ie a photographer could have an office and a darkroom (days before digital).

You should never claim the room is ‘solely’ for business purposes as this could lead to a business rates claim by the local council for part of your home or even Capital Gains Tax when you sell your property. Most people’s home office also doubles as a spare bedroom or is home to the unused exercise bike or the kids use it for doing their homework.

If you run your business through a Limited Company you can draw up a lease agreement so your company is reimbursing you for the costs of the room thus reducing your Corporation Tax but again, to be exempt from Capital Gains Tax when you sell the property make sure the agreement doesn’t state that it is solely and exclusively for business purposes.

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Tax Payments on Account

So 31^st January has long passed which means most of you Self Employed have paid your tax bill. This is never going to be good but when Payments on Account kick in, it’s doubly rubbish and you’ll be currently saving to pay the 31^st July bill. So why do some just pay in January and some have to pay in January and July? It is simple but always seems quite complicated when you start to explain how this works but here goes.

Firstly payments on account kick in when your tax due for the year is in excess of £1000. Each payment on account is for half your previous tax bill and the payments are due on 31^st January and 31^st July.

So for example, if your tax is £999 for the year ending 5^th April 2014 that is how much you need to pay by 31^st January 2015. No payments on account needed, simple.

However, if for the first time your tax bill for the year ending 5^th April 2014 comes to £1000, you will not only have to pay the £1000 by 31^st January 2015 but you will also have to pay £500 on account of the next tax year, so £1500 by 31^st January 2015 then another £500 by 31^st July 2015.

Then once your tax bill for the following tax year ending 5^th April 2015 is calculated, and for example, it comes to £1200 due 31^st January 2016, you have already paid £500 twice on account of this so only the balance of £200 is due but you also have to pay half of the £1200 on account of the following year so your payment for 31^st January 2016 would be £200 + £600 with another £600 due by 31^st July 2016.

Clear as mud!!!

Any tax overpaid in advance will be refunded with interest and if you know in advance that your next year’s tax bill will be lower, the payments on account can be reduced.

It’s always best to get your tax bill calculated as early as possible so if you do have a nasty bill, you have longer to save for it or if you have overpaid, you get your money back earlier.

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Beware of the HMRC Tax Refund Scam Emails

Ok, so my first blog post and it’s going to be a word of warning.  I promise to do slightly more interesting posts as I get the hang of this blogging lark.

You may have received one of these emails before, I know I have, and I know some of my clients have received them as they’ve queried them with me.  Every year tens of thousands of these emails are sent appearing to originate from HM Revenue and Customs.  They are actually from scammers attempting to get your bank or card details – this is called Phishing.  A lot of people must fall for this scam or the scammers wouldn’t keep sending them out.

The email informs you of a tax refund you are entitled to receive and all we have to do is claim it. It then goes on to tell you that it can be transferred directly to your bank account and all you have to do is enter your bank details.  It then directs you to a link where you can enter your bank details,

this is where they steal your details –

never click on links from any emails to enter bank details, always go direct to the source website.

HM Revenue and Customs has stated that ‘HMRC will never tell you about a tax rebate, or ask you to disclose personal or payment information by email’.

If you do receive one of these emails just disregard it.  If you wish to, you can report these as HMRC has set up a dedicated phishing email reporting service at phishing@hmrc.gsi.gov.uk .  Forward the email to them and their Fraud team will look into it.

This is not the only scam to appear to originate from HMRC, there are others connected to online VAT  and tax and as the use of online filing becomes more widespread so will the devious scammers emails.

So be vigilant, have a good anti-virus program,

be careful about clicking on links in emails and do not enter bank details through any email ever. Ever.

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