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Welcome…
To February’s Tax Tips & MYOB News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
Don’t forget to pay any Self-Assessment Tax within the next few days. See article below with details of how to pay.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
Please contact us for advice on your own specific circumstances. We’re here to help!
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Dividends Tax Briefing |
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We have had a lot of interest in the forthcoming changes to Dividends Tax. So, to help make it clearer, we are sending out a worked example.
The Chancellor announced in his Summer 2015 Budget speech that from 6th April 2016 a new form of income tax would apply to dividends and similar un-earned income. There will be a £5,000 tax-free allowance, regardless of the level of tax paid on other income. Strictly speaking, this is a ‘Zero Rate’ band, in that all dividends are taxable. A person having no earned income can receive up to £16,000 in dividends before the new 7.5% rate applies. This means there is an advantage granting dividends on small shareholdings owned by low-waged staff/ relatives.
Dividends beyond the £5000 Dividend Allowance and £11,000 Personal Allowance will be taxed at:-
- 7.5% within the Basic Rate (20%) of taxable income
- 32.5% within the Higher Rate (40%) of taxable income
- 38.1% within the Upper Rate (45%) of taxable income
The actual tax on dividend income will, even more than currently, depend on the marginal rate of tax arising from other earnings.
Example
Salary £11,000; Dividend income £12,000:-
2016-17 Salary Dividends Total
Income 11,000 12,000 23,000
Allowance 11,000 5,000
Taxable Total 0 7,000 7,000
% Dividend
Tax Taxable Tax Rate Tax/ PAYE
Salary 0 20.0 0
Dividends 7,000 7.5 525
Total Tax 525
The Personal Allowance of £11,000 offsets the Earned Income. The Earned income would create a corporation tax credit in the company of £2200. However the wages would incur some £350 of National Insurance.
The £12,000 dividends is then reduced by the new £5,000 Dividend Allowance, leaving £7,000 of net dividends to be taxed at the 7.5% basic rate. This gives a dividend tax bill of £525.
[Note: under the 15/16 dividend rules, £Nil tax was payable.]
So you can earn £23,000, pay only £525 tax and £350 National Insurance and still recover £2200 from your Corporation Tax!
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HMRC prepare for National Living Wage (NLW) |
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Simplification of VAT MOSS for small businesses |
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The Government has recently launched its campaign to promote the introduction of the new national living wage (NLW), which will take effect from 1 April 2016. From that date workers in the UK aged over 25 earning the minimum rate of £6.70 per hour will see a 50p increase in their minimum hourly rate, which is set to rise to £7.20 per hour.
The NLW will be enforced by HMRC alongside the national minimum wage (NMW), which they have enforced since its introduction in 1999.
The rates from 1 October 2015 are:
- £7.20 aged 25 and over (from 1/4/16)
- £6.70 aged 21 to 24;
- £5.30 aged 18-20;
- £3.87 for those aged 16-17, who are above school leaving age but under 18; and
- £3.30 for apprentices under 19, or 19 or over who are in the first year of apprenticeship.
There are a number of people who are not entitled to the NMW, including:
- self-employed people;
- volunteers or voluntary workers;
- company directors; and
- family members.
All other workers including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW.
The NMW is reviewed annually by the Low Pay Commission and any changes to the rate are normally introduced in October each year.
Following the recent Spanish case of Federacion de Servicios Privados del sindicato Comisiones Obreras v Tyco Integrated Security SL (Tyco) (Case C?266/14), there could potentially be NMW claims if, taking into account travelling time, a mobile worker’s hourly pay rate falls below the minimum rate. The UK professional bodies are currently assessing the impact of the European Court of Justice (ECJ) decision in this case on the NMW and further guidance is expected in due course.
Meanwhile the Living Wage Foundationdemands a higher rate of £8.25 (£9.40 in London) from 1/4/16. Those employers paying this higher (voluntary) rate are able to apply for accreditation as a ‘Living Wage Employer’ (see livingwage.org.uk)
Employers need to take action over the coming weeks to ensure they are ready for the launch of the NLW on 1 April. There are stiff penalties for breaches.
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HMRC Brief 4/2016 outlines simplifications available to businesses trading below the UK’s VAT registration threshold (currently £82,000) that make supplies of digital services (telecommunications, broadcasting or electronically supplied services) to consumers in other EU member states.
Businesses need to determine where their customer is located. There are specific rules in place for certain types of transactions.
HMRC Brief 4/2016 entitled VAT MOSS – simplifications for businesses trading below the VAT registration threshold, outlines simplifications available to businesses trading below the UK’s VAT registration threshold (currently £82,000) that make supplies of digital services (telecommunications, broadcasting or electronically supplied services) to consumers in other EU member states. Some simplifications are already in place and Brief 4/2016 announces two new areas of help for the smallest businesses.
Businesses need to determine where their customer is located. There are specific rules in place for certain types of transactions (see the gov.uk website here for further details). For all other supplies of digital services, the normal rule is that businesses must collect two pieces of non-contradictory information to evidence their customer’s location.
HMRC have previously allowed UK businesses that are below the UK VAT registration threshold and registered for VAT MOSS, to base their customer location decisions on a single piece of information provided to them by their payment service provider.
HMRC introduced this simplification in response to feedback from small businesses that said that they found it difficult to obtain two pieces of evidence. However, in the latest guidance, HMRC say that they recognise that some small businesses have still found this difficult. Consequently, they have now said that they will allow businesses below the UK VAT registration threshold to ‘exercise their best judgement’.
This means businesses can rely on any single piece of information, such as the address provided by the customer, to determine where their customer is located. This additional flexibility should provide additional help for businesses below the UK VAT registration threshold.
Of course this relaxation doesn’t make life much easier for those businesses subject to MOSS. We recently came across a charity having to account for VAT in all other EU countries, but not in the UK. It was having to report a few pounds of sales to each EU country.
And the sale of ‘digital services’. Well these are related to an onlining volunteering pack the charity sold to would-be volunteers.
There is hypocrisy in the HMRC’s generous attitude to Google, compared to its finicky attitude to small
Brief 4/2016 can be found on the gov.uk website here.
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Payment of Self Assessment
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February Questions and Answers |
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You probably will be paying your 2014/15 personal tax now. The best way to pay this is by BACS/bank transfer. Here are the details.
HMRC Bank account details:
Sort Code: 08 32 10
Account number: 12001039
Account Name: HMRC Cumbernauld
Payment Reference: Quote your 10 digit Unique Taxpayer Reference (UTR), for example 1234567890, as your BACS payment reference. Quote the reference number with no gaps between the characters. This number is sometimes shown by the HMRC as a thirteen digit number. This longer number has a leading three digits which can be removed for the purposes of this payment. Follow the 10 digits with an eleventh digit…. a letter ‘K’. Lord knows why. The mysterious ways of the HMRC.
Penalties
If you pay late there is a five percent late payment penalty if the balance is unsettled one month after the 31st Jan payment deadline. There is a further 5% six months and a further 5% twelve months after. Interest is also payable from 1st Feb.
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Q. Did my extended leave constitute a cessation of trade? I have been the sole director of a trading limited company for many years. Last year, I decided to take a long holiday and travelled around the world with my wife – indeed, we got on so well that we stayed away for around 12 months! Whilst I was away the company continued to collect outstanding payments, but it received no other income. I have now taken on another director/shareholder (50%) and company trading has resumed. Should I have informed HMRC that I was going away and how should the losses in the period of temporary non-trading be treated?
Answer
Q. Should I transfer my rental property to my wife? I own a flat which has a buy-to-let type mortgage on it. I am a higher rate taxpayer, but my wife doesn’t work and doesn’t pay tax. Can we arrange things so that she receives the rental income and responsible for any tax due?
Answer
Q. Is my season ticket loan taxable? My employer says he will give me an interest-free loan to purchase my annual rail fare ticket. This is very kind of him, but as the annual cost of the ticket is £6,000 I am worried that I will have to pay tax on the loan.
Answer
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February Key Tax Dates |
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 31 Jan – Self Assessment Tax due
2 – Last day for car change notifications in the quarter to 5 January – Use P46 Car
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/2/2016
28 – Talk to us about year end and pre-budget planning
First 5% penalty surcharge on any 2014/15 outstanding tax due on 31 January 2016 still unpaid
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Please contact us if we can help you with these or any other tax or accounts matters.
In addition, if there’s anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
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If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.
See details of our Business Companion Service.
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Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Wave, Mamut, Solar Accounts, Quickbooks or Clearbooks.
‘All clients using these software packages can benefit from our support. Visit our website http://www.simpleaccounting.co.uk for a look at the resource on offer.’
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