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The Autumn Budget 2017 (and other matters)

Mr Hammond presented his second budget today but there seemed very little in his speech that related to small business. Most of the tax changes had been announced in advance so he took the opportunity to update economic forecasts, and confirm that by adopting a balanced approach his budget would ensure equal opportunities for all through fiscal responsibility.

Mr Hammond reported that all growth forecasts had been down rated and although things were not as good as had previously been hoped for, we were still moving in the right direction – it might just take a little longer to get there.

As was the case with his predecessor, we were left thinking that perhaps everything was not so bad after all. Predictably enough, though, Mr Corbyn told us that things were actually worse!

As usual, we will comment on the more relevant points in the Budget a little later but for anyone who cannot wait, the full budget speech can be found at:-https://www.gov.uk/government/speeches/autumn-budget-2017-philip-hammonds-speech

There are loads of other links to interesting parts of HM Treasury website for those looking for more information on the country’s finances. In addition all the Budget Notes, Press Releases and other supplementary documents are available from here:-

https://www.gov.uk/government/collections/autumn-budget-2017-tax-related-documents

and here:-

https://www.gov.uk/government/organisations/hm-treasury

For now, we take the opportunity to deliver some bullet point reminders from previous years’ letters, together with a few new ones. Please take a few minutes to read through them.

  • Self Assessment Tax Returns and Filing Notices to us please.
  • Please let us have copies of any Notices of Coding you receive if you have a PAYE tax code, and we also complete your Self Assessment Tax Return (or, indeed, if you simply want us to check it).
  • Please keep/obtain certificates for all interest and dividends received (even though most interest is now paid gross). Please do this as soon as possible, and chase up any that do not arrive during the normal course of things. In all cases the certificates should be for the Tax Year ended 5 April 2017 (2016/17).
  • Please keep records of business/private mileage if making a claim for business use of vehicles. This is increasingly important as recent HMRC enquiries have identified this as an area where taxpayers have inadequate records. Evidence suggests that some clients are still not keeping adequate records – please ensure that you do. The consequences of not being able to prove ‘business use’ can be severe particularly as HMRC can ‘go back’ six years and charge interest and penalties on the underpaid tax (as well as demanding the tax, of course!). Please note that HMRC treat travel from home to predictable and regular places of self-employment as being personal, not business, mileage.
  • Please keep all business records for a minimum period of six years (or longer if space and circumstances permit).
  • Please let us have copies of any Self-Assessment Tax Calculations or Statements of Account that you receive from HMRC.
  • If your spouse works within your business, he/she must be treated like any other employee. Any salary paid should be taxed and NIC’d if appropriate, and the net pay must actually be paid and entered in your books. It is not acceptable simply to make a transfer at the end of the year, when we are preparing the accounts. This is another area where HMRC continues to be increasingly active!
  • We do not carry out Tax Credit work but suggest that all clients review their situation at least once a year as there are fixed time frames during which claims must be made. Universal Credit replaces some existing Tax Credits and benefits. An outline of the system can be accessed at http://www.hmrc.gov.uk/taxcredits/universal-credit.htm. The system and claims procedure is far from simple but we suggest that everyone ‘takes a look’ to see whether they might qualify.

For further detailed information please visit http://www.hmrc.gov.uk/TAXCREDITS

  • Most employers are now required to file their PAYE information under the Real Time Information (RTI) rules which came in from 6 April 2013. Information on the PAYE Scheme can be found at:-

http://www.hmrc.gov.uk/payerti/getting-started/paye-basics/rti.htm

Please read all HM Revenue & Customs (HMRC) correspondence and email notifications that you receive as, normally, you will not have been sent anything, unless it applies to you. However, please be aware that there are an increasing number of scam HMRC emails in circulation, so please exercise caution before opening any attachments.

  • All employers are legally required to provide workplace pensions to certain of its employees (under the process known as ‘Auto Enrolment’). If you are an employer, you should by now have received details of the new requirement and have been advised of your ‘staging date’ (the date by which the new automatic enrolment duties come into force for your business).

The rules apply even if you only have one employee (this can be you if you are a one man/woman company). Details of the scheme can be found at:-http://www.thepensionsregulator.gov.uk/en/employers

  • We offer, through two independent financial advisers, a full range of investment, pension and financial services. If you would like a free consultation and appraisal of your current arrangements, then please telephone to arrange an appointment. In particular, we recommend that you review your pension arrangements, and life and accident insurance cover once a year, as well as ensuring that you have an up to date and valid Will in place.
  • In January 2016 the Government introduced a requirement for private landlords to make ‘right to rent’ checks on prospective tenants aged 18 or over before the start of a new tenancy entered into on or after 1 February 2016. Details of what is required can be found at https://www.gov.uk/check-tenant-right-to-rent-documents/who-to-check
  • Please remember that we, like all accountants, solicitors, banks and building societies etc., are required, by law, to comply with the Proceeds of Crime Act and the Money Laundering Regulations. Amongst other things, we are obliged to report any evidence (or suspicion) of criminal activity, to the National Crime Agency (NCA) who pass the information on to HM Revenue & Customs (HMRC) and/or (if appropriate) the Police. For an insight into NCA, please visit http://www.nationalcrimeagency.gov.uk/
  • Please remember that all U.K. residents must include on their U.K. Tax Returns details of all their ‘worldwide’ income and gains. There is no de minimis level so everything must be disclosed even if it has been reported in the host country.

The U.K. has Double Taxation Agreements with many other countries to ensure that the same income is not taxed more than once, so the fact that you may already have paid tax abroad does not relieve you of the obligation to declare the income on your U.K. Tax Return.

  • We offer a fee protection service which covers the cost of our fees in the event of you being subject to an HMRC enquiry. Please let us know if you would like details of what is (and what is not) covered by the scheme, and the costs involved.

Just before the Budget an update on:-

Making Tax Digital for Business (MTD)

MTD continues to be a bit of a mystery to those people who believe that it will either not apply to them or that, somehow, everything will be alright without them needing to do anything. Unfortunately this is not the case (and we repeat from our March 2017 letter):-

If you have business or property rental income in excess of £10,000 per annum then MTD WILL affect you and it could bring the most significant change ever to the way you record and report your business transactions.

We first reported on the government’s intention to change the way in which small businesses and landlords record and report income to HMRC, in our 2015 Spring Budget Letter. The announcement was headed End of the Annual Tax Return and I reproduce much of what followed below:-

According to Mr Osborne, at least, paper Tax Returns are to be abolished and replaced with personal Digital Tax Accounts which will be prepopulated with information already available to HMRC – information such as interest received from banks, and earnings and pensions already subjected to PAYE, and state benefits (including pensions) etc.

The onus will then be on the taxpayer to access the account online and check the information to ensure that it is correct before raising any queries with HMRC, and inputting any (missing) data that HMRC has not already collected.

The plan is that self-employed people will regularly download details of their trading data direct from their accounting software via their smartphone or computer, so that HMRC knows in ‘Real Time’ more about them, than they do!

The theory is that the new system will enable taxpayers to calculate their tax liabilities earlier and so make payments on account (if they wish, and at a time to suit) thus avoiding the panic in December and January trying to meet filing deadlines etc. So a much easier process for all concerned (according to the Chancellor!).

At this point some of you are probably wondering if I have finally ‘lost it’ - but I kid you not.

There are many questions to be answered as to how it will actually work (such as how? where? when? and even possibly why?) but clearly it is an indication of things to come.

Taxpayers who currently file their Tax Returns via the HMRC website may in fact find it a simpler process, but it could mean a major change in M.O. for those with anything other than the simplest of affairs.

Two years down the track and after consulting with any number of interested bodies, the government has reaffirmed its intention to press ahead with the project which it has now called “Making Tax Digital for Business” (MTD, for short).

The government has decided how the general principles of MTD will operate and draft legislation has been issued on some aspects. Further information will be published in the Finance Bill 2017.

Under MTD, businesses, self-employed people and landlords will be required to:-

•• maintain their business records digitally, through accounting software or apps

•• report summary information to HMRC quarterly through their digital tax account

•• make an ‘End of Year’ declaration through their digital tax account (DTA).

DTAs are like online bank accounts – secure areas where a taxpayer/business can see all of its tax details in one place and interact with HMRC digitally.

The End of Year declaration will be similar to the online submission of a self-assessment tax return but may be required to be submitted earlier than a tax return. Businesses will have 10 months from the end of their period of account (or 31 January following the tax year – the due date for a self-assessment tax return – if sooner).

Clearly this will be a major challenge for taxpayers who currently maintain hand written records, as they will need to acquire suitable accounting software and ensure that the bookkeeping is maintained in ‘real time’ (not once a year!). Taxpayers who currently present their accountant with a bag of receipts and a partially written up cash book (so that their accounts and tax return can be prepared) will have even greater issues to address if they are to ‘embrace the challenge’ and ‘benefit’ from the new system.

The original intention was that the new system would be introduced from 6 April 2018 (i.e. next year) but the government has been persuaded that this is an unrealistic target for smaller business so they have now announced a one year deferral (to April 2019) from the mandating of MTD for unincorporated businesses and unincorporated landlords with turnovers below the VAT threshold (£83,000). For those that have turnovers in excess of the VAT threshold the commencement date will be with effect from the start of accounting periods which begin after 5 April 2018.

The only good news is that businesses, self-employed people and landlords with turnovers of under £10,000 are exempt from these requirements, altogether. Corporation Tax payers will be brought into the system from April 2020.

As with all similar government ‘initiatives’ there are fines and penalties for getting it wrong or for other non-compliance, although we are promised that these will not be applied during the first year.

This is the latest phase of the government’s commitment to reduce the administrative burden on small business (similar to the RTI reporting of PAYE, and the Auto Enrolment of employees into an employer’s pension scheme).

There is still some doubt as to how the MTD system will be implemented, but this should become clearer during the coming months. HMRC will be using this extra year to deliver targeted support for smaller businesses through guidance and online training.

However, as far as I am aware neither the government nor HMRC has written to taxpayers about this (if they have written to you, please send me a copy of the letter) so it is possible that you were hoping it had all gone away. Unfortunately too much time and money has been invested for this to be the case so it should be taken seriously (unless retirement is imminent, of course).

In July 2017 the government reviewed the progress being made with the project and issued an update which can be found here:-

https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital

Basically (as far as we can tell) a further period of grace has been given to ensure that everyone (HMRC and taxpayers) is ready for such a major change. The revised timetable (for entering the system) requires all VAT registered traders with turnover above the VAT registration threshold of (currently) £85,000 to keep their accounting records digitally by April 2019. They will also be required to file their VAT Returns through the MTD system from that date. Taxpayers who have registered for VAT voluntarily will be exempted at this stage.

Businesses will not now be mandated to use the MTD system for other purposes until April 2020 at the earliest.

The government has issued an overview of the VAT process here:-

https://www.gov.uk/government/consultations/making-tax-digital-reforms-affecting-businesses/making-tax-digital-for-vat-legislation-overview

Please see the sections on record keeping and third party software as changes to your accounting system will (almost certainly) be required.

Of course it is possible that there will be further delays and changes, but I think it would be wise to assume that the implementation dates will be as above.

So, you have decided not to retire after all – well, MTD is still a fair way off and something will ‘turn up’ to save you from it anyway, so safe to go back in the water? ‘Yes’?

Sadly ‘No’.

General Data Protection Regulation (GDPR)

There is now a new set of rules (GDPR) for people holding or processing personal data.

A general overview can be found here (together with links to more detailed information):-

https://ico.org.uk/for-organisations/guide-to-the-general-data-protection-regulation-gdpr

Our understanding is that if you hold personal data on employees, customers, or suppliers (i.e. anyone) then you will need to comply with GDPR from 25 May 2018, so not too far away. There are fines of up to 20 million euros (or up to 4% of your global income, if higher!!) for getting it wrong. The currency of the fines indicates where this has originated but Brexit does not affect it as the U.K. Government is committed to carrying it through. Clearly this is aimed at the ‘big boys’ but anyone holding personal data is also caught by the regulations (but possibly to a lesser extent).

At this point we have to admit that we have not yet audited our own business (to see what we have to do) but we know that we will be affected. In the absence of a lottery win, we propose to do this in early February 2018!! As with all previous government inflicted ‘initiatives’ we suspect that a whole new profession of consultants and advisors will ‘spring up’ to help you (for very reasonable fees, of course). Quite how this will be ‘policed’ we do not know but we would suggest that you approach your own trade/professional bodies for guidance. The Federation of Small Businesses (FSB) provides some very useful (if rather scary) free information here:-

https://www.fsb.org.uk/

We have seen the first FSB video and believe that most businesses will be caught by the new rules.

If you have employees, customers, or suppliers (on whom you hold data) then they are data ‘subjects’ and they have rights under the new rules to know what information you hold so that any errors or omissions can be corrected. So it (GDPR) has wider implications than possibly first imagined.

The Budget

As usual, the Budget has been covered extensively in the news, news programmes and in the press and, as mentioned above, the full text and a recording can be accessed on the HM Treasury website. Most of the Budget proposals have been announced in advance so there is little more to report.

Notwithstanding this, the main Budget Proposals can be summarised as follows:-

Stamp Duty Land Tax (SDLT)

SDLT is abolished for first time buyers on homes costing up to £300,000. For first time buyers purchasing homes costing in excess of that, the first £300,000 is free of SDLT.

Income Taxes

The standard personal allowance has been increased by £350 (from £11,500 to £11,850) for 2018/19.

The Personal Savings Allowance continues to make the first £1,000 of interest received on bank and building society accounts ‘tax free’ for basic rate taxpayers. For 40% taxpayers the allowance is £500 per annum, but there is no allowance for 45% taxpayers.

The first £2,000 of dividend income will be taxed @ 0% from 6 April 2018 (falling from £5,000 the year before). After that, basic rate taxpayers will pay tax @ 7.5%, higher rate taxpayers @ 32.5%, and additional rate taxpayers @ 38.1%.

A full table of rates and allowances can be found in our Budget Summary.

Capital Gains Tax

The Capital Gains Tax annual exempt amount increases from £11,300 to £11,700 for 2018/19. The rates of tax remain unchanged at 10% for basic rate taxpayers, and 20% for higher and additional rate taxpayers. However, gains on chargeable residential properties (buy to lets, and second homes) continue to be taxed @18% and 28% as at the moment.

Corporation Tax

As announced previously, the main rate of corporation tax fell from 20% to 19% from 1April 2017 for three years. It was also confirmed that the rate would fall further to 17% from 1 April 2020.

Inheritance Tax

There are no changes in the main rates or allowances, and the nil rate band of £325,000 will remain until at least 5 April 2021.

The residential property enhancement to the nil rate band (when a family home is left to a direct descendant) was introduced from 6 April 2017, starting at £100,000 and rising in stages to £175,000 by 2020/21 (as previously announced).

National Insurance

It was intended that Self-employed Class 2 contributions would be abolished from April2018. However this has now been delayed until April 2019 so that the government can assess the impact on low earners who pay the voluntary Class 3 contribution.

VAT

There were no changes to the main rates, or either the registration threshold of £85,000 or the deregistration threshold of £83,000.

Employment

As mentioned last year, the rules surrounding the taxation of company cars (whether owned or leased) remain complicated. Fortunately there were no fundamental changes in the Budget meaning that the changes announced previously ‘kick in’ as planned. Rather than repeat everything here, the rates applying for 2018/19 are summarised on page 14 of our Budget Summary.

Savings and Investment

As reported last year a new ‘Lifetime ISA’ (LISA) was introduced from 6April 2017. The ISA is be open to adults aged between 18 and 40 (with contributions allowed up to age 50). There is an annual maximum investment limit of £4,000 and the government will add a bonus of 25% of the amount saved. The funds can be used either to purchase a first home, or to save for retirement.

The general ISA annual investment limit for adults remains at £20,000 from 6 April 2018.

Finally Some Timely Reminders

As reported in previous years, please remember that fines and penalties are now imposed on the late filing of returns and payments of PAYE, National Insurance and CIS deductions, and just about everything else to do with HMRC. If there is any possibility that payment might be delayed it is important that HMRC is contacted before the due payment date, so that an arrangement can be made.

N.B. This page was produced shortly after the Budget Speech, so please contact us before making any decisions based on information outlined above


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