The Blog

Online filing of CIS returns from April 2016

From April 2016 Construction Industry Scheme (CIS) returns must be filed online as a legal requirement.

Paper filing of CIS returns will disappear for the new tax year 2016/17 as the government make a further push towards making tax digital.

The Construction Industry Scheme is a mandatory withholding tax where either 20% or 30% is deduced from a self-employed construction subcontractor’s payments and paid directly to HMRC on their behalf.

Contractors who pay subcontractors for any construction work must be registered and tell HMRC each month about payments made to subcontractors through a CIS return.  They must also keep records of the gross amount of each payment invoiced by subcontractors and any deductions made from subcontractor payments for at least 3 years after the end of the tax year they relate to.

Many contractors already file online, but from April the tax office will no longer accept any paper forms. It will also be possible to make amendments online to increase filing accuracy.

Gross payment status

Eligible subcontractors can register for gross payment status if they don’t want deductions to be made in advance by contractors. This means that contractors will pay them in full, without deductions, and the subcontractor then pays all their tax and National Insurance at the end of the tax year.

Gross payment status is much better for the cash flow of a business and reduces the administrative burden of having to claim tax repayments.

To qualify for gross payment status you must be able to show HMRC that:

  • You’ve paid your tax and National Insurance on time in the past
  • Your business does construction work (or provides labour for it) in the UK
  • Your business is run through a bank account

HMRC will look at your turnover for the last 12 months (ignoring VAT and the cost of materials), and you must meet the minimum turnover threshold to qualify.

From April 2016 the minimum turnover test companies have to meet in order to register for gross payment status will be halved from £200,000 to £100,000.

Contractor status

From April 2017 contractors will be required to use HMRC’s online service to verify a sub-contractor’s tax status.

Exceptions

From April 2016 a contractor must file monthly returns online unless:

  • The contractor’s religious beliefs preclude the use of electronic communications, or
  • The tax office has agreed that it would be impractical, based on, for example, age or ill-health

Contractors who fall within these exceptions will be able to continue filing paper returns and verifying the tax status of their subcontractors by contacting the HMRC CIS helpline.

What does the Budget 2016 mean for property?

Stamp Duty Land Tax changes

The Budget announcement included a reform to Stamp Duty Land Tax (SDLT) on commercial property, following changes to SDLT in the residential property market last year.

From 17 March 2016 a new progressive banding system was introduced to replace the old ‘slab’ system, which was the same approach for residential property introduced in December 2014.

The reform will be welcomed by buyers of commercial properties up to the value of £1.05m as they will pay less SDLT, but purchasers of properties worth more than this will pay more.

Rather than charging a single rate of tax on a transaction, each rate of tax is now payable on the portion of the chargeable consideration which falls within each rate band.

These changes are immediate and apply to all commercial property transactions, as well as those involving a mixture of commercial and residential properties in the UK (other than Scotland) where exchange and completion takes place after 16 March 2016.

Residential property surcharge

The 2016 Budget also confirmed the previous Autumn Statement announcement that a 3% SDLT surcharge will be payable by all companies and individuals from 1 April 2016 on the purchase of additional residential property in England, Wales and Northern Ireland. This applies on top of the existing SDLT charge for residential property purchases.

 

To find out more about how the Budget will affect you and your business, download our full report here.

If you have any questions regarding the new SDLT rates and system, please contact us to discuss this with our expert team.

Register of people with significant control – what you need to know

From April 2016 all companies in the UK must keep a register of people with significant control (PSC) and inform Companies House of who those people are in June.

The new PSC register will contain information on individuals who own or control UK companies, in a move that requires businesses to be more transparent.

For most companies, PSCs will be people who:

  • Hold more than 25% of a company’s shares
  • Hold more than 25% of a company’s voting rights
  • Have the right to appoint or remove the majority of directors

There are also two less common options:

  • Any individuals who have the right to exercise or actually exercise significant influence or control are classed as PSCs
  • Where a trust or firm meets one of the three statements above, any individuals with significant control or influence over that trust or firm are classed as PSCs

Companies are required to keep a record of these people containing the following information:

  • Name
  • Date of birth
  • Nationality
  • Residential address
  • Service address
  • Date they became a PSC and which statement applies to them (e.g. they hold more than 25% of your company’s shares)

This information should be confirmed with the PSCs before they are added, and must be submitted to Companies House from 30 June as part of a confirmation statement (which replaces the Annual Return).

People are entitled to see the PSC register for any company, but residential addresses should be removed. Companies House will make this available online but they will not make residential addresses available to the public either.

PSC registers cannot be blank. Companies who have no PSCs or are waiting to confirm these details must state this on their register and tell HMRC. PSC information should be updated as soon as the correct details are available.

Where an individual can show that they are at risk of intimidation or violence because of their connection with a certain company (e.g. their company is the target of activists), they can apply to have their full details suppressed. In these cases the PSC register will include a statement that a PSC exists, but their details will not be made available. PSCs believed to be at risk should make an application for protection as soon as possible.

Companies must start keeping a PSC register from April 2016 and will need to file this with Companies House from 30 June 2016.

The requirement to create and maintain a PSC register will be an additional administrative burden for many companies. At Ormerod Rutter we offer a range of company secretarial services that can assist with this. Please contact us for more information.

Budget 2016: Personal tax changes

Chancellor George Osborne announced a number of changes to income tax in last week’s Budget, including an above-inflation increase in the level of earnings before tax applies and an increase in the level at which the higher tax rate starts.

The personal allowance, below which no income tax is paid, will increase to £11,500 in April next year, instead of £11,200 as had been planned.

The threshold for the higher 40% tax rate will rise to £43,000 from April this year (from the current level of £42,385) and will then increase again to £45,000 in April 2017.

The Chancellor announced that this will reverse the “fiscal drag” that has seen increasing numbers of taxpayers pushed into the higher rate band. It is reported that there will be 585,000 fewer 40% taxpayers after the change.

Mr Osbourne said that the rise in the personal allowance will ensure that nobody working 30 hours a week on the national minimum wage will pay income tax after April 2017. The change will bring the total number of taxpayers taken out of income tax since the start of this parliament to 1.3 million.

A typical basic rate taxpayer will see a reduction of more than £1,000 in their income tax bill in 2017-18 compared with 2010-11.

The government will also increase the ISA limit to £20,000 from April 2017, and will introduce a new lifetime ISA for those under 40. Savers can put in up to £4,000 per year and the Government will pay a 25% bonus for every £1 they put in. Contributions can be made up to age 50 and funds can be withdrawn at any time to fund the purchase of a home (under £450,000), or from age 60 to use in retirement. Accounts will be available from April 2017.

To find out more about how the Budget will affect you, download our full report here.

What does the Budget mean for small business?

Last week’s Budget announcement included some new tax measures which will be a boost for start-ups, entrepreneurs and small businesses.

The plans to keep cutting Corporation Tax down to 17% by 2020 will benefit micro-businesses which are incorporated as limited companies. For some owner-directors, these changes may offset the additional cost of the planned increase in the dividend tax.

From April 2017, 600,000 small businesses will not have to pay business rates, and 250,000 will pay lower rates, as the government announced that the Small Business Rate Relief (SBRR) threshold will be permanently doubled to £12,000 and tapered further to £15,000.

Class 2 National Insurance Contributions (NICs) will be completely abolished for 3.4 million self-employed people by 2018, and tax and rate cuts have made Enterprise Investment Schemes (EIS) and venture capital trusts more attractive to investors.

A number of reforms were also announced to help small businesses cope with “the great unfairness” they face when trying to compete with some suppliers selling online.

Small businesses have welcomed what they said are long overdue reforms to tax policy.

Other key changes announced include:

  • £12bn to be raised from tax avoidance
  • Crackdown on personal service companies
  • New bands of Commercial Stamp Duty
  • Insurance Premium Tax rate increased by 0.5% to help fund flood defences
  • Every primary and secondary school in England to be an academy by 2020
  • Capital Gains Tax cut from 28% to 20% and from 18% to 10% from April 2016
  • Tax free personal allowance £11,500 from April 2017
  • High rate threshold raised to £45,000 from April 2017

To find out more about how the Budget will affect you and your business, download our full report here.

Are you ready for the new tax year?

With George Osborne preparing to give his 2016 Budget announcement tomorrow and the new tax year just around the corner, now is the perfect time to make sure your business is prepared for the key changes that April will bring.

 

Introduction of the National Living Wage.

The hourly rate for those aged 25 and over will increase to £7.20 from 1 April 2016 when the compulsory National Living Wage is introduced. According to research, large employers expect to pay an extra £1.6m in wages in 2016 and up to £11m more by 2020 as the National Living Wage gradually increases to £9 per hour. A recent government report warned that the majority of employers are under-prepared for the 11% increase, which will have a significant impact on the wage bill for many.

 

Dividends are changing

A major change to come out of last year’s Summer Budget was the announcement that the way dividend income is taxed will change. From 6 April the 10% tax credit will be abolished and instead each individual will have a flat rate dividend allowance of £5,000. Any dividend income received in excess of this will then be taxed according to three new dividend tax bands which will be introduced in line with the basic, higher and additional tax bands respectively.

The full impact of these changes will vary significantly depending on your personal situation. Individuals with predominantly dividend income who make Gift Aid donations should be aware that their tax position may change which could affect their donations.

Some directors/shareholders will also find themselves facing a higher tax bill next year and may need to reconsider the structure of their business to find a more tax efficient solution.

 

PAYE and benefits in kind

From 5 April 2016 PAYE legislation is changing and employers will be able to payroll benefits. Currently employers are required to complete a form P11D for each employee receiving expenses and benefits during the tax year. As of April 2016 they will have the option to process these through the payroll and collect any tax due via PAYE. Employers who intend to or are already payrolling benefits and expenses must register with HMRC using the new online Payrolling Benefits in Kind service.

 

NIC changes

Employer National Insurance Contributions (NICs) changed in April 2015 when NICs for employees under the age of 21 were reduced from 13.8% to 0%. From April this year, employers with apprentices under the age of 25 will also be able to claim exception from employer’s NICs, to encourage employment of younger workers and bridge the skills gap.

New Class 3A NICs will also be introduced from April 2016. These are a one-off opportunity for existing pensioners and those reaching State Pension age before 6 April 2016, to top up their additional State Pension through voluntary Class 3A NICs.

 

Register of people with significant control

Under the Small Business, Enterprise and Employment Act 2015, all companies must start maintaining a record of people who have ‘significant control’ over the company from April 2016. This information will need to be filed at Companies House from 30 June 2016 on a PSC register with a ‘confirmation statement’ which will replace the annual return. PSC registers will be available to the public and will contain information on individuals who ultimately own or control more than 20% of a company’s shares or voting rights, or who otherwise have control over the company and its management.

 

Alcohol wholesale scheme

Businesses who buy or sell wholesale alcohol must comply with the Alcohol Wholesaler Registration Scheme (AWRS), which was introduced on 1 January 2016 to tackle alcohol duty fraud. Alcohol wholesalers must register for the scheme and will undergo rigorous checks prior to approval. The deadline for applying is 31 March 2016, and any businesses intending to start wholesaling alcohol from 1 April 2016 onwards must apply 45 days prior to their intended start date.

 

Landlords wear and tear allowance and rent-a-room scheme

Landlords found themselves in the firing line with a number of measures introduced in the Summer Budget last year. One of the key changes was the abolition of the 10% wear and tear allowance, which will be replaced by a new ‘replacement furniture relief’ from 6 April this year.

A much welcomed rise in the rent-a-room allowance will also come into effect from April, allowing ‘lodger landlords’ to make up to £7,500 a year without paying tax.

 

New State Pension introduced

The new State Pension comes into effect from 6 April 2016. If you’ll reach State Pension age on or after that date you’ll get the new State Pension under the new rules. The additional state pension based on earnings will be replaced with a flat rate (or single-tier) system based on National Insurance records alone.

 

The new tax year will bring with it several key changes which will affect businesses and individual taxpayers. Some people will be facing higher costs next year as the tax on their dividend income changes or wage bills increase. Others may find that the changes put them in a better financial position.

Whatever your situation, if any of the above changes affect you it’s essential that you review your position to ensure that your affairs are as tax efficient as possible. Please contact us to arrange a free consultation with an expert member of our team.

Pensions crunch time for small businesses

Employers are being warned that they could be hit with stiff penalties and face being left behind in the rush to comply with the Auto Enrolment deadline.

The Pensions Regulator has told up to half a million small businesses that they must set up a workplace pension this year under the new Auto Enrolment regulations. If they don’t they will face a minimum penalty of £400.

Auto Enrolment is the name given to the law which requires all employers to automatically sign their staff up to a pension. It came into effect in 2012, but to date has only applied to larger companies.

More than 47,000 large and medium-sized employers have already completed the process. SMEs and small business owners are now reaching their deadlines to comply (staging date) and must make sure they comply on time. Early preparations are crucial to meet the deadlines and avoid unnecessary penalties.

The penalties do not stop at £400 for missing the deadline. The Regulator can also impose escalating penalties of up to £10,000 a day depending on the number of staff and there are further penalties where employers still fail to comply.

It’s reported that a higher-than-expected rate of 9 in 10 people have chosen to stay in their pension after being automatically enrolled into it so far. By the time the process is complete for all employers in 2018, up to 9 million workers will have started saving for their pension.

It’s important that you understand the AE deadlines that apply to your business and that you prepare early to meet these deadlines, as you will incur penalties if you do not comply on time. To find out more about what Auto Enrolment means for your business and how we may be able to help, you can download our help sheet.

Budget 2016 – What can we expect?

On 16 March Chancellor George Osborne will deliver his Budget speech and people are starting to predict what it might include.

Pensions

Last year Osborne introduced greater pension freedoms, making it possible for anyone to withdraw their savings at will. In the Summer Budget last July he said a consultation would be undertaken on whether wholesale changes to the pension system were needed.

Predictions for this year’s budget include that the Chancellor may abolish the 25% tax-free lump sum, the maximum annual contribution could be cut to as low as £25,000 or the whole tax relief system could be abolished in favour of an ISA-style system of tax upfront but tax free on the way out.

Landlords

Landlords came under fire in the last budget so we’re not expecting any major changes this time around.

One change we might see would affect rental properties being held in a limited company. Landlords who operate through limited companies get tax relief for their interest payments, whilst landlords who operate outside of a limited company structure can’t.

This anomaly could be addressed by limiting interest deductions for property companies or by changes to the ATED rules (Annual Charge on Enveloped Dwellings).

Inheritance Tax

More details are expected on how the main residence allowance on inheritance tax will work from 2017. The total inheritance tax threshold for those who own a family home is set to increase from April 2017 until it reaches £500,000 in 2020. This means that married couples and civil partners will be able to pass on assets worth up to £1m, including a family home, without any IHT liability, but the mechanics of the new rules are complicated.

Higher rate tax band

The higher rate tax band is set to increase to £43,000 and the Chancellor has indicated that he would like this to eventually increase to £50,000. The Government may seek to reassure its core voters with some positive moves prior to the European referendum, so we could see a bigger increase than expected towards this target.

Dividend tax

The new dividend tax comes into force on 6 April 2016. The move to more regular reporting of all tax information could also see the introduction of new reporting requirements for dividends. This would need to be implemented by a matching IT system so it won’t happen overnight, but we could hear more about this in the Budget.

As usual we’ll be watching the Budget closely and live tweeting throughout. Make sure you follow us on Twitter for the updates as they happen.

Online tax disclosure service to be launched in April

HMRC is set to launch an online disclosure service in April, as the government continues to move towards a digitally-focused administration.

The online platform will include a number of features for customers to disclose their tax liabilities, including a mechanism whereby they can upload documents for the taxman to see digitally, removing the need to send them by post.

The Digital Disclosure Service (DDS) is part of HMRC’s ‘digital revolution’ and is set to be up and running by 6 April 2016.

Last September, HMRC’s Fraud Investigation Service went into greater detail regarding the platform, revealing that it would be available for customers across all tax regimes and behaviour types. It is aimed at making it easier for taxpayers to reveal their unpaid liabilities and also allowing them to notify HMRC about any errors with their VAT returns.

There will be a number of features for those who are disclosing errors, such as online guidance to assist the taxpayer by ensuring that the disclosure is correct in the first instance. It will also include a calculator for tax, interest and penalties and assistance through webchat.

HMRC have released a statement saying that the service will also include information to help educated customers and prevent future errors.

Over the past 7 years, HMRC has reportedly brought in £59m through voluntary disclosures and each year the taxman receives more than 30,000 VAT error corrections from small businesses alone.

According to HMRC, one of the benefits of using the DDS is that it removes the need for taxpayers to seek advice and help from their accountant, allowing them to disclose by themselves if they so choose – but this might not be the best way forward.

Financial professionals have advised against taxpayers disclosing by themselves. Some financial professionals support the idea, but they are unconvinced that unadvised taxpayers would know to whom they should make voluntary disclosures.

If you are considering making a voluntary disclosure to HMRC, you are strongly advised to seek professional support.  Contact us for your free, confidential consultation today.

Wholesalers must apply for HMRC’s Alcohol Wholesaler Registration Scheme

The Alcohol Wholesaler Registration Scheme (AWRS) was introduced on 1 January 2016 to tackle alcohol duty fraud. If you sell alcohol to another business you may need to register for the scheme – however if you only sell to the general public you won’t need to apply.

From 1 April 2017, if you buy alcohol to sell from a UK wholesaler, you’ll also need to check that whoever you buy from has registered with HRMC and has an AWRS Unique Reference Number.

The scheme has been set up to help tackle the estimated £1.2 billion a year in alcohol taxes that currently goes unpaid, often due to wholesalers trading illegally.

All wholesale businesses that trade in alcohol must register for the scheme and will undergo rigorous checks prior to approval. The deadline for applying is 31 March 2016. Businesses which miss the deadline, or fail the inspection, may have their right to trade in wholesale alcohol removed when the scheme goes live.

Businesses intending to start wholesaling alcohol from 1 April 2016 onwards must apply 45 days prior to their intended start date, otherwise they risk trading illegally.

The government have provided these flowcharts to help businesses decide if they need to apply.

Before applying, businesses can prepare by ensuring that their business records are in order and accessible, reviewing their supply chains and processes to make sure they’re only sourcing legitimate alcohol and introducing a corporate due diligence policy and procedures to prevent involvement in the illicit market.

Existing wholesalers or those intending to start before 1 April 2016 should then apply online for registration before 31 March 2016.

HMRC have provided further guidance on their website.

UK families facing inheritance tax hits 35-year peak

The Office for Budget Responsibility (OBR) has released new figures showing that the number of UK families paying inheritance tax (IHT) is at a 35-year high.

Surging house prices have pushed up the value of family assets above the static tax threshold, resulting in an estimated 40,100 families facing payments on their inheritance in the current tax year; almost three times as many as six years ago.

According to official figures, the number of people affected by IHT is likely to rise to 45,100 in 2016/17, which will then be stemmed when the additional allowance comes into effect for family homes in April 2017.

This is the largest number of families paying IHT in any year since 1979/80, where a tax of up to 75% was levied on inherited assets above £25,000.

Whereas 2.6% of all deaths incurred IHT liabilities in 2009/10, the proportion has risen sharply to an estimated 7.1% in 2015/16. The OBR projects it will affect 8% of estates in 2016/17.

In the Summer Budget last year the Chancellor announced a new relief designed to take thousands of families under the IHT threshold.

The main residence nil-band, which applies when a family home is inherited by descendants on death, will be gradually introduced between 2017/18 and 2020/21, rising from an initial £100,000 to £175,000 per person, allowing couples to jointly pass on a home worth up to £1 million tax-free from April 2020.

The OBR has estimated that when the allowance is introduced the number of deaths subject to IHT will fall by one-third to 30,300, equivalent to 5.4% of the total annual estates processed.

Despite reducing the numbers affected by IHT, the introduction of the new allowance will not cut the overall amount of tax raised on estates and the OBR has predicted that the Exchequer will still receive receipts of around £5.6 billion by 2020/21.

 

If you need help with your inheritance tax planning, or would like to know more about how the changes will affect you, contact us to speak to our Tax Partner David Gillies today.

Changes to PAYE and benefits in kind

PAYE legislation is changing from 5 April 2016 as The Finance Bill 2015 has given HMRC powers to introduce regulations allowing employers to payroll benefits.

Currently employers are required to complete a form P11D for each employee receiving expenses and benefits during the tax year. The form is sent to the employee and submitted to HMRC along with a form P11D(b) detailing any Class 1A National Insurance Contributions (NIC) due.

Employers have historically been able to agree with HMRC that they may process benefits through the payroll and collect any tax due via PAYE, on a case by case basis. This is known as ‘payrolling benefits’ and under these agreements the tax is collected on a monthly basis but a P11D must still be submitted (or at least an annual list of benefits provided to employees).

The Finance Bill 2015 contains enabling legislation giving HMRC powers to make further regulations.

As of April 2016, employers who intend to or are already payrolling benefits and expenses must register with HMRC using the new online Payrolling Benefits in Kind (PBiK) service.

Although payrolling benefits will be a voluntary arrangement, there will be statutory obligations for employers who choose to operate this.

Specifically The Finance Bill allows for regulations to cover:

  • The timing of PAYE deductions
  • The amount of PAYE deductions
  • The provision of benefits to be a payment of PAYE income
  • Accountability to HMRC for such deductions

HMRC announced in December 2014 that initially the voluntary payrolling benefits would only apply to:

  • Cars
  • Car fuel
  • Medical insurance
  • Subscriptions (e.g. gym membership)

The move to payrolling benefits should present a more efficient way of collecting the right amount of tax throughout the year, and will form part of an employer’s Real Time Information (RTI) reporting obligations. This should reduce the administration associated with repeated adjustments to an employee’s tax code, as well as potentially removing the P11D reporting requirements for payroll benefits.

Payrolling benefits represents a major change to the collection on tax on benefits. Further regulations and/or guidance is expected to be released before its introduction in April 2016.

If you have existing payrolling arrangements in place, or are considering implementing this, you must be confident in your payroll processes, understand how benefits data will be integrated into your payroll and have clear employee communications documents in place. To start preparing for the changes, speak to a member of our expert team today.

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