The Blog

Dividend tax changes to hit Gift Aid

From 6 April 2016 the way dividend income is taxed is changing. The 10% tax credit will be abolished and instead each individual will have a flat rate dividend allowance of £5,000 (although this is not an outright exemption and the mechanics are rather complicated). The changes could leave some limited company owners with a significantly higher tax bill, and may also result in a tax hike for those that give to charity.

Individuals with predominantly dividend income who make Gift Aid donations may find themselves unintentionally penalised through the scrapping of the dividend tax credit.

Gift aid allows charities to claim the basic rate tax on every pound donated. So if you donated £100 to charity, they would receive at least £125, at no extra cost to you. However, as a donor you must have paid at least as much income tax and/or capital gains tax (at any rate) as the basic rate tax the charity will reclaim on your donation, for the tax year of the donation, or you will be liable to HMRC for the shortfall.

The current dividend tax credit can be used to discharge an individual donor’s requirement to account for the basic rate tax deducted from gift aid payments, however this will be abolished in April when the changes come into effect.

This means that whilst an individual currently in receipt of mainly dividends who makes Gift Aid donations has their basic rate tax taken care of, from April no such tax will have been paid and they could be pursued for the arrears.

This has gone largely unnoticed, but with the new dividends tax regime approaching and more details being published concerns are being raised that donors with little income other than dividends will lose out.

Under the new regime, dividend income up to the £5,000 Dividend Tax Allowance will be tax free. From April an individual will also have a personal allowance worth £11,000. Therefore, depending on their circumstances, a person could potentially earn up to £16,000 in 2016/17 and pay no tax. Any Gift Aid donations they make would then land them with a tax bill.

Donors caught by the change must ensure that they withdraw any Gift Aid declarations they have made. Charities should also update their guidance to donors before 6 April 2016 to make them aware of the changes.

Britain’s self-employed need more support

Cambridge Satchel Company founder and entrepreneur Julie Deane has warned the government that the UK’s self-employed workers need more support in running their businesses, saying that they feel like “second-class citizens” in certain areas of the economy.

Deane has made a number of recommendations to the government on what additional support can be provided to the self-employed in an independent review commissioned by the government in 2015.

Self-employment is reportedly at an all-time high in the UK, with the 4.6 million self-employed people making up 15% of the country’s workforce.

The report has called on the government to try and make it more of a level playing field for the self-employed. Deane said that self-employed people “feel that the sector is treated as if it is a sector that doesn’t contribute as much or maybe they should be growing and scaling, whereas a lot of them are very happy being sole-traders or one person companies.”

The Cambridge Satchel Company founder has called for more flexible financial instruments for self-employed people, as they may find it harder to secure mortgages, insurance and pension coverage than employees.

In particular, the report urges the government to consider increasing the maternity allowance paid to self-employed people for the first six weeks, bringing it into line with the statutory pay that employees receive. It also called for a new Adoption Allowance on the same basis as the existing statutory adoption pay for employees.

“The support provided by government to those starting or extending a family should be consistent whether the beneficiary is employed or self-employed,” the report said.

James Gribben from the Association of Independent Professionals and the Self Employed (IPSE), said: “What we would like to see ideally is paternal leave. So maternity pay and paternity pay, though another call that’s made on this report is also for adoption pay, which is another area where the playing field is not level.

“We don’t want to see this kind of barrier in place and the way that you work shouldn’t determine the ability of somebody to adopt or not adopt.”

David Cameron has reportedly welcomed Deane’s review and promised to “carefully consider” her recommendations.

Do I need to be VAT registered?

A common question we hear a lot from small business owners is whether or not they should register for VAT. Here’s a quick guide covering the basics of VAT registration:

You must register for VAT when your VAT taxable turnover reaches the £82,000 threshold (2015/16). Failure to do this may result in fines. It’s important to note that this is on a rolling 12 month basis (ie, the last 12 months from any given point), not based on turnover in a calendar year, so you must keep an eye on this.

If you’re over the threshold you must register for VAT by the end of the month following the month when you breached the threshold.

You must also register for VAT if you know that you will breach the threshold in any 30 day period. If you temporarily breach the threshold you can apply for a registration ‘exception’ from HMRC. You need to provide them with evidence to show why your turnover won’t go over the VAT deregistration limit of £80,000 (2015/16) in the next 12 months.

If you haven’t exceeded the threshold for compulsory VAT registration, you can still register voluntarily if it makes sense for you to do so. An accountant can advise you on the best time to do this.

If you have any concerns or questions about the VAT registration threshold, please get in touch and we’d be happy to guide you through.

Cyber-criminals hack HMRC to access online tax returns

HMRC’s intelligent technology is reported to have intercepted £100 million worth of fraudulent or incorrect tax repayment claims last year – but it’s recently been revealed that some online “phishing scams” and hackers were undeterred by the safeguards.

Cyber criminals have reportedly stolen money by hacking into HMRC’s systems and manipulating self-assessment records in order to claim bogus tax refunds.

Recent claims have revealed that fraudsters have been using “phishing” scams to obtain login details used by tax payers to access the online services – often through disguised spam emails and fraudulent links. These scams have deceived people into handing over their personal information directly – unaware that the website or email requesting them is not actually linked to HMRC.

The scammers have then been accessing online tax accounts to alter the earnings information so that HMRC offers them a repayment. They have edited the taxpayer’s bank details on their returns and had the money transferred to a newly-created account of their own.

Last Sunday, The Sunday Times reported that one of its journalists had had their account hacked, and criminals had tried to steal £1,826 using false repayment details. In this case, HMRC identified the transaction as potentially fraudulent.

The risk of self assessment tax accounts being hacked has been known for some time and HMRC claims to have found over 17,000 suspicious transactions in 2015.

A HMRC spokesperson said that their computer systems have not been breached, but told people to be extra careful with their login details and passwords and ensure they are kept secure. They have also warned against using shared computers, such as those in an office or public place, to complete their tax return or conduct any form of financial transaction online.

Remember that HMRC will never ask you for personal details via email. If you receive any communication that looks like it’s from them but you are unsure, don’t open it, click on any links or open any downloads. Never give out any private information or reply to messages if you’re not sure they’re genuine.

Forward any suspicious emails to phishing@hmrc.gsi.gov.uk or check HMRC’s guidance on recognizing scams if you’re not sure.

Understanding the new state pension

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, but research has found that many savers don’t understand the changes.

According to a report by Aviva, almost 2 million people aged 55 to 64 are unaware of the changes.

Who will be affected?

If you have already started receiving the state pension or reach state pension age before 6 April 2016, you will get your state pension under the current rules.

People will be eligible for the new state pension if they are:

  • A man born after 6 April 1951 or
  • A woman born after 6 April 1953 and
  • Have at least 10 qualifying years on their National Insurance record

What’s changing?

The additional state pension which is based on earnings will be abolished. This will be replaced with a flat rate (or a single-tier) system which will be based on your National Insurance record alone.

You will need 35 years of NI contributions to receive the maximum amount of £155.65 a week. A qualifying year is a tax year in which you’ve paid or have been credited with enough NI contributions to qualify for the state pension.

How will the new state pension be calculated?

The government will use your NI record to calculate your ‘starting amount’. This will be the higher of:

  • The amount you’d receive under current state pension rules
  • The amount you’d get if the new state pension had been in place when you started working

Workers who were ‘contracted out’ of the additional state pension scheme at some point in their career may have a lower starting amount.

Although the calculations are complicated, it’s important to know that your starting amount won’t be less than under the current system.

It’s a good idea to regularly request a state pension statement so you can see how much you’ve built up so far. You can apply for one online, by phone or by post. If you’re over 55 and due to get the new state pension, your statement will tell you how much your new state pension will be worth based on your current NI record.

What are my options?

Once you know your starting amount you can begin planning.

If your starting amount is less than the full state pension, you can add more qualifying years to your NI record. Each qualifying year is worth £4.44 a week.

You can continue to add qualifying years until you reach state pension age or the full state pension amount.

Landlords – are you prepared for Right-to-Rent?

As of 1 February 2016, it is now a legal requirement for all new tenancies beginning on or after that date that landlords check whether their tenants – including lodgers and subletting – have the right to reside in the UK.

The new regulations are part of the Immigration Act introduced in 2014, and failure to comply could lead to a fine of up to £3000 per tenant and civil prosecution. There are plans to make failure to comply subject to criminal proceedings, which would mean that landlords who fail to comply would face a criminal record.

The scheme has been operating in the West Midlands since December 2014 and extending it across England is the next phase of a UK-wide roll-out.

Landlords must check the right to reside of all tenants aged 18 and over (even if they’re not named on the tenancy agreement or there is no tenancy agreement in place) within 29 days of the tenancy agreement being signed. The government has produced a guide on how to conduct a tenant check which you can access here.

If a tenant does not provide sufficient ID or right to reside documentation, or their right to reside has expired, you must contact the Home Office. In the first instance you can use an online check here, which will check the Home Office’s database for documentation held by the government. If this is still returned as negative then you will need to call the Home Office Landlord Helpline (0300 069 9799).

If your tenant’s permission to stay is time limited, you must make a further check to make sure they can still rent property in the UK. This must be done before the expiry date of their right to stay in the UK or 12 months after your previous check, whichever is the longest.

You can ask that any agents who manage or let your property conduct the necessary checks for you, but you should have this agreement in writing.

Recruiting for tomorrow: apprentices and the future of accountancy

Following the Government’s pledge to create 3 million apprenticeships in the UK by 2020, apprenticeships in Worcestershire have grown four-fold in recent years – with 10,000 people participating in apprenticeship programmes across the region.

Back in November, businesses, colleges and training providers came together to celebrate the region’s future talent at the Worcestershire Apprenticeship Awards, where Ormerod Rutter were awarded the Worcestershire Medium Apprenticeship Employer of the Year award 2015.

Our apprenticeship programme was established in 2012 following challenges with the recruitment market and a skills shortage across the accountancy industry. Becoming an accountant requires practical experience, commercial awareness and academic knowledge. However, industry focus is traditionally aligned to graduate development programmes, fast-tracking university graduates without much practical experience in the sector.

At Ormerod Rutter apprentices are able to earn while they learn, developing the skills and experience they need to become an accountant with on the job training. Over two years, apprentices gain experience across all areas of accountancy, audit and tax, before specialising in year two. This allows the apprentices to actively apply their knowledge in the real business world as they learn, creating the next generation of commercially savvy and highly skilled accountants.

The programme was developed by our enthusiastic accounts manager Doug Marshall, who began his own career as an apprentice. Since it was established in 2012, the programme has gone from strength to strength, with every successful apprentice being offered a permanent role upon qualifying.

For us, the programme is a key part of our future strategy for developing talent. As gold level trainers for the ACCA accountancy training, we have developed a strong apprenticeship programme which includes peer mentoring and actively encourages apprentices to work in a client-facing environment to build the service skills and experience needed to become a well-rounded accountant. As a larger accountancy practice, we can offer our apprentices exposure to a wide variety of clients and areas of accountancy work, preparing them for a career in whichever area they choose to specialise.

Our Apprentice Charlotte Beck has been actively involved in helping promote this career route and has returned to her old school to give talks about her experience. When talking about her decision to pursue an apprenticeship, she said:

“I had the choice of university or an apprenticeship, but I quickly noticed that I didn’t feel the same buzz for university that my friends did. My apprenticeship training is on-site and links with the practical work I’m doing, which keeps me motivated. I’ve been able to develop lots of skills and experience and I think it helps me stand out from the crowd.”

The training programme at Ormerod Rutter not only helps us plan for the future, but also contributes to the local community too. We offer work experience and work closely with local schools to provide an insight into accountancy and help students decide on a future career path.

HR & Operations Director Lorraine Frankland said “we believe that our current apprentices are excellent ambassadors for the programme and actively encourage them to engage with the local community to help bridge the skills gap. They feel passionately about helping other young people explore their career options by sharing their own experience and providing valuable insight into accountancy apprenticeships, and we support them to do so.

Our apprentices are essential to the future growth of our business. We aim to empower them with the knowledge, skills and aspirations to make informed career decisions and progress as successful accountants.”

We are now recruiting for apprentices in 2016. To find out more or to apply, please visit our careers page or email recruitment@ormerodrutter.co.uk

New register of ‘people with significant control’ over companies introduced

UK companies are going to have to be more open about who owns and controls them, as the new ‘PSC register’ is introduced later this year.

The Small Business, Enterprise and Employment Act 2015 will require all companies (other than publicly traded companies) to maintain a register of people who have ‘significant control’ over the company.

This new register, to be known as the ‘PSC register’, 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.

For companies, a ‘person with significant control’ (PSC) is a person that meets one or more of the following conditions for a single company:

  • Directly or indirectly owns more than 25% of the shares in the company
  • Directly or indirectly controls more than 25% of the voting rights in the company
  • Directly or indirectly has the power to appoint or remove the majority of the board of directors of the company
  • Otherwise has the right to exercise, or actually exercises, significant influence or control over the company
  • Has the right to exercise, or actually exercises, significant influence or control over activities of a trust or firm which itself meets one or more of the first four conditions

This will apply to all UK private and public companies, other than those publicly trading companies which already report under DTR 5.

The individual(s) who control a company are often different to those listed on the register of shareholders, so in many cases the PSC register will look quite different.

A company’s PSC register will be available to the public and will be searchable online via Companies House.

The introduction of the PSC register is a central part of the government’s plans to create greater corporate transparency. It forms part of a global move by governments and other organisations towards greater transparency in corporate structures, with the aim of combatting money laundering, terrorist financing and tax evasion.

Companies will need to keep a PSC register from April 2016, in preparation for the need to file this information at Companies House from 30 June 2016 on a PSC register with a ‘confirmation statement’ (which replaces the annual return).

The information covered by the new confirmation statement is mostly the same as currently required for the annual return.

Further details and final regulations are expected to be published by the Department of Business, Innovation and Skills.

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.

Time is running out for Landlords to have their say on stamp duty changes

Buy-to-let landlords and second home owners are set to be hit with higher costs from 1 April 2016, when the government intend to introduce higher rates of stamp duty land tax (SDLT) on the purchase of additional residential properties that cost more than £40,000.

The plans were first announced in the Autumn Statement and are intended to make it less attractive for individuals to enter or stay in the buy-to-let market, freeing up housing for buyers.

Rates are expected to rise by an extra 3 per cent above the current rates for each stamp duty rate band, which vary by property value.

Anyone owning a second property that isn’t their main residence and buying another, or replacing one they don’t live in, is likely to be affected by the changes. If you own a portfolio of buy-to-let properties, or have a second home, but plan to buy yourself a new home to live in and sell your current residence, then you will not have to pay the extra stamp duty.

However, mortgage brokers have warned that the proposals may have unforeseen consequences. For example, if someone is selling and replacing their current home they may find themselves hit with the surcharge if the sale of their existing property falls through after they have already signed for their new purchase.

The National Landlords Association have also raised concerns about the impact of the changes, saying:

“It has been harder to become an owner-occupier since the financial crisis and harder to get social housing. If you choke off buy-to-let it’s going to become more expensive to bring new stock into the private rented sector.”

The Treasury has a consultation on the reforms which closes on 1 February 2016, so time is running out to have your say. It is then expected that the policy will be outlined at the 2016 Budget on 16 March.

If you own multiple properties and will be affected by the changes, you need to make sure your portfolio is structured in the most tax efficient way possible. For further support, speak to our specialist team today.

Google agrees controversial £130m UK tax deal with HMRC

Criticism is growing after news that US company Google has struck a controversial agreement with HMRC over their UK taxes hit the headlines this weekend.

Following claims that the internet giant has effectively paid an annual rate of just 2.77% in corporation tax over the last decade, Google have agreed to make a back payment of £130m after an “open audit” of its accounts by the UK tax authorities.

Google is one of several multinational companies to have been accused of avoiding tax on its British sales. The UK is one of their biggest markets and they make most of their UK profits through online advertising here. Their headquarters are in Ireland where the corporation tax rate is lower than the UK, and this agreement comes after years of criticism over Google’s complex international tax structures.

Google will now pay £130m in back taxes covering money owed since 2005, following a six-year inquiry by HMRC.

The government has celebrated this as a “major success of our tax policy” but criticism is growing as shadow chancellor John McDonnell described the agreement as a “derisory” payment and is set to demand further details of the deal from George Osborne in parliament this week.

Matt Brittin, head of Google Europe, has said that they will now pay more tax in the UK:

“The rules are changing internationally and the UK government is taking the lead in applying those rules so we’ll be changing what we are doing here. We want to ensure that we pay the right amount of tax.”

Tax experts have warned that if HMRC signs more deals like this agreement, they risk undermining their international clampdown on tax avoidance. It’s thought that they are also close to striking deals on back taxes with other multinationals like Facebook and Amazon, but news of their “cheap deal” with Google has sparked concerns about future deals.

A HMRC spokesman said: “The successful conclusion of HMRC enquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK.

“Multinational companies must pay the tax that is due and we do not accept less.”

Are Airbnb landlords in for a tax shock?

Unsuspecting British homeowners who have been taking advantage of the ‘rent-a-room boom’ by using Airbnb could be in for a tax shock, experts have warned.

The website allows people to rent out accommodation on a short-term basis, but experts are worried that users have no idea that renting out their home in this way can have serious consequences.

Short-term rents are against the terms and conditions of many mortgage and insurance contracts, and tax officials are now turning a close eye to people who have tried to boost their income in this way.

Many people renting out parts of their property in this short-term casual way may think that their income from this is not taxable, but HMRC disagree.

Last year, Airbnb were ordered by tax officials in Dublin to disclose customer details to ensure that Irish homeowners are paying the right tax on their rental earnings, and it is expected that British users will soon face similar action.

The website insists that it will not share details on its British customers with HRMC, but the UK taxman has the power to force any company to hand over customers’ income details if it believes people aren’t fully declaring tax – so it could only be a matter of time before they are forced to.

In April 2015, online sellers who use Ebay, Amazon, Etsy and other online retailers were told they would face one of the “biggest tax crackdowns in history” under government plans to obtain details of millions of online transactions.

Anyone who makes a sufficient income from Airbnb could be classed as a sole trader and be required to declare their earnings on a self assessment tax return. Under current legislation homeowners are allowed to rent out rooms in their homes to up to two lodgers (sharing accommodation with the landlord) and earn up to £4,250 per annum tax-free under the rent-a-room allowance. This is set to be increased to £7500 from April 2016. Any earnings above this threshold should be taxed.

Experts have warned anyone who plans to rent out their room, even on a short-term basis, to check their potential tax liabilities, as there are strict penalties in place for non-compliance.

If you’re unsure about your tax liabilities or need to register as a sole trader to declare rental income, contact us to discuss this today.

The Small Business, Enterprise and Employment Act 2015

The Small Business, Enterprise and Employment Act 2015 received Royal Assent in March 2015, and changes are now in the process of being implemented and are expected to be complete by October 2016.

The Act intends to provide a boost to the economy by making it easier for businesses to access the information they need, and ensuring that the UK is seen as a trusted and fair place to do business.

The Act will affect all companies in some way because it includes a number of significant changes to company law, including:

  • The introduction of a public register of people with significant control over UK companies
  • Abolition of bearer shares
  • Restrictions on use of corporate directors
  • Extension of duties of shadow directors
  • Changes to filing requirements, including replacement of the annual return with a process for confirmations
  • Shortened periods for striking off companies

Some of the changes have already come into effect, but the changes with the highest impact will be delivered in the final stage, giving companies more time to prepare.

To access a copy of the act, click here. The government have also published a provisional implementation timeline here.

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