The Blog

Spring Budget 2017: how will the announcements affect you?

Following the UK’s historic vote to leave the EU, and with Prime Minister Theresa May poised to trigger Article 50, Chancellor Philip Hammond presented the Spring Budget against a backdrop of economic uncertainty. Figures from the Office for Budget Responsibility revealed that UK economic growth is now expected to reach 2% this year, before falling to 1.6% in 2018.

The Chancellor announced a range of significant measures for businesses and individuals, including a support package for firms in England affected by the business rates revaluation and the announcement that unincorporated businesses and landlords with turnover below the VAT registration threshold will have until 2019 to prepare for quarterly reporting.

Also unveiled in the 2017 Spring Budget was an increase in the main rate of Class 4 national insurance contributions (NICs) to 10% in April 2018 and a reduction in the tax-free dividend allowance, which will fall from £5,000 to £2,000 in April 2018.

Our Budget Report provides an overview of the key announcements arising from the Chancellor’s speech. However, it also looks beyond the more sensational measures and offers detail on the less-publicised changes that are most likely to have an impact upon your business and your personal finances.

Additionally, throughout the Report you will find handy tips and ideas for practical tax and financial planning, as well as an informative 2017/18 Tax Calendar.

Don’t forget, we can help to ensure that your accounts are accurate and fully compliant, as well as suggest strategies to minimise your tax liability and maximise your profitability.

Click the link to download the Spring Budget 2017 Summary.

Have a question on the Spring Budget 2017? Leave a question or comment below and we can offer you expert advice.

At Ormerod Rutter we understand that finances and tax can sometimes be confusing. We have 15 expert partners to hand that can offer expert advice on all financial matters, no matter how big or small. We pride ourselves on having big firm capabilities and family firm personality. Have a question or want to discuss your personal or business finances? Give us a call on 01905 777600.

* Please note that all information contained in this article is for informative purposes only and that we cannot be responsible for any errors or omissions.*

*Since the Budget the government has now made a U-turn and will not be increasing the National Insurance Contributions from the self-employed. This was overturned as it went against one of the main Conservative manifestoes promises of not raising taxes. 

VAT: Flat Rate Scheme Changes

HMRC has announced that, as from the 1 April 2017, all businesses using the Flat Rate Scheme or intending to use the Scheme will have to consider (in addition to the existing conditions) whether or not their VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period; or
  • greater than 2% of their VAT inclusive turnover but less than £1000 per annum, or proportion thereof (ie, £250.00 per quarter or (£83.33 per month).

If this criteria is met then the business will be regarded as a “limited cost trader” and MUST apply a fixed Flat Rate percentage of 16.5% to its’ VAT inclusive turnover.

All businesses using or considering using the Flat Rate Scheme should now review their status.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600

Pre VAT registration input tax claims – HMRC approach challenged

Have you been affected by HMRC seeking to restrict input tax claims on pre VAT registration costs?

A newly VAT registered fully taxable business has historically been allowed to fully recover VAT incurred in the following circumstances:

  • on services incurred up to 6 months prior to VAT registration and that have not been supplied on to a third party
  • on stock and assets purchased up to 4 years prior to VAT registration, to the extent that the goods or assets are still on hand at the date of VAT registration and are being used by the business (an apportionment may be required if some have been sold).

However, HMRC has recently been seeking to restrict VAT on qualifying goods and services by attempting to view the “use” of such goods or services over their useful, economic life, and dis-allowing, proportionately, any “use” of the goods, assets or services prior to VAT registration.

A number of businesses have received Assessments of VAT or have been instructed to amend their VAT returns.

This approach has been found to be incorrect and inconsistent with EU legislation and HMRC has now issued Revenue and Customs Brief 16 (2016) confirming that taxpayers who have been assessed or had their input VAT restricted in this way may now seek a refund.

Correcting Errors – Making a Claim?

If you need help with making an input tax claim, please contact us now.

Be warned there are time limits in place to correct errors, which are as follows:

  • 4 years from the end of the VAT period in which any adjustment was made; or
  • 4 years from the end of any VAT period Assessed by HMRC.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600.

Have you renewed your Fee Protection Insurance?

For those of you who have joined our Fee Protection Insurance scheme against the costs of dealing with an enquiry by the tax authorities, you should have received a renewal letter with the costs of the scheme for the next twelve months, and paid to rejoin.

The renewal date was 31 October 2016.

However, it is not too late to act if you haven’t already. Simply check the quote that should have been sent out to you and make the relevant payment or, if you cannot find the relevant paperwork, ask for a revised renewal quotation to be sent to you.

If you are not familiar with our fee protection insurance, here is a brief overview of the service.

“Tax investigations can be intimidating, and with HMRC growing increasingly more powerful, an investigation into your affairs is more likely than ever – even if you’ve paid all your tax. Although we work hard to keep your tax affairs in order, compliance doesn’t necessarily keep you safe.

If you are unlucky enough to have your business investigated by HMRC then our expert team are on-hand to guide you through the process. Our knowledge and experience of dealing with HMRC at all levels will ensure you achieve the best possible outcome. Even if your records are in order and you have paid all your tax, the cost of preparing and presenting your case for investigation can be an unwanted and expensive overhead, which also why we also offer our clients Fee Protection Cover.”

Fee protection covers you for the costs of any compliance check we deal with on your behalf, regarding Income Tax, Corporation Tax, PAYE, National Insurance, CIS, IR35, VAT, National Minimum Wage, IHT and Child Tax Credit enquiries.

A copy of our service summary can be found here

The cost of our Fee Protection scheme is significantly less than the cost of a tax investigation. Is it really a risk worth taking?

If you have any questions about Fee Protection Insurance please feel free to contact us on mail@ormerodrutter.co.uk or by calling the office on 01905 777600.

The end of salary sacrifice?

HMRC has revealed plans to limit tax and national insurance savings from salary sacrifice schemes.

In a 17 page consultation document released this week, HRMC stated that the government does not believe benefits-in-kind, effectively paid for by employees through reductions in gross salary, should be provided by employers at a cost to the Exchequer through salary sacrifice arrangements.

Plans were unveiled to change tax legislation so that where a benefit-in-kind is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer national insurance contributions, even if it is normally exempt.

Among the salary sacrifice schemes set to be hit are life insurance policies and mobile phone contracts, which will become taxable on employees. However, the paper did state that not all current schemes will be hit by the changes to the rules.

The purpose of the salary sacrifice consultation is to explore the potential impact on employer and employees should the government decide to implement these changes.

Several health-related benefits-in-kind such as the cycle to work scheme are not included as the government wishes to encourage their use. The consultation is also not asking for views on employer pension contributions, employer-provided pension advice and employer-supported childcare provision.

The consultation will run from 10 August 2016 to 19 October 2016 and the government is interested in hearing from employers, trade organisations and other interested parties who may be affected by the proposed changes.

The consultation on salary sacrifice for the provision of benefits-in-kind can be viewed here.

Building your business in 2016: How to make it your best year yet

January is the perfect time to reflect on the last 12 months, take stock of your business performance and use your insights to focus on some goals for the year ahead. A record-breaking 24,546 self-employed people submitted their tax return on New Year’s Eve, so thousands of business owners were clearly already focused on their goals for the New Year as 2016 started.

Here at Ormerod Rutter, we work with business owners to help them put the right structures in place to build their business. We pride ourselves on our role as trusted adviser to our clients, and we’ve been committed to supporting businesses to grow for over 30 years.

To celebrate the New Year, we’ve put together some of our top tips for making 2016 your best year in business yet:

Spend more time working on your business, not just in it
As a business owner, your time and focus are probably pulled in hundreds of different directions. It can be difficult to prioritise and spend time developing your business, rather than just dealing with the day-to-day operations. This new year, take some time to reflect on what areas of your business you can outsource or automate to free up your time.

One of the best things you can do for your business is learn to delegate. Whether you outsource, hire a virtual PA, take on more staff or use software to automate your processes, the less time you spend working in your business, the more time you can spend working on it. That means you can identify areas for growth, put plans in place and start taking your business to the next level – without the juggling act of trying to do it all.

Think about the bigger picture
It’s a good time of year to reflect on what went well in the last 12 months, and what needs to be improved. Analysing your business performance will give you valuable insights that will help you plan for the year ahead. Consider how your current business performance matches up to your original vision and try to understand why your customers are buying from you. Gather your business data and analyse this to set yourself some informed goals for 2016.

It can also be helpful to consider what’s going to change in your industry over the next 12 months. Will you introduce any new products or services? How will you move forward and handle these changes? Spend some time putting together a plan and your next few months will be much more structured.

Get up to date with legislation changes
The new tax year, which starts in April, will bring with it many changes that you need to be aware of as they could have a big impact on the cost of running your business.

Workplace pensions are changing and between now and 2018 all employers in the UK will be required to have a suitable workplace pension scheme in place for qualifying employees. More than 47,000 employers have already completed the Auto Enrolment process and smaller companies are starting to receive their staging date. If you don’t know what your Auto Enrolment requirements are, now is the time to find out.

From April 2016, the new National Living Wage will come into effect and all employers with eligible employees will see an increase in their wage bill. The National Living Wage is an hourly rate of £7.20 for employees aged 25 and over, and this will gradually rise to £9 per hour by 2020, so careful planning is needed to manage the increase in costs. If this affects your business, you need to start communicating these changes to your employees and put plans in place now.

If you’re a Limited Company, you could also be facing a bigger tax bill as the way dividends are taxed is changing. The existing tax credit will be abolished and three new dividend tax rates will be created, with a £5,000 “dividend allowance” also being introduced. The impact of these changes will depend on your individual situation, but you need to start planning now to make sure you’re in the most tax efficient position when the changes come into effect.

At the end of last year we did a roundup of some of the major changes that were announced in 2015. All of them are relevant going into the new year and could affect your tax bill. Read it here to get up to speed.

 

As a business owner, you need an accountant you can trust to invest in your goals as much as you do. By working with you to understand where you want to be with your business, we can help you get there. Contact us today to find out how we can help you build your business in 2016.

Is it still worth being a Limited Company?

From April 2016, changes to the way dividend income is taxed could result in a significant increase in the tax liability for limited company owners.

What’s changed?
Dividends are paid from a company’s post-tax profit. The current system therefore provides an element of tax relief for the shareholder by way of a notional “tax credit” to reflect the fact that the company has already paid corporation tax. This means that basic rate taxpayers currently have no further tax liability on their dividends.

However, Corporation tax is now only 20% and is set to fall further, making the “double charge” less of a burden. In the Summer Budget George Osborne deemed the tax credit an unnecessary feature of the tax system and intends to simplify the way taxation of dividends works.

From 6 April 2016 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). Any dividends received in excess of this allowance will then be taxed according to three new dividend tax bands that will be introduced, in line with the basic, higher and additional tax bands respectively.

How will this affect me?
The full impact of these changes will vary significantly depending on your personal situation, although directors/shareholders of owner-managed limited companies will invariably be worse off. For example, a director/shareholder who currently receives a £27,000 net dividend which falls entirely within their basic rate band will pay no additional tax on this in 2015-16. However with no change in strategy for 2016-17, the same dividend could create an extra personal tax liability of £1,650.

Is it still worth being a limited company?
Director/shareholders whose income consists primarily of dividends are likely to be facing a higher tax bill next year. Compensating for this by increasing your salary would incur 12% employees’ National Insurance Contributions and 13.8% employers’ NICs, so this is probably not a viable solution.

In some circumstances and depending on profit levels, it may be necessary to reconsider the structure of the business to find a more tax efficient solution.

What should I do next?
There are planning options available, including changing the scale of dividends taken before 6 April 2016. It may be necessary to reconsider the structure of your business to ensure your affairs are as tax efficient as possible and minimise the impact of the changes.

Business owners need to start planning for an increased tax bill from next year. It is highly recommended that you seek professional advice as soon as possible to prepare for the changes. Contact us to arrange a free initial consultation with our expert team today.

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