The Blog

Unlikely VAT dispute over adult colouring books

The recent craze for adult colouring books has triggered an unlikely VAT dispute.

Print books and children’s colouring books are currently exempt from VAT, but HMRC is reportedly challenging the idea that adult colouring books and dot-to-dot titles, where some pages can be pulled out, can be classed as a book. It is also understood that HMRC believes adult colouring books could be classed as ‘uncompleted’ books, which currently attract the full 20% rate of VAT.

It is reported that HMRC is pushing for VAT to be introduced on the sale of adult colouring books and for the tax to be applied retrospectively. This could result in publishers and retailers owing millions of pounds in uncollected VAT.

HMRC has reportedly written to several publishers requesting money owed for VAT on these colouring books after companies filed their end-of-year returns.

Since VAT was introduced in Britain in 1973 children’s books, which includes “sample pictures for copying or outlines of pictures for colouring, painting or drawing” have been zero-rated. HMRC is arguing that these books are clearly marketed for adults, and so should be charged, and are now in talks with publishers to try and resolve the issue.

The trend for adult colouring books has been credited for boosting sales at many high street book shops. The Publishers Association, which measures sales within the total UK book and journal publishing industry, reported that book sales grew by 0.4pc last year to £2.8bn – its first rise for four years.

Michael O’ Mara, chairman of the country’s biggest publisher of colouring books, confirmed he had been told by HMRC that “they had ‘recently decided’ to standard-rate for VAT so called adult colouring books”.

“It is our view that this decision flies in the face of the relevant legislation. We and other publishers, following the lead of the Publishers Association, are fighting this decision and we hope that HMRC, on reflection, recognize that they have got this wrong”, said Mr O’Mara.

The Treasury confirmed that it was meeting with the industry later this month.

“There’s been no change to the rules”, a HMRC spokesman said. “Children’s colouring books are entirely free of VAT and there are no plans to change that. We are meeting with publishing representatives shortly to discuss the VAT treatment of adult colouring books.”

HMRC set to take tech expansion to next stage

Following ongoing attempts to ‘make tax digital’, HMRC has now announced plans to invest £215m in managed desktop services and cloud collaboration.

The ambitious plans, which could see more dramatic changes to HMRC systems, extend to the building, deployment, maintenance and support of user devices such as videoconference equipment, apps and desktop technology – which could all become commonplace in the tax world in coming years.

HMRC is hoping to outsource the production of the technology at an estimated cost of £200m.

It also hopes to invest around £15m in cloud computing and sharing solutions, which HMRC hopes will “transform working practices and improve current processes”.

“Transitioning to a cloud-based solution is expected to yield material commercial benefits, the adoption of which will simplify the existing desktop environment,” said a prior information notice published by the taxman.

HMRC said that it is considering a “wholesale transition” to cloud-based collaborative solutions in the future – which could mean another dramatic tech shake-up of tax systems in coming years, to complement recent plans to ‘make tax digital’.

HMRC claimed that “is currently undergoing a significant period of transformation,” and taxpayers should be wary of how any potential changes could affect them.

Save tax on your life insurance with Relevant Life Cover

If you’re a business owner employed by your business, there is a tax-efficient alternative to purchasing private life insurance and critical illness policies that will save you 20% on the cost of your premiums, called Relevant Life Cover.

Relevant Life Cover essentially works in the same way as life insurance. Should the person insured die whilst in the employ of the company, then it will pay out to their beneficiaries.

The premiums on Relevant Life Cover are paid for by the business, not the individual, meaning they are eligible for tax savings as a trading expense. This also means that no personal tax is paid as it may be if you pay for the policy personally.  They are also not treated as a P11D benefit, so there aren’t any implications on the amount of personal tax paid.

Relevant Life Cover is sometimes used as part of a benefits package for key employees, and is particularly well suited to directors/owner managers who work inside a business. However, shareholders who aren’t directly involved in the business are unable to take out a Relevant Life policy.

Up until recently for a Relevant Life plan to be paid through a business it must only cover the death of the policyholder and could not include critical illness cover. However, a new product has now been launched that includes life and critical illness cover, which pays out should the policy holder be diagnosed with a serious illness.

This is the first policy of its kind and provides significantly enhanced protection over existing Relevant Life Cover policies. It is expected that other providers will launch similar competing products in the near future too.

If you would like a quote or to discuss the potential tax savings of paying for life insurance through your business, please contact usfor more information.

New national minimum wage rates for 1 October 2016

The Government has announced new national minimum wage rates for 1 October 2016.

The new rates are:

   Current rate Rate from 1 October 2016
Apprentices (aged 16 to 18 and those aged 19 or over in their first year of Apprenticeship) £3.30PH £3.40PH
Under 18 £3.87PH £4.00PH
18 to 20 £5.30PH £5.55PH
21 and over £6.70PH £6.95PH

The new National Living Wage of £7.20 per hour for employees aged 25 and over came into force on 1 April 2016, replacing the national minimum wage for that age group.

All employees have a legal right to the national minimum wage. HMRC are currently targeting employers who have not been paying their employees correctly with the National Minimum Wage Campaign.

Employers who have made any errors or underpaid their staff are encouraged to come forward voluntarily to disclose any mistakes they may have made and pay their employees any arrears owed.

Voluntary disclosures made through the campaign will result in more favourable terms. Those who do not do this and are caught by HMRC face penalties of up to 100% of what they owe (up to a maximum of £20,000 per employee) and will be publicly names on a list of employers known to not pay national minimum wage.

With the national living wage now in effect and set to rise to £9 an hour by 2020, and increases to the national minimum wage due to come into force later this year, now is the perfect time to review your systems and plan the necessary alterations.

If you’ve made any errors and you’re considering making a disclosure under the National Minimum Wage campaign or any HMRC campaigns, you will need to notify HMRC and complete a disclosure form. It is highly recommended that you seek professional advice to guide you through this process.

Our expert team can help you plan for the future, deal with HMRC and ensure you’re in the most tax efficient position possible. Contact us to arrange a free initial consultation today.

‘Accidental landlords’ at risk warns new research

Over half of new Buy To Let mortgage applicants are unaware of the mortgage tax relief changes, according to new research by Direct Line for Business. Accidental landlords were found to be the most at risk by being unaware of these new regulations.

The survey conducted amongst mortgage brokers across the UK revealed that 62% of applicants were either unaware of the changes to mortgage tax relief or the EU’s Mortgage Credit Directive (MCD), that means changes which could impact their ability to secure a mortgage.

This lack of awareness rises to 71% amongst ‘accidental landlords’ who rent out a property due to unforeseen circumstances, such as being unable to sell, or inheriting a home.

Changes to the mortgage tax relief are set to be phased in from April 2017, with landlords no longer able to deduct mortgage interest payments before calculating their tax bill. Instead, there will be a basic rate allowance for these financial costs.

New EU legislation on mortgages coupled with the Government’s increase in buy-to-let taxation could significantly affect the buy-to-let market. The changes don’t come into effect until April 2017, but it’s important to start planning now if you expect to be affected. The Budget 2016 also included several key changes for property which might affect you.

To make sure you’re in the most tax efficient position possible, contact our specialist property team today.

What does the new tax year mean for small business?

The start of April brings with it the new tax year, and this time round there’s several changes that will affect small businesses. We’ve put together a handy summary of the main points to be aware of.

VAT Threshold

On 1 April the VAT registration threshold changed from £82,000 to £83,000. The de-registration threshold also changed from £80,000 to £81,000.

This means that you won’t need to register for VAT until your business makes sales of £83,000 or more during any 12 month period.

If you’re currently registered for VAT, you’ll be able to de-register if you make sales of £81,000 or less during any 12 month period (and you’re confident that this will continue to be the case in the following 12 months).

Tax Dividend Changes

The way dividend income is taxed will change on 6 April and will have a significant impact on hundreds of thousands of small business owners across the UK. Every individual will now receive a £5,000 tax-free limit for dividend income. Dividend income of over £5,000 (and after using up any remaining personal allowance) will then be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate tax payers and 38.1% for those on the highest incomes who pay additional rate income tax.

Employment Allowance

The Employment Allowance is a reduction in employer’s National Insurance which was introduced in 2014 and is currently set at £2,000 for most employers. On 6 April the allowance will increase to £3,000, but company directors who are the only employee of their company will no longer be eligible.

If you were eligible in previous years, you may no longer be eligible from 6 April onwards. If you’re unsure whether you will continue to qualify for the Employment Allowance, check the guidance on excluded companies here.

Small Business Rates Relief

Small Business Rates Relief has doubled for the past 2 years, resulting in 385,000 SMEs not being required to pay business rates since 2014. In the Budget 2016 it was announced that from April 2017 600,000 small businesses will be taken out of business rates and 250,000 firms will pay less. Although this won’t come into effect immediately, it’s something to consider in your planning for the year ahead.

The new tax year brings many other changes with it, including the introduction of National Living Wage for workers over 25, changes to PAYE and benefits in kind and an increase in the personal allowance for all taxpayers.

If you’d like more information about how the new tax year will affect you and your business, contact us today.

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.

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