tax

Personal Tax Rates 2015/16

Personal taxation

Income tax allowances and reliefs 2015/16 2014/15
Personal (basic) £10,600 £10,000
Personal allowance reduced if net income exceeds* £100,000 £100,000
Transferable tax allowance for married couples/civil partners £1,060 N/A
Personal (age) if born between 6/4/38 and 5/4/48 N/A £10,500
Personal (age) if born before 6/4/38 £10,660 £10,660
Personal (age) reduced if net income exceeds* £27,700 £27,000
Married couples/civil partners (minimum) at 10% § £3,220 £3,140
Married couples/civil partners (maximum) at 10%* § £8,355 £8,165
Child benefit charge:
- 1% of benefit for every £100 of income between £50,000 and £60,000
Blind person’s allowance £2,290 £2,230
Rent-a-room tax-free income £4,250 £4,250
Venture capital trust (VCT) at 30% £200,000 £200,000
Enterprise investment scheme (EIS) at 30% £1,000,000 £1,000,000
- EIS eligible for capital gains tax (CGT) deferral relief No limit No limit
Seed EIS (SEIS) at 50% £100,000 £100,000
- SEIS CGT reinvestment relief 50% 50%
Registered pension scheme:
- annual allowance £40,000 £40,000
- money purchase annual allowance £10,000 N/A
- lifetime allowance £1,250,000 £1,250,000
* £1 reduction for every £2 of additional income over the income threshold.
§ Where at least one spouse/civil partner was born before 6/4/35.
Income tax rates 2015/16 2014/15
Starting rate 0% 10%
- on savings income up to** £5,000 £2,880
Basic rate of 20% on income up to £31,785 £31,865
Higher rate of 40% on income £31,786- £150,000 £31,866- £150,000
Additional rate of 45% on income over £150,000 £150,000
Dividends for:
- basic rate taxpayers 10% 10%
- higher rate taxpayers 32.5% 32.5%
- additional rate taxpayers 37.5% 37.5%
Trusts:  
- standard rate band generally £1,000 £1,000
- dividends (rate applicable to trusts) 37.5% 37.5%
- other income (rate applicable to trusts) 45% 45%
** Not available if taxable non-savings income exceeds the starting rate band.

 

Income tax – personal allowance and basic rate band

For 2015/16 the personal allowance will rise from £10,000 to £10,600 and there will be an £80 reduction in the basic rate band to £31,785, as previously announced. The personal allowance will be increased to £10,800 for 2016/17 and £11,000 for 2017/18. The basic rate limit will be increased to £31,900 for 2016/17 and £32,300 for 2017/18.

SAVER – Protect your personal allowance. In 2015/16 your personal allowance is reduced by 50p for every pound your income is over £100,000. If you can reduce your income below £100,000, eg by making a pension contribution or charitable gift, you should benefit from the full allowance.

Class 2 national insurance contributions (NICs)

The government intends to abolish Class 2 NICs in the next parliament and reform Class 4 NICs to introduce a new benefit test. There will be consultation on the detail and timing of these reforms later in 2015.

Tax-free childcare

The maximum amount that parents of disabled children will be able to receive under the new childcare scheme starting in the autumn will be increased from £2,000 to £4,000 a year for each disabled child.

Company car benefit

From 2019/20 the scale percentage of the list price of company cars that are subject to tax will be increased by 3% up to a maximum of 37% for cars emitting more than 75g/km of CO2. There will be a 3% differential between the 0–50g/km and 51–75g/km bands and between the 51–75g/km and 76–94g/km bands. The rates for years up to 2018/19 are as previously announced.

Van benefit charge (VBC)

From 6 April 2016 the main VBC will increase in line with RPI. As previously announced, lower rates of VBC for zero emission vans will be extended to 5 April 2020 on a tapered basis.

Fuel benefit charge

From 6 April 2016 the fuel benefit charge multiplier for both cars and vans will increase in line with RPI.

Tax returns and tax payment

During the next parliament, digital tax accounts will be introduced to remove the need for individuals and small businesses to complete annual tax returns. Further details about the policy and administrative changes will be published later in 2015. Over the summer there will also be consultation on a new payment process to enable tax and NICs to be collected via digital accounts.

Employee benefits and expenses

From April 2015 there will be a statutory exemption for employees’ trivial benefits-in-kind costing less than £50, as previously announced. An annual cap of £300 will also be introduced for directors and other office holders of close companies and employees who are family members of those office holders.

From April 2016, the £8,500 threshold below which employees do not pay income tax on certain benefits-in-kind will be removed and replaced with new exemptions for carers and ministers of religion. The current dispensation regime will be replaced with an exemption for certain reimbursed expenses and a statutory framework will be introduced for voluntary payrolling. The new exemptions for reimbursed expenses will not be available if used in conjunction with salary sacrifice.

SAVER – The new £5,000 0% starting rate band comes into being in 2015/16. If your earnings and/or pensions total not more than £10,600 you may be able to register to receive interest without deduction of tax.

Gift Aid small donations scheme

The maximum annual donation amount that can be claimed through the Gift Aid small donations scheme will increase from £5,000 to £8,000. This will take effect from April 2016, allowing charities and Community Amateur Sports Clubs to claim Gift Aid top-up payments of up to £2,000 a year.

 

budget

March 2015 Budget Summary

20 March 2015

Chancellor George Osborne delivered his sixth and final Budget of this Parliament. Whilst there were no pre-election give-aways there was a clear message for the public that he and his party were the people to trust in rebuilding the UK economy.

Summing up, he said: “Today I present the Budget of an economy stronger in every way from the one we inherited. The Budget of an economy taking another big step from austerity to prosperity.”

With so many announcements leaked in the days prior, there weren’t many surprises in the 2015 Budget but what were the key headlines for taxpayers:

Income tax

    • Personal allowance to be increased to £10,800 in 2016/17, £11,000 in 2017/18
    • The Chancellor also confirmed an increase in the threshold at which people pay the higher tax rate. This will increase from £42,385 to £43,300 by 2017-18, above the rate of inflation
    • Pensions lifetime allowance cut to £1m from April 2016
    • More flexibilities for ISAs (taking out & put back in the same year without affecting the annual limit)
    • Help-to-buy ISA: the Government will contribute an additional 25% to the amount saved by first time buyers towards a home deposit. The maximum is a £3,000 contribution added to £12,000 individual savings
    • Personal savings allowance (worth a maximum of £200) introduced from 2016/17

 Business taxes

  • Diverted profits tax from April 2015
  • Enhanced film & TV tax reliefs and introducing an orchestra tax relief
  • Confirmation that there will be no employer’s national insurance contributions for under 21 year olds (when paid less than £815 per week) from April 2015 and a similar relief for apprentices under 25 from April 2016
  • Some changes to VCT, EIS and SEIS schemes

 Non-residents and non-domiciliaries

    • Confirmation of CGT on non-UK residents selling UK residential property after 6 April 2015
    • Increases to the remittance basis charge for those who have been resident for 12 out of 14 years from £50,000 to £60,000 and a new £90,000 charge for those who have been resident for 17 out of 20 years

 

There was of course further anti-avoidance measures including closing perceived loopholes within the Entrepreneurs legislation which followed the earlier announcement in the Autumn Statement that Entrepreneurs relief would no longer be due on sales of goodwill by a sole trader or partner to their own trading company.

There had been some rumours that there would be changes to some IHT reliefs but the only announcement was a review on deeds of variation.

And finally we had had a lot of excitement in the office with the morning announcement of the end of the annual income tax return but the headline was perhaps more exciting than the detail. The aim however is for all taxpayers to have individual online accounts starting in 2016 with certain information pre-populated from information HMRC receives direct and the option for you to pay your tax early by instalments should you wish. As your agent we will have access to these accounts to keep your information up to date but there is still much detail yet to come. We can only hope HMRC do not try to rush this process and ensure their systems and their data collection processes are robust so there is no more time spent correcting the information than it currently takes to provide the data in an annual tax return.

budget

March 14 Budget

March 14 Budget

Savings, pensions, and tax avoidance all feature in the March 14 Budget. The Budget is increasingly being used to summarise the state of play and map out the next steps in an increasingly coherent work programme.

Here we set out not only the changes announced in this Budget, but also summarise those announced previously which come into effect in 2014 and 2015. Growth and fairness were the themes of the Budget, you can read the individuals measures below, that we have picked out, which may affect our typical client base of small & micro family businesses. It is an introduction only and should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.

Tax Rates and Thresholds

As previously announced, the personal annual allowance for income tax rises to £10,000 from 6/4/14 but the March 14 Budget announced that it will increase to £10,500 from 6/4/15.  This is the level of tax-free income that a person can earn or receive without paying income tax and has risen substantially over the past few years.   However, as in previous years, the higher rate threshold doesn’t increase by the same amount, so this only benefits basic rate taxpayers, not higher rate taxpayers.

The higher rate threshold will be £41,865 for 2014/15, above which income tax will be 40% on the amount of taxable income over that threshold.  The higher rates and thresholds remain unchanged.  The personal allowance is tapered away for incomes over £100,000 and the top rate 45% income tax applies to incomes over £150,000.  If your taxable income is over any of these thresholds,you really need to consider paying contributions to a pension scheme to get your total taxable income under the threshold, especially the £100,000 threshold where the personal allowance is removed.  As the higher rate thresholds are not increasing in line with inflation nor the increases in the personal allowance, more and more people are being dragged into the higher rates of tax as each year passes.

VAT Thresholds

The trend of increasing the VAT registration and de-registration thresholds continue with the March 14 Budget.  The threshold at which you have to register for VAT increases to £81,000 per annum – NB this is your business total “sales”, not profits, i.e. the total amounts paid to you by your customers, not the amount you receive after charges (such as Paypal) nor the amount of profit made (i.e. after commissions, postages, expenses, etc).  For those already registered, you can now apply to deregister if your sales fall below £79,000.  Remember also that these thresholds relate to any rolling 12 month period, not your business year nor the tax year – if you are anywhere near the thresholds you should take monthly reports at every month end from your book-keeping system to keep a tally of your sales for the past 12 months.

HMRC powers extended

The government plans to give HMRC the power to recover tax directly from debtors’ bank accounts where they owe more than £1,000 and have previously been contacted ‘multiple times by HMRC to pay’. A single aggregate of £5,000 will be left across all accounts, after the debt is recovered.  The Treasury says the new power will bring the UK tax authorities in line with other countries in Europe, which already have this power.  Let’s just hope that they get their own house in order as we regularly see demands and statements for wrong amounts due to their errors!  More then ever, it’s important not to ignore any demands from HMRC even if they are clearly wrong – it’s also important to ensure that you tell HMRC whenever you move premises so that they can send correspondence to the right address.

Transferable tax allowances

In the Autumn Statement 2013, the government announced its intention to recognise marriage and civil partnership in the income tax system. It was proposed that this would be done by allowing the transfer of a portion of personal allowances between spouses or civil partners.  For 2015/16 a spouse or civil partner, who is not liable to income tax above the basic rate, will be able to transfer up to £1,050 of their personal allowance to their spouse or civil partner, but only if that individual is not liable to income tax above the basic rate.  From 2016/17 the transferable amount will be 10% of the basic personal allowance.   This could be a useful tax planning tool for couples where one spouse has little or no taxable income.

Employment Allowance of £2,000 for National Insurance

From April 2014, most small business will be eligible for a new £2,000 Employment Allowance to set off against their employers’ (secondary) national insurance contributions. Up to 1.25m employers will be affected with 450,000 having their employer NIC fully covered by the allowance.  Sadly, if you are a personal service limited company caught by IR35 you are not eligible for this allowance!  This has the potential to be a real help for smaller businesses, who employ small numbers of staff, to reduce their payroll costs.

Payroll RTI (real time) reporting, payments and penalties

The first year of the new RTI scheme is coming to an end.  May we remind any clients who do their own payrolls that they must submit RTI returns electronically to HMRC for every pay period (week or month) even if no wages have been paid.  They must also complete a year end RTI submission with final year end details and give P60s (pay and tax certificates) to all their staff.  The old end of year reports (P35 and P14s) are no longer required.  There will be penalties for late or non submission of the RTI submissions.  Please be especially vigilant if you no longer currently employ anyone or all your employers are now paid under the PAYE/NIC thresholds as RTI submissions may still be required and the first you’ll know is the thud of the penalty notice through your letterbox!

Statutory Sick Pay

Currently, some of the smallest employers can reclaim some of the statutory sick pay that they must legally pay to their staff on sick leave.  From 6/4/14, this will end and there will be no relief or repayment for any statutory sick pay that any business has to pay to any of their workers.  However, there is a new scheme, the Health and Work Service’s (HWS)  Return To Work Plan which offers support to manage staff sickness and up to £500 of medical treatment tax free if agreed with the HWS.  The emphasis is therefore changing to getting staff back to work rather than supporting their sick pay.

Child care

The Chancellor confirmed, in the March 14 budget, that the Tax-Free Childcare costs cap, against which parents can claim 20% (basic rate tax) support, will be increased to £10,000 per year for each child. This will mean that eligible parents can now benefit from greater support, worth up to £2,000 per child each year. The Tax-Free Childcare Scheme will also be implemented more quickly than previously announced. From autumn 2015, the Scheme will be available to all eligible families with children under 12 within the first year of the scheme’s operation.

Director loans

A loan provided by a company to a director, that is interest free or low cost, is not currently taxed as earnings of employment if it does not exceed £5000. As long as the total outstanding balances on all such loans do not exceed the threshold at any time in a tax year, there is no personal tax benefit-in-kind charge. From 6 April 2014, this threshold will be doubled to £10,000.   However, the company will still have to pay a 25% tax charge on all outstanding loans to directors that remain outstanding 9 months after the company year end, and there are rules to prevent repayment and then it being drawn again shortly after, so these relaxations are only helpful for those wanting a short term loan on an occasional basis, certainly not for long term or semi-permanent loans.

Annual Investment Allowance (Tax relief for business equipment purchases)

Small businesses can claim the full cost of their equipment purchases (including vans etc) against their profits in the year of purchase.  The limits have been going up and down wildly from year to year which isn’t helpful, but the limit increases from £250,000 to £500,000 per annum with effect from April 2014  to December 2015 but will then revert back to £25,000 per annum with effect from January 2016.  So, if you have any plans for spending more than £25,000 p.a. on plant and equipment, then you should do it in 2014 or 2015 whilst the limits are higher.

Private residence relief for Capital Gains Tax on sale of your home

As announced in the Autumn Statement 2013, the government will legislate to reduce the final period exemption from 36 months to 18 months in most cases from 6 April 2014.  This reduces the generous capital gains tax relief  and will affect those who have two “homes” temporarily when moving out of one and into another and will also affect those who have previously lived in a home which was then rented out.

Corporation tax

The small profits rate of corporation tax will remain at 20% from April 2014.  As announced previously, the main rate of corporation tax will be reduced to 21% from April 2014 and 20% from April 2015.

IR35

There was no mention of IR35 or any more detail about the government’s plans to reduce tax avoidance by clamping down on so-called “artificial employment”.

ISA changes

There has been a major change to the ISA limits applicable from 30 June 2014 with transitional measures from 6 April 2014. If you are planning to put money into an ISA, there have been changes to the cash limits and to the flexibility of ISAs.

SEIS (Small Enterprise Investment Scheme)

The Scheme was not permanent, but ran from 6 April 2012 to 5 April 2017. Finance Act 2014 will make the Scheme permanent. The investment limit for a qualifying individual in a fiscal year is £100,000 and cannot claim tax relief until the company has spent at least 70% of the money invested.

Simplifying self-employed National Insurance Contributions (NICs)  

Following a consultation announced at Budget 2013, from April 2016 class 2 NICs for self-employed will be collected through self-assessment.

Pensions

The March 14 Budget announced fundamental changes to the pensions regime.  From 27 March 2014 to April 2015 measures are being introduced to make withdrawing benefits during this period more flexible. These changes cover the following:

  • capped drawdown increasing basis amount from 120% to 150%
  • flexible drawdown, minimum income threshold reduced from £20,000 to £12,000
  • trivial commutation limit increased from £18,000 to £30,000
  • relaxation of rules relating to small pension pots.

Currently people who choose to withdraw all of their defined contribution pension savings at the point of retirement are charged 55% on the amount withdrawn (other than the 25% tax free amount).   From April 2015 an individual will be able to withdraw their savings at a time of their choosing subject to their marginal rate of income tax, which for a basic rate tax payer will be 20%.  Also from April 2015 the government will introduce a new guarantee that everyone who retires with a defined contribution pension will be offered free and impartial face-to-face guidance on their choices at the point of retirement.

Together with the changes to ISAs, we strongly recommend that everyone reconsider their savings for retirement plans as these announcements of fundamental changes have the potential to be “game changers” for a lot of people!

Upfront payment of tax associated to avoidance schemes

Budget 2014 announced a new measure that will require taxpayers to pay upfront tax disputed under schemes that fall within the Disclosure of Tax Avoidance Schemes (DOTAS) rules or are counteracted under the General Anti-Abuse Rule (GAAR).

Legislation will be introduced in Finance Bill 2014 that will enable HMRC to issue a ‘Notice to Pay’ to any taxpayer for whom there is an open enquiry, or the matter is under appeal, and who has received a cash flow tax advantage by the use of arrangements that fall to be disclosed under DOTAS.  The notice will require the taxpayer to pay the tax in dispute within 90 days. If the taxpayer requests HMRC to reconsider the amount of the payment notice a further 30 days will be granted. In the case of a matter under appeal, the new rules will remove the postponement of the disputed tax.

The intended effect of the new rules is that of removing the cashflow advantage enjoyed by the taxpayer of holding onto the disputed tax during an avoidance dispute. There will be no change to the tax liability owed.

Summary

Overall a relatively benign budget for our typical small business client.  The national insurance relief for small employers is welcomed, but offset against the loss of being able to reclaim some statutory sick pay that has to be paid to ill staff.  Good news that the limit for tax relief on capital purchases is increased, but most small businesses need to spend far less anyway so the old limits were usually adequate.  The increases in the personal allowance is good, but not the fiscal-drag of more people being sucked into the higher rate tax bands.  The changes to pensions and ISAs has the potential to be a game-changer for people planning for their retirement and I think that there’ll now be more emphasis on paying contributions into pensions due to the promised flexibility.

tax-planning

Personal Tax Planning

Its always good to think about personal tax planning, whilst there is still time to do something about it!

Individual Savings Accounts

Use your ISA allowance each year.  For 14/15, each person can invest £15,000 (£15,000 in cash) in an ISA.  Over a number of years, this builds up into a very tidy sum of money generating tax free returns – even better if the returns are re-invested within the ISA wrapper! You can invest in cash, insurance, stocks and shares.

Tax-Free Interest

If your total taxable income is below the annual personal tax-free allowance, then make sure that you register with your bank or building society to receive your interest tax-free by completing and giving them an R85 form.

Claim Your Tax Credits

A large number of people are entitle to either child tax credit or working tax credit (or both).  Eligibility can easily be checked by going to the HMRC website.  Tax credits can be worth thousands of pounds each year for low income families.  Even if your income is over the threshold and you aren’t currently entitled to tax credits, you should make a “protective” claim, resulting in zero tax credits, just in case your actual income turns out less than you expect in the coming year – this is because you can’t back-date new tax credit claims by more than a month, but an existing claim can be increased from zero for the entire period, several months earlier!

Registering Your Rental Loss

If you make a loss on renting out a property, you should report it to HMRC even if you don’t have to according to HMRC rules.  Without reporting rental losses, you are losing out on being able to set these losses against future income from property, meaning you pay more tax that you needed to.  If you register losses each year, they’re there for you to set against future profits.

Utilise Rent A Room Relief

If you rent out a room to a lodger within your own home, you can claim rent-a-room relief of £4,250 p.a.  This means that you don’t need to declare the actual income and can avoid the complicated matter of working out the proportions of household bills that you can claim for against the income.

Keeping Child Benefit Entitlement

If you or your partner have total taxable income of over £50,000, you lose child benefits, whereas if each of you earn just under, say £49,000 each, you keep them.

So, if part of your total income comprises property or investment income, such as buy to let or dividends, then consider giving some of your investments to your partner, to reduce your taxable income and increase your partner’s income, hopefully so that you both have incomes under £50,000!

NB transfers of assets to a spouse or civil partner have no tax consequences upon the transfer, but beware, there is no such exemption for transfers between co-habitees who aren’t married or in civil partnerships!

Alternatively, consider making a personal pension contribution which reduces your taxable income so you could bring your income down below the magical £50,000 threshold and keep all your child benefit!

Capital Gains Tax

Every individual has an annual exempt amount for CGT, currently, £11,000 p.a.  This means the first £11,000 of capital gains in any tax year is tax free.  This is a “use it or lose it” allowance, so if you don’t use it, it’s lost forever.  So, if you have any assets, such as shares or property, that you can sell or partially sell, it may be worth doing so if it triggers a gain of £11,000 or less.  If, say, you had a share portfolio with a capital gain of £50,000, you’d pay around £11,000 in capital gains tax if you sold all the shares in the same year, but if you sold one fifth of the shares in each of the next five tax years, you’d pay no CGT – a saving of £11,000 just by timing your sales more carefully.  Of course, this ignores the potential rises or falls in the value of your portfolio so, as always, don’t let the tax tail wag the dog!

tax

Income Tax Table

 

Income tax rates 2014-2015 2013-2014
10% starting rate for savings * £2,880 £2,790
20% on income up to £31,865 £32,010
40% on income over £31,865 £32,010
45% on income over £150,000 £150,000
Dividends for basic rate taxpayers 10% 10%
Dividends for higher rate taxpayers up to £150,000 32.5% 32.5%
Dividends for income over £150,000 37.5% 37.5%
Trusts within relevant property regime ** 45% 45%
Dividends for trusts within relevant property regime 37.5% 37.5%

*  Restricted to savings income and not available if non-savings income exceeds starting rate limit.
** A standard rate band of £1,000 applies, below this level income will be taxed at no more than 20%.

Main income tax reliefs 2014-2015 2013-2014
Personal allowance (for income up to £100,000) * £10,000 £9,440
Personal allowance (born 6/4/1938 to 5/4/1948) ** £10,500 £10,500
Personal allowance (born before 6/4/1938) ** £10,660 £10,660
Married couple’s allowance (born before 6/4/1935) *** £8,165 £7,915
Income limit for age-related allowances £27,000 £26,100
Blind person’s allowance £2,230 £2,160
Enterprise Investment Scheme at 30% **** £1,000,000 £1,000,000
Seed Enterprise Investment Scheme at 50% **** £100,000 £100,000
Venture Capital Trust at 30% £200,000 £200,000
Social Investment Tax Relief at 30% **** £1,000,000 -
Rent-a-room tax-free income £4,250 £4,250

*    The allowance is reduced by £1 for every £2 income above £100,000 irrespective of age.
**   The allowance is reduced by £1 for every £2 income above the limit subject to a minimum allowance of £10,000 for 2014-15 unless income exceeds £100,000.
***  The allowance may be reduced subject to income levels (minimum allowance £3,140 for 2014-15). Relief is given at 10%.
**** Capital gains tax reliefs may also be available.