January 2019

tax tips & finance e-newsletter

Happy New Year and welcome to our first monthly newsletter of 2019

In this issue

New Year Resolutions To Save Tax
Pension Planning
Increased Capital Allowances Start 1 January 2019
New Capital Allowance For Commercial Buildings
Capital Allowance On High CO2 Cars And Assets In Special Rate Pool Reduces To 6%
Passing On The Family Home
Business Trends To Watch In 2019
Obvious Innovation
Exam Success

New Year Resolutions To Save Tax

At this time of year we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5th April.

An obvious tax planning point would be to maximise your ISA allowances for the 2018/19 tax year (currently £20,000 each). You might also want to consider increasing your pension savings before 5 April 2019 as the unused annual pension allowance is lost after three years.

 For those looking to do some inheritance tax planning it would be a good time to review (or make) your Will.

Pension Planning

For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings.

This limit covers contributions by both the individual and their employer. Note that the unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current year, but then lapses if unused. Hence the unused pension allowance for 2015/16 will lapse on 5 April 2019 if unused. Note that under the current rules the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000 but there are rumours that this generous relief may be reduced in the future.

Increased Capital Allowances Start 1 January 2019

The Chancellor announced a temporary increase in the Annual Investment Allowance (AIA) for expenditure on plant and machinery to £1 million from 1 January 2019. However transitional rules mean that the full amount will not necessarily apply to your business straight away.

For example, if your business year end is 30 June 2019 the maximum AIA would be £600,000 being 6/12 x the old £200,000 limit plus 6/12 x the new £1 million limit. The following year to 30 June 2020 would be entitled to the full £1 million.

New Capital Allowance For Commercial Buildings

The Autumn 2018 Budget announced a new 2% straight line tax deduction for the cost of construction or renovation of commercial buildings and structures. HMRC have now issued a technical note setting out the details for the operation of the new relief.

Unlike the old Industrial Buildings Allowance the new relief is available for the construction of shops and offices as well as factories and warehouses.

The new tax break is available where the contract is entered into and construction costs are incurred on or after 29 October 2019. The allowance is available to commercial property landlords as well as trading businesses. There are special rules for leasehold buildings which determine whether the landlord or tenant is entitled to the allowance.

Note that there are more generous plant and machinery allowances available for fixtures and fittings within the building and we can work with you to help you maximise tax relief. The AIA referred above would mean that there may be 100% capital allowances for equipment such as central heating and air conditioning.

Capital Allowance On High CO2 Cars And Assets In Special Rate Pool Reduces To 6%

One of the other capital allowance changes announced in the Autumn Budget was the reduction of the writing down allowance on assets in the special rate pool from 8% to just 6% per annum reducing balance from April 2019.

The assets included in this pool include long life assets, such as aircraft, integral features within buildings and cars emitting more than 110g CO2 per kilometre. A claim for the 100% AIA referred to above can be made for expenditure on these assets, (with the exception of motor cars) and this will result in faster tax relief. This means that where a company buys a motor car that emits more than 110g CO2 per km it will take many years to get relief for the expenditure as even when the car is sold the proceeds are deducted from the special rate pool and continue to be written down at 6% reducing balance.

For example Global Ltd which makes up accounts to 31 March each year buys a new Mercedes E220d AMG line for the managing director Mr Global for £40,000. As the CO2 emissions are 127g per km the WDA would be 8% for year ended 31 March 2019 = £3,200 leaving a tax written down value of £36,800. The 6% WDA would then apply for year ended 31 March 2020 = £2,208 leaving £34,592. If the car was sold for £25,000 in the following year then the remaining balance of £9,592 would continue to be written down at 6% per annum, hence a very long write off period.

It may be more tax efficient to lease such a vehicle as, although 15% of the lease rentals are disallowed for tax purposes for such high CO2 vehicles, this may nevertheless be more beneficial.

Note that the above rules operate differently where the motor car is acquired by a sole trader or a partner for his business as the car is not included in the pool and a balancing adjustment occurs when the car is sold.

Passing On The Family Home

New inheritance tax rules for passing on the family home came into being on 6 April 2017 in the form of an additional nil-rate band, known as the ‘main residence nil-rate band’. The availability of this additional relief should be taken into account when drafting your Will.

From 6 April 2017 this addition to the existing £325,000 nil-rate band is available on death where your home is left to your direct descendants such as children or grandchildren. This relief is being phased in between 2017 and 2020 and will result in up to £175,000 being available as a deduction for inheritance tax purposes by the 2020/21 tax year. In addition, like the nil-rate band, the main residence nil-rate band can be transferred to a spouse or civil partner. There are however restrictions to this relief if your assets exceed £2 million.

This additional inheritance tax relief is available even when you downsize to a smaller property.

For example if a married couple currently live in a large house worth £500,000 and downsize to a flat worth £250,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property. They could even sell up completely and move into a rental property and still get the inheritance tax relief!

Our Trust & Estate team can provide you with further information on this potentially valuable relief. They can also assist with your Will and at the same time consider the availability of reliefs as part of a review of your potential inheritance tax liability.

Business Trends To Watch In 2019

Here are some of the top Business Trends to watch in 2019.

Marketing will continue to become more personalised

Marketing is becoming increasingly personal, and this trend will keep going as we move into the new year. No longer will stock images, generic campaigns or impersonal calls to action convince consumers. In order to appeal to increasingly sophisticated customers, you'll have to provide high-value, targeted and personalised content.

Technology will not replace the human touch

Technology is always improving, but AI (Artificial Intelligence) and predictive analytics will not replace the human when it comes to delivering the customer experience. While there are definitely some great opportunities ahead for AI, it will not be a true game-changer, at least in the next year. AI can really be thought of as 'augmented intelligence,' because it can augment the human, giving people better information, greater insight and can help businesses to become more efficient.

Flexible working is set to become the norm

Businesses are changing the way they use space to drive productivity. More firms are embracing the open-plan office. The behaviour of employees will also change as they adapt to the new environment. New tech tools will be used, and more employees will choose to work flexibly and away from the office.

 

Data privacy regulations

The EU General Data Protection Regulation (GDPR) established a global standard, impacting all firms from start-ups to established international businesses. Acceptance for GDPR will be driven by a likely continued increase in cyber-crimes and data breaches in 2019. The new world of cyber security threats will most likely encourage other regions to consider the introduction of data protection regulations similar to GDPR.

The war for talent will continue

Hard-to-find talent and hard-to-fill jobs are constants in the new world of work. HR professionals will focus on building a fit-for-the-future workforce with approaches from three fronts: creatively sourcing talent wherever they can find it, engaging and developing the talent they have on hand, and building a future pipeline of talent.

Obvious Innovation

Innovation can be driven by taking an ‘obvious’ idea from one context and applying it in another.

The successful development and implementation of new, innovative ideas is crucial in business. Your innovation could focus on improving business processes, bringing new and improved products and services to market, increasing efficiency or, most importantly, improving profitability.

Being innovative in business isn’t all about being the next Steve Jobs or inventing the light bulb. Some of the most innovative business ideas come from taking an idea from another market sector and applying it in a new or innovative way in your own business in order to solve a different problem.

For example, Henry Ford didn’t invent the car. Karl Benz invented that. Ford also didn’t invent the assembly line, but he is famous for using the assembly line in order to improve the efficiency of his business. So why do people call Henry Ford an innovator?

Ford might not have invented anything 100% original, but he knew how to take existing ideas and develop them into something extraordinary. Henry Ford wanted to take the idea of an automobile reserved for the rich and bring it to the masses. He took existing ideas and applied them in a new way in order to realise his vision.

We are surrounded by new technologies. We live in an age where businesses are experimenting with Artificial Intelligence, Augmented Reality, Video Calling, High Speed Internet, online shopping with same day delivery and much more.

The best businesses of tomorrow will adapt today’s technology in new and innovative ways in order to bring new products or services to the market.

In order to innovate in your own business, take a step back and look at your market. Is there a gap where you can apply technology from another sector and implement it in your business in order to give you a competitive advantage?

They say that imitation is the greatest form of flattery. You may not be the next Steve Jobs but maybe you could copy a few of his ideas in order to create your own market leading business.

Exam Success

We are pleased to announce that Eleanor Griffiths has passed the final exams to become a fully qualified Accounting Technician (AAT).

Eleanor joined the firm in 2016 and works for Partner Andrew Robinson, assisting with his wide portfolio of business clients. We are delighted to have yet more exam successes within the firm and congratulate Eleanor on all her hard work in achieving this qualification.