March 2017

tax tips & finance e-newsletter

The Budget

The Budget was released on Wednesday 8th March 2017.

Summary of the main announcements:

  • Reduction in administrative burden for Research & Development (R&D) tax reliefs
  • Businesses with a turnover below the VAT registration threshold will be able to delay digital tax reporting by one year
  • From July tough penalties for tax professionals enabling tax avoidance
  • Class 4 NIC to increase by 1% from April 2018 and by a further 1% from April 2019
  • Income tax dividend allowance to be reduced from £5,000 to £2,000 from April 2018

Useful Budget Downloads

We have produced these useful Budget documents for you.

Please click on the links below to download our Budget Summary and Tax Data Card.

Please note the Chancellor has announced that the government will not now proceed with the proposed increase in Class 4 NICs rates.

In this issue

In this March issue, we look at the changes in legislation which affect VAT Flat Rate Scheme users from 1st April 2017 and the new company car advisory fuel rates from 1st March 2017.

‘Your money’ reviews the upcoming ISA deadline and reasons behind preparing your Tax Return early. Finally in our ‘Retirement planning, wills and inheritance tax’ section we take a quick look at eligibility for Attendance Allowance.

VAT Flat Rate Scheme and Limited Cost Traders

From 1 April 2017, certain VAT registered businesses using the Flat Rate Scheme (“FRS”) will be reclassified as “limited cost traders” and will be obliged to account for VAT at 16.5% (instead of the lower percentages currently available) on VAT inclusive business income.

What is a limited cost trader?

A business operating the FRS will be regarded as a limited cost trader if the VAT inclusive value of its expenditure on relevant goods is:

  • below 2% of its VAT inclusive turnover for the quarter (or for the year if the annual accounting scheme has been adopted); or
  • greater than 2% of its VAT inclusive turnover but below £250 for the quarter (or £1,000 for the year if the annual accounting scheme has been adopted)

Note that the test to determine low cost trader status must be considered each quarter.

What are relevant goods?

Relevant goods are defined as goods used (or to be used) exclusively for business purposes. This means that goods that have a dual purpose (are acquired for both business and private purposes) are disregarded.

The following are excluded from the definition of relevant goods:

  • Vehicles, vehicle parts and fuel (unless incurred by a transport business);
  • Food/beverages for consumption by the trader or his employees; and
  • Capital expenditure goods (goods used in the business, for example, vans, machinery and computer equipment)

Leaving the FRS or deregistering from VAT altogether

It might be beneficial for certain limited cost traders to leave the FRS and revert to conventional VAT accounting. This will mean that the 20% VAT collected from customers will be paid over to HMRC and VAT suffered on business expenses will be recoverable from HMRC.

Also, businesses currently operating the FRS with turnover below the VAT threshold (currently £83,000) might want to consider deregistering from VAT altogether.

Next steps

If you would like further information on how the FRS changes will affect your business, please contact us.

New company car advisory fuel rates from 1 March 2017

HMRC has published the company car mileage rates effective from 1 March 2017, which can be used by employers paying employees a business mileage when driving an employer-provided car. These rates can also be used when charging employees for fuel provided for private miles and ordinary commuting.

Engine SizePetrolLPG
1400cc or less11p (previously 11p)7p (previously 7p)
1401cc to 2000cc14p (previously 14p)9p (previously 9p)
Over 2000cc22p (previously 21p)14p (previously 13p)
Engine SizeDiesel
1600cc or less9p (previously 9p)
1601cc to 2000cc11p (previously 11p)
Over 2000cc13p (previously 13p)

Hybrid cars are treated as either petrol or diesel cars for this purpose.

These rates apply to all journeys on or after 1 March 2017 until further notice. For one month from the date of change, employers may use either the previous or new current rates, as they choose.

Your Money

ISA Deadline

The tax year ends on 5 April 2017, as such there is only a short amount of time to make final contributions into your 2016/17 ISAs.

For 2016/17 the annual tax free allowance for investments into an ISA is £15,240. If you are unsure how much you can invest before the end of the tax year, deduct any contributions you have made from 6 April 2016 from the annual allowance of £15,240 and this will give you your maximum final contribution.

ISA’s provide a flexible investment option gaining tax free interest.

MARCH MONEY FACTS
Current bank rate: 0.25%
Current inflation: 1.8%

End of the Tax Year

From the 5 April 2017 you should start receiving your end of year tax papers relating to 2016/17. Please remember to collate these ready for sending to your accountant.

Letting your accountant have your records early will:

  • Let them advise you of your tax liability for 31 January 2018 well in advance and allow you to make the necessary provisions;
  • Enable them to reduce your July 2017 tax payment should it be necessary to do so;
  • Reduce the risk of penalties, interest and HM Revenue enquiries by ensuring your Tax Return is submitted on time.

Furthermore, if you are due a refund of tax, this will be payable to you as soon as your Tax Return has been submitted. Submitting your Tax Return early does not however accelerate the payment of tax. It is therefore in your interest to get the Tax Return prepared as soon as possible.

 

Retirement Planning, Wills & Inheritance Tax

Attendance Allowance

Attendance allowance is a non-means tested tax free benefit available for some people aged 65 or over.

If an individual is over 65 and the following apply they may be entitled to Attendance Allowance:

  • There is a physical and/or mental disability and
  • The above disability is severe enough for the individual to need help caring for themselves or someone to supervise them

Examples include help needed with usual daily living – washing, dressing, eating, communicating.

There are two rates payable:

Lower rate £55.10 weekly (annual equivalent £2,865)

Higher rate £82.30 weekly (annual equivalent £4,280)

The form to apply for this benefit is rather long but the effort is worth it to obtain the additional sums tax free each year.

More information is available from https://www.gov.uk/attendance-allowance/overview or phone your usual contact at Humphrey & Co.