- ADVISORY FUEL RATES FOR COMPANY CARS
- BENEFITS AND EXPENSES – BESPOKE SCALE RATES
- TRIVIAL BENEFITS EXEMPTION
- CHANGES TO THE TAXATION OF SAVING INCOME
- AUTO ENROLMENT SUCCESS FOR SMALL BUSINESSES
- BUDGET 2016
- REGISTER OF PEOPLE WITH SIGNIFICANT CONTROL
- NATIONAL MINIMUM WAGE RISES
- FIRST MINISTER FOR SCOTLAND PLANS TO BLOCK UK TAX ‘CUTS’ IN FAVOUR OF PUBLIC SERVICES
- PERSONAL ALLOWANCES AND TAX BANDS
- REDUCTION IN CORPORATION TAX RATE
- PERSONAL SERVICE COMPANIES IN THE PUBLIC SECTOR
- BUSINESS RATES
- LIFETIME ISA
- CAPITAL GAINS TAX RATES
- PARKING FINES RULED NOT DEDUCTIBLE
- FARMERS’ AVERAGING
- VAT FUEL SCALE CHARGES
- SAVINGS ALLOWANCE
- PENSIONS FREEDOM UPDATE
- HMRC GUIDANCE FOR EMPLOYERS
New company car advisory fuel rates have been published which took effect from 1 March 2016. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.
The advisory fuel rates for journeys undertaken on or after 1 March 2016 are:
|1400cc or less||10p|
|1401cc – 2000cc||12p|
|1400cc or less||7p|
|1401cc – 2000cc||8p|
|1600cc or less||8p|
|1601cc – 2000cc||10p|
Other points to be aware of about the advisory fuel rates:
• Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates.
Such claims should be based on the actual costs incurred.
• The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher
than the guideline mileage rates. The higher cost would need to be agreed with HMRC.
If you would like to discuss your car policy, please contact us.
Internet link: GOV.UK AFR
From 6 April 2016 there are a lot of changes to the way in which benefits and expenses are reported to HMRC.
HMRC have set out the maximum tax and NICs free allowances that can be paid by employers to employees for subsistence. Subject to qualifying conditions, the amounts are set out below:
|Minimum journey time||Maximum amount of meal allowance|
Where a meal allowance of £5 or £10 is paid and the qualifying journey in respect of which it is paid lasts beyond 8pm a supplementary rate of £10 can be paid.
Employers may choose to reimburse employees for the actual costs incurred. However where employers wish to use bespoke rates other than those set out above, they will need to apply for approval from HMRC for bespoke rates.
HMRC have issued an online application form to allow employers to request approval for these bespoke amounts. This should state the rate that the employer wishes to pay and also needs to demonstrate that the amount is a reasonable estimate of the amount of expenses actually incurred by the employees.
To establish these amounts, HMRC have confirmed that the employer should carry out a sampling exercise to verify the actual expenses incurred by employees. We would be happy to advise you on the sampling which would need to be carried out for your business.
In addition, employers will need to have a checking system in place which ensures that the payments or reimbursements are only make on occasions where the employee would be entitled to a deduction from their earnings and that the employees have actually incurred and paid the amounts.
Once approval has been given by HMRC, they will issue an approval notice which sets out the date from which the approval is given and what expenses are covered. It will also state the date when the approval notice ends which will be no later than five years from the start date.
Please do get in touch if you would like help with benefits and expense reporting or agreeing Bespoke rates.
From April 2016, where trivial benefits are provided to employees they may be exempt from tax if certain conditions are met. The conditions are:
• the cost of providing the benefit does not exceed £50
• the benefit is not cash or a cash voucher
• the employee is not entitled to the voucher as part of a contractual arrangement (including salary sacrifice)
• the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
• where the employer is a ‘close’ company and the benefit is provided to an individual who is a director, member of their household or their
family, then the exemption is capped at a total cost of £300 in a tax year.
If any of these conditions are not met then the benefit will be taxed in the normal way subject to any exemptions or allowable deductions.
One of the main conditions is that the cost of the benefit is less than £50, if the cost is above £50 the full amount is taxable, not just the excess over £50. The cost is the cost of providing the benefit to each employee not the overall cost to the employer. Where the individual cost for each employee cannot be established, an average could be used.
Further details on how the exemption will work, including family member situations, are contained in the Government guidance. However if you are unsure please do get in touch before assuming the trivial benefit you are about to provide is covered by the exemption.
Internet link: GOV.UK
There are significant changes to the income tax rules from 6 April 2016 which affect the taxation of savings income.
From 6 April 2016, if you are a basic taxpayer you may be able to receive up to £1,000 in savings income tax free. Higher rate taxpayers will be able to receive up to £500.
Savings income includes the following:
• interest from bank and building societies accounts
• interest from credit union or National Savings and Investment accounts
• income from government or company bonds
• interest distributions from authorised unit trusts
• most types of purchased life annuity payments.
As a result of this from 6 April 2016 interest will be paid gross rather than net which is the current position for most interest paid to individuals. Net payments are received after deduction of the basic rate of tax of 20%. Interest from ISAs is not included in your Savings Allowance (SA) because it is already tax free.
No action is required to claim the allowance. If the amount of savings income you receive is higher than the allowance, banks and building societies will provide details to HMRC and they will amend your tax code to collect any tax due. If you complete a Self Assessment tax return you should carry on doing this as normal.
If you have any queries on the changes to income tax please do get in touch.
Internet link: GOV.UK
More than 90% of the first small employers required to put their staff into a workplace pension have now complied with the law.
Around 12,000 small and micro employers became subject to the new legal requirements last summer and the vast majority have put their eligible staff into a pension. For the small numbers that did not comply, the Pensions Regulator (TPR) used their powers of enforcement action.
Although compliance with the rules remains the norm, TPR has noted that smaller employers are more likely to leave things to the last minute and they are therefore more likely to receive a compliance notice which could lead to a fine.
Since the start of auto enrolment:
• 4,818 compliance notices have been issued
• around half of these (2,596) were issued between October and December last year
• a total of 1,594 £400 Fixed Penalty Notice fines have now been issued to employers
• just over a thousand (1,021) Fixed Penalty Notices were issued in the last quarter of 2015.
Compliance notices act as a warning and give employers a deadline to meet their duties and avoid a fine.
If you would like details on what you are required to do as an employer to meet your auto enrolment obligations then please get in touch.
Internet link: TPR press release
George Osborne presented his Budget on Wednesday 16 March 2016.
In his speech the Chancellor reported on ‘an economy set to grow faster than any other major advanced economy in the world’. Towards the end of 2015 the government issued many proposed clauses of Finance Bill 2016 together with updates on consultations. The Budget proposed further measures and some of the articles which follow summarise some of the key changes.
CBI Director-General, Carolyn Fairbairn, said:
‘After a year of surprises, this was a stable Budget for business facing global stormy waters. The Chancellor has listened to our concerns about the mounting burden on firms and chosen to back business to grow the economy out of the deficit.’
From April 2016, rules are introduced which require companies to keep a register of People with Significant Control (PSC). In addition, the details of PSC will have to be filed with Companies House from 30 June 2016.
A PSC is defined as an individual that:
• holds, directly or indirectly, more than 25% of the shares or voting rights in the company; or
• holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company; or
• has the right to exercise, or actually exercises, significant influence or control over the company; or
• where a trust or firm would satisfy any of the above conditions, any individual that has the right to exercise, or actually exercises, significant
influence or control over the activities of that trust or firm.
The details of the individuals which need to be entered on the register include:
• name and address
• usual residential address, country of residence and nationality
• date of birth
• date when they became a PSC
• the nature of their control over the company.~
Failure to comply with the requirements of the PSC regime could lead to the company or directors, or identified PSCs committing a criminal offence. The company and its directors could face a fine or imprisonment or both.
Further guidance can be found on the Companies House website or please contact us for more guidance in this area.
Internet link: Companies House
The National Minimum Wage (NMW) rates will increase from 1 October 2016 as follows:
|Current rate||Rate from 1 October 2016|
|21-24 year olds||£6.70||£6.95|
|18-20 year olds||£5.30||£5.55|
|16-17 year olds||£3.87||£4.00|
From 1 April 2016 following the introduction of the National Living Wage all workers aged 25 and over became legally entitled to at least £7.20 per hour. Employers should ensure that all affected employees benefit from this new rate.
*This apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled
to the National Minimum Wage for their age.
First Minister Nicola Sturgeon has announced plans that income tax rates in Scotland will be frozen, with no increases in the basic, higher or additional rates. However the significant cuts (reduction in income tax liabilities) which would result from the increases to the higher rate threshold proposed by the UK government would not be adopted in Scotland under the proposals. Their plans are that the higher rate threshold will be frozen in real terms and increased only in line with CPI inflation in 2017/18 and by no more than inflation until 2021/22.
The exact level of the higher rate threshold will be set out each year by the Scottish Government at the budget.
The Scottish Government’s believe their proposals are a more balanced approach which ‘will be fair to higher rate taxpayers while also generating additional revenue to be invested in Scotland’s public services such as the NHS’.
Under the proposals, the Scottish Government will ensure a Personal Allowance of £12,750 in 2021/22. If necessary, the Scottish Government will create a zero rate band to ensure that this protection for low income households is delivered.
Alongside the tax proposals, the First Minister published Scottish Government analysis that demonstrated any increase in the additional rate for top earners; whilst the UK rate remains at 45p; could put millions of pounds of revenue at risk. Accordingly, she confirmed that the additional rate will not increase in 2017/18, but that the analysis will be updated each year to inform decisions in future budgets.
Nicola Sturgeon said:
‘In setting out our proposals we have balanced the need to invest in and support our public services with a recognition that many households are still facing difficult economic challenges, and with the need to grow the Scottish economy.
We will not allow our public services to pay the price of an inflation busting tax decrease for the highest earning 10% of the population. We think that is the wrong choice and today we set out our alternative.
We will freeze the basic rate of tax for the duration of the next parliament. We do not believe it is right that those on low incomes are asked to pay for austerity. That does not tackle austerity, it simply shifts the burden to those who can least afford it.
No taxpayer will see their bill increase as a result of these Scottish Government proposals.
In 2017/18, instead of offering a large tax cut we will ensure the higher rate threshold rises only by inflation.
That means next year the threshold for higher rate taxpayers will go from £43,000 to £43,387’.
These proposals would introduce a difference between the amount of income tax payable by higher and additional rate taxpayers in Scotland to that paid by taxpayers with similar income in the rest of the UK.
Other parties have their own plans for the income tax rules for Scotland.
Internet link: Scotland Gov.News
For those born after 5 April 1938 the personal allowance is currently £10,600. Those born before 6 April 1938 have a slightly higher allowance. Legislation has already been enacted to increase the personal allowance to £11,000 in 2016/17. From 2016/17 onwards one personal allowance will apply regardless of age.
Not everyone has the benefit of the full personal allowance. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 which is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200 (£122,000 for 2016/17).
Tax bands and rates
The basic rate of tax is currently 20%. The band of income taxable at this rate is £31,785 so that the threshold at which the 40% band applies is £42,385 for those who are entitled to the full basic personal allowance.
Legislation has already been enacted to increase the basic rate limit to £32,000 for 2016/17. The higher rate threshold will therefore rise to £43,000 in 2016/17 for those entitled to the full personal allowance.
The additional rate of tax of 45% remains payable on taxable income above £150,000.
Tax bands and personal allowance for 2017/18
The Chancellor has announced that the personal allowance will be increased to £11,500 and the basic rate limit increased to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 for those entitled to the full personal allowance.
The main rate of corporation tax is currently 20% and this rate will continue for the Financial Year beginning on 1 April 2016. In the following years the rate of tax will fall as follows:
• 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019.
• 17% for the Financial Year beginning on 1 April 2020.
The 17% rate from April 2020 is a reduction of 1% from the rate previously announced by the Chancellor in his Summer Budget in 2015.
CBI Director-General, Carolyn Fairbairn, said:
‘The reduction in the headline Corporation Tax rate sends out a strong signal that the UK is open for global business investment, and reforms to Interest Deductibility are rightly in line with the international consensus.’
From April 2017, individuals working through their own company in the public sector will no longer be responsible for deciding whether the intermediaries legislation applies and then paying the relevant tax and NIC. This responsibility will instead pass to the public sector employer, agency or third party that pays the worker’s intermediary. The employer, agency or third party will have to decide if the rules apply to a contract and if so, account for and pay the liabilities through the Real Time Information (RTI) system and deduct the relevant tax and NIC.
HMRC has announced they will will provide help for public sector employers and agencies with their new responsibilities. They plan to introduce clear, objective tests for employers to use to decide at the point of hire whether or not they need to consider the new rules and then identify those engagements that are caught by the rules.
For cases that are less clear cut, HMRC have announced that they will develop a simple digital tool. This will be designed to provide employers engaging an incorporated worker with a ‘real-time’ HMRC view on whether or not the intermediaries rules need to be applied.
Chris Bryce, Chief Executive of the Association of Independent Professionals and the Self Employed (IPSE), commented:
‘The Chancellor announced a number of measures today which are likely to impact independent professionals and the self-employed. His move to extend rules for off-payroll working in the public sector will create confusion and disruption. The engaging department or agency will be made responsible for any tax liability. This will result in genuine businesses having to jump through numerous hoops and will see the cost of engaging contractors increase. It will endanger the delivery of vital public services and important projects like HS2.’
Internet link: HMRC Off payroll working
Business rates have been devolved to Scotland, Northern Ireland and Wales. The Chancellor has announced cuts on business rates for half of all properties in England from 1 April 2017. In particular the government proposes to:
permanently double the Small Business Rate Relief (SBRR) from 50% to 100% and increase the thresholds to benefit a greater number of businesses. Businesses with a rateable value of £12,000 and below will receive 100% relief, rateable values between £12,000 and £15,000 will receive tapered relief increase the threshold for the standard business rates multiplier to a rateable value of £51,000 taking 250,000 smaller properties out of the higher rate.
The government also proposes to modernise the administration of business rates to revalue properties more frequently and make it easier for businesses to pay the taxes that are due.
CBI Director-General, Carolyn Fairbairn, said:
‘Businesses will welcome the Chancellor’s permanent reforms to business rates – taking more small firms out of the regime and changing the uprating mechanism from RPI to CPI, which the CBI has long been calling for.’
A new Lifetime ISA will be available from April 2017 for adults under the age of 40. Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.
Further details of the new account, which will be available from 2017, are as follows:
• Any savings an individual puts into the account before their 50th birthday will receive an added 25% bonus from the government.
• There is no maximum monthly contribution and up to £4,000 a year can be saved into a Lifetime ISA.
• The savings and bonus can be used towards a deposit on a first home worth up to £450,000 across the country.
• Accounts are limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together.
• Where an individual already has a Help to Buy ISA they will be able to transfer those savings into the Lifetime ISA in 2017, or continue saving
into both. However only the bonus from one account can be used to buy a house.
• Where the funds are withdrawn at any time before the account holder is aged 60 they will lose the government bonus (and any interest or
growth on this) and will also have to pay a 5% charge. After the account holder’s 60th birthday they will be able to take all the savings
The Chancellor said in his speech:
‘My pension reforms have always been about giving people more freedom and more choice.
So faced with the truth that young people aren’t saving enough, I am today providing a different answer to the same problem.’
Internet link: GOV.UK lifetime-isa-explained
The current rates of capital gains tax (CGT) are 18% to the extent that total taxable income does not exceed the basic rate band and 28% thereafter.
The government is to reduce the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%. The trust CGT rate will also reduce from 28% to 20%.
The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private residence relief. In addition, the 28% rate still applies for ATED related chargeable gains accruing to any person (principally companies).
These changes will take effect for disposals made on or after 6 April 2016.
The rate for disposals qualifying for Entrepreneurs’ Relief (ER) remains at 10% with a lifetime limit of £10 million for each individual.
A tribunal has ruled that security firm G4S cannot reduce its profits for tax purposes by deducting parking fines.
The company, G4S Cash Solutions, tried to reduce their corporation tax bill by approximately £580,000 but the first-tier tribunal has ruled in HMRC’s favour in rejecting the claim for the deduction of the fines.
The company G4S incurred a substantial amount of parking fines usually while delivering consignments of cash over the pavement. The business tried to claim these were a business expense and so could be used to reduce the company’s profits for tax purposes.
The tribunal ruled G4S staff consciously and deliberately decided to break parking restrictions for commercial gain.
The ruling upholds HMRC’s long standing view that fines for breaking the law cannot be used to reduce a tax bill.
HMRC’s Director General of Business Tax, Jim Harra, said:
‘We’ve always said fines incurred for breaking the law are not tax deductible. The tribunal has now established a clear precedent for rejecting any future such claims.’
If you would like advice on calculating your taxable profits and the deductibility of any expenditure please get in touch.
Changes have been made to the rules which allow farmers to average their profits for tax purposes. Under the new rules unincorporated farmers will be able to average their profits for income tax purposes over five years rather than the previous two years.
The amendment to the rules which took effect from 6 April 2016 is aimed at helping farmers with fluctuating profits better manage the ‘risk and the impact of global volatility which has become an inherent feature of the agricultural industry’.
Chancellor George Osborne said:
‘… reforms will provide farmers with additional security to plan and invest for the future, allowing them to spread profits over a longer period of time. Over 29,000 farmers can benefit from the changes, saving an average of £950 a year.’
As well as having the new option to average tax over five years, farmers will also retain the choice to average profits over two years.
If you would like guidance on how these rules will affect you please get in touch.
Internet link: Gov.uk publications
HMRC have issued details of the updated VAT fuel scale charges which apply from the beginning of the next prescribed VAT accounting period starting on or after 1 May 2016.
VAT registered businesses use the fuel scale charges to account for VAT on private use of road fuel purchased by the business.
Please do get in touch for further advice this or other VAT matters.
Internet link: Gov.uk Fuel scale charges
A new savings allowance is available to basic and higher rate taxpayers for 2016/17. The amount available depends on the individual’s circumstances:
• If any of the individual’s income for the year is additional rate income then the individual’s savings allowance for the year will be nil.
• If any of the individual’s income for the year is higher-rate income and none of the individual’s income for the year is additional rate income,
the individual’s savings allowance for the year is £500.
• If none of the individual’s income for the year is higher rate income, the individual’s savings allowance for the year is £1,000.
No tax will be payable on savings income until the new savings allowance has been used up.
In a further change, banks and building societies will no longer deduct tax at source from interest at 20%. This means that non-taxpayers will no longer need to fill out an R85 to receive bank and building society interest gross. However, companies will still need to account for 20% at source on payments of interest.
The 0% savings starting rate also remains available on the first £5,000 of taxable savings income for those with the correct split of income. This would apply where non savings income, broadly pay, trade profits and property income are no more than the personal allowance. This means that for some, the effect of the personal allowance (£11,000 for 2016/17), the £5,000 starting rate band and the new savings allowance (£1,000 for basic rate taxpayers for 2016/17) means that it may be possible to receive up to £17,000 savings income tax-free in 2016/17.
In light of the above changes please contact us if you would like to review your tax position on savings income.
Internet link: Gov.uk Publication
According to HMRC figures over 230,000 people have used the new pension freedoms introduced one year ago and accessed over £4.3 million in pensions saving.
In April 2015, the government introduced significant pension reforms giving people the ability to access their pensions savings how and when they want. The statistics show that in the first year of these new rules being available, more than 232,000 people have accessed £4.3 billion flexibly from their pension pots.
The Economic Secretary to the Treasury, Harriett Baldwin said:
‘It’s only right that people should have a choice over what they do with their money and in their first year our successful pension freedoms have already given thousands of people access and responsibility over their hard-earned savings.
We will continue to make sure that the pension freedoms work well for everyone, including through working with our partners to ensure consumers are protected and that there is simple information to help people understand their options.
The government has already taken action to ensure the new freedoms work for consumers and that they have the right information to make informed decisions.
It has announced that it will be capping early exit fees, allowing earlier access to Pension Wise guidance, and working with industry to introduce a Pensions Dashboard.
It has also announced that it is extending the popular freedoms even further, giving millions more people the right to sell their annuities if it’s best for them from April 2017.’
Since the pension flexibility rules took effect from 6 April 2015:
• 232,000 individuals have accessed their money flexibly
• People have flexibly accessed over £4.3 billion of their own money through 516,000 payments.
• In the most recent quarter, 74,000 individuals withdrew £820 million. In the previous quarter, 67,000 individuals withdrew £800 million.
• Figures are taken from information voluntarily reported to HMRC by pension scheme administrators from 6 April 2015 to 31 March 2016. It is
not mandatory for scheme administrators to flag these up as pension flexibility payments until April 2016.
• HMRC statistics cover ‘flexible payments’, which means partial or full withdrawal of the pension pot, taking money from a flexible drawdown
account, or buying a flexible annuity.
If you would like advice on the tax implications of pensions freedom please contact us.
The April Employer Bulletin includes articles on:
• reporting expenses and benefits in kind for 2015/16 using form P11D
• Scottish Rate of Income Tax coding notice issues
• Class 1 National Insurance contributions for apprentices under the age of 25
• changes to Student Loans Deductions including the introduction of type 1 and type 2 loans and the reminders which HMRC will issue to
employers who fail to make deductions.
The Bulletin also includes links to HMRC’s guidance on the restriction to Employment Allowance for Single Director Companies.
If you would like any help with payroll or P11D completion issues please contact us.
Internet link: Employer Bulletin