Have you noticed that Spring seems to be arriving later and later each year? That’s why this Square Circular is a little later than usual. We want the Spring 2016 issue to be worthy of the title.
There’s no overall theme to this Square Circular. The topics are varied. There’s even something which is completely different in that it isn’t about tax. We hope you find it all of interest and informative.
If you want more details about any of the matters we’ve mentioned in this issue, or indeed, about any of the matters we haven’t mentioned please do contact us on 0161 832 4841.
CANALS AND HATS AND BOATS AND BANDS
We usually like to start with “What’s news?” Panama, that’s what’s news. Not the canal, not the hats, not the boats, not the Australian electronic band (just in case you were wondering what a Panama band was). It’s the Panama Papers.
Apparently, approximately 2.6 million megabytes of information has been leaked. Reportedly, less than 1% of that relates to UK entities. Some of this will reveal the absolutely shocking information that some UK individuals, companies, trusts etc. have offshore investments. We’re not sure whether it’s the politics of envy at play but, apparently, according to media hype if you hold any investment outside our green and pleasant land it automatically makes you into a wicked tax dodger. And if you’re not actually guilty of criminal tax evasion, you’re guilty of immoral tax avoidance. What is not appreciated is that there can be legitimate as well as illegitimate reasons for offshore investment. Proper investigation by HMRC, not public opinion will identify tax irregularities and we will have to wait and see the outcome before making judgements.
Given the public mood, all this isn’t surprising. Square Circular warned ages ago that when you start blurring the lines between dishonest tax evasion and legal tax avoidance, all other lines become blurred in the mind of the public. It’s even got to the stage of suggesting that when the Prime Minister’s mum makes an Inheritance Tax Potentially Exempt Transfer that’s also wicked and immoral tax avoidance.
You probably know what that is because it’s been going for a couple of years. It’s the gift you get from the government for employing people. You get a sum of money to set off against your employer’s NI contributions.
How much? Well that’s the good news. For this tax year it’s gone up from £2,000 to £3,000. You’ve probably guessed though there’s some not so good news as well.
Which is this. From 6 April 2016, where the director of the company is the only employee paid earnings above the secondary threshold for Class 1 NI contributions, it’s goodbye to Employment Allowance.
It’s at times like this that one’s gaze falls affectionately on one’s loving spouse. Why not invite him or her to take up employment in the one man (or one woman) company and be paid above the earnings threshold. Claim your £3,000 NI present. Christmas and birthday come at the same time!
The only catch is that you can’t get the Employment Allowance if your company took on that new employee, your ever-loving spouse, in order to get that allowance. Those who have always employed their spouse in their company to make it more than just a one man company will be in a better position than those whose spouse’s attraction lies in their Employment Allowance potential.
AND NOW FOR SOMETHING COMPLETELY DIFFERENT
It’s not often that Square Circular wants to talk about anything other than tax. But you know how much we like acronyms. HMRC (there we go again) are brilliant at acronyms, so when we come across PSCs we naturally thought it was something to do with tax and just had to investigate further. Unfortunately, it’s nothing to do with tax.
Don’t read any further if you want to have fun guessing who or what is a PSC. If you’ve not got time to spare we’ll tell you that a PSC is a person with significant influence or control and from 6 April companies and LLPs have had to keep a register of PSCs. Just in case you’re wondering who qualifies as a PSC, it’s an individual who holds more than 25% of the shares in a company or more than 25% of the voting rights or has the right to appoint or remove the majority of the board of directors so you need to check both the register of members and articles of association to identify PSCs. In most cases it shouldn’t be too onerous especially with the help of the published guidance. The guidance for companies and LLPs runs to 87 pages while that for the PSCs themselves is only 48 pages.
From 30 June PSC information will have to be on public record so it’s a matter to be taken seriously. You probably won’t need to deal with 87 pages of notes if your company does its own annual return and definitely won’t need to deal with 87 pages of notes if we do it for you. If you need any help feel free to contact one of our partners.
♫ DUM DE DUM DE DUM DE DUM ♫♫
Aficionados of The Archers will know that Helen and Rob Titchener’s brief marriage has not been happy; not for Helen, anyway. Rob’s the domestic abuser and Helen’s the abused. She’d decided to separate from him but when she wanted to tell him so, it didn’t turn out to be so easy.
All exploded on 4 April. It’s partly Henry’s fault. Henry is Helen’s five year old natural born son and Rob’s adopted son. He’d annoyed Rob by trying to share his chocolate Easter egg with his fluffy toy rabbit (Henry’s not Rob’s). It all boiled over into an argument. Argument led to insults. Insults led to violence. Violence led to Rob being carted off to Borchester General Hospital with some serious stab wounds and Helen being carted off to Borchester “nick”.
Sure we’ve left out one or two details but have you got the real moral of the story. Did you pick up on the most important piece of information. Yes, the date, 4 April.
Spouses and civil partners have certain Capital Gains Tax advantages. They can transfer assets between themselves at a value which gives rise to neither gain nor loss. But they can only do that when living together. If they separate in circumstances where the separation is likely to be permanent they only have until the end of the tax year, 5 April, to take advantage of the concessions which apply to spouses. This can be very useful when it comes to dividing up assets on a marriage breakdown.
4 April! That really leaves no time at all for planning. If only she’d stabbed him on 6 April. We’d have 364 days in which to do some planning for Helen and Rob. Just shows how you have to think ahead before you wield the knife.
Oh, and one further thing for Helen and Rob to think about assuming he gets well and she gets free. If you’re going to divorce don’t forget to review your will. Feel free to call us because we can recommend a solicitor who can advise on wills (or divorce for that matter).
Have you had any interest since 5 April from your bank or Building Society? Have you noticed something missing? That’ll be the tax deducted at source. You’ll get interest gross and if it’s small enough to fall within the new Personal Savings Allowance, that’s the end of the story.
What it you lend money to your company. Quite often those who do, give interest free loans. We’re big fans of charging a commercial rate of interest for what is, in most cases, an unsecured loan. For that, deduction of tax at source and the CT61 procedure continues. A bit of a nuisance but usually worth the trouble.
If you want to know more about the Personal Savings Allowance or charging interest on loans to your company please feel free to speak to one of our tax team.
RESIDENTIAL PROPERTY RENTALS
If you rent out residential property you probably feel hard done by. An extra 3% SDLT; too late to do anything about it. Abolition of wear and tear allowance; too late to do anything about it. And then to cap it all, in the last Budget, there’s a reduction in the rate of CGT if you sell an asset other than – yes, you’ve guessed it – rented residential property. But wait, the worst is still to come if your rental business model has a high gearing. That’s the mortgage interest relief restriction which starts next April and will gradually get “worser and worser”. The only silver lining in the cloud is that there’s still time to do something about it.
It sounds innocuous enough to say that higher rate taxpayers will only get mortgage interest relief at basic rate and that’s not Armageddon is it? But we’ve seen examples to make you say “Armageddon” out of the rental business. Basic rate taxpayers become higher rate taxpayers. Profits turn into a shortfall because of the tax impact. We won’t scare residential property landlords because each situation depends on its own facts. What our tax team can do is project future tax liabilities based on the 2015/16 results of your rental business and compare the current rules with the rules in future to see what you think.
So what can you do? You could do nothing. We’re not against deciding to do nothing if that’s the right answer but you need to think about it and decide rather than just burying your head in the sand. Or you could just increase the rents to help fund the tax; yes, and possibly find yourself with no tenants. Or you could sell part of your portfolio to reduce your borrowings; but that could be the end of your dreams to build a property empire, Those who have a mixed commercial and residential portfolio have some room for manoeuvre as regards borrowings so that could be a solution for some. And, then, there’s the limited company solution.
We find there are more and more landlords asking us whether they should transfer their property rental business to a limited company. There are pitfalls as well as advantages. Space doesn’t allow that to be considered here. Maybe in the next Square Circular. But, hopefully, by that time you’ll have spoken to one of our tax team, Simon, John, Linda, Gary or Chris and if you have a problem you’ll know the size of it and may well be on course to do something about it before April 2017 when the problems start.
MORE ABOUT CARS
From time to time we extol the tax virtues of QUALECS. That stands for Qualifying Low Emission Cars. They’re better than gas guzzlers for capital allowances and for benefits in kind. We won’t go into detail again. Not now, anyway.
Here are just a couple of points to bear in mind. We usually think of green cars being only electric. Maybe, that’s because electricity isn’t fuel so there’s no fuel benefit. But don’t forget that you can still get quite high performance cars with low CO² emissions that aren’t electric.
The other thing to bear in mind is that the benefit percentage speeds up each year. The benefit that might be charged as 11% of the list price in 2016/17 could be 19% in 2019/20. So you have to travel fast to keep up.
A memorable church notice………………….
“Please place your donation in the envelope along with the deceased person(s) you want remembered”.