Here we are again. A Square Circular to bring warmth to the cold winter days and light to the dark winter nights.
Once again we’ve tried to cover a variety of topics rather than trying to cover one theme and we hope there’ll be something of interest for everyone.
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.
Emma’s baby for a start, born 14 January named Joshua. We’re sure anybody who has got to know Emma during her years at Alexander & Co will join us in passing on our congratulations. The only complaint we have is that maternity leave is so, so, very, very long.
We also recently said farewell to Adrian Phillips who worked with us for many years. At least we won’t now have to keep referring to young Adrian and old………moving on swiftly.
Budget Day is scheduled for 16 March. More fun in store.
As we’ve just told you, Budget Day is coming up. Over the next few weeks rumours will abound as to what’s going to be in the Budget.
One hardy perennial is tax relief on pension contributions. The whispered word, usually, is that it’s going to be abolished so make pension contributions now, like there’s no tomorrow. This time the word is rather more credible; that higher rate relief for pension contributions will go. Again, the message is to make maximum contributions in this tax year. What makes it more credible is the trend over the past year or two of restricting pension allowances and also a point mentioned in the autumn 2015 issue of Square Circular. The “Triple Lock” means that they can’t increase the headline rates of income tax, VAT or NICs but they have to raise the cash somehow.
We reckon it may be worthwhile taking this Budget possibility seriously and having a word with your usual contact partner or with Pareto Alexander.
If we had to mention two significant changes signalled for future tax legislation what would they be? For sure, the changes in the dividend rules due to start in 2016/17 would take pride of place. They could well have an adverse effect on owner-managed corporate businesses. And the second would be the continual bashing of higher rate taxpaying residential landlords with the proposed abolition of higher rate relief on interest. Square Circular has previously mentioned both these so we’ll try not to dwell on them again. And if the news has passed you by and you think you may be affected, speak to John or Simon or one of our tax team on 0161 832 4841 as soon as – no, before you’ve finished reading this Square Circular.
But we really want to tell you about something different. It wasn’t trailed in flashing neon lights but it’s going to happen. We’re not sure yet exactly what, but there’s going to be a tightening up on the transactions in securities legislation, purchase by a company of its own shares, capital reduction and phoenix liquidations. Phew, that all sounds a bit techie, but the thrust of it is to stop people getting funds out of their company and paying CGT at the Entrepreneurs’ Relief rate of 10% rather than getting the funds in the form of dividends and paying higher rate income tax.
Space doesn’t allow for a detailed discussion in the Square Circular. Let’s just say that if your company is coming to the end of its useful life and you’re contemplating liquidation it might be an idea to do it this tax year. Likewise, if you’re contemplating extracting funds from your limited company such as through a sale of shares back to the company or through a capital reduction scheme or some such similar transactions taxable as a capital gain rather than income, you should speak to John or Simon, our tax partners, to set the ball rolling now rather than later.
We know 17 St Ann’s Square is not exactly Macbeth’s castle but we do wonder why our tax partners go around muttering “If it were done when ‘tis done then ‘twere well it were done quickly”
ALL FOOLS’ DAY
We referred before to HMRC bashing residential property landlords. The interest relief restriction doesn’t come in until 2017 and there’s still time to tell you more about that. But there is one point worth mentioning now because it may require action before 1 April 2016.
Part of the bashing is to impose a higher rate of SDLT (3% above the current rates) on purchases of ‘additional residential property’. This was announced in the Autumn Statement and is scheduled to start from April Fool’s Day 2016. What we know of it is based on a Consultation Document released on 28 December 2015 and the end result may depend on the value of the property, how many properties you have and whether the additional property is a main residence with the previous main residence to be sold within 18 months.
Bottom line is, if you’re an individual or corporate buy-to-let investor in residential property looking to buy something around April time you might be able to save a few pennies doing it in March.
Did you hear about the recent report by Citizens Advice which found evidence of poor practice by the government when it came to debt enforcement. A league table was drawn up comparing government departments with other debt collectors rating how creditors resolve disputes, set affordable payment plans and how easy they are to contact.
Apparently water companies and local authorities (collecting council tax debt) were the most responsible debt collectors. Some government departments were among the worst. Apparently the worst of all was………………….well, we’ll leave you to guess.
31 January deadline crisis over? That’s it for another year? Think again. How’d you like it four times a year.
No, we’re not joking.The Government would like the self-employed and small businesses, by 2020, to report their results four times a year. As you may imagine this was received by the British taxpayer with not too much enthusiasm. In fact a petition calling on the Government to “scrap plans forcing self-employed and small business to do four tax returns yearly” attracted 110,000 signatures leading to a debate in Parliament on 25 January. Read it in Hansard if you like but it’s quite lengthy.
Obviously, it’s early days yet. It’s part of the Government’s digital strategy. Maybe, quarterly reporting will come to pass. Or maybe it’ll end up with quarterly tax payments but annual reporting, much the same as the regime which currently applies to companies making large profits. Who knows how it will all end up? There’s some way to go, yet.
In the Hansard report both a member if the Federation of Small Businesses and an accountant described the prospect as “my worst nightmare come true”. HMRC have dispelled these nightmares with a myth-buster document but it looks like interesting times ahead.
PAGE SIX IHT 403
Sounds like some secret service code, doesn’t it? You’d be surprised how practical it is.
You probably know that one of the Inheritance Tax exemptions is the relief for gifts which are normal expenditure out of income. It’s an over-simplification, yes, but you can send your grandchildren birthday presents without it being counted as part of your estate if you die within seven years of having made the gift.
Form IHT403 is about gifts and other transfers of value. Six seems to be an unlucky number. If you tick box 6 on page 1 of the form you end up having to complete page 6 and that isn’t easy. It could be a little easier if the deceased could complete page 6 himself; but that’s beyond the grave.
A few months ago HMRC complained that they were receiving IHT 403 forms with incomplete page 6s. Hardly surprising. There are, conveniently, seven columns, one for each of the past seven tax years in which gifts may have been made. You have to put down income less tax paid. That’s the easy bit. Tax Returns can help with that. But then you have to put down expenses such as household bills, council tax, travelling costs, entertainment and holidays to mention just a few of the expenses you’re more likely to know. And then there’s that row of “other”. All designed to show the net income minus total expenditure out of which gifts can be made.
HMRC say that if the form is not completed as described it will take longer for HMRC to consider whether the gifts out of income exemption applies and it may need to ask for further information.
This seems to lead naturally to…………………….
Another memorable notice from the church notice board.
“The pastor would appreciate it if the ladies of the congregation would lend him their electric girdles for the pancake breakfast next Sunday morning”.