Continuing the Simon and Garfunkel theme from Issue 56 of the Square Circular, “September, I’ll remember a love once new has now grown old”.
Don’t you just love reading the Square Circular. Next month marks our 17th Anniversary. A love once new has now grown old. We hope you’ll love this Square Circular as much as the previous 56.
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.
Lots of it, but, first, let’s start with a correction – well, a bit of a correction.
Issue 56 of the Square Circular came out at the end of June. At the time we were expecting the “Summer Finance Bill” to enact most of the stuff taken out of the original Finance Act 2017 which contained just non-controversial matters in anticipation of the General Election in June. Only we didn’t get a Summer Finance Bill. Instead we’ve got an Autumn Finance Bill which is currently known as Finance Bill (No.2) 2017. It was published recently containing 72 clauses and 18 Schedules spread over 665 pages. If you add this to the 148 pages in the Finance Act 2017 it’s a new record in terms of length and is obviously part of the attempt to simplify the tax system. We’ll tell you a bit more later about the joy and gladness this brings to the hearts of lawyers and accountants.
We understand that the OTS – that’s the Office of Tax Simplification – has been looking for people to join its team in its work of simplifying the tax system. Oh, and the date of 22 November has been set for the Autumn Budget. Looks like another round of simplification in store next year.
Nearer to home, we’d like to congratulate Chris Duncan and Rachel Millard on qualifying as Chartered Accountants. We’d also like to welcome Lesley Jamison as a tax manager. You may well have come across Lesley by now because she’s been with us for three months. Having arrived on the day on which the last Square Circular was issued she’s had to wait until now for her honourable mention.
Finally, in our accounts team, we’re pleased to welcome an accounts senior, Bushra Raza, a graduate trainee Gemma Archer and an AAT accounting apprentice, Rob Connor.
AUTUMN FINANCE BILL
We did promise to tell you more “later”. It’s now “later” but don’t worry, we’ll keep it simple which is more than the Finance Bill was able to do.
As mentioned before, the Finance Bill seeks to re-introduce the provisions taken out of the first Finance Act. For the most part it re-introduces them from April 2017 which, of course, was intended to be the original date of introduction. There are a couple of noteworthy exceptions.
It was intended to reduce the level of dividends taxed at nil percent from £5,000 to £2,000 from 2017/18. The £5,000 will not be reduced to £2,000 until 2018/19.
The other noteworthy change is MTD. That’s a story in itself.
Don’t pretend you don’t know that stands for Making Tax Digital. It’s been big news for accountants for the past year. Funny, the kind of thing that gets accountants excited.
There was something of a turnaround in policy over the summer. We’re not going into the history; that would take too long. Just a brief update on how things stand at present:
- Businesses with a turnover above the VAT threshold will only have to keep digital records from 2019 and, then, only for VAT purposes. Keeping digital records for other taxes or updating HMRC quarterly will not be introduced until at least 2020. Originally quarterly reporting was going to come in from April 2018.
- Businesses with a turnover below the VAT threshold will not be mandated to use the MTD system but it will be available on a voluntary basis. The original proposal was that they would have to use MTD from April 2019.
While we’ve always regarded MTD as a positive step towards a more streamlined and efficient tax system the way in which it is introduced is key. The more thoughtful softly softly approach must be a positive step.
You probably think this is something to do with singing and there are a couple of “typos” in the title. Wrong again. OpRA stands for Optional Remuneration Arrangements. Now you’re probably thinking an employer can choose whether or not to pay employees for their work. Wrong again. OpRA is more commonly referred to as salary sacrifice. New legislation is effective from 6 April 2017.
The principle isn’t too complicated. If you give an employee the choice between receiving a benefit in kind and cash remuneration the employee will now be taxed on the higher of the value of the benefit and the salary foregone. The big problem comes when the benefit would otherwise be tax free. So, if, for example, the contract of employment offers either an extra £1,000 of salary or the provision of a mobile phone, what once was a tax free benefit becomes a £1,000 benefit.
There are long term exceptions such as employer pension contributions. qualifying childcare provision and the cycle to work scheme. There are also transitional arrangements. If the mobile phone benefit scenario we’ve just mentioned is something new, the rules apply from April 2017. If they are already in place at 6 April 2017 the new rules are effective from 6 April 2018. There’s an extension to April 2021 for certain other benefits.
If you have any arrangements that need reviewing you can always ask one of our tax team.
Here’s a reminder for the “big boys”. We’ve probably mentioned this before but a reminder doesn’t hurt.
By “big” we mean any trading enterprise that’s spending over £200k in a year on plant and machinery. Up to that £200k level you get a 100% Annual Investment Allowance on your capital spend.
Over that figure the allowance is down to 18% or 8% depending on the type of capital expenditure it is. But, if you buy environmentally beneficial plant such as energy saving products it goes back up to 100% on those items.
If your annual capital spend is over £200k it’s worth giving some thought to benefitting the environment.
R & D
Here’s something else we’ve talked about before but which is always worth a reminder. Apparently, the latest statistics show an increasing number of R & D claims, perhaps fuelled by generous changes to the rules especially of benefit to smaller companies.
Perhaps the hardest part of R & D claims is knowing whether your company is doing an R & D project in the first place. To quote HMRC, your company has to be engaged on a project which seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technical uncertainty.
The trouble is that while we know what your company does we don’t always really, really know what it does. Something to do with software or engineering or construction or bio-energy. But, what exactly? Sometimes it needs you to tell us exactly what your company is up to even if you think you’re boring us or blinding us with science.
Once over that hurdle it’s a matter of accounts and tax. That’s what we do.
FAMILY INVESTMENT COMPANY
Here’s a story. Let’s, for a moment, imagine that a couple, being imaginative, call them A and B, have some spare cash. Maybe, they’ve sold a valuable property; maybe, they’ve sold shares in a company; maybe it’s accumulated earnings. They’ve paid their taxes and want to invest what’s left in property, equities etc. They have a knack for spotting a good deal and seeing their wealth grow. They expect to generate a healthy income and capital gains from their investments, an income which they don’t really need because they’re both already, additional rate income tax payers. So, they’re going to reinvest the after tax income in more investments which will produce yet more income and gains. Recognise the situation? I wish!
A and B have been thinking a bit about tax. If only the taxman didn’t put such a large shovel into their income and gains they’d have a whole lot more to re-invest. And then, there’s their non-financial assets. Yes, the kids. Lots and lots of private school fees and university fees. We want them to have a share of the income at some stage and we want them to inherit one day. Inheritance may be a problem. Investment enterprises are not usually treated kindly for Inheritance Tax purposes.
Don’t rule out the family investment company. A and B and the kids might subscribe for shares a different classes and different numbers in the company and A and B could loan money to the company for investment purposes. As the years go by there’s the possibility of having more to invest because the corporate tax rate is lower than the personal tax rate and there’s the flexibility to take money out of the company in a tax efficient manner although it may take some careful management to ensure that the tax traps are avoided. If you need advice on this, that’s exactly what our tax team can provide so do feel free to contact us.
A letter from a taxpayer to a tax inspector read:
“I received your income tax form but had to go into hospital an hour afterwards”.