Tax Advice

Filing self-assessment 2017/18 – what you need to know

 

As the year draws to a close, the thought of your tax return is there, at the back of your mind. But with so much time before the deadline, you decide not to worry about it for now.

Then the weeks start to fly by, Christmas comes and goes, and soon you’re planning for the New Year and getting back to work as normal.

Before you know it, it’s the end of January, you’re searching for your registration details, and HMRC’s waiting times are growing longer as thousands of other taxpayers in the same predicament try to get in touch.

More than a quarter of tax returns in January 2018 – that’s 1,290,948 altogether – were submitted less than 48 hours before the self-assessment filing deadline at midnight on 31 January. More…

National Insurance and the higher rate taxpayer

Individuals set to benefit from an increase to the higher-rate threshold in 2019 will only see half of the tax reduction expected, as a result of a Budget measure not mentioned in the Chancellor’s speech.

In Budget 2018, the Chancellor announced that the higher-rate income tax threshold would increase from £46,350 to £50,000 in 2019/20.

Taxpayers earning between £46,350 and £50,000 will see their income tax rate reduced from 40% to 20%, providing what looks like a tax cut of 20%.

More detailed documentation published alongside the Budget says the upper profits and upper earnings limit for national insurance contributions (NICs) will increase at the same time.

This means employees will see their NICs rate within this earnings bracket rise from 2% to 12%. More…

IR35 pitfalls and current views

Contractors could face a higher tax bill from April 2020 when reforms to IR35 legislation are set to take effect in the private sector.

This is expected to raise more than £3 billion between 2020 and 2024, as self-employed individuals who fall within the rules, and the businesses engaging them, will face a higher tax charge.

IR35 rules were reformed in the public sector in 2017, with the aim of stopping work HMRC regards as ‘disguised employment’.

This describes a situation where an individual works much like an employee, but does so through a company to avoid paying additional income tax and national insurance.

The reforms mean that the responsibility for determining the worker’s employment status will move to the firm engaging them.

Those who are considered an employee under IR35 will have to pay income tax, as well as national insurance at the higher 12% rate. More…

Annual investment allowance to rise to £1m

The annual investment allowance is set to temporarily increase from £200,000 to £1 million, allowing businesses to gain more tax relief on their investments.

This will take effect from 1 January 2019 and remain in place until 31 December 2020, after which it is due to revert back to £200,000.

Using the annual investment allowance, businesses can deduct the full value of qualifying plant and machinery from their profits before tax.

This does not include cars, items owned for another reason before they were used in the business, or items given to the business or business owner. More…

Deregistering for VAT

When and how to begin the process of deregistration.

These days VAT thresholds are the subject of much speculation, with the Government concerned that many business owners deliberately choose to stay below the VAT-registration threshold.

Limiting your ambition in this way might seem counter-intuitive – surely you want your business to get as big as possible?

But it can make sense if you are seeking to make a sustainable living rather than get rich, perhaps by trading on online auction sites, or running a café with limited opening hours.

If your business’s turnover is predicted to fall below £83,000 over the next year, it can voluntarily deregister for VAT. More…

Budget 2018: Tax and business round-up

At a time of political and economic uncertainty, the announcement of several substantial measures in the Budget on 29 October 2018 came as a surprise for many businesses.

In fact, the Budget was met with an overall positive reception from industry groups, with the FSB calling it the Chancellor’s “first small-business-friendly Budget”.

A range of measures were announced to support high street businesses, including a reduction to business rates by a third for many independent shops, pubs and cafes with rateable values below £51,000.

This will apply for two years from April 2019, subject to state aid limits.

Pressure was also eased for smaller firms funding apprenticeships, as the co-investment rate required for training will be halved from 10% to 5%.

Meanwhile, businesses investing in plant and machinery were boosted by the annual investment allowance rising from £200,000 to £1 million for a two-year period from 1 January 2019.

Employers will need to pay attention to the national living wage when planning for next year, which is set to increase from £7.83 an hour to £8.21 an hour from 6 April 2019.

The VAT-registration threshold was frozen at £85,000 until 1 April 2022, with the Government planning to review it once the terms of the UK’s exit from the EU have been confirmed.

Suren Thiru, Head of Economics at the BCC, said:

“We are pleased that the Chancellor listened to our call to keep the VAT threshold unchanged over the near term, providing much-needed certainty to firms across the UK.

“A reduction in the VAT threshold could well have proved to be a tipping point for some of our most promising young firms.”

For some, however, the Budget wasn’t all good news, as the Chancellor confirmed that reforms to the off-payroll working rules – known as IR35 – will be extended to the private sector in April 2020.

The responsibility for operating these rules will move to the firm engaging the worker.

Chris Bryce, chief executive at the Association of Independent Professionals and the Self-Employed, called the IR35 rules “complex and crude”, and warned that genuinely self-employed people could be impacted.

To ease some of the burden, small organisations will be exempt, while medium and large organisations will be given support and guidance by HMRC.

Speak to us about how these measures affect you.

Pension planning in your business

How your pension savings can help finance your business.

As traditional loans fall out of favour with increasing numbers of business owners, you may be looking for an alternative route for financing – and your pension could be the answer.

Data from the British Business Bank shows that in 2017 the number of small businesses seeking traditional bank loans reached a record low of only 1.7%.

In contrast, the use of alternative finance has been on the rise, with external equity finance increasing by 79% at the start of 2017, and peer-to-peer lending up by just over 50%.

Funding your business using your pension pot may be an overlooked option compared to these, but it can be well worth considering if you want more control over the way you finance your business. More…

Extracting profits from a business

What are the tax implications?

People run businesses for a variety of reasons from passion to pride, but making a living is high up the list for most people.

How do you go about drawing profit from your business, and doing so efficiently?

If your business operates as a partnership or sole trader, the profits it makes are what you are taxed on, subject to any expenses which are not deductible for tax purposes.

It makes no difference to your tax bill whether the profits are held within the business or extracted for your personal use.

When you work through a limited company, the total tax paid by the company and the shareholders will depend on the methods used to extract profits from the company and the amount withdrawn.

This guide discusses some of the common ways in which you can extract profits from your own company. The tax rates and thresholds quoted apply to 2018/19. More…

Abolish IHT says think tank

A think tank is calling for inheritance tax to be abolished, as part of a set of proposals for major reform to the UK tax system.

The Institute for Public Policy Research (IPPR) published its 10-part plan for economic reform, which includes replacing the system of inheritance tax with a new ‘lifetime gifts tax’.

Under current rules, inheritance tax applies to the estate of a person who has died, if it is worth more than the £325,000 threshold.

The IPPR’s proposed tax would instead be levied on the individual receiving the gift. More…

Class 2 NI looks here to stay

Chancellor Philip Hammond has opted to scrap the planned abolition of class 2 national insurance contributions (NICs).

The Government was originally due to abolish class 2 NICs for the self-employed from 6 April 2018, but the move was delayed for 12 months in November 2017 and has now been abandoned.

The policy, which was first announced by Hammond’s predecessor George Osborne in 2016, was expected to save millions of self-employed workers around £150 a year.

However, the Government cited concerns that it would force low-earning sole traders to pay more towards the state pension, and that scrapping class 2 NICs would make the tax system more complex. More…

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