Landlords: Is your Tax on the Up from April 2017?

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From 6 April 2017 the relief that Landlords receive for mortgage and loan interest on residential lettings will be restricted. It marks a big change for Landlords as it is estimated that one in five will be affected by the policy.

Under the new rules, by 2020/21, finance costs will no longer be deducted from the rental income received (thus giving relief at whatever rate of tax you pay); instead they will be subject to basic rate relief, currently 20%.

The changes will be brought in gradually so that the following proportion of interest costs will be relieved in the normal way in the respective tax years.

2017/2018                           75%

2018/2019                           50%

2019/2020                           25%

2020/2021                           Nil

The balance of costs for each year will be relieved at basic rate.

This change does not just affect higher rate taxpayers.  Some people may find that, even though they are currently a basic rate taxpayer, when the finance costs are no longer being deducted in calculating their net rent, they may be pushed into higher rate tax.  And relief is only available at basic rate.

HMRC announced this change in 2015 in order to give Landlords time to prepare for the impact. If you haven’t done this already then there’s no time like the present (meaning… act NOW!).

Contact us if you would like to discuss your situation with one of the Green & Co team.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Year End Tax Planning Tips For Companies

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Corporation tax is set to reduce to 19% with effect from 1 April 2017 but opportunities still remain to reduce and defer corporation tax liabilities. Here are some you may wish to consider.

MAXIMISE CAPITAL ALLOWANCE

The annual investment allowance (AIA) provides 100% tax relief for qualifying expenditure incurred up to a limit of £200,000 for 12 month periods starting on 1 January 2016. The allowance can only be claimed in the period in which the expenditure was incurred. You should be aware that cars are excluded from this relief.

If you have a 31 March year end, it would be sensible to review capital expenditure plans and consider bringing forward any purchase to before 31 March, thereby utilising this allowance which might otherwise be lost.

On the other hand, if the £200,000 limit has been exceeded, then further purchases should be delayed until after the year end, if possible.

PENSION CONTRIBUTIONS

Relief for employer contributions is given in the chargeable accounting period in which the contributions are paid. In most cases it is sensible to ensure that all contributions are paid before that date in order to accelerate the relief. In the context of a 31 March year-end, if the payments are made before 31 March, relief is given at 20%. This would reduce to 19% for contributions paid after this date.

DEFERRING INCOME OR PROFITS

Consider delaying a transaction to shift profits forward into the next financial year, so as to delay by one year any corporation tax payable. This will also have the effect of reducing the corporation tax payable from 20% to 19%.

There are several ways of deferring income to the next tax year. Sales could be pushed forward to the next period, selling goods on consignment, or if a seasonal trade, changing the year end to exclude a more profitable period or to include a loss-making one.

CLAIM RESEARCH & DEVELOPMENT TAX CREDITS

Companies that have undertaken research and development work could qualify for generous tax reliefs. For an SME, for every £1 of qualifying R & D expenditure, an additional £1.30 is allowed in the tax computation. A loss making SME may be able to surrender the loss arising as a result of the R & D claim for a cash credit of 14.5%

CLEAR OVERDRAWN LOAN ACCOUNTS

The tax charged on a company loan to a “participator” is equal to 32.5% of the amount of the loan outstanding at the year-end, unless the loan has been repaid or cleared within nine months of the end of the accounting period. Companies should therefore review outstanding loans and consider clearing them within the nine months to avoid the tax charge.

CONSIDER ROLL OVER RELIEF

Any company that has realised gains on the disposal of land and buildings used in a trade should consider whether the corporation tax on this can be deferred by way of business asset roll over relief. This may be available if the company reinvests all of the disposal proceeds in new qualifying assets, either within 12 months before the disposal or up to 3 years after. Partial relief could be available if all the proceeds are not reinvested.

For further information please contact the tax team at Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Proposed NIC rise has been dropped!

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As mentioned in the recent Budget, the Chancellor had intended to increase the Class 4 National Insurance Contributions (NIC). The NI rate for the self-employed (Class 4) was meant to increase from 9% to 10% in April 2018, followed by another rise to 11% in April 2019. This would have brought NIC for the self-employed more in line with the employment rate, which is currently 12%.

Today, however, the Chancellor Philip Hammond has made a complete u-turn, announcing that the government will scrap the increase. This action has been taken because many feel the change would break the manifesto promise not to increase National Insurance, Income Tax or VAT.

Chancellor Hammond has explained that “it is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also the spirit of the commitments that were made. In the light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measure set out in the Budget.”

This means that the 4.8 million Britons who are currently self-employed  can rest assured that, for now, the Class 4 NIC rate will stay at 9%.

If you have any questions regarding this change, or any of the other changes announced in the Spring Budget, please don’t hesitate to contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

2017 Budget Review

Following on from the Chancellor’s first and last Spring Budget, we are pleased to provide you with our summary of the key announcements, along with our tax tables for the 2017/18 tax year:

Budget Summary

Tax Data
The main changes include:

  • The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018.
  • Class 4 national insurance contributions for self-employed workers will increase to 10% in April 2018 and rise again, to 11%, from April 2019.
  • Unincorporated businesses and landlords with a turnover below the VAT threshold will have until April 2019 before they are required to implement ‘Making Tax Digital’.

Among the key changes to note for this year are:

  • The Chancellor confirmed that corporation tax will be cut to a rate of 19% from April 2017 and it will be further reduced to 17% in 2020.
  • The personal allowance will rise to £11,500 in April 2017 and to £12,500 by 2020 and the higher rate income threshold will rise to £45,000, although special rules will apply in Scotland.
  • Individual landlords’ tax relief for finance costs will be restricted to basic rate tax – to be phased in over four years from April 2017.

More information on the Budget is available on our website or if you would like to speak to one of our team please contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Year End Tax Planning

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The end of the tax year is fast approaching, but there is still time before 5 April to save tax for 2016-17. Below are some points you may wish to consider.

MAXIMISE CAPITAL ALLOWANCES

Businesses may be able to write off the cost of capital assets by making the most of capital allowances. The Annual Investment Allowance allows businesses to claim a deduction of up to £200,000 of the year’s investment in plant and machinery (with the exception of cars). Most business structures can make use of the AIA.

UTILISE YOUR FULL ISA ALLOWANCE

Individuals may invest up to £15,240 for the current tax year. A saver may only pay into a maximum of one cash ISA, one stocks and shares ISA and one innovative finance ISA per year. Savers have until 5 April 2017 to make full use of their 2016-17 ISA investment allowance. ISAs can offer a very useful tax-free way to save.

TAX EFFICIENT RETIREMENT PLAN

Pension contributions have to be paid by 5 April 2017 for them to be relieved against 2016-17 income. Annual contributions cannot exceed the greater of £3,600 (gross) or the amount of your UK relevant earnings eligible for tax relief. However, the contributions are subject to the annual allowance, currently £40,000. This is further reduced for those with net income of over £110,000 and adjusted annual income (i.e. your income plus both your own and your employer’s pension contributions) over £150,000. For every £2 of adjusted income over this figure, a person’s annual allowance is reduced by £1 (down to a minimum of £10,000).

For further information please contact our tax team here at Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

Business groups set out Spring Budget priorities

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Business groups have outlined their priorities for businesses and the economy ahead of the 2017 Spring Budget. 

In a letter to Chancellor Philip Hammond, the Confederation of British Industry (CBI) called on the government to ‘back business’s growth ambitions’ to help build prosperity across the UK, and to work alongside firms to ‘prioritise stability’ during periods of economic uncertainty.

The CBI also urged the government to tackle the UK’s ‘outdated’ business rates regime and limit its ‘growing burden’ on businesses.

Echoing the call of the CBI, the British Chambers of Commerce (BCC) also recommended that the government take action on ‘delivering real reform’ to the business rates system. It called for HMRC to abandon the ‘fiscal neutrality principle’ in business rates reform, suggesting that this acts as an ‘unacceptable barrier’ to the revision of the system.

In its submission, the BCC outlined its desire for the government to bring forward the switch from the Retail Price Index (RPI) to the Consumer Prices Index (CPI) to April 2017, instead of during 2020, as is currently planned.

Meanwhile, the Federation of Small Businesses (FSB) has advocated for a ‘pro-business’ Budget that supports self-employed individuals, urging the government to help more people start up in business. It also called for the government to ‘improve job creation and drive productivity across the nations and regions of the UK’.

In a radical move, the Institute of Directors (IoD) has claimed that the UK tax system is ‘not keeping up with the growth of self-employment and the digital economy’, and has called for the Chancellor to create a new Tax Commission when he presents his Budget. The IoD argues that the new Commission should investigate how tax applied to the self-employed could be brought into line with employees, and how online stores could be taxed fairly in relation to high street shops.

The Institute has also called for an increase in the Annual Investment Allowance (AIA) cap from £200,000 to £1 million and a consultation on ‘liberalising’ investment schemes for business start-ups.

The Chancellor will present the 2017 Spring Budget on Wednesday 8 March. Full coverage of the key announcements will be available on our website, so please visit regularly. 

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Concerns for small businesses using the VAT flat rate scheme

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From 1 April 2017 HMRC are changing the rules for using the VAT Flat Rate Scheme (FRS). 

In an attempt to wipe out what HMRC has seen as abuse of the flat rate scheme, businesses will now need to determine whether they fall into a “limited cost trader” category, by comparing the percentage of goods they purchase in relation to their turnover. Limited cost traders must use the new 16.5% rate; previously, the rate was entirely dependent on the nature of the trade, the highest of which was set at 14.5%.

However, the Chartered Institute of Taxation (CIOT) has warned that the changes could have a considerable negative effect on many of the 400,000 businesses currently using the flat rate scheme, the majority of which are compliant.

They suggest that new regulations will all but wipe out the original intent of the scheme, which was to simplify VAT for the small trader. The criteria for being a limited cost trader must be reviewed for every VAT quarter, meaning that taxpayers could be remitting different rates in different quarters – hardly a simplification! Tax points and cut-off dates will be crucial in determining status for the scheme but, say the Institute, some will undoubtedly find ways to tweak the figures to avoid falling into the limited cost category. The goal of eradicating abuse of the scheme would therefore seem unrealistic.

The CIOT suggests there could be other ways for HMRC to tackle the problem, such as perhaps making it unavailable to those who register voluntarily, and are calling for them to re-think the proposals. In the meantime they expect that many businesses will opt to go back to the standard VAT scheme rather than wrestle with the complexities of the new regime.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Accountancy firm develop its own software in bid to perfect service to clients

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This weeks edition of the South Wales Argus features an article on the development of our own software.

An accountancy firm has developed its own software suite in order to help businesses manage their taxation and finances better.

Cwmbran-based accountancy firm Green & Co Accountants and Tax Advisors has spent over two years researching what their clients need ahead of what is a busy few years of legislative changes.

The software suite is comprised of three facets; an income tax forecaster, a financial performance review and a prosperity dashboard.

Barrie Kenyon, Partner at the firm, said: “Recently, the government has made a number of adjustments to the tax system that are all coming into effect across the next three to four years such as the changes to mortgage interest relief and company car benefit. We want our clients to see how the changes in legislation will affect them so we can reorganise remuneration in a tax-efficient way.”

With Green & Co’s software suite, clients can use the forecaster to analyse the current taxable income and see what future liabilities will be for the next five years.

Explaining the financial review element of the software, Mr Kenyon said: “Some clients may not be able to fully understand the numbers thrown at them from the accounts. It is important that they know how to digest the data from key performance indicators of how the business is performing. Our graphical analysis helps clients understand how the business has been performing year-on-year and it is something we can help them work through and improve upon.

“Our prosperity dashboard reviews the business’ progression toward set goals whilst affording directors accurate up-to-date information as opposed to waiting until year-end accounts are produced.”

The theory behind the software is to provide businesses with real-time information in order to make quicker and better-informed decisions regarding the performance, direction and sustainability of the business.

Mr Kenyon continued: “As with everything we strive to achieve, our end goal is to help build a stronger business for our clients whilst increasing profit and reducing liabilities.”

Green & Co Accountants and Tax Advisors specialise in business growth and tax minimisation for businesses across Wales and the South West of England.

For proactive advice, contact Green & Co Accountants and Tax Advisors on 01633 871 122, follow @Green_and_Co on Twitter or email barrie@greenandco.com.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Advisory Fuel Rates from 1st March 2017

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For employees using a company car, the new fuel rates for use from 1st March are as below:

Engine Size Petrol-amount per mile LPG-amount per mile Diesel-amount per mile
1400cc or less 11 pence 7 pence 9 pence
1401cc to 1600cc 14 pence 9 pence 9 pence
1601cc to 2000cc 14 pence 9 pence 11 pence
Over 2000cc 20 pence 14 pence 13 pence

For the purpose of fuel rates, hybrid cars are treated as either petrol or diesel cars.

Gwent Landlord Forum – 29 March 2017

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After our first very successful event of the year held in January, we are now well into 2017 and preparing to welcome our Landlords to our next FREE forum on Wednesday 29th March between 6pm and 8pm at The Parkway Hotel and Spa.

We are continuing to provide a broad range of speakers who can shed a light on important matters which might help you make up your minds as to your future as a property investor. As always, our invitation goes out to all who may be interested so if you know someone who is a landlord or thinking about becoming a landlord, please do pass this invitation on to them – we are always happy to welcome new guests.

Speakers:

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Leanne Flanagan, Tax Senior with Green & Co Accountants will be talking about:

  • The final March Budget taking place on 8 March and how the changes announced will affect you as landlords.

Damian Lines, Head of Wills, Trusts and Probate with Rubin Lewis O’Brien Solicitors will be speaking about:

  • All aspects of Estate Planning as part of the important area of Preparing for the Future.

Stephanie Taylor of HMO Heaven will be covering:

  • Her insider secrets on HMOs. Is now the right time to invest?
  • The 5 easy steps to massively increase the rental income on your buy-to-let properties.
  • Real life case studies demonstrating how you can double your rental income.
  • How to enjoy fantastic property cashflow in Newport without any hassle.

Eventbrite - Gwent Landlord Forum

For any enquiries about this event, please contact Katie Williams at Green & Co on 01633 871122, Email: katie@greenandco.com.