Tax News – April 2017
NEW RULES FOR IR35 WORKERS IN THE PUBLIC SECTOR START 6 APRIL 2017
There are significant changes that commence on 6 April 2017 for workers in the public sector supplying their services via their own personal service companies or other intermediaries.
From 6 April 2017 the public sector employer or agency that engages the worker will have to review the employment status of the worker and decide whether or not to deduct tax and national insurance from payments to the worker even though he or she invoices for the services through their own company.
An online tool called “The Employment Status Service” is expected to be made available by the end of February 2017 and can help them make that decision. The tool can be used if the worker uses either an employment agency, or other third-party to get work.
These changes come on top of the restrictions on the tax deductibility of travelling expenses for IR35 workers that came into effect on 6 April 2016.
Please contact us if you want to discuss whether or not these rules affect you or your organisation.
MAKING TAX DIGITAL TO START IN APRIL 2018
Legislation to introduce Making Tax Digital (MTD) will be included in the Finance Bill 2017 and despite many objections that it was too soon, the new system of quarterly reporting will commence in April 2018 for the self-employed and property landlords.
Many business owners, professional advisors and the Treasury select committee had expressed concerns about the timescale for the introduction of MTD. The Chancellor announced that there will be a one year deferral in the start date to 2019 for self-employed businesses and property landlords with gross income below the VAT registration limit.
There were 1200 responses to the consultation documents issued in summer 2016 and a number of changes have been made to the original proposals.
Much of the detail will be introduced by secondary legislation and there will be further consultation on a number of measures but the key proposals are:
- Businesses will be allowed to use spreadsheets to keep their accounting records.
- Businesses eligible for three line accounts will be able to submit a quarterly update with only three lines of data (income, expenses and profit).
- Free software will be available to businesses with more straightforward affairs.
- Businesses will not have to make and store invoices and receipts digitally.
- There will be no late filing penalties in the first year of the new system.
The deadline for finalising taxable profit for a period will be the earlier of:
- 10 months after the last day of the period of account, or
- 31 January following the year of assessment in which the profits for that period of account are chargeable
Businesses and property landlords with a turnover up to £150,000 will be able to prepare accounts on a cash basis
Digital quarterly reporting for companies and larger partnerships will not be introduced until April 2020. These changes will have a significant impact on how you keep your business accounts and communicate with HMRC. Please contact us to discuss the impact of these changes on the way that you keep your accounts.
CHANGING YOUR ACCOUNTING DATE CAN ALSO DELAY THE START OF DIGITAL REPORTING
Another way of delaying the start of Making Tax Digital (MTD) would be to change the year end of your business. The legislation in the latest Finance Bill specifies that MTD will apply to accounting periods commencing on or after 6 April 2018.
This means that if you currently prepare accounts to 30 April then the first quarterly update to be submitted to HMRC will be for the period to 31 July 2018. However, if you changed the accounting date of your business to 31 March then the first quarterly update would be for the period from 1 April to 30 June 2019.
Contact us to discuss the full tax implications of such an action.
NEW COMPANY LOSS RELIEF RULES START ON 1 APRIL 2017
New rules that will allow greater flexibility in the way that companies obtain relief for losses will apply to losses incurred from 1 April 2017 onwards.
These rules have been introduced to encourage companies to diversify as the losses may be available to offset against profits of another activity in a future period and even those of a company in the same group.
The proposed new rules were consulted on last summer and are included in the latest Finance Bill.
Although there will be greater flexibility for “new” losses arising after 1 April 2017, “old” trading losses incurred prior to that date will continue to be restricted and will only be available to be offset against future profits from that same trade. The new rules are very complicated and we will of course work with you to ensure that your company obtains relief for losses in the most advantageous way.
BUYING A COMPANY WITH LOSSES
The new flexible loss relief rules coming into effect from 1 April 2017, will make the purchase of a loss-making company attractive. For many years there has been anti-avoidance to block the use of such losses and it is proposed that these rules will continue to apply.
The draft clauses in Finance Bill 2017 will continue to block such losses where within a five year period there is both a change in the ownership of the company and a major change in the nature or conduct of the trade carried on by the acquired company.
TAX FREE DIVIDEND ALLOWANCE TO BE REDUCED TO £2,000
The Chancellor announced measures to limit the rise in tax-driven incorporation. The £5,000 tax free dividend allowance introduced by George Osborne will be reduced to just £2,000 from 6 April 2018. Mr Hammond claimed that many smaller owner-managed businesses have incorporated as limited companies mainly for tax reasons. Typically the director/shareholders of such businesses have paid themselves in dividends and paid less tax than similar unincorporated businesses.
Currently, once the dividend allowance has been used the remaining dividends are taxed at 7.5%, 32.5% and then 38.1% depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate. There are rumours that these dividend rates may also be increased in future years.
Although the cut in the tax-free dividend allowance is clearly aimed at owner managed companies, it will also impact on those with substantial share portfolios. Mr Hammond reminded us in his speech that the annual ISA investment limit increases to £20,000 from 6 April 2017 and that dividends on shares held within an ISA continue to be tax free.
CORPORATE TAX MEASURES
The Chancellor announced that the Government is committed to continue to have the lowest corporate tax rate of the G20 major trading nations. As already announced the corporation tax rate reduces to 19% from1 April 2017 and then to 17% from 1 April 2020.
The corporation tax rate for small and medium sized companies trading in Northern Ireland will be reduced so that such companies can compete with those in the Republic where the rate is 12.5%.
The Government is also keen to continue to encourage investment in research and development (R&D) and the Chancellor announced that the R&D tax credit claim procedure would be simplified.
TAX FREE CHILDCARE SCHEME STARTS 2017
The chancellor also announced that the new tax-free childcare scheme is due to start in 2017.
The scheme will provide up to £2,000 a year in childcare support for each child under 12 where the parents save in a special account. If they save £8,000 the government will top up the account with 20% to a total of £10,000 which can then be used to pay for childcare costs.
BUSINESS RATES RELIEF FOR SMALL BUSINESSES
There has been much lobbying from the small business sector to reduce business rates. The Chancellor stated that 600,000 small businesses currently benefit from small business rates relief.
He also announced that no small business that is coming out of small business rates relief will pay more than £600 more in business rates this year than they did in 2016/17.
In order to support the licenced trade from April 2017, pubs with a rateable value up to £100,000 will be able to claim a £1,000 business rates discount for one year.
ADVISORY FUEL RATE FOR COMPANY CARS
These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 March 2017.
|1400cc or less||11p||7p|
|1600cc or less||9p|
|1401cc to 2000cc||14p||9p|
|1601 to 2000cc||11p|
|Over 2000cc||22p (21p)||13p||14p (13p)|
Where there has been a change, the previous rate is shown in brackets.
You can continue to use the previous rates for up to 1 month from the date the new rates apply.
NEW VAT LIMITS
As mentioned earlier, the VAT registration limit increases by £2,000 to £85,000 from 1 April 2017. At the same time the de-registration limit increases to £83,000.
DIARY OF MAIN TAX EVENTS APRIL/MAY 2017
|19 April||Final RTI FPS due by this date. Indicate that this is Final Submission for the Tax Year|
|19 April||PAYE & NIC deductions, and CIS return and tax, for month to 5/04/17 (due 22/04 if you pay electronically)|
|1 May||Corporation tax for year to 31/07/16|
|19 May||PAYE & NIC deductions, and CIS return and tax, for month to 5/5/17 (due 22/05 if you pay electronically)|