Brexit: What will it mean for UK taxes?

In the historic referendum of 23 June 2016, the UK public voted to leave the European Union (EU).  The following period has been filled with political and financial uncertainty, as the country contemplates its future outside the EU.  However, one thing seems to be certain: in the words of our new Prime Minister, Theresa May, “Brexit means Brexit”. The precise impact of the decision on UK taxes will depend on the new terms negotiated with the EU.  The most likely options for a post-Brexit UK, however, appear to include:

• The UK joining the European Free Trade Association and the European Economic Area, and so retaining access to the single market, in the same way as Norway, Iceland and Liechtenstein;
• The UK negotiating a standalone free trade agreement with the EU, as Switzerland does; or
• The UK negotiating an ongoing customs union with the EU, as Turkey does.

The good news is that much of the UK’s tax legislation is independent from EU influence and should therefore be largely unaffected by Brexit.  This includes income tax, capital gains tax and inheritance tax.  However, there are a few notable exceptions:

VAT

UK VAT has been harmonised with the EU since 1977.  Following Brexit, while the UK may no longer be required to give effect to any EU VAT Directives or regulations, it seems likely – in the short term at least – that that the country will maintain its current VAT system.

The most tangible consequence of Brexit is that VAT may need to be charged when goods enter the EU from the UK and when EU goods move in the opposite direction.  The VAT will often be recoverable, but this could still cause unwelcome cash-flow issues for many businesses.

Customs duties

To the extent that the UK ceases to be part of the customs union, then customs procedures would need to be reintroduced for exports between the UK and the EU.

We are unlikely, however, to see the imposition of any significant duties, as this would disadvantage the UK’s exports. Around 50% of UK exports are to the EU.

Corporation tax

Although corporation tax is determined only by the UK government, we have still been required to amend our tax legislation on several occasions, to comply with EU Law.  After Brexit, UK tax legislation should no longer be open to challenge on the basis that it is contrary to EU law.

On a wider scale, Brexit may also accelerate the harmonisation of corporate taxes across the rest of the EU – a move which the UK has historically opposed.

In summary, there remains significant uncertainty around how great an impact Brexit will have on UK taxes.  However it is likely that any changes will be focused on the technical rules, rather than increasing (or decreasing) the overall burden on taxpayers.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Tax relief for innovative corporate businesses

Jonathan Wilson of Barnett & Turner reminds company directors to consider whether they are eligible for the R&D Tax Reliefs. Research and Development (R&D) tax relief is a company tax relief which applies to all UK companies and can either reduce a company’s tax bill or – for some small or medium-sized companies – provide a cash sum (tax credits).

In both cases, this comes in the form of an enhanced expenditure relief for R&D expenditure that provides genuine incentives for small and medium sized enterprises (SMEs) to conduct R&D. The 2014 Finance Act increased the tax credit arising on R&D relief to 14% of “the surrenderable loss on qualifying expenditure” from 1 April 2014. Depending on the company’s profitability this can be up to 14% of the qualifying expenditure.

So how does R&D tax-enhanced relief work?

The R&D tax relief works by allowing eligible companies to deduct up to 230% of qualifying expenditure on R&D activities when calculating their profit for tax purposes. If losses are made under the SME scheme, the tax relief can be surrendered to claim payable tax credits in cash from HM Revenue & Customs (HMRC) instead of loss relief, subject to certain limits.

What is R&D for tax purposes?

A qualifying R&D project is one that seeks to:

1. extend overall knowledge or capability in a field of science or technology; or
2. create a process, material, device, product or service which incorporates or represents an increase in overall knowledge or capability in a field of science or technology; or
3. make an appreciable improvement to an existing process, material, device, product or service through scientific or technological changes; or
4. involve the use of science or technology to duplicate the effect of an existing process, material, device, product or service in a new or appreciably improved way. The project must seek to achieve an advance in overall knowledge or capability in a field of science or technology, not just a company’s own state of knowledge or capability alone. An example would be a product which has exactly the same performance characteristics as existing models, but is built in a fundamentally different manner.

What costs qualify for the R&D Tax Enhancement?

Companies can claim R&D tax expenditure enhancement for their revenue expenditure when:

• employing staff directly and actively engaged in carrying out R&D;
• paying a staff provider for the staff provided to the company who are directly and actively engaged in carrying out R&D,
• consumable or transformable materials used directly in carrying out R&D (broadly, physical materials which are consumed in the R&D), and
• power, water, fuel and computer software used directly in carrying out R&D.

If you think your company might have qualifying projects and expenditure, make sure you talk with your accountant to maximise the potential tax advantage to your business.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Invest some time to understand tax changes

Jono Wilson of Barnett & Turner Chartered Accountants and Chartered Tax Advisers examines recent changes to the treatment of investment income. “I have investment income. I am aware things have changed. I am just not sure what has changed and how it affects me…”

Tax legislation is increasingly complex and features many ‘moving targets’, so here is a brief summary of recent changes which may affect you. Some of these points may be things that are worth discussing with your tax advisor:

Dividend Allowance

From 6 April 2016, the first £5,000 of your annual dividend income is tax free. This allowance applies irrespective of your level of income and the rate at which you pay tax.

Talk to your accountant if:  you are married and you or your spouse has annual dividend income in excess of £5,000, whilst the other spouse has less than £5,000. There may be scope to transfer some investments, without incurring a tax charge, to achieve greater income tax efficiency.

New Dividend Tax Rates

For annual dividend income in excess of £5,000 new rates of tax apply.

Talk to your accountant if: you anticipate annual dividend income in excess of £5,000 for 2016/17 and you would like an estimate of the impact on your annual tax payments.

Personal Savings Allowance and the 0% Starting Rate on Savings Income

You may have noticed that, since 6 April 2016, banks and other institutions have stopped deducting tax of 20% from interest they pay to you. This doesn’t necessarily mean, however, that you no longer need to pay tax on interest and other savings income.

Basic rate taxpayers can now receive up to £1,000 in savings income tax-free, whilst higher rate taxpayers will be able to receive up to £500 (with any excess taxable via your self-assessment tax return at 20% or 40%). This new personal savings allowance is on top of the 0% starting income tax rate introduced last year. This rate applies on up to £5,000 of annual interest income for savers with relatively low employment and pension income.

Talk to your accountant if:  if you want to know how far you can benefit from the dividend and personal savings allowances, with a view to structuring your investments to offer the maximum tax- free annual income.

Marriage Allowance

This measure (introduced on 6 April 2015) allows you to transfer up to £1,050 (£1,100 since 6 April 2016) of unused annual tax-free personal allowance from a non-taxpayer to their spouse, who pays tax at basic rate. 

Talk to your accountant if: you are married and your circumstances are such that you may be able to benefit from this allowance.

Charitable Donations - Watch Out if You Tick the Gift Aid Box!

If you are in the habit of making donations to charities, you probably tick the ‘Gift Aid’ box to identify yourself as a UK tax payer. That way, your chosen charities can claim some extra income from the government. Please be aware that the extra amount claimed by the charities must be covered by the amount of tax you paid in the tax year of the donations.

If you no longer have a UK tax liability, then you should be cautious about ticking the Gift Aid box and consider withdrawing existing declarations for ongoing donations. Any shortfall between your annual tax liability and the amount claimed by the charities must be met by you personally.

Talk to your accountant if:  you make, or are planning to make, charitable donations and believe that the new rules may have reduced your tax liability.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Are we ready for tax to go digital?

A digital tax revolution is on its way, writes Jono Wilson of Barnett & Turner. But what will the impact be on small businesses? The way in which everyone files tax returns is set to change dramatically and it’s going to have a massive impact on businesses – particularly the smallest ones.

The Government has stated its intention to move over to a completely digital system and quarterly reporting of tax to HMRC. There’s a consultation under way on the scope of digital reporting, but right now there’s very little detail of how everything will actually work in practice.

So what impact can we anticipate? Well, the first thing to say is that everyone will have to use digital tools such as recognised accounting software or digital products provided by HMRC. The days of keeping records simply via a cashbook in Microsoft Excel are sadly over.

The cost of a cloud-based package is probably going to be at least £10 per month. And that’s if you’re comfortable that you have the time and necessary skills to use the software. If not, you may well end up paying your accountant to do the work for you. (Many accountants, however, may be wondering exactly how they can provide the right kind of service in a way which remains cost effective to their clients.)

Of course, there are potential benefits to the idea of regular tax filing. No one likes it when a large annual bill comes around and has to be paid retrospectively. But in many businesses – particularly seasonal ones such as to agriculture, fishing and tourism – it’s very difficult to generate a steady, quarterly stream of income. As a result, paying tax quarterly could be a challenge, although this is what the new system is geared towards encouraging.

There’s another issue which needs to be considered too. Broadband connectivity in some more rural parts of the UK is still limited. Although there are promises to roll out high-speed internet links, the targets set in some places will still leave a significant proportion of the population without access. In a number of locations, even 3G is unavailable. And those reliant on satellite broadband have to be very careful with their usage, because of spiralling costs.

There may also be people – because of their age, a disability or some other reason – who find it difficult to cope with the technological innovation. What protection are we going to be offering to them?

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

A significant change to company registration

Jonathan Wilson of Accountants Barnett & Turner examines the recent requirement for UK companies to keep a Register of People with Significant Control… Under new rules, which came into effect on 6 April 2016, companies and Limited Liability Partnerships (LLPs) must now compile and keep an up-to-date Register of People with Significant Control (PSC). The aim of this register is to help increase transparency about who ultimately controls UK companies.

Who counts as a PSC?

First of all, a person qualifies as a PSC if they own 25% or more of shares in a company or own 25% or more of voting rights. Alternatively, they will need to be listed if they own the right to appoint and remove the majority of the board of directors. (These conditions can be met directly or indirectly – for example, through another company – and include interests of close relatives such as a spouse or dependant.)

It is also a requirement that anyone who holds significant interest or control over a company should be listed as a PSC, along with trustees or partners who satisfy any of the conditions described above.

The recording process

This information needs to be reported to Companies House on the annual confirmation statement (which will replace the annual return from 30 June 2016).  Changes to the PSCs need to be updated immediately on the company’s own register and at Companies House on the next confirmation statement.

A company’s PSC register needs to be made available for public inspection on request but a company must not divulge the normal residential address of a PSC.

For each PSC, the following details must be included on the register:

• Name
• Service address
• Usual country of residence
• Nationality
• Date of birth
• Usual residential address
• Date of becoming a PSC
• Nature of control

By definition, a PSC is an individual. If, however, a company is directly controlled by a UK legal entity, then that legal entity must be included as the PSC. A legal entity needs to be included in the register of another company if it meets one of the conditions described above, keeps its own PSC register and has a direct interest in the company. It is important to establish ultimate ownership when identifying PSCs where a company is owned or controlled by another business.

Other considerations

Most overseas companies are not PSCs and therefore do not have to be disclosed, but the ultimate PSC still needs to be established. The Department for Business Innovation and Skills has confirmed that, where – for example – an unquoted Swiss-registered company owns a UK company, information about the PSCs of the Swiss company would have to be disclosed.

It is important for the directors of a company or members of an LLP to corroborate the information about a PSC (and keep evidence of that corroboration), as failure to provide accurate information on the register is a criminal offence.

If the entity does not have any PSCs (because there are no persons who hold 25% or more of the shares or control) then the register must state:

“The company knows or has reasonable cause to believe that there is no ‘register-able’ person or ‘register-able’ relevant legal entity in relation to the company.”

The register cannot be left blank.

For further information, please visit:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/515720/Non-statutory_guidance_for_companies__LLPs_and_SEsv4.pdf

You can find summary guidance at:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/496738/PSC_register_summary_guidance.pdf

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Private landlord? Don’t wait for a knock on the door.

Are you a private landlord letting out a residential property? If so, you may want to take advantage of a scheme operated by HMRC, writes Tracy Henson of Barnett & Turner. The HMRC Let Property Campaign was launched at the end of 2013 with the aim of allowing landlords to bring their tax affairs up to date.

Think of it as a way of rewarding you for coming forward and admitting that you have tax to pay. The idea is that if you make a voluntary declaration of undisclosed income and underpaid tax, you’ll be treated more leniently than if HMRC discover your circumstances subsequently.

Although it was launched with some fanfare, many people assume that perhaps it has died a death. The reality, however, is that the programme is still operational and you can still take advantage of it. Some 10,000 landlords did just that in the two years after its launch, netting some £50m in recovered tax for the Revenue.

You could potentially owe tax on a residential property you let, regardless of whether it is in the UK or abroad, even if you’re just renting out a room in your main property.  So my advice is to talk to your accountant and take advantage of the scheme.

There’s a two-stage process. First of all you fill out a form and notify HMRC that you believe you have tax to pay. They then send you some correspondence and a disclosure form, which you need to complete within three months. You, or your agent, quantify the tax due and calculate interest using a straightforward formula.

It’s even possible for you to suggest what penalty you should receive. Perhaps there are mitigating circumstances, for instance?

Remember, HMRC has access to a great deal more data now and is being passed the names and addresses of landlords by letting agents. So the message is to let them know about your property income before they come knocking on your door.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Insight into the inside threat

The biggest threat to your IT may actually come from within, argues Debbie Birkett – Office Manager at accountancy firm Barnett & Turner, so it’s time to think about security measures. Although we’re often hearing about the threat of cyber crime and the risk posed by external hackers, we sometimes neglect the danger that can lie within.

We’re living in a climate in which more and more business is done in the cloud. This means that people will not only have their username and password they use internally, but have at least another log-in as well. Multiple sets of credentials rather than one.

If you choose to make use of Office 365, it can be connected to Active Directory Federation Services, which allows you to have full control of user security. A security token is passed to the ADFS server and when it’s confirmed, it’s passed back to Office 365. There’s one log-in for users and if someone’s account needs to be made inactive, it can happen instantly.

Cloud systems aren’t just related to ID management. They can also help with disaster recovery. Once an encrypted link has been established from an office site to a data centre, virtual machines can take over.

In the future, workplace ID security is likely to become even more impressive and mirror the kind of environments created for online banking and e-commerce. Two-factor authentication means you must have an additional form of ID. Perhaps a code sent by email or direct to your smartphone. In due course, photo recognition may become the norm.

For the moment, it’s worth giving thought to just how secure your systems are. And then taking whatever steps you can to ensure that you guard against internal risk, as well as external attack.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Simplified tax? We’re still waiting!

The creation of the Office of Tax Simplification should have made tax... well, a little simpler. When it comes to allowances, however, Tracy Henson of Barnett & Turner Accountants says that things have actually become more complicated. The Office of Tax Simplification (OTS) was set up in 2010 and became a permanent independent office of HM Treasury in the summer of 2015. In theory, it provides Government with advice on the areas of the UK tax system which are overly complex and collects evidence with a review to reform.

In the eyes of many accountants, however, there seems to be more complexity than ever in terms of the issues confronting many of our clients. Before we can answer a straightforward question on their tax liability, we have to wade through a whole checklist of allowances. Even calculations for lower earners have become problematic, when traditionally they were usually pretty straightforward.

Put simply, allowances reduce the amount of tax you have to pay. Some give you full relief and allow you to earn a certain amount of money before paying any tax. Others give restricted relief and reduce your tax bill by a tenth of their nominal amount.

Today, in tax year 2016/17, these are the specific allowances available:

Personal Allowances – taper at £100,000

Married Couple Allowance - only for those born before 1935

Marriage Allowance – only for basic-rate taxpayers

Personal Savings Allowance - £1,000 or £500 or £0

Savings Rate of Income Tax – 0% on the first £5,000

Dividend Allowance - £5,000

Micro Trading Allowance - £1,000

Micro Property Allowance - £1,000

Rent a Room Allowance - £7,500

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

It’s just a student loan, right?

In fact, there are two types of undergraduate loan, explains Natalie Goodall, payroll manager at Barnett & Turner. And from 2019, postgraduates may be paying back debts of their own. It’s potentially a recipe for confusion. Most of us are familiar with the basic idea of student loans. You borrow money at the outset of your degree course and start repaying it when you’re working, once your income exceeds a certain level. The outstanding sum will get written off eventually if it’s not repaid within 30 years.

The system up until now has been relatively straightforward for employers on the administrative side, but there are now some potential complications. It all stems from the launch of a new type of loan back in September 2012.

Loans issued before this date are known as the ‘Plan 1’ type and continue in Scotland and Northern Ireland. Those taken out after this point are referred to as ‘Plan 2’. The first cohort of people with Plan 2 loans graduated last year, so they’re now due to start paying back what they owe.

So what are the differences between Plans 1 and 2? Well, the repayment thresholds are the main issue. With Plan 1, you start to repay at 9% once you’re earning over £17,335, whereas the figure is £21,000 for Plan 2. A decision has been taken, following a consultation process, to freeze this latter figure for all borrowers.

If you’re an employer, you’ll need to know which type of loan the student has. Finding out is fairly straightforward, but you can’t necessarily rely on your employee knowing. To them, it was just a loan.  And what if they have both types? The rules say that the Plan 1 loan should be paid off first. But as things stand at the moment, there is no intention to issue a stop notice for it. You will, instead, have to rely on the start notice for the Plan 2 loan.

Of course, many employers will want to think they can handle this, but there is the potential for an administrative error leading to a double deduction being made. Payroll systems should take the two schemes into account and the HMRC PAYE Basic Tools package is being updated too, as you might expect. But is everything going to be watertight?

There’s then a further complication. From August this year, the Government is making postgraduate loans available to anyone under 60, which will become payable from April 2019. Although the threshold matches the Plan 2 at £21,000, the rate of repayment is 6% rather than 9% above this point. Imagine the confusion when these debts are being repaid alongside Plan 1 or Plan 2 loans.

The message here is to be prepared. Although there is nothing intrinsically complex about the arrangements, the room for administrative hiccups is going to get bigger and bigger over time.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

WHAT’S DRIVING CHANGE IN THE WORLD OF COMPANY CARS?

Company cars are only going to make financial sense in the coming years if they’re very low or zero-rated on CO2 emissions, writes Tracy Henson of Barnett & Turner. Personal car allowances and personal contract hire may be the way forward. It’s true to say that the company car was a nice perk in the past, but as benefit calculations have become more and more aggressive over time, its attractiveness started to wane.

Regardless of the amount you actually pay, it’s the new vehicle list price, inclusive of optional extras, that is important for tax purposes.  In addition, the CO2 emissions, fuel type and HMRC benefit multiplier are required to calculate the value of the car benefit in kind.   For diesel vehicles, there is an additional 3% added to the benefit multiplier percentage.

So the calculation is then reasonably straightforward as shown below:

Car	List price	HMRC	Company car taxable benefit for the year ended…
	Including  extras	benefit multiplier	5 April 2016	5 April 2017	5 April 2018	5 April 2019	5 April 2020
	£	%	£	£	£	£	£
Ford Focus	18,000	21	3,780
(Diesel)		23		4,140
		25			4,500
		27				4,860
		30					5,400
Value of car benefit in kind			3,780	4,140	4,500	4,860	5,400
Tax due on car benefit		20%	756	828	900	972	1,080
Tax due on car benefit		40%	1,512	1,656	1,800	1,944	2,160
Annual increase in tax payable				9.5%	8.7%	8.0%	11.1%

The problem is that the HMRC benefit multiplier is set to increase quite dramatically in the coming years, which may pose challenges for businesses and their employees. (The ostensible justification for the rises is the green agenda of reducing polluting vehicles, but we are already in the position where fully electric cars are being taxed, so there’s some room for debate over the true motivations.)

A company that contract hires its fleet may well be locked into an arrangement they can’t escape, which will leave workers out of pocket. In 2016-17, the tax due at basic rate on our Ford Focus would be £828. And it keeps rising year-on-year until 2019-20, when it reaches £1,080. Higher-rate tax payers would find themselves shelling out £2,160.

It seems likely that many businesses may choose to move to a car allowance instead, encouraging their staff to buy or hire a vehicle themselves – perhaps with an instruction that it needs to be less than five years old for the sake of reliability and appearance. Personal contract hire is now easier than ever. Big deposits are no longer required and it’s possible to pick up a car for a competitive price per month, particularly where the user has low annual mileage.

It’s worth bearing in mind that the figures in the table above completely exclude fuel. You have an additional calculation to make if an employee is getting free petrol or diesel.

The long and the short of it is that things are getting tougher and traditional company car arrangements are becoming progressively less attractive. It may be time for you to think ahead.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk