The Chancellor’s Budget, March 2014

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The Chancellor, George Osborne, has now presented his March 2014 Budget to Parliament. There was lots of talk about the economy, growth forecasts, supporting UK businesses and employment – as well as some obvious political spin bearing in mind the European and General Elections are just around the corner – however we thought we’d concentrate on the most important changes, mainly in relation to tax itself as that’s what is going to affect Taxfile customers and readers the most. So here is our snapshot:

For individuals:

  • The threshold before earnings are subject to income tax (the ‘tax-free personal allowance’) is set to rise to £10,500;
  • The higher rate of tax will kick in for earnings above £41,865 from April 2014, rising again to £42,285 in 2015;
  • The first part of the ‘Help to Buy’ equity loan scheme for those aspiring to buy a new home is to be extended until 2020 (previously 2016);
  • The Stamp Duty on homes worth over £500k is to increase to 15% for those which are bought by companies;
  • Inheritance tax will be scrapped for members of the emergency services who “give their lives protecting us”;
  • Cash and Shares ISAs will be merged into a single New ISA (“NISA”). The annual tax-free limit for the NISA will be £15k (£4k for junior equivalent) from 1 July 2014.
  • From April 2015, pensioners will no longer be forced to buy an annuity with their pension fund. They will now be able to cash in as much or as little as they want to from their pension pot.
  • From June 2014, the amount people will be able to invest into Premium Bonds will increase to £40k (from £30k). From 2015 this will rise again to Read more

Time for ‘tax year end planning’ (pre-Budget)

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The budget will take place on March 19th 2014 so that gives us all just 5 weeks (at time of writing) for ‘tax year end planning’. So perhaps now is the time to start reviewing investments.

N.B. We’re not financial advisers (we are tax agents and accountants) so we can’t give advice on investments. But let us simply point out that if a portfolio shows signs of some gains, one can usually realise up to £10,900 in capital gains for the tax year 2013/2014, without a capital gains tax (CGT) liability coming into force.

It might also be worth considering making the most of ISA allowances before the tax year ends (April 5th). £11,520 can currently be invested into an ISA for the tax year 2013/2014, of which £5,760 maximum can be in a ‘Cash ISA’. Because you cannot carry forward ISA allowances into a new tax year, there is only very limited time remaining to make the most of the current ISA allowance. Tax benefits in relation to ISAs are well recognised in the UK, so much so that the Treasury has already looked at the possibility of capping their total value … and who knows what news the coming Budget will bring in this regard, particularly bearing in mind the continued need for austerity measures to reduce the budget deficit during these troubled economic times.

If you would like independent financial advice, Read more

Autumn Statement by the Chancellor of the Exchequer

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George OsborneOn 5 December 2013 George Osborne, Chancellor of the Exchequer, gave his Autumn Statement in Parliament. Key announcements included:

  • A rise for the Personal Allowance, as was long-anticipated, to £10,000 in 2014/15;
  • the higher 40% tax rate threshold also increasing to £41,865;
  • A new, transferable, tax allowance of £1,000 for married couples and those in civil partnerships from April 2015;
  • For employees aged under 21 employers will not have to pay Class 1 National Insurance (‘NI’) Contributions on earnings up to the Upper Earnings Limit;
  • Capital Gains Tax (‘CGT’) for future gains will now also apply to NON-resident individuals from April 2015 (previously this had been applied only to UK resident landlords);
  • For 2014/15 the annual ISA subscription limit will increase to £11,880 (of which £5,940 can be in cash);
  • There were also announcements relating to the continuing clamp-down on tax avoidance, improvements and plans for UK infrastructure, and the proposed inheritance tax (‘IHT’) simplification for trusts.

The full speech transcript can be read here or alternatively view the following video recording: Read more

HMRC now has landlords in their sights

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Residential property lettingsHMRC (Her Majesty’s Revenue & Customs) has announced some new initiatives over the course of the last month and one of these is The Let Property campaign which is a campaign designed to recover undeclared tax from those receiving income from residential property lets. The idea is to encourage those landlords with under-declared income or gains (potentially including income tax, Capital Gains Tax and VAT) to contact them in order to make a full disclosure. By doing so they may well avoid the higher penalties which may be applied to them should HMRC discover the undeclared income/gains via other means. Don’t forget that they now have access to information shared across systems, including in relation to properties both at home and abroad, as well as being gained through their digital intelligence system ‘Connect’ which identifies links between individuals, entities and properties. So the message to landlords is loud and clear!

The campaign applies to landlords whether they have just a single property or a large portfolio of properties and encompasses lets to students, business workforces and the holiday market. Read more

Possible Reforms to Intestacy Rules

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Firstly we should mention that we are not solicitors and therefore you should seek professional advice (e.g. a solicitor) before making a will.

What we did want to report on, however, is that the Ministry of Justice is proposing some changes to the intestacy rules governing England and Wales. The changes would affect the scenario in which a person with no children dies leaving no valid will. Currently the surviving spouse or civil partner receives the personal possessions, £450k and half of anything over that amount, with the remaining half going to the parents, or to siblings if there are no living parents, or the siblings’ offspring if the deceased’s siblings are also deceased.  The proposed new rules would instead mean that the surviving spouse or civil partner would inherit the whole estate.

But that is only if the deceased has no children. If they have children then other rules currently apply and changes are being suggested in relation to those too. Read more

Annual Investment Allowance

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Capital allowances are set by the government at fixed rates at which a business can claim the expenditure on fixed assets against the taxable profit.

From April 2008 the 50 per cent and 40 per cent first year allowances was replaced with a 100 per cent Annual Investment Allowance for capital purchases in any one year of up to £50,000.

On 6 April 2008 the annual writing down allowance (WDA) for plant and equipment was reduced from the previous 25 per cent to 20 per cent per annum. This writing down allowance is applied to the written down value of equipment brought forward from earlier tax years.

The annual investment allowance applies to all assets categorised as plant and machinery which includes most fixed assets including plant, equipment, fixtures and fittings, computer equipment and commercial vehicles.

Important to note is that qualifying plant and equipment expenditure does not include Motor Cars.

Motor vehicles are now subject to a reduced writing down allowance in the first year of 20 per cent.

The annual investment allowance does not replace the 100 per cent first year allowance schemes currently applicable to various green and environmental schemes and approved research and development projects ( for example Research & Development Allowances or Business Premises Renovation Allowances). So these schemes will be unaffected by the introduction of the AIA. The annual investment allowance is complimentary to these schemes.

Another important thing worth remembering is that for the financial year starting April 2008 small businesses which have a written down balance for tax purposes of under 1,000 pounds will be entitled to write off the total written down value as a capital allowance.

If by any chance you decide selling the asset after claiming the AIA, the proceeds of the sale would go into your capital allowances calculation and you would have a balancing charge to the value of the sale proceeds which would be treated as a taxable income.

If you have any queries regarding AIA or any tax-related matter, Taxfile’s accountants in South London and tax advisers in Exeter are here to guide you through.

Maintenance Payments Relief

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Our blog today is dedicated to some of our clients who wanted to know more about tax relief on alimony or child support payments.This relief is officially known as Maintenance Payments Relief.
Maintenance Payments Relief can reduce your tax bill if you make maintenance payments to your ex-spouse or former civil partner or child.
If you make or get maintenance payments and/or child maintenance payments after 6th April 2000 it will not normally have any effect at all on the tax you pay.
Only people born before 6 April 1935 who make these payments need to think about their tax position.
You do not pay tax on any maintenance payments that you receive.
In order to qualify for this relief that would cut your tax bill there are certain conditions to be met:
•only applies if you pay tax;
•you or your ex-spouse or former civil partner were born before 6 April 1935
•you’re separated or divorced or the civil partnership has dissolved and you’re making the payments under a Court Order, in other words the payments are legally enforceable and your ex spouse or former civil partner can take court action if you don’t make the payments;
•the payments are for the maintenance of your ex-spouse or former civil partner (provided they aren’t now remarried or in a new civil partnership) or for your children who are under 21.
For the tax year ending on 5th April 2009, this relief can reduce your tax bill by the lower of the following two amounts:either 10% of £2,540 (£254) – this will apply where you make maintenance payments of £2,540 or more a year or 10% of the amount you have actually paid – where the amount is less than £2,540.
For the following tax year(2009-10) the Maintenance Payments Relief limit will be £2,670.
Very important to remember is that you cannot claim a tax reduction/relief for any voluntary payments that you make for a child, ex-spouse or former civil partner.
We hope you found this useful and if there are still questions to be answered, please feel free to pop in to see us in our office in Tulse Hill or drop an email. One of our tax agents will be more than happy to assist.

Foster Carers and their tax relief

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Fostering is looking after someone else’s children in your own home at a time when his or her family is unable to do so. Foster care relief applies to people who get income from providing foster care to children and young people.
Anyone receiving this type of income is considered by the tax office to be self-employed and therefore liable for tax.
If total receipts from fostering no dot exceed a certain amount, often referred to as qualifying amount, than the foster carer will be exempt from income tax for that year.
A qualifying amount is made up of two elements added together.
One element is the fixed amount of £10,000 per year for each household. Only a proportion of the fixed amount can be claimed if the foster carer is registered for less than a year.
The second element consists of an amount per week for each foster child which varies depending on the child’s age.
If total receipts from fostering exceed the qualifying amount than there are two ways of calculating your tax. One is called the profit method and it is calculated by deducting the allowable expenses from the receipts.
The other one is called the simplified method and is calculated by deducting from the receipts the qualifying amount with no additional relief for expenses. Capital allowances are not available if such a claim is made. The election must be made on or before the first anniversary of 31 January next following the end of the year of assessment to which it relates. If they do not make such an election the will need to calculate their profit in the normal way (the profit method).
As profits from fostering as treated as earnings from self-employment, than National Insurance Contributions will be due (Class2 £2.30 per week and Class4 8% on the profit).
As a foster carer need you to keep good records consisting of total receipts for the year from their local authority, HSS trust or independent fostering provider.You also need to keep a record of the number of weeks that you care for each child placed with you in the year.
Also you need to keep a record of the date of birth for each child.
If your total receipts from fostering exceed the qualifying amount and you are using the profit method than you would need to keep records of your expenses as well.
If you are a foster carer and need help with filling in your tax return, Taxfile‘s tax agents in South London and Exeter are here to help.

Use of Home as Office

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If you are self-employed, there is a type of relief called use of home as office that can be offset against your tax liability.
If you run your business partially from home you can could set a proportion of your home running costs against income tax.What sounds like a very easy task for any tax accountant has proven to be quite difficult as the HM Revenue & Customs can easily argue the figures as there are no clear rules that can be applied.
Among the expenses allowed in this category we can mention the following: Council Tax, Mortgage interest, Rent, Repairs and maintenance, Cleaning, Heat, light and power, Telephone, Broadband, Metered water charges.
The factors to be taken into account when apportioning an expense include according to HMRC:
•the area used for business purposes,
•the usage in connection with electricity,gas or water and
•the time used for business purposes compared to other use.
By following this link you can see some examples provided by HMRC related to ways of approaching the use of home as office.
This is what the courts have approved in terms of apportioning expenditure for home as office:
“… it is possible to apportion the use and cost of a room on a time basis, and to allow the expense of the room during the hours in which it is used exclusively for business purposes, in the same way as it is possible to calculate the business expenses of a car which is sometimes used for business purposes exclusively and sometimes used for pleasure.” (Templeman J in Caillebotte v Quinn [1975] )
Very important is to retain good records to evidence whatever claim you make for using your home as office in case the taxman argues your figures. For more help in understanding tax reliefs for self-employed, Taxfile in South London and Exeter is here to help.

Savings Income and Tax

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Savings income is added to your other income and taxed . Banks and building societies are required by law to deduct income tax at 20% from interest before they pay it to you. They pay this to HM Revenue & Customs. This is confirmed by the entry ‘net interest’ on your bank or building society statement.
If you’re a higher rate (40%) taxpayer you owe tax on the difference. If you have a low income you may be able to claim tax back.
If you are a basic rate taxpayer you do not have to take any action as no extra tax is due and 20% tax has already been deducted at source by the bank or building society.
If you are a higher rate taxpayer than you have to let the Tax Office know what interest you have received so they can collect the extra tax either by asking you to fill in a tax return( if you are self-employed and normally have file self assessment) or adjust your tax code if you are employed or you receive pension. Then they will also send you a form called Tax Review P810 in order to check your level of savings income and then a change your code if necessary.
Your interest is taxable in the tax year that it is paid to you, or credited to your account, even if part of it has accrued in the previous tax year. So you do not have to include any interest earned this year when working out your taxable income if it hasn’t been paid yet.Your bank/building society may send you a ‘Certificate of Tax Deducted’ or a statement containing this information after the end of each tax year.
Also, if you have a joint account with a husband, wife or civil partner you should declare half of the income as yours. The second half should count towards their income.
On some types of savings income you do not have to pay any tax. Among them, we can mention the following:
• Cash mini ISA;
• all prizes received from Premium Bonds;
• interest received from Fixed Interest Savings Certificates;
• interest from Index Linked Savings Certificates;
• interest, including bonuses, received from Children’s Bonus Bonds.
Also the interest paid by HMRC on over-payments of tax (so called repayment supplement ) is non-taxable.
If you are not due to pay any tax you can register your bank or building society account to receive your interest without tax taken off. You do this by completing form R85 and giving it to your bank or building society.
If you need to know more about the interest on savings and whether it is taxable or not, Taxfile’s tax accountants are here to help.