Bright beginnings: Start of the new tax year

Bright beginnings: Start of the new tax year

Yes, it is that time of year again! Wednesday 6th April see’s the start of the new tax year. How can that be! It seems to come round faster and faster each year.

In this article we discuss how being prepared will help you ease out of one year and into the next without any issues.

Are you ready for the starting line?

Put aside time to carefully go through the last 12 months accounts. Make sure everything balances out, even down to the last penny. If it doesn’t find out where it has gone wrong and (if you can) action measures to correct it. You do not want to discover you have been overspending, or worse receive a fine from HMRC for inadequate book-keeping.

Take a good look through your accounts and see if everything is in order. Are there any invoices that haven’t been paid? If so, now is a good time to put in a polite call and ask for payment. Or, have you forgotten to issue any invoices? If the answer is ‘yes’ now is the time to get these issued and paid.

Can you get extra points? 

Sort through all your receipts and check that you have claimed tax relief on everything you are entitled to. Most people fail to do so and are missing out on millions of tax savings.  A comprehensive list of what can be claimed as a business expense can be found on the .gov website.

By now you should have received your tax code for 2016/17. Did you examine it carefully? No! Take another careful look at it. Is the figure correct? Don’t assume that it is. If something looks out of place speak to HMRC straight away.

Explore all possible avenues for tax savings, for instance does your business need a new piece of equipment such as a computer, then buying it before the end of the accounting year rather than after means you’ll get the capital allowance on that asset a whole year earlier.

Also, don’t forget your personal tax. Have you used as much as you can of this year’s ISA allowance? What about pension investments or donations to charity? Remember to keep a note of all these points that could save you tax!

Tips for a pain free 2016/17 

Keep everything in one place

The secret to a good filling system is being able to find something without even looking for it. Can you do that with your filling system? Like most, the answer is probably “No”. To create an effective filing system, you need to:

  • Create categories
  • Divide each category up into sub-categories
  • Label each file
  • Organise the files in alphabetical order

Finally, make filling a part of your daily routine and not a chore that you put off.

Know what can and can’t be claimed for

Find it difficult to remember what you can and can’t claim for? Bookmark our Resources page which explains in detail allowances, thresholds and entitlements for 2016/17.

Systems don’t have to be scary

Accurate book-keeping is the back-bone to your business. Not only is it a legal requirement to keep accurate financial records but a business that doesn’t know its income and outgoings is effectively working blind.

We recommend using a system that you are comfortable with and that is sufficient for what you need it to. There are numerous packages and apps available and these are great if you feel you need that level of software, but there is nothing wrong in using a standard Spreadsheet. Microsoft Excel or other similar packages have the ability to carry out such functions fairly easily.

If you struggle to keep on top of your accounts and are looking for professional assistance, speak to us today and we will be delighted to talk through our different service options. Alternatively, visit our Services section to find out which option suits you best. 

 

Don’t get left by the side of the road

Changes to Travel and Subsistence Expenses are approaching fast

Will you be losing out?

On the 16th April 2014 HMRC published a document called “Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses”. This document described the then collation government plans to eradicate the misuse of travel and subsistence rules.

Who will be affected?

The changes will not affect all contractors, only those who fall under these specific criteria:

  • Workers employed through an employment intermediary, such as an umbrella company
  • A personal service company (inside IR35)
  • A recruitment agency or employment business

Contractors who are under the supervision, direction or control of the client will only be affected. But, what on earth does this mean? Simply put:

  • Supervision is where someone is overseeing your work.
  • Direction is where an individual makes you work in a certain way through instructions or guidance.
  • Control equates to someone dictating what work you are required to do and how.

Why is the change needed?

It came to light that a small number of umbrella companies had been using overarching employment contracts to enable contractors to claim tax relief on their work to home travel expenses – something that is not available to permanent employees.

The government believes that the tax system should be fair to all and under current arrangements some contractors are benefiting from being able to claim tax relief on their journey into work.

Be prepared for when the change happens

The proposed changes will be brought in under the Finance Bill 2016 and will be effective from 6th April 2016.

How will the change affect you? This example will show you:

“Paul is an engineer and works via an umbrella company, he lives in Bicester and travels to Oxford every day to his place of work. He will no longer be able to claim this journey as a travel expense. However, if he needs to travel to London for a one off meeting he will be able to claim his travel costs as a business expense as London isn’t his normal place of work.”

What next?

HMRC predict that the change will affect approximately 430,000 contractors. If you are one of those who will be affected by the change, maybe you should consider forming your own Limited Company.

Forming your own Limited Company maybe a suitable option, if you:

  • Consider contracting a long term career choice, or
  • You rely heavily on expenses.

If you are undecided what your best course of action is, a member of our team will be delighted to talk you through the different options. Give us a call on 0208 952 2234 or request a call back through our website: www.cogentaccountants.co.uk and a member of the team will get in contact at a time convenient to you.

The Budget 2016: Mostly good and a little bad

On 16th March 2016, the Chancellor George Osborne stepped up to the despatch box to deliver his eighth Budget.

This was arguably one of the most challenging speeches he has had to deliver since he took charge of the Treasury almost six years ago, made in the shadow of economic uncertainty and an imminent referendum on Britain’s EU membership.

Last autumn, Mr Osborne was given unexpected room for manoeuvre by some rather generous forecasts from the Office for Budget Responsibility (OBR). In the last few months however, the economic situation has deteriorated and the Chancellor has breached some of his own fiscal rules.

Addressing the Commons, he emphasised the importance of a long-term plan and said the Government had chosen “sound public finances to deliver security”. Although critics were quick to point out that Mr Osborne had missed his target for cutting the national debt.

Economic overview

Business and enterprise

Transport and infrastructure

Personal tax

Pensions and savings

Education

Tax evasion, avoidance and aggressive tax planning

Summary

Economic overview

The Chancellor said that the UK was on course for a Budget surplus (£10.4billion by 2019/20), the economy was growing faster than any other major nation’s and that employment was at an all-time high. He said that this situation had been shaped by the fact that the Government had not sought “short-term fixes.”

But he reiterated warnings earlier this year that the outlook for the global economy was perilous and that Britain must be aware of the gathering storm clouds.

In his opening statement, he confirmed the OBR had revised down forecasts for global growth and UK productivity.

The OBR calculated growth was 2.2 per cent last year and predicts it will be two per cent this year and 2.2 per cent in 2017, although Mr Osborne clarified that their predictions were based on the UK voting to remain within the European Union. Voting to leave would cause “disruptive uncertainty” he warned.

Inflation in 2016 will be just 0.7 per cent, down from the one per cent expected in November 2015.

Business enterprise

Mr Osborne said that Britain already had one of the most competitive tax regimes in the world and now he was publishing a “road map” to make business taxation fit for the future.

A number of changes were announced to business rates, following a review of the current system.

As of April 2017, around 600,000 small businesses will be taken out of business rates altogether, thus saving them in the region of £6,000 annually. A further 250,000 firms will benefit from a reduction in their current rates.

Plans were also announced to reform stamp duty for businesses. He said the changes to rates would mean “big tax cuts for small firms.”

As of midnight tonight, commercial stamp duty will have a zero rate band on purchases up to £150,000; a two per cent rate on the next £100,000; and a five per cent top rate above £250,000.

A further cut to corporation tax was also confirmed, with the rate set to be reduced to 17 per cent by 2020. “Britain is blazing a trail, let the rest of the world catch up,” said the Chancellor.

As had been speculated beforehand, the Chancellor confirmed an increase in Insurance Premium Tax – which will rise 0.5 per cent to 10 per cent. The move, which comes hard on the heels of an increase last autumn, is likely to be unpopular in sectors that will bear the brunt of the changes.

There was also bad news for the drinks industry, with a sugar tax to take effect in two years’ time. The levy is expected to raise £520million, although Mr Osborne said it would be down to manufacturers whether to pass on the price to consumers. Pure fruit juices and milk-based drinks, as well as small producers, will not be affected by the levy.

Outlining plans for further devolution, Mr Osborne said that a new city deal had been agreed with the Cardiff region. Elsewhere the Greater London Authority would move towards the full retention of business rates from next April.

Following recommendations from the Low Pay Commission, the Government will increase the National Minimum Wage rates from October 2016.

Transport and infrastructure

Mr Osborne paid tribute to the work of the National Infrastructure Commission and confirmed plans would advance for the HS3 rail link between Manchester and Leeds.

Further proposals were also outlined to widen the M62 between Leeds and Manchester, and improve the road network in the North Pennines.

Elsewhere, the tolls on the Severn Crossings between England and Wales will be halved by 2018 and an extra £700million will be pumped into resilience and flood defences.

Personal tax

The Chancellor made a surprising number of tax announcements.

The personal allowance will increase to £11,500 from April 2017, which the Government claims will deliver a tax cut for 31million people nationwide.

At the same time the 40 per cent higher rate threshold will also rise to £45,000, a move likely to be welcomed by many of Mr Osborne’s own MPs.

In addition there was the announcement that Capital Gains Tax (CGT) will be cut from 28 per cent to 20 per cent and from 18 per cent to 10 per cent for basic-rate taxpayers

Mr Osborne also announced that he would abolish Class 2 National Insurance (NI) contributions for the self-employed from 2018.

Although a fuel duty increase was being considered for this year, Mr Osborne said that any such rise would place an extra burden on families and confirmed the tax would be frozen for the sixth year running. He claimed that the move would save the average driver £75.

Duty on beer, cider and spirits will be frozen, while tax on other alcohol is to rise in line with inflation.

Pensions and savings

Ahead of the Budget, Mr Osborne had been forced to abandon some of his more radical changes to pension rules in the teeth of fierce opposition from his own MPs.

There was nonetheless an announcement which will enable under-40s to open lifetime ISAs. Under this arrangement, for every £4 a person saves, the Government will give them £1 up until the age of 50.

This money can be used to save for a pension – the Chancellor acknowledged that many younger people are struggling to save for retirement – or to buy a home (people will have the option to roll help-to-buy ISAs into the scheme).

In addition, the annual ISA limit will rise to £20,000 from next year.

Education

As was widely trailed ahead of the Budget, Mr Osborne confirmed that all schools across England would be “freed from local authority control” and become academies by 2022.

Work would continue on making improvements to the current schools funding formula – much maligned by head teachers – and there would be a drive to turn around failing schools in the north.

The Chancellor confirmed that a white paper would be published on 17th March 2016 containing further details about the new education strategy.

Tax evasion, avoidance and aggressive tax planning

The Chancellor announced a series of measures to crack down on tax avoidance and evasion which will total £12billion. These include bringing an end to the use of “personal service companies” by employees in the public sector who are looking to minimise their liabilities.

The Chancellor also said that many firms feel they face unfair competition from online retailers, some of which do not pay VAT. In an effort to address their grievances, Mr Osborne announced he would be closing a loophole used by some overseas internet companies.

Summary

This may have been a difficult Budget for Mr Osborne but it wasn’t an uneventful one.

He will hope that changes to the business rates regime and stamp duty will win support among small businesses, with changes to income tax thresholds likely to prove popular with many families.

That said, critics are likely to seize on the fact that the Chancellor has failed to meet debt targets and there will be lingering concerns that the UK is not immune to the uncertainty gripping the global economy.

View official documents and full Statement

 

 

Numbers Matter

Research carried out in 2014 showed that only 30% of company directors in the UK are women. This figure covers sole traders, SME’S and multinational organisations.  We believe this number needs to be higher.

Numerous factors put women off becoming company directors, these include: lack of time to dedicate to running a company, family commitments and a lack of support network. It’s true that running your own company and turning it in to a success takes dedication, time and commitment but it if you are prepared to put in the hard work and make sacrifices along the way great success will follow.

We spoke to three women who are directors of their own companies to find out their stories:

Louise. 42. Director of a renewable energy firm. 

Louise, along with her husband is a joint director of a renewable energy firm based in the South of England. The company started 10 years ago from their garage.  They now employ around 20 people and provide renewable energy solutions to businesses and households all over the UK.

As a director she is able to decide her own working hours so they fit around her 2 children. This enables her to do the school drop-offs and work from home occasionally.

Louise explains that being a director of the company is a huge commitment and the responsibility can be stressful but having spent 16 years working for other people, being your own boss is incredible  and very satisfying.

Jai. 40. Director of a IT Consultancy business. 

Jai’s first job after graduation was at a global trading firm in the City. As one of only four women in the team it was a challenge and not one for the faint-hearted.  Jai thrived off this challenge and worked her up to become IT Director overseeing a team of 50 people.

After 10 years of running the ‘rat race’ her priorities changed. A personal health issue made her change the way she saw her life. In 2010 she left the City and set up her own IT consultancy business. She runs the company from her office at home, where she works on projects for financial institutions based all over the world.

She describes her work life balance as 100% improved and her stress levels have decreased considerably due to not having to face the 2 hour commute every day.  In her own words she says she is a “social bunny” and thrives off personal interactions, so working on her own can be a little lonely. To counteract this she schedules in meetings with clients in London for at least twice a month.

She goes on to say that working for yourself isn’t for everybody but if you feel you can do it, go for it!

Clare. 45.  Director of events firm. 

Clare’s working history is varied to say the least. She has done everything from selling fish and chips on a stall in Brighton to teaching drama. Clare says that she never knew what she wanted to do in life but the one thing she did know was she wanted to be her own boss.

In 2005 she was given the opportunity to set up her own events firm. Having no experience at all in the events industry deciding to take this on was a leap of faith.

She says she had to learn on the job and at first she made many mistakes and worked long hours. Nearly 11 years on she now employs a network of 10 staff who specialise in organising high end events for corporations throughout the South East.

Her piece of advice for anyone thinking of venturing out on their own is: “Think about it, plan it and go for it as the opportunity may not come along again.”

If you are thinking of forming your own company and are not sure where to start our experts will be delighted to talk through the different options available to you. 

 

Forming a limited company? Read our top tips from company directors

Running your own company is hugely rewarding, seeing it grow from strength to strength gives an enormous sense of pride. For many though the thought of setting up a limited company is daunting.

We have scoured the World Wide Web to find you the best advice from company directors on what to take into consideration when forming a limited company.

Find a good accountant 

The top piece of advice we came across again and again is “find a good accountant and use their services”.

Yes an accountant costs money but in the long run it will save you money. We recommend engaging with an accountant at the outset, they will guide through the formation process and depending on the service they offer even fill in all the necessary forms associated with forming a limited company.

If you are unsure which accountant to use, the best starting point is to ask for personal recommendations. Alternatively, do some research online and look for advice in forums. The Contractor UK Forum has a list of recommended accountants.

Set aside an amount each month for Corporation Tax and VAT

A limited company is required to pay Corporation Tax and VAT. Corporation Tax is due 9 months and 1 day after the company’s year end. If you are VAT registered then this is due quarterly.

You may be thinking ‘I have ages until I need to pay it and I don’t need to worry about it yet’. Don’t! If you are not prepared you may find yourself in a situation where you don’t have the funds to pay it. HMRC does not look at this favourably.

Our advice is to set aside an amount each month that will be used to cover these liabilities. This way you won’t have a large amount to find later on.

You and the company are not the same

The major benefit of a limited company is that it provides limited liability to its owner.  When you form a limited company it is best to see it as a separate entity and any money held within the business bank account belongs to the company and not you.

Even as the company director the money is not yours to spend freely. Access is through the payment of dividends that are paid to the company shareholders (including yourself).

It is important to remember that you are legally responsible for the company’s finances. Your accountant is there to offer guidance and advice but at the end of the day it is up to you to make sure that everything is carried out correctly. Our advice is if you are unsure about something speak to your accountant first.

Be organised 

As a limited company you are legally obliged to keep proper records for at least 3 years, or 6 years if you are VAT registered.

Make your life easier and take the time to organise everything. This means having a filing system that works for you (not piling everything up in the corner of the room). Keep all company related paperwork together in a folder and all expenses together in month order along with relevant receipts.

If you are thinking of forming a limited company and would like to talk trough your options please call us on 0208 952 2234 and we will be delighted to discuss this with you. Alternatively if you would like more information on any of the topics mentioned above our Resources section on the website has a wealth of useful information. 

31st January: The deadline for paying self-assessment tax

31st January is approaching. This is the deadline for paying 14/15 tax due, payments on account and filing 14/15 tax returns.

If you have self-assessment income tax liabilities to pay, based on your personal self-assessment tax return, this will normally be due by 31st January following the end of the tax year concerned. You may also need to make payments on account for the following year and these will be in two instalments, by 31st January and by 31st July.

There are various methods which you can use to make your tax payments and the link below will take you to the HMRC web page that lists and describes these methods: http://www.hmrc.gov.uk/payinghmrc/selfassessment.htm

There are also links from this page to the HMRC online payment facility if you wish to pay with a debit card.

Your payment reference is the 10 digit UTR number shown on the front of your tax return (followed by a letter K).

HMRC will issue penalties and charge interest for late payment of tax due, so please ensure payment is made on time.

If you would like Cogent to prepare and file your Tax Return and you have not yet returned your completed Personal Tax Return Questionnaire, you need to send it to us now as a matter of urgency.

***Please ignore this if you have already sent us your questionnaire***

If you have a secure online portal, you should download a questionnaire for 2014 – 2015 by logging into the portal at https://secure.cogent-accountantsauth.co.uk/ using your username and password and clicking on Documents – Personal Taxes, otherwise please email tax@cogentaccountants.co.uk

If you cannot remember your password, please use the Forgot Password button on the login page. However, if you should experience further difficulty logging into your secure portal, please contact the Authorisations Department by email authorisations@cogentaccountants.co.uk or call them on 020 8952 2234.

Please then complete the questionnaire and return it together with any attachments to tax@cogentaccountants.co.uk

From January, our fee for preparing a basic tax return is £240 including VAT. More complicated tax returns will normally incur a further cost.

Please be aware that at this late stage, if we have yet to receive your tax return questionnaire and all other necessary information, we can no longer undertake to meet the 31st January filing deadline for you. However, we will of course make every effort to do so.

You are required to file a tax return if:

  • you have been asked to file one by HMRC
  • you have a tax liability for the year (e.g. higher tax rate or if you have income which has not been taxed at source)
  • you have a new source of income that needs to be declared

Penalties for late filing of tax returns can be as much as £1,600, even when there is no tax due, so please ensure your tax return is filed on time, whether you ask Cogent to prepare it for you or you have made other arrangements.

6th April: Major changes to the way dividends are taxed

The existing system of grossing-up dividends will be abolished and replaced with a simple rate of tax on net dividends. The tax bands will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. The current Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance of £5,000.

The way that dividends are taxed will completely change. Using the existing rules, a contractor declares a dividend and then grosses-up that net dividend by ten ninths to arrive at a gross dividend, including tax credit of 10%.

So currently, for every £100 of profit earned, a contractor’s company pays 20%, or £20, in corporation tax, leaving £80 to be paid as a dividend. That is then grossed up to £88.89 to find out which personal tax band the dividend falls into. Basic rate taxpayers pay no additional income tax on dividends, while higher rate taxpayers pay 25% of the £80 and additional rate taxpayers pay 30.55% of the £80.

From April that will change. The new Dividend Tax rates will be applied to all net dividends after deducting an individual’s personal allowance not used by salary or other income. The new rates are 0% for the first £5,000 (called the Dividend Allowance), 7.5% for a basic rate taxpayer, 32.5% for a higher rate taxpayer and 38.1% for an additional rate taxpayer.

On a positive note, the new rules say that for every £100 profit, 20% or £20 of corporation tax is deducted and then the Dividend Tax applies to the remaining £80. What this does is actually delay the point when a contractor starts to pay higher rate tax, because the net dividends are no longer grossed up.

There is little that can be done for contractors to avoid the new tax on dividends, however with good advice from Cogent and careful planning, such as diverting profits into a pension scheme, much can be done to mitigate the increase.

HMRC confirms no IR35 change until 2017

Contractors working under constant fear of changing tax rules can relax – for a while at least. The government has announced IR35 rules will not change until April 2017 at the earliest after months of rumours about the tax law. HMRC confirmed at the most recent IR35 Forum meeting on 15 December 2015 that no measures will be implemented during the 2016/17 tax year.

IR35 was introduced a decade ago by Labour with the intention of levelling the playing field between contractors working for their own companies and employees, as contractor companies provided opportunities for tax breaks that are unavailable to other workers. Many of contracting’s stakeholders were at the meeting of the IR35 Forum when HMRC announced it’s decision, including the Association for Independent Professionals and the Self Employed (IPSE).

“We’re pleased that our efforts, alongside those of numerous other groups and hundreds of thousands of contractors, have helped to convince the Government to go back into listening mode. Clearly the message got across that the approach HMRC was considering wasn’t the most appropriate one.” an IPSE spokesman told Contractor Calculator.

Proposals to force clients to take responsibility for IR35 compliance were also widely criticised. The ambiguity over the ‘supervision, direction or control’ (SDC) test was also highlighted. There has been concern amongst contractors since the Summer Budget that IR35 was going to be overhauled and fears were compounded when media outlets reported details of a rumoured one month contract limit prior to the Autumn statement. HMRC has also confirmed that it is set to look into improving it’s Employment Status Indicator (ESI) tool to provide the public with a much more reliable way of assessing their employment status.

HMRC hails ‘most successful year’ as it’s boss is awarded a Damehood

HM Revenue and Customs has been criticised for hailing it’s “most successful year” ever in a report detailing positive results and playing down embarrassments over the past 12 months.In the meantime, the head of HMRC, Lin Homer, was awarded a Damehood in the New Year’s honours list. However, she has since resigned. HMRC has been criticised for a series of failings and “abysmal” levels of customer service and has been accused by senior MPs of being “complacent”. But in it’s report for 2015, published online, HMRC said it had “had it’s most successful and sustained performance in it’s ten-year history”. The department said it had “achieved successive record-breaking revenues, last year alone bringing in more than £517billion”. It added that “all this was achieved at the same time as improving customer service”.

HMRC also hailed it’s success of tax avoidance clampdown on UK banks. It said the amount of money in tax avoidance schemes has fallen from £3.2bn in 2013 to £1bn. Nigel Mills, a Conservative member of the Public Accounts Committee, said: “There are serious questions about how HMRC is performing, it is failing to answer enough calls and collect enough money from large businesses and tax avoiders.

“You would think you would want that sorting out before you gave someone a gong. I don’t understand why we have to have every well-paid civil servant in every department getting a knighthood or damehood.

“Surely these honours should go to captains of industry who have created lots of jobs or people who have done transformational things for charities. It seems wrong to me.”

John Pugh, a Liberal Democrat member of the committee, told The Telegraph: “Frankly the honours system is in enough trouble without Civil Service mandarins using it for self-congratulatory back slapping.

“Lin Homer would certainly not have been nominated by the hordes of unanswered taxpayer callers to the diminishing number of accessible tax offices.

“Perhaps – if they could get through – some of the thousands of identified and unprosecuted tax evaders put in a good word.”

Summer Budget 2015: Key Points at a Glance

The 8 July Budget contained a number of measures with implications for personal and business finances. Here’s a quick round-up of some of the key announcements.

  • The income tax personal allowance will increase from £10,600 in the current financial year to £11,000 in 2016-17 and £11,200 in 2017-18.
  • The higher rate threshold, above which income tax is paid at 40 per cent, will increase from £42,385 in 2015-16 to £43,000 in 2016-17 and £43,600 in 2017-18. The levels of the personal allowance and higher rate thresholds are slightly higher than those announced in the March 2015 Budget.
  • Child benefit will be frozen for four years from April 2016, along with other working age benefits.
  • The amount you can earn tax-free from letting out furnished accommodation in your home will rise from £4,250 per year to £7,500 from April 2016.
  • Insurance premium tax (IPT) is charged on insurance premiums and covers most general insurance, such as car and household, although life and most other long-term insurance policies are exempt. From 1 November 2015, the standard rate of IPT will be increased by 3.5 per cent to nine per cent.
  • The pensions annual allowance – the amount that can be saved each year into a pension and receive tax relief – is currently £40,000 a year. From April 2016, for every £2 of adjusted income someone has above £150,000 – including their own and employer pension contributions – the annual allowance will be reduced by £1, down to a minimum of £10,000.
  • From 2017, a new £175,000 inheritance tax (IHT) allowance will be phased for the estates of people leaving their home to direct descendants. The effect of the new allowance – called the main residence nil rate band, which will sit on top of the existing £325,000 IHT threshold – will be to create an effective IHT threshold of £1 million for spouses and civil partners by 2020-21.
  • Dividend tax credit means that non and basic rate taxpayers currently pay no tax on dividend income. From April 2016, the credit will be replaced by a £5,000 annual dividend tax allowance. Tax above the threshold will be levied at 7.5 per cent for basic rate taxpayers, 32.5 per cent for higher rate taxpayers and 38.1 per cent for additional rate taxpayers, those with annual income of more than £150,000. ***See our important note at the foot of this article***
  • Residential landlords can currently offset ten per cent of annual rental income against tax as a wear and tear allowance for furnishings. From April 2016, the allowance will be scrapped. Instead, landlords will deduct the annual cost of replacing furnishings.
  • Legislation will be introduced to strengthen HM Revenue & Customs’ powers to recover tax debts directly from taxpayers’ bank and building society accounts, including cash ISAs.
  • The corporation tax rate will be reduced from 20 per cent to 19 per cent in 2017 and to 18 per cent in 2020.
  • The employment allowance – a discount on employers’ national insurance contributions – will rise from £2,000 a year to £3,000 in April 2016. Companies where the director is the sole employee will no longer be able to claim the employment allowance from April 2016.***See note at the foot of this article***

The government will publish a “roadmap” by the end of the year, showing how it will transform tax administration for individuals and small businesses by 2020. It will also publish a business tax roadmap by April 2016, setting out its plans for business taxes in the same period.

***Important note on dividend income***

As we are all aware, over the years, governments together with HMRC have enacted various attacks on the freelance limited company sector such as IR35. The perception is that freelance contractors get an unfair advantage in being able to work through a limited company.

In fact, over the years, we as accountants have been able to advise freelance contractor clients on very advantageous methods of extracting profits from their company.

The changes notified in the Budget will in the first instance increase the tax charge on the traditional method of taking most of the profits out as dividends. Non and basic rate taxpayers currently pay no tax on dividend income, however from April 2016, everyone will receive a £5,000 annual dividend tax allowance.

Once this has been exhausted, even those dividends earned below the higher rate tax threshold will carry an additional 7.5% tax charge. The rule of thumb applied over the years that dividends taken up to the higher rate tax threshold will not incur income tax will no longer apply.

As always, we at Cogent will be analysing all the options available for our clients to see how to mitigate their overall tax liability. It is early days in analysing these options and we will over the coming months be in touch to provide available strategies to help you to retain more of your hard-earned income.

***Note on the employment allowance***

As usual, you can be confident we will provide our clients with the best advice. We will be looking at the options and will guide you accordingly.

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