Agenda Finance Act 2018 enacted Not much tax in Spring Statement - PowerPoint PPT Presentation

Agenda • Finance Act 2018 enacted • Not much tax in Spring Statement • Tax efficient extraction of profit in 2018/19 • Recent tax cases • HMRC announcements

Not much on tax in Spring Statement • “Light at the end of the tunnel” • Paying for Brexit for many years … . • Consultation into VAT threshold – 50% over limit before need to register? MTD impact? • Cash and Digital payments in the New economy • Copper coins to go? £50 note? • Cash associated with tax evasion and crime • OTS to simplify Inheritance Tax

Scottish Taxpayers – 2018/19 • Non-savings, non-dividend income: • 19% starting band on the first £2,000 of taxable income • 20% rate applies to income between £13,850 and £24,000 (taxable income £2,001 to £12,150) • 21% rate for income between £24,000 and £43,430. • Scottish higher income tax rate 41% on income between £43,430 and £150,000 • 46% on income above £150,000. • • Scottish taxpayers have a special S PAYE code so that payroll software calculates the tax correctly.

OTS – Simplification of Inheritance tax • Submitting IHT returns and paying tax, particularly where it is clear from the outset that there will be no tax to pay • The various gifts rules including the annual exemption, small gifts and normal expenditure out of income, their interaction with each other and the wider IHT framework • Other admin and practical issues around routine estate planning, compliance, disclosure, obtaining probate • Complexities of IHT reliefs and their interaction • The impact on taxpayers' decisions, investments, asset prices or the timing of transactions; and • The perception of the complexity of the IHT rules

Tax efficient extraction from the company

Income tax and NIC 2018/19 45%, 38.1% (div) N I C b a n d s (SE, E’ee , E’er ) £150,000 2%, 2%, 13.8% I n c o m e t a x b a n d s 40%, 32.5% (div) UEL £46,350 £46,350 20%, 7.5% (div) 9%, 12%, 13.8% Personal £11,850 Earnings £8,424 allowance threshold

Falling corporation tax rates: FY2016 FY2017 FY2018 FY2019 FY2020 • 20% • 19% • 19% • 19% • 17%

H & W companies – 2018/19 • £11,850 salary each • Then dividends, say £34,500 each (£46,350) • No tax on salary (just ‘EEs NIC – 2018/19 £411) • Just £2,000 dividends tax free • Then 7.5% on £32,500 = £2,437 each • £4,874 IT for the couple = £87,004 net • Corporation tax on £69,000 PAT = £16,185 (19%) • PBT £85,185 + salaries = £108,885 (20.1% tax and NI) • Note: No £3,000 employment allowance for single director companies 9

H & W partnership 2018/19 • £108,885 profit, say £54,442 each • £11,850 @ Nil • £34,500 @ 20% = £6,900 ) • £8,092 @ 40% = £3,237) IT £10,137 each • Class 2 (last year) £153 each) • Class 4 : • 9% on (£46,350 - £8,424) = £3,413 ) £3,728 each • 2% on £8,092 = £162 ) • Net, after income tax, NIC = £81,154 (25.5% Tax + NI) • Same if company taxed on “Look Through” basis?

Extraction of Profit Company Individual Salary Deductible Taxable Dividend No deduction Taxable Interest Deductible Taxable Rent Deductible Taxable Pension Deductible Tax free (within limits)

Bonus v Dividend • Bonus saves corporation tax • But – employers NIC @ 13.8% • Plus employees NIC (12%, then 2% over UEL) • No NIC on dividends – or is there? • But not earnings for pension purposes • No CT deduction • Impact of new rates?

Tax on salary/bonus 2018/19 • PROFITS 10,000 • BONUS (8,783) • NIC @ 13.8% (1,217) 10,000 • BONUS 8,783 • Higher rate taxpayer: • IT + NIC @ 42% (3,689) • NET 50.9% 5,094 • EFFECTIVE RATE 49.1%

Tax on dividend at 19% CT rate • PROFITS 10,000 • CT @ 19% (1,900) • NET CASH DIVI 8,100 • Higher rate taxpayer: • INCOME TAX @ 32.5% 2,633 • NET ( 45.3% TAX ) 5,467 • Charge interest on loan a/c? ) still 40% • Rent premises to company? )

Interest on loan account/rent • PROFITS 10,000 • Interest expense 10,000 • Charged to Corp. Tax 0 • Interest income 10,000 • Higher rate taxpayer: • Income tax 40% (4,000) • NET 60% 6,000 • EFFECTIVE RATE 40% • Same if charge rent – but CGT entrepreneurs relief?

Retain profits and sell/liquidate ? Profits 10,000 CT @ 20% (1,900) Capital retained 8,100 CGT on sale @ 10% (810) Net (72%) £7,290 Effective rate 27.1% Anti- avoidance from 6 April 2016 - if used to distribute retained income

Recent tax cases

Partners Personal Expenses not Allowable • Peter Vaines v HMRC – EWCA • Partner in law firm HH with loans from German banks • Joined another law firm SSD • PV paid £215,455 to bank to release him from all claims against him in January 2008, borrowed from SSD • If he was made bankrupt, PV would lose his position as a partner in SSD. Would also affect his reputation • PV claimed deduction against his 2007/08 income

Partners Personal Expenses not Allowable • HMRC disallowed deduction • PV successful at FTT • Decision reversed at UTT • Court of Appeal have confirmed - not allowable • Partners’ personal expenses must be included in partnership return not on personal return • Not incurred wholly and exclusively for SSD trade • Not an expense in SSD accounts – just a loan

Collision Damage Waiver was not Exempt supply of insurance

Collision Damage Waiver was not Exempt supply of insurance • Supercars v HMRC UKFTT 2018 • Collision damage waiver (CDW) payable by customers for track days • Otherwise customer paid first £2,500 repairs • Policy taken out by Supercars and recharged to customers • VAT exemption did not apply as not an insurance broker

HMRC Announcements

Registering Trusts Online • Register by 5 October of the tax year after either: • the trust has been set up • it starts to make income or chargeable gains, if later • (2016/17 Deadline extended to 31 January 2018, no penalties before 5 March 2018) • Provide details of: • The trust – name, address, tax residence • Beneficiaries or class • Trustees, settlors, protectors details • Assets – details of shares, property, cash

Penalties for late Registration of Trusts • HMRC will charge a fixed penalty to reflect the period of delay: • Registration made up to three months from the due date – £100 penalty • Registration made three to six months after the due date – £200 penalty • Registration more than six months late – either 5% of the tax liability or £300 penalty, whichever is the greater sum.

Requirement to Correct (RTC) • RTC obliges taxpayers to make a disclosure of unpaid tax on assets, income and activities in other countries and transfers from the UK to other countries. • Taxpayers need to act before 30 September 2018 to avoid incurring much higher penalties • Agents urged to check whether any clients need to make a RTCorrection and help them to come forward • Use Worldwide Disclosure Facility • From 1 October 2018, the minimum penalty will be 100% of the tax owed and could be much higher depending on circumstances.

“Tax Free” Childcare accounts • Parents whose youngest child is under 12 can now get up to £2,000 a year towards their childcare costs • Apply for Tax-Free Childcare online - reduces costs by up to £2,000 per child per year, or £4,000 for disabled children. • Use the money towards regulated childcare - nurseries, childminders, after-school clubs or holiday clubs. • Will eventually replace the existing “childcare voucher” scheme - can still join voucher scheme providing they receive a childcare voucher before 5 April 2018. • Can continue using childcare vouchers after April 2018 provided their current employer continues to offer scheme

Simplified PAYE Settlement Agreements (PSA) • Where Employer pays tax and NIC on employees’ behalf • Gross up for tax and NIC • Case of wine at Christmas £120 = £200 x 13.8% • = NIC £27.60 + tax £80 if higher rate • No need for employers to renew their PSAs annually - Agreements will remain in place for subsequent tax years unless varied or cancelled by the employer or HMRC • To be submitted digitally in future. • Employers still required to provide an annual calculation.

Pensions Auto-Enrolment – How much? Employee Employer Up to 6 April 2018 1% 1% 6/4/18 to 5/4/19 3% 2% From 6 April 2019 5% 3%

ATED rates from 1 April 2018, based on value 1 April 2017: Property value ATED charge £500,000 < £1m £3,600 p.a. £1m < £2m £7,250 p.a. £2m < £5m £24,250 p.a. £5m < £10m £56,550 p.a. £10m < £20m £113,400 p.a > £20m £226,950 p.a.

New Digital ATED returns • receive instant access to registration details, rather than wait for them to be delivered in the post • file all ATED returns • get immediate confirmation of submission of a return • save and retrieve return information before submitting to HMRC • view or amend returns already submitted • save information previously submitted, reducing the need to key in duplicate information in later years • Etc.

Advisory Fuel Rates – 1 March 2018 Engine Petrol Diesel LPG < 1400 cc 11p 7p < 1600cc 9p 1400 – 2000 14p 8p (9p) 1601 - 2000 11p > 2000 cc 22p (21p) 13p 13p (14p)