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Budget round up 2016

March 16, 2016 by Fiona Prior

Budget 2016 - school boy with abacus{{}}With all the political grandstanding and scaremongering over the EU referendum, it was easy to forget that the Chancellor, George Osborne, had a Budget to deliver this week.

It was his fourth Budget statement in 12 months and, with businesses still reeling from the previous three, business support organisations were calling for some calm. The British Chambers of Commerce urged “a steady approach that gives businesses, individuals, and Government itself the time needed to work through existing commitments and reforms".

This was echoed by Mike Cherry, policy director of the Federation of Small Businesses: “In the face of a number of emerging global and domestic pressures, small businesses are looking to the Chancellor to back them through what are set to be challenging times ahead.”

However, this was always going to be easier said than done. The Office for Budget Responsibility is expected to reduce its Budget surplus forecast for 2019-20, with weaker growth and lower tax revenues. If the Chancellor is to stick to his Budget deficit plans, he needs to find money from somewhere.

So what plans did the Chancellor lay out to keep his economic plan on track?

  • Income tax: higher rate threshold to increase to £45,000 from April 2017.
  • Personal tax-free allowance: increasing to £11,500 from April 2017.
  • National Insurance: Class 2 NICs to be abolished for the self-employed from April 2018.
  • VAT: registration threshold to increase to £83,000 from April 2016.
  • Corporation tax: will fall to 17% by 2020.
  • Capital Gains Tax: from April 2016 the main rate will be cut from 28% to 20% and the rate for basic rate tax payers will be cut from 18% to 10%. There will be an 8% surcharge on residential property and interest paid to asset managers.
  • Digital Tax Accounts: the self-employed and landlords who keep their records digitally and who submit regular digital updates to HM Revenue & Customs will be able to opt to pay tax on a ‘pay-as-you-go’ basis from April 2018.
  • Business rates: businesses with a rateable value up to £12,000 will pay no business rates from April 2017. There will be tapered rate relief for properties with rateable values between £12,000 and £15,000.
  • Business rates: London will be able to retain 100% of all business rates collected to reform core services and invest in long-term growth in the capital. Similar schemes will be piloted in Greater Manchester and Liverpool.
  • Stamp duty: new bands to be introduced for commercial properties with immediate effect. The commercial property stamp duty regime will be aligned with residential property stamp duty, which is paid on the proportion of the property’s value falling within each band. The portion of a property’s price up to £150,000 will attract a 0% charge, the portion of its price between £150,001 and £250,000 will attract a 2% charge and amounts over £250,000 will attract a 5% charge.
  • Stamp duty: new 2% rate for leasehold rental transactions with a value over £5 million.
  • Business losses: the amount of profit that can be offset by losses that have been carried forward will be restricted to 50% for profits in excess for £5 million from April 2017.
  • National Minimum Wage: the hourly rates of NMW will increase from October 2016 to £6.95 per hour for 21 to 24-year olds; to £5.55 per hour for 18 to 20-year olds; to £4.00 per hour for 16 and 17-year olds and to £3.40 per hour for apprentices.
  • New tax-free allowances: it will be possible to earn up to £1,000 per year from ‘occasional jobs’ without paying any tax. This includes income from selling goods you have made, providing services or relating to income from property you own (such as renting a driveway).
  • Employee Shareholder Status: there will be a new lifetime limit of £100,000 on gains eligible for capital gains exemption through ESS for agreements entered into on or after 17 March 2016.
  • SME access to finance: the Government has set out a £1bn commitment to support SMEs through the Business Bank. The first loans are expected in spring 2016. They have also confirmed the extension of the Enterprise Finance Guarantee programme until at least 2018.
  • Insurance Premium Tax: increasing by 0.5% from 1 October 2016.
  • Capital Allowances: the capital allowance main rate threshold for cars will be reduced to 110 grams of CO2 per kilometre and the First Year Allowance threshold will be reduced to 50 grams of CO2 per kilometre from April 2018.
  • First Year Allowances: extended for a further three years until 2021 for businesses purchasing low-emission cars.
  • Fuel duty: frozen for the 6th year running.
  • Termination payments: employers will have to pay National Insurance Contributions on pay-offs such as termination pay-offs over £30,000 from April 2018 where tax is also due.
  • ISA allowance: increasing to £20,000 per year from April 2017 (up from £15,240). There will also be a new Lifetime ISA which will allow savers under the age of 40 to save up to £4,000 per year. The Government will add a 25% bonus to the money saved.
  • Climate Change Levy: increasing from April 2019 to replace the Carbon Reduction Commitment, which will be abolished after the 2018-19 compliance year.

The CBI Director-General, Carolyn Fairbairn, said: “After a year of surprises, this was a stable Budget for business facing global stormy waters. The Chancellor has listened to our concerns about the mounting burden on firms and chosen to back business to grow the economy out of the deficit.

“Businesses will welcome the Chancellor’s permanent reforms to business rates – taking more small firms out of the regime and changing the uprating mechanism from RPI to CPI, which the CBI has long been calling for."

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Budget 2016: Small business coverage on the Donuts

March 14, 2016 by Fiona Prior

[Updated 16.35, 16 March 2016]

The Chancellor of the Exchequer, George Osborne, announced the 2016 Budget on Wednesday 16 March.

Throughout the day the Tax Donut covered the key points affecting small businesses from the @TaxDonut Twitter account. Thanks for Tweeting along with us and letting us know your response.

Also see our Budget 2016 summary for small businesses and reaction from small firms and their representatives:

Are you ready for auto-enrolment?

February 23, 2016 by Tax Donut contributor

Are you ready for auto-enrolment?In 2012 the law was changed to oblige all employers to offer a workplace pension scheme to their "qualifying" employees, onto which they would be automatically enrolled.

Businesses with 30 or more employees have now signed up to workplace pensions. The next stage is for businesses with fewer than 30 employees – these firms have an automatic enrolment date from 1 January 2016 to 1 April 2017. The staging date (being the date an employer must begin automatic enrolment) is based on the number of people employed by way of PAYE.

So what are the fundamentals of auto-enrolment?

The legislation requires employers to make a minimum contribution of 1% of a worker's qualifying earnings, rising to 2% from October 2017 and to 3% from October 2018.

The employee also has to make contributions of 0.8% of their qualifying earnings, rising to 2.4% from October 2017 and to 4% from October 2018.

Qualifying earnings are currently classed as gross earnings (before income tax and national insurance contributions are deducted) between £5,824 and £42,385 per year. So if an employee earns £30,000 per year the contributions only have to be made on £24,176 (i.e. £30,000 minus £5,824). The qualifying earning levels will be reviewed on a yearly basis.

Employees are divided into three categories - entitled, eligible and non-eligible. These categories are used to ascertain if they are "qualifying" employees. The definition of each of these groups is as follows:

Eligible. These are workers who are automatically enrolled into a pension scheme and for whom the employer has to pay minimum pension contributions. They are workers who fit the following criteria:

  • They are aged between 22 and the state pension age;
  • They earn a minimum of £10,000 per year; and
  • They are not already participating in a workplace pension scheme.

Non-eligible. These workers can be enrolled into the pension scheme should they wish to be, and the employer will have to pay pension contributions. They are workers who fit the following criteria:

  • They are aged between 16 and 74, earning as a minimum £5,824 per year but less than £10,000 per year; or
  • They are aged between 16 and 22 or between the state pension age and 74, earning more than £10,000 per year.

Entitled. These workers can be enrolled into the pension scheme should they wish to be, but in this instance the employer does not have to pay pension contributions. They are workers who are aged between 16 and 74 earning less than £5,824 per year.

An employee can choose to opt out from the scheme and should do so within one month of being auto-enrolled. Provided the opt-out is made within one month then contributions made by the employee and employer will be refunded by the pension scheme.

If you are unsure of your status, or how your business needs to proceed, it's best to seek professional advice. These changes are enshrined in law and businesses not meeting their obligations, or missing their staging date may face a fine.

Copyright © 2016 Carol Cheesman, principal of Cheesmans Accountants based in Islington, North London.

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Why it pays to be your own VAT inspector

February 22, 2016 by Tax Donut contributor

Why it pays to be your own VAT inspector{{}}With 2016 well underway, now is a good time to check in on those business-related new year’s resolutions you made in January. Have you stuck to them?

One key area that all business leaders should be committed to this year - and beyond - is getting their VAT in order. The consequences of poor VAT planning range from an administrative headache to serious financial implications that could close down a company. So what can be done to minimise the risk?

Check levels of VAT understanding

Business leaders often have a good understanding of VAT but if they aren’t handling it day-to-day, then they must ensure that other members of the team understand their responsibilities as well.

In some businesses this lies with the financial director and their team; in others it will be administrative staff that are processing orders. It is not uncommon for different individuals within the same firm to have varying levels of VAT knowledge and to be taking different approaches - introducing standards across the board can help improve consistency and make VAT compliance more simple.

Know the VAT exceptions

VAT is full of variables and exceptions to the rule, so an awareness of these is vital. This is especially true in sectors such as education and charities, where processing staff may enter purchases as standard rate for VAT and fully recoverable from HMRC without realising that VAT recovery for the cost may be restricted or not possible, potentially costing money.

There are also many exceptions when it comes to entertainment and other business expenses and this is an area that is commonly checked by VAT inspectors. Taking time to understand the ins and outs of VAT recovery and the VAT treatment of supplies will pay dividends in the future.

Don’t leave it too late

It is all too common for VAT to become a focal point at the end of a VAT quarter. This can cause multiple issues. Firstly, the due date for the VAT return may have passed which can cause the firm to become liable for default surcharge penalties.

Secondly, if there are unusual/one-off transactions, leaving it until the last minute to seek advice can cause an administrative nightmare as well as unnecessary stress on your staff. Thirdly, you could have cashflow problems if the VAT due is much higher than expected.

These issues can be rectified by keeping a constant check on VAT throughout the year, so that when the VAT return is due for submission it can be quickly and effectively compiled. Any VAT deadlines should be strictly observed, with simple reminders set up on the company calendar.

Act like a VAT inspector

One effective approach is to assume the role of an HMRC inspector and carry out an audit of your business. To begin with, audit the basics and check whether teams are accounting for VAT on all expenses and income correctly. Complete an audit trail to follow the company processes from start to finish in order to flag up any gaps.

Take a look at the figures to ensure they flow correctly and look for inconsistencies. Also, do sense checks to prevent costly transposition and other processing errors. Do this regularly and you'll avoid nasty surprises when it comes to an official inspection.

By adopting these measures throughout the year, business owners and managers can regain control over VAT planning, preventing it from becoming a burden. As with many business lessons, the key lies in strong organisation and effective processes that are well communicated to everyone within the company and reviewed on a regular basis.

Sponsored post: copyright © 2016 Tamara Habberley, senior VAT consultant, The VAT People.

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Filing late? Act now and avoid further penalties

February 15, 2016 by Fiona Prior

Filing late? Act now and avoid further penalties

The self-assessment tax return deadline was 31st of January and if you didn't get your return in on time, you will be slapped with a £100 fixed penalty.

It's important to get your completed return and any tax owing in as soon as possible as further penalties come thick and fast. If you have still not submitted your return and payment by the end of February, you will receive a late payment penalty equal to 5% of the tax owing.

In addition to the penalty, you will also be charged interest on the late payment of any tax owing. Interest starts to accrue from the day after the tax return was due. If you haven't completed your tax return, you won't know how much tax you own and therefore how much interest you will be charged. You may be able to estimate the likely amount you owe using the HM Revenue and Customs estimate your penalty tool.

Completing your tax return should be relatively straightforward providing you have all your paperwork in order. You will need to gather the information relating to any income from employment and records pertaining to any periods of self-employment over the period covered by the tax return including income and expenditure, information on any business use of vehicles and any other income such as capital gains or share profits.

The HMRC online filing system tailors the tax return in response to your answers to a few simple questions. This means you will only need to complete the sections relevant to you and your business. It will also allow you to save any information you have entered so far if you need to go away to find further information or complete it in more than one sitting.

Another benefit of using the online tax return system is that you will know exactly what you owe in tax as soon as you submit your return as the system will calculate your tax bill for you.

You will need a Government gateway account before you can sign in and you'll have to complete your self-assessment tax return. If you do not have a Government gateway account, you will need your unique taxpayer reference and National Insurance number in order to set one up.

You will be sent an activation code once you have entered your details. However, this can take up to a week to arrive - further delaying your tax return and ramping up your interest.

If you still have not submitted your return by 1 May, HMRC will charge you £10 per day for each additional day the return is late. And if you have still not submitted it after six months, you will be landed with a minimum £300 fine or 5% of the tax owning - whichever is greater. So the advice is, act now if you want to avoid further interest and penalties.

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How to avoid making ten common self-assessment mistakes

January 21, 2016 by Carol Cheesman

How to avoid making ten common self-assessment mistakes{{}}If January is not already gloomy enough, for many there's also the daunting prospect of completing an online self-assessment tax return (SATR).

The good news is that not everyone needs to complete one. But for those who do, it's not always straightforward and there are penalties if you fail to submit your SATR on time, or if HMRC take the view that not enough care has been taken in completing it.

That said, if you make a mistake on your self-assessment form you've normally got 12 months from January 31 after the end of the tax year to correct it. This is an amendment. In other words, for the 2015-16 return you have until 31 January 2018 to make an amendment.

But what are the most common mistakes that people make?

1. Forgetting to sign and date your form

To avoid this simple schoolboy error, stick a post-it on your desk reminding you to sign and date box 22.

2. Giving an incorrect National Insurance number and/or Unique Taxpayer Reference (UTR)

The UTR is a ten-digit reference number. It is unique to you and you will find it on every piece of correspondence you receive from HMRC. Your National Insurance number is also unique to you. It is made up of numbers and letters, and you will find it on payslips or on a P60. Be sure to be accurate when including this information.

3. Ticking the wrong boxes

The paperwork sent by HMRC includes a guide to completing your tax return. It's very clear and takes you through the process step by step.

4. Mañana form-filling

Notes such as Info to follow or As per accounts will not be accepted by HMRC. A self-assessment tax return with these types of notes is not a completed document and will not allow you to avoid the penalties HMRC can impose.

5. Sloppy arithmetic

At the very least, double-check your calculations. It's important to be accurate.

6. Failing to declare all income

Failure to declare all relevant income and any Capital Gains can result in severe penalties. If those errors are deliberate (for example: omitting a source of income) you could be prosecuted.

7. Forgetting supplementary pages

If you have additional income, you will need to include supplementary pages. This additional income may come from playing in a band at weekends, or perhaps your erotic fan-fiction has become a best-seller, or it could be from investments, property or shares. Make sure you include all additional income on the supplementary pages.

8. Claiming the unclaimable

There may be things you assume can be claimed, but in fact can't. Check with your accountant as there are costly penalties for incorrect claims; and besides, there may be things you hadn't thought of that can be claimed.

9. Missing the deadlines

Don't leave things to the last minute. The deadline for submitting a paper return is 31 October following the end of the tax year. The deadline for submitting a self-assessment tax return online is 31 January after the end of the tax year. If you miss these deadlines, there are penalties to pay.

10. Failing to keep good records

The easiest way to reduce stress is to be organised about keeping proper and complete records. The paperwork you will need (where relevant) includes:

  • P60, P45 and P11D;
  • expense records;
  • benefits including maternity/paternity pay, statutory sick pay, job seekers allowance;
  • pension records;
  • bank statements;
  • property income;
  • foreign income including evidence of tax already paid abroad;
  • capital gains;
  • employee share schemes;
  • student loan payments.

If you are self-employed you will also need:

  • cash books;
  • invoices;
  • mileage records;
  • receipts;
  • bank statements;
  • records of all sales and takings, purchases and expenses;
  • money taken out of business for personal use (if any);
  • personal money put in to the business (if any).

It's perfectly possible to complete a self-assessment tax return without the help of a qualified accountant or tax adviser, but hiring a professional will ease your workload and offer comfort that the submitted forms are accurate and complete.

Copyright © 2016 Carol Cheesman, principal of Cheesmans Accountants based in Islington, North London.

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