Archive for November, 2017

Are your bank deposits protected

Tuesday, November 21st, 2017

The Financial Services Compensation Scheme (FSCS) is the place to go if your bank or other regulated organisation is unable to pay claims against it.

For most of us this will mean that our deposits with banks authorised to hold deposits by the Financial Conduct Authority (FCA and the Prudential Regulation Authority (PRA) will be able to recover funds up to certain limits.

What are the current limits?

From the 30 January 2017, deposits with approved institutions are covered up to £85,000 per person.

Please note the following:

  1. All your eligible deposits at the same bank are added together and the total is subject to the £85,000 limit.
  2. The limit of £85,000 applies to each person. In the case of joint deposits, the £85,000 limit applies to both depositors.
  3. Deposits held in the name of business partnerships or similar groupings are treated as if made by a single depositor.

Additionally, from 3 July 2015, the FSCS will provide up to a £1 million protection limit for temporary high balances held with your bank. For example, funds held after:

  • The sale of a main residence.
  • A death.
  • The depositor’s marriage or civil partnership, divorce, retirement, dismissal, redundancy or invalidity.
  • The receipt of insurance benefits, or compensation for criminal injuries or wrongful conviction.

How long before I get my money back?

Reimbursement will be made in line with the following published time limits:

  • Up to 31 December 2018 – within 20 working days
  • From 1 January 2019 to 31 December 2020 – within 15 working days
  • From 1 January 2021 to 31 December 2023 – within 10 working days
  • From 1 January 2024 – within 7 working days

January 2018 and taxes to pay

Thursday, November 16th, 2017

January is the month when individuals and businesses are required to pay tax.

If your business is a limited company, and your tax year ends 31 March 2017, any corporation tax due for that year is payable 1 January 2018. Unlike your self-employed counterparts – see below – no payments on account are required for 2017-18.

If you are a self-employed business person, sole trader or in partnership, any underpayment of self-assessment tax, Class 2 and 4 NIC (for 2016-17) will be due for payment 31 January 2018. On the same date, tax payers in this category will need to make a possible payment on account for the tax year 2017-18. This is based, initially, as 50% of your actual liability for the previous year, 2016-17.

Which is why it’s worth taking a moment to consider what your financial results may be for 2017-18. If you consider that your self-employed profits, or other taxable earnings will be lower during 2017-18 (as compared to 2016-17) then you can elect to recalculate the payments on account for 2017-18.

We should always be on the lookout for ways to protect our hard-earned cash resources, which is why undertaking this simple review may help to take the sting out of the January tax payment.

You will also be glad to know, that if the results of this exercise show that your profits or taxable income have increased during 2017-18 (compared to 2016-17) it is not necessary to increase your payments on account for 2017-18. However, self-assessment taxpayers in this position should be aware that any shortfall between payments on account made and the actual liability for 2017-18 will still be payable, albeit later, on 31 January 2019.

If you feel that your earnings will be lower for 2017-18 we can help you crunch the numbers to see if a valid election to reduce your tax payments next year is a viable option. Every little helps.

Child benefit tax trap

Tuesday, November 14th, 2017

A family claiming the weekly Child Benefit (currently, £20.70 a week for eldest or only child and £13.70 a week for additional children) may get an unwelcome tax bill if either parents’ income exceeds £50,000 during a tax year.

A tax charge was introduced a number of years ago, known as the ‘High Income Child Benefit Charge’ (HICBC), if either parent had income over £50,000 and:

  • either partner received Child Benefit, or
  • someone else received Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

It doesn’t matter if the child living with you is not your own child. The charge was introduced to recover Child Benefits from higher income earners.

You may not have considered the HICBC before if your incomes were below the £50,000 cap, but if your income for 2017-18 is likely to exceed this amount you should be aware of the following.

  • Before 6 October 2018, the parent with the higher income for 2017-18 (more than £50,000) will need to register to submit a self-assessment tax return and pay and HICBC due – unless they are already registered in which case they will need to enter the amount of Child Benefit received on the return and pay any tax due.
  • The parent with the higher income, even if they were not the person claiming the Child Benefit, will need to make this declaration.

1% of the Child Benefit received will be recovered by HMRC’s HICBC for every £100 the highest earner’s income exceeds £50,000. Accordingly, once the highest income exceeds £60,000 all the Child Benefits received will be reclaimed.

To avoid the charge, it is possible to decline Child Benefits in the first place. To summarise:

  • Parents where the highest income is below £50,000 will not be affected and can continue to claim Child Benefit with no tax claw back.
  • Parents where the highest income is above £50,000 but below £60,000 will be affected and will need to pay the appropriate HICBC.
  • Parents where the highest income is over £60,000 may be advised to decline future Child Benefit claims as all benefits received will be clawed back by the HICBC.

There are strategies that you could use to reduce your taxable income below the £50,000 or £60,000 thresholds as these are calculated net of any allowable deductions. Please call if you would like more advice regarding these deductions.

Abolition of self-employed NIC to be deferred

Friday, November 10th, 2017

The Low Incomes Tax Reform Group (LITRG) has welcomed a recent announcement by the Government that there will be a one-year delay before the removal of Class 2 National Insurance contributions (NICs) to enable consultation on the impact of its abolition on the self-employed with low incomes.

If Class 2 NICs were abolished, those with profits below the small profits threshold (currently £6,025) would currently have to pay Class 3 contributions, which are five times as much as Class 2 contributions, if they want to build up an entitlement to contributory benefits such as the state retirement pension. LITRG is keen for a way to be found for the low-income self-employed to continue to be able to make affordable savings towards their pension at a rate like the present Class 2, perhaps by introducing a lower rate of Class 3.

LITRG Chair Anne Fairpo said:

“We welcome the announcement by the Government that they intend to consult with organisations such as ours which have concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits. We look forward to working with the Government to lessen the risk of unintended consequences.

“The abolition of Class 2 NICs will be a significant change to how people contribute to qualify for certain benefits and the State Pension.

“We welcome the breathing space on this matter because of our concerns that the abolition of Class 2 was being rushed through without adequate further consultation, together with a lack of publicity and guidance for the people affected.”

The delay means the measures in the unpublished NIC Bill will now take effect one year later, from April 2019. This includes the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and changes to the NICs treatment of sporting testimonials.

Smaller businesses to be drawn into the VAT net

Thursday, November 9th, 2017

The Office of Tax Simplification (OTS) published a report setting out a range of proposals for simplifying VAT. According to the OTS the tax is showing its age. What was meant to be a simple tax has become highly complex and it has not kept pace with changes in society.

The most significant issue identified in the report is the VAT registration threshold – the turnover level above which a business must enter the VAT system and charge VAT on its sales. At £85,000 the UK has one of the highest levels in the world.

By enabling many small businesses to stay out of the VAT system the high threshold is a form of simplification, but it’s an expensive relief, costing around £2bn per annum, and evidence strongly suggests that many growing businesses are discouraged from expanding beyond this point. The report looks at options for reducing the current ‘cliff edge’ effect resulting in a very visible bunching of businesses just before the VAT threshold, and an equally large drop off in the number of businesses with turnovers just above the threshold. Also examined are the advantages and disadvantages of lowering or increasing the threshold.

VAT has many ‘quirks’. For example, it is well known that a Jaffa cake is a cake (zero-rated) rather than a chocolate-covered biscuit (taxed at 20%). Less well known is that while children’s clothes are zero-rated, including many items made from fur skin, items made from Tibetan goat skin are standard-rated. And a ginger bread man with chocolate eyes is zero-rated but if it has chocolate trousers it would be standard rated. VAT zero rates cost over £45bn per annum to maintain. EU law limits options to make changes in this area but there is a longer-term opportunity to significantly improve the efficiency, simplicity and fairness of the UK VAT system.

The OTS report, will need to be examined in some detail. It will be interesting to see if we could achieve a real simplification of this complex tax or if, yet again, smaller businesses are required to absorb more red tape and tax burden while larger concerns with stronger lobbies and resources continue to avoid liability.

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