Thursday, 2 February 2017

Welcome to the Exceed monthly newsletter.

Excuses for missing Self Assessment deadline
Saving options for 2017
Lifetime ISA launch date confirmed
Claiming the employment allowance
Tax credits for grandparents
Workplace pensions and automatic enrolment
VAT Flat Rate Scheme changes
Company cars and vans – taxable benefits
Bereavement support
UK taxpayers with income or assets abroad
Launch of the new £1 coin
Beat the Vehicle Excise Duty changes
Excuses for missing Self Assessment deadline Income Tax

A recent press release by HMRC revealed some of the oddest excuses for submitting a late tax return. The excuses ranged from the sublime to the ridiculous and included:

  1. 'My tax return was on my yacht…which caught fire'
  2. 'A wasp in my car caused me to have an accident and my tax return, which was inside, was destroyed'
  3. 'My wife helps me with my tax return, but she had a headache for ten days'
  4. 'My dog ate my tax return…and all of the reminders'
  5. 'I couldn’t complete my tax return, because my husband left me and took our accountant with him. I am currently trying to find a new accountant'
  6. 'My child scribbled all over the tax return, so I wasn’t able to send it back'
  7. 'I work for myself, but a colleague borrowed my tax return to photocopy it and lost it'
  8. 'My husband told me the deadline was the 31 March'
  9. 'My internet connection failed'
  10. 'The postman doesn’t deliver to my house'

The reasons above were all used in appeals against penalties for submitting late returns. Not surprisingly the appeals were all unsuccessful.

HMRC’s Director General of Personal Tax, Ruth Owen, said:

'Blaming the postman, arguing with family members and pesky insects – it’s easy to see that some excuses for not completing a tax return on time can be more questionable than others. Luckily, it’s only a small minority who chance their arm. But there will always be help and support available for those who have a genuine excuse for not submitting their return on time. If you think you might miss the 31 January deadline, get in touch with us now - the earlier we’re contacted, the better.'

Saving options for 2017 Income Tax

A new infographic has been jointly published by HM Treasury and HM Revenue & Customs. The one page document lists information about various ways to save in 2017 including ISAs and other savings options.

The following are some of the most popular tax efficient savings options:

ISA accounts are free from Income Tax and Capital Gains Tax. Eligible holdings include cash, national savings products, life insurance products, stocks and shares. Account holders may make withdrawals at any time without the loss of tax relief.  The ISA subscription limit for the current 2015-16 tax year is £15,240. From April 2017 the limit will increase to £20,000.

Junior ISAs were introduced to encourage children to save money and provide an alternative to the Child Trust Fund (CTF) which is no longer available to new applicants. The returns from Junior ISAs and existing CTFs are also tax-free and are usually locked in until the child reaches 18. The annual subscription limit for Junior ISAs and Child Trust Funds will increase to £4,128 from April 2017 (currently £4,080).

The Help to Buy: ISA scheme awards savers a bonus of 25% on monthly savings of up to £200 on savings towards their first home. The bonus translates to an extra £50 added to every £200 saved up to a maximum governmental contribution of £3,000 on £12,000 worth of savings.

The new Lifetime ISA is due to launch in April 2017 and will help those aged between 18 and 40 to save for a new home or for their retirement. The new scheme will see the government provide a bonus of 25% on yearly savings of up to £4,000 until the saver's 50th birthday. This could mean an extra £1,000 for every £4,000 saved annually from the age of 18 to 50.

Finally, the ever present Premium bonds now benefit from a £50,000 limit. Premium bonds do not pay interest but offer tax-free returns in the form of a monthly prize draw. The minimum investment is £100 per person. A nominal interest rate of 1.25% is used to calculate the prize fund but there are obviously some Premium Bond holders that do better than others and returns are not guaranteed.

Lifetime ISA launch date confirmed Income Tax

The new Lifetime ISA will be launched from April 2017. The Lifetime ISA is designed to help those aged between 18 and 40 to save for a new home or for their retirement. The launch of the scheme was confirmed when the Savings Bill was enacted on 16 January 2017.

The new scheme will see the government provide a bonus of 25% on yearly savings of up to £4,000 until the saver's 50th birthday. Any savings invested before the Lifetime ISA holder's 50th Birthday will benefit from the 25% bonus. This could mean an extra £1,000 for every £4,000 saved annually from the age of 18 to 50. In total this could see savers who invest the maximum contributions of £128,000 receive a maximum government bonus of £32,000.

The savings and bonus can be used to purchase a first home worth up to £450,000 anywhere in the UK or to save towards retirement. Savers will be able to withdraw the savings tax-free after their 60th birthday. The funds can remain invested after age 60 and any interest and investment growth will be tax-free. The money can be withdrawn earlier (for something other than the purchase of a first home) but the government bonus will be lost and a 5% penalty will be levied.  

Any contributions to a Lifetime ISA will be part of the overall ISA annual contribution limit. This limit will increase to £20,000 from April 2017. The government bonus will be paid annually at the end of the tax year.

Jane Ellison, Financial Secretary to the Treasury, said:

'From April, the Lifetime ISA will help hundreds of thousands of first-time buyers aiming to get onto the property ladder every year and encourage them to save for later in life. It will be closely followed by Help to Save in 2018 which will help lower paid working people to put money aside each month to save what they can for a rainy day and receive a generous top up from the government.'

Claiming the employment allowance National Insurance

In April 2016, the eligibility to claim the employment allowance was removed from limited companies with a single director and no other employees. This measure was put in place to ensure that companies with a single director and no employees do not benefit from an allowance designed to help small businesses take on additional staff.

We wanted to remind anyone still receiving the employment allowance, that is no longer entitled to do so, should ensure that they stop claiming the allowance. This can be done by selecting 'No' in the ‘Employment Allowance indicator’ field when submitting an Employment Payment Summary (EPS) to HMRC. HMRC can charge interest and penalties on any overpaid employment allowance and is likely to take a stronger stance in enforcing this over the coming months.

There are a number of excluded employers who cannot claim the employment allowance. For example, persons employed for personal, household or domestic work, such as a nanny or au pair and employment that is either wholly or mainly of a public nature. No allowance is available for deemed payments of employment income.

The employment allowance (currently £3,000 per year) is available to most businesses and charities to be offset against their employers Class 1 NIC bill. The allowance can be claimed as part of the normal payroll process. An employer can claim less than the maximum if this will cover their total Class 1 NIC bill. Eligible employers that have not yet done so can still claim for the current 2016-17 tax year (as well as make a backdated claim for one further tax year).

Tax credits for grandparents National Insurance

The specified adult childcare credits were introduced with effect from the 2011-12 tax year. The credits allow for grandparents or other family members who care for a child aged under 12 whilst their parent (or main carer) is working to receive a Class 3 National Insurance (NI) credit. The Class 3 NI credit is available for each week or part week the grandparent (or other family member) cared for the child.

Class 3 NICs are a voluntary contribution usually paid by those wishing to fill gaps in their NICs’ record and can be used by those who have not made enough compulsory contributions in order to benefit from the full basic State Pension and until April 2017 for certain bereavement benefits.

A freedom of information request to HMRC from Royal London, the largest mutual insurer in the United Kingdom has shown that this benefit is hardly being used. Royal London themselves have estimated that more than 100,000 grandparents of working age could benefit if the scheme was more widely known. The figures published by HMRC have revealed that in the year to September 2016 only 1,298 grandparents (and other family members) benefited from the scheme. This figure was even less than the 1,725 who benefited two years earlier.

According to figures published by Royal London, if a working age grandparent misses out on one year of state pension rights because they are spending time with a grandchild instead of doing paid work, this would cost them 1/35th of the full rate of the state pension or £231 per year. Over a 20 year retirement this would be a loss of over £4,500.

Royal London Director of Policy, Steve Webb said:

'Many families rely heavily on the support provided by grandparents to enable them to combine paid work and family life. The fact that there is a scheme to make sure that grandparents do not lose out, by protecting their state pension rights, is a very good thing. But the scheme is not much use if hardly anyone takes it up. The Government needs to act quickly to alert mothers to the fact that they can sign over the National Insurance credits that they do not need.'

Workplace pensions and automatic enrolment Pension

The introduction of automatic enrolment for workplace pensions is intended to ensure that the majority of employees begin to make proper provision for having a work based pension. Automatic enrolment into workplace pensions has been rolling out across the UK since 2012. The first batch of small and micro employers with 30 or less employers began to enrol in the scheme on 1 June 2015. There are estimated to be 1.8 million small and micro employers in the UK. It is expected that all employers will be signed up to use the scheme by early 2018.

Once a workplace scheme is in place, both the employer and employee need to make contributions to a pension scheme. There is a minimum employer contribution that will eventually reach 3%. Employers can make higher contributions if they so decide. Employees must also make contributions which are part funded by tax relief. By 6 April 2019, contributions in total will be a minimum 8%: 3% from the employer, 4% from the employee and an additional 1% in tax relief. There are options for employees to opt out of the scheme.

In some cases, directors may be exempt, depending on whether they have an employment contract and who else is working for the organisation.

A director will only be classed as a 'worker' if:

  • they have a contract of employment with the organisation
  • at least one other person (who can be another director) also has a contract of employment with the organisation.

Only organisations that employ workers have duties under automatic enrolment. Organisations with no staff or no qualifying staff that have been told they must start using automatic enrolment are required to complete a declaration of compliance to let the pensions regulator know that they are not an employer.

VAT Flat Rate Scheme changes Value Added Tax

HMRC is to introduce an additional test from 1 April 2017 that will determine the VAT flat rate percentage used by VAT registered businesses using the Flat Rate scheme. It appears that HMRC considers the benefits obtained by certain businesses to be excessive.

Whilst in theory some businesses win and some lose when adopting this scheme. In practice a business would only join the scheme if they expected to benefit from so doing. However, given you can only apply to use the Flat Rate scheme if you expect your annual taxable turnover in the next 12 months to be no more than £150,000, excluding VAT it seems an unusual scheme for HMRC to focus on.

Traders that meet the new definition of a 'limited cost trader' will be required to use a fixed rate of 16.5%. This will include traders who are already using the Flat Rate scheme with many at rates lower than 16.5%.

A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period;
  • greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).

For some businesses - for example, those who purchase no goods, or who make significant purchases of goods – the outcome of the test will be self-evident. Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5% rate. Businesses using the scheme will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage. Any business that will be adversely affected by the changes should consider whether it will be more beneficial to leave the scheme.

Company cars and vans – taxable benefits Employee Benefits

Where employees are provided with fuel for their own private use by their employers, the car fuel benefit charge is applicable. The fuel benefit charge is determined by reference to the CO2 rating of the car, applied to a fixed amount, currently £22,200. For example, a CO2 rating of 150g/km would create a taxable benefit of £5,994. HMRC has confirmed that the car fuel benefit charge will increase to £22,600 for the 2017-18 tax year. The fuel benefit is not applicable when the employee pays for all their private fuel use.

The standard benefit charge for private use of a company van is £3,170. A company van is defined as ‘a van made available to an employee by reason of their employment’. The van benefit charge will increase to £3,230 from April 2017. There is an additional benefit charge for fuel for a van with significant private use. The limit is currently £598 and will increase to £610 in 2017-18. If private use of the van is insignificant then no benefit will apply.

Bereavement support HMRC notices

The Department for Work and Pensions have confirmed that a new modernised Bereavement Support Payment will be introduced for those bereaved from 6 April 2017. The new Bereavement Support Payment will replace the outdated and complex 3-tier system of Bereavement Payment, Bereavement Allowance and Widowed Parent’s Allowance.

The new benefit will be available to people of any age up to the state pension age and will offer support for 18 months (an increase from the current 12 months). The new payment will also not be taxed and will be subject to a disregard in the calculation of means-tested benefits and the benefit cap, helping those on the lowest incomes by providing extra cash at a time when it is needed.

Minister for Welfare Delivery Caroline Nokes said:

'Losing a spouse or civil partner can be devastating and we want to provide people with easily accessible support to help them through the difficult period following bereavement. The old system could be unfair, complex and also act as trap preventing people from moving on with their lives. That’s why we are modernising this support into a simple, uniform and easy-to-understand benefit that better reflects society and helps people through what can be a very difficult time.'

The Bereavement Support Payment will be made up of:

  • an initial lump sum of £3,500 for people with children and £2,500 for those without children
  • a further 18 monthly instalments payable to the surviving spouse or civil partner of £350 for those with children and £100 for those without.

UK taxpayers with income or assets abroad Overseas tax issues

The Worldwide Disclosure Facility (WDF) was launched on 5 September 2016. Anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue can use the WDF. An offshore issue includes unpaid or omitted tax relating to:

  • income arising from a source in a territory outside the UK;
  • assets situated or held in a territory outside the UK;
  • activities carried on wholly or mainly in a territory outside the UK;
  • anything having effect as if it were income, assets or activities of a kind described above.

Under the legislation certain financial institutions, tax agents and tax advisers in the UK are required to write to certain taxpayers with money or assets abroad. The notification letters must be sent to relevant clients between 30 September 2016 and 31 August 2017.

Any taxpayers that receive a ‘notification letter’ need to check their tax affairs are up-to-date. These letters are being sent to some taxpayers resident in the UK who have money or assets overseas. For example, a bank that has provided a UK resident with an overseas bank account may be required to send such a letter.

If you have received a letter from HMRC or have specific concerns we would be happy to discuss your options. It is important to note that receipt of a letter in no way implies that any tax avoidance has taken place. However, those with undeclared foreign income or assets will need to make a disclosure to HMRC using the WDF. Unlike previous disclosure opportunities, the new WDF does not offer any special terms for settling ones affairs and in most cases any interest and penalties levied will be charged in full.

Launch of the new £1 coin General

It is now less than two months until the new £1 coin enters circulation on 28 March 2017. The new £1 coin will be 12-sided and will replace the round shaped £1 coin that has been in use for 30 years. The new coin is being introduced to help combat the problem of counterfeit coins and will, according to the Royal Mint, be the most secure coin in the world.

It has been estimated that as much as £1.3 billion worth of coins are stored in savings jars across the country and the £1 coin is thought to account for a third of this amount. The new and old coins will continue to be in circulation together for a six-month period from 28 March until 14 October 2017. From 15 October 2017, the current round £1 coin will lose its legal tender status.

The features of the new coin include hidden high security features to combat counterfeiting in the future as well as a hologram-like image that changes from a ‘£’ symbol to the number ‘1’ when the coin is seen from different angles.

David Gauke, the Chief Secretary to the Treasury, said:

'March 28 should be an important date in everybody’s calendar this year - as we will have a new quid on the block. This is a historic moment as it’s the first time we’ve introduced a new £1 coin since 1983, and this one will be harder to counterfeit than ever before. Our message is clear: if you have a round one pound coin sitting at home or in your wallet, you need to spend it or return it to your bank before 15 October.'

Beat the Vehicle Excise Duty changes General

Some major changes to the way Vehicle Excise Duty (VED) commonly known as road tax works will come into effect from April this year. The government has been concerned for some time that the current VED structure is too lenient and that the proliferation of low emission cars is having an adverse effect on the amount of money raised from VED.

This is because under the current VED rules any cars emitting less than 100g/km CO2 are exempt from the charge. These rules were introduced in 2003 when average emissions were far higher than they are now and many popular car models sold in the UK are currently exempt from VED.

Three new bands of VED will be introduced for brand new cars from 1 April 2017, zero emission, standard and premium. From that date, the zero emission rate will only apply to cars with 0g/km CO2 and that cost less the £40,000. The standard rate which will apply to most new cars will be £140. There are a range of bands for the first year rate.

The premium rate will apply for five years (from the second until the sixth year of registration) and will add an additional £310 per year to the VED bill for cars costing over £40,000. The premium rate of VED will even apply to zero emission cars costing more than £40,000. For example, the electric Tesla car which costs over £40,000 would have a zero VED bill in the first year, followed by five years at £310 per year before reverting back to zero.

It is important to remember that cars registered before 1 April 2017 will remain in the current VED system, which will not change. This gives anyone thinking of buying a new low emission car the opportunity to continue to benefit from the road tax exemption if they buy a new car before the April 2017. As things stand this benefit would continue for the life of the car and could represent a significant saving.



Best wishes,

The Exceed Team
In preparing and maintaining this newsletter every effort has been made to ensure the content is up to date and accurate. However, laws and regulations change continually and unintentional errors can occur and the information may be neither up to date or accurate. Exceed CA Limited makes no representation or warranty (including liability towards third parties), express or implied, as to the accuracy, reliability or completeness of the information published in this newsletter. The articles shared with you in this email are intended to inform rather than advise. If you do or do not take action as a result of reading this newsletter, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred