Dividend Allowance

Legislation included in Finance Bill 2016 implements the new 0% rate for dividend income, as well as changing the rates of tax for dividend income. Once enacted, the changes will apply from 6 April 2016. Broadly, the new nil rate applies to the first £5,000 of a person’s dividend income and is available annually. From 6 April 2016, UK residents pay tax on any dividends received over the £5,000 allowance at the following rates:

7.5% on dividend income within the basic rate band;

32.5% on dividend income within the higher rate band; and

38.1% on dividend income within the additional rate band.

Dividends received on shares held in an Individual Savings Account (ISA) continue to be tax free.

Individuals in receipt of dividend income who will fall into the self-assessment regime for the first time, will need to notify HMRC accordingly. Self-Assessment returns for the 2016-17 tax year need to be submitted by 31 January 2018.

The introduction of the new allowance is designed to help the Government with its plan to reduce the rate of corporation tax in the coming years – as announced at Budget 2016, the main rate of corporation tax is expected to be reduced from its current rate of 20% to 17% by 2020. The overall policy objective is that only those with significant dividend income, or those who are able to pay themselves dividends in place of wages, will pay more tax. It is estimated that around one million individuals will pay less tax on their dividend income due to the new dividend allowance.

The dividend allowance will apply to dividends received from UK resident and non-UK resident companies. Dividend income that is within the dividend allowance (and savings income within the new savings allowance) will still count towards an individual’s basic or higher rate limits – and may therefore affect the level of savings allowance that they are entitled to, and the rate of tax that is due on any dividend income in excess of this allowance.

In calculating into which tax band any dividend income over the £5,000 allowance falls, savings and dividend income are treated as the highest part of an individual’s income. Where an individual has both savings and dividend income, the dividend income is treated as the top slice.

September 2016 Q&A

Q. I have recently changed jobs and need to use my car to make business journeys. Will I have to pay tax on the mileage expenses my employer reimburses me for these trips?

A. Employers can pay employees a tax-free and national insurance-free amount for every mile they drive on business duties, currently:

• 45p per mile for the first 10,000 miles
• 25p per mile for each subsequent mile
• 24p per mile for motorcycles
• 20p per mile for bicycles
• 5p per mile extra for each passenger carried on work-related journeys

If your employer reimburses your mileage at less than these rates, you can claim the balance (but not the 5p per mile passenger extra) against your taxable income. For instance, if your employer gives you 30p per mile for 1,000 miles, you have a 15p per mile shortfall and can claim £150 against your taxable income. The big exception to business mileage is the daily commute from home to work and back again.

Q. When do I need to register for VAT?

A. Changes have been made to the April 2010 edition of VAT Notice 700/1: Should I be registered for VAT? to reflect:

• the introduction of a new online system for registering for VAT; and
• the removal of the VAT registration threshold for non-established taxable persons

Very broadly, you need to register for VAT if your annual turnover reaches the current annual registration threshold limit (£83,000 for 2016/17). This threshold operates on a month-by-month basis, so you need to check at the end of each month to make sure that you haven’t gone over the limit in the previous 12 months. You also need to think about whether you’re going to go over that limit in the following 12 months. If you think you may, you probably need to register.

You can register for VAT even if your turnover is below the threshold and you may actually save tax by doing so, particularly if your main clients or customers are organisations that can reclaim VAT themselves.

You must register with HMRC within 30 days of being aware that you’re going to exceed the threshold. See the gov.uk website athttps://www.gov.uk/vat-registration for further information on registration.

Q. How can I make a complaint about a recent HMRC PAYE compliance check at my business premises?

A. Most PAYE compliance reviews are settled by agreement. However, if an amount cannot be agreed upon, HMRC may make a formal determination for the tax underpaid, student loan deductions, and penalties. A notice of decision will be issued for outstanding NICs and statutory payments.

An employer can appeal to the tribunal against any determination or notice of decision within 30 days of issue.

There is a set procedure for dealing with complaints concerning the way an investigation has been conducted. Full details are set out in the HMRC Factsheet entitled Putting things right: how to complain. Broadly, the steps are as follows:

(1) The HMRC officer dealing with the investigation should be contacted in the first instance, or their line manager or the person in charge of the HMRC office.

(2) If the matter cannot be settled, contact the Director with overall responsibility for the office dealing with the investigation. The Director will review the complaint objectively.

(3) Where matters are still not resolved, contact the Adjudicator (www.adjudicatorsoffice.gov.uk). The Adjudicator acts as an unbiased and independent referee. The Adjudicator can be contacted at: The Adjudicator’s Office PO Box 10280 Nottingham NG2 9PF. Telephone: 0300 057 1111/Fax: 0300 059 4513

(4) If at any time a person is not satisfied with the service they are receiving from HMRC or the Adjudicator, they should contact their MP and ask for the case to be referred to the Parliamentary Ombudsman. The Ombudsman accepts referrals from any MP, but the local MP should be contacted in the first instance.

(5) Allegations of very serious misconduct by HMRC staff, such as assault or corruption, are dealt with by the Independent Police Complaints Commission (IPCC).

Casual Employees

Some employers will be considering taking on extra staff on a ‘casual’ basis to cover the summer period. There are a few issues which employers should think about when taking on people on a temporary basis.

Firstly, the employment status of the worker needs to be carefully considered. The term ‘casual worker’ is not precisely defined in statute. It is often used to refer to individuals who are engaged on an ‘as and when required’ basis, and often, the intention is that the individual will not have employment status and all the legal rights which permanent employees enjoy.

Although the term ‘casual worker’ suggests an informal relationship between two parties, the law in this area is complex and employers need to be aware that a casual worker can be an employee with all the full legal rights which this entails, such as written particulars of employment, a broad range of ‘family-friendly’ rights, protection against unfair dismissal, and entitlement to statutory redundancy payment.

Essentially, for a contract of employment, three key elements must be present, namely:

• the employee must be under an obligation to perform the work personally;
• there must be ‘mutuality of obligation’ between the parties; and
• the employer must have sufficient rights of control over the employee.

 

The Tribunals are well aware that employers often try to avoid the existence of these key elements and so contract terms (written or verbal) are only the starting point. A wholes range of facts and circumstances need to be considered to determine the true employment status of a worker.

Casual workers can establish employment status via ‘umbrella contracts’. This generally happens where an individual is engaged on a series of individual contracts, with breaks in between, but in reality there is an overarching contract (which may be implied) that continues even when the worker is not working (for example, during seasonal contracts).

However, at the end of the day, many workers are in fact casual workers, not employees. Nonetheless such workers still have important statutory rights. These include rights to paid annual leave, to the national minimum wage (see below), and protection against deductions from wages, whistleblowing and discrimination.

Casual worker contracts and working arrangements should be reviewed regularly. The employment status of a casual worker can change over time, as the working relationship evolves. The longer the working relationship, the greater the scope for contract terms no longer to reflect the reality of the situation, meaning they should be updated.

The entitlement of casual workers to paid annual leave should be monitored carefully. Misunderstandings and disputes around paid annual leave rights are a common source of disputes between employers and casual workers.

In addition, it is important to remember that casual workers will always have important legal rights, irrespective of their employment status. Although unfair dismissal protection only applies to employees, the status of casual workers may not be entirely clear, and with discrimination protection applying in any event, employers should always take care in termination situations.

HMRC provide a useful Employment Status Indicator, which employers can use to check the status of individuals, or groups of workers to see how they should be treated for tax and NICs.

Help-to-save consultation launched

HMRC have launched a consultation on the government’s proposed ‘Help-to-Save’ scheme, which is designed to encourage people on low incomes to build up their savings.

Broadly, the scheme will be open to some 3.5 million adults in receipt of universal credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or those in receipt of working tax credit. It will work by providing a 50% government bonus on up to £50 of monthly savings into a Help-to-Save account. The bonus will be paid after two years with an option to save for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200. Savers will be able to use the funds in any way they wish. HMRC say that Help-to-Save accounts will be available ‘no later than April 2018’.

The consultation document provides an overview of how the new accounts will work, sets out core principles for determining its approach to implementation, and considers options for the provision of accounts. It also seeks views on detailed policy design issues within the scheme parameters that have already been announced and options to promote awareness and take-up of the scheme. The consultation will run until 21 July 2016. Further information can be found at www.gov.uk/government/consultations/help-to-save-consultation-on-implementation/help-to-save-consultation-on-implementation.

HMRC go live with Verify identity authentication

Gov.uk Verify, the online service taxpayers will need to use to prove their identity before accessing HMRC’s digital services and other government online services, is now live. The central government platform for online identity assurance has been under development for some time by the government digital service (GDS) and has been available in a beta version. It has now passed its service assessment.

It should take around ten minutes for an individual to verify their identity the first time they use gov.uk Verify, and a couple of minutes any time after that.

Individuals choose from a list of companies certified to verify their identity. That company may ask some questions, or perform other checks using photo identification and financial information before confirming this to the government department the individual is trying to use. There are currently eight companies offering this service: Barclays, CitizenSafe, Digidentiy, Experian, Post Office, Royal Mail, SecureIdentify, and Verizon.

Gov.uk Verify can be used for:

• checking income tax for the current year;
• obtaining a pension statement;
• signing in to personal tax accounts;
• viewing or sharing driving licence information, with the Driver and Vehicle Licensing Agency (DVLA);
• applying for Universal Credit with the Department for Work and Pensions (DWP);
• claiming for redundancy and monies owed, with the Department for Business, Innovation and Skills (BIS);
• signing in and filing self-assessment tax returns;
• updating rural payments details, with the Department for Environment, Food and Rural Affairs (Defra);
• helping friends or family with their tax (HMRC); and
• checking or updating company car tax.

Janet Hughes, programme director for Verify at GDS, said the move to live working would not be a ‘dramatic change’ but formed part of an ongoing gradual process of developing and scaling up the service. Gov.uk Verify will actually look exactly the same to users, apart from the removal of the beta label.

Further information on gov.uk Verify can be found here

June 2016 Q&A

Q I am thinking of purchasing a new house that I will use as my main residence, but I will still own other properties. Will I be liable to the new 3% stamp duty land tax (SDLT) change?

A: HMRC guidance on the new higher rates of SDLT for purchase of additional residential properties explains that if a previous main residence is replaced within three years, then you will not be liable to the additional 3% SDLT charge, even though you own other residential properties.

Q I commenced trading as a service provider on 1 September 2015 and now wish to complete my 2015/16 tax return. I have not incurred any capital expenditure and my turnover is less than the current VAT threshold. Should I use 30 March (or 5 April) as my accounting year-end?

A: If you make your business accounts up to 31 March, HMRC will treat this as being made up to 5 April. One advantage of a 31 March/ 5 April year-end is that no ‘overlap’ profits will be created. Broadly, overlap profits are bought about by being taxed twice in the first two years of trading. You would get relief for this overlap, but potentially this won’t be until a much later stage (for example if you change your accounting date, or if you cease to trade). Quite often, profits in a new business are smaller at the start and gradually increase. An advantage of a 30 April year-end is that tax is paid later. So, for a 30 April 2016 year-end, tax will become due for payment on 31 January 2018, and the tax on profits earned between 1 May 2016 and 30 April 2017 will be payable by 31 January 2019. If the business had a 31 March 2017 year-end, the tax on profits earned between 1 April 2016 and 31 March 2017 would not become payable until 31 January 2018. Of course, if you chose a later year-end, you should make sure that you keep enough money aside to pay your tax bill when is becomes due.

Q How do I register as a self-employed subcontractor in the construction industry?

A: You need to register with HMRC for both self-assessment as self-employed, and under the construction industry scheme (CIS). This does mean that there are two separate registrations, but these can both can be done at the same time.

In most cases you can register as self-employed by calling the HMRC Newly Self-employed Helpline on 0300 200 3504. If you are already registered as self-employed, but need to register under the CIS scheme, you should contact the CIS Helpline on 0300 200 3210.
The contractor for whom you are working will ask you for your unique tax reference (UTR) and you need to provide this before you are first paid, in order to determine which tax deduction rate to use.
The UTR is issued when you are first set up under self-assessment to complete a tax return. If you have not previously been required to prepare a tax return, you will be given a UTR when you register as self-employed.
For further guidance on registration and other obligations for subcontractors, see the Gov.uk website at https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor.

New credit card payment fees take effect

Clients may be interested to know that HMRC have introduced a new schedule of fees, which apply from 1 April 2016, and replace the former 1.5% fee. The new rates vary depending on the type of card used and whether the card is a personal or corporate card.

Broadly, the fees for paying using personal credit cards have been reduced and the rates for corporate credit cards have increased. The new rates can be found in the schedule to The Fees for Payment of Taxes, etc. By Credit Card Regulations 2016 (SI 2016/333).

For personal credit cards, the fees are as follows:

• VISA Personal Credit Card – 0.415%
• MasterCard Personal Credit Card – 0.386%
• MasterCard World Premium Credit Card – 0.374%
• MasterCard Signia Premium Credit Card – 0.606%
• MasterCard Elite Premium Credit Card – 0.606%

For corporate credit cards the fees are as follows:

• VISA Business Credit Card – 1.508%
• VISA Corporate Credit Card – 1.744%
• VISA Purchasing Credit Card – 1.755%
• MasterCard Business Credit Card – 1.973%
• MasterCard Corporate Credit Card – 2.248%
• MasterCard Purchasing Credit Card – 2.406%
• MasterCard Fleet Credit Card – 2.134%

According to the explanatory memorandum to the Regulations, the change is being made to ensure HMRC recover the costs for credit card use charged by the various card-providers. The rates for personal credit cards are capped to 0.3% of an element (called the ‘interchange’ element) by an EU regulation introduced in December 2015. This cap does not apply to corporate credit cards.

May 2016 Q&A

Q1. How do I work out my share of a capital gain?

I owned a quarter share in a property that was sold in 2015. It was not my main residence at any time during my period of ownership. I am trying to work out my share of the capital gain arising on the property. Do I simply divide the purchase price, sale price, and any improvement costs by four to work out how much tax I will have to pay?

A: Assuming that all the improvement costs and the sale proceeds relating to this property were 25% your responsibility, then yes, you just show the figures relating to your share of the gain on your tax return. However, it may be worth providing HMRC with clarification in the ‘additional information’ section of the return.

Q2. Are my savings covered by the personal savings allowance?

I have several savings accounts. Most of the accounts have always had tax deducted from the interest paid before I receive it. However, I understand that one of my accounts is ‘tax-free’. Interest has always been paid gross and I have never included it on my tax return. I am a basic rate taxpayer. Is the ‘tax-free’ account interest included in the personal savings allowance limit?

A: From 6 April 2016, banks and building societies will pay interest on all savings accounts gross. In parallel with this change, the new personal savings allowance (PSA), also introduced from 6 April 2016, means every basic-rate taxpayer can earn £1,000 interest without paying tax on it (higher rate taxpayers have a PSA of £500), currently equivalent to the interest on almost £75,000 in some easy-access savings account.

Interest that is already tax-free isn’t included – so this includes ISA interest and Premium Bond ‘winnings’. Interest from these will still be paid tax-free, but it just won’t count toward your PSA limit. So, if you get £500 in ISA interest, and you’re a basic-rate taxpayer, you’ll still have £1,000 of PSA to cover other interest.

Q3. Will I be entitled to tax-free childcare?

I have heard that HMRC are launching a new tax-free childcare scheme. I am currently employed and earn £70,000 a year. My employer does not provide any support for childcare. Will I be eligible to join the new scheme?

A: HMRC have confirmed that a new tax-free childcare scheme will be launched from early 2017. To qualify, parents will have to be in work, and each earning around £115 a week and not more than £100,000 each per year.

Tax-Free Childcare does not rely on employers offering the scheme, unlike the current scheme (’employer-supported childcare’). Any working family will be able to use the new scheme, provided they meet the eligibility requirements.

Once launched, you will be able to open an online account, which you can pay into to cover the cost of childcare with a registered provider. This will be done through the government website, GOV.UK.

For every 80p you or someone else pays in, the government will top up an extra 20p. This is the equivalent to the current basic rate of income tax – hence the ‘tax-free childcare’ name given to the new scheme. The government will top up the account with 20% of childcare costs up to a total of £10,000 – the equivalent of up to £2,000 support per child per year (or £4,000 for disabled children). The scheme will be available for children up to the age of 12.

OTS recommends simplifications for small companies

The Office of Tax Simplification (OTS) has unveiled a package of recommendations aimed at making the tax system simpler and easier to use for small companies. The report, entitled Small company taxation review contains a mix of long range structural change ideas and simpler short term administrative improvements.

The recommended administrative changes include:

• aligning filing and payment dates, e.g. VAT and PAYE, and annual returns and corporation tax;
• HMRC providing extra support at weekends and evenings when more small company owners deal with their tax affairs;
• stopping companies providing the same information to various government departments who instead should share the information; and
• looking at the feasibility of having advance clearances for VAT.

The report sets out three main areas for further work:

• testing whether taxing the profits from the smallest companies on the shareholders rather than the company (‘look-through’) could be simpler for some companies as well as addressing distortions in the system;
• developing an outline for an new ‘sole enterprise protected asset’ (SEPA) vehicle which will give some limited liability protection without the need to formally incorporate; and
• simplifying the corporation tax computation, eliminating many sundry tax allowances and potentially calculating corporation tax on a cash basis for the smallest companies.

National Living Wage starts in April

The government has recently launched its campaign to promote the introduction of the new national living wage (NLW), which will take effect from 1 April 2016. From that date workers in the UK aged over 25 earning the minimum rate of £6.70 per hour will see a 50p increase in their minimum hourly rate, which is set to rise to £7.20 per hour.

The NLW will be enforced by HMRC alongside the national minimum wage (NMW), which they have enforced since its introduction in 1999.

The NMW is the minimum pay per hour most workers are entitled to by law. The rate to which they are entitled depends on a worker’s age and whether they are an apprentice.

The rates from 1 October 2015 are:

• £6.70 for workers 21 and over;
• £5.30 aged 18-20;
• £3.87 for those aged 16-17, who are above school leaving age but under 18; and
• £3.30 for apprentices under 19, or 19 or over who are in the first year of apprenticeship.

There are a number of people who are not entitled to the NMW, including:

• self-employed people;
• volunteers or voluntary workers;
• company directors; and
• family members, or people who live in the family home of the employer who undertake household tasks.

All other workers including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW.

The compulsory national living wage (NLW) is the national rate set for people aged 25 and over. Whilst the NMW rates for those aged under 25 normally change on 1 October every year, the NLW rate for those aged 25 and over will change (where applicable) every year on 1 April. The rate for the NLW has been set at £7.20 per hour from 1 April 2016. The current NMW for those under the age of 25 will continue to apply from 1 April 2016.

The NMW is reviewed annually by the Low Pay Commission and any changes to the rate are normally introduced in October each year.

As with the NMW, the NLW will be reviewed annually by the Low Pay Commission who will recommend any future rises.

Generally all those who are covered by the NMW, and are 25 years old and over, will be covered by the NLW. These include:

• employees;
• most workers and agency workers;
• casual labourers;
• agricultural workers; and
• apprentices who are aged 25 and over.

Following the recent Spanish case of Federacion de Servicios Privados del sindicato Comisiones Obreras v Tyco Integrated Security SL (Tyco) (Case C-266/14), there could potentially be NMW claims if, taking into account travelling time, a mobile worker’s hourly pay rate falls below the minimum rate. The UK professional bodies are currently assessing the impact of the European Court of Justice (ECJ) decision in this case on the NMW and further guidance is expected in due course.

Compliance

The government is continuing to raise awareness to businesses to make sure they are ready to pay the new wage on 1 April 2016. As part of this, a four-step guide for businesses has been published on a new dedicated website (www.livingwage.gov.uk), which asks firms to:

• check they know who is eligible in their organisation;
• take the appropriate payroll action in advance of the commencement date;
• let employees know about their new pay rate; and
• check that staff under 25 are earning at least the right rate of NMW.

The penalty for non-payment of the NLW will be 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment will be £20,000 per worker.

Employers need to take action over the coming weeks to ensure they are ready for the launch of the NLW on 1 April.