Welcome to January's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you abreast of the latest developments in taxation.
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Making Tax Digital: Launch of PTAs
As part of a £1.3bn investment to transform HMRC into one of the most digitally advanced tax administrations in the world, HMRC have published a report and discussion paper setting out how new procedures for interacting with HMRC and paying tax will be implemented under the Making Tax Digital banner.
It is intended that by April 2016, every individual and small business will have access to their own secure digital tax account that enables them to interact with HMRC digitally. By 2020, businesses and individual taxpayers will be able to register, file, pay and update their information at any time of the day or night, and at any point in the year, to suit them. For the vast majority, there will be no need to fill in an annual tax return.
The government is also to consult on the issue of payment - on options to simplify the payment of taxes, align payment arrangements and bring payment dates closer to the time of the activity or transactions generating the tax liability. HMRC will be running a series of consultation events in January and February 2016 to discuss these issues with stakeholders.
The Making Tax Digital project has also presented the opportunity to align payment arrangements across different taxes and to provide a more joined-up service for taxpayers. The government has already brought the collection of Class 2 National Insurance Contributions (NICs) for the self-employed into the arrangements for self-assessment, which means that from April 2015, Class 2 NICs are being collected alongside Class 4 NICs for most. The government is also consulting on the abolition of Class 2 NICs and reform of Class 4 to further simplify the system (seewww.gov.uk/government/consultations/consultation-on-abolishing-class-2-national-insurance-and-introducing-a-contributory-benefit-test-to-class-4-national-insurance-for-the-self-employed/the-abolition-of-class-2-national-insurance-introducing-a-benefit-test-into-class-4-national-insurance-for-the-self-employed for further details).
HMRC have now officially launched Personal Tax Accounts (PTAs), which enable UK taxpayers to manage their tax affairs online. More than a million customers completing their self-assessment electronically will be directed to their online PTA which will:
- provide a clear and joined-up view of the tax they pay and benefits they are entitled to;
- enable customers to update their tax details as they occur in real time, removing the need to resubmit information; and
- make it easier and more efficient to contact HMRC officials through services like web chat and virtual assistant.
Between now and May 2016 HMRC will continue to add new services to the PTA, including:
- improvements to the 'Check your tax estimate service' so customers can look a year ahead and back on their current, future and previous tax position;
- a new online payment and repayment service;
- expanding the opportunity for non-self-assessment customers to choose to stop receiving paper from HMRC;
- integration of the tax credits online service in time for 2016 renewals;
- introducing change of circumstances for the marriage allowance service; and
- introduction of the new national insurance/state pension service.
Further information on the Making Tax Digital project can be found at www.gov.uk/government/publications/making-tax-digital.
VAT Partial Exemption Changes Following Le Credit Lyonnais
In Brief 22/15 HMRC confirm changes to the VAT Regulations 1995 to ensure that UK law is aligned with EU law following the decision of the European Court of Justice (ECJ) in the case Le Credit Lyonnais (C-388/11). The changes take effect from 1 January 2016.
In Le Credit Lyonnais, the ECJ found that the VAT Directive could not be interpreted so as to allow a company to take into account the turnover of its foreign branches when calculating how much input tax it can deduct in the member state where it has its principal establishment, using a 'single pot' calculation. It also found that a sector in a partial exemption method could not be based on a geographic location. To reflect that decision, the March 2015 Budget announced proposals to exclude supplies made by overseas branches from partial exemption methods. As a result of feedback on the subsequent consultation, HMRC have narrowed the scope of changes, which are now set out in Brief 22/15.
Brief 22/15 can be found at www.gov.uk/government/publications/revenue-and-customs-brief-22-2015-changes-to-vat-regulations-following-judgment-in-the-case-of-le-credit-lyonnais-c-38811/revenue-and-customs-brief-22-2015-changes-to-vat-regulations-following-judgment-in-the-case-of-le-credit-lyonnais-c-38811.
2016 Fuel and Van Benefit Rates Set
The Van Benefit and Car and Van Fuel Benefit Order 2015 (SI 2015/1979) comes into force on 31 December 2015 and takes effect for the tax year 2016-17 and subsequent tax years. The Order contains provisions for the following:
- the cash equivalent of the van benefit will rise from £3,150 to £3,170 for 2016-17;
- the van fuel benefit will increase from £594 to £598; and
- the cash equivalent of the benefit of fuel for a car is calculated by applying the 'appropriate percentage' (normally calculated by reference to the CO2 emissions of the car) to the figure in ITEPA 2003, s 150(1). SI 2015/1979 provides that this figure will rise from its current level of £22,100 to £22,200 for 2016-17.
Provisions in Finance Act 2015, s. 10 phase out the nil van benefit charge for zero emission vans which was available for the tax years 2010-11 to 2014-15 inclusive. This is being phased out between 6 April 2015 and 5 April 2020 and means that employees using zero emission vans for more than insignificant private use will now be liable for the charge on a tapered basis until the full charge applies from 2020-21 onwards.
The cash equivalent of the benefit of a van for a tax year is calculated as follows:
- if the employee uses the zero emission van for insignificant private use for the tax year, the cash equivalent is nil;
- if that condition is not met for the tax year then,
(a) if the van cannot in any circumstances emit CO2by being driven and the tax year is any of the tax years 2015-16 to 2019-20, the cash equivalent is the 'appropriate percentage' of £3,150 (rising to £3,170 in 2016-17), and
(b) in any other case, the cash equivalent is £3,150 (2015-16 rate; rising to £3,170 in 2016-17).
The 'appropriate percentage' is:
20% for 2015-16;
40% for 2016-17;
60% for 2017-18;
80% for 2018-19; and
90% for 2019-20.
SI 2015/1979 can be viewed online at www.legislation.gov.uk/uksi/2015/1979/contents/made.
Introducing Innovative Finance ISAs
From 6 April 2016, a new type of Individual Savings Account (ISA) will be launched - the Innovative Finance ISA. This new ISAs will be able to hold peer-to-peer (P2P) loans, which often pay significantly higher returns than cash accounts. Broadly, P2P lenders act as middlemen by matching people who wish to invest cash with those who want to borrow money. From 6 April 2016, interest and gains from P2P loans will qualify for tax advantages where these loans are made through an Innovative Finance ISA.
There are currently two types of ISA - cash ISA and stocks and shares ISA. The ISA Regulations specify which investments qualify for each of these accounts. P2P loans are currently not eligible for either type of ISA, other than where they are included within an investment trust or similar product that is eligible to be held within a stocks and shares ISA. The ISA Regulations also set out which financial institutions can offer ISAs, and specify the information that ISA providers must supply to HMRC. These regulations also specify other rules and features of ISA, including those concerning the ownership, transfer and withdrawal of ISA investments. The ISA Regulations will be amended by secondary legislation to establish a third ISA type - the Innovative Finance ISA. Accounts will be available to investors aged 18 or over. Along with loan repayments, interest and gains from peer to peer loans will be eligible to be held within this new type of ISA, without being subject to tax.
P2P lending platforms with full regulatory permissions from the Financial Conduct Authority (FCA) will be eligible to offer the Innovative Finance ISA in accordance with the ISA Regulations. Like other ISA providers, these platforms will be required to supply HMRC with certain information about the accounts they provide. Various account requirements set out in the ISA Regulations will be updated or modified to accommodate the Innovative Finance ISA.
As a result of these changes, an ISA investor will be entitled to subscribe new money each year to a maximum of one Innovative Finance ISA, one cash ISA and one stocks and shares ISA. The amount of new money paid into all of the ISAs held by an investor must not exceed the overall ISA subscription limit for the year.
For further information, see the GOV.UK website at www.gov.uk/government/publications/income-tax-innovative-finance-individual-savings-account-and-peer-to-peer-loans/income-tax-innovative-finance-individual-savings-account-and-peer-to-peer-loans.
January Question and Answer Section
Q. What is our IHT position following a change of ownership?
A. In 2014, my partner and I changed the ownership status of our house from joint tenants to tenants-in-common. At that time, my share of the equity was reduced from 50% to 25% and my partner's was, in turn, increased to 75%. Does this count as a lifetime gift for inheritance tax purposes (IHT)?
If you are married to you partner (spouse or civil partners), then the change will not count as a lifetime gift (a potentially exempt transfer (PET)) as it will be treated as an inter-spouse/civil partner transfer (assuming that your partner is domiciled in the UK). If, however, you are not married, the transfer will be treated as a PET, and you will need to live for seven years after the transfer date for it to be completely ignored for IHT purposes.
Q. CGT annual exemption and entrepreneurs' relief. Can the annual capital gains tax (CGT) exemption be utilised against a capital gain that qualifies for entrepreneurs' relief?
A. Yes it can.
If your qualifying net gains exceed the lifetime limit applicable to the time you make that disposal, no further relief is due and the excess over that amount is wholly chargeable at the CGT rate (18% or 28% for disposals made on or after 23 June 2010). The annual exempt amount is allocated in the most beneficial way, so is set first against gains having the highest rate of CGT. If you make a subsequent business disposal in a later year which qualifies for entrepreneurs' relief, the total relief (for all years) is still limited to your lifetime limit. Any gains exceeding that limit are wholly chargeable at the normal rate of CGT.
See the HMRC factsheet HS275 for further details (www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-entrepreneurs-relief-2015).
Q. Can I claim for laundering my uniform? My employer provides me with a uniform that bears our company logo. I am required to maintain the uniform at my own expense without a contribution from my employer. Can I claim tax relief for the costs of keeping it clean?
A. You may be entitled to a uniform tax allowance if your work requires you to wear a uniform that is provided by your employer and bears a company logo. Depending upon your employment, this could be anything from a polo shirt with the company's logo on it, to a high-visibility jacket and overalls. If you are then required to maintain that uniform at your own expense without a contribution from your employer, you are likely to be entitled to the allowance.
Flat rate expenses for cleaning costs have been negotiated for operatives in particular industries (including shop workers wearing a branded uniform). You can find a full list of flat rate expenses on the HMRC website at www.hmrc.gov.uk/manuals/eimanual/EIM32712.htm. There are also separate flat rate expenses available for nurses and other health care workers.
The cost of clothing worn at work has been considered by the Courts on a number of occasions and in many cases they have ruled that the cost of work clothing is not incurred wholly and exclusively in the performance' of the taxpayer's duties. In general terms, you will not be able to claim a clothing allowance for the cost of upkeep, replacement and repair of ordinary clothing, even if you only wear it for work.
January Key Tax Dates
1 - Due date for payment of Corporation Tax for the year ended 31 March 2015
14 - Return and payment of CT61 tax due for quarter to 31 December 2015
19/22 - PAYE/NIC, student loan and CIS deductions due for month to 5/1/2016 or quarter 3 of 2014/16 for small employers
31 - Deadline for filing 2015 Self Assessment personal, partnership and trust Tax Returns - £100 first penalty for late filing even if no tax is due or tax due is paid on time
- Balancing self assessment payment due for 2014/15
- Capital gains tax payment due for 2014/15
- First self assessment payment on account due for 2015/16
- Interest accrues on all late payments
- Half yearly Class 2 NIC payment due
- Further penalty of 5% of tax due or £300, whichever is greater for personal tax returns still not filed for 2013/14
- 5% penalty for late payment of tax unpaid for 2013/14 self assessment