Dividend tax for small business owners

The changes effective from 6/4/16 to dividends have adversely affected almost every company business owner.Tax magnifying glass

There is now a new nil rate which applies to the first £5,000 of a person’s dividend income each tax year.

UK residents will now 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) and pension funds 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 was designed to help the Government with its plan to reduce the corporation tax rate over the coming years from its current rate of 20% to 17% by 2020 and to avoid tax based incorporations.

The overall idea 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. These are likely to be individuals with modest share ownership.

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.

Worked example 1 – low salary, higher dividend

Non Savings Savings Dividend Total
Salary 8,000  8,000
Interest   500     500
Dividend 41,000 41,000
Personal Allowance (8,000) NIL (3,000)
Total income        49,500
Taxable  NIL   500 38,000
PSA (500 @ 0%) NIL
BR ( 5,000@ 0%) NIL
BR ( 27,000 @ 7.5%) 2,025
HR ( 6,000 @ 32.5%) 1,950
Total Personal Tax    3,975

Worked example 2 – high salary, lower dividends

Non Savings Savings Dividend Total
Salary 40,000 40,000
Interest 500     500
Dividend 9,000   9,000
Personal Allowance (11,000) NIL NIL
Total income        49,500
Taxable  29,000  9,000
PSA (500 @ 0%) NIL
BR ( 29,000@ 20%)  5,800
BR ( 3,000@ 0%) NIL
HR ( 2,000@ 0%) NIL
HR ( 4,000 @ 32.5%) 1,300
Total Personal Tax       7,100

More HMRC worked examples are available here.

Note that there are other tax implications such as employees and employers NIC on salary, as well as the corporation tax charge of 20% prior to any dividends taken from the company, so please ensure you take advice before extracting funds from your limited company business.

Moore Accountancy can help with providing advice to owner managed businesses. Contact us on 07542299247 or at info@mooreaccountancy.co.uk

Residential landlord? Read up on the changes

Many of our Moore Accountancy clients are buy to let landlords.

Some have become landlords due to circumstances (aka Accidental Landlords) where properties are being rented as they have been unable to sell or have been inherited; whilst others are intentional landlords who are purposely investing in bricks and mortar for further annual income or as an alternative pension fund.

Recently there have been a number of changes to the tax rules relating to what expenses are allowable for buy-to-let landlords when furnishing and repairing a property. It is therefore important to be aware of what can and cannot be claimed so that you don’t lose out.

Old Allowances

Previously, buy-to-let landlords had been able to opt for either a “wear and tear allowance” or, by HMRC concession, the “renewals basis” and this would depend on whether the property was fully furnished or part/unfurnished.

Wear and Tear Allowance

The landlord claimed 10% of the rent as a deduction to cover the cost of replacement of items in the property. This was only available for properties let fully furnished though.

Renewals Basis

The landlord would be allowed a deduction for replacement items of furniture. The initial purchase cost was however not allowed. This relief was available on all properties and was therefore beneficial where a property was not rented as fully furnished.

After 6/4/13 this was removed but landlords could still claim a deduction for replacement ‘tools’. . These could include cutlery, crockery, bedding, bed linen etc. but not carpets, sofas, beds or free-standing ‘white goods’.

New Allowances

From 6/4/16, both the 10% wear and tear allowance and the renewals allowance was replaced by a new relief which allows all landlords to deduct the costs of replacing furnishings in a property. The relief will still not be available for the initial cost of furnishing the property (similar to the old renewals basis).

The new relief will cover the costs of replacing items such as:

• Moveable furniture and furnishings e.g. beds and sofas
• Fridges, freezers, freestanding cookers
• Carpets and floor coverings
• Crockery and cutlery
• Curtains and bed linen

Replacement of integral fixtures (ie items which are not normally removed by the owner when the property is sold) are not included. These would include fitted kitchen units, boilers and baths. Note it may be possible to class the replacement cost of such items as a deductible expenses (as a repair to the property directly).

General repairs such as painting and redecoration will still be allowed as a deduction from rental profits, as will replacement of double glazing windows and doors to a property.

These changes will primarily affect landlords who generally have low repairs and maintenance costs. They will have previously had the benefit of the 10% wear and tear allowance but now will have a much lower level of expense to declare and this may increase their tax liabilities.

There are also further changes to the interest allowable on residential properties, which will be covered by a separate blog post.

If you want to discuss anything further then please get in touch with Moore Accountancy via email (info@mooreaccountancy.co.uk) or phone (07542 299 247).

National Minimum Wage Update – October 2016

Every October, the National Minimum Wage rates change. The recently added National Living Wage rates change every April.

This update gives you the rates to use from October 2016 so that you do not fall foul of the current legislation.

Age 25+ 21 – 24 18 – 20 Under 18 Apprentice*
From 1/10/16 £7.20 £6.95 £5.55 £4.00 £3.40
To 30/9/16 £7.20 £6.70 £5.30 £3.87 £3.30

The Low Pay Commission will soon make recommendations on the National Living Wage rates which will apply from April 2017. We shall update you about these once we know more.

*Apprentice

Note that apprentices are entitled to the minimum wage for their age, unless they are

  • aged under 19
  • aged 19 or over and in the first year of their apprenticeship

If you have any general payroll queries then please get in touch with us at Moore Accountancy via email (info@mooreaccountancy.co.uk) or phone (07542 299 247) to see if we can help.

 

National Living Wage (NLW) 2016 Update

NLW Update 2016

National Living Wage

Further to our update in August 2015, here is a reminder about the new National Living Wage (NLW) which is effective from 1st April 2016.

Some employees will see a 50p/hour increase to their wages, which will affect the gross cost to the employer in terms of net wages and employer National Insurance contributions, but also pensions contributions if you are already running an Auto Enrolment scheme.

Rates effective from 01/04/16 are as follows:

£7.50   rate for workers aged 25 and over

£6.70   rate for workers aged 21 and over

£5.30   rate for workers aged 18-20 year old

£3.87   rate for workers above school leaving age (16/17) but under 18

£3.30   rate for apprentices aged under 19, or 19 and over and in the first year of their         apprenticeship

The Government have promised to increase the figure each year, so it is probable that the next increase will be as soon as October 2016 (when the National Minimum Wage (NMW) has historically changed).

It is important for employers to be aware of the new rates, and their employees’ date of birth, as it will help with budgets and forecasts as well as ensuring that no errors are made in calculating the correct rate of pay.

Note that the National Living Wage will not effect directors of a company, who do not have an employment contract.

Moore Accountancy provide payroll services for small businesses who wish to delegate this job; so that they can focus on the running and growing of their companies.

If you would like more information on the payroll services we provide, then please call us on 07542299247, email us at info@mooreaccountancy.co.uk or contact us via our website www.mooreaccountancy.co.uk

National Minimum Wage (NMW) and National Living Wage (NLW) 2015 Update

Every October the National Minimum Wage (NMW) changes.

If you are an employer, then you will need to be aware of the increases taking place from October 2015.

NMW Changes October 2015

RTI Payroll provided by Moore Accountancy
(Image courtesy of Stuart Miles/FreeDigitalPhotos.net)

Currently the NMW rates are as follows:

  • £6.50   rate for workers aged 21 and over
  • £5.13   rate for workers aged 18-20 year old
  • £3.79   rate for workers above school leaving age (16/17) but under 18
  • £2.73   rate for apprentices aged under 19, or 19 and over and in the first year of their apprenticeship

From 1 October 2015 (1/10/15), the NMW rates will increase as follows:

  • £6.70   rate for workers aged 21 and over
  • £5.30   rate for workers aged 18-20 year old
  • £3.87   rate for workers above school leaving age (16/17) but under 18
  • £3.30   rate for apprentices aged under 19, or 19 and over and in the first year of their apprenticeship

Note also that after the recent Budget in July 2015 the Government introduced the new National Living Wage (NLW) effective from April 2016.

This is a new mandatory rate for workers aged 25 and over, and will be set initially at £7.20 from April 2016.

The NMW will continue for workers aged 21 and over, with the expectation of an alignment over the years.

It is important for employers to be aware of both these figures, and their employees’ date of birth, as it will help with budgets and forecasts as well as ensuring that no errors are made in calculating the correct rate of pay.

Moore Accountancy can help with providing payroll services for small businesses who wish to delegate this job; so that they can focus on the running and growing of their companies.

If you want further information on the payroll services we provide, then please call us on 07542299247, email us at info@mooreaccountancy.co.uk or via our website www.mooreaccountancy.co.uk . .

Emergency Budget – July 2015 Moore Accountancy Top 10 Points

There have been many changes in George Osborne’s “Emergency Budget” today, 8/7/15, many of which we at Moore Accountancy did not expect.
Below are our top 10 things to consider for small businesses and Individuals:

PERSONAL ALLOWANCE INCREASES
Individual’s personal allowances will increase from £10,600 to £11,000 in April 2016. Moore Accountancy had been expecting a rise of £200 to £10,800. It does bring things in line with the planned £12,500 allowance by 2020.
The level at which higher rate kicks in has also increased more than expected from a current £42,385 to £43,000 next year. Hopes are that £50,000 will be the eventual threshold but no timescales have yet been provided for this.

LIVING WAGE INTRODUCED
From April 2016 a new living wage will be introduced for employees aged 25 and over. This will be at £7.20 (versus current minimum wage of £6.50). By 2020 it is set to reach £9ph. Whilst this is great news for low income earners, small businesses may have to evaluate their costs and it may restrict the ability for SMEs to expand.

MORTGAGE RELIEF FOR BUY TO LET LANDLORDS
Moore Accountancy has numerous clients who have rental property portfolios and this change is bad news for many of them.
At present, finance costs, such as mortgage interest, are fully tax deductible against rental profits. But from tax year 2017/18 this will begin to be limited for higher rate tax payers.
The proposal is that income will be taxed at your marginal rate, but whereas the mortgage expense is currently also expensed at the marginal rate, in the future they will be restricted to the basic rate of 20%.
Our clients will need to evaluate their portfolios and if highly geared, may be less likely to meet mortgage liabilities.
Further changes were made to the wear and tear allowance that landlords of furnished property can claim. From 6/4/16, this will be withdrawn, to be replaced by a tax deduction when the expense is incurred.

PENSIONS FOR ADDITIONAL RATE TAX PAYERS
As expected, George Osborne has put a restriction on pension tax relief for individuals earning over £150,000 of £10,000 compared to the £40,000 currently in place.

TAXES ON DIVIDENDS
At present, dividends is the most tax efficient way of taking funds from a company, especially for many of Moore Accountancy contractors and one person companies. If you are a basic rate taxpayer, then there is no further tax to pay. Even if you are a higher rate, you only pay a marginal rate of 32.5%.
From 6/4/16, the first £5,000 of dividend income is tax free but anything above this will be taxed at 7.5%, 32.5% or 38.1% depending on your tax bracket.
This means shareholders of owner managed companies will be paying a lot more tax going forward and it may be in their best interests to bring forward dividend payments into the current tax year.

CORPORATION TAX RATES
These have come down over recent years to 20% for all companies. Surprisingly, further cuts in the tax rate will take place from 1/4/17 with the rate dropping to 19%. From 1/4/20 the rate will drop further to 18%.
This is good for UK businesses and also for encouraging overseas investment in the UK

ANNUAL INVESTMENT ALLOWANCE (AIA)
This allowance allows businesses to claim 100% of the cost of qualifying plant and machinery in the year of purchase.
It had been indicated that it would reduce from the current rate of £500,000 to £25,000 but George Osborne announced today it would be set at a new level of £200,000 from 1/1/16.

EMPLOYERS’ ALLOWANCE
Currently all employers running a PAYE scheme receive a £2,000 allowance to offset their employer Class 1 NIC liabilities.
This is increasing by 50% to £3,000 from 6/4/16. However this will be withdrawn from companies with one director/employee. This is not good news for many of Moore Accountancy owner managed businesses. Further information as to how this will be recorded is still to come.

INHERITANCE TAX – MAIN RESIDENCE
This had been publicised already by the Conservative government.
Currently everyone has a £325,000 nil rate band after which Inheritance tax (IHT) is payable. The new relief adds a further £100,000 (from 6/4/17) up to £175,000 by (6/4/20) to the IHT exemption level to be used against a residential property.
By 2020, everyone will have £500,000 or £1 million for couples.
There are further tweaks in place, such as if someone downsizes and a reduction in relief for estates exceeding £2million but for the majority of people, this is a welcome relief.

BENEFITS
Proposals will affect many people in the UK.
Tax credit (and the new Universal credit) will be restricted for families with more than 2 children; only affecting those born after April 2017.
Many benefits will be frozen for the next four years, but maternity pay and disability benefits should be exempt from this.
Local Authority/Housing Association tenants who earn more than £30,000 will lose their subsidised housing. They will have to start paying the market rate for their property. The income level will be £40,000 for those in London.
Young people will no longer be able to automatically claim housing benefit. There will be a new “earn to learn” scheme put in place.

This budget had lots to give, but lots to take away too.
Many of the changes have different implications depending on your personal and business situation and if you would like further advice to discuss any of these with Moore Accountancy, then please contact us at info@mooreaccountancy.co.uk , on 07542 299 247 or via twitter at @sidmooremanc

UK Budget 2015 – Moore Accountancy’s Top 10 Highlights

Today’s Budget was always going to have significant political influences with the General Election a couple of months away; but despite that, there were some useful changes brought in by George Osbourne.

Budget 2015 Scrabble image

Photo by LendingMemo.com

Here are Moore Accountancy’s Top 10 Highlights (in no particular order!)

  1. Basic rate savers will receive the first £1,000 interest earned tax free. This is up to £500 for higher rate tax payers – effective April 2016.
  2. Creation of a new “Help to Buy” ISA for first time buyers. You can save up to £200 pcm towards your first home. The government will boost it by 25%, so if you save £200, the government will top up by £50, up to a maximum of £3,000.
  3. New Flexible ISA – This will enable individuals to withdraw money out of their ISA and put it back (in the same tax year) without losing tax free status.The current ISA limit is £15,240 pa in 2015/16.
  4. Personal Tax free allowance for individuals will be £10,600 for 2015/16, rises to £10,800 in 2016/17 and up to £11,000 by 2017/18. This is combined with increases to the higher rate threshold, which will start at £42,385 in April 2015, increase to £42,700 in 2016/17 and up to £43,300 in 2017/18.
  5. Minimum wage will rise to £6.70 in October 2015 for adults with the biggest increase for apprentices who will be earning £3.30 (up from current rate of £2.73)
  6. Fuel duty increase has been cancelled, which means that it has been frozen for 5 years. This will help motorists, but it is important to ensure that the government is still focusing on UK public transport too. The Budget did announce a new transport strategy for the North to help create a “Northern Powerhouse”.
  7. Pensions lifetime allowance will be cut from £1.25m to £1m from April 2016, but from 2018 this level will be index linked to protect existing pension pots.
  8. From April 2016, annuity owners will be able to sell on their annuity and pay their usual rate of income tax instead of the current 55%. This will enable more flexibility for pensioners and follows both last year’s Budget and the Autumn Statement 2014 which began the process of “giving more freedom to pensioners to spend their pension cash as they please”.
  9. Annual paper tax returns to be abolished. Details will be uploaded automatically online. The devil will be in the detail, as we are not sure yet if this will mean more work for small businesses who may have to file monthly or quarterly instead of annually.
  10. Business rates receipts devolved to Manchester, meaning the area will retain 100% of business rates raised.

There are a number of other changes including gift aid for Charities and corporation tax for companies, but these were our favourites. Get in touch with Moore Accountancy at info@mooreaccountancy.co.uk or on 07542 299 247 if you want to find out more information as to how the Budget 2015 will affect you or your business.

And for those who wish to have some bedtime reading with the details of the above then please find the official link to the 124 page Budget 2015 document here.

Guide to VAT changes for digital services in the EU #VATMoss

If your business supplies digital services to customers in EU countries you will have started the New Year with a new place of supply rule for VAT and a new online tool to avoid having to register in all your EU business places.

Who is affected by this change in VAT?

Broadcasting, telecoms and e-service are concerned with the change which means the sale of apps, e-books or streaming services as well as dating services, online journals, newspapers and magazines. This only affects B2C (business to consumer) services, in other words supply of digital services to non-business customers in the EU. Some of the digital services are not affected by the EU VAT change.

What do the new rules mean for the UK?

As of the 1st of January 2015 supplies of digital services are subject to VAT in the EU member state where the customers is located. This means that customers from EU countries will pay UK VAT no matter where they live. But also it means that UK supply will have to comply with the VAT regulations in each EU country where they provide services. Fortunately your company will not have to register in each EU states members where it does business. The VAT MOSS will make the process simpler.

What you need to do?

You can either:

  • Register for VAT in each EU member state where you have customer
  • Register your business to use VAT MOSS which was available to use from the 1st January 2015.

What is the VAT MOSS?

The VAT Mini Stop Shop (VAT MOSS) is an online tool introduced so that digital services suppliers will not have to pay tax separately in each country in which they have customers. You will only have to submit one quarterly return and payment to HMRC. This will account for the VAT due on sales in other EU countries. Although you need to register your business yourself, once registered, you can authorise an agent to act on your behalf.

Will the changes affect you?

Businesses selling under £81,000 worth of products a year are still exempted from paying VAT in the UK. So if you are trading with UK customers and are under the threshold, you will not have to pay VAT.

However if you make a sale in another EU country you will be required to pay VAT in your customer’s country. Also once you are registered, the £81,000 does not apply to your business anymore so you will be required to charge UK VAT on all your sales.

Contact us if you have any question on VAT MOSS.

Tax returns tips

Self assessment tax returns

We recently featured on a blog where we answered a few questions about self-assessment expense claims for landlords. As we approach the deadline for tax return filing we thought we should share a few tips with you.

Don’t leave your tax returns filing to the last minute

HMRC has been sending reminders to taxpayers to file their self-assessment returns. Like many taxpayers you might get tempted to leave it until after Christmas but the sooner you submit it the sooner you will get your refund (if due) and the earlier you will know how much tax to pay on 31/1/15 (if you owe tax to HMRC).

Don’t pay your tax bill late

Don't leave it for later

You will get charged interest and possibly late payment fees if you pay your tax bill late. Once you have filed your tax return and calculated your tax liabilities; you can start saving for your tax bill and managing your cash flow. Remember, you can file your tax return early, but have the benefit of only having to pay any tax liability by the normal due date of 31/01/15.

Take your time with tax planning

There are various options to consider which could minimise your tax liabilities. Tax liability can arise for example, from your earnings, your profit from trade, or from selling chargeable assets. Contact Moore Accountancy for professional advice on tax savings.  For example it may be beneficial to employ your spouse in your business or consider forward planning by setting up an employer pension scheme.

Seek professional advice

As mentioned there are different allowances available for you and your business to maximise tax saving. You could however get confused attempting to interpret the extensive UK tax legislation.

For instance, if you are using one of the rooms in your house as an office you may be able to claim (income or corporation) tax relief, but you need to also know about the possible capital gains tax liability you could incur if you were to sell your house later.

To ensure you pay the tax due and nothing more, contact us for personal and professional advice.

Moore Accountancy Blog: Child Benefit – what you need to know about the changes

What you need to know about the change in child benefit and Moore Accountancy’s tax planning tips

In 2012 the Government announced its decision to withdraw child benefit for the higher-income households. As of 7thJanuary 2013 about 1.2 million families have had their child benefit either reduced or cut.

HOW DOES IN WORK?

If you are a parent with a child under 16 or under 20 in certain cases (staying in approved education or training) you are entitled to child benefit. Child benefit is basically a tax-free payment from the Government to help you cope with the cost of raising your children. You get £20.50/week for your eldest child and £13.55/week for each of your other children (rates fixed until April 2015).

But since the beginning of 2013, if you and/or your partner earn more than £ 50,000 (all taxable income) you will not be entitled to the total amount of child benefit. And if you earn £60,000 you lose the right to claim the benefit.

WHAT HAS CHANGED?

The government has introduced the “high income child benefit tax”. If you are affected by the change you should have filled a self-assessment form which specifies whether you or your partner are earning above the threshold and claiming child benefit. In that case 1% of every £100 earned over £50,000 is repaid. In the case where you and your partner both earn above £50,000 this will only apply to the highest income.  If one of you is earning £60,000 (after pension contributions and gift aid) the full amount of child benefit is repaid.

You can work out the child benefit you are entitled to and your tax charge using HMRC Child benefit tax calculator.

You can also choose not to claim child benefit in which case you are exempted from filling in a self-assessment form. However you can still fill in a Child benefit claim form to get National Insurance Credit which counts toward State Pension.

Child benefit changes in a nutshell

OTHER CHANGES

This year child benefit has not increased with inflation for 2014/15 as the government has frozen the amount as at the 2013-2014 rates. It is planned to rise by 1% over the next two years.

TAX PLANNING TIPSFamily: child benefit

  • If your income varies (due to commission and bonuses), it may be worth still claiming the child benefit but saving it in a different account in case you have to repay it.
  • It is worth assessing your pension contributions and gift aid before the end of the tax year to see if you can come under the £50,000 taxable income threshold
  • If you are self-employed then you may have more flexibility in assessing your total income.

Contact Moore Accountancy to discuss how we can help you and your business.