Personal Savings Allowance (PSA)

29 April 2016

From April 2016, everyone will get a personal allowance for interest earned on savings.The tax free allowance for basic tax rate payers is set at £1000, higher rate tax payers will only receive £500 and additional rate tax payers will not receive an allowance.Personal-Savings-Allowance-PSA-Table.JPG

Savings earning beyond the allowance is taxed at 20% for the basic rate tax payers and at 40% for the higher rate tax payers.

The introduction of personal savings allowance has caused confusions with some tax payers as it’s mistaken for the £5,000 starting savings rate where the tax rate is 0%.

There has also been confusion as to when should a taxpayer declare the savings income for tax. Interest on most fixed term savings account or bonds are paid annually but not withdrawn until the end of the fixed term or maturity of the bond.

HMRC’s deciding factor is when the interest is earned or available to the tax payer. In other words if the tax payer cannot access the interest earned then it does not count towards the PSA for that year and the taxpayer would potentially lose that allowance and be taxed at the end of the fixed term or maturity of the bonds on the whole amount earned should that amount be over the personal savings allowance.

In effect individuals could earn up to £17,000 without paying any tax if it is earned in the order of £11,000 from employment or self-employment income and up to £6,000 of income in savings where they utilise their £1,000 free allowance and the remaining is taxed at 0%.

However any employment related earnings over the personal income allowance limit of £11,000 would reduce from the £5,000 starting savings rate. If an individual for example earns £13,000 then they are £2,000 above the standard personal income allowance which means their savings allowance would reduce by the same amount (the starting saving allowance plus the personal savings allowance), giving them up to £4,000 of tax free earning from their savings.

If you require further information on how the new PSA can affect your tax position please contact us or get in touch today by calling 0203 039 3993.

Supervision Direction and Control

20 April 2016

On 6th April HMRC published it's long awaited guidance on Supervision, Direction and Control (SDC) which is a key concept in relation the entitlement to tax relief for Travel & Subsistence (T&S) costs for workers providing their services through intermediaries.

Legislation was introduced, with effect from 6th April 2016, such that if a worker provides their personal services through an intermediary then SDC is assumed and as such payments for T&S cannot be made tax free. The legislation overrides the temporary workplace provisions in these circumstances by treating each engagement as a separate employment.

Only if it can be shown that a worker is not subject to (or the right to) SDC can T&S payments be made tax free, the burden of proof is on the person who pays the worker.

Until the guidance was published it was unclear what evidence would be required. Some agencies had hoped to rely upon regular signed statements from the worker suggesting that they were not subject to SDC.

HMRC's guidance makes it clear that this will not be sufficient, their guidance states the following:

'Where it is considered that the legislation doesn’t apply because the SDC test is not met and HMRC are involved in an enquiry, we’ll test evidence by examining relevant documents and gathering facts from all parties involved, which include but are not limited to the workers, agency, client(s), managers etc.'

The point to pay attention to in the above statement is 'all parties involved'.

In order to continue to provide tax free payments for T&S costs to workers provided through an intermediary going forward documentary evidence needs to be regularly gathered from not just the worker themselves, but also from the intermediary, the client, any managers involved, and anyone else the worker comes into contact in the course of their engagement.

HMRC’s requirement will prove onerous, if not impossible in most cases. What the courts will deem sufficient remains to be seen.

Personal Service Companies (PSCs) only need to consider the SDC rules if they are caught by the intermediaries legislation commonly known as IR35. It is therefore essential that all PSC workers carry out due diligence on their contracts and working practices to ensure they are not caught out by an unexpected tax and national insurance bill.

On 6th April HMRC also updated it's guidance on what to do if you are caught by IR35 detailing how to calculate the deemed payment and pay the tax and national insurance which in some cases could be as much as 33% of turnover.

TT Intelligence is able to offer a contract and working practices review for PSC’s for as little as £295, if you require any assistance with this or any other aspect of your tax affairs please contact us or get in touch today by calling 0203 039 3993.

Panama Papers

13 April 2016

On 3rd April 2016 possibly one of the biggest data leaks of all time was revealed to the worldwide public.

Over 11 million documents from Panamanian law firm Mossack Fonseca covering the last 4 decades were obtained by an international coalition of media outlets. These documents are purported to contain information detailing how the law firm assisted the wealthy to keep their income and capital secret from the authorities.

Panama has long been seen as a tax haven who’s secrecy laws enable a firewall to be put up stopping the world’s tax authorities from establishing the true ownership of assets.

For example a large commercial property could be acquired by a UK resident individual through a structure created in Panama, when it is later sold any profits would not be subject to UK tax even though the funds will ultimately be enjoyed by a UK resident individual.

Much has been reported in the press about high profile politicians around the world who have been implicated in the papers, and there have even been calls for resignations of state leaders.

Yesterday, as investigators prepared to meet in Paris to launch an unprecedented inquiry into global tax evasion the offices of Mossack Fonseca in Panama were raided by the local police. What will come from that raid remains to be seen, but there have been questions as to why other international offices of the firm, such as those in London, have not also been raided.

The leak has led to the mainstream press asking questions as to the effectiveness of the current UK tax rules and much misinformation and poorly informed speculation has been published.

One such article called into question the fact that a leading politician received gifts totalling  £200,000 from their mother, and if she survived the gift for 7 years then no inheritance tax would be payable AVOIDING a potential £80,000 of tax.

There is nothing illegal, immoral, or wrong in any way with this sort of planning. Why should tax be paid on a gift from mother to child of capital built up over her lifetime from taxed income (often taxed at higher rates of up to 90% if earned in the 50’s and 60’s). Yes, if it’s left in her hands at death then the state take inheritance tax, but if she does not need it and gifts it to her children during her lifetime then why should that be subjected to tax?

There are wider issues here, there is a question as to whether tax was actually paid on the capital, but the worrying issue here is the perception of the general public.

For many years the government has made bold statements about cracking down on tax avoidance and evasion, it has done little on the (illegal) evasion and focused heavily on the (legal) avoidance. The press has happily reported any positive steps made, but now the momentum generated has turned upon the politicians themselves.

Tax Planning, referred to as ‘Avoidance’ by the government and the press, remains legal. In the UK if a taxpayer and HM Revenue & Customs disagree as to the tax treatment of a transaction it is ultimately the responsibility of the courts to decide if an arrangement such as that above is within the letter of the law. If it is found not to be then the tax is rightly payable will be paid. However if an arrangement succeeds, as above, then tax is not payable.

Unfortunately we currently live in an age of ‘trial by press’ and they are rarely sufficiently informed to lead the publics opinions on taxation.

If you require any assistance with any aspect of your tax affairs please contact us or get in touch today by calling 0203 039 3993.

Tax Rates for 2016-17

06 April 2016

Changes to Income Tax 

The basic rate threshold is now set at £32,000 which means earnings in excess of the personal allowance up to this threshold are taxed at 20%.

Personal allowance is now set at £11,000.

The higher tax rate bracket is at 40% on earnings between £32,001 and £150,000.

Income over £150,000 would fall into the additional tax rate which is taxed at 45%.

Personal allowance will be reduce on income over £100.000 at rate of £1 for every £2 on income, which means at £120,000 personal allowance is wiped out. The £20,000 earned over £100,000 is effectively taxed at 60%.

Dividends

The new dividends regime is now implemented. Under the new regime the first £5,000 is tax free, after that the basic rate tax is set at 7.5%. Dividends at higher rate are taxed at 32.5% and 38.1% at additional rate tax.

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Capital Gains Tax (CGT)

Capital gains tax was reduced from 18% to 10% at the basic rate and from 28% to 20% above basic rate of earning, although this reduction does not apply to residential property which will continue to be taxed at the previous higher rates.

VAT

VAT compulsory registration threshold is set at £83,000 in any 12 months period.

If you receive goods worth more than £83,000 from the EU in the UK then you must register for VAT.
You must register within 30 days of your business turnover exceeding the threshold however you may wish to register voluntarily if your turnover is below the threshold of £83,000 or if its advantageous to your business, perhaps you sell mostly to UK vat registered businesses?

To see how any of the information above affect you or your business please contact us or get in touch today by calling 0203 039 3993.

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