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what might be in the autumn budget?

In normal years, the Autumn Budget (formerly the Autumn Statement) is announced in November. However, with less than 6 months left on the countdown to Brexit, this year is far from a normal year.

At the end of September, Chancellor Philip Hammond revealed that the Autumn Budget would be released on 29 October which is also, unusually, a Monday – traditionally budgets are announced on a Wednesday. Since the Wednesday would’ve been Halloween, perhaps the Chancellor moved the budget forward by two days to avoid a potential Budget horror show.

Hammond’s Twitter feed indicates that we can expect the Chancellor to balance the books. Aside from this there has been little concrete information about what the Budget might contain. However, Hammond has given us a few hints:

The end of the freeze on fuel duty
It’s likely that the eight year freeze on fuel duty will come to an end this year. Last month, Hammond said that the freeze on fuel duty has meant the Government has “foregone” £46 billion in revenue and, if the freeze continues, will miss out on £38 billion more.

NHS spending
One of the Chancellor’s main concerns will be finding the money to fulfil Theresa May’s pledge to pump an extra £20 billion into the NHS by 2023. The prime minister herself admitted that this would require tax hikes, but was unclear as to which taxes would be raised.

Digital tax
At the recent Tory conference, Hammond said that Britain will impose a new “digital service tax”, even if other countries fail to follow suit. However, what this tax might look like is currently unclear.

He called for a reform of the international tax system for an era where digital companies account for much of global business, with Britain leading the way. Business leaders have mentioned that such a tax could compromise the UK’s reputation as a good place for digital companies to do business.

Of course, what will have the largest bearing on the eventual success of any changes to the budget is any Brexit deal. A good Brexit deal will boost growth and balance public finances without the need for major tax hikes.

We eagerly await the Chancellor’s Budget at the end of the month.

Sources
https://www.independent.co.uk/news/uk/politics/philip-hammond-tax-cut-self-employed-scrap-conservatives-national-insurance-contributions-nic-class-a8526236.html
https://www.telegraph.co.uk/politics/2018/09/11/chancellor-hints-fuel-duty-rise-fund-nhs-campaigners-warn-struggling/

how best to help your grandchildren finacially

Grandchildren & financesBeing a grandparent is an exciting time of life. You get all the enjoyment of doing fun activities with your grandchildren but can hand them back at the end of the day. Part of that pleasure is knowing that you can help them financially. Often you’re at a stage of your life where you’re comfortably off and in a position where you want to give a helping hand to the next generation.

The plus side of this is that you get the opportunity to make a real difference to your grandchildren’s lives. The downside is that the regulations around inheritance tax (IHT) can be confusing and the red tape overwhelming at times. By taking steps to find out what the rules are though, you can make life easier for family members and still be confident that you have enough money for your own retirement dreams.

One important consideration is the timing of your gift. If there’s a new arrival in the family, the financial needs will be very different than if it is to help older children. For example, the priority may be to help the newborn’s family move to a more spacious home or to help with private school fees for a primary school-aged child. Later on, it may be to help with driving lessons, pay for school or university fees or enable them to get on the housing ladder. You may decide you want to leave your money to your grandchildren in your will, in which case it is vital to plan your giving in advance in a tax efficient way.

IHT will be levied on your estate at 40% when you die, so if you’re giving money away now that will have an impact later. The nil-rate band is a threshold of £325,000 for the value of your estate. Anything above that will be taxed. Making monetary gifts can take the money out of the ‘IHT net‘ but remember this only applies for the seven years after you made the gift. It’s worth exploring some extra allowances such as being able to give £3,000 of gifts per tax year (your annual exemption) as well as an allowance for small gifts and wedding/birthday gifts.

There are a number of alternatives to make your gift. If the money is needed before age 18, a trust structure is a tax-efficient way to give money, while still giving you some control on how it is used. A Junior ISA can also be a good option as it grows tax-free, building up a fund for driving lessons or university fees. You can’t open the JISA on your grandchild’s behalf but you can pay into it up to their annual limit, currently £4,260. If they’re older, you might want to consider a lifetime ISA for a housing deposit. Again, you can’t open it for them as a Lifetime ISA can only be opened by someone between the ages of 18-39 but if your grandchild opens one, it’s a way for them to save up to £4,000 a year and get a 25 per cent government bonus on top.

Whatever you opt for, you’ll have the feel-good factor of helping the next generation in a way that is right for both you and them.


Sources
https://www.telegraph.co.uk/money/smart-life-saving-for-the-future/gifting-money-to-grandchildren/?utm_campaign=tmgspk_plr_2144_AqvY5NdHbz57&plr=1&utm_content=2144&utm_source=tmgspk&WT.mc_id=tmgspk_plr_2144_AqvY5NdHbz

what is the tapered annual allowance and how could it affect you?

One of the key advantages of saving for your retirement through a pension scheme is the tax relief you receive on the money you contribute, usually available at your usual rate of tax. The ‘Annual Allowance’ limits the amount of contributions both you and your employer can make to your pension in a year which benefit from tax relief, and is currently set at £40,000.

However, in April 2016, the government also introduced the ‘Tapered Annual Allowance’, which reduced the annual limit for those whose total income exceeds £150,000. This amount includes your salary, bonuses, dividends, savings interest and employer pension contributions. For every £2 of income above £150,000, your Annual Allowance will be reduced by £1, up to a maximum reduction of £30,000. So that those who receive a one-off increase in pension contributions from their employer are not unfairly caught out, the government also ensured that the Tapered Annual Allowance only applies to those whose taxable income before employer pension contributions is above £110,000.

Looking at some examples shows how the Tapered Annual Allowance works. Andy receives a salary of £160,000 in the 2017/18 tax year, with a further £16,000 of pension contributions from his employer. This gives a total income of £176,000, which is £26,000 over the £150,000 limit. Andy’s Annual Allowance is therefore reduced by £13,000 (half of that amount), meaning the amount of his pension contributions which can benefit from tax relief during 2017/18 is lowered from £40,000 to £27,000.

Bethany, meanwhile, earns a salary of £195,000 in the same year, with her employer making £15,000 of pension contributions. Her income from rental properties, savings and a share portfolio amounts to £20,000, giving Bethany a total income of £230,000, exceeding the £150,000 limit by £80,000. As half of this amount is £40,000, Bethany will receive the maximum reduction of £30,000. She will therefore only receive tax relief on up to £10,000 of her pension contributions in 2017/18.

If the Tapered Annual Allowance affects you and you’re wondering whether there are any legal workarounds which can be implemented to avoid being hit by it, the short answer is that there aren’t. Of course, if your total income decreases then your Annual Allowance will increase again. But apart from either earning less or reducing the amount you and your employer contribute to your pension (neither of which is a good idea), as long as your total income is over £150,000 you will be subject to the current rules,

Sources
http://scottishwidows.co.uk/knowledge-centre/retirement/annual-allowance.html
https://www.rsmuk.com/ideas-and-insights/tax-facts-2018-2019#Pension%20contributions

 

be aware: HMRC payroll investigations on the rise

Recent figures released through a Freedom of Information Request have revealed that payroll investigations last year led to HMRC collecting £819 million of additional tax, a figure that represents a year-on-year jump of 16%.

It has been suggested that the increase is due to a ‘grey area’ over whether a taxpayer is considered to be ‘employed’ or ‘self-employed’, with this area being targeted by HMRC in order to eradicate any ambiguity and categorise as many people as possible as being employed. Doing so means that tax can be deducted at source and reduces the scope for claiming expenses. However, HMRC have denied this interpretation, stating that a taxpayer’s status as either employed or self-employed is ‘never a matter of choice; it is always dictated by the facts and when the wrong tax is being paid we put things right.’

The ambiguity over employment status has arisen thanks to the gig economy, which has recently created political anxieties for the government. Following the Taylor Report, which investigated the gig economy and made recommendations for reforms needed, the government has indicated that the ‘worker’ category will change to ‘dependent contractor’ in the near future. Dependent contractors will have worker rights that self-employed workers do not, but they won’t be considered employees, thereby straddling the current divide between the two.

Whilst this is likely to go some way to removing the grey area which is causing the controversy, introducing dependent contractor status will remove the advantages businesses currently get from using a contractor. It’s likely that a test will be implemented for dependent contractors, which will place much greater emphasis upon control. It has been suggested that such a test will ultimately place limitations on the number of self-employed people, which has grown considerably in recent years.

Whatever the reason for HMRC’s increased payroll investigations, businesses need to take extra care to ensure that their payroll is completely accurate to avoid incurring any unnecessary penalties. Communicating with whoever handles your accounts and acting on their advice wherever necessary is vital to make sure the taxman has no reason to claim additional tax from your business.
Sources
https://www.accountingweb.co.uk/tax/hmrc-policy/payroll-investigations-are-on-the-up

 

HMRC reveal the UK’s tax landscape

At the beginning of March 2018, HMRC published figures on personal taxation and income throughout the UK for the 2015/16 tax year. The full report offers some interesting insights into the nation’s finances.

According to the report by HMRC, the UK population collectively earned moreincome in 2015/16 than ever before. Total UK income broke the £1 trillion mark for the first time, reaching £1.040 trillion. The total income tax paid on this staggering amount was £178 billion, which is £11 billion more than the £167 billion paid in 2014/15. Perhaps unsurprisingly, therefore, income tax made up the greatest proportion of the government’s total revenue during that year. The total amount collected was enough to pay for the government’s combined investment in education, defence, policing, transport and welfare benefits, not including pensions.

Considering the hefty total income tax bill, you might be surprised to learn that 53% of the UK population (34.6 billion people) paid no income tax at all in 2015/16. Of the remaining 31 million tax payers, 25.3 million paid the basic rate of tax, 4.5 million taxpayers were liable at the higher rate and 800,000 were taxed at the “savers” rate. Only 400,000, less than 1% of all taxpayers, were taxed at the additional rate. Even though they made up just 7% of the total UK population, higher and additional rate taxpayers brought in £120.5 billion of the £178 billion collected – just over two thirds (67%) of the total income tax paid in 2015/16. The 400,000 people earning enough to be taxed at the additional rate paid 30% of the total UK tax bill.

“Income tax is critical to public spending. It represents £1 in every £4 that the government raises in tax,” said Alistair McQueen, Head of Savings & Retirement at Aviva plc. “The latest figures show that our total income rose by 6% over the latest year. At the same time, our total tax bill also rose by 6%.”

Sources
https://www.linkedin.com/pulse/new-data-5-surprising-facts-income-tax-uk-including-most-mcqueen/
https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/july2017
https://www.ukpublicspending.co.uk/piechart_2017_UK_total
https://www.ifs.org.uk/publications/9178
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/685472/National_Statistics_T3_1_to_T3_11_publication_-_FINAL.pdf

4 tips for keeping your books in order in 2018

Whether you’re someone who prides themselves on having their accounts in order every year, or you’ve just had yet another last-minute scramble to submit your tax return before the deadline at the end of January, the start of a new calendar year is a great time to review your books and ensure they’re all in order for the twelve months ahead. Here are our top four tips for 2018 in terms of your accounts, ensuring your bottom line is secure and most likely giving it a bit of a boost too.

  1. Get the tax man on your side – okay, maybe you’re unlikely to be inviting ‘the tax man’ to the pub on a Friday night, but it’s a good idea to keep HMRC on side for your business. The HMRC website is the best way to get up to speed with everything you need to know and all the latest accountancy developments for your business. And, if you’re in doubt about anything, get in touch with the tax authorities sooner rather than later and find out the answer. Forewarned is forearmed, as they say.
  2. Make your accountant’s life as easy as possible – your accountant’s job shouldn’t be to make sense of your business’s incomplete and poorly kept books. Not only does keeping your records in a reasonable order for them keep your costs low and reduce the likelihood of any unexpected fines coming back to haunt you, but it also frees up the time you’re paying your accountant for – to offer advice and save your business money over time. So, with that in mind…
  3. … When it comes to finances, keep everything – all your receipts and invoices need to be logged and traceable. Digital technology makes this easier now than ever, as paperwork can often be provided electronically and anything that can’t, can be scanned and linked to your records. As long as you keep your records up to date, you shouldn’t find yourself turning your business upside down for that one vital receipt you can’t find come the next tax deadline.
  4. Simplicity is key – Keeping financial records doesn’t have to be complicated; in fact, the simpler you can make your system, the better. That way you’re not having to decipher your own labyrinthine puzzle to understand your own business accounts. This will also make it far less likely that you’ll miss any unpaid invoices and have to chase them several months down the line. If your records have got out of control, the new year is a great time to start afresh with a modern system that works for you and your accountant.

    Sources
    https://www.pandle.co.uk/top-tips-getting-books-order-2018

rock bands and royalties

The Insolvency Service has given Dipak Rao, the former accountant of Deep Purple, an eleven-year ban from serving as a director. The ban follows the revelation that he had misappropriated a minimum of £2 million from the companies who held responsibility for controlling the copyright over many of the rock band’s hit songs.

Rao was discovered to have made a number of payments to his own personal accounts from Deep Purple (Overseas) Ltd and HEC Enterprises Ltd between 2008 and 2014, hiding the transactions by restricting access to bank statements for both companies and excluding them from the financial accounts. Both companies were set up in the 1970s to manage the copyright of Deep Purple’s hits, and subsequently became responsible for the rights of songs by two other bands, Rainbow and Whitesnake, which were formed by Ritchie Blackmore and David Coverdale, former members of the earlier band.

Both companies went into administration in 2016 following Rao’s resignation as director two years earlier. Whilst Rao has confessed to ‘borrowing’ at least £2.27 million, the Insolvency Service has only recovered £477,000 so far. The scheme was only uncovered after Blackmore launched a lawsuit against the companies demanding unpaid royalties of £750,000. The investigation was ‘as clear as it was damning’ according to an inside source, and led to Rao being disqualified from managing or controlling a company without leave of the court until 2028.

“Rao misappropriated company funds causing detriment to the company and its creditors, to his own personal benefit,” said Sue Macleod, chief investigator of the Insolvency Service. She urged company directors to “note from this enforcement result that actions of this kind will lead to serious censure,” adding that Rao’s “disqualification is a reminder to others tempted to do the same that the Insolvency Service will rigorously pursue enforcement action and seek to remove from them for a lengthy period.”

https://www.accountingweb.co.uk/practice/general-practice/deep-purple-accountant-rocked-by-ban?utm_medium=email&utm_campaign=AWUKINS290917&utm_content=AWUKINS290917+Version+A+CID_1fa95b5e2c29b2202a7fe1b7febaf528&

what does the nil rate band really mean for me?

Changes to inheritance tax (IHT) came in earlier this year, affecting the allowance for those wanting to pass on their home to members of the family. But as the changes are being rolled out over the next few years up to the 2020/21 financial year, it can be hard to know if and how the changes will affect you.

The current amount you’re able to leave in your estate without incurring IHT is £325,000, known as the nil rate band (NRB). Anything above this amount incurs 40% tax, with certain exceptions, such as gifts to charities, being able to lower that percentage. Any transfers between spouses or civil partners are exempt from IHT even if your estate exceeds the NRB, with married or civil partnered couples having £650,000 – twice the NRB limit – to offset against their combined estate.

Introduced in April this year, the residence nil rate band (RNRB) adds a further £100,000 to the NRB. This will then increase by £25,000 each year up to 2020/21, when it will reach £175,000. Each person will therefore have a maximum allowance of £500,000, with surviving spouses having an allowance of £1 million to offset against IHT when their partner’s allowance is transferred to them.

The RNRB differs from the NRB in that it doesn’t apply to lifetime transfers, such as transfers into trusts or gifts given by an individual within a period of seven years before they died. This means that whilst the NRB could potentially be consumed through gift-giving in the last seven years of a person’s life, the RNRB would still be fully available.

Back in 2015, when the RNRB was first discussed, there were concerns over discouraging older couples from downsizing or selling their home to move in with a relative or to residential care. Since then, however, the rules have been readjusted so that the allowance can still be utilised by those who sell up or move to a smaller home before their death, as long as the deceased leaves the downsized property or equivalent valued assets to their direct descendants.

Whilst there’s no limit on how much time passes between the downsizing or property sale and death, the transaction needs to have taken place after 7th July 2015 in order to qualify. RNRB also only applies to one property which the deceased needs to have lived in at some point before dying, meaning that buy-to-let properties or those in discretionary trusts don’t apply. If the deceased owned multiple homes, personal representatives are able to nominate which property should qualify for RNRB.

It’s also important not to fall into ‘the sibling trap’ – leaving a home to a sibling rather than a direct descendant such as a son or daughter, which disqualifies them from being able to use the RNRB.

Sources
https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band
https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band
https://www.theguardian.com/money/2017/apr/01/inheritance-tax-relief-1m-residence-nil-rate-band
http://dev.cs.mail-first.co.uk/inheritance-tax-recent-changes-need-know-plan/
http://www.voice-online.co.uk/article/death-and-taxes-uk

Theresa May calls surprise early election

During a surprise announcement outside Downing Street on the morning of 18th April, Theresa May set the date of the next UK general election as the 8th June 2017, almost three full years before the previously expected date of May 2020.

Delivering the statement revealing the move, Mrs May said that the early general election would further deliver the ‘certainty, stability and strong leadership’, which she said the Conservative party had offered since the referendum on Britain’s EU membership. The Prime Minister elaborated to say that, ‘the country was coming together, but Westminster was not’, a reference to the fact that, despite the referendum result, the Conservatives still face opposition within Parliament on what so-called ‘Brexit’ should look like, or even whether it should still take place at all.

The Prime Minister addressed this point directly, saying that she was ‘not prepared’ to let those who oppose Brexit ‘endanger the security of millions of working people across the country. What they are doing jeopardises the work we must do to prepare for Brexit at home.’ Mrs May went on to say that, ‘we need a general election and we need one now, because we have at this moment a one-off chance to get this [a general election] done whilst the European Union agrees its negotiating position.’

Addressing the fact that she had previously said the next general election would not be before the May 2020 date, Mrs May said that she had ‘only recently and reluctantly come to this conclusion.’ The Prime Minister said that she now felt that a general election was ‘the only way to guarantee certainty and stability for the years ahead… and to seek your support for the decisions I must take.’

Speaking directly to her political rivals, the Prime Minister said that she had a simple challenge to them: ‘this is your moment to show you mean it… let the people decide.’

Analysts were quick to point out that the election gives Mrs May the chance to increase her party’s majority in the House of Commons. The Conservative’s majority has been slim for some time now, which is causing Mrs May a level of discomfort when it comes to shaping Brexit. Though the general election does give her party the chance to make gains – against opposition which currently trails in the opinion polls – it also gives Labour and the Liberal Democrats the chance to shape their own arguments around Brexit. Many of the seats held by Labour, in particular, are still considered ‘safe’ seats which may limit the gains available to the Conservatives, though whether anything is truly ‘safe’ in political terms any more is a matter for some debate!

In the run up to the announcement, the pound fell against the dollar which helped the FTSE 100 to rise from losses made earlier in the day. After the announcement, however, the FTSE fell again, whilst the pound recovered, showing that not only is a week a long time in politics, but a fifteen minute announcement is a long time for the markets!

We will be sure to keep you fully informed of all of the details in the run up to the election and how the outcomes could impact you and your financial planning, both now and into the future.

Sources
http://citywire.co.uk/money/pound-falls-ahead-of-theresa-may-statement/a1008930?utm_source=Twitter&utm_medium=Feed&utm_campaign=Social
http://www.bbc.co.uk/news/uk-politics-39629603

Tax Year End Approaches: 5 Things to do Before April

The 5th April might seem a little way off yet, but the end of the tax year always seems to arrive faster than we think! For financial planning, the end of the tax year is important for a variety of reasons and so, before we hit the deadline, put some thought into the following five tips and maximise your saving opportunities before they disappear for good!

1- ISA Contributions

Postits(tax)3The annual ‘big one’. The amount you can invest into an Individual Savings Account (ISA) resets at the tax year end and there is no way of carrying over your allowance to next year. If you fail to use it then that’s it: it has gone. This tax year, following the change announced in 2014’s budget, the ISA limit was increased to £15,000, up from £11,520 in 2013/2014, which means that many of us may still have some room to save away some extra pounds from the tax man. There’s also no longer a limit on how much you can put into a cash ISA, so your entire £15,000 could be invested in that way, if you so wish.

2 – Pension Contributions and Flexible Pension Preparation

Pension contributions are another factor to check annually. Contributing to your pension is often a good way to manage your tax liabilities, although clearly it should be done with your full financial plan in mind. You’ll need to bear in mind the pension lifetime allowance however, which is now £1.25 million. Anything above that within your pension can currently be taxed, thus potentially altering your tax planning, so it’s especially worth checking the size of your pension pot if you’re considering extra contributions. Whilst you’re looking at your pension, consider preparing for its new flexibility: the new rules announced during the 2014 Budget come into force at the turn of the tax year.

3 – Keep an eye on the Budget

The 2015 Budget Statement will be delivered by George Osborne on Wednesday 18th March. Although changes that affect this current tax year are fairly unlikely, they are not completely unknown and ‘instant’ changes, such as the change to Stamp Duty announced during December 2014’s Autumn Statement, are a regular occurrence. This is also the Budget prior to May’s UK General Election, so expect some fairly major announcements designed to appeal to voters that could come into force at the start of the 2015/2016 tax year.

4 – Capital Gains Tax Allowance

A perennially forgotten ‘gift’ from the taxman, the Capital Gains Tax Allowance is £11,000 for the current tax year. This means that you pay no tax on Capital Gains up to that amount. It is also an individual allowance, meaning that a couple can shelter up to £22,000 and genuine gifts from a spouse or civil partner do not count towards the allowance. There are various other exemptions and careful planning can again really help your tax position.

5 – Children’s Savings

Don’t forget that many of the above also apply to your children! Junior ISAs for this tax year are £4,000; their Capital Gains Tax Allowance is set at the same rate as adults and they can even make pension contributions. Who knows, depending on their age, they might even be able to tell you something about March’s Budget!