National Cloud Accountant and Bookkeeping Service | 246 Godstone Road, Whyteleafe, Surrey, CR3 0EF | 0845 388 2298 | 01883 819 568 | info@cloudbookkeeper.co.uk

‘Unfair’ HMRC interest rate change?

The ACCA accountancy body has said that the recent interest change is “simply unfair” because of the growing divide between interest rate for repayments to taxpayer and late payment fees.

Simply put the interest charged for those that pay their tax late has increased by 0.25% to 3.25%, supposedly inline with the rise in the Bank rate, whereas the repayment interest has remained at 0.5% and is frozen at this rate, this has been true since 2009.

ACCA have said that they believe there should be a level playing field but HMRC have replied saying the repayment rate has never fallen below its current rate of 0.5% despite the Bank rate.

The reasoning behind this is that HMRC is attempting to prevent overpayment of tax as a way of recieving a higher interest rate than possible on some savings accounts. Therefore based on the current formula used to determine this amount the Bank rate would have to rise higher than 1.5% for this to change.

This is currently a controversial decision as Chas Roy-Chowdhury, head of taxation at ACCA, has said there should be a ‘level playing field’ and that HMRC changes should simliarly apply to both how much they charge and to how much they pay.

Making Tax Digital, Costs not Savings

It has been estimated that the new MTD inititaive will cost firms £37 million a year and will have no cost saving effect, reveals HMRC.

MTD is the digital redesign of the tax system, which means that most VAT-Registered companies will need to keep digital records of VAT and submit their returns digitally also. This programme was proposed by former Chancellor George Osborne and was suggested to ‘modernise’ tax returns. But it has been revealed that it may end up costing more than it saves.

The original proposal was estimated to save businesses £100 million a year from 2021. But HMRC’s latest estimation is that there will be no savings but instead will cost firms £37 million per annum, they predict that transition will cost less, but the ongoing costs will outweigh the ongoing savings, these new estimations come from the changes made to the programme last year which include a slower rollout.

One major change is that now only business with a turnover of £85,000 have to file digitally, and those business lower than that are excempt.

Though a spokesperson from HMRC have said that the costs incurred by businesses are likely to qualify for full tax relief, which is not reflected in these estimates. This is yet to be definitively announced and therefore we cannot be sure if this will come into effect.

Honours ‘Blacklist’ for Celebrity Tax Avoidance

HMRC policy of advising against honours for tax-avoiding celebrities, has been backed by Sir Vince Cable.

What this means is that celebrities who use legal but possibly controversial schemes of tax avoidance are being ‘blacklisted’ from receiving honours in order to protect the reputation of those holding these honours and the honours themselves. A FOI (Freedom of Information) request revealed that those proposed for this list are graded on a traffic light system to gauge the induviduals suitability.

Green for Low Risk, Amber for Medium Risk and Red for High Risk.

This initiative has been backed by Liberal Democrat leader Sir Vince Cable, saying “The Principle is right, I think the public is fed up with abusive tax avoidance by induviduals and companies,” and “It seems perfectly reasonable to me that the Inland Revenue should be taking a tough line on tax avoidance.”

Sir Cable, who is a former business secretary, added that some celebrities may be confused as to why they are being investigated and analysed for this list, because many could be unaware of their involvement in tax avoidance due to their finances being handled by accountants.

This list will be given to the Cabinet Office honours committee and the prime minister and decisions with be made from there.

Last year, retired football player, David Beckham had an email leak that seemed to depict his frustration at not receiving a knighthood in 2013, it has also been noted that he was on a list of celebrities who invested in a tax avoidance schemes, which was successfully challenged by HMRC.

At this time it is not known whether this had an impact on him not receiving said knighthood.

For more information on how the Honour system works, click the following link. Guide to the Honours.

Allowable Expenses

The following spreadsheet  is to provide some guidance as to the type of expenses that you can offset against your property income or capital costs.

To view this spreadsheet please follow this link (Spreadsheet).

Please note that this spreadsheet is to be used for guidance and educational purposes only. The information within the spreadsheet does not constitute as advice by Cloud Bookkeeper and will not be held responsible for any decisions based on this spreadsheet.

HMRC CGT Calculators for Shares and Property

HMRC has recently added two new CGT or Capital Gains tax calculators to their list of tools for shares and property disposals.

HMRC calculators and tools is a list of HMRC calculators and tools to help you work out what you could possibly owe in tax liabilities.

To view the full list of calculators and tools follow this link (https://www.gov.uk/guidance/hmrc-tools-and-calculators).

To view the CGT Shares Calculator – (https://www.gov.uk/tax-sell-shares/work-out-your-gain)

To view the CGT Property Calculator – (https://www.gov.uk/tax-sell-property/work-out-your-gain)

Inheritance Tax; Avoiding the Tax Bill

The vast majority of people want to be able to leave this world with the comfort of knowing that our loved ones will be prosperous and happy, and one of the most common ways that people do that is by leaving all that we own to those loved ones.

The problem comes when not all that we leave is going to them a steadily increasing amount of that inheritance is being taxed away, in this last tax year of 2017/18, HMRC made £5.2bn through Inheritance Tax (IHT) alone. This is an 8% rise based on 2016/17 and close to double the earnings of 2010/11.

Why is this? You may ask, this is largely because of the surge of house prices in this time period, and the fact that the IHT tax free threshold has remained the same. Which for those unaware is £325,000 for an induvidual and £650,000 for a married couple/civil partners. This causes more people to be above that threshold and then liable to as much as 40% on the excess.
Especially when considering that the average house price (according to Rightmove.co.uk) is £623,855, if this were left in inheritance nearly the whole sum would be used by the real estate value alone.

Another reason that this tax is such an issue is due to the many changes to the rules that dictate IHT since its creation in 1796, and again these are under review and with no guarantee on how beneficial it will be for those looking to ensure as much goes to thier loved ones as possible. But as IHT currently stands there may be some ways to reduce how much will be taken by the tax man.

Gifts

The easiest strategy is to begin the inheritance early, if you are set already on who is set to inherit from you, an easy way to ensure as much as you can reaches them would be to begin giving it to them before the taxman gets to see it.

You can gift up to £3,000 a year without it being noted against the value of your estate, this yearly allowance can also be carried over to the following year, there are also a few excemptions to this rule as well, examples being; you can gift up to £250 per person per year for marriages. Another for those most humanitarian for us, you could give some to one of the many great charities out there to better the world before you leave it.

A less commonly known, or utilised option is to help with the current living costs of those loved ones, things like paying rent or bills, though these options are only really suitable and advised for those among us lucky enough to be able to provide this and still be able support themselves and lead the lives they want to, enjoying the money that they earned.

Trusts

Many have heard of trust funds, the most common use is to provide a boost to the younger generation by having a sum of money given to them, that unlocks once they become of age to give them a head start on stepping out into the world on their own two feet.

This can also be a good way to handle an inheritance, as it would also give a degree of control over how the money is spent, this means you could ensure that this in heritance could only be used for a down payment on a property or other major expenditure to that effect. This commonly sits better with most, as it avoid this sum being “wasted” on unintended things.

Trusts however can be complex and difficult, so for those seeking this path it is advised to seek help from a financial advisor, like us here at Cloud Bookkeeper.

Automation Accounting via Artificial Intelligence (AI)

For many pop culture buffs out there AI is a familiar albeit worrying concept, as most references to AI in recent years results in the rise of our doom with large muscles and an Austrian accent.

Though in reality artificial intelligence or AI has an amazing potential to increase the overall quality of life for many of us. In its current state no AI can be considered truly intelligent, currently AI is nothing more than the odd piece of code that can understand a tremendous amount of data that previously required a human to interpret with any meaning, but now if any of you have used Siri, Cortana or the other alternatives you have interacted with one such AI.

AI is hopefully going to be a major step in terms of automation, allowing it to handle processes that take us boring humans hours, to be completed in minutes or seconds.

AI & Automations impact on Accounting

One such use of AI could be mileage tracking for business, now while this doesn’t sound flashy or exciting, I mean lets be honest, its no death robot, for many the idea of maintaining an active database of who went where and why, which is difficult enough for small businesses let alone large corporations. It can be a nightmare for all parties involved.

AI would allow employees to submit requests to a system controlled by said AI, which would then in turn evaluate the validity of the claim and respond appropriately, whether that is reimbursing the employee’s mileage or requesting further inspection from a human.

While this sounds simple enough, the impact this could have on a range of businesses is immense as it allows those that are inundated with these requests to focus more on the other aspects of their work life and only have to deal with the anomalous submissions, therefore improving the efficiency and most likely making life easier for both sides of the AI employee and Employer.

What this can mean?

As a Xero certified Bookkeepers and Accountancy, we resonate with the words of its founder Rod Drury, who said “Every small business, accountant and bookkeeper now has a supercomputer working for them,”, and we hope that supercomputer will only get better and more intelligent.

The Forgotten HMRC Incentive – R&D Capital Allowances

Research and development capital allowances or RDAs is an oft forgotten incentive by HMRC which allows 100% of your expenditure on R&D facilities, IT systems, plant and machinery against a corporation’s tax liability in the first year.

What this means is if your company has, in its first year:

  • Built or Refurbished any R&D Facilities.
  • Developed an Internal IT System.
  • Invested in any plant, machinery, fixtures, or fittings to support R&D.

You should apply for these R&D capital allowances which will write these expenditures off.

What qualifies for the R&D capital allowances?

Always applicable

  • Laboratory Equipment
  • Company Cars for R&D Staff
  • R&D Facilities (if standalone, else R&D must account for 75% of total cost of facility to cover the entirety)

Possibly applicable

  • Developing new IT Systems for Internal use
  • “Equipment to enable a technological advancement in a process, material, device, product, or service. The advancement must increase the overall knowledge or capability in a field of science or technology.”

A company can claim its R&D capital allowances up to a year after the filing deadline of its tax return – and R&D capital allowances can be claimed retrospectively, up to two years in arrears.

For more information about this, and to discover whether your business qualifies please visit HMRC.

Joint Named Investment Property; Before Sale

A case study was recently submitted to TaxInsider, which investigated how beneficial it may be to transfer an interest in investment property to a spouse or civil partner before the sale of the property.

The current system as it stands, affords some tax breaks to married couples and civil partners, and dependant on the circumstances, this may be leveraged to lessen the tax bill on the sale of the property. The case study delves in to the possible opportunities to save on tax.

In this case study, there are two people in question, Martin and his wife Catherine, and one property;

Martin: Additional rate taxpayer.

Catherine: No income.

Property:

  • Original purchase cost: £200,000
  • Current Sell price: £350,000
  • Outstanding Mortgage: £100,000
  • Cost of Sale: £5,000

There are 2 ways in which we can consider the sale of this property, we shall start with the first and most common scenario;

Scenario 1: Martin sole owner of property.

As established earlier Martin is an additional rate taxpayer, meaning in the current 2018/19 tax year, he is liable to pay 28% CGT, and the current exemption threshold is £11.700.

This means that when totaling the CGT from this sale, you would use the formula as follows;

 

 

 

 

 

 

In this scenario the total CGT required to be paid is $37,324.

Scenario 2: Split ownership with Catherine

Couples with marital rights can transfer assets between each other at such a value that it gives rise to neither profit nor loss, therefore it can easily be done in the case of this scenario.

Catherine not working and having no income has not used here annual exemption amount, and resides in the basic rate band for CGT, therefore when transferring 50% of the property into Catherines name, you can take advantage of double the exemption amount.

Therefore the CGT Calcuation will go as such:

 

 

 

 

 

As you can see the new payable amount is £30,598, which is a saving of £6,726.

This is just one of the ways that you can leverage the rights granted to you as a married couple or civil partners, in order to reduce the amount of tax chargable to you.

Open Banking

The Standard for open banking is changing, with it how banks share data and how it can be accessed.

What does this mean to you?

For small businesses and their accountants this could mean a great deal, some of the things to expect will be:

  • Improved security
    • You control when you want to share your data, no login data needs to be handed over.

 

  • Real Accountability
    • All third parties using Open Banking will be registered with the FCA.

 

  • Smart Integration
    • Easier access to better financial services, e.g. lending and financial management.

 

  • Control you own data
    • Your data will belong to you, and you can access a wider array of service.

“As a consequence of open banking, new and innovative financial services will be introduced, levelling the playing field for SMBs.”

Edward Berks – Director, Fintech & Xero Ecosystem.