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Changes to tax relief for residential landlords

The tax relief that landlords of residential properties get for finance costs will be restricted to the basic rate of income tax, this will be phased in from April 2017.

The amount of income tax relief landlords can get on residential property finance costs will be restricted to the basic rate of tax.

The changes will:

  • affect your clients if they let residential properties as an individual, or in a partnership or trust
  • change how they receive relief for interest and other finance costs
  • be gradually introduced over four years from April 2017

Finance costs won’t be taken into account to work out taxable property profits. Instead, once the Income Tax on property profits and any other income sources has been assessed, your client’s income tax liability will be reduced by a basic rate ‘tax reduction’. For most landlords, this’ll be the basic rate value of the finance costs.

Who’ll be affected?

Clients will be affected if they are a:

  • UK resident individual that lets residential properties in the UK or overseas
  • non-UK resident individual that lets residential properties in the UK
  • individual who let such properties in partnership
  • trustee or beneficiary of trusts liable for Income Tax on the property profits

All residential landlords with finance costs will be affected, but only some will pay more tax.

Clients won’t be affected by the introduction of the finance cost restriction if they’re a:

  • UK resident company
  • non-UK resident companies
  • landlord of Furnished Holiday Lettings

They will continue to receive relief for interest and other finance costs in the usual way. The restriction will be phased in gradually from 6 April 2017 and will be fully in place from 6 April 2020.

Tax year Percentage of finance costs deductible from rental income Percentage of basic rate tax reduction
2017 to 2018 75% 25%
2018 to 2019 50% 50%
2019 to 2020 25% 75%
2020 to 2021 0% 100%

Tax-Free Childcare

Tax-free child care is a new government scheme to help working parents with the cost of childcare. Tax-Free Childcare will be launched from early 2017 and it will be offered gradually to families, with parents of the youngest children eligible to apply first. For every £8 a parent pays in, the government will pay in £2. Parents can receive up to £2000 per child, per year, towards their childcare costs, or £4000 for children with disabilities.

Company Director Jailed over £147,000 Tax Fraud

Richard Hotchin, the director of Qube Specialist Maintenance Solutions LTD, inflated the value of his purchases and drew up invoices for equipment he had never bought. Hotchin pleaded guilty in court on the 22nd of June 2016 and was sentenced to 21 months in prison. Confiscation proceedings are underway to recoup the proceeds of his crime.

RTI Penalties – Payroll

HMRC has updated its guidance on what happens when employers fail to report their business’s payroll information on time.

All employers (including those with nine or fewer employees) must now submit their completed and accurate RTI forms to HMRC online either on or before their staff’s payday. Failure to do this could result in penalties, which start at £100 per month.

If you’re an employer, this means that it’s more important than ever to file your payroll on time.

Xero Files

Are you using Xero files ? At your year end e.g March , a good way to ensure cloud bookkeeper have access to all your necessary documents is to upload them to the Xero files. This could include things like dividend paperwork or any purchase invoices for fixed assets that rant already uploaded.

Xero files are also a great way to declutter your office. Upload and store any documents you need of easy access anywhere and to save on space recycling the paper copies. HMRC and other tax authorities accept electronic copies as being equivalent to paper copies.

Stamp Duty Rises 3% – April 2016

Stamp duty is going up for landlords and those buying second homes: They will face a 3 per cent surcharge on the existing price bands from 1 April 2016. (See the box opposite for the full list of charges.)

Wear and tear allowance is going: The allowance allowed landlords to offset 10 per cent of their rental income against tax for maintenance, regardless of whether they carried out any repairs or not. From April 2016, they will only be able to claim for maintenance they can prove has taken place. That means that careful record keeping of receipts and invoices is essential. The government says the measure will have effect for expenditure incurred on or after 1 April 2016 for corporation tax payers and 6 April 2016 for income tax payers.

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New tax year

As the new tax year looms upon us , its important that sole traders and the self employed empower themselves by starting the new tax year in an organised way. We can help at Cloud Bookkeeper to take away the stress, worry , errors and time of doing your tax return and organise your financials from the very begining of the Tax year.

CIS takes to the cloud and goes digital.

 

Following consultation in 2014, the latest set of changes decided upon by HMRC are about to take effect, writes Howard Royse.

By far the most significant of these is the move to mandatory online filing of monthly CIS 300 returns. There has been a steady move away from the submission of paper returns by contractors and now HMRC has decided that the minority must comply with the norm. To be fair though, disputes over late-submitted returns have tended to involve paper versions. Therefore around 20,000 contractors (or potentially, their agents) ought to have made preparations for this new method, or need to act very quickly.

National Living Wage

From 1 April 2016 workers aged 25 and over will be entitled to a new minimum pay rate of £7.20 per hour, called the National Living Wage (NLW).

If you’re working and aged 25 or over and not in the first year of an apprenticeship, you’ll be legally entitled to at least £7.20 per hour. That’s an extra fifty pence per hour in your pocket. The Government is committed to increasing this every year.

If you’re an employer, you’ll need to make sure you’re paying your staff correctly from 1st April 2016, as the National Living Wage will be enforced as strongly as the current National Minimum Wage.

for more information visit the Living wage website 

Changes to Dividend Taxation and other taxes for 2016/2017

There will be new changes implemented to taxation laws from April 2016. Pension and ISA dividends will not be affected by the new regime and will remain free of tax, but the new dividend rules are likely to have an adverse effect on company directors and share holders of small incorporated companies.

The new proposals will reportedly bring in an extra £2.54 billion in revenue for the year 2016/2017 tax year, with smaller amounts continuing to bolster the public purse in future years. The changes are an effort by the government to equalise tax laws for those who run unincorporated business.

Changes which will be introduced 

  • A maximum annual dividend allowance of £5,000 is too come into force after taking the personal allowance.
  • The existing 10% national dividend tax credit will be scrapped.
  • 7.5% on dividend income in the basic rate band
  • 32.5% (for higher rate band)
  • 38.1% (Additional rate band)

People with a low dividend income will see a reduction in there tax bill, but the new measures are likely to hit small business the hardest.