Your quarterly round-up of the latest tax and accountancy news.
Class 2 NICs To Continue For Self-Employed
The flat rate Class 2 National Insurance contributions (NICs) were due to cease on 5 April 2019 but will now continue “for the life of this parliament”, despite the government consulted on a proposed abolition of contributions for the self-employed in 2016. This flat rate contribution, currently £2.95 a week is payable by the self-employed in addition to Class 4 contributions based on the level of profits.
The reason for the u-turn concerns businesses owners with low profits or making losses. In order to maintain their NI Contribution record, many self-employed individuals voluntarily continue to pay Class 2 contributions despite their profits being below the £6,205 small earnings exemption. Having a full NI contribution history helps maximize an individual’s entitlement to State Benefits. For example full State Pension entitlement requires 35 years contributions.
With the abolition of Class 2 NICs, those with low profits or making losses would need to make voluntary Class 3 contributions (currently £14.65 a week, £761.80 a year) in order for that year to count as a contribution year.
Please speak to you Argents Accountant should you have any questions?
Don't Forget There May Be Tax To Pay On Your Dividends In January
From 31 January 2019, many taxpayers will need to continue to pay more tax on dividends, as they did on 31 January 2018. This is due to the rules for taxing dividends changed radically from 6 April 2016 with the removal of the 10% notional tax credit and the introduction of new rates of tax on dividends
If you are a higher rate taxpayer and received £30,000 of dividends in 2017/18 £25,000 of those dividends would be taxed at 32.5% meaning £8,125 due on 31 January 2019. In addition, with effect from 6 April 2018 the £5,000 dividend allowance was reduced to just £2,000 meaning next year’s dividend tax bill will be higher again.
If you can let us have all of your tax documents as soon as possible we can let you know how much tax you need to pay next January so that you can set aside sufficient funds.
Tax Efficient Childcare Schemes
Earlier this year the government announced that no new childcare voucher schemes could be set up after 5 October 2018. This was a six month extension from the previous 5 April 2018 end date. If those employers offering such schemes at 5 October are prepared to keep administering their scheme then they will continue to be available but will eventually be phased out.
The current scheme allows employers to provide vouchers to employees to pay for care of their children up age 16. Vouchers to the value of £55 a week can be provided tax free to basic rate taxpayers with differing tax free amounts for higher rate and additional rate taxpayers.
The replacement scheme is the government's "tax free" childcare account which started this year for children up to age 12. Under this scheme the government tops up the savings in the childcare account by 25% up to £2,000 per child per year (£4,000 for a disabled child).
Thus, savings of £8,000 would be topped up by the government to £10,000 and the £10, 000 could then be used to pay Ofsted registered childcare providers such as nursery fees, childminders, after school clubs and summer camps.
Unlike childcare vouchers, the new childcare accounts will be available to both employees and the self-employed.
For those already in childcare voucher schemes it may be beneficial to switch to the new childcare account. Please speak to your Argents Accountant and we can help you calculate whether or not that would be beneficial.
Time To Declare Offshore Income Gains and Assetts Warns HMRC
HMRC is urging UK taxpayers to come forward and declare any foreign income or profits on offshore assets to avoid higher tax penalties.
New legislation called ‘Requirement to Correct’ requires UK taxpayers to notify HMRC about any offshore tax liabilities relating to UK income tax, capital gains tax, or inheritance tax.
Some UK taxpayers may not realise they have a requirement to declare their overseas financial interests. Under the rules, actions like renting out a property abroad, transferring income and assets from one country to another, or even renting out a UK property when living abroad, could mean taxpayers face a tax bill in the UK.
From 1 October more than 100 countries, including the UK, are able to exchange data on financial accounts under the Common Reporting Standard (CRS). CRS data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received or be faced with higher penalties.
The most common reasons for declaring offshore tax liabilities are in relation to foreign property, investment income and moving money into the UK from abroad. Over 17,000 people have already contacted HMRC to notify them about tax due from sources of foreign income, such as their holiday homes and overseas properties.
Once the taxpayer has notified HMRC by 30 September of their intention to make a declaration, they will then have 90 days to make a full disclosure and pay any tax owed. Speak to your Argents Accountant to find out how we can assist you in making the necessary disclosure and tax calculation if these new rules apply to you.
2015/16 Pension Annual Allowence Lapses On 5 April 2019
To utilise the 2015/16 unused relief any additional pension savings would need to be paid to the pension fund by 5 April 2019, otherwise the relief from 2015/16 will lapse.
Note however that for some taxpayers the method of calculating unused relief for 2015/16 is extremely complicated as the government changed the pension rules part way through the year on 8 July 2015. The amount of pension allowance will depend on the pension input period of your scheme and we can assist you in calculating the 2015/16 relief if you have not already had full relief already.
For most taxpayers the maximum pension input annual allowance is currently £40,000.
However, from 2016/17 those taxpayers with ‘adjusted income’ over £150,000 and ‘threshold income’ over £110,000 receive a tapered annual allowance. For those persons affected the allowance tapers by £1 for every £2 that their adjusted income exceeds £150,000 down to a minimum annual allowance of £10,000.
The calculations of ‘adjusted income’ and ‘threshold income’ are complicated and we can assist if you believe that this restriction applies. There are ways in which these figures can be reduced so as to minimize the effect of the restriction