DMS Posts

Minimum pension contributions will increase on 6 April 2019

The minimum amounts you and your staff pay into your automatic enrolment pension scheme will increase from 6 April 2019.
How this applies to you
If you have eligible staff in an automatic enrolment pension scheme you will need to make sure that at least the minimum amount is paid by you and your staff into the scheme.
If you don t have any staff in an automatic enrolment pension scheme, you don’t need to take any further action.
The increase
The table below shows the minimum contributions payable and the date when they must increase:

Employer minimum contribution Staff contribution Total minimum contribution

 

New rate:

6 April 2019 onwards

 

3%

 

5%

 

8%

 

Current rate:

6 April 2018 to

5 April 2019

 

2%

 

3%

 

5%

What you need to do
It is your responsibility under the Pensions Act 2008, to make sure the right minimum contributions are being paid for your staff. If you are already paying above the increased amounts, you don’t need to take any further action. You should also let your staff know about any increases being applied to their contributions.

DMS Posts

Selling your home – private residence relief slashed

In two stealthy moves, the Chancellor used the 2018 Budget to raise some extra capital gains tax from certain individuals when they sell their home. Could this include you?

Selling tax free

As you probably know, if you make a gain from selling your home it’s exempt from capital gains tax (CGT) because of private residence relief (PRR). Even you haven’t used a property as your home for extended periods, for example if you live elsewhere because of your job, PRR can still apply (see The next step ). In addition, the last 18 months of ownership are always CGT free, regardless of whether you occupy the property or not. This means you could move into a new home before selling the old one without losing any PRR. However, the 2018 Budget included two important changes to the PRR rules.

First change – ownership period

The 2018 Budget reduces the PRR for the final period of ownership to nine months (instead of 18) with effect from April 2020. This means if you buy a new home, move out and the property doesn’t sell within nine months you could face a CGT bill when you do finally find a buyer.

Tip. Special rules currently allow PRR for the final 36 months of ownership if you’re in, or moving into, a care home or have a disability. This won’t change as a result of the Budget.

Annual exemption

If you lose some or all of your PRR and this results in a capital gain a CGT bill won’t always follow. Your annual CGT exemption, £12,000 from 6 April 2019 (if you haven’t used it against other gains) reduces the taxable amount. If there are joint owners they can also use their annual exemption to reduce the tax on their share of the gain.

Second change – letting relief

Currently, if you let your home PRR includes a bonus in the shape of an extra relief which can reduce the taxable amount of any capital gain you make from selling your home by up to a maximum of £40,000 (see The next step ). The Chancellor has decided that this letting relief is to be withdrawn from April 2020 unless you occupy part of your home or share it while letting it.

Check your circumstances

The once simple PRR is becoming more complicated year-on-year. If you’ve occupied a house as your main residence for a while, but you’ve also lived somewhere else, the Budget raises the chance of a CGT bill. In future when you sell your home you’ll need to consider the CGT position if you’ve been absent from your home for one or more extended periods during your ownership.

Trap. While some absences are ignored, this might only apply if you re-occupy your home after the absence.

CGT changes in the pipeline

In an obvious attack on landlords, although it may affect others, the Chancellor confirmed that from April 2020 anyone who makes a capital gain from selling residential property which is not covered by an exemption or relief will have to declare and pay an estimate of the CGT within the following 30 days.

 

DMS Posts

More changes to the taxation of termination payments

On 6 April 2019 the law relating to the taxation of termination payments will change. From that date, you’ll have to pay employers’ NI on any part of the payment that exceeds £30,000. What does this mean in practical terms?

PILON payments

Up until 5 April 2018 the tax rules stated that where an employer had a right or a discretion under the employment contract to make a payment in lieu of notice (PILON) on the termination of employment, the payment would be classed as normal earnings and subject to income tax and Class 1 NI in the usual way. These are payable by the employee but deducted by the employer.

£30,000 exemption removed

Where there was no PILON clause, or a discretion was not exercised, a termination payment was classed as damages, i.e. compensation, for the employer’s breach of contract. In this situation, the first £30,000 of the termination payment could be paid free of income tax and NI due to a statutory exemption. On 6 April 2018 the distinction was removed and all termination payments are subject to income tax and NI, no matter what the employment contract says.

The statutory formula

To work out the amount payable, you must calculate exactly how much of the PILON is post-employment notice pay (PENP). PENP is essentially the basic pay that an employee would have received for any unworked period of notice, minus any contractual PILON they are entitled to receive. Unfortunately, there’s a complicated statutory formula which must be used to calculate the actual PENP figure. You should calculate PENP for all employees whose employment is terminated, including those whose contracts contain an express PILON clause.

A nil PENP

Whilst you must make this calculation in every circumstance, the PENP will always be “nil” where an employee works out their full contractual notice period, i.e. they don’t leave, or are asked to leave, part-way through that notice period.

Tip. Where you need to calculate a PENP using the statutory formula, follow the guidance set out in HMRC’s manual (see The next step ).

More new rules

On 6 April 2019 there will be a further change to the taxation of termination payments (this change was originally due to take effect in 2018 but was delayed). From that date, you’ll also be required to pay employers’ NI on any part of a termination payment that exceeds £30,000. This exemption doesn’t relate to employees’ NI, so you’ll need to amend your payroll procedures accordingly.

Tip. The practical effect of this change is that a termination payment could cost you more overall because you’ll have to pay an additional 13.8% on the balance over £30,000. If you have any costly termination payments on the horizon, you can avoid this additional cost by concluding matters fully before 6 April 2019. Employment must also terminate before this date.

DMS Posts

Advisory fuel rates from 1 December 2018

HMRC have published new advisory fuel rates for company car drivers which will apply from 1 December 2018.

The new rates will be:

Engine size Petrol Diesel LPG Electric*
1,400cc or less 12p 8p 4p
1,600cc or less 10p 4p
1,401cc – 2,000cc 15p 10p 4p
1,601cc to 2,000.cc 12p 4p
Over 2,000cc. 22p 14p 15p 4p

 

You can continue to use the old rates up to 31 December 2018.

 

DMS Posts

Certificate of residence

HMRC have published a new online form for companies and partnerships who wish to apply for a UK certificate of residence.

Certificates of residence are often needed to ensure that double tax relief or treaty relief is accepted by a country in respect of particular income or profits.

In some cases, a certificate or residence is required to avoid Withholding Tax.

HMRC have now issued a new online form, RES1, which can be used by companies, LLPs and partnerships, or their agents, to apply for a certificate of residence where proof of UK residency is required. In some cases the relevant double tax treaty may require that a letter is required rather than a form and additional conditions may apply. It will be necessary to check the requirements of the territory to which the certificate is to be provided.

To be able to complete the form you will need to have the following information:

  • Address and UTR of partnership or company
  • Reason for the certificate application
  • Type of income the certificate is required for
  • The period for which the certificate is required: this must be in the past
  • The ‘other country’ that requires the certificate
  • From the double tax treaty with that other country:
    • The article number dealing with the type of income
    • Whether the income must be subject to tax or liable to tax

In addition, if completing the form for a partnership you must have the following:

  • Managing partner full name, address and UTR
  • Title, full names and residency status of all partners

If completing the form for a company, you will need the company tax office ID, the UTR and, if this is for a new company before its first Corporation Tax return is submitted, you will need to explain why you believe the company is UK resident.

The partnership form should be sent to HM Revenue & Customs, PAYE & Self Assessment BX9 1AX.

The company form can be emailed to contactus.largebusinessscotlandandni@hmrc.gsi.gov.uk or posted to MUID 854, Large Business S0862, HM Revenue & Customs, Newcastle Upon Tyne, NE98 1ZZ.

The form can be found here.

 

DMS Posts

Autumn Budget 2018 – Other Matters

Extension of offshore time limits

Draft legislation has been issued to increase the assessment time limits for offshore income and gains to 12 years. Similarly the time limits for proceedings for the recovery of inheritance tax are increased to 12 years. Where an assessment involves a loss of tax brought about deliberately the assessment time limit is 20 years after the end of the year of assessment and this time limit will not change.

The legislation does not apply to corporation tax or where HMRC has received information from another tax authority under automatic exchange of information.

The potential extension of time limits will apply from the 2013/14 tax year where the loss of tax is brought about by careless behaviour and from the 2015/16 tax year in other cases. The amendments will have effect when Finance Bill 2018-19 receives Royal Assent.

Penalties for late submission of tax returns

Taxpayers are required to submit tax returns by specified dates. When taxpayers submit their returns late they generally incur a penalty. Draft legislation has been issued which sets out a new points-based penalty regime for regular submission obligations. Returns have to be submitted more frequently in some circumstances. Depending on the frequency of the return submission obligation, a defined number of penalty points will accrue to a threshold. Once this threshold has been reached, a fixed penalty will be charged to the taxpayer.

After this each late submission will attract a fixed penalty, until the taxpayer meets all submission obligations by the relevant deadline for a set period of time. Once this happens, and a taxpayer has provided any outstanding submissions for the preceding 24 months, the points total will reset to zero. Points will generally have a lifetime of 24 months after which they expire, so if a taxpayer accrues points but does not reach the threshold, the points will expire after 24 months. Taxpayers will have a separate points total per submission obligation.

Penalties for late payment of tax

Draft legislation has been issued to harmonise the late payment penalty regimes for income tax, corporation tax and VAT. Late payment penalties are charged when customers do not pay, or make an agreement to pay, by the date they should, and do not have a reasonable excuse for the failure to do so.

The penalties will consist of two penalty charges, one charge based upon payments and agreements to pay in the first 30 days after the payment due date and another charge based upon how long the debt remains outstanding after the 30 days.

Interest harmonisation

Draft legislation has been issued to change the VAT interest rules so that they will be similar to those that currently exist for income tax and corporation tax.

This will mean:

  • late payment interest will be charged from the date the payment was due to the date the payment is received
  • HMRC will pay repayment interest when it has held taxpayer repayments for longer than it should.

The provisions are expected to take effect for VAT returns from 1 April 2020.

Tackling the plastic problem

As part of the government’s response to tackling plastic waste, the following announcements were made:

  • Single-use plastics will be addressed in the Resources and Waste Strategy later in the year for situations where recycling rates are too low and producers use too little recycled plastic.
  • The issue of excess and harmful packaging will be addressed with a tax on the production and importation of plastic packaging which does not contain at least 30% recycled plastic. This tax will be implemented in April 2022.
  • The Resources and Waste Strategy will also consider ways of reducing the environmental impact of disposable cups. The government does not believe that a levy would be effective at this time but will return to the issue if insufficient progress has been made by those businesses already taking steps to address the matter.
Quick service links

 

DMS Posts, Tax

Autumn Budget 2018 – Capital Taxes

Capital gains tax (CGT) rates

The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.

There are two specific types of disposal which potentially qualify for a 10% rate, both of which have a lifetime limit of £10 million for each individual:

  • Entrepreneurs’ Relief. This is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses
  • Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares

CGT annual exemption

The CGT annual exemption is £11,700 for 2018/19 and will be increased to £12,000 for 2019/20.

Entrepreneurs’ Relief (ER)

Tackling misuse

With immediate effect for disposals on or after 29 October 2018, two new tests are to be added to the definition of a ‘personal company’, requiring the claimant to have a 5% interest in both the distributable profits and the net assets of the company. The new tests must be met, in addition to the existing tests, throughout the specified period in order for relief to be due. The existing tests already require a 5% interest in the ordinary share capital and 5% of voting rights.

Minimum qualifying period

The government will legislate in Finance Bill 2018-19 to increase the minimum period throughout which certain conditions must be met to qualify for ER, from one year to two years. The measure will have effect for disposals on or after 6 April 2019 except where a business ceased before 29 October 2018. Where the claimant’s business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period will continue to apply.

Dilution of holdings below 5%

Draft legislation has been issued to provide a potential entitlement to ER where an individual’s holding in a company is reduced below the normal 5% qualifying level (meaning 5% of both ordinary share capital and voting power). The relief will only apply where the reduction below 5% occurs as a result of the company raising funds for commercial purposes by means of an issue of new shares, wholly for cash consideration.

Where a disposal of the shareholding prior to the issue would have resulted in a gain which would have qualified for ER, shareholders will be able to make an election treating them as if they had disposed of their shares and immediately reacquired them at market value just before dilution. To avoid an immediate CGT bill on this deemed disposal, a further election can be made to defer the gain until the shares are sold. ER can then be claimed on the deferred gain in the year the shares are sold under the rules in force at that time.

The new rules will apply for share issues which occur on or after 6 April 2019.

Gains for non-residents on UK property

Draft legislation has been issued to charge all non-UK resident persons, whether liable to CGT or corporation tax, on gains on disposals of interests in any type of UK land, whether residential or non-residential. Certain revisions are to be made following a further technical consultation when the full legislation is introduced but the key points are covered here.

All non-UK resident persons will also be taxable on indirect disposals of UK land. The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities who hold a less than 25% interest.

All non-UK resident companies will be charged to corporation tax rather than CGT on their gains.

There will be options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019.

The CGT charge relating to the Annual Tax on Enveloped Dwellings will be abolished. The legislation will broadly have effect for disposals from 6 April 2019.

Payment on account and 30 day returns

Draft legislation has been issued to change the reporting of gains and the associated CGT liability on disposal of property. The main change is a requirement for UK residents to make a return and a payment on account of CGT within 30 days following the completion of a residential property disposal on a worldwide basis. The new requirements will not apply where the gain on the disposal is not chargeable to CGT, for example where the gains are covered by private residence relief.

For UK residents, the measure will have effect for disposals made on or after 6 April 2020.

CGT private residence relief

It is proposed that from April 2020 the government will make two changes to private residence relief:

  • the final period exemption will be reduced from 18 months to 9 months. There will be no changes to the 36 months that are available to disabled persons or those in a care home
  • Lettings Relief will be reformed so that it only applies in circumstances where the owner of the property is in ‘shared-occupancy’ with a tenant.

The government will consult on the detail of both of these changes and other technical aspects.

Inheritance tax (IHT) nil rate bands

The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.

IHT residence nil rate band

From 6 April 2017 a new nil rate band, called the ‘residence nil rate band’ (RNRB), has been introduced, meaning that the family home can be passed more easily to direct descendants on death.

The RNRB is being phased in. For deaths in 2018/19 it is £125,000, rising to £150,000 in 2019/20 and £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.

There are a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.

Downsizing

The RNRB may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the RNRB, are passed on death to direct descendants.

Changes to IHT RNRB

Amendments are to be introduced to the RNRB relating to downsizing provisions and the definition of ‘inherited’ for RNRB purposes. These amendments clarify the downsizing rules, and provide certainty over when a person is treated as ‘inheriting’ property. This will ensure the policy is working as originally intended. The changes will have effect for deaths on or after 29 October 2018.

Stamp Duty Land Tax (SDLT)

First time buyers relief

The relief for first time buyers will be extended to purchasers of qualifying shared ownership properties who do not elect to pay SDLT on the market value of the whole property when they purchase their first share. Relief will be applied to the first share purchased, where the market value of the shared ownership property is £500,000 or less.

Higher rates for additional dwellings (HRAD)

A minor amendment will extend the time allowed to claim back HRAD where an individual sells their old home within three years of buying their new one.The measure also clarifies the meaning of `major interest` in land for the general purpose of HRAD.

Consultation on SDLT charge for non-residents

The government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.