Our Spring Tax Update will be taking place across the region between the 8th and 10th March 2017.
The update will include the following:
•An update on the latest HMRC consultations
•Analysis of the tax announcements in the 2017 Budget
•A review of the current property tax environment
•The latest on Making Tax Digital and interaction with cloud accounting
4. pkf-francisclark.co.ukpkf-francisclark.co.uk
Staff update – newly appointed Partners
Holly Bedford became Tax Partner on
1 December 2016
• Corporate and personal taxation expert
• Leads the tax team in the Plymouth office
• Previously with Arthur Anderson in Chicago
and EY in London and Edinburgh
Lucinda Coleman will become Business
Recovery Partner on 1 April 2017
• Licenced insolvency practitioner and
Company Voluntary Arrangements expert
• Joined PKF Francis Clark as a graduate
trainee in 2003.
5. pkf-francisclark.co.ukpkf-francisclark.co.uk
Staff update – newly appointed Partners
Jason Mitchell will become Partner on
1 August 2017
• Specialises in providing accountancy and
advisory services to the legal sector
• SRA Accounts Rules expert
• Provides a wide range of accountancy
services to SMEs across the region
8. pkf-francisclark.co.ukpkf-francisclark.co.uk
• Budget day changing to autumn from 2017
• This update will be in March again next year
More convenient timing for attendees
We have better information to share
Access to consultations and draft legislation.
Spring tax update
16. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Making Tax Digital
New HMRC initiative revolutionising the way businesses file
online
• Landlords and unincorporated businesses 5 April 2018
• VAT registered businesses from 5 April 2019
• Corporates and large (> £10m) partnerships 5 April 2020
17. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Making Tax Digital
New HMRC initiative revolutionising the way businesses file
online
• Landlords and unincorporated businesses 5 April 2018 5 April 2019
• VAT registered businesses from 5 April 2019
• Corporates and large (> £10m) partnerships 5 April 2020
18. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Making Tax Digital
• Deadline for submitting quarterly returns one month after the quarter
end
• Deadline for submitting final adjustments for year will be the sooner
of ten months after the year end, or 31 January following the year of
assessment (the existing tax return deadline)
• Applies to the first accounting period that begins after 5 April 2019,
so 5 April year ends’ first quarterly reporting date is 5 July 2019, and
first MTD deadline on 5 August 2019
• First years will have multiple deadlines to meet
19. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Making Tax Digital
Government has given some assurances regarding small
businesses, and the digitally excluded:
• Businesses can use spreadsheets for record keeping, but must file
via MTD-compliant software
• Businesses eligible for three line accounts can submit quarterly
updates with only three lines of data (income, expenses and profit)
• Free software will be available to businesses with “the most
straightforward affairs” – in practice, this will mean those under the
VAT registration limit and with no employees
20. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Making Tax Digital
• No need to scan in invoices
• Only one update for the entire property business
• Accounting adjustments can be made in final adjustment
• Declaration of partnership splits now optional for quarterly updates –
must be notified in year end adjustment
• Partnerships must return all income and gains i.e. investment
income as well as trading income
• Will not include CIS returns for the time being – current quarterly
return system will continue.
25. pkf-francisclark.co.ukpkf-francisclark.co.uk
How does Cloud help accounting?
• “Time saved on your books is time to invest in your
self or your business”
• Automated bank feeds
• Invoice recognition
• Better Management accounts
• Make business decisions based on real time data
26. pkf-francisclark.co.ukpkf-francisclark.co.uk
What does this achieve?
• Efficiencies
• Questions can now be answered in real time…
- What pension contributions can I make?
- When do I have to register for VAT?
- Should I purchase the equipment this year or next?
31. pkf-francisclark.co.uk
Annual Investment Allowance
Capital allowance – 100% tax relief
Period from AIA
1/6 April 2008 £50,000
1/6 April 2010 £100,000
1/6 April 2012 £25,000
1 January 2013 £250,000
1/6 April 2014 £500,000
1 January 2016 £200,000
32. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Corporation Tax - Losses
• New rules will increase flexibility for relieving corporate
tax losses
• Losses arising from 1 April 2017 can be carried forward
and offset against other income streams
• Losses can also be carried forward and group relieved
• Companies with profits > £5m – only 50% of profit can
be relieved by losses brought forward
33. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Corporation Tax - Interest
• New rules will restrict each group’s net deductions for
interest to
30% of EBITDA taxable in the UK or, if higher
An amount based on the net-interest to EBITDA ratio for
the worldwide group.
• De Minimis of £2,000,000 of interest
34. pkf-francisclark.co.uk
Research and Development - Small
• SMEs (Turnover <€100m Balance Sheet<€86)
• Tax relief on allowable R&D is 230%
• £4,600 tax saved for £10,000 of spend
• Very attractive relief
• Encourages innovation and “inventiveness”
“Wants to make R and D simpler to
claim…..makes us competitive”
35. pkf-francisclark.co.uk
Research and Development - Large
• Large companies now must use ‘Research and
Development Expenditure Credit’ scheme – RDEC
• Receive a tax credit – ‘above the line’
• Taxable credit of 11%
• Net saving of 8.8% on qualifying expenditure (previously
6%)
• Above the line – Arguably “More Visible”
36. pkf-francisclark.co.uk
Liquidations and Entrepreneurs’ Relief
• 10% tax rate possible on liquidating trading company
• Members’ voluntary liquidation (MVL)
• Now have targeted anti-avoidance rules to catch:
Money boxing
Phoenixism
• Are you carrying out a similar trade or activity within two
years?
• Those caught treated as receiving a dividend.
37. pkf-francisclark.co.uk
Substantial Shareholdings Exemption (SSE)
• SSE can apply to exempt gains on companies selling
shares (10%)
• Changes to SSE following consultation:
Removing investing company trading condition
Making it easier to sell shareholdings in multiple tranches
Removing post disposal investee trading condition
Broader exemption for companies owned by qualifying
institutional investors.
38. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Transactions in land
• Rules aimed at taxing gains on development land as
trading income
• Previous rule – ‘sole or main object’ was to realise a
gain on disposal of land
• New rule – ‘main or one of main purposes’ is to realise
a gain
• Applies where other property (e.g. shares) derives
50+% of its value from land
39. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Employment taxes
• Employer NIC due on termination payments > £30,000
(aligned with income tax)
• Salary sacrifice rules tightened so employees will be
taxed on salary foregone.
• From April 2017 PAYE applied to consultants providing
services to public sector via a limited company.
40. pkf-francisclark.co.ukpkf-francisclark.co.uk
IR35 – public sector changes
• New provisions apply when:
Worker personally performs services for end client
End client is public authority
If the contract had been directly with the end client the worker
would have been regarded as an employee.
Employment taxes
41. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
• Increase in business rates from April 2017 -
revaluation of the rating list
• “Increase in rural rate relief to 100%, giving small
businesses in rural areas a tax break worth up to
£2,900 a year” Chancellor of the Exchequer, November 2016
• Transitional provisions failing to ease burden, too
narrowly focused
Business rates
42. pkf-francisclark.co.ukpkf-francisclark.co.uk
£435 Million of Measures
• If previously claiming Small Rates Relief increase
capped at £50 per month;
• Measures to assist Pubs with a rateable value of
<£100,000 – claim £1,000 of Business Rates Relief
for 1 year;
• Local Authority Fund of £300 million to be provided to
Local Authorities
Business Rates
45. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
VAT – registration
An entity is…
• Currently liable to register where taxable turnover is:
> £83,000 in any rolling 12 month period
or
> £83,000 in next 30 days – anticipated
• threshold increasing to £85,000 from 1 April 2017
• eligible to register if making taxable supplies
Allows VAT to be reclaimed on costs…
46. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
VAT – flat rate scheme
• ‘Simple scheme’ where business does not recover input
tax and charges flat rate of VAT on turnover
• 16.5% rate applies for ‘limited cost traders’ from 1 April
2017
• Limited cost traders – expenditure on goods:
- <2% of VAT inclusive turnover for accounting period, or
- <£1k for accounting period (pro-rata if period ≠ 12m)
- Expenditure excludes capital, subsistence and most motor
costs.
47. pkf-francisclark.co.ukpkf-francisclark.co.uk
• A new entrepreneur client commences in business in January
2016. He is self-employed..
- Deal with Auto-Enrolment by November 2017
- Self-Assessment liability by January 2018
- Payments on Account January 2019
- Removal of the Flat Rate Scheme for VAT
- Making Tax Digital introduced April 2019
Case Study
49. pkf-francisclark.co.ukpkf-francisclark.co.uk
• From 6 April 2017
• Personal Allowance £11,000 to £11,500
• Higher rate tax threshold becomes £45,000
• From 6 April 2018
• Dividend Allowance reduced to £2,000
The basics
50. pkf-francisclark.co.ukpkf-francisclark.co.uk
• Manifesto pledge broken
• Top 1% pay 27% of all income tax!
• £32,000 of pay
• Employed - £6,170
• Self-employed - £2,300
• From April 2018 – 9% to 10%
• From April 2019 – 10% to 11%
• No impact where s/e earnings less than £16,250
National insurance for the self-employed
52. pkf-francisclark.co.uk
Residence nil rate band
• When a residence is passed on death to a direct
descendant:
• Property must have been occupied by the deceased as their
main residence at some point during the period of
ownership.
Tax Year Rate of RNRB
2017/18 £100,000
2018/19 £125,000
2019/20 £150,000
2020/21 £175,000
53. pkf-francisclark.co.ukpkf-francisclark.co.uk
• Downsizing provisions
• Unused band is transferable between spouses –
potential for £1 million IHT free
• Tapered withdrawal of the nil rate band for
estates with a net value of more than £2 million.
• Planning opportunities?
Residence nil rate band (continued)
54. pkf-francisclark.co.uk
Wear and tear allowance
• Allowance scrapped from
April 2016
• Replacement furniture
relief
• Initial furnishings
• FHLs retain capital
allowances
55. pkf-francisclark.co.uk
Financing costs – residential
• 100% financing cost deduction being phased out over a
number of years
• Replaced with a 20 % tax reducer
• Basic rate taxpayers, child benefit and personal allowance
impact.
Tax Year Finance cost relief
2017/18 75% of finance costs deductible against rental income, 25% tax
reducer
2018/19 50% of finance costs deductible against rental income, 50% tax
reducer
2019/20 25% of finance costs deductible against rental income, 75% tax
reducer
56. pkf-francisclark.co.uk
Financing costs – an example
2016/17 2020/21
Rental income £50,000 £50,000
General expenses -£10,000 -£10,000
Allowable interest -£20,000 -
Rental profit £20,000 £40,000
Tax at 40% £8,000 £16,000
Tax reducer at 20% - -£4,000
Tax payable on rental
income
£8,000 £12,000
57. pkf-francisclark.co.ukpkf-francisclark.co.uk
• Full finance cost relief
• Corporation tax rate 19% from 1 April, reducing to
17%
• Tax costs of setup – capital gains tax and stamp duty
land tax
• Reliefs may be available to mitigate tax costs
• Profit extraction
Incorporation of rental business
58. pkf-francisclark.co.ukpkf-francisclark.co.uk
• Succession planning alternative to traditional trusts
• £325,000 limit for trust transfers restrictive
• 45% vs 17%
• Control maintained
• Easy to transfer shares – PET’s
• Different share rights
• Not for everyone
Family investment companies
59. pkf-francisclark.co.ukpkf-francisclark.co.uk
• UK residential property disposed of by non-residents
• Default basis of tax computation – April 2015
• Alternative computation basis
• 18% and 28%
• Return must be made within 30 days of conveyance
• Penalties!
Non-resident capital gains tax
60. pkf-francisclark.co.ukpkf-francisclark.co.uk
• 3% surcharge for additional residential property
purchase
• Applies to any acquisition of residential property
• Commercial and mixed use properties are
unaffected
• Furnished holiday lets included
Stamp duty land tax
61. pkf-francisclark.co.ukpkf-francisclark.co.uk
SDLT (continued)
Main
residence
Second
home
or buy to let
Up to £40,000 Zero Zero*
Up to £125,000 Zero 3%
The next £125,000 (the portion from £125,001 to £250,000) 2% 5%
The next £675,000 (the portion from £250,001 to £925,000) 5% 8%
The next £575,000 (the portion from £925,001 to £1.5 million) 10% 13%
The remaining amount (the portion above £1.5 million) 12% 15%
64. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
ISA limits from 6 April 2017
Reduction to tax free dividend allowance from April 2018
– increases benefit of ISA
• Cash and stocks & shares - £20,000 (2016/17 £15,240)
• Lifetime - £4,000 plus Government bonus 25%
• Help to buy - £1,200 in first month + £200pm thereafter plus
Government bonus of 25%
• Junior - £4,128 (2016/17 £4,080)
• Innovative finance - £20,000 (2016/17 £15,240)
65. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Focus on lifetime ISA
Alternative to pension?
• Dual purpose – save for first home and/or retirement
• 25% Government top up
• Open to 18-40 year olds (can continue to age 50)
• Access before age 60 results in loss of Government top up and
investment growth unless
Using funds to buy first property up to £450,000
Terminal illness.
66. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Focus on junior ISA
Wealth transfer idea?
• Available from 0 to age 18 (becomes adult ISA at 18)
• Parents, grandparents, friends etc can contribute
• Using a calculator from Fidelity we can see that saving
£340 per month from birth to age 18 could produce a
fund of £101,322 assuming 5% annual growth
• An excellent way of transferring wealth down through
the generations with no tax consequences
• Could fund university fees or a property deposit.
67. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
NS & I bond
Interest rate confirmed at 2.2%
• Available to everyone over age 16
• £3,000 investment limit
• Three year term
• Available from April 2017 for 12 months
• Said to be ‘market leading rate’
• Open market shows Atom Bank offering 2.2% three
year fixed rate with FSCS protection up to £85,000!
68. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Pension update
Key changes/considerations
Budget confirmed reduction of annual allowance to
£4,000 from 6 April 2017 if money purchase annual
allowance triggered
What triggers it?
• Uncrystallised pension fund lump sum (UFPLS)
• Flexible access drawdown (income taken), but not if
just tax free lump sum
• Exceeding the income cap in capped drawdown
69. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Pension update
• From 6 April 2016 tapered annual allowance applies if
‘adjusted income’ exceeds £150,000
• Lifetime allowance reduced to £1m
• Individual protection 2014 deadline is 5 April 2017 for
those who had pension funds valued at more than
£1.25m at 5 April 2014
• Pension scams – consultation closed in February,
feedback due later this spring
• Aiming to tackle cold calling
• Giving powers to schemes to refuse pension transfers.
70. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Pension carry forward
• Carry forward still available from previous three tax
years
• Useful for those caught by tapered annual allowance
• Be aware that 2013/14 carry forward (£50,000) drops
away on 6 April 2017
• Can only carry forward if you had a registered pension
plan in place for the tax years used in carry forward
• No pension plan but may want to save in future? Start
one now to ensure full scope of carry forward is open
to you when you need it.
71. pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Non earners’ pension contributions
• Can contribute up to £3,600 per annum gross
• Net cost £2,880 per annum
• Tax relief each year of £720
• Can contribute for children
• Pension funds generally free of inheritance tax
• In a low interest rate environment, 25% instant uplift in
value is significant
• Wealth transfer opportunity, grandparents contributing
for grandchildren?
72. pkf-francisclark.co.ukpkf-francisclark.co.uk
Pension allowances restricted?
• Venture capital trusts
• High risk but with significant tax advantages
• HMRC approved
• £200,000 annual investment limit
• 30% up front tax rebate
• Tax free growth and dividends
• Must be held for five years to retain tax benefits
Alternative tax efficient investing
73. pkf-francisclark.co.uk
No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly
recommend that no action should be taken before obtaining detailed professional advice.
Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an
investor may not get back the amount invested.
PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised
and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF.
Registered in England No. 05413603.
Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not
accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
Exeter | New Forest | Plymouth | Poole | Salisbury | Taunton | Torquay | Truro
Disclaimer & copyright
fcpp.co.uk
75. pkf-francisclark.co.uk
(c) copyright PKF Francis Clark, 2017
You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise
circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by PKF Francis
Clark in any format whatsoever unless you have obtained prior written consent from PKF Francis Clark to do so and entered into a licence.
To the maximum extent permitted by applicable law PKF Francis Clark excludes all representations, warranties and conditions (including, without limitation,
the conditions implied by law) in respect of these materials and /or any services provided by PKF Francis Clark.
These materials and /or any services provided by PKF Francis Clark are designed solely for the benefit of delegates of PKF Francis Clark.
The content of these materials and / or any services provided by PKF Francis Clark does not constitute advice and whilst PKF Francis Clark endeavours to
ensure that the materials and / or any services provided by PKF Francis Clark are correct, we do not warrant the completeness or accuracy of the materials
and /or any services provided by PKF Francis Clark; nor do we commit to ensuring that these materials and / or any services provided by PKF Francis Clark
are up-to-date or error or omission-free.
Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law
and related regulations on the re-use of Crown copyright extracts in England and Wales.
These materials and / or any services provided by PKF Francis Clark are subject to our terms and conditions of business as amended from time to time, a
copy of which is available on request.
Our liability is limited and to the maximum extent permitted under applicable law PKF Francis Clark will not be liable for any direct, indirect or consequential
loss or damage arising in connection with these materials and / or any services provided by PKF Francis Clark, whether arising in tort, contract, or otherwise,
including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for
death or personal injury caused by our negligence, or for any other liability is not excluded or limited.
PKF Francis Clark is a trading name of Francis Clark LLP. Francis Clark LLP is a limited liability partnership, registered in England and Wales with registered
number OC349116. The registered office is Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF where a list of members is available for
inspection and at www.pkf-francisclark.co.uk. The term ‘Partner’ is used to refer to a member of Francis Clark LLP or to an employee. Registered to carry on
audit work in the UK and Ireland, regulated for a range of investment business activities and licensed to carry out reserved legal activity of non-contentious
probate in England and Wales by the Institute of Chartered Accountants in England and Wales. Partners acting as insolvency practitioners are licensed in the
UK by the Institute of Chartered Accountants in England and Wales. A partner appointed as Administrator or Administrative Receiver acts only as agent of the
insolvent entity and without personal liability. Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and
does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
Disclaimer & copyright
pkf-francisclark.co.uk
Editor's Notes
Part of our on-going commitment to progress and invest in our staff and acknowledging the experience and expertise they bring to the firm
Investing in new recruits across the tax practice, focussing on specialisms that our clients are requesting and who we believe will add significant value
Introduce yourself.
Cloud accounting is one of the ways Francis Clark are approaching MTD.
Although, irrespective of MTD, there are benefits to both client and accountant, by working in collaboration through cloud.
So, what’s being covered:
In it’s simplest form, cloud computing is storing and accessing data and programs over the Internet.
Sharing of servers allows a pooling of processing power.
Also means less IT infrastructure required in house, hardware costs more than software.
Access cloud via WiFi or mobile data.
Cloud already used day to day by business and individuals.
QuickBooks research showed 78% of businesses use cloud for business critical tools.
Examples: Apple + iTunes. (Not business critical – but most public use of the word ‘cloud’)
Google Docs, Gmail, etc.
And Online Banking, to name a few.
So why cloud accounting?
Building upon the previous slide:
As the image shows, get away from the desktop. Mobile. Access anytime, anywhere.
And anyone. We advocate giving your accountant access = proactive advice.
Sharing servers = more processing = do more with it.
Machine learning: Artificial intelligence is like teaching a child,
Do it once, do it twice, then software remembers and recommends actions.
This cuts down input time, reduces errors and increases consistency.
APIs: Creating a joined up business solution.
Connect EPOS, stock, payment processing, CRM, etc. to accounting software.
And a bit about our software partners:
Platinum partners with Xero and QuickBooks.
These are the high street vendors aimed at the SME OMB market and cost c.£25 per month, before partner discounts.
Most people pay more for a telephone contract these days…
Exact sit in the space between these vendors and larger offerings like NetSuite and Oracle.
They have product sweet spots in manufacturing, wholesale & distribution and time & fees.
The average OMB is likely to see the owner doing the record keeping.
This could be at least an evening a week of their personal time,
Or during the day eating in to their chargeable or business development time.
By automating the input of bank transactions and invoices this allows you to focus your time on the business.
Then use that time to make business decisions based on real time data.
Either from a real time snapshot,
Or more detailed management accounts.
Let’s move on to a demo…
I thought we would finish on a case study, one of Darren’s live clients:
Background:
A Senior Manager left his existing employment and set up his own limited company in project management. His partner looks after the accounting records. A typical owner managed business.
Efficiencies:
Historic Excel records were poor.
A mutual dislike from client and accountant of the Excel records and a joint decision was made to move to cloud software.
Both client and accountant input on the basic accounting functions have lessened.
As training needs reduce and efficiencies grow, this positive trend will continue.
Real time information:
As we have seen, cloud platforms give you great real time data.
In this instance, at the end of Q3, profitability was seen to be up tenfold. The client was reluctant to pay tax on this…
Additional services:
Both directors were over 55 years old.
A pension contribution was a logical means to shield corporation tax and efficiently extract some of the cash profit at the same time.
Our financial planning team was introduced, identifying that both directors had pre-existing SIPPs and unused prior year allowances: a not uncommon occurrence.
It was therefore possible to shelter a proportion of the corporation tax liability.
Further to the contributions, the financial planning team will have additional work managing the SIPPs and, rather than extracting cash, assisting with a purchase of commercial property within them.
Tax savings:
The SIPP contributions saved a considerable amount of corporation tax.
Real time information enabled the client to consider future supplier payments and tax liabilities ensuring a suitable balance between working capital requirements and tax savings.
Improved cash flow:
The client issued a stage payment request for £200,000, raised at the end of the VAT quarter.
Contract delays meant payment would not be received before the VAT payment date fell due.
Being on the invoice basis for VAT the client was exposed to the additional VAT liability before payment was received by them.
To alleviate this cash shortage the VAT basis was changed to cash for the one quarter, thus VAT was not due on the unpaid invoice.
The following quarter the basis was reversed to invoice basis.
Overall, one happy client.
If you would like to know more…
Unfortunately Darren is currently away with Exact working on a joint plan for the next 12 months.
When limits go up, the transitional rules are favourable.
When limits decrease, the rules can catch people out. Amount of allowances depends on year ends.