2018/19 Our knowledge, your language - Abbott Moore
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Our knowledge, your language
TA X E S
MADE
E A S Y
2018/19
Taxes made easy Contents
clear and concise tax guide A few essentials 2 Companies
Income shifting
Introduction
2018/19 Self assessment (SA) timetable
Family matters 4
Value Added Tax (VAT)
Making Tax Digital (MTD)
The Personal Allowance Tax and your
Practical tax tips to guide you through the tax system Tax rates and allowances investments 17
and help you plan to minimise your liability. Children Pensions
High Income Child Benefit Tax free savings
Please use this guide to identify areas where you Charge Other tax efficient investments
could take action, then contact us for advice and Tax-Free Childcare
to discuss the most appropriate way forward. What about unmarried partners? Property matters 19
A word of warning Buy to let
Main residence
Working for others 8
The tax code Disposals and capital
Benefits gains tax 21
Expense payments Entrepreneurs’ Relief
Investors’ Relief
Running a business 11
Choosing a business structure Preserving the
The tax regime inheritance 22
Capital allowances Key features:
Paying the tax So what’s the problem?
Employer obligations Mitigating the liability
1
A few essentials
and Customs (HMRC), the organisation that Details of any capital gains may have to be
Introduction administers and regulates all taxes in the UK. included on the self assessment return.
In the UK most income tax which flows into the Over 10 million taxpayers have something Inheritance tax may be payable on the assets
Exchequer does so by deduction at source. more than just a regular income taxed under that you give to others in your lifetime or leave
The tax is taken from income before it is paid PAYE or income covered by the Savings and behind when you die. At one time very few
to the taxpayer and most of this happens by Dividend Allowances. They might have income individuals had to worry about this tax.
way of Pay-As-You-Earn (PAYE). This collection from their own business or receive rent from
system will no doubt be familiar to almost House price increases over the last two to
a property. Alternatively, it may be that their
everyone who is in employment and also to three decades have changed this and many
savings or dividend income is significant
those who receive pensions. more estates have now become liable so
enough to result in tax being payable at the
you may need to consider some planning to
For many savers, using banks and building basic, higher or additional rates of tax. These
minimise this tax.
societies, their interest income is covered by taxpayers may be asked to complete a self
the Savings Allowance. Make sure you read assessment return each year and then they will Many of those in business have to understand
the guidance on this issue covered in the ‘tax have direct contact with HMRC. the principles of Value Added Tax (VAT)
rates and allowances’ section on page 4. because they will have to act as an unpaid
Practical Tip collector of this tax. In addition, those who run
Many of us, including children, the retired and their business through a limited company need
working people, will have savings accounts of If you are not asked to complete a tax return, to know about corporation tax which taxes a
one sort or another and many might also have it remains your responsibility to advise company’s profits. Employing others in your
shares from which income arises in the form of HMRC if there is a new source of untaxed business brings further obligations with Real
dividends. The Dividend Allowance may cover income, a capital profit that could lead to Time Information reporting for PAYE and auto
the total amount of dividends received so they a tax liability or you are subject to the high enrolment pension contributions and reporting.
are taxable at 0%. However the allowance is income child benefit charge. Please contact We consider these issues later in this guide.
reduced for 2018/19 so strategies may need us for further advice if this affects you.
reviewing to maximise income and minimise
income tax. Income tax is not the only means by which
the government relieves us of our hard earned
As the circumstances described above cover cash. You may own assets such as a precious
the overwhelming majority of individuals, antique, a second home or shares. If such
more than 80% of the population will have an asset is sold, the chances are that a profit
little or no regular contact with HM Revenue will arise and this may give rise to a liability to
capital gains tax (CGT).
2 A few essentials
Practical Tip Self assessment (SA) timetable
Remember to keep all tax related documents •• Income tax and capital gains tax are both
such as interest statements, dividend assessed for a tax year which runs from
vouchers, pay certificate form P60 etc. Place 6 April to the following 5 April.
everything in a folder through the year as it
is received. Then you can simply hand this •• Shortly after 5 April - SA returns or a notice
to us when we need to prepare your self to complete a return are issued by HMRC.
assessment return. •• 31 October following - non-electronic returns
need to be submitted to HMRC by this date.
HMRC are increasingly emphasising the
importance of good records. Failure to maintain •• 31 January following - final date for
adequate records may lead to inaccurate tax submission of the return and all outstanding
returns, which could result in penalties. tax to be paid.
This guide is designed to provide you with •• There is an automatic penalty for late filing of
an overview of all of these taxes from seven the return of £100.
perspectives - that of the family; the employee; •• Further penalties may be due if the filing of
the person running their own business; the the return is significantly delayed. These may
taxation of investments; property matters; run into hundreds of pounds.
disposals and CGT and, finally, knowing that
nothing is certain except death and taxes, the Practical Tip
potential liability on your estate at death.
The full £100 penalty will always be due if
Please use the guide to help you identify your return is filed late even if there is no
planning opportunities, pitfalls to avoid and tax outstanding. It is therefore essential
areas where you may need to take action and to submit the return on time either by 31
then contact us for further advice. October (non-electronic) or otherwise by 31
January following the end of the tax year.
A few essentials 3
Family matters
Married couples limited circumstances detailed later in this guide For most UK residents the following tax rates
the personal allowance may not be transferred and bands apply:
Spouses are taxed as independent persons,
from one spouse to the other.
each of whom is responsible for their own tax
affairs. The phrase ‘spouse’ whenever used in Income tax Dividend
Losing the personal allowance Rate %
this guide includes a registered civil partner. band £ rate %
Where an individual’s total income exceeds
0 - 34,500 20 7.5
£100,000 the personal allowance is reduced
The Personal Allowance by £1 for every £2 of income in excess of that 34,501- 150,000 40 32.5
In principle all individuals are entitled to a basic limit. This means that an individual with income Over 150,000 45 38.1
personal allowance before any income tax of £123,700 or more will not be entitled to any
whatsoever is paid. However, some individuals personal allowance. In addition some taxpayers may be entitled to
on high incomes may receive a reduced or the starting rate for savings which taxes £5,000
even no personal allowance. This is Tax Tip of interest income at 0%. However this rate is
explained further below. not available if non-savings income (broadly
If your income is in the range £100,000 - earnings, pensions, trading profits and property
The 2018/19 personal allowance is £123,700 the restriction in your personal income) exceeds the starting rate limit.
£11,850. Tax bands and rates are allowance is the equivalent of a tax cost of
applied to each spouse separately, 60%. You may want to consider making or For 2018/19 the tax rates and bands applicable
so that each may generally have increasing certain payments which are tax to Scottish taxpayers on non-savings and non-
taxable income up to £46,350 deductible to minimise this tax cost. dividend income are as follows:
before they start to pay higher
Examples include pension contributions Scottish income Band Rate
rate tax. See the income tax
(which may be subject to restrictions) and tax band £ Name %
rates table for the
charitable donations.
different rates and 0 - 2,000 Starter 19
bands which apply to
Scottish taxpayers. Tax rates and allowances 2,001 - 12,150 Basic 20
For spouses there The income tax bands and rates for 2018/19 12,151 - 31,580 Intermediate 21
is no aggregation of are determined by where you live in the UK and
31,581 - 150,000 Higher 41
income, no sharing of the the type of income you have.
tax bands and except in Over 150,000 Top 46
Scottish taxpayers pay tax on their savings and
dividend income using the UK rates and bands.
4 Family matters
Other Allowances For those couples where one person does not
Example use all of their personal allowance the benefit
Individuals may be entitled to Savings
In 2018/19 Ian and Angela have savings will be up to £238 (20% of £1,190).
Allowance (SA) with savings income within the
income of £50,000, dividend income of
SA taxed at 0%. The amount of SA depends Jointly owned assets
£50,000 and no other income. If this is split
on an individual’s marginal rate of tax. An
equally between them, the total tax bill for Married couples will often own assets in some
individual taxed at the basic rate of tax has an
the couple is £8,335. If only one spouse form of joint ownership. If they do not, then
SA of £1,000 whereas a higher rate taxpayer
has income of £100,000 and the other has it may be advantageous for tax purposes for
is entitled to an SA of £500. Additional rate
nothing, the total tax bill leaps to £23,860 - transfers to be made to ensure joint ownership.
taxpayers receive no SA.
an additional £15,525!
The Dividend Allowance (DA), available to all This can have benefits for income tax, CGT
taxpayers regardless of their marginal tax rate, and even inheritance tax.
charges the first £2,000 of dividends to tax Tax Tip
at 0%. Prior to 2018/19 the DA was £5,000. If you are feeling charitable, remember that Tax Planning
Dividends received above this allowance are a donation to charity under the Gift Aid If you and your spouse are both involved
taxed at the rates shown in the table on page 4. scheme benefits from tax relief. It makes in running a business, income can be
sense for a higher rate/additional rate equalised if you are equal partners or equal
Dividends within the DA still count towards an
taxpayer spouse to make such donations so shareholders. Alternatively, if only one of you
individual’s basic or higher rate band and so
that they can benefit from the extra tax relief. is involved, the other could be employed in
may affect the rate of tax payable on dividends
above the £2,000 allowance. Alternatively, in some circumstances, a small capacity, drawing a salary to use up
donations can be carried back to attract tax their personal allowance.
Dividends are treated as the top slice of
relief in the previous tax year.
income. So the basic rate tax band is first Where assets are owned in joint names,
allocated against other income. Tax breaks for spouses any income is deemed to be shared equally
between the spouses. If the actual ownership
Minimising the tax bill Married couples and civil partners may be shares are unequal, income is still deemed to
It follows from the basic rules set out above eligible for a Marriage Allowance (MA). be split equally unless an election is made to
that tax is minimised if spouses equalise, as The MA enables spouses to transfer a fixed split the income in the same proportion as the
far as possible, their income so that personal amount of their personal allowance to their ownership of the asset.
allowances, SA and DA are fully utilised and spouse. The option to transfer is not available This does not apply to shares in close
higher/additional rates of tax are minimised. to unmarried couples. companies (almost all small, private, family
The option to transfer is available to couples owned companies will be close companies)
where neither pays tax at the higher or where income is always split in the same
additional rate. If eligible, one partner will proportion as the shares are owned.
be able to transfer 10% of their personal
allowance to their partner which means £1,190
for the 2018/19 tax year.
Family matters 5
Transferring income to children child reaches age 18. However, the child’s
Example friends and family are able to contribute up
Children have their own personal allowances
A buy to let property is owned three quarters to the annual limit of £4,260. It is possible to
and tax bands. Where their only income is, at
by Helen and one quarter by her husband transfer the investment to a Junior Individual
best, a few pounds from a paper round or a
Mark. If no election is made the net rental Savings Account.
Saturday job, there may be some scope for
income on which tax is payable will be split
transferring income producing assets to the Junior ISA (JISA)
50:50.
children to use up their personal allowance.
If an election is made the income will be split A JISA is available for UK resident children
However, such assets should not be provided under the age of 18 who do not have a CTF
75:25. A choice can be made according
by a parent, otherwise the income remains account. JISAs are tax advantaged and have
to which is the most desirable when other
taxable on the parent, unless it does not exceed many features in common with existing ISAs.
income of the spouses is taken into account.
£100 (gross) each tax year.
They are available as cash or stocks and share
Capital gains tax based products but a child can only have one
Tax Planning cash JISA and one stocks and shares JISA.
Independent taxation also applies to CGT. Each
spouse is entitled to take advantage of the There is nothing to stop you employing your The annual investment is limited to £4,260.
annual exemption of £11,700 before any CGT children in the family business so as to take
has to be paid. advantage of their personal allowance. There Tax Planning
are age restrictions (with some exceptions
This is advantageous where assets are held the minimum age is generally 13 years old) There are some other limited ways income
jointly and then sold as each spouse can use and legal limitations as to the type and can be transferred to children tax efficiently
their annual exemption to save tax. duration of the work. It is also essential that such as:
The transfer of assets between spouses is payment is only made for actual work carried •• National Savings Children’s Bonds which
neutral for CGT. This is sometimes done shortly out for the business and at a reasonable are tax free.
before assets are sold, to minimise tax. Advice commercial rate.
•• Friendly Societies offer 10 year minimum,
should be sought before undertaking such tax exempt savings plans for children for up
transactions to ensure that all tax aspects have Children and capital gains
to £25 per month.
been considered. Please contact us for CGT Children also have their own annual exemption
advice. for CGT so that assets transferred to them
which have a bias towards capital growth
High Income Child Benefit
Children rather than income may prove to be more Charge
advantageous.
It is often assumed that children are not A charge arises on a taxpayer who has
taxpayers. In fact HMRC will tax a child just as Child Trust Funds (CTFs) adjusted net income over £50,000 in a tax
readily as anyone else if the child has sufficient year where either they or their partner are in
The availability of new CTFs ceased from
income to make them liable. receipt of Child Benefit for the year. Where both
January 2011, as did government contributions
to the accounts. Existing CTFs however partners have adjusted net income in excess of
continue to benefit from tax free investment £50,000 the charge applies to the partner with
growth. No withdrawals are possible until the the higher income.
6 Family matters
The income tax charge applies at a rate of 1% Parents need to register with the government and wife may attract the interest of HMRC
of the full Child Benefit award for each £100 and open an online account. The government especially where it is obvious that it has been
of income between £50,000 and £60,000. ‘top up’ payments into this account at a rate done primarily for tax saving purposes. Transfer
The charge on taxpayers with income above of 20p for every 80p that families pay in. The of ownership of an asset must be real and
£60,000 will be equal to the amount of Child scheme is limited to £10,000 per child per year. complete, with no right of return and no right to
Benefit paid. The government’s contribution is therefore a the income on the asset given up.
maximum of £2,000 per child.
Child Benefit claimants are able to elect not to If a non-working spouse is given shares in an
receive Child Benefit if they or their partner do Employer Supported Childcare (see the otherwise one-person, private company, HMRC
not wish to pay the charge. Working for Others section) is being phased may, in some circumstances, seek to tax the
out and is expected to close to new claimants working spouse on all of the dividends under
Equalising income can help to reduce the
from 4 October 2018. Parents who qualify what is known as the ‘settlements legislation’.
charge for some families.
for both schemes are able to choose which So you may want to consider obtaining advice
scheme they wish to use but families cannot from us before entering into this type of
Example benefit from both schemes at the same time. arrangement.
Phil and Jane have two children and receive To find out about all childcare options visit
£1,789 Child Benefit for 2018/19. Jane has www.childcarechoices.gov.uk Checklist for Couples
little income. Phil expects his adjusted net
✔✔ Try to equalise your income.
income to be £55,000. On this basis the What about unmarried
tax charge will be £895. This is calculated
as £1,789 x 50% (£55,000 - £50,000 =
partners? ✔✔ Consider placing assets in joint names.
£5,000/£100 x 1%). It still pays to equalise income as much as ✔✔ If you have children consider making use
possible, as income tax will be minimised. of their personal allowances.
If Phil can reduce his income by £5,000 to
£50,000 no charge would arise. This could be However, transfers of assets may be liable to
achieved by transferring investments to Jane CGT and, if substantial, could also lead to an
or by making additional pension or Gift Aid inheritance tax liability. It is vital for unmarried
payments. couples to each make a Will if they wish to
benefit from each other’s estate at death.
Tax-Free Childcare Remember all the special rules for married
couples, both those dealt with in this section
The scheme is available to families where all and those covered in other sections of
parents are working (on an employed or self- this guide apply equally to same-sex
employed basis) 16 hours a week and meet a couples who have entered into a
minimum income level (generally £125 a week) registered civil partnership or marriage.
with each earning less than £100,000 a year.
Parents who are receiving support through Tax A word of warning
Credits or the Universal Credit are not eligible.
Transferring assets or interests in
a business between husband
Family matters 7
Working for others
Few avoid working for others at some time income tax rates apply to an employee’s pay, Valuation
in their life and most will have encountered rather than the rates and bands which apply
New rules were introduced from April 2017
the PAYE system operated by employers to across the rest of the United Kingdom (see the which may affect the value of a benefit. Where
collect the income tax and national insurance Family Matters section of this guide for details a benefit is taken rather than an alternative cash
contributions (NICs) due on wages and salaries. of rates and bands). option, the taxable value of the benefit is the
With so many complications and some higher of the cash foregone or the taxable value
The tax code guesswork involved, getting the code exactly under the normal benefits rules. Transitional
Ensuring the right amount of tax is taken right can be difficult and the right amount of tax provisions apply for arrangements entered into
relies on a PAYE code, issued by HMRC and will not always be deducted. before 6 April 2017.
based on information given in a previous self
Company cars
assessment return or supplied by the employer. Tax Tip
The employee, not the employer, is responsible Employer provided cars, commonly known as
for the accuracy of the code. If you are unsure about your code and are company cars, remain a popular benefit and for
anxious not to end the tax year under or some a real status symbol, despite continued
Code numbers try to reflect both an individual’s overpaid, then you should have it checked. increases in the tax charge they give rise to.
tax allowances and reliefs and also any tax HMRC may update an individual’s tax code
they may owe on employment benefits and The charge on cars is generally calculated
during the tax year to reflect changes to by multiplying the list price of the car by
in some cases other types of income. For benefits and to collect tax underpayments.
many employees things are simple. They will a percentage which depends on the CO2
Please talk to us about getting your tax code emissions (recorded on the Vehicle Registration
have a set salary or wage and only a basic checked.
personal allowance. Their code number will be Document) of the car. You then pay tax at 20%,
1185L and the right amount of tax should be 40% or 45% on this charge depending on your
paid under PAYE. However, for those who are Benefits overall tax position. The tax rates applicable to
provided with employment benefits the code Scottish taxpayers range from 19% to 46%.
The range of benefits available will vary
number is generally adjusted to collect the tax significantly depending on the type of The table on the next page shows the
due so that there are no nasty underpayment employment. Some attract no tax but even percentages for 2018/19. For the majority of
surprises. HMRC may also try to collect tax taxable benefits can be efficient as the benefit company car drivers using a petrol car the
on untaxed income, tax on dividends and tax obtained by the individual can often outweigh taxable benefit is 2% higher compared to the
owing for an earlier year. previous year.
the tax cost arising. In addition, for the individual
For Scottish taxpayers a letter ‘S’ is included (but not the employer) benefits generally do not If the car has a diesel engine the charge is
in the tax code and denotes that the Scottish attract NICs. generally increased by a further 4% supplement
8 Working for others
(except that it cannot exceed 37%) list price subject to tax will generally increase
unless the car is registered on or after
Example by 3% for 2019/20 (but retaining the 37%
1 September 2017 and mets the Euro Mark has an Audi A3 TDI (diesel) registered on maximum). In addition, the
6d emissions standard. The diesel 1 February 2017. It has an original list price of diesel supplement is now
supplement has been increased from £20,155 and CO 2 emissions of 99g/km. Mark generally 4%.
3% to 4% from 6 April 2018. had extras fitted to the car costing £1,000 (VAT
inclusive). In 2018/19 the taxable benefit will
2018/19 be £5,077 ([20,155 + 1,000] x 24%*). If Mark
is a 40% taxpayer the tax due on this will be
CO2 emissions % of car’s price
£2,031.
(g/km) taxed
0 to 50* 13 * 20% from the table plus 4% diesel
supplement.
51 to 75* 16
76 to 94* 19 Fuel for private use
95 20 A separate charge applies where private fuel is Medical insurance
100 21 provided by the employer for a company car. The employee is taxed on the amount of the
105 22 The charge is calculated by applying the same premium paid by the employer.
percentage figure used to calculate the company car
110 23 Home and mobile phones
benefit to a fixed figure which for 2018/19 is set at
115 24 £23,400. No fuel benefit applies to an electric car. There is no benefit on the provision of a company
120 25 mobile phone even where it is used privately.
125 26 Tax Planning However, this is limited to one phone per
employee.
130 27 The fuel benefit charge can be expensive. It
135 28 Where home telephone bills are paid by the
may be cheaper for the employee to pay for all
employer, the amount paid will be taxable. The
140 29 the fuel and to reclaim from the employer the
employee may make a tax deduction claim for the
145 30 cost of business miles driven in a company car
cost of business calls only but not the line rental.
based on a specific log of business journeys
150 31 undertaken. Cheap or interest free loans
155 32
HMRC publish advisory fuel rates for company If loans made by the employer to an employee
160 33 cars which are updated on a quarterly basis. exceed £10,000 at any point in a tax year, tax
165 34 See gov.uk/government/publications/advisory- is chargeable on the difference between the
170 35 fuel-rates for the latest position or contact us. interest paid and the interest due at an official rate
- currently set at 2.5% per annum. An exception
175 36
Planning to change your car? applies for certain qualifying loans - please
180 and above 37 contact us for information.
Significant changes to the car benefit rules are
round down except * taking place. The appropriate percentages of the
Working for others 9Pension Contributions for the first 10,000 miles in a tax year and 25p
Tax Tip thereafter.
Contributions by an employer to a registered
The £10,000 limit on tax free loans is an pension scheme are generally tax and NICs free If the employee is paid for business miles at less
attractive perk for many employees. for most employees. This may be far better than than the statutory rates, tax relief is available
any other perk. on the difference. If, however, the employee is
Childcare costs paid at more than these rates then the excess
Childcare costs paid for by an employer are Tax Tip is taxable.
exempt from both income tax and NICs. This
You may want to sacrifice some of your If you are paid less than the statutory rates
applies to a place in an employer operated
‘normal’ salary to do this. Please talk to us to use your own car for business purposes
nursery or where the employer pays for
to make sure your salary sacrifice scheme is remember to claim a deduction on your return
registered or approved childcare as long as
effective. or write to HMRC to make your claim.
the scheme meets certain requirements. In
the latter case the exemption is limited to a
maximum of up to £55 per week depending Expense payments Example
on when the employee first receives employer In 2018/19 Michael travels 14,100 business
supported childcare and their tax position. Any An employee can claim tax relief for expenses
which are incurred wholly, exclusively and miles in his own car and is paid 32p per mile
excess amounts are subject to tax and NICs. by his employer.
Employer supported childcare necessarily for business purposes. The main
is now expected to close types of expense are travelling to places for Michael can claim tax relief on an additional
to new claimants from 4 work (but not the normal place of work) amount of £1,013 ((10,000 x 45p) + (4,100 x
October 2018. Employer and overnight accommodation. 25p)) - (14,100 x 32p).
supported childcare is Reimbursed expenses
being replaced with Vans
An employer would normally
Tax-Free Childcare. Where employees are provided with a van and
reimburse an employee for
See the Family the only private use of this is to travel to and
business expenses. Employers
Matters section of from work (including any incidental private use),
are no longer required to report
this guide for more then no taxable benefit should arise. If there
reimbursed tax deductible business
information on Tax- is private use beyond this, there is a benefit of
expenses and therefore employees
Free Childcare. £3,350 for 2018/19 and an additional £633 if
do not need to claim tax relief on
Employees who these expenses. fuel is provided for private as well as business
qualify for both journeys. In order to avoid this charge, it is
schemes are able to Mileage claims advisable to have a formal written policy,
choose which scheme they Many employers pay a standard rate detailed mileage logs and make use of vehicle
wish to use but families of mileage to all employees who tracker records. These will support the limited
cannot benefit from both use their own cars for business private use of the van and may avoid problems
schemes at the same time. journeys. HMRC set statutory rates with HMRC in the future.
for business mileage which are 45p
10 Working for othersRunning a business
Starting up a business of your own is a big partnership. Again, the business and personal choose which structure is right for you based
step and not one to take lightly. The taxation of affairs of the partners are not legally separate. on more than just the tax issues alone.
your business is only one of many commercial
Sole traders and partnerships are often
and legal aspects of starting a business that
referred to as unincorporated businesses and
The tax regime
you will need to consider.
the individual owners as self-employed. Unincorporated businesses
Preparation is the key and a proper business
Limited Company A new business should register with HMRC on
plan is one of the first things you should do.
A company is a legal entity in its own right, commencing to trade. Income tax is paid on
However, tax matters are our main concern
separate from the personal affairs of the the profits of the business. The amount that
here.
owners and the directors. the proprietor, or a partner in a partnership,
Choosing a business structure A company provides protection from liability,
draws out of the business (referred to as
‘drawings’) is irrelevant.
The alternative business structures are: which means that the creditors of the company
cannot make a claim against the owners or Profits are taxed on a current year basis
Sole Trader the directors except in limited circumstances. as shown by the example, although a new
Often this advantage is somewhat eroded business will be subject to special rules, which
This is the simplest form of business structure
because a bank, for example, may seek we will be pleased to explain to you.
since it can be established without legal
formality. personal guarantees from the directors.
These potential advantages carry the
Example
The business of a sole trader is not
distinguished from the proprietor’s personal downside of greater legal requirements and If the accounting period (or ‘year’) end is 31
affairs. If the business incurs debts which are regulations that must be complied with. March then, in the tax year 2018/19, the
unpaid, the creditors can seek repayment from profits for the year ended 31 March 2019 will
Limited Liability Partnerships (LLPs)
the sole trader personally. be taxed.
LLPs are a halfway house between
Partnership partnerships and companies. If the year end was 31 August then, in the tax
A partnership is similar in nature to a sole year 2018/19, the profits for the year ended
They are taxed in the same way as a 31 August 2018 will be taxed.
trader but involves two or more people partnership but are legally a corporate body.
working together. This again gives some protection to the
A written agreement is essential so that owners from the partnership’s creditors.
all partners are aware of the terms of the In this guide we consider the differing tax
treatments of the alternatives but you should
Running a business 11However see details of the optional cash basis Trading and property income allowances
Tax Tip for smaller unincorporated businesses. New £1,000 allowances for trading and
The choice of accounting date on a business Not all of the expenses that a business incurs property income have been introduced
start up can affect: are allowed to be deducted from income for from April 2017. Individuals with trading or
• how profits are taxed tax purposes but most are. It is important that property income below £1,000 no longer
you keep proper and comprehensive business need to declare or pay tax on that income.
• when tax is payable records so that relief may be claimed. Those with income above the allowance are
able to calculate their taxable profit either by
• when losses are relieved. deducting their expenses in the normal way or
Tax Tip by simply deducting the relevant allowance.
So do contact us to discuss the options
available for your circumstances. Try to incur expenditure just before rather
than just after the year end, as this will Cash basis for smaller unincorporated
accelerate the tax relief. businesses
Working out profits
An optional basis for calculating taxable
Profits are calculated using accepted Examples of the type of expenditure to
profits is available to small unincorporated
accounting practices and crucially this means consider bringing forward include building
businesses. If an owner of a business decides
that profit is not necessarily simply receipts repairs and redecorating, advertising,
to use the cash basis, the business profits
less payments. Instead it is income earned marketing campaigns and expenditure on
would be taxed on cash receipts less cash
less expenses plant and machinery.
payments of allowable expenses subject to a
incurred.
number of tax adjustments.
The optional scheme requires an election by
the business owner and is only available where
the business receipts are less than £150,000.
Businesses can stay in the scheme up to a
total business turnover of £300,000 per year.
A bit more detail of the scheme:
•• Cash receipts include all amounts received
in connection with the business including
those from the disposal of plant and
machinery. The good news is that if a
customer has not paid what is owed by the
year end, the amount due is not taxable until
next year.
•• Allowable payments include paid expenses
but these still need to meet the existing tax
rule of being wholly and exclusively incurred
for the purposes of the trade.
12 Running a business•• Payments include most purchases of plant Motor cars The RTI submission details payments made
and machinery, when paid, rather than The tax allowance on a car purchase depends which include salary, overtime and statutory
claiming capital allowances. The bad news on CO2 emissions. Currently purchases of payments such as statutory maternity pay. It
is that if a supplier is not paid by the year cars with emissions of up to 110g/km attract also details the income tax, national insurance
end, the amount is not relievable until next an 18% allowance and those in excess of contributions (NICs) due together with other
year. 110g/km are only eligible for an 8% allowance. deductions such as student loan repayments.
•• Interest payments are only allowed up to a The PAYE and NICs on salaries is payable
limit of £500. Paying the tax monthly (or quarterly where the amount due is
The self-employed may have to pay tax and less than £1,500 per month).
•• Business losses may be carried forward to
set against the profits of future years but not NICs three times a year, namely: Penalties apply to employers who fail to make
carried back or set off ‘sideways’ against •• 31 January in the tax year returns on time. These penalties range from
other sources of income. £100 to £400 per month depending on the size
•• 31 July following the tax year of the employer. Interest and penalties also
Do get in touch if you would like us to consider
•• 31 January following the tax year. apply for failing to pay on time.
if this optional scheme is appropriate for you
and your business. In certain circumstances, the first two payments The employer must also report details of
can be waived. expenses and benefits provided to employees.
Capital allowances More information on the valuation of benefits is
When assets are purchased for the business,
Employer obligations contained in the Working for Others section of
this guide.
such as machinery, office equipment or motor As an employer you will have many
vehicles, capital allowances are available. responsibilities. These will include employment Pensions Auto Enrolment
As with expenses, these are deducted from law requirements which are not covered in this Pensions Auto Enrolment places obligations
income to calculate taxable profit. guide and HMRC requirements to report pay on employers to automatically enrol ‘workers’
and benefits. Two other requirements place a into a work based pension scheme. Employers
Plant and machinery - Annual Investment
further burden on employers. have to comply with their obligations which
Allowance (AIA)
include:
The AIA gives a 100% write off on most types Real Time Information
of plant and machinery costs, but not cars, of Real Time Information (RTI) reporting is •• assessing the types of workers in the
up to £200,000 per annum. mandatory for broadly all employers. business
Any costs incurred in excess of the AIA will Under RTI employers, or their agents, are •• providing a qualifying automatic enrolment
attract an annual ongoing allowance of 8% or required to make regular payroll submissions pension scheme
18% depending upon the type of asset. for each pay period during the year. The •• automatically enrolling all ‘eligible jobholders’
submissions detail payments made to and into the scheme and
Businesses are eligible for a 100% allowance,
deductions made from employees. These
on certain energy efficient plant and low •• paying employer contributions.
submissions must generally be made on or
emission cars.
before the date the amounts are paid to the
employees.
Running a business 13All employers will need to contribute at least Warning - close company loans to
3% of the ‘qualifying pensionable earnings’ for Practical Tip
participators
eligible jobholders. However, to help employers If you operate as a limited company, there A close company (which generally includes
adjust, compulsory contributions are being is a legal separation between you as the owner managed companies) is taxed in certain
phased in, and are currently payable at 2% owner and the company itself. This means circumstances when it has made a loan or
before rising to 3% from 6 April 2019. you cannot use the company bank account advance to individuals or their family members
If the employer only pays the employer’s as if it were your own! This requires a certain who have an interest or shares in the company
minimum contribution, employees’ amount of discipline without which all kinds of (known as participators). The tax charge is
contributions are currently 3% of their salary, legal and tax related difficulties can occur. currently 32.5% of the loan if it is outstanding
before rising to 5% from 6 April 2019 as there nine months after the end of the accounting
is an overall minimum 8% contribution rate. Corporation Tax period. The tax charge is repaid to the company
The employee contributions may be paid net Companies currently pay corporation tax at nine months after the end of the accounting
of basic rate tax depending on the type of 19%. period in which the loan is repaid.
pension scheme.
Tax on ‘drawings’ Further rules prevent the avoidance of the
charge by repaying the loan before the nine
Practical Tip Directors of a company will normally be paid
month date and then effectively withdrawing the
a salary and this is taxed under PAYE as for
All employers have to comply with Auto same money shortly afterwards.
all employees. The cost of this, including the
Enrolment from when they first take on an employer’s NICs, is generally an allowable A ‘30 day rule’ applies if at least £5,000 is
employee. We can help you to deal with Auto expense of the company. Shareholders of the repaid to the company and within 30 days new
Enrolment. company in contrast may be rewarded by the loans or advances of at least £5,000 are made
payment of dividends on their shares. to the shareholder. The old loan is effectively
Companies treated as if it has not been repaid. A further
Tax Tip rule stops the tax charge being avoided by
Unlike sole traders and partnerships who pay waiting 31 days before the company advances
tax on profits only (and drawings are ignored), In most small companies the directors and further funds to the shareholder. This is a
companies have two layers of tax. The first is shareholders are one and the same and so complex area so please do get in touch if this is
tax payable by directors and shareholders on they can choose the most tax efficient way to an issue for you and your company.
money they take out of the company and the pay themselves. Using dividends can result
second is corporation tax which is due on the in savings in NICs. This requires planning
Planning Tip
company’s profits. and needs to take account of the Dividend
Allowance, which taxes dividends within the Ensure that sufficient salary and dividends
allowance at 0%, and dividend rates of tax. are drawn from the business to prevent these
charges arising unnecessarily on an overdrawn
The Dividend Allowance is £2,000 from
director’s current account. We can also ensure
6 April 2018, a reduction in the previous
that overdrawn accounts are cleared properly.
Allowance of £5,000, so careful planning is
Please contact us if you would like to discuss
required. Please talk to us to decide what is
the right options for you and your business.
appropriate for you.
14 Running a businessTax on profits
Practical Tip Value Added Tax (VAT)
The profits of a limited company are calculated
in a similar way as for unincorporated HMRC issue toolkits on various tax topics VAT is a tax ultimately paid by the final
businesses and the same rules with regard to help taxpayers and their agents comply consumer and businesses act as the
to expenses and capital allowances generally with tax law. One of the main areas of non collectors of the tax. There are heavy fines for
apply. Remember though that the salaries compliance identified by HMRC is poor failing to operate the system properly.
paid to directors, but not the dividends paid to record keeping and this applies to all types of
What does VAT apply to?
shareholders, are deductible from the profits business. If you would like guidance on what
records to keep please get in touch. VAT is chargeable on the supply of goods and
before they are taxed.
services in the UK when made by a business
that is required to register for VAT.
Tax Planning Income shifting
A registered business must charge VAT on its
Companies are a popular business Over recent years, many families have been sales which is known as output VAT. There
structure as they generally result in less tax attracted by the savings that can be made by are currently three rates of VAT which can
being paid overall. However the tax rates combining small salaries and large dividends. be payable on what are known as taxable
on dividends (7.5%, 32.5% and 38.1% It was possible to increase the savings supplies. These are the standard rate of 20%,
depending on whether you are a basic, available by introducing a non-working family the reduced rate of 5% and the zero rate.
higher rate or additional rate taxpayer) and member into the business as a shareholder or
the reduction in the Dividend Allowance from co-owner, to use up their personal allowance
April 2018 reduce the tax savings available and lower rates of tax.
by incorporating and trading as a limited
Care needs to be taken as rules aimed
company.
at counteracting this in the ‘settlements
We would be happy to discuss the legislation’ could be used to challenge certain
implications of incorporation with you before arrangements. If you have any questions or
you decide whether or not to incorporate concerns, please do not hesitate to contact us.
your business.
Payment of tax
Corporation tax is usually payable nine months
and one day after the year end, so the choice
of accounting date has no tax consequence.
Running a business 15The zero rate applies where the supply is the type of supplies correctly and apply the such as building companies, then it will not
deemed to be subject to VAT but the output correct percentage of VAT. matter whether he is registered because the
VAT is charged at 0%, meaning that no VAT is customer will be able to recover the VAT that
Some input VAT is not reclaimable by a VAT
actually payable. is charged.
registered business. Two common examples
However, a business also pays VAT on the are VAT incurred on entertaining UK business Indeed, in general, a business that always
goods and services it buys. This is known as customers and VAT on the purchase of a car. sells to other VAT registered businesses will
input tax. normally register, even if below the annual limit,
because then it can reclaim VAT on purchases
If the output tax exceeds the input tax,
and expenses.
then a payment of the difference has to be
made to HMRC. If input tax exceeds output This will improve profit and can be especially
tax a repayment of VAT will be made. This relevant for new businesses because there are
calculation is generally done on a quarterly often high initial set up costs that carry VAT.
basis. However where repayments occur On the other hand, registration comes at the
regularly it is possible to opt for monthly VAT cost of having to meet onerous record keeping
returns. Regular repayments would perhaps requirements, a need to submit online VAT
apply where a business generally makes zero returns and pay online and on time.
rated supplies.
Making Tax Digital (MTD)
Supplies
Certain supplies of goods and services are not Do I need to register? MTD for VAT is being introduced and is part
subject to VAT at all and are known as exempt of a government strategy which will ultimately
A business must register if its taxable supplies require taxpayers to move to a fully digital tax
supplies. A business that makes only exempt exceed an annual figure, currently £85,000. If
supplies cannot register for VAT and will be system.
taxable supplies are less than this a business
unable to reclaim any input tax. may still register voluntarily. So, for example, Under the new rules, businesses with a
if the business makes only zero rated sales, turnover above the VAT threshold must keep
Tax Tip it can still register and reclaim the input tax digital records for VAT purposes and provide
suffered. their VAT return information to HMRC using
When you first register for VAT you can MTD functional compatible software.
reclaim input tax on goods purchased up to VAT can affect competition. A plumber, for
four years prior to registration provided they example, who sells only to the general public, The new rules have effect from 1 April 2019,
are still held when registration takes place. will be at a disadvantage if he has to register where a taxpayer has a ‘prescribed accounting
VAT on services supplied in the six months for VAT. period’ which begins on that date, and
prior to registration may also be reclaimed. otherwise from the first day of a taxpayer’s first
He may have to charge up to 20% more than prescribed accounting period beginning after
a plumber who is not registered to earn the 1 April 2019.
As there are three rates which can be
same profit.
applicable to taxable supplies, standard,
We can help to guide you through the
reduced or zero rated, it is important to identify On the other hand, if the same plumber only
requirements.
works for other VAT registered businesses,
16 Running a businessTax and your investments
Setting aside income in the form of savings give rise to a tax charge if annual contributions When an allocation of funds into a flexi-access
is important for us all, to provide for the exceed £40,000 or if the value of the fund account is made the member typically will take
unexpected or to build up a nest egg that we when benefits are taken is greater than a the opportunity of taking a tax free lump sum
can enjoy in retirement. lifetime allowance which, for 2018/19, is from the fund.
£1,030,000. Generally where a taxpayer has
Pensions adjusted income in excess of £150,000 the The person will then decide how much or how
annual contribution possible will be restricted little to take from the flexi-access account. Any
Pensions are one of the most tax efficient from £40,000 by £1 for every £2 for income in amounts that are taken will count as taxable
forms of saving. Most higher rate taxpayers can excess of the £150,000. The minimum annual income in the year of receipt.
contribute £100 to a registered pension fund allowance available after this restriction is
at a cost of only £60 and investment income £10,000. Access to some or all of a pension fund without
and capital gains will accrue within the scheme first allocating to a flexi-access account can
largely tax free. Pensions freedom be achieved by taking an uncrystallised funds
Taxpayers have choice and flexibility when it pension lump sum.
An individual is entitled to tax relief on personal
comes to accessing their personal pension
contributions in any given tax year up to the The tax effect will be:
fund. Options include taking a tax free lump
higher of 100% of earned income or £3,600
sum of 25% of fund value and purchasing an •• 25% is tax free
(gross).
annuity with the remaining fund or opting for a
The contributions are paid net of basic rate more flexible drawdown. •• the remainder is taxable as income.
tax and the pension provider will then recover The flexible drawdown rules allow for total Getting the right advice at the point of
that basic rate tax from HMRC. Higher and freedom to access a pension fund from the age retirement is therefore important.
additional rate relief, if appropriate, can be of 55. Access to the fund may be achieved in
claimed from HMRC. Contributions in excess of one of two ways: Money Purchase Annual Allowance
the individual’s limit can be made into a scheme The government is alive to the possibility of
but the excess will not attract tax relief. •• allocation of a pension fund (or part of a
pension fund) into a 'flexi-access drawdown people taking advantage of the flexibilities by
An employer may make contributions to a account' from which any amount can be 'recycling' their earned income into pensions
scheme and a deduction from profits may be taken over whatever period the person and then immediately taking out amounts
available to the employer. decides from their pension funds. The MPAA sets the
As these reliefs are generous, there are controls •• taking a single or series of lump sums from maximum amount of tax-efficient contributions
which serve to limit high levels of contribution. a pension fund (known as an 'uncrystallised an individual can make at £4,000 per annum in
These are complex but, put simply, they may funds pension lump sum'). certain scenarios.
Tax and your investments 17Tax free savings Lifetime ISA Venture Capital Trusts (VCT)
The government has introduced a new Lifetime These bodies mainly invest in the shares of
Tip ISA for adults under the age of 40. Individuals unquoted trading companies. VCT are however
will be able to contribute up to £4,000 per year quoted investments. An investor in the shares
Don’t forget to use the Dividend and Savings and receive a 25% bonus from the government. of a VCT will be exempt from tax on dividends
Allowances. These allowances tax £2,000 If £4,000 is invested, the investment limit for and on any capital gain arising from disposal of
of dividends and up to £1,000 of savings the other types of ISAs falls to £16,000. Funds, the shares in the VCT. Income tax relief currently
income at 0%. See the section ‘tax rates and including the government bonus, can be used at 30% is available on subscriptions for VCT
allowances’ on page 4. to buy a first home up to £450,000 at any time shares, up to £200,000 per tax year, so long as
from 12 months after the first subscription, the shares are held for at least five years.
or can be withdrawn from age 60 completely
tax-free. The Enterprise Investment Scheme (EIS)
Income tax relief at 30% is available on new
There is also the Help to Buy ISA. Details are in
equity investment (in qualifying unquoted
the Property Matters section of the guide.
trading companies) of up to £1 million. A higher
limit of £2 million may apply to investments
Other tax efficient investments in ‘knowledge intensive companies’. A CGT
The following investments work in varying ways. exemption may be given on sales of EIS shares
You should consider your needs in detail before held for at least three years. If the gain on the
entering into any commitments. sale of any chargeable asset (eg quoted shares,
second homes, etc) is reinvested in EIS shares,
National Savings and Investment (NS&I) the gain on the disposal can be deferred.
Premium bonds
Seed Enterprise Investment Scheme (SEIS)
Premium bonds are tax free and you could win
£1 million! A more recent addition to the available schemes
is SEIS. The tax breaks for the investor are:
However, the annual rate of return is not
predictable. The current Premium bonds •• income tax relief at 50% in respect of
Individual Savings Accounts (ISAs) investment limit is £50,000. The more you qualifying SEIS shares up to an annual
ISAs are free of income tax and CGT. There invest the more frequently you are likely to win, maximum investment (in all SEIS companies)
are maximum investment limits which apply the smaller prizes at least. However, there is no of £100,000
for each tax year but, over several years, large guarantee of a steady rate of return. •• a CGT exemption where SEIS shares are
investments can be built up. From 6 April 2018 sold more than three years after they are
Single premium insurance bonds
the overall annual ISA savings limit is £20,000. issued (as for EIS)
Investors can choose to invest in a cash These provide a means of deferring income into
a subsequent period when it may be taxed at a •• a further CGT exemption of 50% where an
ISA, stocks and shares ISA or an Innovative
lower rate. individual makes a capital gain and reinvests
Finance ISA as long as they do not exceed the
the gain in qualifying SEIS shares.
investment limit.
18 Tax and your investmentsProperty matters
Direct investment in residential property has Which property?
always been a popular form of investment.
Investing in a buy to
let property is not the
Buy to let same as buying your
The UK property market, whilst cyclical, has own home. You may
the individual owns two or more residential
proved over the long-term to be a successful wish to get an agent to advise you of the local
properties.
investment. This has resulted in a massive market for rented property. An agent will also be
expansion in the buy to let sector. able to advise you of the standard of decoration There are some exemptions from the rules.
and furnishings which are expected to get a One of these covers the replacement of a main
Traditionally, buy to let involves investing in
quick let. residence within certain time limits. Please
property with the expectation of capital growth
contact us for further advice on this area.
with the rental income from tenants covering Letting property can be very time consuming
the mortgage costs and any outgoings. and inconvenient. Tenants will expect a quick Tax on rental income
However, the gross return from buy to let solution if the central heating breaks down over
Income tax will be payable on the rents received
properties, the rent less expenses, can the bank holiday weekend! Do not cut corners
after deducting allowable expenses. Allowable
change. Investors also need to take a view on - a correctly drawn up tenancy agreement will
expenses include mortgage interest, which is
the likelihood of capital appreciation exceeding ensure the legal position is clear.
restricted in the case of residential property,
inflation. Investors should take a long-term repairs, agent’s letting fees and the cost of
Devolution of Property Taxes
view and choose properties with care. replacing furnishings.
Property taxes have been devolved across
the United Kingdom with Stamp Duty Land Restriction of relief for finance costs on
Practical Tip Tax (SDLT) having been replaced by Land and residential lettings
When choosing between investments Buildings Transaction Tax (LBTT) in Scotland
(from 1 April 2015) and Land Transaction Tax The amount of income tax relief landlords can
always consider the differing levels of risk
(LTT) in Wales (from 1 April 2018). get on residential property finance costs is
and your requirements for income and
being restricted to the basic rate of income
capital in both the short and long term. An Higher rates of SDLT, LBTT and LTT apply on tax. This restriction is being phased in over four
investment strategy based purely on saving purchases of additional residential properties. years from April 2017. For 2018/19 50% of
tax is not appropriate.
The rates are 3% above the SDLT, LBTT and the finance costs are deductible in full from the
LTT rates. The higher rates potentially apply rental income. The remaining 50% is given as
if, at the end of the purchase transaction, a basic rate reduction. This reduction may be
Property matters 19You can also read
