Personal Tax

Potts & Co - Accountancy & Business Advice

Interest From PPI Claims

By | HMRC, Personal Tax, Potts & Co Accountancy & Business Advice News, PPI Claims

Thousands of people have claimed and received refunds of payment protection insurance (PPI). Most people believe that the entire payment is tax free and hence does not have to be declared on their tax return. This is not the case. Each PPI settlement includes interest calculated at eight percent on the refunded premiums and that interest is taxable. Some banks deduct 20% tax from the interest paid, but other lenders do not.

In all cases the interest portion of the PPI settlement must be declared on your tax return for the year in which it was received. There may be additional tax to pay on this interest depending on when you received it and the level of other interest received in the same year.

HMRC receives a bulk download of data from the banks relating to PPI payments, which it tries to match to individual taxpayers. But this matching is tricky as the PPI data only includes a name and address which could be years out of date. If you receive a letter from HMRC which mentions undeclared interest, this could relate to the PPI claim you have forgotten you made.

Check whether you declared the interest portion of your PPI settlement on your tax return. If you did not declare the interest you can amend your 2016-17 tax return online until 31 January 2019.

If you need to correct an earlier year you should notify HMRC by letter, or we can do this for you.

Potts & Co - Accountancy & Business Advice

Termination Payments

By | iNCOME tAX, Personal Tax, Potts & Co Accountancy & Business Advice News

If an employment contract is terminated after 5 April 2018, the £30,000 tax-free cap on a payoff does not necessarily apply in full. Any payment made on termination of the employment needs to be broken down into its elements to test which parts may be covered by the tax-free amount.

Any pay treated as employment income is taxable and only the residue of a termination award can be covered by the tax-free amount. There is a complicated formula which works out what is treated as employment income. This takes into account the individual’s basic pay for their last pay period, any contractual pay in lieu of notice and how long their normal pay period and notice period were.

Any statutory redundancy payment received must be deducted from the tax-free capped amount. The previous exemption for periods spent working overseas no longer applies.

We can help you calculate the taxable element of any termination payments you need to make.

Potts & Co Accountancy

Tax Data 2019-20

By | Budget Update, Corporation Tax, HMRC, Inheritance Tax (IHT), Personal Tax, Potts & Co Accountancy & Business Advice News, VAT

All figures are annual amounts Tax

Personal allowance £12,500
Allowance withdrawn from £100,000
Transferable marriage allowance £1,250
Trading income £1,000
Property income £1,000
Rent-a-room £7,500
Tax on earnings
Earnings to £34,500 20%
£34,501 to £150,000 40%
Over £150,000 45%
Tax on earnings for Scottish residents
Earnings to £37,500 20%
£37,501 to £150,000 40%
Over £150,000 45%
Thresholds and rates for Scottish taxpayers TBA
Tax on interest
First £5,000 0%
20% taxpayers £1,000 @ 0%
40% taxpayers £500 @ 0%
Balance taxed at marginal rates
Tax on dividends
First £5,000 0%
Balance in band to £37,500 7.5%
£37,501 to £150,000 32.5%
Over £150,000 38.1%
National insurance
Class 1 employers 13.8% over £8,632
Under 21 (apprentices 25) 0% to £50,000
Class 1 employees 12% on £8,632 to £50,000;
2% above £50,000
Class 4 self-employed 9% on £8,632 to £50,000;
2% on profits above £50,000
Class 2 self-employed
Voluntary if profits under
Class 3 voluntary £780
Employment allowance
Set against employer’s Class 1 NIC
(Not available for one-person companies)
Pension contributions
No earnings £3,600 gross
Otherwise 100% of earnings
Annual contribution caps:
No pension taken
Some pension taken
Adjusted income over £150,000:
annual cap tapered to
Lifetime pension fund cap £1,055,000
Corporation tax
All profits 19%
Registration turnover £85,000
Deregistration turnover £83,000
Standard rate 20%
Reduced rate 5%
Inheritance tax
Nil rate band £325,000
Residence nil rate band £150,000
Excess taxed at 40%
Where 10% left to charity 36%
Capital gains tax
Within basic tax rate 10%
Higher tax bands 20%
Surcharge for residential property
and carried interest
Entrepreneurs’ relief 10%
Investors’ relief 10%
Annual exempt amount £12,000

Tax Cuts & Cliff Edges

By | Budget Update, PAYE, Personal Tax, Potts & Co Accountancy & Business Advice News

There was good news for individual taxpayers in the Budget; the personal allowance will rise from £11,850 to £12,500 on 6 April 2019. This will provide taxpayers on the basic rate (20%) with an income tax saving of £130 per year.

Those who pay tax at higher rates will also rejoice that the 40% band will effectively start at income over £50,000 for 2019-20.

This will not apply to taxpayers in Scotland as they pay tax on earnings and profits at different rates and bands than apply in the rest of the UK. The Scottish tax rates for 2019-20 are due to be announced on 12 December 2018.

Welsh taxpayers will pay Welsh income tax from 6 April 2019, but the Welsh tax rates and bands have initially been set to align with those in England and Northern Ireland. Welsh taxpayers should soon receive PAYE codes with a prefix “C” (Cymru).

If your total income is £50,000 or more and your family receives child benefit, you should inform HMRC that you need to pay the high-income child benefit charge (HICBC) to repay some or all of that benefit. All the child benefit is clawed-back for income levels over £60,000. The HICBC is collected through the tax return of the highest earner in the family, or through their PAYE code, irrespective of who actually receives the child benefit.

This charge could make your marginal tax rate including national insurance, jump from 32% to 62% at £50,000 from 6 April 2019.

Potts & Co - Accountancy & Business Advice

Pension Lump Sum

By | HMRC, Pensions, Personal Tax, Potts & Co Accountancy & Business Advice News

If you have taken a lump sum from your pension fund you may have had excess tax deducted by the pension company, but you can reclaim it.

Although 25% of your pension savings can be drawn out tax-free, the pension company normally interprets this as being 25% of any single withdrawal, leaving 75% of the lump sum to be taxed at your marginal tax rate. What’s worse, if the lump sum is the first withdrawal you have made from the pension scheme the company will apply an emergency PAYE code. This results in you having far more tax deducted under PAYE than is due.

There are two ways you can get this tax back:
• if you are not expecting to take further pension payments in the same tax year you can reclaim the tax on the lump sum using form P53Z or P53. We can submit those forms for you; or
• if you expect to take further pension payments in the same year your tax repayment should be dealt with through your PAYE code. The tax refund should be made when your next pension instalment is paid.

The second method requires an adjustment to your PAYE code, which you can request through your online personal tax account. Alternatively, you can phone HMRC to ask for your code to be changed. We can phone HMRC for you if we have the authorisation to act on your behalf.

Potts & Co - Accountancy & Business Advice

Reclaim SDLT, LTT or LBTT

By | Personal Tax, Potts & Co Accountancy & Business Advice News, Welsh Land Taxes

If you have acquired a new home since 1 April 2016 you should be aware of the 3% stamp duty land tax (SDLT) supplement which applies to purchases of second and additional homes.

This 3% supplement was copied in Scotland for land and buildings tax (LBTT) and in Wales for land transaction tax (LTT) from 1 April 2018. But there are different conditions for relief from the 3% supplement in each country.

Scotland has recently amended its law to provide relief from the 3% supplement where a couple buy a home together to replace their main home, but their former home was held in the sole name of just one of the individuals. If you fall into this category, you can now apply for a refund of the additional LBTT paid, right back to April 2016.

If you paid the SDLT supplement on the purchase of your property, it is worth checking whether a refund is due. For example, if the property acquired was not 100% residential the supplement is not due.

Where the new property was acquired as your main home and the old home was disposed of within three years, a refund of SDLT may be due. But don’t hang around, as a claim for overpaid SDLT must be made within three months of the sale of the previous main residence or within 12 months of the filing date of the land transaction return, whichever is later.

Potts & Co - Accountancy & Business Advice

Income Tax Calculations

By | HMRC, iNCOME tAX, PAYE, Personal Tax, Potts & Co Accountancy & Business Advice News

Every year HMRC reconciles taxpayers’ tax liabilities to the tax reported as paid for the individual via PAYE. This is happening now for the 2017-18 tax year.

If the calculation for your tax position shows tax owing, or a tax repayment due, you should receive a copy of the calculation on a form P800. If you are newly retired and have tax to pay you may receive a simple assessment form PA302. In this case, the tax will be payable by 31 January 2019.

If you complete a self-assessment tax return each year you should not receive a tax calculation on a form P800 or PA302, as all your tax should be dealt with on your tax return. However, sometimes the HMRC computer does not link the PAYE record to the self-assessment return, so duplicate tax calculations are issued. If you receive a form P800 or PA302 for a year for which you have submitted a tax return, please contact us immediately.

If you have other income such as rent, dividends or interest, those amounts may be estimated on the P800 calculation, so check the figures carefully against your bank statements. HMRC often uses estimated figures of pension contributions or charity donations based on what was paid in previous years. It is important to check that any tax relief given for such payments relates to the correct year to avoid underpaying tax.

Potts & Co - Accountancy & Business Advice

Repay the Value of Benefits

By | HMRC, Personal Tax, Potts & Co Accountancy & Business Advice News

Directors sometimes borrow assets or money from their company, intending to repay or make good the cost to the company so that a benefit in kind tax charge doesn’t apply. For benefits provided in the year to 5 April 2018, the company must be repaid by 6 July 2018 to avoid a tax charge.

The benefits which are affected are: non-cash vouchers, cars, vans, fuel for cars or vans, accommodation, credit tokens, and a catch-all for benefits treated as earnings. Interest payable on loans is not covered by the new rules.

A loan advanced to an employee or director doesn’t create a tax charge for the individual (but the company may have tax to pay) if the amount outstanding at any point in the tax year doesn’t exceed £10,000.

If a greater amount is borrowed, the tax charge can be avoided if the employee is required to pay interest on the loan at a rate equal to or greater than the official rate (2.5% for 2017-18).

This interest must actually be paid to the company, not just accrued in the accounts. It makes sense to pay any interest due before 6 July 2018, so that an accurate P11D can be completed and submitted by that date.

Potts & Co - Accountancy & Business Advice

Electric Vehicles

By | HMRC, Personal Tax, Potts & Co Accountancy & Business Advice News

The government is sending out mixed tax messages about electric vehicles. This is what you need to know as an employer.

An employee provided with an electric company car (zero CO2 emissions) is taxed on 13% of its list price in 2018-19 and 16% of list price in 2019-20. But from April 2020, the taxable benefit will reduce to just 2% of the vehicle’s list price. So if you want to provide electric cars to your employees, wait until 2020. The taxable benefit for using an electric van for private journeys is £1,340 per year, which is still a bargain compared to the benefit for an electric company car. However, all company vans will attract the same tax charge from April 2021.

If you permit employees to charge their company-provided electric vehicles at work for no payment, the drivers are not taxed on that free ‘fuel’, because electricity is not defined as fuel for the car benefit regulations.

But if your employees charge their own electric vehicles at work, the cost of the free electricity used is theoretically a taxable benefit. This anomaly should be removed retrospectively from April 2018, so that charging an electric vehicle at work does not create a taxable benefit for any employee.

If your business installs charging points for electric vehicles between 23 November 2016 and 31 March 2019, it can claim a 100% capital allowance for those costs.

Potts & Co - Accountancy & Business Advice

Time to choose childcare support

By | HMRC, Personal Tax, Potts & Co Accountancy & Business Advice News

Parents are faced with a bewildering choice of how to fund childcare costs. Employers can help by giving employees tax- and NIC-free childcare vouchers; by directly contracting with a childcare provider to provide places for employees’ children; or by running a workplace nursery.

The schemes to provide childcare vouchers or directly contracted childcare will only be open to new applicants who join before 5 October 2018. Employees who have signed up to one of those schemes before that date can continue to receive tax-free childcare up to the permitted weekly limit (£55, £28 or £25 depending on their marginal tax rate) until they leave the scheme.

Children qualify for this employer-supported childcare until 1 September after their 15th birthday (16th for disabled children). The vouchers can only be redeemed with registered childcarers, so they can’t be used to reimburse grandparents who provide childcare unless those individuals are also registered childminders.

The savings in tax-free childcare accounts can only be used to pay for care for children aged under 12 (17 if disabled). Under this scheme, the government contributes £2 for every £8 the parent (or other relative) deposits into the account, up to a maximum of £2,000 of government support per child per year.

A parent is not supposed to double-up their childcare support by also receiving employer-provided childcare vouchers or directly provided childcare. The parent should tell their employer in writing, within 90 days of opening a tax-free childcare account, that they have done so; the employer should take that employee out of the childcare scheme.