Tax Year 2019-20
The Tax Year is the period of time over which tax on income is assessed. Tax year 2019-20 is from 6.4.2019 to 5.4.2020. In this year the Government is starting 'Making Tax Digital' by requiring owners of VAT registered businesses with a turnover above £85,000 to either use software that can communicate with HMRC or use the digital link of 'bridging software'.
The upheaval of Brexit has meant that HMRC has been occupied with the implications for international trade. Many reforms of the tax system have been postponed, and we still have a complex and contradictory tax regime.
The significant dates to remember are the dates that tax returns should be submitted and tax paid to HMRC
Sole traders must complete a tax return and pay the tax due for the previous Tax Year (2018-19) by 31.1.2020.
Directors of limited companies must make a personal tax return of any income they receive from their company .
Directors of limited companies are also responsible for the submission of a Corporation Tax return by 12 months after the end of the company's accounting year. Corporation Tax must be paid within 9 months of the end of the accounting year (when the accounts end). They must also submit accounts and a confirmation statement to Companies House each year.
VAT must be paid and a VAT return made to HMRC by the 7th day following the end of the month after the VAT quarter.
Enterprise Links Ltd can be engaged to do all of the above on your behalf. Although personal tax returns can still be made on paper, most of them, and all other returns and payments, are now made electronically.
Budget November 2018
The Budget 2018 made no significant changes to Income Corporation and Value Added Taxes. There was no mention of Making Tax Digital, but it was highlighted that a 'no deal' Brexit would require another 'fiscal event' in Spring 2019.
For 2019/20, the personal allowance is increased from £11,850 to £12,500 and the basic rate limit from £34,500 to £37,500, so that the level of income at which an individual comes within the change to income tax is extended from £46,350 in 2018/19 to £50,000 in 2019/20. The 2019/20 figures will remain the same for 2020/21. After that they will rise with the annual increase in the Consumer Price Index.
The basic, higher and additional rates are all unchanged, as are the rates on dividends and savings income. The dividend allowance, personal savings allowance, starting rate for savings and starting rate limit all stay at their 2018/19 levels. The transferable tax allowance for married persons (aka the marriage allowance) automatically becomes £1,250 for 2019/20. Other income tax personal reliefs are increased in line with inflation, as is the capital gains tax annual exempt amount which becomes £12,000 from 6 April 2019. Rates of capital gains tax are unchanged, as are income tax rates for trustees.
The annual investment allowance will temporarily increase from £200,000 to £1 million for the two year period from 1 January 2019 to 31 December 2020.
The tax free Individual Savings Account annual subscription limit will remain at £20,000 for 2019/20. The annual subscription limits for Junior ISAs and Child Trust Funds are increased in line with inflation to £4,368 from 6 April 2019.
Responsibility for operating the off-payroll working rules (IR35) in the private sector, and deducting any tax and national insurance contributions due, will move from the individual to the organisation, agency or other third party paying the individual’s personal service company. Small organisations will be exempt. This change will bring private sector organisations into line with public sector bodies and agencies, and will have effect from 6 April 2020.
Reforms to the NICs treatment of termination payments and income from sporting testimonials, which were originally to be introduced from 6 April 2018 but were then deferred until 6 April 2019, are still further delayed, this time until 6 April 2020.
Tackling the tax treatment of digital business is part of the OECD’s base erosion and profit shifting (BEPS) project and the Chancellor has confirmed he remains committed to this process but has proposed the introduction of a digital services tax (DST) whilst the BEPS project is finalised. The DST will be 2% tax on revenues generated from search engines, social media platforms and online marketplaces where those activities and the DST will only apply to groups that generate global yearly revenues of more than £500 million.
Self Assessment - a guide
Self assessment is the system under which taxpayers are required to account for tax that has not been deducted at source. You will need to submit a tax return to HMRC if you are:
working for yourself and your income from self-employment was more than £1,000 - anything under this amount falls within the new ‘trading allowance’.
renting out a property and your rental income is more than £2,500 - you will need to phone HMRC to give them the figures if you receive between £1,000 and £2,500.
a company director (except for directors of a not-for-profit organisation and you did not receive any pay or benefits, like a company car or medical insurance).
a trustee of a trust or registered pension scheme or the executor of an estate.
living abroad and have a UK income - this includes non-UK resident landlords.
or if you receive:
income from savings and investments of more than £10,000.
dividend income of more than £10,000.
other ‘untaxed income’ of more than £2,500. This could be tips or commission. If the income is less than £2,500 a year you might not have to complete a tax return but it is still your responsibility to report such income.
taxable foreign income, even if tax was paid in the country of origin, whether or not you are resident in the UK.
a taxable annual income of more than £100,000.
A P800 form from HMRC showing tax due at the end of the year that cannot be collected via your PAYE income and you did not make a voluntary payment.
regular annual income from a trust or settlement, or income from the estate of a deceased person and further tax is due.
state pension which is more than your personal allowance and is your only source of income, except in cases where your pension commenced on or after 6th April 2016.
income over £50,000 (or your partner’s income was over this amount) and one of you claimed child benefit.
or you have given away or sold assets worth £46,800 or more for 2018/19.
or have a capital loss but your gains net of any losses are more than the annual exemption for 2018/19 of £11,700.
or have no losses to claim but your gains are more than the annual exemption for 2018/19 of £11,700.
and you may also want to complete a tax return if you:
want to claim for expenses of employment which total £2,500 or more.
want to claim tax relief for donations made to charity or private pension contributions.
want to prove you are self-employed, for example to claim tax free childcare.
want to make voluntary class 2 national insurance payments to qualify for benefits.
If HMRC have sent you a tax return, or a notice to complete one, the return must be completed and submitted by the due date, which for the 2017-18 tax year is 31st January 2019 for online submissions.
VAT Registered Businesses - Making Tax Digital
Next year VAT returns must be made by direct interface with HMRC on-line. This is a major change and the present VAT portal will be switched off. If your taxable turnover is above the VAT registration threshold you must follow the rules set out in VAT Notice 700/22 by 1 April 2019.
More than 40 software suppliers have said they’ll have software ready during 2018, and HMRC is now testing the service with small numbers of invited businesses and agents. Other software suppliers will follow.
HMRC is working with software suppliers in the pilot who have:
tested their products in HMRC’s test environment
already demonstrated a prototype of their software to HMRC
HMRC will update this list as testing progresses. Check with your existing software supplier to find out if they’ll be supplying suitable software before or after the pilot, or contact us, and we will discuss which one of the suppliers approved by HMRC could be most suitable.
Tax Year 2018-19
The Personal Allowance that individuals can earn in a year before Income Tax is charged has been increased to £11,850. The VAT Registration Threshold remains at £85,000 turnover. The National Living Wage (over 24 years old ) has increased to £7.83 an hour. The National Minimum Wage has been increased to £ 7.38 (aged 21-24) £5.90 aged 18-20) and £4.20 (under 18).
Class 2 National Insurance contributions for the Self-employed have increased to £2.95 per week. Dividend Tax will be charged on annual dividend income above £2,000 at 7.5%.
National Insurance and the State Pension
There are complex rules regarding state pension entitlement as a result of national insurance contributions. Basically the present rules are that you need 10 years NI contributions to get a state pension at all, and 35 years for a full state pension. The full state pension is currently £159 a week. The state pension changed on April 6, 2016. People retiring before then could have their state pension provided across three (or more) state pension systems: the basic state pension, State Earnings Related Pension (Serps), and State Second Pension. But people reaching retirement age after that date have their state pension calculated on a single formula.
In April 2016, a calculation was done to work out what pension you have earned under the old rules and the new rules. Pensioners will get the higher of the two, less any deductions from "contacting out". If you have opted out of either Serps or the State Second Pension, or both, your state pension will be reduced.
If this "foundation" pension is less than the maximum state pension then further NI contributions will increase it, at the rate of 1/35 of the maximum state pension, for each further year until you reach the maximum or state pension age.
If you had a private pension that replaced part of your state pension, then by paying more NI in future you could gain a higher state pension than you would have achieved under the old state pension system while keeping the private pension.
Budget November 2017
The second UK Budget of 2017 contained very little major change in direct or indirect taxes, perhaps because of the reaction to tax changes proposed in the Spring which were abandoned days later. This is a brief summary;
First-time buyers of homes worth between £300,000 and £500,000 will not pay stamp duty on the first £300,000. They will pay the normal rates of stamp duty on the price above that. This will save £1,660 on the average first-time buyer property. There will be no relief for those buying properties over £500,000.
The National Living Wage for those aged 25 and over will increase from £7.50 per hour to £7.83 per hour from April 2018. The National Minimum Wage will also increase to 7.38 for 21 -24 year olds and £5.90 per hour for 18 to 20 year olds.
The Personal Allowance which is the total you can earn before you pay income tax, will rise from £11,500 to £11,850.
Business Rates will rise by Consumer Prices Index from April 2018. Business rates currently rise by the Retail Price Index (RPI), a different way of measuring inflation which tends to be higher than the CPI. Business rates revaluations will take place every 3 years, rather than every 5 years, starting after the next revaluation, currently due in 2022. 22. Pubs in England will continue to receive a £1,000 business rates discount next year. The discount applies to pubs with a rateable value of up to £100,000.
Much more significant is the reduction in the forecast of future economic growth from the independent Office for Budget Responsibility (OBR) GDP per head was downgraded by a cumulative 1.9% between now and 2021. The GDP growth forecast for 2017 is now reduced to 1.5%; 1.4% in 2018; 1.3% in both 2019 and 2020; 1.5% in 2021 and 1.6% in 2022. No other Government has ever had to report such a poor growth forecast for so long. As a result the Institute for Fiscal Studies estimated that by 2021 average earnings are set to be £1,400 lower than the government had predicted they were going to be. The Resolution Foundation said British people are now set to suffer their longest sustained period of falling living standards since records began in the 1950's.
Government finance is worked out on these figures and if the reality is in any worse than the forecast the result will be dire. The forecast is based on future growth in productivity, which has stagnated for years, and a satisfactory negotiated trade deal from the European Union.
David Blanchflower, professor of economics at Dartmouth College, New Hampshire, and a member of the Bank of England’s monetary policy committee from June 2006 to May 2009 said this; “There is no reason, in my view, to believe any takeoff in productivity will happen soon, given the OBR has assumed a surge in every one of its forecasts since June 2010. The economy could grow much more slowly than even the OBR’s horrible forecasts. I am still waiting for any good news from Brexit.”
Enterprise Links Digital Accounting is getting ready for the changes that will happen to tax in the next four years.
HMRC states that you do not need to keep a paper copy of the original documents, you can keep them on paper, digitally or as part of a software program (like accounting software). HMRC’S Making Tax Digital initiative, its ambitious road map for transitioning to a fully digital self-assessment service, includes plans to increase the use of third-party data sources in determining customers' tax positions. Its consultation on these plans adds data protection issues to a complex technical mix.
The most eye catching change will be the abolition of the 'tax return' and its replacement by a three monthly summary confirmation of income and a final statement signed once a year. The details are still being worked out and the current annual tax return will remain until 2020. Businesses with an annual turnover of over £85,000 will need to adopt digital accounting methods by 2019.
HMRC already uses third-party data from banks, building societies, pension providers and employers. The consultation explores the possibility of expanding those sources to include income from property, peer-to-peer lending, and dividends and shares. These sources, they argue, are a necessity in today’s economy where “taxpayers hold more than one job and may have fluctuating and unpredictable incomes.” HMRC is keen to stress that new third-party information will be sourced openly and transparently, and that all legal requirements, including privacy impact assessments, will be met. Taxpayers will be able to see all the third-party data sources linked to their records at any time through their digital tax accounts. But many will need help to understand or comply, and will have doubts over security.
HMRC estimates that the use of third-party sources, and the ensuing reduction in under- and over-payments, will benefit six million customers in the short-term and up to 40 million taxpayers in future. However previous initiatives did not involve the entire British population, multiple data sets, and real-time information which, by definition, are often both incorrect and incomplete. We will help you be prepared, and see the benefits.
Personal Tax Accounts
The Personal Tax Account launched by HMRC in December 2015 gives taxpayers information on their tax affairs 24 hours a day, 7 days a week.
Services are in the process of being added but so far include:
receiving an estimate on your Income Tax and tax code
filing a Self-Assessment tax return
claiming a tax refund directly into your bank account
checking and managing tax credits
checking your State Pension
The Personal Tax Account is a major strand of HMRC digital tax policy. For information visit www.gov.uk/personal-tax-account.