Income tax & NIC updates

Making Tax Digital

Key points:

  •  

    More time being given to smaller businesses to adjust to digital record keeping requirements and quarterly reporting

In December 2015 major changes were announced detailing how unincorporated businesses and landlord will be required to keep their accounting records and deal with their tax affairs in future.  Called ‘Making Tax Digital’ this will be a major shift in how taxpayers and HMRC interact. 

The main changes are new requirements for most businesses and landlords with a turnover of £10,000 or more to keep their accounting records digitally – on spreadsheets or computer packages - and report specified information on a quarterly basis to HMRC.  This was intended to take effect from April 2018.  However, professional bodies have been expressing concern for some time over the speed of change.  It was pleasing therefore that the Chancellor announced that there will be an extra year for smaller businesses (and their advisors) with turnover of under the VAT threshold to get to grips with the new regime.  All VAT registered  businesses already were already due to enter in April 2019. 

The Government also confirmed further consultation on the design of the tax administration system. 

 

Income Tax

 

Key points:

  •   Increase in personal allowance and higher rate threshold confirmed

From 6th April this year the ‘personal allowance’, currently £11,000, will increase to £11,500; this will be the seventh consecutive increase above inflation. Coupled with this, the higher rate tax threshold will increase by £2,000.  The result of these measures is that income up to £45,000 can be earned before higher rate tax becomes due.

No changes to the rates of income tax or capital gains tax have been announced.

 

Key points:

  •  

    Decrease in dividend allowance

The rules for the taxation of dividends changed dramatically in April 2016 with the introduction of the £5,000 tax-free dividend allowance and changes to the tax rates on dividend income.  The dividend allowance, which currently charges a 0% tax rate on the first £5,000 of dividend income, will be reduced to £2,000 with effect from 6th April 2018.  The government’s intention is to narrow the gap between the self employed and someone who incorporates in order to achieve a tax advantage. 

The decision as to whether or not to incorporate your business should continue to be made on the basis of sound business advice.  Tax savings will still be achievable but as always it will be necessary to crunch the numbers.

Key points:

  •   Reform of benefits in kind
  •   Reform of benefits in kind

The government will consult on reforms to the taxation of benefits in kind and employee expenses.  They intend to make the system fairer and will consult on the following:

Benefits in Kind – They wish to better understand the use of exemptions and valuation methodology in the existing rules and will publish a call for evidence.

Accommodation benefits – They will publish a consultation with proposals to bring employer provided accommodation and board and lodgings up to date.

Employee expenses – They wish to better understand the use of the income tax relief for employees’ expenses, including those not reimbursed by the employer, and will publish a call for evidence.

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