Spring 16 Budget Update

Please find below a quick round up of items that you may find useful for you and your business. Do contact us should you want to discuss further.

Personal allowances and the new dividend tax

There were no changes announced  – please click here to view our suggested strategies for 2016-17.

Bank Interest – new savings allowance

You are now able to receive up to £1,000 in bank interest (£500 if you are a higher rate earner) without deduction of tax.

TAX TIP If you lend money to your company, why not draw up a loan agreement and charge interest at a commercial rate ? You can receive up to £1,000 interest tax free.

Dispensations 

These are agreements between employers and HMRC covering pre agreed expenses which will not need to be declared through the P11D benefit in kind system. All existing dispensations end at the end of this tax year.

HMRC are encouraging employers to process repaid expenses and benefits through the company payroll. These amounts will be exempt from income tax where the amounts have been calculated and paid or reimbursed in an “approved” way e.g on receipt of evidence of expenditure.

Employees can continue to claim HMRC mileage rates, subsistence on proof of receipts or claim round sum amounts – note that any round sum amounts paid do count as earnings and will need to be included in payroll.

Scale rates at either pre agreed or the HMRC scale rates for subsistence provided the amount was actually spent with no tax or NI being incurred. See here for the latest HMRC rates.

Trivial benefits

Up to 6 amounts of £50 per benefit including VAT can be made to an employee provided it is non cash and not an entitlement of service.

TAX TIP – directors can award themselves say 6 individual bottles of wine or 6 vouchers for up to £50 to make up the £300. Note if this amount is exceeded then the whole amount is taxable.

Auto enrolment – staging dates kicking in  

Clients with staging dates of 6 months or less should expect to receive communication from the Pensions Regulator to ask them what arrangements have been made.

Our advice on how auto enrolment affects small businesses can be found here. This article includes details of how to claim for auto enrolment exemption in the circumstances below.

In summary, there are exemptions for companies with sole directors or where there are 2 directors but neither are working under a contract of services 

As an employer, you are required to offer an auto enrolment scheme to any employees who earn £10k or above or who wish to join.

In the situation where your sole employee is your spouse/partner and other pension provisions are in place or you choose not to go into auto enrolment, you should ensure that they earn less than £10k per year and declare to the pensions regulator that you have no eligible employees.

You will still be required to submit a declaration of compliance to the Pensions Regulator. We can submit this on your behalf for a small fixed fee.

Married couple’s allowance and save up to £212 in tax

This allows you to transfer from of your unused personal allowance to your spouse – see here to apply online for this.

Eligibility of travel and subsistence expenses

This applies to those providing services under a personal services company (PSC) and claim travel from home to work. HMRC will be using the supervision, direction and control tests to determine whether travel will be allowable.

In simple terms, where the current contract is outside of IR35, then the travel and subsistence will be allowed subject to the usual 24 month rule.

Where there is any element of supervision or control, the contract will fall foul of IR35 and no travel and subsistence will be allowable. This legislation is thought to have originally targeted umbrella companies but now extends to PSCs.

Childcare vouchers

From 2017, parents will be able to buy vouchers online which can be used to meet the costs of childcare for children up to 12 years old. The government will add 20 pence to every 80 pence expensed on vouchers by the parents up to a limit of £10,000.

Existing schemes in place will be frozen to new clients from April 17 and all new applicants will use the new scheme.

Note that there are some conditions to enable parents to make use of this new scheme – the key one being that both parents need to be working.

Landlords

From 06/04/16, landlords can deduct the actual cost of replacing furniture and items on a like for like basis within their let residential properties provided the property is fully furnished.

Additional stamp duty of 3% will be applied to all sales completed on and after 01/04/16 where the buyer already owns an existing residential property even if partly owned.

The rent a room amount that can be earned tax free is going up after 18 years to £7,500.

TAX TIP – If you have a spare room in your house, offer this to a lodger and earn £7,500 tax free.

Mortgage interest relief will be gradually withdrawn as from April 17 such that only 75% of the cost will be allowable to offset against property rental.