How will the 2015 Autumn Statement affect you and your business?

Download our guide to the 2015 Autumn Statement Autumn-budget-statement-2015.pdf.

 

Our summary offers an overview of the key business, tax and financial measures announced in the Autumn Statement which could affect you and your business. Major announcements include the reversal of cuts to tax credits, the introduction of a new 3% stamp duty surcharge for buy-to-let properties and second homes, and an extension of the doubling of small business rate relief for a further year.

 

For tailored advice on any of the topics covered within the Autumn Statement, and how they may have an impact on your business or personal finances, please give us a call on 01763 853633.

 

We offer far more than traditional tax and compliance services, and can advise on a range of strategies designed to minimise your tax bill, improve profits and maximise your personal wealth.

 

 

Free Information from Companies House

I just thought i would let you know of something you can get for FREE…. You can now get free access to 170 million records at Companies House.

In line with the government’s commitment to free data, Companies House announced on 22nd June 2015 that all public digital data held on the UK register of companies is now accessible free of charge, on its new public beta search service.

This provides access to over 170 million digital records on companies and directors including financial accounts, company filings and details on directors and secretaries throughout the life of the company.

As a result, it will be easier for businesses and members of the public to research and scrutinise the activities and ownership of companies and connected individuals.

NEW RULES FOR DIVIDENDS FROM 2016/17

In the Summer Budget Newsletter we outlined the new rules for the taxation of dividends that will apply from 6 April 2016. Further guidance has now been published by HMRC setting out how the new rules will operate and it seems the rules don’t work as many people expected.  As previously reported, there will be no 10% credit against the tax on dividends which means there will be a 7½ % increase in the rate of tax on dividends once the £5,000 dividend allowance has been used up. Currently dividends falling into the basic rate band are effectively tax free.

However the £5,000 allowance needs to be taken into consideration in determining the rate of tax on your dividends. For example if you have salary and other non- dividend income of £40,000 next year and £9,000 in dividends, the £4,000 of taxable dividends are taxed at 32.5%, not £3,000 at 7.5% then £1,000 at 32.5%. This is because the £5,000 is added to the £40,000 income pushing the taxable dividends into the higher rate band.

If you own your own company it may be beneficial to bring forward dividend payments from next year to save the additional 7½ %. However, it would be important to consider all of the tax implications of such actions so come and talk to us to discuss your options.

Auto enrolment exemptions

Have you received  letters from The Pension Regulator (TPR) telling you to “ACT NOW” to prepare for auto enrolment? An initial letter asks you to nominate a contact to receive communications about auto enrolment, a second one will be asking for details about your chosen scheme.  There will also be threats of fines or prosecution if you don’t take action.

The “staging date” for your business will be stated in the letter which is  the date by which you must have a pension scheme ready for your employees to join.  However, not every business will need a scheme.

A large number of small companies will be exempt from auto enrolment, if they don’t technically have any “workers” at their staging date. A company director is not a “worker” if he or she does not have a contract of employment with the company. A company with no staff other than directors has no obligations under auto enrolment if any of the following apply:

  • It has only one director; or
  • It has a number of directors, but none of those have an employment contract; or
  • It has a number of directors, only one of whom has an employment contract.

TPR doesn’t know which directors in which small companies have employment contracts.

If you are satisfied that your company meets the exemption provisions then The Pension Regulator does need to be advised.  This can be done direct on The Pension Regulator website

http://www.thepensionsregulator.gov.uk/employers/what-if-i-dont-have-any-staff.aspx

You’ll need your letter code , PAYE reference  and Companies House number  You can re-request the letter code if you have lost it by following the link and entering the PAYE  and Accounts office references.

Liric will be contacting all our clients whom we think are eligible for this exemption.

If your company does have staff other than its directors, we should talk about what preparations you need to make to get ready for auto enrolment.

How do new interest rules affect my buy to let property?

Changes announced in the Summer Budget may  significantly increase your tax liability if you have a property business – including a single buy to let – read on….

Now

At present, full tax relief is available for interest on a loan used in a property business.  The funds may have been used to purchase the let property, to make major repairs, or just to fund the working capital of the property business.

From April 2017

From April 2017, tax relief on interest in property businesses ( including single buy to lets) will be restricted so that by 2020, interest will not be an allowable expense in computing the profit of the business, but instead will attract tax relief at 20%. The change does not affect furnished holiday lettings.  The change will be phased in as follows:

 

2017/18 2018/19 2019/20 2020/21
% of interest allowed as a deduction 75 50 25 0
% of interest given as a relief at 20% 25 50 75 100

A letting activity that has a low level of interest in relation to the borrowings will not be too badly affected, but where there is a higher level of borrowing, individuals will find that the business model has been severely undermined.

So how will this work?

Example 1

Jo is a 40% taxpayer. He has purchased a buy to let property as an investment. Here is the effect of the changes:

 now  2020/21
 Gross rents 7,200 7,200
 Repairs, agents fees and other tax deductible costs 1,000 1,000
 Mortgage interest 2,500
 Net rental profit 3,700 6,200
 Tax at 40% 1,480 2,480
 less interest relief at 20% 500
 Net tax liability on rental income 1,480 1,980
tax increase 500
effective tax rate on “real” rental profit 40.0% 53.5%

   

Example 2

In this case Jo has a bigger mortgage and hence more interest:

 now  2020/21
 Gross rents 7,200 7,200
 Repairs, agents fees and other tax deductible costs 1,000 1,000
 Mortgage interest 5,000
 Net rental profit 1,200 6,200
 Tax at 40% 480 2,480
 less interest relief at 20% 1,000
 Net tax liability on rental income 480 1,480
tax increase 1,000
effective tax rate on “real” rental profit 40.0% 123.5%

 

The tax due is more than the net funds available from the rental surplus by £280.

The new rules may also push a tax payer into the higher rate band, result in reduction of personal allowance or trigger the repayment of child benefit.

What are your options?

  1. Incorporation – has tax and other cost implications and borrowing often not easy
  2. Reduce borrowing so impact is less
  3. Sell property
  4. Accept the increase if expected capital gain on property makes it worthwhile

 

Please contact us to find out how this will impact on you.

01763 – 853633

enquiries@liricaccountants.com

Summer Budget 2015

Following the General Election, the Chancellor presented a second Budget to the House of Commons on 8 July 2015. The Budget contained some important announcements and confirmed a number of changes planned for the coming years. Some unexpected changes in the extraction of profits from Limited Companies will mean that dividend policy needs to be carefully reviewed.

We have put together a PDF newsletter Second-Budget-2015.pdf (753 downloads)  which contains the latest tax and financial information, which we trust you will find useful. For more information on how the changes may affect you, please contact us.

April newsletter

Its been a busy month so have a quick catch up of the topics that could affect you in our April newsletter

http://eepurl.com/biAGB9