Summer Budget 2015

The ’emergency’ Budget overall looks to me to be a tax-raising budget. In particular, some currently receiving tax credits will be hit, as well as those letting out investment properties. However from April 2017, the raised tax-free personal allowance and 40% tax threshold may help some of my clients currently near or just into 40% tax.

A number of changes announced promise to be quite complex in how they operate and I shall post more having considered these. I shall be interested in particular to look at

-When is a house a home (for inheritance tax purposes)

-How to count children (for the allowances cap above two children)

-Exactly where ‘the North’ starts (I am on a train to Newcastle shortly, so shall be looking out for the Powerhouse on the way)

Budget 2015: an end to tax returns?

The prospect of no longer needing to submit a yearly income tax return is appealing!

A few taxpayers with very straightforward tax affairs will, it seems, come out of the Self Assessment system entirely with no need to make returns. For most others, the obligation to provide information to HMRC and pay tax will be unchanged, but the method and timing may alter from 2017 onwards with the use of an online HMRC account. So these online exchanges with HMRC will still be ‘tax returns’ of a sort (information passed to HMRC on which basis tax is paid). The current, annual return will remain as an option for those who prefer this.

Meanwhile for the self-employed, Class 2 national insurance, currently being merged with Class 4 for collection, is finally to go. The timing has yet to be announced.

I shall be interested to find out, and update clients, on how the new ‘tax returns’ will work, particularly for self-employed taxpayers. In general, though, any move which simplifies what is currently such an overcomplicated system has to be worthwhile.

Payment of income tax due 31 January

I recommend using BillPay with a debit card at https://www.santanderbillpayment.co.uk/hmrc/scripts/help3.asp.
It’s instant, although the confirmation email can take 2-3 days.
If not using BillPay, it’s now too late for BACS if your bank takes three working days for transfers. If your bank does FPS same-day payments, that’s OK, otherwise you’ll need to ask for a same-day CHAPS payment to be set up.
https://www.gov.uk/pay-self-assessment-tax-bill/bank-details shows the relevant accounts.  HMRC suggest using Cumbernauld details if in doubt as to whether to pay to Cumbernauld or Shipley – in practice it seems that either is fine.  For any electronic payment you will need your 10-digit tax reference.

Budget 2014 – savings?

This was billed as a budget for ‘makers, doers and savers’.  Recent years of recession mean that many probably feel they have been making do and not saving!

Before even beginning to think about making long-term use of the various savings incentives offered, self-employed taxpayers need to know that they are saving enough short-term to pay their tax under Self Assessment.  HMRC offer the facility to make regular (ie early) payments if wished, but neither this nor saving into your own account give much comfort if the amount saved is too little.  In terms of setting money aside for tax bills, the good news is that the proportion of income/profits which most of my clients pay over in tax should stay similar or possibly even drop slightly over the next two years.  I am happy to do a rough calculation at any point based on estimated figures for clients wanting to check that they are saving enough for their tax bills.

Key rates and allowances are shown in the ‘Budget News’ page (select above).

Pension rules are set to become a great deal less restrictive during the next year, particularly in terms of how a pension may be drawn on retirement.

Not in the budget, but important for anyone owning a second property, is a change to principal private residence relief.  The time during which you can live elsewhere before selling a former home tax-free falls from three years to eighteen months.

If you have any questions following the Budget, do contact me.

Class 1 National Insurance for session musicians

Those who have been hardest hit by Class 1 NICs deducted from ad hoc session payments will already know from me that HMRC are stopping this treatment.  From this April this should remove the need to sign up as an ’employee’ of an organisation you might work for for as little as three hours.  Some freelance performing work may still be subject to NI at source: where this happens, please keep a note of which fee this related to.  We declare the gross amount (before NI was taken off) in your accounts and can usually get credit for the NI deducted in your tax return, to limit other NI you pay.

Coding problems

For clients with salaries or fees paid under Pay As You Earn (PAYE), with tax deducted, I have noticed problems during the last year in several cases either with incorrect tax codings or with correct codes not applied properly. This has meant in two cases that most of the earnings are kept in tax when they shouldn’t be. This gets corrected eventually through the tax return if left, but this is not a practical solution if it involves a large proportion of a client’s income.
Some problems seem to have been caused by employers moving to ‘Real Time Information’. Where you do work paid through a company’s payroll, please check any payslip carefully. If there is any change to your coding, or if the amount you receive is very different from what you expected, do let me know. It can take a while to sort out but I will do anything I can to help.