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Making Tax Digital

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Making Tax Digital Summary

Making Tax Digital is intended to bring the UK tax system into the 21st century, by providing businesses with a modern, streamlined system to keep their tax records and provide information to HM Revenue & Customs (HMRC). The timetable for rolling Making Tax Digital has been amended to ensure that small businesses have more time to prepare for the changes.
The first to be affected will be small businesses and individuals with a turnover above the VAT threshold of £85,000, who will be required to keep digital records for VAT purposes from April 2019.

If you would like us to help you through these changes then contact us.

Why is HMRC introducing this?

Making Tax Digital is intended to help you keep track of how much tax you owe, or how much you are due back, throughout the financial year.

Accurate Tax Information

Replacing paper-based bookkeeping with digital tax accounts will let you check the information HMRC holds about you is 100% correct.

Reduced Errors

Making Tax Digital’s new reporting function will allow HMRC will to look at your tax information almost immediately, reducing human error from data input.

Easier to understand

HMRC anticipates taxpayers will better understand how much tax is owed within the digital tax account, much like online banking.

Making Tax Digital will make it easier for you to contact HMRC online via webchats and secure messages.

Spring Budget 2017

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From April 2018 the main rate of Class 4 NI for the self-employed will increase from 9% to 10% and will increase further to 11% in 2019. As previously announced, Class 2 NI contributions will be abolished from 2018. These changes are aimed at reducing the disparity in tax between the self-employed and the employed.

Tax

Income Tax
As previously announced, in 2017/18 the personal allowance for England, Wales and Northern Ireland will increase to £11,500 and the higher-rate threshold will increase to £45,000.

Scottish rates are set by the Scottish Parliament. For 2017/18 the personal allowance will also be £11,500, but the higher-rate threshold will be lower than the rest of the UK at £43,430.

Capital Gains Tax

There were no changes announced in the Budget.

Inheritance Tax

No new announcements were made in the Budget, but as a reminder, April will see the introduction of the Residence Nil Rate Band. This is an additional allowance of £100,000 (increasing progressively to £175,000 by April 2020) that can be used against the value of an individual’s residence if it is left to their children or grandchildren. The allowance will be reduced or eliminated for estates worth more than £2 million.

Dividend Allowance

The tax-free Dividend Allowance will be reduced from £5,000 to £2,000 in April 2018. This will bring more dividend receipts into taxable bands. Dividends above this level will be taxed at 7.5% (basic-rate), 32.5% (higher-rate), and 38.1% (additional-rate).

 

Pay extra dividends now?

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Tax on dividends is set to rise on 6 April 2016, but if the government includes anti-avoidance measures in the 2015 Autumn Statement it could apply sooner in some situations. So should you pay yourself extra dividends now?

Dividend tax

The 2015 Summer Budget included the shock announcement that, from 6 April 2016, the tax rate on dividends will increase by 7.5%. It wasn’t all bad news though. The tax credit (equal to 1/9th of a dividend) which increases the taxable amount will be abolished. Also the first £5,000 of dividends you receive will be tax free. This means investors who receive modest dividend income will be better off. The government’s real targets for the higher tax are owners of small to medium-sized businesses who take a large part of their income as dividends.

How will the new tax work?

The Summer Budget announcement seemed simple enough, but when experts looked closer at the £5,000 dividend allowance it wasn’t clear how it would apply to higher rate taxpayers. In fact, the position was so unclear that HMRC issued a notice explaining how it expects it to work . Despite this questions remain, especially over how the dividend allowance will interact with the new savings allowance which also comes into effect in April 2016. However, more guidance is on the way.

Autumn Statement

If the government follows its usual timetable we can expect more information about the new dividend tax rate and allowance in the Autumn Statement, which is scheduled for 25 November 2015. The Finance Bill 2016 , which will contain the detailed rules, will be published soon after. At that point it will be possible to pin down exactly how the new dividend tax rate will apply.

Tax planning

It seems sensible for director shareholders to pay themselves extra dividends before the higher tax rate comes into effect in April 2016. However, the Chancellor could try to block this tax dodge by announcing anti-forestalling measures to take effect on the day of the Autumn Statement. We think it’s unlikely, but it can’t be ruled out.

Get your timing right

If you pay extra dividends to beat the Autumn Statement or 6 April 2016, timing is important. Company law determines the date dividends are treated as paid, which is also the date of payment for tax purposes. There are different rules for interim and final dividends.

Personal tax allowance to track minimum wage

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New legislation in the Queen’s Speech will mean that the amount workers are allowed to earn before paying tax is likely to rise faster than inflation.aa_103740668

The national minimum wage for adults is due to rise by 3% in October, the largest real-terms rise in seven years.

Chancellor George Osborne has said it will rise from £6.50 to £8 by 2020.

The personal allowance is currently £10,600, but is due to rise to £12,500 by 2020.

As a result, the government is promisingthat no one working for 30 hours a week on the national minimum wage will pay tax.

At the moment, an adult working for 48 weeks a year at that rate earns £9,360, so is below the tax threshold.

However, the new law will prevent such workers having to pay tax when the national minimum wage rises at a faster rate than inflation, which is currently -0.1%.

It is also expected that the increases will feed through to the higher rate tax threshold, suggesting that the higher rate could also rise faster than inflation.

That will benefit workers who currently earn more than £42,385 a year.

Such taxpayers have been affected by so-called fiscal drag, under which more people were dragged into a higher tax bracket, as the allowance failed to be uprated in line with inflation.

Legislation being outlined will also prevent rises in income tax, VAT and national insurance during the current Parliament.

George Osborne Sets Summer Budget Date

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The Chancellor George Osborne has said he will unveil the first Budget of a majority Conservative government on 8 July.

Mr Osborne could uGeorge Osborne - budgetnveil where £12bn in welfare cuts, which the Tories have said they will make over the next five years as part of their quest to run an absolute budget surplus, will fall. Only £2bn of this total has so far been specified.

The Chancellor’s summer Budget is also expected to include measures to make economies in Whitehall and to crack down on tax avoidance.

But the main fiscal event of the year is likely to be the next departmental Spending Review, at which the Chancellor will unveil where an estimated £30bn of cuts will be found across Whitehall. The existing spending-review period only extends to next March, which means a new programme must be in place by the end of the year.

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