Spring Tax Update 2017 - Torquay

pkf-francisclark.co.uk
Speaker
Spring tax update
Torquay March 2017

Speaker
Chairman’s welcome
John Rowe, Partner

pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Housekeeping
@pkfFrancisClark
#FCSpringTax17 #Torquay
A copy of the
slides will be sent
to you by email
shortly

Staff update – newly appointed Partners
Holly Bedford became Tax Partner on
1 December 2016
• Corporate and personal taxation expert
• Leads the tax team in the Plymouth office
• Previously with Arthur Anderson in Chicago
and EY in London and Edinburgh
Lucinda Coleman will become Business
Recovery Partner on 1 April 2017
• Licenced insolvency practitioner and
Company Voluntary Arrangements expert
• Joined PKF Francis Clark as a graduate
trainee in 2003.

Staff update – newly appointed Partners
Jason Mitchell will become Partner on
1 August 2017
• Specialises in providing accountancy and
advisory services to the legal sector
• SRA Accounts Rules expert
• Provides a wide range of accountancy
services to SMEs across the region

Staff update – newly promoted Directors, 1 April 2017
Liam Dushynsky,
VAT Director, Exeter
Adam Kefford Corporate
Tax Director, Exeter
Katie Skea, Director,
Plymouth
Ian Pring, Tax
Director, Plymouth
Chris Watts, Tax Director,
Torquay (FCTC)
Jemima Fox, Tax
Director, Plymouth
Justin Gliddon, Director,
Plymouth (1/10/16)
Frances Kingsnorth,
Director, Salisbury

James Barratt,
Director, Plymouth
Daniel Sladen, Tax
Director, Truro
Lisa Macpherson,
Tax Director & Head
of Tax Technical,
Poole
Martin Brown, Tax
Director, Taunton (FCTC)
– joined 6/3
Staff update – newly promoted Directors, 1 April 2017

• Budget day changing to autumn from 2017
• This update will be in March again next year
 More convenient timing for attendees
 We have better information to share
 Access to consultations and draft legislation.
Spring tax update

Programme for today
Making tax digital
Business tax update
Paul Collings, Tax Partner
Personal tax update Andrew Squires, Tax Partner
Financial planning update Kevin Stoyle, Chartered
Financial Planner

Speaker
Budget overview
Paul Collings, Partner

Measured &
boring
Hammond’s speech

Overview

.
PSNB as % of GDP (per OBR)
Estimate Forecast
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Public sector net borrowing 3.8% 2.6% 2.9% 1.9% 1.0% 0.9% 0.7%
Cyclically-adjusted public sector
net borrowing
3.6% 2.6% 2.9% 1.9% 0.9% 0.9% 0.7%
Treaty deficit 4.0% 2.7% 2.8% 1.9% 1.1% 0.9% 0.9%

Crisis over?
Spring tax update

Speaker
Making Tax Digital

.
Making Tax Digital
New HMRC initiative revolutionising the way businesses file
online
• Landlords and unincorporated businesses 5 April 2018
• VAT registered businesses from 5 April 2019
• Corporates and large (> £10m) partnerships 5 April 2020

.
Making Tax Digital
New HMRC initiative revolutionising the way businesses file
online
• Landlords and unincorporated businesses 5 April 2018 5 April 2019
• VAT registered businesses from 5 April 2019
• Corporates and large (> £10m) partnerships 5 April 2020

.
Making Tax Digital
• Deadline for submitting quarterly returns one month after the quarter
end
• Deadline for submitting final adjustments for year will be the sooner
of ten months after the year end, or 31 January following the year of
assessment (the existing tax return deadline)
• Applies to the first accounting period that begins after 5 April 2019,
so 5 April year ends’ first quarterly reporting date is 5 July 2019, and
first MTD deadline on 5 August 2019
• First years will have multiple deadlines to meet

.
Making Tax Digital
Government has given some assurances regarding small
businesses, and the digitally excluded:
• Businesses can use spreadsheets for record keeping, but must file
via MTD-compliant software
• Businesses eligible for three line accounts can submit quarterly
updates with only three lines of data (income, expenses and profit)
• Free software will be available to businesses with “the most
straightforward affairs” – in practice, this will mean those under the
VAT registration limit and with no employees

.
Making Tax Digital
• No need to scan in invoices
• Only one update for the entire property business
• Accounting adjustments can be made in final adjustment
• Declaration of partnership splits now optional for quarterly updates –
must be notified in year end adjustment
• Partnerships must return all income and gains i.e. investment
income as well as trading income
• Will not include CIS returns for the time being – current quarterly
return system will continue.

.
Making Tax Digital
• Government has yet to decide on de minimis limit below which MTD
will not apply
• £10,000 is seemingly too low
• What is the masterplan? What are the issues?

An Introduction to Cloud Accounting
Paul Collings

What is Cloud?
..
What is it?
Cloud technology is
simply to host, or store, data
remotely rather than on a
machine at your premises.

.
What does Cloud Accounting allow?
• Multi-user & multi-location
• Immense server processing power
• Machine learning
• Application Programming Interface (API).

How does Cloud help accounting?
• “Time saved on your books is time to invest in your
self or your business”
• Automated bank feeds
• Invoice recognition
• Better Management accounts
• Make business decisions based on real time data

What does this achieve?
• Efficiencies
• Questions can now be answered in real time…
- What pension contributions can I make?
- When do I have to register for VAT?
- Should I purchase the equipment this year or next?

.
Who to contact?
Thomas Roberts ACCA
CloudSourcing Technologist – Exeter
Thomas.Roberts@pkf-francisclark.co.uk
Darren Jasper ACA CTA
Head of CloudSourcing
Darren.Jasper@pkf-francisclark.co.uk

• MTD journey – very much part of the master plan
• Training and Investment
• Consider “FC Relationship”
• Where now?
Is that it?

Speaker
Business tax update

Corporation Tax Rates
Northern Ireland
12.5% from 2018
Year
commencing 1
April
Main rate
%
Small
profits
rate %
2010 28% 21%
2011 26% 20%
2012 24% 20%
2013 23% 20%
2014 21% 20%
2015 20% -
2016 20% -
2017 19% -
2018 19% -
2019 19% -
2020 17% -

Annual Investment Allowance
Capital allowance – 100% tax relief
Period from AIA
1/6 April 2008 £50,000
1/6 April 2010 £100,000
1/6 April 2012 £25,000
1 January 2013 £250,000
1/6 April 2014 £500,000
1 January 2016 £200,000

.
Corporation Tax - Losses
• New rules will increase flexibility for relieving corporate
tax losses
• Losses arising from 1 April 2017 can be carried forward
and offset against other income streams
• Losses can also be carried forward and group relieved
• Companies with profits > £5m – only 50% of profit can
be relieved by losses brought forward

.
Corporation Tax - Interest
• New rules will restrict each group’s net deductions for
interest to
 30% of EBITDA taxable in the UK or, if higher
 An amount based on the net-interest to EBITDA ratio for
the worldwide group.
• De Minimis of £2,000,000 of interest

Research and Development - Small
• SMEs (Turnover <€100m Balance Sheet<€86)
• Tax relief on allowable R&D is 230%
• £4,600 tax saved for £10,000 of spend
• Very attractive relief
• Encourages innovation and “inventiveness”
“Wants to make R and D simpler to
claim…..makes us competitive”

Research and Development - Large
• Large companies now must use ‘Research and
Development Expenditure Credit’ scheme – RDEC
• Receive a tax credit – ‘above the line’
• Taxable credit of 11%
• Net saving of 8.8% on qualifying expenditure (previously
6%)
• Above the line – Arguably “More Visible”

Liquidations and Entrepreneurs’ Relief
• 10% tax rate possible on liquidating trading company
• Members’ voluntary liquidation (MVL)
• Now have targeted anti-avoidance rules to catch:
 Money boxing
 Phoenixism
• Are you carrying out a similar trade or activity within two
years?
• Those caught treated as receiving a dividend.

Substantial Shareholdings Exemption (SSE)
• SSE can apply to exempt gains on companies selling
shares (10%)
• Changes to SSE following consultation:
 Removing investing company trading condition
 Making it easier to sell shareholdings in multiple tranches
 Removing post disposal investee trading condition
 Broader exemption for companies owned by qualifying
institutional investors.

.
Transactions in land
• Rules aimed at taxing gains on development land as
trading income
• Previous rule – ‘sole or main object’ was to realise a
gain on disposal of land
• New rule – ‘main or one of main purposes’ is to realise
a gain
• Applies where other property (e.g. shares) derives
50+% of its value from land

.
Employment taxes
• Employer NIC due on termination payments > £30,000
(aligned with income tax)
• Salary sacrifice rules tightened so employees will be
taxed on salary foregone.
• From April 2017 PAYE applied to consultants providing
services to public sector via a limited company.

IR35 – public sector changes
• New provisions apply when:
 Worker personally performs services for end client
 End client is public authority
 If the contract had been directly with the end client the worker
would have been regarded as an employee.
Employment taxes

.
• Increase in business rates from April 2017 -
revaluation of the rating list
• “Increase in rural rate relief to 100%, giving small
businesses in rural areas a tax break worth up to
£2,900 a year” Chancellor of the Exchequer, November 2016
• Transitional provisions failing to ease burden, too
narrowly focused
Business rates

£435 Million of Measures
• If previously claiming Small Rates Relief increase
capped at £50 per month;
• Measures to assist Pubs with a rateable value of
<£100,000 – claim £1,000 of Business Rates Relief
for 1 year;
• Local Authority Fund of £300 million to be provided to
Local Authorities
Business Rates

.
VAT – the basics
• Taxable
- Standard → 20%
- Reduced → 5%
- Zero → 0%
• Exempt
• Outside the scope

.
VAT – the basics
VAT recovery
 For taxable supplies √
 For exempt supplies x

.
VAT – registration
An entity is…
• Currently liable to register where taxable turnover is:
> £83,000 in any rolling 12 month period
or
> £83,000 in next 30 days – anticipated
• threshold increasing to £85,000 from 1 April 2017
• eligible to register if making taxable supplies
Allows VAT to be reclaimed on costs…

.
VAT – flat rate scheme
• ‘Simple scheme’ where business does not recover input
tax and charges flat rate of VAT on turnover
• 16.5% rate applies for ‘limited cost traders’ from 1 April
2017
• Limited cost traders – expenditure on goods:
- <2% of VAT inclusive turnover for accounting period, or
- <£1k for accounting period (pro-rata if period ≠ 12m)
- Expenditure excludes capital, subsistence and most motor
costs.

• A new entrepreneur client commences in business in January
2016. He is self-employed..
- Deal with Auto-Enrolment by November 2017
- Self-Assessment liability by January 2018
- Payments on Account January 2019
- Removal of the Flat Rate Scheme for VAT
- Making Tax Digital introduced April 2019
Case Study

Personal tax update
Andrew Squires, Tax Partner

• From 6 April 2017
• Personal Allowance £11,000 to £11,500
• Higher rate tax threshold becomes £45,000
• From 6 April 2018
• Dividend Allowance reduced to £2,000
The basics

• Manifesto pledge broken
• Top 1% pay 27% of all income tax!
• £32,000 of pay
• Employed - £6,170
• Self-employed - £2,300
• From April 2018 – 9% to 10%
• From April 2019 – 10% to 11%
• No impact where s/e earnings less than £16,250
National insurance for the self-employed

Residential property
• Various ownership structures
• New tax rules where residential property owned
personally
• Restriction to mortgage interest relief on residential
lettings
• Increase in SDLT.

Residence nil rate band
• When a residence is passed on death to a direct
descendant:
• Property must have been occupied by the deceased as their
main residence at some point during the period of
ownership.
Tax Year Rate of RNRB
2017/18 £100,000
2018/19 £125,000
2019/20 £150,000
2020/21 £175,000

• Downsizing provisions
• Unused band is transferable between spouses –
potential for £1 million IHT free
• Tapered withdrawal of the nil rate band for
estates with a net value of more than £2 million.
• Planning opportunities?
Residence nil rate band (continued)

Wear and tear allowance
• Allowance scrapped from
April 2016
• Replacement furniture
relief
• Initial furnishings
• FHLs retain capital
allowances

Financing costs – residential
• 100% financing cost deduction being phased out over a
number of years
• Replaced with a 20 % tax reducer
• Basic rate taxpayers, child benefit and personal allowance
impact.
Tax Year Finance cost relief
2017/18 75% of finance costs deductible against rental income, 25% tax
reducer
reducer
reducer

Financing costs – an example
2016/17 2020/21
Rental income £50,000 £50,000
General expenses -£10,000 -£10,000
Allowable interest -£20,000 -
Rental profit £20,000 £40,000
Tax at 40% £8,000 £16,000
Tax reducer at 20% - -£4,000
Tax payable on rental
income
£8,000 £12,000

• Full finance cost relief
• Corporation tax rate 19% from 1 April, reducing to
17%
• Tax costs of setup – capital gains tax and stamp duty
land tax
• Reliefs may be available to mitigate tax costs
• Profit extraction
Incorporation of rental business

• Succession planning alternative to traditional trusts
• £325,000 limit for trust transfers restrictive
• 45% vs 17%
• Control maintained
• Easy to transfer shares – PET’s
• Different share rights
• Not for everyone
Family investment companies

• UK residential property disposed of by non-residents
• Default basis of tax computation – April 2015
• Alternative computation basis
• 18% and 28%
• Return must be made within 30 days of conveyance
• Penalties!
Non-resident capital gains tax

• 3% surcharge for additional residential property
purchase
• Applies to any acquisition of residential property
• Commercial and mixed use properties are
unaffected
• Furnished holiday lets included
Stamp duty land tax

SDLT (continued)
Main
residence
Second
home
or buy to let
Up to £40,000 Zero Zero*
Up to £125,000 Zero 3%
The next £125,000 (the portion from £125,001 to £250,000) 2% 5%
The next £675,000 (the portion from £250,001 to £925,000) 5% 8%
The next £575,000 (the portion from £925,001 to £1.5 million) 10% 13%
The remaining amount (the portion above £1.5 million) 12% 15%

Speaker
Financial planning update
Kevin Stoyle, Chartered Financial Planner

.
ISA update
There are now six types of ISA!
• Cash
• Stocks and shares
• Lifetime from 6 April 2017 (new)
• Help to buy (being withdrawn 30/11/2019)
• Junior
• Innovative finance

.
ISA limits from 6 April 2017
Reduction to tax free dividend allowance from April 2018
– increases benefit of ISA
• Cash and stocks & shares - £20,000 (2016/17 £15,240)
• Lifetime - £4,000 plus Government bonus 25%
• Help to buy - £1,200 in first month + £200pm thereafter plus
Government bonus of 25%
• Junior - £4,128 (2016/17 £4,080)
• Innovative finance - £20,000 (2016/17 £15,240)

.
Focus on lifetime ISA
Alternative to pension?
• Dual purpose – save for first home and/or retirement
• 25% Government top up
• Open to 18-40 year olds (can continue to age 50)
• Access before age 60 results in loss of Government top up and
investment growth unless
 Using funds to buy first property up to £450,000
 Terminal illness.

.
Focus on junior ISA
Wealth transfer idea?
• Available from 0 to age 18 (becomes adult ISA at 18)
• Parents, grandparents, friends etc can contribute
• Using a calculator from Fidelity we can see that saving
£340 per month from birth to age 18 could produce a
fund of £101,322 assuming 5% annual growth
• An excellent way of transferring wealth down through
the generations with no tax consequences
• Could fund university fees or a property deposit.

.
NS & I bond
Interest rate confirmed at 2.2%
• Available to everyone over age 16
• £3,000 investment limit
• Three year term
• Available from April 2017 for 12 months
• Said to be ‘market leading rate’
• Open market shows Atom Bank offering 2.2% three
year fixed rate with FSCS protection up to £85,000!

.
Pension update
Key changes/considerations
Budget confirmed reduction of annual allowance to
£4,000 from 6 April 2017 if money purchase annual
allowance triggered
What triggers it?
• Uncrystallised pension fund lump sum (UFPLS)
• Flexible access drawdown (income taken), but not if
just tax free lump sum
• Exceeding the income cap in capped drawdown

.
Pension update
• From 6 April 2016 tapered annual allowance applies if
‘adjusted income’ exceeds £150,000
• Lifetime allowance reduced to £1m
• Individual protection 2014 deadline is 5 April 2017 for
those who had pension funds valued at more than
£1.25m at 5 April 2014
• Pension scams – consultation closed in February,
feedback due later this spring
• Aiming to tackle cold calling
• Giving powers to schemes to refuse pension transfers.

.
Pension carry forward
• Carry forward still available from previous three tax
years
• Useful for those caught by tapered annual allowance
• Be aware that 2013/14 carry forward (£50,000) drops
away on 6 April 2017
• Can only carry forward if you had a registered pension
plan in place for the tax years used in carry forward
• No pension plan but may want to save in future? Start
one now to ensure full scope of carry forward is open
to you when you need it.

.
Non earners’ pension contributions
• Can contribute up to £3,600 per annum gross
• Net cost £2,880 per annum
• Tax relief each year of £720
• Can contribute for children
• Pension funds generally free of inheritance tax
• In a low interest rate environment, 25% instant uplift in
value is significant
• Wealth transfer opportunity, grandparents contributing
for grandchildren?

Pension allowances restricted?
• Venture capital trusts
• High risk but with significant tax advantages
• HMRC approved
• £200,000 annual investment limit
• 30% up front tax rebate
• Tax free growth and dividends
• Must be held for five years to retain tax benefits
Alternative tax efficient investing

No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly
recommend that no action should be taken before obtaining detailed professional advice.
Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an
investor may not get back the amount invested.
PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised
and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF.
Registered in England No. 05413603.
Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not
accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
Exeter | New Forest | Plymouth | Poole | Salisbury | Taunton | Torquay | Truro
Disclaimer & copyright
fcpp.co.uk

Speaker
Chairman’s Closing Remarks
John Rowe, Partner

(c) copyright PKF Francis Clark, 2017
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Spring Tax Update 2017 - Torquay

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