Archive for July, 2016

Interest rates to fall

Tuesday, July 19th, 2016

In the immediate fall-out after the Brexit vote it was rumoured that interest rates would fall when the Bank of England Monetary Policy Committee (MPC) met on the 13th July. Following the meeting, Mark Carney announced that interest rates would be held at 0.5%.

However, the minutes of the July 13th MPC meeting make it clear that at their next meeting on the 6th August, interest rate reductions or other easing of monetary policy may be on the cards. The minutes say:

“The MPC is committed to taking whatever action is needed to support growth and to return inflation to the target over an appropriate horizon. To that end, most members of the Committee expect monetary policy to be loosened in August. The Committee discussed various easing options and combinations thereof. The exact extent of any additional stimulus measures will be based on the committee’s updated forecast, and their composition will take account of any interactions with the financial system.”

In other words, the expected fall in rates to say 0.25%, may well happen next month.

If rates do fall this is great news for borrowers, who can expect fixed rate mortgages to be offered at more favourable rates.

It will be bad news for savers. In fact, as the indications of a rate fall are fairly strong, it may pay to take advice and consider your options. National Savings and the High Street banks are already adjusting rates in a downward direction in anticipation of rate falls next month. Perhaps time to take a look at fixed-rate savings bonds?

15% corporation tax

Wednesday, July 13th, 2016

George Osborne has floated the idea that the UK could reduce corporation tax to 15% or lower in an attempt to make the UK the place to do business. By making this surprise announcement at the beginning of the month, he will no doubt have in mind the many larger institutions that are reconsidering a move from London to other EU financial centres following Brexit.

 There are concerns that this could, if implemented, produce a race to the bottom, as other countries try to out-compete the UK rates.

 The present 20% corporation tax rate is already scheduled to reduce in the coming years. The present timetable of reductions is:

  • From 1 April 2017 reducing to 19%
  • From 1 April 2020 reducing to 17%

Of greater concern, certainly for smaller businesses, is maintaining profitability in the coming years as the UK adjusts to a new alignment with the EU and the rest of the world. Uncertainty is likely to be a constant companion at our board meetings until the post Brexit changes are completed.

 Businesses would be best advised to observe basic good housekeeping:

  • Tighten credit control,
  • Maintain liquidity,
  • Reconsider investment decisions that are unlikely to have an immediate, positive impact on profitability,
  • Rewrite budgets and make sure monthly financials are reviewed.

Anchoring larger, mostly financial institutions to UK residency in the hope of minimising any down-side losses to the UK economy, whilst laudable, does not necessarily help small business owners – if they are unable to make profits a reduction in tax rates at some future date is largely irrelevant.

 It will be interesting to see if George Osborne, or his successor, come up with Band-Aid policies for smaller business development in the coming months.

Business as usual

Tuesday, July 12th, 2016

The hiatus continues. Both major political parties are locked into leadership issues and until these are resolved it is difficult to see in which direction the UK will take. Apparently, the present government, with its new leadership team, will continue until the next scheduled general election, 7 May 2020.

George Osborne’s last budget, March 2016, is still working its way through parliament and we can expect this process to complete once the report stage is finished and the bill receives Royal Assent. No doubt the new incumbents will consider a further finance bill later this year to smooth the way for Brexit?

 Meanwhile, we are faced with two dilemmas:

  • When will we formally separate from Europe and what continuing trade agreements will we secure with the EU?
  • What trade agreements will we secure with the rest of the world?

 It is encouraging to see that the present government are not entirely inactive in this regard. The Business Secretary, Sajid Javid, has kicked off preliminary trade talks with India this month, and there are further, tentative talks organised with the USA, China, Japan and South Korea.

The Business Secretary Sajid Javid said:

“Following the referendum result, my absolute priority is making sure the UK has the tools it needs to continue to compete on the global stage.

That is why I am in India today to launch these initial trade discussions. There is a strong bilateral trade relationship between our 2 countries and I am determined that we build on this.

Over the coming months, I will be conducting similar meetings with other key trade partners, outlining the government’s vision for what the UK’s future trade relationship might look like.”

As part of the discussions, the Business Secretary is expected to make clear that he would like the UK and India to have a trade agreement in place as soon as possible after the UK leaves the EU.

So we are not without leadership. Meanwhile, now would be a good time to consider, and reconsider, investment options for small businesses across the UK while we wait for the wider trade negotiations to complete.

Changes to business market place post Brexit

Wednesday, July 6th, 2016

While we wait for the politicians to sort themselves out it may be prudent to reflect on the likely changes to the business market place post Brexit. For example:

  • If the sterling exchange rate settles at a lower level the cost of imported goods will rise and our exporters may benefit as their goods and services will be priced lower in overseas buyer’s markets.
  • If the rising cost of imports triggers inflation the Bank of England may have to step in and increase interest rates. This will increase the cost of borrowing; business profits will suffer as will cash flow.
  • An alternative scenario is also possible. The Bank of England may reduce interest rates to encourage investment and lower the cost of borrowing for UK businesses and home owners.
  • Firms that trade in the property sector will need to keep a weather eye on demand as buyers may be discouraged by the overall uncertainty about the longer term outlook for interest rates. As a consequence, we may see the property market flat-line or prices fall.
  • Uncertainty may encourage banks and other lenders to be more cautious when considering loans. Cash flow management should possibly shift towards the top of to-do lists, just in case there is downward pressure if credit does tighten up.
  • Businesses and non-profit making enterprises that rely on EU funding should contact their funding agencies as soon as possible. Be prepared. Start looking for alternative funding now. Support for farmers and other key groups will hopefully be replaced by UK government grants.
  • Businesses that trade with the rest of the EU will need to re-examine their sales and marketing strategy for the future. If and when the final EU curtain falls they may find their exports subject to tariffs. Time to start looking for alternative export markets or ways to increase penetration in the home market.
  • Firms that are part of the supply chain for multinational concerns will need to be vigilant. Car manufactures, pharmaceutical companies, international banks and others, that have based their operations in the UK as a spring board to the EU markets, could possibly reconsider their options.  
  • If consumer demand in the UK hardens, the ability to pass on increased costs may become a problem for smaller businesses already coping with smaller margins and shrinking demand for their products and services.
  • Finally, we may have face tax increases as the UK struggles to balance its books and repay debt.

Businesses will need to be on their guard. Businesses and individuals should be watchful and stay positive. There are small business owners who would say that they were held back by EU regulation and will now be free to explore alternative markets. There are others that will be concerned by any loss of access to European markets. In any event, it pays to trim your sails if a storm is forecast, even if it blows over.

Tax Diary July/August 2016

Monday, July 4th, 2016

 1 July 2016 – Due date for Corporation Tax due for the year ended 30 September 2015.

 6 July 2016 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs, and give copies of the information to your employees.

 19 July 2016 – Pay Class 1A NICs (by the 22 July 2016 if paid electronically).

 19 July 2016 – PAYE and NIC deductions due for month ended 5 July 2016. (If you pay your tax electronically the due date is 22 July 2016)

 19 July 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2016.

 19 July 2016 – CIS tax deducted for the month ended 5 July 2016 is payable by today.

 1 August 2016 – Due date for Corporation Tax due for the year ended 31 October 2015.

 19 August 2016 – PAYE and NIC deductions due for month ended 5 August 2016. (If you pay your tax electronically the due date is 22 August 2016)

 19 August 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2016.

 19 August 2016 – CIS tax deducted for the month ended 5 August 2016 is payable by today.

Bogus emails and now, bogus phone calls

Monday, July 4th, 2016

The “phishing” emails sent by nefarious individuals, purporting to be from HMRC, have now been joined by bogus phone calls.

We have received information that taxpayers are being called, apparently by HMRC, and advised that they have significant tax bills to pay and the caller encourages the offended taxpayer to settle the bill during the phone call.

We have reproduced below a warning issued by Action Fraud involving the use of iTunes gift cards:

Action Fraud is warning people of a new trend that has hit the UK where fraudsters contact victims claiming to be from HM Revenue & Customs (HMRC) and trick them into paying bogus debts and taxes using iTunes gift cards. 

Victims are being contacted in a variety of methods by fraudsters claiming to be from HMRC and are told they owe an outstanding debt. In the hundreds of cases reported to Action Fraud in the past month, the fraudsters all ask for payment in iTunes gift card voucher codes. 

Fraudsters are now moving onto iTunes gift cards to collect money from victims because they can be easily redeemed and easily sold on. The scammers don’t need the physical card to redeem the value and instead get victims to read out the serial code on the back over the phone. 

Fraudsters are contacting victims in three ways:

  • Voicemails: Fraudsters are leaving victims automated voicemails saying that they owe HMRC unpaid taxes. When victims call back on the number provided, they are told that there is a warrant out in their name and if they don’t pay, the police will arrest them.
  • Spoofed calls: Fraudsters are cold calling victims using a spoofed 0300 200 3300 number and convincing them that they owe unpaid tax to HMRC. 
  • Text messages: Fraudsters are sending text messages that require victims to urgently call back on the number provided. When victims call back, they are told that there is a case being built against them for an outstanding debt and they must pay immediately.  

How to protect yourself: 

  • HMRC will never use texts to tell you about a tax rebate or penalty or ever ask for payment in this way.
  • Telephone numbers and text messages can easily be spoofed. You should never trust the number you see on your telephones display. 
  • If you receive a suspicious cold call, end it immediately.

You can also report a fraud and receive a police crime reference number, call Action Fraud on 0300 123 2040.

Transferring ISAs

Monday, July 4th, 2016

ISA investors may be interested to read the following guidance issued by HMRC regarding the transfer of ISAs from one provider to another.

What you can transfer

You can transfer a cash ISA to another cash ISA with a different provider. You can do the same with stocks and shares ISAs. You can also transfer a cash ISA to a stocks and shares ISA or vice versa.

If you want to transfer money you’ve invested in an ISA this current year, you must transfer all of it. For previous years, you can choose to transfer all or part of your savings.

Check with your provider for any restrictions they may have on transferring ISAs. They may also make you pay a charge.

How to transfer your ISA

To switch providers, contact the ISA provider you want to move to and fill out an ISA transfer form to move your account. If you withdraw the money without doing this, you won’t be able to reinvest that part of your allowance again.

Deadlines and complaints

ISA transfers should take no longer than:

  • 15 working days for a cash ISA
  • 30 working days for a stocks and shares ISA

If your transfer takes longer than this, contact your ISA provider. If you’re unhappy with the response, you can take the matter up with the Financial Ombudsman Service.

Financial Ombudsman Service
Telephone: 0845 080 1800
Monday to Friday, 8am to 8pm
Saturday, 9am to 1pm


Business expenses you can claim

Monday, July 4th, 2016

Basically, you can claim for most expenses that are incurred wholly and exclusively for the purposes of a trade. Unfortunately, most of the decision making by HMRC on this topic is guided by tax law, which has been inconsistent.

That aside, the following will provide you with guidance in areas where the outcome is reasonably predictable:

  1. Professional fees, your accountant for example: allowable in most cases unless the fees relate to:
  • The purchase of a property or other business asset (in which case they can be used to reduce any Capital Gains Tax liability when the asset is sold).
  • The costs of settling tax disputes.
  • Fines for breaking the law, for example, parking or speeding fines.
  1. Entertaining: even though entertaining produces new business, all expenditure under this category is deemed a non-allowable expense for tax purposes.
  2. Motoring costs: the costs of running a business car for business related journeys are allowable. The costs of private motoring with a business vehicle are not. Home to work journeys are generally considered private.
  3. Travel expenses: All business related travel costs are allowable. Home to work travel costs are not tax allowable.
  4. Bank and credit card charges: bank charges and bank interest charges on loans or overdrafts taken out for purely business purposes are tax allowable. The capital repayment of these loans is not.
  5. Cost of goods: goods bought for resale by your business, or that are consumed during the day-to-day business activities are tax deductible, goods taken for private use are not.
  6. Cost of assets: the cost of plant, vehicles and equipment purchased for business use is held on your balance sheet as assets. The cost is gradually written off against your profits by making a depreciation charge – this writes off the asset cost over the useful life of the asset. Even though this depreciation charge is a reduction in profits it is not allowed as a tax deduction. Instead, HMRC grant a capital allowance, which can vary from 8% to 100% of the allowable asset cost, or its written down value for tax purposes (if you acquired the asset in previous years).
  7. Bad debts: if a customer fails to pay an invoice and the debt is considered irrecoverable the sales value can be written off for tax purposes. Debts relating to assets or general provisions for bad debts are not allowable.

Obviously, this is only a sample of the range of costs and expenditure you may need to layout when running your business. If you are unsure if a future cost will qualify for tax relief, please call to discuss the matter.

Sooner or later

Monday, July 4th, 2016

Is it better to file your Self Assessment tax return as soon as possible after the end of the tax year?

You are not obliged to file your tax return for 2015-16, online, before the 31 January 2017. However, if you leave the process of completing your return until close to this date, it will not give you much time to calculate and fund the amount of tax you may owe on the same date, 31 January 2017.

 When we prepare a Self Assessment tax return for clients there are four distinct phases:

  1. Gathering the information from clients to complete the return.
  2. Completing the return and considering any explanatory narrative.
  3. Agreeing the submission with our clients, and
  4. Filing the return.

It makes good sense to move through the first three phases as quickly as possible after the end of the tax year. For the 2015-16 year, it should be possible to collect and process the relevant data by midsummer, say 31 July 2016. Clients who facilitate this sort of timetable should then be in a position to know what their balance of tax owing (or tax overpaid) is several months before the 31 January 2017 filing and payment deadline.

It is possible to delay the actual filing of the return to any date up to and including 31 January 2017. There may be good reasons for doing this. For example:

Higher rate tax payers have an opportunity to carry back gift aid donations to the previous tax year. In order to do this, they must pay the donations and include the appropriate election before they file the tax return for the tax year they are carrying back to. I.e. in order to secure extra tax relief for 2015-16, the gift aid donations made after 5 April 2016 must be completed before the 2015-16 tax return is filed.

On the other hand, self-employed business owners whose profits have been falling during 2015-16 (compared to 2014-15) may find that the actual tax and NIC that is due is less than the payments on account being made 31 January 2016 and 31 July 2016. If this is highlighted by completing the return early in the tax year, an application can be made to reduce the second payment on account due 31 July 2016.

Readers should also note that HMRC have 12 months from the date they receive your return to raise enquiries regarding the return. Early filing starts the enquiry “clock” ticking sooner.