All change for April – check your pay slip
Your April pay may look
much the same as March’s, but it is worth giving your pay slip a
closer look than usual next month.
If you are an employee, your April pay
slip is always worth checking, even if you pay little attention to
the other eleven you receive over a year. The items to check include:
Salary Many employers change pay
rates from 1 April, often coinciding with the start of their new
financial year. If you were notified of a pay increase in March, it
is worth making sure the number on the April pay check agrees with
what you were promised.
Tax code. Your April pay check
will be the first for the 2019/20 tax year and your PAYE tax code
will have almost certainly changed from what was on your March pay
slip. If you are entitled to a full personal allowance and have no
deductions, your code number should increase by 65, reflecting the
£650 increase in the personal allowance.
If you have a company car, then it is
likely to move your code in the opposite direction. For most cars
(other than those with the highest emissions), the percentage of list
price that is taxable rises by 3% – £300 per £10,000 of list price.
A £22,000 car will therefore more than counter the rise in the
personal allowance. The higher scale percentage also means a similar
increase in taxable value of employer supplied fuel. In practice you
might be better off paying your own fuel bills, even if your employer
pays you nothing in compensation.
National insurance contributions
(NICs) The primary threshold (that is, the starting point) for
NICs rises by £4 a week while the upper earnings limit (the top
level of earnings on which you pay full 12% NICs) jumps by £70 a
week. As a result, if your annual earnings are more than £46,600 a
year, you will be paying more NICs from April. If you earn over
£50,000 a year, your extra NICs will be just over £28 a month.
Pension contributions These are
generally linked to salary, although not necessarily your full pay,
so should increase if you have an April pay increase. If you are in
an automatic enrolment pension scheme, your contributions are usually
based on “band earnings”, which were £6,032–£46,350 in
2018/19 and are £6,136–£50,000 in 2019/20. The contribution rate
will rise, too. How much will depend upon your employer’s
contributions: you might see the rate increase by two thirds to 5% of
band earnings (4% after basic rate tax relief). If your pay in April
is lower than in March, the auto enrolment change could be the
culprit.
For more insight on the impact of the
tax, NICs and pension deductions from your pay, please talk to us.
Penalty notices delayed
HMRC has warned that
self-assessment penalty notices for 2017/18 may not be
issued until the end of April. The £100 penalties are normally
issued in February.
The deadline for submitting a
self-assessment tax return for 2017/18 was 31 January, and HMRC would
normally already have issued penalty notices to taxpayers who have
not filed on time. However, penalty notices create considerable
demand for HMRC’s call centres and back offices as taxpayers
contact them to discuss their options.
Anticipating increased demands on staff
time as the Brexit deadline looms, HMRC announced a delay in late
February to the issue of penalty notices this year. This will allow
HMRC to release staff for EU exit related work.
HMRC’s regular monthly bulletin
states that:
- Taxpayers who filed late will
still be charged the £100 penalty, but the penalty notice will be
delivered later than normal. - The latest date that the notices
will go out is the end of April, but will be issued sooner if an EU
withdrawal agreement is agreed. - HMRC will issue daily penalties to
taxpayers who have still not filed three months after the 31 January
deadline, with penalties being imposed from the normal deadline –
that is, tax returns not received by 1 May 2019.
Given that penalty notices can take
over a week to arrive by post, taxpayers could easily be subject to
daily penalties before they even realise their return is late. A
delay in notification until April could prove costly. Even though a
taxpayer has ‘filed’ a return, there can be technical problems
with online filing, with the result that an online return is held in
suspension because the submit stage has failed.
Some 700,000 taxpayers missed the
filing deadline for 2017/18. HMRC will treat those with genuine
excuses leniently, as it focuses penalties on those who persistently
fail to complete their tax returns, and deliberate tax evaders.
However, the excuse must be genuine and HMRC may ask for evidence.
Please contact us if you think you
might be affected.
Twist again on buy-to-let
Buy-to-let investors
will be hit by another tightening of the tax rules in April.
When George Osborne announced in his
summer 2015 Budget a variety of tax changes aimed at discouraging
buy-to-let (BTL) investment, they came as a surprise. To ease their
impact, the then Chancellor phased in the most significant reform, a
revised treatment of interest relief, over four years and deferred
its start date to April 2017. Anecdotal evidence suggests some BTL
investors did not know what had happened until they found a larger
than expected tax bill in January.
April 2019 will see the start of the
third year of the phasing process, which will mean in 2019/20:
- Three quarters of any interest
paid on BTL borrowing will be eligible for a 20% tax credit; and - The balance of interest is
deductible from rental income, meaning it is fully tax relievable.
If that all sounds rather convoluted,
the impact becomes clearer when you look at a simplified example.
Suppose a higher rate taxpayer in England had rental income of
£12,000 and interest on a BTL mortgage of £8,000. The investors’
net income position is as follows:
|
Tax Year £ |
Rent £ |
Interest £ |
Rent – Interest £ |
Tax Due £ |
Net Income £ |
|
2016/17 |
12,000 |
8,000 |
4,000 |
(1,600) |
2,400 |
|
2017/18 |
12,000 |
8,000 |
4,000 |
(2,000) |
2,000 |
|
2018/19 |
12,000 |
8,000 |
4,000 |
(2,400) |
1,600 |
|
2019/20 |
12,000 |
8,000 |
4,000 |
(2,800) |
1,200 |
|
2020/21 |
12,000 |
8,000 |
4,000 |
(3,200) |
800 |
In practice, the situation might be
worse than the table suggests if, for example, the disappearance of
the deduction for interest increases the investor’s gross income to
the point that it trips over the £100,000 threshold, at which the
personal allowance is phased out.
Sales by BTL investors could pick up
this year due to the interest relief changes and poor short-term
prospects for capital growth. There is another tax incentive to sell
on the horizon, too. From April 2020, capital gains tax on
residential property (at 18% and/or 28%) will have to be paid within
30 days of sale, whereas the current rules effectively give a minimum
of nearly ten months’ grace.
If you are a BTL investor thinking
about your options, please get in touch.
Can HMRC ask to see private bank statements?
As part of a compliance check into
the tax returns of two company directors, the information notices
issued by HMRC included a request to see private bank statements as
well as a description of the source of funds for any deposits made.
For 2015/16, the two directors had
submitted self-assessment tax returns showing income from employment
and dividends but had omitted trivial amounts of interest. This was a
year before the introduction of the personal savings allowance, so
the omitted interest might well have affected the directors’ tax
liabilities. The directors appealed against HMRC’s request to see
private bank statements.
HMRC’s internal
guidance to inspectors states that, when opening a compliance check
“you should only ask to see private bank statements at this stage
if you can demonstrate their relevance to the return and that you
reasonably require them for the purpose of checking its accuracy.”
There is no right of appeal, however,
against a request for information that forms part of a taxpayer’s
statutory records. The private bank statements would only have
qualified as statutory records if there were further omissions in the
tax returns. HMRC argued that it could not know this in advance, but
the judge hearing the appeal at the First-Tier Tribunal was not
convinced. The decision therefore rested on whether the bank
statements were reasonably required.
HMRC was able to show third-party
evidence of a disparity between the directors’ declared income and
their personal expenditure, including the level of mortgage payments
and capital injections made into the directors’ company. The
verdict, not surprisingly, was that the private bank statements were
reasonably required and the appeals dismissed.
This case demonstrates just how
important it is not to give HMRC any reason to start a compliance
check. All sources of income should be declared, even if trivial. The
availability of the personal savings allowance, the dividend
allowance, and the £1,000 trading and property allowances will mean
that there might not be any tax liability in any case.
We’re here to answer any queries you
might have about your tax filing.
The Brexit roundabout – no deal measures on VAT clarified
Despite Parliament voting against
leaving the EU with no deal, this does not mean the risk of a no deal
has entirely disappeared. Forward planning in these circumstances is
both difficult and confusing for businesses attempting to keep on
track.
One of the key issues, for example, is
around import VAT and tariffs. There has been contingency planning
and, should there still be no deal, a postponed VAT accounting system
will be introduced and a temporary 0% tariff regime will apply to the
majority of imports.
Postponed VAT
accounting
Without a deal, goods brought into the
UK will be treated the same as imports from outside the EU.
Currently, this would mean businesses having to pay UK VAT at the
time of importation. However, a system of postponed accounting for
import VAT will be introduced, with HMRC recently
publishing guidance on how this will work.
Businesses will be able to account for
import VAT on their VAT return, rather than paying import VAT on or
soon after the time that the goods arrive at the UK border. This will
reduce any cash flow impacts after the UK leaves the EU.
To ensure parity of treatment, the
system will also apply to non-EU imports
Non-VAT registered businesses and
individuals will still have to pay import VAT at the time of
importation.
Tariff regime
A temporary
tariff regime will remove customs duties on the majority of
imported goods for a period of up to 12 months. Under the regime, 87%
of total imports to the UK by value will be eligible for tariff-free
access. This will prevent potential price spikes.
The 13% of remaining tariffs will apply
for a variety of reasons. High EU tariffs have traditionally
supported farmers, and there are a number of sectors where tariffs
will help provide support against unfair global trading practices.
Tariffs will also be retained on a set of goods to meet the UK’s
commitment to supporting developing countries.
If a deal is reached, the UK will
effectively remain within the EU Customs Union until 31 December
2020. There will then be no immediate impact on trade and the
measures outlined above will not need to be implemented.
With the immediate focus on Making Tax
Digital for VAT coming in from April, it’s worth keeping abreast of
the measures that may affect your VAT position long term in these
uncertain times.