T A X & FINANCIAL STRATEGIES - Aster & Trujillo
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T A X & FINAN CI AL
STRATEGI ES
2019/20
Taxes made easy Contents
clear and concise tax guide A few essentials 2 Employer obligations
Companies
Introduction
2019/20 The personal allowance
Tax rates and allowances
Self assessment (SA) timetable
Income shifting
Value Added Tax (VAT)
Making Tax Digital (MTD)
Practical tax tips to guide you through the tax system Family matters 5 Tax and your
and help you plan to minimise your liability. Married couples investments 17
Children Pensions
Please use this guide to identify areas where you High Income Child Benefit Tax free savings
could take action, then contact us for advice and Charge Other tax efficient investments
to discuss the most appropriate way forward. Tax-Free Childcare
What about unmarried partners? Property matters 19
A word of warning Buy to let
Main residence
Working for others 8
The tax code Disposals and capital
Benefits gains tax 21
Expense payments Entrepreneurs’ Relief
Investors’ Relief
Running a business 11
Choosing a business structure Preserving the
The tax regime inheritance 22
Capital allowances Key features:
Paying the tax So what’s the problem?
Mitigating the liability
1
A few essentials
a property. Alternatively, it may be that their
Introduction savings or dividend income is significant
Losing the personal allowance
Where an individual’s total income exceeds
In the UK most income tax which flows into the enough to result in tax being payable at the
£100,000 the personal allowance is reduced
Exchequer does so by deduction at source. basic, higher or additional rates of tax. These
by £1 for every £2 of income in excess of that
The tax is taken from income before it is paid taxpayers may be asked to complete a self
limit. This means that an individual with an
to the taxpayer and most of this happens by assessment return each year and have direct
income of £125,000 or more will not be entitled
way of Pay-As-You-Earn (PAYE). This collection contact with HMRC.
to any personal allowance.
system will no doubt be familiar to almost
everyone who is in employment and also to Practical Tip Tax Tip
those who receive pensions. If you are not asked to complete a tax return, If your income is in the range £100,000 -
Many of us, including children, the retired and it remains your responsibility to advise £125,000 the restriction in your personal
working people, will have interest from savings HMRC if there is a new source of untaxed allowance is the equivalent of a tax cost of
accounts of one sort or another and many income, a capital profit that could lead to 60%. You may want to consider making or
might also have shares from which income a tax liability or you are subject to the high increasing certain payments which are tax
arises in the form of dividends. The savings income child benefit charge. Please contact deductible to minimise this tax cost.
allowance and dividend allowance may cover us for further advice if this affects you.
this for most people so that this income is Examples include pension contributions
(which may be subject to restrictions) and
taxable at 0%. The personal allowance charitable donations.
As the circumstances described above cover In principle, all individuals are entitled to a
the overwhelming majority of individuals, basic personal allowance before any income Tax rates and allowances
more than 80% of the population will have tax whatsoever is paid. However, some
little or no regular contact with HM Revenue The income tax bands and rates for 2019/20
individuals on high incomes may receive a
and Customs (HMRC), the organisation that are determined by where you live in the UK
reduced or even no personal allowance. This is
administers and regulates all taxes in the UK. and the type of income you have.
explained further below.
Over 10 million taxpayers have something For most UK residents the following tax rates
The 2019/20 personal allowance is £12,500
more than just a regular income taxed under and bands apply:
and each individual may have taxable income
PAYE or income covered by the savings and up to £50,000 before they start to pay higher
dividend allowances. They might have income rate tax. See the devolved rates and bands for
from their own business or receive rent from Scottish taxpayers set out later in this section.
2 A few essentials
Income tax Rate Dividend
band £ % rate %
0 - 37,500 20 7.5
37,501- 150,000 40 32.5 Scottish and Welsh taxpayers continue
Over 150,000 45 38.1 to pay tax on their savings and dividend
income using the UK rates and bands.
In addition, some taxpayers may be entitled
to the starting rate for savings which taxes Other Allowances
£5,000 of interest income at 0%. However, Individuals may be entitled to savings
this rate is not available if non-savings income allowance (SA) with savings income within the
(broadly earnings, pensions, trading profits SA taxed at 0%. The amount of SA depends
and property income) exceeds the starting rate on an individual’s marginal rate of tax. An
limit. individual taxed at the basic rate of tax has an
SA of £1,000 whereas a higher rate taxpayer
Rates and bands for Scottish and Welsh is entitled to an SA of £500. Additional rate
taxpayers taxpayers receive no SA.
For 2019/20 the tax rates and bands The dividend allowance (DA), available to all
applicable to Scottish taxpayers on non- taxpayers regardless of their marginal tax rate,
savings and non-dividend income are as charges the first £2,000 of dividends to tax at
follows: 0%. Dividends received above this allowance
are taxed at the rates shown in the table.
Scottish income Band name Rate %
tax band £ Dividends within the DA still count towards an
individual’s basic or higher rate band and so
0 - 2,049 Starter 19 may affect the rate of tax payable on dividends
2,050 - 12,444 Basic 20 above the £2,000 allowance.
12,445 - 30,930 Intermediate 21 Dividends are treated as the top slice of
income. So the basic rate tax band is first
30,931 - 150,000 Higher 41 allocated against other income.
Over 150,000 Top 46 Income tax is not the only means by which
the government relieves us of our hard
For 2019/20 the Welsh rate of income tax is earned cash. You may own assets such
set at 10% and this is added to the UK rates, as a precious antique, a second home or
which are each reduced by 10%. For 2019/20, shares. If such an asset is sold, the chances
the overall tax payable by Welsh taxpayers are that a profit will arise and this may give rise
continues to be the same as English and to a liability to capital gains tax (CGT).
Northern Irish taxpayers.
A few essentials 3
Details of any capital gains may have to be Self assessment (SA) timetable nothing is certain except death and taxes, the
included on the self assessment return. potential liability on your estate at death.
•• Income tax and capital gains tax are both
Inheritance tax may be payable on the assets Please use the guide to help you identify
assessed for a tax year which runs from
that you give to others in your lifetime or leave planning opportunities, pitfalls to avoid and
6 April to the following 5 April.
behind when you die. At one time very few areas where you may need to take action and
individuals had to worry about this tax. House •• Shortly after 5 April - SA returns or a notice to then contact us for further advice.
price increases have changed this and many complete a return are issued by HMRC.
more estates have now become liable so •• 31 October following - non-electronic returns
you may need to consider some planning to need to be submitted to HMRC by this date.
minimise this tax.
•• 31 January following - final date for
Many of those in business have to understand submission of the return and all outstanding
the principles of Value Added Tax (VAT) tax to be paid.
because they will have to act as an unpaid
collector of this tax. In addition, those who •• There is an automatic
run their business through a limited company penalty of £100 for late
need to know about corporation tax which filing of the return.
taxes a company’s profits. Employing others •• Further penalties may be
in your business brings further obligations due if the filing of the return
with Real Time Information reporting for PAYE is significantly delayed.
and auto enrolment pension contributions These may run into
responsibilities. We consider these issues later hundreds of pounds.
in this guide.
Practical Tip
Practical Tip
The full £100 penalty will always be due if
Remember to keep all tax related documents your return is filed late even if there is no
such as interest statements, dividend tax outstanding. It is therefore essential
vouchers, pay certificate form P60 etc. Place to submit the return on time either by 31
everything in a folder through the year as it October (non-electronic) or otherwise by 31
is received. Then you can simply hand this January following the end of the tax year.
to us when we need to prepare your self
assessment return. This guide is designed to provide you with
an overview of all of these taxes from seven
HMRC is increasingly emphasising the perspectives - that of the family; the employee;
importance of good records. Failure to maintain the person running their own business; the
adequate records may lead to inaccurate tax taxation of investments; property matters;
returns, which could result in penalties. disposals and CGT and, finally, knowing that
4 A few essentials
Family matters
Married couples Tax Tip
Jointly owned
assets
Spouses are taxed as independent persons, If you are feeling charitable, remember that
Married
each of whom is responsible for their own tax a donation to charity under the Gift Aid
couples will
affairs. The phrase ‘spouse’ whenever used in scheme benefits from tax relief. It makes
often own assets
this guide includes a registered civil partner. sense for a higher rate/additional rate
in some form of
taxpayer spouse to make such donations so
For spouses, there is no aggregation of income, joint ownership. If
that they can benefit from the extra tax relief.
no sharing of the tax bands and except in they do not then it may
limited circumstances detailed later in this Alternatively, in some circumstances, be advantageous, for tax
guide, the personal allowance may not be donations can be carried back to attract tax purposes, for transfers to
transferred from one spouse to the other. relief in the previous tax year. be made to ensure joint
ownership.
Minimising the tax bill Tax breaks for spouses
However tax can be minimised if spouses This can have benefits for
Married couples and civil partners may be income tax, CGT and even
equalise, as far as possible, their income so eligible for a Marriage Allowance (MA).
that personal allowances, savings allowance inheritance tax.
(SA) and dividend allowance (DA) are fully The MA enables spouses to transfer a fixed
utilised and higher/additional rates of tax are amount of their personal allowance to their Tax Planning
minimised. spouse. The option to transfer is not available If you and your spouse are both involved
to unmarried couples. in running a business, income can be
Example The option to transfer is available to couples equalised if you are equal partners or equal
In 2019/20 Ian and Angela have savings where neither pays tax at the higher or shareholders. Alternatively, if only one of you
income of £50,000, dividend income of additional rate. If eligible, one partner will is involved, the other could be employed in
£50,000 and no other income. If this is split be able to transfer 10% of their personal a small capacity, drawing a salary to use up
equally between them, the total tax bill for allowance to their partner which means £1,250 their personal allowance.
the couple is £6,250. If only one spouse has for the 2019/20 tax year.
Where assets are owned in joint names,
an income of £100,000 and the other has For those couples where one person does not any income is deemed to be shared equally
nothing, the total tax bill leaps to £22,000 - use all of their personal allowance, the benefit between the spouses. If the actual ownership
an additional £15,750! will be up to £250 (20% of £1,250). shares are unequal, income is still deemed to
be split equally unless an election is made to
Family matters 5
split the income in the same proportion as the Children Child Trust Funds (CTFs)
ownership of the asset. The availability of new CTFs ceased from
It is often assumed that children are not January 2011, as did government contributions
This does not apply to shares in close
taxpayers. In fact HMRC will tax a child just as to the accounts. Existing CTFs however
companies (almost all small, private, family
readily as anyone else if the child has sufficient continue to benefit from tax free investment
owned companies will be close companies)
income to make them liable. growth. No withdrawals are possible until the
where income is always split in the same
proportion as the shares are owned. Transferring income to children child reaches age 18. However, the child’s
friends and family are able to
Children have their own personal allowances
Example contribute up to the annual
and tax bands. Where their only income is, at
limit of £4,368. It is
A buy to let property is owned three quarters best, a few pounds from a paper round or a
possible to transfer the
by Helen and one quarter by her husband Saturday job, there may be some scope for
investment to a Junior
Mark. If no election is made the net rental transferring income producing assets to the
Individual Savings
income on which tax is payable will be split children to use up their personal allowance.
Account (ISA).
50:50. However, such assets should not be provided
by a parent, otherwise the income remains Junior ISA
If an election is made the income will be split
75:25. A choice can be made according taxable on the parent, unless it does not exceed A Junior ISA is available for UK
to which is the most desirable when other £100 (gross) each tax year. resident children under the age of 18
income of the spouses is taken into account. who do not have a CTF account. Junior ISAs
Tax Planning are tax advantaged and have many features in
Capital gains tax common with existing ISAs.
There is nothing to stop you employing your
Independent taxation also applies to CGT. Each children in the family business so as to take They are available as cash or stocks and shares
spouse is entitled to take advantage of the advantage of their personal allowance. There based products but a child can only have one
annual exemption of £12,000 before any CGT are age restrictions (with some exceptions cash Junior ISA and one stocks and shares
has to be paid. the minimum age is generally 13 years old) Junior ISA. The annual investment is limited to
and legal limitations as to the type and £4,368.
This is advantageous where assets are held
jointly and then sold as each spouse can use duration of the work. It is also essential that
their annual exemption to save tax. payment is only made for actual work carried Tax Planning
out for the business and at a reasonable There are some other limited ways income
The transfer of assets between spouses is commercial rate.
neutral for CGT. This is sometimes done shortly can be transferred to children tax efficiently
before assets are sold, to minimise tax. Advice such as:
Children and capital gains
should be sought before undertaking such •• National Savings Children’s Bonds which
Children also have their own annual exemption
transactions to ensure that all tax aspects have are tax free.
for CGT, so assets transferred to them which
been considered. Please contact us for CGT
have a bias towards capital growth rather than •• Friendly Societies offer 10 year minimum,
advice.
income may prove to be more advantageous. tax exempt savings plans for children for up
to £25 per month.
6 Family matters
High Income Child Benefit Tax-Free Childcare and those covered in other sections of this
guide, apply equally to same-sex couples who
Charge The scheme is available to families where all have entered into a registered civil partnership
parents are working (on an employed or self- or marriage.
A charge arises on a taxpayer who has
employed basis) 16 hours a week and meet a
adjusted net income over £50,000 in a tax
year where either they or their partner are in
minimum income level (generally £131 a week) A word of warning
with each earning less than £100,000 a year.
receipt of Child Benefit for the year. Where both Transferring assets or interests in a business
Parents who are receiving support through Tax
partners have adjusted net income in excess of between husband and wife may attract the
Credits or Universal Credit are not eligible.
£50,000 the charge applies to the partner with interest of HMRC especially where it is obvious
the higher income. Parents need to register with the government that it has been done primarily for tax saving
and open an online account. The government purposes. Transfer of ownership of an asset
The income tax charge applies at a rate of 1%
‘top up’ payments into this account at a rate must be real and complete, with no right of
of the full Child Benefit award for each £100
of 20p for every 80p that families pay in. The return and no right to the income on the asset
of income between £50,000 and £60,000.
scheme is generally limited to £10,000 per given up.
The charge on taxpayers with income above
child per year. The government’s contribution is
£60,000 will be equal to the amount of Child If a non-working spouse is given shares in
therefore a maximum of £2,000 per child.
Benefit paid. an otherwise one-person, private company,
Employer Supported Childcare (see the HMRC may, in some circumstances, seek to
Child Benefit claimants are able to elect not to
Working for Others section) is being phased tax the working spouse on all of the dividends
receive Child Benefit if they or their partner do
out and is now closed to new claimants. under what is known as the ‘settlements
not wish to pay the charge.
Parents who qualify for both schemes are able legislation’. You may want to consider obtaining
Equalising income can help to reduce the to choose which scheme they wish to use but advice from us before entering into this type of
charge for some families. families cannot benefit from both schemes at arrangement.
the same time. To find out about all childcare
Example options visit www.childcarechoices.gov.uk Checklist for Couples
Phil and Jane have two children and receive
£1,789 Child Benefit. Jane has little income.
What about unmarried ✔✔ Try to equalise your income.
Phil expects his adjusted net income to be partners? ✔✔ Consider placing assets in joint names.
£55,000. On this basis the tax charge will be ✔✔ If you have children consider making use
£895. This is calculated as £1,789 x 50% It still pays to equalise income as much as
possible, as income tax will be minimised. of their personal allowances.
(£55,000 - £50,000 = £5,000/£100 x 1%).
However, transfers of assets may be liable to
If Phil can reduce his income by £5,000 to CGT and, if substantial, could also lead to an
£50,000 no charge would arise. This could be inheritance tax liability. It is vital for unmarried
achieved by transferring investments to Jane couples to each make a Will if they wish to
or by making additional pension or Gift Aid benefit from each other’s estate at death.
payments.
Remember all the special rules for married
couples, both those dealt with in this section
Family matters 7
Working for others
Few avoid working for others at some time income tax rates apply to an employee’s pay, obtained by the individual can often outweigh
in their life and most will have encountered rather than the rates and bands which apply the tax cost arising. In addition, for the individual
the PAYE system operated by employers to across the rest of the United Kingdom (see the (but not the employer) benefits generally do not
collect the income tax and national insurance A few essentials section of this guide for details attract NICs.
contributions (NICs) due on wages and salaries. of rates and bands).
Valuation
For Welsh taxpayers a letter 'C' is included in
The tax code the tax code. For 2019/20 Welsh taxpayers
Rules were introduced from April 2017 which
may affect the value of a benefit. Where a
Ensuring the right amount of tax is taken pay the same overall rates of income tax as benefit is taken rather than an alternative cash
relies on a PAYE code, issued by HMRC and taxpayers in England and Northern Ireland. option, the taxable value of the benefit is the
based on information given in a previous self With so many complications and some higher of the cash foregone or the taxable value
assessment return or supplied by the employer. guesswork involved, getting the code exactly under the normal benefits rules. Transitional
The employee, not the employer, is responsible right can be difficult and the right amount of tax provisions apply for arrangements entered into
for the accuracy of the code. will not always be deducted. before 6 April 2017. Contact us for the correct
Code numbers try to reflect both an individual’s valuation of benefits.
tax allowances and reliefs and also any tax Tax Tip Company cars
they may owe on employment benefits and
in some cases other types of income. For If you are unsure about your code and are Employer provided cars, commonly known as
many employees things are simple. They will anxious not to end the tax year under or company cars, remain a popular benefit and for
have a set salary or wage and only a basic overpaid, then you should have it checked. some a real status symbol, despite continued
HMRC may update an individual’s tax code increases in the tax charge they give rise to.
personal allowance. Their code number will be
during the tax year to reflect changes to
1250L and the right amount of tax should be The charge on cars is generally calculated
benefits and to collect tax underpayments.
paid under PAYE. However, for those who are by multiplying the list price of the car by
Please talk to us about getting your tax code
provided with employment benefits the code a percentage which depends on the CO2
checked.
number is generally adjusted to collect the tax emissions (recorded on the Vehicle Registration
due so that there are no nasty underpayment Document) of the car. You then pay tax at 20%,
surprises. HMRC may also try to collect tax Benefits 40% or 45% on this charge depending on your
on untaxed income, tax on dividends and tax overall tax position. The tax rates applicable to
The range of benefits available will vary
owing for an earlier year. Scottish taxpayers range from 19% to 46%.
significantly depending on the type of
For Scottish taxpayers a letter ‘S’ is included employment. Some attract no tax but even The table on the next page shows the
in the tax code and denotes that the Scottish taxable benefits can be efficient as the benefit percentages for 2019/20. For the majority of
8 Working for others
company car drivers using a petrol car the Planning to change your car?
taxable benefit is 3% higher compared to the
Example
Significant changes to the car benefit
previous year. Mark has an Audi A3 TDI (diesel) rules are taking place. The appropriate
If the car has a diesel engine the charge is registered on 1 February 2017. It has percentages of the list price subject to tax
generally increased by a further 4% supplement an original list price of £20,155 and CO 2 will generally increase by 2% for 2020/21
(except that it cannot exceed 37%) unless the emissions of 99g/km. Mark had extras (but retaining the 37% maximum). In addition
car is registered on or after 1 September 2017 fitted to the car costing £1,000 (VAT for 2020/21 new lower percentages are
and meets the Euro 6d emissions standard. inclusive). In 2019/20 the taxable benefit introduced for purely electric cars and plug
will be £5,712 ([20,155 + 1,000] x 27%*). If in hybrid cars. Hybrid cars do not attract the
Mark is a 40% taxpayer the tax due on this diesel supplement.
2019/20 will be £2,285.
CO2 emissions % of car’s price
(g/km) taxed * 23% from the table plus 4% diesel
supplement.
0 to 50* 16
51 to 75* 19 Fuel for private use
76 to 94* 22 A separate charge applies
95 23 where private fuel is
100 24 provided by the employer
for a company car. The charge is calculated
105 25 by applying the same percentage figure used Medical insurance
110 26 to calculate the company car benefit to a fixed The employee is taxed on the amount of the
115 27 figure which for 2019/20 is set at £24,100. No premium paid by the employer.
fuel benefit applies to an electric car.
120 28
Home and mobile phones
125 29
Tax Planning There is no benefit on the provision of a
130 30 company mobile phone even where it is
135 31 The fuel benefit charge can be expensive. used privately. However, this is limited to one
It may be cheaper for the employee to phone per employee.
140 32 pay for all the fuel and to reclaim from the
145 33 employer the cost of business miles driven Where home telephone bills are paid by the
150 34 in a company car based on a specific log employer, the amount paid will be taxable.
of business journeys undertaken. The employee may make a tax deduction
155 35
claim for the cost of business calls only but
160 36 HMRC publish advisory fuel rates for not the line rental.
165 and above 37 company cars which are updated on a
quarterly basis. See gov.uk/government/ Cheap or interest free loans
round down except * publications/advisory-fuel-rates for the If loans made by the employer to an employee
latest position or contact us. exceed £10,000 at any point in a tax year, tax
Working for others 9is chargeable on the difference between the If the employee is paid for business miles at less
interest paid and the interest due at an official Tax Tip than the statutory rates, tax relief is available
rate - currently set at 2.5% per annum. An You may want to sacrifice some of your on the difference. If, however, the employee is
exception applies for certain qualifying loans - ‘normal’ salary to do this. Please talk to us paid at more than these rates then the excess
please contact us for information. to make sure your salary sacrifice scheme is is taxable.
effective. If you are paid less than the statutory rates
Tax Tip to use your own car for business purposes
The £10,000 limit on tax free loans is an Expense payments remember to claim a deduction on your return
attractive perk for many employees. or write to HMRC to make your claim.
An employee can claim tax relief for expenses
which are incurred wholly, exclusively and
Childcare costs necessarily for business purposes. The main Example
Childcare costs paid for by an employer may types of expense are travelling to places for In 2019/20 Michael travels 14,100 business
be exempt from both income tax and NICs. work (but not the normal place of work) and miles in his own car and is paid 32p per mile
This applies to a place in an employer operated overnight accommodation. by his employer.
nursery and to Employer Supported Childcare
Reimbursed expenses Michael can claim tax relief on an additional
as long as the claimant entered the Scheme
before 4 October 2018. In the latter case, the An employer would normally reimburse an amount of £1,013 ((10,000 x 45p) + (4,100 x
exemption is limited and excess amounts are employee for business expenses. Employers 25p)) - (14,100 x 32p).
subject to tax and NICs. Employer Supported are no longer required to report reimbursed tax
Childcare closed to new claimants and is being deductible business expenses and therefore Vans
replaced with Tax-Free Childcare (see the employees do not need to claim tax relief on Where employees are provided with a van and
Family Matters section of this guide). these expenses. the only private use of this is to travel to and
Employees who qualify for both schemes are Mileage claims from work (including any incidental private use),
able to choose which scheme they wish to use then no taxable benefit should arise. If there
Many employers is private use beyond this, there is a benefit of
but families cannot benefit from both schemes pay a standard
at the same time. £3,430 for 2019/20 and an additional £655 if
rate of mileage fuel is provided for private as well as business
Pension Contributions to all employees journeys. In order to avoid this charge, it is
who use their advisable to have a formal written policy,
Contributions by an employer to a registered own cars
pension scheme are generally tax and NICs free detailed mileage logs and make use of vehicle
for business tracker records. These will support the limited
for most employees. This may be far better than journeys. HMRC
any other perk. private use of the van and may avoid problems
set statutory rates with HMRC in the future.
for business mileage
which are 45p for the first 10,000 miles in a tax
year and 25p thereafter.
10 Working for othersRunning a business
Starting up a business of your own is a big partnership. Again, the business and personal choose which structure is right for you based
step and not one to take lightly. The taxation of affairs of the partners are not legally separate. on more than just the tax issues alone.
your business is only one of many commercial
Sole traders and partnerships are often
and legal aspects of starting a business that
referred to as unincorporated businesses and
The tax regime
you will need to consider.
the individual owners as self-employed. Unincorporated businesses
Preparation is the key and a proper business
Limited Company A new business should register with HMRC on
plan is one of the first things you should do.
A company is a legal entity in its own right, commencing to trade. Income tax is paid on
However, tax matters are our main concern
separate from the personal affairs of the the profits of the business. The amount that
here.
owners and the directors. the proprietor, or a partner in a partnership,
Choosing a business structure A company provides protection from liability,
draws out of the business (referred to as
‘drawings’) is irrelevant.
The alternative business structures are: which means that the creditors of the company
cannot make a claim against the owners or Profits are taxed on a current year basis
Sole Trader the directors except in limited circumstances. as shown by the example, although a new
Often this advantage is somewhat eroded business will be subject to special rules, which
This is the simplest form of business structure
because a bank, for example, may seek we will be pleased to explain to you.
since it can be established without legal
formality. personal guarantees from the directors.
These potential advantages carry the
Example
The business of a sole trader is not
distinguished from the proprietor’s personal downside of greater legal requirements and If the accounting period (or ‘year’) end is 31
affairs. If the business incurs debts which are regulations that must be complied with. March then, in the tax year 2019/20, the
unpaid, the creditors can seek repayment from profits for the year ended 31 March 2020 will
Limited Liability Partnerships (LLPs)
the sole trader personally. be taxed.
LLPs are a halfway house between
Partnership partnerships and companies. If the year end was 31 August then, in the tax
A partnership is similar in nature to a sole year 2019/20, the profits for the year ended
They are taxed in the same way as a 31 August 2019 will be taxed.
trader but involves two or more people partnership but are legally a corporate body.
working together. This again gives some protection to the
A written agreement is essential so that owners from the partnership’s creditors.
all partners are aware of the terms of the In this guide we consider the differing tax
treatments of the alternatives but you should
Running a business 11Trading and property income allowances rule of being wholly and exclusively incurred
Tax Tip for the purposes of the trade.
Trading and property income allowances of
The choice of accounting date on a business £1,000 per annum are available. Individuals •• Payments include most purchases of plant
start up can affect: with trading or property income below and machinery, when paid, rather than
• how profits are taxed £1,000 do not need to declare or pay tax on claiming capital allowances. The bad news
that income. Those with income above the is that if a supplier is not paid by the year
• when tax is payable allowance are able to calculate their taxable end, the amount is not relievable until next
profit either by deducting their expenses in the year.
• when losses are relieved. normal way or by simply deducting the relevant
allowance. •• Interest payments are only allowed up to a
So do contact us to discuss the options limit of £500.
available for your circumstances. Cash basis for smaller unincorporated
•• Business losses may be carried forward to
businesses set against the profits of future years but not
Working out profits
An optional basis for calculating taxable carried back or set off ‘sideways’ against
Profits are calculated using accepted
profits is available to small unincorporated other sources of income.
accounting practices and crucially this means
businesses. If an owner of a business decides
that profit is not necessarily simply receipts Do get in touch if you would like us to consider
to use the cash basis, the business profits
less payments. Instead it is income earned less if this optional scheme is appropriate for you
would be taxed on cash receipts less cash
expenses incurred. However see details of the and your business.
payments of allowable expenses subject to a
optional cash basis for smaller unincorporated
number of tax adjustments. Capital allowances
businesses.
The optional scheme requires an election by
Not all of the expenses that a business incurs When assets are purchased for the business,
the business owner and is only available where
are allowed to be deducted from income for such as machinery, office equipment or motor
the business receipts are less than £150,000.
tax purposes but most are. It is important that vehicles, capital allowances are available.
Businesses can stay in the scheme up to a
you keep proper and comprehensive business As with expenses, these are deducted from
total business turnover of £300,000 per year.
records so that relief may be claimed. income to calculate taxable profit.
Further details about the scheme:
Plant and machinery - Annual Investment
Tax Tip •• Cash receipts include all amounts received
Allowance (AIA)
in connection with the business including
Try to incur expenditure just before rather The AIA from 1 January 2019 gives a 100%
those from the disposal of plant and
than just after the year end, as this will write off on most types of plant and machinery
machinery. The good news is that if a
accelerate the tax relief. costs, but not cars, of up to £1,000,000 per
customer has not paid what is owed by the
Examples of the type of expenditure to year end, the amount due is not taxable until annum (£200,000 from 1 January 2016 to
consider bringing forward include building next year. 31 December 2018). Special rules apply to
repairs and redecorating, advertising, accounting periods which straddle these
•• Allowable payments include paid expenses dates. Any costs incurred in excess of the AIA
marketing campaigns and expenditure on but these still need to meet the existing tax
plant and machinery. will attract an annual ongoing allowance of 6%
12 Running a business(8% before April 2019) or 18% depending upon Under RTI, employers or their agents, are •• providing a qualifying automatic enrolment
the type of asset. required to make regular payroll submissions pension scheme
for each pay period during the year. The
Other allowances include a 100% allowance •• automatically enrolling all ‘eligible jobholders’
submissions detail payments made to and
on certain energy efficient plant and low into the scheme and
deductions made from employees. These
emission cars and a 2% Structures and
submissions must generally be made on or •• paying employer contributions.
Buildings Allowance.
before the date the amounts are paid to the All employers generally need to contribute
Motor cars employees. at least 3% of the ‘qualifying pensionable
The tax allowance on a car purchase depends The RTI submission details payments made earnings’ for eligible jobholders from 6 April
on CO2 emissions. Currently purchases of which include salary, overtime and statutory 2019.
cars with emissions of up to 110g/km attract payments such as statutory maternity pay. It If the employer only pays the employer’s
an 18% allowance and those in excess of also details the income tax, national insurance minimum contribution, employees’
110g/km are only eligible for an 6% allowance contributions (NICs) due together with other contributions are generally 5% from 6 April
(8% before April 2019). deductions such as student loan repayments. 2019 to meet the overall minimum 8%
The PAYE and NICs on salaries is payable contribution rate. There are different ways
Paying the tax monthly (or quarterly where the amount due is of calculating minimum contributions and
The self-employed may have to pay tax and less than £1,500 per month). the employee contributions may be paid net
NICs three times a year, namely: of basic rate tax depending on the type of
Penalties apply to employers who fail to make
pension scheme.
•• 31 January in the tax year returns on time. These penalties range from
•• 31 July following the tax year £100 to £400 per month depending on the size
of the employer. Interest and penalties also Practical Tip
•• 31 January following the tax year. apply for failing to pay on time. All employers have to comply with Auto
In certain circumstances, the first two payments The employer must also report details of Enrolment from when they first take on an
can be waived. expenses and benefits provided to employees. employee. We can help you to deal with Auto
More information on the valuation of benefits is Enrolment.
Employer obligations contained in the Working for Others section of
As an employer you will have many this guide.
responsibilities. These will include employment Pensions Auto Enrolment
law requirements which are not covered in this
(AE)
guide and HMRC requirements to report pay
and benefits. Two other requirements place a AE obliges on employers to
further burden on employers. automatically enrol ‘workers’
into a work based pension
Real Time Information scheme. Duties include:
Real Time Information (RTI) reporting is •• assessing the types of
mandatory for broadly all employers. workers in the business
Running a business 13Companies Tax Tip
treated as if it has not been repaid. A further
rule stops the tax charge being avoided by
Unlike sole traders and partnerships who pay In most small companies the directors and waiting 31 days before the company advances
tax on profits only (and drawings are ignored), shareholders are one and the same and so further funds to the shareholder. This is a
companies have two layers of tax. The first is they can choose the most tax efficient way to complex area so please do get in touch if this is
tax payable by directors and shareholders on pay themselves. Using dividends can result an issue for you and your company.
money they take out of the company and the in savings in NICs. This requires planning
second is corporation tax which is due on the and needs to take account of the Dividend Planning Tip
company’s profits Allowance, which taxes dividends within the
allowance at 0%, and dividend rates of tax. Ensure that sufficient salary and dividends
are drawn from the business to prevent these
Practical Tip The Dividend Allowance remains at £2,000 charges arising unnecessarily on an overdrawn
If you operate as a limited company, there for 6 April 2019 so careful planning is director’s current account. We can also ensure
is a legal separation between you as the required. Please talk to us to decide what is that overdrawn accounts are cleared properly.
owner and the company itself. This means appropriate for you. Please contact us if you would like to discuss
you cannot use the company bank account the right options for you and your business.
as if it were your own! This requires a certain Warning - close company loans to
amount of discipline without which all kinds of participators Tax on profits
legal and tax related difficulties can occur.
A close comp any (which generally includes The profits of a limited company are calculated
owner managed companies) is taxed in certain in a similar way as for unincorporated
Corporation Tax businesses and the same rules with regard
circumstances when it has made a loan or
Companies currently pay corporation tax at advance to individuals or their family members to expenses and capital allowances generally
19%. who have an interest or shares in the company apply. Remember though that the salaries
(known as participators). The tax charge is paid to directors, but not the dividends paid to
Tax on ‘drawings’
currently 32.5% of the loan if it is outstanding shareholders, are deductible from the profits
Directors of a company will normally be paid nine months after the end of the accounting before they are taxed.
a salary and this is taxed under PAYE as for period. The tax charge is repaid to the company
all employees. The cost of this, including the nine months after the end of the accounting
employer’s NICs, is generally an allowable
Tax Planning
period in which the loan is repaid.
expense of the company. Shareholders of the Companies are a popular business structure
company in contrast may be rewarded by the Further rules prevent the avoidance of the as they generally result in less tax being paid
payment of dividends on their shares. charge by repaying the loan before the nine overall.
month date and then effectively withdrawing the
same money shortly afterwards. We would be happy to discuss the
implications of incorporation with you before
A ‘30 day rule’ applies if at least £5,000 is
you decide whether or not to incorporate
repaid to the company and within 30 days new
your business.
loans or advances of at least £5,000 are made
to the shareholder. The old loan is effectively
14 Running a businessPayment of tax collectors of the tax. There are heavy fines for
Corporation tax is usually payable nine months failing to operate the system properly.
and one day after the year end, so the choice What does VAT apply to?
of accounting date has no tax consequence.
VAT is chargeable on the supply of goods and
services in the UK when made by a business
Practical Tip that is required to register for VAT.
HMRC issues toolkits on various tax topics A registered business must charge VAT on its
to help taxpayers and their agents comply sales which is known as output VAT. There
with tax law. One of the main areas of non are currently three rates of VAT which can
compliance identified by HMRC is poor be payable on what are known as taxable
record keeping and this applies to all types of supplies. These are the standard rate of 20%,
business. If you would like guidance on what the reduced rate of 5% and the zero rate.
records to keep please get in touch.
The zero rate applies where the supply is
deemed to be subject to VAT but the output
Income shifting VAT is charged at 0%, meaning that no VAT is
Over recent years, many families have actually payable.
been attracted by the savings that can However, a business also pays VAT on the
be made by combining small salaries goods and services it buys. This is known as
and large dividends. It was possible input tax.
to increase the savings available by
If the output tax exceeds the input tax,
introducing a non-working family member
then a payment of the difference has to be
into the business as a shareholder or co-
made to HMRC. If input tax exceeds output
owner, to use up their personal allowance
tax a repayment of VAT will be made. This
and lower rates of tax.
calculation is generally done on a quarterly
Care needs to be taken as rules aimed basis. However where repayments occur
at counteracting this in the ‘settlements regularly it is possible to opt for monthly VAT
legislation’ could be used to challenge returns. Regular repayments would perhaps
certain arrangements. If you have any apply where a business generally makes zero
questions or concerns, please do not rated supplies.
hesitate to contact us.
Supplies
Value Added Tax (VAT) Certain supplies of goods and services are not
subject to VAT at all and are known as exempt
VAT is a tax ultimately paid by the final
supplies. A business that makes only exempt
consumer and businesses act as the
supplies cannot register for VAT and will be
unable to reclaim any input tax.
Running a business 15matter whether he is registered because the to this is a small minority of VAT-registered
Tax Tip customer will be able to recover the VAT that businesses with more complex requirements
When you first register for VAT you can is charged. who will not be mandated to comply with MTD
reclaim input tax on goods purchased up to for VAT until 1 October 2019.
Indeed, in general, a business that always
four years prior to registration provided they sells to other VAT registered businesses will The six month deferral applies to businesses
are still held when registration takes place. normally register, even if below the annual limit, who fall into one of the following categories:
VAT on services supplied in the six months because then it can reclaim VAT on purchases trusts, ‘not for profit’ organisations that are
prior to registration may also be reclaimed. and expenses not set up as a company, VAT divisions, VAT
groups, those public sector entities required
As there are three rates which can be This will improve profit and can be especially
to provide additional information on their VAT
applicable to taxable supplies, standard, relevant for new businesses because there are
return (government departments, NHS Trusts),
reduced or zero rated, it is important to identify often high initial set up costs that carry VAT.
local authorities, public corporations, traders
the type of supplies correctly and apply the On the other hand, registration comes at the
based overseas, those required to make
correct percentage of VAT. cost of having to meet onerous record keeping
payments on account and annual accounting
requirements, a need to submit online VAT
Some input VAT is not reclaimable by a VAT scheme users.
returns and pay online and on time.
registered business. Two common examples
Businesses below the VAT threshold which
are VAT incurred on entertaining UK business Making Tax Digital (MTD) have voluntarily registered for VAT can opt to
customers and VAT on the purchase of a car.
join the scheme.
MTD for VAT is being phased in as part of
Do I need to register? a government strategy which will ultimately As with online VAT filing, there are some
A business must register if its taxable supplies require taxpayers to move to a fully digital tax exemptions from MTD for VAT. However, the
exceed an annual figure, currently £85,000. If system. exemption categories are tightly-drawn and
taxable supplies are less than this a business are unlikely to be applicable to most VAT
Under the MTD rules, businesses with a
may still register voluntarily. So, for example, registered businesses.
turnover above the VAT threshold (£85,000)
if the business makes only zero rated sales,
must keep digital records for VAT purposes We can help you to meet your MTD for VAT
it can still register and reclaim the input tax
and provide their VAT return information to obligations.
suffered.
HMRC using MTD functional compatible
VAT can affect competition. A plumber, for software. The rules generally have effect
example, who sells only to the general public, from 1 April 2019,
will be at a disadvantage if he has to register where a taxpayer has a
for VAT. ‘prescribed accounting
He may have to charge up to 20% more than period’ which began
a plumber who is not registered to earn the on that date, and
same profit. otherwise from the first
day of a taxpayer’s first
On the other hand, if the same plumber only prescribed accounting
works for other VAT registered businesses, period beginning after 1
such as building companies, then it will not April 2019. The exception
16 Running a businessTax and your investments
Setting aside income in the form of savings exceed £40,000 or if the value of the fund When an allocation of funds into a flexi-access
is important for us all, to provide for the when benefits are taken is greater than a account is made the member typically will take
unexpected or to build up a nest egg that we lifetime allowance which, for 2019/20, is the opportunity of taking a tax free lump sum
can enjoy in retirement. £1,055,000. Generally where a taxpayer has from the fund.
adjusted income in excess of £150,000 the
The person will then decide how much or how
Pensions annual contribution possible will be restricted
little to take from the flexi-access account. Any
from £40,000 by £1 for every £2 for income in
Pensions are one of the most tax efficient amounts that are taken will count as taxable
excess of the £150,000. The minimum annual
forms of saving. Most higher rate taxpayers can income in the year of receipt.
allowance available after this restriction is
contribute £100 to a registered pension fund Access to some or all of a pension fund without
£10,000.
at a cost of only £60 and investment income first allocating to a flexi-access account can
and capital gains will accrue within the scheme Pensions freedom be achieved by taking an uncrystallised funds
largely tax free. Taxpayers have choice and flexibility when it pension lump sum.
An individual is entitled to tax relief on personal comes to accessing their personal pension
The tax effect will be:
contributions in any given tax year up to the fund. Options include taking a tax free lump
higher of 100% of earned income or £3,600 sum of 25% of fund value and purchasing an •• 25% is tax free
(gross). annuity with the remaining fund or opting for a •• the remainder is taxable as income.
more flexible drawdown.
The contributions are paid net of basic rate Getting the right advice at the point of
tax and the pension provider will then recover The flexible drawdown rules allow for total retirement is therefore important.
that basic rate tax from HMRC. Higher and freedom to access a pension fund from the age
additional rate relief, if appropriate, can be of 55. Access to the fund may be achieved in Money Purchase Annual Allowance
claimed from HMRC. Contributions in excess of one of two ways: The government is alive to the possibility of
the individual’s limit can be made into a scheme •• allocation of a pension fund (or part of a people taking advantage of the flexibilities by
but the excess will not attract tax relief. pension fund) into a 'flexi-access drawdown 'recycling' their earned income into pensions
An employer may make contributions to a account' from which any amount can be and then immediately taking out amounts
scheme and a deduction from profits may be taken over whatever period the person from their pension funds. The MPAA sets the
available to the employer. decides maximum amount of tax-efficient contributions
an individual can make at £4,000 per annum in
As these reliefs are generous, there are controls •• taking a single or series of lump sums from certain scenarios.
which serve to limit high levels of contribution. a pension fund (known as an 'uncrystallised
These are complex but, put simply, they may funds pension lump sum').
give rise to a tax charge if annual contributions
Tax and your investments 17Tax free savings a 25% bonus from the government. If £4,000 dividends and on any capital gain arising from
is invested, the investment limit for the other disposal of the shares in the VCT. Income
types of ISAs falls to £16,000. Funds, including tax relief currently at 30% is available on
Tip the government bonus, can be used to buy a subscriptions for VCT shares, up to £200,000
Don’t forget to use the dividend and savings first home up to £450,000 at any time from 12 per tax year, so long as the shares are held for
allowances. These allowances tax £2,000 months after the first subscription or can be at least five years.
of dividends and up to £1,000 of savings withdrawn from age 60 completely tax-free.
The Enterprise Investment Scheme (EIS)
income at 0%. See ‘other allowances’ in the There is also the Help to Buy ISA. Details are in
‘A few essentials’ section. Income tax relief at 30% is available on new
the Property Matters section of the guide.
equity investment (in qualifying unquoted
trading companies) of up to £1 million. A higher
Individual Savings Accounts (ISAs) Other tax efficient investments limit of £2 million may apply to investments
ISAs are free of income tax and CGT. There The following investments work in varying ways. in ‘knowledge intensive companies’. A CGT
are maximum investment limits which apply You should consider your needs in detail before exemption may be given on sales of EIS shares
for each tax year but, over several years, large entering into any commitments. held for at least three years. If the gain on the
investments can be built up. The overall annual sale of any chargeable asset (eg quoted shares,
ISA savings limit is £20,000. Investors can National Savings and Investment (NS&I) second homes, etc) is reinvested in EIS shares,
choose to invest in a cash ISA, stocks and Premium bonds the gain on the disposal can be deferred.
shares ISA or an Innovative Finance ISA as long Premium bonds are tax free and you could win
as they do not exceed the investment limit. Seed Enterprise Investment Scheme (SEIS)
£1 million!
The tax breaks for SEIS investors are:
Lifetime ISA However, the annual rate of return is not
The Lifetime ISA for adults is available to those predictable. The current Premium bonds •• income tax relief at 50% in respect of
under the age of 40. Individuals are able to investment limit is £50,000. The more you qualifying SEIS shares up to an annual
contribute up to £4,000 per year and receive invest the more frequently you are likely to win, maximum investment (in all SEIS companies)
the smaller prizes at least. However, there is no of £100,000
guarantee of a steady rate of return. •• a CGT exemption where SEIS shares are
sold more than three years after they are
Single premium insurance bonds
issued (as for EIS)
These provide a means of deferring
income into a subsequent period •• a further CGT exemption of 50% where an
when it may be taxed at a lower rate. individual makes a capital gain and reinvests
the gain in qualifying SEIS shares.
Venture Capital Trusts (VCT)
These bodies mainly invest in
the shares of unquoted trading
companies. VCT are however quoted
investments. An investor in the shares
of a VCT will be exempt from tax on
18 Tax and your investmentsProperty matters
Direct investment in residential property has Which property? contact us for
always been a popular form of investment. further advice
Investing in a buy to let property is not the same
on this area.
as buying your own home. You may wish to get
Buy to let an agent to advise you of the local market for Tax on rental
The UK property market, whilst cyclical, has rented property. An agent will also be able to income
proved over the long-term to be a successful advise you of the standard of decoration and
furnishings which are expected to get a quick Income tax will be payable on the rents
investment. This has resulted in a massive
let. received after deducting allowable expenses.
expansion in the buy to let sector.
Allowable expenses include mortgage interest,
Traditionally, buy to let involves investing Letting property can be very time consuming which is restricted in the case of residential
in property with the expectation of capital and inconvenient. Tenants will expect a quick property, repairs, agent’s letting fees and the
growth with the rental income from tenants solution if the central heating breaks down over cost of replacing furnishings.
covering the mortgage costs and any the bank holiday weekend! Do not cut corners
outgoings. However the gross return from buy - a correctly drawn up tenancy agreement will Restriction of relief for finance costs on
to let properties, the rent less expenses, can ensure the legal position is clear. residential lettings
change. Investors also need to take a view on The amount of income tax relief landlords can
Devolution of Property Taxes
the likelihood of capital appreciation exceeding get on residential property finance costs is
inflation. Investors should take a long-term Stamp Duty Land Tax (SDLT) applies in England being restricted to the basic rate of income
view and choose properties with care. and Northern Ireland, Land and Buildings tax. This restriction is being phased in over four
Transaction Tax (LBTT) in Scotland and Land years from April 2017. For 2019/20, 25% of
Transaction Tax (LTT) in Wales. the finance costs are deductible in full from the
Practical Tip
Higher rates of SDLT, LBTT and LTT apply on rental income. The remaining 75% is given as
When choosing between investments purchases of additional residential properties. a basic rate reduction. This reduction may be
always consider the differing levels of risk subject to further restrictions where property or
and your requirements for income and The rates are 3% above the SDLT and LTT rates other non-savings income is insufficient.
capital in both the short and long term. An and 4% above the LBTT rates. The higher rates
investment strategy based purely on saving potentially apply if, at the end of the purchase Disposal
tax is not appropriate. transaction, the individual owns two or more Where property is disposed of CGT will generally
residential properties. be payable. This is payable on the difference
There are some exemptions from the rules. between the sale proceeds and the original
One of these covers the replacement of a main cost. Where a property has been improved then
residence within certain time limits. Please these capital costs may be available to reduce
Property matters 19You can also read
