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Aug 3

Changes to rent-a-room relief INCOME TAX

A new test is to be added to the qualifying criteria for rent-a-room relief from April 2019.

The test will require that the individual or individuals in receipt of income – the home owner(s) – will need to share occupancy of the residence in question with the individual whose occupation of the furnished accommodation is generating the receipts – the lodger.

In their notes advising this change HMRC says:

Rent-a-room relief provides Income Tax relief for those letting out furnished accommodation. It was introduced in 1992 to encourage individuals to make spare capacity in their homes available for rent. The government intended this to increase the quantity and variety of low-cost rented accommodation, giving more choice to tenants and making it easier for people to move around the country for work.

Rent-a-room relief presently gives relief from Income Tax for up to £7,500 of income to individuals who let furnished accommodation in their only or main residence.

In the last 25 years the housing market has changed significantly. The private rented sector has more than doubled in size, and the emergence and growth of online platforms in particular, have made it easier than ever for those with spare accommodation to access a global network of potential occupants.

The objective of this clause is to ensure that rent-a-room relief is better targeted to achieve its objective of incentivising individuals with spare accommodation (that might otherwise go unused) to share their homes.

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Aug 3

Points based penalties

Income Tax

In the recently published draft clauses that will form the basis of the Budget later this year, HMRC has outlined a significant change to the way they will be levying penalties for late filing breaches under the Making Tax Digital regulations.

Rather than base penalties on each transgression, taxpayers will receive a penalty point per event, and when these penalties reach a certain amount the taxpayers will be required to pay a fixed penalty.   Essentially, if you miss a deadline a point will be given, but a penalty will only be charged when a specified number of points are accrued. According to HMRC, the number of points required for a penalty to be levied depends on the filing frequency of the return.

HMRC is also introducing an amended penalty for deliberately withholding information from HMRC. The changes to this penalty are required to accommodate the new points based regime and ensure that the penalty works as intended. The enacting schedule gives HMRC the power to charge penalties where a taxpayer deliberately withholds information which would enable HMRC to assess their tax liability. These penalties are based on a percentage of the tax due and can be reduced based on the taxpayer’s willingness to correct past disclosure.

The new system is similar to that adopted for driving offences. Of course, there is no suggestion that if you gather enough points to pay tax penalties you will then be banned from paying tax…

May 14

Payments in lieu of notice - Employment Law

Up to 5 April 2018, certain payments in lieu of notice were not taxable, primarily, those not contractually required to be made.

This is no longer the case.

Employers will now need to pay Income Tax and Class 1 National Insurance contributions (NICs) on an element of all termination payments from 6 April 2018, whether or not they are contractual payments.

The element that is now chargeable to Income Tax and NIC is the amount of the termination payment that represents payment in lieu of notice (PILON). This change applies to payments, or benefits received on, or after, 6 April 2018 in circumstances where the employment also ended on, or after, 6 April 2018. This follows an announcement at Budget 2016 that government would introduce rules to prevent employers from manipulating the system.

This measure is intended to bring fairness and clarity to the taxation of termination payments by making it clear that all PILONs, rather than just contractual PILONs, are taxable earnings.

All employees will pay Income Tax and Class 1 NICs on the amount of basic pay that they would have received if they had worked their notice in full, even if they are not paid a contractual PILON.

This means the tax and NIC consequences are the same for everyone and are no longer dependent on how the employment contract is drafted or whether payments are structured in some other form, such as damages.

May 14

Why tax credit payments can change

If you are claiming tax credits make sure that you keep an eye on changes that may affect the amount you receive. Your payments can go up if:

  • your income goes down by more than £2,500
  • your benefits stop or go down
  • you start getting personal independence payment (PIP), disability living allowance (DLA) or other disability benefits for yourself or a child
  • you have a child
  • your childcare costs go up

You should report these changes within 1 month to make sure you get everything you’re entitled to. Payments can’t usually be backdated any further than this.

Your payments can go down or stop if:

  • your income goes up by more than £2,500 - report this straight away to reduce the amount you’re overpaid
  • you haven’t renewed your claim
  • your award notice shows you’ve been overpaid
  • you stop getting PIP, DLA or other disability benefits for yourself or a child
  • your child is now 16, 18 or 19 and you haven’t told the Tax Credit Office they’re in approved education or training
  • your childcare costs go down

you or your partner start claiming Universal Credit

May 14

Location is Everything - Stamp Duty

Now that Wales and Scotland have devolved powers for taxation purposes, residents that live and work in the border areas with England have more planning options.

Wales have their own stamp duty regime from April 2018, the Land Transaction Tax (LTT), and Scotland, from April 2015, the Land & Building Transaction Tax (LBTT). Scotland have devolved powers to set their own rates of Income Tax.

Regarding property purchases, this can create interesting differences for individuals buying in the border areas of Wales/England and Scotland/England. For example:

Consider Llanymynech, a village that straddles the border between Powys (Wales) and Shropshire (England). The amount of stamp duty payable on an identically priced house, say £179,000, would cost the buyer £1,080 in Stamp Duty Land Tax if bought in the English side of the village, but no Land Transaction Tax would be payable for an equivalently priced house on the Welsh side of the village. A definite incentive to buy in this price bracket the Welsh side of the border.

If you live in the Scotland/England border areas and you are contemplating the purchase of an expensive property and your budget is £1m, you may want to consider the following numbers:

  • Buying in Scotland would cost you £78,350 in Land & Building Transaction Tax, and
  • Buying in England would cost you a mere £43,750 in Stamp Duty Land Tax.

Scotland has also set its own Income Tax rates for 2018-19. So, depending on the amount of your income, you may pay variable rates of Income Tax depending on which side of the border you choose to live.

 

Apr 19

Offshore tax evasion

From 1 October 2018, HMRC will be gaining access to information from tax havens that will enable it to identify UK citizens with undisclosed offshore assets, and by inference, undisclosed UK income and taxable gains. Why does this matter?

It matters because HMRC has introduced new legislation called the Requirement to Correct which will dramatically increase the penalties for people who have not declared tax or declared the wrong amount of tax on their offshore income and gains.

If you have declared your taxable income and gains, then you have nothing to worry about, but if you haven’t, and HMRC finds out, you could face an investigation and be required to pay the undeclared tax, plus a penalty of up to double the tax you owe - with a minimum penalty of 5% of tax owed.

You can avoid being charged the higher penalties by making a full disclosure of all undeclared tax liabilities under existing disclosure facilities.

Offshore income sources that should be declared include:

  • interest from overseas bank or building society accounts,
  • dividends and interest from overseas companies,
  • rent from overseas properties, and
  • wages, benefits or royalties earned outside the UK.

If you are concerned, now is the time to come forward. You have until 30 September 2018 to correct matters before the tougher new penalties are introduced.

Tax payers who are uncertain if they are affected are advised to call and seek guidance.

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