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Short answer, yes it is…

The State Pension is worth between £6,359.60 (the old version), and £8,296.60 (the new version), and many pensioners may receive additional payments based on additional contributions made in prior years. In both cases, this pension income is treated the same as earned income for income tax purposes.

For 2017-18, every person resident in the UK for tax is allowed to earn £11,500 tax free. Accordingly, if your only source of income is the State Pension you will have no tax to pay. A potential problem can arise if you have other income, say taxable investment income or other earnings, that when combined with your State Pension, add to more than your personal allowance.

Your State Pension is paid to you without a deduction of tax. Many pensioners rely on these payments to fund their day to day expenditures so there is a temptation to spend what you get. Unfortunately, if your total income (State Pension plus other earnings and investment income) exceeds your personal allowance, you may end up with a tax bill at the end of the tax year and the first you may hear about this is when the bill from HMRC drops through your letter box.

Our advice, is do the sums. If your estimated income from all sources is likely to exceed £11,500 for 2017-18, you may need to save for any year-end tax due. The sums can be complicated as there are reliefs other than your personal tax allowance that you may need to consider.

We have listed below a few of the ways you can make best use of tax losses. Generally speaking, a tax loss arises when a claim for expenses and other allowances (for example capital allowances for equipment purchases) exceeds the income of the relevant trade.

Many losses arise as a direct result of a difficult period of trading. Accordingly, the loss has in most instances reduced your business working capital and in particular your cash flow.

If possible, it is a good idea to utilise these losses as quickly as possible so that any recovery of tax already paid, generally when trading was better, can be recovered to help re-establish cash flow. The remainder of this post sketches out the choices available.

Ongoing trade losses

These losses can be used in a number of ways:

• You can set losses against income, or possibly against capital gains, of the same year or an earlier tax year.
• You can set-off against profits of the same trade in future years.
• You can set-off against income from a company to which you transferred your trade.

Not all losses may be claimed in all of these ways and sometimes the amount of loss you claim is restricted or limited.

Terminal losses

These arise when a trade finishes and makes a loss in the final period of trading. It is possible to make a claim for losses in the final 12 months of trading to be used in the tax year that you make the loss or the previous three tax years.

There are caps on the amount of loss you can utilise in any one tax year. And care should be taken when making claims to ensure that you do not lose entitlement to your personal tax allowance when making a claim.

If in doubt seek professional advice.

1 April 2017 – Due date for Corporation Tax due for the year ended 30 June 2016.

19 April 2017 – PAYE and NIC deductions due for month ended 5 April 2017. (If you pay your tax electronically the due date is 22 April 2017)

19 April 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2017.

19 April 2017 – CIS tax deducted for the month ended 5 April 2017 is payable by today.

1 May 2017 – Due date for Corporation Tax due for the year ended 30 July 2016.

19 May 2017 – PAYE and NIC deductions due for month ended 5 May 2017. (If you pay your tax electronically the due date is 22 May 2017)

19 May 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2017.

19 May 2017 – CIS tax deducted for the month ended 5 May 2017 is payable by today.

31 May 2017 – Ensure all employees have been given their P60s for the 2016-17 tax year.

The final matter we want to showcase for this month is the proposed reduction in the dividend allowance from April 2018. At present, shareholders with dividend income below £5,000 will pay no Income Tax on their dividend income. From April 2018, Mr Hammond looks set to reduce this to £2,000.

The average dividend yield for FTSE 100 shares is anticipated to fall to 3%. Based on this rate of return, investors would need a portfolio amounting to some £167,000 to create an annual dividend income of £5,000. From April 2018, only £67,000 would create tax-free income if the allowance drops to £2,000.

Affected investors should therefore consider other tax advantages options, including ISAs. From April 2017 the ISA limit is creased to £20,000.

Shareholders of non-listed private companies will face a tax increase due to this change. The present advantage posed by the low salary high dividend approach to profit extraction will still apply, but the overall Income Tax due will increase from April 2018.

Combined with changes to the taxation of benefits in kind, shareholder directors of smaller companies would be advised to revisit tax planning options for 2018-19.

The Chancellor announced two increases in Class 4 NI contributions for the self-employed in his budget and in the following week withdrew the increases for the term of the current parliament.

His original notion was to start the process of equalising the NI contributions made by the employed and self-employed now that State Benefits, particularly the new flat-rate State Pension, are available to both groups.

The first rate increase, from April 2018, was set to coincide with the abolition of the self-employed Class 2 contributions on this date. However, it would appear that manifesto promises carry more weight than fiscal necessity and the increases have been abandoned.

Class 2 contributions are still being withdrawn, which means that the scope of Class 4 contributions will need to be adjusted to counter any loss in benefits presently provided by Class 2.

Legislation in this area has been thrown wide open to change by the apparent U-turn since the budget announcements. As and when the intentions of government become more certain we will update readers accordingly.

For some time now, unincorporated businesses have been able to submit simplified accounts in order to settle their tax liabilities. The main advantage of using this system is that income and expenditure is based on money received from customers and money paid to suppliers. In other words, the accruals basis, where income and outgoings are based on the value of invoices sent and received, is not applied.

Prior to 6 April 2017, the turnover threshold for the scheme was set at the VAT registration limit, £83,000 for 2016-17. In the budget this limit was increased to £150,000.

Adopting the cash basis does simplify the recording of transactions, but there are disadvantages and complications. For example:

• It is not possible to carry losses, accounted for using the cash basis, against previous year’s earnings or sideways against other income in which the loss was made. Losses can only be carried forwards.
• It is not clear how VAT registered businesses using the simplified cash scheme for accounts purposes, will prepare VAT returns from April 2017. Certainly, they would be eligible to use the separate Cash Accounting Scheme for VAT purposes and this may be the best solution.
• Interest costs are restricted to a maximum £500 per annum rather than the actual amount paid.
• Cash basis accounts do not give a true picture of business performance and this can be problematic for supporting loan applications.
• Flexibility in varying claims for capital allowances is lost, this can lead to wasted personal allowances in certain circumstances.

The use of the simplified cash basis does imply a saving in the time taken to record transactions for tax purposes, but as we have set out above there are possible complications and significant drawbacks.

The current tax year, 2017-18, is the last year we have to prepare for the advent of the new reporting system, Making Tax Digital for Business (MTDfB). Following the recent budget, it is now clear which businesses are going to be affected and when. Dates for implementation will be:

• From April 2018, unincorporated businesses (including landlords) with gross income (turnover) above the VAT registration threshold (£85,000 for 2017-18) will be required to comply with the quarterly upload of summarised accounts data to HMRC.
• From April 2019, unincorporated businesses (including landlords) with gross income (turnover) below the VAT registration threshold (£85,000 for 2017-18), but above £10,000, will be required to comply with the quarterly upload of summarised accounts data to HMRC.
• From April 2019, filing for VAT purposes will also be bought within the scope of MTDfB uploads which will replace the current, quarterly VAT returns.
• From April 2020, filing for Corporation Tax purposes will be bought within the scope of MTDfB uploads.

In spite of intense lobbying by accountancy organisations and other small business groups, HMRC will require all businesses with taxable income in excess of £10,000 to comply with the upload of summarised accounts data when MTDfB applies as set out above. It was hoped that this exemption limit would be higher.

There we have it. The digitisation of tax reporting is well and truly underway – the most significant change since the introduction of Self Assessment almost twenty years ago. Initially, we would request that unincorporated businesses required to register from April 2018 ensure that their chosen method of recording their business accounts transactions will be MTD compliant. We are working with our suppliers of accounts and tax software and would be happy to assist.

The new, 12 sided coin became legal tender from 27 March 2017. Businesses that deal in cash transactions, or use equipment that accepts the £1 coin should take note of the following:

The 28 March 2017 to 15 October 2017 is nominated as the co-circulation period for the new £1 coin. What this means is:

• You can accept both old and new coins during this period.
• When you take coins to the bank you will need to separate into old and new varieties.
• Equipment vendors should reconfigure machines to accept both coin types.

In any event you will need to advise customers which coin or coins can be used.

From the 16 October 2017, the old coins will no longer be legal tender. Accordingly:

• all your coin handling equipment should be able to accept the new £1 coin.

• you are under no obligation to accept the round £1 coin from your customers and you should not distribute the round £1 coin.

• the round £1 coin can continue to be deposited into a customer’s account at most High Street banks and the Post Office. Best to check with your bank for more details, including deposit limits.

Time to empty your piggy banks. According to the Royal Mint more than 1.5 billion new coins will be produced, and presumably, 1.5 billion old coins removed from circulation.

Clients often ask if working from home is going to create issues from a tax point of view. There are a number of scenarios to consider.

Employers’ obligations to employee homeworkers:

Equipment, services and supplies

Employers that provide equipment, services and supplies to an employee who works from home, don’t have to report or pay anything if they’re only used for business purposes, or any private use is insignificant.

Additional household expenses

If employers cover the cost of additional household expenses for an employee who works from home, there are no tax complications if all the following apply:

• Employees need to work from home, either because equipment they need isn’t available at your workplace, or their work means they have to live too far away from your workplace to travel there every day.
• The amount you give employee homeworkers is not more than their additional household expenses, and the amount you give them isn’t more than the current weekly limit (£4 a week or £18 a month – 2016-17).

Self-employed homeworkers:

This group can claim for the additional running costs of working from home based on the actual costs and space used, or a flat rate basis if you work more than 25 hours a month from home.

The current, published HMRC flat rates are:

• 25 to 50 hours a month £10 per month
• 51 to 100 hours a month £18 a month
• Over 100 hours a month £26 per month.

As long as the room(s) you use in your home have duality of use – i.e. that they have a private as well as a business function – you will be unlikely to suffer any capital gains tax charge when you sell your property.

Business rates:

According to HMRC, you don’t usually have to pay business rates for home-based businesses if you:

• use a small part of your home for your business, e.g. you use a bedroom as an office
• sell goods by post

You may need to pay business rates as well as Council Tax if:

• your property is part business and part domestic, e.g. if you live above your shop
• you sell goods or services to people who visit your property
• you employ other people to work at your property
• you’ve made changes to your home for your business, e.g. converted a garage to a hairdresser’s

Contact the Valuation Office Agency (VOA) to find out if you should be paying business rates. In Scotland, contact your local assessor.

Next week sees the end of the 2016-17 tax year. On the 6 April 2017, any action you take to minimise your tax liabilities for 2016-17 will be largely ineffective. So what, if anything, can you still action this week?

Capital gains tax (CGT)

The amount of tax free gains you can make during 2016-17 is £11,100. This exempt allowance is available to all UK resident tax payers, accordingly, married couples and civil partners both qualify.

If you have no gains chargeable to CGT thus far during 2016-17, there is still an opportunity to crystallise gains during this coming week, up to the annual exemption limit, and no tax will be payable. For example, if you have a shareholding that you have been considering for disposal, and you could sell a sufficient quantity of shares before 6 April 2017, the disposal would utilise your allowance without creating a tax liability.

The important matter to note is that this annual exemption is lost if you don’t use it; it cannot be carried forward and used in later years.

Inheritance tax (IHT)

There are a number of annual reliefs that you can use without creating a chargeable event for IHT purposes. For example, the exempted annual gifts you can make are:

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can carry any unused annual exemption forward to the next year – but only for one year.

Each tax year, you can also give away:

• wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
• normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
• payments to help with another person’s living costs, such as an elderly relative or a child under 18
• gifts to charities and political parties

You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

Small gifts up to £250

You can give as many gifts of up to £250 per person as you want during the tax year as long as you haven’t used another exemption on the same person.

Company car users

If your employer pays for your private fuel this will create a fairly significant income tax charge for 2016-17. You may save money if you calculate the cost of the fuel provided and reimburse your employer. For 2016-17, you need to do this before 6 April 2017. (For 2017-18, the rules are being relaxed slightly and you will have until 6 July 2018 to make an equivalent reimbursement for 2017-18).

To make the calculation you will need your private mileage for 2016-17 and multiply this by the advisory fuel rate for your vehicle. These range from 7p to 22p per mile. See the published list at https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

These are just a few of the actions you could take to minimise your tax payments during what’s left of 2016-17. If you are unsure what your options may be, please call, we would be delighted to help.