Category Archive: February 2017

  1. Salary Sacrifice – Wounded not Slain

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    Salary sacrifice is when you agree to give up part of your salary in return for non-cash benefits.  The first known case of this in practice was a voluntary car loan scheme set up in 1954 by John Waddington Limited for its employees, who in return for the use of a car accepted a weekly wage reduction.  We only know about the scheme because Ralph Bell, having been assessed to income tax on the basis that the amount of the wage reduction was part of his emoluments, appealed and the case went all the way to the House of Lords where the Crown finally won in 1969.

    In discussing the merits of Ralph Bell’s case, some clear guidelines for what would constitute a successful salary sacrifice scheme emerged and many employers and employees have benefited since. In his Autumn Statement however, Philip Hammond described this tax saving as unfair and said that from April 2017, employers and employees who use these schemes will pay the same taxes as everyone else.

    The legislation in The Finance Bill 2017 fixes the taxable value of benefits in kind provided through salary sacrifice at the higher of the amount of cash forgone and the amount calculated under the existing benefit rules. Unfortunately this does not mean in every case that employers and employees who use these schemes will pay the same taxes as everyone else as Mr. Hammond suggested; in some cases, they will pay more!

    Consider the example of workplace parking, a benefit that is currently exempt from tax. From April 2017 if you are given a parking space without entering a salary sacrifice arrangement in respect of it, the benefit will continue to be exempt. If however you enter an agreement to sacrifice salary of say £500 in respect of the parking space, you will have a taxable benefit of £500.  This would appear to be punitive rather than fair.

    However, some benefits have been excluded from the new rules and there are also transitional arrangements for schemes that are already operational. Excluded benefits that can continue to be offered under a salary sacrifice scheme include employer provided pension saving and advice, childcare vouchers, workplace nurseries and directly contracted childcare, cycle to work schemes and ultra-low emission vehicles emitting 75g CO/km or less.

    Where you are already within a salary sacrifice scheme, you will continue to be taxed under the old rules until April 2018, or when the agreement with your employer ends or is amended if earlier. For benefits such as cars, accommodation and school fees where the impact of losing the tax benefits will be much higher, employees within existing contracts can continue to benefit until April 2021.

    Although the rules will apply from 6 April 2017, the legislation is still in draft. However if you are either an employer with a salary sacrifice scheme in place or an employee receiving benefits under such an arrangement, it is worth checking how long you will be able to benefit from the scheme and considering your options in respect of benefits provision in the future.

    If you would like more information on salary sacrifice – or you have any other questions regarding taxation, please contact Julia Clarke, Tax Director at Wright Vigar, by emailing her at julia.clarke@wrightvigar.co.uk or call her on 01522 531341. Julia and the Tax Team at Wright Vigar would be delighted to be able to help you.

  2. February 2017 Tax Tips & News

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    Welcome to February’s Tax Tips and News, our newsletter designed to bring you one step ahead of the taxman.

    If you need any further assistance just let us know.

    HMRC’s tougher approach to offshore tax evasion

    Pilot scheme for Making Tax Digital

    Employers beware of plans to change Scottish income tax threshold

    Coming soon: tax-free childcare

    February questions and answers

    Q. Due to unforeseen circumstances I have recently had to sell my house and down-size to a smaller property. I sold the house for £20,000 less than I paid for it. Can I offset this loss against income from my business and reduce my income tax liability for this year?

    Q.  I have some spare cash earning virtually no interest in the bank and I have decided that I would like to buy a flat for my daughter, who is currently just 16. Am I correct in thinking that she cannot own the property until she is 18? Is there an alternative for ownership? What are the tax implications surrounding this proposal?

    Q. I have been trading for several years. I am not currently registered for VAT but think my income is getting close to the VAT registration threshold. What items can I exclude from my ‘taxable turnover’ calculation?

    February key tax dates

  3. Making Tax Digital

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    HMRC’s plans to achieve a more accessible and transparent tax system has been given the title of Making Tax Digital – or MTD for short. This will help businesses steer clear of errors, and HMRC claim reduce an £8bn shortfall to the public purse.

    Under MTD there will be a requirement for the majority of tax payers to start to keep track of their tax affairs digitally and update HMRC quarterly from 2018.  This revolutionary UK tax system will eventually bring about an end to annual self-assessment for millions of people and businesses.

    HMRC have recently* completed an extensive consultation process on the subject and have made some changes but the overall timeline remains the same.

    However, HMRC will be piloting any changes before implementation, and will begin piloting digital record keeping and quarterly updates for one full year from April 2017. This staged approach is a direct response from the feedback received during the consultation process and they claim should ensure that not only is the software user-friendly, but the timescale will give individuals and businesses the time to prepare and adapt.

    The current plan is that individuals and small business will have access to their own secure digital tax account, similar to an online bank account, which enables them to interact with HMRC digitally.

    Businesses will be able to see, through their digital account, a real-time view of their tax calculation and the tax due. This will give a transparent understanding of how much tax is owing, and help businesses to budget for their tax liabilities.

    The consultation also looked at options for businesses, self-employed people and landlords to make and manage voluntary payments of their tax through the year. Whilst this was supported generally by respondents to the consultation, it was recognised that the process supporting early repayments would be better left until Making Tax Digital for Business is fully embedded.

    This ease of reporting and the general simplification of the tax system is promoted as a positive by HMRC, but for some businesses these imminent changes will be interpreted as having to spend more time on the paperwork and less time actually working and building the business.

    However, the move towards a fully digitilised tax system by 2020 will require the majority of business owners to maintain digital records using compatible software – thus ringing the death knoll on the more traditional way of keeping paper books and records.

    At Wright Vigar we are ready to help you with these changes.  We have a dedicated team of accountants and advisors on hand to help you understand and embrace the benefits of Making Tax Digital, and get to know a little more about the time-saving solutions that new technology has to offer.

    If you would like to hear more about Making Tax Digital, and how Wright Vigar’s team of experts can help you, please contact a member of the MTD team at your local office, call 01522 531341, or email action@wrightvigar.co.uk – we would be delighted to discuss these changes in more detail, and explain how they will affect you.

    To read a summary of the consultation responses as prepared by HMRC please click here

    *31 January 2017