ICB The Bookkeepers Summit London 2019 November SelfAssessment

ICB The Bookkeepers Summit London – 2019 November Self-Assessment Tax Update Eszter Petrinovics MA FICB PM Dip. IDEAL Schools - Opti. Accounts

The two worlds • Entering taxation your reponsibility will grow! – Bookkeeping and Accounting vs. Taxation • Life Long Learning – Continued Professional Development – Attitude – Know what you don’t know – know your limits! – Keep up or you will be left behind

Collecting the right information • Information sources – HMRC Basic level sites, Collection sites and HMRC Manuals – Notes to the Self Assessment pages and Helpheets – Booklets (340, 480, 490) – HMRC Agent Talking Point and regular webinars – Accountin. Web and trustworthy services – Quality communities – Professional BFFs – Budget analysis • The Art of Search

Changes

Changes 2016/17 2017/18 • Personal Savings Allowance + Dividend Allowance induces the Tax Optimisation and calculation – Don’t trust the software – HMRC Exlusion list • Introduction of Trading Income Allowance and Property Income Allowance • Property income – Restriction on finance costs first year • Property income Cash basis – for landlords • Property income – landlord mileage • Deemed domiciled rules introduced 15/20 preceeding tax years

Changes 2017/18 2018/19 • Dividend Allowance dropped to 2, 000 • New legislation for terminal payments – all PILON (payment in lieu of notice) is chargeable regardless whether contractual or not • Diesel supplement was raised from 3% to 4% in 2018 -19 • Childcare vouchers were discontinued from 2018 October • FYA emission limit dropped from 75 g/km to 50 g/km • Special rate band limit lowered from 130 g/km to 110 g/km

Changes 2018/19 2019/20 • Welsh rates are introduced • Zero-hour contracts rolled-up holidays payments are no more (inclusion in hourly rate) + payslip changes (madatory hourly information) • Relaxation on receipt checking on benchmark scale rates (meal allowance and overseas stay – mandatory sample) • Capital Allowances new AIA limit , Special Rate 6% WDA rate dropped, new structures and buildings allowance • The planned change for extending the self funded work related training relief to self-employed is scrapped. Relief is generally allowed where the costs are incurred to update the individual’s existing skills, but denied if the individual invests in training to develop new skills. • Entrepreneurs’ relief additional conditions 2 years

Income Tax Calulation

Income Tax Thresholds – UK/Scottish UK tax bands Scottish tax bands Dividend income Income from employment Savings income Profits from self-employment Savings allowances Rental income Childcare vouchers Pensions and state pension Capital gains Marriage allowance Tax relief on gift aid donations

Income Tax Thresholds – UK/Scottish 2019/20 Band Rate Income after allowances 2019 to 2020 Starting rate for savings Starter rate in Scotland Basic rate in England & Northern Ireland Basic rate in Wales 10% (0% from 2015 to 2016) 19% 20% Up to £ 5, 000 Up to £ 2, 049 £ 2, 050 to £ 12, 444 Up to £ 5, 000 Up to £ 2, 000 £ 2, 001 to £ 12, 150 20% Up to £ 37, 500 Up to £ 34, 500 £ 12, 445 to £ 39, 930 £ 12, 151 to £ 31, 580 40% (41% from 2018 to 2019) £ 30, 931 to £ 150, 000 £ 31, 581 to £ 150, 000 40% £ 37, 501 to £ 150, 000 £ 34, 501 to £ 150, 000 40% 46% £ 37, 501 to £ 150, 000 Over £ 150, 000 £ 34, 501 to £ 150, 000 Over £ 150, 000 45% Over £ 150, 000 Intermediate rate in Scotland 21% Higher rate in Scotland Higher rate in England & Northern Ireland Higher rate in Wales Top rate in Scotland England & Northern Ireland Additional rate Wales Additional rate Income after allowances 2018 to 2019

• 49, 000 salary (36, 500 after PA) with 2, 000 interest income 2019 -20 Salary Personal allowance Non-savings 49, 000 12, 500 36, 500 Scottish tax bands Taxed at 19% Taxed at 20% Taxed at 21% Taxed at 41% Total tax on salary: Tax payable 2, 049 10, 395 18, 486 5, 570 389. 31 2, 079. 00 3, 882. 06 2, 283. 70 8, 634. 07 • UK tax bands for interest Basic rate band Used by salary as above Balance of basic rate band Interest covered by PSA @0% Interest taxed in basic rate band @20% Interest taxed in higher rate band @40% Total tax on interest 37, 500 (36, 500) 1, 000 (500) 500 1, 000 0 100 400 600

Capital Allowances

Special rate pool – hybrid rates – Special rate pool WDA dropped from 8% to 6% applicable from 6 April 2019 – Where different accounting year used than the standard tax year, hybrid rates have to be used rather than applying 6 or 8% as per the date of purchase Accounting period 01/01/2019 – 31/12/2019 Hybrid rate = 3/12 x 8 + 9/12 x 6 = 2 + 4. 5 = 6. 5% to ALL assets Expenditure subject to the special rate includes: • >> integral features • >> long life assets • >> thermal insulation of buildings • >> cars with CO 2 emissions of more than 110 g/km (if purchased since April 2018) • >> solar panels

Structures and buildings allowance • SBAs will be given on a straight-line basis through an allowable deduction of 2% of the original eligible cost per annum. • Expenditure qualifying for SBAs will not be eligible for AIA • Capital expenditure on new structures and buildings incurred on or after 29 October 2018 will be eligible, provided that no contract for the physical construction work was entered into prior to this date • relief for capital expenditure on offices, retail and wholesale premises, and other commercial premises that would not have been qualified as an industrial or agricultural building

Problematic areas – Capital Allowances • AIA straddling date Accounting period ends on 5 April 2019 the maximum AIA available would be: 6 April 2018 to 31 Dec 2018 – 270/365 x £ 200, 000 = £ 147, 945 1 January 2019 – 5 April 2019 95/365 x £ 1 m = £ 260, 274 £ 408, 219 • Assets bought after the date where AIA limit has changed are restricted to the value falling after the straddling date.

Problematic areas – Capital Allowances • Private usage restrictions on AIA is possible • Empty pools OR pools with 0 balance? • CAs can enhance loss – but is it worth it? • Employees can claim Capital Allowances on SA 102

Property Income

Property Income • Restriction on residential property finance costs – Mortgages, Buy-to-let, loans - including loans to buy furnishings, overdrafts • Tax Reduction 20 % of the lower of the – finance costs – property business profits – adjusted total income Tax year Percentage of finance costs deductible from rental income Percentage of basic rate tax reduction 2017 to 2018 75% 2018 to 2019 50% 2019 to 2020 25% 75% 2020 to 2021 0% 100%

2016/17 2017/18 2018/19 2019/20 2020/21 Other income 35, 000 35, 000 Rental income 18, 000 18, 000 0% 25% 50% 75% 100% Finance cost 8, 000 restricted to 8, 000 6, 000 4, 000 2, 000 0 Other expenses 2, 000 2, 000 Property profits 8, 000 10, 000 12, 000 14, 000 16, 000 43, 000 45, 000 47, 000 49, 000 51, 000 Tax @ 20% 6, 400 6, 400 Tax @ 40% 0 800 1, 600 2, 400 3, 200 Less 20% tax reduction* -- -400 -800 -1, 200 -1, 600 6, 400 6, 800 7, 200 8, 000 Restriction Total income Income tax *Lower of restricted finance cost, property profits or total income after PA

Entrepreneurs’ Relief

Entrepreneurs’ relief • disposals on or after 29 October 2018, a shareholder must be entitled to a 5% interest in: >> the company’s distributable profits >> net assets of the company available on winding up • This means that in order to claim entrepreneurs’ relief on a disposal, a shareholder must hold 5% of ordinary shares, voting rights, rights to distributable profits and net assets in the event of winding up. • With effect from 6 April 2019, the minimum qualifying period that applies for entrepreneurs’ relief will be extended from one year to two years.