eNews – May 2016
In this month’s eNews we report on various issues including a tribunal ruling that parking fines are not deductible. The latest HMRC guidance for employers, changes to the VAT Fuel Scale charges, an update on the uptake of Pensions Freedom and the introduction of new rules for the averaging of farming profits.
We also include details of the new rules for the taxation of savings income.
Parking fines ruled not deductible
A tribunal has ruled that security firm G4S cannot reduce its profits for tax purposes by deducting parking fines.
The company, G4S Cash Solutions, tried to reduce their corporation tax bill by approximately £580,000 but the first-tier tribunal has ruled in HMRC’s favour in rejecting the claim for the deduction of the fines.
The company G4S incurred a substantial amount of parking fines usually while delivering consignments of cash over the pavement. The business tried to claim these were a business expense and so could be used to reduce the company’s profits for tax purposes.
The tribunal ruled G4S staff consciously and deliberately decided to break parking restrictions for commercial gain.
The ruling upholds HMRC’s long standing view that fines for breaking the law cannot be used to reduce a tax bill.
HMRC’s Director General of Business Tax, Jim Harra, said:
‘We’ve always said fines incurred for breaking the law are not tax deductible. The tribunal has now established a clear precedent for rejecting any future such claims.’
If you would like advice on calculating your taxable profits and the deductibility of any expenditure please get in touch.
Changes have been made to the rules which allow farmers to average their profits for tax purposes. Under the new rules unincorporated farmers will be able to average their profits for income tax purposes over five years rather than the previous two years.
The amendment to the rules which took effect from 6 April 2016 is aimed at helping farmers with fluctuating profits better manage the ‘risk and the impact of global volatility which has become an inherent feature of the agricultural industry’.
Chancellor George Osborne said:
‘… reforms will provide farmers with additional security to plan and invest for the future, allowing them to spread profits over a longer period of time. Over 29,000 farmers can benefit from the changes, saving an average of £950 a year.’
As well as having the new option to average tax over five years, farmers will also retain the choice to average profits over two years.
If you would like guidance on how these rules will affect you please get in touch.
Internet link: Gov.uk publications
VAT fuel scale charges
HMRC have issued details of the updated VAT fuel scale charges which apply from the beginning of the next prescribed VAT accounting period starting on or after 1 May 2016.
VAT registered businesses use the fuel scale charges to account for VAT on private use of road fuel purchased by the business.
Please do get in touch for further advice this or other VAT matters.
Internet link: Gov.uk Fuel scale charges
A new savings allowance is available to basic and higher rate taxpayers for 2016/17. The amount available depends on the individual’s circumstances:
- If any of the individual’s income for the year is additional rate income then the individual’s savings allowance for the year will be nil.
- If any of the individual’s income for the year is higher-rate income and none of the individual’s income for the year is additional rate income, the individual’s savings allowance for the year is £500.
- If none of the individual’s income for the year is higher rate income, the individual’s savings allowance for the year is £1,000.
No tax will be payable on savings income until the new savings allowance has been used up.
In a further change, banks and building societies will no longer deduct tax at source from interest at 20%. This means that non-taxpayers will no longer need to fill out an R85 to receive bank and building society interest gross. However, companies will still need to account for 20% at source on payments of interest.
The 0% savings starting rate also remains available on the first £5,000 of taxable savings income for those with the correct split of income. This would apply where non savings income, broadly pay, trade profits and property income are no more than the personal allowance. This means that for some, the effect of the personal allowance (£11,000 for 2016/17), the £5,000 starting rate band and the new savings allowance (£1,000 for basic rate taxpayers for 2016/17) means that it may be possible to receive up to £17,000 savings income tax-free in 2016/17.
In light of the above changes please contact us if you would like to review your tax position on savings income.
Internet link: Gov.uk Publication
Pensions Freedom Update
According to HMRC figures over 230,000 people have used the new pension freedoms introduced one year ago and accessed over £4.3 million in pensions saving.
In April 2015, the government introduced significant pension reforms giving people the ability to access their pensions savings how and when they want. The statistics show that in the first year of these new rules being available, more than 232,000 people have accessed £4.3 billion flexibly from their pension pots.
The Economic Secretary to the Treasury, Harriett Baldwin said:
‘It’s only right that people should have a choice over what they do with their money and in their first year our successful pension freedoms have already given thousands of people access and responsibility over their hard-earned savings.
We will continue to make sure that the pension freedoms work well for everyone, including through working with our partners to ensure consumers are protected and that there is simple information to help people understand their options.
The government has already taken action to ensure the new freedoms work for consumers and that they have the right information to make informed decisions.
It has announced that it will be capping early exit fees, allowing earlier access to Pension Wise guidance, and working with industry to introduce a Pensions Dashboard.
It has also announced that it is extending the popular freedoms even further, giving millions more people the right to sell their annuities if it’s best for them from April 2017.’
Since the pension flexibility rules took effect from 6 April 2015:
- 232,000 individuals have accessed their money flexibly
- People have flexibly accessed over £4.3 billion of their own money through 516,000 payments.
- In the most recent quarter, 74,000 individuals withdrew £820 million. In the previous quarter, 67,000 individuals withdrew £800 million.
- Figures are taken from information voluntarily reported to HMRC by pension scheme administrators from 6 April 2015 to 31 March 2016. It is not mandatory for scheme administrators to flag these up as pension flexibility payments until April 2016.
- HMRC statistics cover ‘flexible payments’, which means partial or full withdrawal of the pension pot, taking money from a flexible drawdown account, or buying a flexible annuity.
If you would like advice on the tax implications of pensions freedom please contact us.
HMRC guidance for employers
The April Employer Bulletin includes articles on:
- reporting expenses and benefits in kind for 2015/16 using form P11D
- Scottish Rate of Income Tax coding notice issues
- Class 1 National Insurance contributions for apprentices under the age of 25
- changes to Student Loans Deductions including the introduction of type 1 and type 2 loans and the reminders which HMRC will issue to employers who fail to make deductions.
The Bulletin also includes links to HMRC’s guidance on the restriction to Employment Allowance for Single Director Companies.
If you would like any help with payroll or P11D completion issues please contact us.
Internet link: Employer Bulletin
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm. Please contact us for further information.