Come 5th April, this tax year will close and a new one will begin. HMRC have announced a number of updates for the new tax year that may impact your company. Ensuring you understand the upcoming changes for 2017/18 will help you keep your company as tax efficient as possible in the coming year.
Upcoming HMRC changes
Below you’ll find an overview of some of the upcoming changes from HMRC and how they may affect your business. If you’re an inniAccounts customer and have any further questions about the tax year end, these upcoming changes and your company, please don’t hesitate to get in touch with your Account Manager.
Flat Rate VAT Scheme changes
In April 2017, new changes to the Flat Rate VAT Scheme (FRS) will be introduced. At the heart of this reform is the introduction of a new flat rate category; the Limited Cost Trader. This change will see most independent professionals VAT rate increase to 16.5% and leave them out of pocket each quarter.
If you invoice £12,000 in a VAT period (£10,000 + 20% VAT) for your services, your turnover totals £12,000. So, the amount you will pay HMRC under the Limited Cost % on the updated Flat Rate Scheme is: £12,000 x 16.5% = £1,980.
You will, therefore, have collected £2,000 in VAT and then paid £1,980 to HMRC. The difference of £20 is yours to keep to cover the VAT you have incurred on your day to day expenses and purchases.
If you were on the Standard VAT method the amount you will pay to HMRC would be £2,000. However, on the standard scheme, you would be able to reduce this VAT payment by claiming back any VAT you have paid on your expenses for the period.
You can learn more about the changes to the flat rate scheme here.
Corporation Tax decrease
As of April 2017, the Corporation Tax rate for small companies will be decreasing from 20% to 19%. Corporation Tax is payable annually following your companies financial year end (rather than the tax year end) and is based on the profit that your company makes. This change is unlikely to impact your end of the tax year actions and won’t impact your year-end dividends.
However, if you are intending on purchasing a large value asset, you would be slightly better off making this purchase before 1st April 2017. As your company tax bill would be reduced by the value of the asset x 20% (rather than 19% after the 1st).
You can find more information on the Corporation Tax here.
Scottish PAYE tax codes
For the first time, the Scottish Parliament will have the power to independently set all income tax rates and bands applying to Scottish taxpayers. This change will apply to savings, pensions, non-dividend income and most other taxable income for the 2017/18 tax year. Personal allowance will remain the same. While the Scottish parliament has the power to set Scottish income tax rates and bands, HMRC will continue to be responsible for its collection and management. Scottish income tax is only payable by Scottish taxpayers.
HMRC will determine whether or not you are a Scottish taxpayer based on where your main place of residence is. If you are a Scottish taxpayer, your 2017/18 PAYE tax code will have the letter ‘S’ at the front.
You can find more information on the new Scottish PAYE tax codes and rates here.
HMRC send us employee tax codes via RTI. Sometimes they’re not right or up to date so it’s worth checking otherwise you can end up over or underpaying tax. Take a look at our guide on tax codes to check your code is correct and to find out what to do if you think it’s wrong. If you are in any doubt about your tax code, or unclear as to whether you should be regarded as a Scottish taxpayer simply contact your Account Manager.
IR35 new tax rules
One of the key updates for the new tax year is a change for independent professionals working under IR35 in the public sector. This change will have significant implications for anyone working for a public sector organisation. The ‘public sector’ is defined by the Freedom of Information Act (2000), it includes broadly any government body such as a local council, the NHS, Ministry of Defence, the BBC, higher education institutes, fire services as well as many, many others.
As of April 2017, the requirement for effectively applying PAYE and National Insurance Contributions (NICs) will pass from the independent professional to the public sector engager or sourcing agency. Public bodies will now need to decide if they are engaging a contractor that is legitimately self-employed or whether they should be subject to PAYE and NICs like any other employee. Public bodies have been provided with an online Employment Status Service (ESS) tool by HMRC to help with this.
This change will mean some contractors will be brought within PAYE and NICs. This is likely to result in contractors facing larger tax bills as well as a need to revise their tax status and business structures.
Alongside this change, previously contractors working under IR35 could write off a flat 5% allowance against their Corporation Tax bills to cover the administrative costs of running a business. Independent professionals working under IR35 in the public sector will no longer have access to this allowance. You can find more information on these changes here.
inniAccounts software supports IR35 and we’ve added a new feature to support public sector engagements that are deemed inside IR35. You can read more about the topic and how to use the new feature by clicking here.
Buy-to-let tax relief
At the moment, landlords can claim tax relief on their mortgage interest payments. In other words, they can offset the cost of the mortgage interest from the rental income when they calculate their profits. Following changes in both 2015 and 2016, this will no longer be case – mortgage interest tax relief will gradually be cut back to 20% between 2017 and 2020.
From April 2016 landlords also won’t be able to deduct 10% of their rental income as notional wear and tear, regardless of whether they have carried out any repairs or not. Going forward, landlords will only be able to claim tax relief for maintenance they can prove has taken place. For landlords, keeping detailed receipts, invoices and accurate records will be more essential than ever.
We’ll be analysing this topic in more detail over the coming weeks, but if you have any questions about how these changes may impact you and your company please don’t hesitate to get in touch.