Tax blog | Simply Accounting Solutions

I give to charity under Gift Aid, is there anything I need to know about the personal savings allowance and dividend allowance?

If you make regular gifts to charity you may have been relying on the tax paid on your savings and dividends to cover your Gift Aid donations.

If you no longer pay tax on them due to the personal savings allowance and the dividend allowance, but continue to donate to charity under a Gift Aid declaration, the charity will assume the donation has come from someone paying UK tax and claim an amount back from HMRC. You might then be faced with an unexpected bill from HMRC for the amount that the Charity has claimed.

Don’t worry you can cancel your Gift Aid declaration but still donate to your chosen charity. The charity will no longer benefit from the Gift Aid tax claim from HMRC but they will still value your donation. You should also bear this in mind when visiting certain attractions, which may invite you to Gift Aid your ticket entry. You don’t want to spoil a nice day out with an unexpected tax bill!

Tax considerations on separation and divorce

Official figures show that 2017 saw a decrease in divorces of opposite-sex couple in England and Wales, it was the lowest divorce rate since 1973. Taxation is probably the last thing on your mind when a long term relationship or marriage breaks down. However tax can bring its own problems to an already frustrating set of economic circumstances and is worth considering early in the separation process to make sure that both parties get the best.

The family home

Capital Gains Tax (CGT) is a tax which arises when you make a profit, or gain, on assets that are sold or given away. The rate of tax depends on the level of your other taxable income in the tax year and whether the asset sold or given away is residential property.

If you are married or in a civil partnership, transfers between spouses is on a 'no gain, no loss' basis for CGT, ie. CGT does not usually apply. The CGT exemption for transferring assets between partners ends on the 5^th April of the tax year of separation. So for example, if you have a 'trial' separation on the 1 January which leads to a permanent separation, you have until the 5^th April to complete any asset transfers before you need to consider CGT. This may not always be possible and CGT may therefore become a consideration.

The tax consequences of separation differ when it comes to the family home. Where the family home is your only or main residence throughout your period of ownership, no CGT is usually payable. The marital home is likely to be the main residence of both parties, however, this may change when one party moves out and acquires a new property. CGT relief will continue to be available for 18 months after vacating the property, if the property is later sold. The period of relief can be extended where the house is transferred to one party who continues to occupy the former marital home as part of the separation agreement. This additional period is only available if the transferring spouse has not made an election for any new property to be their main residence during this time. There is also an exemption from Stamp Duty Land Tax (SDLT) on transfers of property in connection with a divorce.

If there are young children involved you, or a court order may, agree to postpone any sale of the family home until the children reach 18. This is sometimes called a Mesher Order. These orders were more common 30 or more years ago and originated to permit a spouse to remain in the family home with the children until maturity, or a further order of the court.

If you enter into such an agreement, the family home is transferred to a trust as the date of the order or agreement. This is a disposal for CGT purposes, but if the property meets the conditions for Principal Private Residence Relief (PPR), the gain should be exempt at the time the settlement is created.

The deferred period ends when the children reach 18 and at that time the spouse living in the property usually becomes the outright owner. There is a deemed disposal at this time, however, providing the occupier used the property as their main residence for the whole time, the gain should be exempt from tax.

The family business

Where separating couples run a business together, this can bring its own difficulties. Spouses will often own shares, or assets of the business and arranging how these are transferred, and their values can be challenging. If an agreement can be reached before the 5^th of April in the tax year of separation, then business assets can be transferred between separating spouses free of CGT. However, this is often an unrealistic timescale, so CGT will be a consideration. It may be possible to 'defer' any gain on business asset transfers, if certain conditions are met and both parties to the transaction agree. However, this may leave the partner receiving the business assets or shares with a larger CGT bill in the future should the business be sold and will need to be considered in the overall agreement.

Income tax and tax credits

Separating partners have a duty to support one another financially by paying maintenance until they are formally divorced. These payments may continue after divorce where it is ordered by the court as part of the financial settlement. The spouse making the payment will be taxed on their gross income and will need to pay the maintenance out of net (after tax) income. There is not usually any tax relief given for maintenance payments and the payments are not usually taxable in the hands of the recipient.

Tax credits for children can continue to be claimed by the partner with whom the children live. Tax credit payments cannot be split, so it is important to decide who will have the 'main caring responsibility' so they can continue to claim any tax credits due. It is important to inform HMRC of any change to your domestic arrangements quickly, in particular if a new partner moves in, as this can affect your tax credits claim. Late notification may result in a large overpayment, which will need to be repaid to HMRC.

Child benefit can also continue to be paid to the partner who has the main caring responsibility. However, if you have a new partner whose income is over £50,000, they may end up having to pay back part of the child benefit, under the new Higher Income Child. This can bring its own set of challenges to a new relationship and is worth considering at an early stage to avoid unnecessary tax bills.

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Jun, 2019

Do you struggle to know what to budget for your self employed tax?

If you struggle to know how much to save regularly to cover your year end tax bill, try this handy HMRC tool.

Just enter your net weekly or monthly profit (i.e income after taking off your expenses) and the tool will calculate how much you should put away in a savings account to budget for your tax and NIC.

It will not be a perfect solution as profits may vary week by week or month by month. However you will be surprised just how much you can save by putting a little money aside, in a separate savings account, each week or month. The year end tax bill will not seem so daunting and who knows you may even have some left over to reward yourself!

HMRC advisory fuel rates

HMRC have published company car advisory fuel rates for use from 1 June 2019.

The rates apply when employers reimburse employees for the cost of fuel for business travel in their company cars or require employees to repay the cost of fuel used for private travel. HMRC review rates quarterly on 1 March, 1 June, 1 September and 1 December.

The current rates are:

Advisory Fuel Rates from 1 June 2019

These rates apply from 1 June 2019. You can use the previous rates for up to 1 month from the date the new rates apply.

Engine size	Petrol - amount per mile	LPG - amount per mile
1400cc or less	12 pence	8 pence
1401cc to 2000cc	15 pence	9 pence
Over 2000cc	22 pence	14 pence

Engine size	Diesel - amount per mile
1600cc or less	10 pence
1601cc to 2000cc	12 pence
Over 2000cc	14 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

The Advisory Electricity Rate for fully electric cars is 4 pence per mile.

Electricity is not a fuel for car fuel benefit purposes.

Construction Industry Tax Refunds

The Construction Industry Scheme (CIS) is where a contractor in the construction industry deducts, at source, a certain percentage of the money paid to their subcontractors. This amount is passed straight to HMRC and counts towards the subcontractor’s self-assessment tax and national insurance bill for the tax year.

The amount deducted will depend on whether or not a subcontractor is registered under the CIS scheme. Unregistered subcontractors usually get a 30% deduction, while registered subcontractors get a deduction at the standard basic rate of tax of 20%.

The deduction rate is a flat rate and does not take into account the tax-free personal allowance that every UK based taxpayer is entitled to. The personal allowance for the tax year 2018-2019 was £11,850. Because the flat rate deduction does not take account of this, or other business expenses that you can claim, many ‘subbies’ are due a tax refund at the end of the tax year.

In addition to the UK personal allowance, you can also claim a deduction for business expenses incurred in running you business such travel to sites, insurance, telephone, tools, safety clothing and lots more.

This can be a complex process so to make sure that you are getting the maximum tax rebate let Simply Accounting Solutions help you, our fees are tax deductible too!

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Property Income

Introduced in the April 2017 budget, landlords have been gradually loosing tax relief on finance costs and mortgage interest for letting residential property.

The restriction does not apply to commercial property or furnished holiday lets, so if you are considering buying a second property and need finance to do so, a holiday let may be a good option. However, remember that holiday letting will require more work as a regular change over will be needed.

The effect of the restriction to finance costs means that residential landlords are no longer able to deduct 100% of the finance costs from the rental income. Instead, they will eventually only receive a basic rate tax deduction.

The restriction is being gradually phased in and for 2019/20 25% of the finance costs will be allowed as a deduction from your rental income, the remaining 75% will attract 20% tax relief only.

This measure may have some unusual results and you may find that your taxable income increases into the higher rate tax bands. This could also affect your entitlement to child benefit.

Thankfully there are ways to mitigate the effects of this measure, so if you are a landlord and have borrowings against your rented properties, please get in touch to find out how we can help.

Is your partner a high earner? Why you should still register for Child Benefit

Parents affected by the High-Income Child Benefit charge (HICBC) can be forgiven for thinking that there is no point is registering for child benefit if they are only going to have to pay it all back again in tax.

The HICBC applies where the parent claiming child benefit or their partner has income of more than £50,000 a year.

But Child benefit also confers state pension rights and here is the important part, especially if your spouse or partner is not working and not paying any Class 1 National Insurance contributions.

Parents registered for child benefit in respect of a child under 12 automatically receive Class 3 National Insurance credits. Class 3 credits have the effect of making a year a qualifying year for state pension (but not for other contributory benefit) purposes. Therefore, each year that a parent is registered for child benefit for a child under 12 provides one qualifying year for state benefit purposes. A person needs 35 qualifying years for the full single-tier state pension and at least ten to receive any state pension at all.

Failing to register for child benefit can mean missing out on an automatic entitlement to at least 12 qualifying years of State Pension.

If receiving the money and then having to pay it back is a worry, it needn’t be. It is possible to register for child benefit and to elect not to receive payment. This can be done online or by contacting HMRC’s child benefit office.

If you find that your household income changes in the future so you are below the £50,000 threshold, you can restart the payment of child benefit.

Simply Accounting Solutions are here to help, so please contact us if you need further information on this or any other tax related matters.

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