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As the end of the 2018/19 tax year approaches, it is worthwhile taking time for some last-minute tax planning. Here are some simple tips that may save you money.
1. Preserve your personal allowance: the personal allowance is reduced by £1 for every £2 by which income exceeds £100,000. For 2018/19, the personal tax allowance is £11,850, meaning that it is lost entirely once income exceeds £123,700. Where income falls between £100,000 and £123,700, the effect of the taper means that the marginal rate of tax is a whopping 60%. Where income is over £100,000, consider making pension contributions or charitable donations to reduce income and preserve the personal allowance. Where this is an option, consider also deferring income until after 6 April 2019 to reduce 2018/19 income.
2. Claim the marriage allowance: the marriage allowance can save a couple tax of £238 in 2018/19. Where an individual is unable to utilise their personal allowance, they can make use of the marriage allowance to transfer 10% of their personal allowance (rounded up to the nearest £10) to their spouse or civil partner, as long as neither pay tax at the higher or additional rate. The marriage allowance must be claimed.
3. Pay dividends to use up the dividend allowance: family and personal companies with sufficient retained profits should consider paying dividends to shareholders who have not yet used up their dividend allowance for 2018/19. The dividend allowance is set at £2,000 and is available to all individuals, regardless of the rate at which they pay tax. The use of an alphabet share structure enables individuals to tailor dividend payments according to the individual’s circumstances.
4. Make pension contributions: tax relieved pension contributions can be made up to 100% of earnings, capped at the level of the annual allowance. The annual allowance is set at £40,000 for 2018/19 (subject to the reduction for high earners). Where the annual allowance is not used up in year, it can be carried forward for up to three years.
5. Transfer income-earning assets to a spouse or civil partner: where one spouse or civil partner has unused personal allowances or has not fully utilised their basic rate band, considering transferring income earning assets into their name to reduce the combined tax liability (but non-tax considerations such as loss of ownership should be taken into account).
6. Put assets in joint name prior to sale: spouses and civil partners can transfer assets between them at a value that gives rise to neither a gain nor a loss. This can be useful prior to selling an asset which will realise a gain in order to take advantage of both partners’ annual exempt amount for capital gains tax purposes.
7. Make gifts for inheritance tax purposes: individuals have an annual exemption for inheritance tax of £3,000, allowing them to make gifts free of inheritance tax each year. Where the allowance is not used, it can be carried forward to the next year, but is then lost.
While 93.68 per cent of the 11.5 million taxpayers who were required to file their Self-Assessment Tax Returns by midnight on 31 January did so on time, 731,186 missed the deadline.
Those who missed the deadline will have to wait longer than in previous years to receive penalty notifications from HM Revenue & Customs (HMRC).
The notifications of £100 penalties are usually sent in February but may be sent as late as the end of April this year as part of HMRC’s Brexit plans.
However, payment of the penalties will still be due within three months and additional penalties will still apply from beyond the end of April.
The little speculation there was in the days before the Chancellor’s Spring Statement focused more on whether Mr Hammond would find anything of interest to say at all, than on what he would say.
The purpose of the Spring Statement is to respond to forecasts from the Office for Budget Responsibility (OBR), although that has not always prevented Mr Hammond from making significant announcements.
While arguing that the “economy itself is remarkably robust”, Mr Hammond said that growth projections for 2019 have been revised down by the OBR from 1.6 per cent to 1.2 per cent.
Mr Hammond expects 600,000 new jobs to be created by 2023 and he said the OBR has revised wage growth up to around three per cent each year.
He announced £100 million to help the police fight knife crime and a commitment to end ‘period poverty’ by providing free sanitary products in secondary schools and colleges.
Mr Hammond said that he wanted to “build on the UK’s fundamental strengths”, announcing a £37 billion productivity fund, focusing on improving skills throughout the workforce.
He then said that the Government would respond later in the year to a recommendation in an independent review of competition in the digital economy, that rules should be updated for the digital age.
Saying that “we need to tackle the scourge of late payments”, he said that listed companies would have to report on their payment practices within their company accounts.
Mr Hammond devoted a significant part of his speech to housing and the environment, announcing £3 billion for the Affordable Homes Guarantee Scheme.
To allow time for the Commons to consider Brexit, Mr Hammond said that he would make some announcements in a Written Ministerial Statement, published at the end of his speech. This included preventing the abuse of R&D tax relief for small or medium-sized enterprises, draft regulations on the National Insurance Contributions (NIC) Employment Allowance that would restrict the allowance to businesses with an employer NIC bill below £100,000 and a call for evidence on lettings relief and the final period exemption, which extends private residence relief in capital gains tax.
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For businesses though, the increase in the wage will not only affected their wage bill but will also come at a time when they are required to increase their workplace pension contributions for staff.
These contributions are set to rise yet again next month to a minimum of three per cent for employers, and a combined minimum contribution of eight per cent between employers and employees.
HMRC has urged UK households with a landline number to be vigilant following a significant rise in landline tax scams.
HMRC recently moved to crack down on email and SMS phishing scams. As a result, many criminals are now turning to the more traditional method of cold-calling publicly available phone numbers, including landline numbers.
The Revenue recently revealed that, in the six months to January 2019, it received more than 60,000 reports of phone scams – an increase of 360% when compared to the previous six months. According to HMRC, phone scams are typically targeted at the elderly and the vulnerable. Criminals often pose as HMRC to 'add credibility' and convince their victims.
HMRC has been working with phone networks and regulator Ofcom to close nearly 450 phone lines that have been used by criminals. Ofcom estimates that 26 million homes have a landline, many of which could be at risk from scams.
Commenting on the issue, Mel Stride, Financial Secretary to the Treasury, said: 'If you receive a suspicious call to your landline from someone purporting to be from HMRC which threatens legal action, to put you in jail, or payment using vouchers: hang up and report it to HMRC, who can work to take them off the network.' Any suspicious emails, phone calls or text messages received should be reported to HMRC or Action Fraud.
A new study into preparations for Making Tax Digital amongst businesses has found that only 57 per cent of firms are ready to comply with the new regime by 1 April 2019.
Despite the various delays and changes to the Government’s new digital tax system, businesses have had several years to prepare themselves for this landmark change in taxation.
Initially, the new system will only apply to the recording and reporting of VAT on a quarterly basis for those VAT-registered businesses over the VAT threshold (£85,000).
However, the Government intends to extend the system out to other areas of taxation and to other businesses from April 2020 at the earliest.
Businesses will be offered a “soft landing” period of a year during which they won’t be fined if they don’t comply with the reporting requirements in time.
HM Revenue & Customs has also recently confirmed that during this period “where a digital link has not been established between software programs, HMRC will accept the use of cut and paste as being a digital link for these VAT periods.”
Despite its recent communications HMRC has been heavily criticised for not doing enough to make businesses aware of the new regime, with it only launching its social media and email campaign to small businesses in Autumn last year.