Our newsletter this month includes: a reminder of issues to deal with during 2018; a fresh look at the sole trader or limited company debate; an outline of strategies to reduce tax and NIC payable when employers pay for private fuel; and CGT planning tips for 2017-18.
Happy New Year…
Let us hope that 2018 presents opportunities to build our business interests and improve the financial position of our families. Certainly, there were many changes last year, not least the ongoing implications of the Brexit vote, that have proved to be challenging and not only for the politicians.
A reminder, as we look forward to the new year, that our actions in the future will be dictated to some extent by past changes. We have listed below just a few of these challenges, some of which we reported in length last year, and many of which will require action on our part in the coming year.
If you are in business:
Please call if you would like to review any of these or other planning opportunities for 2017-18. Don’t forget that once the year end passes any likely benefits that you could have benefitted from may be permanently lost.
Sole trader or incorporated?
From April 2018, the £5,000 tax-free dividend allowance is reducing from £5,000 to £2,000.
Does this mean that converting from self-employed to a limited company arrangement to save tax and NIC is no longer a viable option? Readers who have adopted this strategy will have likely seen a reduction in taxes due thus far, but the partial loss of the dividend allowance will reduce overall savings that can be made.
However, in most cases benefits will continue to accrue albeit at a reduced rate, and if profits are retained in the company, rather than withdrawn as salary or dividends, these benefits could still be significant.
We will be keeping an eye on the numbers for clients who have adopted this strategy and will discuss their options when we review their tax position during 2018.
Does you employer still pay for your private fuel?
As we are approaching the end of yet another tax year, it is worth repeating our suggestion that highlights the cash benefit to company car drivers and their employers, of reimbursing the cost of fuel provided for private motoring. The rates have been updated for 2017-18.
Since the tax on private fuel provided with company cars is so high, many employers have an arrangement whereby they no longer pay for private fuel. In many cases this means that the employee must reimburse the employer for private fuel included in petrol bills paid by the employer.
Consider the following example for 2017-18:
If your private mileage is currently 560 miles a month, and you drive a 1900cc diesel engine car, the rate per mile to cover fuel charges as quoted in the latest rates published by HMRC is 11p per mile. Accordingly, you should repay £61.60 a month to your employer.
Based on the above example, if the vehicle’s list price when new was £25,000, and the car benefit charge rate was 28% (based on a 130g/km CO2 rating) the benefit in kind charge for the year would be £7,000. With no repayment of private fuel, there would also be a £6,328 car fuel charge. Both these amounts would be added to your taxable income for the year. If you were a higher rate tax payer the car fuel charge would cost you £2,513.20 a year in additional tax (£6,328 x 40%). This amounts to £210.93 per month.
If your actual private mileage proved, on average, to be 560 miles a month, you would therefore save £149.33 per month (£210.93 – £61.60).
Employers will also benefit as they will no longer be subject to a National Insurance charge on the amount of the car fuel benefit. In the above example, it would reduce NIC costs by £873.26 (£6,328 x 13.8%).
It is worth crunching the numbers. Obviously, the lower your private mileage, the more likely a repayment system will save you money, but you will need to act before the 5 April 2018.
This is also an appropriate time of the year to consider your capital gains tax position if you have already disposed (or are considering a disposal) of an asset subject to CGT before 6 April 2018.
Most of our readers will be aware that they can make chargeable gains of up to £11,300 in the tax year 2017-18 and pay no CGT. This exemption cannot be transferred to a future tax year or carried back to a previous tax year if it is not utilised.
Many will also remember that it is no longer feasible to sell shares before 6 April 2018 to crystallise a CGT loss or a gain that is covered by the above exemption if those shares, or part of them, are reacquired within 30 days of the disposal – this sell and buy-back activity is often described as “bed and breakfasting”.
However, it is still possible to reacquire holdings, within the 30 days period, if you use an ISA or self-invested personal pension (SIPP) to make the buy-back.
Transfers of chargeable assets for CGT purposes are exempt between spouses and civil partners. Also, the annual exemption is available to both parties. This combination means that couples may be able to share the gain on a disposal of assets and reduce their overall CGT charge.
This strategy, of transferring partial ownership to a spouse, can also reduce an overall CGT charge if the transferring partner/spouse is due to pay CGT at the higher 20% or 28% rate (as their gains fall to be taxed in the higher rate tax band) and the receiving partner/spouse would only be liable to pay CGT at the lower 10% or 18% (as their share of a transferred gain would fall into their free basic rate band).
The 10% and 20% rates apply from April 2016, but do not apply to disposals of residential property or carried interest – for these latter items, disposals are taxed at 18% to 28%, dependent on where the gains sit in the basic or higher rates bands.
And don’t forget, CGT is assessed and payable as part of your self-assessment. Any tax payable for 2017-18 will be due for payment 31 January 2019. On the same day you will also have to pay any other underpayment of income tax for 2017-18 and your first payment on account for 2018-19.
If you own assets that are subject to CGT on disposal and you, and possibly your spouse, are struggling to fully utilise your CGT annual exemption, or you would like to discuss ways to minimise any CGT payable, please call to discuss your options.
Tax Diary January/February 2018
1 January 2018 – Due date for corporation tax due for the year ended 31 March 2017.
19 January 2018 – PAYE and NIC deductions due for month ended 5 January 2018. (If you pay your tax electronically the due date is 22 January 2018)
19 January 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2018.
19 January 2018 – CIS tax deducted for the month ended 5 January 2018 is payable by today.
31 January 2018 – Last day to file 2016-17 self-assessment tax returns online.
31 January 2018 – Balance of self-assessment tax owing for 2016-17 due to be settled on or before today. Also due is any first payment on account for 2017-18.
1 February 2018 – Due date for corporation tax payable for the year ended 30 April 2016.
19 February 2018 – PAYE and NIC deductions due for month ended 5 February 2018. (If you pay your tax electronically the due date is 22 February 2018)
19 February 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2018.
19 February 2018 – CIS tax deducted for the month ended 5 February 2018 is payable by today.
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