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YEAR END TAX PLANNING GUIDE2016/2017

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As the 2016/2017 tax year closes, our Year End Tax Planning guide

highlights some of the key tax planning opportunities for lessening

your tax liabilities and making your tax planning more efficient for

the forthcoming year. The last couple of Budgets have had more tax

changes to the financial plans of individuals than we have seen for many

years. Those changes concerning personal pensions and dividends are

the most important and for some people they will need to take action

before 6 April 2017.

Also, read our top tips for focus areas where you can hit the ground

running in 2017/2018.

The ttrb Team.

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Business ownersFamily businesses

Sole traders Key tips

It is more important than ever to ensure that all family members utilise their allowances, with the personal allowance now standing at £11,000 and the introduction of the new £5,000 dividend allowance being in effect.

In the instance of a family company, dividends can be a tax-efficient form of extracting profits. Although the rates of income tax payable on dividends above the allowance increased from 6 April 2016, they are still taxed at lower rates than employment income and do not attract National Insurance contributions (NICs). However, dividends are not tax deductible for corporation tax purposes.

If you are a shareholder director, excess profits may be paid out as a dividend or a bonus. Bonuses are taxed at your marginal rate of tax, and will attract both employee and employer NICs. However, these will be deductible for corporation tax purposes.

Losses made by sole traders in the 2016-17 tax year can be offset against other income for that year and/or the previous year (2015-16), up to a maximum of £50,000 or 25% of total income for the year, whichever is greater. Unused losses can be carried forward against future profits of the same trade with no limit.

Further options may be available to obtain relief for losses in the early years of a business, or on its cessation.

• As dividends are only taxed when paid, manage both the timing and the size of your personal tax liabilities, and maximise the use of available allowances, by choosing beneficial payment dates.

• Think about involving your spouse or civil partner, in addition to any adult children, as gifting them shares in the business would allow them to receive dividends and use dividend allowances. There could also be CGT advantages on any sale of the company.

• Employing a spouse or child might allow them to utilise their personal allowances and provide an NIC record for state pension purposes. The level of salary paid must be commensurate with the duties performed. Pension contributions can also be made on behalf of a spouse or child who you employ. This will save tax and NICs. Contributions should be commercially reasonable.

Looking aheadCorporation tax is set to fall to 19% from 1 April 2017, and to 17% in 2020. HMRC’s Making Tax Digital project is due to be rolled out from April 2018. Both sole traders and Limited Companies should start to consider how they will approach the new quarterly reporting rules.

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Business owners

Capital expenditureCapital allowances can be claimed on outlay on certain types of assets used in your business.

The Annual Investment Allowance (AIA) is a useful relief, with 100% relief given for expenditure of up to £200,000 per year on most kinds of plant and machinery and most fixtures in buildings. However, the AIA reduced from £500,000 to £200,000 as of 1 January 2016 and there are restrictions on the allowances that can be claimed for accounting periods spanning that date.

Spending above the limit, or not qualifying for the AIA, will generally attract an annual capital allowance of 18% or 8% (depending on the nature of the expenditure) on a reducing balance basis.

Some energy-saving, environmentally beneficial or water-efficient equipment and installations can attract instant tax relief of 100%.

In addition, there are reliefs available for expenditure on qualifying research and development.

Key tips• With the acquisition or development of

any property, check with the contractor or supplier whether any items being installed qualify for the increased energy saving allowance.

• Carefully work out the timing of the disposal of cars and other equipment, as this may affect the taxable profit for the year.

• If you intend to purchase commercial property (including Furnished Holiday Lettings) containing fixtures, get advice to ensure that the maximum capital allowances are claimed. On purchase, any value attributed to the fixtures must be agreed by a joint election between the seller and the purchaser.

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Business owners

Entrepreneurs’ ReliefEntrepreneurs’ Relief decreases the rate of CGT to 10% on all qualifying business gains, up to a lifetime limit of £10 million per person.

This relief applies to disposal of shares in a trading company providing that, during the period of one year immediately prior to the disposal, you own at least 5% of the ordinary share capital, are able to exercise at least 5% of the voting rights, and are an officer or employee of the company.

This relief can also apply to the disposal of a business or part of a business, and certain assets used within the business. However, restrictions can apply if:

• There is personal use of a business asset; • The asset was used in the business for only part of its ownership period;• You are not involved in the business throughout the ownership period; or • The asset has been rented to the business.

Key tips• You should plan well in advance of any sale, to make sure that the one

year ownership requirement is satisfied prior to disposal. All relevant conditions – including remaining an officer or employee of the company – must be adhered to right up until the point of sale.

• Pre-sale restructuring may also help maximise the relief available to couples who work at and own shares in a family business. For example, transferring shares between spouses or civil partners can create opportunities to increase the relief where one spouse/civil partner owns at least 5% of the shares but the other owns less than 5%.

• In the instance where you have already used available relief, you may be able to give shares to children, using a trust structure if you would prefer to keep more control. You should seek professional advice.

• If property used by the business is owned jointly, but the business is not a joint concern between the same owners, problems can arise in claiming Entrepreneurs’ Relief on a sale of the property. Specialist advice should be sought.

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Business owners

Business Property ReliefBusiness Property Relief (BPR) can lessen or totally remove the value of a business from IHT liability and is applied to both lifetime gifts and on death. Should the donor die within seven years of such a gift, BPR will only be given on death if the original property is still owned by the donee at the date of the donor’s death and still classes as relevant business property. Professional advice should be sought.Relief is currently available at 100% for a business or shares in an unquoted trading company.

Relief at 50% applies to a controlling holding of quoted shares; and to land, buildings, plant and machinery used in a business carried on by the transferor, a partnership of which they are a member, or a company they control.

The property must have been owned for at least two years prior to the transfer in order to qualify for relief.

Key tips• Check shareholders’ agreements and partnership agreements to ensure

that their terms do not preclude BPR.• • Confirm that BPR is not inadvertently lost by leaving assets eligible for

the relief to an exempt person, such as a spouse or civil partner.• • Should you own a property that classes as a Furnished Holiday Letting,

seek advice, as the BPR conditions are often more difficult to satisfy.

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Private individuals

Income tax planningThis year sees the introduction of new savings and dividend allowances, in addition to changes to the rates of tax on dividends in excess of the dividend allowance.

Summary of 2016-17 rates and thresholds:

Allowances for individuals:• Personal allowance of £11,000: this is progressively withdrawn for individuals earning

more than £100,000 leading to a marginal rate of 60% on income between £100,000 and £122,000. Non-domiciled individuals claiming the remittance basis are not entitled to a personal allowance.

• Personal savings allowance: the first £1,000 (basic rate taxpayers)/£500 (higher rate taxpayers)/£0 (additional rate taxpayers) is taxed at 0%.

• Dividend allowance: the first £5,000 of dividends is taxed at 0%.

Although tax is not due on income falling within the personal savings allowance or dividend allowance, it should be taken into account when calculating an individual’s marginal rates of tax on any taxable savings and dividend income.

Tax rate (non-savings and savings income/dividend income)

Taxable income above your personal allowance

Basic rate 20%/7.5% £0 to £32,000

Higher rate 40%/32.5% £32,001 to £150,000

Additional rate 45%/38.1% Over £150,000

Key tips• Take action to reduce taxable income, in particular

where income is just above one of the thresholds. There are a variety of options to achieve this, including pension contributions or investments in a Venture Capital Scheme. Employees may also be able to use salary sacrifice arrangements.

• Think about gifting assets that generate income to a spouse/civil partner if they pay tax at a lower rate or have not fully used their dividend/personal savings allowance.

• If you have children, you may be able to maintain both spouses’ incomes below the £50,000 threshold for the High Income Child Benefit Charge by switching income from one spouse to the other.

Looking aheadFurther tax-free allowances, covering the first £1,000 of property and trading income, are due to be introduced from 6 April 2017.

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Private individuals

Gift AidHigher rate taxpayers can claim extra tax relief of 20% and additional rate taxpayers 25% of the gross value of the gift. There is no cap on the amount which can qualify for Gift Aid relief, provided the donor has paid sufficient tax during the tax year to cover the charity’s reclaim from HMRC.

For example, if you are a higher rate taxpayer and you make an £80 donation to a charity, the gross value of the gift to the charity is £100, since it can claim back the basic rate tax of £20. You can claim an additional 20% tax relief on the gross value, reducing the net cost to £60.

In order for a donation to qualify for tax relief, the charity must be located in an EU member state (plus Iceland, Norway and Liechtenstein) and must be recognised as a qualifying charity by HMRC.

Key tips• In order to qualify, you must give the charity a Gift Aid

declaration, so that both parties can claim the relevant tax relief.

• You can opt for donations made in one tax year to be treated for tax purposes as made in the prior year. This would be advantageous if you were a higher or additional rate taxpayer in 2016-17 but not in 2017-18. In other cases, it will merely accelerate the higher/additional rate relief. This option can only be actioned when submitting your tax return, which must be filed on time.

• Certain assets donated to charity (e.g. shares, land and property) attract tax relief, and this is given as a deduction from total income. Additionally, any gains generated by the disposal of such assets are exempt from capital gains tax (CGT), and the gift itself is not subject to inheritance tax (IHT).

• If you are a non-domiciled remittance basis taxpayer, you can make a charitable donation from untaxed foreign income, either to a qualifying overseas charity or to the non-UK bank account of a UK charity, and qualify for Gift Aid relief against your UK taxable income. Professional advice should be sought, as this is a complex area.

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Private individuals

Capital gains tax planning2016’s Budget saw the rates of CGT slashed for most disposals, giving an even greater disparity between CGT and income tax rates. There was no change to the annual CGT exemption, which remains at £11,100 for 2016-17. Gains above this are taxed as follows:

• 10% if the gains qualify for Entrepreneurs’ Relief, up to a lifetime limit of £10 million;• 10% (18% for gains in respect of residential property or private equity carried interest) if

the gains fall within the unused basic rate band; and• 20% (28% on residential property or carried interest) for gains above the basic rate band.

Assets moved between married couples or civil partners do not normally trigger a CGT charge.

Non-residents are not usually subject to UK CGT. There is an exception to this rule, however, for disposals of UK residential property.

Non-domiciled individuals claiming the remittance basis of taxation should seek professional advice, as the rules are more intricate.

Key tips• The annual exemption can’t be carried forward

or transferred, so aim to make disposals by 6 April 2017 to make the most of this year’s exemption.

• Consider passing assets over to your spouse or civil partner, to make the most of their annual exemption or capital losses. These transfers must be made outright and without preconditions, which could limit their efficacy for tax purposes.

• ‘Bed and breakfasting’ shares, where they are bought and repurchased quickly afterwards in order to develop gains within the annual exemption, will be ineffective for tax purposes if the repurchase takes place within 30 days. However, ‘bed and spousing’, where the purchase is made by one spouse or civil partner and the repurchase by the other, is not subject to the 30-day rule.

Looking ahead2016’s Budget saw the introduction of Investors’ Relief, which gives a reduced rate of 10% on qualifying gains. Certain conditions apply however, including a minimum holding period, and only shares acquired after Budget day can qualify. Investors’ Relief should now be considered alongside other potential reliefs such as Enterprise Investment Scheme (EIS) relief when making new investments.

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Private individuals

Inheritance tax planningAny individual classed as being domiciled in the UK is subject to IHT on their global assets. Non-domiciled individuals are usually subject to IHT on their UK assets only.

In accordance with the wider changes to the domicile rules, from 6 April 2017 an individual will be classed as UK-domiciled when they have been UK resident for 15 of the last 20 years. Non-domiciled individuals born in the UK with a UK domicile of origin will usually be deemed domiciled from the date at which they become UK resident, but will be able to benefit from a limited grace period for IHT purposes only.

Additional changes will also see UK residential property held through an offshore company by non-domiciled individuals will come within the scope of IHT from 6 April 2017.

The rate of IHT is 40% when a person’s assets on death, along with any gifts made during the seven years prior, total more than the nil rate band (NRB). The NRB is £325,000 for 2016-17 and will be kept at this threshold up to and including 2020-21.

Individuals can transfer the NRB to a spouse or civil partner, meaning couples can benefit from a combined NRB of up to £650,000 on the second death. The total amount transferable is equal to the percentage of the deceased’s unused NRB at the time of their death, as applied to the NRB in force at the date of the second death.

A new NRB, in addition to the standard one, will be an option from 6 April 2017, and covers a property that has been the deceased’s main residence at some point. The additional NRB will firstly be set at £100,000, growing to £175,000 after 5 April 2020. If not used, this relief can also be transferred to the deceased’s spouse or civil partner, making the total additional IHT exemption £350,000 for a couple from 6 April 2020. The relief will be tapered where estates are over £2 million in size and estates over £2.7 million will not benefit from the new rules.

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Private individuals

Key tips• Individuals classifying as non-domiciled should think about the impact of the imminent

changes before being deemed UK domiciled, including the review of existing offshore trust structures and residential property holdings.

• Use the seven year threshold for gifting assets to ensure they do not attract IHT. In addition, after three years the amount of IHT potentially payable on the gift is tapered. Professional advice should always be sought as the gifting of assets can attract CGT.

• Exploit other IHT reliefs and exemptions, such as the annual gifts exemption of £3,000 (£6,000 if no gifts were made during 2015-16) the small gifts allowance of £250 per donee, and gifts made in consideration of marriage (£5,000 to children, £2,500 to grandchildren, and £1,000 to anyone else).

• Consider taking out life insurance written under trust to fund any contingent exposure to IHT.

• Consider increasing bequests to charities to 10% or more of your net estate, which will mean that a reduced IHT rate of 36% applies to the remainder of your estate. A carefully drafted will is essential to ensure that the desired result is achieved.

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Private individuals

PensionsFor the moment, the government has decided to maintain current arrangements for pensions.

Contributions to pension funds within the annual allowance and the overall lifetime limit of £1 million will therefore continue to attract relief at an individual’s marginal rate of tax. The combination of tax relief on contributions, tax-free growth within the fund, and the ability to take a tax-free lump sum on retirement make a pension plan an attractive savings option and should be considered.

In particular for individuals whose annual income is in excess of £150,000, as the annual pension contributions limit of £40,000 is tapered by £1 for every £2 of income in excess of £150,000 from April 2016, dropping to a limit of £10,000 for those earning more than £210,000. No tax relief is available for contributions in excess of the available annual allowance.

The annual allowance can be carried forward for three tax years and any unused annual allowance from the three previous years (£50,000 for 2013-14 and £40,000 for 2014-15 and 2015-16) added to an allowance for 2016-17, attracting full relief. This is subject to the level of pensionable income and the pension input period.

For those 55 or over, new rules from 6 April 2015 allow access to pension funds with no restrictions on the amount that can be withdrawn. The new rules still allow for a 25% tax-free lump sum as previously. Alternatively individuals can take 25% of every payment tax-free, with the remainder being taxed at their marginal rate.

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Private individuals

Looking aheadThe Lifetime ISA, announced in the 2016 Budget, will be introduced from 6 April 2017. Those aged between 18 and 40 will be eligible to open an account, which will benefit from a 25% government bonus. If you or one of your family qualify, consider whether to open an account as part of your retirement savings strategy.

The Finance Bill 2017 will include new rules to bring the taxation of overseas pensions into line with that of UK pensions. This includes the elimination of the current 10% exemption. Individuals with overseas pensions should take advice on the impact of the changes.

Key tips• Think about making additional contributions to your pension scheme prior to the end

of the tax year to get relief at 40% or 45%, (depending on whether you are a higher rate or additional rate taxpayer), while taking care not to breach available annual allowance or the lifetime allowance. In particular, contributions may be beneficial where income is just above one of the income tax thresholds, or where income is between £100,000 and £122,000 (tax relief is available at 60% on income falling within this bracket).

• Review the availability of any unused allowance for the 2013-14 tax year, as this will expire on 5 April 2017.

• Contemplate making contributions of up to £3,600 into a pension scheme for a spouse, civil partner or child if they have no earnings, in order to get basic rate tax relief on the contributions. For example, if you contribute £2,880, HMRC will pay in £720, giving a gross contribution of £3,600.

• If you have sufficient income, consider not drawing your pension and treating it instead as an IHT wrapper.

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Private individuals

Self-assessment: key dates

Deadline for 2015-16 electronic returns. There is a £100 penalty if a return is not filed by this date, regardless of whether any tax is due. A £100 penalty per partner applies for a late partnership return.

Paper returns for 2015-16 not filed by this date will be three months late and may attract a daily penalty of £10 a day for up to 90 days.

Your payment for your 2015-16 tax liability, along with any 2016-17 payments on account, is due.

31 January 2017

The first automatic 5% late payment penalty will apply to any outstanding 2015-16 tax bills.

3 March 2017

The four-year time limit for certain claims and elections in respect of the 2012-13 tax year expires.

Paper returns for 2015-16 not received by this date will now be six months late and a further penalty may be charged of 5% of any tax due, or £300 if greater.

Electronic returns for 2015-16 not filed by this date will be three months late and so exposed to daily penalties of £10 a day for up to 90 days.

Due date for the second payment on account for 2016-17.

Electronic returns for 2015-16 not filed by this date will now be six months late and a further penalty may be charged of 5% of the tax due, or £300 if greater

5 April 2017

30 April 2017

31 July 2017

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Private individuals

The second automatic 5% late payment penalty will apply to any outstanding 2015-16 tax.

1 August 2017

Deadline to notify HMRC of your chargeability to tax if you have not been issued with a return (or a notice to file a return) and you have an income tax or CGT liability for 2016-17.

5 October 2017

Deadline for submitting 2016-17 paper returns, unless there is no facility available from HMRC to file an electronic tax return, in which case the deadline for a paper return is 31 January 2018.

For paper returns filed by this date, HMRC should be able to:• Calculate your tax for you;• Tell you what you owe by 31 January 2018; and• Collect tax through your tax code where you owe less than

£3,000.

If your paper return is submitted after this date (and is not subject to the extended deadline above) you will charged an automatic £100 penalty.

Paper returns for 2015-16 not submitted by this date will now be 12 months late and subject to a further penalty of 5% of the tax due, or £300 if greater.

Deadline for online filing for 2016-17 if you want HMRC to collect tax through your tax code (you must owe less than £3,000).

Filing deadline for 2016-17 electronic returns. Payment date for balancing tax payment in respect of 2016-17 and first payment on account for 2017-18.

The third automatic 5% late payment penalty will apply to any outstanding 2015-16 tax.

31 October 2017

30 December 2017

31 January 2018

1 February 2018

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Property

Rental propertyProfits from a property letting are liable to income tax at your marginal rate of tax.Any expenses incurred exclusively in connection with the rental business are deductible when calculating net taxable profits, provided they are not capital in nature. From 6 April 2017, deductions for finance costs will be restricted, ultimately, to the basic rate only. This new rule will not apply to companies, Furnished Holiday Letting businesses and commercial rentals.

Ordinarily, capital expenditure is deductible against any capital gain on an eventual disposal of the property. The rules for determination of whether an expense is capital or revenue in nature for tax purposes are not always easy to interpret, particularly in relation to expenditure incurred on repairs and maintenance.

Capital allowances are available on qualifying expenditure on commercial property, but are not generally available in respect of residential property. Instead, the actual cost of renewing furnishings can be taken as a deduction.

Where an individual rents out a room or rooms in their only or main residence they could claim Rent a Room relief of £7,500 per year.

As of April 2016, any purchase of additional residential properties – including second homes and buy-to-let properties – now attract a 3% Stamp Duty Land Tax (SDLT) surcharge, taking the maximum marginal rate for a high value property to 15%.

Key tips• Make sure that you record all relevant

expenses, so that they can be claimed against your rental income or offset when the property is sold.

• Ensure that you claim any losses, so that they can be carried forward and offset against future profits from the same rental business.

• In the instance where you let a furnished room in your home and your gross rental income exceeds £7,500 for the year, check whether it is more tax efficient for the excess to be charged to tax, or for you to pay tax on your rental profits after deduction of expenses in the usual way. You can elect for whichever method produces the lowest tax liability.

Looking aheadAs a landlord, you will need to report income and expenses quarterly to HMRC under the Making Tax Digital project. For most unincorporated rental businesses, this will come into effect as of 6 April 2018.

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Property

Principal Private Residence reliefPrincipal Private Residence (PPR) relief can reduce the gains on the sale of your main home, often to zero, and thus avoiding a CGT charge. This relief applies for the time that the property is occupied as your main home. The whole of the property is able to qualify, including up to half a hectare of land, or more if it is relevant to the reasonable enjoyment of the property.

In the instance where you own more than one home, whether solely or jointly with a spouse or civil partner, you may be able to make a PPR election stating which property should be treated as your main home for CGT purposes. This election must be presented to HMRC within two years of another property being available for occupation as a residence.

If your property qualifies for PPR relief, any period during which it was let will qualify for a ‘letting exemption’, up to a maximum of £40,000.

The final 18 months of ownership will qualify as a period of deemed owner occupation, with this period increasing to 36 months for disabled persons or individuals moving into a care home for more than three months, as well as also for the spouses or civil partners of such persons. Certain other periods of absence may also qualify for treatment as periods of deemed owner occupation.

As of 6th April 2015, a second home overseas will only be capable of being nominated as a main residence for the purposes of PPR relief for any given year where the individual is either resident in the same jurisdiction as the property or where they meet a ‘day count’ test. The day count test requires that the individual (or their spouse/civil partner) has spent at least 90 days in the property, or in another property that they own in the same territory.

Key tips• Make sure that any claim for PPR relief will stand up to inspection,

particularly if you have owned or occupied the property for a relatively short period of time.

• In the instance where you are a couple, you should consider jointly owning property for which no PPR election can be made, in order to benefit from two annual exemptions and/or lower rates of CGT when the property is sold.

• If you have sold a property that was once your main home and has also been let out for a period of time, ensure that a claim for lettings relief is made.

• In the instance where a property has been sold by trustees and it was occupied

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PropertyFurnished Holiday LettingsAny property qualifying as Furnished Holiday Letting (FHL) has the opportunity to benefit from various tax reliefs not available generally to property rental businesses.

You can claim capital allowances for spend on furniture, fittings and equipment, including immediate relief on qualifying expenditure of up to £200,000 under the Annual Investment Allowance (AIA). For CGT purposes, disposing of an FHL is treated the same as the disposal of a business asset, and can be ‘rolled over’ against the acquisition of replacement assets, or benefit from Entrepreneurs’ Relief.

Allowable expenses can be offset against the rental income in calculating the net taxable profits, as for a normal rental business.

Losses must be claimed and can only be carried forward against FHL profits in future years. UK FHLs are treated as separate businesses from FHLs in EEA countries.To qualify as an FHL, the property must be furnished, located in the UK or another EEA country, and let on a commercial basis with a view to realising profits. It must also satisfy the following tests:

Availability test The property must be available for letting to the public (not family or friends) for at least 210 days per tax year.Letting test The property must actually be let to the public for 105 days or more per tax year, excluding periods of continuous occupation by the same person for more than 31 days.Pattern of occupation test The property must not normally be let for periods of long-term occupation totalling more than 155 days per tax year. A period of long-term occupation is one where the property is let to the same person for more than 31 days.

Key tips• If the qualifying property has not been let for the mandatory 105 days in 2016-

17, but satisfies other conditions, you could still secure the tax reliefs available by electing for a ‘grace period’ to apply.

• Think about making an averaging election in the instance where you have more than one qualifying property and one of them does not meet the occupancy test of 105 days on its own. Where the average occupancy of all the FHL properties is above 105 days, all properties will qualify.

• Check whether any capital expenditure qualifies for the AIA. • If you are thinking about purchasing an FHL property containing fixtures, it may be

useful to make a joint election with the vendor to agree the value attributable to the fixtures, so that capital allowances can be claimed going forward.

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Property

Annual Tax on Enveloped DwellingsThe Annual Tax on Enveloped Dwellings (ATED) is a tax on any residential property worth more than £500,000 (as at 1 April 2012) that is owned by a ‘non-natural’ person. A non-natural person is classified as either a company, a partnership that has a corporate partner or member, or a collective investment scheme. It does not include trusts.

There are considerable reliefs from the ATED regime, which can be claimed in particular circumstances, including for property development, rentals to unconnected persons, and trading businesses.

The first valuation date was 1 April 2012 (unless acquired after this date) and the value of the property at that date determines the charge from 2013 to 2017. The next ATED valuation date will be 1 April 2017, and will determine the tax payable for the years 2018 to 2022.

Any gains gathered on the disposal of a property within the charge to ATED are liable to ATED-related CGT at a rate of 28%.

2016-17 ATED charges are shown in the table below.

Key tips• Although ATED returns are usually filed annually, the first ATED return is due within 30

days of the purchase.• Reliefs from ATED must be claimed. Penalties will be charged for late filing of the return,

even if there is no ATED liability.• Be aware that a change of use of a property may mean amended ATED returns need to be

filed.

Property Value ATED charge 2016-17Less than £500,000 £0More than £500,000 but not more than £1 million £3,500More than £1 million but not more than £2 million £7,000More than £2 million but not more than £5 million £23,350More than £5 million but not more than £10 million £54,450More than £10 million but not more than £20 million £109,050More than £20 million £218,200

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Employers and employees

General planning PAYE information is increasingly being updated and adjusted in real time: with employers reporting PAYE information to HMRC throughout the year. HMRC is starting to feed this data through to employees’ Personal Tax Accounts.

Those both employed and self-employed, or with more than one employment, may be paying excess NICs. You can defer the excess NICs, and should normally apply by 5 April 2017 for deferment in 2017-18.

Key tips• Check PAYE codes and inform HMRC of any additional reliefs available, to avoid over or

underpayment of tax at the end of the year.• Think about making a payment to your employer as a contribution towards benefits received

to reduce the tax charge. These payments must be made before the P11Ds are filed.• If you hold share options under an approved or unapproved scheme, make sure you

understand the tax implications of the scheme and consider carefully the timing of the exercise of the options and the disposal of the shares, to minimise exposure to CGT and/or income tax.

• If shares have been received (including the exercise of share options) during the tax year and PAYE has been operated on the receipt of those shares, ensure you make a payment to your employer equal to the PAYE operated by 5 July 2017 to avoid a further taxable benefit being deemed.

Looking aheadHMRC is extending the potential of Digital Tax Accounts for individuals. Company car details can already be updated through your account, but this will slowly be extended to cover other changes to your tax code.

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Employers and employees

Key tips for employers• The final date for filing the last Full Payment Submission (FPS)/Employer Payment

Summary (EPS) for 2016-17 is 19 April 2017. Outstanding payments of PAYE and Class 1 NICs must be complete by 22 April (assuming BACs transfer).

• Any corrections to RTI figures for 2016-17 made after 19 April 2017 must be made using an Earlier Year Update.

• Reports in respect of relevant employee share schemes need to be made online by 6 July 2017.

• Note any PAYE operated during the year on shares provided to employees (including share option exercises) to determine how much the relevant employee must make good before 5 July 2017 to avoid a further taxable benefit being reportable on their P11D.

Looking aheadThe Apprenticeship Levy will be introduced in April 2017, along with changes to the apprenticeships funding model. You should ensure that you know whether the levy will apply to you, and whether you can access government-supported funding for training employees under the new framework.

Salary sacrifice for benefits other than pension contributions, childcare, cycles and ultra-low emission cars will also become taxable from April 2017. Those salary sacrifice measures in place before April 2017, which do not change after 6 April 2017, will not become taxable until April 2018. Employers with arrangements currently in place should consider extending the current arrangements before 6 April 2017 until April 2018 to take advantage of the transitional allowances.

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Employers and employees

Pensions

Cars and fuel

If you still need to pay end of year bonuses, you could consider giving employees the opportunity to waive all or part of their bonus in exchange for an increased employer pension contribution instead. This waiver won’t be liable to PAYE/NICs and there will be an employer’s NIC saving (which the employer may consider using to further enhance the pension contribution made). If the employee has exceeded their annual or lifetime pension allowance, any tax charge due on the pension contribution will be collected directly from them rather than being an employer reporting/withholding event.

The taxable benefit of a company car is calculated by multiplying the list price by a percentage (up to a maximum of 37%) based on the car’s CO2 emissions levels. Making a capital contribution towards the cost of the car will reduce the taxable benefit. Contributions up to £5,000 qualify for relief, so the maximum contribution of £5,000 would save tax of £833 if you were a 45% taxpayer during 2016-17.

If you receive free fuel for your company car, the tax charge will be based on the car’s CO2 emissions. This will be the same percentage used to calculate the taxable car benefit and is applied to a fixed amount of £22,200 in 2016-17, making the tax cost £3,286 if you are a higher rate (40%) taxpayer driving a company car attracting the maximum percentage. If you are a 45% taxpayer in 2016-17, the maximum fuel benefit will result in a tax cost of £3,696.

If you have been given a company van and use it for private journeys, the basic benefit on which tax is charged is £3,150 for 2016-17, plus £598 if free fuel is provided for private journeys.

If you use your own car for business purposes, you are eligible to claim a tax-free mileage allowance provided it does not exceed the following limits:

• 45p per mile for up to 10,000 business miles• 25p per mile for each additional mile over 10,000• Extra 5p for each work passenger making the same trip.• If you use your own bicycle or motorcycle for business journeys, you can receive a tax-free

mileage allowance of 20p per mile (bicycles) and 24p per mile (motorcycles).

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Employers and employees

Key tips• Think about swapping to a company car with low CO2 emissions for substantial tax

savings.• Consider making a capital contribution towards the cost of the car to reduce your taxable

benefit.• Contemplate whether you are better off owning your car personally and claiming an

allowance for your business mileage instead of a company car.• If you take fuel benefit, work out the amount you would spend on private fuel and compare

this to the tax cost of the benefit to ensure it’s worth your while receiving the benefit. If you reimburse your employer the full cost of all fuel used for private journeys, there will be no benefit in kind tax charge for the fuel.

• If you utilise your own car for business purposes and the rates at which your employer reimburses you are lower than the authorised rates, you can claim the difference as a deduction in your tax return.

Other benefits in kindSome benefits have no tax or NIC cost, including work-related training, health screening, interest-free loans of up to £10,000 and small weekly contributions by your employer towards the cost of working from home.

ChildcareThere will be a new tax-free Childcare scheme from early 2017, giving tax-free top-ups on payments made by parents towards childcare costs, up to a maximum of £2,000 per year per child. There are conditions however: parents must be working the equivalent of 16 hours a week or more, and cannot be earning over £100,000 per annum.

If you are already in the existing childcare voucher scheme, you will have the choice of staying with this or switching to the new scheme. Parents earning between £100,000 and £150,000 will be better off under the existing scheme and should therefore ensure they are registered ahead of the introduction of Tax Free Childcare. Places in employer-provided workplace nurseries are (and will remain, even after the introduction of Tax Free Childcare) fully exempt from tax and NICs.

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Employers and employees

Key tipsAs an employee, you should ensure you take advantage of any tax-efficient benefits being offered by your employer.

Tax-free loansEmployers can provide employees with interest-free loans of up to £10,000 without a taxable benefit arising. If the loan balance exceeds £10,000 at any point in a tax year, tax is chargeable on the difference between the interest paid and the interest due at an official rate (3% for 2016-17).

Looking aheadFrom 6th April 2017, the government will limit the benefits available through salary sacrifice. As an employer, you should review the benefits package that you offer to identify any impact from the changes and to ensure that it is continuing to meet business needs.

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Tax-efficient investments

Venture Capital Schemes

Enterprise Investment Scheme

Seed Enterprise Investment Scheme

The Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts all offer substantial income tax and CGT advantages. In addition, Investors’ Relief also offers possible reductions in CGT.

It is also vital to remember that EIS, SEIS and Venture Capital Trust investments are generally high risk and also may be difficult to sell, and you should always consider seeking your own independent investment advice before making such an investment.

The EIS gives tax relief on investments in qualifying trading companies, with the reliefs offered by an EIS investment including:• EIS income tax relief at 30% on amounts invested up to £1 million in 2016-17, providing

that the shares are held for a minimum of three years. Investments made during a tax year can also be carried back and treated as made in the previous tax year.

• Capital gains on the disposal of any asset can be deferred by re-investing the gain in qualifying EIS shares, provided reinvestment is made within the period starting one year before and ending three years after the date of disposal.

• Capital gains on EIS shares are not subject to CGT after three years.• Income tax relief for future capital losses is reduced by the EIS income tax relief already

received.

The SEIS offers tax relief on investments into qualifying trading companies less than two years old and is designed to encourage investment in small start-up companies.

Those reliefs offered by an SEIS investment include:• SEIS income tax relief at 50% on amounts invested up to £100,000 in 2016-17, provided

the shares are held for three years. Investments made during a tax year can also be carried back and treated as made in the previous tax year.

• Capital gains on the disposal of any asset can be 50% exempt by re-investing the gain in qualifying SEIS shares, provided reinvestment is made in the same tax year.

• Capital gains on SEIS shares are not subject to CGT after three years.• Income tax relief for future capital losses is reduced by the SEIS income tax relief already

received.

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Tax-efficient investmentsQualifying EIS and SEIS companies

Venture Capital Trusts

Social Investment Tax Relief

Investors’ Relief

There are very stringent qualifying conditions for a company to classify as an EIS or a SEIS company, such as the size of the company and the type of trade it undertakes. If the qualifying conditions are not met then relief may be withdrawn, even after initial acceptance.

Venture Capital Trusts (VCTs) are quoted investment trusts that invest in a range of relatively small trading companies.

You can acquire income tax relief of 30% by subscribing up to £200,000 for shares in VCTs in 2016-17. Gains are commonly exempt from CGT after five years.

Social Investment Tax Relief (SITR) is there to encourage investment in social enterprises, with income tax relief of 30% on up to £1 million of investment available, provided the investment is retained for three years. Gains on the investment are also free of CGT.

Like with EIS and SEIS relief, there are detailed conditions that apply to investor and investee enterprise.

Investors’ Relief gives a reduced CGT rate of 10% on up to £10 million of qualifying gains on shares in unlisted trading groups. The shares must be held for at least three years from 6 April 2016 in addition to other conditions that must be met.

Key tips• Think about investing in a qualifying EIS or SEIS company before the end of the tax

year in order to secure income tax relief at 30% or 50% respectively during 2016-17.• Contemplate a carry-back claim to 2015-16 if EIS or SEIS investments have been

made in 2016-17 but the 2015-16 limit has not been fully utilised.• You could defer capital gains gotten in the past three years by making a qualifying

EIS, SEIS or SITR investment. Note that CGT rates may rise in future, giving a risk that deferred gains may become liable to CGT at a higher rate when they eventually come into charge.

• Gains eligible for Entrepreneurs’ Relief that are deferred in this way may still be eligible for Entrepreneurs’ Relief when they ultimately come into charge.

• Think about whether an investment would qualify for Investors’ Relief if EIS and SEIS are not available, or where the annual limits have already been reached.

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Talk to us.Our 40-strong team of accountants and support staff bring with them a wealth

of experience in accounts handling, auditing, taxation planning, payroll and many

other areas of accountancy, for both businesses and individuals. From sole traders

to large partnerships, our policy of a personalised, added-value service really does

appear to make a difference. That’s because we don’t merely produce accounts –

we interpret them. From our thorough knowledge of the client’s accounts, we can

offer an informed opinion as to what decisions can be taken to influence future

results, including annual tax planning and health checks.

What’s even more valuable to our clients is that our Directors pride themselves

on giving proactive advice at meetings, whether it be connected with tax saving,

profit enhancement, or other specialisations.

Speak to us to learn more about what we can do for you and how to make this

year your most tax-efficient yet.

All information correct at time of distribution March 2017.

David Cook Allan Russell

david.cook@ttrbarnes.com 0191 567 0304

allan.russell@ttrbarnes.com 0191 567 0304

Tel 0191 567 0304 | info@ttrbarnes.com