Budget 2017 – Key Points

Here is a summary of the 2017 budget and its effect on the areas of personal taxation, businesses and the economy in general.

Personal Taxation

  • The tax rate for class 4 national insurance contributions for the self-employed to increase from 9% to 10% in April 2018 and 11% in April 2019. This increase applying to earnings between £8,060 and £43,000, is expected to raise £145m a year by 2021-22 at an average cost of 60p a week to those affected.
  • The Class 2 National Insurance, a separate flat rate contribution paid by self-employed workers making a profit of more than £5,965 a year, will be scrapped as planned in April 2018
  • No changes to National Insurance paid by the employed and employers or to income tax or VAT
  • Personal tax-free allowance to rise as planned to £11,500 this year and to £12,500 by 2020.

Business

  • £435m for firms affected by increases in business rates, including £300m hardship fund for worst hit
  • Rate rises for businesses losing existing relief will be capped at £50 a month
  • A £820m tax avoidance crackdown, including action to stop businesses converting capital losses into trading losses and introduction of UK VAT on roaming telecoms services outside the EU
  • Privately-owned SMEs to get extra year to prepare for tax digitisation and quarterly reporting

Economy

  • Growth forecast for 2017 upgraded from 1.4% to 2%
  • But GDP downgraded to 1.6%, 1.7%, 1.9% in subsequent years, then 2% in 2021-22
  • Annual rate of inflation forecast to rise from 2.3% to 2.4% in 2017-18 before falling to 2.3% and 2.0% in subsequent years
  • A further 650,000 people expected to be in employment by 2021.

Source – http://www.bbc.co.uk/news/uk-politics-39203784

 

What Businesses Want from the Budget 2017

Most of the businesses feel that the government must work in partnership with businesses to prioritise stability as Britain starts Brexit talks as per the Confederation of British Industry.

“By supporting businesses to invest, the government can promote growth at a critical time for the UK economy as we enter into EU exit negotiations,” says the CBI.

The CBI says that as uncertainty about how the UK leaves the EU dampens investment and higher inflation erodes consumer spending growth, “the government must show it is serious about supporting companies to invest, to help our regions and nations prosper”.

Another important aspect that the business are worried about is the business rates. It wants Mr Hammond to deliver “real reform” to the business rates system.

“Despite attempts by successive governments to introduce marginal reforms, the fundamental unfairness of business rates remains,” says British Chamber of Commerce. While the government needs to act to help small businesses facing business rate hikes, “we should also look to the future, launching a new Tax Commission to look at what the growth of self-employment and online business mean for the tax system.

Read more

http://www.bbc.co.uk/news/business-39131122

Real Cost for Small Businesses in Making Tax Digital

Form the next tax year, smaller businesses are encouraged to keep digital records of their financial information such as income and expenses.

A survey of accountants reveal nearly half of them think that this will cost small businesses somewhere between £200 and £500 and 27% think that it would be between £500.00 and £1000,00 while 9% estimated the cost at more than £1000.00.

HMRC’s own estimate is around £280.00 up to nearly £3000.00 per business. In giving evidence to the Treasury Select Committee back in October about the potential costs and savings expected to be generated by making tax digital, Mike Cherry, policy director of the Federation of Small Businesses, suggested that making tax digital would cost businesses £2770.00.

When it comes to the huge variation of cost estimates, one explanation is the lack of information and detail available on exactly what making tax digital entails. The most pressing information being held back by HMRC, two-thirds (65%) of accountants surveyed wanted to find out which of their clients will be exempt from making tax digital. The making tax digital exemption threshold is expected to be revealed at or after the Budget this March.

Read more

http://www.accountingweb.co.uk/tax/business-tax/accountants-reveal-cost-of-making-tax-digital

If you have any queries on how your business should fulfil this compliance requirements, you can contact KVS Accountants. We are accountants for small businesses in Putney, Chelsea, Fulham, Hammersmith and Barnes

Restrictions for the use of VAT Flat Rate Scheme

The flat rate scheme is used by many small to medium sized businesses to simplify their VAT reporting. Many of those businesses enjoys a cash advantage from using this scheme. However, this advantage is due to be cut back significantly from 1 April 2017. The FRS will continue but many businesses will not find it economical to use.

When using the VAT flat rate scheme the business ignores VAT incurred on purchases when reporting VAT payable, with the exception of capital items that cost £2,000 or more. The business just multiples the gross turnover (including VAT charged at the normal rates) by the flat rate scheme percentage set for his particular trade sector.

If the business incurs expenses, and it operates using the flat rate scheme for VAT reporting, it will pay out less VAT to HMRC under the flat rate scheme than it would outside the scheme. Many businesses register for VAT voluntarily before their turnover reaches the VAT registration threshold, so they can use the FRS and bank the cash advantage.

The government believes small businesses have been abusing the flat rate scheme, so it is changing the terms of the scheme to make is less attractive to use, and to reduce the cash advantage enjoyed by service-related businesses. From 1 April 2017 a business will be required to use a flat rate scheme percentage of 16.5% if it is a “low cost trader”. This likely to adversely affect businesses in majority of the trade sectors trade sectors on the flat rate scheme.

If you are a small business and registered for VAT contact KVS accountants based in Fulham for advice on VAT, preparation of VAT returns and filing VAT returns to HMRC.

Summary of Autumn Statement 2016

Below is a summary of the key points that was outlined during the autumn statement yesterday by the Chancellor.

Taxation

  • Income tax threshold to be raised to £11,500 in April, from £11,000.
  • Higher rate income tax threshold to rise to £50,000 by the end of the Parliament
  • Tax savings on salary sacrifice and benefits in kind to be stopped, with exceptions for ultra-low emission cars, pensions, childcare and cycling
  • National Living Wage to rise from £7.20 an hour to £7.50 from April next year
  • Employee and employer National Insurance thresholds to be equalised at £157 per week from April 2017
  • Insurance premium tax to rise from 10% to 12% next June

Public Borrowing

  • Government finances forecast to be £122bn worse offin the period until 2021 than forecast in March’s Budget
  • Debt will rise from 84.2% of GDP last year to 87.3% this year, peaking at 90.2% in 2017-18
  • Office for Budget Responsibility (OBR) forecasts borrowing of £68.2bn this year, then £59bn in 2017-18, £46.5bn in 2018-19, £21.9bn in 2019-20 and £20.7bn in 2020-21
  • Public spending this year to be 40% of GDP – down from 45% in 2010

State of the Economy

  • OBR growth forecast upgraded to 2.1% in 2016 – from 2.0% – then downgraded to 1.4% in 2017, from 2.2%
  • Forecast growth of 1.7% in 2018, 2.1% in 2019 and 2020 and 2% in 2021.

Housing

  • Ban on upfront fees charged by letting agents in England “as soon as possible”
  • £2.3bn housing infrastructure fund to help provide 100,000 new homes in high-demand areas
  • £1.4bn to deliver 40,000 extra affordable homes

Business

  • Doubling UK Export Finance capacity
  • £400m into venture capital funds through the British Business Bank to unlock £1bn in finance for growing firms

Transport

  • £1.1bn extra investment in English local transport networks
  • £220m to reduce traffic pinch points
  • £23bn to be spent on innovation and infrastructure over five years
  • £2bn per year by 2020 for research and development funding

Source: http://www.bbc.co.uk/news/uk-politics-38075649

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One in 20 Audit Firms Quit as Market Evolves

Within the last time there has been a continued decrease of firms which provide audit services. The reason for this might be the regulatory and legislative edicts.

Watchdog Financial Reporting Council published a report called “Key Facts and Trends”, it shows that 304 practices have ditched their audit licences since December 2014.

Smaller audit firms had to deal with regulations that pushed clients out of the statutory audit. The government announced in January that the audit exemption threshold would be aligned with the revised ‘small company’ thresholds, which exempts companies that meet two of the three following criteria:

  • Turnover of less than or equal to £10.2m
  • A balance sheet total of less than or equal to £5.1m
  • Employee number fewer than or equal to 50

In addition to that the report highlights an important direction of travel for the large end of the audit market.

 

 

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Claiming VAT for Private use

The response to the question whether a sole trader can claim VAT on a car purchase was no, unless the purchaser is a taxi driver, driving instructor or the person re-hired the car to a third person.

Court of Appeal, has long prevented sole traders from claiming VAT. But now a certain case has come to light giving a different dimension to the situation.

A person insured her new Land Rover Freelander for business use only. Thus private use would be illegal. The Tribunal held that the car was unavailable for private use, so input tax was deductible.

The First Tier Tribunal announced that later on there might be the option that the trader might alter the insurance to cover the private use. However, for the first time she had registered for business use only. Further, following a previous HMRC inspection, when input tax was disallowed, the taxpayer had sought guidance from HMRC. They said; for purchase VAT to be recoverable, the vehicle should be used exclusively for business purposes, should be registered and kept at the business address when not being so used, and should be insured solely for business use.

Therefore the Tribunal was entitled to be satisfied caused by the trader’s intention, at the time of the purchase, to make it unavailable for private use.

For advise on VAT, bookkeeping, year-end accounts or tax returns, contact KVS Accountants surviving small businesses in Battersea, Earls Court, Kensington, East Sheen and Chelsea.

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VAT – Planning for Uncertainty

The doubt has increased since the Brexit if the government and the business plans for the future has an effect on VAT. The tax was introduced in 1973 and is a relatively young tax in UK terms. But VAT has wound its way into the system with ruthless efficiency.

Now that the Referendum happened and the decision is clear that the UK will leave the EU, the UK is able to do whatever they want regarding the VAT. According to VAT specialists, the only thing for certain is that it’s going to take a long time to unwind. At the moment, no one knows what is going to happen. There will be a lot of noise and rumours the next couple of years but there are no concrete timetables or information until the legal process starts.

Some VAT specialists say that HMRC may oppose at major reforms to the VAT system because the sales brings in around £115bn a year for the government. So it is a good and easy income for the government. On the other hand there will be no need for referrals to the European Court on VAT matters so in time this tax is likely to become more distinct in the UK.

Although a VAT strategy remains crucial for businesses to succeed and prosper while the UK continues to go through the process of extracting itself from the EU.

If you are a business registered with VAT and looking for an accountant, contact us for VAT and bookkeeping. We act as accountants for small businesses in the areas of Fulham, Barnes, Hammersmith, Putney and Chelsea.

Short and Long Term Effects of Brexit

Short term effects

Those who were longing for the Making Tax Digital and Digital Tax Accounts consultation will need to wait as there are now urgent and more important matters in hand. In the case of any emergency budget, there could be an increase in income tax and national insurance.

Long term effects

The separation from the EU expected to start in late 2016 and will last until late 2018 or even longer.

The VAT could go up because it will be very easy to change for the government. Besides that the UK don’t have to be afraid of a referral to Court of Justice of the EU. Also the VAT will become more political without the restriction of EU rules. This could introduce a way more complexity system. According to the experts, there is no need for the government to stop the  VAT because it makes a huge amount of revenue.

All sales won’t be intra-EU movements any longer they will be imports and exports this means there will be a more extensive VAT system. So there might come a lot of changes but after all there probably be more tax in incentives introduced to encourage investment in the UK.

Is your business going to be affected by the recent result of the EU referendum? Read more by following the below link

http://www.accountingweb.co.uk/tax/business-tax/the-tax-implications-of-brexit

 

Keeping Digital Records of Your Bookkeeping will be Compulsory

The government is on its way enforcing all businesses whether large or small to maintain their bookkeeping records electronically.

Eventhough you can get a good idea of the government’s intentions by reading the article “Making Tax Digital” it doesn’t give any concrete information to say how businesses should plan for this. While it’s just an outline it spells out changes that will have serious consequences for many businesses.

Unincorporated businesses with income of £10,000 per year or more, which don’t currently use software to keep financial records, will be required to do so. It seems that companies will have to use digital record keeping no matter what the level of their income. The new system will also include landlords who receive rental income more than £10,000 per year.

The government will provide free apps to help businesses. However, it is fair to assume that they won’t be sufficiently comprehensive for some businesses and so they may have to purchase commercial software. This can be relatively cheap, less than £100 per year for a small business, but using software isn’t as simple as keeping manual records. Most require a working knowledge of double-entry accounting, which may mean having to pay a bookkeeper instead of the business owner doing it by himself/herself.

Although the deadline given is “by 2020” the document also says that some businesses will need to comply with digital record keeping by April 2018.