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benefits will continue to accrue albeit at a reduced rate, and if profits are retained in the company, rather than withdrawn as salary or dividends, these benefits could still be significant.

  • A company paying tax at 19% on its taxable profits can retain 81% to improve reserves and fund investment.
  • A sole trader or partnership, paying income tax at 40% or 45% can only retain at best 60% or 55% of taxable profits.
  • Sole traders or partnerships who are taxed at the basic rate of 20% will still be required to pay additional NIC on their profits and will not be able to retain funds at the same rate as a company.

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.

CGT opportunities

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.

A competition for budding space entrepreneurs

As we look forward to meeting our own challenges this new year, it is gratifying to come across a challenge aimed at stretching the imagination of our children.

The SatelLife Challenge, now in its second year, is looking for innovative proposals from those aged 11 to 22 which have the potential to use data collected from space to benefit our economy, health or the environment. Ideas from last year’s competition ranged from solutions to help increase the survival rate of heart attack victims by using GPS trackers in fitness devices, to an app that warns people about impending natural disasters, guides them safely away and alerts emergency services.

Satellites support the economy and everyday life, and this competition gives young people the chance to test their ideas with industry experts and perhaps one day become part of the fastest growing sector of the UK economy. The UK space industry builds 40% of the world’s small satellites and 25% of the world’s telecommunications satellites. It supports 40,000 jobs and generates £14 billion in revenue across the country.

The competition, which aims to support the development of science, data handling and technological skills, is split into three age groups, with overall prizes of £7,500 for the best individual and best team. A further seven entries from across the age categories will win £5,000, making a total prize fund of £50,000. The judging panel will be made up of experts including representatives from the UK Space Agency, the European Space Agency, the Satellite Applications Catapult in Harwell and industry.

Entries can be as teams or individuals and all prize winners will be able to pitch their idea to a panel of ‘dragons’ from the space sector who will offer prizes. In 2017 the competition winners were offered a mix of support including an offer to build a prototype, thousands of pounds worth of space on Amazon Cloud Services, access to data, business development advice and a visit to a satellite factory.

The competition closes on 25th February. Visit the SatelLife Challenge entry page for more information.

Happy New Year and beware the gift card scam

Let’s hope that 2018 offers more cheer than 2017…

Unfortunately, the season seems to bring out the good and the not so good in human nature. Readers are advised to be wary of the following scam that is targeted at vulnerable and elderly taxpayers.

The notice issued by HMRC says:

HM Revenue and Customs (HMRC) is today (20 December 2017) warning the public about a high-profile phone scam that is conning vulnerable and elderly people out of thousands of pounds.

The scammers are preying on victims by cold calling them and impersonating an HMRC member of staff. They tell them that they owe large amounts of tax which they can only pay off through digital vouchers and gift cards, including those used for Apple’s iTunes Store.

Victims are told to go to a local shop, buy these vouchers, and then read out the redemption code to the scammer, who has kept them on the phone the whole time. The conmen then sell on the codes or purchase high-value products, all at the victim’s expense.

The scammers frequently use intimidation to get what they want, threatening to seize the victim’s property or involve the police. The use of vouchers is an attractive scam as they are easy to sell on and hard to trace once used.

HMRC would never request the settling of debt through such a method.

The scam continues to hit many people. Figures from Action Fraud, the UK’s national fraud reporting centre, show that between the beginning of 2016 and August this year there have been over 1,500 reports of this scam, with the numbers increasing in recent months. Most of the victims are aged over 65 and suffered an average financial loss of £1,150 each.

HMRC is working closely with law enforcement agencies, Apple and campaign groups to make sure the public know how to spot the scam and who to report it to.

What happens if we can\’t manage

A reminder that as we age the argument that we should grant powers of attorney to trusted family members becomes increasingly relevant. A lasting power of attorney (LPA) is a legal document that lets you (the ‘donor’) appoint one or more people (known as ‘attorneys’) to help you make decisions or to make decisions on your behalf. There are two sorts of LPA. They can cover personal issues (health and welfare) or financial issues (property and financial affairs).

An LPA allows you to nominate who has control over what happens to you if, for example, you have an accident or an illness and can’t make decisions at the time, or if you for other reasons, ‘lack mental capacity’ to make prudent decisions on your own behalf.

You must be 18 or over and have mental capacity (the ability to make your own decisions) when you make your LPA. This is a classic “chicken and egg” process: if you wait until you are no longer compos mentis, or physically able to make decisions on your behalf, it is already too late.

Please note that there are different processes for registering LPAs in Scotland and Northern Ireland.

How do you make an LPA?

This is a three-stage process:

  1. First, you must choose your attorney – the person who will have control over your affairs – and you can have more than one.
  2. Secondly, you will need to complete the relevant forms to appoint them as an attorney, and finally
  3. Register your LPA with the Office of the Public Guardian (this can take up to 10 weeks).

It costs £110 to register an LPA unless you get a reduction or exemption.

Unfortunately, you will need to register both LPAs if you want to cover all your risks, so the above costs are doubled.

If you want to find out more about the process you can contact the Office of the Public Guardian at:

Office of the Public Guardian
Telephone: 0300 456 0300
Textphone: 0115 934 2778

Or, you can take professional advice.

Timing is everything

We are fast approaching the end of the 2017-18 tax year. In fact, the 31 March (or 5 April) is probably the most common trading year end date for sole traders, partnerships and limited companies. And individuals have no choice, the self-assessment tax year ends on 5 April.

This being so, it is worth considering how business owners, particularly self-employed traders, time significant investment decisions to maximise any tax relief available.

Consider James, a self-employed plumber. He has had a rough year. Due to family obligations he is unlikely to make more than £17,000 profit in the tax year 2017-18. However, he has secured work for 2018-19 that will create profits of at least £60,000.

Whilst this is good news James will need to replace his van to cope with the extra work. He finds a suitable vehicle for £18,000 and buys it during the last month of the 2017-18 tax year. He knows he can write off the full cost of the van against his profits of £17,000 and is feeling very pleased with himself, no tax to pay.

James makes an appointment with his accountant to deliver his books for 2017-18 during June 2018.

During the visit, his accountant points out that there is no need to claim all the van purchase against his profits for 2017-18 as he can earn up £11,500 tax free. Accordingly, his taxable profit of £5,500 (£17,000 – £11,500) is covered by £5,500 of the van purchase and the balance of £12,500 can be carried forward to claim against future years’ profits.

James is happy with this outcome, still no tax to pay for 2017-18 and he has £12,500 to write off against future profits. His accountant is not so sure…

James is dismayed as his advisor points out that if he had bought the van after 5 April 2018, just one month later, the full cost of the van could have been written off against his profits for 2018-19 and this would have eliminated all his exposure to higher rate income tax saving him more than £7,000 in higher rate income tax and Class 4 NIC.

There would have been approximately £2,000 of tax and NIC to pay for 2017-18, but overall a saving of £5,000 has been compromised.

It is true that James will still be able to claim the remaining £12,500 tax relief from the purchase of his van, but this will be restricted to just under 20% a year. Accordingly, it will take much longer to claim back the tax relief available and possibly at lower rates of income tax.

Timing really is everything and we would recommend that any self-employed trader that is thinking of spending a significant amount on commercial vehicles, plant, equipment or computer equipment before the 6 April 2018, take advice now on best way to structure the payments to gain the maximum tax relief.

Data protection essentials for 2018

From 25 May 2018, any business that stores the personal data of staff, customers, suppliers and other business contacts will need to comply with the General Data Protection Regulation (GDPR).

Basically, you will need to know what personal data you keep, where you keep it, who you share it with and how you will use this knowledge to comply with these new regulations.

You will also need to have a lawful basis for collecting and storing this data and this may involve a strict process of obtaining consent. The Information Commissioners’ Office have identified a twelve-point check list that you should have worked through before 25 May 2018:


  1. Awareness: You should make sure that decision makers and key people in your organisation are aware that the law is changing to the GDPR. They need to appreciate the impact this is likely to have.
  2. Information you hold: You should document what personal data you hold, where it came from and who you share it with. You may need to organise an information audit.
  3. Individuals’ rights: You should check your procedures to ensure they cover all the rights individuals have, including how you would delete personal data or provide data electronically and in a commonly used format.
  4. Communicating privacy information: You should review your current privacy notices and put a plan in place for making any necessary changes in time for GDPR implementation.
  5. Lawful basis for processing personal data: You should identify the lawful basis for your processing activity in the GDPR, document it and update your privacy notice to explain it.
  6. Subject access requests: You should update your procedures and plan how you will handle requests within the new timescales and provide any additional information.
  7. Consent: You should review how you seek, record and manage consent and whether you need to make any changes. Refresh existing consents now if they don’t meet the GDPR standard.
  8. Data breaches: You should make sure you have the right procedures in place to detect, report and investigate a personal data breach.
  9. Children: You should start thinking now about whether you need to put systems in place to verify individuals’ ages and to obtain parental or guardian consent for any data processing activity.
  10. Data Protection by Design and Data Protection Impact Assessments: You should familiarise yourself now with the ICO’s code of practice on Privacy Impact Assessments as well as the latest guidance from the Article 29 Working Party, and work out how and when to implement them in your organisation.
  11. Data Protection Officers: You should designate someone to take responsibility for data protection compliance and assess where this role will sit within your organisation’s structure and governance arrangements. You should consider whether you are required to formally designate a Data Protection Officer.
  12. International: If your organisation operates in more than one EU member state (i.e. you carry out cross-border processing), you should determine your lead data protection supervisory authority. Article 29 Working Party guidelines will help you do this.

Sent to Coventry

The origins of the phrase, to be sent to Coventry, seem to have originated in the seventeenth century when Cromwell was purported to have sent Royalist soldiers to be imprisoned in Coventry around 1648. At the time, Coventry was a parliamentary supporter and it is likely that the hapless Cavaliers would have had a miserable time.

In a contemporary sense, the phrase has been used to describe an event when a person or group was isolated or ostracised by their peers, for whatever reason. Rather like a grown-up’s version of the “naughty step”.

From an economic viewpoint, Coventry has struggled to shed its reputation as a place in decline, which is why the announcement by the Department for Digital, Culture, Media & Sport last week was such good news. In competition with cities across the UK Coventry will host the title of UK City of Culture 2021.

The decision was made after an independent panel of culture experts, chaired by television producer and screenwriter Phil Redmond, visited each of the five candidate cities before recommending Coventry as the winner. The bid impressed the judges with its focus on youth, diversity and the scale of impact not only in Coventry but across the UK.

Coventry will take the title from Hull 2017, which has used City of Culture to transform its reputation as a destination for arts and culture both at home and abroad.

It is estimated that Hull’s local economy has received a £60 million boost in 2017 and the city has been praised for how it has engaged residents in the cultural programme. Nine out of 10 residents have attended, or taken part, in a City of Culture event and since it was awarded the title in 2013 it has received more than £3 billion of investment.

John Glen, Minister for Arts, Heritage and Tourism, said:

I would like to congratulate Coventry on winning UK City of Culture 2021. The title is an incredible opportunity for Coventry to boost investment in the local economy, grow tourism and put arts and culture centre stage.

We received excellent bids from all the cities and I would like to thank them for their efforts.

Coventry now has three years to prepare its year-long programme of activity for 2021. As part of its status as UK City of Culture 2012, Coventry will be eligible for a £3 million grant from the Heritage Lottery Fund.

Time also for Coventry to inject the phrase “sent to Coventry” with new and positive meaning…