Principal Private Residence Relief and Lettings Relief changes due in April 2020

The start of the next tax year in April 2020 will see key changes come into effect in respect of Principal Private Residence Relief (PPR) and Lettings Relief, both of which can be used to soften the impact of Capital Gains Tax (CGT) on property disposals.

From next April, Lettings Relief will be restricted to property owners who share occupancy of a property with their tenant. At the moment, people who let a property that either is currently or used to be their main residence and who sell it can claim relief of up to £40,000, with double that being available to a married or civil partnered couple.

At the same time, the Final Period Exemption (FPE), which means that people do not need to pay CGT on the gains made in the final 18 months that they owned the property, will be cut to just nine months.

There are special rules available that do not affect people moving to care homes and people with a disability that are not affected by the changes.

Link: Principal residence relief final period exemption

Employment Allowance to be restricted from next year

At the moment businesses and charities of all sizes can benefit from Employment Allowance. However, from the start of the new tax year in April 2020, the allowance will only be available to employers with a secondary National Insurance Contributions bill in the current tax year of less than £100,000.

Employers need to ensure that they update their payroll systems accordingly and cease to select any options within payroll software indicating that they will claim the allowance if they are no longer eligible.

Furthermore, in circumstances where an employer becomes connected with another employer that is excluded from Employment Allowance as a consequence of their secondary Class 1 bill having exceeded £100,000, they will also become excluded.

Required information regarding Employment Allowance must be provided to HM Revenue & Customs (HMRC) using the Employment Payment Summary (EPS) of the Real-Time Information (RTI) system.

Link: From April 2020, the employment allowance is to be restricted to those with only secondary class 1 National Insurance Contribution of less than £100,000

HMRC outlines changes to Capital Gains Tax treatment on second homes

From April 2020, the date at which Capital Gains Tax (CGT) must be paid on a second home property disposal is changing.

After this date, taxpayers will only have 30 days to file their return and make an advance payment towards their tax bill.

This differs drastically from the current rules, which allows people to pay CGT on the disposal of a property up to 22 months after the sale as part of the self-assessment cycle.

These changes have been known for some time, however, recent research by HM Revenue & Customs (HMRC) suggests that the level of awareness of the CGT changes remains low, with many taxpayers confused about the new rules.

In its report, HMRC said that both individuals and intermediaries, such as accountants, reviewing HMRC’s policy documents had found it “difficult to understand due to long paragraphs containing financial terminology and unfamiliar terms related to CGT”.

“As a result, neither audience felt confident that they had fully understood the policy changes and felt they would need to refer to a professional for clarification,” HMRC concluded.

Links: Capital Gains Tax communications research

Taxpayers’ bills delayed by payment on account errors

The Association of Taxation Technicians (ATT) has revealed that problems with HMRC’s IT systems earlier this year, relating to calculations for payment on account, mean that some taxpayers will not receive tax demands this month.

The glitches in the tax authority’s systems during the self-assessment tax return season also mean that calculations for payment on account on some returns may not be adjusted correctly.

It was apparently made clear at the time that HMRC’s systems had not processed payments on account for 2018/19 correctly. Unless affected taxpayers contacted HMRC to correct the position, they will not have received a demand in June or July for the second payment on account due by 31 July 2019.

Instead, those affected by this HMRC failure will need to pay their total 2018/19 self-assessment tax bill by the end of January 2020 and the ATT is advising them to set additional money aside to make sure their bill is covered.

Jon Stride, Co-Chair of the ATT’s technical steering group, said: “If a taxpayer does not make any payments on account during 2019, then their tax bill in January 2020 could be significantly larger than they are expecting and could come as quite a shock.

“Individuals who do not receive expected demands should either set aside the funds needed ready for next year or, if they wish, they can make a voluntary payment on account to HMRC of their July payment – and their January payment if that was also missed.”

The ATT has been told by HMRC that if no 2018/19 payments on account have been demanded, then the taxpayer will receive a demand from HMRC for the full amount of tax in January 2020.

Self-assessment taxpayers with annual tax demands of £1,000 or less do not have to make payments on account, while those in the regime who have 80 per cent or more of their total annual tax collected at source, such as by PAYE, do not have to make payments on account either.

Link: Missing 2018-19 payments on account – what to do

Remember to pay the annual data protection charge

Businesses across the UK are being reminded that, if they process personal data, they are subject to a legal requirement to pay the Information Commissioner’s Office (ICO) an annual data protection charge, unless they have a relevant exemption.

Any businesses that fail to pay the correct charge are at risk of a fine of up to £4,350. A list of businesses that have paid the charge is published on the ICO’s register of data controllers.

The amounts that businesses must pay are determined by their size, with micro organisations and sole traders paying £40 a year, SMEs and equivalent organisations paying £60 and large organisations paying £2,900.

Where an organisation pays the charge by direct debit, they will receive a £5 deduction.

There is a tool available on the ICO website here so that organisations can determine whether they are subject to the charge.

Link: Employer bulletin June 2019

Revenue tests new trigger to increase the accuracy of PAYE codes

HM Revenue & Customs (HMRC) is trialling a new trigger, which is intended to improve the accuracy of employees’ PAYE tax codes.

According to HMRC, as many as half a million tax codes being used by employers across the UK could be incorrect, leading to employees either overpaying or underpaying tax.

To address the problem, HMRC is making changes to dynamic coding, which began its rollout in July 2017.

Dynamic coding is designed to make use of the additional information HMRC is now receiving from employees and employers to recalculate pay estimates during the course of the tax year.

Now, HMRC is adding mismatches between its records and those of employers to the list of events that can trigger a recalculation.

As part of the initiative, HMRC is also placing a renewed emphasis on ensuring that employers complete new starter checklists properly and will be visiting the 100 worst offending employers when it comes to failing to complete the new starter process.

Link: HMRC trails new PAYE code trigger

New code launched to help protect victims of sophisticated banking fraud

A new code has been launched by 17 UK banks to protect customers who fall victim to a sophisticated form of fraud known as Authorised Push Payment (APP) scams.

APP scams involve tricking people into making payments to fraudsters, who are masquerading as legitimate payees.

Victims of these scams who notify the banks signed up to the new code will now be informed within 15 working days whether they will be reimbursed for their losses. Where a person is not satisfied with their bank’s response, they can refer their complaint to the Financial Ombudsman Service.

Chris Hemsley, Co-Managing Director at the Payment Schemes Regulator (PSR), said: “APP scams can have a devastating impact on the people who fall victim to them. The code is a major step-up in protections and it reflects our strong belief that if somebody has done everything they can reasonably do to protect themselves, they should be reimbursed. I welcome the commitment that these banks have made to their customers.

“There has been a significant amount of work by consumer groups and the industry to develop and deliver this code and we are really pleased that these new protections are now available.”

Link: PSR welcomes new industry code that protects people from APP scams

EIS and SEIS tax relief funding passes £2.1 billion

A rise over the course of the 2017-18 tax year saw funding for the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) tax reliefs pass the £2.1 billion mark.

The EIS scheme saw the larger increase in approved funding, with an increase in funds raised of £28 million. In comparison, SEIS approved funding rose by approximately £2 million over the year, despite a fall in the number of companies receiving investment.

The EIS scheme allows investors to claim relief on Income Tax of 30 per cent on investments of £1 million or below in high-risk start-ups. Meanwhile, they can also invest as much as £2 million in “knowledge-intensive companies”.

The figures follow a crackdown on some lower-risk investments, which most recently saw a “risk-to-capital” test introduced in the Finance Act 2018.

Link: Tax-efficient EIS companies take in £2 billion despite clampdown