Brotherton Accountants Homepage
Tel. 01527 68235

info@brothertonaccountants.co.uk

Last Updated - 
 
About Us Contact Us Online Quote Latest News Online Resources

 

Worcestershire Office
Abbeydale House,
166 Easemore Road,
Riverside, Redditch,
B98 8HE

Tel: 01527 68235

 

Birmingham Office
1st Floor,
2 Snow Hill,
Birmingham,
B4 6GA

Tel: 0121 231 3315

Follow Brotherton_Co on Twitter

Follow Brotherton_Co on Twitter

 

Brotherton Accountants Homepage

 

 

 

 

 

  Welcome to the new 'Brotherton Blog'......our aim is to get some useful help and tips into the blog that readers can benefit from as well as share some of our experiences and things happening here at Brothertons. Hopefully it is of interest!!......we will do our best not to be boring accountants!

RESTRICTION ON INTEREST RELIEF for Buy to Let Investors is something we are taking very seriously at Brothertons. Even though the changes are being introduced over a 4 year period (2017-18 to 2020-21) so effectively over the next 5 years we are advising clients to consider this straight away and look at their situation in detail to ensure they are set up in the most appropriate way.

We are finding as this is so new, many people are just unaware of what an impact this will have on them potentially. We are keen to talk to clients and non clients so please call for a chat if you are concerned this may impact on you.

As an example on how this will impact differing situations I have created two examples below which will hopefully give some idea on how this will affect certain situations from 2020-21 compared to the current situation.

EXAMPLE 1

Bill is a Manager earning 45000.00 per annum, so he is a 40% tax payer. He has purchased a buy to let property as an investment. The outstanding debt is relatively small but does exist and interest on this loan is 2500.00 per annum. His repairs and other costs are 1000.00 for the year.

                                                  2016-17                                2020-21

Gross Rents                                   7200.00                               7200.00

Repairs and other costs               (1000.00)                             (1000.00)

Interest on Mortgage                   (2500.00)                            

Net Rental Profit                            3700.00                               6200.00

 

TAX at 40%                                   1480.00                               2480.00

Tax Reducer at 20% on Interest          0.00                               (500.00)

Liability on Rental Income              1480.00                              1980.00

Tax increase                                                                                500.00

 

EXAMPLE 2

Karen and Phil are married and run a rental property business. This is run through a partnership. They have many properties and are highly geared. This has never bothered them as they are happy to hold the properties as potential investments and as long as they are covering their costs and making a small amount they are happy. This was their strategy from day one. Sound familiar?

                                                   2016-17                                2020-21

Gross Rents                                   600'000.00                        600'000.00

Repairs and other costs                (200'000.00)                     (200'000.00)

Interest on Mortgage                    (350'000.00)                           

Net Rental Profit                               50'000.00                        400'000.00

Personal Allowance X2                   (22000.00)

Taxable Income                               28000..00                        400'000.00

 

Tax at 20% (two Tax payers)           5600.00                            17200.00

Tax at 40%                                        0.00                                85600.00

Tax at 45%                                        0.00                                45000.00

Less interest Relief on 350000                                                (70000.00)

Net tax liability from Rental Income    5600.00                          77800.00

Effective rate on 'real' rental profit     11.20%                              144.4%

From these examples it can hopefully be seen how this will impact on most situations , even individuals with only one property. (subject to loans and income levels)

Other scenarios are just not sustainable as can be seen above and we are looking at differing strategies to help in these scenarios.

Initially I would suggest open discussion just to clarify your own personal situation moving forward then a proactive look at options for moving forward. Please call to discuss your situation on 01527 68235 or email john@brothertonaccountants.co.uk

 

From 16-17 new rules have been introduced which will affect the way dividends are taxed on individuals. The tax credit which is currently associated with a net dividend is being abolished so there will be no more grossing up of a net dividend.A dividend tax allowance is being introduced which will make the first 5000.00 of dividend income tax free, no matter what level of income a person has. Any further dividend received in the tax year will be taxed at 7.5% 32.5% or 38.1% depending on if the income is in the basic, higher or additional rate band.Dividends within your allowance will still count towards your basic or higher rate bands and may therefore affect the rate of tax you pay on dividends you receive in excess of the 5000.00 allowance.

This will impact on many people and we are happy to discuss you situation on a one to one basis to ensure you remain as tax efficient as possible within the new rules.

 

This week we have made some major updates to our computer systems. Lucid Computer Solutions Ltd, our computer and IT support guys, based in Redditch, have again done a great job and everything has been implemented smoothly and efficiently as we have always come to expect, over the 9 years they have provided us with IT support.

Our Saturday 'Auto-Enrolment meetings' have proved very popular and we have managed to talk to a great number of business owners and address their concerns and answer their questions on AUTO-ENROLMENT. Moving forward we are extending the Saturday opening times of 11am-4pm throughout the whole of August, so please call the office if you would like to call in and have your Auto-Enrolment questions answered.

We had discussions this week relating to property held jointly between spouses and there are specific rules that should be considered if the asset is income bearing. If spouses or civil partners own property jointly, are married and live together, care should be taken. From an income tax perspective the individuals are treated as beneficially entitled to the income in equal shares. This means for example, if a property is owned jointly, even in differing ownership splits, not 50%-50% the income arising from this property would be deemed to be split 50%-50%

However, individuals can make a joint declaration to HMRC indicating their unequal beneficial interests in certain cases which would change the split from the default 50%50% if.......

a)one of them is beneficially entitled to the income to the exclusion of the other or

b) they are both entitled to the income in unequal shares

and their beneficial interest in the income CORRESPONDS to their actual beneficial interest in the property from which the income arises.

A declaration has affect if the notice is given to HMRC within a period of 60 days of the declaration.

It is therefore really important for such assets to be looked at and a declaration made if necessary. Individuals should take care.......it is not enough to own the asset in unequal shares, this needs to be reported to HMRC if income is to be assessed in ownership share proportions.

This week we have been talking to clients about the impact the budget may have on them moving forward. Key areas of discussion have been the the New DIVIDEND TAX CREDIT and the way dividends will be taxed moving forward after 01 April 2016 This new policy for taxing dividends will mean the current tax credit on a dividend is abolished with the first 5000.00 worth of dividends in a year not incurring any tax. After this level the rates will depend on your level of income in the year and any dividends dropping into the basic rate band will be taxed at 7.5%, dividends dropping into the higher rate band will be taxed at 32.50% and for dividends dropping into the additional rate band the rate will be 38.1%.

We have been eagerly awaiting the announcement of the ANNUAL INVESTMENT ALLOWANCE (AIA) and the new level has now been set at 200'000.00 from 01.01.16 The current level is 500'000.00 There are transitional rules for anyone claiming AIA in a year that straddles these rates and anyone looking at investing in capital assets should take some advice to ensure the timing of the purchase is advantageous with regards the AIA claimable.

Previous weeks we have talked about the increase in interest of BUY to LET investments. The new budget has potentially impacted on BUY to LET investors. Currently the amount of tax relief on mortgage interest an investor can claim is based on their marginal rate of tax, so if they are a higher rate tax payer, paying tax at 40% with some property profits, the reduction in taxable property income due to the 'buy to let' mortgage interest would have effectively given them tax relief at the 40%. Moving forward this relief on the mortgage interest element will be limited to the basic rate of 20%. These rules are being phased in over a 4 year period starting in April 2017 This initially was a scenario we thought would only affect taxpayers who paid tax at the higher rates of tax but looking at the way the relief will be given as a tax reducer there will be potential huge impacts on even basic rate tax payer with high gearing. They could loose their personal allowances in some cases and we would recommend individuals with rental properties to talk about this as soon as possible. We will be looking at this in detail as we look more into this new legislation and will keep the website up to date as we go along. But please call to discuss your personal situation.

This week we saw the first conservative led budget for almost 20 years. There are plenty of changes which we will be looking at over the forthcoming weeks and advising our clients accordingly. I have listed below some of the key announcements by George Osborne and will be looking at the detail, moving forward....

KEY ANNOUNCEMENTS

Introduction of a 'NEW LIVING WAGE' of over 9.00 an hour is to be introduced by 2020. This will climb incrementally and will be set at 7.20 from April 2016

Tax Free personal allowance will increase to 11000.00 from April 2016

Higher Rate tax thresholds will increase to 43000.00 from April 2016

There are reforms to dividend tax starting April 2016. The tax credit is being abolished and a new tax free dividend allowance is being introduced. Over this 5000.00 allowance, dividends will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

From April 2017, a family home allowance will be introduced for inheritance tax purposes.

Corporation Tax will be reduced to 19% in 2017 and to 18% in 2020

The AIA Annual Investment Allowance will be permanently set at 200'000.00 from April 2016 for SMEs

Employment Allowance for employers will increase by 1000.00 to 3000.00

A couple of weeks ago we talked about the up-surge in individuals considering 'BUY to LET' Investments. We have had detailed meetings this week with a number of mortgage brokers to assess the market place for potential borrowings. There are many things to consider when entering this market or just considering a second property to let out.....We are happy to sit with anyone who would like to explore the potential to getting into this market and answer any questions they have from a business, tax or accounting perspective and we are also happy to provide you with details of trusted mortgage brokers who will be able to assist in any borrowing requirements you may have.

This week we have set up another couple of Limited Companies for our clients using our In-House Incorporation Service. Trading as a sole-trader can be simple and straightforward. However, it isn't necessarily the best format for a trading vehicle. It really does depend on many issues whether a company is a better option for trading a business, but sticking with the same format of trading vehicle because that is how it has always been done is not an approach we would recommend. We help businesses look at their circumstances in a 'case by case' basis and ensure there is a bespoke solution to each trading scenario. Please call with any questions you have if you have ever thought...'Should I be trading as a Limited Company?'

This week we have seen further concern from small employers who are worried about their duties, regarding AUTO-ENROLMENT PENSIONS for their staff. To help counteract this, we are offering Saturday meetings, during July, for anyone ( clients or non clients) who needs some help and advice in this or any area. If you are too busy during the week and would like to come in and have a chat and get some advice, please give the office a call and arrange a 30 min free meeting. We will be available every Saturday during July, 11.00am to 4.00pm.

We have also been reminding client's that the P11d deadline for reporting 'benefits in kind' for 14-15 is now close with the deadline for submission of the forms being 06.07.15 The payment deadline for any Class1A NIC due is 19.07.15 or 22.07.15 if paid electronically. Penalties are levied by HMRC for late or non submission of P11ds and we would advice any business to assess their situation to see if any submissions are required.

Over the last few months we have seen increased interest from individuals thinking about investing in the 'BUY to LET' market. The improvements in the property market and signs of recovery in this area have triggered peoples interest in potentially starting out or developing their property portfolios. A further change in the pension rules allowing individuals to drawdown on their pension funds have also created further interest, with potential funds for investment being more accessible.

We are finding individuals are asking us questions such as.....should I hold an investment in a company or privately? What are the tax implications when I sell a property that isn't my main residence? How do I account for the rental side of the investment? In a simple, 1 hour free meeting we happily address all of these issues and give people a starting point and further information they need to make an informed decision on whether this type of investment is right for them. We are happy to talk to anyone about this so please call the office if you would like a free one hour discussion.

We also have trusted associates that are qualified mortgage advisors who have had years of dealing with the BUY to LET market and we can help you set up initial meetings to discuss any borrowing requirements if you like the idea of entering this market.

Over the years we have developed useful tools for property developers to assess their situations and analyse the right time for them to invest further in additional properties. Assessing your own risk appetite, equity to loan values, rental yields and analysis of the market overall are all areas that need to be addressed when looking at this type of investment. We are here to help you do that.

  It has been exam time over the last couple of weeks and we have had staff sitting exams, working towards their ACCA qualification. Vesma has also had her results for her recent exam sitting at AAT level and has passed, so that is great news and she is now working towards the last couple of exams to complete AAT.

We have spoken to a new client this week and addressed their VAT situation. After completing one of our 'free reviews' we identified there were some substantial savings to be made. We do carry out a lot of free VAT reviews for non-clients and very often find areas we can make savings....Please don't hesitate contacting us if you would like us to have a look at this for you.....it really can be beneficial.

  This week we saw commentators talk about the new marriage allowance which has been introduced from 06 April 2015.......saying it is potentially not worth the effort that HMRC will have to put in to administer the allowance..... We Disagree! The allowance allows an individual with unused personal allowances to transfer 1060.00 of the PA to their spouse, as long as the spouse is a basic rate tax payer.....this will bring a saving of up to 212.00 PA and is well worth the claim. We will be ensuring all our clients that are eligible will get this and is definitely worth the effort.

This week we saw another one of our clients stage for AUTO ENROLMENT. All the training and systems implementation we have been doing here at Brothertons over the last 12 months is now paying off for us. This particular client was very concerned about his obligations as an employer. He was really worried about everything that needed to be done. I initially went to see him and told him we would help make the process as pain free as possible and help him every step of the way....which is what we have done. It really makes it all worth while when the client calls into the office to thank us personally, for making the process smooth and problem free.

After looking around at pension options he decided to use NEST for his auto- enrolment compliant pension scheme. At Brothertons we are a delegate for NEST and we were able to set this up for him, so he had nothing to do, just give us the go ahead. We then got everything ready for the staging date and again there was nothing for him to do. At the staging date we ran his payroll and completed the pension assessment. We sent out letters to all staff that were automatically enrolled and to eligible workers who could opt in to the pension if they wished....... Again still nothing to do for our client. We then added all eligible staff to the pension scheme and deducted the relevant deductions from the pay. We then notified NEST of all the deductions and finally set up a DD between NEST and the employer so pension contributions are paid by 22nd of each month....so again nothing for the employer to do.

As an employer it is only right you will be concerned about the impact AUTO-ENROLMENT could have on your business. As you can see in the example above it really can be a smooth process, leaving you time to focus on running your business.

Many people don't realise that in some scenarios there is no actual requirement for an employer to have a pension scheme and we can also explore this option to see if you fall into those categories.

During the week we have taken on a few new clients. I also met up with a potential new client and we arranged to meet in his local coffee shop....what a good excuse to feed my caffeine addiction! It did make me think what a good idea....if businesses want to talk to us about any business, accounting or tax issues they have, why not meet them at a local Costa or Starbucks!!..... and have a chat about their business and get that mocha at the same time.... so give me an excuse to get out and I will get the coffee.

One of the clients we took on a few weeks ago was bogged down with using an accounting package which was in their own words 'over the top and dragging her down'....she seemed to be spending all her time on the data entry rather than on her business! Sound familiar? Over the years I have set up all types of accounting systems for clients and we have some great solutions which help simplify the record keeping situation. We have now set her up with some simple to use spreadsheets so she can record her bank, sales ledger and purchase ledger and keep track of debtors and creditors. Initially, just to get her started we have input a months worth of data for her. She is now up and running with a great new system. Apparently we are 'Treasures' so I had to get that into the first Blog!! Don't judge me!


 

Contact us today to arrange a one hour meeting
Online Quotation
Brotherton News Page
Online resources and useful information
SAGE Resellers & Training
©brotherton accountants 2015 | home | about us | contact us | online quotation | latest news | online resources |