New World New Font

EMTACS NEWS SPRING 2015

NEW WORLD – NEW FONT

Wrapped around this newsletter should be a letter from me explaining that I will in effect, be retiring from EMTACS. I’ll leave the explanations to that letter. What I wanted to describe here is how the future will work. You’re likely to get me (Geoff) blathering on still in Newsletters, on Websites and in the published stuff that we put out to the world. It’s what I do best - talk nonsense in a way that people seem to understand.

EMTACS is now owned in the main by (in alphabetical order) Alan, Bob, Jane & Matt and they are the new bosses, sharing responsibilities and duties, helped by the rest of the team in Ellie, Jo, Michael, Michelle and Sally.

The job of knowing everything about everyone is now in Jane’s capable hands. In effect she’s been doing this for the last year. Tax remains the province of Michael and Sally. Limited Company Accounts will be dealt with by Alan, Sally and Jo and administered by Ellie. If you’re just ‘normally self-employed’ you will usually have one named person who is in charge of your Accounts and tax. However the team will continue to fill in for one another when your person isn’t about. And although I am not going to be about any more, the gang can still get hold of me to pick my brain if they want to. I will retain this consultancy role from Kenya and when we return to the UK.

There will be changes in some areas but they mainly take the form of the team not being in the same position that I was to put their lives on hold for two months a year, in order to accomplish the huge task of getting everyone’s forms, Accounts and Tax Returns in on time. My retirement is not because I’ve been driven mad by doing the same task that I accomplished on 29 January last year, for someone who always says they’ll do better next year but it doesn’t help! CHANGES – NEW DEADLINES

Companies

There has always been a potential to save a little tax and a lot of National Insurance by operating through a Limited Company. The one area where you couldn’t use a company to safely save you tax and NI was where you got treated as if you were an employee. If you stuck a company between you and your ‘employer’ then you were categorised as only doing it to save tax/NI.

But the changes in NI for self-employed people in the entertainment industry changed things and you may now be able to operate as a Limited Company and not have to pay self-employed NI.

There are extra charges from our end for setting up a company and unless you save more than £1,000, what’s the point if EMTACS make more out of it than you do? But there is one other problem – running a company is something that comes with other responsibilities, deadlines and requirements. The rules say that you have to submit Accounts for a company within nine months of the year-end.

Now previously we have sent out polite reminders telling people that their year-end is up and asking for the stuff and it is frequently the case that we get the raw material with about 2-3 weeks left so we have to scramble around to get the things completed, off to the company owners for approval and only just make it. This can’t go on. There is no reason why eight out of the nine months should go by before people act. Personal Tax Returns and tax liabilities for directors also need to be sorted out but this can’t be done until the company’s Accounts have been prepared.

Therefore we’re setting a new schedule – we need the raw material for the company’s Accounts within five months of the year-end. If it’s not here by then, we will still attempt to do the figures but they will (a) take their place at the back of the queue behind other work and (b) may be subject to an additional fee. There is quite a sharp set of penalties for late filing of company Accounts and really there’s no excuse. If you need to iron out any problems regarding this, talk to us or Companies House.

Accounts

We have always set a date by which we need figures in order to guarantee getting your Tax Return in on time. That’s usually some time in November and some years we end up with stuff not being done because there isn’t time to get things sorted out. This year we have pencilled in Friday 13 November as the date to target. Geoff’s Little Jobs

There is a group of people who tend to land at my door every January – they are often people whose tax affairs don’t merit detailed Accounts, just a couple of thousand or less in freelance income or a little bit of Furnished Lettings income but the Revenue won’t let them go.

Now there never was any earthly reason why these jobs didn’t arrive before the end of the tax season and it’s been the same for many years. But often these are the nicest of clients who at any other time of year I would cheerfully have chatted with about the price of fish and much more. They aren’t often difficult to get sorted out and some of them have become quite attached to me but I’m afraid this all has to alter. I’ll be compiling my little list and EMTACS will be in touch to try once and for all to break the habits of not lifting a finger until Jan 15th.

TAX-FREE SAVINGS

There’s a very odd change arriving for 2015/16, related to the way in which tax is charged on savings interest. Unless you fill out fancy forms, your bank or building society will take 20% off the interest you have received. But for reasons best known to themselves, under the current rules the first £2,800 of interest is taxed at 10% so long as the interest you were earning took your income from the £10,000 tax free point to a figure not more than £12,800.

So, imagine you had profits of £10,000 and interest of £1,000 - £200 tax = £800. Total income would be £11K and because the income was in the £10,000-£12,800 band, you would owe tax on £1,000 of savings interest @ 10% equals £100. And since you’d already had £200 deducted you’d be entitled to a rebate.

This very confusing set of rules is being revised so that the first £5,000 of savings interest will be tax-free. Again, to have any effect, your total income has to lie in the band between £10,600 (the new tax-free allowance) and £15,600. This could lead to some unexpected rebates of tax.

Of course it all sounds very good but to get a serious advantage you need to be someone who has a substantial amount of interest but wages/profits of only £10K. Do you know how much capital you need to be generating £5,000 of interest? For most ordinary savings accounts you’re talking about over £250K sat in the bank. The only people who might actually take some advantage out of this are people who’ve been given a redundancy and haven’t reached pension age – thus they have really low income but fat capital.

MARRYING FOR £200?

It’s long been a plank of Conservative party policy that marriage as an institution should potentially be rewarded by the tax system as it used to be up until the late 1980’s. And finally, with a month to go before the election, they are bringing a tiny bit of tax relief to the wedding breakfast. This is called the Transferrable Tax Allowance and applies to any couples who are married or civil partnered, gay or straight. Basically any such a couple can take £1,000 of their tax-free allowance and pass it on to their other half.

But certain couples need not apply. If one or both of you is a Higher Rate taxpayer then you can’t do the transfer, so nobody can move things around and get 40% or 45% relief on that £1,000. If both of you are basic rate taxpayers then there is no earthly point in the transfer (although the system seems to let you). The only couples who get advantage from this are ones where one of you is a non-taxpayer and the other is paying Basic Rate.

So from 2015/16 onwards, you can make this election or stick it into your Tax Returns and it will save the lucky half £1,000 x 20% = £200. Woopee-doo. They are also gearing up for claims for this to be made online and they talk about there being four million couples who will benefit from the change.

I’d like to see how this one works out but it does strike me as a bit of morality, dressed up as tax-saving. Happily partnered, with or without kids? Tough. Both of you with income of £12K because you need the money? Hard luck. Widowed or just dumped and trying to raise kids as a single parent family? Don’t care. One half of the couple on £40K and the other going to the gym to pass the time – ah you need £200.

BUYING THE EXPENSIVE FIDDLE

The Capital Allowance system is the means by which people get tax relief on things that are bought as Business Equipment. So – it distinguishes between buying a stamp, paying a phone bill or putting petrol in the car and buying an instrument, a car or a PC. The first kind of expense just gets subtracted from your profits in the year in which you buy it but because the instrument is used over a number of years you are given the option to choose when is best to make a claim, within certain limits.

Cars have their own funny rules and we’ve talked about them before, but the tax relief you can have on the purchase of “moveable plant and machinery” is something that is altered on a regular basis. The rules about buying in this area, which encompasses all of the big costs (apart from cars) including motorbikes, pushbikes and vans, are that you can claim the whole of the expense straight away, so long as it isn’t too high a cost. It used to be called First Year Allowance and now it’s called Annual Investment Allowance and the rules haven’t stayed the same for a long time.

To encourage businesses to invest in new equipment during a period of recovery from recession, the government increased the amount of your expenditure in this area that could be claimed straight away from £25,000 to £250,000 for the period 1/1/13 to 5/4/14 and to £500,000 from 6/4/14 to 31/12/15. So – make an expensive purchase in that period and you can claim it all, up to those limits. Spend more and you can claim the first £500,000 and then 18% of the excess. If you run a factory, it’s meant to help you fund buying equipment by giving you the maximum tax relief when you’ve had to shell out for it. All well and good but how does it apply to musical instruments?

Well it means that if you bought something very expensive in this line then you would be able to get tax relief on the full cost of the purchase against your tax bill. But once your tax/NI bill has been reduced to NIL, there’s no point in claiming any more, because it will get you no more tax reduction once you’re already down to zero.

BUT (in letters several inches high) you have to make these claims with your eyes open because what you are claiming is meant to be the depreciation in value of the equipment you’ve bought. If it’s a piece of industrial equipment then you might expect it to be worthless at the end of five to seven years so it makes sense to get a big fat claim in at the beginning. However you’d be upset to spend £300K on a fiddle and find it was worth nothing after five years.

So claiming for such purchases is a bit of an illusion no matter how much you can actually set against your profits. That depreciation you’ve claimed has to be given back when the system realises it’s deluded, which happens when you sell, transfer or bequeath it or you stop being self-employed. But the acceleration of what you can claim may just benefit some of you. However it’s very important to pre-consult us if you are looking at either buying or selling anything with a high value – there are dangerous waters here.

NI FOR ENTERTAINERS

And so it came to pass that the West End and the fixers and a few others stopped taking little bits of NI from what was always agreed to be self-employed income for tax purposes.

As we’ve been warning for some while, the fact that NI was no longer being taken does not mean that you get away with it forever and the NI that you would otherwise have been paying is all going to be waiting for you down the line in January 2016. Typically you would have been paying £80/week and so you reach the end of the 2014/15 year just over £4K richer. And by the time you get round to the end of Jan 2016, you’ll be around £7,500 ahead

That level of income is likely to give rise to self-employed NI of a little over £3,000. But because of the way the payments on account system works under self-assessment you will owe that £3K in Jan 2016 along with half-as-much-again or £1,500 or so. That all means you can expect to be paying £4,500+ at that point.

Now even though you are substantially ahead of the game as a result of this change it’s not going to feel like it. In 2015 you’ll be making payments on account of say £5,000 in July 2015 and then all of a sudden in Jan 2016, they will want £9,500 and you won’t like it because it will have already been spent. Yet another reason to get the figures done promptly so you know just how this is all going to work out. THE CHILD BENEFIT TAX CHARGE

The tax change to Child Benefit is well-entrenched now but a small example of the long reach of the Revenue happened to a few of our clients in Jan. Basically a letter was sent to everyone who the Revenue had down as a Higher Income earner (over £50K), who was still getting child benefit and who had not declared this on their previous Tax Return. They were giving a last opportunity to ‘get it right’, correct last year’s return and do it properly for 2013/14.

The letters sent out were not all correctly issued but shouldn’t be ignored. Some of you are still oblivious to the whole change, carry on claiming child benefit and never bother to complete and send back the annual Coloured Form to alert us to the existence of their newly-acquired triplets. So please don’t think that this doesn’t concern you. Even if the letter is hogwash, it will need to get sorted out – they will treat silence as a sign of guilt.

PENSIONS – CHANGES AND OPPORTUNITIES

From 6 April 2015, there are huge changes to the way a pension pot gets treated. Before, it was a locked-up pot. Previously, if you had taken anything from the pension prior to death, any lump sum payment would be taxed at 55% - very nasty! It was only possible to pass a pension on as a tax free lump sum if you died before the age of 75 and you hadn’t taken any income or tax free cash from it, However, from 6 April 15, these rules are removed.

Two opportunities will arise from this change and we all fall into one of these categories!

If you die before the age of 75, your beneficiaries can take the whole of the remaining pension fund as a lump sum or as an income, both tax free!

If you die after age 75, your beneficiaries have a choice of four options:

Do nothing with the pension fund – your beneficiary will then own the pot as their own pension fund and there will be no tax liability for this ‘transfer’ Cash in the pension fund completely – but this will be subject to a tax charge which will be 45% for the next two tax-years but then become whatever is the top tax-rate of the beneficiaries. Take a regular income, taxed at the beneficiaries normal rate of tax. Take ad hoc lump sums. Again these will be taxed at the beneficiaries normal rate of tax.

So from this April, investing in a pension not only becomes more attractive for the increased flexibility in terms of accessing the retirement benefits, but also from the point of view of avoiding or reducing your potential Inheritance Tax (IHT) liability.

Because the pension will be free from Inheritance Tax upon death, it may be better to put as much as you can into your pension scheme and less into normal investments and savings, which will remain subject to Inheritance Tax. Even if you over-do this, you can still go back to your pension pot and draw money from there to supplement your income.

At retirement, if you were to use your savings for your retirement income first and foremost, this would move money away from the tax man for IHT purposes as it would reduce your taxable estate, simply because you’d spent it. That will potentially save 40% IHT on the assets which would otherwise be assessed for the tax. Your pension funds would remain intact and away from IHT.

For IHT efficiency, spend your savings in retirement before your pension – your kids will thank you for it!

PENSION AS SAVINGS

So how are your Cash ISAs doing? You’d be lucky to get 1.5% on an ‘Easy Access’ account and 4.5% if you tied the money up for 5 years.

How about getting an instant ‘bonus’ of at least 25% when you stick money in a pension pot? Well that’s exactly what you can do by moving your Cash ISA funds over to a pension. The new legislation, effective from 6 April 2015, which I mentioned in the Autumn 2014 newsletter, makes it much more attractive to use a pension rather than a Cash ISA, all due to the new flexibility given to pension schemes as you have access to ALL of the money invested in the pension, as long as you are at least 55 years old.

For example: £10,000 invested into an ISA will give you a fund of £10,000, plus interest

£10,000 invested into a pension, will give you an immediate fund of £12,500 (the investment is ‘grossed up’ by 25%, immediately from HMRC). If you’re a high rate taxpayer, you can claim a further £2,500 tax relief from HMRC, meaning that your pension fund of £12,500 has actually only cost you £7,500! Nice work if you can get it!

Now when you come to draw that fund and of course the return will be dependent on how well it has performed, 25% can come as the traditional tax-free lump sum, so £3,125 comes back tax-free and the remainder will be taxable coming back to you, but can still come to you at times of your choosing for tax efficient purposes. If you paid 20% tax on the remainder coming straight back to you, you’d still have profited.

Of course the pension fund – 75% of it will be potentially taxed at your marginal rate when you eventually take it, but possibly at lower rates of tax than you are paying now – a win for those on Higher Rates at the moment. And if your pension pot ends up being bequeathed rather than used – probably no tax to pay at all! Why is this most effective for those over the age of 50? Because your pension is accessible after the age of 55, so the closer you are to 55, the sooner you can access the money.

Thanks to Ian Box for contributing the above, contact him on 07708 035991 [email protected] EMTACS Entertainers and Musicians Taxation & Accountancy Services 69 Loughborough Road, West Bridgford, Nottingham, NG2 7LA Phone 0115-981-5001 Fax 0115-981-5005 Email: [email protected]

STANDING ORDER MANDATE

Please pay £ to account name EMTACS, account number 69087695 at Co-Op Business Direct (Kings Valley, Yew Street, Stockport, Cheshire, SK4 2JU), sort code 08-92-99, on and on the 10th day of each month thereafter, until further notice. Please cancel any previous Standing Orders to EMTACS.

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This newsletter is for guidance only and no actions should be taken on information in it without first consulting with us.

EMTACS, 69 Loughborough Rd, West Bridgford, NOTTINGHAM, NG2 7LA Phone 0115-981-5001 Fax 0115-981-5005 Website: www.emtacs.co.uk Email: [email protected]