Tax if clients leave the UK to live abroad

January 16, 2019

The P85 form should be completed by individuals or their agents to advise HMRC that have left the UK to live or are going to work abroad for at least one full tax year.  

The completion of the P85 form will ensure that an individual leaving the UK can claim any tax refund they are entitled to and will also help HMRC decide how an individual should be treated for the purposes of UK tax. 

The P85 form can be found on the GOV.UK website. There is an online form available as well as a postal form. Agent’s will need to complete the postal form.

An individual’s continuing liability to Income Tax will depend on whether they are resident and / or ordinarily resident and / or domiciled in the UK. 

It is also important to consider the National Insurance implications. In some cases, it can be beneficial to continue paying NI whilst abroad specially to secure state pension credits or if you are considering returning to the UK.

Remaining age related tax allowances

Most age related tax allowances have been phased out. However, the Married Couple’s Allowance (MCA) is available to elderly married couples or those in a civil partnership where at least one member of the couple were born before 6 April 1935. The allowance provides for tax relief by deducting 10% of the allowance from the amount of tax due on taxable income.

The MCA can reduce a tax bill to zero but cannot result in a refund of tax.

For the current tax year, the maximum amount of allowance is £8,695. This means that qualifying claimants can receive a maximum deduction of £869.50 from their Income Tax bill. The allowance will increase to £8,915 in 2019-20.

There is also one further age related allowance, known as the Maintenance Payments Relief (MPR). The MPR reduces a taxpayers’ Income Tax bill for maintenance payments made to an ex-spouse or civil partner. Again, this relief is only available where at least one of the ex-spouses or partners were born before 6 April 1935. There are certain conditions that must be met in order to claim this relief such as that the ex-partner can’t have re-married or formed a new civil partnership. The MPR works in the same way as the MCA with a maximum deduction of 10% of £3,360 i.e. £336 in the current tax year.

Carry back charitable contributions

Donations to charity over the course of a tax year can add up and taxpayers must ensure they keep a proper record of all donations to backup tax return entries. Donations that are made through the Gift Aid scheme allow for the recipient charity to claim 25p worth of tax relief on every pound donated. Higher rate and additional rate taxpayers are eligible to claim relief on the difference between the basic rate and their highest rate of tax.

For example:

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can claim additional tax back of:

  • £125 if they pay tax at the higher rate of 40% (£625 × 20%),
  • £156.25 if they pay tax at the additional rate of 45% (£625 × 20%) plus (£625 × 5%).

Planning opportunity

A higher rate or additional rate taxpayer who wants to reduce their tax bill for the last tax year could decide to make a gift to charity in the current tax year and then elect to carry back the charitable contribution to the previous year.

A request to carry back a qualifying donation made during the current tax year must be madebefore or at the same time as the self assessment tax return for 2017-18 is completed (i.e. before 31 January 2019).

Could you claim the Marriage Allowance?

If you or your partner are a low earner or not working, then you may be eligible for the marriage allowance. The marriage allowance allows lower earning couples to share part of their personal tax-free allowance. The marriage allowance (MA) is available to married couples and those in a civil partnership where a spouse or civil partner doesn’t pay tax or who has an income below the personal allowance (for 2018-19 this amounts to £11,850).

The MA allows the lower earning partner to transfer up to £1,190 (increasing to £1,250 in 2019-20) of their personal tax-free allowance to their spouse or civil partner. The marriage allowance can only be used when the recipient of the transfer doesn’t pay more than the basic 20% rate of Income Tax. This would usually mean that their partner’s income is between £11,851 and £46,350 (£12,500 to £50,000 in 2019-20). The limits are slightly different if you live in Scotland.

Planning opportunity

Couples that have not yet claimed the allowance can backdate their claim as far back as 6 April 2015 if they meet the eligibility requirements. This could result in a total tax break of up to £900 for 2015-16, 2016-17, 2017-18 and the current 2018-19 tax year. Couples have up to four years to claim backdated annual allowances. 

An application for the marriage allowance can be made online or by telephone. The application must be made by the non-taxpayer who is transferring their allowance.

To summarise, to benefit as a couple, the non-taxpayer needs to earn less than their partner and have an income of £11,850 or less in 2018-19.

Reducing payments on account

Taxpayers are usually required to pay their Income Tax liabilities in three instalments each year. The first two payments are due on:

  • 31 January during the tax year e.g. for 2018-19 the first payment on account is due on 31 January 2019.
  • 31 July following the tax year e.g. for 2018-19 the second payment on account is due on 31 July 2019.

These payments on account are based on 50% of the previous year’s net Income Tax liability. In addition, the third (or only) payment of tax will be due on 31 January following the end of the tax year e.g. for the 2017-18 tax year a final payment is due 31 January 2019. This is the same for any Capital Gains Tax due.

Consequently, the January payment each year can be made up of two elements: any balance of tax for the previous tax year plus any payment on account due for the current tax year. 

It is important to note that you do not need to make any payments on account where your net Income Tax liability for the previous tax year is less than £1,000 or if more than 80% of that year’s tax liability has been collected at source.

Planning opportunity

As payments on account are based on 50% of your previous year’s net Income Tax liability, what if your current year’s earnings (2018-19) are going to be lower than the previous year?

If this is the case you can ask HMRC to reduce your payment on account for 2018-19. The deadline for making a claim to reduce your payments on account for 2018-19 is 31 January 2020. This may help out cash flow this year and save you overpaying HMRC.

On the other hand, if your taxable profits have increased there is no requirement to notify HMRC and any underpayment of tax for 2018-19 will be due 31 January 2020. 

Don’t overclaim for equipment purchases

You can use the Annual Investment Allowance (AIA) to claim a very generous 100% first year tax relief for qualifying expenditure on plant and machinery. The allowance is available for most assets purchased by a business but does not apply to cars.

The AIA was set at £200,000 per calendar year for all qualifying expenditure on or after 1 January 2016. However, there is a new temporary increase in the allowance that came into effect from 1 January 2019 to £1 million. This temporary increase will last until the end of 2020.

The AIA can be claimed by an individual, partnership or company carrying on a trade, profession or vocation, a UK non-residential property business or a furnished holiday let. Partnerships or trusts with individuals and companies in the business structure do not qualify for the AIA.

The timing of any large equipment purchases should also be carefully considered to ensure that, where possible, the purchase of your qualifying equipment is made at the optimal time.

A note of caution

If you are self-employed, you should be careful when making a claim for the AIA. This is because you do not want to ‘overclaim’ and by doing so reduce your taxable income below your personal allowance. This would result in you effectively wasting all or part of your annual personal allowance. We would recommend that you use as much AIA as is available to reduce profits to no lower than the personal allowance relief threshold.

Automatic enrolment for the self-employed?

January 9, 2019

The government has confirmed that they are to examine a number of different approaches to help encourage the self-employed to save for their retirement. The success of automatic enrolment for pension savings for the employed has helped highlight that pension savings for the self-employed are lagging behind those achieved for the employed. In fact, government research has shown that only around 14% of self-employed people were saving into a pension in 2016-17.

The government has now decided that it is high time to encourage some of the 4.8 million self-employed people across the country to save for various short, medium and long-term financial goals (including retirement). The number of self-employed continues to grow and now makes up around 15% of the UK workforce. These measures are especially important for the many self-employed people that have made no provisions for the future and face reaching old age without the ability to properly support themselves.

Guy Opperman, Minister for Pensions and Financial Inclusion, said:

‘We want to see effective, long-lasting solutions that boost the future prospects of millions of hard-working self-employed people, and will work with the financial services sector, professional trade bodies, unions and others to achieve that.’

The government has said that new trials will be launched early this year and will include:

  • encouraging employees who become self-employed to keep making regular, affordable, contributions to a pension or other long-term savings product
  • better use of financial technology to help the self-employed overcome barriers to saving
  • making the most of communication points of contact used by self-employed people – such as online accounting systems – to promote saving for retirement in an easily understood way.

Extending automatic enrolment to the self-employed is not on the current legislative list although it was an election manifesto commitment by the government. Only time will tell if this will be introduced although it is thought a roll-out of automatic enrolment for the self-employed would be a complicated move and may not be an ideal solution.

New ‘global’ pound coin

HM Treasury has confirmed that the £1 coin will be going global. This announcement means that the UK’s Overseas Territories and Crown Dependencies will be able to design and mint their own versions of the 12-sided £1 coin replacing the older coins. The coins are expected to feature images celebrating the heritage of these territories, with their history and culture pictured on the reverse side.

The new £1 coin was introduced in 2017. The coin was introduced partly to help combat the problem of counterfeit coins. The features of the new £1 coin include: hidden high security features to combat counterfeiting in the future as well as a hologram-like image that changes from a ‘£’ symbol to the number ‘1’ when the coin is seen from different angles. The Royal Mint will work to ensure that the new coins in these territories meat the same security standards as in the UK.

Robert Jenrick, Exchequer Secretary to the Treasury, said:

‘The Great British pound is internationally recognised and as we extend the new £1 coin to our territories and dependencies, we will see new designs emerge that together symbolise our shared history. In the same way that the rose, leek, thistle and shamrock are used on our coin to represent the four nations of the UK, these new designs will reflect the rich and varying British communities across the world. From the Falklands to Gibraltar, this move sends a clear message of our unshakeable commitment to our territories around the globe.’

Check if your Holiday let property is qualifying

The Furnished Holiday Let (FHL) rules, allow holiday lettings of properties that meet certain conditions to be treated as a trade for some specific tax purposes.

In order to qualify as a furnished holiday letting, the following criteria need to be met:

  • The property must be let on a commercial basis with a view to the realisation of profits. Second homes or properties that are only let occasionally or to family and friends do not qualify.
  • The property must be located in the UK, or in a country within the EEA.
  • The property must be available for commercial letting at commercial rates for at least 30 weeks (210 days) per year.
  • The property must be let for at least 15 weeks (105 days) per year and home owners should be able to demonstrate the income from these lettings. 
  • The property must not be used for more than 155 days for longer term occupation (i.e. a continuous period of more than 31 days).
  • Where there are a number of furnished holiday lettings properties in a business, it is possible to average the days of lettings for the purposes of qualifying for the 15 weeks threshold. This is called an averaging election.

There is a special period of grace election which allows homeowners to treat a year as a qualifying year for the purposes of the furnished holiday let rules, where they genuinely intended to meet the occupancy threshold but were unable to do so subject to a number of qualifying conditions.

In any other cases, where the qualifying conditions are not met the normal property income rules apply. Trading losses from a furnished holiday lettings business can only be set off against qualifying future FHL profits.

Planning note

This is a good time to review your actual occupancy in the current tax year and if necessary, look for further bookings before the end of the current tax year. This should be done to ensure that you have met the minimum qualifying requirements and to benefit from the special FHL tax rules. If you need help crunching the numbers, please call.

Register a company and register for tax

A new one-stop service to register a company and register for tax at the same time has been used by more than 200,000 businesses since it was introduced. The introduction of the Streamlined Company Registration Service was announced as part of the Small Business, Enterprise and Employment Act 2015 to help reduce administrative burdens and came into effect last year. However, there remain many new companies who have not used this service.

A business cannot operate as a limited company until it has been incorporated at Companies House under the Companies Act 2006. There are three ways to incorporate a company, by electronic software filing, web incorporation service and paper filing. The cheapest and most popular methods of doing so are electronic.

Under the new online service, businesses registering with Companies House, can also register for tax and HMRC’s digital services, making it easier for new start-ups to fulfil all their legal obligations in one go. This service removes the need for businesses to send duplicate information to both Companies House and HMRC when registering for Corporation Tax, and also to register an employer for Pay As You Earn (PAYE) tax.

Mel Stride MP, Financial Secretary to the Treasury, said:

‘HMRC and Companies House are working hard to make business registration and tax easier. Previously, the same information would need to be entered into a number of different platforms to register a company and register for tax, we have simplified that process.’

Question?

If you have any questions or queries about our services, let us know.