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Using the Help to Save scheme

The Help to Save scheme for people on low incomes was launched in September 2018. The scheme allows those in work entitled to Working Tax Credit and in receipt of Working Tax Credits or Child Tax Credits, to save and receive a 50% government bonus.

The scheme is also open to UK residents who are claiming Universal Credit and have a household or individual income of at least £569.22 for their last monthly assessment period. Payments from Universal Credit are not considered to be part of household income.

Payments under the scheme can be made by standing order on a weekly, fortnightly, or monthly basis and one-off payments by debit card are also possible. Account holders will then be able to continue saving under the scheme for a further 2 years and receive another bonus. This could see those on low incomes receive a bonus of up to £1,200 on maximum savings of £2,400 for 4 years from the date the account is opened. After the 4 years, the Help to Save account will be closed and savers will not be able to reopen it or open another Help to Save account. The account balances are expected to be rolled over into successor accounts.

There are no limits on how the money used can be spent but it is hoped that the money will be saved for urgent costs. Money paid into the account can be withdrawn at any time, but this could affect the size of the bonus payment. HMRC has also launched a new tool in the HMRC app that lets savers set their own savings goals and personal reminders, to keep on track and maximise bonuses using the scheme.

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HMRC phishing emails warning

HMRC continues to warn of the ever-present problem of fraudulent phishing emails. The emails typically look to obtain taxpayers personal and or financial information such as passwords, credit card or bank account details. The phishing emails often include a link to a bogus website encouraging the recipient to enter their personal details.

As with other fraudulent emails, these are not genuine HMRC messages and should be disregarded. HMRC never sends notifications by email about tax rebates or refunds.

The phishing emails are being sent from global sources, and while HMRC continues to help close down illegal sites, the emails still continue as the fraudsters change what they are doing. These scams use bogus e-mails and websites to trick taxpayers.

Any of our readers who are unsure as to the authenticity of any email purporting to be from HMRC, should avoid clicking on any links until satisfied that the email is legitimate. HMRC asks that all HMRC related phishing emails and bogus text messages are reported. The emails can be sent to phishing@hmrc.gsi.gov.uk and then deleted.

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Employee Car Ownership Scheme (ECOS)

An Employee Car Ownership Scheme (ECOS) is a set of arrangements whereby employees acquire cars from a specified, often single source and within a specified financing framework. The use of an ECOS can be seen as a halfway measure between providing a company car and leaving an employee to make all their car arrangements privately.

An ECOS gives employees similar benefits to having a company car, for example a new car on a regular basis, and/or central organisation of insurance and servicing but is structured in such a way that the normal car and fuel benefit provisions do not apply.

As the normal car and fuel benefit charges do not apply to an ECOS, HMRC is clear that each transaction has to be considered individually for both tax and NICs purposes to identify whether tax or NICs apply. One of the most important conditions that must be met for an ECOS to be in place, is that the ownership of the car in an ECOS is transferred to the employee at the outset otherwise car benefit will be due.

An ECOS may be designed and administered by the employer, by a company within the same group as the employer, or by a third party that specialises in provision of alternative packages to the company car.

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The scope of CGT incorporation relief

Where a taxpayer owns a business as a sole trader or in partnership, a Capital Gain will be deemed to arise if the business is converted into a company by reference to the market value of the business assets including goodwill. This could give rise to a chargeable gain based broadly on the difference between the market value of the assets and their original cost.

However, in most cases the incorporation of the business will be done in such a way that satisfies the conditions necessary to secure incorporation relief. One such condition is that the entire business with the whole of its assets (or the whole of its assets other than cash), must be transferred as a going concern wholly or partly in exchange for shares in the new company.

It is important to note that where the necessary conditions are met, incorporation relief is given automatically and there is no need to make a claim. The relief works by reducing the base cost of the new assets by a proportion of the gain arising from the disposal of the old assets.

Although the relief is automatic, it is possible to make an election in writing for incorporation relief not to apply. An election must be made before the second anniversary of 31 January following the tax year in which the transfer took place e.g. an election in respect of a transfer made in the current 2019-20 tax year must be made by 31 January 2023. The election deadline is reduced by one year if the shares are disposed of in the year following that in which the business was incorporated.

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Entrepreneurs’ relief minimum period increased from April 2019

Entrepreneurs' relief applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. Where this relief is available Capital Gains Tax (CGT) of 10% is payable in place of the standard rate. CGT on the disposal of chargeable assets is usually chargeable at 20%. There are a number of qualifying conditions that must be met in order to qualify for Entrepreneurs' relief.

There is a lifetime limit that means individuals can qualify for the relief more than once, subject to an overriding total limit of £10m of qualifying capital gains. The relief is available to individuals as well as some trustees of settlements. To qualify the individual should be either an officer or employee of the company and own at least 5% of the company and have at least 5% of the voting rights. There are also some other qualifying conditions that must be met in order to qualify for the relief.

Planning note

The minimum period during which certain conditions must be met in order to qualify for Entrepreneurs' relief increased from one to two years from 6 April 2019. There are special provisions if the business ceased operating before 29 October 2018. This measure means that taxpayers looking to claim ER will be required to have a longer-term interest in their business. There had been suggestions that the relief could have been abolished in its entirety so for most entrepreneurs this is a manageable change.

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CGT and chattels

A charge to Capital Gains Tax (CGT) usually arises after an asset is sold. However, there are special rules concerning the sale of certain personal assets that are worth considering.  That is because these assets or possessions with a predictable useful life of 50 years or less are normally exempt from CGT. A chattel is a legal term that defines an article of movable personal property. Chattels include items like household furniture, paintings, antiques, items of crockery and china, plate and silverware, motor cars, lorries, motorcycles and items of plant and machinery not permanently fixed to a building.

The gains on any chattels you sell are exempt if the proceeds do not exceed £6,000 per item. In addition, marginal relief may be available where the proceeds are between £6,000 and £15,000. The taxable gain is calculated as the lower of the actual gain or 5/3rds of the excess over £6,000. The disposal proceeds will normally be the amount of money you received when you disposed of the chattel.

There are also special rules for sets of chattels. A set is two or more chattels together which are similar and complementary to each other, and worth more together than separately. Examples include matching ornaments or a set of chess pieces. Where a set is sold, the £6,000 limit applies to the set and there are special rules to sets that have been broken up and sold separately.

Please call if you are concerned about the CGT consequences of an impending disposal.

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Tax on a private pension you inherit

Private pensions can be an efficient way to pass on wealth, but it is important to consider what, if any, tax will be payable on a private pension you inherit. The person who died will usually have nominated you by telling their pension provider that you should inherit any monies left in their pension pot. If the nominated person can’t be found or has since died, the pension provider may make payments to someone else instead.

In general, if you inherit a private pension and the owner of the pension fund died before the age of 75, the benefits left in a private pension can be paid as a lump sum or drawdown income to you, with no tax to pay. If the deceased passed away after the age of 75 the pension will be taxed at your marginal Income Tax rate, so 20% if you are a basic rate taxpayer or 40% if you are in the higher tax bracket and 45% if you pay tax at the top rate. The rates may differ if you are a Scottish taxpayer.

There are restrictions on pensions from a defined benefit pot (usually workplace pensions). In these cases, the pension can usually be paid to a dependant of the person who died, for example a husband, wife, civil partner or child under 23. This rule can sometimes be changed if the pension fund allows, but the inheritance will be taxed at up to 55% as an unauthorised payment.

Take advice if you are in receipt of a relative's pension pot

The rules on inheriting a pension are complex and depend on what type it is and how old the holder was when they died. For example, you may also have to pay tax if the pension pot owner was under 75 but had pension savings worth more than £1,055,000 (the lifetime allowance) when they died. There are also important time limits that must be followed. It is also possible for a private pension you inherit to be passed down to future generations, IHT free. We can help you understand your options. Please note that the rules are different for inheriting a State Pension.

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Want to pay-off your student loan in full?

Student Loans are part of the government’s financial support package for students in higher education in the UK. They are available to help students meet their expenses while they are studying, and it is HMRC’s responsibility to collect repayments where the borrower is working in the UK. The Student Loans Company (SLC) is responsible for collecting the loans of borrowers outside the UK tax system.

Whilst many ex-students are happy to continue paying back their loans at the lowest level possible, it is of course an option to pay-off you student loan in full. This might be done for a number of different reasons that could include peace of mind by removing an ongoing debt repayment and reducing your monthly debt repayments. It is important to note that the interest rate payable on student loans varies and typically those started before 01 September 2012 pay lower rates.

Unlike many other debts, there are no penalties for clearing your student loan early so if you have other debts with significant penalties for making early repayments, this may be a good one to tackle first. However, if you have other debt with higher interest rates and no early repayment penalties then it might be more beneficial to tackle those debts first.

If you want to pay off your student loan you must first call the SLS to get an up-to-date settlement figure. If you have been making student loan repayments through your salary, then you should have your last P60 and all your payslips for the current financial year to hand when you call. This will allow the SLC to calculate an accurate figure for you.

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Be Data Aware campaign

The Information Commissioner's Office (ICO) has launched a new "Be Data Aware" campaign to help people understand how organisations might be using their personal data to target them online and why, and how people can control who is targeting them. This includes, understanding how organisations use people’s data to reach them with social media adverts to market their goods or services and for political marketing.

One of the recommendations from the ICO's investigation into the use of data analytics for political purposes, was to continue to educate the public on the impact of new and developing technologies and on the use of data analytics in political campaigns. The Be Data Aware campaign is intended to do just that.

The campaign includes a number of resources, such as downloadable factsheets on social media privacy settings (with individual fact sheets available covering each of the main social media websites, e.g. Facebook, Twitter and LinkedIn), how online microtargeting works and political campaigning practices.

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What is a Close Company?

A Close Company is broadly defined as a company that is controlled by:

  • five or fewer participators or
  • any number of participators who are also directors or
  • where more than half the assets would be distributed to five or fewer participators, or to participators who are directors, in the event of the winding up of the company.

A participator is broadly somebody who has a share or interest in the capital or income of a company, such as having share capital, voting rights or a right to capital on winding up of the company. This can be a shareholder, director or a loan creditor.

Most small private companies will meet the definition of a Close Company and there are some specific tax rules that apply to these companies, for example, where a close company pays for personal expenses of a director, or makes a loan to one of its participators.