Let's Talk Tax

Let’s Talk Tax

by Melanie Richardson

Melanie Richardson highlights how changes to tax could affect you and your finances, including Capital Gains Tax Payment on Account and the introduction of Making Tax Digital

Tax is often used as a tool by the government to influence and change our habits. Take the recent extra duty on sugar based soft drinks as an example. The medical profession advised that sugar based soft drinks were contributing towards child obesity and so the Government imposed an 18p/24p levy on these drinks, effectively giving a win win situation – the increased cost would perhaps stop so many sugar drinks being bought and if it didn’t then the money raised would help pay for breakfast and sports clubs for the children to increase exercise.

Well that was the general idea anyway, whereas what appears to have happened is that some drinks manufacturers have reduced the amount of sugar in the drinks to avoid their products attracting the levy!

A similar levy to stop us buying so many plastic bags also seems to have been quite a success, certainly in my house we now try to remember to take bags with us when we go shopping.

But tax is changing in other ways as well, and possibly the biggest upheaval since the introduction of self assessment in 1996 is the introduction of Making Tax Digital – a part of which is coming in without a lot of fanfare and could come as an unexpected shock to the unprepared.

Capital Gains Tax Payment on Account legislation will affect those selling residential property from April 2020.

At the moment, Capital Gains Tax (CGT) is payable on the 31st January after the end of the tax year. So if you sold an asset on April 6th 2018, the tax arising on the gain on that sale, would not be due for payment until 31st January 2020 – a full 20 months after you have received the money.

If however, you sold and asset on 5th April 2018, you would pay your capital gains tax on 31 January 2019 just ten months after the sale. To the government, it means a substantial delay in the receipt of what are probably significant tax receipts, as most people will try to maximise the length of time they have to pay.

From April 2020, the new legislation will require those people selling residential property to estimate and pay their CGT within 30 days after the sale has completed. It remains to be seen whether lawyers will be required to deduct this from completion proceeds!

The main problem however, apart from a cash flow issue is that capital gains tax is an annual tax and is payable at different rates depending on that individual’s actual annual income. This means that you may not be able to estimate your CGT liability accurately before the tax year has ended. In addition, many people will make several disposals in a year, so the situation could easily arise whereby a capital gains tax payment on account is paid at the beginning of the year, only for the taxpayer to dispose of assets later in the year at a capital loss.

As you can offset any capital gains against similar losses, some taxpayers will find that they have overpaid their tax liability for the year and then will have to wait to get a refund until after their tax return has been prepared and processed.

Making Tax Digital is going to be applied to all parts of the tax system eventually, and everyone will be required to account for their tax on a quarterly basis – seems like a pretty good money spinner for the Treasury!

As ever, if you have any queries on tax or accounting matters, please get in touch.

Money Matters is written by Melanie Richardson – Managing Partner Swindells LLP Chartered Accountants & Chartered Tax Advisers

  • Tel: 01825 763366

As individual circumstances vary considerably from person to person, the views expressed in this article are meant only as a general guide, and any specific advice required should be sought from your own professional adviser or by contacting the writer at her place of work. No responsibility for loss resulting to any person acting as a result of any material in the above article can be accepted by the writer or Swindells LLP.