December questions and answers

Newsletter issue - December 2018

Q. I am aware that there is to be a temporary increase in the limit for claiming Annual Investment Allowances. Are all assets eligible for the allowance?

A. Unfortunately not all expenditure on plant and machinery will qualify for annual investment allowances (AIA). The most common examples of assets that are not eligible are cars and assets that have been used for some other purpose before being brought into the business, for example a personally owned computer. These assets should still qualify for capital allowances, but allowances will be given gradually over several years, rather than the full cost being allowed against income all at once, which is what the AIA gives.

The AIA was set at its current level of £200,000 from 1 January 2016, but it was announced in the 2018 Autumn Budget that, subject to enactment, the limit will be increased to £1,000,000 from January 2019.

Q. Due to cash flow difficulties I have not yet paid my self-assessment payment on account, which was due on 31 July 2018. I realise that I will have to pay interest on the amount outstanding, but will I also have to pay a penalty?

A. As you correctly say, HMRC will charge interest on the overdue amount. The charges will accrue from the due date of payment (31 July 2018) to the date the payment is made. The interest rate for late paid tax was increased on 21 August 2018 from 3.00% to 3.25%.

With regards to penalties, you will only be charged if your balancing payment (due 31 January 2019) is late. The penalties for late payment under self-assessment are as follows:

• 30 days late: 5% of the unpaid tax
• 6 months late: additional 5% of the unpaid tax
• 12 months late: additional 5% of the unpaid tax.

HMRC may reduce a late payment penalty in 'special circumstances', which does not include inability to pay. In addition, a defence of 'reasonable excuse' may be available.

In relation to payments on account, the maximum penalty for fraudulent or negligent claims by taxpayers to reduce payments on account is the difference between the correct amount payable on account and the amount of any payment on account made.

Q. Following the 2018 Autumn Budget announcement, will my company's capital losses be restricted?

A. Under current proposals, from 1 April 2020, a company's use of carried-forward capital losses will be restricted to 50% of capital gains.

However, to ensure that the restriction only impacts on companies making substantial gains, the Government proposes to extend the allowance of £5 million (provided for the corporate income loss restriction) to capital losses as well. This is designed to ensure that over 99% of companies remain financially unaffected by both restrictions.

A consultation paper was published on 29 October 2018 and it is expected that draft legislation will be published in summer 2019. An anti-forestalling measure, details of which can be found in chapter 4 of the consultation document, took effect from 29 October 2018.