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  1. Q. I run my own company from an office in a spare bedroom at home, and my wife runs a separate company from a downstairs office in the same house. Can we both claim £3 per week expenses for use of home from our companies? Would the situation be different if we both worked full time for the same company?

    A. Yes, you can both claim the use of home expense allowance, which is now £4 per week as from 6 April 2012. It makes no difference whether you both work for the same company or for different companies.

    Q. I own a number of rental properties but this year I've been sued over unpaid service charges. The dispute has been resolved, but I've been left with legal costs. Can I deduct those legal costs from the property rental income for the year?

    A. In general any legal fees associated with acquiring or improving the property or defending the title to the property or extending a lease on a property cannot be deducted from the rental income, as they are capital expenditure. Other legal fees associated with annual bills or service charges should be allowable. You should keep all the paper work associated with the dispute just in case the Taxman asks about the legal fees in future.

    Q. My business recently bought an e-book reader from an online retailer. It will be used for business purposes but the retailer is refusing to provide me with a VAT invoice, saying their products are not provided for business purposes, so VAT invoices are not provided to VAT registered customers. How can I get the VAT invoice I need to claim back the VAT charged to my business?

    A. If the customer (you) asks for a VAT invoice the supplier must provide one, but in practice you can't force the retailer to comply with the VAT law. As long as you have documentary evidence that VAT was charged - the amount and rate - and evidence that you have tried to obtain a VAT invoice, you can reclaim the VAT charged in your VAT return.

    Disclaimer

    The information contained in this article is of a general nature and no assurance of accuracy can be given. In addition the information provided may be out of date. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

    Accountants Cardiff
  2. Swiss Bank Account Tax Deal
    Stashing money in a Swiss bank account is not against the law. As long as you declare all the income and gains from your overseas investments and bank accounts on your UK tax return, there is no problem at all. Unfortunately some individuals have taken advantage of the Swiss laws which permit banks to keep their customers' details completely confidential, even from tax authorities, and did not declared the income on their tax returns.

    To remedy this non-disclosure (AKA tax evasion), the UK Government has reached a unique tax deal with Switzerland. From 2013, investment income from Swiss bank accounts held by UK residents will be subject to a withholding tax of 48%, and gains made on those investments will be subject to withholding tax of 27%. These withholding taxes will NOT apply if the bank account holder authorises the bank to disclose all details of the income to HMRC, and pays any associated taxes in the UK.

    To settle past tax liabilities, all existing funds held by UK taxpayers in Switzerland will be subject to a one-off deduction of between 19% and 34%. This deduction will only apply to amounts in bank accounts open at 31 December 2010, which remain open at 31 May 2013. However, if the bank account holder has instructed the bank to disclose details of the account to HMRC, the one-off deduction will not apply, but HMRC will follow-up all disclosures made.


    Business Exit Planning
    Are you thinking about hanging-up your working boots and passing-on your business? This takes a lot of planning to get the best possible tax outcome.

    If you have younger relatives who could take on the business it is advisable to get those individuals involved in the management for a considerable period before you go. You may need to restructure the business to make this hand-over easier, perhaps incorporate, or slim-down the enterprise.

    Where your business is already run though a company, a neat method of exiting for the founder is to have the company to purchase its shares from you. However, this 'purchase of own shares', as it is called, must be planned and undertaken in a very precise way to ensure the tax charges are as low as possible.

    Another option is to sell off all or part of the business to another person. This also needs to be planned at least a year in advance to ensure you and all your fellow shareholders achieve the maximum tax relief on the sale.

    Entrepreneurs' relief can be claimed for most company sales, which reduces the effective rate of tax from 28% to 10% on the first £10 million of gains made by each shareholder. To qualify for entrepreneur's relief each shareholder and the company must meet all of these conditions:

    - The shareholder must hold at least 5% of the ordinary shares of the company and 5% of the voting rights for the company for at least one year ending with the sale;
    - The shareholder must be an employee, or director, or company secretary of the company for at least one year up to the date of the sale;
    - The activities of the company must be at least 80% trading, as opposed to investments, or it must be the holding company of one or more trading companies.

    Where your family members have minority shareholdings check whether they will each meet the 5% threshold. Consider gifting some shares to your grown up children or spouse to achieve this threshold. Where shareholdings exceed 5% but the individual does not work for the company, consider making them a non-executive director, or giving them a small part time position at the company for 12 months to the date of the sale.

    If you are considering selling your business please talk to us well in advance to get the right planning in place first.

    New Mileage Rates
    Where your employees use a company car or van, but pay for the fuel themselves, the company can pay a fuel-only mileage rate for business journeys. This fuel-only rate is guaranteed to be tax free when it is equal to or less than the advisory fuel rates set by HMRC. These advisory fuel rates are now revised every quarter. The latest rates applicable from 1 September 2011 are shown below for different engine sizes, with the previous rates that applied from 1 June to 31 August 2011 shown in brackets.

    Petrol & LPG Engines
    1400cc or less: Petrol 15p (15p), LPG 11p (11p)
    1401 to 2000cc: Petrol 18p (18p), LPG 12p (13p)
    Over 2000cc: Petrol 26p (26p), LPG 18p (18p)

    Diesel Engines
    1600cc or less: 12p (12p)
    1601 to 2000cc: 15p (15p)
    Over 2000cc: 18p (18p)

    Note there is now a different scale for diesel vehicles.

    The advisory fuel rates are based on average fuel prices per litre:

    - Petrol: 134.6p
    - Diesel: 139p
    - LPG: 75.8p

    If the prices in your local area are significantly higher, or your company cars are less fuel-efficient than average, you can pay a higher mileage rate. You need to keep a record of how you calculated that higher rate.

    Where your employees use their own cars for business journeys, you can pay a tax free mileage rate of 45p per mile for the first 10,000 business miles driven in one tax year, and 25p per mile for extra miles in the same year. This rate was increased from 40p per mile on 6 April 2011, so remember to pay the higher rate to your employees and to yourself when you undertake business journeys in your own car.

    Where the company is VAT registered it can reclaim VAT on the fuel element of mileage rates paid to employees, if the employee supplies the company with VAT receipts for fuel showing enough VAT to cover the claim. The advisory fuel rates are purely for fuel. The 45p per mile rate is only partly for fuel, the excess above the advisory fuel rate is to pay for other costs of running the car which are incurred by the employee.

    If you are self-employed, with an annual turnover below the VAT threshold of £73,000, you can use the 45p rate as an approximation for the cost of business journeys in your own car.

    September Tax Questions and Answers
    Q. I received my self-assessment statement and payslip on 17 August 2011, which shows tax due to be paid by 31 July 2011. I paid the tax due as soon as I could, but I am now worried that I will get charged interest and a penalty for late payment.

    A. The late issuing of these statements was due to a lack of paper at HMRC's printers! As the delay was essentially their fault HMRC has decided to waive the interest due, as long as the tax payment is received by 27 September 2011. However, this interest free period only applies to the second payment on account of income tax for 2010/11, due by 31 July 2011. Any other late tax payments, such as tax due by 31 January 2011 will accrue interest as normal.

    Q. My son worked for a company that has gone into liquidation. The Tax Office are refusing to acknowledge the student loan repayments which were deducted from his salary in 2010/11 and pass those repayments on to the Student Loans Company. What can he do to get his student loan records corrected?

    A. This can happen when the company folds before submitting its end of year PAYE return: form P35. This form shows the totals for all the deductions taken from each employee during the year. Your son needs to provide HMRC with any evidence he has of the student loan repayment deductions, such as original payslips or his form P60 for the tax year. HMRC should then pass this information onto the Student Loans Company who will correct his payment record.

    Q. I recently applied for VAT registration for my business as the turnover had exceeded the compulsory registration threshold. Now I've had a call from the VAT office asking to come and see me. What have I done wrong?

    A. A visit to a newly registered business is now normal practice for VAT officers, particularly where the first VAT return shows a repayment due. The VAT inspectors will want to see the invoices for your first VAT period, and be assured that you know how to keep adequate business records.

    If you have any tax questions you would like answered then please email neil.harries@harrieswatkins.com or visit the Accountants Cardiff website. For more tax tips visit the Accountants Bridgend blog.


    Disclaimer

    The information contained in this article is of a general nature and no assurance of accuracy can be given. In addition the information provided may be out of date. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.


    Accountants Cowbridge
  3. New Workplace Pensions Cost
    Another set of regulations is set to fall on the shoulders of all employers. This time it's a compulsory pension scheme for all employees.

    This new pensions law is due to be introduced over four years from October 2012. The largest employers (120,000 or more employees) will be forced to sign up first. Those who employ less than 50 workers will be required to take part in the scheme from a date sometime in 2014 to 2016. The exact date will depend on your PAYE reference number.

    Only one-man companies will be exempt, otherwise every employer who has workers in the UK will be required to enrol those workers in a pension scheme. There will be exceptions for workers aged under 22, over state retirement age or paid less than £7,475. Employees will have to take an active decision to opt out and sign a form to do so. The employer will not be permitted to induce employees to opt out, or to screen out potential employees who do not wish to opt out of the pension scheme.

    Employers and employees will be required to make contributions to the pension scheme totalling 8% of the workers earnings, including tax relief given on the employees' contributions. The employer must contribute at least 3% of the workers' earnings. This level of compulsory contributions will be imposed gradually over five years to 2017.

    Employers can use an existing pension scheme, set up a new one, or use the new low cost pension scheme established by the Government called NEST (National Employment Savings Trust). Where an existing scheme is used the employer will have to certify that it meets all the requirements for compulsory pension saving. Every employer will also be required to register with the pensions regulator.

    To prepare for these new regulations talk to your pension scheme provider, if you have one. If you don't have a workplace pension scheme you need to plan to set one up as this can take sometime to implement, and to start budgeting for the costs!

    VAT Initiative Starts
    Last month we warned you the Taxman was planning a campaign to encourage businesses to register for VAT. The Taxman is calling this campaign the 'VAT Initiative'.

    To launch the VAT initiative the Taxman is writing to about 40,000 businesses whose turnover has apparently already exceeded the compulsory VAT registration threshold. Those businesses will be invited to register for VAT and pay over all the VAT owed since the date they should have registered, plus a low penalty of only 10% of the VAT outstanding. Those businesses that first exceeded the VAT threshold within the last 12 months may get away with a nil penalty, but it will be up to the Taxman to decide what level of penalty applies.

    The requirement to register for VAT is based on total turnover in a 12 month rolling period and needs to be reviewed each month to determine if the business needs to register immediately. The compulsory VAT registration thresholds of turnover in the past 12 months is...

    From 1 April 2011: £73,000
    1 April 2010 - 31 March 2011: £70,000
    1 May 2009 - 31 March 2010: £68,000
    1 April 2008 - 30 April 2009: £67,000
    1 April 2007 - 31 March 2008: £64,000
    1 April 2006 - 31 March 2007: £61,000

    The VAT initiative is also open to any business who has not received a letter from the Taxman, but believes they should have registered for VAT at some point in the past. If you want to take up the offer of low penalties for late VAT registration you need to tell HMRC you want to be part of this VAT initiative by 30 September 2011. We can assist you in doing this.

    Once your notification has been processed you will receive a notification reference number (NRN), which you must quote on your application form to register for VAT (form VAT1). Without this notification number you will not be able to take advantage of the nil or 10% penalties on offer. The VAT1 form must be completed in paper form, (NOT online) and posted to the VAT initiative section to arrive by 31 December 2011.

    Please talk to us before notifying HMRC of your intention to register for VAT. We can help you calculate any VAT due and any other tax owing on undeclared sales.

    Companies House Reminders

    You can now set up an email reminder service for your company or LLP at Companies House. Once you have registered you will receive timely emails to remind you of the due dates to submit the annual return and accounts for your business, and paper reminders will cease.

    You can register up to four email addresses for each business. Each email address nominated will receive an activation email which must be acted upon within five days, so don't set up the email reminder service just before you go on holiday.

    It will be possible to opt-out of the email reminder service and revert to paper reminders.

    Of course if we look after these for you, we will remind you as well!

    Less Tax for Students
    If you are employing students over the summer months, don't forget to give them the HMRC form P38S (2011) to sign. This form allows the student to earn their full annual allowance of £7,475 from their holiday work before any tax is deducted.

    The student must confirm they will return to full time study at a named college, school or university for a course that will continue until at least 5 April 2012. The student must also not have employment during term time.

    The tax exemption does not cover NI contributions, so if the student's pay is at or above the earnings thresholds (£136 for employers contributions, £139 for employees contributions), you must deduct employees NICs and pay the appropriate employers NICs.

    Remember the national minimum wage (NMW) rates do apply to students and part-time employees. For workers aged 18 to 20 inclusive the current NMW rate is £4.92 per hour. Only apprentices aged under 19 or apprentices in their first year can be paid the reduced NMW rate of £2.50 per hour.

    August Question and Answer Section

    Q. I've heard I could reduce inheritance tax by leaving money to charities in my Will. How does this work? Do I have to leave a minimum amount?

    A. Any bequests to charities in your Will are free of inheritance tax (IHT). This means the executors of your estate will only pay IHT at 40% on the value of your estate after deducting the following:

    - gifts to charities,
    - gifts to your UK domiciled spouse; and
    - your available nil rate threshold.

    For deaths after 5 April 2012 it is proposed that the rate of IHT paid will be reduced to 36%, if at least 10% of the net estate is left to charity. Your net estate is the amount on which IHT would be charged without considering the charitable gifts. You may need to redraft your Will to ensure your estate qualifies for this tax discount.

    Q. I earn £30,000 p.a. taxed under PAYE, but also have a variable amount of rental income. I have read that 40% tax applies above £35,000 but I've also been told I can earn £42,475 before paying 40% tax. How much rental income can I receive before paying 40% tax?

    A. The 40% tax rate applies in the current tax year (2011/12) on taxable income above £35,000. This is your total income (earnings, rentals and any interest or dividends) less your tax free allowance of £7,475 and any other valid deductions, such as expenses relating to your rental income. So you can have gross income before deductions of £42,475 (£35,000 + £7475) before you have to pay 40% tax. However, you must declare any rental income you receive to HMRC.


    If you have any tax questions you would like answered then please email neil.harries@harrieswatkins.com or visit the Accountants Cardiff website. For more tax tips visit the Accountants Bridgend blog.


    Disclaimer

    The information contained in this article is of a general nature and no assurance of accuracy can be given. In addition the information provided may be out of date. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.


    Accountants Cowbridge
  4. Web Bots Are Out to Get You!
    The Taxman has announced he is going to start targeting tax evasion by online traders, private tutors, personal trainers and life coaches.

    In order to find out who is failing to pay tax on all their income the Taxman is to send out web bots (automatic search programmes), to trawl the internet for data on sales and services advertised by UK residents. This data will then be compared to sources the Tax Office holds such as bank interest and tax returns.
    If you declare all of your profits and earnings on your tax return you have nothing to fear. But you may have friends or family members who earn a little bit on the side by selling stuff or advertising their services online, so please pass on this advance warning.

    For example, a hobby making decorative items could lead to selling the products at a market or through a website. A common misconception is that if no profit is made the income source does not need to be declared. Unfortunately the Taxman is unlikely to agree. Where the costs are not recorded any income will be treated as profit, and thus will amount to taxable income. The same applies to private tuition; even if the turnover is very small it must be declared where there is intent to make a profit from the activity.

    Those online traders or private tutors who have not declared this source of income to the Taxman and who are not registered for self assessment, should contact the Tax Office by 5 October 2011 to notify them there is income received during the 2010/11 tax year. The best way to do this is to complete the self assessment registration form CWF1, either online or in paper form. We can do this for you. The Taxman will then issue the individual with a tax return form to complete for 2010/11.

    Where the individual has traded online for several years without declaring the income, a more detailed disclosure to the Tax Office will be required. Please talk to us before approaching the Tax Office, as such a situation needs to be handled very carefully!

    What if You Don't Pay Your Tax!July is one of those big tax-paying months...

    If you are self-employed you need to pay your income tax and class 4 NIC on-account payment for 2010/11 by 31 July.
    A company with a 30 September 2010 year end must pay its corporation tax by 1 July 2011.
    Employers must pay class 1A NICs on benefits by 19 July.
    Quarterly payments of PAYE are due by the same date. Monthly payments of PAYE and CIS deductions are due by 19th of every month, or by 22nd if paying electronically.

    If you or your company will not be able to pay the tax due on time you should contact the Tax Office business payment support line (0845 302 1435) without delay, or we can do this for you. Once the tax due is actually late, even by a day, it is much more difficult to negotiate a reasonable payment plan with the Taxman.

    The Taxman is now very keen to chase every penny of tax owed, and you will start to receive aggressively worded letters if you don't pay on time. If you do not react or pay promptly you will receive telephone calls and possibly personal visits from professional debt collectors. The situation can escalate quite quickly into bailiffs being authorised to seize your goods, or a court judgement being enforced.

    If you receive a letter demanding tax due, don't ignore it. Even if you believe there is nothing owed you need to sort the situation before the heavies turn up!

    Must You Register for VAT?
    There is a myth in certain quarters that every legitimate business is required to be VAT registered. This is not the case. Your business (as a sole-trader, partnership or company) does not have to become VAT registered until the total sales for 12 consecutive months exceeds £73,000. However, this total does apply to all the businesses you run as a sole trader. You can't artificially divide your businesses to avoid registering for VAT.
    Once your business is VAT registered you must charge VAT at the appropriate rate (normally 20%) on your sales. You also have to submit regular VAT returns, either quarterly or monthly, which means you need to keep your records of sales and purchases up to date. If this all sounds a bit too much to cope with there are a number of schemes you can sign up to which are designed to make VAT reporting much easier for small businesses.

    One of those schemes is the flat rate scheme for small businesses. When you use this scheme you don't have to worry about your purchases. You just have to total-up your sales each quarter and pay over a flat percentage as VAT to the Taxman. The percentage used will depend on your trade sector. If your business makes very few purchases you can benefit significantly from being within the flat rate scheme.

    Some people prefer to keep their total sales below the compulsory VAT registration threshold, so they don't have to charge VAT and submit VAT returns. They do this by turning down work that would take them over the VAT threshold. This is not illegal, but the Taxman is very suspicious of businesses who manage their sales in this way.

    If you use this strategy to avoid VAT registration, you need to be able to prove all your sales are correctly recorded and declared. Later this year the Taxman will offer a limited amnesty to those who have sales over the VAT threshold but who have not registered for VAT. Once that amnesty period is over he will start to actively investigate traders who report total sales just below the VAT threshold.

    Repayment Claims for Tax on Interest
    You may be able to claim a tax repayment from the Tax Office if your bank has deducted 20% tax from interest paid. If your tax-free allowance (up to £9,640 for those aged 75 or more in 2010/11), completely covers all of your income, the full 20% tax deducted from interest received can be reclaimed. Or you may only be due to pay 10% tax on the interest if your tax-free allowance is exceeded with savings income up to £2,440 in 2010/11. This may well apply to older relatives.

    Where a tax repayment is due, and you don't submit a self-assessment tax return each year, the tax due back should be claimed on form R40. Unfortunately the R40 form cannot be submitted online, it has to be sent to the Tax Office in paper form. However, you can claim tax repayments for the years 2005/06 to 2010/11 all at once, with a separate R40 form for each tax year.

    To avoid these tax repayment claims being necessary in the future, if you have a low income you can register to receive interest from banks and building societies with no tax deducted. This is done by completing form R85 for each account held.

    You cannot use the R40 form if you have a taxable capital gain to report for the tax year. In this case you must register for self-assessment and complete a full self-assessment tax return form. This applies even if you may be due a refund of income tax for the same tax year.

    July Question and Answer Section
    Q. I've always prepared the accounts for my own company and submitted them to Companies House and the Tax Office with no problems. However, this year the Taxman sent back my company's accounts and tax return saying they were in the wrong format. I'm confused. What have I done wrong?
    A. Company accounts for periods ending after 31 March 2010 that are sent to the Tax Office on or after 1 April 2011 must be submitted online in iXBRL format. Please ask us if you would like help in submitting your company accounts and tax return online.

    Q. My company pays a business subscription to Linkedin, the business networking site. It allows me to make business contacts that generate work for me. Is the Linkedin subscription a tax allowable expense for my company?
    A. The Linkedin subscription is tax allowable for your company as it is a means to generate work for the business. However, there may be a benefit in kind charge for you if the Linkedin subscription is raised in your name rather than in the name of your company. If this is the case the company is paying your personal liability (the subscription fee). As Linkedin does not appear on the list of approved professional organisations whose subscriptions are tax allowable for employees, the Taxman will argue that there should be a personal tax charge. It will be necessary to prove that there is only a business purpose to the subscription.


    If you have any tax questions you would like answered then please email neil.harries@harrieswatkins.com or visit the Accountants Cardiff website. For more tax tips visit the Accountants Bridgend blog.


    Disclaimer


    The information contained in this article is of a general nature and no assurance of accuracy can be given. In addition the information provided may be out of date. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.


    Accountants South Wales
  5. Tax Efficient Profit Extraction
    As a company owner you can choose how to extract the profits from your company, and by making the right choices you can minimise the tax and NI paid by you and the company.

    The Taxman would like you to take all the profits in the form of a salary and possibly a bonus, as these carry the highest NI charges and ensure the tax is deducted under PAYE before you get your hands on the net income. It is good practice to pay yourself at least a small salary that is covered by your personal allowance (£7,475 for 2011/12), as this makes the best use of your tax free allowances. However, the maximum salary you can take so that neither you nor the company pay NICs is £7,072 in 2011/12, as the threshold for NICs is lower than the tax free threshold. You can get credit for NI contributions without actually paying any as long as the salary is above £5,304 in 2011/12.

    Most company owners extract any further amount they need in the form of dividends. If the gross dividend is less than the basic rate limit of £35,000 you will pay no further income tax on that income, and no NI charges. However, larger dividend payments will create an additional tax charge in your hands of 25% (for 40% taxpayers) of the net dividend or 36.1% (for 50% taxpayers).

    If you don't actually need the income now consider extracting the profits in another form such as employer pension contributions although you will have to pay income tax on the pension you eventually receive.

    You can also charge a rent for assets you own which the company uses (although this could affect the availability of entrepreneurs' relief on a sale of that asset). These assets could be real property (land) or intellectual property (e.g. patents). If you lend funds to the company it can pay you a commercial rate of interest on that loan. These profit extraction methods are free of NI charges.

    We can discuss other methods of extracting profits, perhaps using your family members. Please contact us for specific advice in your own circumstances.

    Property Development Issues
    There are a wide range of tax issues to consider when developing properties. Here we touch on just a few of them...

    - Your own home is normally free of capital gains tax when you sell it, but this tax exemption does not apply if you purchase a property with the intention of developing it and turning a profit. In this case the profit you make could be subject to income tax (at rates of up to 50%) rather than capital gains tax (18% or 28%), as the Taxman will want to view the development activity as a trade. It is very rare that the Taxman succeeds in proving the development of a single property is a trade, but if you make a habit of developing and selling on properties, while claiming capital gains exemption, you could lay yourself open to a tax investigation.

    - Where your property includes a significant amount of land, the profit attributed to the land in excess of half a hectare will normally be subject to capital gains tax. This half-hectare limit can be stretched in circumstances where the land and any accompanying outbuildings are closely related to the main residential building.

    - When purchasing a run-down property to develop you must think about the cost of VAT. If you are not a VAT registered builder you normally can't reclaim the VAT on the development costs. However there is a scheme that allows DIY builders to reclaim VAT when a non-residential building is being converted into a home. There are a number of other conditions that must be met for this DIY builders scheme to apply.

    - VAT may be charged at the lower rate of 5% on certain building services when the building has been empty for at least two years, or the development changes the number of dwellings in the building. The rules that allow this lower rate of VAT to apply are very complicated so you need to take advice before you start the development project.

    If you are looking at property development it is important to get advice before proceeding.
    Why Stamp Duty Form Changes?
    Stamp Duty Land Tax (SDLT) forms have changed, but why?

    The forms used to report Stamp Duty Land Tax (SDLT) due on a purchase of UK land and property are changing. The lead purchaser must now provide an identity number such as NI number and date of birth. Where the purchaser is a company the company's tax reference number (UTR) or VAT registration number should be used. Partnerships should use their UTR or VAT registration number.

    If the lead purchaser does not have any of the above reference numbers, as they are not registered for tax in the UK, they should use another unique reference number such as passport number, and state the country of issue of the document.

    The new forms have been available since 11 April 2011, and will become compulsory from 3 July 2011. The online filing system for SDLT will incorporate the changes from 3 July.

    The Taxman may well be collecting the additional information for a reason, perhaps to cross-reference to taxpayers files!

    Missing Trader Fraud
    This is a type of VAT fraud that costs the UK millions of pounds every year. It works like this...

    A VAT registered company based in the UK purchases small high-value goods (such as mobile phones) in another EU country and imports them into the UK (with zero-rate VAT). The importer then sells those goods at a VAT-inclusive price within the UK. However, before the VAT collected from the UK customers is paid over to HMRC, the importing company is liquidated and its directors disappear (become a missing trader), leaving the VAT unpaid.

    However, this is not the end of the story, as if you are the UK customer who bought those goods from the fraudulent importing company, the Tax Office will block your claim for repayment of the VAT you paid on your purchase. This block can apply whether or not you knew you were part of a fraudulent supply chain.

    To avoid involvement in a chain of suppliers that includes a criminal trader you should undertake 'know your customer' checks. These involve carrying out credit and identity checks on your supplier, and on the directors of the company. Also check the goods actually exist and are as described (i.e. new goods). You should be suspicious if you are offered a deal that looks very attractive and has any of the following attributes:

    - The company is newly established and has no financial or trading history.
    - The company has been acquired recently and the new owners have no previous involvement in your sector.
    - The company trades from residential or short-term lease property.
    - Your contacts in that company have a poor knowledge of the market and products.
    - There is no apparent risk for you in the deal.
    - Repeat deals at the same or lower prices and small or consistent profit.
    - Instructions to make payments to third parties or into offshore bank accounts.
    - You are asked to pay much less than the full market price for the goods.
    - You are offered an unsecured loan with unrealistic interest rates and/or terms.

    June Question and Answer Section

    Q. In 2009 my family and I moved out of the home I owned and rented a house near my daughter's school. I have recently sold the original home. Do I qualify for the capital gains tax exemption on that property, even though I wasn't living in it when it was sold?

    A. No. The letter you have received from the Tax Office is a mistake. About 40,000 of these standard letters (Notices SA316) have been printed with the wrong tax year: 2009/10 rather than 2010/11. You should receive another notice SA316 asking for the tax return for 2010/11, and a letter of apology concerning the mistake.

    If you have any tax questions you would like answered then please email neil.harries@harrieswatkins.com or visit the Accountants Pontypridd website. For more tax tips visit the Accountants Bridgend blog.


    Disclaimer

    The information contained in this article is of a general nature and no assurance of accuracy can be given. In addition the information provided may be out of date. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.
  6. Plumbers Tax Safe Plan

    The Taxman has launched a new tax disclosure opportunity called the Plumbers Tax Safe Plan (PTSP). It is aimed at plumbers and heating engineers who have not fully disclosed all of their income on their tax returns in the past. However, anyone in any trade or profession can use this disclosure opportunity to make a full disclosure of previously undeclared income to the Tax Office.

    If you use the PTSP disclosure opportunity to declare unpaid tax, you will be charged a low penalty on the tax due. If you delay and are later found out by the Taxman the penalty could be as high as 100% of the tax due, or 200% if funds have been hidden off-shore. You will also be subject to a full tax investigation and possibly charges under criminal law.

    To take advantage of the PTSP you need to fully disclose all your additional tax liabilities by 31 August 2011, and pay all the tax, interest due on late paid tax, and penalties by that date as well. To start the PTSP process you must first notify HMRC by 31 May 2011 that you wish to disclose. We can help you do this and HMRC will respond with a disclosure reference number.

    You will need the disclosure reference number to complete the PTSP disclosure form, which can be done online or by using a PDF of the form downloaded from the HMRC website. Most taxpayers will need some help with this disclosure form as the tax, interest and penalties all need to be calculated. It is up to you to decide which penalty rate should apply to your tax errors under the PTSP:

    - Innocent mistakes have zero penalty;
    - Careless errors attract 10% penalty; and
    - Deliberate errors attract 20% penalty.

    Think very carefully before admitting to a deliberate error, as this could lead to very strict sanctions in future.

    If you think you will not be found out by the HMRC investigators, consider the information HMRC can collect from other sources. To back-up this PTSP scheme HMRC have obtained information concerning plumbers and heating engineers from the Gas Safe Register (formerly CORGI registered). They have cross-referenced this information to advertising directories to work out who was trading as a plumber or heating engineer but were not registered with HMRC.

    If you would like some assistance in making a full disclosure of unpaid tax, or know someone who does need help, please contact us as soon as possible.


    Changes to NIC Class 2 Payments

    As a self-employed person you probably pay your class 2 NIC, (formerly known as 'NI stamp') by monthly direct debit, or when the quarterly bill arrives from the Tax Office.

    From April 2011 the Tax Office is changing the way it collects class 2 NICs. The payment will be due in two equal instalments on 31 July and 31 January. The Tax Office will send out separate bills for the class 2 NICs in April and October that demand payment for the amounts due in the following July and January.

    If you already have a monthly direct debit set up to pay your class 2 NICs, those direct debits will be suspended from April 2011 and will start again in August 2011. You can opt to pay your class 2 NIC bill when the payments become due in July and January, by telephone banking, Bank Giro, at the Post Office, by direct debit or by cheque.


    PAYE Notices are Coming

    The Tax Office has started to issue electronic PAYE code notices (forms P9) to employers for 2011/12. If you have provided an email address for the Tax Office to contact you concerning PAYE matters, you should receive an email to inform you that new PAYE codes have been issued for your employees.

    To view the PAYE codes you need to log on to the PAYE online service on the HMRC website (or through your Payroll software), and choose the option required (e.g. tax code notices). Change the option 'tax year' from 'current' to 2011/12 to see the notices for 2011/12.

    Remember you can be held liable for under-deducted tax if an incorrect PAYE code is applied to your employee's wages, or a PAYE code is applied incorrectly.

    If you have a large number of tax code notices to manage you may want to use the HMRC tool: PAYE Desktop Viewer (PDV). This is a free HMRC tool that allows you to search and sort tax codes, notifications and other reminders.


    New Pensioners to Receive Tax Bills

    If you first received your state pension after 5 April 2010 you may have to pay an unexpected tax bill. This is because of yet another programming error with the Tax Office PAYE computer.

    The state retirement pension is taxable but it is paid without tax being deducted. The amount of your state pension should be set against your personal allowance in your PAYE code. However, this adjustment to the PAYE code was not done by the PAYE computer for state retirement pensions that commenced in the tax year 2010/11.

    Any pensions paid by your former employer, or as an annuity from a personal pension plan, are taxed under PAYE. Where the state pension has been set-off against your personal allowance in your PAYE code, any balance of your personal allowance is used against your occupational pension leaving the rest of your occupational pension to be taxed at your marginal rate. Where your state pension has not been included in your PAYE code, all of your tax free personal allowance will be set against your occupational pension and not enough tax will be deducted from that income under PAYE.

    If you are in this position you will receive a PAYE reconciliation (form P800), at some time in the next 12 months, which will show you how much tax was deducted under PAYE and how much should have been deducted. If the difference is less than £2,000, the tax due will be collected through your PAYE code in the three years to 2013/14. However, where the amount owing is £2,000 or more the Tax Office may demand payment immediately. You should resist this, and ask for the tax due to be collected through your PAYE codes, as the tax underpayment is purely due to a Tax Office mistake.

    This is not the first time the PAYE computer has made this error. Up to 250,000 pensioners had an incorrect amount of their state pension included in their PAYE codes for the tax years 2008/09 and 2009/10. In these cases the Taxman decided not to collect the underpaid tax and the pensioners were not informed of the mistake.


    April Question and Answer Section

    Q. I generally invoice about £5,000 per month, some £60,000 per year, so my business is not yet VAT registered. However, from 1 April a new customer will provide an additional £2,000 of sales per month. When exactly will I have to register for VAT?

    A. You currently have a margin of £13,000 between your regular sales and the new VAT registration threshold of £73,000 (from 1 April 2011). Your new income will fill that margin in 7 months. If your regular sales remain constant your turnover for the past 12 months will exceed £73,000 in mid October 2011. You will need to register for VAT by 30 November 2011. As the VAT registration process can take at least a month, you should send in your application for VAT registration (online or in paper form) as soon as you realise your sales have exceeded £73,000. On that form be careful to state the date from which you become liable to register for VAT, even if that is some weeks in advance.

    Q. My PAYE tax code is 647L, but the websites I've looked at say it should be 747L, which is correct?

    A. The personal allowance for individuals aged under 65 for the tax year 2010/11 (which ends on 5 April 2011) is £6,475. If you have no deductions to set against your personal allowance your tax code for 2010/11 should be 647L. The standard personal allowance for the tax year 2011/12 (from 6 April 2011 to 5 April 2012) will be £7475, so your tax code for 2011/12 will be 747L.

    Q. I work through my own UK company that has secured a 6 week contract to be performed in Amsterdam. I plan to stay with my cousin in Amsterdam while working on that contract. As I won't have receipts from a hotel, what can I claim as expenses?

    A. HMRC set benchmark scale rates for business trips in most countries. These cover costs for accommodation, meals, and other sundry expenses known as the residual rate. Your company can reimburse your expenses at the benchmark scale rates without receipts. However, if you are staying with a friend or relative and do not pay for accommodation or meals you can only reclaim 10% of the residual rate for the area. Where you pay for some meals (e.g. lunch) you should claim the specific meal rate or the actual expense supported by receipts. On top of these expenses you can also claim personal incidental expenses of £10 for every night that you are working abroad.

    If you have any tax questions you would like answered then please email neil.harries@harrieswatkins.com or visit the Accountants Pontypridd website. For more tax tips visit the Accountants Bridgend blog.


    Disclaimer

    The information contained in this article is of a general nature and no assurance of accuracy can be given. In addition the information provided may be out of date. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.
  7. Continued from part 1.

    Business Tax

    IR35 Review
    The Office of Tax Simplification was tasked with reviewing the operation of IR35, or the provision of services through intermediaries as the legislation is more correctly called. Unfortunately the Government does not agree that IR35 should be abolished. However, it has promised to improve the way HMRC provide guidance to businesses who are trying to operate IR35.


    Capital Allowances

    The rates and thresholds of the main capital allowances will apply as follows for the year from April 2012:

    Main pool writing down allowance: reduced from 20% to 18%
    Special rate pool writing down allowance: reduced from 10% to 8%
    Annual Investment Allowance (AIA) cap: reduced from £100,000 to £25,000

    Short Life Assets
    At present a business can elect for named assets (not cars) to be treated individually for capital allowance purposes rather than being included in the main pool or special rate pool. The assets subject to this election are called short life assets as they are deemed to have a useful life of less than 4 years. If the business sells or scraps the short life asset before the end of its deemed life, the business will get tax relief for the full cost of that asset while it is being used by the business. This would not apply when the asset is included in one of the capital allowance pools.

    For assets purchased on or after 1 April 2011 (6 April 2011 for unincorporated businesses), the life of the short life asset will be deemed to be 8 years. This will benefit larger businesses that incurred expenditure on assets in excess of their Annual Investment Allowance cap for the year.

    Enterprise Zones
    The Government will create 21 Enterprise Zones around the country. Further details of the exact location and duration of these zones will be released later. All we know so far is that businesses within these zones will be able to apply for up to 100% discount on business rates.

    Tax Reliefs to Go
    The Office for Tax Simplification has suggested a list of more than 40 tax reliefs that could be abolished because they are rarely used, or are in fact obsolete. Most of these reliefs will be abolished after consultation. Reliefs on this list which may be of interest to small businesses include:

    - Tax free meals for employees who cycle to work
    - Tax free late night taxis for employees
    - Additional tax relief for companies that clean up contaminated land or buildings (land remediation relief)
    - Relief from CGT for grants for giving up agricultural land

    Corporation Tax Rates
    The small profits rate of corporation tax will be cut from 21% to 20% from 1 April 2011, and is expected to remain at that rate for the next four years, but this has not been confirmed. The small profits rate applies to profits of up to £300,000 where the company has no associated companies which are trading.

    The main rate of corporation tax was due to be cut from 28% to 27% from April 2011, but that rate will now be 26%, reducing by 1% per year thereafter until the rate reaches 23%.

    Research and Development Tax Credits
    Small and medium sized companies could previously claim tax relief of 175% for qualifying revenue expenditure incurred on research and development (R&D) projects. This tax relief will increase to 200% for R&D expenditure incurred after 31 March 2011. A further increase in this tax relief to 225% is planned for qualifying R&D expenditure incurred after 31 March 2012.

    The rules that govern what type of expenditure qualifies for this relief will also be revised with effect from 2012 to make it easier for small companies to claim this relief.


    Employers

    NIC
    When business owners and accountants are asked what single action could simplify the tax system, most suggest merging income tax and NI. This message has finally been heard by the Government, who will start consulting on how the operation of the NI and income tax could be combined.

    This does not mean these two taxes will be merged. The Government has stated that NI will not be applied to savings, dividends or pensions. The likely changes will involve aligning the rules and mechanics of collecting the two taxes. However, don't expect big changes any time soon!

    From 6 April 2011 the rates and thresholds for the main NI contributions were already known with most increasing by 1%. The main figures for 2011/12 are:

    Lower Earnings Limit (LEL) for Class 1 NICs - £102/week
    Employer's class 1 above £136/week not contracted out - 13.8%
    Employee's class 1 not contracted out from £139 to £817/week - 12%
    Employee's additional class 1 above £817/week - 2%
    Self-employed class 4 from £7,225 to £42,475 per annum - 9%
    Self-employed class 4 additional rate above £42,475 per annum - 2%
    Self-employed class 2 - £2.50 per week
    Voluntary contributions class 3 - £12.60 per week

    Approved Mileage Rates
    Where an employee uses his or her own car for business journeys their employer can pay them an approved mileage allowance payment (AMAP), free of tax and NIC.

    This AMAP rate has been stuck at 40p per mile since about 2002, and at current petrol prices many employees who need to use their car for business cannot afford to do so. The AMAP will increase to 45p per mile from 6 April 2011 for the first 10,000 business miles per year, any additional miles can be reimbursed at 25p per mile. If the employer does not pay the full AMAP rate the employee can claim the additional amount in tax relief from HMRC.

    The tax free AMAP can also be paid by charities to volunteers. The self-employed, who have profits below the VAT registration threshold (£73,000 from 1 April 2011), may also use the AMAP rate as a substitute for motor expenses claimed in their accounts.

    Where an employee carries a fellow employee as a passenger on a business journey, an additional 5p per mile tax free can be paid. The rate will also now apply to volunteer drivers who take other volunteers on business/ charity related journeys.

    Car Benefit
    The tax charge for personal use of a company car is based on a percentage of the list price of that car when new.

    From 6 April 2011 the percentages are all increased by 1% for those in the 15% to 35% range but with a 35% maximum kept. The taxable benefit of using a car with CO2 emissions of 121-129g/km is 15% of the list price. This percentage increases by 1% for each additional 5g/km of CO2 emissions to a maximum of 35% for cars with CO2 emissions of 225g/km or more.

    Where a company car driver receives free fuel, the taxable benefit is calculated as the percentage of the list price for the car applied to a set value, currently £18,000. This value will increase to £18,800 from 6 April 2011. The maximum taxable benefit of receiving fuel for personal use will increase from £6,300 (for 2010/11) to £6580 (for 2011/12).


    VAT

    VAT Rates and Thresholds
    There were few changes announced for VAT. The rates and thresholds are as follows from 1 April 2011:

    Lower rate - 0%
    Reduced rate - 5%
    Standard rate - 20%
    Registration turnover - £73,000 (up from £70,000)
    Deregistration turnover - £68,000 (up from £71,000)

    Low Value Consignments
    Low value consignment relief allows goods to be imported into the UK by post from outside the EU, with no VAT or duties charged, if the value of the package is less than £18. This has encouraged suppliers of CDs, DVDs and other durable items, to supply goods via the Channel Islands and other non-EU territories to avoid VAT being applied on the sale price. The monetary limit for low value consignments will be reduced to £15 from 1 November 2011, and this limit will be reviewed in March 2012. The Government will also look at other ways of closing this loophole.

    Online Filing
    It will be compulsory for all VAT registered businesses to file their VAT returns online from 1 April 2012. At present only businesses who became VAT registered from April 2010 or those with turnover of £100,000 or more must file VAT returns online. Also from 1 August 2012 all requests to register or deregister for VAT will have to be made online.

    Neil Harries tax editor at totalinvestor.co.uk and director at Bridgend Accountants Harries Watkins Jones.

    The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.
  8. This article aims to summarise the main tax measures of yesterdays Budget however it is not intended to be comprehensive.


    Individuals

    Personal Allowances
    These allowances represent the amount of an individual's income in the tax year that is not subject to income tax. Some people are eligible for several allowances such as the personal allowance, and married couples allowance. The married couples allowance is available to married persons and civil partners, but only where at least one person of the couple was born before 6 April 1935.

    The personal allowance for 2011/12 will increase by £1,000 to £7,475, but the 40% tax threshold will reduce to £35,000 (see below). This ensures that higher and additional rate taxpayers do not benefit from the increased personal allowance in this year. From 6 April 2012 the personal allowance will be increased again by £630 to £8,105, and in that year the 40% threshold will be reduced further to £34,370.

    Personal allowances are withdrawn at certain income thresholds, indicated below, and cannot be claimed by non-domiciled individuals who elect to have their foreign income and gains taxed on the remittance basis for the tax year.

    The 2011/12 personal allowances are...

    Under 65 - £7,475
    65-74 - £9,940
    75 and over - £10,090
    Minimum married couples allowance* - £2,800
    Maximum married couples allowance* - £7,295
    Blind person's allowance - £1,980
    Income limit for allowances for those aged 65 or more - £24,000
    Income limit for allowances for those aged under 65 - £100,000

    * given where one partner was born before 6 /4/1935, and only as 10% reduction in tax.

    Income Tax Rates
    The tax rates for 2011/12 have been frozen at the 2010/11 levels but the threshold at which the 40% tax rate is applied is reduced to £35,000. This introduces a subtle tax increase as it pulls more taxpayers into the 40% tax bracket, and increases the amount of income subject to tax at 40%.

    The 2011/12 rates and bands are...

    Savings rate* (10%) - 0 to £2,560
    Basic rate (20%) - 0 to £35,000
    Higher rate (40%) - £35,001 to £150,000
    Additional rate (50%) - over £150,000

    * Only applies if non savings income is below this amount

    Non-Domiciled and Non Resident
    Individuals who are domiciled outside of the UK (non-doms), and who have been resident in the UK for at least 7 years out of the previous 9 tax years, must pay a remittance basis charge if they want to exclude their off-shore income and gains from UK taxation. This remittance basis charge is current set at £30,000 per year. It is proposed that from 6 April 2012 the remittance basis charge will increase to £50,000 for non-doms who have been UK resident for at least 12 years. Those who have been resident in the UK for at least 7 years but less than 12 years will continue to pay the £30,000 charge.

    There is currently no clear measure by which an individual can determine whether they are treated as resident for tax purposes in the UK. The Government intends to introduce a legal test of residence with effect from April 2012.

    Tax Credits
    The main changes to Tax Credits as it applies to the self-employed, is the change in the income disregard from £25,000 in 2010/11 to £10,000 in £2011/12.

    The income disregard provides a buffer for changes in income, so overpayments of tax credits do not arise where income varies within this threshold year on year. The reduction in this threshold is likely to adversely affect families with fluctuating incomes, such as the self-employed. In the future, in order to avoid a claw-back of tax credits, the claimant will need to finalise their self-employed profit figures as close to the tax year end as possible.


    Savings and Investments

    Enterprise Investment Scheme
    Income tax relief for investors is to be proposed to be enhanced as follows:

    Rate of income tax relief: 2010/11 - 20%, 2011/12 - 30%, 2012/13 - 30%

    Annual maximum investment qualifying for income tax relief: 2010/11 - £500,000, 2011/12 - £500,000, 2012/13 - £1,000,000

    These changes will be subject to State aid approval from the EU.

    Venture Capital Trusts
    The range of companies that can accept investments through the EIS or Venture capital Trusts is to be increased from April 2012 to include those with gross assets less than £15 million, and with less than 250 employees. At present only companies with asset value of less than £7 million and with less than 50 employees can qualify for these tax favoured investments. The cap on the amount a company can raise through these schemes in any year will also be increased from £2 million to £10 million.

    Pension Contributions
    The level of contributions that can be made with full tax relief to a registered pension scheme is to be reduced from £255,000 to £50,000 per pension input period (PIP) falling in the tax year. However, this cap can be expanded by bringing forward unused relief from the previous three tax years, up to a maximum of £50,000 from each year. If the annual allowance is exceeded the taxpayer must pay an annual allowance charge on the excess at their marginal rate of income tax.

    The Lifetime Allowance will reduce from £1,800,000 in 2011/12 to £1,500,000 in 2012/13.

    Independent Savings Accounts (ISAs)
    The ISA savings limits applicable in 2011/12 for those over 18 are:
    Overall limit - £10,680
    Cash up to - £5,340
    Balance in stocks and shares up to - £10,680

    For those aged 16 & 17:
    Overall limit - £5,340
    Cash up to - £5,340
    Balance in stocks and shares up to - nil

    From April 2012 the ISA savings limits will be increased in line with the consumer Prices Index (CPI) rather than in line with the Retail Prices Index (RPI), as has been the case so far.

    Savings for Children
    Children born between 1 September 2002 and 2 January 2011 inclusive were eligible for a child trust fund account (CTF). Each child received a voucher to allow the account to be opened which also provided an initial deposit. The existing CTF accounts will continue and funds of up to £1200 per year can be contributed for each child tax free. The CTF account can only be accessed by the child when he or she reaches age 18.

    Junior ISA
    The Junior ISA is a replacement for the CTF but no funds will be provided by the Government. The junior ISA will be available to all children resident in the UK who do not have a child trust fund account. It will also have the following features:

    - No tax will be charged on income or gains earned within the ISA.
    - Funds placed in the account will be owned by the child and locked in until the child reaches age 18.
    - Accounts can be opened from autumn 2011 (exact date to be announced).
    - Sharia compliant products will be offered as Junior ISAs.
    - The annual savings limits will be announced later, but are likely to be similar to normal ISAs.


    Capital Taxes

    Capital Gains Tax Rates and Thresholds
    The rates and thresholds for capital gains tax are as follows for 2011/12:

    Annual exemption - £10,600
    Annual exemption for most trustees - £5,300
    Rate for gains in basic rate band - 18%
    Rate for gains above basic rate band - 28%
    Rate for gains subject to entrepreneurs' relief - 10%
    Lifetime limit for entrepreneurs' relief - £10,000,000

    Entrepreneurs' Relief
    This relief applies to gains made on the disposal of businesses, parts of a business, shares in trading companies and certain business assets disposed of after a business ceases or in association with a business disposal. The taxpayer and the business must both meet a number of qualifying conditions for the relief to apply.

    Each taxpayer has a maximum amount of gains that they can include in a claim for entrepreneurs' relief, called the lifetime limit. This lifetime limit was initially set at £1 million from 6 April 2008. It was increased to £2 million from 6 April 2010, increased again to £5 million from 23 June 2010. The lifetime limit will be doubled to £10 million for gains made after 5 April 2011.

    Inheritance Tax
    The nil rate band for inheritance tax (IHT) will remain frozen until 2014/15 at £325,000. This is the amount of a person's estate that is free of inheritance tax.

    The rate payable on death for 2011/12 remains at 40% with the rate payable on lifetime gifts to certain trusts remaining at 20%.

    From April 2012 those that give at least 10% of their estate on death to charity will pay a reduced rate of IHT of 36%. Gifts made to charities are exempt from IHT.



    Neil Harries tax editor at totalinvestor.co.uk and director at Bridgend Accountants Harries Watkins Jones.

    The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.
  9. Over the years many people have commented on taxes, some of the more famous quotes are below:

    “There is no such thing as a good tax.” Winston Churchill

    “In this world nothing is certain but death and taxes.” Benjamin Franklin

    “Death and taxes and childbirth! There's never any convenient time for any of them” Margaret Mitchell

    “Thinking is one thing no one has ever been able to tax.” Charles F. Kettering

    “The difference between tax avoidance and tax evasion is the thickness of a prison wall.” Denis Healey

    “The way taxes are, you might as well marry for love.” Joe E. Lewis


    Although the above quotes may be amusing one common thread is that most normal people simply don't like paying taxes! In the UK you can pay tax when you buy something, earn a wage, run a business, employ someone, own a house, sell an asset, take out an insurance policy, import an object, make a gift, fuel your car and even when you die. It is certainly reasonably to say that it is almost impossible to avoid paying tax in one form or another. However whilst taxes may be unavoidable a good firm of Chartered Accountants can help reduce the impact in the following ways:


    ◦ Preparing tax returns that are correct

    ◦ Claiming all allowances that you are entitled to

    ◦ Advising you of legal tax saving measures

    ◦ Advising you in advance of the tax implications of your decisions

    ◦ Investigating and advising you of changes in your business status that could save you money

    ◦ Planning your future activities to minimise tax

    ◦ Giving you as much warning as possible of the tax payable

    ◦ Filing tax returns on time


    It is a sensible assumption that in a civilised society there will always be taxes of one form or another. What is a fair taxation system in the view of one will inevitable be completely unfair to another. Bearing this in mind it makes sense to learn to live with taxes, if you need help with your tax position please visit Accountants Bridgend.
  10. If you receive a VAT penalty, perhaps because you have submitted your VAT return late, the Taxman should offer an independent review of the penalty.

    You should certainly take up this offer of a review, as this may be the first time that a human (rather than a computer) has looked at the circumstances under which the penalty was imposed. You should reply in writing to the Taxman accepting (or in rare cases rejecting), the offer of the review within 30 days of the date of the penalty notice. Don't delay, as the penalty notice may have been sitting in the Taxman's post area for weeks before it reaches you.

    Where you believe the penalty is not due, because you have a reasonable excuse for submitting your form late (or whatever was the cause of the penalty), set out your reasons in the letter that accompanies the acceptance of the review. When the review department within the Tax Office looks at your case you have a chance of having the VAT penalty overturned. We can help you set out your reasons to the Tax Office.

    For specific taxation advice, or if you have a tax question you would like answered please contact neil.harries@harrieswatkins.com

    For tax tips and information visit the Bridgend Accountants website or read more useful tax articles at Accountants Pontypridd.

    The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date
  11. Taxman Starts Business Records Check
    The Taxman is concerned that many small businesses are not keeping adequate records to support the entries on their tax returns. To encourage better record keeping he is taking a carrot and stick approach.

    The carrot encouragement comes in the form of a number of new HMRC leaflets, and an online tool Business Link | recordkeepingcheck designed to help small businesses decide what records they must keep. These tools and leaflets contain quite a lot of jargon words and phrases, so we would recommend discussing your requirements with us.

    The stick is a letter he is about to send to 50,000 small businesses, advising that they may be subject to a detailed records check.

    Only a minority of these businesses will actually receive a visit from the Tax Office compliance check unit, and those visits will normally be arranged in advance. However, if your business is visited and your records are found to be inadequate you may receive a penalty of up to £3,000, which cannot be suspended even if you promise to keep better records in future.

    Taxman to Hassle Tax Cheats
    In addition to the 50,000 letters being sent about keeping business records, the Taxman is writing to 12,000 self-employed people who claim Tax Credits, to check whether they have been understating their income.

    As a self-employed person you can claim Child and Working Tax Credits just like an employee, but your self-employed income is likely to be more variable than a regular wage or salary. If the income from your self-employed business has fluctuated wildly during the past recession, you may well get one of those letters from the Taxman. You will be asked to supply evidence of your income, which will normally be your business accounts and possibly bank statements. We can help you compile the information requested.

    The Taxman is also getting serious about tackling those who deliberately cheat the tax system, as opposed to those who make careless mistakes.

    He is targeting individuals and businesses identified as deliberate tax cheats since April 2009, and will regularly monitor all aspects of that person's tax affairs. This will involve asking for further information to support figures on tax returns, and possibly making unannounced visits to business premises.

    The monitoring will continue for two to five years, or as long as the Taxman thinks the person is a tax risk. Initially, about 900 people will soon be informed they are included in this monitoring scheme but this number may well increase in time.

    Traps with the Flat Rate VAT Scheme
    The VAT flat rate scheme for small businesses is generally straight-forward to operate, but here are a few traps to watch out for.

    Use the right rate
    You will be aware that the standard rate of VAT increased to 20% on 4 January 2011. The flat rates used by traders in the flat rate scheme to calculate the VAT to pay to HMRC also changed from that date. Did you remember to apply the new rate for your business sector? Check whether you applied the correct flat rate from 1 January 2010 to 3 January 2011 when the standard rate of VAT was 17.5%, and from 1 December 2008 to 31 December 2009 when the standard rate was 15%.

    Include all business income
    You need to apply the flat rate for your business sector to all your business income, including income that is exempt from VAT such as rents. If you are self-employed and operate your VAT registered business in your own name, any income from property you let in your own name must also be subject to the flat rate scheme.

    This applies whether or not you consider the lettings to be part of the VAT registered business. If you run your VAT registered business through a company and hold the let property in your own name, the flat rate scheme operated by the company will not include your rental income.

    Bank interest
    If you receive interest in your business as a core part of your business activities that interest should be included in the turnover to which you apply the flat rate. This could apply to businesses who handle large sums of money on behalf of clients and keep a share of the interest as part of the deal. However, where the interest is received as a passive activity, such as on a current or deposit account it is outside the scope of VAT and should not be included in the sum to which you apply the flat rate.

    Leaving it to Charity
    If you haven't made a Will, you should do so without delay. If you don't have any relatives you want to leave your estate to, consider making a Will that leaves most of your assets to specified charities. This avoids the potential problem of intestacy (dying without a Will), and saves tax as gifts to charities are free of inheritance tax. However, there are two traps to avoid:

    Identifying the charity
    Many charities have merged or changed their names in the recent past, so when it comes to distributing the estate according to the Will, it may be difficult to work out exactly which charity you intended the funds to go to. To avoid this problem make sure your Will states the charity's registered office and charity number. You can also include a clause in your Will specifying that the gift should be directed to any organisation that amalgamates with the original charity.

    Residue of the estate
    The second problem can occur where the charity has been left an undefined amount in your Will, such as the residue of your estate. This can lead the charity's officers hassling the executors, querying deductions such as legal fees and in extreme cases challenging the distribution of your estate in Court. To avoid this problem leave specified amounts of cash or assets to your chosen charities rather than the amount left over after other gifts have been made and any tax paid.

    March Question & Answer Section

    Q. I've been told I will have to pay all my business taxes online very soon. How can I do this if I don't have internet banking?

    A. It will be compulsory to pay corporation tax electronically from 1 April 2011, and to pay all VAT due electronically from 2012. However, there are no plans to make all PAYE or CIS payments electronic, yet. Electronic payments include direct debits, debit and credit card payments. You don't have to have internet banking, you can set up electronic payments with your bank by using telephone banking.

    If you would rather pay your tax bills by cheque you can do so using a Bank Giro payslip at your own bank branch. This counts as an electronic payment, as do similar payments made at the Post Office counter by cheque, cash or debit card. You need to order the Bank Giro payslips specific to your business from HMRC.

    Q. My rental property makes a profit of £2,400 a year. I checked the HMRC website and it says I don't have to complete a tax return. Does that mean I don't have to pay tax on my property profits?

    A. Although the HMRC website (HM Revenue & Customs: Do you need to complete a tax return?) says you don't have to complete a tax return if your income from property is less than £2,500, you should scroll down and read the text under 'Things to check if you don't need a tax return'. This makes it clear that you must tell the Tax Office about any new sources of income. The deadline for reporting new income is 5 October following the tax year in which the new income first arose. If this date passed sometime ago you need to contact the Taxman as soon as possible and declare all your income and expenses relating to your let property. The Taxman may decide to charge you a penalty for failing to declare your income at the right time.

    You do have to pay tax on your property profits, but if the amount owing is small compared to your salary, it may be deducted through your PAYE code. In this case you don't need to complete a tax return each year, but without an annual tax return the Taxman will not know to vary your tax code if your rental profits increase or decrease.

    Q. I try to run my business on green principles so all the company cars are hybrid petrol/electric models. But I've heard that the car benefit is going to increase for all these cars from April, how is this going to affect my employees?

    A. The good news is where your hybrid cars have CO2 emissions levels of 120g/km or less, the taxable benefit will remain at 10% of the list price. The tax increase will only apply to cars with higher CO2 emissions. Hybrid petrol/electric cars in this category currently get a 3% reduction in the percentage of list price that forms the basis of the car benefit charge for employees. From 6 April 2011 that discount will be removed, and the regular 1% increase in list price percentage will apply to all cars. For example the taxable benefit for a hybrid car with CO2 emissions of 179g/km is currently 21% of the list price. From 6 April 2011 the benefit for this car will increase to 25% of its list price.

    If you have any tax questions you would like answered then please email neil.harries@harrieswatkins.com or visit the Accountants Bridgend website. For more tax tips visit the Accountants Bridgend blog.


    Disclaimer
    The information contained in this article is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.
  12. It is a common presumption that all accountants are the same. Nothing could be further from the truth! Just as in all walks of life you have the good, the bad and the down right ugly! We will look to cover some of these issues in further blogs, but begin with who can call themselves "accountants".

    Alarmingly the word accountant is not a protected term in the UK. This means that anybody can call themselves an accountant! Or for that matter a tax adviser or business consultant! The result is that many of the businesses that call themselves accountants are being run by people without any professional accountancy qualification. What is worse, often many of these firms and individuals are not regulated. That’s right, you could open up tomorrow as an accountant with no training, qualification or even professional indemnity insurance! I am sure if you were buying a house you would want a qualified lawyer to handle your affairs, or similarly if you needed an operation you would want a qualified doctor to carry out the procedure. So make sure that you get a qualified accountant to look after your tax and business affairs.

    The directors of Harries Watkins & Jones are both members of the ‘Institute of Chartered Accountants in England and Wales’ and also the ‘Association of Chartered Certified Accountants’. This means that they:

    • Passed professional exams
    • Have undertaken supervised training
    • Have to continue to keep up to date with changes in tax and accountancy
    • Are subjected to monitoring and quality control
    • Have strict professional rules and ethics that must be adhered to

    When choosing an accountant ask them what qualifications they hold.