News Menu

UK Tax News

Pay accountancy invoices by card

 

Written by Ray Coman

 

Coman & Co are pleased to announce that we can now offer credit and debit card payments. We hope the new service will provide extra convenience and choice to our clients. Furthermore, to encourage our clients to take up the new facility, we will not be adding any charges for debit card payments.  (We would pass the 3.45% credit card charge onto you.)


The payment facility is powered by well recognised WorldPay . Payments can be made securely online, or via telephone saving our clients hassle. Your card details will be protected and safe.

Our card collection system offers two basic alternatives.

 

  1. When we send our invoice, you would receive a weblink, which directs you straight to a pre filled payment form. Simply select your payment method and enter your card details. You will receive a confirmation from our partner WorldPay of the date and amount of transaction.
  2. Provide us with your credit or debit card details and we will collect payment, according to your instructions. All card details held at our office are encrypted, and password protected by our payment software.

 

We would never proceed with payment collection without your express instructions, giving you full peace of mind.  We provide written estimates and invoice after completion of agreed work.  We would not take advance payments for work to be carried out.

 

We also continue to offer a PayPal alternative. If you prefer to pay using PayPal, please use our email [email protected] quoting your invoice number as a reference.

 

We accept payment from ViSA, Mastercard, JCB, Maestro and AMEX.

 

AMEX JCB maestro mastercard VISA visa debit visa electron

 

Please contact us if you have any queries on the above

PAYE payment overdue 2012-13

 

Written by Ray Coman

 

A reminder to pay tax is not generally welcome on the doormat.  Less so when it is scarcely possible to make sense of, and is unexpected or well overdue, as is often the case.  So , to set the mind at rest, this guide briefly outlines the rules for PAYE payments, and in particular the options available to self-employed people who are directors of their own company.

 

PAYE payments

 

For employers, PAYE is due seventeen days after the end of the tax month.  The tax month ends on 5th of each month.  Therefore payments are due by the 22nd of the month, relating to pay for the month ending on the 5th.  Where estimated payments of tax are less than £1,500 per month, an employer can arrange with HMRC to make quarterly payments of tax.

 

Reminder letter from HMRC, where no tax is due

 

Regardless of whether the business has a PAYE liability, HMRC havebeen routinely issuing reminder letters for payments of PAYE tax.  One response is to file a nil monthly PAYE Return.  However, this can be a time-consuming process, particularly where no PAYE payments are expected for several future months.  An alternative is to arrange with HMRC for an annual payment to be made.  At present the drawback here is that the transfer to an annual basis involves often less than straightforward arrangements with HMRC which have to be re-performed each year.  Furthermore, on account of the various and ever-changing HMRC offices which seem to administer PAYE, HMRC have not been effective in their response to arranging for an employer to be entered onto an annual payment basis.  In practice the outcome is typically that undue time and resources are spent by both employers and HMRC in responding to debt collection letters.

 

Reasons to register as an employer but make no payments of PAYE

 

Use of a company can save a self-employed individual considerable tax, where that person’s withdrawals from the company are treated as a salary no greater than the tax free personal allowance and as dividends thereafter.

 

The national insurance saved using a limited company rather than being a sole trader is at least 9% on any income between the Class 4 lower profits limit and upper profits limit.  Therefore, for 2012-13, profits between £7,605 and £42,475 per year made in a limited company will suffer 9% less tax than those made as a sole trader.  In money terms, up to £3,138.30 could be saved on a profit of £42,475 by operating the business through a company, rather than being a sole trader.

 

The savings are even higher when company income is compared with employment earnings.  In employment, national insurance is 12% for employees between the earnings’ threshold and upper earnings limit.  For 2012-13 the applicable limits are £7,592 and £42,484 respectively.  In addition, there is a further 13.8% saving for employers on earnings over the secondary threshold (of £7,488 for 2012-13.)  Where a contractor is prepared to forego their employment rights, and they consider that they can justify their self-employed status, the limited company option could save a lot of tax.

 

However, a key drawback is that the taxpayer’s national insurance record will not be updated and therefore social security benefits will not accrue.  In particular, each year that a taxpayer makes national insurance contributions (NICs) adds a qualifying year towards the total number required to secure entitlement to the basic state pension.  State pension accrual is explained in further detail later.

 

A salary up to the lower earnings’ limit (of £5,564 per year for 2012-13) will not require the business to register as an employer.  A salary above the lower earnings’ limit and up to the earnings limit (of £7,488 per year), will require the business to register as an employer, but will still not give rise to a national insurance liability.  Therefore, it is possible to accrue social security benefits by paying a salary equal to say £7,488 per year, which is above the lower earnings limit but not over the earnings threshold.  The advantage to the taxpayer is that a year is counted towards social security benefit, even though no liability to settle NICs has arisen.

 

Drawbacks of registering as an employer

 

However, as previously explained there is growing evidence of the practical obstacles in arranging to be an employer who makes no payments of PAYE.  As a consequence, considerable time and resources can be used by HMRC and the business owner in bringing about the intended outcome.  As a further drawback, an employer is open to penalties for late submission of an employer’s annual return, for missing the submission deadline.  The deadline is 19 May following the 5 April year end.  The late filing penalty is typically £100 per month for a company with only one director.  The penalties can be appealed against and often reduced to nil where there is no PAYE due.  Nevertheless, the appeal process can be bothersome and time-consuming for both business owners and HMRC.

 

Voluntary national insurance for business owners

 

Business owners wishing to benefit from the national insurance saved by operating through a company, but still wanting to contribute towards their state pension may consider voluntary NICs as a slightly dearer but less bureaucratic alternative.

 

Voluntary, or Class 3, NICs are a facility for individuals to contribute to their social security, and in particular their state pension, where the contribution would not otherwise be made.  No NICs would be made by a contractor using a company not registered as an employer.  Voluntary, or Class 3, NICs are currently £13.25 per week.  At the time of writing, the basic state pension is £107.45 weekly.  To receive the basic state pension, a taxpayer should have made 30 years of NICs.  The state pension age is currently 65 for men, and due to rise to 65 for women, with further plans afoot to increase the overall age to 67.  Evidently, the above is an overview only on the UK state pension, and you should seek further advice before taking any related action.

 

We are not authorised as financial advisers and therefore encourage you to draw your own conclusions from the above.  The above information is aimed at helping you to make a decision on whether to make voluntary contributions, where you are not adding to your state pension because you invoice from your company, and are not registered as an employer.

 

By most accounts, the basic state pension would not be sufficient to support a comfortable retirement, and therefore you should consider additional provisions, such as private pension contributions as part of a structured retirement arrangement.

 

To recap, a company is not required to submit an employers’ annual return until the director’s salary exceeds the lower earnings limit, which would still allow for most of the personal allowance to be used up.  As a result, there would be little or no gain in corporation tax by not registering as an employer.  To accrue social security, the route which is expected to be the least bureaucratic is reached by paying Class 3 NICs, and in the majority of cases the NIC payments would still be a lot less than that suffered by a sole trader.

 

Conclusion

 

In summary, for ‘one man band’ companies, not registering as an employer could prevent a lot of hassle dealing with HMRC reminders.  A state pension is likely to be only one component of a retirement plan, and the requirement can be fulfilled where necessary by delaying NICS or through a voluntary scheme.  In many cases, a voluntary scheme is a more ethical approach as well as making more commercial sense.  More broadly, a reduction in nil returns should prevent HMRC transferring PAYE administration to debt collection, often an outsourced service.  Please contact us for further advice relating to your intended plans as a business owner.

FAQs on self-assessment registration

 

Written by Ray Coman

 

When to register, how to register and what to do if you are late are among the most common concerns when it comes to the self-assessment.

 

In response to frequently asked questions, the following guide offers a brief overview on the topic of registration for self-assessment.

 

Do I complete a Tax Return?

 

You would need to register for self-assessment, if you are self-employed; a director receiving payments from your company, you have income over £100,000; you have sold assets with gains over the exemption (of £10,600 for 2012/13), you are a landlord, if you have investment income over £10,000, or over £2,500 which is untaxed, or any trust income, or overseas income.

 

In addition, some people may wish to complete a tax return to make use of available allowances and reliefs, such as people over 65 with an income less than abatement threshold (of £24,400 for 2012-13), if you have made pension contributions or charitable donations and are a higher rate taxpayer or have invested in schemes which allow you tax relief.

 

Even the above list is not entirely exhaustive. Therefore considered in reverse, you would not be required to complete a tax return if you receive employment income or pension income all taxed at source and your income is less than £100,000. If you have no income or have benefits either below your personal allowance (of £8,105 for 2012-13) or which are not taxable then there is no reason to complete a Tax Return.

 

How long do I have before I need to let HMRC know that I am completing a Tax Return?

 

The deadline for notifying HMRC of your chargeability is six months after the end of the tax year, which is 5 April. For instance, if you started self-employment at some time between 6 April 2011 and 5 April 2012, you should notify HMRC by 5 October 2012. The deadline for the 2011-12 tax year has therefore passed.

 

As I am late with the last year, what is HMRC going to do?

 

In practice, if you pay any tax due by the payment deadline (which is usually 31 January 2013) then there will not be any penalty for being late to notify HMRC. There is more information on this in our article on late notification penalties.

 

As a further consideration however, you may be late in filing a tax return, and therefore be liable to a late filing penalty. The deadline for filing a Tax return online is the later of 31 January and three months after the notice to file a Tax Return.

 

In practice, to file a Tax Return, you need a unique taxpayer reference (UTR) number. In recent years, HMRC has taken about six weeks to issue UTRs. For the 2010-11 tax year, most taxpayers still received the UTR number in time to avoid a late filing penalty if they had registered by mid-December 2011. Unofficially, you could well avoid penalties even if you have still not registered. Moreover, the sooner you register the less likely the severity of any eventual penalties.

 

What are the penalties for notifying HMRC late?

 

The penalty would depend on the amount of tax due, when the tax was paid, whether you were deliberately late and if you took steps to hide your liability to tax, whether you disclose being late voluntarily or if you are prompted to do so, and the extent with which you co-operate with HMRC to establish the facts. Please refer to the full guide on penalties for late notification for further information. The guide covers provides an outline and indication of how any penalties can be minimised.

 

I have not heard from HMRC. How can I be late, in responding to HMRC?

 

The onus is on the taxpayer to let HMRC know that they are chargeable to tax. If you receive a notice to file a tax return, but have not notified HMRC in time, you would still be open to penalties.

 

For instance, HMRC may become aware that you are required to complete a Tax Return, say because a record they have received from your employer indicates that you have income over £100,000. You may receive a notice to file a Tax Return after the payment deadline, and therefore pay your tax late. In this situation, you would be liable to penalties, because you have paid ta late, and also in some cases you may also incur a penalty because you were late to notify HMRC.

 

I telephoned, HMRC and they said...

 

While HMRC are mainly well experienced and informed on self-assessment, an HMRC can provide advice which is not entirely correct. In principal, while HMRC usually provide a correct response they would not have the same time or incentive to identify opportunities tax saving as your tax adviser.

 

The information available on the HMRC website should be correct, and advice confirmed in writing is more reliable. In my experience, advice provided verbally is less easy to properly record and more prone to misinterpretation. Furthermore, an appeal against financial loss which results from his any incorrect advice may not be successful, or worthwhile, from the point of view of time spent.

 

I would appreciate your help with my taxes

 

We are happy to help. Please contact us.

Tax results of ‘shares for rights’

 

Written by Ray Coman

 

At the Tory party conference yesterday, George Osborne announced that employees would be able to forego their employment rights in exchange for shares in their company.  Under the plans, company owners would be able to grant their employees shares with a value of between £2,000 and £50,000, which would be exempt from capital gains tax when sold.

 

Where a worker changes status from being employee, the national insurance savings for both employee and employer can be significant.  Under the rates applied for the year to 5 April 2013, national insurance for employees on earnings between £7,592 and £42,484 is 12%, and 13.8% for employers on earnings over £7,488. 

 

To put an example to the tax savings, by becoming a shareholder an employee earning £45,000 would save £4,237.36 per year, and would save the employer £5,176.66 in national insurance.  The net tax savings for employers would be £4,141.33, where the typical rate of corporation tax for most companies with a profit less than £300,000 is 20%.  As a practical consideration, the individual would save income tax, in more or less equal proportion to the extra corporation tax for the employer.  To prevent being out of pocket to the employee, gross pay should be reduced to reflect the increase in take home amounts.  The result still being a win for both sides on national insurance saved.

 

In principal, it has previously been possible for an employee to become a company shareholder, and achieve the tax savings outlined above.  Under the announced plans, however, the capital gains tax exemption however could result in significant further savings for workers giving up their employment rights.  Hence the, “workers of the world unite” avowal made from the chancellor.  The famous slogan, borrowed from Karl Marx, was seemingly a retort to Labour for claiming to be ‘One Nation’ in their conference, an idea borrowed from the conservative Benjamin Disraeli.

 

While the national insurance savings are immediately in evidence, the potential for capital gains tax savings is far less so.  Put into practice, an employee is not likely to regard the shares as an incentive where there is no apparent market for them.  On the other hand, any obligation on the employers’ part to buy the shares back would introduce a potential £50,000 deterrent to bringing in the initiative.

 

These shortcomings raise a question mark over whether the plans would emerge from the consultation in their announced form, or whether they would be widely adopted in practice.  Nonetheless, it is easy to interpret the proposal as signalling the government’s willingness to assist the small business sector with the burden of tax, employment law and related costs.

 

The essence of the planned scheme has the potential to be beneficial for all business, but particularly in the private owned sector, where business owners could have more influence over both management and ownership.  The proposal idea could result in a much needed confidence boost to the sector where it is hard to imagine how hiring costs could not be impeding growth.

 

In view of the obvious shortcomings, it is not easy to predict the precise workings of any resulting laws.  However the tax profession is typically prompt in its response to any significant change to the rules.  For more information on tax implications of your employment plans please contact us for an initial meeting.

Ray Coman becomes an FCCA

 

Written by Ray Coman

 

The company director, Raphael Coman has been awarded the prestigious title of Fellow. This is demonstrates an extensive experience in the field of accountancy and proficiency within the profession.

 

Simple situations. Complex situations. If it goes on a Tax Return we deal with it. Contact us for a free, initial meeting.

Email us!