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Tax Returns: An overview


Written by Ray Coman


Most people in the UK do not have to complete a Tax Return. There is often no need to file a Tax Return if your only income comes from employed earnings, state benefits or a pension.


Typically, a Tax Return is due if you are self-employed, receive rental profits, investment income or you earn over £100,000.


It is your legal obligation to let HMRC know that you have to complete a Tax Return for any tax year. The tax year runs from 6 April to the following 5 April.


Tax Returns: An overview The time limit for notifying HMRC of your chargeability to tax is 31 January after the end of the tax year. If HMRC have to prompt you to notify them to complete a tax return after the deadline, the penalty can be as high as 100% of the tax owed. On the other hand, there may be no penalty for notifying HMRC after the deadline if you do so voluntarily.


Although you may avoid a penalty for late notification, there will be a fixed penalty, of at least £100, for filing the Tax Return late.


The deadline for submitting your Tax Return online is 31 January following the end of the tax year.


There are a number of reasons that you may have to complete a Tax Return. In many cases, a Tax Return may no longer be necessary, even though it is still requested by HMRC. Seek professional advice from us. We offer a free, initial consultation and can help you determine the best way forward.

Tax relief on capital costs


Written by Ray Coman


Capital allowances are a tax relief for outlay on capital. Capital costs are those required for the business to run long term, such as vehicles and equipment. To reflect the length of time that capital is used in the business, only a proportion of the capital costs are deducted from profits each year. This proportion is called the capital allowance. By distinction, revenue costs are those required immediately in the business. Most revenue costs are deducted straight away against from profits.


Tax relief on capital costs In an attempt to relieve the cash flow implications of this system for small businesses and sole traders, the government has introduced an annual investment allowance (AIA.) The AIA provides 100% relief for expenditure on most capital used in the business up to a yearly maximum. As a result, capital costs up to the annual limit are effectively treated in the same way as revenue costs for tax purposes. If the business has invested more than annual investment allowance for the twelve month period, any balance is relieved at the writing down allowance rate.


However, the 100% annual allowance rarely applies to cars. The rate of allowance given to a car depends on its CO2 emission, so that the less a car emits the faster the business will benefit from tax relief.


It is possible to deduct certain costs on features which are integral to a building, such as lighting, heating and air conditioning systems. This can apply even to commercial premises which are not new builds. The annual investment allowance can apply to integral features and the balance could receive an allowance at the special rate. The tax reliefs can be significant and should be considered when planning the premises for your business.


If an asset is sold for more than the capital allowances left to deduct from profits, the surplus could be treated as extra profit for the year. It could be worthwhile considering the timing of disposals of assets which are likely to increase profits.


Where a company makes a loss as a result of investing in certain types of capital, such as green technology and research and development assets, a tax credit may be claimed. This could result in a government payment to the business. The payment is in the form of a tax credit rather than a tax refund.


There are incentives for certain types of investment that the government wishes to promote, such as for converting empty spaces above commercial premises into flats.


Various tax planning opportunities are available with capital allowances. It is possible to obtain allowances separately on assets which are expected to have a life of less than five years. This can accelerate tax relief. It is also possible to disclaim capital allowances, which can be an advantage where your tax free allowances would be wasted if the capital allowance was all used in the first year.


Discuss with us a budget for capital expenditure, which is aligned to business goals and optimised for tax.

Harsher rules on late Tax Return penalties


Written by Ray Coman


HMRC have toughened the penalty system for late tax returns. With effect from the tax year ended 5 April 2011, automatic penalties now apply regardless of your tax liability. As such, even if you have no liability, or were due a refund, you are still liable to a minimum £100 if you were supposed to file a Tax Return and have missed the deadline. Penalties increase more sharply where a tax return is over three months late.


Coman & Co. Ltd. can help you avoid unwanted fines. We offer an efficient, online service. With our system you will be reminded well in advance of any relevant deadlines.


Please contact Coman & Co. Tax Accountants for advice on your tax situation. We are Chartered Tax Advisers and pleased to help with all your personal taxes no matter how straightforward or complicated.

Paying yourself a salary from your own company

By running your business through the company, the question arises as to how to take profits out of the company properly and with the minimum tax.

Where it is just you in the company, you will have a choice to withdraw funds as dividend or salary. Provided you do not have any other income it will save tax to withdraw salary less than your personal allowance and therefore tax free in your hands.

There are three possibilities to consider:

  1. Where your salary is below the lower earnings limit, there is no need to run a payroll, and no further reporting requirements.
  2. Where your salary is below the earnings threshold, you will have to register as an employer and submit an employer's annual return, but there will be no tax or national insurance to pay.
  3. Once you pay exceeds the earnings threshold, you will have national insurance both employers' and employees' and soon after your earnings will exceed the personal allowance and there will be income tax to pay as well.

Filing an employers' annual return is often worthwhile, despite the administrative cost and exposure to late filing penalties. A year could be added to your state pension

Although you will be filing an employers' return the payroll will be basic. This is directors are assessed to national insurance on an annual basis, and therefore it is not necessary to ensure small payments of salary on a monthly basis to remain within the thresholds.

We can help advise on the best split between salary and dividends based on your circumstances and future expectations. Please be in contact for a free meeting.


Charity donations via the company


Written by Ray Coman


A donation made via a company to a UK registered charity can be deducted from profit for tax purposes.  There has to be a gratuitous intent for the payment to be regarded as a donation.  If the company receives a benefit in return the payment is not regarded in the manner of a donation.


Limited company owners are often pay no income tax.  This is because the salary received is less than the personal allowance and the dividend does not give rise to income tax.  In such cases, the charity could not obtain the basic rate tax relief from HMRC.  A donation made via a company would obtain tax relief provided the donations are not more than taxable profits.

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

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