Blog

2014 Budget

Published: 19 Mar 2014

Updated: 03 Apr 2014

 

Written by

 

Delivered at 12.30 today, the chancellor's fifth budget contains a number of tax incentives for so called 'doers, makers and savers.' A round up of the main changes is explained below.

 

Stamp duty on property worth over £500,000

 

The threshold for stamp duty on residential property purchased via a company will lower from £2 million to £500,000. The new threshold takes effect from midnight (19 March 2014.) The measure provides a further disincentive to owning a property via a company.

 

Up to £2,000 state help with childcare costs

 

From September 2015, families where both parents work will be able to obtain government support for the cost of childcare on any of their children aged 11 or younger. Eligible couples will be able to open an online 'tax-free childcare' account which will be administered by HMRC in conjunction with NS&I. The government will contribute 20 pence for every 80 pence paid into an account. Under new proposals, up to £8,000 can be contributed by parents into the fund. Where the maximum is contributed, £2,000 of childcare subsidy would be obtained.

 

The scheme is open to all parents, except where both parents are earning over £150,000.

 

Parents using a childcare voucher scheme can continue to use the scheme as an alternative until their child reaches 15 years old. This will be particularly beneficially for parents with children between 12 and 15 who have not moved employer.

 

Premium bond limit lifted to £50,000

 

The cap on amounts that can be invested in a premium bond will be raised in June from the current threshold of £30,000 to £40,000. A further increase in the limit to £50,000 will be introduced from 2015/16. Premium bond pay-outs are tax free, but the limit of £30,000 has been in place since 2003.

 

ISAs limit increase to £15,000

 

From 1 July 2014, the limit that can be invested in an ISA will increase from to £11,520 to £15,000 and the full amount can be invested in cash. The previous rules restricted the amount that could be invested in cash (to £5,760 for 2013/14.)

 

Pension annuities to be abolished

 

From 5 April 2015, pensioners will no longer be required to convert their pension into an annuity. Previously, pensioners had to purchase of an annuity from their pension pot on reaching age 75. An annuity is a guaranteed income for life which is based mainly on the value of the pension fund, prevailing interest rates and life expectancy. It is hoped that greater choice for pensioners will improve the competitiveness of annuity products.

 

The alternatives of fixed term annuities or income draw-down may leave surplus funds in the pension to be transferred on death.

 

Most pensioners will have a cap placed on the amount that can be withdrawn. A few pensioners, which sufficient other income, will be able to drawdown unlimited amounts from their pension.

 

10 pence savings rate to be scrapped

 

The budget contained welcome news for low income savers, with the abolition of the 10% tax rate.


Where a person's total income is less than the personal allowance and the starting rate, savings income has been taxed at 10%. For 2013/14 the personal allowance was £9,440 and the starting rate was £2,790. Therefore in 2013/14, an individual with total income of £12,230 of which £2,790 was bank interest, would have a tax liability of £279.

 

Following the budget announcement, a new starting rate of 0% will be introduced for savers and will apply to the first £5,000 of taxable income. This is almost double the current limit.

 

Further rises to the personal allowance

 

The chancellor announced that the personal allowance will increase again to £10,500 on 6 April 2015. However unlike previous increases in the personal allowance there is no corresponding decrease in the amount taxed at the basic rate. Therefore all taxpayers with an income up to £100,000 will benefit. The personal allowance is clawed back when income exceeds £100,000.

 

Social investment and film tax relief

 

From 6 April a 30% tax relief will be available for investment into social enterprise, such as charities and community interest companies. There are increases to film tax relief and tax relief for theatre productions.

 

Annual investment allowance to double

 

The annual investment allowance (AIA) will be increased from £250,000 to £500,000 with immediate effect and until the end of 2015. The AIA determined the amount that can be invested in capital assets and deducted from profits in the year of investment. All but the very largest business will therefore be able to obtain immediate tax relief for capital investment.

 

Abolishing class 2

 

The flat rate of national insurance payable by sole traders and partners will be abolished. The change will reduce an administrative burden on the self-employed.

 

Employment allowance

 

As previously announced the government will be introducing the employment allowance of particular benefit to small business employing staff.

 

With experience in dealing with a range of tax issues, Coman & Co. would be pleased to assist with your tax compliance or tax advice requirements. Please contact us for an initial consultation.

Tax rates for 2014-15

Published: 06 Apr 2014

Updated: 06 Apr 2014

 

Written by Ray Coman

 

With a general election fixed for 7 May 2015, this will be the last full tax year of the current coalition. Many of the changes to take effect from today were announced in the 2014 Budget, although some had been scheduled from much earlier. The main changes effective 2014-15 include:

 

 

The changes include good news for savers and people with pensions and further stimulus for business. However, at a time where property and assets values in certain areas have risen sharply, the lack of change in the tax thresholds creates risk for investors.

 

 

In summary, the freeze on capital taxes will expose greater numbers to an increased burden of tax on wealth and property.
 

Coman & co are pleased to offer a summary of the new rates and allowances, which are key references for tax planning in the coming year.  Please contact us for a further discussion about your upcoming tax requirements.

Capital gains tax on property sale

Published: 28 Feb 2014

Updated: 06 Apr 2014

 

Written by

 

With the London property market soaring, exposure to capital gains tax is sharply on the rise. Tax accountant, Ray Coman replies to the questions this raises.

 

When I sell my property will I have to pay tax?

 

 

You will only pay tax on the sale of property that has not been your home.

 

How much could my tax liability be?

 

 

A gain for tax purposes is the increase in value between buying your house and selling it. This taxable gain can be reduced by costs of purchase, of sale and improvement to the property. Any losses you have made previously, and your annual allowance, currently £10,900, could further reduce the taxable gain. Most of the gain would probably be taxed at 28%.

 

How is my tax reduced if the property used to be my home?

 

 

The proportion of gain during which a property was your Principal Private Residence (PPR) will be exempt from tax.

 

You will be treated for tax purposes as living in the property during certain periods of absence, such as when required to temporarily relocate for work. However, you can only have one PPR at any time. For a final period, you are deemed to live a property, even if you actually lived elsewhere, and did not return to live in it. For properties exchanged before 6 April 2014 the final period is 36 months, however it then reduces to 18 months.


If you let a property that was once your home any gain is further reduced by up to £40,000, per owner.

 

Would I save tax owning a property through a company?

 

 

There is rarely any tax benefit to owning a property in a company. Any gains are subject to corporation tax, and when taking gains out of the company, further tax liability is likely to arise on dividends. A company is not eligible for PPR relief or an annual exemption.

 

Should I transfer the property into joint names with my husband or wife before selling it?

 

An acquiring spouse 'inherits' the actual and deemed periods of occupation of the transferring spouse. Transferring a property can, therefore, save a couple tax. However, a person, or a married couple, can only have one PPR at any time. Therefore, if the transferee spouse was previously a homeowner, the transfer could create a significant tax liability.


Transfers between spouses are exempt from capital gains tax.

 

I had two homes, what happens if I sell one of them.

 

 

The fortunate few who have two homes at the same time could benefit by nominating one of the properties as a PPR.

 

How is my tax position affected if the property market does not increase?

 

If price stagnate, the effectiveness of PPR will diminish. If you sell your home for less than you bought it for, the loss cannot be used to reduce any taxable gains you make in the future.

 

Coman & Co can advise on the tax implications of your property investment plans. Please contact us for a free consultation.

 

Final period of deemed occupation to reduce

Published: 22 Feb 2014

Updated: 28 Feb 2014

 

Written by Ray Coman

 

As from 6 April 2014 the rules change affecting taxpayers who own property that was previously their home.

 

Each person is entitled to dispose of a property occupied as their home without suffering any capital gains tax. However, for any other property an exposure to capital gains tax arises. The tax system will allow a person to continuing to treat their former home as exempt from capital gains tax during certain periods of absence. These periods are referred to as deemed periods of occupation.

 

One deemed period of occupation is the final period of ownership. The final period of ownership would provide exemption from capital gains tax in the situation where a person has moved home but their pervious place is still on the market. The final period used to be 36 months, but for properties exchanged after 6 April 2014 it will reduce to 18 months.

 

Principal Private Residence relief can significantly reduce a person’s tax liability. The reduction in effectiveness of the relief will increase the potential tax burden on eventual disposal of a property. Please contact Coman & Co if you are concerned about the impact of the proposals on your exposure to capital gains tax.

Magazine Articles

Published: 21 Dec 2013

Updated: 21 Dec 2013

 

Ray Coman writes on the topic of taxation for a number of magazines.

 

This section includes a selection of offline articles in publication.

Sole trader or company

Published: 21 Dec 2013

Updated: 30 Jan 2014

 

When you are self-employed a limited company is often worth considering. To help you decide, an accountant responds to some of the usual queries.

 

I am not sure whether the tax savings will make it worthwhile.

 

A company can be suitable for various reasons. Your accountant should help you to understand if and when a company would be right for you.

 

Is having a company going to take up a lot of my time?

 

You would probably spend an extra hour a year being a company rather than a sole trader. This could be a worthy investment of time when compared with the benefits and tax savings of having a company.

 

There would be more penalties

 

Yes, there are penalties for late filing of accounts with Companies House, which would not apply to a sole trader. The deadline for company accounts is typically nine months after the year end, which is about the same as for a personal Tax Return. Most companies are able to meet the deadlines, and so avoid any penalties.

 

The tax would be more complicated

 

If anything company tax is simpler to understand. There is often no national insurance liability and, in many cases, no payments on account. Sole traders typically have to make payments on account to HMRC for estimated, future tax liabilities. As such, the system for sole traders can make liabilities harder to predict and bring about cash flow shortages.

 

If I am registered as a company, does that mean I also have to be registered for VAT?

 

No, the VAT registration threshold (currently £79,000) applies to both sole traders and Companies alike.

 

All my business details would be public

 

Your can register your company at your accountant's address. Therefore, your home address would not be on any public record. For businesses with a turnover less than £6.5 million, the accounts which get filed with Companies House are abbreviated and as such do not include a profit and loss.

 

Don't I lose out on state pensions with a company?

 

There is a risk that you could forfeit state pension by changing the business to a company. However, if the company is arranged properly to pay you a salary each month then your social security should stay protected.

 

It's not as easy to close the business down

 

The procedure for closing down a limited company is now straightforward.

 

Is there now a lot of paperwork when I want to pay myself from the company?

 

Not really, you can simply transfer money from the company bank account to your personal bank account at any time. The money you withdraw will be treated as a mixture of salary and dividend. Most of the reporting of dividends takes place once-a-year after the year end. Usually, the only restriction is to keep about a fifth in the company bank for tax.

 

I would like a further discussion

 

At Coman & Co., we can respond to your query by email and, if suitable, arrange for a free, initial meeting.

HMRC offer incentive to bring Tax Returns up to date

Published: 25 Jul 2013

Updated: 25 Jul 2013

 

Written by Ray Coman

 

HMRC have this month put forward an incentive to taxpayers with overdue Tax returns. A new facility, 'My Tax Return Catch Up', has been made available for filing a tax return for any year up to 2011-12.


By taking advantage of the facility, penalties that would otherwise be due will be significantly reduced. Although late filing penalties, late payment penalties and interest would still apply, HMRC have offered the best terms available for those that file using the 'Catch Up' facility. In particular, HMRC have announced that they would not apply the highest penalty to those taking part in the campaign. This is a late filing penalty of equal to 100% of the tax due for Tax returns which are more than 12 months' late.


In addition to being spared the higher penalty, participants in the initiative would also avoid:

 

  • Determinations. A determination is essentially an estimate of tax liability made by HMRC;
  • Referral to debt collection which could result in unwanted telephone calls and visits; and
  • Possible court action.


With the aide of intelligence gathering software, Connect, HMRC is expected to contact relevant individuals. The proposal is aimed at taxpayers who have received a notice to file a tax return for any tax year up to and including 2011-12. The 'Catch Up' offer will expire on 15 October 2013.
Coman & co can assist:

 

  • Prepare your Tax Returns for outstanding tax years.
  • Take advantage of the offer made by HMRC in the 'My Tax Return Catch Up' campaign.
  • Calculate any tax payable or repayable, late filing late payment penalties and any interest thereon.


Please contact us to discuss how we can assist with the above

2013 Budget commentary

Published: 20 Mar 2013

Updated: 01 Apr 2014

 

Written by

 

In his first Budget since the loss of Britain’s credit rating, the chancellor has put forward accelerated plans for encouraging growth, spending and employment in the economy.  The personal allowance increase and the corporation tax rate cut will both occur a year sooner than previously announced.  Tax savings will also come to smaller businesses in the form of an employment allowance.

 

The most significant announcement came in the form of a new tax break for employers.  Starting from 6 April 2014, all businesses will be entitled to an Employment Allowance which will cover the first £2,000 of employers’ national insurance liability.

 

As an illustration, employers would pay no national insurance on a £22,400 salary paid to one of their employees.  This results from a rate of employer’s national insurance equal to 13.8% on any payments over approximately £7,900.  To provide another example, the effect of the allowance is the same as eradicating national insurance on the hiring of four staff at the minimum wage (of say £11,525 per year.)

 

The announcement will be particularly helpful to small business seeking to hire their first employee.  The incentive is well designed to relieve unemployment which remains stubbornly high among jobseekers in the 18-24 age band.

 

There was good news for larger business as well.  The full rate of corporation tax is now to reduce by a further 1% to 20% starting in April 2015.  In previous announcements the full rate of corporation tax was set to be reduced to 23% in April 2013, to 22% in April 2014 and 21% in April 2015.  Following the budget proposal of today, the rate will be further reduced to 20% in April 2015.

 

The overall rate has so far dropped 2% a year since the year starting in April 2010 when it was 28%.  Eventually, the most recent scheduled tax cut will put Britain’s rate of corporation tax the lowest in the Western world; lower than Luxembourg at 21%.

 

The personal allowance will increase from 6 April 2014 to £10,000.  As a result, the increase is now taking place one year sooner than previously announced.

 

From April 2015, parents will be able to have up to 20% of their childcare costs paid tax free, subject to a yearly maximum £1,200 per child.

 

With a triple dip looming in the economy, the further cuts announced today are hoped to re-spirit the economy over the remaining term of the coalition.  Opportunities will arise among individuals, families and small business to take advantage of these tax cuts.  Please contact us if you would like to discuss your tax plans in further detail.

High income benefit charge

Published: 09 Dec 2012

Updated: 20 Dec 2012

 

Written by Ray Coman

 

From 7 January 2013, a tax charge will be introduced for people on high incomes. The charge applies if either:

 

  • you receive child benefit, or
  • your partner receives child benefit, or
  • another person receives child benefit on behalf of a child who lives with you.

 

In this case a partner includes your spouse, civil partner or any other person who lives with you as if they were a spouse or civil partner, even if they are not the parent of the child on which benefit is received.

 

The tax charge applies to whichever partner has an income exceeding £50,000. If both incomes exceed £50,000 the tax charge would apply to the partner with the higher income. If neither partner has an income exceeding £50,000 then no charge would apply.

 

The charge is an amount equal to 1% of the child benefit for every £100 that income exceeds £50,000. In effect, the child benefit is tapered away until it reaches nil for individuals with an income of £60,000 or above. Individuals with total income over £60,000 who receive child benefit would suffer a tax charge equal to the benefit received.

 

It is possible to notify HMRC that you no longer wish to receive child benefit from 7 January 2013 and therefore no charge would apply.
The income tax charge is collected via self-assessment and there is no option for it to be collected via a tax code. Therefore if the income tax charge applies, a Tax return should be completed which includes the amount of the charge. Alternatively, a Tax Return would not be required if you have opted out of receiving child benefit, unless you already complete a tax return for another reason.

 

There may be an advantage to completing a child benefit claim, even if the tax charge cancels any benefit. The reason could be that you would receive a national insurance credit which would help protect entitlement to state pension.

 

For the purposes of the tax charge income includes most taxable income. However, there are deductions available for trading losses, pension contributions and gift aid payments. The tax benefits of reducing income between £50,000 and £60,000 are greater for people claiming child benefit.

 

We are specialists in assisting individuals with personal and family tax matters. Please contact us for an initial consultation which would be free at our offices.

Real Time Information

Published: 26 Nov 2012

Updated: 01 Nov 2015

 

Written by Ray Coman

 

What to report

Preparaing for payroll alignment

Implication for director of own company

Implementation

Objectives

 

The real time information (RTI) reporting system for payroll will be introduced from April 2013. Under the RTI regulations, Pay-As-You-Earn (PAYE) information should be reported electronically to HMRC on or before any payment is made. This replaces the current system, in which PAYE information is submitted once a year. RTI represents the most significant change to the PAYE system since it was introduced in 1944.


With real time reporting, it will no longer be a requirement to electronically file an employer's annual return to HMRC, which is currently summarised on forms P35 and P14. All the information, otherwise on the P35, would be relayed to HMRC on the payment reports for that year. An individual should still be sent a P60 which contains information that they may need to complete a personal Tax return. Similarly, there will no longer be an obligation to send HMRC P45s and P46s which are used to notify about starters and leavers. This is because information about starters and leavers will be automatically related to HMRC on the next payment occasion. Unchanged, however is the requirement for employers to provide P45s to leavers and use the P45 provided by a starter to update their payroll records.


Under the new regulations, most employers will have to start using Real Time Information (RTI) from April 2013, although employers with over 5,000 employees will have until October 2013 to be fully compliant. HMRC have indicated that they will notify employers when to start using the new system.


What to report

 

A Full Payment Submission (FPS) is the name given to the report which is required to be electronically communicated to HMRC on or before a payment is made to an employee. The FPS will include:

 

  • Full name, address, date of birth, national insurance number and gender of each employee.
  • The amount paid to every employee, including wages, overtime and bonuses.
  • Any deductions made for tax, national insurance and student loan repayments.
  • Statutory sick pay and all statutory maternity, paternity and adoption pay.

 

Under the existing system of e-filing for employers' annual returns, the above information is already reported to HMRC, however there are two additional pieces of information to be included on the RTI

 

  • Number of contracted hours (within certain bands) for each employee. This information is for the purpose of calculating entitlement to tax credits, in real time.
  • An indication that an employee has had an irregular pattern of pay, for instance, due to unpaid leave. This would confirm to HMRC that the employee is still employed, but not being paid for a while.

 

The FPS would also indicate the final payment before 5 April, as the year-end returns are no longer reported. Similarly, the leaving date and starting date are indicated on the following FPS, as P45s are no longer separately reported to HMRC. Form P11d for benefits-in-kind are still reported to HMRC under the existing arrangement. Payment dates will remain as 22nd of each month (or each quarter where the employer makes quarterly payments.)


Preparing for payroll alignment

 

It is a requirement of RTI reporting for PAYE information conveyed by the employer to be aligned with that held with HMRC. Consequently, employers should review the accuracy of all staff information, and summarise hours worked in time for when the first FPS is to be sent to HMRC. The first FPS may include information which would not be included on future FPSs, such as employees who have worked since 5 April of that year, but have since left. For most employers this may not be a practical hurdle, since the initial submissions will probably be shortly after April 2013.


It is the responsibility of employees to let HMRC know about any relevant change in personal details, such as change of address. HMRC may not automatically accept change of details related by an employer for data protection purposes. Nevertheless, the employer would still be liable to HMRC for any errors in the RTI. In practice, incorrect information on the FPS could lead to it being rejected, and therefore eventually late, and subject to penalties. It may therefore be prudent to review contracts to oblige employees to notify their employer in addition to HMRC regarding any change in details. It may be appropriate to review and update a new starter checklist. Name and address details for new employees should be externally checked with an official source, such as a passport. HMRC offer a national insurance verification process.


Implication for director of own company

 

An FPS would include all payments including those below the lower earnings limit for national insurance. Where no monthly returns have been submitted, HMRC would estimate any PAYE due, and pursue the employer for the outstanding amount, even if there is no tax due. However, as before, there is no requirement to register as an employer if all payments made to employees in the year are below the national insurance limit. In practice, therefore, it would make sense not to register as an employer, unless a director was in a position to make a monthly FPS with showing no deductions. Coman & Co. do not offer a monthly 'nil return' service. Voluntary national insurance contributions may be a suitable alternative for directors of one person companies. This is because the social security benefits (including the state pension) would not accrue to a person who is not being paid above the lower earnings limit or is otherwise paying national insurance. For entitlement to the universal credit, a director, in the one-person-company-minimum-salary scenario should notify the Department of Work and Pensions (DWP.)

 

Implementation

 

Employers can implement RTI reporting either through payroll software or via a payroll bureau. HMRC have published an approved list of software providers. HMRC also offer their own software, which by their own admission, has key limitations in dealing with many irregularities. The HMRC software does not produce payslips, P60s or P45s, or record any pay deduction which is not related to PAYE.


As the new RTI system will be heavily reliant on technology, employers should consider reviewing contingency arrangements, such as recourse to a separate payroll bureau. It is possible to send information to HMRC in advance of payday, where for instance computer system downtime is anticipated.

 

It is still the responsibility of the employer to submit a correct RTI, regardless of whether the service has been outsourced to a payroll bureau.

 

Most payroll software providers offer tax tables which automatically update, and a service which allows the pay information to be forwarded in real time.

 

Objectives

 

The objective of RTI are to:

 

  • Reduce the administrative burden for employer, by removing the requirement to file year end returns and P45s
  • Improve the currency of information held by the government.
  • To allow for the introduction of the Universal Credit, by providing real time information on working hours and pay. The government will be able to assess entitlement to social security benefits based on up-to-date information about income and hours worked.
  • Reduce overpayments and underpayments of tax made to individuals, caused by misalignment of PAYE information.

 

Our service

 

Coman & Co. are able to assist with your tax and accounting requirements as an employer. We can help with accounting software selection and payroll advice. We can offer payroll assistance to clients for whom we already provide a range of services, although we do not offer payroll as a stand-alone service. Please contact us for a consultation.

City meeting room offer

Published: 10 Nov 2012

Updated: 06 Apr 2014

 

Written by

 

Coman & Co are pleased to open a meeting room facility in Minories, EC3. The city location offers convenience for central Londoners seeking a confidential face to face meeting with an accountant. At the same time, we will continue to operate a reliable and competitive service from our existing, Dulwich establishment.

 

The rooms are fully air-conditioned with hot and cold drinks, stationery and WIFI internet access provided on the premises.

 

The venue is run by facility manager And Meetings, and we can therefore meet at a variety of other Central London locations listed here: http://www.andmeetings.com/our-venues


Appointments can be arranged from our main office through an online booking process.

 

We are a forward thinking practice and through our client login it is possible to digitally sign an approval to most documents online. As such, the majority of communication can continue remotely, although we are available for further consultation if required.

 

The initial meeting at either the central London or East Dulwich office is free of charge. Please contact us to arrange an appointment.

Pay accountancy invoices by card

Published: 07 Nov 2012

Updated: 22 Nov 2012

 

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

Certified QuickBooks Proadvisor

Published: 07 Nov 2012

Updated: 06 Apr 2014

 

Written by

 

We are pleased to let you know that Coman & Co are Certified Quickbooks ProAdvisors.  The Proadvisor certification is awarded to accountants who have demonstrated the required practical knowledge as assessed by a three hour examination.

 

For our clients who use the Quickbooks accounting software, we are therefore able to assist:

 

  • Tailor your QuickBooks file to work most effectively for your business.
  • Streamline processes for customers and suppliers leading to better credit control and enhanced profits.
  • Customise reports used to analyse your business performance.  For instance, profits by service line or by region.
  • Work with an accountant’s copy of QuickBooks, usually in preparing your year end, while you continue to update your file.  You can import the accountant’s copy without any data you have entered being overridden.  This system of transferring an accountants’ copy provides greater version control than many online accountancy software packages.

 

If you are not using QuickBooks, we are also able to assist, through our knowledge of other accounting software: Kasflow, Freeagent, Sage and Xero, among others.

 

Please contact us to discuss your accounting software requirements.

PAYE payment overdue 2012-13

Published: 28 Oct 2012

Updated: 22 Nov 2012

 

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.