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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.

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.

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

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.

FAQs on self-assessment registration

Published: 21 Oct 2012

Updated: 22 Nov 2012

 

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’

Published: 09 Oct 2012

Updated: 26 Nov 2012

 

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

Published: 14 Jun 2012

Updated: 22 Nov 2012

 

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.

 

2012 Year end planning

Published: 23 Mar 2012

Updated: 01 Apr 2014

 

Written by

 

Long term plans are not likely to be much affected by the nearness of the end of the tax year. Nevertheless, with 5 April 2012 approaching, consider the following tips which may be useful in saving tax before it is too late.

 

Make use of your ISA allowance. Up to £5,340 can be invested in cash and up to £10,680 overall. Both gains and income in the ISA are tax free. Any unused ISA allowance is not carried forward to the next year. If unused by the 6 April it will be wasted.

 

Use the capital gains tax allowance. Similarly, if unused the allowance would be wasted. Tax can be saved by disposing of an asset over different tax years than all at once. If you hope to repurchase the asset, however, you have to wait 30 days or the allowance could still effectively be wasted. Consider also that gains can be taxed much less in a year where income is lower. Gains can also be effectively transferred to spouse via the 'nil gain/ nil loss' rule, so potentially two lots of allowances are available to a couple.

 

Invest in a pension up to £50,000 per year. Once more, unused allowance cannot be rolled forward. Especially if you are anticipating retirement, spreading contributions to £50,000 per tax year will be more tax efficient.

 

If you own a company, consider taking dividends to use up the basic rate tax, or delay profit extraction to avoid higher rates. It may be a suitable time of year to contact your accountant for year-end tax planning.

If you are a business owner, review the opportunities to delay income, bring forward expenses and outlay on capital and write off stock, assets and bad debts. The tax will be effectively relieved a year sooner, where profits are reduced before the end of the accounting year. On the other hand, where your effective rate of tax for 2012/13 is less favourable, lower profits this year would be less favourable.

 

For inheritance tax, gifts of up to £3,000 per year are tax free, and the unused allowance for the previous year can be brought forward. A gift of up to £6,000, or potentially more on the occasion of a wedding, could escape any eventual inheritance tax at 40%.

 

Consider when to cash in investment bonds, as the profits will increase your overall income, potentially bringing you into higher rates of tax.

 

The advice in this article is of a general nature not intended to be acted upon. Please contact your accountant to discuss your particular circumstances and the opportunities for tax saving that may be available. Coman & Co. Chartered Tax Advisers would be pleased to assist with any queries.

 

2012 Budget

Published: 22 Mar 2012

Updated: 01 Apr 2014

 

Written by

 

The 2012 budget has introduced tax measures and outlined proposals to advantage small and medium sized businesses, increase the taxation for the wealthiest homebuyers and reduce tax for people on the lowest incomes.

 

The decrease in the 50% rate to 45% on incomes over £150,000 will take effect after the 6 April 2013.  There is a corresponding decrease in the top rate for dividends to 37.5%.  Due to the tax credit, the effective rate of tax on dividends which take income over 150,000 will reduce from 36.5% to 31.25%.

For top earners the announcement presents an opportunity to defer income to April 2013 through planning, say, on pension contributions, extraction of business profits, remuneration and investment in income producing assets.

 

The personal allowance will increase from £7,475 to £8,105 on 6 April 2012 and to £9,205 on 6 April 2013.  There will be a corresponding decrease in the basic rate band from £35,000 to £34,370 on 6 April 2012.  However, the basic rate band will decrease to £32,245 from 6 April 2013.  The outcome will be a reduction in the level of income before reaching higher rate tax for 2013/14.  Currently, incomes are not taxed at the higher rate until they reach £42,475, however this will fall to £41,450 from 6 April 2013.

 

The raise in the personal allowance also lifts the income level at which it is withdrawn.  The personal allowance reduces by £1 for every £2 of income over £100,000, so that the allowance would not be fully abated until income reaches £116,210 for 2012/3 and £118,410 for 2013/14.

The age related allowances will also be fixed at their current levels until they eventually align with the increasing personal allowance.  Currently, people above 70 with higher incomes do not benefit from the extra allowance which is withdrawn by £1 for every £2 that the allowance exceeds £24,000.  The new measures will therefore affect the lower income by freezing the allowance against inflation.

 

With effect from 22 March, the government has lifted the stamp duty land tax (SDLT) from 5% to 7% on properties with a value over £2 million.  A SDLT rate of 15% will be applied to these expensive properties acquired through companies, including overseas companies, trusts and other structures.  This is a method previously used by wealthy individuals to avoid stamp duty.  The government also proposes to introduce an annual charge to existing structures used to purchase properties valued over £2 million. 

The chancellor also intends to make non-UK companies subject to capital gains tax on the sale of UK residential properties.

The registration limit for VAT will be increased from £73,000 to £77,000 of turnover from 1 April 2012.  The limit for simplified reporting of profits on Tax Returns, also known as three line accounts, will be aligned with the new VAT limits.  Businesses which are not established in the UK currently trading below the registration limit may be required to register, as the turnover test for these businesses will be eliminated from 1 December 2012.

 

The government has opened a consultation on a cash basis for calculating tax which is expected to apply to unincorporated business with turnover below the VAT threshold.  A similar scheme of cash accounting is already available to VAT registered businesses with a turnover under £1.6 million.  Through the scheme businesses account for VAT based on cash paid and received rather than when income is accrued.  The scheme prevents small businesses from being out of pocket to HMRC and gives immediate relief from bad debt.  A similar measure for calculating other tax applicable to small businesses could offer similar benefits.  The scheme also has the potential to significantly reduce the accounting burden for business owners.

The value of shares that can be granted under the Enterprise Management Incentive Scheme is set to increase to £250,000, up from £120,000.  The measure, which allows employees to exercise shares in their company without any charge to income tax, will improve the incentive available to key staff in small and medium sized businesses.  The government also intends to extend entrepreneur’s relief to gains on shares acquired through the Enterprise Management Incentive scheme.  Both the above announcements aim to benefit unquoted companies that meet the requirements.

 

The full rate of corporation tax will fall from 1 April 2012 to 24%. This is 1% lower than previously announced.  The small companies’ rate remains at 20%.

 

Coman & Co. Ltd. are chartered tax advisers and specialist accountants for individuals and business owners.  Please contact us if you have any further enquiries.

 

Tax Enquiries

Published: 22 Jan 2012

Updated: 26 Nov 2012

 

Written by Ray Coman

 

Once they have received your Tax Return, HMRC may respond with queries. Typically, HMRC will request that you provide evidence and explanations to support the information on your Tax Return.

 

HMRC are permitted to enquire into your Tax Return anytime within one year of receiving it. The period can be slightly longer where you have filed the Tax Return late. You can amend your Tax Return within twelve months of the filing deadline. Similarly, HMRC can enquire into any such amendments within twelve months of receiving them.

 

HMRC do not need to give any reason for making an enquiry. Although the main purpose of an enquiry is to identify mistakes on your Tax Return, your Tax Return is not necessarily inaccurate just because an enquiry has been opened.

 

You must keep your records until HMRC can no longer raise an enquiry. If you have trading or rental income, you must keep your records for a further four years.

 

HMRC also have the power to make an assessment of your tax liability based on information they discover that was not made available through your Tax Return. The time limit for a discovery assessment is four years after the tax year end. The time limit is extended to 20 years for information deliberately concealed.

 

A tax investigation is unwelcome and we offer a specialised tax enquiry service to reduce the costs involved. Please contact us for a free, initial meeting to discuss your requirements.

HMRC may reverse penalties for late Tax Returns

Published: 01 Feb 2012

Updated: 06 Apr 2016

 

Written by Ray Coman

 

HMRC workers held a one day strike on 31 January over the part-privatisation of some of their operations.

 

As a result HMRC has indicated that it may accept the inability to reach the helpline on 31 January 2012 as a 'reasonable excuse' for not filing on the deadline, provided the Tax Return is filed before midnight on 2 February.

 

Please contact us for if you have further queries relating to your tax affairs.

Paying tax under self-assessment

Published: 22 Jan 2012

Updated: 07 Apr 2016

 

Written by Ray Coman

 

Where possible, tax will be collected on your income before you receive it. This mainly applies to employment, pension and savings income. However this is not always possible, for instance where you have self-employment or rental profits. In this case, you will have to pay your tax to HMRC under self-assessment. This tax due is calculated on your Tax Return.

 

Paying tax under self-assessmentSelf-assessment tax and Class 4 national insurance is due by 31 January after the end of the tax year. However, payments towards the following year's tax liability can also be payable on 31 January in the tax year and 31 July after the end of the tax year. These are payments on account towards next year's tax liability. Payments on account are half of the previous year's liability. When your actual tax has been calculated, any balancing payment is due by the following 31 January, or a repayment is issued if the payments on account are more than the tax owed.

 

If 80% of your tax liability has been deducted at source, or the liability is less than £1,000, you will not need to make payments on account.

 

If you expect your current year income to be lower than that of the previous year you can request that your payments on account are reduced accordingly. If your profits are higher than the reduced amount then interest will be charged on the difference.

 

You will be also charged interest on any underpayments of tax. If the balancing payment is still overdue by 28 February following the tax year an extra 5% surcharge will be imposed, rising to 10% on any amount which is still outstanding on the following 31 July.

 

If you are taxed through PAYE you can arrange for additional tax to be deducted at source from your pay. Tax of up to £3,000 (or £2,000 for 2010/11 and earlier years) can be deducted in this way, provided you send your tax return online by 31 December following the end of the tax year.

 

The system of paying tax through self-assessment can be complex particularly where payments on account are involved. With our Tax Return service we aim to:

 

  • Minimise your tax
  • Clear up any queries you have regarding your payments
  • Remind you well in advance of deadlines the tax you have to pay, so reducing the chance of being charged by HMRC for late payment.

 

Please contact us and we would be pleased to help.