Friday 30 November 2012

Planning for RTI

If you are an employer you should have received information from the Taxman about operating PAYE under Real Time Information (RTI).

Employers with fewer than 5001 employees will have to operate RTI from 6 April 2013, and that includes one-man companies. Some employers have already started to use RTI under the pilot program. Individuals who employ carers in their own home may be able to defer migrating to RTI until April 2014.

Defacto's online portal will be RTI compliant for 2013 however if you use another 3rd party software you need to check whether your payroll software will be RTI-ready from April 2013. Don't assume it will be. Some software providers have taken this time to discontinue legacy packages and force you to move to more expensive offerings. Even HMRC is cutting back on the free payroll software it provides. The HMRC PAYE Basic tools will work under RTI, but only for up to nine employees, and it does not handle net pay arrangements for employer pension contributions.

If you use an external provider to run your payroll, you must talk to them about how much it will cost to run your payroll from April 2013. RTI requires more data to be submitted to the Tax Office than currently required (see below). Also the RTI reports must be sent on or before the day on which employees are paid, which could be daily or weekly. Currently the Taxman requires an annual report of what has been paid and deducted under PAYE.

The 'on or before' requirement has been relaxed in limited circumstances where employees are paid in cash on the day they work, and the amount of payment cannot be known in advance. This may apply to bar staff and crop-pickers. However, the RTI report must still be made within seven days of the day of payment, or when the next payroll is run, whichever comes next.

As the purpose of RTI is to provide accurate information to the DWP on claimants' earnings, employers are required to provide the weekly hours worked by each employee, as they fall into the following bands:

A. Up to 15.99 hours
B. 16 to 24.99 hours
C. 30 hours or more
D. Other

You don't have to record the exact hours worked, only the normal hours the employee is expected to work.

From April 2014 the Taxman will charge penalties where RTI reports are submitted late, or containing inaccurate information. Please talk to us about how your business can meet the RTI challenge and how we can help. You have just four months to get ready.

Business Record Checks

The Taxman apparently believes that anyone who does business in cash must be a potential 'tax cheat'. This is ridiculous of-course, but his latest business record checks campaign is based on this fallacy.

If you receive a call from the Taxman asking questions about your business records, please refer the caller to us before agreeing to answer his questions. You should not be penalised for doing this. The Taxman is required to deal with the taxpayer's agent if asked to do so.

The telephone questionnaire is a computer-generated script, which only accepts a limited range of answers. For example: How many purchases are in cash? Answers accepted: none, a third, half or more.

The answers given determine whether the Taxman sends you guidance on how to keep better business records, or an Inspector to check what you may be doing wrong. Where the Taxman wants to inspect your business records, please ask us to be present when they come. The potential penalties for flying solo are not worth it.

VAT Registration Advice

It's one number (£77,000 from 1 April 2012), so why is so easy to get it wrong? We are talking about the compulsory VAT registration threshold in the UK. If your VAT taxable turnover (sales) total for the previous 12 calendar months exceeds this compulsory registration threshold, or the sales your expect to make in next 30 days will exceed that threshold, you MUST register for VAT within the next 30 days.

You can now register for VAT online on the HMRC website, but we recommend that you talk to us first, as so many things can go wrong. If you make a mistake with the form, the Taxman may not let you correct it. For example:

- If you exceed the VAT registration threshold due to a 'blip' in sales, you can ask the VATman for permission not to register for VAT, but you must ask first, permission may not be granted.
- You can reclaim VAT on services you purchased for your business in the six months before the day your VAT registration is effective from, so it is essential to time your VAT registration date with an eye on the invoice dates for those expensive services. If the service relates to an asset which was no longer held at registration, the VAT can't be recovered as pre-registration VAT.
- If you receive a large order which will push your sales over the VAT registration threshold for the next 30 days alone, pay attention to the delivery dates for that order. A staggered delivery for the order may mean you do not exceed the VAT threshold in the next 30 days, and you may register for VAT too early.

Beware scam e-mails

With the self assessment deadline approaching, there are more and more scam e-mails circulating, which appear to be from HMRC in relation to claiming a tax refund. These often look genuine - coming from "@hmrc.gov.uk" e-mails and they usually copy HMRC's logo from their website, and include links to HMRC's genuine website.

The e-mails have a form attached which asks for debit or credit card details, security codes and passwords, dates of birth, available balances on account - all of the details a fraudster needs to be able to steal from you!

HMRC do not e-mail in relation to tax refunds. Nor will they ever ask you for credit or debit card details for refunds.

If you receive an e-mail in relation to a refund DO NOT complete the form - delete it or forward the e-mail to us or to HMRC at phishing@hmrc.gsi.gov.uk

For examples of bogus e-mails see here: http://www.hmrc.gov.uk/security/examples.htm

Taskforce Targets Private Landlords

The Taxman has announced a taskforce to investigate tax avoidance in landlords in South East England.

Private residential landlords have now been the subject of a taskforce in: Scotland, North Wales, London, East Anglia, North East, North West, and now South East England. That covers pretty much the whole of the UK. The message is clear; individuals who own rental properties must correctly declare all of the income and gains generated by those properties.

It is relatively easy for the Taxman to trace the owners of let properties through the Land Registry and compare the registered owner's name to those recorded on the electoral roll for the property. If the names aren't the same, the Taxman will assume the property has been let. He can also ask letting agents to provide lists of the landlords and properties they serve.

Please talk to us if you are uncertain about what reliefs and expenses you can claim for your let property.

Thursday 1 November 2012

NIC Refunds for Vocational Training

Does your business engage self-employed teachers, lecturers or vocational instructors, or are you such a self-employed teacher or instructor? The NI contribution regulations were changed from 6 April 2012 to make it clear that such teachers/instructors should not be treated as employed and subject to class 1 NICs, where they were engaged on self-employed contracts.

However, for years prior to 6 April 2012 the Taxman demanded payment of Class I NICs from organisations who engaged self-employed vocational instructors whose self-employed status was not in dispute. Now the Taxman has admitted the NIC regulations in place before April 2012 did not apply to those who provided vocational or recreational training (as opposed to more formal education).

Consequently Class 1 NICs were paid by the engagers and trainers prior to 6 April 2012 when those contributions were not due. The type of instructors affected include: first-aid trainers, vocational and recreational trainers. These individuals and the organisations which engaged them, can now claim a refund of the class I NICs which have been paid in error.

The refund of Class I NICs can only apply to educators who were engaged on a self-employed basis. Also the Taxman will only refund contributions made for the last two tax years (2010/11 and 2011/12), or for years where the Taxman's decision was requested or challenged, and that decision has not been determined. We can help you draw-up the refund claim.

VAT on Exports

The internet has enabled many small businesses to sell internationally, but exporting goods and services can create VAT difficulties.

For VAT purposes you need to know whether you are selling goods (physical things), or services (things you can't physically touch eg: down-loaded software), as the rules vary for goods as opposed to services. You also need to know where your customer is based - in an EU country or elsewhere and whether the customer is a VAT registered business.

When you sell goods to other businesses in the EU or in other countries you can normally charge the zero-rate of VAT on the sale. This means you can recover VAT on any related input costs. However, you need to show that your customer was VAT registered and the goods physically left the UK. Getting the paperwork right is essential.

The rules for international services are more complicated as they depend on the place of supply of the service, which varies according to the type of service supplied and who it is supplied to (business or non-business customer). UK businesses selling to private customers in other EU countries must charge UK VAT. Where the customer is a business in another EU country, in most cases the customer accounts for the VAT in their own country, so the UK supplier does not charge VAT.

Whether you sell goods or services to VAT-registered businesses within the EU you must complete an EC sales list (ESL). If you only supply services, or your total goods and services sales do not exceed £35,000 per quarter, you may submit the ESL every quarter, otherwise you must submit monthly ESLs. Certain low-volume exporters can apply to the Taxman for permission to submit annual ESLs.

The ESL can be submitted in paper form on VAT 101, or online through the HMRC website, but it must contain the following details:

- your customer's name;
- the relevant country code for each customer; and
- the value of the goods and/or services supplied.

We can complete the ESL on your behalf, just like your normal VAT return.

Avoid Property Trading Tax

Some people regularly purchase run-down houses, do them up and sell them on. If you do this as part of your building/property development business, the profits made on the sale of the properties may be taxed as trading income (tax rates: 20%, 40% or 50%).

If you let the renovated properties, then sell them at a later date, the profits made on those sales will be taxed as capital gains (tax rates: 18% or 28%). The position is less clear cut if you live in each property for a period either during or after the renovations are undertaken. The Taxman is keen to charge any profits made on the renovated property as trading income, because if the profits are categorised as a capital gain, that gain may well be exempt from tax on the basis that the property was your main residence.

For the Taxman to prove the money made from the property is trading income he must show the owner's motive for purchasing and renovating the property was to make a profit, and not simply to make the property more comfortable for the owner to reside in. This is difficult to prove.

If the owner is a builder by trade the Taxman may also argue that the property renovation was undertaken as part of his building business, even if he also lived in the property. The Taxman may say the profits should be taxed as a trade if the owner has a history of purchasing and renovating many properties and living in each for only a short period.

If you want to avoid profits you make on renovating and selling a property being taxed as a trade, make sure you make the property your real home for a significant period. Have a good reason for living in that location, eg locality to schools or work, and try not to make a habit of purchasing and renovating several properties within a short number of years.

Reducing the Child Benefit Tax Charge

You may have received a letter from the Taxman about the high income child benefit charge (HICBC), which is designed to claw-back child benefit from high earners. We explained the principles of this charge in our September 2012 newsletter.

If you or your spouse/partner claim child benefit, and either one of you have income of over £50,000 per year, your family will be subject to the HICBC to claw-back part or all of the child benefit paid from 7 January 2013. The charge must be paid by the highest earner in the family irrespective of who actually receives the child benefit.

If you are the highest earner in the family, you will need to report the amount of child benefit the family receives on your self-assessment tax return. For 2012/13 this is only the child benefit received after 7 January 2013, but in future years it will be the full amount of child benefit received in the tax year. This will lead to a charge added to your tax bill due by 31 January 2014, or the charge may be collected through your PAYE tax code in 2013/14.

If you want to avoid paying the HICBC you and your partner/ spouse can:

a. elect not to receive child benefit from 7 January 2013; or
b. reduce the higher earner's adjusted net income.

You will be able to reverse the election in a) if your income drops, but you may miss out on some child benefit due to timing issues. Thus if your income is likely to be variable making an election not to receive child benefit is unlikely to be the best solution.

Your 'adjusted net income' could be reduced by using any or all of the following methods:

- Pay more personal pension contributions in the tax year. Make sure these contributions are paid by you and not by your employer.
- Increase the Gift Aid donations you make. Channel all the Gift Aid donations made by the family though the highest earner's bank account. Remember Gift Aid donations can be carried back to give relief in the previous tax year, if the donations are made before the tax return for that earlier tax year is submitted.
- Reduce the amount of income you extract from your own company and instead employ your spouse or partner in your business. This will spread the income generated by the business more evenly between you both.
- If you trade as a sole-trader you could take your spouse /partner into partnership, and again look to spread the income between you.
- Where you and your spouse/partner already trade as a business partnership, consider changing the profit sharing ratios so you each receive a more even amount of profit.
- If you are not domiciled in the UK you can adjust the amount of income you remit to the UK.
- If you are married and living with your spouse, you can transfer assets to your spouse that generate income such as shares, savings or let property. Transferring assets between individuals who are not married may well create a tax charge.

Please talk to us about how to undertake any of these planning ideas before trying to implement them to ensure they are appropriate in your own circumstances.

Monday 1 October 2012

National Minimum Wage Rates Increase

The National Minimum Wage rates are increasing, for some people, on 1 October 2012. The rates are dependent upon age with a special rate for apprentices.

The new rates from 1 October 2012 are:
  • Age 16 or 17 (over compulsory school age) - £3.68 per hour (no change)
  • Age 18,19 and 20 - £4.98 per hour (no change)
  • Age 21 and over - £6.19 per hour (increased from £6.08)
  • Apprentices 16, 17 or 18 (and 19 and over for the first 12 months of training) - £2.65 per hour (increased from £2.60).

If Defacto process your payroll for you we will check to ensure that you are meeting these obligations and advise of any required increases.  If you process your own payroll please ensure that you check wages and salary payments you will make from 1st October 2012.

Goodwill on Incorporation

Trading as a company is generally more tax efficient for profitable businesses; the tax rates are lower and many tax reliefs are only available to companies. Certain professions which were previously prevented from operating as a company, such as solicitors, can now incorporate.

If your business is loss making it may be better to remain as a sole-trader or partnership until those losses are fully relieved.

When incorporating a business, great care should be taken over the value of assets which are transferred to the new company, including the business goodwill. It is generally fairly easy to value fixed assets such as buildings or equipment, but goodwill of the business will depend on a number of factors and may not exist at all for some businesses. Examples of factors to consider include:

- Reputation of the business;
- Ability to generate future sales or fees;
- Customer & staff loyalty; and
- Location of the business.

A common approach is to estimate the capitalised value of the future profits of the unincorporated business and adjust for non-recurring items of income or expenditure. Adjustments will also be required for differences between the structure of the old partnership and the new company. The directors will be paid a salary, whereas the former partners took a profit share. Interest on borrowings will be paid by the company instead of by the partners.

Once a goodwill figure is established it can be included as part of the price to be paid under a sale agreement that transfers the business to the company. It is a good idea to include a price adjuster clause in this sale document, so if the Taxman challenges the value of the goodwill any outstanding amount of sale proceeds due to the former owners can be adjusted.

Where the former owners become directors of the new company, it is common practice to leave part of the sale proceeds owing to those individuals as loan accounts within the company. These loan balances can then be drawn down gradually from the company with no tax to pay. However, the former owners may have to pay capital gains tax on the transfer of the business to the company.

If you are thinking of incorporating your business, please talk to us first, as there are lots of details to hammer out which will be specific to your business.

VAT on Incorporation

If the previous business was VAT registered it can pass its VAT number on to the new company under the transfer of going concern rules (TOGC). However, this is not always advisable as the VAT number will carry with it all the 'history' of the old business, including defaults for late payment and error records. If the owners of the new company are not exactly the same people as those who owned the old business, the new owners may not want to take on the VAT 'sins' of the old business.

In this case the new company will have to apply for a new VAT number. This is the same procedure as a new VAT registration, and penalties will apply if it is not done on time.

If you want the new company to adopt the VAT number of the unincorporated business you must inform the Tax Office of the change in structure of the business within 30 days. If this deadline is not met the Taxman will impose a 'failure to notify' penalty which could be up to 100% of the VAT due, even where all the VAT due has been paid on time.

Please ask one of our VAT experts for advice on dealing with VAT on incorporation.

RTI Gathers Pace

We warned you previously about the new real time information (RTI) process. Now the Taxman is writing to all employers who are not already part of an RTI pilot, to tell them how to prepare for RTI.

To recap: RTI is a new way of submitting payroll data to the Tax Office. Instead of sending PAYE information to HMRC once after the end of the tax year, employers must submit their payroll data online on every occasion their employees are paid.

If you run a computerised payroll, your payroll software should be updated to cope with RTI. However, do check with your software provider, as some payroll packages are not going to be revised for RTI. In which case you need to find new payroll software, or use the free software provided by HMRC (for up to 9 employees), or ask us help you process your payroll each month.

All small and medium sized employers will be expected to start using RTI to submit payroll data from April 2013, unless they have agreed a different start date with the Tax Office. Once you receive an 'invitation' from the Taxman to use RTI, you must join the RTI system from the date directed.

You will need to collect some new data items under RTI which are not currently required for PAYE, such as:

- Hours worked per week for each employee based on one of four bands;
- Details of those earning less than the lower earnings limit (£107 per week);
- Which employees are paid irregularly, perhaps only once per year; and
- Passport numbers for employees who do not have NI numbers.

In addition you will need to have the correct NI number (where this exists), date of birth, gender, full name and address for each employee.

We can help you with the transition to RTI, but please start thinking about what help you might need sooner rather than later.

Taxman on the Hunt Again

The Taxman has run a number of campaigns designed to encourage certain classes of taxpayer to declare their untaxed income. In the past we have seen campaigns aimed at medics, plumbers, tutors, electricians and e-traders.

A new campaign started on 26 September 2012, this time targeting direct sellers. These are people who sell products on a commission basis in customers' homes. These sellers often earn very little from their efforts, but they still need to declare those small amounts of income to the Tax Office. The campaign will primarily focus on helping the door-to-door sellers understand their obligations to register for tax and to file tax returns.

Following swiftly on will be a campaign targeting builders and tradesmen who provide home maintenance, repair or home improvement services.

These tradesmen may not be registered with HMRC under the construction industry scheme (CIS) if they only work for householders. If you are such a builder or trades-person, now would be a good time to talk to us about any tax related worries you have.

The Taxman has also formed some new taskforce teams to door-step particular businesses in defined areas. The latest list of potential 'tax cheats' now includes: grocers & retail traders, restaurants, motor-traders, hairdressers & beauticians, and London-based lawyers! If your business is on that list, please talk to us ASAP.

Wednesday 5 September 2012

Self-billing

'Self-billing' is where the customer in the supplier/customer relationship raises the invoices to themselves for work done or goods provided by the supplier, instead of the supplier raising those invoices. Self-billing helps large organisations that need to pay out lots of small amounts to hundreds of suppliers. It allows their purchase invoices to be standardised which saves costs when processing, and payments to be made automatically at the time the invoice is raised.

However, there are significant disadvantages for the supplier who agrees to self-billing. The supplier losses control of when invoices are raised and may have no control over the amount billed and the amount of VAT shown on the invoice.

Although the VATman's guidance on their website says that the recipient of the supply (i.e. the customer who raises the self-billed invoice) is responsible for ensuring the invoice carries the correct VAT amount, it is actually the supplier who remains responsible for the amount of VAT charged.

If you are signed-up to self-billing as a supplier don't assume that the VAT shown on the invoices you receive from your customers is correct. You will remain responsible for any errors.

Whose Fault is Underpaid Tax?

Have you received a tax calculation (on form P800) which shows you owe tax that you thought had been collected under PAYE? Every year the Tax Office undertakes a 'PAYE reconciliation' to check whether the tax collected from pensions and salary under PAYE was the correct amount. Where a taxpayer has a number of jobs or several pensions in a year, the PAYE system can get it wrong, leaving tax underpaid.

We can help you check any form P800 you receive, but we need to see the PAYE codes issued to you for the tax year, and payslips from your employer or pension provider to check what PAYE codes they have used. Where the employer/pension provider has not used the correct PAYE code and this causes any tax not to be collected, it remains their responsibility, not yours.

Unfortunately the Taxman is ignoring this piece of law and is demanding payment of the underpaid tax from employees and pensioners, where the error lies with the employer/pension provider. We can help you challenge the Taxman on this point.

Sometimes the fault lies with the Taxman who has ignored information you or your employer have provided on more than one occasion. The Tax Office may also have let tax arrears build up over two or more years without telling you. If either of these situations apply, you can ask the Taxman to write-off the tax owing under Extra Statutory Concession A19. The Taxman is very reluctant to use this concession, but we can help argue your case.

Gifting Assets or Shares

If you plan to gift assets or shares to your relatives, there are several taxes you need to consider:

Capital Gains Tax

You won't make an actual profit or gain when you give away assets or shares, so you may not expect to pay capital gains tax. However, when the gift is made to a person connected to you, such as your son or daughter, UK tax law deems you to have made a transfer of the asset at its market value. This means you could well make a paper gain on the gift, which will be subject to capital gains tax. This does not apply to a gift to your spouse or civil partner.

You need to calculate this gain to see if it needs to be reported on your tax return. Where the gain from the gift, together with any other gains you make in the year, exceeds your annual exemption of £10,600, all those gains must be reported on your tax return.

To calculate the amount of the gain you need to know the market value of the items given, at the date of the gift, and the cost or value when you acquired the items. If you acquired the assets before 31 March 1982, the value at 31 March 1982 is taken as your cost value, so you need a value at that date as well. We can help you with the calculation of the gain, but it would be wise to engage a specialist valuer to determine the value of the assets (particularly property) at the date of the gift and at 31 March 1982 if required.

Gift tax

If the asset (such as property) you plan to give away is located in another country you need to take local tax advice as to whether gift tax will apply. This is not a tax we have in the UK, so any gift tax paid in another jurisdiction will not be offset against UK tax paid on the same gift. Local transaction taxes such as VAT or stamp duty may also apply, so do your research first.

Stamp Duties

Stamp duty does not apply to shares which are transferred as a gift.

Stamp duty land tax generally applies to the transfer of land in the UK, but it will not apply if the recipient gives nothing in return for the property, i.e. it is a pure gift. However, if the recipient agrees to take on a mortgage attached to the property, the outstanding value of that mortgage will be treated as consideration for the property and stamp duty land tax will apply to that consideration.

Inheritance Tax

Most gifts of assets you make will be treated as potentially exempt transfers for inheritance tax, which means they escape inheritance tax as long as you live for at least seven years after the date of the gift. You can look to take out insurance to cover the cost of inheritance tax that will become payable in respect of the gifts made during your lifetime. Gifts made into a trust may be subject to inheritance tax immediately.

Child Benefit Clawback

If your net taxable income last year was £50,000 or more you will shortly receive a letter from the Tax Office about child benefit. You can safely bin this missive if your children are no longer eligible for child benefit, but where you or your partner/spouse claim child benefit you need to pay attention.

This is because from 7 January 2013 the higher earner in the family (where that person has £50,000 or more of income) will be landed with a tax charge to clawback the child benefit claimed in respect of the children. The tax charge will equal 1% of the child benefit received by the family for every £100 of income over £50,000, so 100% of the child benefit will be clawed-back when the higher earner has net taxable income of £60,000 per year.

The tax charge only applies to child benefit paid from 7 January 2013 onwards, and will be calculated on your net taxable income for the current tax year: 2012/13. Net taxable income is income after deduction of losses, pension contributions and gift aid payments but before personal allowances. So there is some scope for reducing your net income below £50,000 by paying pension contributions, gift aid donations, or by taking a smaller dividend from your own company in the current tax year. But those strategies, and other ways to manage your income, need to continue until the children are no longer eligible for child benefit.

You will be given the option of declining to receive child benefit to avoid the tax charge, and this will be explained in the Taxman's letter. However, this is not the same as not making a claim for child benefit. It is important to make a claim for child benefit (even if you decline to receive it) as the claim can help entitlements to the state pension for a non-working parent, and ensures the child receives an NI number at age 15.

Monday 13 August 2012

Are You a Shadow?

When a company fails to pay over the PAYE and NIC which should have been deducted from salaries paid to the employees and directors, HMRC can issue the directors and shadow directors of the company with personal demands for the tax due.

A shadow director is not registered as a director of the company with Companies House, but he or she will effectively control the company by giving instructions to the named directors, and to other staff who are accustomed to act on those instructions. Majority shareholders may be deemed to be shadow directors if they effectively run the company.

Liquidators can take action against shadow directors just as they can against the named directors for debts owing, including tax.

There have been a number of cases recently where HMRC has gone after the shadow director of the company to collect the unpaid PAYE. In those cases the individuals may have assumed they could avoid any responsibility for the company's debts by not appointing themselves as a director of their company. However, HMRC questioned the staff involved to find out who issued the instructions to pay salary and not pay over the PAYE due, concluding that certain persons were shadow directors.

Tax Taskforces

These are teams of tax investigators who target particular trades in defined geographical areas with one-to-one visits. A typical taskforce team will include specialists to cover the taxes the business pays: VAT, PAYE, and corporation tax. It may include a computer expert to help with the computerised business records or the till. The Tax Office plans to have over 30 taskforce teams operating round the country by April 2013.

We have summarised below the target areas for the taskforce teams, as they have been announced. Each team has a target of about 300 businesses in the specified areas and trade sectors to visit.

Normally the taskforce team will arrange a time to visit the business and inspect the records, either by phone or letter. Please tell us as soon as you get a letter or call to arrange this. If we can speak to the tax inspector at this stage we may be able to limit the scope of the visit, or get it cancelled. For example if we can confirm that all your staff are always paid through PAYE, give the PAYE scheme reference number and the amount of PAYE and NI paid in the previous tax year, the PAYE specialist may stay at home.

Areas and trades targeted:

- London: Markets, property rentals, property transactions, restaurants, fraudulent repayments
- South West: Restaurants, motor trade, fast food outlets
- South East: Overdue tax returns
- Midlands: Taxi firms, restaurants
- East Anglia: Property rentals
- North East: Property rentals, motor trade
- North West: Restaurants, construction, landlords
- Yorkshire: Taxi firms, motor trade
- Nottinghamshire: Motor trade
- Northern Ireland: Hair and beauty
- Scotland: Pubs & nightclubs, fast food outlets, restaurants, scrap metal dealers, landlords
- South Wales: Restaurants, motor trade
- North Wales: Restaurants, construction, landlords

Online VAT Filing Reminder

Have you signed-up with the Tax Office to submit your VAT returns online, or agreed that we will do this online filing for you? If neither applies then you will shortly receive a letter from the Taxman reminding you of your online filing obligations. Almost all VAT businesses are now required to submit their VAT returns online for periods starting on and after 1 April 2012. The only exceptions are for:

- those who are subject to insolvency proceedings; or
- where the person is a practising member of a religious order whose beliefs are incompatible with the use of electronic communications.

You must also pay any VAT due electronically, but this includes many more options than just using online banking. For example you can set up a direct debit (by phone or letter), which will automatically collect the amount of VAT reported on the online VAT return, three days after the deadline for submitting that return. However, the direct debit does need to be in place before your VAT return is submitted and at least two working days before the deadline for that return. So Friday 3 August 2012 is the last day for setting up a direct debit for VAT returns to be submitted by 7 August 2012.

You can use a debit or credit card to pay VAT due of less than £100,000 (but not any penalties or interest due), via the BillPay service online. However, if a credit card is used a fee of 1.4% will be added to the VAT amount due, and the payment will take three working days to arrive.

Restricted Losses Ahead

A lot of businesses have made significant losses in the current recession and will continue to make losses for a while yet. Where those losses are made outside of a company they can generally be set-off against the entrepreneur's other income, or in some cases their gains, without limit. There are restrictions on the use of losses made from a business where the trader is not actively involved. Losses are often created by the amount of interest the business has to pay to the bank.

From 6 April 2013 the Government is proposing to cap the amount of loss relief and interest relief given in any one tax year to the higher of:

- £50,000; and
- 25% of the taxpayer's income.

The restrictions on losses and interest may affect business decisions you have taken, or which you are about to make in the next few months. Here are five ways the proposed restrictions could affect you:

1. Where you have significant losses in a current accounting period which will end in the 2013/14 tax year, you may be thinking of selling an asset for a gain to off-set those losses. Such plans need to be reviewed as your total loss relief will be restricted in 2013/14.

2. Partners who currently pay significant amounts of interest on their partnership loans may need to restructure those loans before 6 April 2013, to ensure their loan interest does not exceed the greater of £50,000 or 25% of their income.

3. If you are planning to invest in EIS shares or SEIS shares in the knowledge that if the enterprise doesn't work out, you will get income tax loss relief on the capital invested, you need to know that your loss relief may be restricted.

4. Where you have already subscribed for shares in an unquoted trading company which is sliding into insolvency, you may need to make a negligible value claim for the value of those shares, to ensure the loss falls in the tax year 2012/13 and is not restricted from 2013/14.

5. If you are planning to set up a new business which is going to make significant losses in the first couple of years, we need to discuss the structure of the proposed new businesses to ensure the losses are used as quickly as possible.

Monday 2 July 2012

VAT Opting to Tax on Buildings

Buildings are generally exempt from VAT, but there are a lot of exceptions to this.

A person who holds an interest in a building (freehold or leasehold) can opt to tax the building, such that income from selling or letting the building is subject to VAT.

If you purchase a building and the purchase price includes VAT, you do not have to opt to tax that building.
Consider Ali who owns a VAT registered car repair business. He purchases a new commercial unit for £200,000 plus VAT of £40,000. The unit is used entirely for the car repair business, so Ali can reclaim the VAT of £40,000 in the same way he reclaims VAT on other purchases.

Ali does not have to opt to tax the unit to reclaim that VAT. In a few years Ali may want to sub-let the unit, in which case the rent will be exempt from VAT. This will make Ali's business partially exempt, which may mean he cannot reclaim all the VAT charged on his purchases. In that situation Ali may choose to opt to tax the building so the rent must have VAT added.

Please check with us whether you should opt to tax a building you own or lease.

Company Money in Personal Account

Here's a nice problem to have: your company holds a lot of money, but you want to leave it there for now. Perhaps you don't want to be taxed personally if you take the money out of the company. The company may also have long-term plans for the funds, such as acquiring another business or property when a suitable target is identified.

In the meantime the company may only be able to earn 1% interest on the money, but you could earn say 4% on the same amount in your personal deposit account. Could you hold the funds on behalf of the company (as a nominee), and place them in your deposit account to achieve the higher interest rate? It is possible, but there are several issues to deal with:
  • The bank needs to be clear that the beneficial owner of the funds is the company and be willing to open an account on this basis. So the account name needs to be something like: 'A Brown as nominee for AB Ltd'
  • There needs to be trust deed or similar document signed on behalf of the company that appoints you as nominee for the company's money to be deposited in your account.
  • The board of directors of the company must be seen to have made an informed decision about this arrangement, and issue clear instructions as to the terms for depositing the funds. This should be recorded in the board minutes.
  • The bank may deduct income tax from the interest paid on the deposit account, which would not be due if the account was held in the company's name.
  • The Taxman needs to be convinced the funds in your account are not a loan from the company to you as a director or shareholder of the company.
This last condition is the most troublesome. If you don't meet it and it is deemed the company has made a loan to you which remains outstanding nine months after the company's year end, the company must pay tax of 25% of the value of that loan. You will also be taxed on the deemed interest payable on the loan at 4%, where the loan exceeds £5000 at any point in the tax year.

There are other practical considerations, so please discuss any such transfer of funds from the company with us first or if you have already done this without meeting the conditions above!

Tax Campaigns Update

The Taxman is determined to target tax evaders, so has been running several campaigns to target particular business sectors, such as doctors, electricians and e-traders.
The latest campaign is aimed at individuals who should be paying tax at 40% or 50%, but who have not submitted a tax return when requested to do so. These people will be offered a reduced penalty if the missing tax return is submitted by 3rd October 2012, and all the outstanding tax is also paid by that date.

If you know someone who has put their head in the sand regarding their tax affairs, please ask them to get in touch with us as soon as possible, so we can help them complete their missing tax returns.

Later this year the Tax Office will be targeting door-to-door sellers who sell to customers in their own homes. These sellers are often paid on a commission basis for the goods they sell, and may be vague about their own tax status.

Another campaign will target all tradesmen who provide home maintenance, repair or home improvement services. This will cover all small builders and skilled craftsmen who are not subcontracted to larger building firms.

Friday 1 June 2012

PAYE Reconciliations Starting

Between now and October 2012 around 5.1 million taxpayers will receive notice of a tax under or over-payment, arising from the PAYE reconciliation exercise for 2011/12. These PAYE adjustments are the natural result of calculating whether each taxpayer has paid the right amount of tax through PAYE or not.


The PAYE system does not cope well when a person has several employments or pensions running concurrently, or changes the benefits in kind (such as a car or medical payments) part way through the tax year. As result the amount of tax deducted from salary or pension is not perfect, although more problems are being overcome every year.

When the HMRC computer calculates that you have under or over-paid tax for the year it will send you a tax calculation on form P800. We will not get a copy of the P800 as your tax agent, so if you want us to check the figures for you please send us a copy.

If you are going to check the tax calculation yourself, start with the forms P60 or P45 you have received from your pension provider or employer for the tax year. First ensure you are comparing documents for the same tax year, the latest P800 form should be for 2011/12, but you may be sent calculations for earlier tax years. Is all the tax deducted as reported on the forms P60 also shown on the P800? There have been cases of HMRC mixing up the PAYE records of two taxpayers, so watch for any discrepancies in your taxed income figures.

You also need to check that your full personal allowance has been included, and the amounts for benefits or other income are accurate. These figures are often estimated at the beginning of the tax year, and may not have been amended to reflect the true amounts.

If you need any assistance please contact us.

Completing Forms P11D

It's time to complete forms P11D, to report expenses (which were not included in your dispensation agreement with the Tax Office) and benefits paid to your employees in 2011/12. The P11D details can be submitted online using the free HMRC software or using your own payroll software. Alternatively you can complete individual paper forms, or submit a schedule to the Tax Office containing details for all your employees. Whichever method you chose, the deadline is the same: 6 July 2012.


Be careful not to submit the same P11D details by two methods: say online and in paper form, as this will only confuse the HMRC computer!

Some other common mistakes made when completing forms P11D include:

- Not ticking the 'director' box when required
- Missing employee ID details such as date of birth, gender, and full name
- Including expenses which have been covered by a dispensation
- Incorrect calculation of benefits provided for part of the year, such as cars, vans and fuel. You should use number of days available/366 for 2011/12.
- Restricting the list price value of a company car to £80,000. This cap has been abolished from 6 April 2011
- Omitting the cost of accessories fitted to cars after delivery
- Using the incorrect rate of interest for beneficial loans - it was 4% for the whole of 2011/12.

We can help you with your P11D forms, which can be quite a nightmare if you have lots of employees who received benefits or expenses.

Unwelcome Visitors

The Taxman has wide powers to inspect your business, but he is supposed to give you at least seven days notice to check on your business property, computer or business records. He is permitted to turn-up without warning, but only if tax is immediately at risk, such as where fraud is suspected.


In spite of these strict rules, tax inspectors do try to examine business records without a prior appointment, or where an appointment has been arranged, the officers may turn up hours early before the tax adviser has arrived. If the Taxman pitches-up at your workplace and demands access to your business records, know your rights:

- Ask to see the inspectors' ID, which they must carry and check this ID is genuine by telephoning the HMRC office they claim to be from
- You don't have to let the tax officers into your building, and their rules say they must not gain entry by force
- You and your staff are not obliged to answer the tax officers' questions
- You are required to provide access at any reasonable time to any computer you use for your business, and help the tax officer extract the computer records, but that's where your responsibility ends
- The tax officers are not supposed to rummage around in your stuff. They can examine materials and records brought to them but they do not have search powers.

Remember if tax officers turn up unannounced, call us without delay!

IR35 Business Tests Released

If you provide services through your own personal service company you will be aware of the tax law known as IR35. This tax rule imposes an extra charge on your company, if you would be treated as an employee of your customer or customers, if you worked for the customer directly. It is very difficult to pin down when IR35 should apply, as it depends on the relationship between the contractor and the customer, which will be different in every case.

The Taxman thinks he can generalise about what makes some companies fall within IR35 and other escape it. He has drawn-up a set of business entity tests, complete with a scoring system, to help you judge whether your business would be at high, medium, or low risk of being investigated for falling under IR35.

These business entity tests are not derived from the tax law. They merely represent the Taxman's view of the risk of a business falling within IR35.

The scoring attached to the tests is controversial, as it penalises businesses that have no bad debts, never pay to advertise and operate from the owner's home. These IR35 business entity tests do not change the IR35 law one bit, and will probably be ignored by the Tax Tribunal.

If you choose to use the IR35 business entity tests, you don't have to declare your score to the Taxman, the tests are merely for your own guidance. However, if you are concerned that the business entity tests produce a high risk score for your businesses, we should discuss why this is the case. Are they any changes which can be made to the way your business operates which would make it less likely to be caught by IR35?

We can advise you on the correct tests for IR35, which would be recognised by the Tax Tribunal, so do ask if you would like some reassurance.

Thursday 3 May 2012

New Tax Dashboard

If you have recently logged-on to the HMRC online service for PAYE for employers, or corporation tax, you will have seen a request to sign-up for the tax dashboard. This is a new facility that will provide a single view of all your business tax liabilities arising from corporation tax or income tax (for company or individual), VAT and PAYE.

The tax dashboard will show the following for each tax:

- Amount owed
- Repayments due from HMRC
- Payments already made
- Interest due on any late payments
- Penalties incurred, and
- Direct debit payment plans

You will not be able to reallocate payments between taxes, or even between periods for the same tax. The dashboard is merely a viewing facility.

Before you can use the tax dashboard you must be registered with the HMRC online service for corporation tax or self-assessment. You may already be registered and have separate online logins for the PAYE, VAT and corporation tax or self-assessment online services. If this is the case you need to move all online services to one login, in order to see all taxes on your tax dashboard. There are instructions on the HMRC page for the tax dashboard on how to move online services to one login.

Tax agents cannot use the tax dashboard to view their clients' tax liabilities, which would be really useful. This facility may be provided in the future, but we are not holding our breath!

Filing Online Difficulties

Most tax and VAT returns now have to be submitted electronically, so if the return is late, even by a minute, the computer spits out a fine. This also applies to filing accounts and annual returns for companies or LLPs at Companies House.

Filing a tax return or submitting accounts online can be quicker, as there is no delay caused by sending a paper document in the post. You may also be given a longer period to file online, - an extra 7 days for VAT returns and an extra 3 months for personal tax returns. However, you do need software to file online, and this may not be freely available or the free version may not work for your particular circumstances.

Partnerships

For example, partnerships must submit a partnership tax return in addition to the personal tax returns for each partner. The partners' tax returns can be submitted online using the HMRC free software, but the partnership tax return cannot.

If you are a member of a partnership (or LLP) you must either submit the partnership return in paper form by 31 October, or acquire some commercial software to use to submit the return online, or ask us to help you submit the return.

Companies House Accounts

Private company accounts must be submitted to Companies House within 9 months of the company's year end. Say the company's year runs to 30 September 2011, the accounts must reach Companies House by midnight on 30 June 2012, even though this is a Saturday.

Companies House provides free software to submit company accounts online through its website, but this does not always work. If you leave filing your accounts to the last day, and the software, or your internet connection fails, you will get a fine of £150. You can ask us to file your company accounts and annual return on your behalf.

VAT

All VAT returns for periods starting on or after 1 April 2012 must be filed online, and any VAT due must be paid electronically, not by a cheque. Are you ready for this change? Talk to us if you want some help with filing VAT or other tax returns online.

How Gift Aid Works

There has been a lot of coverage in the press recently about tax relief for charitable donations.

When you make a donation to a charity or to a community amateur sports club you can make a declaration that your donation is made under Gift Aid. This declaration can be made in writing, online or over the phone, but in all cases it should include your name and address details, the name of the recipient charity, and a statement that you have paid sufficient UK tax to cover the 20% tax the charity will reclaim from the Tax Office.

Say you make a donation of £1,000 to a charity, and make a Gift Aid declaration for that gift. This results in a gift of £1,250 in the charity's hands as they can reclaim basic rate tax (20%) on the gross equivalent of the gift. In this example, 20/80 x £1,000 = £250.

You have to declare with your gift aid declaration that you have paid at least £250 in UK income tax or capital gains tax in the tax year in which you make the gift.

If you pay tax at 40% or 50%, the thresholds at which those higher rates are imposed are extended by the gross value of your gift, which gives you additional tax relief for your gift. For example, the 40% threshold is currently £34,370, so if you make donations under gift aid that total £1,000, these are treated as gross gifts of £1,250. Your 40% threshold is extended to £35,620, saving you 20% tax on £1,250 = £250. So overall it would have cost you £750 for the charity to receive £1,250.

It is not possible to completely eliminate your tax bill by making donations under gift aid. Such gifts would only reduce your tax bill to 20%.

Employer or Personal Pension Funding?

Who should pay contributions into your pension fund: you or your employer? If you control the company you work for, the most tax efficient solution is almost certainly for the company to pay as your employer.

The company can set a reasonable level of pension contributions against its profits subject to corporation tax (at 20%, 24% or 25%), and it pays no employers' NI charges on those pension contributions. A 'reasonable level' is where the salary plus benefits, including pension contributions, form a commercially reasonable remuneration package for the work done. As long as the total package is set at a commercial level or below, the company can receive tax relief for the remuneration payments.

If you pay pension contributions as an employee, you need to extract the funds from your company. If you do this by a salary, this creates an income tax charge in your hands. The company receives tax relief on salary payments but it must pay employers' NICs at 13.8%, with no upper limit. You are also subject to NICs on your salary at 12%, which then reduces to 2% on salary over £42,475 per year. So unlike pension contributions paid directly by the company, salary payments carry NICs of up to 25.8%.

If you take dividends from the company to pay your pension contributions, there are no NICs payable by you or the company. But the company does not receive tax relief on the payment of dividends. So the only tax relief due on the pension contributions is due at your marginal tax rate, on up to 100% of your earned income, capped by your annual allowance (see below). Dividends are not earned income, so if you only take dividends and no salary or other employment benefits from your company, the tax relief on your pension contributions is limited to £3,600 per year, which is the maximum for a person with no earned income.

Your annual allowance caps the amount of your pension contributions which attract tax relief. If this allowance is exceeded by pension contributions paid by you or your employer, you will pay a tax charge at your marginal rate. The annual allowance is now £50,000 per year, but this is extended by unused allowances brought forward from the previous three tax years. Thus the exact amount of annual allowance will be different for each individual, depending on his or her pattern of pension contributions.

We can help advise you on this for your own specific circumstances.

Friday 13 April 2012

VAT Changes

The Government has decided to tidy up some of the areas of VAT law where a different rate of VAT may be charged on very similar goods or services.

Food & drink
All food eaten on the supplier's premises; 'eat-in' purchases, are subject to standard rate VAT (20%). However, the consumption area for the food may be a communal area shared with other retailers, or tables and chairs on the pavement, neither of which are technically on the retailer's premises. In these cases the rules are to be redefined so that such areas adjacent to the retailer's premises will count as 'eat-in' areas, and the food sold to be eaten there will be standard rated.

Take-away food is subject to zero-rate VAT, unless it is hot food designed to be eaten straight away such as fish and chips. Some retailers argue that the food is only hot because is has been freshly baked, so charge zero-rate VAT. The law is to be clarified so that all hot food to take-away, other than freshly baked bread, will be subject to standard rate VAT.

Soft drinks designed to rehydrate, slake thirst or give enjoyment, are subject to standard rate VAT. However, some sports drinks are claimed to have nutritional values (e.g. protein enhancers), rather than the usual thirst-quenching properties of a soft drink. Hence the manufacturers have zero-rated those drinks. The law will be changed to ensure that all sports drinks are standard rated just like other soft drinks.

Land and buildings
The letting of a discrete area of land can be exempt from VAT, if the owner has opted to exempt the land or building. Self-storage lock-ups can fall into this exemption. However, other storage facilities where the customer does not have right of entry to a discrete area cannot be exempt from VAT. The law is to be changed to ensure that self-storage facilities are subject to standard rate VAT, whether or not the owner of the facilities has opted to exempt the whole building from VAT.

Miscellaneous items
Rental of hairdressers' chairs have previously been exempt from VAT in certain cases, but will now always be subject to standard rate VAT.

Sales of caravans will be subject to standard rate VAT, but residential caravans designed and constructed for year-round living will be zero-rated for VAT.

Approved changes to listed buildings are zero-rated for VAT, but repairs to those buildings are standard rated. This encourages the building owners to alter their protected buildings rather than repair them. The law will be changed so all building materials and building services supplied for alterations of listed buildings will be standard rated.

These changes will generally take effect from 1 October 2012, but where the contract for work on a listed building had been signed by 21 March 2012, the zero rate will continue to apply.

If your business is involved in any of the above areas, please talk to us about how to apply the correct rate of VAT on all your sales.

IR35 Proposals

There has been a certain amount of panic in the contractor community about a statement buried deep in the Budget documents about the reform of IR35. It says:

"The Government is bringing forward a package of measures to tighten up on avoidance through the use of personal service companies and to make the existing IR35 legislation easier to understand. This will include HMRC strengthening specialist compliance teams, simplifying the way IR35 is administered, and consulting on proposals which would require office holders/controlling persons who are integral to the running of an organisation, to have PAYE and NICs deducted at source."

This does not mean that everyone who is an office-holder (ie director or company secretary) of their own personal service company will have to be paid via PAYE. The proposed law change is aimed at the following situation:

A is an office-holder of PLC, such that he personally holds a position on the board of PLC, or has a controlling role within PLC. Instead of being paid a salary by PLC, A has agreed that his own personal service company (L Ltd), will send PLC an invoice for the time he spends on PLC business. PLC may be a large company, or a public department, or a local authority. In this case PLC will have to pay A through its payroll. PLC will not be permitted to pay A through L Ltd.

This change in the law will not affect genuine freelance workers or contractors who do not take up positions on the boards of their customers.

Get in touch if you need any advice on operating a personal services company.

Travel for Home-Based Business

If you are self-employed your business may well be based at your home address, although you perform the majority of your work at your customers' sites. This can apply to a range of trades from plumbers to computer consultants, and even medical professionals.

In order to claim the costs of travelling to your customers' sites against your taxable profits, you need to show that your trading activity does not cease when you arrive home. The following records should help prove this:

- Precise records of all journeys to your customers' sites, including the date, the mileage, and any public transport tickets and parking receipts.
- A diary of the time spent working on proposals, quotes and other business related paperwork at your home address.
- Business-related paperwork such as invoices and quotations should show your home address as the business base.
- Any insurance policy you need for your business should show your home address as the operational base for the business.
- Where your business is operated through a company, having the registered office for that company at the home address can also help. HMRC will be able to see these details, but you can hide them from prying eyes on the Companies House register.

You can also make a claim for the cost of running your business from home, so speak to us to see what can and cannot be claimed as a business expense.

How Much To Pay Yourself?

As the director and shareholder of your own company you can decide how much salary to pay yourself each month, in order to use your personal allowance in the most tax efficient way. As a director of your personal company you do not have to pay yourself the national minimum wage unless you have an employment contract with your company.

From 6 April 2012 the tax free personal allowance is £675 per month (£8,105 per year), so you could take a salary at that level and pay no income tax. However, the monthly thresholds for paying class 1 national insurance (NI) are: £634 for employees and £624 for employers. If your salary is £675 gross per month, your company needs to deduct NI of £4.92 and pay employer's NI of £7.04 on top.

If you take a lower salary of just over the NI lower earnings threshold of £464 per month you will get the NI credit, so your wages count towards your state pension entitlement, but you don't pay any tax or NI and neither does the company. However, at that annual salary level (£5,568) you will be 'wasting' £2,537 of your tax free personal allowance. At £624 per month there will be no NI to pay and you only have £617 of unused personal allowance, so this is likely to be more beneficial.

As a director's salary is an allowable expense for Corporation Tax purposes it is always beneficial to pay yourself a salary but talk to us first about the best salary level for you. The correct procedures also need to be in place when paying a salary and we will also need to take into account your other sources of income, as you may be using your personal allowance elsewhere.

Thursday 22 March 2012

Budget Summary Update 2012

INDIVIDUALS

Personal Allowances
The big news for individuals is that the personal allowance will increase to £9,205 from 6 April 2013, so you have to wait another year for that extra tax-free income. The personal allowance has already been increased by £630 from 6 April 2012 to £8,105, and the other allowances are increased as indicated below.

A source of complexity for older taxpayers is the application and withdrawal of age-related allowances, which are currently given when the taxpayer reaches age 65. These age-related allowances are withdrawn when the taxpayer's total income exceeds £25,400 (for 2012/13).

From 6 April 2013 those who reach age 65 on or after that date will not receive an age-related allowance, but will instead be entitled to the standard personal allowance of £9,205. This allowance is expected to rise to £10,000 in April 2014 or 2015. The existing age allowances given to people born before 6 April 1948 will be frozen at current rates as shown below.

Personal allowances for 2012/13...

Under 65 (standard allowance): £8,105 (2013/14 - £9,205)
65-74: £10,500 (2013/14 - £10,500)
75 and over: £10,660 (2013/14 - £10,660)
Minimum married couples allowance*: £2,960 (2013/14 - TBA)
Maximum married couples allowance*: £7,705 (2013/14 - TBA)
Blind person's allowance: £2,100 (2013/14 - TBA)
Income limit for allowances for age related allowances: £25,400 (2013/14 - TBA)
Income limit for standard allowances: £100,000 (2013/14 - £100,000)

* tax relief given at 10% where one partner was born before 6/4/1935.

Income Tax Rates
The tax rates for 2012/13 have not been changed from those applicable in 2011/12 (see below), but the threshold at which the 40% tax rate is applied is reduced to £34,370.

The reduction in the 40% threshold is balanced by the increase in personal allowance by £630. This means that in 2011/12 you start to pay 40% tax when your total income before allowances exceeds £42,475. In 2012/13 the 40% tax threshold is set at exactly the same amount: £42,475, before deduction of personal allowances. You can increase your own personal 40% threshold, by making donations under Gift Aid or paying personal pension contributions in the tax year.

Rates for 2012/13
Savings rate* (10%) - 0 to £2,710
Basic rate (20%) - 0 to £34,370
Higher rate (40%) - £34,371 to £150,000
Additional rate (50%) - over £150,000

* Only applies if non savings income is below this amount.

The rate on dividends remains at 10% for basic rate taxpayers, 32.5% for higher rate and 42.5% for additional rate. All come with a 10% tax credit.

Rates for 2013/14
There was much speculation before the Budget about the removal of the 50% rate that applies to taxable income above £150,000. This 50% additional rate remains in place for 2012/13, but will be reduced to 45% from 6 April 2013. The Government has also published most of the other tax rates and thresholds for 2013/14 as follows:

Savings rate* (10%) - 0 to £2,770 (estimate)
Basic rate (20%) - 0 to £32,245
Higher rate (40%) - £32,246 to £150,000
Additional rate (45%) - over £150,000

* Only applies if non savings income is below this amount

The rate on dividends will be 10% for basic rate taxpayers, 32.5% for higher rate and 37.5% for additional rate. All come with a 10% tax credit.

Child Benefit
Another area of speculation was the withdrawal of child benefit from families where at least one parent pays tax at 40% or higher.

The Chancellor listened to reason and has decided to taper the withdrawal of child benefit where the higher earner's net income (after losses but before allowances), exceeds £50,000. For every £100 of income over £50,000, a tax charge will apply equivalent to 1% of the child benefit received by the family. This will lead to the complete withdrawal of child benefit at £60,000 of net income. This tax charge is to apply from 1 January 2013, and will be collected through PAYE and self-assessment from the higher earning partner in the family.

If you, or your partner, are currently in receipt of child benefit you don't have to do anything now. HMRC will be writing to all those affected by this change later in 2012. However, please discuss with us how you could re-arrange the distribution of income within your family, to reduce the affect of the withdrawal of child benefit. Any action in this area should be taken as soon as possible to ensure the new arrangements are in place for the full tax year 2012/13.

Tax Credits
The following summarises the rates and thresholds that will be cut or frozen in 2012/13 compared to 2011/12.

Child Tax Credit
Family element - £545 (2011/12 - £545)
First income threshold - £15,860 (2011/12 - £15,860)
Second income threshold - withdrawn (2011/12 - £40,000)

Working Tax Credit
Basic element - £1,920 (2011/12 - £1,920)
Couple and lone parent £1,950 (2011/12 - £1,950)
30 hour element - £790 (2011/12 - £790)
Childcare element:
Maximum costs for one child - £175 per week (2011/12 - £175 per week)
Maximum cost for all children - £300 per week (2011/12 - £300 per week)
Percentage of costs covered - 70% (2011/12 - 70%)
First income threshold - £6,420 (2011/12 - £6,420)
Withdrawal rate - 41% (2011/12 - 41%)
Income rise disregard - £10,000 (2011/12 - £10,000)
Income fall disregard - £2,500 (2011/12 - N/A)

The income disregard provides a buffer for changes in income, so overpayments of tax credits do not arise where income varies within this threshold year on year. This affects families with fluctuating incomes, such as the self-employed. If you are in this position you need to finalise your profit figures as close to the tax year end as possible and provide those figures to the Tax Credits office without delay.

There are also changes to the tax credit rules from April 2012, which affect the number of hours the adults in the family must work to qualify for working tax credits. Lone parents are not affected by these changes.

Cap on Tax Reliefs
The Chancellor wants to deal with wealthy individuals who take advantage of tax reliefs that have no annual limits, such as relief for trading losses, charitable donations, and capital allowances. He is proposing that from April 2013 all such tax reliefs will be capped at the greater of £50,000 per year or 25% of the taxpayer's gross income. If this idea becomes law it could significantly affect loss-making businesses that are not conducted through a company.


SAVINGS AND INVESTMENTS
Enterprise Investment Schemes
From 6 April 2012 there are two schemes which you can use to achieve tax relief for investing in small unquoted companies: the seed enterprise investment scheme (SEIS) and the enterprise investment scheme (EIS). The tax relief given under each scheme is shown below for 2012/13:

Rate of income tax relief: SEIS - 50%, EIS - 30%Annual maximum investment qualifying for income tax relief: SEIS - £100,000, EIS - £1,000,000Capital gains tax relief on investment: SEIS - 18% or 28%, EIS - deferred relief

Both the company and the investor have to qualify in order to receive tax relief under SEIS or EIS. The rules for both schemes are very complicated, so please talk to us before deciding to use either scheme.

Pension Contributions
In spite of much speculation about a reduction in tax relief for contributions to registered pension schemes, there has been no change in the tax relief rates or annual allowance for 2012/13. The annual allowance is the limit on pension contributions that attract tax relief, whether those contributions are paid by the individual, his employer, or calculated as a deemed rise in the value of a final salary scheme.

Each individual has a personal annual allowance of £50,000, plus unused annual allowance brought forward from the previous three tax years. If the value of the contributions made to the pension scheme exceed the taxpayer's annual allowance, an annual allowance tax charge applies on the excess contributions, set at the taxpayer's highest rate of income tax.

Annual allowance: 2012/13 - £50,000 (2011/12 - £50,000)

Lifetime Allowance: 2012/13 - £1,500,000 (2011/12 - £1,800,000)

Independent Savings Accounts (ISAs)
The ISA savings limits applicable in 2012/13 for those over 18 are:
Overall limit - £11,280
Cash up to - £5,640
Balance in stocks and shares up to - £11,280

For those aged 16 & 17:
Overall limit - £5,640
Cash up to - £5,640
Balance in stocks and shares up to - nil

For Junior ISA:Overall limit - £3,600
Cash up to - £3,600
Balance in stocks and shares up to - £3,600


BUSINESS TAX
Simplification
The Government wants to simplify the accounts small businesses (partnerships and sole-traders) have to prepare for tax purposes. It is consulting on whether preparing accounts on a cash basis would be easier, and standard allowances could be used for the business use of vehicles and the proprietor's home. Any changes are likely to apply from April 2013 or later.

Corporation Tax
The small profits corporation tax rate remains the same at 20% for the year from 1 April 2012.

However the main rate for large companies is reducing from 26% to 24% and will be 22% by the year from 1 April 2014.

Capital Allowances
The rates and thresholds of the main capital allowances will apply as follows for 2012/13...
Main pool: writing down allowance: 18% (2011/12 - 20%)
Special rate pool: writing down allowance: 8% (2011/12 - 10%)
Annual Investment Allowance (AIA) cap: £25,000 (2011/12 - £100,000)


EMPLOYERS
NI

For 2012/13 the main rates and thresholds for NI contributions are:

Lower Earnings Limit (LEL) for Class 1 NICs - £107/week
Employer's class 1 above £144/week not contracted out - 13.8%
Employee's class 1 not contracted out from £146 to £817/week - 12%
Employee's additional class 1 above £817/week - 2%
Self-employed class 4 from £7,605 to £42,475 per annum - 9%
Self-employed class 4 additional rate above £42,475 per annum - 2%
Self-employed class 2 - £2.65 per week
Voluntary contributions class 3 - £13.25 per week.

The Government is consulting on how to integrate the administration of income tax and NI for employers and the self-employed. Any changes are unlikely to take effect until 2014 or later.

Share Schemes
The Government wants to encourage more employees to acquire shares in the companies that employ them. Small and medium sized companies can use the Enterprise Management Incentive share option scheme (EMI) to grant share options to employees, but there is a £120,000 cap on the value of share options each employee can acquire. The Government plans to raise this cap to £250,000 as soon as possible.

Cars and Car Fuel
Car Benefit

The tax charge for the private use of a company car is based on a percentage of the list price of that car when new, the percentage being based on the vehicle's CO2 emissions.
From 6 April 2012 cars with CO2 emissions in the band 76-99g/km will be taxed at 10% of list price. Those with CO2 emissions of 100g/km will be taxed at 11% of list price, with the percentage increasing in 1% steps for each additional 5g/km. From 6 April 2013 the 10% list price band will reduce again to 76-94g/km. A car with CO2 emissions of just 115g/km will then be taxed at 15% of list price.

From 6 April 2014 the 11% of list price will apply to cars with CO2 emissions in the band 76-94g/km, with a 1% step up for every addition 5g/km of CO2. From 6 April 2015 the minimum percentage of list price will be 13%, and from 2016 the minimum percentage of list price increases to 15%.

Fuel Benefit
Where a company car driver receives free fuel, the taxable benefit is calculated as the percentage of the list price for the car applied to a set value, currently £18,800. This will rise to £20,200 from 6 April 2012. The maximum taxable benefit of receiving free road fuel for private use will increase from £6,580 (for 2011/12) to £7,070.

The taxable benefit when fuel is provided for private use in a company van is frozen at £550 for 2012/13.



VAT
The VAT rates remain unchanged at...

Lower rate: 0%
Reduced rate: 5%
Standard rate: 20%

The registration and deregistration limits from 1 April 2012 are...
Registration turnover: £77,000 (1 April 2011 - £73,000)
Deregistration turnover: £75,000 (1 April 2011 - £71,000)

Changes from 2013
The following changes to the VAT rules will be made in 2013...



  • The standard rate of VAT will apply to the supply and installation of energy saving materials in non-residential buildings used for non-business purposes by charities. Currently the lower rate of VAT applies

  • The invoicing rules will be simplified

  • Exemptions will be introduced for commercial Universities

  • Cable-car rides will attract the reduced rate of VAT, where each cable car holds fewer than 10 passengers.

Proposals
The Government is consulting on the existing VAT law in the following areas, so expect changes in the future



  • Hot take-away food

  • Sports nutrition drinks

  • Self storage

  • Hair-dressers' chair-rental and

  • Alterations to listed buildings.

CAPITAL TAXES


CGT
There has been no change in the rates or thresholds for capital gains tax (CGT):


The rates for 2012/13 are...


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

Overseas Owners
Currently only UK resident individuals pay CGT on gains, even when the property is located in the UK. The Government is considering how CGT can be applied to gains made on residential property in the UK, when the owner is resident in another country. Any changes will apply from April 2013 at the earliest.

Employee Shares
If you acquire shares through an approved share option scheme run by your employer, you must pay CGT on gains made when you sell those shares, after deduction of your annual exemption. The CGT will be charged at 18% or 28%, as the conditions for the entrepreneurs' relief rate of 10% are unlikely to be met. The Government is considering changing the rules for approved share option schemes so the 10% rate can apply to shares acquired by employees. Any changes will apply from 6 April 2013 or later.

Inheritance Tax
The inheritance tax (IHT) nil rate band remains frozen until 2014/15. This is the amount of a person's estate that is free of inheritance tax. However, for deaths occurring on and after 6 April 2012, when at least 10% of their estate has been left to charity, a reduced rate of IHT applies to the chargeable estate. Gifts made to charities are exempt from IHT.

The limits and rates for 2012/13 are...

Nil rate band: £325,000 (2011/12 - £325,000)
Rate payable on death: 40% (2011/12 - 40%)
Rate payable when 10% of estate left to charity: 36% (2011/12 - 40%)
Rate payable on lifetime gifts to certain trusts: 20% (2011/12 - 20%)

Stamp Duty
You pay stamp duty when you purchase a property in the UK. There has been a lot of talk about how some people have avoided paying SDLT on high value homes. The tax avoidance scheme usually involves an off-shore company.

To deal with such schemes the Government has introduced new rates of SDLT on purchases of residential property valued at over £2 million:



  • 7% charge on purchases by individuals from 22 March 2012; and

  • 15% charge on purchases made on or after 21 March 2012, by companies, collective investment schemes, or partnerships where a member is a company or a collective investment scheme

An annual tax charge may also be applied to the value of residential property held by certain companies, where each property is worth over £2 million. Any such charge will apply from April 2013.