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.