Monday 16 September 2013

Universal Credit

If you or your partner currently receive any of the following then Universal Credit will eventually affect you:

• Working tax credit
• Child tax credits
• Income based job seekers allowance
• Income related employment and support allowance
• Income support
• Housing benefit

Universal credit is the government’s attempt to simplify the welfare system and to provide a greater incentive for people on benefits to work by ensuring they do not lose out financially. The government also hopes that it will reduce the amount of over/underpayment errors and fraud within the system.

It is already being trialed in parts of Greater Manchester and Cheshire and will be rolled out across the rest of the UK in phases between October 2013 and October 2017.

Claims for UC will be joint, as is currently the case for tax credits, but instead of weekly or fortnightly payments, under UC a single payment for the household will be made directly to a bank or building society account once a month. All claims will have to be made online.

The Department of Work and Pensions will receive information about earnings from HMRC (under Real Time Information reporting) and this will allow them to adjust the UC payment each month based on changes to income levels.

If you receive any of the benefits or credits listed above there is nothing you need to right now - continue to claim as normal and keep the DWP up to date with any changes to your circumstances.

Overdrawn Dividends

Under company law shareholders must not withdraw more dividends than the company has retained profits. So what happens if you find yourself in a position where you have done just that?

The overdrawn amount will be reclassified as a loan within the company accounts and where the loan is to a director, employee or related party the following rules apply:

• If the loan is more than £5,000 then there will be a benefit in kind (BIK) charge within the income tax return every year until the loan is fully repaid
• If there is a BIK then the company will suffer a Class 1A NIC charge every year until the loan is fully repaid
• If the loan has not been repaid to the company at the point that the company is due to make its corporation tax payment (i.e. 9 months and 1 day after the company year end) then it must pay a penalty tax charge in addition to its corporation tax.

The penalty tax is 25% of the outstanding loan amount. Whilst the penalty tax will be repaid to the company once the loan is repaid, beware; there are specific rules regarding when the repayment may be claimed and it will take time to recover the monies from HMRC which can have a serious effect on the company’s cashflow.

How can you ensure you do not end up in this situation? Well the obvious answer is not to withdraw more dividends than are available. To do that you need to ensure that the company’s records are updated regularly throughout the year so that you can keep track of your profit and the estimated corporation tax that will become due.

Defacto recommend records are updated a minimum of once per month.

If you think you may have overdrawn dividends or if you need assistance with record keeping and tracking company profits throughout the year, please contact us.

High Income Child Benefit Charge (HICBC)

You may recall we told you about the new HICBC in November 2012 tax tips. It came into effect on 7th January 2013 and as we prepare the 2012/13 income tax returns, many of you are beginning to see this new rule take effect.

If you and your partner’s joint income for the tax year is £50,000 or more and one of you receives child benefit then the HICBC could affect you: The charge is 1% of child benefit for every £100 above £50,000 and if household income exceeds £60,000 then the HICBC will be 100% of the child benefit for that period.

In 2012/13 the charge is based on the amount of child benefit you were entitled to receive for the period 7th January 13 to 5th April 2013 (i.e. 13 weeks worth). From April 13 the charge will be based on the full year’s entitlement to child benefit.

It is included within the self assessment income tax calculation and will be payable to HMRC along with any income tax due – so the HICBC for 2012/13 is payable by 31st January 2014.

You will be asked about child benefit on your Defacto self assessment income tax checklist – if you or your partner receives child benefit then you must answer yes to this section. We will then contact you regarding additional information needed. As HICBC is paid by the higher earner we may need to ask for details of your partner’s income so that we can establish who should incur the charge.