Do you trade on E-bay, Amazon, GumTree or similar or know someone who does?
Did you know that the tax man has been collecting information from E-bay to identify traders who are not declaring their income?
HMRC have gathered names, ID’s and transactional information and are cross referencing this to self assessment records to identify individuals who should be registered as self employed.
Penalties are greater where HMRC discover the income before you declare it to them, so if you are already a client of Defacto and have been trading in this way but have not yet told us about it let us know as soon as possible – and remember that even if you are not making a profit the income should be declared and the losses recorded.
If you know someone who has been trading through one of these sites and may not have registered for self assessment then please pass on our details and let them know that we can help them to register and prepare their return.
Monday 4 August 2014
Entrepreneurs Relief – Planning Required
If you are thinking about disposing of the shares in your own company then make sure you plan ahead to ensure you meet all of the criteria for Entrepreneurs Relief.
Entrepreneurs Relief reduces the Capital Gains Tax on certain gains from 28% or 18% to 10% but all of the relevant conditions must be met for the gain to qualify.
In this scenario, for the 12 months up to the disposal of the shares:
1. The company must be a trading company
2. You must hold 5% or more of the shares in the company
3. You must be an employee or officer of the company
The first of these conditions – a trading company – means a company whose activities do not include to a substantial extent activities other than trading activities.
If you have amassed a large cash balance in the company bank accounts this could be considered to be an investment activity rather than a trading activity and could therefore leave you open to a challenge by HMRC over whether Entrepreneurs Relief is due on the gain.
Careful planning is required in advance.
Entrepreneurs Relief reduces the Capital Gains Tax on certain gains from 28% or 18% to 10% but all of the relevant conditions must be met for the gain to qualify.
In this scenario, for the 12 months up to the disposal of the shares:
1. The company must be a trading company
2. You must hold 5% or more of the shares in the company
3. You must be an employee or officer of the company
The first of these conditions – a trading company – means a company whose activities do not include to a substantial extent activities other than trading activities.
If you have amassed a large cash balance in the company bank accounts this could be considered to be an investment activity rather than a trading activity and could therefore leave you open to a challenge by HMRC over whether Entrepreneurs Relief is due on the gain.
Careful planning is required in advance.
EC Sales Lists
If your business is VAT registered and you sell goods or services into other European countries you must generally also submit an additional form to the Government called an EC Sales List (ESL also known as form VAT101). There are no payments to be made or reclaimed with the ESL, as you do on your quarterly VAT return form, but you must submit the ESL on time or HMRC will charge a penalty for late submission.
If you export goods worth more than £35,000 per year you will need to complete a monthly ESL, otherwise it's a quarterly task. However, where your total turnover is less than £106,500 and you export less than £11,000 you can ask HMRC for permission to submit just one ESL per year.
HMRC should send you an ESL form to complete if you have filled in box 8 on your VAT return. Don't ignore it, as the deadline for returning the form is just 14 days from the end of the quarter. If you chose to complete an online version of the ESL you have 21 days from the end of the quarter. These deadlines are much shorter than that for your quarterly VAT return.
We can complete and submit the ESL online on your behalf.
If you export goods worth more than £35,000 per year you will need to complete a monthly ESL, otherwise it's a quarterly task. However, where your total turnover is less than £106,500 and you export less than £11,000 you can ask HMRC for permission to submit just one ESL per year.
HMRC should send you an ESL form to complete if you have filled in box 8 on your VAT return. Don't ignore it, as the deadline for returning the form is just 14 days from the end of the quarter. If you chose to complete an online version of the ESL you have 21 days from the end of the quarter. These deadlines are much shorter than that for your quarterly VAT return.
We can complete and submit the ESL online on your behalf.
Commission Refunds
If you invest through a firm of financial advisers, you may well receive a repayment of commission from that firm each year. In previous years any refunded commission was rolled into the earnings from your investments or set against charges, so you may not have been aware of it. However, from 6 April 2013 the financial adviser must deduct tax from any refunded commission and show the amounts paid and deducted separately on your annual statement .
You should look out for these refunded amounts on your investment statement for 2013/14, as it must be declared on your 2013/14 tax return. However, don't add it into your interest, or dividend income. The correct place to declare the refunded commission is in box 16 on your self-assessment tax return under "other taxable income", with an explanation of the income in box 20.
We will do this for you when we complete your tax return, but please remember to provide us a copy of your investment statement that shows the refunded commission.
You should look out for these refunded amounts on your investment statement for 2013/14, as it must be declared on your 2013/14 tax return. However, don't add it into your interest, or dividend income. The correct place to declare the refunded commission is in box 16 on your self-assessment tax return under "other taxable income", with an explanation of the income in box 20.
We will do this for you when we complete your tax return, but please remember to provide us a copy of your investment statement that shows the refunded commission.
Maximising Statutory Maternity Pay
Paying statutory maternity pay (SMP) is not optional. It must be paid if your employee qualifies, but the good news is that a small business can recover 103% of the SMP paid from HMRC. A business that pays less than £45,000 of class 1 NICs in one tax year is defined as "small" for this purpose.
In a family business there may be scope for maximising the SMP payable for the first six weeks of maternity leave, and hence getting the Government to refund that SMP with a bit extra to cover the employer's NICs due. Let's see how this could work.
Where the employee earns at least £111 per week the employer must pay SMP at these rates for the following periods:
- for the first 6 weeks - 90% of the employee's average weekly earnings (AWE);
- the remaining 33 weeks - the lower of £138.18 or 90% of their AWE.
If a bonus is paid in the crucial "relevant period" - which is used to calculate the employee's "average weekly earnings" - the SMP payable for the first six weeks automatically increases. The remaining 33 weeks of SMP are not affected as that period is paid at a flat rate where earnings exceed £153.53 per week.
The relevant period is a period of at least 8 weeks ending on the pay day before the "qualifying week". The qualifying week falls 15 weeks before the expected birth date, so you need to know the expected date of birth before timing the bonus payment.
Say the expectant mother normally earns £520 per week, she will receive £468 per week in gross SMP for the first six weeks. Her employer will pay class 1 NICS of £260.82 on top of this SMP and will be able to recover: £468 x 1.03% = £2,892.24. If the class 1 NICs on the SMP are covered by the employment allowance of £2,000 for the business, the employer effectively recovers £2892.24 against an SMP cost of £2808.
However, paying a large bonus won't necessarily be tax effective; it depends on how much NICs can be covered by the employment allowance.
Say the employee receives a bonus payment of £2,000 in the relevant period, this bonus generates an employer's NICs bill of £276, and increases her AWE and hence her SMP for the first six weeks to £675 per week. Her employer can recover £675 x 1.03% for six weeks = £4171.50.
But this is a marginal increase from £2892.24 which was recovered without the bonus; an increase of £1279.26 for paying out £2447.40 (bonus + NICs on the bonus and SMP).
There is a calculator on the GOV.UK website that can help you work out the SMP that will be due, and you can change the answers to each question to see how difference in pay will change the SMP. We can also help you crunch the numbers.
In a family business there may be scope for maximising the SMP payable for the first six weeks of maternity leave, and hence getting the Government to refund that SMP with a bit extra to cover the employer's NICs due. Let's see how this could work.
Where the employee earns at least £111 per week the employer must pay SMP at these rates for the following periods:
- for the first 6 weeks - 90% of the employee's average weekly earnings (AWE);
- the remaining 33 weeks - the lower of £138.18 or 90% of their AWE.
If a bonus is paid in the crucial "relevant period" - which is used to calculate the employee's "average weekly earnings" - the SMP payable for the first six weeks automatically increases. The remaining 33 weeks of SMP are not affected as that period is paid at a flat rate where earnings exceed £153.53 per week.
The relevant period is a period of at least 8 weeks ending on the pay day before the "qualifying week". The qualifying week falls 15 weeks before the expected birth date, so you need to know the expected date of birth before timing the bonus payment.
Say the expectant mother normally earns £520 per week, she will receive £468 per week in gross SMP for the first six weeks. Her employer will pay class 1 NICS of £260.82 on top of this SMP and will be able to recover: £468 x 1.03% = £2,892.24. If the class 1 NICs on the SMP are covered by the employment allowance of £2,000 for the business, the employer effectively recovers £2892.24 against an SMP cost of £2808.
However, paying a large bonus won't necessarily be tax effective; it depends on how much NICs can be covered by the employment allowance.
Say the employee receives a bonus payment of £2,000 in the relevant period, this bonus generates an employer's NICs bill of £276, and increases her AWE and hence her SMP for the first six weeks to £675 per week. Her employer can recover £675 x 1.03% for six weeks = £4171.50.
But this is a marginal increase from £2892.24 which was recovered without the bonus; an increase of £1279.26 for paying out £2447.40 (bonus + NICs on the bonus and SMP).
There is a calculator on the GOV.UK website that can help you work out the SMP that will be due, and you can change the answers to each question to see how difference in pay will change the SMP. We can also help you crunch the numbers.
Subscribe to:
Posts (Atom)
