The letting of land is exempt from VAT unless it falls into one of the many exemptions from the exemption for VAT. One of those exemptions to the exemption is where accommodation is provided in hotels, inns, boarding houses and similar establishments, including rooms provided for the purpose of catering, i.e. an eating and drinking occasion.
If you hire a room in a hotel for a group function including a meal, and the hotel supplies the catering, the whole fee is subject to standard rate VAT. If the catering is supplied by an outside caterer, the Taxman used to take the view that the room hire would be exempt from VAT, whilst the catering cost would carry standard rate VAT (if the caterer was VAT registered). However, the Taxman changed his mind on this point in October 2011, and updated the VAT Notice 709/3: Hotels and holiday accommodation.
Unfortunately he didn't tell anyone he had released a new version of that leaflet so few businesses were aware of the change in practice, and confusion reigned. Now the Taxman has issued some more guidance as HMRC Brief number 02/13.
That guidance says where a room in a hotel is supplied for the purposes of catering, whether or not the catering is supplied by the same establishment, the room hire is subject to VAT at the standard rate. If you run a hotel, pub or similar place that hires out rooms, and have got this wrong in the past, the Taxman has said he will not pursue you for the VAT which should have been charged. However, you need to get the VAT treatment right from now on.
Showing posts with label defacto fd. Show all posts
Showing posts with label defacto fd. Show all posts
Tuesday, 5 March 2013
Annual Payroll and RTI
Under real time information (RTI) PAYE reporting, a Full Payment Submission (FPS) report is required to be made to HMRC every time an employee is paid, not just once after the end of the tax year as is currently the case. RTI will be compulsory for most employers from the first pay date following 6 April 2013.
Many one-person companies may wish to pay the director just once a year and avoid monthly RTI reporting. If you want to do this, you must first check that your payroll software will cope with an annual payroll, as many main-stream payroll software packages do not.
The second stage is to understand what reports HMRC will require under RTI. An annual payroll must be registered with HMRC. The current advice on the HMRC website says: "If all payments on which tax and NICs are due are paid to your employees annually in a single tax month, you can ask HMRC to be treated as an 'annual payer'. You must use the same month every year, so if this changes or you start paying your employees more frequently, you will need to tell HMRC."
There should be more guidance on the HMRC website about annual payrolls soon. If you do not register the payroll as being annual you will need to submit an Employer Payment Summary (EPS) to HMRC every month, which shows nil payments made to the employee.
Where an employee is paid irregularly, i.e. less often than once a month, it is essential that the irregular payment marker is made in the payroll software against that employee, as otherwise the HMRC computer system may delete that person from the payroll.
If you want to pay yourself a regular amount every month, and minimise the RTI reporting hassle, your payroll software may allow you to prepare all the FPS returns for the entire year in advance. However, you must check whether your particular payroll software will do this. You won't be able to prepare monthly FPS returns for the entire year in arrears, those FPS reports must be done in advance or at the time of payment.
If you need any advice about RTI please contact us.
Many one-person companies may wish to pay the director just once a year and avoid monthly RTI reporting. If you want to do this, you must first check that your payroll software will cope with an annual payroll, as many main-stream payroll software packages do not.
The second stage is to understand what reports HMRC will require under RTI. An annual payroll must be registered with HMRC. The current advice on the HMRC website says: "If all payments on which tax and NICs are due are paid to your employees annually in a single tax month, you can ask HMRC to be treated as an 'annual payer'. You must use the same month every year, so if this changes or you start paying your employees more frequently, you will need to tell HMRC."
There should be more guidance on the HMRC website about annual payrolls soon. If you do not register the payroll as being annual you will need to submit an Employer Payment Summary (EPS) to HMRC every month, which shows nil payments made to the employee.
Where an employee is paid irregularly, i.e. less often than once a month, it is essential that the irregular payment marker is made in the payroll software against that employee, as otherwise the HMRC computer system may delete that person from the payroll.
If you want to pay yourself a regular amount every month, and minimise the RTI reporting hassle, your payroll software may allow you to prepare all the FPS returns for the entire year in advance. However, you must check whether your particular payroll software will do this. You won't be able to prepare monthly FPS returns for the entire year in arrears, those FPS reports must be done in advance or at the time of payment.
If you need any advice about RTI please contact us.
Thursday, 31 January 2013
Green Car Scam
Please don't be taken in by a scheme which claims to reduce the taxable benefit of your company cars. The taxman has specifically warned taxpayers about this scheme on the spotlights page of his website.
The scheme promoters persuade employers to buy carbon credits to off-set against the carbon dioxide (CO2) emissions of company cars. This is fine, but buying carbon credits can't reduce the CO2 emissions rating of your company cars as recorded on the registration documents.
A vehicle's CO2 emissions are fixed at the time of its manufacture, and can't be changed for tax purposes. You must use the CO2 figure recorded on the vehicle's registration document for calculating the taxable benefit of the car, and the taxable fuel benefit if fuel is provided.
If you report a reduced figure of CO2 emissions for each of your cars on the P11D forms, as persuaded to by the 'plan green' promoters, you will pay less class 1A NICs for each car. Also your employees will be taxed on a lower percentage of the vehicles' list price. However, when the Taxman discovers the P11D forms used incorrect CO2 figures for each car, he will demand payment of the tax and NI avoided plus interest and penalties.
The scheme promoters persuade employers to buy carbon credits to off-set against the carbon dioxide (CO2) emissions of company cars. This is fine, but buying carbon credits can't reduce the CO2 emissions rating of your company cars as recorded on the registration documents.
A vehicle's CO2 emissions are fixed at the time of its manufacture, and can't be changed for tax purposes. You must use the CO2 figure recorded on the vehicle's registration document for calculating the taxable benefit of the car, and the taxable fuel benefit if fuel is provided.
If you report a reduced figure of CO2 emissions for each of your cars on the P11D forms, as persuaded to by the 'plan green' promoters, you will pay less class 1A NICs for each car. Also your employees will be taxed on a lower percentage of the vehicles' list price. However, when the Taxman discovers the P11D forms used incorrect CO2 figures for each car, he will demand payment of the tax and NI avoided plus interest and penalties.
Monday, 13 August 2012
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.
- 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.
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.
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.
Friday, 13 April 2012
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.
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...
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.
Thursday, 1 March 2012
Capital Exemptions and Losses
You can make up to £10,600 of capital gains in 2011/12 and pay no tax on that amount, as it should be covered by your annual capital gains exemption. If you have not used this annual exemption in 2011/12, check whether you can make any disposals which will crystallise gains before 6 April 2012. Individuals who have non-domicile status may not qualify for this annual exemption.
The annual exemption limit will be frozen in 2012/13 at £10,600. Any unused exemption for 2011/12 cannot be carried forward or passed on to a spouse. However, you can pass assets to your spouse or civil partner tax free. Then on the sale of the asset your spouse's annual exemption can be set against the gain.
The gift of the asset to your spouse must be done well in advance of the sale, with the correct legal documents drawn up. Take legal advice if you are not sure how to change the ownership of an asset.
If you have assets that have reduced in value so they are now worth almost nothing, you can make use of that loss by making a negligible value claim. If you submit the claim in 2011/12 you can ask for the loss to be treated as arising in 2010/11 or 2009/10 if the asset was also virtually worthless at that earlier date. This is useful, as capital losses can generally only be carried forward, not backwards
The annual exemption limit will be frozen in 2012/13 at £10,600. Any unused exemption for 2011/12 cannot be carried forward or passed on to a spouse. However, you can pass assets to your spouse or civil partner tax free. Then on the sale of the asset your spouse's annual exemption can be set against the gain.
The gift of the asset to your spouse must be done well in advance of the sale, with the correct legal documents drawn up. Take legal advice if you are not sure how to change the ownership of an asset.
If you have assets that have reduced in value so they are now worth almost nothing, you can make use of that loss by making a negligible value claim. If you submit the claim in 2011/12 you can ask for the loss to be treated as arising in 2010/11 or 2009/10 if the asset was also virtually worthless at that earlier date. This is useful, as capital losses can generally only be carried forward, not backwards
Wednesday, 1 February 2012
Closing Down Your Company
If you are in the process of closing down your company, or are thinking of doing so, you need to know about the change in the tax law from 1 March 2012.
If your company contains significant value, you will want to extract the cash and assets in the most tax efficient manner. Until now you could ask the Taxman to apply concession C16 to the payments made during an informal winding-up up of the company. Concession C16 allows the payments made to shareholders (known as distributions) to be taxed as capital gains. Shareholders who were also officers or employees of the company may be able to claim entrepreneurs' relief on those gains, which means the gain is taxed at just 10%.
Concession C16 is generally granted when the company has paid all its creditors, including the Taxman, and the owners promise not to start-up the same business in a different company. Concession C16 will cease to apply from 1 March 2012, and will be replaced by a new law as follows:
- Where the distributions are more than £25,000 in total, all those distributions will be subject to income tax (at rates of 25% or 36.11%), in the hands of the shareholders.
- Where the total value of the distributions to the shareholders of the company is no more than £25,000, the entire amount will be taxed as capital gains (at 10% where entrepreneurs' relief applies, or at 18% or 28% otherwise).
- Payments made as part of an informal winding-up on or after 1 March 2012, will be subject to the new law even if permission to use concession C16 was previously given.
- It doesn't matter on what date the company is finally dissolved or struck-off, it is the date on which the distribution is made that counts.
If your company holds significant value and you want to close it down, you can opt to use a formal liquidation. This will allow all the distributions to be treated as capital gains and for the lower tax rates to apply. However, a registered liquidator may charge a fee of £5000 or more to undertake the liquidation.
If your company contains significant value, you will want to extract the cash and assets in the most tax efficient manner. Until now you could ask the Taxman to apply concession C16 to the payments made during an informal winding-up up of the company. Concession C16 allows the payments made to shareholders (known as distributions) to be taxed as capital gains. Shareholders who were also officers or employees of the company may be able to claim entrepreneurs' relief on those gains, which means the gain is taxed at just 10%.
Concession C16 is generally granted when the company has paid all its creditors, including the Taxman, and the owners promise not to start-up the same business in a different company. Concession C16 will cease to apply from 1 March 2012, and will be replaced by a new law as follows:
- Where the distributions are more than £25,000 in total, all those distributions will be subject to income tax (at rates of 25% or 36.11%), in the hands of the shareholders.
- Where the total value of the distributions to the shareholders of the company is no more than £25,000, the entire amount will be taxed as capital gains (at 10% where entrepreneurs' relief applies, or at 18% or 28% otherwise).
- Payments made as part of an informal winding-up on or after 1 March 2012, will be subject to the new law even if permission to use concession C16 was previously given.
- It doesn't matter on what date the company is finally dissolved or struck-off, it is the date on which the distribution is made that counts.
If your company holds significant value and you want to close it down, you can opt to use a formal liquidation. This will allow all the distributions to be treated as capital gains and for the lower tax rates to apply. However, a registered liquidator may charge a fee of £5000 or more to undertake the liquidation.
Reporting EU Sales to HMRC
If your business is registered for VAT in the UK and you sell to VAT registered customers in other EU countries you are required to submit an EC sales list (known as ECSL or form VAT 101), to HMRC. If you move your own goods to a branch or subsidiary of your business in another EU country, you may also have to complete an ECSL for that period.
The ECSL is generally submitted quarterly, but businesses that export goods totalling more than £35,000 (excluding VAT) per quarter must complete an ECSL every month. If your business only sells services to other EU countries you can continue to submit a quarterly ECSL, but you can opt to submit monthly ECSL forms.
When you complete box 8 on your VAT return, the Tax Office will automatically send you an ECSL form to complete. The paper ECSL form must be submitted within 14 days of the end of the reporting period. You can complete the ECSL online, in which case you have 21 days from the end of the period to submit the form. Note that this deadline is well before the deadline for your regular quarterly VAT return.
We can help you submit ECSL forms, either on paper or online. Talk to us about the work involved.
The ECSL is generally submitted quarterly, but businesses that export goods totalling more than £35,000 (excluding VAT) per quarter must complete an ECSL every month. If your business only sells services to other EU countries you can continue to submit a quarterly ECSL, but you can opt to submit monthly ECSL forms.
When you complete box 8 on your VAT return, the Tax Office will automatically send you an ECSL form to complete. The paper ECSL form must be submitted within 14 days of the end of the reporting period. You can complete the ECSL online, in which case you have 21 days from the end of the period to submit the form. Note that this deadline is well before the deadline for your regular quarterly VAT return.
We can help you submit ECSL forms, either on paper or online. Talk to us about the work involved.
Thursday, 5 January 2012
Is Your Payroll Information 'Clean'?
The Taxman is asking all employers to spring-clean their payroll data to prepare for RTI. What does RTI stand for? It stands for Real Time Information, and within the next 18 months it will become as familiar to you as PAYE.
RTI is a new way of submitting payroll data to the Tax Office. Instead of sending the PAYE information in annually after the end of the tax year, all employers will have to submit the payroll data online on every occasion the payroll is run. This will allow the Taxman to understand who is being paid what amounts, and what PAYE is due, on a real-time basis. The details of employees' pay will be passed to the Department for Work & Pensions, to allow the amount of Universal Credits (which are replacing Tax Credits from October 2013) paid to workers to be adjusted on a monthly basis.
RTI will be compulsory for all employers and pension providers by October 2013.
Before payroll data can be accepted under the RTI system it must be 'clean'. That means having an accurate date of birth, full official name (not just initials or nick-name) and correct National Insurance number, for each and every employee. If the data for one of your employees does not agree to that on the Tax Office computer, the submission of the payroll data under RTI may fail, and you may get fined.
It will take some time to check the details of every employee on a large payroll, so it would be best to start this task as soon as possible.
RTI is a new way of submitting payroll data to the Tax Office. Instead of sending the PAYE information in annually after the end of the tax year, all employers will have to submit the payroll data online on every occasion the payroll is run. This will allow the Taxman to understand who is being paid what amounts, and what PAYE is due, on a real-time basis. The details of employees' pay will be passed to the Department for Work & Pensions, to allow the amount of Universal Credits (which are replacing Tax Credits from October 2013) paid to workers to be adjusted on a monthly basis.
RTI will be compulsory for all employers and pension providers by October 2013.
Before payroll data can be accepted under the RTI system it must be 'clean'. That means having an accurate date of birth, full official name (not just initials or nick-name) and correct National Insurance number, for each and every employee. If the data for one of your employees does not agree to that on the Tax Office computer, the submission of the payroll data under RTI may fail, and you may get fined.
It will take some time to check the details of every employee on a large payroll, so it would be best to start this task as soon as possible.
Online VAT Filing Compulsory
Are you already filing your VAT returns online? If not, then you need to prepare to switch to online filing as this will be compulsory for all VAT registered businesses from 1 April 2012. Don't leave this task until the last minute as it can take a few weeks to receive the unique user ID you need from the Tax Office. You will also have to create a password and set up a system to pay the VAT you owe.
You will no longer be able to pay the VAT due by cheque. You have to pay by electronic means. This includes using a direct debit, bank-transfer such as CHAPS or BACS, a personalised bank giro payment slip paid in at a bank (these need to be ordered in advance), or a debit card or credit card over the internet.
The good news is that Tax Office has now instructed its bank to accept tax payments by the faster payment service. This means the tax or VAT due will take less than a day to clear from your account to the Taxman's bank account. Before relying on this shorter timescale, check whether your bank account is set-up to use the faster payment service and if any money limits apply. Many bank accounts can only pay out up to £10,000 by electronic payments in one day. If your VAT bill exceeds that cap you may have to spread the payment over several days, or talk to your bank about other transfer methods.
We can file your VAT electronically on your behalf once you have completed the necessary authority forms from HMRC. We will also require all your VAT information in good time before the due date for the VAT return, so we can calculate the VAT due and tell you what to pay to ensure the return and payment is received by HMRC before the deadline.
You will no longer be able to pay the VAT due by cheque. You have to pay by electronic means. This includes using a direct debit, bank-transfer such as CHAPS or BACS, a personalised bank giro payment slip paid in at a bank (these need to be ordered in advance), or a debit card or credit card over the internet.
The good news is that Tax Office has now instructed its bank to accept tax payments by the faster payment service. This means the tax or VAT due will take less than a day to clear from your account to the Taxman's bank account. Before relying on this shorter timescale, check whether your bank account is set-up to use the faster payment service and if any money limits apply. Many bank accounts can only pay out up to £10,000 by electronic payments in one day. If your VAT bill exceeds that cap you may have to spread the payment over several days, or talk to your bank about other transfer methods.
We can file your VAT electronically on your behalf once you have completed the necessary authority forms from HMRC. We will also require all your VAT information in good time before the due date for the VAT return, so we can calculate the VAT due and tell you what to pay to ensure the return and payment is received by HMRC before the deadline.
Are You On The Taxman's Target List?
The Taxman has formed a number of task forces to investigate certain business sectors, where he believes tax rules are being ignored.
A summary of the current work of those task forces is listed below, but bear in mind that each task force will move on to a new geographical area once the first area has been investigated.
London Properties
This task force is investigating commercial property deals in Greater London, where the VAT rules may not have been applied correctly. Where they find such a case, the tax officers will review the entire tax compliance of the property owner, across all taxes.
Landlords
HMRC are targeting landlords with three or more let properties in the North West of England and North Wales. Have you or your family correctly declared all of your rental income?
Construction Industry
The targets are self-employed builders (including small companies) in the North West of England and North Wales. The task force is looking for under-declared sales (such as cash jobs) and over-claimed expenses (where there are no supporting invoices). Remember to keep every receipt for purchases and keep a log of all business mileage. We can help you by advising what expenses are allowable to claim against your income.
No Tax Return Submitted
This task force is currently operating in the South East of England, looking for businesses who have not submitted tax returns for corporation tax, VAT, PAYE or income tax.
A summary of the current work of those task forces is listed below, but bear in mind that each task force will move on to a new geographical area once the first area has been investigated.
London Properties
This task force is investigating commercial property deals in Greater London, where the VAT rules may not have been applied correctly. Where they find such a case, the tax officers will review the entire tax compliance of the property owner, across all taxes.
Landlords
HMRC are targeting landlords with three or more let properties in the North West of England and North Wales. Have you or your family correctly declared all of your rental income?
Construction Industry
The targets are self-employed builders (including small companies) in the North West of England and North Wales. The task force is looking for under-declared sales (such as cash jobs) and over-claimed expenses (where there are no supporting invoices). Remember to keep every receipt for purchases and keep a log of all business mileage. We can help you by advising what expenses are allowable to claim against your income.
No Tax Return Submitted
This task force is currently operating in the South East of England, looking for businesses who have not submitted tax returns for corporation tax, VAT, PAYE or income tax.
Tax Numbers for 2012/13
Tax rates and thresholds for 2012/13 have been announced as follows:
Income Tax Personal Allowances
Under 65: £8,105
65-75: £10,500
75 and over: £10,660
Minimum marriage allowance: £2,960
Maximum marriage allowance: £7,705
Blind person's allowance: £2,100
Income limit for those aged 65 or more: £25,400
Income limit for under 65 personal allowance: £100,000
Income Tax Rates
Savings rate* (10%): £0 - 2,710
Basic rate (20%): £0 - 34,370
Higher rate (40%): £34,371 to 150,000
Additional rate (50%): Over £150,000
* Rate does not apply where other income exceeds the savings rate threshold.
Different tax rates apply for dividend income as follows:
Basic rate (10%): £0 - 34,370
Higher rate (32.5%): £34,371 to 150,000
Additional rate (42.5%): Over £150,000
NI
The rates and weekly thresholds for NI contributions will be:
Employer's class 1 above primary threshold (above £144): 13.8%
Employee's class 1 not contracted out (from £146 to £817): 12%
Employee's additional class 1 (above £817): 2%
Self-employed class 4 (annual figures from £7,605 to £42,475): 9%
Self-employed class 4 additional rate (above £42,475 per year): 2%
Self-employed class 2: £2.65 per week
Voluntary contributions class 3: £13.25 per week
Capital Gains Tax
Tax rates for individuals
Up to basic rate band: 18%
Above basic rate band: 28%
Annual exemption: £10,600
Corporation Tax
From 1 April 2012:
Profit of £0 - £300,000: 20%
Profit of £300,000- £1,500,000: 26.25%
Profit of £1,500,000 and over: 25%
These rates apply where there are no associated companies.
Income Tax Personal Allowances
Under 65: £8,105
65-75: £10,500
75 and over: £10,660
Minimum marriage allowance: £2,960
Maximum marriage allowance: £7,705
Blind person's allowance: £2,100
Income limit for those aged 65 or more: £25,400
Income limit for under 65 personal allowance: £100,000
Income Tax Rates
Savings rate* (10%): £0 - 2,710
Basic rate (20%): £0 - 34,370
Higher rate (40%): £34,371 to 150,000
Additional rate (50%): Over £150,000
* Rate does not apply where other income exceeds the savings rate threshold.
Different tax rates apply for dividend income as follows:
Basic rate (10%): £0 - 34,370
Higher rate (32.5%): £34,371 to 150,000
Additional rate (42.5%): Over £150,000
NI
The rates and weekly thresholds for NI contributions will be:
Employer's class 1 above primary threshold (above £144): 13.8%
Employee's class 1 not contracted out (from £146 to £817): 12%
Employee's additional class 1 (above £817): 2%
Self-employed class 4 (annual figures from £7,605 to £42,475): 9%
Self-employed class 4 additional rate (above £42,475 per year): 2%
Self-employed class 2: £2.65 per week
Voluntary contributions class 3: £13.25 per week
Capital Gains Tax
Tax rates for individuals
Up to basic rate band: 18%
Above basic rate band: 28%
Annual exemption: £10,600
Corporation Tax
From 1 April 2012:
Profit of £0 - £300,000: 20%
Profit of £300,000- £1,500,000: 26.25%
Profit of £1,500,000 and over: 25%
These rates apply where there are no associated companies.
Thursday, 1 December 2011
Using VAT Groups
Do you control several companies, or own one company, which in turn controls several other companies? You could save time, hassle, and VAT in some limited circumstances, by asking the Tax Office to treat all your companies as one VAT group. You then only have to complete one VAT return for the VAT group, instead of one return for each company, and pay one amount of VAT over to HMRC. Also the transactions between the companies that are within the VAT group are generally ignored for VAT purposes. There are exceptions for certain international services.
The companies within the VAT group don't have to carry on similar trades, they can operate in quite different business sectors. However, where some companies regularly receive VAT refunds and others pay VAT each quarter, it would not be sensible to put those payment and repayment companies together in one VAT group. Also, once the companies are together in one VAT group the limits for various VAT reliefs, such as cash accounting, error reporting, or partial exemption, apply to the turnover of the whole group.
An LLP can join a VAT group with a company, if both bodies are under common control. This can be useful where an LLP has been used in place of another associated company (an additional associated company may increase the corporation tax rate paid by the main trading company). A general partnership, which is not an LLP, cannot join in a VAT group under any circumstances.
The companies within the VAT group don't have to carry on similar trades, they can operate in quite different business sectors. However, where some companies regularly receive VAT refunds and others pay VAT each quarter, it would not be sensible to put those payment and repayment companies together in one VAT group. Also, once the companies are together in one VAT group the limits for various VAT reliefs, such as cash accounting, error reporting, or partial exemption, apply to the turnover of the whole group.
An LLP can join a VAT group with a company, if both bodies are under common control. This can be useful where an LLP has been used in place of another associated company (an additional associated company may increase the corporation tax rate paid by the main trading company). A general partnership, which is not an LLP, cannot join in a VAT group under any circumstances.
Thursday, 3 November 2011
Reclaiming VAT
Before you can reclaim VAT on goods and services you have bought you need to check the following:
1. The purchase was for business purposes - not for your personal needs.
2. The purchase is not a type that is 'blocked' for VAT reclaims, such as entertaining expenses.
3. You have a valid VAT invoice.
A valid VAT invoice should include all of the following details:
- The supplier's name, address and VAT registration number.
- Unique invoice number for that supplier.
- The name and address of the person to whom the goods are supplied (this will be your business).
- Date of issue of the invoice and time of supply of the goods or services (this may be the same as the date of issue).
- A description of the goods or services supplied including:
•The unit price
•The rate of VAT charged
•The amount payable excluding VAT
- The total amount payable for the whole invoice excluding VAT.
- Rate of any discount available.
- Total amount of VAT charged.
Retailers can issue less detailed invoices for purchase of up to £250, but that invoice must still show key details such as the name, address and VAT number of the supplier, nature of the goods and the rate of VAT applicable.
Be careful not to mistake any of the following documents for a valid VAT invoice:
- Supplier statement;
- Delivery note;
- Request for payment; or
- Pro-forma invoice.
Ask us if you have any doubts about the documentation provided by your supplier.
1. The purchase was for business purposes - not for your personal needs.
2. The purchase is not a type that is 'blocked' for VAT reclaims, such as entertaining expenses.
3. You have a valid VAT invoice.
A valid VAT invoice should include all of the following details:
- The supplier's name, address and VAT registration number.
- Unique invoice number for that supplier.
- The name and address of the person to whom the goods are supplied (this will be your business).
- Date of issue of the invoice and time of supply of the goods or services (this may be the same as the date of issue).
- A description of the goods or services supplied including:
•The unit price
•The rate of VAT charged
•The amount payable excluding VAT
- The total amount payable for the whole invoice excluding VAT.
- Rate of any discount available.
- Total amount of VAT charged.
Retailers can issue less detailed invoices for purchase of up to £250, but that invoice must still show key details such as the name, address and VAT number of the supplier, nature of the goods and the rate of VAT applicable.
Be careful not to mistake any of the following documents for a valid VAT invoice:
- Supplier statement;
- Delivery note;
- Request for payment; or
- Pro-forma invoice.
Ask us if you have any doubts about the documentation provided by your supplier.
Teachers to Tell All
The Taxman has launched another campaign to encourage people to pay tax on income they have previously omitted from their tax returns. This time private teachers are targeted under a scheme called TCup: Tax Catch Up Plan for tutors and coaches.
If you want to use the TCup scheme you need to tell the Taxman you intend to make a disclosure by 6 January 2012, either using the notification form on the HMRC website, or by telephoning: 0845 601 8817.
On notification the Taxman will issue you with a disclosure reference number (DRN) and payment reference number. You will need to quote the DRN when you make the full disclosure of all your outstanding tax matters by 31 March 2012.
That is also the deadline for paying all the tax due on your previously undeclared income, interest on that tax, and the relevant penalty. To ensure your payment is matched to your disclosure form you need to quote your payment reference number.
It is up to you to calculate the penalty you should pay due to your late declaration of income. Under the TCup scheme the penalty can be 0%, 10% or 20%, depending on whether your under-declaration of income was an innocent mistake, careless error, or deliberate error. This is a considerable discount on the 100% penalty enforceable for deliberate and concealed errors discovered by the Taxman in normal circumstances, (which incidentally can be up to 200% where certain off-shore income is involved).
We can help you make a full disclosure and calculate the tax, interest and penalties due.
If you want to use the TCup scheme you need to tell the Taxman you intend to make a disclosure by 6 January 2012, either using the notification form on the HMRC website, or by telephoning: 0845 601 8817.
On notification the Taxman will issue you with a disclosure reference number (DRN) and payment reference number. You will need to quote the DRN when you make the full disclosure of all your outstanding tax matters by 31 March 2012.
That is also the deadline for paying all the tax due on your previously undeclared income, interest on that tax, and the relevant penalty. To ensure your payment is matched to your disclosure form you need to quote your payment reference number.
It is up to you to calculate the penalty you should pay due to your late declaration of income. Under the TCup scheme the penalty can be 0%, 10% or 20%, depending on whether your under-declaration of income was an innocent mistake, careless error, or deliberate error. This is a considerable discount on the 100% penalty enforceable for deliberate and concealed errors discovered by the Taxman in normal circumstances, (which incidentally can be up to 200% where certain off-shore income is involved).
We can help you make a full disclosure and calculate the tax, interest and penalties due.
Wednesday, 5 October 2011
Splitting Businesses to Avoid VAT
Now that the standard rate of VAT has been raised to 20%, some business owners are increasingly tempted to split their businesses into different entities, so the part with non-business customers or both parts falls under the compulsory VAT registration threshold when split. This enables them not to register to have to charge VAT to those customers. The Taxman is watchful of this type of tax planning and where he believes they have been artificially separated to avoid VAT, he will direct that the businesses should be re-aggregated.
A frequent target of the Taxman on business-splitting grounds are VAT-registered farms, where a member of the family runs a bed & breakfast business which is not VAT registered, from the same location. He will argue that because some buildings have both a farm use and a B&B function, the two businesses are part of a whole and should come under one VAT registration.
Although the use of the same building can be a factor that indicates two businesses are connected, the Taxman is required to consider a range of factors to determine whether the businesses are genuine separate entities. He must judge whether each factor points towards one business, two separate businesses, or is neutral. If the majority of the factors are either neutral or point towards separate businesses, the Taxman should not direct that the businesses be combined for VAT purposes. If you are not happy with the Taxman's decision you can appeal to the Tax Tribunal.
Where you operate two or more businesses within your family, the following questions can help you decide whether the Taxman will challenge your businesses as being artificially split:
1. Is the business designed to operate as an individual business, despite utilising central resources, for example a franchised business?
2. Is the business so intrinsically linked with other 'connected' businesses that it can only be considered to be one indivisible business, for example wet sales and catering in public houses and restaurants?
3. Is the business carried on in separate departments or divisions, but is in reality one legal entity, for example a quasi partnership?
4. How much independence does the business have from any other 'connected' businesses by way of legal and technical resources?
5. Does the business owner have autonomy in the way he/she operates the business, for example access to premises, opening times, recording sales, purchase of stock and materials, bank accounts and annual accounts?
6. What would happen if the business owner was unable to operate their business personally?
7. Has the business owner registered the business with HMRC for corporation tax or income tax separately from those businesses that are 'connected'?
8. Is the business owner working together with their partner/spouse in his/her business as a quasi co-owner or just assisting them as a family member in their business?
The Taxman has the power to direct that two or more businesses should be treated as one business for VAT purposes, even where those businesses are contained within separate legal entities, such as limited companies. Please discuss your business structure with us if you think it could be challenged by the Taxman.
A frequent target of the Taxman on business-splitting grounds are VAT-registered farms, where a member of the family runs a bed & breakfast business which is not VAT registered, from the same location. He will argue that because some buildings have both a farm use and a B&B function, the two businesses are part of a whole and should come under one VAT registration.
Although the use of the same building can be a factor that indicates two businesses are connected, the Taxman is required to consider a range of factors to determine whether the businesses are genuine separate entities. He must judge whether each factor points towards one business, two separate businesses, or is neutral. If the majority of the factors are either neutral or point towards separate businesses, the Taxman should not direct that the businesses be combined for VAT purposes. If you are not happy with the Taxman's decision you can appeal to the Tax Tribunal.
Where you operate two or more businesses within your family, the following questions can help you decide whether the Taxman will challenge your businesses as being artificially split:
1. Is the business designed to operate as an individual business, despite utilising central resources, for example a franchised business?
2. Is the business so intrinsically linked with other 'connected' businesses that it can only be considered to be one indivisible business, for example wet sales and catering in public houses and restaurants?
3. Is the business carried on in separate departments or divisions, but is in reality one legal entity, for example a quasi partnership?
4. How much independence does the business have from any other 'connected' businesses by way of legal and technical resources?
5. Does the business owner have autonomy in the way he/she operates the business, for example access to premises, opening times, recording sales, purchase of stock and materials, bank accounts and annual accounts?
6. What would happen if the business owner was unable to operate their business personally?
7. Has the business owner registered the business with HMRC for corporation tax or income tax separately from those businesses that are 'connected'?
8. Is the business owner working together with their partner/spouse in his/her business as a quasi co-owner or just assisting them as a family member in their business?
The Taxman has the power to direct that two or more businesses should be treated as one business for VAT purposes, even where those businesses are contained within separate legal entities, such as limited companies. Please discuss your business structure with us if you think it could be challenged by the Taxman.
Thursday, 15 September 2011
Jointly Held Property Tax Savings
With the threshold for 40% tax reducing every year (£35,000 after deducting allowances for 2011/12), it makes sense to review who pays the higher rates of tax within a family. Can some assets be transferred to the partner who pays a lower tax rate to reduce tax?
For example a let property could be transferred from one spouse into the joint ownership of the married couple or civil partners, or entirely into the other spouse's name. Joint ownership has advantages, as on the eventual sale of the property up to two annual exemptions (£10,600 each for 2011/12) may be available to reduce the chargeable gain. Transfers between husband and wife or civil partners who are living together do not create a capital gains tax charge at the time of the transfer.
Generally UK land can be held as joint tenants when the owners hold an equal undivided interest in the whole property, or as tenants-in-common where the individuals hold separate and identifiable shares, say 10% and 90% of the property (the legal terms may differ under Scottish law). However, where the owners are either married or in a civil partnership, the property will be treated for tax purposes as being held in equal shares (50:50), even if this is not the case. To be taxed on the actual interest each holds in the property the couple need to sign a declaration on Form 17 and submit it to HMRC.
Form 17 has recently been reissued. HMRC now require evidence of the actual beneficial interest held by each person in the property to be submitted with form 17. This evidence may be a copy of the property deeds, or the purchase or transfer document.
For example a let property could be transferred from one spouse into the joint ownership of the married couple or civil partners, or entirely into the other spouse's name. Joint ownership has advantages, as on the eventual sale of the property up to two annual exemptions (£10,600 each for 2011/12) may be available to reduce the chargeable gain. Transfers between husband and wife or civil partners who are living together do not create a capital gains tax charge at the time of the transfer.
Generally UK land can be held as joint tenants when the owners hold an equal undivided interest in the whole property, or as tenants-in-common where the individuals hold separate and identifiable shares, say 10% and 90% of the property (the legal terms may differ under Scottish law). However, where the owners are either married or in a civil partnership, the property will be treated for tax purposes as being held in equal shares (50:50), even if this is not the case. To be taxed on the actual interest each holds in the property the couple need to sign a declaration on Form 17 and submit it to HMRC.
Form 17 has recently been reissued. HMRC now require evidence of the actual beneficial interest held by each person in the property to be submitted with form 17. This evidence may be a copy of the property deeds, or the purchase or transfer document.
Monday, 1 August 2011
Less Tax for Students
If you are employing students over the summer months, don't forget to give them the HMRC form P38S (2011) to sign. This form allows the student to earn their full annual allowance of £7,475 from their holiday work before any tax is deducted.
The student must confirm they will return to full time study at a named college, school or university for a course that will continue until at least 5 April 2012. The student must also not have employment during term time.
The tax exemption does not cover NI contributions, so if the student's pay is at or above the earnings thresholds (£136 for employers contributions, £139 for employees contributions), you must deduct employees NICs and pay the appropriate employers NICs.
Remember the national minimum wage (NMW) rates do apply to students and part-time employees. For workers aged 18 to 20 inclusive the current NMW rate is £4.92 per hour. Only apprentices aged under 19 or apprentices in their first year can be paid the reduced NMW rate of £2.50 per hour.
The student must confirm they will return to full time study at a named college, school or university for a course that will continue until at least 5 April 2012. The student must also not have employment during term time.
The tax exemption does not cover NI contributions, so if the student's pay is at or above the earnings thresholds (£136 for employers contributions, £139 for employees contributions), you must deduct employees NICs and pay the appropriate employers NICs.
Remember the national minimum wage (NMW) rates do apply to students and part-time employees. For workers aged 18 to 20 inclusive the current NMW rate is £4.92 per hour. Only apprentices aged under 19 or apprentices in their first year can be paid the reduced NMW rate of £2.50 per hour.
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