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.
Showing posts with label glasgow accountant. Show all posts
Showing posts with label glasgow accountant. Show all posts
Tuesday, 5 March 2013
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, 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.
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, 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.
Wednesday, 1 June 2011
Why Stamp Duty Form Changes?
Stamp Duty Land Tax (SDLT) forms have changed, but why?
The forms used to report Stamp Duty Land Tax (SDLT) due on a purchase of UK land and property are changing. The lead purchaser must now provide an identity number such as NI number and date of birth. Where the purchaser is a company the company's tax reference number (UTR) or VAT registration number should be used. Partnerships should use their UTR or VAT registration number.
If the lead purchaser does not have any of the above reference numbers, as they are not registered for tax in the UK, they should use another unique reference number such as passport number, and state the country of issue of the document.
The new forms have been available since 11 April 2011, and will become compulsory from 3 July 2011. The online filing system for SDLT will incorporate the changes from 3 July.
The Taxman may well be collecting the additional information for a reason, perhaps to cross-reference to taxpayers files!
The forms used to report Stamp Duty Land Tax (SDLT) due on a purchase of UK land and property are changing. The lead purchaser must now provide an identity number such as NI number and date of birth. Where the purchaser is a company the company's tax reference number (UTR) or VAT registration number should be used. Partnerships should use their UTR or VAT registration number.
If the lead purchaser does not have any of the above reference numbers, as they are not registered for tax in the UK, they should use another unique reference number such as passport number, and state the country of issue of the document.
The new forms have been available since 11 April 2011, and will become compulsory from 3 July 2011. The online filing system for SDLT will incorporate the changes from 3 July.
The Taxman may well be collecting the additional information for a reason, perhaps to cross-reference to taxpayers files!
Monday, 9 May 2011
Higher Penalties for Late Returns
Your personal self-assessment tax return for the tax year to 5 April 2011 must be submitted to HMRC by 31 January 2012, or by 31 October 2011 if it is submitted in paper form. These deadlines also apply to your separate partnership tax return where you are a member of a partnership.
For tax returns for earlier years you would receive a penalty of £100 if you submitted it later than those dates, but that penalty would be reduced to nil if you were due a tax repayment, or all the tax due was paid by 31 January. There was however no reduction for penalties relating to late partnership returns. For 2010/11 tax returns and later years, the penalties for submitting the return late will not be reduced even if all the tax due has been paid on time.
As well as the initial £100 penalty, there are additional penalties!
If you are...
- More than three months late submitting your return the penalty is charged on a daily basis at £10 per day, up to a maximum of £900.
- Over 6 months late with your tax return you will be hit with an additional penalty calculated as the higher of: £300 and 5% of the tax due.
- Over 12 months late, the same penalty is imposed again.
When a partnership tax return is submitted late those penalties apply to each partner in the partnership.
If you are also late in paying the correct amount of tax you will receive a penalty for paying the tax late. These penalties are calculated as 5% of the outstanding tax due at the following intervals: 30 days late, 6 months late, and 12 months late.
In view of these high penalties it is essential that we work with you to get your tax bill calculated in good time, so you can make the correct payments due and get your return done on time. Please send us the information to complete your accounts and tax return as soon as possible!
For tax returns for earlier years you would receive a penalty of £100 if you submitted it later than those dates, but that penalty would be reduced to nil if you were due a tax repayment, or all the tax due was paid by 31 January. There was however no reduction for penalties relating to late partnership returns. For 2010/11 tax returns and later years, the penalties for submitting the return late will not be reduced even if all the tax due has been paid on time.
As well as the initial £100 penalty, there are additional penalties!
If you are...
- More than three months late submitting your return the penalty is charged on a daily basis at £10 per day, up to a maximum of £900.
- Over 6 months late with your tax return you will be hit with an additional penalty calculated as the higher of: £300 and 5% of the tax due.
- Over 12 months late, the same penalty is imposed again.
When a partnership tax return is submitted late those penalties apply to each partner in the partnership.
If you are also late in paying the correct amount of tax you will receive a penalty for paying the tax late. These penalties are calculated as 5% of the outstanding tax due at the following intervals: 30 days late, 6 months late, and 12 months late.
In view of these high penalties it is essential that we work with you to get your tax bill calculated in good time, so you can make the correct payments due and get your return done on time. Please send us the information to complete your accounts and tax return as soon as possible!
Thursday, 24 March 2011
Budget 2011 - VAT
VAT Rates and Thresholds
There were few changes announced for VAT. The rates and thresholds are as follows from 1 April 2011:
Lower rate - 0%
Reduced rate - 5%
Standard rate - 20%
Registration turnover - £73,000 (up from £70,000)
Deregistration turnover - £71,000 (up from £68,000)
Low Value Consignments
Low value consignment relief allows goods to be imported into the UK by post from outside the EU, with no VAT or duties charged, if the value of the package is less than £18. This has encouraged suppliers of CDs, DVDs and other durable items, to supply goods via the Channel Islands and other non-EU territories to avoid VAT being applied on the sale price. The monetary limit for low value consignments will be reduced to £15 from 1 November 2011, and this limit will be reviewed in March 2012. The Government will also look at other ways of closing this loophole.
Online Filing
It will be compulsory for all VAT registered businesses to file their VAT returns online from 1 April 2012. At present only businesses who became VAT registered from April 2010 or those with turnover of £100,000 or more must file VAT returns online. Also from 1 August 2012 all requests to register or deregister for VAT will have to be made online.
There were few changes announced for VAT. The rates and thresholds are as follows from 1 April 2011:
Lower rate - 0%
Reduced rate - 5%
Standard rate - 20%
Registration turnover - £73,000 (up from £70,000)
Deregistration turnover - £71,000 (up from £68,000)
Low Value Consignments
Low value consignment relief allows goods to be imported into the UK by post from outside the EU, with no VAT or duties charged, if the value of the package is less than £18. This has encouraged suppliers of CDs, DVDs and other durable items, to supply goods via the Channel Islands and other non-EU territories to avoid VAT being applied on the sale price. The monetary limit for low value consignments will be reduced to £15 from 1 November 2011, and this limit will be reviewed in March 2012. The Government will also look at other ways of closing this loophole.
Online Filing
It will be compulsory for all VAT registered businesses to file their VAT returns online from 1 April 2012. At present only businesses who became VAT registered from April 2010 or those with turnover of £100,000 or more must file VAT returns online. Also from 1 August 2012 all requests to register or deregister for VAT will have to be made online.
Budget 2011 - Employers
NIC
When business owners and accountants are asked what single action could simplify the tax system, most suggest merging income tax and NI. This message has finally been heard by the Government, who will start consulting on how the operation of the NI and income tax could be combined.
This does not mean these two taxes will be merged. The Government has stated that NI will not be applied to savings, dividends or pensions. The likely changes will involve aligning the rules and mechanics of collecting the two taxes. However, don't expect big changes any time soon!
From 6 April 2011 the rates and thresholds for the main NI contributions were already known with most increasing by 1%. The main figures for 2011/12 are:
Lower Earnings Limit (LEL) for Class 1 NICs - £102/week
Employer's class 1 above £136/week not contracted out - 13.8%
Employee's class 1 not contracted out from £139 to £817/week - 12%
Employee's additional class 1 above £817/week - 2%
Self-employed class 4 from £7,225 to £42,475 per annum - 9%
Self-employed class 4 additional rate above £42,475 per annum - 2%
Self-employed class 2 - £2.50 per week
Voluntary contributions class 3 - £12.60 per week
Approved Mileage Rates
Where an employee uses his or her own car for business journeys their employer can pay them an approved mileage allowance payment (AMAP), free of tax and NIC.
This AMAP rate has been stuck at 40p per mile since about 2002, and at current petrol prices many employees who need to use their car for business cannot afford to do so. The AMAP will increase to 45p per mile from 6 April 2011 for the first 10,000 business miles per year, any additional miles can be reimbursed at 25p per mile. If the employer does not pay the full AMAP rate the employee can claim the additional amount in tax relief from HMRC.
The tax free AMAP can also be paid by charities to volunteers. The self-employed, who have profits below the VAT registration threshold (£73,000 from 1 April 2011), may also use the AMAP rate as a substitute for motor expenses claimed in their accounts.
Where an employee carries a fellow employee as a passenger on a business journey, an additional 5p per mile tax free can be paid. The rate will also now apply to volunteer drivers who take other volunteers on business/ charity related journeys.
Car Benefit
The tax charge for personal use of a company car is based on a percentage of the list price of that car when new.
From 6 April 2011 the percentages are all increased by 1% for those in the 15% to 35% range but with a 35% maximum kept. The taxable benefit of using a car with CO2 emissions of 121-129g/km is 15% of the list price. This percentage increases by 1% for each additional 5g/km of CO2 emissions to a maximum of 35% for cars with CO2 emissions of 225g/km or more.
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 £18,000. This value will increase to £18,800 from 6 April 2011. The maximum taxable benefit of receiving fuel for personal use will increase from £6,300 (for 2010/11) to £6580 (for 2011/12).
When business owners and accountants are asked what single action could simplify the tax system, most suggest merging income tax and NI. This message has finally been heard by the Government, who will start consulting on how the operation of the NI and income tax could be combined.
This does not mean these two taxes will be merged. The Government has stated that NI will not be applied to savings, dividends or pensions. The likely changes will involve aligning the rules and mechanics of collecting the two taxes. However, don't expect big changes any time soon!
From 6 April 2011 the rates and thresholds for the main NI contributions were already known with most increasing by 1%. The main figures for 2011/12 are:
Lower Earnings Limit (LEL) for Class 1 NICs - £102/week
Employer's class 1 above £136/week not contracted out - 13.8%
Employee's class 1 not contracted out from £139 to £817/week - 12%
Employee's additional class 1 above £817/week - 2%
Self-employed class 4 from £7,225 to £42,475 per annum - 9%
Self-employed class 4 additional rate above £42,475 per annum - 2%
Self-employed class 2 - £2.50 per week
Voluntary contributions class 3 - £12.60 per week
Approved Mileage Rates
Where an employee uses his or her own car for business journeys their employer can pay them an approved mileage allowance payment (AMAP), free of tax and NIC.
This AMAP rate has been stuck at 40p per mile since about 2002, and at current petrol prices many employees who need to use their car for business cannot afford to do so. The AMAP will increase to 45p per mile from 6 April 2011 for the first 10,000 business miles per year, any additional miles can be reimbursed at 25p per mile. If the employer does not pay the full AMAP rate the employee can claim the additional amount in tax relief from HMRC.
The tax free AMAP can also be paid by charities to volunteers. The self-employed, who have profits below the VAT registration threshold (£73,000 from 1 April 2011), may also use the AMAP rate as a substitute for motor expenses claimed in their accounts.
Where an employee carries a fellow employee as a passenger on a business journey, an additional 5p per mile tax free can be paid. The rate will also now apply to volunteer drivers who take other volunteers on business/ charity related journeys.
Car Benefit
The tax charge for personal use of a company car is based on a percentage of the list price of that car when new.
From 6 April 2011 the percentages are all increased by 1% for those in the 15% to 35% range but with a 35% maximum kept. The taxable benefit of using a car with CO2 emissions of 121-129g/km is 15% of the list price. This percentage increases by 1% for each additional 5g/km of CO2 emissions to a maximum of 35% for cars with CO2 emissions of 225g/km or more.
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 £18,000. This value will increase to £18,800 from 6 April 2011. The maximum taxable benefit of receiving fuel for personal use will increase from £6,300 (for 2010/11) to £6580 (for 2011/12).
Budget 2011 - Business Tax
IR35 Review
The Office of Tax Simplification was tasked with reviewing the operation of IR35, or the provision of services through intermediaries as the legislation is more correctly called. Unfortunately the Government does not agree that IR35 should be abolished. However, it has promised to improve the way HMRC provide guidance to businesses who are trying to operate IR35.
Capital Allowances
The rates and thresholds of the main capital allowances will apply as follows for the year from April 2012:
Main pool writing down allowance: reduced from 20% to 18%
Special rate pool writing down allowance: reduced from 10% to 8%
Annual Investment Allowance (AIA) cap: reduced from £100,000 to £25,000
Short Life Assets
At present a business can elect for named assets (not cars) to be treated individually for capital allowance purposes rather than being included in the main pool or special rate pool. The assets subject to this election are called short life assets as they are deemed to have a useful life of less than 4 years. If the business sells or scraps the short life asset before the end of its deemed life, the business will get tax relief for the full cost of that asset while it is being used by the business. This would not apply when the asset is included in one of the capital allowance pools.
For assets purchased on or after 1 April 2011 (6 April 2011 for unincorporated businesses), the life of the short life asset will be deemed to be 8 years. This will benefit larger businesses that incurred expenditure on assets in excess of their Annual Investment Allowance cap for the year.
Enterprise Zones
The Government will create 21 Enterprise Zones around the country. Further details of the exact location and duration of these zones will be released later. All we know so far is that businesses within these zones will be able to apply for up to 100% discount on business rates.
Tax Reliefs to Go
The Office for Tax Simplification has suggested a list of more than 40 tax reliefs that could be abolished because they are rarely used, or are in fact obsolete. Most of these reliefs will be abolished after consultation. Reliefs on this list which may be of interest to small businesses include:
- Tax free meals for employees who cycle to work
- Tax free late night taxis for employees
- Additional tax relief for companies that clean up contaminated land or buildings (land remediation relief)
- Relief from CGT for grants for giving up agricultural land
Corporation Tax Rates
The small profits rate of corporation tax will be cut from 21% to 20% from 1 April 2011, and is expected to remain at that rate for the next four years, but this has not been confirmed. The small profits rate applies to profits of up to £300,000 where the company has no associated companies which are trading.
The main rate of corporation tax was due to be cut from 28% to 27% from April 2011, but that rate will now be 26%, reducing by 1% per year thereafter until the rate reaches 23%.
Research and Development Tax Credits
Small and medium sized companies could previously claim tax relief of 175% for qualifying revenue expenditure incurred on research and development (R&D) projects. This tax relief will increase to 200% for R&D expenditure incurred after 31 March 2011. A further increase in this tax relief to 225% is planned for qualifying R&D expenditure incurred after 31 March 2012.
The rules that govern what type of expenditure qualifies for this relief will also be revised with effect from 2012 to make it easier for small companies to claim this relief.
The Office of Tax Simplification was tasked with reviewing the operation of IR35, or the provision of services through intermediaries as the legislation is more correctly called. Unfortunately the Government does not agree that IR35 should be abolished. However, it has promised to improve the way HMRC provide guidance to businesses who are trying to operate IR35.
Capital Allowances
The rates and thresholds of the main capital allowances will apply as follows for the year from April 2012:
Main pool writing down allowance: reduced from 20% to 18%
Special rate pool writing down allowance: reduced from 10% to 8%
Annual Investment Allowance (AIA) cap: reduced from £100,000 to £25,000
Short Life Assets
At present a business can elect for named assets (not cars) to be treated individually for capital allowance purposes rather than being included in the main pool or special rate pool. The assets subject to this election are called short life assets as they are deemed to have a useful life of less than 4 years. If the business sells or scraps the short life asset before the end of its deemed life, the business will get tax relief for the full cost of that asset while it is being used by the business. This would not apply when the asset is included in one of the capital allowance pools.
For assets purchased on or after 1 April 2011 (6 April 2011 for unincorporated businesses), the life of the short life asset will be deemed to be 8 years. This will benefit larger businesses that incurred expenditure on assets in excess of their Annual Investment Allowance cap for the year.
Enterprise Zones
The Government will create 21 Enterprise Zones around the country. Further details of the exact location and duration of these zones will be released later. All we know so far is that businesses within these zones will be able to apply for up to 100% discount on business rates.
Tax Reliefs to Go
The Office for Tax Simplification has suggested a list of more than 40 tax reliefs that could be abolished because they are rarely used, or are in fact obsolete. Most of these reliefs will be abolished after consultation. Reliefs on this list which may be of interest to small businesses include:
- Tax free meals for employees who cycle to work
- Tax free late night taxis for employees
- Additional tax relief for companies that clean up contaminated land or buildings (land remediation relief)
- Relief from CGT for grants for giving up agricultural land
Corporation Tax Rates
The small profits rate of corporation tax will be cut from 21% to 20% from 1 April 2011, and is expected to remain at that rate for the next four years, but this has not been confirmed. The small profits rate applies to profits of up to £300,000 where the company has no associated companies which are trading.
The main rate of corporation tax was due to be cut from 28% to 27% from April 2011, but that rate will now be 26%, reducing by 1% per year thereafter until the rate reaches 23%.
Research and Development Tax Credits
Small and medium sized companies could previously claim tax relief of 175% for qualifying revenue expenditure incurred on research and development (R&D) projects. This tax relief will increase to 200% for R&D expenditure incurred after 31 March 2011. A further increase in this tax relief to 225% is planned for qualifying R&D expenditure incurred after 31 March 2012.
The rules that govern what type of expenditure qualifies for this relief will also be revised with effect from 2012 to make it easier for small companies to claim this relief.
Budget 2011 - Capital Taxes
Capital Gains Tax Rates and Thresholds
The rates and thresholds for capital gains tax are as follows for 2011/12:
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
Entrepreneurs' Relief
This relief applies to gains made on the disposal of businesses, parts of a business, shares in trading companies and certain business assets disposed of after a business ceases or in association with a business disposal. The taxpayer and the business must both meet a number of qualifying conditions for the relief to apply.
Each taxpayer has a maximum amount of gains that they can include in a claim for entrepreneurs' relief, called the lifetime limit. This lifetime limit was initially set at £1 million from 6 April 2008. It was increased to £2 million from 6 April 2010, increased again to £5 million from 23 June 2010. The lifetime limit will be doubled to £10 million for gains made after 5 April 2011.
Inheritance Tax
The nil rate band for inheritance tax (IHT) will remain frozen until 2014/15 at £325,000. This is the amount of a person's estate that is free of inheritance tax.
The rate payable on death for 2011/12 remains at 40% with the rate payable on lifetime gifts to certain trusts remaining at 20%.
From April 2012 those that give at least 10% of their estate on death to charity will pay a reduced rate of IHT of 36%. Gifts made to charities are exempt from IHT.
The rates and thresholds for capital gains tax are as follows for 2011/12:
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
Entrepreneurs' Relief
This relief applies to gains made on the disposal of businesses, parts of a business, shares in trading companies and certain business assets disposed of after a business ceases or in association with a business disposal. The taxpayer and the business must both meet a number of qualifying conditions for the relief to apply.
Each taxpayer has a maximum amount of gains that they can include in a claim for entrepreneurs' relief, called the lifetime limit. This lifetime limit was initially set at £1 million from 6 April 2008. It was increased to £2 million from 6 April 2010, increased again to £5 million from 23 June 2010. The lifetime limit will be doubled to £10 million for gains made after 5 April 2011.
Inheritance Tax
The nil rate band for inheritance tax (IHT) will remain frozen until 2014/15 at £325,000. This is the amount of a person's estate that is free of inheritance tax.
The rate payable on death for 2011/12 remains at 40% with the rate payable on lifetime gifts to certain trusts remaining at 20%.
From April 2012 those that give at least 10% of their estate on death to charity will pay a reduced rate of IHT of 36%. Gifts made to charities are exempt from IHT.
Budget 2011 - Savings & Investments
Enterprise Investment Scheme
Income tax relief for investors is to be proposed to be enhanced as follows:
Rate of income tax relief: 2010/11 - 20%, 2011/12 - 30%, 2012/13 - 30%
Annual maximum investment qualifying for income tax relief: 2010/11 - £500,000, 2011/12 - £500,000, 2012/13 - £1,000,000
These changes will be subject to State aid approval from the EU.
Venture Capital Trusts
The range of companies that can accept investments through the EIS or Venture capital Trusts is to be increased from April 2012 to include those with gross assets less than £15 million, and with less than 250 employees. At present only companies with asset value of less than £7 million and with less than 50 employees can qualify for these tax favoured investments. The cap on the amount a company can raise through these schemes in any year will also be increased from £2 million to £10 million.
Pension Contributions
The level of contributions that can be made with full tax relief to a registered pension scheme is to be reduced from £255,000 to £50,000 per pension input period (PIP) falling in the tax year. However, this cap can be expanded by bringing forward unused relief from the previous three tax years, up to a maximum of £50,000 from each year. If the annual allowance is exceeded the taxpayer must pay an annual allowance charge on the excess at their marginal rate of income tax.
The Lifetime Allowance will reduce from £1,800,000 in 2011/12 to £1,500,000 in 2012/13.
Independent Savings Accounts (ISAs)
The ISA savings limits applicable in 2011/12 for those over 18 are:
Overall limit - £10,680
Cash up to - £5,340
Balance in stocks and shares up to - £10,680
For those aged 16 & 17:
Overall limit - £5,340
Cash up to - £5,340
Balance in stocks and shares up to - nil
From April 2012 the ISA savings limits will be increased in line with the consumer Prices Index (CPI) rather than in line with the Retail Prices Index (RPI), as has been the case so far.
Savings for Children
Children born between 1 September 2002 and 2 January 2011 inclusive were eligible for a child trust fund account (CTF). Each child received a voucher to allow the account to be opened which also provided an initial deposit. The existing CTF accounts will continue and funds of up to £1200 per year can be contributed for each child tax free. The CTF account can only be accessed by the child when he or she reaches age 18.
Junior ISA
The Junior ISA is a replacement for the CTF but no funds will be provided by the Government. The junior ISA will be available to all children resident in the UK who do not have a child trust fund account. It will also have the following features:
- No tax will be charged on income or gains earned within the ISA.
- Funds placed in the account will be owned by the child and locked in until the child reaches age 18.
- Accounts can be opened from autumn 2011 (exact date to be announced).
- Sharia compliant products will be offered as Junior ISAs.
- The annual savings limits will be announced later, but are likely to be similar to normal ISAs.
Income tax relief for investors is to be proposed to be enhanced as follows:
Rate of income tax relief: 2010/11 - 20%, 2011/12 - 30%, 2012/13 - 30%
Annual maximum investment qualifying for income tax relief: 2010/11 - £500,000, 2011/12 - £500,000, 2012/13 - £1,000,000
These changes will be subject to State aid approval from the EU.
Venture Capital Trusts
The range of companies that can accept investments through the EIS or Venture capital Trusts is to be increased from April 2012 to include those with gross assets less than £15 million, and with less than 250 employees. At present only companies with asset value of less than £7 million and with less than 50 employees can qualify for these tax favoured investments. The cap on the amount a company can raise through these schemes in any year will also be increased from £2 million to £10 million.
Pension Contributions
The level of contributions that can be made with full tax relief to a registered pension scheme is to be reduced from £255,000 to £50,000 per pension input period (PIP) falling in the tax year. However, this cap can be expanded by bringing forward unused relief from the previous three tax years, up to a maximum of £50,000 from each year. If the annual allowance is exceeded the taxpayer must pay an annual allowance charge on the excess at their marginal rate of income tax.
The Lifetime Allowance will reduce from £1,800,000 in 2011/12 to £1,500,000 in 2012/13.
Independent Savings Accounts (ISAs)
The ISA savings limits applicable in 2011/12 for those over 18 are:
Overall limit - £10,680
Cash up to - £5,340
Balance in stocks and shares up to - £10,680
For those aged 16 & 17:
Overall limit - £5,340
Cash up to - £5,340
Balance in stocks and shares up to - nil
From April 2012 the ISA savings limits will be increased in line with the consumer Prices Index (CPI) rather than in line with the Retail Prices Index (RPI), as has been the case so far.
Savings for Children
Children born between 1 September 2002 and 2 January 2011 inclusive were eligible for a child trust fund account (CTF). Each child received a voucher to allow the account to be opened which also provided an initial deposit. The existing CTF accounts will continue and funds of up to £1200 per year can be contributed for each child tax free. The CTF account can only be accessed by the child when he or she reaches age 18.
Junior ISA
The Junior ISA is a replacement for the CTF but no funds will be provided by the Government. The junior ISA will be available to all children resident in the UK who do not have a child trust fund account. It will also have the following features:
- No tax will be charged on income or gains earned within the ISA.
- Funds placed in the account will be owned by the child and locked in until the child reaches age 18.
- Accounts can be opened from autumn 2011 (exact date to be announced).
- Sharia compliant products will be offered as Junior ISAs.
- The annual savings limits will be announced later, but are likely to be similar to normal ISAs.
Friday, 15 October 2010
Tell the Taxman Now
Did you know you could be landed with a penalty if you fail to tell the Taxman when you become liable to pay tax? For example, when you become self-employed, or make a large capital gain. The deadline for declaring that you have income tax or capital gains tax (CGT) chargeable relating to the year to 5 April 2010, is 5 October 2010.
If you miss that deadline, the Taxman may send you a failure to notify penalty, which can be up to 100% of the tax due. However, if you pay all the tax due on time, which for income tax and CGT relating to the 2009/10 tax year, is by 31 January 2011, the penalty can be reduced to nil.
Where you have already received a self-assessment tax return form to complete for 2009/10 or a notice to file a self-assessment tax return online, your obligation to tell the Taxman is satisfied when you submit your tax return on time. But if you haven't got a tax return form, you need to ask the Taxman to set you up in the self-assessment system before 5 October 2010. We can help you with registration.
Once you are registered with the Tax Office, you should receive either a Tax Return form or a letter from the Taxman asking you to file a Tax Return online. The form or letter will include your Unique Taxpayer Reference number (UTR). If you submit a Tax Return that does not include your personal UTR number it may be rejected, and any tax payments you make will not be promptly matched to your records.
If you miss that deadline, the Taxman may send you a failure to notify penalty, which can be up to 100% of the tax due. However, if you pay all the tax due on time, which for income tax and CGT relating to the 2009/10 tax year, is by 31 January 2011, the penalty can be reduced to nil.
Where you have already received a self-assessment tax return form to complete for 2009/10 or a notice to file a self-assessment tax return online, your obligation to tell the Taxman is satisfied when you submit your tax return on time. But if you haven't got a tax return form, you need to ask the Taxman to set you up in the self-assessment system before 5 October 2010. We can help you with registration.
Once you are registered with the Tax Office, you should receive either a Tax Return form or a letter from the Taxman asking you to file a Tax Return online. The form or letter will include your Unique Taxpayer Reference number (UTR). If you submit a Tax Return that does not include your personal UTR number it may be rejected, and any tax payments you make will not be promptly matched to your records.
PAYE 'Errors'
You have no doubt heard on the news about the PAYE 'errors' affecting millions of people this autumn. The underlying problem is not new - the PAYE system does not cope well with taxpayers who have income from more than one employment or pension during the year. Under or overpayments of tax arise, and when the Taxman gets round to reconciling the tax and allowances due on the two or more employments, he issues a tax computation (form P800) to the taxpayer.
Unfortunately the Taxman did not do his reconciliations for 2008/09 (and in many circumstances for earlier years), so there are now two years' worth of forms P800 (2008/09 and 2009/10) on their way to up to 4.7 million taxpayers.
It is going to take some weeks to issue all of those forms, so you may not receive a letter immediately, if at all. If you normally complete a self-assessment tax return form you should not receive a form P800 as all of your tax liabilities are reconciled on the self-assessment form.
If you do receive a form P800, don't panic. In most cases it will show a repayment of tax, which will be sent to you within a few weeks. You do not have to supply any further details to the Taxman to get this repayment. To avoid fraudulent scams, PLEASE DO NOT respond to emails or telephone calls asking for your bank details in connection with a tax repayment.
If the form P800 shows that you owe some tax, you won't have to pay anything immediately. Indeed, if you owe less than £300 in total for 2008/09 and 2009/10 that tax will be written off and you won't have anything to pay. If the tax due is less than £2,000 it will be collected through your 2011/12 PAYE, so the amount will be deducted from your monthly salary in the year to 5 April 2012. If the tax due is more than £2,000 the Tax Office will issue a separate payment request, and ask for payments to be made in 2011. However, if you will have difficulty in paying the amount due, whether this is more or less than £2,000, you can ask to pay over an extended period of up to three years.
There is a possibility that you could avoid paying the tax due, where you can prove that the Taxman ignored information relating to your tax affairs for more than 12 months after the end of the tax year. This procedure is called Extra Statutory Concession A19, and you need to make a claim for this to apply.
We can help you check the P800 tax calculation, and to submit any claims needed.
Unfortunately the Taxman did not do his reconciliations for 2008/09 (and in many circumstances for earlier years), so there are now two years' worth of forms P800 (2008/09 and 2009/10) on their way to up to 4.7 million taxpayers.
It is going to take some weeks to issue all of those forms, so you may not receive a letter immediately, if at all. If you normally complete a self-assessment tax return form you should not receive a form P800 as all of your tax liabilities are reconciled on the self-assessment form.
If you do receive a form P800, don't panic. In most cases it will show a repayment of tax, which will be sent to you within a few weeks. You do not have to supply any further details to the Taxman to get this repayment. To avoid fraudulent scams, PLEASE DO NOT respond to emails or telephone calls asking for your bank details in connection with a tax repayment.
If the form P800 shows that you owe some tax, you won't have to pay anything immediately. Indeed, if you owe less than £300 in total for 2008/09 and 2009/10 that tax will be written off and you won't have anything to pay. If the tax due is less than £2,000 it will be collected through your 2011/12 PAYE, so the amount will be deducted from your monthly salary in the year to 5 April 2012. If the tax due is more than £2,000 the Tax Office will issue a separate payment request, and ask for payments to be made in 2011. However, if you will have difficulty in paying the amount due, whether this is more or less than £2,000, you can ask to pay over an extended period of up to three years.
There is a possibility that you could avoid paying the tax due, where you can prove that the Taxman ignored information relating to your tax affairs for more than 12 months after the end of the tax year. This procedure is called Extra Statutory Concession A19, and you need to make a claim for this to apply.
We can help you check the P800 tax calculation, and to submit any claims needed.
Monday, 2 August 2010
Business Assurance Visits
If the Taxman suggests he should visit your business as part of their Business Assurance programme, should you agree? The answer is, almost certainly not!
The Business Assurance programme involves Tax Officers offering to visit new businesses to help them understand what sort of business records they should be keeping. During the visit the Tax Officer will ask the business owner how they record sales, purchases and expenses, how they handle cash, and how they calculate and record drawings or remuneration.
These questions amount to a tax compliance check and any answers you give will be recorded by the Tax Officer. What may not be recorded is any advice given by the Tax Officer in answer to your own questions. For example, you may ask: 'Is this expense tax allowable?' If the tax officer gives the wrong answer, and you act on it, you could be penalised in the future for getting it wrong.
Penalties for errors in tax returns are now dependent on your behaviour, so it is crucial that the Taxman does not form the impression that you have a careless approach to keeping business records. If you are offered a business assurance visit, either politely decline, or ask us to be present to ensure you are not tricked into saying something that may incriminate you in a future tax investigation. For any advice you need, you should talk to us, not the Taxman!
The Business Assurance programme involves Tax Officers offering to visit new businesses to help them understand what sort of business records they should be keeping. During the visit the Tax Officer will ask the business owner how they record sales, purchases and expenses, how they handle cash, and how they calculate and record drawings or remuneration.
These questions amount to a tax compliance check and any answers you give will be recorded by the Tax Officer. What may not be recorded is any advice given by the Tax Officer in answer to your own questions. For example, you may ask: 'Is this expense tax allowable?' If the tax officer gives the wrong answer, and you act on it, you could be penalised in the future for getting it wrong.
Penalties for errors in tax returns are now dependent on your behaviour, so it is crucial that the Taxman does not form the impression that you have a careless approach to keeping business records. If you are offered a business assurance visit, either politely decline, or ask us to be present to ensure you are not tricked into saying something that may incriminate you in a future tax investigation. For any advice you need, you should talk to us, not the Taxman!
Saturday, 27 February 2010
Time Runs Out for Tax Claims
For as many years as we can remember individuals have had six years from the end of the tax year to claim most allowances and tax reliefs in respect of that tax year, (some tax claims have to be made within two years). That long claims period was shortened to five years from 31 January following the end of the tax year when self-assessment was introduced in 1996/97, but that change meant the loss of just two months. Now the long claims period is changing to four years from the end of the tax year with effect for claims submitted from 1 April 2010.
Thus claims and elections for the tax years 2004/05 and 2005/06 need to be made by 31 March 2010 and 5 April 2010 respectively. Such claims could include an error or mistake claim where tax has been overpaid, claims for personal allowances for marriage, age or blindness, and a number of capital gains tax reliefs.
Confusingly these new claims periods do not apply to everyone from the same date. If you have only recently come within the self assessment system, but you want to make a claim for an earlier year when you were taxed only under PAYE, you will have a further two years to make the claim. For example, claims from PAYE taxpayers for the tax year 2004/05 run out of time on 31 January 2011.
The long claims period for limited companies is also changing from six years from the end of the accounting period, to four years from the end of the accounting period, for claims submitted on and after 1 April 2010. Thus claims for accounting periods that end between 31 March 2004 and 31 March 2006 all need reach the Tax Office by 31 March 2010.
The period during which the Taxman can normally raise a tax bill for a particular tax year has also been cut back to four years from the end of that year. However, the where the extra tax is due because the taxpayer has made a careless or deliberate error, the Taxman has six years, extending to 20 years for deliberate errors, to raise the tax bill.
Thus claims and elections for the tax years 2004/05 and 2005/06 need to be made by 31 March 2010 and 5 April 2010 respectively. Such claims could include an error or mistake claim where tax has been overpaid, claims for personal allowances for marriage, age or blindness, and a number of capital gains tax reliefs.
Confusingly these new claims periods do not apply to everyone from the same date. If you have only recently come within the self assessment system, but you want to make a claim for an earlier year when you were taxed only under PAYE, you will have a further two years to make the claim. For example, claims from PAYE taxpayers for the tax year 2004/05 run out of time on 31 January 2011.
The long claims period for limited companies is also changing from six years from the end of the accounting period, to four years from the end of the accounting period, for claims submitted on and after 1 April 2010. Thus claims for accounting periods that end between 31 March 2004 and 31 March 2006 all need reach the Tax Office by 31 March 2010.
The period during which the Taxman can normally raise a tax bill for a particular tax year has also been cut back to four years from the end of that year. However, the where the extra tax is due because the taxpayer has made a careless or deliberate error, the Taxman has six years, extending to 20 years for deliberate errors, to raise the tax bill.
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