Welcome...To February's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Corner.
We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.
Please contact us for advice in your own specific circumstances. We're here to help!
And if you're not yet a client of ours, then why on earth not? We're ideal for people who have better things to do with their life than do their own accounts and tax!
Errors in New PAYE Codes The Taxman has started to issue the 2010/11 PAYE codes, for the tax year that starts on 6 April 2010. This code arrives in the form of a P2 notice, and a copy should go to your employer (on a form P9). If you have received your 2010/11 PAYE code already please study it carefully, as any corrections need to be made in the next few weeks.
Since the Taxman fired up a new PAYE computer last summer there have been a number of faults appearing in PAYE codes. In some cases the age allowance or married couples allowance disappeared, in other cases the state pension amount was understated. Now many of the 2010/11 codes have excluded some of the basic personal allowance, which should be £6,475 for those aged under 65.
This fault occurs if you have changed jobs in the last few years, or started to receive a pension.
The Taxman's computer thinks you are still receiving a wage from your old job, so has split your personal allowance over your current employment or pension and your old job. If you do not have your full personal allowance of £6,475 shown on your 2010/11 PAYE code, ring the Tax Office to ask why, or speak to us.
Doctors and Dentists Asked to Confess In our January newsletter we told you about the Taxman's crackdown on undeclared commissions. On 11 January 2010 he launched a scheme to encourage medical professionals to disclose all their undeclared income, including commissions and any other income that hasn't been shown on their tax returns. This scheme is called the Tax Health Plan, but at present it is only open to medical doctors who are registered with the General Medical Council (GMC), and to qualified dentists.
If you are a doctor or dentist, and you want to come clean to the Taxman you need to register your intention to make a disclosure under the Tax Health Plan by 31 March 2010. You will then have to present the full disclosure report and pay all the tax, interest and penalties due by 30 June 2010. We can help you calculate what is due and to complete the disclosure forms necessary. The main advantage of using this scheme is the penalties due will be nil if the unpaid tax is less than £1,000, and will be limited to 10% of the unpaid tax in other cases.
If you fail to make a full disclosure under the Tax Health Plan and the Taxman then investigates your tax affairs, the penalties charged are likely to range from 30% to 100% of the tax due. You cannot take advantage of the low penalties under the Tax Health Plan if you could have made a full disclosure under one of the off-shore disclosure schemes in 2007 or 2009/10. In that case you have missed the boat, and any disclosure you make now will be subject to higher penalties on the tax due.
If you are a medical professional with undeclared income, but not a registered doctor or dentist, wait a few weeks to see if the Taxman will widen the Tax Health Plan to include you. Other professionals should probably also wait a while before approaching the Taxman about any undeclared income, as he said the Tax Health Plan would be the first of a number of schemes aimed at different professional groups. In the meantime if you have doubts about whether you have correctly declared all of your taxable income, please speak to us as soon as possible.
Adding Overseas Purchases to Sales If your business is not VAT registered you need to keep a 12-month rolling total of your sales ('taxable supplies' in VAT-speak), to check this total does not exceed the VAT registration threshold (currently £68,000). Taxable supplies are those sales which would be subject to VAT (at 0%, 5% or 17.5%), if your business was VAT registered. Once your 12-month taxable supplies total exceeds the VAT registration threshold you must register your business for VAT within 30 days.
Unfortunately you now also need to keep track of the value of the services you purchase from any overseas businesses. Since 1 January 2010 most overseas services supplied to a business from another business (B2B) are subject to the reverse charge. This means you as the customer need to act as both the supplier and customer for the transaction for VAT purposes.
You must add the value of the overseas services acquired to your total purchases, and add the same value to your taxable supplies total, for VAT purposes only. The addition of the overseas services to your taxable supplies total may push this figure over the compulsory VAT registration threshold, in which case you must register your business for VAT in the UK.
It doesn't matter whether the business you are purchasing the service from is registered for VAT or not. You still have to apply the reverse charge treatment to the value of the service acquired. There are some exceptions for services relating to land and transport. Please ask us if you are uncertain about when you should apply the reverse charge or register for VAT.
When is Your PAYE Due? This is an easy question - all PAYE and NIC deductions, including student loan repayments, and CIS deductions for the tax period ending on 5th of the month must be paid to HMRC by 19th of that same month. This means your cheque must reach the Taxman's accounts office by the last working day before the 19th. If you pay electronically the payment must reach the Taxman's account by 22nd of each month. In most cases you will need to set-up the payment to leave your bank account on or before 19th as the Taxman's bank does not accept 'faster payments', which arrive the same day as they leave.
If all your average monthly PAYE deductions for the tax year are less than £1,500 you can pay those deductions to the Taxman each quarter instead of monthly. In this case the deductions must reach the Taxman's accounts office by 19th July, 19th October, 19th January and 19th April. If you pay electronically the payment must arrive by 22nd of the relevant months.
These deadlines are particularly important for sub-contractors in the construction industry who currently have 'gross payment' status.
Gross payment status allows those firms to be paid without deduction of tax. But the Taxman will withdraw gross payment status if you are up to 14 days late with more than three PAYE payments. If you are more than 14 days late for just one payment gross payment status will be withdrawn. You can appeal against the withdrawal of gross payment status, but you need a good excuse for making the late payments!
From May 2010 all employers will be subject to late payment penalties if they are late with more than one PAYE payment in the tax year. If you regularly pay your PAYE late we should discuss how to improve your systems before the new penalties start.
February Question and Answer Corner Q. Next tax year I will lose £1 of my personal allowance for every £2 of my taxable income that exceeds £100,000. To avoid this loss of allowance, can my wife and I elect for the interest on our joint bank accounts to be treated as belonging entirely to her for tax purposes?
A. The income from jointly held bank accounts must always be split equally between the account holders for tax purposes, you cannot elect otherwise. To move the interest into your wife's name for 2010/11 you need to take your name off the account before 6 April 2010. To achieve this you may have to close the account and open a new account in her sole name. If you have any fixed interest accounts that are due to mature and pay rolled-up interest on after 6 April 2010, you may want to close those accounts before that date. This will ensure the interest arises in the tax year 2009/10 and is taxed at 40% rather than at a marginal rate of 60% if it arises in 2010/11. Check the penalty clauses for closing the account early before you take action.
Q. My company has paid interest on late paid corporation tax. Is that interest tax allowable?
A. Yes. Interest paid to the Tax Office on late paid corporation tax is tax allowable for the company for the period in which the interest was paid. Likewise interest paid by the Taxman because corporation tax has been paid early, or in excess of the amount due, is taxable.
Q. A friend told me I could purchase a van or motorcycle through my company and not pay any tax on it. Is that true?
A. There is a grain of truth in this myth, but there will still be some tax to pay if you use the vehicle for personal journeys. When your company purchases a van or motorcycle for business purposes it will reduce the taxable profits by 100% of the cost of the vehicle. This only applies where the purchase is covered by your company's annual investment allowance (AIA) of £50,000. The AIA cannot be claimed for the cost of cars.
However, when you use the vehicle for non-business journeys there will be a benefit in kind tax charge for you and a NI charge for your company. If you want to transfer the van or motorcycle into your own hands from the company's ownership, this must be done at the market value and again there will be a benefit in kind charge unless you pay the full value to the company. What's more, the disposal by the company will claw-back the AIA given and increase the company's taxable profit for the period in which the transfer is made.
February Key Tax Dates 2 Last day for car change notifications in the quarter to 5 January - Use P46 Car
19/22 PAYE/NIC and CIS deductions due for month to 5/2/2010
28 Talk to us about year end and pre-budget planning
First 5% penalty surcharge on any 2008/09 outstanding tax due on 31 January 2010 still unpaid.
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