Where your employees use a company car or van, but pay for the fuel themselves, the company can pay a fuel-only mileage rate for business journeys. This fuel-only rate is guaranteed to be tax free when it is equal to or less than the advisory fuel rates set by HMRC. These advisory fuel rates are now revised every quarter. The latest rates applicable from 1 September 2011 are shown below for different engine sizes, with the previous rates that applied from 1 June to 31 August 2011 shown in brackets.
Petrol & LPG Engines
1400cc or less: Petrol 15p (15p), LPG 11p (11p)
1401 to 2000cc: Petrol 18p (18p), LPG 12p (13p)
Over 2000cc: Petrol 26p (26p), LPG 18p (18p)
Diesel Engines
1600cc or less: 12p (12p)
1601 to 2000cc: 15p (15p)
Over 2000cc: 18p (18p)
Note there is now a different scale for diesel vehicles.
The advisory fuel rates are based on average fuel prices per litre:
- Petrol: 134.6p
- Diesel: 139p
- LPG: 75.8p
If the prices in your local area are significantly higher, or your company cars are less fuel-efficient than average, you can pay a higher mileage rate. You need to keep a record of how you calculated that higher rate.
Where your employees use their own cars for business journeys, you can pay a tax free mileage rate of 45p per mile for the first 10,000 business miles driven in one tax year, and 25p per mile for extra miles in the same year. This rate was increased from 40p per mile on 6 April 2011, so remember to pay the higher rate to your employees and to yourself when you undertake business journeys in your own car.
Where the company is VAT registered it can reclaim VAT on the fuel element of mileage rates paid to employees, if the employee supplies the company with VAT receipts for fuel showing enough VAT to cover the claim. The advisory fuel rates are purely for fuel. The 45p per mile rate is only partly for fuel, the excess above the advisory fuel rate is to pay for other costs of running the car which are incurred by the employee.
If you are self-employed, with an annual turnover below the VAT threshold of £73,000, you can use the 45p rate as an approximation for the cost of business journeys in your own car.
Monday 12 September 2011
Wednesday 10 August 2011
VAT Initiative Starts
Last month we warned you the Taxman was planning a campaign to encourage businesses to register for VAT. The Taxman is calling this campaign the 'VAT Initiative'.
To launch the VAT initiative the Taxman is writing to about 40,000 businesses whose turnover has apparently already exceeded the compulsory VAT registration threshold. Those businesses will be invited to register for VAT and pay over all the VAT owed since the date they should have registered, plus a low penalty of only 10% of the VAT outstanding. Those businesses that first exceeded the VAT threshold within the last 12 months may get away with a nil penalty, but it will be up to the Taxman to decide what level of penalty applies.
The requirement to register for VAT is based on total turnover in a 12 month rolling period and needs to be reviewed each month to determine if the business needs to register immediately. The compulsory VAT registration thresholds of turnover in the past 12 months is...
From 1 April 2011: £73,000
1 April 2010 - 31 March 2011: £70,000
1 May 2009 - 31 March 2010: £68,000
1 April 2008 - 30 April 2009: £67,000
1 April 2007 - 31 March 2008: £64,000
1 April 2006 - 31 March 2007: £61,000
The VAT initiative is also open to any business who has not received a letter from the Taxman, but believes they should have registered for VAT at some point in the past. If you want to take up the offer of low penalties for late VAT registration you need to tell HMRC you want to be part of this VAT initiative by 30 September 2011. We can assist you in doing this.
Once your notification has been processed you will receive a notification reference number (NRN), which you must quote on your application form to register for VAT (form VAT1). Without this notification number you will not be able to take advantage of the nil or 10% penalties on offer. The VAT1 form must be completed in paper form, (NOT online) and posted to the VAT initiative section to arrive by 31 December 2011.
To launch the VAT initiative the Taxman is writing to about 40,000 businesses whose turnover has apparently already exceeded the compulsory VAT registration threshold. Those businesses will be invited to register for VAT and pay over all the VAT owed since the date they should have registered, plus a low penalty of only 10% of the VAT outstanding. Those businesses that first exceeded the VAT threshold within the last 12 months may get away with a nil penalty, but it will be up to the Taxman to decide what level of penalty applies.
The requirement to register for VAT is based on total turnover in a 12 month rolling period and needs to be reviewed each month to determine if the business needs to register immediately. The compulsory VAT registration thresholds of turnover in the past 12 months is...
From 1 April 2011: £73,000
1 April 2010 - 31 March 2011: £70,000
1 May 2009 - 31 March 2010: £68,000
1 April 2008 - 30 April 2009: £67,000
1 April 2007 - 31 March 2008: £64,000
1 April 2006 - 31 March 2007: £61,000
The VAT initiative is also open to any business who has not received a letter from the Taxman, but believes they should have registered for VAT at some point in the past. If you want to take up the offer of low penalties for late VAT registration you need to tell HMRC you want to be part of this VAT initiative by 30 September 2011. We can assist you in doing this.
Once your notification has been processed you will receive a notification reference number (NRN), which you must quote on your application form to register for VAT (form VAT1). Without this notification number you will not be able to take advantage of the nil or 10% penalties on offer. The VAT1 form must be completed in paper form, (NOT online) and posted to the VAT initiative section to arrive by 31 December 2011.
Thursday 9 June 2011
Property Development Issues
There are a wide range of tax issues to consider when developing properties. Here we touch on just a few of them...
- Your own home is normally free of capital gains tax when you sell it, but this tax exemption does not apply if you purchase a property with the intention of developing it and turning a profit. In this case the profit you make could be subject to income tax (at rates of up to 50%) rather than capital gains tax (18% or 28%), as the Taxman will want to view the development activity as a trade. It is very rare that the Taxman succeeds in proving the development of a single property is a trade, but if you make a habit of developing and selling on properties, while claiming capital gains exemption, you could lay yourself open to a tax investigation.
- Where your property includes a significant amount of land, the profit attributed to the land in excess of half a hectare will normally be subject to capital gains tax. This half-hectare limit can be stretched in circumstances where the land and any accompanying outbuildings are closely related to the main residential building.
- When purchasing a run-down property to develop you must think about the cost of VAT. If you are not a VAT registered builder you normally can't reclaim the VAT on the development costs. However there is a scheme that allows DIY builders to reclaim VAT when a non-residential building is being converted into a home. There are a number of other conditions that must be met for this DIY builders scheme to apply.
- VAT may be charged at the lower rate of 5% on certain building services when the building has been empty for at least two years, or the development changes the number of dwellings in the building. The rules that allow this lower rate of VAT to apply are very complicated so you need to take advice before your start the development project.
If you are looking at property development it is important to get advice before proceeding
- Your own home is normally free of capital gains tax when you sell it, but this tax exemption does not apply if you purchase a property with the intention of developing it and turning a profit. In this case the profit you make could be subject to income tax (at rates of up to 50%) rather than capital gains tax (18% or 28%), as the Taxman will want to view the development activity as a trade. It is very rare that the Taxman succeeds in proving the development of a single property is a trade, but if you make a habit of developing and selling on properties, while claiming capital gains exemption, you could lay yourself open to a tax investigation.
- Where your property includes a significant amount of land, the profit attributed to the land in excess of half a hectare will normally be subject to capital gains tax. This half-hectare limit can be stretched in circumstances where the land and any accompanying outbuildings are closely related to the main residential building.
- When purchasing a run-down property to develop you must think about the cost of VAT. If you are not a VAT registered builder you normally can't reclaim the VAT on the development costs. However there is a scheme that allows DIY builders to reclaim VAT when a non-residential building is being converted into a home. There are a number of other conditions that must be met for this DIY builders scheme to apply.
- VAT may be charged at the lower rate of 5% on certain building services when the building has been empty for at least two years, or the development changes the number of dwellings in the building. The rules that allow this lower rate of VAT to apply are very complicated so you need to take advice before your start the development project.
If you are looking at property development it is important to get advice before proceeding
Monday 6 June 2011
Tax Efficiency - Profit Extraction
As a company owner you can choose how to extract the profits from your company, and by making the right choices you can minimise the tax and NI paid by you and the company.
The Taxman would like you to take all the profits in the from of a salary and possibly a bonus, as these carry the highest NI charges and ensure the tax is deducted under PAYE before you get your hands on the net income. It is good practice to pay yourself at least a small salary that is covered by your personal allowance (£7,475 for 2011/12), as this makes the best use of your tax free allowances. However, the maximum salary you can take so that neither you nor the company pay NICs is £7,072 in 2011/12, as the threshold for NICs is lower than the tax free threshold. You can get credit for NI contributions without actually paying any as long as the salary is above £5,304 in 2011/12.
Most company owners extract any further amount they need in the form of dividends. If the gross dividend is less than the basic rate limit of £35,000 you will pay no further income tax on that income, and no NI charges. However, larger dividend payments will create an additional tax charge in your hands of 25% (for 40% taxpayers) of the net dividend or 36.1% (for 50% taxpayers).
If you don't actually need the income now consider extracting the profits in another form such as employer pension contributions although you will have to pay income tax on the pension you eventually receive.
You can also charge a rent for assets you own which the company uses. These assets could be real property (land) or intellectual property (e.g. patents). If you lend funds to the company it can pay you a commercial rate of interest on that loan. These profit extraction methods are free of NI charges.
The Taxman would like you to take all the profits in the from of a salary and possibly a bonus, as these carry the highest NI charges and ensure the tax is deducted under PAYE before you get your hands on the net income. It is good practice to pay yourself at least a small salary that is covered by your personal allowance (£7,475 for 2011/12), as this makes the best use of your tax free allowances. However, the maximum salary you can take so that neither you nor the company pay NICs is £7,072 in 2011/12, as the threshold for NICs is lower than the tax free threshold. You can get credit for NI contributions without actually paying any as long as the salary is above £5,304 in 2011/12.
Most company owners extract any further amount they need in the form of dividends. If the gross dividend is less than the basic rate limit of £35,000 you will pay no further income tax on that income, and no NI charges. However, larger dividend payments will create an additional tax charge in your hands of 25% (for 40% taxpayers) of the net dividend or 36.1% (for 50% taxpayers).
If you don't actually need the income now consider extracting the profits in another form such as employer pension contributions although you will have to pay income tax on the pension you eventually receive.
You can also charge a rent for assets you own which the company uses. These assets could be real property (land) or intellectual property (e.g. patents). If you lend funds to the company it can pay you a commercial rate of interest on that loan. These profit extraction methods are free of NI charges.
Wednesday 11 May 2011
Capital Allowances for Holiday Lets
Do you own a property that qualifies as a furnished holiday let (FHL)? To qualify the property has to be commercially let for short periods for at least 70 days per year, although this minimum will increase to 105 days from April 2012. There are also some other conditions.
If your property does qualify as a FHL, have you claimed tax relief for all of the equipment included in and attached to that property? FHL properties have advantageous tax rules that permit capital allowances to be claimed for the cost of equipment used in the building, which is not the case for other let residential property.
Since April 2008 it has been easier to claim capital allowances on a range of items attached to buildings that qualify as integral features.
For a typical FHL property capital allowances may be claimed on the following fixtures...
- Bathroom fittings
- Dishwasher
- Cooker
- Fridge-freezer
- Central heating
- Fitted carpets
- Swimming pool
For a new property with fitted kitchen, bathroom and carpets that cost £235,000, perhaps £25,000 would relate to the built-in fixtures. In addition you can claim capital allowances on the cost of furniture and curtains you provide in the property.
Capital allowances must be claimed in your tax return. A capital allowances claim for the tax year 2009/10 should have been included in your tax return submitted by 31 January 2011, but that return can be amended to include a claim before 31 January 2012. If the property is used for private purposes the capital allowance claim must be amended to reflect that private use.
A word of warning: HMRC is considering whether it will continue to accept claims for capital allowances for FHL properties following a Brief it released on 22 October 2010. Clarification of the meaning of this Brief has been requested by the Chartered Institute of Taxation, but has not been provided. In the meantime, if you don't claim, you don't get the tax relief.
If your property does qualify as a FHL, have you claimed tax relief for all of the equipment included in and attached to that property? FHL properties have advantageous tax rules that permit capital allowances to be claimed for the cost of equipment used in the building, which is not the case for other let residential property.
Since April 2008 it has been easier to claim capital allowances on a range of items attached to buildings that qualify as integral features.
For a typical FHL property capital allowances may be claimed on the following fixtures...
- Bathroom fittings
- Dishwasher
- Cooker
- Fridge-freezer
- Central heating
- Fitted carpets
- Swimming pool
For a new property with fitted kitchen, bathroom and carpets that cost £235,000, perhaps £25,000 would relate to the built-in fixtures. In addition you can claim capital allowances on the cost of furniture and curtains you provide in the property.
Capital allowances must be claimed in your tax return. A capital allowances claim for the tax year 2009/10 should have been included in your tax return submitted by 31 January 2011, but that return can be amended to include a claim before 31 January 2012. If the property is used for private purposes the capital allowance claim must be amended to reflect that private use.
A word of warning: HMRC is considering whether it will continue to accept claims for capital allowances for FHL properties following a Brief it released on 22 October 2010. Clarification of the meaning of this Brief has been requested by the Chartered Institute of Taxation, but has not been provided. In the meantime, if you don't claim, you don't get the tax relief.
Thursday 5 May 2011
Tax Efficient Cars
There are quite a few types of car which have CO2 emissions of no more than 110g/km; including certain models of the Mini Cooper, Toyota Prius, Smart, and Fiat 500. If your company buys one of these low emissions cars new (not second hand), it can claim a tax deduction for the full cost in the year of purchase and for all its running costs.
Where the car is provided to a director or employee of the company for their own private use, or for the use of a member of their family (perhaps for son or daughter), the director/ employee will be taxed on 10% of the list price of the car.
For example a Mini Cooper 1.6D has CO2 emissions of 104g/km and a list price of £15,730. The director/employee will be taxed on £1,573 per year, and if their top tax rate is 40% this will give in an annual tax bill of £629.30. The company will also have to pay class 1A NICs of £217 per year, but that cost is tax allowable for the company. The company can also pick up the full cost of all servicing and insurance for the car with no extra tax charges.
Where the car is provided to a director or employee of the company for their own private use, or for the use of a member of their family (perhaps for son or daughter), the director/ employee will be taxed on 10% of the list price of the car.
For example a Mini Cooper 1.6D has CO2 emissions of 104g/km and a list price of £15,730. The director/employee will be taxed on £1,573 per year, and if their top tax rate is 40% this will give in an annual tax bill of £629.30. The company will also have to pay class 1A NICs of £217 per year, but that cost is tax allowable for the company. The company can also pick up the full cost of all servicing and insurance for the car with no extra tax charges.
Tuesday 3 May 2011
Higher Penalties for Late Returns - May Newsletter
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 7 April 2011
New Pensioners to Receive Tax Bills
If you first received your state pension after 5 April 2010 you may have to pay an unexpected tax bill. This is because of yet another programming error with the Tax Office PAYE computer.
The state retirement pension is taxable but it is paid without tax being deducted. The amount of your state pension should be set against your personal allowance in your PAYE code. However, this adjustment to the PAYE code was not done by the PAYE computer for state retirement pensions that commenced in the tax year 2010/11.
Any pensions paid by your former employer, or as an annuity from a personal pension plan, are taxed under PAYE. Where the state pension has been set-off against your personal allowance in your PAYE code, any balance of your personal allowance is used against your occupational pension leaving the rest of your occupational pension to be taxed at your marginal rate. Where your state pension has not been included in your PAYE code, all of your tax free personal allowance will be set against your occupational pension and not enough tax will be deducted from that income under PAYE.
If you are in this position you will receive a PAYE reconciliation (form P800), at some time in the next 12 months, which will show you how much tax was deducted under PAYE and how much should have been deducted. If the difference is less than £2,000, the tax due will be collected through your PAYE code in the three years to 2013/14. However, where the amount owing is £2,000 or more the Tax Office may demand payment immediately. You should resist this, and ask for the tax due to be collected through your PAYE codes, as the tax underpayment is purely due to a Tax Office mistake.
This is not the first time the PAYE computer has made this error. Up to 250,000 pensioners had an incorrect amount of their state pension included in their PAYE codes for the tax years 2008/09 and 2009/10. In these cases the Taxman decided not to collect the underpaid tax and the pensioners were not informed of the mistake.
The state retirement pension is taxable but it is paid without tax being deducted. The amount of your state pension should be set against your personal allowance in your PAYE code. However, this adjustment to the PAYE code was not done by the PAYE computer for state retirement pensions that commenced in the tax year 2010/11.
Any pensions paid by your former employer, or as an annuity from a personal pension plan, are taxed under PAYE. Where the state pension has been set-off against your personal allowance in your PAYE code, any balance of your personal allowance is used against your occupational pension leaving the rest of your occupational pension to be taxed at your marginal rate. Where your state pension has not been included in your PAYE code, all of your tax free personal allowance will be set against your occupational pension and not enough tax will be deducted from that income under PAYE.
If you are in this position you will receive a PAYE reconciliation (form P800), at some time in the next 12 months, which will show you how much tax was deducted under PAYE and how much should have been deducted. If the difference is less than £2,000, the tax due will be collected through your PAYE code in the three years to 2013/14. However, where the amount owing is £2,000 or more the Tax Office may demand payment immediately. You should resist this, and ask for the tax due to be collected through your PAYE codes, as the tax underpayment is purely due to a Tax Office mistake.
This is not the first time the PAYE computer has made this error. Up to 250,000 pensioners had an incorrect amount of their state pension included in their PAYE codes for the tax years 2008/09 and 2009/10. In these cases the Taxman decided not to collect the underpaid tax and the pensioners were not informed of the mistake.
Wednesday 6 April 2011
PAYE Notices are Coming!
The Tax Office has started to issue electronic PAYE code notices (forms P9) to employers for 2011/12. If you have provided an email address for the Tax Office to contact you concerning PAYE matters, you should receive an email to inform you that new PAYE codes have been issued for your employees.
To view the PAYE codes you need to log on to the PAYE online service on the HMRC website (or through your Payroll software), and choose the option required (e.g. tax code notices). Change the option 'tax year' from 'current' to 2011/12 to see the notices for 2011/12.
Remember you can be held liable for under-deducted tax if an incorrect PAYE code is applied to your employee's wages, or a PAYE code is applied incorrectly.
If you have a large number of tax code notices to manage you may want to use the HMRC tool: PAYE Desktop Viewer (PDV). This is a free HMRC tool that allows you to search and sort tax codes, notifications and other reminders.
To view the PAYE codes you need to log on to the PAYE online service on the HMRC website (or through your Payroll software), and choose the option required (e.g. tax code notices). Change the option 'tax year' from 'current' to 2011/12 to see the notices for 2011/12.
Remember you can be held liable for under-deducted tax if an incorrect PAYE code is applied to your employee's wages, or a PAYE code is applied incorrectly.
If you have a large number of tax code notices to manage you may want to use the HMRC tool: PAYE Desktop Viewer (PDV). This is a free HMRC tool that allows you to search and sort tax codes, notifications and other reminders.
Tuesday 5 April 2011
Changes to NIC Class 2 Payments
As a self-employed person you probably pay your class 2 NIC, (formerly known as 'NI stamp') by monthly direct debit, or when the quarterly bill arrives from the Tax Office.
From April 2011 the Tax Office is changing the way it collects class 2 NICs. The payment will be due in two equal instalments on 31 July and 31 January. The Tax Office will send out separate bills for the class 2 NICs in April and October that demand payment for the amounts due in the following July and January.
If you already have a monthly direct debit set up to pay your class 2 NICs, those direct debits will be suspended from April 2011 and will start again in August 2011. You can opt to pay your class 2 NIC bill when the payments become due in July and January, by telephone banking, Bank Giro, at the Post Office, by direct debit or by cheque.
From April 2011 the Tax Office is changing the way it collects class 2 NICs. The payment will be due in two equal instalments on 31 July and 31 January. The Tax Office will send out separate bills for the class 2 NICs in April and October that demand payment for the amounts due in the following July and January.
If you already have a monthly direct debit set up to pay your class 2 NICs, those direct debits will be suspended from April 2011 and will start again in August 2011. You can opt to pay your class 2 NIC bill when the payments become due in July and January, by telephone banking, Bank Giro, at the Post Office, by direct debit or by cheque.
Monday 4 April 2011
Plumbers Tax Safe Plan
The Taxman has launched a new tax disclosure opportunity called the Plumbers Tax Safe Plan (PTSP). It is aimed at plumbers and heating engineers who have not fully disclosed all of their income on their tax returns in the past. However, anyone in any trade or profession can use this disclosure opportunity to make a full disclosure of previously undeclared income to the Tax Office.
If you use the PTSP disclosure opportunity to declare unpaid tax, you will be charged a low penalty on the tax due. If you delay and are later found out by the Taxman the penalty could be as high as 100% of the tax due, or 200% if funds have been hidden off-shore. You will also be subject to a full tax investigation and possibly charges under criminal law.
To take advantage of the PTSP you need to fully disclose all your additional tax liabilities by 31 August 2011, and pay all the tax, interest due on late paid tax, and penalties by that date as well. To start the PTSP process you must first notify HMRC by 31 May 2011 that you wish to disclose. We can help you do this and HMRC will respond with a disclosure reference number.
You will need the disclosure reference number to complete the PTSP disclosure form, which can be done online or by using a PDF of the form downloaded from the HMRC website. Most taxpayers will need some help with this disclosure form as the tax, interest and penalties all need to be calculated. It is up to you to decide which penalty rate should apply to your tax errors under the PTSP:
- Innocent mistakes have zero penalty;
- Careless errors attract 10% penalty; and
- Deliberate errors attract 20% penalty.
Think very carefully before admitting to a deliberate error, as this could lead to very strict sanctions in future.
If you think you will not be found out by the HMRC investigators, consider the information HMRC can collect from other sources. To back-up this PTSP scheme HMRC have obtained information concerning plumbers and heating engineers from the Gas Safe Register (formerly CORGI registered). They have cross-referenced this information to advertising directories to work out who was trading as a plumber or heating engineer but were not registered with HMRC.
If you would like some assistance in making a full disclosure of unpaid tax, or know someone who does need help, please contact us as soon as possible.
If you use the PTSP disclosure opportunity to declare unpaid tax, you will be charged a low penalty on the tax due. If you delay and are later found out by the Taxman the penalty could be as high as 100% of the tax due, or 200% if funds have been hidden off-shore. You will also be subject to a full tax investigation and possibly charges under criminal law.
To take advantage of the PTSP you need to fully disclose all your additional tax liabilities by 31 August 2011, and pay all the tax, interest due on late paid tax, and penalties by that date as well. To start the PTSP process you must first notify HMRC by 31 May 2011 that you wish to disclose. We can help you do this and HMRC will respond with a disclosure reference number.
You will need the disclosure reference number to complete the PTSP disclosure form, which can be done online or by using a PDF of the form downloaded from the HMRC website. Most taxpayers will need some help with this disclosure form as the tax, interest and penalties all need to be calculated. It is up to you to decide which penalty rate should apply to your tax errors under the PTSP:
- Innocent mistakes have zero penalty;
- Careless errors attract 10% penalty; and
- Deliberate errors attract 20% penalty.
Think very carefully before admitting to a deliberate error, as this could lead to very strict sanctions in future.
If you think you will not be found out by the HMRC investigators, consider the information HMRC can collect from other sources. To back-up this PTSP scheme HMRC have obtained information concerning plumbers and heating engineers from the Gas Safe Register (formerly CORGI registered). They have cross-referenced this information to advertising directories to work out who was trading as a plumber or heating engineer but were not registered with HMRC.
If you would like some assistance in making a full disclosure of unpaid tax, or know someone who does need help, please contact us as soon as possible.
Monday 7 March 2011
Taxman Starts Business Records Checks
The Taxman is concerned that many small businesses are not keeping adequate records to support the entries on their tax returns. To encourage better record keeping he is taking a carrot and stick approach.
The carrot encouragement comes in the form of a number of new HMRC leaflets, and an online tool designed to help small businesses decide what records they must keep. These tools and leaflets contain quite a lot of jargon words and phrases, so we would recommend discussing your requirements with us.
The stick is a letter he is about to send to 50,000 small businesses, advising that they may be subject to a detailed records check.
Only a minority of these businesses will actually receive a visit from the Tax Office compliance check unit, and those visits will normally be arranged in advance. However, if your business is visited and your records are found to be inadequate you may receive a penalty of up to £3,000, which cannot be suspended even if you promise to keep better records in future.
The carrot encouragement comes in the form of a number of new HMRC leaflets, and an online tool designed to help small businesses decide what records they must keep. These tools and leaflets contain quite a lot of jargon words and phrases, so we would recommend discussing your requirements with us.
The stick is a letter he is about to send to 50,000 small businesses, advising that they may be subject to a detailed records check.
Only a minority of these businesses will actually receive a visit from the Tax Office compliance check unit, and those visits will normally be arranged in advance. However, if your business is visited and your records are found to be inadequate you may receive a penalty of up to £3,000, which cannot be suspended even if you promise to keep better records in future.
Friday 4 March 2011
Traps with the Flat Rate VAT Scheme
The VAT flat rate scheme for small businesses is generally straight-forward to operate, but here are a few traps to watch out for.
Use the right rate
You will be aware that the standard rate of VAT increased to 20% on 4 January 2011. The flat rates used by traders in the flat rate scheme to calculate the VAT to pay to HMRC also changed from that date. Did you remember to apply the new rate for your business sector? Check whether you applied the correct flat rate from 1 January 2010 to 3 January 2011 when the standard rate of VAT was 17.5%, and from 1 December 2008 to 31 December 2009 when the standard rate was 15%.
Include all business income
You need to apply the flat rate for your business sector to all your business income, including income that is exempt from VAT such as rents. If you are self-employed and operate your VAT registered business in your own name, any income from property you let in your own name must also be subject to the flat rate scheme.
This applies whether or not you consider the lettings to be part of the VAT registered business. If you run your VAT registered business though a company and hold the let property in your own name, the flat rate scheme operated by the company will not include your rental income.
Bank interest
If you receive interest in your business as a core part of your business activities that interest should be included in the turnover to which you apply the flat rate. This could apply to businesses who handle large sums of money on behalf of clients and keep a share of the interest as part of the deal. However, where the interest is received as a passive activity, such as on a current or deposit account it is outside the scope of VAT and should not be included in the sum to which you apply the flat rate.
Use the right rate
You will be aware that the standard rate of VAT increased to 20% on 4 January 2011. The flat rates used by traders in the flat rate scheme to calculate the VAT to pay to HMRC also changed from that date. Did you remember to apply the new rate for your business sector? Check whether you applied the correct flat rate from 1 January 2010 to 3 January 2011 when the standard rate of VAT was 17.5%, and from 1 December 2008 to 31 December 2009 when the standard rate was 15%.
Include all business income
You need to apply the flat rate for your business sector to all your business income, including income that is exempt from VAT such as rents. If you are self-employed and operate your VAT registered business in your own name, any income from property you let in your own name must also be subject to the flat rate scheme.
This applies whether or not you consider the lettings to be part of the VAT registered business. If you run your VAT registered business though a company and hold the let property in your own name, the flat rate scheme operated by the company will not include your rental income.
Bank interest
If you receive interest in your business as a core part of your business activities that interest should be included in the turnover to which you apply the flat rate. This could apply to businesses who handle large sums of money on behalf of clients and keep a share of the interest as part of the deal. However, where the interest is received as a passive activity, such as on a current or deposit account it is outside the scope of VAT and should not be included in the sum to which you apply the flat rate.
Wednesday 2 March 2011
Taxman to Hassle Tax Cheats
In addition to the 50,000 letters being sent about keeping proper business records, the Taxman is writing to 12,000 self-employed people who claim Tax Credits, to check whether they have been understating their income.
As a self-employed person you can claim Child and Working Tax Credits just like an employee, but your self-employed income is likely to be more variable than a regular wage or salary. If the income from your self-employed business has fluctuated wildly during the past recession, you may well get one of those letters from the Taxman. You will be asked to supply evidence of your income, which will normally be your business accounts and possibly bank statements. We can help you compile the information requested.
The Taxman is also getting serious about tackling those who deliberately cheat the tax system, as opposed to those who make careless mistakes.
He is targeting individuals and businesses identified as deliberate tax cheats since April 2009, and will regularly monitor all aspects of that person's tax affairs. This will involve asking for further information to support figures on tax returns, and possibly making unannounced visits to business premises.
The monitoring will continue for two to five years, or as long as the Taxman thinks the person is a tax risk. Initially, about 900 people will soon be informed they are included in this monitoring scheme but this number may well increase in time.
As a self-employed person you can claim Child and Working Tax Credits just like an employee, but your self-employed income is likely to be more variable than a regular wage or salary. If the income from your self-employed business has fluctuated wildly during the past recession, you may well get one of those letters from the Taxman. You will be asked to supply evidence of your income, which will normally be your business accounts and possibly bank statements. We can help you compile the information requested.
The Taxman is also getting serious about tackling those who deliberately cheat the tax system, as opposed to those who make careless mistakes.
He is targeting individuals and businesses identified as deliberate tax cheats since April 2009, and will regularly monitor all aspects of that person's tax affairs. This will involve asking for further information to support figures on tax returns, and possibly making unannounced visits to business premises.
The monitoring will continue for two to five years, or as long as the Taxman thinks the person is a tax risk. Initially, about 900 people will soon be informed they are included in this monitoring scheme but this number may well increase in time.
Monday 14 February 2011
How to Challenge a VAT Penalty
If you receive a VAT penalty, perhaps because you have submitted your VAT return late, the Taxman should offer an independent review of the penalty.
You should certainly take up this offer of a review, as this may be the first time that a human (rather than a computer) has looked at the circumstances under which the penalty was imposed. You should reply in writing to the Taxman accepting (or in rare cases rejecting), the offer of the review within 30 days of the date of the penalty notice. Don't delay, as the penalty notice may have been sitting in the Taxman's post area for weeks before it reaches you.
Where you believe the penalty is not due, because you have a reasonable excuse for submitting your form late (or whatever was the cause of the penalty), set out your reasons in the letter that accompanies the acceptance of the review. When the review department within the Tax Office looks at your case you have a chance of having the VAT penalty overturned. We can help you set out your reasons to the Tax Office.
You should certainly take up this offer of a review, as this may be the first time that a human (rather than a computer) has looked at the circumstances under which the penalty was imposed. You should reply in writing to the Taxman accepting (or in rare cases rejecting), the offer of the review within 30 days of the date of the penalty notice. Don't delay, as the penalty notice may have been sitting in the Taxman's post area for weeks before it reaches you.
Where you believe the penalty is not due, because you have a reasonable excuse for submitting your form late (or whatever was the cause of the penalty), set out your reasons in the letter that accompanies the acceptance of the review. When the review department within the Tax Office looks at your case you have a chance of having the VAT penalty overturned. We can help you set out your reasons to the Tax Office.
Tuesday 8 February 2011
Changes to Tax Credits
The system of Child and Working Tax Credits is due to be reformed over the next few years, and it is expected a new benefit called Universal Credit will replace the familiar Tax Credits from April 2014.
Before then there will be some significant cuts in the benefits paid to many tax credit claimants, phased in over the next three years. The following summarises the rates and thresholds that will be cut or frozen in 2011/12 compared to 2010/11.
Child Tax Credit
Family element: no change at £545
Baby element: decrease from £545 to nil
First income threshold: decrease from £16,190 to £15,860
Second income threshold: decrease from £50,000 to £40,000
Working Tax Credit
Childcare element:
Maximum costs for one child: no change at £175 per week
Maximum cost for all children: no change at £300 per week
Percentage of costs covered: decrease from 80% to 70%
First income threshold: no change at £6,420
First withdrawal rate: increase from 39% to 41%
Income disregard: decrease from £25,000 to £10,000
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. The reduction in this threshold is likely to adversely affect families with fluctuating incomes, such as the self-employed. In the future, in order to avoid a claw-back of tax credits, the claimant will need to finalise their self-employed profit figures as close to the tax year end as possible.
Before then there will be some significant cuts in the benefits paid to many tax credit claimants, phased in over the next three years. The following summarises the rates and thresholds that will be cut or frozen in 2011/12 compared to 2010/11.
Child Tax Credit
Family element: no change at £545
Baby element: decrease from £545 to nil
First income threshold: decrease from £16,190 to £15,860
Second income threshold: decrease from £50,000 to £40,000
Working Tax Credit
Childcare element:
Maximum costs for one child: no change at £175 per week
Maximum cost for all children: no change at £300 per week
Percentage of costs covered: decrease from 80% to 70%
First income threshold: no change at £6,420
First withdrawal rate: increase from 39% to 41%
Income disregard: decrease from £25,000 to £10,000
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. The reduction in this threshold is likely to adversely affect families with fluctuating incomes, such as the self-employed. In the future, in order to avoid a claw-back of tax credits, the claimant will need to finalise their self-employed profit figures as close to the tax year end as possible.
Friday 4 February 2011
More PAYE Reconciliations
In October and November last year we told you the Taxman was issuing 6 million tax reconciliations (forms P800), for the tax years 2008/09 and 2009/10. This process is still not complete, but the Taxman has started to issue a further 450,000 forms P800 for the tax year 2007/08.
There are likely to be similar problems with inaccurate data for 2007/08 as have emerged for the later tax years, but you may not have the records to check against the Taxman's figures. If you do not run your own business you are only required to retain your tax records for 2007/08 until 31 January 2010. If you need some help checking a tax calculation for 2007/08, please contact us.
The Taxman has also discovered that the State Pension received by up to 250,000 pensioners in 2008/09 and 2009/10 has not been taxed as it should be. When a person retires they normally receive an occupational pension paid by their former employer, or an annuity paid from their personal pension scheme. In either case the payments will be subject to PAYE and will have some tax deducted by the payer. The pensioner may also receive the State Pension, which does not have tax deducted by the payer (i.e. Department of Pensions), but it is taxable.
The PAYE code applied to the occupational pension or annuity should take into account the amount of State Pension paid, but for up to 250,000 pensioners in 2008/09 and 2009/10 it did not! This meant those pensioners paid too little tax through no fault of their own. The Taxman will not collect the tax due in these circumstances, but only where he can identify the State Pension has been missed altogether.
If you receive a P800 tax reconciliation which shows tax has been underpaid due to an inaccurate figure of State Pension, you have good grounds for asking the Taxman to write-off the tax due under Extra Statutory Concession A19. This concession applies where the Taxman failed to make use of information (such as the State Pension figure provided by the Department of Pensions), to calculate the right amount of tax. We can help you apply for the A19 concession.
There are likely to be similar problems with inaccurate data for 2007/08 as have emerged for the later tax years, but you may not have the records to check against the Taxman's figures. If you do not run your own business you are only required to retain your tax records for 2007/08 until 31 January 2010. If you need some help checking a tax calculation for 2007/08, please contact us.
The Taxman has also discovered that the State Pension received by up to 250,000 pensioners in 2008/09 and 2009/10 has not been taxed as it should be. When a person retires they normally receive an occupational pension paid by their former employer, or an annuity paid from their personal pension scheme. In either case the payments will be subject to PAYE and will have some tax deducted by the payer. The pensioner may also receive the State Pension, which does not have tax deducted by the payer (i.e. Department of Pensions), but it is taxable.
The PAYE code applied to the occupational pension or annuity should take into account the amount of State Pension paid, but for up to 250,000 pensioners in 2008/09 and 2009/10 it did not! This meant those pensioners paid too little tax through no fault of their own. The Taxman will not collect the tax due in these circumstances, but only where he can identify the State Pension has been missed altogether.
If you receive a P800 tax reconciliation which shows tax has been underpaid due to an inaccurate figure of State Pension, you have good grounds for asking the Taxman to write-off the tax due under Extra Statutory Concession A19. This concession applies where the Taxman failed to make use of information (such as the State Pension figure provided by the Department of Pensions), to calculate the right amount of tax. We can help you apply for the A19 concession.
Tuesday 11 January 2011
Furnished Holiday Lettings Changes
Furnished holiday lettings have some specific tax advantages. On 9 December 2010 the Government released draft tax legislation that is expected to become law from April 2011. This draft law includes three major changes to the taxation of furnished holiday lettings.
1. Separate FHL businesses. In April 2009 the Government announced the tax reliefs that apply to property let as furnished holiday accommodation (FHLs) in the UK, would also apply where the property was located in a European Economic Area (EEA) country. These EEA countries comprise all 27 EU member states plus Iceland, Liechtenstein and Norway. From 6 April 2011 (1 April 2011 for companies), the profit or loss from FHL property let in EEA countries other than the UK, must be calculated separately from the profit or loss arising from UK holiday lettings. Profits and losses from any other overseas lettings must also be calculated separately and not mixed with the FHL profit or loss.
2. Restriction of loss relief. Losses made from FHL businesses after 5 April 2011, either in the UK or elsewhere, won't be available to set against your other income for the same tax year, or the previous tax year. The loss can only be set against future profits from the same FHL business (either UK or EEA based).
3. Change to lettings condition. The periods a property must be let to qualify for the FHL tax reliefs are extended from 6 April 2012 (1 April 2012 for companies). The property must be let commercially as furnished holiday accommodation for 105 days per year (previously 70), and be available for letting for 210 days (up from 140). If you let a number of FHL properties you can average let days across all your FHL properties in the UK for a tax year. You can also average the let periods for all your other FHL properties located in other EEA countries.
Once a property qualifies as furnished holiday lettings, it may fail the letting condition for up to two years and continue to qualify, if you elect for the FHL tax status to apply.
1. Separate FHL businesses. In April 2009 the Government announced the tax reliefs that apply to property let as furnished holiday accommodation (FHLs) in the UK, would also apply where the property was located in a European Economic Area (EEA) country. These EEA countries comprise all 27 EU member states plus Iceland, Liechtenstein and Norway. From 6 April 2011 (1 April 2011 for companies), the profit or loss from FHL property let in EEA countries other than the UK, must be calculated separately from the profit or loss arising from UK holiday lettings. Profits and losses from any other overseas lettings must also be calculated separately and not mixed with the FHL profit or loss.
2. Restriction of loss relief. Losses made from FHL businesses after 5 April 2011, either in the UK or elsewhere, won't be available to set against your other income for the same tax year, or the previous tax year. The loss can only be set against future profits from the same FHL business (either UK or EEA based).
3. Change to lettings condition. The periods a property must be let to qualify for the FHL tax reliefs are extended from 6 April 2012 (1 April 2012 for companies). The property must be let commercially as furnished holiday accommodation for 105 days per year (previously 70), and be available for letting for 210 days (up from 140). If you let a number of FHL properties you can average let days across all your FHL properties in the UK for a tax year. You can also average the let periods for all your other FHL properties located in other EEA countries.
Once a property qualifies as furnished holiday lettings, it may fail the letting condition for up to two years and continue to qualify, if you elect for the FHL tax status to apply.
Wednesday 5 January 2011
Take Care with VAT
The VATman expects all businesses to take reasonable care when completing their quarterly VAT returns. If you make a mistake, which results in the VAT being underpaid, the VATman is likely to charge you a penalty. Penalties can also be applied where a mistake results in you claiming a higher VAT refund than is due.
If the VATman believes your careless behaviour lead to the error, he will impose a penalty of between 15% and 30% of the underpaid (or over-claimed) VAT. If you can show that you took reasonable care when completing your VAT return, but still made a mistake, you should get away with a zero penalty.
Reasonable care can be demonstrated by taking any of the following actions, when faced with a VAT problem:
- Contact your supplier to query the VAT charged on their invoice.
- Read the VAT notice or VAT Information Sheet that relates to the issue, (if there is one).
- Speak to a VAT officer and make a note of the advice given.
- Seek advice from a competent adviser.
We can help you with your VAT problems, but please raise the matter with us as soon it occurs. Sometimes it can take a while to get to the bottom of a VAT issue, so its best not to leave the problem on the shelf until the day before the VAT return has to be filed!
If the VATman believes your careless behaviour lead to the error, he will impose a penalty of between 15% and 30% of the underpaid (or over-claimed) VAT. If you can show that you took reasonable care when completing your VAT return, but still made a mistake, you should get away with a zero penalty.
Reasonable care can be demonstrated by taking any of the following actions, when faced with a VAT problem:
- Contact your supplier to query the VAT charged on their invoice.
- Read the VAT notice or VAT Information Sheet that relates to the issue, (if there is one).
- Speak to a VAT officer and make a note of the advice given.
- Seek advice from a competent adviser.
We can help you with your VAT problems, but please raise the matter with us as soon it occurs. Sometimes it can take a while to get to the bottom of a VAT issue, so its best not to leave the problem on the shelf until the day before the VAT return has to be filed!
Tuesday 4 January 2011
Associated Company Changes
Companies controlled by the same people plus their relatives are counted as 'associated' for corporation tax purposes. The upper profits limit for the small profits rate of corporation tax is divided by the number of associated companies. A company with no associates currently pays 21% tax on profits up to £300,000, but a company with one associate pays tax at 21% on profits up to £150,000, and 29.75% on profits above that up to £1.5 million. This tax rule is supposed to discourage large companies from splitting into smaller ones to take advantage of the lower tax rate, but it catches many smaller companies.
For periods ending before 1 April 2011 where spouses or civil partners own separate companies, those companies are automatically associated companies, even if there is no commercial relationship between them. For periods ending on or after 1 April 2011 the companies controlled by relatives are not associated companies unless there is substantial commercial interdependence between those companies. This change could lower a small company tax bill by up to £13,125!
Substantial commercial interdependence includes situations where one company is financially dependent on the other, where they have common customers or they share the same management, employees, premises or equipment. The commercial links between the companies must be significant before the companies will be treated as associated. Please discuss with us any commercial relationships between your company and companies controlled by your relatives.
For periods ending before 1 April 2011 where spouses or civil partners own separate companies, those companies are automatically associated companies, even if there is no commercial relationship between them. For periods ending on or after 1 April 2011 the companies controlled by relatives are not associated companies unless there is substantial commercial interdependence between those companies. This change could lower a small company tax bill by up to £13,125!
Substantial commercial interdependence includes situations where one company is financially dependent on the other, where they have common customers or they share the same management, employees, premises or equipment. The commercial links between the companies must be significant before the companies will be treated as associated. Please discuss with us any commercial relationships between your company and companies controlled by your relatives.
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