Archive for August, 2014

HMRC business record checks

Friday, August 29th, 2014

According to insurers PFP, HMRC business record checks are on the increase.

 In the tax year 2013/14 HMRC checked 5,515 sets of business records compared to just 3,431 checks in 2011/12, an increase of 60%. Interestingly, of the records checked 73% were found to have no significant errors.

Since November 2012, HMRC have adopted a fresh approach to their business record check visits. On the HMRC website we are advised:

“Customers who are more likely to be at risk of having inadequate records will be contacted by letter to arrange for HMRC to call them to go through a short questionnaire.

Depending on the outcome of this call, HMRC will confirm to some customers that no further action is required. Where some issues are identified, customers will be offered targeted self-help education options. Customers who are assessed as being at risk of keeping inadequate records will be referred for a BRC visit.”

The reasoning behind the record check initiative is to find businesses that are submitting tax returns based on inadequate information. If you record keeping is poor, then your tax return is likely to be inaccurate.

If you are required to have a visit from HMRC to check out your record keeping this is what HMRC advise you can expect:

If we feel you need a face to face visit, HMRC will contact you to agree a date and time. The visit will usually take around two hours.

On the visit the HMRC officer will:

  • ask you to explain how you run your business
  • note how you keep your business records
  • check a sample of your current business records – usually your records for the last four months and arrive at a decision as to whether your business records are adequate or not

If your records are adequate the visiting officer will tell you at the visit and then confirm it in writing a few days later. This will be the end of your business records check.

If the visiting officer finds your record keeping needs improving they will discuss this with you and your agent, if they are at the meeting. The officer will then advise what you need to do to make your records adequate and what will happen next.

We are happy to provide readers who are concerned about their business records with a preliminary assessment, and if required, advice on how to change their systems.

Employment Allowance uptake

Thursday, August 28th, 2014

Data released by HM Treasury at the end of July reveals that 725,000 employers across the UK are benefitting from the Employment Allowance.

The allowance reduces the amount of employer National Insurance by up to £2,000 in a full tax year. The deduction is automatically made by most payroll software products including HMRC’s online service.

It is estimated that up to 1.25 million businesses and charities will benefit from the Employment Allowance and approximately 450,000 employers won’t have to pay any employer National Insurance contributions at all.

Viewed regionally, the take up for the allowance seems to highlight variations in economic activity across the regions. Almost 30% of the claims made are by businesses in London and the South East of England. This is underlines the difficulty that government must be experiencing in directing the monetary value of these reliefs into the regions that are in most need of support. At present thriving businesses in greater London and the south east are benefitting from a further stimulus that poorer areas of the UK do not seem to be experiencing.

50% off qualifying capital purchases

Thursday, August 21st, 2014

The Finance Act 2014 introduced a temporary increase in the Annual Investment Allowance (AIA). From 1 April 2014 (for companies) and 6 April 2014 for the self-employed, the ability to write off qualifying capital purchases against your profits for tax purposes increased to £500,000.

This generous tax allowance will reduce to £25,000 on 1 January 2016. Any business that needs to invest in new plant or equipment should time their expenditure to make the most of this increase in the AIA.

How much is this worth?

Depends on the type of business structure you have created to manage your business. If you are self-employed (a sole trader or in partnership) you will pay income tax on your profits. The AIA allows you to deduct the full cost of qualifying capital acquisitions from your profits. For example, if you purchased plant for £100,000 and made taxable profits of £300,000 as a sole trader, you could deduct the full cost of the plant from your profits. At this level of profitability you would possibly be paying income tax at 50% so your £100,000 investment would actually cost you £50,000. Self-employed traders paying income tax at 20% or 40%, or companies paying corporation tax at 20% would save tax at proportionately lower rates.

This is not an opportunity to miss. As always planning is critical in order that any tax benefit is maximised.

Entrepreneurs get greater freedom to start a business from their home

Tuesday, August 19th, 2014

Budding entrepreneurs will be given greater freedom to start and grow a business from their home under new measures announced by the government on 15 August 2014.

Around 70% of new businesses start off in the home, and they contribute £300 billion to the economy. As part of its long-term economic plan to back businesses, the government wants to make it much easier for people thinking of starting a home business to do so with the law firmly on their side.

The new measures announced include:

  • The law will be changed so that landlords can be assured that agreeing to home working by tenants will not undermine their residential tenancy agreement. A new model tenancy agreement will also be made available shortly;
  • updated planning guidance will make it clear that planning permission should not normally be needed to run a business from your home; and
  • new business rates guidance will clarify that in the majority of circumstances home based businesses will not attract business rates.

The Business Minister Matthew Hancock announced the package at the first ever Home Business Summit, organised by the small business network Enterprise Nation, at the Enterprise Wing of Somerset House in London.

Business Minister Matthew Hancock said:

“There’s never been a better time to start a business, and even more people are choosing to start up from home.

It’s this spirit of personal endeavour and self-determination that is driving our economic recovery. But home businesses don’t just fire up the economic engines and create jobs, they turn dormitory towns into living communities, they keep our streets safer, and by driving down car emissions, cleaner too.

We know that starting up any business can also be hugely stressful and that’s why today I am announcing that the government will change the law to make life easier for Britain’s home businesses. We’ll give people the confidence they need to run a business from a rented home, making sure that the majority of home businesses are exempt from business rates and our aspiring entrepreneurs have the information they need to start up and grow.”

Interesting statistics:

  1. There are already 2.9 million businesses being run from entrepreneurs’ homes.
  2. Home based businesses contribute £300 billion in annual turnover to the UK economy.
  3. If 1 in 10 home businesses took on just 1 extra employee it would create 300,000 jobs.

On the face of it home based businesses can take encouragement from these announcements. Let’s hope that these will be the first of a number of initiatives to encourage entrepreneurs to take the plunge.

Transfer tax allowances to your spouse

Friday, August 15th, 2014

The Finance Act 2014 has introduced limited flexibility for married couples, or couples in a civil partnership, to transfer a part of their personal allowance to their partner.

The amounts involved are not substantial and there are a number of conditions that must be met. These include:

  1. The spouse receiving the transferred allowance must not be a higher rate tax payer.
  2. The receiving spouse must be resident in the UK for tax purposes.
  3. The amount of the allowance that can be transferred is limited to £1,050 for 2015-16, and 10% of the personal allowance in subsequent years.
  4. Neither spouse must be eligible to claim the Married Couple’s Allowance (MCA). This only affects couples where one spouse was born before 5 April 1935.

From a tax planning point of view this will benefit couples where one partner does not earn sufficient income to utilise all of their personal tax allowance, and the other partner is paying tax at no more than the basic rate.

The existing MCA will continue to be available to elderly couples that qualify.

If you were married before 5 December 2005 and at least one spouse was born before 6 April 1935, the husband can claim Married Couple's Allowance. HM Revenue & Customs (HMRC) reduces your tax bill by 10% of the Married Couple's Allowance to which you're entitled. The actual amount depends on the husband's income.

If you married on or after 5 December 2005 or are in a civil partnership and living together and at least one spouse or partner was born before 6 April 1935, the person with the higher income can claim Married Couple's Allowance.

HMRC reduce the claimant's tax bill by 10% of the Married Couple's Allowance to which he or she is entitled. The actual amount depends on the income of the spouse or civil partner with the higher income.

If one of you dies, or if you divorce or separate, you'll still get Married Couple's Allowance for the whole of that tax year.

Car clubs get cash boost from Department of Transport

Tuesday, August 12th, 2014

Car clubs are set to receive a £500,000 boost to drive forward their work, Transport Minister Baroness Kramer has announced.

As part of a wider visit to Norfolk, 28 July 2014, the minister announced that the Department for Transport will provide the funding to support two pilot programmes which will promote much wider access to car clubs.

Baroness Kramer said:

“Car clubs cut congestion, reduce carbon and save people money while still giving people the freedom and flexibility to use a car when they want to. Interest in car clubs is already gathering pace and we want to give that interest added momentum.

This funding will highlight their many advantages to even more people and help take car clubs up a gear.

The proportion of carless households has been growing across the country since 2005. At the same time, because people value the convenience that access to a car brings, interest in car clubs is growing.

There are already over 150,000 car club members in England and government is keen to support their growth.

They make much more efficient use of the limited space available on the road, with estimates suggesting that one rental car can take the place of 17 individually owned vehicles.

Car clubs can also help save drivers money – potentially thousands of pounds per year.

The evidence suggests that pay-as-you-go car use encourages people to walk and cycle more often and make more frequent use of public transport, and car club vehicles tend to have lower emissions than the average car.”

When should you contact HMRC?

Friday, August 8th, 2014

A cynic might say that you are required to contact HMRC when you are likely to owe them more money. Realistically, the opposite is also true: you should advise HMRC of any changes that could reduce your tax position.

 The following notes are extracted from HMRC’s website and set out their requirements. You'll need to tell HMRC if you:

  • get married or form a civil partnership
  • start getting a second income
  • become – or stop being – self-employed
  • start or stop getting company benefits – like a company car or medical insurance
  • start getting taxable benefits

You'll also have to let HMRC know if other income that you get – like savings or rental income – increases or reduces.

All these things and more can affect the amount of Income Tax that you have to pay.

Marriage or civil partnership where one partner was born before 6 April 1935

Tell HMRC if you get married or form a civil partnership and at least one partner was born before 6 April 1935 – you may be eligible for the Married Couple's Allowance if you pay tax.

If you get divorced or your civil partnership dissolves or you separate and you were getting the Married Couple's Allowance you will no longer be eligible so you need to let HMRC know.

Death of a spouse or civil partner

If your husband, wife or civil partner dies you need to contact HMRC if either of the following applies:

  • you are claiming Married Couple's Allowance
  • either of you claims Blind Person's Allowance and some or all of this was transferred to the other spouse or civil partner

Starting/stopping self-employment

You must tell HMRC that you're self-employed as soon as possible – even if you already fill in a tax return each year. If you don't tell them as soon as you begin self- employment you may have to pay an initial penalty.

Starting/stopping to receive company benefits

If you start to get taxable company benefits you should tell HMRC right away so that you don't get a large tax bill at the end of the year. Employers don't have to tell HMRC about any company benefits you get until the end of the tax year, unless it's a company car. HMRC will adjust your code number and start collecting all or some of the extra tax sooner. If you get a company car or change your company car, you only need to report the details to HMRC once you have the use of the car.

You should also tell HMRC if you stop getting taxable company benefits. They can change your tax code and make sure you don't pay too much tax.

Starting/stopping state benefits

If you start or stop getting state benefits it may affect your tax bill. The sooner you get in touch with HMRC, the sooner they can adjust your tax code to make sure you always pay what's due.

Reporting changes to your income

Changes in the level of certain types of income you receive needs to be communicated so that you don’t under or over pay tax.

And finally, if you change address

If you change address it's important to let HMRC know – even if you pay some or all of your tax through PAYE and have already told your employer or pension provider. Under the Data Protection Act they can't pass on your new address to HMRC.

UK economy recovers

Wednesday, August 6th, 2014

Its official, in the second quarter April – June 2014 the UK gross domestic product grew by 0.8% and is now bigger than it was before the financial crisis that began six years ago.

The state of the economy always attracts politically biased commentary, but reading between the lines it would appear that we are making steady progress.

Interestingly, most of the growth in the second quarter came from the services sector. In the same period the agricultural sector fell by 0.2% with a similar reduction in the construction sector.

These internal differences in the rate of growth, or lack of it, mirror expectations for the global economy. The current conflict in Eastern Ukraine, the Gaza strip and Syria continue to destabilise economic activity.

Overall the IMF has reduced its growth forecast for the global economy from 3.7% to 3.4%.

The largest upgrade in expectations is for the UK. The IMF now considers that our economy will grow by 3.2% (previous forecast was 2.8%) during 2014.

George Osborne has commented:

"Thanks to the hard work of the British people, today we reach a major milestone in our long term economic plan. But there is still a long way to go – the 'great recession' was one of the deepest of any major economy and cost Britain six years.

"Now we owe it to hardworking taxpayers not to repeat the mistakes of the past and instead to continue with the plan that is delivering economic security and a brighter future for all."

Be interesting to see how this increase in our national economic fortunes spills down to the British people.

Tax Diary August/September 2014

Friday, August 1st, 2014

 1 August 2014 – Due date for Corporation Tax due for the year ended 31 October 2013.

 19 August 2014 – PAYE and NIC deductions due for month ended 5 August 2014. (If you pay your tax electronically the due date is 22 August 2014.)

 19 August 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2014.

 19 August 2014 – CIS tax deducted for the month ended 5 August 2014 is payable by today.

 1 September 2014 – Due date for Corporation Tax due for the year ended 30 November 2013.

 19 September 2014 – PAYE and NIC deductions due for month ended 5 September 2014. (If you pay your tax electronically the due date is 22 September 2014.)

 19 September 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2014.

 19 September 2014 – CIS tax deducted for the month ended 5 September 2014 is payable by today.

VAT – pick and mix

Friday, August 1st, 2014

There are a number of VAT schemes that benefit registered businesses. For example:

 Cash accounting

If you are eligible and the scheme is suitable for your business, then using the cash accounting scheme enables you to pay VAT when your invoice is paid and not when you issue the invoice to your customers. You are also restricted when claiming back input VAT on purchases and expenses to the date you pay the bill, not the date you receive the invoice from your supplier.

You can use cash accounting if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million and you can continue to use cash accounting until your VAT taxable turnover exceeds £1.6 million.

Annual accounting

Annual accounting allows you to send in just one return a year. This offers some relief from the chore of submitting quarterly returns. Using the Annual Accounting Scheme, you make either nine interim payments at monthly intervals, or three quarterly interim payments, throughout the year. You only need to complete one return at the end of each year. At that point you must pay any outstanding amount or, if you have overpaid, you will receive a refund.

You can use the Annual Accounting Scheme if your estimated VAT taxable turnover for the coming year is not more than £1.35 million. Your VAT taxable turnover includes any standard, reduced and zero-rated sales and other VAT taxable supplies, but excludes the VAT itself, VAT-exempt supplies and capital asset sales.

Once you are using annual accounting you can continue to do so as long as your estimated VAT taxable turnover remains below £1.6 million.

You can also combine these two schemes. In this way you can have the cash flow benefits of using cash accounting and some relief from the administrative chores by submitting one return a year.

Before making a decision you will need to take advice as not all businesses will benefit.

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