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Archives for Personal Tax

Tax efficient Xmas Gifts and Parties

‘Tis the season to be jolly and you might be wanting to thank some of your clients for their business during the year.  Whilst tax may not be top of your agenda right now – can you do this tax efficiently?

Your gifts will only get tax relief, and you can only reclaim the VAT if they are:

  • NOT food, drink, tobacco or a voucher AND
  • Carry a conspicuous advert for your business AND
  • The cost of that gift, and any other to that person in the year is under £50

(That’s why your gift may be an embossed diary/mug!)

If you want to give your staff a Christmas gift, it may well be covered by the “trivial benefit” rules I have covered in a previous blog.  Here if it is classed as “staff entertaining” you may well be able to reclaim the vat.

What about the Xmas party?

Most people are aware about the rules for the staff Xmas party.  For a limited company, the cost for the annual party is allowable for tax as long as it is under £150 per head (all staff have to be invited but the cost is per head – so that includes their “plus ones”)

But a lot of us work for ourselves and don’t have staff – we employ subcontractors.  What are the rules if we want to take them out at Xmas as a thank you.

These guys are not your employees so they are not covered by the above rule.  Any money spent on entertaining them is deemed customer entertaining and therefore won’t be allowable for tax in your accounts, (but – you should probably still take them out!!)

So what about you, the business owner?

If you are a director, then you are classed as an employee and you can treat yourself to a Xmas do.

If you are a sole trader, then Im sorry, it’s the final of Strictly and a bottle of cheap plonk for you!

 

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Dividends – new rules mean higher personal tax bills at Jan 18

How dividends are taxed changed dramatically at 6 April 16 and its impact is just being felt by shareholders completing their 16/17 tax returns.  The tax on those dividends is due for payment at 31 Jan 18 and is coming as a shock for those unprepared!

In the good old days before 5 April 16, the 10% dividend credit meant that basic rate taxpayers paid no further tax on dividend income as the 10% tax on dividends was covered by the 10% tax credit.  Higher rate tax payers had additional tax due of 25% on any dividends taken.

Since April 16, all that changed.  The notional tax credit was scrapped, and instead everyone was given a £5,000 dividend allowance.  That means that you don’t pay tax on your first £5,000 of dividend received in a tax year.  But after that, basic rate taxpayers will pay 7.5% on any dividend received, and higher rate payers 32.5%.

So for example, a higher rate taxpayer receiving £30,000 of dividends this year, will face a tax bill of £8,125 (as opposed to £7,500 before)

The further sting is that under self-assessment, if you chose to pay your tax in one go at 31 January rather than have it collected via your tax code, then you need to make a payment on account of your 17/18 tax at the same time.  This is calculated at 50% of this year’s tax – so actually at 31 Jan 18 you will need to fork out £12,187 based on the example above.

Basic rate taxpayers with a dividend of £30,000 will face a tax bill of £1,875 (or £2,812 with the payment on account) at 31 January.  Prior to April 16 there would have been no additional personal tax on this dividend at all.

With the dividend allowance reducing from £5,000 to £2,000 from April 18, personal tax bills for limited company shareholders are only going in one direction!

For further information please contact Rosie Forsyth at Wilkins & Co.

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Who has to file a personal tax return?

This is a commonly asked question – and people often do not realise that they have to register for self-assessment and file a personal tax return .

If you fell into any one of the categories below between 6 April 2016 and 5 April 2017, then yes you do need to file a personal tax return:

  1. You were self employed
  2. You were a company director – SEE BELOW
  3. HMRC have sent you notification to complete a return
  4. You had more than £2500 in untaxed income, eg from renting out a property
  5. You received dividends, savings or investment income before tax of more than £10,000
  6. You have a Capital Gain – ie you made profit from selling shares, a second home, a business or other chargeable assets
  7. You or your partner’s income was over £50,000 and one of you claimed Child Benefit in the year
  8. You had income from abroad that you need to pay tax on
  9. You lived abroad and had a UK income
  10. Your income was over £100,000
  11. You had a form P800 send from HMRC saying you didn’t pay enough tax last year and you haven’t either sent them a cheque or arranged to pay it via your tax code

The company director question is an interesting one and one that has been subject of an HMRC tribunal in the year.

HMRC’s guidance on their website will tell you that all company directors need to complete a tax return – but that is to put it kindly, misleading (as the tribunal concluded!)

If you are going to have a tax liability based on your income, then yes, you need to notify HMRC and complete a return – but if you have no further tax liability, then there is no requirement to register for self-assessment, director or not!

Unfortunately due to the change in dividends rules in 16/17, many directors will be having to file a tax return this year for the first time, as personal tax payments become due on dividends over £5,000.

If you do fall into one of the categories above, and have not filed self-assessment returns before, you have to notify HMRC by 5 October 2017 that you have a tax liability for the year.  You then have until 31 January 2018 to file your return online.

We act for many small businesses completing tax returns for the first time – and we get that its daunting!  We can help you through the process and make it as stress free as possible– do get in touch for more information.

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Taxes Made Easy 2017/18 – Free to Download

Hot of the press is my new tax planning brochure for 2017/18.

This easy to read guide provides you with key tax planning points for the current year.

Covering personal tax and matters affecting both your business and your family, my guide suggests many ways in which you can save money on your tax bill by taking full advantage of the current tax system, as well as highlighting some of the pitfalls you should avoid.

Chose your donut to download with my compliments!

 

If I can help you with any issues covered in my guide, then please get in touch.

Do let me know if it’s been of help!

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Making Tax Digital – All Change Again!

The government has announced major changes to the Making Tax Digital proposals- again!

Put on hold while we had the election, the changes now announced mean that MTD will affect far fewer people in the next couple of years than the initial plans.

MTD will initially now only apply for VAT.

Self-employed individuals who are VAT registered will have to file under MTD from 2019 – so they will need to file quarterly returns from MTD compatible software.

Other self-employed individuals and landlords will now not have to keep digital records, or update HMRC quarterly until at least 2020.

There is no news on the timetable for companies, but it will be at least 2020 before they need to comply.

This delay will give small business more time to make the transition to digital and is welcome news to many.

Having said that 2020 is not that far off, and clients who are switching to cloud accounting are benefiting from the real time information it brings them about their business – and the time savings made from being able to scan receipts on the go, and no longer living in dread of “accounts day!”

For more information please contact Rosie Forsyth.

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What are Payments on Account of Tax?

Payments on account of 17/18 tax are due by 31 July, and you may have received a statement in the post telling you how much you need to pay.

What are they and how are they calculated?

If you pay your tax under self assessment – you will probably have to make “payments on account” of your tax bill at 2 stages during the year -31 Jan and 31 July.  They are just that – a “part payment” of your anticipated tax bill for the year.

How these are calculated is easiest explained with an example.

You started your business in May 2015, prepared your accounts and calculated your tax bill for 15/16 to be £3,000. This was due for payment at 31 Jan 2017.  But you also had to pay a payment on account of your next year’s (16/17) tax bill – and this was automatically calculated at 50% of the previous year – so £1,500.  So actually at 31 Jan 17 you had to pay £4500.  You may have just paid this at the time and not really grasped what it was for.

The second payment on account for 16/17 is due by the end of July and again is 50% of last year’s bill – so another £,1500.

So by now – you have paid £3,000 on account of your 16/17 tax bill – even though, if you have not yet filed your tax return, you don’t actually know how much your final bill will be.

If your profits in Year 2 have gone up – and when you do your accounts and file your tax return, your tax bill for 16/17 is worked out to be £5,000, then you have already paid £3,000 of it during the year – so you only owe a further £2,000 at 31 January 2018.  But, the process is repeated – so at 31 January 18 you will owe £2,000 for this year – and your first payment on account of 17/18, calculated as before at 50% of the current year bill (£2,500) – so £4,500 in total.  You then owe at 31 July 2018 your second payment on account of 17/18 – another £2,500.

If you are in the scenario where profits are lower than the year before, then you will have overpaid in the year with your 2 payments on account and you will be due a refund for that year.  In the example above, if your tax bill for 16/17 worked out to be £2,400, then because you have paid £3,000 during the year, then you have overpaid £600.  But, taking into account your first payment on account for 17/18 which will be 50% of £2400 = £1200, you still owe £1200 – £600 = £600 at 31 Jan 18!

Confused??  Who said tax wasn’t taxing!

If you know your profits are going to be lower in the next year, perhaps because you are doing less hours or lost a key client, then you can apply to reduce the payments on account that are going to make – to avoid overpaying in the first place.  Don’t overestimate the reduction though, as HMRC will charge you interest if you get it wrong and reduce the payments too much.

A word of warning – the changes to the dividend rules means that many more people will owe tax under self assessment. You are only excluded from making payments on account if the amount you owe in tax is less than £1,000, so many small business owners will be facing payments on account in the future.

For more information please contact Rosie Forsyth.

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When is a Hobby not a Hobby?

Unfortunately it is very easy to be self employed without realising it.

You might not consider yourself to be running a business, but if you are undertaking work or selling goods with the intention of earning money there is a good chance that HMRC will consider you to be self employed.

HMRC look at the key indicators – called “Badges of Trade” to determine whether you are in fact running a business.

They are:

  • Profit motive – an activity must be carried on with a view to be making a profit before it can be considered a trade. You might make losses initially but if your aim is to make money, then you could well be deemed to be running a business.
  • Frequency and number of transactions – generally the more often a similar transaction is carried out, the more likely you are to be running a business. For example, making candles twice a year for your own school fete is very different to having a stall most weeks at local events.
  • Modification of the asset – the more you alter something between buying and selling it, the more likely it is to be considered trading
  • Nature of the asset – the type and quantity of something bought and sold is relevant. For example, I will buy a car and later sell it, but I am not a motor dealer.  However, if I bought 1000 pens and sold them on at a higher price, I am probably doing it for commercial reasons (though I do get through a lot of pens!!)
  • Existence of Similar trade – transactions similar to an existing trade are more likely to be considered trading. Consider a motor mechanic buying and selling a car – he is more likely to be deemed to be in the car trade than I am.
  • Sources of finance – if you have borrowed money for your “venture” – and the intention is to repay it from the money generated – then you are probably trading
  • Length of ownership – the shorter time you have something before you sell it, the more likely is it that you are trading, and not just selling something on that you purchased for personal enjoyment.

HMRC would usually look at all these factors as a whole, but a single badge may indicate a business if it is significant enough.

So you do need to be careful that your “hobby” isn’t actually generating self employed income. 

If it is then you need to register with HMRC, ideally within 3 months of starting to trade.    You are then responsible for paying the right amount of tax and NI on your business which you will do via self-assessment and by completing a tax return each year.  You will have costs that you can set off against the money you earn, and if you do end up in a loss-making position, may be able to offset those losses against other income that you have, to generate a tax repayment.

For more information please contact Rosie Forsyth.

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The Tax Wash Up

Another exciting time in the world of tax!

With the snap election and the dissolution of Parliament, outstanding bills had to be passed or scrapped before Parliament shut up shop and went on the election trail – and this process is called a Wash Up!

The Finance Bill is too important to be scrapped, so to get it passed in a hurry, lots of contentious clauses had to be dropped.

So what didn’t make the grade?

The headline area is Making Tax Digital.  I don’t expect in the long run this will mean we have seen the last of this, and it will almost certainly reappear under the new government, but for now it’s out!   It may not even mean that the timescale for introducing it gets delayed but we will have to wait a bit longer to find out.

Also out are the 2 new allowance I wrote about last week!  The £1,000 allowances for property and rental income that came in in April 17 are out again and have been scrapped!

Better news is the reduction in the dividend allowance from 18/19 from £5,000 to £2,000 has also gone.  This will please a lot of small business owners, but again it could well be reintroduced post election (depending on who gets in of course!)

Other provisions have been scrapped but the above are the most relevant to my clients.

There is a budget already planned for the Autumn and often a mini-budget post an election, so this tax hokey-cokey looks set to continue. Not great when you are trying to plan for your business or your clients!

 

 

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Have you set up your Personal Tax Account?

Question 1:  My what?

Your Personal tax account contains key info that HMRC has about you.  Almost everyone can access it, but only 3m of use have done so far.  I joined this merry club over the weekend and accessed mine – and I have to say – it was almost interesting! (Note to self – get out more!)

For now, it contains limited information, but under Making Tax Digital, it will become the platform for declaring all your info to HMRC.

 

Question 2:  Why do I need to?

Apart from being able to update admin info here with HMRC rather than hanging on the phone for hours – like a change of address – your personal account has details of your NI contributions record, and also shows you your state pension forecast (bit depressing!)

The stats on incorrect NI records are frightening – so it is well worth just looking over yours and seeing if it looks right as it could affect your state pension.  Mine was wrong as I had no record of contributions for a couple of years so I am going to have to look into it further.

I’ve also got to keep going until Im 67 to claim any sort of state pension!

If you are employed you can check your tax code here as well, which again can often be incorrect and mean you pay the wrong amount of tax each month.

 

Question 3:  How do I get into it?

Here is the link to start you off:

 

https://www.gov.uk/personal-tax-account

 

You will need your passport handy and your NI number.  You then receive a Government Gateway number that you need to keep.  A few days later you will receive a password in the post and once you have these, you are in!

There are a lot of negatives about Making Tax Digital, but personal tax accounts are a good idea and give you access to information that HMRC have, so you can check whether its right!

I would encourage you to set yours up and just take a look and see what’s there.  If you don’t like what you see, get in touch for help sorting it out.

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Tax Returns – need some help? A few timely tips and reminders to help you on your way

A few personal tax reminders this week to point you in the right direction.  Need any more help – you know where I am!

  1. It’s your responsibility to complete a tax return and advise HMRC if you need to submit one – don’t wait to be asked!
  2. You need to submit your return by 31 January 2017, or the penalty is automatically £100.  The penalty is not reduced or cancelled if there is no tax due.
  3. Getting yourself set up to file your return takes time.  HMRC send out passwords in the post, and their postal system is worse than their phone system – so don’t leave it too late!
  4. If you want any tax owed to be collected via an adjustment to your tax code then you need to submit by 31 December 2016.
  5. If either you or your partner has adjusted income over £50,000, and you have been claiming Child Benefit in the year, then you need to pay this back at least in part.  You do this on your tax return, so you need to provide the details
  6. If you are self employed, class 2 NIC is now claimed via self assessment so this will be appearing on your statement as an amount due.  If your earnings are low, then the Small Earnings exemption is now automatically applied.
  7. Married couples and civil partners may be eligible for the Marriage Allowance which enables transfer of an element of the personal allowance between spouses (see previous blog.) This is widely underclaimed so check if it applies!
  8. Dividends and most bank interest are currently received net of tax, so this is grossed up when it is declared on your tax return.  The rules have all changed this year, so make sure you now how this affects you.
  9. If you jointly own rental property, then this income is automatically split 50/50, unless you have declared otherwise to HMRC.  It’s not a matter of choice as to which of you declare it!
  10. Tax isn’t meant to be taxing – but it is!  Just let someone else do and get your life back!  Contact Rosie Forsyth at Wilkins & Co
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