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Archives for Personal Tax

If I hide – do I still need to file a tax return?

Do you need to file a tax return this year?

The tax year runs from 6 April to 5 April, and tax returns for last year (that’s 6 April 2017 to 5 April 2018) are due to be filed by 31 January 2019.

If you meet any of the following criteria – then YES you do need to file a tax return.

  • You were self-employed at any point between 6 April 2017 and 5 April 2018 and your income from this was more than £1,000
  • you received more than £2,500 from renting out property
  • you received more than £2,500 in other untaxed income, for example from tips or commission
  • your income from savings or investments was £10,000 or more before tax
  • your income from dividends from shares was over £2,000
  • you made profits from selling assets eg shares or a second home
  • you were a company director and received income that needs to be declared
  • your income (or your partner’s) was over £50,000 and one of you claimed child benefit
  • your taxable income was over £100,000

You also need to send a tax return if you:

  • need to prove you’re self-employed, for example to claim Tax-Free Childcare or claim Maternity Allowance
  • want to make voluntary Class 2 National Insurance payments to help you qualify for state benefits

To file a tax return, you need to have first registered with HMRC.  You should have done this by 5 October 2018, but if you haven’t, then you need to get on with this ASAP, by following the link here if you are self-employed:

https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed

HMRC will then send you your UTR (unique taxpayer reference) number.  Without this, your tax return cannot be filed, either by yourself or by an accountant.  The reference can take a few weeks to come through, so do not leave this until January!!

If you are going to file your tax return yourself, you will need your government gateway ID and password.  If you are using an accountant, they can generally file your return using their own software and government gateway log-ins, but will also need time to set themselves up as your agent.

It is your responsibility to let HMRC know if you have to file a return – so if you have a new source of income in the year, or a one-off capital gain (eg if you have sold a rental property) then don’t wait for HMRC to ask for the information!

Penalties for late filing are an automatic £100.  Even if there is not any tax actually due, if you are required for file a return, and this is not with HMRC by midnight on 31 Jan- you will get a fine!

The tax is also due to be paid by 31 January.  When you file your return, you will get a calculation of the tax due as part of the submission process, or your accountant will tell you when they send you your return for approval and signing, so the sooner you do this – the sooner you will know the amount you have to pay.

Probably a good idea to know what this amount is before you hit the Christmas shops!

For any more information, or help with your personal tax return, please contact Rosie Forsyth at Wilkins & Co

 

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My Payment on Account is due – what is it?

Statements are arriving in the post and payments on account of 18/19 tax are due at 31 July.  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 and are calculated based on your tax bill for last year.

An example is the easiest way to explain the calculation:

You started your business in May 2016, prepared your accounts and calculated your tax bill for 16/17 to be £3,000. This was due for payment at 31 Jan 2018.  But you also had to pay a payment on account of your next year’s (17/18) tax bill – and this was automatically calculated at 50% of the previous year – so £1,500.  So actually at 31 Jan 18 you had to pay £4500.  You may have just paid this at the time, thought it was a lot, but not really grasped what it was for.

The second payment on account for 17/18 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 17/18 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 17/18 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 2019.  But, the process is repeated – so at 31 January 19 you will owe £2,000 for this year – and your first payment on account of 18/19, calculated as before at 50% of the current year bill (£2,500) – so £4,500 in total.  You then owe at 31 July 2019 your second payment on account of 17/18 – another £2,500.

This is all fine if your profits have gone up.  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 17/18 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 18/19 which will be 50% of £2400 = £1200, you still owe £1200 – £600 = £600 at 31 Jan 19!

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.  Cashflow is crucial to a small business, so you don’t want to give the taxman anything that is not really his!

Getting on with your tax return for the year now will also give you certainty about your tax bill and how much you should be paying.  Why wait til January if you think you have overpaid and may be due a refund?

For more information or help with your tax return for the year, please contact Rosie Forsyth.

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Taxes Made Easy for 2018/19

Hot of the press is my new tax planning brochure for this tax year.

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

Covering personal tax, and matters affecting both you and your family, my guide suggest 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 that you should avoid.

Please download a copy with my compliments – and let me know if I can help you with any issues raised.

Download Your Free Copy Now

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Update on the new tax free childcare scheme

The new Tax -free childcare scheme began in 2017 and is now available to the employed and self-employed where both parents are in paid work for more than 16 hours per week and neither parent earns more than £100,000.

The scheme is run via an online account and the government tops up 20p for every 80p you pay into the scheme up to a maximum of £2,000 per child up to the age of 12 (and therefore an £8,000 contribution by parents).  Grandparents or employers could contribute instead of parents.

The scheme replaces the employer childcare vouchers.  These schemes were due to close to new entrants at 5 April 18 but will now remain open for an extra six months until October 2018. Parents already registered at that time can continue to receive vouchers for as long as their employer offers them, or switch to tax-free childcare instead.

If you already receive childcare vouchers from your employer, then you have to decide whether you want to continue with this scheme, or move to the new scheme.  The website https://www.childcarechoices.gov.uk can help you decide which is better for you.

In general, the new scheme is better for the self employed and those with more than one child and high childcare costs, as the vouchers are per child.  The old scheme, if offered, favours couples where one parent does not work and high earners – but it worth doing the sums in your particular case.

If you want to leave your employer’s voucher scheme you must provide them with a Childcare Account Notice (CAN). This can be sent by email and states that you wish to leave the voucher scheme and use tax-free childcare instead.

There were lots of teething problems when the online accounts were set up, so much so that ‘Childcare Service compensation‘ is now available from HMRC  – www.gov.uk/government/publications/childcare-service-compensation

It offers parents compensation if they have been subjected to various technical difficulties in relation to its online Tax-free Childcare account. Problems with the service include technical issues, mistakes and unreasonable delays.

Parents affected by technical issues may be able to ask the government for a top-up as a one-off payment for Tax-Free Childcare or apply for reimbursement of any reasonable costs directly caused by the service not working properly.

You may be eligible if you have:

  • been unable to complete your application for Tax-Free Childcare
  • been unable to access your childcare accounts
  • not received a decision about if you’re eligible, without explanation, for more than 20 days

If you require any further information then please get in touch.

 

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What tax planning should you be doing before 5 April?

With the tax year ending soon have you been as tax efficient as you could have been this tax year?

What can you do before the year end to maximise your tax efficiency?

Here are a few of my tips for tax efficiency:

If you have a limited company – make sure you have paid £5,000 in dividends if profits allows.  The tax free allowance for dividends is reducing to £2,000 after 6 April 2018

Transfer income-producing assets to a spouse if you pay tax at different rates.  If you have a limited company, should your spouse also have shares to get their tax free dividend allowance and potentially pay tax a lower rate on additional dividends?

Check your total income for the year if you receive child benefit payments.  If you have the ability to determine your income for the year, by varying the level of dividend paid, keeping your income below £50,000 will ensure you retain your child benefit.

Trivial Benefits – limited company directors can get £300 a year tax free using these.  If you have not used your full allowance yet, get down to John Lewis and stock up on vouchers.  Conditions do apply so check my early blog for full details

If you are considering buying capital equipment for your business, doing if before the end of the tax year will give you the tax deduction this year rather than next

Pension contributions – very tax efficient for the company to contribute to your personal pension.  Review any payments made in the year and take advice from an IFA.

If you have taxable income over £100,000, you will lose your personal allowance on a sliding scale, so your marginal tax rate may be as high as 60% on part of your income.  Consider making additional pension contributions or gift aid donations which may restore your personal tax allowance.

Use your allowance for tax free ISA saving; that’s up to £20,000 in this tax year. Under 18s can save £4,128 in a Junior ISA.  Also consider LISA’s to help your children get on the housing ladder.

Inheritance tax – often forgotten, but if you have spare cash available, consider making gifts to take the funds outside of your estate.  If you don’t have the cash, bring this up with grandparents over Sunday lunch!  Up to £3,000 per tax year can be gifted as one off capital sums and will be exempt from inheritance tax. Any unused part of this allowance can be carried forward 1 year.

Often simple steps can be taken to minimise your tax bill, so hopefully the above list has added one or two items to your “to do “list.

Please contact me for any further information.

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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 – “plus ones” can also be invited)

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 ( and your plus one) to a Xmas do.

If you are a sole trader, then I’m 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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