Childminders and tax

Registered childminders are people that work in their own homes to provide care and learning opportunities for other people's children.
Childminders need to declare their income from their self-employment by filling in a self-assessment tax return every year.
Many childminders are members of the National Childminding Association (NCMA).The NCMA had an agreement with with HMRC in terms of allowable expenses that a childminder can have. They agreed that receipts for items of expenditure will not be required for items costing less than £10.
Also they agreed with the HMRC that full-time childminders (40 or more hours a week)can deduct as expenses a third of their heating and lighting costs and 10% of water rates and Council tax. Food and drink provided for children are acceptable and receipts are not required provided that the figures are reasonable.
Probably not everyone is aware of 10% Wear and Tear relief available to childminders. 10% Wear and Tear of total childminding income may be deducted as an expense to cover the wear and tear of furniture and household items. Once a childminder claims this relief, he/she cannot claim for replacing such household items.
Other expenses allowable in calculating the taxable profit are the cost of toys, books, safety equipment, travel fares, NCMA subscription, Public Liability Insurance, stationary, the cost of phone calls for childminding purposes, cleaning, accountancy fee, children gifts,training costs, resources (like paint, arts/craft)and Ofsted Registration fee(Office for Standards in Education).

For more details regarding childminders and their relationship with tax, you can seek guidance from Taxfile's tax agents in South London (Tulse Hill) and Exeter.

Taxfile: 31th October 2008 deadline

The deadline for submitting the details of your income and gains on your Self Assessment Tax Return is still the 31st January. However HMRC has now brought in place a new “paper form” deadline this year to go with the new- style green forms, the final day for submission of these is 31st October.

Almost all tax returns can be submitted online,but there are a few cases where paper returns would need to be made. In these cases the deadline by which the paper return must reach HMRC is 31st January. These are:
•SA700 - Non-resident Company Tax Return
•SA970 - Trustees of Registered Pension Schemes
Paper returns that have failed to reach HMRC by 31st October will automatically be penalized with a £100 fine.
This is the same for partnership returns, although both partners will have to pay £100 each, and Late Trust and Estate returns result in a £100 charge to either the trust or estate.
If you still haven't paid the balancing payment due by 31 January by the end of February, you'll be charged an automatic 5% surcharge on top of the amount still owing. This is in addition to any interest payments.
At Taxfile we only submit your current tax return online as it has proved to be safer, faster and giving you more time.
At Taxfile we have been completing online returns for some time now, this benefiting our clients as they are able to gain extra time to gather all the necessary information to complete their tax returns.
If you have not submitted your tax return yet, come to Taxfile's offices in either South London or Exeter to ensure that you do not receive an automatic penalty of £100.

Clothing: Wholly and Exclusively for trade purposes

When dealing with self-employment expenses, great care needs to be taken.
An expense needs to have incurred wholly and exclusively for the purpose of the trade in order to be considered allowable. Some expenses by their very nature have a non-trade use and so are disallowed by the Tax Man.
So it is the case with ordinary clothing worn by a trader during the course of their trade,the so-called civilian clothing.
This rule applies even when particular standards of dress are required by the rules of professional bodies.
The cost of clothing that is not part of an everyday wardrobe like for instance protective clothing for a builder or a nurse's uniform are allowed as trading expenses. The cost of clothing acquired for a film, stage or TV performance incurred by an actor or other entertainers is also allowable. The clothing in this case is called a costume as it is used in a performance.
A well known case with regards to clothing expenditure is the case of Mallalieu v Drummond. The case was concerned with the issue of whether a barrister was entitled to a deduction for expenditure on purchase and laundry of professional clothing.
The barrister acquired and wore particular items of clothing, both in court and to and from the court to her chambers. She did not wear such clothes when she was not at work. Also, her personal wardrobe was made up of very colourful clothes.
The Inspector disallowed the barrister’s expenditure.The test whether her expenditure was ‘ wholly and exclusively’ incurred for the purpose of her profession was subjective.
Also,the General Commissioners considered that when a barrister purchased court clothes their purpose was to enable them both to earn profits in their profession and to be properly clothed, so it had a dual purpose(professional and non professional one at the same time).
Apportionment for business use can only be made when there is a objective benchmark by which any trade element can be distinguished from the non-trade element.
A common example of this approach is the running costs of a car used partly for the purposes of the trade and partly for other purposes.
If you are still confused with regards to what items you are entitled to claim back in your tax return come to Taxfile in one of their offices, either South London or Exeter branch to get help with this matter.

Workers in Construction Industry Scheme

We recently came across a client who got very confused about becoming a limited company and his tax position.

If people are both self employed and/or employed and they only work part of a tax year on that basis, it is likely that they would not have time and understanding of the implications of becoming an employee of their own limited company to organise their own salary in the first few months of trading.
The situation will then exist that they have a tax return to do for April 5th which has only a part years earnings, which gives rise to a personal tax rebate.
The limited company then has a payroll scheme of its own for future tax efficient drawings.
So year one of setting up a limited company can appear very beneficial (contact Taxfile to set up an ltd as a one stop shop for all your tax needs).
Year two may then give rise to a profit which can be taxed as employee's drawings (director) and if the director is prudent by leaving a tax reserve in the firm at the year end, then a potential tax efficient dividend may be possible (remember you can choose your year end to be a point when adequate reserves are in hand, you can only change it once in every five years. (Come to Taxfile to make sure you get the best year end solution).
The scheme for the taxing of the directors drawings and the subcontracted workers can be easily administered by the director, if there is a good margin between the gross works done and the labour costs then it is usual to see a favourable set off position at the end of each month.
To sum up, the business may have had 20% stopped on more of the income than the tax it has stopped from the subcontracted worker, this being the case then no tax needs to be handed to HMRC that month, the contractor/director must complete a CIS 300 list every month to state the tax stopped from every verified subcontractor ( HMRC do a great DIY course which is free to attend).
Any surplus tax suffered can be reclaimed back to the company at payroll year end 5th April on the companies p35 (it can take a few months for HMRC to agree the repayment as sometimes they ask for proof of the tax suffered, so good records of the work done and tax suffered are essential), once the tax is rebated then it comes back to the company to bolster the reserves.
The company accountant (come to Taxfile for the best in service from a Taxfile accountant) will then advise you of your corporation tax assuming you have supplied your banking records (preferably quarterly by online bank downloads which can be easily uploaded for analysis) . The corporation tax is due 9 months after the year end, so a good CIS rebate can often cover the corporation tax if the company is a labour only supplier which makes a reasonable margin after retentions.

If you are still confused about the way the Construction Industry Scheme (CIS) works you can always rely on Taxfile's tax specialists in South London and Exeter to guide you through any potential tax issues.

Revenue Determinations

Under Self Assessment, taxpayers are required to file their tax return by a certain filing date. If they fail to do so they face the risk of having the HMRC determine their tax liability by raising a so called Revenue Determination.
The Revenue Determination is meant to encourage the taxpayer to send in his/her return to the HMRC by estimating the taxpayer's tax liability.
Once a Revenue Determination charge has been added to the taxpayer's Self-Assessment record a notice known as 'Determination of tax due' will be issued to the taxpayer and his/her agent.

A Revenue Determination will automatically involve any payments on account for the following tax year. Also, where Revenue Determination and any overdue payment on account remains unpaid, interest and surcharge will be added to the taxpayer's record.

There is no right of appeal against a Revenue Determination but the submission of the completed tax return will take the place of the Determination and the determined amount of tax will be automatically amended to the return amount. Any related interest, surcharge and payments on account will also be automatically amended.

A Revenue Determination must always be raised for an amount equal to or greater than the previous or last year's liability, and include where necessary an appropriate percentage addition to the previous year figure.
Very important to know is that Determinations can only be raised within 5 years from the filing date.
Taxpayers can displace the determination with their own self assessment at any time up to the fifth anniversary of the filing date for the year of assessment in question (or one year after the determination was issued, if later). After five years things become a little bit more difficult as a certain concept may need to be applied, that of equitable liability.
In order to avoid having to deal with a Revenue Determinations, self-assessment taxpayers need to make sure that they are familiar with the filing deadlines and seek help from tax companies like Taxfile when sending their tax return , especially now with a new 31st October paper return deadline in place.

Use of Home as Office

If you are self-employed, there is a type of relief called use of home as office that can be offset against your tax liability.
If you run your business partially from home you can could set a proportion of your home running costs against income tax.What sounds like a very easy task for any tax accountant has proven to be quite difficult as the HM Revenue & Customs can easily argue the figures as there are no clear rules that can be applied.
Among the expenses allowed in this category we can mention the following: Council Tax, Mortgage interest, Rent, Repairs and maintenance, Cleaning, Heat, light and power, Telephone, Broadband, Metered water charges.
The factors to be taken into account when apportioning an expense include according to HMRC:
•the area used for business purposes,
•the usage in connection with electricity,gas or water and
•the time used for business purposes compared to other use.
By following this link you can see some examples provided by HMRC related to ways of approaching the use of home as office.
This is what the courts have approved in terms of apportioning expenditure for home as office:
"… it is possible to apportion the use and cost of a room on a time basis, and to allow the expense of the room during the hours in which it is used exclusively for business purposes, in the same way as it is possible to calculate the business expenses of a car which is sometimes used for business purposes exclusively and sometimes used for pleasure." (Templeman J in Caillebotte v Quinn [1975] )
Very important is to retain good records to evidence whatever claim you make for using your home as office in case the taxman argues your figures. For more help in understanding tax reliefs for self-employed, Taxfile in South London and Exeter is here to help.