Taxfile:Barristers and Tax

As a barrister you are treated as self employed by HM Revenue and Customs.

Historically barristers computed their professional profits for tax purposes on a “cash basis.”

Fees were brought into account only when received, and expenses only when paid.

From fiscal year 1999/00, it is required that all professionals including most barristers to compute their profits on a “true and fair view.”

Barristers in their first seven years of practice are still allowed to use the cash basis.

In computing their profits for tax purposes, barristers can deduct certain expenses like:

• Travelling costs from Chambers to court;

• Off street parking;

• Library and periodical subscriptions;

• Postage, printing, photocopying and stationary;

• Professional and accountancy fees;

• Devilling fees

• Chambers’ rent;

• Legal literature;

• Professional Indemnity Insurance premiums;

• Subscriptions (Circuit, Bar Council, Bar Associations)

• Bank charges;

• Use of home as an office;

• Robing room fees;

• Law report subscriptions;

• Staff costs;

• Silk application fees;

• Clothing and cleaning.

According to HMRC, "You should allow a deduction in computing profits for the cost of replacing gowns and wigs and frock coats worn by Queen's Counsel. You should not, however, allow a deduction for expenditure on `normal clothes', for example, black coats and pin- stripe trousers worn by male barristers or black dresses and suits worn by female barristers (this follows the decision in Mallalieu v Drummond"

Taxfile's tax agents will ensure you keep the necessary records of your income and expenditure and you make the right adjustments with regards the to private use of your expenditure.

Also, our tax accountants in South London and Exeter will make sure you obtain the maximum available tax deduction when calculating your taxable profits.

Taxfile: Scholarship Income

By scholarship we mean an exhibition, bursary or any other similar educational endowment. If the holder of the scholarship is receiving full-time education at a university, college or school then the income from the scholarship is exempt from tax.
The rate of payment including lodging, subsistence and travelling allowances is now £15,480 a year, £1,290 a month or £297.92 a week. This rate has increased from £15,000 (rate used up to 01/09/2005) to £15480 (from 01/09/2007 onwards).
Important to note is that this exemption does not apply to payments of earnings made for any periods spent working for the employer during vacations.
If the rate exceeds £15,480 HMRC will look at the arrangements in detail. This is because the level of payment exceeds what might reasonably be described as a scholarship or training allowance. However, an increase in the rate of payment over the qualifying limit, part way through a course, will not affect the exemption applying to any payments for the earlier part of the course
One of the condition to be met by the employee receiving the scholarship, is that he/she must be enrolled at the educational establishment for at least one academic year and must attend the course for at least twenty weeks in that academic year.
Also, the educational establishments must be recognized universities, technical colleges or similar educational establishments, which are open to members of the public generally and offer more than one course of practical or academic instruction.
Very important to know is that the concepts of “earnings” and “scholarship income” are mutually exclusive.
In conclusion, it is important to remember that there are a few factors to consider when dealing with scholarship income:
•the relationship between the payer and the recipient;
•the nature of the course;
•where the course is being undertaken;
•whether it is full time;
• total amount.
So pop in to see us in our office in South London Monday to Friday and even Saturday now!
Any of our tax agents at Taxfile will be more than happy to help if you have any further queries.

Vat Flat Rate Scheme

The VAT flat rate scheme was introduced on 24th April 2002 and was designed to assist small businesses through calculating VAT payments as a percentage of their turnover.
This scheme was developed to reduce the cost of complying with VAT obligations and the time spent by removing the need to calculate and record output and input tax in calculating the net VAT.
The scheme is optional and available to businesses with a VAT exclusive annual taxable turnover of up to £150,000(£225,000 after 1 April 2009) and total turnover including the value of exempt supply and other non- taxable income does not exceed £187,500(not required after 1 April 2009).
The flat rate percentage depends on the trade sector of the business you are running and it can range from 2% to 13.5%.
To see the category of the business you are falling into and what percentage you need to use follow this link from hmrc. As you could probably notice, the flat rate percentages have been changed since the decrease of normal VAT rate from 17.5% to 15%.
Under this scheme, businesses charge their customers the normal rate for the supply of goods and services.
Although businesses do not need to calculate the VAT on each and every transaction they make, they still need to keep a record of their flat rate calculation showing their turnover, the percentage used and the tax calculation.
As far as capital assets are concerned,for those costing more than £2000 (including VAT), the VAT can be recovered in the normal way as long as they meet certain conditions.
There are a few special categories of businesses like farmers, barristers and florists where special VAT flat rate rules apply. About all this we can explain more in due course.
Taxfile's tax accountants in South London and Exeter will first assess your eligibility for the flat rate scheme then will weight up pros and cons and see how beneficial it is for you.
Then finally they will register you within the scheme and offer ongoing support.

Tax Enquiries: Guilty Until Proven Innocent!

An enquiry is defined as seeking information, asking, questioning. Self Assessment is a process now/check later regime. According to HMRC,enquiries encompass all work carried out to check returns after processing - from a single enquiry about one entry in a return to a detailed examination of all the taxpayer’s affairs.
Under Self Assessment, taxpayers have clearly defined obligations while HMRC has defined powers in order to make sure that all taxpayers meet such obligations.
There are two types of tax enquiries:
•full enquiries (covering every single aspect of the return) and
•aspect enquiries(dealing with only one or more aspects of the return).
According to HMRC, a full enquiry is one which seeks to address all the significant risks of error in the return, including the risk of the return being fundamentally incorrect whereas aspect enquiries are those which fall short of a full, in-depth examination of the whole return but instead concentrate on one or more aspects of it.
Aspect enquiries, although more limited in scope than full enquiries, should not be seen as any less thorough or investigative.
If no enquiry is made within the allowed period (one year from the day the tax return is received by HMRC, for specific examples follow this link), the return becomes final unless the tax office makes a discovery assessment as a result of the return being incorrect or there was fraudulent or negligent conduct in making the return.
A very small proportion of returns will be taken up for enquiry on an entirely random basis. Most of the enquiries may start because either the return was sent in late, or some figures in the tax return did not match their records or just HMRC received a tip off.
All taxpayers should be aware that there is a chance of their returns being subject to enquiry.
Where a tax return has been selected for full enquiry, the enquiry officer aims to identify and examine all the significant risks of error in the return, including the risk that it is fundamentally incorrect. Also, where the business records do not prove to be as accurate as they should be, the officer in charge will need to look at the private side.
In order to make sure that there is no undisclosed source of income or additional cash coming from somewhere which was not taxed, the enquiry officer uses three main techniques:
•Cash Flow Tests involved with an analysis of drawings;
•means tests which determines the amount of money that is available to a taxpayer for living expenses.
•capital statements dealing with a detailed accumulation of information about capital worth, income of all sorts and expenditure.
Individuals with complex tax affairs investigated by HMRC should seek early help from a professional advisor to guide them through every step of the enquiry from responding to the officer, arranging a meeting to negotiating a settlement.
Taxfile's tax agents in South London and Exeter will guide you through this process and try to save you tax, interest and penalties.
Taxfile is happy to announce that we have recently renewed our free-of-charge enquiry protection cover. The insurance will cover the whole costs involved in dealing with your tax investigation so you can give you piece of mind and save you hundreds of pounds at the same time.
So pop in to see us and make the best of it!

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.

Foster Carers and their tax relief

Fostering is looking after someone else's children in your own home at a time when his or her family is unable to do so. Foster care relief applies to people who get income from providing foster care to children and young people.
Anyone receiving this type of income is considered by the tax office to be self-employed and therefore liable for tax.
If total receipts from fostering no dot exceed a certain amount, often referred to as qualifying amount, than the foster carer will be exempt from income tax for that year.
A qualifying amount is made up of two elements added together.
One element is the fixed amount of £10,000 per year for each household. Only a proportion of the fixed amount can be claimed if the foster carer is registered for less than a year.
The second element consists of an amount per week for each foster child which varies depending on the child's age.
If total receipts from fostering exceed the qualifying amount than there are two ways of calculating your tax. One is called the profit method and it is calculated by deducting the allowable expenses from the receipts.
The other one is called the simplified method and is calculated by deducting from the receipts the qualifying amount with no additional relief for expenses. Capital allowances are not available if such a claim is made. The election must be made on or before the first anniversary of 31 January next following the end of the year of assessment to which it relates. If they do not make such an election the will need to calculate their profit in the normal way (the profit method).
As profits from fostering as treated as earnings from self-employment, than National Insurance Contributions will be due (Class2 £2.30 per week and Class4 8% on the profit).
As a foster carer need you to keep good records consisting of total receipts for the year from their local authority, HSS trust or independent fostering provider.You also need to keep a record of the number of weeks that you care for each child placed with you in the year.
Also you need to keep a record of the date of birth for each child.
If your total receipts from fostering exceed the qualifying amount and you are using the profit method than you would need to keep records of your expenses as well.
If you are a foster carer and need help with filling in your tax return, Taxfile's tax agents in South London and Exeter are here to help.

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.

VAT Accounting Schemes

Using Standard VAT Accounting, we must complete four VAT returns each year. Any VAT due is payable quarterly, and any VAT refunds due are also repayable quarterly.
In contrast to standard VAT accounting, there are several alternative ways we can account for VAT that could save us time and money. Each of the schemes has advantages and disadvantages.

Among these schemes we can mention the following:

Annual accounting for VAT

Using this method, VAT is paid on account throughout the year in nine monthly or three quarterly instalments. These instalments are based on the VAT paid in the previous year. If the business has been trading for less than a year, the instalments are based on an estimate of the VAT liability.

Advantages:

•we only have to send a VAT return once a year

•reduces the amount of time spent in sorting out paperwork

• improves the cash flow of the business

Disadvantages:

•this method is not suitable for businesses that regularly reclaim VAT as they would only get one repayment at the end of the year.

• if the turnover of the business decreases, the payments may be higher than under the standard VAT accounting.

Cash accounting for VAT

When using the standard VAT accounting, the VAT is payable when an invoice is issued.
Advantage:
•If we use the cash accounting scheme, we do not need to pay VAT until the customer has paid us.

• it is a beneficial method because it improves the cash flow

• we do not need to pay the VAT if the client never pays us.

Disadvantage:

•we cannot reclaim VAT on purchases until we have paid for them.

The flat rate VAT scheme

The flat rate VAT scheme is designed to help small businesses reduce the amount of time they spend accounting for VAT.

Advantage:

• we do not have to calculate the VAT on each and every transaction but just pay a flat rate percentage of the turnover as VAT

Disadvantage:

• one minus using this scheme is that we cannot reclaim VAT on our purchases, especially if we buy a lot of goods and services.

VAT schemes for retailers

Retailers, especially those who sell a high volume of low value goods to the general public, can find it very time consuming and costly to issue VAT invoices for every sale. The VAT retail schemes enable retailers to aggregate their sales and account for VAT on the total.

The main retail schemes are: apportionment schemes, direct calculation schemes and the point of sale scheme.

Margin schemes for second-hand goods, art, antiques, collectibles

The VAT we can recover when buying and selling second-hand goods is quite limited.

Advantage:

•This scheme comes in handy because it calculates the VAT on the difference between the purchase price and the sale price , that is the margin.

•Disadvantage:

•we need to keep very detailed records, otherwise we will be liable for VAT on the full selling price.

Tour operators' margin scheme

Tour operators often buy goods and services from businesses in foreign countries, and cannot often reclaim their input tax. The Tour Operators' Margin Scheme solves this problem by allowing tour operators to calculate the VAT on just the value that they add.

As every method comes with pros and cons, it is better to seek guidance from tax accountants like Taxfile in South London and Exeter to analyse your circumstances and tell you which scheme suits you best.

Taxfile tells you about Pension Credits

Pension Credit is a tax-free payment for people aged 60 or over living in Great Britain, giving them extra money each week.
In order to get Pension Credit you do not need to have paid National Insurance Contributions(NIC's).
Pension Credit is made up two elements:

• Guarantee Credit element which might be paid to people over 60 and adds up to their weekly income guaranteeing a certain minimum level.

• Savings Credit element, which is an extra amount for people aged 65 or over who have some savings for their retirement. The savings Credit will add up to their Guarantee Credit.

If you live your husband,wife or civil partner than you will need to add up your income in order to have Pension Credit calculated.
You are likely to be entitled to Pension Credit if your weekly income is less than £124.05 if you are single and £189.35 if you have a partner.

You may still be able to get Pension Credit if your weekly income is more than these amounts if, for example, you or your partner:
• have a severe disability
• look after a person who is severely disabled
• have certain housing costs – for example, mortgage interest payments

Also, if you or your partner are 65 or over you may be rewarded for saving for your retirement, up to:
• £19.71 if you are single
• £26.13 a week if you have a partner

You can get Pension Credit even if you live with your grown-up family, you own your own home or you get financial support from friends, family or charity.
You can apply for Pension Credit by freephone by calling the Pension Credit application line 0800 99 1234 or follow the link for the application form .
You can only apply if you are 60 or over or if you are turning 60 in four months time.

If you need further help, Taxfile's tax accountants in South London and Exeter would be more than happy to guide you through your application.

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.

Non-taxable payments and benefits

Under general tax law, expenses payments and benefits made to certain directors and employees are taxable earnings (better known as remuneration).
As it is the case with most rules, there are exceptions where benefits or payments to an employee are not normally taxed:
• Annual parties or similar functions provided that the cost incurred by the employer for every employee is less than £150.
• Living accommodation related to the work.
• Equipment provided for disabled employees like a wheelchair or hearing aid and their private use
• The provision of goodwill entertainment for an employee.
• Late night taxis where an employee is provided with a taxi paid for by his employer for a journey from work to home.
• Work-related training expenses
• Long service and suggestion scheme awards provided that the cost to the employer does not exceed £50 per year of service for the employee.
• Meals and food vouchers where the vouchers are non-transferable, they are used
for meals only and the value of vouchers issued to employees does not exceed 15p for each working day.
• Mobile phones unless the calls paid by the employer can be converted into money by the employee.
• Parking spaces
• Removals expenses and benefits which exempts from tax the first £8,000 of removal expenses.
• Re-training expenses and courses for an employee who is about to leave or has left within the
previous year.
• Pensions on retirement or death
• Sports facilities generally available to the employer’s employees and members of their families
and households but not to the public.
• Medical treatment abroad
For more information on each of the non-taxable payments and benefits mentioned above just follow the HMRC link.
Alternatively, you can contact Taxfile's tax accountants in South London and Exeter for any query that you might have.

Savings Income and Tax

Savings income is added to your other income and taxed . Banks and building societies are required by law to deduct income tax at 20% from interest before they pay it to you. They pay this to HM Revenue & Customs. This is confirmed by the entry 'net interest' on your bank or building society statement.
If you're a higher rate (40%) taxpayer you owe tax on the difference. If you have a low income you may be able to claim tax back.
If you are a basic rate taxpayer you do not have to take any action as no extra tax is due and 20% tax has already been deducted at source by the bank or building society.
If you are a higher rate taxpayer than you have to let the Tax Office know what interest you have received so they can collect the extra tax either by asking you to fill in a tax return( if you are self-employed and normally have file self assessment) or adjust your tax code if you are employed or you receive pension. Then they will also send you a form called Tax Review P810 in order to check your level of savings income and then a change your code if necessary.
Your interest is taxable in the tax year that it is paid to you, or credited to your account, even if part of it has accrued in the previous tax year. So you do not have to include any interest earned this year when working out your taxable income if it hasn't been paid yet.Your bank/building society may send you a 'Certificate of Tax Deducted' or a statement containing this information after the end of each tax year.
Also, if you have a joint account with a husband, wife or civil partner you should declare half of the income as yours. The second half should count towards their income.
On some types of savings income you do not have to pay any tax. Among them, we can mention the following:
• Cash mini ISA;
• all prizes received from Premium Bonds;
• interest received from Fixed Interest Savings Certificates;
• interest from Index Linked Savings Certificates;
• interest, including bonuses, received from Children's Bonus Bonds.
Also the interest paid by HMRC on over-payments of tax (so called repayment supplement ) is non-taxable.
If you are not due to pay any tax you can register your bank or building society account to receive your interest without tax taken off. You do this by completing form R85 and giving it to your bank or building society.
If you need to know more about the interest on savings and whether it is taxable or not, Taxfile's tax accountants are here to help.

Data Protection Act and HMRC

As a tax agent you might have found it quite difficult trying to deal with subcontractors' tax returns (those working in the Construction Industry Scheme) for the year ending on the 5th April 2008. The main reason behind this situation is the struggle of gathering all the relevant data in order to submit an accurate, complete and compliant tax return to HM Revenue & Customs.
In the past years we used to be able to ask the tax office for a so called ''captured voucher list'' for our subcontractor clients quite easily. We cannot say this is happening this year, now when the construction scheme has changed and we need their help even more. According to the HMRC, excessive demands were placed before on their resources when requests were made for payment details for scores of subcontractors at a time.
Their refusal of giving away information is normally stated in a letter and we can quote:
''Under Section 12(B) 1 Taxes Management Act 1970 your client must keep all records they need to enable to make a correct and complete tax return.They may receive a penalty of up to £3000 for each failure to keep or to preserve adequate records they need for future reference.[...] If they have lost any of their deduction statements given to them by the contractor(s) or they think they were not given a deduction statement(s), your client must in the first instance go back to the contractor concerned and ask for either a duplicate, or the missing deduction statement.''
That said, unless we can provide evidence that contact has been made to the contractor(s) concerned the HMRC will not be able to release any information. The evidence in question can be either a letter from the contractor(s) confirming why that they are unable to provide the documentation or a letter with the name of the contractor(s) and the dates the client worked for him/them.
As we needed to know more about this subject, we asked one of our legal associates to do some research on this matter. Under Data Protection Law 1998 s.63(1) it is required by all Government departments to reveal information held by them on our clients. However s.29 of the Act states that the right to disclosure of personal data and to have copies of it does not apply to to data collected for the assessment or collection of any taxes:
''Personal data processed for any of the following purposes[...](c) the assessment or collection of any tax or duty or of any imposition of a similar nature are exempt from the first data protection principle.'' It looks as if there is a clear statutory right for hmrc to refuse to reveal the information requested.
However, there is nothing in the Taxes Management Act 1970 requiring the client to go back to the contractor for a duplicate copy of the missing document(s) in the first place. As there is no policy stating that that the client or agent should first contact the contractor, it appears as if the policy has no status in law.
Taxfile's tax accountants in South London and Exeter would like to know your opinion on this matter. Have you found it difficult this year to deal with your subcontractors' tax return? Have you gathered all your data from the contractors or you managed to get some help from HMRC? Write your comments, your opinion matters to us.

Capital Gains Tax (CGT)-2008 Budget

The 2007 Pre-Budget report issued in October 2007 announced major changes to the way in which Capital Gains Tax will be calculated for disposals after 5th April 2008.
Among the most important changes related to CGT we can mention:

•removal of the link to income tax rates and bands, meaning that various rules providing for the interaction of income tax and CGT rules are no longer required.

•introduction of a single rate of CGT of 18%, replacing the current rules that charge CGT at income tax rates as though the gains were additional income. The flat 18% rate applies irrespective of the type of asset disposed of and the period for which it has been held by the taxpayer.There is one important exception for certain types of business gains that may attract the new Entrepreneurs' relief. This relief is based on taxing the first £1 million of the gains at 10 %, but even this is achieved by reducing the amount of the relivable gain (by 4/9ths), so that the resultant chargeable gain can still be taxed at 18%!
•abolition of taper relief which normally has the effect of reducing the effective rate at which CGT is paid. It operates by reducing the amount of a gain which is charged to CGT, the amount of the reduction being determined by whether the disposed asset on whose disposal the gain was a "business" or a "non-business" asset, and the length of time that the asset had been owned before the disposal. and

•abolition of indexation allowance for non-corporate tax payers (currently frozen at April 1998) that normally compensates for the effect of inflation by reference to increases in the retail prices index;

•The abolition of the kink test for CGT purposes which means that in future the ''gains accruing on all disposals of assets owned at 31 March 1982 will be based on their market value at that date, so effectively "rebasing" all allowable expenditure to 31 March 1982''(HMRC).

• great simplification of the computation of chargeable gains due to the abolition of indexation allowance and taper relief.
As a large number of entrepreneurs and business owners aim to dispose of their businesses/companies for substantially more than £1 million, they are the biggest losers of the CGT reforms since their CGT rates will generally be much higher than 10%. (Before the 6th April 2008 CGT rate was often below 10% due to the benefit of indexation relief.)
Taxfile's tax accountants in Exeter and South London can help you make the most of every opportunity to minimize your tax liability, making sure you are paying the right amount of tax and all this for at very reasonable rates.

Lump sums,redundancy and compensation payments

When dealing with lump sums, redundancy and compensation payments great care needs to be exercised. The reason behind this is that this type of income will not necessarily be taxed as normal employment income.
Up to the first £30,000 of any compensation payment can be paid to you without deduction of tax if it is made in connection with the termination of your employment. This also applies to statutory redundancy payments. This tax exemption applies whether the payment is made as a result of an unfair dismissal claim or for breach of contract.
In order to qualify for compensation for loss of office relief, strict criteria must be met.
For instance, if your contract of employment gave you a right to compensation on ceasing to be employed or payment in lieu of notice (i.e. the employer pays in lieu of notice instead of the employee working the notice period), then the lump sum you receive will be taxable under PAYE scheme, regardless of the amount.
Also, even if the contract says nothing about pay in lieu of notice but there is an expectation of payment because it has been routinely paid to others, that constitutes an implied contractual term and the payment will still be liable to tax and NICs.
HMRC often challenges this aspect, trying to prove that the payments were contractual in nature therefore they need to be fully taxed.
Very important to remember is that the limit of £30,000 relief relates to each employment but employments with employers under common control only count once. If a payment was received in the previous fiscal year for the same employment but the relief was not used, than the balance can be claimed against any relevant payments in a subsequent year.
Some employees with redundancy payments that exceed £30,000 choose to pay some or all of the excess into their approved occupational pension scheme. As long as the payment is within the scheme's rules, it has no liability for tax or NICs.
As different rules apply to different lump sum payments connected with an employment it is very important to seek advice from professionals like Taxfile's tax accountants in South London and Exeter. They will make sure that your circumstances have been carefully considered before submitting your tax return to HMRC.

Darling's Increase in Personal Allowance

The Chancellor Alistair Darling has announced an increase in the personal tax allowance of £600 and an adjustment to the higher rate threshold (the total of the personal allowance and basic rate limit).

According to the tax office we do not need to make any adjustments to our tax code numbers at the moment.The emergency code for new employees without a code number remains 543L.
This change is supposed to give 22 million people on low and middle incomes a gain of £120.
Alistair Darling explains this in saying that ''[the need of the increase in the personal allowance] represented the fairest and most effective way to help those who had lost out due to the abolition of the 10p starting rate announced by Gordon Brown last year in his final Budget as Chancellor''

From September, all basic rate taxpayers would get a one-off increase of £60, followed by a monthly increase of £10 for the rest of the year.

By giving £600 extra to the personal tax allowance, the government also reduces the threshold at which an individual starts to pay tax at the higher rate by £600. People used to pay basic rate tax on earnings up to £36,000 above their personal allowance but higher rate tax will now apply at £34,800 and as a result 150,000 people will become higher rate tax payers.
Still confused about all these changes in the tax system? Taxfile's tax accountants in South London and Exeter are here to help for any tax issues you might have. Visit their website or call them on 020 8761 8000 and find all the answers to your questions.

Non-residency Tax Issues

The United Kingdom (UK) charges tax on income arising in the UK, whether or not the person to whom it belongs is resident in the UK. United Kingdom also charges tax arising outside the UK which belongs to people resident in the UK.
If a person is resident in the UK he or she is taxed also on the gains made on the disposal of assets anywhere in the world.
To be regarded as resident in the UK you must normally be present in the country at some time in the tax year. You will always be resident if you are here for 183 days or more in the tax year. If you are here for less than 183 days, you may still be treated as resident for the year under other tests . For instance if you visit the UK regularly and after four tax years your visits during those years average 91 days or more a tax year. You are treated as resident from the fifth year.
If you are resident in the UK year after year, you are treated as ordinarily resident here. You may be resident but not ordinarily resident in the UK for a tax year if, for example, you normally live outside the UK but are in this country for 183 days or more in the year.
You will not be liable to tax on your British income if you live in a country that has a double taxation agreement with the United Kingdom.
Double taxation agreements are designed to protect against the risk of double taxation where the same income is taxable in two states. So, under such agreements, income is only taxed in the country where you live.
You are either resident or not resident in the UK for the whole of a tax year. However, by concession, the tax year is split in certain circumstances when you come to, or leave, the UK part way through a tax year. In order to find out whether or not you are entitled to split-year treatment you would need to answer a few questions.
Taxfile's tax experts in South London and Exeter would be able to help you establish your status in UK for tax purposes making sure you pay the right amount of tax.

Student Loan Deduction

Student Loans are considered to be a financial support package for students in higher education in the UK with the Government's help. They are available to help students meet their expenses while they are studying.
HM Revenue & Customs is responsible for collecting repayments of Student Loans in cases where the borrower is within the UK tax system and is no longer in higher education.
The loans are still administered by the Student Loans Company.
In most cases the employer collects Student Loan repayments by making deductions from the borrower’s pay .
The employer has the following responsibilities:
• making deductions of Student Loan repayments from thee the employee’s wages
•keeping records of the deductions made
•paying the deductions over to HM Revenue & Customs
•providing HM Revenue & Customs with details of the deductions at the year end
•giving the employee details of the deductions on their payslips
•identifying on form P45, when the employee leaves your employment, that they are liable to make Student Loan repayments.
There is an Annual Threshold, currently £15,000, below which Student Loan repayments are not due. Employers making Student Loan deductions apply a proportion of the threshold appropriate to the pay period in calculating the amount of Student Loan repayment to deduct.
The rate of deduction when calculating the amount of Student Loan deduction is 9%.
Deductions are made on a non-cumulative basis. In order to deduct the right amount from the employee's pay than the employer has to look up the Student Loan Deduction Tables on the HM Revenue & Customs website.
If you need to know more about the way Student Loans deductions work out, Taxfile's tax agents in South London and Exeter can help you get a better understanding of it.

What are the tax credits?

Tax credits are payments the Government makes to you if you live in the UK and are in a paid work, responsible for children or both.
There are two types of tax credits: Working Tax Credit (WTC) and Child Tax Credits (CTC).
The CTC has the following parts:
• a family part
• a baby part
• a child part
• a disability part.
The WTC has in turn the following parts:
• basic part
• a couple part
• a lone parent's part
• a 30 hours a week part
• a disability part
• over 50 years old part.

If you are a student and do not have paid work you may still be able to claim if you look after a child.
If you are 16 or over and have a dependant child or are working and disabled you can still claim tax credits.
If you are 25 years old or over and you work at least 30 hours a week you can claim even if you have no children.
People who have children can claim WTC as well as CTC as long as they work at least 16 hours a week.
Rates and Thresholds for 2008-09 tax credits:

Working Tax Credit ( per year)
•Basic part:£1800
•Couple and lone parent part :£1770
•30 hour part: £735
•Disabled worker part:£2405
•Severe disability element: £1020
•50+ Return to work payment (16-29 hours) : £1235
•50+ Return to work payment (30+ hours) : £1840
There is a childcare element with the WTC.The maximum eligible cost for one child in 2008-09 tax year is £175 per week and for two to more children is £300 per week.

Child Tax Credit ( per year)
•Child Tax Credit Family part: £545
•Family element, baby addition: £545
•Child element : £2085
•Disabled child element : £2540
•Severely disabled child element :£1020

If you need to know more about tax credits, Taxfile's tax accountants can help you decide whether you are eligible or not to claim tax credits.

Dealing with someone's tax after they die

When somebody dies it is important to sort out their tax and National Insurance contributions as soon as possible. The 'personal representative' or the executor has to sort out the deceased person's tax affairs, as well as the rest of the estate.There may be either tax to pay or a rebate from the Tax Office.
If the deceased paid tax through Pay As You Earn (PAYE), their Tax Office will send the executor a form called R27 'Potential repayment to the estate' to complete.
If the deceased person was self-employed paying tax through self-assessment, the administrator can choose to fill in form R27 in full - or only in part and then complete a Self Assessment tax return immediately or at the end of the tax year.
The deceased person will get their full tax-free personal allowance for the year of their death. They will also get a full year's entitlement to any blind person's or married couple's allowance that was due to them for the full year.
If they did not receive enough income to use the whole of the blind person's or married couple's allowances, the personal representative can arrange for the unused allowances to be transferred to a surviving spouse or civil partner.
The personal representative may have to pay Capital Gains Tax(CGT) if profit is made from selling the property or possessions of the deceased. The executor is treated as acquiring the house at its market value at the time of death so CGT can only be payable if a profit is made after disposal and if it exceeds the 'annual exempt amount' (AEA).
You might find it very useful to ask a tax accountant for advice. Taxfile in South London and Exeter can give you the best solutions when having to sort out a deceased person tax affairs.

Taxman's new power

Is taxman going too far? This is the question we have to ask ourselves today. The taxman has been given the authority to bug people's phones and read their emails and letters.

In order to reassure taxpayers, the Inland Revenue declared that these new powers will not be used in routine tax investigations. As noticed by Sunday Times ''one area where the new regulations could have an impact is against those who failed to come forward during HMRC’s partial amnesty for offshore account holders. [...]HMRC offered a limited window of opportunity for taxpayers to disclose savings held in offshore accounts on which they had not paid tax.
About 45,000 people with bank accounts in tax havens such as the Cayman Islands and Isle of Man coughed up £400m by the November 26 deadline, but this may be only a fraction of the total held offshore. ''(Ali Hussain, Sunday Times, February 17, 2008)
Although the tax office has assured people that the powers will only be used in the most serious of cases, some experts have expressed concerns.

Mike Warburton of tax partners Grant Thornton said: “Once the new powers are available it will be very difficult to stop the taxman using them.''(Ali Hussain, Sunday Times, February 17,2008)

To surprise you even more, senior tax officials are being rewarded for failure as they are given record bonuses totalling more than £23 million this year despite the department continuing to lose £1 billion to fraud and error. This also came just three months after the department admitted it had lost computer discs containing the tax credit details of 25 million people.

In its defence, HMRC said that these payments were based on last year performances and those for the current financial year had not been set.

Taxile's tax accountants in South London and Exeter would like to know your opinion in these matters, so write your personal comments on our blog. Are you for or against the way the tax office handles their tax investigations? Do you think of it as an intrusion in people's life or is it in our best interest on the long run? Share today your thoughts with us,your opinion matters!

Capital Allowances

As a business you can claim tax allowances, called capital allowances, on certain purchases or investments. This means you can deduct a proportion of these costs from your taxable profits and reduce your tax bill.
Capital allowances are available on plant and machinery, buildings - including converting space above commercial premises to flats for renting - and research and development.

Capital allowance on plant and machinery
You can claim capital allowances on:
• the cost of vans and cars
• machines
• scaffolding, ladders, tools, equipment
• computers and similar items you use in your business
• expenditure on plant and machinery
If you're buying equipment, 25 % is the standard allowance for businesses each year. This will reduce to 20% from April 2008.
You can claim additional allowances in the first tax year after the expenditure was made. This is called first -year allowance. First-year allowances are a tax allowance you can claim on certain purchases or investments in the year you buy them.
Small businesses can claim first-year allowances of 50% for qualifying investments. Medium-sized businesses can claim 40%, and in certain circumstances both small and medium-sized businesses can claim allowances of 100 % (referred to by HMRC as Enhanced Capital Allowances for Energy-Saving Investments), in the year they make the purchase. However, for most plant and machinery, 25 % is the usual capital allowance. There are also allowances for investment in research and development.

Capital allowance on buildings
You can claim capital allowances on the cost of:
• constructing industrial or agricultural buildings, commercial buildings in enterprise zones, and certain types of hotel
• buying or constructing a building to use for a qualifying trade such as manufacturing or processing
• renovating or converting space above shops and other commercial premises to provide flats for rent - for example, money spent on building dividing walls or fitting a new kitchen
• converting or renovating unused business premises in a disadvantaged area on or after 11 April 2007
You cannot claim capital allowances on the cost of:
• houses, showrooms, offices and shops
• the land itself, such as buying the freehold of a property or acquiring a lease
• extensions, unless it provides access to qualifying flats
• developing adjacent land
• furnishing qualifying flats
The allowance for buying industrial and agricultural buildings is 4 %, in both the first and subsequent years. You can usually claim 100% of the cost of converting underused or vacant space above commercial property into flats or converting or renovating unused business premises in a disadvantaged area.
If you need to know more about capital allowances you can contact Taxfile's tax accountants in South London and Exeter and they will make sure you make the best of your capital allowances in order to minimize your tax liability.

Overpayment of tax through PAYE

PAYE (Pay As You Earn) is the system used by employers and pension providers to deduct tax from your wages or pension. If you think you've paid too much Tax through PAYE you can contact Taxfile's tax accountants in South London and they will clarify that for you.

HM Revenue & Customs (HMRC) gives you a tax code that shows your employer or pension provider how much tax to deduct from your wages or pension before you get paid. You'll find your tax code on your P45 or your wages/pension payslip.

It is possible you might have overpaid tax in the following circumstances:
• you started a new job and had an emergency tax code for a while
• you were only employed for part of the year
• your employer was using a wrong tax code
• you're a student who only worked at holiday times
• you had more than one job at the same time
• you stopped working and didn't get any taxable earnings or benefits for the rest of the year
• your circumstances changed - for example you retired, were made redundant or became self-employed
• you have taken a pension in the form of a lump sum rather than a small monthly amount (this is known as 'trivial commutation'), the rate of tax you pay on the lump sum could be higher than the basic rate of tax you pay over the year and could cause an overpayment.

Any overpaid tax from previous years will we calculated by the tax office and they will send you a refund in the post or through bank transfer.

What you need to bear in mind is that you can only reclaim overpaid taxes for up to a maximum of six years previous to the current tax year.

Penalties Reform - The Next Stage

Hello self-employed taxpayers,

I hope you enjoyed your holidays. I'm sure it might be quite difficult for those of you who haven't submitted your tax return yet with the the deadline coming soon.
Now, you might wonder what this Next Stage is all about!
Well, as part of ''The Review of Powers, Deterrents and Safeguards HMRC has been developing ideas and consulting on how to modernise and align civil financial penalties.[...]The first substantial measure,[...] was a single new penalty regime for incorrect returns for income tax, corporation tax, Pay As You Earn(PAYE), national insurance contributions(NICs) and value added tax(VAT)(the main taxes)''(HMRC and the Taxpayer, Modernising Powers, Deterrents and Safeguards, Penalties Reform:The Next Stage.Consultation Document 10 January 2008).
In other words, the Tax Office wants to make sure that people do pay the right amount of tax and at the right time. The payment of taxes together with the repayments and reliefs cannot be voluntary or arbitrary. They must be governed at all times by a framework of rules
and obligations. According to HMRC, these penalties should influence behaviour, should be effective and fair.
Penalties have been considered in the following categories:
•incorrect returns
•failure to notify a new taxable activity
•late filing and late payment
•record keeping and information powers failure
•other regulatory failures.

There will be no penalty where taxpayers make a mistake or misinterpret the law despite taking reasonable care in completing their returns.
To make sure your tax return is submitted correctly and in time visit Taxfile's tax accountants in South London or Exeter and they will do it on your behalf.

Tax at Christmas time!

A very Merry Christmas to one and all from Taxfile' s Tax Accountants.

Our gift to you all this year is a brand new, free of charge insurance cover.
This cover will provide you with protection against any possible Tax enquiry: In the unlikely event of a random investigation by the revenue, Taxfile have insured its customers against the associated costs incurred in defending such cases thus saving its clients hundreds of pounds. So avoid the stress and have piece of mind this Christmas and call into Taxfile this December.
By way of an extra incentive to think Tax returns before the end of December! Taxfile have also put together some great Christmas prizes.
Bring your details into us before the 31 December and you'll have a free entry into our Christmas draw.

Prizes available are:

• 1st Prize: A weekend for two at one of the Meridian Hotels
• 2nd Prize: Half a case of champagne
• 3rd Prize: A Marks and Spencer voucher worth £25.00

So let Taxfile take the pressure off, come in and see us before the 31st of December and ensure you have your return filed before the January 31st deadline.

Furthermore Taxfile have now established links with companies offering financial, legal and mortgage advice, further details on these services are outlined in our newsletter which will be arriving on your door step very shortly.

We look forward to seeing you soon.

Rent a Room Scheme

If you're thinking about letting furnished rooms in your home, you may want to take advantage of the special Rent a Room Scheme . Under this scheme you can be exempt from income tax on profits from furnished residential accommodation in your only or main home if the gross receipts you get (that is, before expenses) are £4,250 (£2,150 if letting jointly) or less. But you can't then claim any of the expenses of the lettings.
A lodger can occupy a single room or an entire floor of your home. It does not apply if your home is converted into separate flats that you rent out. In this case you will need to declare your rental income to HM Revenue & Customs (HMRC) and pay tax in the normal way. Nor does the scheme apply if you let unfurnished accommodation in your home.
There are certain advantages and disadvantages of using this scheme -Taxfile in South London and Exeter can help you choose the best option according to your specific circumstances. Their tax accountants will work out whether you're better off joining this scheme or declaring all of your lettings income and claiming expenses on your tax return.
The main point to bear in mind is that if you are in the Rent a Room scheme you can't claim any expenses relating to the letting (for example, wear and tear allowance, insurance, repairs, heating and lighting).
If you don't normally receive a tax return and your receipts are below the tax-free thresholds for the scheme, the tax exemption is automatic so you don't need to do anything.
If your receipts are above the tax-free threshold, you must tell your Tax Office - you can do this by completing a tax return and claiming the allowance.

That's all for today. Next week we will discuss, in more detail, the allowable expenses that you can deduct from your lettings income, provided you don't use the Rent a Room scheme.