Venture Capital Trust (VCTs) and tax

Venture Capital Trusts were schemes introduced in 1995 to encourage individuals to invest in high-risk trading companies.

With a VCT the risk of the investment is spread over a number of companies.

VCTs must be approved by HMRC and must meet a certain qualifying conditions.

If you have subscribed for shares in Venture Capital Trusts and you are 18 or over when the shares were issued you are entitled to a few tax reliefs.

According to HMRC, these are the tax reliefs for investing in VCTs:

Income tax relief:

One of the income tax reliefs of VCTs is that you are exempted from income tax on dividends from ordinary shares. This is called dividend relief;

Another very important tax relief when investing in a VCT is called income tax relief .

The amount of the tax relief will be the smaller of the amount subscribed up to a maximum of £200,000 at 30% or the amount that reduces the tax bill to zero for the year.
The rate of 30% applies in the tax year 2006/07 and onwards and for subscriptions for shares issued in previous tax years the rate is 40%.
Capital gains tax (CGT) relief :
One of the CGT reliefs when investing in VCT schemes is called disposal relief as you may not have to pay CGT on any gain you make when you dispose of your shares. In order to qualify for the reliefs certain conditions need to be met. You can find more about them on HMRC website.

As there are no guarantees that VCT investments will be successful, Taxfile's tax agents recommend that you seek professional advice from financial advisers beforehand.

Changes to Minimum Wage from October the 1st

As explained in a previous blog post, Minimum Wage is defined as the lowest wage payable to most employees as fixed by law or union agreement.

As from 01/10/09 new rates came in place:

•£5.80 - as the main rate for workers aged 22 and over;
•£4.83 - the 18-21 rate;
•£3.57 - the 16-17 rate for workers above school leaving age but under 18.

A very important change from 01/10/09 is that fact that employers running bars and restaurants can no longer be allowed to use tips to top up pay up to the minimum wage.

Workers will now be paid at least the National Minimum Wage and be paid their tips on top of this.

If your employer is paying you less than the Minimum Wage entitlement you must report this by filing an online complaint form.

If you have any queries regarding Minimum Wage or any other tax related question, please feel free to ring us on 020 8761 8000 or come to see us in our office in Tulse Hill on the South Circular.

Interest in Land and Property

As a landlord or a property investor, you are able to claim interest relief by offsetting it against your lettings income. So even if you have an interest-only mortgage or a repayment one you can still claim the interest.Also if you take a personal loan and you use it entirely for the purpose of your rental business, you can claim the interest on the loan as an expense.
Very important to remember is that you can only claim interest against a loan up to the value of the rented property when first let. The capital account cannot be overdrawn.

There is a possibility to re-mortgage for a greater amount and claim this when the additional amount is used for the purpose of an investment property or wholly and exclusively for the business property.
You can claim interest on your mortgage even when your property is empty.You do not have to split the interest on the mortgage if you are genuinely trying to let the property but it is empty because it has not been able to find a tenant. In this case the interest will meet the ‘wholly and exclusively’ test. It will not meet this test if you have not been trying to let the property or you have been using it for private or non-business purposes .
We at Taxfile hope to have captured your interest in landlord tax and if you need to know more about it, feel free to pop in at our Tulse Hill office and speak to one of our tax agents.

Enquiry Meeting:One Big Interview

According to the HMRC, during a tax investigation, meetings between the taxpayer and the tax inspector play a vital role.

Why is that? Because according to HMRC, this is the easiest way to obtain information about the taxpayer's business and settle the enquiry faster.

Also, meetings between the taxpayer and the tax inspector ''ensure that, where omissions have been found, the taxpayer is aware what offence has been committed and the likelihood of penalties and of the benefits of co-operating in bringing about an appropriate settlement at the earliest possible date, but you should make it clear that it is entirely a matter for them to decide.''(Enquiry Manual, HMRC)

When dealing with a meeting with the taxpayer, the inspectors are advised to consider a few points :
•the purpose of the meeting,
•the reason of the meeting,
•list of questions to be answered by the taxpayer
•review of all the information held,
•establish the basis of settlement.

The Inspectors Enquiry Manual (EM1822) tells the Inspector that the meetings enable them to:
''•obtain facts from the taxpayer about the business, how it is run and the records that are kept;
obtain the facts in non-business enquiries;
•explain the purpose of your enquiry. Taxpayers may not always be fully aware of the extent of HMRC enquiries;
•establish whether the taxpayer wishes to disclose omissions;
•agree what action is required and by whom to move the enquiry towards conclusion;
•ensure that, where omissions have been found, the taxpayer is aware what offence has been committed and the likelihood of penalties and of the benefits of co-operating in bringing about an appropriate settlement at the earliest possible date, but you should make it clear that it is entirely a matter for them to decide.
•quantify and agree omissions;
•settle the enquiry.''(Enquiry Manual, HMRC)

What you need to realise when dealing with a tax investigation is that there is no legal obligation for you to attend a meeting/interview with the Inspector.
Also it is important to go through the structure of the meeting in advance with your tax agent.
It is vital while attending such a meeting to have appropriate representation.
Tax Investigations and conflicts with the HMRC can create difficult and stressful times for anyone involved as well as a big accountancy bill.
Here at Taxfile we have free-of-charge enquiry protection cover. The insurance will cover the whole costs involved in dealing with your tax investigation. For more details about our insurance policy come and see us in our office in Tulse Hill or Exeter.

Arising and Remittance basis of taxation

As resident in the UK you are being taxed on an Arising basis.

Arising Basis of Taxation means you will pay UK tax on all of your income as it arises and on your gains as they accrue, wherever that income and those gains are in the world.

The Remittance Basis of Taxation is an alternative tax treatment available to some people who are resident in the UK and who are either non domiciled in the UK (you are normally considered to be domiciled in the country where you have your permanent home) or/and non ordinary resident in the UK (your residence in the UK is typical for you and not casual and your presence here has a settled purpose ; it is part of a regular and habitual mode of your life for the time being).

This treatment of tax is only relevant if you have foreign income or/and gains. If you are eligible and choose to use the remittance basis, you will be liable to UK tax on all of your UK income and gains on an arising basis but you will only be liable to UK tax on your foreign income and/or gains if and when you remit them to the UK that means when you bring them directly or indirectly to the UK.

What is important when opting to have your foreign income taxed on a remittance basis is the amount of unremitted foreign income and/or gains you actually have during the tax year.

If your unremitted foreign income (and/or gains) arising or accruing in the tax year is less than £2,000 you can use the remittance basis without having to make a claim.

If your unremitted foreign income (and/or gains) arising or accruing in a tax year is more than £2,000, you will have to make a claim if you want the remittance basis to apply to you otherwise you will be liable to UK tax on the arising basis.

If you decide to claim the remittance basis and have been a 'long term' resident in the UK (resident in the UK for at least seven out of the last nine tax years immediately preceding the relevant tax year) you may have to pay the The Remittance Basis Charge (RBC).

The RBC is an annual tax charge of £30,000. It is tax on a part of the foreign income and gains which you leave outside the UK (unremitted) and is payable in addition to any UK tax that you have to pay on either UK income (and/or gains) or foreign income and gains remitted to the UK.

We here at Taxfile hope you found this useful . As this is a complicated area of expertise you should always seek professional advice before taking any decisions related to residence, domicile and the remittance basis.

Employed or Self Employed?

If you work for someone else, it is important to know whether you are working for that person as employed or self-employed as an independent contractor.
If you are the one having to employ somebody, it is your responsibility to correctly determine the employment status of that person.
A worker’s employment status will determine the charge to tax on income and the class of National Insurance contributions due.
It is necessary to determine whether the person works under a contract of service (as an employees) or under a contract for services (as self-employed or independent contractor).
There are some test and factors that can determine the worker's right status. For instance if the workers are paid by the hour, week or month and if they can get overtime pay or bonus it means that they are employed. Also, if they work a certain amount of hours and they can be moved from task to task than again they are considered to be employees.
Important to establish is whether the workers can be replaced by somebody else and whether they are being told where, when and how to carry out their work. Again if the answer is affirmative than that worker classifies as an employee within the company.
If the workers are self-employed,the answer to all the following questions should be positive:
•Do they regularly work for a number of different people?
•Can they hire someone to do the work or engage helpers at their own expense (the so called right of substitution and engagement of helpers)?
•Do they carry a financial risk?
•Can they decide what work to do, how and when to do the work and where to provide the services?
•Are they providing the main items of equipment they need to do heir job?
•Do they agree to do a job for a fixed price regardless of the time it takes?

Very important to highlight the HMRC's view of a worker : "Just because a worker is self-employed in one job, doesn’t necessarily mean he or she will be self-employed in another job. Equally, if a worker is employed in one job, he or she could be self-employed in another. "
It is a general requirement that those wishing to take on workers consider the terms and conditions of a particular engagement to determine whether the worker is an employee or self-employed. If you any doubts, you can always ask your local Status Inspector for an opinion as to the employment status of your workers. Also there is an Employment Status Indicator (ESI)
tool that enables you to check the employment status of an individual or group of workers.
Unfortunately, the status of self-employed workers is a favourite target of the Taxman, particularly during a PAYE compliance visit.
So take Taxfile's tax agents advice and protect yourself with a contract and and keep all the correspondence between you and the contractor covering the main points about employment status to avoid problems in the future.

Commercial letting of furnished holiday accommodation and tax

Commercial letting is defined as 'let on a commercial basis and with a view to the realisation of profits'.
Accommodation is furnished if the tenant is entitled to use of sufficient furniture.

It will generally be necessary to calculate the furnished holiday lettings profit or loss separately from the rest of the rental business.

If a letting is to qualify as furnished holiday letting(FHL)a few conditions should be met:
• the property to be in the UK ;
• property has to be furnished;
• property should be available for holiday letting to the public for at least 140 days a year;
• it should be let commercially for 70 days or more, and
• cannot not be occupied for more than 31 days by the same person in any period of 7 months.
The difference between residential lets and holiday lets is that with residential ones you can claim a certain relief called wear and tear as compared to the holiday ones where you can claim capital allowances.

Capital allowances can include the cost of furnishings and furniture, and equipment such as refrigerators and washing machines.

Another important difference between residential and holiday lettings is that with holiday ones you can offset any loss you make in the year against other type of income.
You may also be able to take advantage of Capital Gains Tax (CGT) reliefs, such as 'business asset roll-over relief'.
For example, if you reinvest within three years in another UK holiday letting property or certain other assets costing the same as or more than you got for the property you have sold, you may be able to defer payment of CGT until you dispose of those new assets.
To work out your taxable profit you deduct your allowable expenses from your gross rental income. These include:
•Letting agent fees (where applicable)
•Legal and accountant fees
•Buildings and contents insurance
•Interest on mortgage payments
•Maintenance and repair costs (but not improvements)
•Utility bills
•Council Tax
•Cleaning or gardening
•Other costs related to letting the property, such as phone calls, advertising and stationery.
Landlords with income from furnished holiday accommodation in the UK are
currently treated as if they are trading for certain tax purposes, as long as they
satisfy the above criteria.
Landlords with income from furnished holiday accommodation elsewhere in the
European Economic Area (EEA) cannot currently qualify for this treatment. They
were treated instead in the same way as landlords of other types of overseas
property, under the property income rules.
The Government has decided it should repeal the Furnished Holiday Lettings rules from 2010-11.

Next week we are going to talk about these changes in more detail.

If you are still confused about lettings in relation to tax, Taxfile's tax agents in South London and accountants in Exeter are here to assist you.

Happy New Tax Year!

With the new tax year just around the corner, Taxfile offers you the opportunity to save some money on your accountancy bill just by presenting this voucher when you come to see us in our office in Tulse Hill or Dulwich.
So not only would you save money by getting this discount but also you get to join Taxfile and meet its multilingual team.To give you a better idea of what to expect, you can see bellow our colourful card:

So whether you are a builder and you qualify for a tax rebate , a landlord or a cab driver and you want to know your tax position in order to start saving towards your tax bill, Taxfile is here to take the strain.

Also, as many of you may have noticed a significant drop in your earnings due to the current financial crisis, by coming in early to see one of our experts you might be able to avoid paying your second payment on account for the following tax year, which is due in July.

We are looking forward to seeing you soon.

May the New Tax Year bring you less hassle and more money in your pockets!

Taxfile-Jobseeker's Allowance

Unemployment figures are now showing that just over 2 million people in the UK are out of work, this unfortunately means that when you are out of work you are not earning. Fortunately there is an allowance where if you are unemployed and available for work, you could qualify for something called Jobseeker’s Allowance depending on your circumstances.
To qualify for JSA, you must meet the following requirements:
•Be available for work
•Be able to work
•Be actively looking for work
Also you have to be under the state pension age, live in UK and not be working or working for an average of less than 16 hours per week.
There are two types of Jobseeker’s Allowance: Contribution-based and Income-based.
Income-based JSA (IB) is given to you if you are on low income, even if you have not made any National Insurance contributions in the past.
Contribution-based JSA (C) is dependent on your NIC record and is paid for a maximum period of six months. However if you did not earn enough to pay NICs, you many still be entitled to get JSA(C) if you were given NIC credits. This would have happened, if you were earning more than the lower earnings limit (£90 a week in 08/09 and £95 a week for 09/10), if you were unemployed or unable to work because of illness, and in some other circumstances.
If you are unemployed and either 16 or 17, usually you do not receive JSA unless you are forced to live away from your parents and will suffer severely if you don’t receive JSA or if you or your partner are responsible for a child.

If you are on JSA(C), you will receive £47.95 if you are aged 16-24and £60.50 aged 25 and over per week. For JSA (IB), you will receive a maximum weekly rate depending on your circumstances:
•Single people aged 16-24 - £47.95
•Single people aged 25 and over - £60.50
•Couples and civil partnerships (both aged 18 or over) - £94.95
•Lone parents (aged under 18) - £47.95
•Lone parents (aged 18 and over) - £60.50
Your payments might be reduced if you receive income from part-time employment or you will get less if you have savings over £6,000 and if you have savings over £16,000 you probably will not qualify.
In certain cases, a claimant’s Jobseeker’s allowance may be stopped.
One reason would be that you did not actively seek work or sign the Jobseekers Agreement. If this happens, your benefit will be automatically suspended until the date you complete and sign the agreement. Once this has been signed, you are still not guaranteed back all of your benefit, as a decision maker will decide how much you get back, if any.
Other reasons why your Jobseekers allowance could be stopped is if you miss a restart interview, if you voluntarily leave work or refuse a notified vacancy or if you refuse to attend a compulsory scheme or fail to comply with Direction. Doing any of the above could result in you missing a month’s benefit or having to renew your claim, which could take months.

If you wish to make a claim for Jobseekers Allowance, follow this link and it will take you to Job Centre Plus where you can type in your postcode to find your local Job Centre.
Taxfile’s tax agents hope you found this useful, and if you have any more queries regarding Jobseeker's Allowance why not pop into our offices in South East London and Exeter. Our accountants and tax advisers would be happy to assist.

Disability Living Allowance

Disability Living Allowance (DLA) is a tax-free benefit for people under 65, including children, who have normally care needs or encounter problems getting about.
Disability living allowance (DLA) is paid at different rates depending on how your disability affects you.
There are two types of disability living allowance:one is the care component and the other is the mobility component. You may be able to get one claim or even be entitled to both.
For the care component there are three types of rates. Lower, middle, and higher. To be eligible for the lower rate, you must need help or supervision for most of the day or be unable to cook a main meal for yourself. For this lower rate you would be entitled to £17.75 per week. If you were receiving the middle rate you would get £44.85 per week, this would be because you would need personal care continually through the day or night. To be entitled to the higher rate you would need help throughout the whole day and during the night as well, the higher rate pays £67.00 per week. Even if you live alone and no-one is actually giving you the care you need, you still can get the care component for Disability Living Allowance.
There are only two types of rates for the mobility component, lower and higher. To get this part of the disability living allowance, you must have difficulty in getting out and about. For the lower rate, you would get £17.75 per week if you need guidance or supervision out of doors or in unfamiliar places. For higher rate of this component, you would be entitled to £46.75. This would be because you are unable or virtually unable to walk, or if you have no legs or feet, also if you get very short of breath after only walking a short distance.
To claim DLA you must have needed help for at least 3 months and be likely to need it for another 6 months. However there are special rules that apply to people that have a terminal illness, this allowing them to get the allowance more quickly and easily. This must be claimed before you reach 65.
If you were to start getting the DLA there is chance it could increase your other benefits such as Council Tax Benefits, Working Tax Credits, Pension Credits, Income support, Housing Benefit and Child Tax Credit. This is because Disability Living Allowance is normally ignored as income for working out these income-related benefits and credits.
To claim for DLA, you can call the benefit line enquiry on 0800 88 22 00,download a form from the governments website or contact your local Jobcentre office or local social security office.
We hope you found this useful, and if you do have any more questions regarding anything to do with Disability Living Allowance, please feel free to pop into our office in South London, Tulse Hill, talk to our accountants and tax advisors in our Exeter office, or send us an email.

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.

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.