What is the Construction Industry Scheme?

The Construction Industry Scheme (CIS) sets out the rules for how payments to subcontractors for construction work must be handled by contractors.

A contractor is a business or other concern that pays subcontractors for construction work. A subcontractor on the other hand is a business that carries out construction work for a contractor.
Under the Scheme, all payments made from contractors to subcontractors must take account of the subcontractor’s tax status as determined by HM Revenue & Customs (HMRC). This may require the contractors to make a deduction, which they then pay to HMRC.

As of 6 April 2007 the new Construction Industry Scheme replaced the previous scheme. The main changes in the scheme are the following:

• There are no more CIS cards, certificates or vouchers.

• Contractors have the responsibility to ‘verify’ new subcontractors by contacting HMRC.
•Subcontractors are still paid either net or gross, depending on their own circumstances, but it is HMRC who tell the contractor during verification which treatment to use.
•There is a higher rate tax deduction of 30% if a subcontractor has not registered with HMRC.

• The standard rate of deduction for those registered with the Inland Revenue is 20% .
• There are no more CIS annual returns. Now contractors must make a return every month to HMRC, showing payments made to all subcontractors. Returns must be made using official forms. Photocopies are not acceptable.
• Contractors must declare on their return that none of the workers listed on the return are employees. This is called a Status declaration.
•Nil returns must be made when there are no payments in any month. These can be made over the telephone as well as over the Internet or on paper. If made by paper, this must be on an official form. Photocopies will not be accepted. There will be financial penalties for failure to submit a return (including nil returns).

For most of subcontractors, the new CIS is still a puzzle. For this reason, the tax accountants at Taxfile in South London can unveil the mystery behind it. You can pop in to see one of our tax advisers in our office in South London, just two minutes away from Tulse Hill station or you can visit us on www.taxfile.co.uk.

Taxfile knows everything about taxi drivers’ tax!

There are a few things that need to be considered when it comes to taxi drivers’ tax. Among them we can mention the following:

•Mileage Allowances
Taxi drivers can claim as an alternative to vehicle running costs mileage allowances of 40p for the first 10,000 miles and 25p per mile thereafter. You may not claim mileage allowance and vehicle running costs. Should you choose to claim the mileage allowance then keep good records of mileage covered, purpose of journey.

•Taxi Capital Allowances
If you bought a vehicle in 2005-06 and used it as a taxi you can claim a first year tax allowance of 40% of the cost of the taxi, restricted to £3,000 for vehicles costing over £12,000. On vehicles purchased in previous tax years you can claim 25% writing down allowance on the balance not yet claimed. If you have bought and sold a vehicle used as a taxi during the financial year the tax allowance is restricted to any loss made on resale and any profit made over the written down value is taxable as a balancing charge. First year allowance in the current tax year 2006-07 is 50%.

• Taxis bought on Hire Purchase
Claim capital allowances on the original cost of the vehicle, interest and other charges count as business expenses and go in the self assessment tax return.

•Taxi Running Costs
When completing the self assessment tax return taxi drivers should enter fuel costs as cost of sales not motoring expenses. Do not claim fuel expenses when you are on holiday, the revenue will check should they inquire into your self assessment tax return.Taxi running costs also include repairs, servicing and parts including tyres, road tax, taxi insurance and AA/RAC membership. Include radio hire and taxi office costs in general administrative expenses.

• Household expenses
If you run your taxi business from home you can claim a proportion of household expenses as business expenses. Household expenses are likely to be disallowed unless they are either specific to the business or a specific area of your home is devoted entirely to your business.

• Spouse Costs
You can claim expenses for partners who work for your taxi business and payments up to £94 would not attract income tax or national insurance however any payments claimed must be real payments for real work done. The Revenue naturally adopt a strict view on expenses claimed for partner work as it is an area some people might use to reduce the tax liability.

•Other Expenses
The best method of ensuring the taxi drivers tax bill is as low as possible in the future is undoubtedly to meticulously maintain good records of all taxi receipts and expenses and mileage covered which offers the opportunity for taxi drivers to compare vehicle running costs against mileage allowances and choose the most tax efficient option. General if the taxi cab capital allowances are high vehicle running costs will be the best option and if taxi cab capital allowances are low then mileage allowances may well legally increase the costs you can claim and save you money.

Taxfile in South London taxi and cab drivers choose the best accounting option in order to reduce their tax liability.
Taxfile can also provide you with a record-keeper to fill in with all your takings and your expenses for the year. For more information, you can visit us on https://www.taxfile.co.uk/.

Business welcomes tax Tory plans

The Tories yesterday set out proposals for easing the burden of tax and regulation on British businesses in an attempt to improve the economy’s competitiveness.

However Chancellor George Osborne said that any tax reductions would have to be paid for by tax increases elsewhere, such as new environmental taxes:

” Any reductions in specific taxes will have to be balanced elsewhere, most notably green taxes.”

The former Cabinet minister John Redwood called for a series of tax reductions including abolishing inheritance tax, reducing corporation and capital gains taxes, abolishing stamp duty on share deals and raising the threshold for the higher rate of income tax.

Mr Redwood said that ” reducing the tax burden was the best way to stimulate economic growth and increase overall prosperity.[…] we believe a lower tax economy would be a more successful economy. If you have the courage to cut the rates , the rich pay more.”

The proposals received great support from business organisations.

Richard Lambert, CBI director-general said that the goal of getting corporation tax down to 25% and reducing tax on small businesses, represents a welcome direction of travel after a period when the burden of business taxes has grown substantially. He added, ” A focus on cutting regulation and red tape, one of the biggest irritants for firms trying to succeed and expand, is also positive. Too often, while our European competitors manage to implement EU directives in a few pages, the UK gold plates them with reams of prescriptive and complex regulations and guidance.”

Companies like Taxfile In South London can help you understand better the way corporation tax and capital gains taxes, inheritance tax and income tax works, giving you the right accounting advice at the right price.

Types of tax-free investment

There are a number of ways investors can reduce their tax liability. Here are the most popular:

Cash Mini ISAs
These are basically ordinary saving accounts but the interest you accumulate is free from tax.
Anyone over 16 can put up to £3000 per tax year into a cash mini Isa. The good news is that from April 2008 you would be able to place up to £3600 each year in a mini cash Isa.

Share ISAs
These are accounts in which you can hold stock market-type investments such as shares. The money grows free of capital gains and income tax. Higher rate taxpayers also avoid paying extra tax on dividends payments from shares, and they don’t have to declare their Isas on their tax returns.

There are two types of shares Isas – maxis and minis. For the 2007/08 year you may invest £7,000 in a maxi equity Isa. If you have a cash mini Isa you may also invest £4,000 in a mini equity Isa.

For 2008/09, the overall limit increases to £7,200. So if you have used the new maximum cash mini Isa allowance of £3,600, the maximum you may place in a stocks and shares Isa is £3,600, bringing your total Isa investment to £7,200.

Venture capital trusts
VCTs have traditionally offered one of the best tax breaks available, although they have recently lost their shine as tax breaks were cut and extra restrictions imposed.
VCTs are high risk – they are effectively companies quoted on the stock exchange which invest mainly in unquoted companies or ‘start-ups’.
At the time of writing, investors were entitled to 30% income tax relief. It means that every £10,000 you invest will only cost you £7,000 because of the tax break. There is no income tax to pay on any dividends, nor capital gains tax to pay on the increase in your stake in the trust.
To check these figures are up to date and for current rules about tax breaks offered to investors in VCTs visit the HMRC website at http://www.hmrc.gov.uk/guidance/vct.htm.

Offshore investing
Investing offshore provides opportunities for tax suspension, reduction and avoidance.
The attraction is ‘gross roll-up’. This means assets can grow without being taxed and could therefore outperform investments at home. However, gains or income are liable to tax in Britain when they are brought back to the UK. You will also need to pay tax of another country if you take the money there.
The trick is to take into account how long you are going to be away if you are emigrating, your residency for tax purposes, your will, property and more liquid assets such as savings.
Always seek professional advice from a tax company like Taxfile with offices in South London when it comes to ways of minimizing your tax liability.

Welcome to the Inheritance Tax Blog

Inheritance Tax (IHT) is a tax on the value of a person’s estate on death and on certain gifts made by an individual during their lifetime.

There is a certain threshold when it comes to inheritance tax. This is defined as the amount above which inheritance tax becomes payable. If the estate, including any assets held in trust and gifts made within seven years of death, is less than the threshold, no inheritance tax will be due on it. Starting from April 2007 the threshold, also known as the nil-rate band is £300 000. For transfers on death, the value of an estate above the mentioned band is taxed at a rate of 40%. For lifetime transfers the tax rate is 20%.

There are a few things to consider when dealing with IHT:

• Gifts between husband and wife are generally exempt for IHT. It may be desirable to use the spouse exemption to transfer assets to ensure that both spouses can make full use of lifetime exemptions, the nil rate band and the potentially exempt transfers (PETs). With a PET the gift will be exempt from IHT if the donor survives for seven years.
• Gifts to individuals not exceeding £250 in total per tax year per recipient are exempt. The exemption cannot be used to cover part of a larger gift.
• £3,000 per annum may be given by an individual without an IHT charge. An annual exemption may be carried forward to the next year but not thereafter.
• Gifts in consideration of marriage are exempt up to £5,000 if made by a parent with lower limits for other donors.
• Gifts to registered charities are exempt provided that the gift becomes the property of the charity or is held for charitable purposes.
• Trusts can provide an effective means of transferring assets out of an estate whilst still allowing the donor to retain some control over the assets. Provided that the donor does not obtain any benefit or enjoyment from the trust, the property is removed from the estate.

A good planning is essential when dealing with Inheritance Tax. Any plan must take into account your personal circumstances and aspirations. Taxfile in South London can help you find the best solution to minimize your tax liability.

National Insurance Contributions (NICs)

National Insurance was introduced in 1948 to build up your entitlement to certain social security benefits including the state benefit.
The type and level of NiC’s depends on how much you earn and whether you are employed or self-employed.
You stop paying National Insurance when you reach pension age, 65 for men and 60 for women.

If you are employed, the following rates apply:
• if you earn above £100 a week (earning threshold) and up to 670 per week you pay 11% of this amount as class 1 NIC’s
• you pay 1% of earnings above £670 per week.
If you are self-employed you pay two types of National Insurance:
• Class 2, at a flat rate of £2.20 a week.
• Class 4, as 8% of your taxable profits between £5225 and £34840 and 1% on any taxable profit over that amount.

There are certain benefits that depend on National Insurance Contributions:

•contribution based Jobseeker’s Allowance ( Class 1 NIC’s only)
•Incapacity Benefit( if you can’t work for long periods due to illness or injury)
•State Pension
•Additional state pension( Class1 NIC’s only)
•Widowed Parent’s Allowance
•Bereavement Allowance
•Bereavement Payment.

If you think you need more information about your National Insurance Contribution Taxfile in South London can help you.