2008 Pre-Budget Report

In his 2008 Pre-Budget Report speech on 24 November, the Chancellor has set out his actions for supporting people through the difficult times of the current global financial crisis. Among the most important changes to do with tax, VAT and benefits, we can mention the following:
•Personal tax allowance increases to £6475, and the basic rate tax limit to £37,400 from April 2009. This means that basic rate taxpayers will pay £145 less tax a year in 2009-10;
•Basic Personal allowance for individuals with income over £100,000 to be reduced to half its value from April 2010;
•Personal allowances will be scrapped for those earning in excess of £140,000 a year from April 2010.
•A new, higher rate of Income Tax of 45% will be introduced for incomes above £150,000;
•Employee, employer and self-employed rates of National Insurance Contributions will increase by 0.5 per cent from April 2011 but those earning less than £20,000 will be exempted.
•The child benefit increases was brought forward to 5th January 2009 instead of April. This is worth an additional £22 on average to families. The commitment to increase the child element of the Child Tax Credit by £25 above indexation in April 2010 will also be brought forward to April 2009.Children will receive a one-off £70 payment for Christmas.
•All pensioners will be paid £60 in the New Year, the equivalent of bringing forward the April increase in the Basic State Pension for a single pensioner to January.In April 2009 the level of a full State Pension will rise in line with prices from £90.70 to £95.25 a week.
•Pensioners on modest incomes will get an increase in pension credit from £124 to £130 and for couples from £189 to £198 from January 2009;
•The standard rate of VAT will be reduced by 2.5% from 17.5% to 15% on 1 December 2008. This new rate will apply until 31 December 2009, when it will revert to 17.5%.This reduction will be offset by increased duties on alcohol, tobacco and petrol.
•The planned increase in the Small Company Rate from 21% to 22% from 1 April 2009 will take effect from 1st April 2010.
•SMEs will be allowed to spread business tax payments over a period to help to ease cashflow and credit constraints.
•Business losses of up to £50,000 could now be offset against profits made in the past three years rather than just one;
Taxfile‘s tax agents recommend the following link for more details regarding the Pre-budget Report.

Statutory Maternity Pay (SMP)

If you are expecting a baby, you might be entitled to Statutory Maternity Pay (SMP)to help you take time before and after the baby is born. This is a weekly payment from your employer.
Payments of SMP count as earnings so your employer will deduct tax and National Insurance contribution in the normal way.
In order to be eligible for Statutory Maternity Allowance you must meet certain conditions.
Firstly, you must have worked for the same employer continuously for at least 26 weeks up to and into the 15th week before the week the baby is due.
Secondly, you must give your employer sufficient notice of taking your SMP (28 days)and give him/her a form called MAT B1 Maternity Certificate from signed by a doctor or midwife after the 20th week of your pregnancy.
Finally,your earnings as an employee must be at least an average of £90 a week (before tax).
Statutory Maternity Leave is for 52 weeks. You may be entitled to receive Statutory Maternity Pay for up to 39 weeks of the leave.
For the first six weeks, your employer must pay you at the rate of 90% of your average weekly earnings.
For the next 33 weeks , your employer must pay you at either the standard rate of £117.18 or 90% of your average gross weekly earnings (if this 90% rate is less than the standard rate).
If your employer concludes that you do not qualify the he/she must give you a form SMP1.
Most women employees have the right to take up to one year’s (52 weeks’that is 26 weeks of Ordinary Maternity Leave and 26 weeks of Additional Maternity Leave) maternity leave. This does not depend on how long you have worked for your employer. The only employees who don’t have this right are:
•share fisherwomen;
•women who are normally employed abroad (unless they have a work connection with the UK);
•self-employed women;
•policewomen and women serving in the armed forces.
Taxfile‘s tax agents in South London and Exeter are here to help you if you have any questions regarding your entitlement to SMP.

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.

Taxfile: 31st October 2008 deadline

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

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

National Minimum Wage

Minimum Wage is defined as the lowest wage payable to most employees as fixed by law or union agreement.
There are three different rates of Minimum Wage:
Adults’ rate for workers aged 22 and over
Development rate for those aged between 18 and 21
Young people’s rate for those older than school leaving age and younger than 18; you’re under school leaving age until the end of summer term of the school year in which you turn 16.
Almost everyone who works in the UK is legally entitled to be paid the National Minimum Wage.
However, you are not entitled to receive the minimum wage if you are in one of the following categories: a worker under school leaving age, genuinely self-employed,company director, prisoner, share fisherman, apprentice, an au pair,in the armed services or a voluntary worker.
Every year National Minimum Wage rates are being reviewed and if any changes take place they come in force from 1st of October. From 1st October 2008, National Minimum Wage increased from £5.52 to £5.73 an hour for adult workers.
The statutory hourly rate for 18 to 22-year-olds has also risen from £4.60 to £4.77, and for 16 and 17-year-olds has lifted from £3.40 to £3.53. Also the accommodation offset rate increased from £4.30(per day) to £4.46(per day).
It is worth mentioning the agricultural workers as different rates apply to them.
Also Piece workers (known as Output workers) are paid by the number of items they produce or tasks they perform rather than the number of hours they work. Piece workers must be paid at least the minimum wage for every hour they work or a fair piece rate for each piece produced or task performed.
Commission workers are paid entirely or partly on the basis of sales made. These ‘commission workers’ must be paid at least the national minimum wage.
Trainees and staff on probation are entitled to be paid at least the national minimum wage.
Very important to know is that the government is planning to introduce new regulations in April that will impose a £5,000 automatic fine on any employer failing to pay the minimum rate.
Serious cases could lead to a prosecution in a Crown Court where there is no limit to the fine that could be set.
If you suspect your employer is paying you less than the Minimum Wage than Taxfile‘s tax accountants in South London and Exeter recommend you downloading this form in order to make a complaint to the HMRC.

Clothing: Wholly and Exclusively for trade purposes

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

Pension Contributions and Tax Relief

Do I get tax relief on my pension contributions? This is something we hear a lot from our clients.
The answer is yes, you do get tax relief on pension contributions, being a good way to save for retirement.
The way you get tax relief on pension contributions depends on whether you pay into a company (known as Occupational scheme), public service or personal pension scheme.
•Company or public service pension schemes
Usually your employer takes the pension contributions from your pay before deducting tax (but not National Insurance contributions). You only pay tax on what’s left. So whether you pay tax at basic or higher rate you get the full relief straightaway.
•Personal Pensions
You pay Income Tax on your earnings before any pension contribution, but the pension payer claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot.
If you are a higher rate taxpayer, you can claim the difference through your Self-Assessment tax return.
•Retirement annuities
Unlike personal pension providers, most retirement annuity providers – personal pension schemes set up before July 1988 – don’t offer a ‘relief at source’ scheme whereby they claim back tax at the basic rate. Instead you’ll need to claim the tax relief you’re due through your tax return or by getting in touch with your local Tax Office.
If you receive an age-related Personal Allowance or Married Couple’s Allowance HMRC will subtract the amount you contribute plus the basic rate tax from your total income and use the reduced figure to work out the value of your allowances. This may have the effect of increasing these allowances if your income was above the relevant ‘income limit’ that applies.
If you don’t pay tax you can still pay into a personal pension scheme and benefit from basic rate tax relief (20 per cent) on the first £2,880 a year you put in. In practice this means that if you pay £2,880 the government will top up your contribution to make it £3,600.
There is no tax relief for contributions above this amount.
You can put money into someone else’s personal pension – like your husband, wife, civil partner, child or grandchild’s. They’ll get tax relief added to it at the basic rate, but this won’t affect your own tax bill. If they’ve got no income, you can pay in up to £2,880 a year – which becomes £3,600 with tax relief.
If the pension scheme rules allow it you may also be able to put money into someone else’s company scheme. You’ll not get tax relief on your contribution but the other person can get relief either through their tax return or by making a claim to HMRC by telephone or letter.
You can save as much as you like into any number and type of registered pension schemes and get tax relief on contributions of up to 100 per cent of your earnings (salary and other earned income) each year, provided you paid the contribution before age 75. But the amount you save each year toward a pension is subject to an ‘annual allowance’.
For the tax year 2008-09 the annual allowance is £235,000. You pay tax at 40 per cent on any contributions you make that are above the annual allowance
Also, when your pension matures you can take up to 25 per cent of it as a tax-free lump sum, provided your pension scheme rules allow it, you are under 75 and your total savings are within the ‘lifetime allowance’ for the year in which you take your benefit. For the tax year 2008-09 this is £1.65 million.
It is also important to know that you can usually only get your pension contributions refunded if you withdraw from a company scheme within two years of starting payments.
Certain events might shorten the time limit. Tax is deducted at 20 per cent for refunds of up to £10,800 and at 40 per cent on any excess above this. The scheme administrator deducts the tax before making the refund.
Tax experts argue that basic rate taxpayers are better off saving in an ISA rather than paying in a pension contribution scheme at least until they become 40% tax payers and they get a bigger tax relief.
In order to have a happy and care free retirement come to see Taxfile‘s tax agents in South London and Exeter to seek help if you are still unsure of the matter.

Taxfile will help you with tax & accounting

We thought it was about time to say a little about ourselves – TaxFile.

TaxFile can help with your accountancy and tax issues whether you are an individual needing help filling in your self-assessment tax return, are someone needing assistance with a tax rebate, or are a large organisation needing full accounts work and payroll services. So if you need professional tax help, just drop into the shop or contact TaxFile.

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.