Taxman’s new power

Is the 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 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 they will make sure you make the best of your capital allowances in order to minimize your tax liability.

Corporation Tax (CT)

The fourth largest source of government revenues is Corporation Tax, charged on the profits and chargeable gains of companies. The main rate band is 30%, which is levied on taxable income above £1.5m. The small companies rate of 19% is charged on the first £300,000 of profits where profits are between £50,000 and £1,500,000.
Profits between the lower and upper profit thresholds (£300,000-£1,500,000), are in effect charged at a marginal rate of tax of 32.75%.
Companies that are resident in the UK are subject to Corporation Tax on their profits (income plus gains) arising in an accounting period which cannot be more than 12 months.
Non-resident companies may be subject to Corporation Tax (CT) where they trade in the UK through a permanent establishment.
• A company incorporated in the UK is treated as UK resident.
• A non-UK incorporated company is treated as resident in the UK if its central management and control is exercised in the UK.

A company’s trading losses can normally be set against:
• Income and gains of the same accounting period.
• Income and gains of the previous year.
• Trading profits from the same trade in future years.

In terms of Dividends, companies do not have to pay tax at the time they pay a dividend. Corporation tax is paid at the normal time on the company’s taxable profits without any deduction for dividends paid. For small companies, profits that are paid out as dividends are charged at not less than 19%.
A shareholder receives the dividend with an accompanying tax credit equal to 10% of the dividend plus tax credit. The tax credit is equivalent to the basic rate of income tax on dividends. Companies pay no tax on dividends received.
Companies normally have to file their return within 12 months of the end of the accounting period. If a return is filed late, the company is automatically charged a fixed penalty of between £100 and £1,000, depending on how late the return is and whether lateness is habitual. An additional tax-linked penalty is charged if the return is filed more than six months late.
If you need to know more about corporation tax, our tax experts at Taxfile in South London can help you understand it better and at the same time minimize your tax liability, making sure you pay the right amount of tax.

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.