Casual labour / subcontracting

It is not widely known that you must establish someone’s status when you pay them any money for helping you with their labour.The trick or tip is to get them to supply their unique tax reference number. They should invoice you for their services . If they don’t offer an invoice, it’s best to issue a self billing invoice for them to sign at the time you hand over the money.
Lots of people will offer their services to you if you have work which needs doing. In some industries it’s well regulated such as within the Construction Industry Scheme (CIS).
Most labour suppliers will be registered as self employed or a partnership and frequently these days as a limited company.
Each of them will have its own unique tax reference number (UTR).
They are not obliged to put this on their invoice to you.
You must request it if you fall into the classification termed by the government as a contractor or subcontractor.
There is a useful helpline for Construction Industry Scheme if you are not sure about your position and always try to get professional tax advice from companies like Taxfile in South London where their tax accountants make sure to sort out all your tax affairs.
If for example you are doing up a buy to let then you do not necessarily have to register just for this one activity, just make sure you follow the invoicing guidelines as above.
It may seem a lot to ask of the person doing the work for you but these days you just can’t be sure of how the government will react if they discover you have paid someone without adequate proof that they are registered to pay tax on their own profits.
For more information on the new CIS you can refer back to our blog post dated 25th August 2007 entitled ”What is the Construction Industry Scheme?”

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.

Capital Gains Tax (CGT)

Capital gains tax (CGT) is a tax on capital “gains”. If when you sell or give away an asset it has increased in value, you may be taxable on the profit. This does not apply when you sell personal belongings worth £6000 or less.

You might have to pay capital gains tax if you:

• sell, give away, exchange or dispose of an assets or part of an asset.

• receive money from an asset-for example compensation for a damaged asset.

You do not have to pay capital gains tax on:

• your car

• your main home

•personal belongings sold for less than £6000 like furniture, paintings

• bettings, pools or lottery winnings

• ISAs, VCTs.

There are a few ways of cutting your CGT bill:

•if you are married or in a civil partnership and living together you can transfer assets to your husband, wife or civil partner without having to pay CGT
•you can’t give assets to your children or others or sell them assets cheaply without having to consider CGT
•if you make a loss you may be able to make a claim for that loss and deduct it from other gains, but only if the asset normally attracts CGT – for example you cannot set a loss on selling your car against gains from disposing of other assets
•if someone dies and leaves their belongings to their beneficiaries, there is no CGT to pay at that time – however if an asset is later disposed of by a beneficiary, any CGT they may have to pay will be based on the difference between the market value at the time of death and the value at the time of disposal.

If you are still confused about the way CGT works, Taxfile in South London can help you understand it better giving you the right advice at the right price.

Tax Enquiry Nightmare Gets Worse

If you are unlucky enough to be the subject of a tax enquiry by the tax man, it could now be an even worse nightmare for you than ever before. HMRC has recently introduced a new bonus scheme for the tax inspectors who conduct the enquiries, which means they have a vested interest in coming down hard on ordinary folk and negotiating far less. The more tax they find you need to pay – in their opinion – the more they will earn.

The average extra tax they are demanding in recent enquiries now averages a worrying £7,778 for each self-assessment enquiry it undertakes – that’s a steep jump of £3,251 extra on last year’s average. The new statistics also show that the amount of extra tax generated just from the band of those earning more than £200k per year has risen to £197 million which is a 150% increase on the preceding year. Clearly those bonuses are having the desired affect on the individual tax inspectors who appear to be squeezing every last penny from each of the enquiries they are undertaking.

It’s times like these when services of tax advisers like TaxFile really come into their own. Because they know the rules (and any allowable expenses) as well as the tax inspectors do, they level the playing field for ordinary hard-working people and can argue the case on your behalf. For a low fixed fee the whole headache can be taken over by an accounting professional who is on your side. Taxfile have offices in South London. Telephone 0208 761 8000 for further information.

Don’t forget 31 July deadline to renew Tax Credit info

31 July is the date by which HMRC needs to receive your Tax Credit record update. You should have received your Renewal Pack by the end of June latest (if you haven’t, call 0845 300 3900). HMRC needs the renewal to check for any changes to your circumstances. Remember to read the instructions very carefully and send off before the deadline otherwise you may run the risk of Tax Credit payments being interrupted, or worse, being asked to return some of the money paid since 6 April 2007 plus any amounts overpaid for the previous year.

If you were awarded more than one tax credit award during the 2006-7 period, you need the equivalent number of Renewal Packs.

More details on how to renew your tax credit information at the HMRC website.

Brussels wants to impose VAT on food & children’s clothes

The European Commission is trying to harmonise VAT rates across its member countries. In so doing it wants the UK to fall in line with a rate of at least 5% on food and children’s clothing.

When it joined the EU in 1973 the UK had fought very hard not to have to charge VAT on such items (as well as the printed word, e.g. newspapers) and, as a concession to Brussels it had agreed to impose a ‘zero rated’ level of VAT. That way, VAT was effectively levied but at a valueless rate. Now Brussels wants the zero rate to be scrapped and replaced by a rate of 5% minimum, for certain products including nappies, for example.

The labour Government will fight to retain the zero rate and can use its veto if required. If successful, UK families will save a staggering £28 billion each year.

Taxfile, a walk-in “tax advice shop” based in South London, can help with all VAT matters including VAT returns and registering for VAT as well as book keeping, general accounting, tax advice and so on.