31st October Deadline

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If you would like to send your tax return for the year ended on 5th April 2009 by paper, you would have to do it by the end of this month.

Very important to remember is that the tax return has to reach HM Revenue & Customs by Saturday 31st October.

If you send your return on paper the HMRC will calculate the tax liability to be paid or owed.

If the paper return arrives after this deadline you will be charged a £100 penalty.

According to HMRC, if you miss the deadline because of the postal strike you would not be liable for paying the £100 penalty as long as you post the return before the 31st October.

If you hand deliver your return on the 2nd of November, no penalty would be due either.

In case you miss the deadline you can always send your return online.

At Taxfile in Tulse Hill we submit all the returns online as it is safer and more secure, tax returns are processed faster, and there are later deadlines to meet.

Interest in Land and Property

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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.

Business Payment Support Service

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Business Payment Support Service (BPSS) was launched on 24 November 2008. This service is designed to support businesses having trouble payment their tax bills in the current economic crisis.
Very important to realise is that this service does not deal with anyone that has already made a payment arrangement with HMRC .
Also, the BPSS does not deal with you if HMRC has already got in touch with you regarding an overdue payment.
In order for the BPSS to be able to help your business, you need to contact them before the tax, VAT, Corporation Tax, Pay As You Earn or National Insurance contributions liabilities are due.
You can contact them seven days a week on 0845 302 1435.
According to HMRC, this service “designed to assist all businesses (large and small) that will be unable to pay their tax. The service is primarily available to self-employed people and companies but can be used by any of your clients who are having difficulty in meeting their tax liabilities. It covers most taxes and duties including Income Tax, Corporation Tax, VAT, PAYE and National Insurance.”
The Payment Support service only applies to businesses that cannot genuinely meet their tax payments on time and they are likely to pay their tax over a longer period of time.
Also according to HMRC, “ surcharge(s) can be avoided on late payment of income tax where a Time to Pay agreement is entered into before the relevant surcharge date AND the terms of the agreement are adhered to.”
Although surcharges can be avoided, interest on late payment will be charged in the normal way.
If you would like to know more about this service , you can follow this link.
Taxfile‘s tax agents in South London and Exeter can discuss your business position with HMRC on your behalf and arrange a Time to Pay agreement.

Taxfile: Introduction to IR35

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IR35 is an Intermediaries legislation which took effect from April 2000.
According to HMRC, the aim of IR35 is “to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise –
•For tax purposes, be regarded as an employee of the client; and
•For NICs purposes, be regarded as employed in employed earner’s employment by the client.”

Before the introduction of this tax legislation, workers/contractors who owned their own companies were allowed to receive payments from clients direct to the company and then distribute the profits as dividends, which are not subject to National Insurance payments.

The IR35 does not focus on a certain profession or occupation. It mainly targets people working through service companies like medical staff, teachers , legal and accountancy staff, construction industry workers, IT contractors, engineering contractors, clerical workers, etc.

Through this legislation, HMRC is trying to make sure that taxpayers meet their obligations to pay the correct tax and NI: “we [HMRC] have a duty to ensure things are put right for the past and, where appropriate, for the future. Interest and penalties may be charged on any additional tax/NICs due as a result of any review or enquiry.”

So Whether you are caught by IR depends on a number of factors. It is a very complex tax area and legal advice is essential in order to protect your interests.

Enquiry Meeting: One Big Interview

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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

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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.

Click here to contact us for help with tax and accountancy, or call 0208 761 8000.

Employed or Self Employed?

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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 employee) 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.

Annual Investment Allowance

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Capital allowances are set by the government at fixed rates at which a business can claim the expenditure on fixed assets against the taxable profit.

From April 2008 the 50 per cent and 40 per cent first year allowances was replaced with a 100 per cent Annual Investment Allowance for capital purchases in any one year of up to £50,000.

On 6 April 2008 the annual writing down allowance (WDA) for plant and equipment was reduced from the previous 25 per cent to 20 per cent per annum. This writing down allowance is applied to the written down value of equipment brought forward from earlier tax years.

The annual investment allowance applies to all assets categorised as plant and machinery which includes most fixed assets including plant, equipment, fixtures and fittings, computer equipment and commercial vehicles.

Important to note is that qualifying plant and equipment expenditure does not include Motor Cars.

Motor vehicles are now subject to a reduced writing down allowance in the first year of 20 per cent.

The annual investment allowance does not replace the 100 per cent first year allowance schemes currently applicable to various green and environmental schemes and approved research and development projects ( for example Research & Development Allowances or Business Premises Renovation Allowances). So these schemes will be unaffected by the introduction of the AIA. The annual investment allowance is complimentary to these schemes.

Another important thing worth remembering is that for the financial year starting April 2008 small businesses which have a written down balance for tax purposes of under 1,000 pounds will be entitled to write off the total written down value as a capital allowance.

If by any chance you decide selling the asset after claiming the AIA, the proceeds of the sale would go into your capital allowances calculation and you would have a balancing charge to the value of the sale proceeds which would be treated as a taxable income.

If you have any queries regarding AIA or any tax-related matter, Taxfile’s accountants in South London and tax advisers in Exeter are here to guide you through.

HMRC launch ‘Tax Matters’ educational site

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“Tax Matters” is the new educational website from HM Revenue & Customs, aimed particularly at young people aged between 11 and 19, although also being a resource for anyone wishing to learn more about taxation and public services.

The main areas explored on the site are Income Tax, National Insurance and ‘Tax & Society’, an exploration of how the government gets and spends its money. This is all done through the use of interactive resources, such as videos, games and quizzes, along with key facts, figures and info.

PSHE (Personal, Social, Health and Economic) education will become a statutory part of the National Curriculum by 2011 so this is a great resource for both teachers and students.