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.

Disability Living Allowance

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Disability Living Allowance (DLA) is a tax-free benefit for people under 65, including children, who have normally care needs or encounter problems getting about.
Disability living allowance (DLA) is paid at different rates depending on how your disability affects you.
There are two types of disability living allowance:one is the care component and the other is the mobility component. You may be able to get one claim or even be entitled to both.
For the care component there are three types of rates. Lower, middle, and higher. To be eligible for the lower rate, you must need help or supervision for most of the day or be unable to cook a main meal for yourself. For this lower rate you would be entitled to £17.75 per week. If you were receiving the middle rate you would get £44.85 per week, this would be because you would need personal care continually through the day or night. To be entitled to the higher rate you would need help throughout the whole day and during the night as well, the higher rate pays £67.00 per week. Even if you live alone and no-one is actually giving you the care you need, you still can get the care component for Disability Living Allowance.
There are only two types of rates for the mobility component, lower and higher. To get this part of the disability living allowance, you must have difficulty in getting out and about. For the lower rate, you would get £17.75 per week if you need guidance or supervision out of doors or in unfamiliar places. For higher rate of this component, you would be entitled to £46.75. This would be because you are unable or virtually unable to walk, or if you have no legs or feet, also if you get very short of breath after only walking a short distance.
To claim DLA you must have needed help for at least 3 months and be likely to need it for another 6 months. However there are special rules that apply to people that have a terminal illness, this allowing them to get the allowance more quickly and easily. This must be claimed before you reach 65.
If you were to start getting the DLA there is chance it could increase your other benefits such as Council Tax Benefits, Working Tax Credits, Pension Credits, Income support, Housing Benefit and Child Tax Credit. This is because Disability Living Allowance is normally ignored as income for working out these income-related benefits and credits.
To claim for DLA, you can call the benefit line enquiry on 0800 88 22 00,download a form from the governments website or contact your local Jobcentre office or local social security office.
We hope you found this useful, and if you do have any more questions regarding anything to do with Disability Living Allowance, please feel free to pop into our office in South London, Tulse Hill, talk to our accountants and tax advisors in our Exeter office, or send us an email.

Taxfile: Scholarship Income

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By scholarship we mean an exhibition, bursary or any other similar educational endowment. If the holder of the scholarship is receiving full-time education at a university, college or school then the income from the scholarship is exempt from tax.
The rate of payment including lodging, subsistence and travelling allowances is now £15,480 a year, £1,290 a month or £297.92 a week. This rate has increased from £15,000 (rate used up to 01/09/2005) to £15480 (from 01/09/2007 onwards).
Important to note is that this exemption does not apply to payments of earnings made for any periods spent working for the employer during vacations.
If the rate exceeds £15,480 HMRC will look at the arrangements in detail. This is because the level of payment exceeds what might reasonably be described as a scholarship or training allowance. However, an increase in the rate of payment over the qualifying limit, part way through a course, will not affect the exemption applying to any payments for the earlier part of the course
One of the condition to be met by the employee receiving the scholarship, is that he/she must be enrolled at the educational establishment for at least one academic year and must attend the course for at least twenty weeks in that academic year.
Also, the educational establishments must be recognized universities, technical colleges or similar educational establishments, which are open to members of the public generally and offer more than one course of practical or academic instruction.
Very important to know is that the concepts of “earnings” and “scholarship income” are mutually exclusive.
In conclusion, it is important to remember that there are a few factors to consider when dealing with scholarship income:
•the relationship between the payer and the recipient;
•the nature of the course;
•where the course is being undertaken;
•whether it is full time;
• total amount.
So pop in to see us in our office in South London Monday to Friday and even Saturday now!
Any of our tax agents at Taxfile will be more than happy to help if you have any further queries.

Vat Flat Rate Scheme

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The VAT flat rate scheme was introduced on 24th April 2002 and was designed to assist small businesses through calculating VAT payments as a percentage of their turnover.
This scheme was developed to reduce the cost of complying with VAT obligations and the time spent by removing the need to calculate and record output and input tax in calculating the net VAT.
The scheme is optional and available to businesses with a VAT exclusive annual taxable turnover of up to £150,000(£225,000 after 1 April 2009) and total turnover including the value of exempt supply and other non- taxable income does not exceed £187,500(not required after 1 April 2009).
The flat rate percentage depends on the trade sector of the business you are running and it can range from 2% to 13.5%.
To see the category of the business you are falling into and what percentage you need to use follow this link from hmrc. As you could probably notice, the flat rate percentages have been changed since the decrease of normal VAT rate from 17.5% to 15%.
Under this scheme, businesses charge their customers the normal rate for the supply of goods and services.
Although businesses do not need to calculate the VAT on each and every transaction they make, they still need to keep a record of their flat rate calculation showing their turnover, the percentage used and the tax calculation.
As far as capital assets are concerned,for those costing more than £2000 (including VAT), the VAT can be recovered in the normal way as long as they meet certain conditions.
There are a few special categories of businesses like farmers, barristers and florists where special VAT flat rate rules apply. About all this we can explain more in due course.
Taxfile‘s tax accountants in South London and Exeter will first assess your eligibility for the flat rate scheme then will weight up pros and cons and see how beneficial it is for you.
Then finally they will register you within the scheme and offer ongoing support.

Tax Enquiries: Guilty Until Proven Innocent!

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An enquiry is defined as seeking information, asking, questioning. Self Assessment is a process now/check later regime. According to HMRC,enquiries encompass all work carried out to check returns after processing – from a single enquiry about one entry in a return to a detailed examination of all the taxpayer’s affairs.
Under Self Assessment, taxpayers have clearly defined obligations while HMRC has defined powers in order to make sure that all taxpayers meet such obligations.
There are two types of tax enquiries:
•full enquiries (covering every single aspect of the return) and
•aspect enquiries(dealing with only one or more aspects of the return).
According to HMRC, a full enquiry is one which seeks to address all the significant risks of error in the return, including the risk of the return being fundamentally incorrect whereas aspect enquiries are those which fall short of a full, in-depth examination of the whole return but instead concentrate on one or more aspects of it.
Aspect enquiries, although more limited in scope than full enquiries, should not be seen as any less thorough or investigative.
If no enquiry is made within the allowed period (one year from the day the tax return is received by HMRC, for specific examples follow this link), the return becomes final unless the tax office makes a discovery assessment as a result of the return being incorrect or there was fraudulent or negligent conduct in making the return.
A very small proportion of returns will be taken up for enquiry on an entirely random basis. Most of the enquiries may start because either the return was sent in late, or some figures in the tax return did not match their records or just HMRC received a tip off.
All taxpayers should be aware that there is a chance of their returns being subject to enquiry.
Where a tax return has been selected for full enquiry, the enquiry officer aims to identify and examine all the significant risks of error in the return, including the risk that it is fundamentally incorrect. Also, where the business records do not prove to be as accurate as they should be, the officer in charge will need to look at the private side.
In order to make sure that there is no undisclosed source of income or additional cash coming from somewhere which was not taxed, the enquiry officer uses three main techniques:
•Cash Flow Tests involved with an analysis of drawings;
•means tests which determines the amount of money that is available to a taxpayer for living expenses.
•capital statements dealing with a detailed accumulation of information about capital worth, income of all sorts and expenditure.
Individuals with complex tax affairs investigated by HMRC should seek early help from a professional advisor to guide them through every step of the enquiry from responding to the officer, arranging a meeting to negotiating a settlement.
Taxfile‘s tax agents in South London and Exeter will guide you through this process and try to save you tax, interest and penalties.
Taxfile is happy to announce that we have recently renewed our free-of-charge enquiry protection cover. The insurance will cover the whole costs involved in dealing with your tax investigation so you can give you piece of mind and save you hundreds of pounds at the same time.
So pop in to see us and make the best of it!

2008 Pre-Budget Report

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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)

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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.