New opening hours for Feb-March

Please note that Taxfile’s opening hours for February and March 2013 are:

  • Mondays & Tuesdays: 9.00am-6.00pm
  • Wednesdays & Thursdays: 9.00am-5.00pm
  • Fridays: 9.00am-3.00pm
  • Saturdays & Sundays: closed (answerphone service)

Please contact us if you need accounting help or tax-related assistance.

 

It’s official: thousands are on the wrong tax code!

With the tax return deadline being only hours away (midnight 31 January 2014) there is still time to get professional help if you need it – particularly because HMRC  often get it wrong according to new research by UHY Hacker Young.

In just one example, HMRC sent a tax bill to a pensioner which demanded over £576k in tax! With an income of only £11k per annum this was clearly incorrect but what if it had been only hundreds of pounds wrong – would the pensioner have noticed and, if so, would he have been confident enough to question it with the might of HMRC?

According to the research, HMRC employees have been making ‘basic’ errors which have led to problems such as people being on the wrong tax code and consequently underpaying or overpaying tax. While underpaying it may sound attractive on the face of it, chances are the system will catch up and then a correction will need to be made later on, leaving the taxpayer with an unforeseen bill to pay – a real blow for cashflow.

While the UHY Hacker Young research cites an error rate in 2013 of 37% in the sample tested, HMRC are arguing that the research is wrong and that their PAYE coding notices are 99% accurate. Either way, when you consider that Read more

Autumn Statement by the Chancellor of the Exchequer

George OsborneOn 5 December 2013 George Osborne, Chancellor of the Exchequer, gave his Autumn Statement in Parliament. Key announcements included:

  • A rise for the Personal Allowance, as was long-anticipated, to £10,000 in 2014/15;
  • the higher 40% tax rate threshold also increasing to £41,865;
  • A new, transferable, tax allowance of £1,000 for married couples and those in civil partnerships from April 2015;
  • For employees aged under 21 employers will not have to pay Class 1 National Insurance (‘NI’) Contributions on earnings up to the Upper Earnings Limit;
  • Capital Gains Tax (‘CGT’) for future gains will now also apply to NON-resident individuals from April 2015 (previously this had been applied only to UK resident landlords);
  • For 2014/15 the annual ISA subscription limit will increase to £11,880 (of which £5,940 can be in cash);
  • There were also announcements relating to the continuing clamp-down on tax avoidance, improvements and plans for UK infrastructure, and the proposed inheritance tax (‘IHT’) simplification for trusts.

The full speech transcript can be read here or alternatively view the following video recording: Read more

Venture Capital Trust (VCTs) and tax

Venture Capital Trusts were schemes introduced in 1995 to encourage individuals to invest in high-risk trading companies.

With a VCT the risk of the investment is spread over a number of companies.

VCTs must be approved by HMRC and must meet a certain qualifying conditions.

If you have subscribed for shares in Venture Capital Trusts and you are 18 or over when the shares were issued you are entitled to a few tax reliefs.

According to HMRC, these are the tax reliefs for investing in VCTs:

Income tax relief:

One of the income tax reliefs of VCTs is that you are exempted from income tax on dividends from ordinary shares. This is called dividend relief;

Another very important tax relief when investing in a VCT is called income tax relief .

The amount of the tax relief will be the smaller of the amount subscribed up to a maximum of £200,000 at 30% or the amount that reduces the tax bill to zero for the year.

The rate of 30% applies in the tax year 2006/07 and onwards and for subscriptions for shares issued in previous tax years the rate is 40%.

Capital gains tax (CGT) relief :

One of the CGT reliefs when investing in VCT schemes is called disposal relief as you may not have to pay CGT on any gain you make when you dispose of your shares. In order to qualify for the reliefs certain conditions need to be met. You can find more about them on HMRC website.

As there are no guarantees that VCT investments will be successful, Taxfile‘s tax agents recommend that you seek professional advice from financial advisers beforehand.

Changes to Minimum Wage from 1st October

As explained in a previous blog post, Minimum Wage is defined as the lowest wage payable to most employees as fixed by law or union agreement.

As from 01/10/09 new rates came in place:

•£5.80 – as the main rate for workers aged 22 and over;
•£4.83 – the 18-21 rate;
•£3.57 – the 16-17 rate for workers above school leaving age but under 18.

A very important change from 01/10/09 is that fact that employers running bars and restaurants can no longer be allowed to use tips to top up pay up to the minimum wage.

Workers will now be paid at least the National Minimum Wage and be paid their tips on top of this.

If your employer is paying you less than the Minimum Wage entitlement you must report this by filing an online complaint form.

If you have any queries regarding Minimum Wage or any other tax related question, please feel free to ring us on 020 8761 8000 or come to see us in our office in Tulse Hill on the South Circular.

Interest in Land and Property

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.

Enquiry Meeting: One Big Interview

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

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?

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.

Commercial letting of furnished holiday accommodation and tax

Commercial letting is defined as ‘let on a commercial basis and with a view to the realisation of profits’.
Accommodation is furnished if the tenant is entitled to use of sufficient furniture.

It will generally be necessary to calculate the furnished holiday lettings profit or loss separately from the rest of the rental business.

If a letting is to qualify as furnished holiday letting(FHL)a few conditions should be met:
• the property to be in the UK ;
• property has to be furnished;
• property should be available for holiday letting to the public for at least 140 days a year;
• it should be let commercially for 70 days or more, and
• cannot not be occupied for more than 31 days by the same person in any period of 7 months.
The difference between residential lets and holiday lets is that with residential ones you can claim a certain relief called wear and tear as compared to the holiday ones where you can claim capital allowances.

Capital allowances can include the cost of furnishings and furniture, and equipment such as refrigerators and washing machines.

Another important difference between residential and holiday lettings is that with holiday ones you can offset any loss you make in the year against other type of income.
You may also be able to take advantage of Capital Gains Tax (CGT) reliefs, such as ‘business asset roll-over relief’.
For example, if you reinvest within three years in another UK holiday letting property or certain other assets costing the same as or more than you got for the property you have sold, you may be able to defer payment of CGT until you dispose of those new assets.
To work out your taxable profit you deduct your allowable expenses from your gross rental income. These include:
•Letting agent fees (where applicable)
•Legal and accountant fees
•Buildings and contents insurance
•Interest on mortgage payments
•Maintenance and repair costs (but not improvements)
•Utility bills
•Council Tax
•Cleaning or gardening
•Other costs related to letting the property, such as phone calls, advertising and stationery.
Landlords with income from furnished holiday accommodation in the UK are
currently treated as if they are trading for certain tax purposes, as long as they
satisfy the above criteria.
Landlords with income from furnished holiday accommodation elsewhere in the
European Economic Area (EEA) cannot currently qualify for this treatment. They
were treated instead in the same way as landlords of other types of overseas
property, under the property income rules.
The Government has decided it should repeal the Furnished Holiday Lettings rules from 2010-11.

Next week we are going to talk about these changes in more detail.

If you are still confused about lettings in relation to tax, Taxfile‘s tax agents in South London and accountants in Exeter are here to assist you.