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.

Commercial letting of furnished holiday accommodation and tax

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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.

Deferred tax scheme for loss-making companies

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One of the better tax-related things to come out of the Chancellor’s recent budget is the potential help some struggling companies may receive from HMRC. Companies who anticipate making a trading loss in the current tax year may be allowed to take the anticipated loss into account earlier than previously possible, when scheduling payments of Corporation Tax or Income Tax. Such businesses will no longer need to wait until the end of their complete accounting period (which is often some considerable time ahead) before they can take probable losses into account for payment of tax. Qualifying businesses may be able to agree extensions to the time in which they can pay with a couple of provisos: firstly that they really are likely to make a trading loss in the current year and secondly that they are genuinely unable to pay straight away or enter into a reasonable instalment agreement with HMRC.

Since launch, more than 110,000 businesses have already agreed deferred tax payment arrangements, equating to around £2 billion. Typically, repayments are scheduled over 3 to 6 months. The scheme is administered by the BPSS (Business Payment Support Service).

For further information and help with any of your tax affairs, contact Taxfile, accountants based in Tulse Hill, South London (tel: 020 8761 8000) or go to the relevant HMRC web page.

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.

London Employers – beat the 19 May deadline!

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Employer annual returns filing deadlineIf you are one of London’s 165,000 employers, you only have a matter of days to meet the deadline for filing your Employer Annual Returns — the deadline is 19 May! Miss it and you could end up with a costly penalty for filing late.

HM Revenue & Customs (HMRC) also requires large employers (that’s those employing 50 or more people) to file their 2008/2009 Employer Annual Return online. Again, if they don’t, they may well end up having to pay an additional penalty.

If you have less than 50 employees you do not have to use the system but there is a good incentive to do so anyway, in the shape of a £75 payment – tax-free!

Further information from HMRC is available although if you would prefer to have some personal help from South London-based accountants Taxfile, then they know the system extremely well and can make sure everthing is done correctly for you, and on time. Be quick though …. the 19 May deadline is ony a few days away at time of writing.

Taxfile can be contacted on 020 8761 8000 and it may help to know that many different languages are spoken.

Darling’s 2009 Budget

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On Wednesday of this week Chancellor of the Exchequer, Alistair Darling gave the Budget.
We would like to present you some of the main points of the Budget:
• VAT: the VAT rate, now 15%, will return back to the standard rate of 17.5% from 1st January 2010.
• Companies’ loss carry back for business: this will affect all companies making losses from carrying on trades, professions or vocations this is normally referred to as trading losses. This legislation will be introduced in Finance Bill 2009 to extend the ability of businesses to carry trading losses back against profits of earlier years to get a repayment of tax, due to the current turbulence of the financial markets.
• Capital Allowances (Plant and Machinery: Temporary first year allowances): This will most likely affect businesses investing in plant and machinery between April 2009 – April 2010. This legislation also in the Finance Bill 2009 will introduce a new temporary 40% first year allowance (FYA) for the expenditure on plant and machinery that would normally be allocated to the main capital allowance pool.
•Income tax: You will now be taxed a shocking 50% if you earn over £150,000
•Child Benefits: Child Benefits will be increased by £20 by 2010.
So from 2010 your eldest child would get £40.00 and any child after that would get £33.20, and guardians allowance would be £34.10.
• Child trust funds: Trust funds for disabled children would increase by £100 and by £200 for those severely disabled.
•ISA’s: This will affect the savers, as Alistair Darling made the decision to raise the tax-free ISA limit to £10,200, although those over 50 years-old will benefit this tax year. The rest of us will get this benefit the following one.
If you would like to know more about Alistair Darling’s Budget, Taxfile recommends you following this link.

Statutory Sick Pay (SSP)

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Statutory Sick Pay (SSP) is a standard rate state benefit payable by the employer from the fifth day of sickness. The first three qualifying days of a period of incapacity for work are called waiting days and there is no SSP payment.

In order to qualify for SSP you must meet the following conditions:

• you have to be sick for at leat four days in a row (including weekends and bank holidays)

• you must earn at least £90 per week or £95 a week from 08/09 tax year. This is to do with National Insurance contributions. (If you have two jobs, you may even be able to get SSP from each of your employers, depending on how many hours hours you work.)

Also you would need to provide your employer with some sort of medical evidence.

The standard rate of SSP is £79.15 a week. The way your employer will work out a daily rate is by dividing the weekly rate by the number of days you would normally work in that week.

It is important to remember that SSP payments is subject to tax and NI just like any other type of earnings.

If your employer does not pay you SSP or pays you less you have to clarify with them the reason.

Company sick pay schemes vary from employer to employer, but most state that you should have been working for at least 3 months before you make your claim for sick pay. After this you would then receive your normal pay during any period that you are off to work due to illness, but this is only up to a specific number of weeks. After that you are probably going to receive only half pay for another further period before taking any sick leave as unpaid.

We hope that you have found this information useful, and if you still have any unanswered questions regarding SSP, please fill free to pop in to our offices in South London, Tulse Hill or Exeter.

Happy New Tax Year!

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With the new tax year just around the corner, Taxfile offers you the opportunity to save some money on your accountancy bill just by presenting this voucher when you come to see us in our office in Tulse Hill or Dulwich.
So not only would you save money by getting this discount but also you get to join Taxfile and meet its multilingual team.To give you a better idea of what to expect, you can see bellow our colourful card:

So whether you are a builder and you qualify for a tax rebate , a landlord or a cab driver and you want to know your tax position in order to start saving towards your tax bill, Taxfile is here to take the strain.

Also, as many of you may have noticed a significant drop in your earnings due to the current financial crisis, by coming in early to see one of our experts you might be able to avoid paying your second payment on account for the following tax year, which is due in July.

We are looking forward to seeing you soon.

May the New Tax Year bring you less hassle and more money in your pockets!

Taxfile-Jobseeker’s Allowance

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Unemployment figures are now showing that just over 2 million people in the UK are out of work, this unfortunately means that when you are out of work you are not earning. Fortunately there is an allowance where if you are unemployed and available for work, you could qualify for something called Jobseeker’s Allowance depending on your circumstances.
To qualify for JSA, you must meet the following requirements:
•Be available for work
•Be able to work
•Be actively looking for work
Also you have to be under the state pension age, live in UK and not be working or working for an average of less than 16 hours per week.
There are two types of Jobseeker’s Allowance: Contribution-based and Income-based.
Income-based JSA (IB) is given to you if you are on low income, even if you have not made any National Insurance contributions in the past.
Contribution-based JSA (C) is dependent on your NIC record and is paid for a maximum period of six months. However if you did not earn enough to pay NICs, you many still be entitled to get JSA(C) if you were given NIC credits. This would have happened, if you were earning more than the lower earnings limit (£90 a week in 08/09 and £95 a week for 09/10), if you were unemployed or unable to work because of illness, and in some other circumstances.
If you are unemployed and either 16 or 17, usually you do not receive JSA unless you are forced to live away from your parents and will suffer severely if you don’t receive JSA or if you or your partner are responsible for a child.

If you are on JSA(C), you will receive £47.95 if you are aged 16-24and £60.50 aged 25 and over per week. For JSA (IB), you will receive a maximum weekly rate depending on your circumstances:
•Single people aged 16-24 – £47.95
•Single people aged 25 and over – £60.50
•Couples and civil partnerships (both aged 18 or over) – £94.95
•Lone parents (aged under 18) – £47.95
•Lone parents (aged 18 and over) – £60.50
Your payments might be reduced if you receive income from part-time employment or you will get less if you have savings over £6,000 and if you have savings over £16,000 you probably will not qualify.
In certain cases, a claimant’s Jobseeker’s allowance may be stopped.
One reason would be that you did not actively seek work or sign the Jobseekers Agreement. If this happens, your benefit will be automatically suspended until the date you complete and sign the agreement. Once this has been signed, you are still not guaranteed back all of your benefit, as a decision maker will decide how much you get back, if any.
Other reasons why your Jobseekers allowance could be stopped is if you miss a restart interview, if you voluntarily leave work or refuse a notified vacancy or if you refuse to attend a compulsory scheme or fail to comply with Direction. Doing any of the above could result in you missing a month’s benefit or having to renew your claim, which could take months.

If you wish to make a claim for Jobseekers Allowance, follow this link and it will take you to Job Centre Plus where you can type in your postcode to find your local Job Centre.
Taxfile’s tax agents hope you found this useful, and if you have any more queries regarding Jobseeker’s Allowance why not pop into our offices in South East London and Exeter. Our accountants and tax advisers would be happy to assist.

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.