Welcome to July’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
This month we are delighted to announce a new member to our team. Elliot Hobden will be joining us as a trainee accountant, he already has some fantastic experience, as he was previously working in an accountancy practice in Basingstoke.
If you would like to have a business or tax review please let us know and we will schedule a meeting.
Please contact us for advice in your own specific circumstances. We’re here to help!
Tax Campaigns Update
The Taxman is determined to target tax evaders, so has been running several campaigns to target particular business sectors, such as doctors, electricians and e-traders.
The latest campaign is aimed at individuals who should be paying tax at 40% or 50%, but who have not submitted a tax return when requested to do so. These people will be offered a reduced penalty if the missing tax return is submitted by 3rd October 2012, and all the outstanding tax is also paid by that date.
If you know someone who has put their head in the sand regarding their tax affairs, please ask them to get in touch with us as soon as possible, so we can help them complete their missing tax returns.
Later this year the Tax Office will be targeting door-to-door sellers who sell to customers in their own homes. These sellers are often paid on a commission basis for the goods they sell, and may be vague about their own tax status.
Another campaign will target all tradesmen who provide home maintenance, repair or home improvement services. This will cover all small builders and skilled craftsmen who are not subcontracted to larger building firms.
Company Money in Personal Account
Here’s a nice problem to have: your company holds a lot of money, but you want to leave it there for now. Perhaps you don’t want to be taxed personally if you take the money out of the company. The company may also have long-term plans for the funds, such as acquiring another business or property when a suitable target is identified.
In the meantime the company may only be able to earn 1% interest on the money, but you could earn say 4% on the same amount in your personal deposit account. Could you hold the funds on behalf of the company (as a nominee), and place them in your deposit account to achieve the higher interest rate? It is possible, but there are several issues to deal with:
- The bank needs to be clear that the beneficial owner of the funds is the company and willing to open an account on this basis. So the account name needs to be something like: ‘A Brown as nominee for AB Ltd’.
- There needs to be trust deed or similar document signed on behalf of the company that appoints you as nominee for the company’s money to be deposited in your account.
- The board of directors of the company must be seen to have made an informed decision about this arrangement, and issue clear instructions as to the terms for depositing the funds. This should be recorded in the board minutes.
- The bank may deduct income tax from the interest paid on the deposit account, which would not be due if the account was held in the company’s name.
- The Taxman needs to be convinced the funds in your account are not a loan from the company to you as a director or shareholder of the company.
This last condition is the most troublesome. If you don’t meet it and it is deemed the company has made a loan to you which remains outstanding nine months after the company’s year end, the company must pay tax of 25% of the value of that loan. You will also be taxed on the deemed interest payable on the loan at 4%, where the loan exceeds £5000 at any point in the tax year.
There are other practical considerations, so please discuss any such transfer of funds from the company, with us first or if you have already done this without meeting the conditions above!
VAT Opting to Tax on Buildings
Buildings are generally exempt from VAT, but there are a lot of exceptions to this.
A person who holds an interest in a building (freehold or leasehold) can opt to tax the building, such that income from selling or letting the building is subject to VAT.
If you purchase a building and the purchase price includes VAT, you do not have to opt to tax that building.
Consider Ali who owns a VAT registered car repair business. He purchases a new commercial unit for £200,000 plus VAT of £40,000. The unit is used entirely for the car repair business, so Ali can reclaim the VAT of £40,000 in the same way he reclaims VAT on other purchases.
Ali does not have to opt to tax the unit to reclaim that VAT. In a few years Ali may want to sub-let the unit, in which case the rent will be exempt from VAT. This will make Ali’s business partially exempt, which may mean he cannot reclaim all the VAT charged on his purchases. In that situation Ali may choose to opt to tax the building so the rent must have VAT added.
Please check with us whether you should opt to tax a building you own or lease.
Homes Worth Over £2 million
The Government wants to clamp down on tax avoidance by people who purchase their homes through companies, or other structures like trusts or partnerships, (known as non-natural persons). It is proposing new tax charges will be applied follows:
- From 1 April 2013 an annual charge will apply on the value of residential property worth £2 million of more owned by non-natural persons; and
- From 6 April 2013 Capital Gains Tax (CGT) will be charged on the disposal of residential property where the selling price is £2 million or more, and the seller is a non-natural person who is not resident in the UK.
There will be an exemption from the annual charge for established property development businesses, but only if the business has been operating for at least two years.
When a UK based company sells a property it already pays UK corporation tax on the gain, similarly a UK based partnership or trust would pay UK tax on any profits it makes selling property in the UK or elsewhere. A company or other non-natural person based outside the UK for tax purposes does not pay UK tax on the sale of a UK property, so the new CGT charge is designed to level the tax playing field with UK-based property owners.
If you own high value residential property within a company or other structure you may want to take steps to remove it from that structure, especially if the company is based outside of the UK. There may well be other issues to consider in removing a property from the structure so please talk to us before taking any action.
Question and Answer Section
Q. I’m worried about the Granny tax. Is this going to affect me? I’m aged 64 with an annual income of around £16,000.
A. The so-called Granny tax is actually a change in entitlement to allowances from 6 April 2013. You are currently entitled to a personal allowance (tax free amount) to set against your income, of £8,105. From 6 April 2013 you will be entitled to a personal allowance of £9,205.
As you will reach age 65 in 2013/14 you may have expected to receive the higher age allowance of £10,500 which is available to people currently aged 65 or over. However, because the rules are changing on 6 April 2013, only those born before 6 April 1948 will be entitled to the age allowance of £10,500, everyone else will get the normal personal allowance. This is not as unfair as it seems as the age allowance will be frozen, probably for ever more at £10,500, but the personal allowance will increase each year, and is likely to reach £10,000 in 2014/15.
Q. Until 31 May 2011 I was employed as loss adjuster for company A, and I drove 4,400 business miles in my own car for that company in 2011/12. I then joined rival company B, and drove a further 8,080 miles on business, also in my own car, by 5 April 2012. Both companies paid me 40p per mile for those business journeys. Can I claim anything extra on my tax return?
A. Yes. The approved tax free mileage rate for 2011/12 was 45p per mile, for the first 10,000 business miles. However, this mileage threshold applies per employment. As you held two jobs with completely separate employers in the year, and drove less than 10,000 miles in each job, all your business mileage can be claimed at 45p per mile. You can claim £624 (5p x 12480 miles) on your tax return for 2011/12.
Q. The company provides the sales reps with pay-as-you-go mobile phones, who purchase top-ups when they need them, claiming the cost back on expenses. Does the cost of the top-ups need to be included on the forms P11D for those employees? Does it make a difference if the employee bought the pay-as-you-go phone?
A. Where the mobile phone is owned by the company and the contract is between the company and the telecoms provider, any top-ups purchased for that phone are tax free, as the provision of the phone is tax free. The cost of the vouchers does not have to be reported on the form P11D for each employee. Note this tax free treatment only applies to one phone per employee. If the phone was bought by, and thus owned by the employee, the top-up vouchers are taxable and need to be reported on the form P11D. The employee could claim a deduction on their tax return for the cost of business calls made with the top-up payments, but this would involve analysing all the calls made into business and non-business calls.
Key Tax Dates
- Deadline for PAYE settlement agreement for 2011/12.
- Deadline for new tax credit claim to start from beginning of 2011/12 year.
- Deadline for 2011/12 forms P11Db, P11D and P9D to be submitted and copies of P11D and P9D to be issued to relevant employees.
- Deadline for employers to report share incentives for 2011/12 – form 42.
- Return and Payment of CT61 tax due for quarter to 30 June 2012.
- PAYE/NIC and CIS deductions due for month to 5/7/2012 or quarter 1 of 2012/13 for small employers.
- Class 1A NIC due in respect of the tax year 2011/12.
- Second self assessment payment on account due for 2011/12.
- Second 5% penalty surcharge on any 2010/11 outstanding tax due on 31 January 2012 still unpaid.
Deadline for Tax Credits to finalise claims for 2011/12 and renew claims for 2012/13.
- Half yearly Class 2 NIC payment due.
- Penalty of 5% of tax due or £300, whichever is greater for 2010/11 personal tax returns still not filed.
Please contact us if we can help you with these or any other tax or accounts matters.
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New Clients Welcome
If you are not already a client and are interested in becoming one, we would love to come to meet with you to discuss how we can help and provide you with a competitive quote for our services.
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Tags: capital gains capital gains tax corporation tax credits electricians expenses home improvement services income tax mileage P11D self assessment tax credits tax evaders tax return tax returns taxman tradesmen VAT