Welcome to May’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
This year is speeding by. Don’t forget to get your 2012 personal tax return information into us as soon as you can so that you can collect your rebate or start budgeting for your tax payments asap.
Looking forward to seeing many of you at our next Networking Event on 15th May at The Elephant in Pangbourne, if you haven’t booked yet please contact Laura in our office – email@example.com.
Please contact us for advice in your own specific circumstances. We’re here to help!
New Tax Dashboard
If you have recently logged-on to the HMRC online service for PAYE for employers, or corporation tax you will have seen a request to sign-up for the tax dashboard. This is a new facility that will provide a single view of all your business tax liabilities arising from corporation tax or income tax (for company or individual), VAT and PAYE.
The tax dashboard will show the following for each tax:
- Amount owed
- Repayments due from HMRC
- Payments already made
- Interest due on any late payments
- Penalties incurred
- Direct debit payment plans
You will not be able to reallocate payments between taxes, or even between periods for the same tax. The dashboard is merely a viewing facility.
Before you can use the tax dashboard you must be registered with the HMRC online service for corporation tax or self-assessment. You may already be registered and have separate online logins for the PAYE, VAT and corporation tax or self-assessment online services. If this is the case you need to move all of its online services to one login, in order to see all taxes on your tax dashboard. There are instructions on the HMRC page for the tax dashboard on how to move online services to one login.
Tax agents cannot use tax dashboard to view their clients’ tax liabilities, which would be really useful. This facility may be provided in the future, but we are not holding our breath!
How Gift Aid Works
There has been a lot of coverage in the press recently about tax relief for charitable donations.
When you make a donation to a charity or to a community amateur sports club you can make a declaration that your donation is made under Gift Aid. This declaration can be made in writing, online or over the phone, but in all cases it should include your name and address details, the name of the recipient charity, and a statement that you have paid sufficient UK tax to cover the 20% tax the charity will reclaim from the Tax Office.
Say you make a donation of £1,000 to a charity, and make a Gift Aid declaration for that gift. This results in a gift of £1,250 in the charity’s hands as they can reclaim basis rate tax (20%) on the gross equivalent of the gift. In this example, 20/80 x £1,000 = £250.
You have to declare with your gift aid declaration that you have paid at least £250 in UK income tax or capital gains tax in the tax year in which you make the gift.
If you pay tax at 40% or 50%, the thresholds at which those higher rates are imposed are extended by the gross value of your gift, which gives you additional tax relief for your gift. For example, the 40% threshold is currently £34,370, so if you make donations under gift aid that total £1,000, these are treated as gross gifts of £1,250. Your 40% threshold is extended to £35,620, saving you 20% tax on £1,250 = £250. So overall it would have cost you £750 for the charity to receive £1,250.
It is not possible to completely eliminate your tax bill by making donations under gift aid. Such gifts would only reduce your tax bill to 20%.
Employer or Personal Pension Funding?
Who should pay contributions into your pension fund: you or your employer? If you control the company you work for, the most tax efficient solution is almost certainly for the company to pay as your employer.
The company can set a reasonable level of pension contributions against its profits subject to corporation tax (at 20%, 24% or 25%), and it pays no employers’ NI charges on those pension contributions. A ‘reasonable level’ is where the salary plus benefits, including pension contributions, form a commercially reasonable remuneration package for the work done. As long as the total package is set at a commercial level or below, the company can receive tax relief for the remuneration payments.
If you pay pension contributions as an employee, you need to extract the funds from your company. If you do this by a salary, this creates an income tax charge in your hands. The company receives tax relief on salary payments but it must pay employers’ NICs at 13.8%, with no upper limit. You are also subject to NICs on your salary at 12%, which then reduces to 2% on salary over £42,475 per year. So unlike pension contributions paid directly by the company, salary payments carry NICs of up to 25.8%.
If you take dividends from the company to pay your pension contributions, there are no NICs payable by you or the company. But the company does not receive tax relief on the payment of dividends. So the only tax relief due on the pension contributions is due at your marginal tax rate, on up to 100% of your earned income, capped by your annual allowance (see below). Dividends are not earned income, so if you only take dividends and no salary or other employment benefits from your company, the tax relief on your pension contributions is limited to £3,600 per year, which is the minimum for a person with no earned income.
Your annual allowance caps the amount of your pension contributions which attract tax relief. If this allowance is exceeded by pension contributions paid by you or your employer, you will pay a tax charge at your marginal rate. The annual allowance is now £50,000 per year, but this is extended by unused allowances brought forward from the previous three tax years. Thus the exact amount of annual allowance will be different for each individual, depending on his or her pattern of pension contributions.
We can help advise you on this for your own specific circumstances.
Filing Online Difficulties
Most tax and VAT returns now have to be submitted electronically, so if the return is late, even by a minute, the computer spits out a fine. This also applies to filing accounts and annual returns for companies or LLPs at Companies House.
Filing a tax return or submitting accounts online can be quicker, as there is no delay caused by sending a paper document in the post. You may also be given a longer period to file online, – an extra 7 days for VAT returns and an extra 3 months for personal tax returns. However, you do need software to file online, and this may not be freely available or the free version may not work for your particular circumstances.
For example, partnerships must submit a partnership tax return in addition to the personal tax returns for each partner. The partners’ tax returns can be submitted online using the HMRC free software, but the partnership tax return cannot.
If you are a member of a partnership (or LLP) your must either submit the partnership return in paper form by 31 October, or acquire some commercial software to use to submit the return online, or ask us to help you submit the return.
Companies House Accounts
Private company accounts must be submitted to Companies House within 9 months of the company’s year end. Say the company’s year runs to 30 September 2011, the accounts must reach Companies House by midnight on 30 June 2012, even though this is a Sunday.
Companies House provides free software to submit company accounts online through its website, but this does not always work. If you leave filing your accounts to the last day, and the software, or your internet connection fails, you will get a fine of £150. You can ask us to file your company accounts and annual return on your behalf.
All VAT returns for periods starting on or after 1 April 2012 must be filed online, and any VAT due must be paid electronically, not by a cheque. Are you ready for this change? Talk to us if you want some help with filing VAT or other tax returns online.
May Question and Answer Section
Q. I’m thinking of starting a new company. Will it qualify for the NIC exemption?
A. It depends where your business is based. Businesses in the east and south east of England, or London don’t qualify for the so-called NIC holiday. The south-east region stretches all the way up to Northamptonshire border, so you need to be quite clear where your principal place of business is. Secondly it must be a new business, not an existing business that has been transferred to a new company. There are also some excluded sectors such as road freight, coal and export businesses. We need to talk though the detailed rules before you apply for the NIC holiday.
Q. My business is VAT registered but the sales have dropped back, so my turnover is less than £75,000 per year. Can I stop charging VAT on my sales?
A. You must not stop charging VAT until you are given permission to do so by the VAT office. You need to apply to deregister for VAT on form VAT7, and send the completed form to the VAT deregistration office in Grimsby. You must continue to charge VAT on your sales until your application to deregister from VAT is accepted, and this has been confirmed by the VAT office.
Q. Last month the Tax Office wrote to me saying I would no longer receive tax credits, but I did nothing about it. Now my wife is expecting another baby so has reduced her working hours. Can I get my tax credits back?
A. You need to make a new tax credits claim as soon as possible, don’t wait until the new baby arrives. Your reduced family income may mean that you qualify for working and child tax credits already, and if you don’t, you will at least have submitted a protective claim for 2012/13. Under the new rules, from 6 April 2012 couples with children must work at least 24 hours per week between them, and one member of the couple must work at least 16 hours per week. There are exceptions if one person is disabled, incapacitated or a carer.
May Key Tax Dates
- 2 – Last day for car change notifications in the quarter to 5 April – Use P46 Car
- 19 – Deadline for Employers’ 2011/12 end of year PAYE Returns (P35, P14, P38 &P38A). Penalties for non submission.
- 19/20 – PAYE/NIC, and CIS deductions due for month to 5/5/2012
- 31 – Deadline for copies of P60 to be issued to employees for 2011/12