Welcome to February’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Corner.
We are committed to ensuring all our clients don’t pay a penny more in tax than is necessary.
Please contact us for advice in your own specific circumstances. We’re here to help!
Table Of Contents
Errors in New PAYE Codes
Since the Taxman fired up a new PAYE computer last summer there have been a number of faults appearing in PAYE codes. In some cases the age allowance or married couples allowance disappeared, in other cases the state pension amount was understated. Now many of the 2010/11 codes have excluded some of the basic personal allowance, which should be £6,475 for those aged under 65.
This fault occurs if you have changed jobs in the last few years, or started to receive a pension.
The Taxman’s computer thinks you are still receiving a wage from your old job, so has split your personal allowance over your current employment or pension and your old job. If you do not have your full personal allowance of £6,475 shown on your 2010/11 PAYE code, ring the Tax Office to ask why, or speak to us.
Doctors and Dentists Asked to Confess
If you are a doctor or dentist, and you want to come clean to the Taxman you need to register your intention to make a disclosure under the Tax Health Plan by 31 March 2010. You will then have to present the full disclosure report and pay all the tax, interest and penalties due by 30 June 2010. We can help you calculate what is due and to complete the disclosure forms necessary. The main advantage of using this scheme is the penalties due will be nil if the unpaid tax is less than £1,000, and will be limited to 10% of the unpaid tax in other cases.
If you fail to make a full disclosure under the Tax Health Plan and the Taxman then investigates your tax affairs, the penalties charged are likely to range from 30% to 100% of the tax due. You cannot take advantage of the low penalties under the Tax Health Plan if you could have made a full disclosure under one of the off-shore disclosure schemes in 2007 or 2009/10. In that case you have missed the boat, and any disclosure you make now will be subject to higher penalties on the tax due.
If you are a medical professional with undeclared income, but not a registered doctor or dentist, wait a few weeks to see if the Taxman will widen the Tax Health Plan to include you. Other professionals should probably also wait a while before approaching the Taxman about any undeclared income, as he said the Tax Health Plan would be the first of a number of schemes aimed at different professional groups. In the meantime if you have doubts about whether you have correctly declared all of your taxable income, please speak to us as soon as possible.
Adding Overseas Purchases to Sales
Unfortunately you now also need to keep track of the value of the services you purchase from any overseas businesses. Since 1 January 2010 most overseas services supplied to a business from another business (B2B) are subject to the reverse charge. This means you as the customer need to act as both the supplier and customer for the transaction for VAT purposes.
You must add the value of the overseas services acquired to your total purchases, and add the same value to your taxable supplies total, for VAT purposes only. The addition of the overseas services to your taxable supplies total may push this figure over the compulsory VAT registration threshold, in which case you must register your business for VAT in the UK.
It doesn’t matter whether the business you are purchasing the service from is registered for VAT or not. You still have to apply the reverse charge treatment to the value of the service acquired. There are some exceptions for services relating to land and transport. Please ask us if you are uncertain about when you should apply the reverse charge or register for VAT.
When is Your PAYE Due?
If all your average monthly PAYE deductions for the tax year are less than £1,500 you can pay those deductions to the Taxman each quarter instead of monthly. In this case the deductions must reach the Taxman’s accounts office by 19th July, 19th October, 19th January and 19th April. If you pay electronically the payment must arrive by 22nd of the relevant months.
These deadlines are particularly important for sub-contractors in the construction industry who currently have ‘gross payment’ status.
Gross payment status allows those firms to be paid without deduction of tax. But the Taxman will withdraw gross payment status if you are up to 14 days late with more than three PAYE payments. If you are more than 14 days late for just one payment gross payment status will be withdrawn. You can appeal against the withdrawal of gross payment status, but you need a good excuse for making the late payments!
From May 2010 all employers will be subject to late payment penalties if they are late with more than one PAYE payment in the tax year. If you regularly pay your PAYE late we should discuss how to improve your systems before the new penalties start.
February Question and Answer Corner
A. The income from jointly held bank accounts must always be split equally between the account holders for tax purposes, you cannot elect otherwise. To move the interest into your wife’s name for 2010/11 you need to take your name off the account before 6 April 2010. To achieve this you may have to close the account and open a new account in her sole name. If you have any fixed interest accounts that are due to mature and pay rolled-up interest on after 6 April 2010, you may want to close those accounts before that date. This will ensure the interest arises in the tax year 2009/10 and is taxed at 40% rather than at a marginal rate of 60% if it arises in 2010/11. Check the penalty clauses for closing the account early before you take action.
Q. My company has paid interest on late paid corporation tax. Is that interest tax allowable?
A. Yes. Interest paid to the Tax Office on late paid corporation tax is tax allowable for the company for the period in which the interest was paid. Likewise interest paid by the Taxman because corporation tax has been paid early, or in excess of the amount due, is taxable.
Q. A friend told me I could purchase a van or motorcycle through my company and not pay any tax on it. Is that true?
A. There is a grain of truth in this myth, but there will still be some tax to pay if you use the vehicle for personal journeys. When your company purchases a van or motorcycle for business purposes it will reduce the taxable profits by 100% of the cost of the vehicle. This only applies where the purchase is covered by your company’s annual investment allowance (AIA) of £50,000. The AIA cannot be claimed for the cost of cars.
However, when you use the vehicle for non-business journeys there will be a benefit in kind tax charge for you and a NI charge for your company. If you want to transfer the van or motorcycle into your own hands from the company’s ownership, this must be done at the market value and again there will be a benefit in kind charge unless you pay the full value to the company. What’s more, the disposal by the company will claw-back the AIA given and increase the company’s taxable profit for the period in which the transfer is made.
February Key Tax Dates
19/22 PAYE/NIC and CIS deductions due for month to 5/2/2010
28 Talk to us about year end and pre-budget planning
First 5% penalty surcharge on any 2008/09 outstanding tax due on 31 January 2010 still unpaid.