Welcome to February’s Tax Tips & News, our accounting newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

We are jointly hosting an Employment Law and Health & Safety update with Peninsula on the morning of 21st February in Windsor. Email us if you would like to attend.

Our next networking evening is Wednesday 6th March, 6pm at The Elephant, Pangbourne email Laura to book.

If you run a limited company ensure that you distribute a tax efficient amount of dividends before 6th April. If you would like to meet one of the team to discuss your personal tax situation don’t hesitate to call us on 01189419997 or 02076499997.

Tax Schemes & Swiss Bank Accounts

Have you received a letter from the Taxman recently, inviting you to pay tax avoided by using a tax scheme or Swiss bank account?

The specific tax avoidance schemes involve one or more of the following:

  • the manipulation of accounting rules;
  • British film tax relief;
  • artificial trading losses.

The Taxman believes these tax schemes don’t work, but rather than go to the trouble and expense of proving this in the Courts, he is asking taxpayers to pay the tax they have avoided by using the scheme. This settlement offer does not include any attractive penalty terms or reduction in interest due. The only benefit to you is a quick resolution of your tax affairs without a drawn-out investigation which could potentially lead to a criminal prosecution. Only taxpayers who receive a specific invitation from the Taxman can take up this settlement opportunity.

The UK/Swiss tax agreement applies to bank accounts held in Switzerland by individual UK resident taxpayers which were open on 31 December 2010 and remain open on 31 May 2013. If the bank account holder does not instruct the bank to disclose details of the account to the UK tax authorities, the funds in that account will be subject to a one-off tax deduction that covers income tax, capital gains tax, inheritance tax and VAT liabilities, calculated on a formula based on the length of time the account was held and the rate the balance in the account increased over that period.

The taxman is writing to taxpayers who are known to hold Swiss bank accounts, to warn them that tax deductions will apply unless the relevant disclosures are made, and penalties of up to 150% of the tax due could be imposed. Note that if you opt for the one-off tax deduction, as opposed to full disclosure, you will not be protected from possible criminal prosecution.

If you have received either of these warning letters from the Taxman, please contact us immediately for advice.

Letting Relief Explained

If you have let a property which was once your main home, or was treated as your main home as you lived in job related accommodation, letting relief can help reduce the tax you pay on the eventual sale. This tax relief cannot apply to a buy-to-let property that has never been occupied by the owner.

The property must be let as residential accommodation, not as office space, or operated as a trade such as bed and breakfast. If only part of the property is let, that let part must not form a self-contained annexe such as a granny flat.

The tax relief for letting is given in addition to exemption from tax for gains arising in respect of any periods when you occupied the property as your main home. This exemption is also extended to cover the gain arising in respect of the last 36 months of ownership.

The letting tax relief is the lower of three amounts:

  • The part of the gain exempt because it was used as your main home;
  • The gain attributed to the let period; and
  • £40,000 per owner.

Example

Julie owned a property for 13 years, but lived in it for only the first 18 months as her main home. After that it was let for ten years and remained empty before sale. The gain is £130,000 or £10,000 per year of ownership. The taxable gain is calculated as follows:

Capital gain before tax relief: £130,000

Exemption for main home for 18 months, plus last 3 years of ownership: £45,000

Relief for letting is £40,000 as is the lower of:

  • £45,000 for period of residence or deemed residence
  • 10 x £10,000 actual let period
  • and £40,000 maximum lettings exemption

Net gain chargeable: £130,000 – £45,000 – £40,000 = £45,000

SEIS – The Opportunity

The Seed Enterprise Investment Scheme (SEIS) will have a limited life – only five years to 5 April 2017. It allows investors to receive 50% income tax relief on the amount invested and up to 28% capital gains tax relief for a limited period. Also if you make a loss on the SEIS shares you can get further income tax relief for that loss.

This sounds very attractive, but you need to be aware of the various traps and limitations of the SEIS before you commit your money. In particular SEIS can only be used to invest in small companies (asset value of no more than £200,000 and up to 25 employees), which the SEIS investor can’t control. In fact the SEIS investor together with his associates must not own more than 30% of the company. Each company can raise up to £150,000 of investment under SEIS in its lifetime, and each investor can invest up to £100,000 per tax year.

The greatest amount of tax relief is achieved by reinvesting a capital gain made in the year ended 5 April 2013 in SEIS shares, when you get both the income tax relief at 50% and full exemption from tax on the reinvested gain. The SEIS shares must be eligible for income tax relief for 2012/13. This means the SEIS shares must be issued in 2012/13 or issued in 2013/14 and subject to an election to carry back the tax relief to 2012/13.

If you are thinking of investing under SEIS or using SEIS to attract an outside investor to your company, please talk to us first as there are lots of hoops to jump through.

Green Car Scam

Please don’t be taken in by a scheme which claims to reduce the taxable benefit of your company cars. The taxman has specifically warned taxpayers about this scheme on the spotlights page of his website.

The scheme promoters persuade employers to buy carbon credits to offset against the carbon dioxide (CO2) emissions of company cars. This is fine, but buying carbon credits can’t reduce the CO2 emissions rating of your company cars as recorded on the registration documents.

A vehicle’s CO2 emissions are fixed at the time of its manufacture, and can’t be changed for tax purposes. You must use the CO2 figure recorded on the vehicle’s registration document for calculating the taxable benefit of the car, and the taxable fuel benefit if fuel is provided.

If you report a reduced figure of CO2 emissions for each of your cars on the P11D forms, as persuaded to by the ‘plan green’ promoters, you will pay less class 1A NICs for each car. Also your employees will be taxed on a lower percentage of the vehicles’ list price. However, when the Taxman discovers the P11D forms used incorrect CO2 figures for each car, he will demand payment of the tax and NI avoided plus interest and penalties.

February Question and Answer Section

Q. My company designs websites. If my customer is a business in the Republic of Ireland can I apply zero rate VAT to the sales invoice? Do I need their VAT number before I can do this? Is the situation different if my customer is a private individual?

A. Website design is a service, so the VAT treatment depends on whether your customer is a business or not. You should retain some evidence to prove whether your customer is in business, but you don’t need to hold its VAT number if your customer is not VAT registered.

Where your Irish customer is a business, and will use the service you provide for business purposes, the service you are providing is outside the scope of VAT. Your customer must apply the local Irish VAT to what it buys under the reverse charge rules. ‘Outside the scope of VAT’ means you do not apply VAT to your sale. If your business is VAT registered you will need to ask for its VAT number to report the sale on your EC sales list form. Only sales to VAT registered businesses are reported on that form.

If your Irish customer does not operate as a business, you must apply VAT at UK rates to your invoice, just as if your customer was located in the UK.

Q. I plan to sign over my home to my son to avoid inheritance tax. Is there anything else I should be aware of before I do this?

A. If you continue to live in the property after you have given it to your son, the gift will not be effective for inheritance tax (IHT), so no IHT will be saved. For IHT purposes the property will be treated as belonging to you until you stop using it, so it will form part of your estate on your death and be subject to IHT. There may be a reduction in the IHT due if your son also lives in the property and pays his share of the running costs.

If you son does not live in the property there may also be capital gains tax charges when he comes to sell the property. We need to discuss this plan in detail with both of you before the gift goes ahead.

Q. I run a landscape design business through a Limited Company employing a dozen staff. The business is registered as a subcontractor under the construction industry scheme (CIS), and receives payments from the main contractors after deduction of tax. I’m worried that under RTI we won’t be able to off-set the CIS deductions against the PAYE deducted from our payroll, so we will be out of pocket. Is this true?

A. If you trade as a Limited Company, under RTI the CIS tax retained by contractors can be deducted from the PAYE you deduct from your payroll. However, you will have to show how much CIS tax has been deducted on your Employer Payment Summary (EPS) each month. The EPS must be submitted by the 19th of the month following the end of the tax month for which the PAYE was deducted.

February Key Tax Dates

  • 2 – Last day for car change notifications in the quarter to 5 January – Use P46 Car
  • 19/22 – PAYE/NIC and CIS deductions due for month to 5/2/2013
  • 28 – Talk to us about year end and pre-budget planning

Need Help?

Please contact us if we can help you with these or any other tax or accounts matters.

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