Welcome to November’s Tax Tips & News.

We have already filed many personal tax returns for 2012, however, if yours is still outstanding please contact us asap, as there are many benefits of filing it before 31st December.

We have setup our Children in Need fundraising page, if you would like to guess how many sweets are in the jar please contact us.

Our next networking evening is Wednesday 5th December at 6pm, for more details and to book please contact

Please contact us for advice in your own specific circumstances. We’re here to help!

Reducing the Child Benefit Tax Charge

You may have received a letter from the Taxman about the high income child benefit charge (HICBC), which is designed to claw-back child benefit from high earners. We explained the principles of this charge in our September 2012 newsletter.

If you or your spouse/partner claim child benefit, and either one of you have income of over £50,000 per year, your family will be subject to the HICBC to claw-back part or all of the child benefit paid from 7 January 2013. The charge must be paid by the higher earner in the family irrespective of who actually receives the child benefit.

If you are the higher earner in the family, you will need to report the amount of child benefit the family receives on your self-assessment tax return. For 2012/13 this is only the child benefit received after 7 January 2013, but in future years it will be the full amount of child benefit received in the tax year. This will lead to a charge added to your tax bill due by 31 January 2014, or the charge may be collected through your PAYE tax code in 2013/14.

If you want to avoid paying the HICBC you and your partner/spouse can:

  1. select not to receive child benefit from 7 January 2013; or
  2. reduce the higher earner’s adjusted net income.

You will be able to reverse the election in a) if your income drops, but you may miss out on some child benefit due to timing issues. Thus if your income is likely to be variable making an election not to receive child benefit is unlikely to be the best solution.

Your ‘adjusted net income’ could be reduced by using any or all of the following methods:

  • Pay more personal pension contributions in the tax year. Make sure these contributions are paid by you and not by your employer.
  • Increase the Gift Aid donations you make. Channel all the Gift Aid donations made by the family though the higher earner’s bank account. Remember Gift Aid donations can be carried back to give relief in the previous tax year, if the donations are made before the tax return for that earlier tax year is submitted.
  • Reduce the amount of income you extract from your own company and instead employ your spouse or partner in your business. This will spread the income generated by the business more evenly between you both.
  • If you trade as a sole-trader you could take your spouse /partner into partnership, and again look to spread the income between you.
  • Where you and your spouse/partner already trade as a business partnership, consider changing the profit sharing ratios so you each receive a more even amount of profit.
  • If you are not domiciled in the UK you can adjust the amount of income you remit to the UK.
  • If you are married and living with your spouse, you can transfer assets to your spouse that generate income such as shares, savings or let property. Transferring assets between individuals who are not married may well create a tax charge.

Please talk to us about how to undertake any of these planning ideas before trying to implement them to ensure they are appropriate in your own circumstances.

Avoid Property Trading Tax

Some people regularly purchase run-down houses, do them up and sell them on. If you do this as part of your building/property development business, the profits made on the sale of the properties may be taxed as trading income (tax rates: 20%, 40% or 50%).

If you let the renovated properties, then sell them at a later date, the profits made on those sales will be taxed as capital gains (tax rates: 18% or 28%). The position is less clear cut if you live in each property for a period either during or after the renovations are undertaken. The Taxman is keen to charge any profits made on the renovated property as trading income, because if the profits are categorised as a capital gain, that gain may well be exempt from tax on the basis that the property was your main residence.

For the Taxman to prove the money made from the property is trading income he must show the owner’s motive for purchasing and renovating the property was to make a profit, and not simply to make the property more comfortable for the owner to reside in. This is difficult to prove.

If the owner is a builder by trade the Taxman may also argue that the property renovation was undertaken as part of his building business, even if he also lived in the property. The Taxman may say the profits should be taxed as a trade if the owner has a history of purchasing and renovating many properties and living in each for only a short period.

If you want to avoid profits you make on renovating and selling a property being taxed as a trade, make sure you make the property your real home for a significant period. Have a good reason for living in that location, eg locality to schools or work, and try not to make a habit of purchasing and renovating several properties within a short number of years.

VAT on Exports

The internet has enabled many small businesses to sell internationally, but exporting goods and services can create VAT difficulties.

For VAT purposes you need to know whether you are selling goods (physical things), or services (something you cannot physically touch eg: downloaded software), as the rules vary for goods as opposed to services. You also need to know where your customer is based – in an EU country or elsewhere and whether the customer is a VAT registered business.

When you sell goods to other businesses in the EU or in other countries you can normally charge the zero-rate of VAT on the sale. This means you can recover VAT on any related input costs. However, you need to show that your customer was VAT registered and the goods physically left the UK. Getting the paperwork right is essential.

The rules for international services are more complicated as they depend on the place of supply of the service, which varies according to the type of service supplied and who it is supplied to (business or non-business customer). UK businesses selling to private customers in other EU countries must charge UK VAT. Where the customer is a business in another EU country, in most cases the customer accounts for the VAT in their own country, so the UK supplier does not charge VAT and the reverse charge procedure applies.

Whether you sell goods or services to VAT-registered businesses within the EU you must complete an EC sales list (ESL). If you only supply services, or your total goods and services sales do not exceed £35,000 per quarter, you may submit the ESL every quarter, otherwise you must submit monthly ESLs. Certain low-volume exporters can apply to the Taxman for permission to submit annual ESLs.

The ESL can be submitted in paper form on VAT 101, or online through the HMRC website, but it must contain the following details:

  • your customer’s name;
  • the relevant country code for each customer; and
  • the value of the goods and/or services supplied.

We can complete the ESL on your behalf, just like your normal VAT return.

NIC Refunds for Vocational Training

Does your business engage self-employed teachers, lecturers or vocational instructors, or are you such a self-employed teacher or instructor? The NI contribution regulations were changed from 6 April 2012 to make it clear that such teachers/instructors should not be treated as employed and subject to class 1 NICs, where they were engaged on self-employed contracts.

However, for years prior to 6 April 2012 the Taxman demanded payment of Class 1 NICs from organisations who engaged self-employed vocational instructors whose self-employed status was not in dispute. Now the Taxman has admitted the NIC regulations in place before April 2012 did not apply to those who provided vocational or recreational training (as opposed to more formal education).

Consequently Class 1 NICs were paid by the engagers and trainers prior to 6 April 2012 when those contributions were not due. The type of instructors affected include: first-aid trainers, vocational and recreational trainers. These individuals and the organisations which engaged them, can now claim a refund of the Class 1 NICs which have been paid in error.

The refund of Class 1 NICs can only apply to educators who were engaged on a self-employed basis. Also the Taxman will only refund contributions made for the last two tax years (2010/11 and 2011/12), or for years where the Taxman’s decision was requested or challenged, and that decision has not been determined. We can help you draw-up the refund claim.

November Question and Answer Section

Q. My business needs to move to smaller cheaper premises, but my current landlord wants me to pay a fee to surrender the property lease earlier than the next break point. Can I claim that lease-surrender payment as a business expense?

A. Unfortunately you can’t get a tax deduction for this payment to your landlord, as a fee to release you from the continuing obligation to make payments under the lease is regarded as a capital payment. There is also no tax relief for this payment under the capital gains tax rules as it doesn’t represent a cost of purchase or a cost of disposal of an asset. So for you it’s a ‘tax nothing’.

Q. I sold a property in August 2012 which made a gain of £50,000. It consisted of a cafe on the ground floor which I ran as a sole trader until August 2010, and a residential flat above, both of which were let out from August 2010 until the date of sale. Can I claim entrepreneurs’ relief on the gain?

A. Assuming you ceased the cafe business in August 2010 (and did not continue the same business elsewhere), you should be eligible to claim entrepreneurs’ relief on the part of the gain that relates to the cafe section of the property. This is on the basis that the ground floor was used for the purpose of your cafe business to the day you ceased to operate that business, and you sold the property within three years of that date. The gain relating to the flat will not qualify for entrepreneurs’ relief.

Q. The Taxman is always demanding money from me for VAT, PAYE, corporation tax, Class 1A NICs, excise duty, the list goes on and on. I am terrified of mixing up the payments and paying the wrong amount to the wrong part of the great tax department. How can I make sure I get it right?

A. The Taxman has recently set-up a really helpful page on his website, which lists alphabetically all the taxes and charges it administers. When you click on the name of a tax or charge, the website tells you how to pay, including the bank account numbers and how to check you have the correct reference.

November Key Tax Dates

  • 2 – Last day for car change notifications in the quarter to 5 October – Use P46 Car
  • 19/22 – PAYE/NIC and CIS deductions due for month to 5/11/2012

Need Help?

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

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