Blog

FAQs on self-assessment registration

Published: 21 Oct 2012

Updated: 22 Nov 2012

 

Written by Ray Coman

 

When to register, how to register and what to do if you are late are among the most common concerns when it comes to the self-assessment.

 

In response to frequently asked questions, the following guide offers a brief overview on the topic of registration for self-assessment.

 

Do I complete a Tax Return?

 

You would need to register for self-assessment, if you are self-employed; a director receiving payments from your company, you have income over £100,000; you have sold assets with gains over the exemption (of £10,600 for 2012/13), you are a landlord, if you have investment income over £10,000, or over £2,500 which is untaxed, or any trust income, or overseas income.

 

In addition, some people may wish to complete a tax return to make use of available allowances and reliefs, such as people over 65 with an income less than abatement threshold (of £24,400 for 2012-13), if you have made pension contributions or charitable donations and are a higher rate taxpayer or have invested in schemes which allow you tax relief.

 

Even the above list is not entirely exhaustive. Therefore considered in reverse, you would not be required to complete a tax return if you receive employment income or pension income all taxed at source and your income is less than £100,000. If you have no income or have benefits either below your personal allowance (of £8,105 for 2012-13) or which are not taxable then there is no reason to complete a Tax Return.

 

How long do I have before I need to let HMRC know that I am completing a Tax Return?

 

The deadline for notifying HMRC of your chargeability is six months after the end of the tax year, which is 5 April. For instance, if you started self-employment at some time between 6 April 2011 and 5 April 2012, you should notify HMRC by 5 October 2012. The deadline for the 2011-12 tax year has therefore passed.

 

As I am late with the last year, what is HMRC going to do?

 

In practice, if you pay any tax due by the payment deadline (which is usually 31 January 2013) then there will not be any penalty for being late to notify HMRC. There is more information on this in our article on late notification penalties.

 

As a further consideration however, you may be late in filing a tax return, and therefore be liable to a late filing penalty. The deadline for filing a Tax return online is the later of 31 January and three months after the notice to file a Tax Return.

 

In practice, to file a Tax Return, you need a unique taxpayer reference (UTR) number. In recent years, HMRC has taken about six weeks to issue UTRs. For the 2010-11 tax year, most taxpayers still received the UTR number in time to avoid a late filing penalty if they had registered by mid-December 2011. Unofficially, you could well avoid penalties even if you have still not registered. Moreover, the sooner you register the less likely the severity of any eventual penalties.

 

What are the penalties for notifying HMRC late?

 

The penalty would depend on the amount of tax due, when the tax was paid, whether you were deliberately late and if you took steps to hide your liability to tax, whether you disclose being late voluntarily or if you are prompted to do so, and the extent with which you co-operate with HMRC to establish the facts. Please refer to the full guide on penalties for late notification for further information. The guide covers provides an outline and indication of how any penalties can be minimised.

 

I have not heard from HMRC. How can I be late, in responding to HMRC?

 

The onus is on the taxpayer to let HMRC know that they are chargeable to tax. If you receive a notice to file a tax return, but have not notified HMRC in time, you would still be open to penalties.

 

For instance, HMRC may become aware that you are required to complete a Tax Return, say because a record they have received from your employer indicates that you have income over £100,000. You may receive a notice to file a Tax Return after the payment deadline, and therefore pay your tax late. In this situation, you would be liable to penalties, because you have paid ta late, and also in some cases you may also incur a penalty because you were late to notify HMRC.

 

I telephoned, HMRC and they said...

 

While HMRC are mainly well experienced and informed on self-assessment, an HMRC can provide advice which is not entirely correct. In principal, while HMRC usually provide a correct response they would not have the same time or incentive to identify opportunities tax saving as your tax adviser.

 

The information available on the HMRC website should be correct, and advice confirmed in writing is more reliable. In my experience, advice provided verbally is less easy to properly record and more prone to misinterpretation. Furthermore, an appeal against financial loss which results from his any incorrect advice may not be successful, or worthwhile, from the point of view of time spent.

 

I would appreciate your help with my taxes

 

We are happy to help. Please contact us.

Tax results of ‘shares for rights’

Published: 09 Oct 2012

Updated: 26 Nov 2012

 

Written by Ray Coman

 

At the Tory party conference yesterday, George Osborne announced that employees would be able to forego their employment rights in exchange for shares in their company.  Under the plans, company owners would be able to grant their employees shares with a value of between £2,000 and £50,000, which would be exempt from capital gains tax when sold.

 

Where a worker changes status from being employee, the national insurance savings for both employee and employer can be significant.  Under the rates applied for the year to 5 April 2013, national insurance for employees on earnings between £7,592 and £42,484 is 12%, and 13.8% for employers on earnings over £7,488. 

 

To put an example to the tax savings, by becoming a shareholder an employee earning £45,000 would save £4,237.36 per year, and would save the employer £5,176.66 in national insurance.  The net tax savings for employers would be £4,141.33, where the typical rate of corporation tax for most companies with a profit less than £300,000 is 20%.  As a practical consideration, the individual would save income tax, in more or less equal proportion to the extra corporation tax for the employer.  To prevent being out of pocket to the employee, gross pay should be reduced to reflect the increase in take home amounts.  The result still being a win for both sides on national insurance saved.

 

In principal, it has previously been possible for an employee to become a company shareholder, and achieve the tax savings outlined above.  Under the announced plans, however, the capital gains tax exemption however could result in significant further savings for workers giving up their employment rights.  Hence the, “workers of the world unite” avowal made from the chancellor.  The famous slogan, borrowed from Karl Marx, was seemingly a retort to Labour for claiming to be ‘One Nation’ in their conference, an idea borrowed from the conservative Benjamin Disraeli.

 

While the national insurance savings are immediately in evidence, the potential for capital gains tax savings is far less so.  Put into practice, an employee is not likely to regard the shares as an incentive where there is no apparent market for them.  On the other hand, any obligation on the employers’ part to buy the shares back would introduce a potential £50,000 deterrent to bringing in the initiative.

 

These shortcomings raise a question mark over whether the plans would emerge from the consultation in their announced form, or whether they would be widely adopted in practice.  Nonetheless, it is easy to interpret the proposal as signalling the government’s willingness to assist the small business sector with the burden of tax, employment law and related costs.

 

The essence of the planned scheme has the potential to be beneficial for all business, but particularly in the private owned sector, where business owners could have more influence over both management and ownership.  The proposal idea could result in a much needed confidence boost to the sector where it is hard to imagine how hiring costs could not be impeding growth.

 

In view of the obvious shortcomings, it is not easy to predict the precise workings of any resulting laws.  However the tax profession is typically prompt in its response to any significant change to the rules.  For more information on tax implications of your employment plans please contact us for an initial meeting.

Ray Coman becomes an FCCA

Published: 14 Jun 2012

Updated: 22 Nov 2012

 

Written by Ray Coman

 

The company director, Raphael Coman has been awarded the prestigious title of Fellow. This is demonstrates an extensive experience in the field of accountancy and proficiency within the profession.

 

2012 Year end planning

Published: 23 Mar 2012

Updated: 01 Apr 2014

 

Written by

 

Long term plans are not likely to be much affected by the nearness of the end of the tax year. Nevertheless, with 5 April 2012 approaching, consider the following tips which may be useful in saving tax before it is too late.

 

Make use of your ISA allowance. Up to £5,340 can be invested in cash and up to £10,680 overall. Both gains and income in the ISA are tax free. Any unused ISA allowance is not carried forward to the next year. If unused by the 6 April it will be wasted.

 

Use the capital gains tax allowance. Similarly, if unused the allowance would be wasted. Tax can be saved by disposing of an asset over different tax years than all at once. If you hope to repurchase the asset, however, you have to wait 30 days or the allowance could still effectively be wasted. Consider also that gains can be taxed much less in a year where income is lower. Gains can also be effectively transferred to spouse via the 'nil gain/ nil loss' rule, so potentially two lots of allowances are available to a couple.

 

Invest in a pension up to £50,000 per year. Once more, unused allowance cannot be rolled forward. Especially if you are anticipating retirement, spreading contributions to £50,000 per tax year will be more tax efficient.

 

If you own a company, consider taking dividends to use up the basic rate tax, or delay profit extraction to avoid higher rates. It may be a suitable time of year to contact your accountant for year-end tax planning.

If you are a business owner, review the opportunities to delay income, bring forward expenses and outlay on capital and write off stock, assets and bad debts. The tax will be effectively relieved a year sooner, where profits are reduced before the end of the accounting year. On the other hand, where your effective rate of tax for 2012/13 is less favourable, lower profits this year would be less favourable.

 

For inheritance tax, gifts of up to £3,000 per year are tax free, and the unused allowance for the previous year can be brought forward. A gift of up to £6,000, or potentially more on the occasion of a wedding, could escape any eventual inheritance tax at 40%.

 

Consider when to cash in investment bonds, as the profits will increase your overall income, potentially bringing you into higher rates of tax.

 

The advice in this article is of a general nature not intended to be acted upon. Please contact your accountant to discuss your particular circumstances and the opportunities for tax saving that may be available. Coman & Co. Chartered Tax Advisers would be pleased to assist with any queries.

 

2012 Budget

Published: 22 Mar 2012

Updated: 01 Apr 2014

 

Written by

 

The 2012 budget has introduced tax measures and outlined proposals to advantage small and medium sized businesses, increase the taxation for the wealthiest homebuyers and reduce tax for people on the lowest incomes.

 

The decrease in the 50% rate to 45% on incomes over £150,000 will take effect after the 6 April 2013.  There is a corresponding decrease in the top rate for dividends to 37.5%.  Due to the tax credit, the effective rate of tax on dividends which take income over 150,000 will reduce from 36.5% to 31.25%.

For top earners the announcement presents an opportunity to defer income to April 2013 through planning, say, on pension contributions, extraction of business profits, remuneration and investment in income producing assets.

 

The personal allowance will increase from £7,475 to £8,105 on 6 April 2012 and to £9,205 on 6 April 2013.  There will be a corresponding decrease in the basic rate band from £35,000 to £34,370 on 6 April 2012.  However, the basic rate band will decrease to £32,245 from 6 April 2013.  The outcome will be a reduction in the level of income before reaching higher rate tax for 2013/14.  Currently, incomes are not taxed at the higher rate until they reach £42,475, however this will fall to £41,450 from 6 April 2013.

 

The raise in the personal allowance also lifts the income level at which it is withdrawn.  The personal allowance reduces by £1 for every £2 of income over £100,000, so that the allowance would not be fully abated until income reaches £116,210 for 2012/3 and £118,410 for 2013/14.

The age related allowances will also be fixed at their current levels until they eventually align with the increasing personal allowance.  Currently, people above 70 with higher incomes do not benefit from the extra allowance which is withdrawn by £1 for every £2 that the allowance exceeds £24,000.  The new measures will therefore affect the lower income by freezing the allowance against inflation.

 

With effect from 22 March, the government has lifted the stamp duty land tax (SDLT) from 5% to 7% on properties with a value over £2 million.  A SDLT rate of 15% will be applied to these expensive properties acquired through companies, including overseas companies, trusts and other structures.  This is a method previously used by wealthy individuals to avoid stamp duty.  The government also proposes to introduce an annual charge to existing structures used to purchase properties valued over £2 million. 

The chancellor also intends to make non-UK companies subject to capital gains tax on the sale of UK residential properties.

The registration limit for VAT will be increased from £73,000 to £77,000 of turnover from 1 April 2012.  The limit for simplified reporting of profits on Tax Returns, also known as three line accounts, will be aligned with the new VAT limits.  Businesses which are not established in the UK currently trading below the registration limit may be required to register, as the turnover test for these businesses will be eliminated from 1 December 2012.

 

The government has opened a consultation on a cash basis for calculating tax which is expected to apply to unincorporated business with turnover below the VAT threshold.  A similar scheme of cash accounting is already available to VAT registered businesses with a turnover under £1.6 million.  Through the scheme businesses account for VAT based on cash paid and received rather than when income is accrued.  The scheme prevents small businesses from being out of pocket to HMRC and gives immediate relief from bad debt.  A similar measure for calculating other tax applicable to small businesses could offer similar benefits.  The scheme also has the potential to significantly reduce the accounting burden for business owners.

The value of shares that can be granted under the Enterprise Management Incentive Scheme is set to increase to £250,000, up from £120,000.  The measure, which allows employees to exercise shares in their company without any charge to income tax, will improve the incentive available to key staff in small and medium sized businesses.  The government also intends to extend entrepreneur’s relief to gains on shares acquired through the Enterprise Management Incentive scheme.  Both the above announcements aim to benefit unquoted companies that meet the requirements.

 

The full rate of corporation tax will fall from 1 April 2012 to 24%. This is 1% lower than previously announced.  The small companies’ rate remains at 20%.

 

Coman & Co. Ltd. are chartered tax advisers and specialist accountants for individuals and business owners.  Please contact us if you have any further enquiries.

 

HMRC may reverse penalties for late Tax Returns

Published: 01 Feb 2012

Updated: 06 Apr 2016

 

Written by Ray Coman

 

HMRC workers held a one day strike on 31 January over the part-privatisation of some of their operations.

 

As a result HMRC has indicated that it may accept the inability to reach the helpline on 31 January 2012 as a 'reasonable excuse' for not filing on the deadline, provided the Tax Return is filed before midnight on 2 February.

 

Please contact us for if you have further queries relating to your tax affairs.

Tax Enquiries

Published: 22 Jan 2012

Updated: 26 Nov 2012

 

Written by Ray Coman

 

Once they have received your Tax Return, HMRC may respond with queries. Typically, HMRC will request that you provide evidence and explanations to support the information on your Tax Return.

 

HMRC are permitted to enquire into your Tax Return anytime within one year of receiving it. The period can be slightly longer where you have filed the Tax Return late. You can amend your Tax Return within twelve months of the filing deadline. Similarly, HMRC can enquire into any such amendments within twelve months of receiving them.

 

HMRC do not need to give any reason for making an enquiry. Although the main purpose of an enquiry is to identify mistakes on your Tax Return, your Tax Return is not necessarily inaccurate just because an enquiry has been opened.

 

You must keep your records until HMRC can no longer raise an enquiry. If you have trading or rental income, you must keep your records for a further four years.

 

HMRC also have the power to make an assessment of your tax liability based on information they discover that was not made available through your Tax Return. The time limit for a discovery assessment is four years after the tax year end. The time limit is extended to 20 years for information deliberately concealed.

 

A tax investigation is unwelcome and we offer a specialised tax enquiry service to reduce the costs involved. Please contact us for a free, initial meeting to discuss your requirements.

Paying tax under self-assessment

Published: 22 Jan 2012

Updated: 07 Apr 2016

 

Written by Ray Coman

 

Where possible, tax will be collected on your income before you receive it. This mainly applies to employment, pension and savings income. However this is not always possible, for instance where you have self-employment or rental profits. In this case, you will have to pay your tax to HMRC under self-assessment. This tax due is calculated on your Tax Return.

 

Paying tax under self-assessmentSelf-assessment tax and Class 4 national insurance is due by 31 January after the end of the tax year. However, payments towards the following year's tax liability can also be payable on 31 January in the tax year and 31 July after the end of the tax year. These are payments on account towards next year's tax liability. Payments on account are half of the previous year's liability. When your actual tax has been calculated, any balancing payment is due by the following 31 January, or a repayment is issued if the payments on account are more than the tax owed.

 

If 80% of your tax liability has been deducted at source, or the liability is less than £1,000, you will not need to make payments on account.

 

If you expect your current year income to be lower than that of the previous year you can request that your payments on account are reduced accordingly. If your profits are higher than the reduced amount then interest will be charged on the difference.

 

You will be also charged interest on any underpayments of tax. If the balancing payment is still overdue by 28 February following the tax year an extra 5% surcharge will be imposed, rising to 10% on any amount which is still outstanding on the following 31 July.

 

If you are taxed through PAYE you can arrange for additional tax to be deducted at source from your pay. Tax of up to £3,000 (or £2,000 for 2010/11 and earlier years) can be deducted in this way, provided you send your tax return online by 31 December following the end of the tax year.

 

The system of paying tax through self-assessment can be complex particularly where payments on account are involved. With our Tax Return service we aim to:

 

  • Minimise your tax
  • Clear up any queries you have regarding your payments
  • Remind you well in advance of deadlines the tax you have to pay, so reducing the chance of being charged by HMRC for late payment.

 

Please contact us and we would be pleased to help.

Tax Returns: An overview

Published: 22 Jan 2012

Updated: 20 Aug 2013

 

Written by Ray Coman

 

Most people in the UK do not have to complete a Tax Return. There is often no need to file a Tax Return if your only income comes from employed earnings, state benefits or a pension.

 

Typically, a Tax Return is due if you are self-employed, receive rental profits, investment income or you earn over £100,000.

 

It is your legal obligation to let HMRC know that you have to complete a Tax Return for any tax year. The tax year runs from 6 April to the following 5 April.

 

Tax Returns: An overview The time limit for notifying HMRC of your chargeability to tax is 31 January after the end of the tax year. If HMRC have to prompt you to notify them to complete a tax return after the deadline, the penalty can be as high as 100% of the tax owed. On the other hand, there may be no penalty for notifying HMRC after the deadline if you do so voluntarily.

 

Although you may avoid a penalty for late notification, there will be a fixed penalty, of at least £100, for filing the Tax Return late.

 

The deadline for submitting your Tax Return online is 31 January following the end of the tax year.

 

There are a number of reasons that you may have to complete a Tax Return. In many cases, a Tax Return may no longer be necessary, even though it is still requested by HMRC. Seek professional advice from us. We offer a free, initial consultation and can help you determine the best way forward.

Tax relief on capital costs

Published: 15 Jan 2012

Updated: 03 Apr 2014

 

Written by Ray Coman

 

Capital allowances are a tax relief for outlay on capital. Capital costs are those required for the business to run long term, such as vehicles and equipment. To reflect the length of time that capital is used in the business, only a proportion of the capital costs are deducted from profits each year. This proportion is called the capital allowance. By distinction, revenue costs are those required immediately in the business. Most revenue costs are deducted straight away against from profits.

 

Tax relief on capital costs In an attempt to relieve the cash flow implications of this system for small businesses and sole traders, the government has introduced an annual investment allowance (AIA.) The AIA provides 100% relief for expenditure on most capital used in the business up to a yearly maximum. As a result, capital costs up to the annual limit are effectively treated in the same way as revenue costs for tax purposes. If the business has invested more than annual investment allowance for the twelve month period, any balance is relieved at the writing down allowance rate.

 

However, the 100% annual allowance rarely applies to cars. The rate of allowance given to a car depends on its CO2 emission, so that the less a car emits the faster the business will benefit from tax relief.

 

It is possible to deduct certain costs on features which are integral to a building, such as lighting, heating and air conditioning systems. This can apply even to commercial premises which are not new builds. The annual investment allowance can apply to integral features and the balance could receive an allowance at the special rate. The tax reliefs can be significant and should be considered when planning the premises for your business.

 

If an asset is sold for more than the capital allowances left to deduct from profits, the surplus could be treated as extra profit for the year. It could be worthwhile considering the timing of disposals of assets which are likely to increase profits.

 

Where a company makes a loss as a result of investing in certain types of capital, such as green technology and research and development assets, a tax credit may be claimed. This could result in a government payment to the business. The payment is in the form of a tax credit rather than a tax refund.

 

There are incentives for certain types of investment that the government wishes to promote, such as for converting empty spaces above commercial premises into flats.

 

Various tax planning opportunities are available with capital allowances. It is possible to obtain allowances separately on assets which are expected to have a life of less than five years. This can accelerate tax relief. It is also possible to disclaim capital allowances, which can be an advantage where your tax free allowances would be wasted if the capital allowance was all used in the first year.

 

Discuss with us a budget for capital expenditure, which is aligned to business goals and optimised for tax.

Harsher rules on late Tax Return penalties

Published: 09 Jan 2012

Updated: 22 Nov 2012

 

Written by Ray Coman

 

HMRC have toughened the penalty system for late tax returns. With effect from the tax year ended 5 April 2011, automatic penalties now apply regardless of your tax liability. As such, even if you have no liability, or were due a refund, you are still liable to a minimum £100 if you were supposed to file a Tax Return and have missed the deadline. Penalties increase more sharply where a tax return is over three months late.

 

Coman & Co. Ltd. can help you avoid unwanted fines. We offer an efficient, online service. With our system you will be reminded well in advance of any relevant deadlines.

 

Please contact Coman & Co. Tax Accountants for advice on your tax situation. We are Chartered Tax Advisers and pleased to help with all your personal taxes no matter how straightforward or complicated.

Charity donations via the company

Published: 12 Sep 2011

Updated: 29 Nov 2015

 

Written by Ray Coman

 

A donation made via a company to a UK registered charity can be deducted from profit for tax purposes.  There has to be a gratuitous intent for the payment to be regarded as a donation.  If the company receives a benefit in return the payment is not regarded in the manner of a donation.

 

Limited company owners are often pay no income tax.  This is because the salary received is less than the personal allowance and the dividend does not give rise to income tax.  In such cases, the charity could not obtain the basic rate tax relief from HMRC.  A donation made via a company would obtain tax relief provided the donations are not more than taxable profits.

Paying yourself a salary from your own company

Published: 09 Nov 2011

Updated: 16 Nov 2011

By running your business through the company, the question arises as to how to take profits out of the company properly and with the minimum tax.

Where it is just you in the company, you will have a choice to withdraw funds as dividend or salary. Provided you do not have any other income it will save tax to withdraw salary less than your personal allowance and therefore tax free in your hands.

There are three possibilities to consider:

  1. Where your salary is below the lower earnings limit, there is no need to run a payroll, and no further reporting requirements.
  2. Where your salary is below the earnings threshold, you will have to register as an employer and submit an employer's annual return, but there will be no tax or national insurance to pay.
  3. Once you pay exceeds the earnings threshold, you will have national insurance both employers' and employees' and soon after your earnings will exceed the personal allowance and there will be income tax to pay as well.

Filing an employers' annual return is often worthwhile, despite the administrative cost and exposure to late filing penalties. A year could be added to your state pension

Although you will be filing an employers' return the payroll will be basic. This is directors are assessed to national insurance on an annual basis, and therefore it is not necessary to ensure small payments of salary on a monthly basis to remain within the thresholds.

We can help advise on the best split between salary and dividends based on your circumstances and future expectations. Please be in contact for a free meeting.