A Tax Rhyme for Xmas by Mitch Young

Good morning, Mitch Young, the young dynamic accountant from LJD

Where we are committed to saving our clients hassle and money

Leading up to Xmas you may have some spare time

So think about your tax return over a glass of mulled wine

It is important you are not late in submitting the return to HMRC

Because if you do you will face a significant penalty

Even if you have no tax, they will now charge you £100 pounds

3 months late and a 5% surcharge, how do you think that sounds?

And after that it could go up to £10 a day

So make sure you give me a call I will keep the tax man away

Furthermore if you know a private tutor don’t forget they must declare

All their private earnings by 5^th Jan or face a right old scare

If you get your tax return into me within the next 28 days

I can complete this for you on time and offer you tax advice in lots of different ways

So listen out over Xmas for your friends and family talking about tax

When you hear the magic word give them my phone number, email or even my fax

Surely this rhyme proves accountants can also be fun

Wishing you happy holidays from LJD and Mitch Young

Xmas Tax Tips

Over the past week I have been snowed in. No, not by snow by 100's of tax returns! I still have around 150 to complete by the end of January and no doubt I will be working over the festive period. However this is the name of the game when it comes to tax and it is Xmas I have made sure I spend some time preparing my tax tips blog just for you. So here are 5 tax tips for xmas:

1. It is very important that you are all aware that new penalties will apply for tax return that is submitted after the 31 January deadline. An initial £100 fixed penalty, will apply even if there is no tax to pay. After 3 months additional penalties of £10 a day, up to £900 and after 6 months a further 5% of the tax due! Get them in

2. Make sure those who of you provide a service on a self - employed basis have a water tight contract. For example important factors to include within a contract are mutuality, control and the right to organise a substitute.

3. Remember if you are a partner in a partnership you will have to complete a specific partnership tax return as well as filling in the partnership pages of your personal self assessment tax return.

4. I have mentioned before about some of the tax benefits of sharing income evenly between husband and wife however a new opportunity has recently come to my attention in this regard. If a partnership is created between husband and wife, and say the wife is designated as a sleeping partner, i.e. she does no work at all for the business, she is able to receive whatever share of the profits is desired and will incur no national insurance liability on her income whatsoever. This means that (depending on the overall profit) it makes probably sense to give the wife the majority of the profits as there is no national insurance for her whereas there is for the husband

5. A final reminder for Private tutors and coaches that you have less than a month to tell HMRC about any tax you may owe for not declaring your private work income. Under the tax catch up plan, teachers with previously undisclosed earnings must register by 6 January 2012 to benefit from the terms of the offer.

I wish you all a very merry Xmas and a happy and healthy new year and remember if you have not got your loved one a present yet how about a voucher from me to complete their tax return.


Mitch the Tax Man
mitch@ljd.uk.com

Friday's Tax Tips - Episode 3

I have had an excellent week. I have taken on 3 newly self employed clients and one landlord. Although it means more work for me over the Xmas period I don't mind, you know that is going to be the case when you decide to have a career in tax! Furthermore my week has been topped off by attending a really useful tax lecture where I recapped on some really interesting points that I will share with you next week in my blog.

As it is Friday, it can only mean one thing - My weekly tax tips!

1. HMRC has revised their interpretation of the way that pension allowance carry forward works for years 2008/09 to 2010/11. You can now potentially contribute £200,000 if you meet all the qualifying criteria. Contact me for further info on this

2. It is very important that owners of small companies follow the proper procedures when carrying out share subscriptions so that evidence can be provided in the future as and when required.

3. If you are non domiciled have you been monitoring the number of year’s resident you have been? There may be an up and coming remittance base charge you need to plan for.

4. If you are an employer have you considered changing your employees benefit package to a flexible benefits package to take advantage of tax and National Insurance Mitigation?

5. Whenever properties are bought or sold with a view to building residential property, there are potential issues concerning the option to tax. Make sure you contact your tax advisor before finalising any deals.

We are now in December so not long to go until you have to submit a tax return. If you need any assistance please do not hesitate to get in touch mitch@ljd.uk.com

Have a great weekend




Mitch the Tax Man

Chancellor's Autumn Statement 29/11/11 - Commentary from Mitch Young

I watched the Chancellor on BBC give an Autumn Statement he never wanted to give. He looked uncomfortable at times especially when the noise from the back benchers increased to a very loud level. There was a lot of waffle within the statement so I have summarised the main points that I found interesting and relevant to me and my clients:

1.      From April 2012, anyone investing up to £100,000 in a new start-up business will be eligible for income tax relief of 50%. In 2012, any tax on capital gains invested in such businesses will also be waived.

2.      Freeze on Capital Gains Tax allowance

3.      Corporation Tax confirmed to fall to 25% next year, and rules of taxation of foreign profits to be published next week

4.      End of tax breaks for the Channel Islands

5.      Capital Allowance boost to several zones including Liverpool

6.    The bank levy tax will be raised for a third time this year

7.      National loan guarantee scheme - covering £40bn for bus' of less than £50m turnover. Expect fall in rates of one percentage point

8.   The child element of the working tax credit will be uprated in line with inflation, but other elements will not

9.      Public sector pay awards will be set at 1% for the two years after the current freeze ends. Mr Osborne says he's knows this is tough, but it's fair to taxpayers.

10. There'll be £40bn to underwrite loans for small and medium sized firms

Overall, these are just a few of the main points I picked up from the statement and in truth there was not too much that was announced that was new and not predicted. However for me it is clear from a tax point of view there is and will be a lot of planning to be done with the use of EIS and investing in new qualifying companies

If you have any comments or questions please do not hesitate to get in touch mitch@ljd.uk.com

Mitch the tax man

Friday's Tax Tips - Episode 2

I hope you all have had a lovely week? What better way than to enjoy your Friday afternoon with my next instalment of tax tips!

1. Remember that if you complete your own VAT returns be aware that even being one day late in filing and payments to HMRC is likely to result in a default surcharge. If you know you will be away on the date the VAT return is due make sure you file it early.

2. As I write this the government are currently consulting on a statutory resident test, the rules introduced from 6th April next year are likely to be significantly different to those in the previous consultation document. Make sure you keep up to date with the changes as this may have serious affects on your current situation in regards to tax.

3. I read a brilliant article in Taxation Magazine concerning the Farming industry. Now could be the time if you run a farm to incorporate. Potentially huge tax savings. If this applies to you contact your tax advisor

4. If you are planning on disposing of a subsidiary company, have you considered with a degrouping charge will arise and whether there is an exemption for substantial shareholdings.

5. Another warning that HMRC will be continuing to write to pensioners whose state pension was not coded out in 2010/11 to tell them the tax they owe. Even if you have received a tax code and it looks correct it may be worth getting an expert to look at it for you.

I hope you all have enjoyed the second instalment of Friday's Tax Tips. Remember to look back next Friday for some more useful tips.

If you have any questions or would like to arrange an initial meeting free of charge please get in touch mitch@ljd.uk.com

Have a fantastic weekend



Mitch the tax man

Do you have to pay Tax on compensation received from mis-sold PPI Insurance?

I am so proud to announce that the my answer to this question appeared in yesterday's edition of the Daily Express National Newspaper. I was asked to answer this question by Annie Shaw who regularly writes for the Daily Express and I truly thank Annie for this amazing opportunity. If you did miss yesterday's edition I have included the article below.

I have received compensation for PPI miss-selling. I heard on the radio that I now have to pay tax on it. Surely this can’t be right?

When it was announced that Banks and lenders would award compensation to PPI Customers who had been miss-sold policies, it was agreed by the FSA that this compensation would come with an additional 8% interest on the money originally spent on the policy. The interest element is what is taxable and only accounts for a small part of the compensation. The interest on the compensation is treated the same way as savings income so all taxpayers who are paid additional interest will owe tax on this amount and this should be declared to HMRC with the onus being on you to declare the correct information.

One must be careful to check exactly how the compensation has been paid as some lenders will deduct basic rate (20%) tax at source where others will be paid gross. It is very important to go back and re-read your letter carefully.  If you are a basic rate tax payer and the interest has been deducted at source then there is nothing further for you to do unless you complete a self assessment tax return then the interest would need to be declared on the return. The more likely situation is that the interest has been paid gross. If this is the case I would suggest writing to your tax office using your national insurance number as a reference and stating the amount of interest you have received. They should then put the interest in your tax code making it a hassle free way for HMRC to collect the additional tax.

For further help and anything tax please contact Mitch Young from LJD Chartered Accountants mitch@ljd.uk.com

Hopefully I may feature again - fingers crossed

Mitch the Tax Man

Tuesday Tax Case - 'Receipts Requested'

As broken today first on twitter (@mitchyoung27), every Tuesday I will now be commentating on a recent Tax Case first published in Taxation. Today's case concerns a taxpayer and his expenses being questioned by HMRC. The case is titled G C Catana (TC1482)

HMRC opened an enquiry into the taxpayers 2006/07 tax return. The individual has claimed expenses for the year totalling £17,000. HMRC has asked for all the receipts to back up this figure as well as asking for copies of the individual’s construction industry scheme vouchers and copies of all his bank statements. The letter was originally sent to the individual’s accountant with a copy being sent to him.

The individual responded by sending various documentation, however HMRC only allowed £400  out of the original £17,000 stated on the return. Furthermore the tax inspector also increased the net income of the individual on the grounds that the deposits into his bank account exceeded those shown on the tax return.

The individual appealed the result and, at the appeal, produced further receipts and invoices to back up the original figures. As a result of this, HMRC adjusted the result to allow the expenses of £12,523 and further capital allowances with the overall conclusion being the individual was actually now due a repayment. The appeal therefore was allowed and a conclusion was reached between the taxpayer and HMRC.

This case is by no means one of the big cases however what it does illustrate is the importance of keeping your records in order and having backups to all figures being declared on your tax return.

If you have any queries please do not hesitate to get in touch - mitch@ljd.uk.com

Mitch the Tax Man

Friday's Tax Tips - Episode 1

I have decided that every Friday my blog will be focussed around useful tips and things you should be aware of that have been brought to my attention throughout the week.

1. A reminder just of the importance of keeping your tax records for at least six years, so you can support every figure entered on the tax return.

2. If you are employed or receive a pension always check your PAYE code. The new PAYE code does not reflect any underpayments of tax. Thus any balancing payment that occurs this year that you may want put through your tax code you will need to write to HMRC before the end of December

3. As mentioned in an earlier blog consider your company's capital expenditure making use of the Annual Investment Allowance before it rapidly decreases.

4. Consider investing in a company that qualifies for EIS relief and obtain 30% tax relief.

5. If you are an employer - Be aware there are big changes to the treatment of National Insurance Contributions around 2017.  This will mean your payroll software has to be upgraded and changed. Consider looking into this.

I hope you have found these tips useful and look out for next week's tips next Friday.

One last thought, think of your tax advisor over the next few weeks. If you have a tax return to fill out get it into them before the New Year so they can also have a Xmas break!

Have a great weekend


Mitch the Tax Man

Tax Reform on Research & Development Tax Relief could create thousands of jobs in the UK !

At a time where record unemployment figures have been announced, reforms to Research and Development (R&D) Tax Relief could create 7,735 new jobs, according to the manufacturing body EEF that is proposing the changes.

R&D Relief is a Corporation Tax relief that may reduce your company or organisation's tax bill by more than your actual expenditure on allowable R&D costs. Alternatively, if your company or organisation is small or medium-sized, you may be able to choose to receive a tax credit instead, by way of a cash sum paid by HM Revenue & Customs. However, your company or organisation can only claim R&D Relief if it's subject to Corporation Tax.

Your company or organisation can only claim for R&D Relief if an R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty - and not simply an advance in its own state of knowledge or capability. It is a very useful and understated relief that if applied to your company can potentially save you thousands of pounds of tax.

The changes being proposed, would involve the Government introducing a cash benefit or redeemable credit at the point that R&D costs arise, rather than allowing them to be offset against corporation tax payments.
If implemented, investment in R&D would increase by £390 million, the EEF claims, which would in turn boost the manufacturing industry, enhance the UK's global competitiveness and drive economic growth.

Welcoming the proposals, which are outlined in the report 'R&D tax relief reform - an economic study', Tim Bradshaw, the CBI head of enterprise and innovation said: "This is a welcome contribution to the debate on how to build and retain high value R&D activity and jobs in the UK. The UK's international standing as a place to invest would be significantly enhanced if currently non-profitable companies could gain more immediate benefit from the R&D tax credit. This is possible by introducing a payable element for all companies."

Not only do I feel Research and Development will increase job opportunities it will also increase tax planning opportunities for new businesses. It is a win win situation and at present most of the claims to HMRC has been approved in relation to R & D

If you believe your company could benefit from research and development tax relief please do not hesitate to get in touch and I can assist you with the claim. mitch@ljd.uk.com

Mitch the Tax Man

UK Tax System set for major shake up

Today HM Treasury published the first press release on the government’s views and plans for the UK Tax System.

David Gauke the Exchequer Secretary, stated  “At the moment, for a lot of people, the tax line on their pay slip is the only time they see just how much they’re paying in tax, but the Government doesn’t think that’s good enough.  We want to make tax more transparent and we want people to be more engaged with their own tax affairs.  “We plan to lift the lid on tax so that people understand how much they are paying, what their overall tax rate is, and what they should be paying, in the same way that the Government has lifted the lid on what they are paying for.

It is true that for many tax payers the UK tax system can seem confusing and it could be simplified but for me personally I am worried that all these radical changes could lead to countless errors. HMRC have tried to simplify the PAYE office by introducing new computer software and this has led to countless errors throughout the 2010 & 2011 years with them having to offer repayments and thousands being taxed incorrectly.

Furthermore the government are talking about merging National Insurance and Income Tax which to me is a very sensible idea but I just cannot see it happening for a very long time. Other ideas include supplying pre-filled tax returns to people in the self-assessment system using information from employers and banks.

HMRC have already formed partnerships with UK Banks so they can check people’s income when applying for a mortgage and this is where the future lies. The UK government want everything online so HMRC can access data more easily. Tax payers beware soon HMRC and the UK government will no more about you then you know about yourself.

Overall though there is no doubt the UK tax system is complicated but any changes should be made gradually making sure every change has been well thought out and implemented correctly.

 If you would like any help with your tax please do not hesitate to get in touch mitch@ljd.uk.com

Mitch the Tax Man

Xmas Shopping and Tax !

Many people tend to go abroad for their Xmas shopping as it may be cheaper however once again one must not forget about the tax consequences. This week I read some very interesting guidance HMRC published, so I thought I would share it with all of you so if you are going xmas shopping abroad you know exactly where you stand.

Knowing allowances may mean avoiding VAT and import duty charges. These limits include:

• Arriving in the UK by commercial sea or air transport from a non-EU country, you can bring in up to £390 worth of goods for personal use without paying customs duty or VAT (excluding tobacco and alcohol, which have separate allowances, and fuel).
• Arriving by other means, including by private plane or boat for pleasure purposes, you can bring in goods up to the value of £270. Above these allowances and up to £630, there is a duty flat rate of 2.5 per cent.
• Should you buy goods over the internet or by mail order from outside the EU, you will have to pay VAT if the value of the package is over £15.
• If the goods are over £135 in value, customs duty may also be due, although this will depend on what they are and where they have been sent from. Where, however, the actual amount of duty due is less than £9, this will not be charged.
• If someone sends you a gift from outside the EU, import VAT will only be due if the package is valued at over £40. To qualify as a gift, the item must be sent from one private individual to another, with no money changing hands. Please note that excise duty is always due on all alcohol and tobacco products purchased online or by mail order.

As long as goods such as beer, tobacco etc are for your personal use there is actually no limits to what you can bring back. You may, however, be asked questions at the UK border if you have more than:

• 110 litres of beer,
• 90 litres of wine,
• 10 litres of spirits
• 20 litres of fortified wines,
• 800 cigarettes,
• 200 cigars,
• 400 cigarillos or 
• 1kg of tobacco

HM Revenue & Customs (HMRC) Head of Customs Policy, Angela Shephard, said:

"We know many people like to go abroad at this time to buy their Christmas gifts, or buy online from non-EU countries, and think that the ‘cheaper' price they see is always the price they finally pay. HMRC is keen to remind the general public how much they can actually bring back from abroad or buy from an online overseas seller without having to pay import duty or VAT. You don't want to be faced with unexpected extra charges, when you thought you had found a bargain."

Just some guidance for you all to consider as the countdown for Xmas begins.

Oh and being Xmas time means it is tax return time. If you need a tax return prepared please do not hesitate to get in touch

mitch@ljd.uk.com

Do you have a Swiss Bank Account?

I have today received our first letter from HMRC with regard to one of our clients who has a Swiss Bank Account.

For decades, Swiss banking laws have provided complete secrecy for foreigners individuals that hold bank accounts in Switzerland. The account holders have been able to use the accounts to hide money from the own tax authorities, without even having to pay any tax.

Back in August it was announced that a deal has been struck between the UK & Swiss Tax Authorities. Under the terms of the agreement, the Swiss will tax the bank accounts of the UK taxpayers from 2013 and transfer the money directly to the Treasury. From 2013, the account holders will also face an annual levy of between 27% and 48% on the income from their accounts, depending on whether it has arisen as income or capital.

However it may not be the future that concerns you it may be the past. HMRC can go back to 31 December 2002 to calculate the tax that you should have paid on these accounts. This tax can be paid in a one off lump sum payment taxed at the rates between 19% - 34%. However you need to seek clearance from the Swiss/UK Tax authorities before they agree this payment. The significance of this one off payment means it can cover tax, interest and penalties. Following the payment one will cease to have any outstanding liabilities.

The point is that this letter has triggered an enquiry which means this specific client cannot take advantage of this one off payment and may be liable for greater interest and penalties.

If you have a Swiss Bank Account or know anyone that does it is vital they start planning for this one off payment and disclosure.

This is a complicated area and it is best to get someone to act for you. Please get in touch mitch@ljd.uk.com

Selling Properties - Income or Gains?

I have been speaking to several clients this week including a potential new client who is starting to get involved in property development and needed strategic advice concerning how to minimise his tax liability on these transactions including which structure to use etc. and whose own accountant had in his own words “given him a blank stare”.

From a tax perspective, problems can arise in that it is not always crystal clear whether a person is investing in property or trading as a property developer. This is a very important distinction as it determines how any profit on the eventual sale is taxed. In the case of an individual, a gain on an investment property would be taxed as a capital gain whereas profits made by a person trading as a property developer would be liable to income tax. In our current climate where capital gains tax rates are considerably lower than the highest rate of income tax, the attraction of realising a capital gain is apparent however there are severe consequences in getting this wrong.

Whether a person is trading is a question of fact and the normal ‘badges of trade’ apply. The starting point for deciding whether one is dealing with a trading or investment situation is the intention of the owner at the outset. Thus if you have a couple of properties you have bought to sell for a profit HMRC could deem this as trading and you would be subject to Income Tax on the sale.

HMRC have the power to go back from the start of your transactions and issue penalties and interest on the unclaimed tax amount.

I explained these various issues and options available to the new client and we set up a meeting to discuss matters further. I am pleased to say he was very happy with the initial advice and wishes to move all his tax affairs over to me. I will be setting up a property company for him as he will be making regular transactions in property over the next few years.

If you would like to discuss your own situation please email me for a free consultation.

mitch@ljd.uk.com

Budgeting for your first tax bill

A question I often get asked by newly self employed clients is "how much tax should I put away each month"? This week HM Revenue and Customs (HMRC) has released guidance for self-employed people waiting for their first tax bill.

When you start self-employment, you do not get your first tax bill for a while, which means that you need to start setting aside money to make sure you can afford to pay your bill.

As a result, HMRC has put together guidance on how much to set aside for tax and Class 4 National Insurance Contributions (NIC) based on estimated weekly and monthly profit figures.

The guidance below does not take into consideration Class 2 national insurance, which you will need to pay separately - around £2.50 a week for 2011-12.

Once you have completed your Self-assessment tax return you can work out the exact level of tax and/or Class 4 NIC due.


'Weekly Profit' 'Tax each week' 'Est monthly profit' 'Tax each month'
100                           0                         450                       0
150                           3                         500                       0
200                          17                        600                       0
250                          32                        800                     53
300                          47                       1000                   112
350                          61                       1250                   184
400                          75                       1500                   257
500                        104                       2000                   401
600                        133                       2500                   546
700                        162                       3000                   691
840                        207                       3656                   905

However one thing to consider is that this table only states your profit figures and it is not based on your turnover. Thus you need to deduct your monthly expense from your monthly incomings to give you the profit and then you can use this table.

It is not a bad tool and I have already started to show new clients this who seem to be impressed.

If you are newly self employed please do not hesitate to get in touch - mitch@ljd.uk.com

Company Car or Mileage Allowance?

This year I have been involved with looking after companies benefits in kind. I have especially been interested in seeing how much tax they pay on letting their employees use the company cars. If you have a 'gas gussler' the tax charges now are astronomical so it should be time to consider another approach.

The system for taxing those who use company cars has seen annual increases in the cost of benefits. The main aspect of the charge is to tax a figure calculated by multiplying the car's list price by an emission-based percentage. There are various add on's such as an additional charge for Diesel cars.

The taxable element of the benefit continues to be up to a maximum of 35% of the list price of the car when first registered. The list price includes the full cost of the car, car tax, VAT and any other costs. Furthermore there is a CO2 table that provides the exact percentages with high powered cars having a very high percentage and thus proving very expenses for employees/directors.

From 6 April this year the rates of tax and National Insurance free approved mileage payments you can use are:
- 45p per mile for the first 10,000 business miles
- 25p for all subsequent miles

Having been involved in looking after companies P11D benefits this year I have seen Directors pay huge amounts of additional tax on company cars at 12.8%. Some of them do not even realise it would be as much as this.

Thus my advice would be if you have employee's/directors who do less than say 20,000 miles in a year I would just pay them the approved mileage rates rather than letting them use a company car as it will be more tax efficient.

Another option would be to consider a van instead of a car. The taxable benefit for the unrestricted use of company vans is £3,000 plus a further £550 of taxable benefit if fuel is provided by the employer for private travel.

There are certain cars that can meet the criteria of a van within the tax legislation and if you would like further information please contact me - mitch@ljd.uk.com

'Helping you and your business to count!'

Applying for a mortgage? Watch out for the Taxman !

HMRC have just announced the launch of the Mortgage Verification scheme. On the outset this looks as though they have launched the scheme to try and tackle mortgage fraud however I believe there is a possible hidden agenda.

HMRC have formed agreements with bank, building societies and other mortgage lenders in agreeing to check information on mortgage applications, matching what is put on the application to that of what was declared on their tax returns and PAYE income.

There can be genuine differences between the information shown on a mortgage application to the information shown on a tax return as for example profits shown in business accounts are usually adjusted to take into account tax deductions and any tax reliefs available. The main concern is that any difference could now trigger a tax investigation with HMRC. This can be a long and tiresome process.

My advice would be before submitting a mortgage application check your tax returns and your PAYE records for previous years. Speak to your tax advisor and show him the mortgage form and ask him to check if it all matches up. If there are any legitimate differences your advisor can explain them to the mortgage lender who can put an explanation on the form therefore reducing any chance of investigation.

If you don't have someone looking after your tax or being your tax agent please do not hesitate to get in touch - mitch@Ljd.uk.com

Inheritance tax tips !

“"The only two certainties in life are death and taxes."

I thought it would be beneficial to let you know at LJD we can advise you on any inheritance tax issues.

So today I will provide you with a few very interesting tips on reducing what can now be a very high inheritance tax bill. Did you know that if you make a gift out of your regular income then as long as it does not reduce your standing of living then this gift will be exempt from inheritance tax! These include:

•monthly or other regular payments to someone
•regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries
•regular premiums on a life insurance policy - for you or someone else

You can give away gifts worth up to £3,000 in total in each tax year and these gifts will be exempt from Inheritance Tax when you die. This is the annual limit and you can even carry forward any unused part of the £3,000 exemption to the following year, but if you don't use it in that year, the carried-over exemption expires. If you are a parent you can gift up to £5,000 on the occasion of your Childs wedding free of inheritance tax as well.

Finally and more of a reminder if you make a gift to an individual will be totally exempt from inheritance tax as long as you survive 7 years from making the gift. However one thing to bear in mind is that if you give an asset away at any time, but keep an interest in it - for example you give your house away but continue to live in it rent-free - this may trigger a tax charge.

My advice would be to keep a record/note of any gift you do make and put it in its own folder. That way you will have an excellent record to give to your tax advisor so he/she can make sure you get the maximum reliefs available by performing accurate calculations.

There are plenty more tax tips and advice I could help you or anyone you know who is planning for life after death so please do not hesitate to contact me or pass me on their details. Email me - mitch@ljd.uk.com

Are you really self employed? IR35 Explained !

IR35 is the tax law that looks into 'disguised employments’. It is the term HMRC use where a service agreement exits between 2 parties the substance of which is an employment arrangement but which is not being treated as such by the employer resulting in an underpayment of Tax.

In such situations HMRC will assess the employer for PAYE & National Insurance and has the power to go back up to 6 years.

In order to avoid this eventuality it is essential to have a well drafted contract which must reflect the arrangement. This is something we can advise on.

HMRC give general advice Indications that a worker is self-employed
If any of these statements applies, your worker is likely to be self-employed.
• They can hire someone else to do the work you've given them, or take on helpers at their own expense.
• They can decide where to provide their services, as well as when and how to do the work you've given them.
• You pay them an agreed fixed price - it doesn't depend on how long the job takes to finish.
• They can make a loss or a profit

However there are recent case law which goes beyond this, cases such as 'Castle Construction v HMRC' amongst others. One will need to consider mutuality of obligations, the right to provide a substitute, insurance and use of own equipment amongst other things.

If you are thinking of setting up an 'umbrella' company or any self employed contract arrangement it is best you seek professional tax advice first as HMRC are constantly looking into this type of agreement.

If you would like us to take a look at your existing contract or need help with a new set up please get in touch for further information. mitch@ljd.uk.com

Travel Expenses for self employed individuals - Be very careful !

HMRC has picked up on the fact that many self employed people claim home to work travel as a business expense rather than private and over the last 12 months I have seen queries raised on doctors, financial advisors, builders and solicitors to name only some.

The main considerations in determining the allow ability of home to work travel is as follows:

1. is the client an itinerant worker? In other words one that travels from their home to a number of different locations for a purely temporary purpose.

2. Does he have a regular, established itinerary?

3. Is the expense of travel incurred because of the nature of the work?

4. The location of the client’s home

In the case of one of my clients who was a Freelance TV presenter, who lived near Surrey. He travelled from his home to the studio four times a week, there and back every week. He claimed this travel expense in his last tax return. HMRC are arguing that the TV studio is his work base and that his travel should be disallowed.

Another example would be a self employed surgeon who travels each day from his home to either of two hospitals where he carries out operations. HMRC would argue the expense incurred from this travel would not be an allowable deduction.

At the end of the day each case is looked at individually and judged on its own merits and facts. It is vitally important, if you are self employed you are properly advised because HMRC are red hot on this area!

If you don't have a tax advisor get one!

Please contact me for further advice. mitch@ljd.uk.com

Tax Tips for Families

Did you know that each member of the family, even a minor is treated as a separate taxpayer and has their own tax free personal allowances and exemptions?

Spreading assets and income around the family can reduce the overall tax bill. Some key points to consider are:

- If your spouse or partner is a basic rate taxpayer and you are a higher rate tax payer, it may make sense to ensure that income producing assets are in the name of the person with the lower tax exposure. For example a bank account earning high interest or even an investment portfolio.

- If parents give capital that generates income of more than £100 a year, the parents are taxed on that income until the child either becomes 18 or marries.

- The main way of mitigating tax on children’s capital is to ensure it is invested in funds that generate capital growth rather than income.

- If you are thinking about investing in property consider owning the property with your spouse and geeting a deed drawn up to enable benefitial share ownership utilising the spouse's basic rate band.

A good referral this week would be a husband who has his own business and whose wife either doesn’t work or works part-time.

For further details please do not hesitate to get in touch. mitch@ljd.uk.com

Mitch Young from Lerman Jacobs Davis, I am helping you and your business to count!

Generous tax reliefs available if you own a second property !

People that own a second property always ask me for ways to reduce their potential tax liability if they were to sell it. Here are a few useful tips.

If you own a second property you could be liable to pay capital gains tax on the sale of this asset at the rate of 18 or 28%.

I advise my clients with ways to reduce the potential tax liability on the sale significantly which sometimes results in the client having to pay no tax.

There are reliefs available such as lettings relief which if structured properly exempts the first £40,000 of gain, if your partner is named on the property he/she will be entitled to an additional £40,000 exemption as well. There is also the 36 month rule of deemed occupation which you pro rata the time period in which you own the property and thus final 3 years could be exempt. As well as a few others.

There are some real generous reliefs out there, however in order to obtain them you need to make sure that the second property was at some point your principle private residence and it has been subsequently rented out.

The tip is when you buy a second property make sure you move into it and live there for a decent amount of time. Then you will qualify for these generous reliefs and potentially save thousands of pounds.

The reliefs are complicated to work out and you will need to speak with a Tax advisor. If you or your clients own more than one property I can help you save money.

A good referral for me today would be anyone you know who has a rental property, I can help manage the accounts as well as structure a way to save tax

Contact me for further info mitch@ljd.uk.com

Planning on purchasing equipment for your business? Do it now !

There are substantial reliefs available for organisations that spend money on various items of equipment. These are generally known as Capital Allowances.

Capital Allowances are available to sole traders, self-employed persons or partnerships, as well as companies and organisations liable for Corporation Tax.

The current capital allowance regime is to be changed from April 2012 to pay for future cuts in corporation tax.

The Annual investment allowance is an allowance where Businesses can claim for capital expenditure incurred on most items of plant and machinery , including .integral features. (but not business cars), up to a maximum of 100% relief. From April 2012, the allowance currently at £100,000 is scheduled to fall to £25,000.

Businesses can significantly reduce the cost of investing in new assets before the reduced allowances take effect.

So if you have plans to invest in your business next year you may want to think about pushing forward the expenditure to this tax year to maximise your allowances.

This week I am looking to speak with Directors of new start up companies

Mitch Young from Lerman Jacobs Davis helping you and your business to count!

mitch@ljd.uk.com

Be aware of false emails from HMRC !

Have you recieved an email from HMRC about a refund of tax?

HMRC has issued a warning over fraudulent emails, as reports of phishing emails have risen by 300 per cent in the last year.

The emails, which claim to be from HMRC, encourage the recipient to click through to a replica of the HMRC website. The website then asks for their credit card or debit card details, enabling the criminals to access their accounts.

Almost 24,000 of these emails were reported to HMRC in August, an increase of 300 per cent compared to the same month last year. As a result, HMRC is currently helping to get around 100 scam websites shut down each month.

If you have recieved one of these emails please delete them asap. HMRC never communicate via emails with regards to refunds.

Alternatively get in touch with me and I will let contact HMRC for you

Have a great weekend

mitch@ljd.uk.com

Are you getting full tax relief on your pension contributions?

Here is one for you to think about.

Do you contribute to a pension either for yourself or your staff?

Where an employer has set up a stakeholder or similar pension scheme for their staff and an employee who is a higher rate tax is contributing to the scheme, the employee will not automatically get higher rate relief for their contributions and will need to make a claim for this relief on a tax return. This is a common situation which is often not known.

You could be contributing to your employer pension scheme thinking you are getting full relief but actually you are not making the most of it. Go away and speak to your HR Department or direct to your pension company to find out which scheme you are on.

At Ljd we can advise people whether they are getting full relief for their pension contributions and if not make the appropriate claims on the self assessment tax returns.

Please do not hesitate to get in touch for further guidance mitch@ljd.uk.com

Mitch Young from Lerman Jacobs Davis helping you and your business to count!

Is your company being smart by giving you a phone?

Do you have a smart phone that has been paid for by your company or the company you work for?

I have been speaking with a client this week about the provision of phones to employees and the tax implications.

It is a little known fact that whilst provisions of mobile phones are an exempt benefit, this exemption does not apply to Blackberries, Iphones and other smart phones.

Such devices are therefore taxed in the same way as computers and will be taxable unless personal use is insignificant.

Moreover businesses need to have a policy in place to state that employees must keep personal usage to a minimum to avoid tax and reporting implications

Go away and check whether your company has a policy in place otherwise you could face a large taxable benefit at the end of the year.

Feel free to contact me for further advice

Mitch Young from Lerman Jacobs Davis, helping you and your business to count !!

Happy New Year !

Last week marked the beginning of the new tax year and some significant changes to the tax system.

Many of the changes have been introduced as a way of helping with the Government's efforts at budget deficit reduction.

Among many changes, one of the biggest differences people will experience is in income tax. As from 6 April, the personal allowance, which marks the point at which income tax becomes payable, rises by £1,000 to £7,475.

However, the threshold at which higher earners become liable for the 40 per cent tax rate falls to £42,475.

The employee national insurance contribution for those who qualify climbs from 11 per cent to 12 per cent.

Anyone who pays NI over the upper earnings limit sees their charge rise by 2 per cent.

A land tax stamp duty rate of 5 per cent is to be charged on residential property transactions worth more than £1 million.

Pension contributions that are entitled to tax relief now have an allowance of £50,000, down from the previous figure of £225,000.

There is no longer a requirement to purchase a pension annuity by the age of 75.

Now is the time to consider your own tax situation. Why not drop me an email and arrange a free meeting?

mitch@ljd.uk.com

Paying The Penalty

GET YOUR TAX RETURN IN EARLY THIS YEAR !

I say it every year but this coming tax year it may be more important than ever to get your tax return submitted before the deadline because HMRC have just announced the new penalty regime.

Where as in the past if you submitted a tax return late you would be subject to £100 fine and then have a month to pay outstanding tax before a 5% surcharge. Now from this year the old fine of £100 is to be replaced because, the tax authority says, the previous penalty rate was not enough of a deterrent. The new penalty regime for late filing and late payment of self assessment income tax starts in April 2011 and applies to the tax year 2010/11.

Taxpayers who fill in self assessment tax returns will shortly receive their 2010/11 notices and paper returns. These will include information on the new penalty framework and how it will significantly increase penalties for those who file and pay late. A tax return filed six months late could attract a penalty of at least £1,300.

HMRC's Stephen Banyard said: "The vast majority of people don't have to pay penalties because they send in their return and pay on time. But there are always a small number of people who have avoided filing or paying on time. HMRC spends a lot of time pursuing late returns and getting involved in unnecessary appeals work.

The new penalty regime does not look nice.

One day late will mean an initial penalty of £100, even if there is no tax to pay or all the tax owed has been paid.

Three months late will mean an automatic daily penalty of £10 per day, up to a maximum of £900.

Six months late will mean further penalties, which are the greater of 5 per cent of tax due or £300.

Twelve months late will mean yet more penalties, which are the greatest of 5 per cent of tax due or £300. In serious cases, there could be a higher penalty of up to 100 per cent of the tax due.

Penalties for late payment of tax are:

Thirty days late will involve an initial penalty of 5 per cent of the tax unpaid at that date.

Six months late will involve a further penalty of 5 per cent of the tax that is still unpaid.

Twelve months late will involve a further penalty of 5 per cent of the tax that is still unpaid.

I suggest gather all your information in April and get it to your accountant so they have plenty of time to complete your return. Not only will you guarantee your return being filed on time, you can also plan your tax payments. Act now !

If you need help with your tax return please do not hesitate to contact me mitch@ljd.uk.com

I say I say ISA !

With the tax year coming to an end now is a great time to invest in an ISA. People always assume that everyone knows what an ISA is and the benefits of it, but do they and if so are they making the right decision?

There are two types of tax free ISA'S. Cash ISA's are basically ordinary savings accounts, but the interest you accumulate is free from tax. For the 2010/11 tax year you can save up to £5,100 with generous bonus interest rates which are tax free. Then there is a stocks and share ISA where the aim is to pick funds, and/or individual shares and bonds that are likely to deliver high returns for the lowest risk - but that also carry low charges. For the 2010/11 tax year, once you are aged 18 and over, you may invest up to £10,200 into your stocks and shares Isa

However whilst the interest rates seem attractive and the tax free aspect also is a big selling point must investors don’t realise that they could be missing out by not regularly switching their ISA.


The majority of ISA savers are missing out as a result of not switching their savings to accounts that offer higher rates, a consumer organisation has claimed.

According to Consumer Focus, as many as two-thirds of savers who have opened cash ISAs on a 'teaser' introductory rate subsequently lose out because they do not move to a provider offering better rates of interest once the teaser period has lapsed.

Consumer Focus said that many of the best buy cash ISAs offer introductory bonus interest rates that fall after a fixed time, usually 12 months, often leaving savers with uncompetitive accounts.

Cash ISAs can pay as much as 3 per cent interest, but the average interest rate is just 0.43 per cent.

The study carried out by Consumer Focus found that almost a quarter of cash ISA savers did not know whether their accounts had a bonus rate, while a third of account holders with an introductory rate weren't sure if their rates had expired or not.

More than a third of savers who hold a cash ISA have had it for more than five years, suggesting they are losing out on interest that could be gained by switching.

I generally do promote ISA's as a tax saving tool but make sure you manage them properly and speak to a financial advisor regularly to make best use of them. Don’t just leave them to rot and hope for the best !

For further information contact mitch@ljd.uk.com

50% Tax Rate To Go

The 50 per cent income tax rate looks set to be scrapped at a future date.

In BBC interviews, Vince Cable, the Business Secretary, conceded that the tax band was only a temporary measure and could well be dropped.

The Chancellor, George Osborne has already instigated a review of the 50% tax rate, which applies to those earning more than £150,000 a year, a move that indicates the Treasury may be ready to abandon the band as soon as 2013.

Vince Cable told the BBC: "I and George Osborne agree that we have to move away from extremely high marginal rates of tax on income, including that the 50p rate of tax.

"It moved up to 50p in an emergency because we had to have a sense of solidarity that everybody was bearing some of the pain, and the chancellor said in the budget that we're going to have to move away from that. I agree with him."

To offset the loss of the top rate of income tax, Dr Cable suggested the Government may turn its attention to a higher property levy.

He continued: "But it needs to be a change which is fair overall and does take account of the fact that the wealthy have got to pay their share. The emphasis may well have to shift from high marginal rates of tax on income which are undesirable, to taxation of wealth, including property, and the chancellor said as much as that in his Budget."

In a separate interview, the Deputy Prime Minister, Nick Clegg, said that any move would not necessarily mean a return to the Liberal Democrats' proposed mansion tax but could involve a review of council tax or stamp

Whilst this is good news for the higher earners on the one hand, on the other the government will almost definitely find a seperate way to tax them !

Tax planning will be key so please feel free to contact me mitch@ljd.uk.com

The 2011 Budget

"This is not a tax raising budget, neither rising tax not offering give a ways" These were the words used by Chancellor George Osborne as he began his 2011 Budget address. I have to say I was impressed by the way the Chancellor came across as I feel he delivered a promising and fair Budget. In today's post I will highlight 5 key Tax areas that I feel were the most interesting from a tax point of view.

1. The merger of Tax and National Insurance
As I correctly predicted in yesterday's post, the Chancellor stated that "It is time that we take this historic step to simplify our tax system and make it fit for the modern age be merging Tax and National Insurance”. However you will not see this implemented for a number of years but the government will be setting up a consultation unit to implement this.

2. Further Reduction of Corporation Tax
The Higher Rate of Corporation Tax is to be reduced by 2% from April 2011 reducing the rate to 26%. The small and marginal rates are being reduced by 1%

3. Residency/Non Domicile
As predicted in yesterday's post, HMRC will be introducing a statutory residency test. They have not yet produced details on this yet but I will report back in June when details are published. Furthermore if you have been residence for 12 years in the UK but are not domiciled then you could be subject to an increased Remittance Base Charge of £50,000 increased from £30,000.

4. Personal Allowance Increased
Previously, the government announced income tax changes in April 2011, with the personal allowance - the point at which income tax starts to be paid - rising to £7,475. This will go up by another £630 in 2012.

5. EIS & VCT Investment Rules Relaxed
The Chancellor has increased the tax relief on enterprise investment schemes (EIS) from 20% to 30% and relaxed the investment rules for both EISs and venture capital trusts (VCTs).The total amount that can be invested by a VCT or EIS into an individual company will be increased to £10 million from £1 million

There were of course many items discussed in the Budget but I have decided just to make a mention a few that I found interesting. The main item that has got people speaking is the merger of Tax and National Insurance. I believe this is a good idea however it may be near impossible to implement. We shall see what happens.

For a full budget debrief please email me mitch@ljd.uk.com

Predictions for The Budget Tomorrow

Chancellor George Osborne delivers his Budget speech tomorrow with many tax commentators believing there is not much room for manoeuvre bearing in mind the current financial position of the UK. However I diasagree with the commentators and predict that there will be changes as indicated by the Office of Tax Simplification early this year.

I fully believe there is a strong chance that Tax and National Insurance could be merged. This would potentially mean tax savings as you would only have to pay Tax and no National Insurance. The government set up the Office for Tax Simplification (OTS) last year and it is expected that some concrete steps towards streamlining the tax system will be put in place and I believe this is one of them.

Furthermore I am predicting the following 5 items to appear in tomorrow’s budget:

1. IR35 - I believe partnerships will be targeted as HMRC look to clamp down on further 'disguised employments' to avoid rising National Insurance costs

2. Non Domicile/Non Residents - With no concrete rules in place to determine ones residency surely now they must introduce a statutory test!

3. NIC on benefits - an increase of NIC on benefits in kind

4. Stamp Duty - Possibly further anti avoidance legislation to be introduced

5. Inheritance Tax Squeeze - This has already been documented by the OTS as they reported "On the basis of the low number of estates caught by IHT and the useful but relatively low revenues [after reliefs] that it raises, we consider that a more appropriate approach may be to review the whole of IHT rather than to consider individual IHT reliefs"

Overall I believe this year’s budget could see the biggest tax changes we have seen for the past few years and I will be summarising all the key points in tomorrow’s blog.

Please feel free to contact me with any questions mitch@ljd.uk.com

Why Pay 20% VAT? When You Should Pay 5%!

The 5% reduced rate of VAT was introduced almost 10 years ago on 1st April 2001. However not many people are aware of it. The 5% relief is given in two main area, the first being the renovation of an empty dwelling and the second being a conversion in respect of the number of dwellings.

If an existing residential property is renovated, after it has been empty for at least 2 years, the builder should charge 5% VAT for his services. This could apply to a builder renovating a domestic property or alternatively for a potential investor who is buying an empty property renovating it prior to renting it out.

The key thing to do if this applies to you is to obtain credible proof that the domestic property has been empty for 2 years. In practice many builders do not charge the correct rate of VAT in these circumstances.

Examples of changing the number of dwellings include:
- Conversion of a restaurant into a house
- Conversion of 1 house into 2 flats
- Conversion of a barn into a house
- Converting an office into a dwelling

If your builder has charged you incorrectly he should correct the position by issuing a credit note to reduce the amount of VAT. There are also certain forms you can obtain from HMRC for errors on VAT returns.

It is amazing how many property developers do not know about this as potentially it could save them thousands of pounds.

For more information please feel free to contact me mitch@ljd.uk.com

Resident or Non Resident? That is the Question

Most people are under the impression that if they spend less than 183 days in the UK then they can be classified as non resident for tax purposes. This view is totally incorrect and there has been quite a few important cases heard in court recently that outline the real facts.

The main aspect the Revenue focus on (as well as the 183 day rule) is the concept of a 'distinct break'. In order to be classified as non resident you must cut all ties with the UK to include, a property in the UK available for private use and even all social clubs.

The most recent case is Mr Grace vs HMRC. Mr Grace left the UK to go to South Africa. He lived an active social life in Australia with a permanent property as his main residence and only visited the UK on a small number of trips. However as he had a connection with a company in the UK and still retained UK accommodation the Revenue argued successfully he is still resident and would now have dual residency in the UK and Australia.

To me this is crazy when you think about it but what this case illustrates is just how difficult it can be for a UK resident to become non resident.

I would seriously advise to contact your professional tax advisor if you are thinking about leaving the UK even temporarily through work.

Please feel free to contact me mitch@ljd.uk.com

Have You Received an Email from HMRC?

HM Revenue and Customs (HMRC) has warned taxpayers to be on the alert for fraudulent emails.

Following the Tax Return deadline, criminals have been busy sending out phishing emails which claim to offer people tax refunds. They are, in fact, fraudulent.

The emails provide a click-through link to a replica of the HMRC website. The recipient is then asked to provide their credit card details. Fraudsters use the information to try to strip funds from the person's account. In the last three months, HMRC has shut down 99 websites that were responsible for sending out the fake tax rebate emails.

Chris Hopson, director of customer contact at HMRC, said that, as a matter of policy, HMRC will only ever contact customers who are due a tax refund in writing by post. He added: "If anyone receives an email offering a tax rebate claiming to be from HMRC, we recommend they send it to phishing@hmrc.gsi.gov.uk before deleting it permanently."

Should anyone receive a suspicious email claiming to be from the tax authorities, HMRC has advice on how to deal with it. Suspicious emails should be forwarded to HMRC at phishing@hmrc.gsi.gov.uk and then deleted from recipients' computers and mail accounts.

Nobody should click on the websites or on the links contained in suspicious emails, or open any attachments.

HMRC never use emails so if you recieve an email from HMRC delete it or contact your Tax Advisor.

Please feel free to contact me mitch@ljd.uk.com