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
Friday 21 October 2011
Tuesday 18 October 2011
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!'
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!'
Friday 14 October 2011
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
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
Wednesday 12 October 2011
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
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
Monday 10 October 2011
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
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
Wednesday 5 October 2011
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
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
Monday 3 October 2011
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!
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!
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