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