Child Benfit - Don't leave it too late to notify

I wrote a blog post on child benefit a few months back but since that time there has been some important updates which I have included in this latest offering.

I recently went on a brilliant tax update course with my favourite tax speaker Tim Palmer taking it. He shared some very interesting stories about the latest tax investigations but he also brought us up to date with the latest tax position on child benefit, which I thought I would share with all of you as it is very interesting and probably some of you reading this will be affected.

Firstly legislation has been introduced to impose a new tax liability on a taxpayer who has income greater than £50,000, where they receive child benefit. It is important to note this is not the collective income with your partner and if your income is less than £50,000 and so is your partners, then the child benefit is not taxable. This new legislation comes into effect from 7th January 2013.

The £50,000 is 'net taxable income' i.e. after gross pension contributions but before personal allowances. For the current year (2012/13) taxpayers will pay income tax on the period 7 Jan 2013 - 5th April 2013.

Therefore if your income is between £50,000 - £60,000 you will have to pay income tax of 1% on the amount of child benefit you receive in the year, for every £100 of your income that exceeds 50k. If your income exceeds 60k however you will pay an income tax bill that actually equals the child benefit! For example if you have income of £60,000 and your partner received child benefit for 2 children of £1,752 for the year, the income tax will equal £1,752 which is the full amount received anyway giving a nil effect.

Individuals who earn above £50,000 per annum and receive child benefit will now need to register for self assessment with HMRC or face penalties in the future!

This will force thousands of individuals into a self assessment regime. Furthermore HMRC guidance states that you have to declare the amount you are entitled to and not received as the figure to go onto the retune.

If you do earn above 60k you can if you wish elect to not claim child benefit by disclaiming it.. HMRC will be producing a form in the coming months to enable this to happen.  This form must be submitted to HMRC by 7 January 2013.However my opinion is that the majority of individuals will still keep it as their partners have used the income for their children and more importantly for the 'stay at home mums' will lose the Home Responsibility Protection which will mean they may lose the qualifying years for their state pension, meaning their state pension will be lower.

In summary there are 3 different scenarios:

1. If the partners both individually have income below £50,000, then the child benefit is not taxed at all

2. If either of them has income greater than £60,000, the income tax bill on the child benefit equals the benefit itself and must be declared on a self assessment tax return.

3. If either of them have income between \£50,000 and £60,000, he will have to pay income tax of 1% of the child benefit element in the fiscal year for every £100 of his income over £50,000

The income tax charge arises when the claimant of the child benefit is entitled to receive it and not when they actually receive it. The person who is liable to pay the income tax charge (father) is responsible for notifying HMRC of their chargeability. Employees who are entitled to child benefit with net income greater than £50,000 must notify HMRC to avoid penalties.

I do not agree with the government on this and feel it is unfair and also to bring this into the self assessment tax regime is unnecessary and I can predict a lot of complications in the future.

As stated above this will no doubt affect a lot of you reading this as you will now need to complete tax returns and register with HMRC - Please contact me for a free initial chat and I will happily advise you and offer you 25% off our usual service fee.

Thank you for reading my blog and please do not hesitate to get in touch I am happy to help




Mitch the Tax Man
mitch@ljd.uk.com

PAYE Changes - Real Time Information - Make sure you are ready !

I have found some very useful guidance from HMRC that should help you understand what Real Time Information is and how it will effect the way you and your Company operate PAYE.

What is Real Time Information
From April 2013 there will be a new way to report PAYE in real time,  Real Time Information (RTI).
Under the present PAYE system, employers tell HMRC what deductions they have made from employees’ pay at the end of the year.
Over time reporting PAYE in real time will help improve accuracy for some individuals by improving processes relating to starterrs and leavers.
It will also provide accurate records on wages and tax for the forthcoming Universal Credit, so eligible employees will get the right amount of benefits or tax credits every month.

What is changing?
PAYE itself will not change – just the way, and how often, employers send PAYE details to HMRC.
Instead of sending all PAYE details to HMRC in one go, at the end of the year, from April 2013 employers will have to:
send details every time a payment is made
use payroll software to send the details electronically
send the details as part of your normal payroll process.

How will RTI benefit employers and pension providers?
By getting rid of employer annual returns and streamlining the starter and leaver processes, RTI will remove admin burdens from businesses of around £300m each year.

What is the timetable for introducing RTI? 
RTI is being introduced progressively to give plenty of time for testing the new systems. We began piloting RTI in April 2012, with around 310 volunteer employers.  The pilot is going well and is on track.
Most employers will begin reporting PAYE in real time in April 2013, with all doing so by October 2013.  

Next steps
Businesses of all sizes should start preparing for RTI now by talking to their payroll software provider or payroll service provider about how they are developing appropriate payroll software. It’s also vital that employers check that information about their employees is accurate and up to date. This involves making sure that surname, forename, gender, address, date of birth and National Insurance Number (NINO) are correct and in the right format. Employers should also make sure that they add staff to their payrolls who will now need to be included with their RTI submissions, for example, those under the Lower Earnings Limit (LEL). For more help and advice on improving data quality go to www.hmrc.gov.uk/rti/dip/index.htm
For further information about RTI go to: www.hmrc.gov.uk/rti

If you need any further help or have any additional queries please do not hesitate to contact me mitch@ljd.uk.com

Also please have a look at my new update facebook page and LIKE http://www.facebook.com/Mitchthetaxman

Yours in Tax


Mitch the Tax Man

Tax Planning Ideas - Reducing the costs of National Insurance

One area that often gets over looked when discussing tax savings and planning ideas is National Insurance. As we know National Insurance Contributions are on the rise and I expect them to continue to increase over the next 3 tax years. NI can be a major cost for a business and thus I thought I would share some simple tax tips to potentially lower this cost for you and your associates.

Dividends
The most common suggestion I make is to ensure that a Director takes a low salary and increases the amounts he takes in dividends. This will ensure one pays the marginal National Insurance Contributions and the rest is only subject to corporation tax at 20% with no additional NIC liabile. One thing to bear in mind is that if you are changing salaries for existing directors ou must ensure you have meeting notes on file with shareholders agreement and potential a revised contract of the new arrangement.

Pension Contribution
Another planning point can be to entering employees into a salary sacrifice pension scheme. This enables payments into the scheme to made from the gross pay. You must ensure inwrirting that the employee has given up part of his salary in favour of the company making a contribution.

Self Employment
A company can consider engaging individuals on a self employed basis rather than an employed contract. This is simply a matter of drafting appropriate contracts and terms and conditions.  The benefit is obvious as one would not pay employees/ers NI. The most important thing here is getting the contract right as HMRC often investigate this scenario

Share Incentive Schemes
Similar to the benefits under a salary sacrifice arrangement, an employer can set up this share scheme giving employees and option to purchase shares out of their gross pay and thus would not attract NI. The downside of this is that a trust must be set up and the shares must be held for five years to avoid further tax implications.

These are four very good, basic tips to give you and your associates ideas to reduce any National Insurance Costs.

As you know I am working hard to build my own client base so if you know of anyone who needs tax compliance work or advice please pass them my details

Thanks for reading and feel free to comment


Mitch the Tax Man

Helping Pensioners

Good morning everyone, Mitch Young from Lerman Jacobs Davis the young dynamic accountants who are committed to saving our clients hassle and money

I love dealing with pensioners – This week I helped a pensioner client of mine by saving him over £120 a year in tax

The way that one pays tax on a State Pension depends on whether the individual is employed or not:

• if you're working, you'll pay tax through your employer's PAYE scheme depending on the amount you earn
• if you're not working, you'll need to pay tax through Self Assessment by completing a tax return

My client completes tax returns and has state pension income that he pays tax on but after checking the full breakdown of what made up the state pension I found out it included, attendance allowance and winter fuel payments which are not taxable and he has always been paying tax on it !!

I thereby requested a repayment of tax for him and saved him £120 a year moving forward. No doubt he was delighted and fully appreciated my thorough approach to his situation 

Furthermore if you are a pensioner who has income less than the personal allowance and you have income such as bank interest that is taxed at source we can claim that tax back for you

Thus this week I would love to review any tax affairs of pensioners who you may know as I am sure I can help them potentially save tax

That’s Mitch Young from Lerman Jacobs Davis, helping you and your business to count

mitch@ljd.uk.com

HMRC to tax 5 a side football - Act Now !!

Good morning everyone, Mitch Young from Lerman Jacobs Davis the young dynamic accountants who are committed to saving our clients hassle and money

HMRC have caused up roar in the sporting world by trying to tax five a side football.

The 150 plus sites around the country that offer all-weather pitches to play and train on for small sided football are poised to receive a VAT bill of 20 per cent from HMRC under proposals from the government

Leagues say they would be forced to pass on the tax to individual players, costing about an extra £1 per player per match – or up to £100 a year for someone playing twice a week. Clubs say this will inevitably reduce the number of people playing football. This is not fair !

There is a petition on the telegraph website so make sure you sign it !

 http://www.telegraph.co.uk/sport/football/VAT-5-side-football/9393175/Scrap-VAT-on-five-a-side-football-Telegraph-petition.html

Thus this week I would love an introduction to any Residents Asssociations you know or work with

That’s Mitch Young from Lerman Jacobs Davis, helping you and your business to count.

Can a purchase of a Box at your favourite football club be tax deductible?

Good morning everyone, Mitch Young from Lerman Jacobs Davis the young dynamic accountants who are committed to saving our clients hassle and money

HMRC recently queried an engineering company claiming a deduction for a cost of a box at a London Premier League football club. For the 19 home matches they invited clients to the box to watch the game but before each match the partners held a board meeting. They also had promotional material highlighting their services and gave a brief presentation.

No children were invited and this was a genuine promotional targeted series of event. Furthermore they disallowed the separate bill for food and wine. They claimed it was like renting a satellite office for an event. HMRC investigated it and the engineering company won!

Thus this week I would love an introduction to any company directors you know who love football.

That’s Mitch Young from Lerman Jacobs Davis, helping you and your business to count.

Tax Tips - June 2012

There is a lot happening in the tax world this month so please have a look through the below five important tax tips for you to think about.

1. If you have received notices from HMRC informing you that you have under or overpaid tax for the year 2011/12 then this is a result of an annual check of PAYE carried out by HMRC and that an underpayment will most likely be coded out in your PAYE code.

2. There could be potentially a large tax saving if you you regularly draw a large bonus remuneration or dividend from your company and you defer this income until after 5th April 2013 where the tax rates get reduced slightly.

3. Another warning about various marketed tax schemes is that these are often very expensive to get involved in and more importantly that they can ultimately be found to be ineffective by HMRC and the courts, or event countered by retrospective legislation.

4. Are you involved in software development? Then you could take advantage of the extremely advantageous and generous tax relief known as research and development relief. Provided you can show that the various conditions are met then you could obtain a tax deduction of 125%.

5. We have seen over the past few years a rise in the popularity of personal service companies. The main area of concern for HMRC is that employees could provide their services through a medium of a company and as a result avoid PAYE and National Insurance. In the light of this HMRC has produced a business entity test which asks the customer a number of questions and scores the results on a points system. This is a good measure in determining whether someone is caught by the IR35 legislation. Consider applying this test in determining your risk factor.

I hope you have found these useful and should you require any tax assistance please do not hesitate to get in touch

Yours in tax

Mitch the Tax Man 

mitch@ljd.uk.com

P.S. As previously mentioned, I like to grow my business on a referral basis. I would therefore very much appreciate if you could suggest to me any colleagues, friends or family members of yours who might be interested in our services and I can guarantee my utmost discretion and professionalism

78% Tax Relief with The Seed Enterprise Investment Scheme

As a tax practitioner I am often asked by clients how they can reduce their tax bill. I am always cautious when it comes to pointing clients in the direction of tax efficient investments but the latest offering known as the Seed Enterprise Investment Scheme (SEIS) offers some of the most generous tax reliefs seen in a long time.

SEIS is designed to help small, early-stage companies raise equity by offering generous tax reliefs to individual investors who purchase new shares in qualifying companies. The investor obtains 50% income tax relief up to a maximum of £100,000 invested and the company can raise up to £150,000 investment in total.

The scheme is intended to recognise the difficulties early stage companies face in obtaining investment, by offering tax reliefs at a higher rate than that offered by established tax efficient investments such as the existing Enterprise Investment Scheme (EIS). The SEIS should help new companies in the UK find funding and I expect there to be a steady rise in new company formations over the coming year. I think SEIS is an excellent scheme and what is more remarkable is the fact that, even if you are a basic rate tax payer, you can still benefit from 50% relief (provided you have paid sufficient tax in the year in question.

Furthermore there is an exemption from capital gains tax on gains realised from the disposal of assets where such gains are reinvested through the new SEIS. This means that the total tax relief could reach a staggering 78% if taxable gains are reinvested into the scheme: 50% tax relief and 28% capital gains tax relief. This means that if someone is sitting on a capital asset (say a rental property purchased 30 years ago) and if they were to sell it today for a large profit, resulting in a capital gains tax liability at 28%, if they invest the gain through a SEIS qualifying company then there will be no capital gains tax to pay!

To give you an example, Gareth has an uncle who is about to open a new stationery office via a limited company. He is sure his uncle would make a great success of the company. Gareth is a basic rate tax payer and he wishes to invest in his uncle's SEIS approved company.

He will claim a 50% deduction from his income tax liability on the investment. Furthermore, Gareth has made some capital gains on the sale of a share portfolio. He will invest the gains made into the stationery company resulting in the gains becoming tax free. Therefore, Gareth will get 78% tax relief on his investment.To claim the SEIS relief, the investor must have received a compliance certificate from the issuing company. The company must not have more than 25 employees, no more than £200,000 gross assets and be not more than 2 years old. Other conditions to bear in mind are that an investor cannot have a substantial interest in the company (i.e. greater than 30% shareholding) and cannot be an employee. Curiously, however, directors are not excluded.

The shares must be held for a period of three years from the date of issue for relief to be retained. If they are disposed of within that three year period, or if any of the qualifying conditions cease to be met during that period, relief will be withdrawn or reduced.

Application to HMRC for SEIS is made using Form SEIS1.

The company cannot submit an SEIS1 until either:

• it has been trading for at least four months


• if not yet trading, it has spent at least 70 per cent of the monies raised by the relevant issue of shares

HMRC have a special unit dealing with SEIS and advance clearance can be obtained that the company's trade qualifies.

In conclusion, I believe this is a truly great incentive for investors to invest in UK companies and will generate a lot of interest. I have been approached by numerous clients who want to set up new trading companies or investors looking for SEIS companies to invest in. Either way I would seriously recommend using SEIS to invest in these companies, especially as the legislation on connected persons is being relaxed, meaning you can invest in a company established by your partner/wife/family. However, bear in mind, if you are considering investing in a new company there is significant risk attached. Always seek professional advice before investing. For further information please do not hesitate to contact me. mitch@ljd.uk.com

Thank you for reading my blog

Mitch the Tax Man

Child Benefit - The new Income Tax Charge

I recently went on a brilliant tax update course with my favourite tax speaker Tim Palmer taking it. He shared some very interesting stories about the latest tax investigations but he also brought us up to date with the latest tax position on child benefit, which I thought I would share with all of you as it is very interesting and probably some of you reading this will be affected.

Firstly legislation has been introduced to impose a new tax liability on a taxpayer who has income greater than £50,000, where they receive child benefit. It is important to note this is not the collective income with your partner and if your income is less than £50,000 and so is your partners, then the child benefit is not taxable. This new legislation comes into effect from 7th January 2013.

The £50,000 is 'net taxable income' i.e. after gross pension contributions but before personal allowances. For the current year (2012/13) taxpayers will pay income tax on the period 7 Jan 2013 - 5th April 2013.

Therefore if your income is between £50,000 - £60,000 you will have to pay income tax of 1% on the amount of child benefit you receive in the year, for every £100 of your income that exceeds 50k. If your income exceeds 60k however you will pay an income tax bill that actually equals the child benefit! For example if you have income of £60,000 and your partner received child benefit for 2 children of £1,752 for the year, the income tax will equal £1,752 which is the full amount received anyway giving a nil effect.

Individuals who earn above £50,000 per annum and receive child benefit will now need to register for self assessment with HMRC or face penalties in the future!

This will force thousands of individuals into a self assessment regime. Furthermore HMRC guidance states that you have to declare the amount you are entitled to and not received as the figure to go onto the retune.

If you do earn above 60k you can if you wish elect to not claim child benefit by disclaiming it permanently. HMRC will be producing a form in the coming months to enable this to happen. However my opinion is that the majority of individuals will still keep it as their partners have used the income for their children and more importantly for the 'stay at home mums' will lose the Home Responsibility Protection which will mean they may lose the qualifying years for their state pension, meaning their state pension will be lower.

I do not agree with the government on this and feel it is unfair and also to bring this into the self assessment tax regime is unnecessary and I can predict a lot of complications in the future.

As stated above this will no doubt affect a lot of you reading this as you will now need to complete tax returns and register with HMRC - Please contact me for a free initial chat and I will happily advise you

Thank you for reading my blog and please like or share with your contacts

Mitch the Tax Man

mitch@ljd.uk.com

Tax Evasion or Tax Avoidance?

Ever since the last Budget there has been a lot of commentary on tax avoidance and following on from last night’s BBC Panorama show 'the truth about tax' I thought I would share my comments and understanding on the difference between Tax Evasion and Tax Avoidance.

Tax evasion is in quite simply unlawful and can expose the taxpayer to penalties. Examples include giving inaccurate information or describing a transaction as something different from what it really is. It is basically a form of deception.

Tax Avoidance however has developed over a number of years in to what we have today in artificial schemes by which a sequence of transactions is undertaken for the sole purpose of mitigating a tax burden much like what was shown in the panorama show.

I have taken a quote from the judge in the tax case Duke of Westminster 35 that perhaps sums it up the best "A taxpayer may have a choice between two or more alternative methods of achieving a desired result. He is entitled to select the method, if lawful which avoids altogether or reduces the tax he would pay on another alternative. He is not to be taxed on the basis that a more normal method would attract a heavier tax burden. The selection of a tax effective method is called tax avoidance"

The best analysis on tax avoidance does come from case law and taken from the 'Ramsay' case the courts came up with a strategy to look at tax avoidance.

1. There must be a per ordained series of transactions

2. Into which are inserted steps which have no commercial purpose except the avoidance of tax

3. In which case the court may disregard the inserted steps in deciding how the transaction should be taxed.

4. Look at the end result.

This is the basic form the courts have been using over the past 20 years to tackle these artifical tax avoidance schemes however many sophisticated schemes have been winning. I believe now along with the Chancellor's Budget we will see more anti avoidance measures put in place potentially starting with stamp duty mitigation and in a fairer society this can only be seen as a good thing. Although how strict these provisions are remains to be seen and I suspect the highly intelligent people operating these schemes will find a way around it.

It is very hard as a tax practitioner to tell a client who wants to minimise his tax liability and has taken part in these various schemes that it is unethical and to me goes against certain principles. I believe others have to suffer and pay more tax whilst people are working within the tax avoidance legislation to sometimes not paying tax at all. However whilst it is still 'law' and the legislation has not been amended then as a practitioner you have to accept the schemes. HMRC of course operate the general anti avoidance provision. Where the scheme must by notified to HMRC by its promoter to obtain a reference number to go on the tax return. There is a £5,000 penalty for failure to notify.

Tax Avoidance is a term that should not be used loosely and can’t be interrupted in a number of ways. Whilst I would not promote any artificial schemes I am all in favour of tax planning to minimise the client’s liability and here are some examples:

1. Income bearing assets should be held by the spouse with the lowest marginal rate to tax.

2. The use of pensions can reduce tax in the years of high income working whilst making provisions when the marginal rate is lower

3. On the sale of a business there is some scope for allocating the price between different assets to reduce the tax burden

I have many more what we call 'lawful' tax planning tips.

I hope you have found this useful and provide a clearer picture of tax evasion and tax avoidance and if you would like any help with your tax or have any questions please email me mitch@ljd.uk.com


Mitch the Tax Man

Tax Tips - May 2012

It has been a while since I issued some Tax Tips, so here are 5 important tips you should be aware of for the month of May.

1. Submit your 2011 Tax Return. If you have not submitted last year’s tax return HMRC will now start charging daily penalties. Where a client has not filed a Tax return 3 months from the return due date Daily penalties will start to accrue for a period up to 90 days at a rate of £10.00 per day, the rate is fixed and cannot be changed (except by legislation) and in the majority of cases this will be an automatic process

2. HMRC has wrongly sent penalty notices to taxpayers who no longer have to submit a tax return. If you have received a penalty notice and no longer need to complete a tax return then you can write to HMRC appealing this notice.

3. Do you operate through personal service companies? If so you may be subject to IR35 rules and it is important to have a meeting with a tax advisor to see if any potential liability can be mitigated.

4. Do you operate takeaway food outlets and are you operating the present VAT rules correctly? The new proposals state VAT should be charged on all hot food takeaway except freshly baked bread.

5. End of year PAYE Employers' Return is due in by 19th May. You will needs to submit the P35 & P14 forms online by this date or face a penalty between £100 - £3,000. Even if no tax have been deducted. To avoid unnecessary penalties tell your PAYE office by May 19th that no return form is required.

I hope you found these tips useful and if you require any assistance please do not hesitate to get in touch.

Being the start of the tax year I am looking to speak with newly self employed individuals.

Have a great weekend




Mitch the Tax Man

Mitch@ljd.uk.com
@mitchyoung27

How to avoid paying Capital Gains Tax on the sale of your property?

Good morning everyone, Mitch Young from Lerman Jacobs Davis the young dynamic accountants who are committed to saving our clients hassle and money.

Well here is one for you. How can we avoid paying capital gains tax on our home?

This was a question a reader of the Daily Express asked and you can read my answer that appeared  in the National Paper 2 weeks ago below,

 “Approximately 15 years ago my parents put their bungalow into my name in the belief that if they had to go into care they would not have to sell their home to cover the cost.

My father has since passed away and my mother still lives in the property. I have been informed that, because my husband and I own our house, when my mother dies the bungalow will be classed as a second property and I will have to pay Capital Gains Tax on it.

If this is so, is there anything I can do to prevent this? I have been given lots of different advice, but nothing definite - such as putting the property back into my mother’s name (may have to pay CGT), or moving into the property and living there for six months after she dies.

Would this help, or is there anything else I could do to avoid paying this tax?”

If you sell the property and make a gain then this will be chargeable on both you and your husband. You will have to pay capital gains tax at 18% or 28% depending on your total income for the tax year. However, the good news is that the gain will be split between you and your husband meaning that both of you will be entitled to an annual capital gains exemption of £10,600 each. This will result in a total exemption of£21,200, subject to any other gains and losses you may have in the tax year.

There are ways that you can potentially reduce the gain. One way is if you and your husband move into the property for a period of time after the death. You will need to make sure that the property becomes your residence for long enough for it to be treated as your principle private residence. As a result you will benefit from capital gains tax relief of 36 months of ownership.

Also, after becoming your principal private residence, if you were then to move out and rent the property out, this would enable you to take advantage of lettings relief. This gives you a capital gains tax exemption calculated in one of three ways: the lower of the actual gain or the amount qualifying for principle private residence relief or £40,000.

It is important to point out that the actual cost of the property used for the capital gains calculation will be the market value of the property when it was transferred to you and not the original cost when your mother purchased it.

This is the 4^thtime in 6 months the Daily Express have asked me to contribute to their National Paper and this shows that they trust our knowledge, advice and proves we are a respectable, up to date young dynamic firm of accountants. I have written further articles which should appear in the near future as well.

As you know it is the start of the tax year so I would love to hear from anyone you who requires help with their tax affairs, to include freelancers, landlords and footballers.

Please contact me mitch@ljd.uk.com

Thank you for reading and have a great weekend

Mitch the Tax Man