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
Taxing Times
Helpful tips and useful guidance to help you manage those ever increasing tax charges. A blog for those interested in the UK tax system
Wednesday, 12 September 2012
Tuesday, 4 September 2012
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
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
Thursday, 16 August 2012
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
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
Friday, 3 August 2012
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
Thursday, 19 July 2012
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.
Thursday, 12 July 2012
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.
Friday, 15 June 2012
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
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