I say I say ISA !

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

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

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


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

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

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

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

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

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

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

For further information contact mitch@ljd.uk.com

50% Tax Rate To Go

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

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

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

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

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

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

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

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

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

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

The 2011 Budget

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

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

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

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

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

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

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

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

Predictions for The Budget Tomorrow

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Resident or Non Resident? That is the Question

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

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

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

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

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

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

Have You Received an Email from HMRC?

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

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

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

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

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

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

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

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