The majority of clients always fall down when it comes to record keeping. I often ask myself, why is it so hard to keep appropriate records? The problem is when it comes to their yearly tax returns accountants and tax specialists often have to use estimates and this can be an issue with HMRC. Furthermore you have to keep your records for 6 years in a safe and organised manner in case of an investigation by the Revenue but in practice when a client gets investigated for previous years they may not be able to obtain the requested information and suffer penalties and additional tax.
HMRC have recently set up a number of guides to help self employed individuals and businesses ensure they are keeping appropriate records. The guides cover:
- Keeping Records for Businesses
- A general guide to keep records for tax returns
- Setting up basic record keeping
- What should be kept?
While this seems nice of HMRC to post these guides my view is that you should all take this as a big warning sign. HMRC investigate returns on a random basis but if they see something out of the ordinary or what perceives to be an estimate they can look back to previous returns. HMRC will be stepping up their reviews of self employed individuals and businesses over the forthcoming year.
Richard Mannion of Smith & Williamson stated " HMRC planned record checks marks a change and hardening of attitude, business owners should take these warnings seriously".
My advice would be to follow these 6 steps:
1. Keep records going back at least six years
2. Retain invoices, bank statements, purchase details, expenses and so on
3. Be careful when allocating personal and business use and have necessary paperwork to back this up
4. Be up to date
5. Avoid estimates
6. Provide everything to your tax advisor and get him to keep you up to date
Each year clients tell me they will be more organised next year and when next year comes around they are even less organised than the year before! So I say stop sounding like a broken record and let your accountant/tax advisor get your records organised and up to date.
Feel free to contact me mitch@ljd.uk.com
Friday, 11 March 2011
Wednesday, 9 March 2011
Til Death Do Us Part
Following on from yesterday's post 'don't take your spouse for granted', I thought I would comment on a different tax where, with detailed planning, you could benefit from your spouse's allowances. I am of a certain age where I don't always think about death but those of you more morbid than me should think about their Estate and Inheritance Tax Planning. I will be focussing today on the Nil rate band. The nil-rate band is the value of an estate that is not subject to Inheritance Tax currently set at £325,000.
The legislation allows that the proportion of any Inheritance Tax Nil Rate Band, that was unused on a person's death be transferred to their spouse, if the second death is on or after 9th October 2007. This applies even if the first death was before 9th October 2007. The amount of allowance to be transferred is determined by the rate of the nil rate band on the later death. If part of the allowance was used on the first death, the unused percentage is applied on the later.
What if the deceased had several spouses? In this situation the maximum allowance that can be transferred is restricted to one nil rate band. As a result, the married couples combined nil rate band now stands at £650,000 for 2010/11.
The basic idea of the legislation is that the estate of a surviving spouse will be able to claim the unused proportion of any previously deceased spouse's IHT nil rate band. With careful planning you may be able to save a large amount of tax.
In theory this sounds very simple but in realty the process of getting this through HMRC is quite tricky so make sure you speak to your accountant and perhaps even review your will to make sure it is tax efficient.
For further information please do not hesitate to contact me mitch@ljd.uk.com
The legislation allows that the proportion of any Inheritance Tax Nil Rate Band, that was unused on a person's death be transferred to their spouse, if the second death is on or after 9th October 2007. This applies even if the first death was before 9th October 2007. The amount of allowance to be transferred is determined by the rate of the nil rate band on the later death. If part of the allowance was used on the first death, the unused percentage is applied on the later.
What if the deceased had several spouses? In this situation the maximum allowance that can be transferred is restricted to one nil rate band. As a result, the married couples combined nil rate band now stands at £650,000 for 2010/11.
The basic idea of the legislation is that the estate of a surviving spouse will be able to claim the unused proportion of any previously deceased spouse's IHT nil rate band. With careful planning you may be able to save a large amount of tax.
In theory this sounds very simple but in realty the process of getting this through HMRC is quite tricky so make sure you speak to your accountant and perhaps even review your will to make sure it is tax efficient.
For further information please do not hesitate to contact me mitch@ljd.uk.com
Tuesday, 8 March 2011
Taking your spouse for granted must stop !
Giving some income to a spouse has always been a way to lower taxes. However the process known to many as income splitting will soon come under great scrutiny in the forthcoming budget.
Since the introduction of the independent taxation of married couples back in 1990, married taxpayers have sought to minimise overall income tax liabilities by ensuring, where possible, that each spouse utilises their personal allowance and lower tax band. In particular the use of a family run company where in order to extract profits a dividend or salary gets paid to the wife.
The most famous case known as 'Artic Systems Limited' which HMRC lost involved a family run IT Company where the wife only spent a few hours a week doing administrative work. At the end of the year they both received a 50/50 split in the dividends. HMRC challenged this and lost in courts stated this was not caught by the settlement legislation. This is a very basic description of what was a large case and if you are interested in knowing more just drop me an email.
Speaking to the Telegraph, the tax director of HMRC (Treasury Office of Tax Simplification), John Whiting said that income splitting was one of the issues it was looking into, alongside National Insurance Contributions and IR35. "I hope we can come up with some quick tweaks that can make a difference, but I am no under illusions that some of the things we could come up with will require some serious study. I don't think we were ever confident that income splitting was in that 'never to come out again' box," said Whiting. "It is in the Dracula category. I don't think anyone ever put the stake through its heart"
You have been warned. If you have a family run business now is the time to look into your structures and ways of extracting profits. For those that are thinking of proposing to their other half, just to use your their tax exemptions I am afraid you will have to just marry for love !!!
Contact me for further information mitch@ljd.uk.com
Friday, 4 March 2011
50 Tax Reliefs to be Abolished !!!
I was shocked to read on the Treasury website today that they are suggesting the abolishment of 50 of our precious tax reliefs.The Office of Tax Simplification is a department employed by the Treasury to help simplify tax policy but is this simplifying matters or just getting more tax out of us.
In its review of over 150 reliefs, the final report on which has been submitted to the Chancellor, the OTS suggested that 54 remained unchanged and that 47 be scrapped. A further 17 should be simplified, while the remainder require further examination.Of those that could be simplified, the OTS proposed that the rule which demands a 5 per cent shareholding in order for business owners to qualify for the 10 per cent entrepreneurs' relief rate of capital gains tax be dropped.
The report also suggested introducing a checklist for the four reliefs covering the enterprise investment scheme.
John Whiting, tax director for the OTS, said: "It's clear that many of the reliefs are valuable and clear in their purpose and operation, so we have not sought to change them, but others need simplifying or extending to be properly effective. Some have simply expired and have no further use; a number are poorly targeted leading to negligible value, or their benefit is outweighed by the administrative burden in using them.way."
I believe the forthcoming budget is going to shock people. Higher taxes less reliefs times ahead dont look too bright. I say act now, arrange meetings with your Tax Advisor/accountant and have a full review of your circumstances.
You can contact me at mitch@ljd.uk.com
In its review of over 150 reliefs, the final report on which has been submitted to the Chancellor, the OTS suggested that 54 remained unchanged and that 47 be scrapped. A further 17 should be simplified, while the remainder require further examination.Of those that could be simplified, the OTS proposed that the rule which demands a 5 per cent shareholding in order for business owners to qualify for the 10 per cent entrepreneurs' relief rate of capital gains tax be dropped.
The report also suggested introducing a checklist for the four reliefs covering the enterprise investment scheme.
John Whiting, tax director for the OTS, said: "It's clear that many of the reliefs are valuable and clear in their purpose and operation, so we have not sought to change them, but others need simplifying or extending to be properly effective. Some have simply expired and have no further use; a number are poorly targeted leading to negligible value, or their benefit is outweighed by the administrative burden in using them.way."
I believe the forthcoming budget is going to shock people. Higher taxes less reliefs times ahead dont look too bright. I say act now, arrange meetings with your Tax Advisor/accountant and have a full review of your circumstances.
You can contact me at mitch@ljd.uk.com
Thursday, 3 March 2011
Plumbers Tax Plan Leaked
HMRC have just launced a new tax plan for Plumbers !
Under the tax plan plumbers, gas fitters, heating engineers and members of associated trades who have undisclosed taxable income can register their intention to make a voluntary tax disclosure by 31 May. If they make a full disclosure, most will face a penalty of 10% of the unpaid tax.
Once the disclosure window closes, those that have not come forward but are found to have unpaid tax liabilities will face penalties betwene 30% - 100% of the unpaid tax.
To me this scheme is not restricted just to plumbers as European Law would suggest it should be open to everyone and many people agree. The Chartered Institute of Taxation said: ‘HMRC are saying that if anyone else voluntarily comes forward to put their tax affairs in order they can expect broadly the same terms to those on offer through the Plumbers Plan.
HMRC said the new Plumbers Tax Safe Plan (PTSP) represents a ‘clampdown on tradespeople failing to declare their earnings and pay tax’. But the terms are ‘in line with those HMRC offers for any full and accurate unprompted voluntary disclosure of tax liabilities’.HMRC guidance published today says: ‘Customers who voluntarily come forward and put right their tax position can expect very similar terms to those on offer through PTSP.’
This backs up my argument, HMRC are giving everyone a chance to come forward and the message is loud and clear. Contact them before they contact you.
You can contact me for assistance mitch@ljd.uk.com
Under the tax plan plumbers, gas fitters, heating engineers and members of associated trades who have undisclosed taxable income can register their intention to make a voluntary tax disclosure by 31 May. If they make a full disclosure, most will face a penalty of 10% of the unpaid tax.
Once the disclosure window closes, those that have not come forward but are found to have unpaid tax liabilities will face penalties betwene 30% - 100% of the unpaid tax.
To me this scheme is not restricted just to plumbers as European Law would suggest it should be open to everyone and many people agree. The Chartered Institute of Taxation said: ‘HMRC are saying that if anyone else voluntarily comes forward to put their tax affairs in order they can expect broadly the same terms to those on offer through the Plumbers Plan.
HMRC said the new Plumbers Tax Safe Plan (PTSP) represents a ‘clampdown on tradespeople failing to declare their earnings and pay tax’. But the terms are ‘in line with those HMRC offers for any full and accurate unprompted voluntary disclosure of tax liabilities’.HMRC guidance published today says: ‘Customers who voluntarily come forward and put right their tax position can expect very similar terms to those on offer through PTSP.’
This backs up my argument, HMRC are giving everyone a chance to come forward and the message is loud and clear. Contact them before they contact you.
You can contact me for assistance mitch@ljd.uk.com
Tuesday, 1 March 2011
Do I Need to Complete a Tax Return? .... YES !!
This question always comes up. Friends and clients a like as well as seasoned professionals somethimes are left confused as to whether they need to complete a Self Assessment Tax Return. A friend of mine recently stated "The Revenue have not requested a return from me so therefore I do not need to complete one". My friend is a Marketing Manager who earns £55k a year and has a small rental property in Bournemouth that yields a small profit of £1,000. I told him I would look into it and get back to him.
My first point of call is usually checking HMRC's website. So I did, and it states quite clearly a list of circumstances where one would need to complete a return , I listed the majority and ones I feel are most relevant below
There is no doubt that HMRC website is a bit confusing. HMRC have tried to cut down on their work by reducing the number of tax returns they receive but this will not stop them issuing you with a penalty if you have failed to notify them of chargeability. I believe this will catch a lot of people out especially those that have annual income of £60,000 - £80,000 and have a small rental property. My friend was far from happy but when you think about it why should he get away with not paying tax?
It is easy to look at HMRC website and see things that you want to see but dont be too short sighted. If you do own a rental property nows the time to speak to your Tax Advisor before HMRC get you !
mitch@ljd.uk.com
My first point of call is usually checking HMRC's website. So I did, and it states quite clearly a list of circumstances where one would need to complete a return , I listed the majority and ones I feel are most relevant below
- You're self-employed
- a company director (unless you're a director of a non-profit organisation, for example a charity, and don't receive any payments or benefits)
- a minister of religion (any faith)
- income from savings and investments of £10,000 or more
- income from untaxed savings and investments of £2,500 or more
- income from property (before deducting allowable expenses) of £10,000 or more
- income from property (after deducting allowable expenses) of £2,500 or more
- annual trust or settlement income on which tax is still due (even if you’re only treated as receiving this income)
- You must complete a tax return if you have any foreign income that's liable to UK tax.
- Your annual income is £100,000 or moreYou need to claim certain expenses or reliefs
- You have Capital Gains Tax to pay You've lived or worked abroad or aren't domiciled in the UK
- You're a trustee
There is no doubt that HMRC website is a bit confusing. HMRC have tried to cut down on their work by reducing the number of tax returns they receive but this will not stop them issuing you with a penalty if you have failed to notify them of chargeability. I believe this will catch a lot of people out especially those that have annual income of £60,000 - £80,000 and have a small rental property. My friend was far from happy but when you think about it why should he get away with not paying tax?
It is easy to look at HMRC website and see things that you want to see but dont be too short sighted. If you do own a rental property nows the time to speak to your Tax Advisor before HMRC get you !
mitch@ljd.uk.com
Monday, 28 February 2011
Did Someone Mention a Pension?
Taxing Times indeed ! So now more than ever does one need to consider the future. Pensions have and always will be a good way to save money for when you want to retire (yeah right !) and you have always been able to obtain tax relief from your contributions. However this is about to change with the the new legislation coming into play,
HM Revenue and Customs (HMRC) has issued new guidelines on the recent changes to the tax relief available on pensions.As part of the changes, the annual allowance for tax relief on pensions has been cut from £255,000 to £50,000 for 2011/12.The announcement was confirmed last October. Those that have received large bonuses lor have just come into some money may want to think about other avenues to invest as they will not obtain higher rate relief and they may be faced with an additional tax charge if invested.
The annual allowance covers how much can be paid into a pension pot while attracting tax breaks.
Now HMRC has published its latest, updated guidance on what the new limit means for pension savers.
In some circumstances, HMRC said, savings added to a pension fund between 14 October and 5 April may come under the remit of the new rules. The new guidance can be found at http://www.HMRC.gov.UK/pensionschemes/annual-allowance/index.htm
I still believe pensions offer something very important but do not assume you can just throw your money at a pension. The rules are packed with anti forstalling legislation so I suggest contacting me for further information.
mitch@ljd.uk.com
HM Revenue and Customs (HMRC) has issued new guidelines on the recent changes to the tax relief available on pensions.As part of the changes, the annual allowance for tax relief on pensions has been cut from £255,000 to £50,000 for 2011/12.The announcement was confirmed last October. Those that have received large bonuses lor have just come into some money may want to think about other avenues to invest as they will not obtain higher rate relief and they may be faced with an additional tax charge if invested.
The annual allowance covers how much can be paid into a pension pot while attracting tax breaks.
Now HMRC has published its latest, updated guidance on what the new limit means for pension savers.
In some circumstances, HMRC said, savings added to a pension fund between 14 October and 5 April may come under the remit of the new rules. The new guidance can be found at http://www.HMRC.gov.UK/pensionschemes/annual-allowance/index.htm
I still believe pensions offer something very important but do not assume you can just throw your money at a pension. The rules are packed with anti forstalling legislation so I suggest contacting me for further information.
mitch@ljd.uk.com
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