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Welcome...
To June/July's Tax Tips & News, Hanley & Co's monthly newsletter designed to bring you tax tips and news to keep you one step ahead.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We're here to help!
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| IR35 Business Tests Released |
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If you provide services through your own personal service company you will be aware of the tax law known as IR35. This tax rule imposes an extra charge on your company, if you would be treated as an employee of your customer or customers, if you worked for the customer directly. It is very difficult to pin down when IR35 should apply, as it depends on the relationship between the contractor and the customer, which will be different in every case.
The Taxman thinks he can generalise about what makes some companies fall within IR35 and others escape it. He has drawn-up a set of business entity tests, complete with a scoring system, to help you judge whether your business would be at high, medium, or low risk of being investigated for falling under IR35.
These business entity tests are not derived from the tax law. They merely represent the Taxman's view of the risk of a business falling within IR35.
The scoring attached to the tests is controversial, as it penalises businesses that have no bad debts, never pay to advertise and operate from the owner's home. These IR35 business entity tests do not change the IR35 law one bit, and will probably be ignored by the Tax Tribunal.
If you choose to use the IR35 business entity tests, you don't have to declare your score to the Taxman, the tests are merely for your own guidance. However, if you are concerned that the business entity tests produce a high risk score for your business, we should discuss why this is the case. Are there any changes which can be made to the way your business operates which would make it less likely to be caught by IR35?
We can advise you on the correct tests for IR35, which would be recognised by the Tax Tribunal, so do ask if you would like some reassurance.
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The Taxman has wide powers to inspect your business, but he is supposed to give you at least seven days notice to check on your business property, computer or business records. He is permitted to turn up without warning, but only if tax is immediately at risk, such as where fraud is suspected.
In spite of these strict rules, tax inspectors do try to examine business records without a prior appointment, or where an appointment has been arranged, the officers may turn up hours early before the tax adviser has arrived. If the Taxman pitches up at your workplace and demands access to your business records, know your rights:
Ask to see the inspectors' ID, which they must carry and check this ID is genuine by telephoning the HMRC office they claim to be from
You don't have to let the tax officers into your building, and their rules say they must not gain entry by force
You and your staff are not obliged to answer the tax officers' questions
You are required to provide access at any reasonable time to any computer you use for your business, and help the tax officer extract the computer records, but that's where your responsibility ends
The tax officers are not supposed to rummage around in your stuff. They can examine materials and records brought to them but they do not have search powers.
Remember if tax officers turn up unannounced, call us without delay!
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The Taxman is determined to target tax evaders, so has been running several campaigns to target particular business sectors, such as doctors, electricians and e-traders.
The latest campaign is aimed at individuals who should be paying tax at 40% or 50%, but who have not submitted a tax return when requested to do so. These people will be offered a reduced penalty if the missing tax return is submitted by 3rd October 2012, and all the outstanding tax is also paid by that date.
If you know someone who has put their head in the sand regarding their tax affairs, please ask them to get in touch with us as soon as possible, so we can help them complete their missing tax returns.
Later this year the Tax Office will be targeting door-to-door sellers who sell to customers in their own homes. These sellers are often paid on a commission basis for the goods they sell, and may be vague about their own tax status.
Another campaign will target all tradesmen who provide home maintenance, repair or home improvement services. This will cover all small builders and skilled craftsmen who are not subcontracted to larger building firms.
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| Company Money in Personal Account |
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Here's a nice problem to have: your company holds a lot of money, but you want to leave it there for now. Perhaps you don't want to be taxed personally if you take the money out of the company. The company may also have long-term plans for the funds, such as acquiring another business or property when a suitable target is identified.
In the meantime the company may only be able to earn 1% interest on the money, but you could earn say 4% on the same amount in your personal deposit account. Could you hold the funds on behalf of the company (as a nominee), and place them in your deposit account to achieve the higher interest rate? It is possible, but there are several issues to deal with:
The bank needs to be clear that the beneficial owner of the funds is the company and be willing to open an account on this basis. So the account name needs to be something like: 'A Brown as nominee for AB Ltd'.
There needs to be trust deed or similar document signed on behalf of the company that appoints you as nominee for the company's money to be deposited in your account.
The board of directors of the company must be seen to have made an informed decision about this arrangement, and issue clear instructions as to the terms for depositing the funds. This should be recorded in the board minutes.
The bank may deduct income tax from the interest paid on the deposit account, which would not be due if the account was held in the company's name.
The Taxman needs to be convinced the funds in your account are not a loan from the company to you as a director or shareholder of the company.
This last condition is the most troublesome. If you don't meet it and it is deemed the company has made a loan to you which remains outstanding nine months after the company's year end, the company must pay tax of 25% of the value of that loan. You will also be taxed on the deemed interest payable on the loan at 4%, where the loan exceeds £5000 at any point in the tax year.
There are other practical considerations, so please discuss any such transfer of funds from the company with us first or if you have already done this without meeting the conditions above!
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| VAT Opting to Tax on Buildings |
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Buildings are generally exempt from VAT, but there are a lot of exceptions to this.
A person who holds an interest in a building (freehold or leasehold) can opt to tax the building, such that income from selling or letting the building is subject to VAT.
If you purchase a building and the purchase price includes VAT, you do not have to opt to tax that building.
Consider Ali who owns a VAT registered car repair business. He purchases a new commercial unit for £200,000 plus VAT of £40,000. The unit is used entirely for the car repair business, so Ali can reclaim the VAT of £40,000 in the same way he reclaims VAT on other purchases.
Ali does not have to opt to tax the unit to reclaim that VAT. In a few years Ali may want to sub-let the unit, in which case the rent will be exempt from VAT. This will make Ali's business partially exempt, which may mean he cannot reclaim all the VAT charged on his purchases. In that situation Ali may choose to opt to tax the building so the rent must have VAT added.
Please check with us whether you should opt to tax a building you own or lease.
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| Question and Answer Section |
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Q. I'm an IT contractor currently working for a government department through my own company, for £300 per day. I've heard that all contractors will have to go on the department payroll. I don't want to be a wage-slave, so what should I do?
A. The government has announced that all senior appointments in government departments, such as executive positions, will have to be paid through payroll. This does not apply to other contractors. However, other government department contractors who are engaged for six months or more, and who are paid more than £220 per day, must when their contracts come up for renewal, or start afresh, include terms that allow the government department to seek formal assurance that income tax and NI obligations are being met. We can help you provide this assurance if it is requested.
Q. I don't have the all the figures needed to complete the tax credits renewal form, and I'm worried I'll lose my tax credits as the deadline is 31 July. The main problem is my income is as a musician as I don't know what my total income is until I receive the royalty statements.
A. Don't panic. You are required to return the tax credits renewals form by 31 July, or renew by phone, but you can submit estimated figures for 2011/12. When your self-employed accounts are ready you can submit the final figures and your tax credits award will be adjusted as necessary. As long as you submit final figures by 31 January 2013 you should not lose your tax credits.
Q. What's all this about RTI? Do I have to do something by October? Is it going to cost me more?
A. Real Time Information (RTI) is a new way of submitting PAYE information to the tax office. All employers will have to use RTI by October 2013 (not this year), but some employers are starting to use RTI early in a test phase from April 2012. The aim is to add more employers to the RTI project at intervals, depending on how the first tests go. The tax office says your payroll software should cope with RTI when the time comes. We suggest you ask your software provider when their RTI update will be ready, and how much it will cost. We can help you prepare your payroll for RTI. This involves checking you have the full name, gender, date of birth and accurate NI number for every employee, including those who earn less than the NI threshold.
Q. I'm worried about the Granny tax. Is this going to affect me? I'm aged 64 with an annual income of around £16,000.
A. The so-called Granny tax is actually a change in entitlement to allowances from 6 April 2013. You are currently entitled to a personal allowance (tax free amount) to set against your income, of £8,105. From 6 April 2013 you will be entitled to a personal allowance of £9,205.
As you will reach age 65 in 2013/14 you may have expected to receive the higher age allowance of £10,500 which is available to people currently aged 65 or over. However, because the rules are changing on 6 April 2013, only those born before 6 April 1948 will be entitled to the age allowance of £10,500, everyone else will get the normal personal allowance. This is not as unfair as it seems as the age allowance will be frozen, probably for ever more at £10,500, but the personal allowance will increase each year, and is likely to reach £10,000 in 2014/15.
Q. Until 31 May 2011 I was employed as loss adjuster for company A, and I drove 4,400 business miles in my own car for that company in 2011/12. I then joined rival company B, and drove a further 8,080 miles on business, also in my own car, by 5 April 2012. Both companies paid me 40p per mile for those business journeys. Can I claim anything extra on my tax return?
A. Yes. The approved tax free mileage rate for 2011/12 was 45p per mile, for the first 10,000 business miles. However, this mileage threshold applies per employment. As you held two jobs with completely separate employers in the year, and drove less than 10,000 miles in each job, all your business mileage can be claimed at 45p per mile. You can claim £624 (5p x 12480 miles) on your tax return for 2011/12.
Q.The company provides the sales reps with pay-as-you-go mobile phones, who purchase top-ups when they need them, claiming the cost back on expenses. Does the cost of the top-ups need to be included on the forms P11D for those employees? Does it make a difference if the employee bought the pay-as-you-go phone?
A. Where the mobile phone is owned by the company and the contract is between the company and the telecoms provider, any top-ups purchased for that phone are tax free, as the provision of the phone is tax free. The cost of the vouchers does not have to be reported on the form P11D for each employee. Note this tax free treatment only applies to one phone per employee.
If the phone was bought by, and thus owned by the employee, the top-up vouchers are taxable and need to be reported on the form P11D. The employee could claim a deduction on their tax return for the cost of business calls made with the top-up payments, but this would involve analysing all the calls made into business and non-business calls.
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| We Want To Help More Clients |
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If you have received this newsletter and are not already a client of Hanley & Co we would be delighted to hear from you.
If you are already a client you may know someone who is setting up in business or who is looking to change accountants for their existing business, please be sure to pass on our details so we can offer them a Free Unlimited Initial Consultation - with Absolutely No Commitment.
We feel sure they will also benefit from receiving our FREE 73 page 'New Business Start Up' report or the easy to read 'How To Pay Less Tax 2011' guide.
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Hanley & Co provide personal advice to all clients based on twenty year's experience as practising accountants. We have clients across the North West of England and some even further a-field.
Visit our website http://www.hanleyandco.co.uk for more information.
HANLEY & CO - ACCOUNTANTS YOU CAN TALK TO
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