December Tax Tips & News

Welcome to the Benedicts Tax Tips & News monthly newsletter, bringing you the latest news to keep you one step ahead of the taxman.

If you need further assistance just let us know or send us a question for our Question and Answer Section.

We’re 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 on your own specific circumstances. We’re here to help!

Newsletter issue - December 2012.

If you are an employer you should have received information from the Taxman about operating PAYE under Real Time Information (RTI).

Employers with fewer than 5001 employees will have to operate RTI from 6 April 2013, and that includes one-man companies. Some employers have already started to use RTI under the pilot program. Individuals who employ carers in their own home may be able to defer migrating to RTI until April 2014.

You need to check whether your payroll software will be RTI-ready from April 2013. Don't assume it will be. Some software providers have decided to discontinue legacy packages and force you to move to more expensive offerings. Even HMRC is cutting back on the free payroll software it provides. The HMRC PAYE Basic Tools will work under RTI, but only for up to nine employees, and it does not handle net pay arrangements for employer pension contributions.

If you use an external provider to run your payroll, you should talk to them about how much it will cost to run your payroll from April 2013. RTI requires more data to be submitted to the Tax Office than currently required (see below). Also the RTI reports must be sent on or before the day on which employees are paid, which could be daily or weekly. Currently the Taxman requires an annual report of what has been paid and deducted under PAYE.

The 'on or before' requirement has been relaxed in limited circumstances where employees are paid in cash on the day they work, and the amount of payment cannot be known in advance. This may apply to bar staff and crop-pickers. However, the RTI report must still be made within seven days of the day of payment, or when the next payroll is run, whichever comes next.

As the purpose of RTI is to provide accurate information to the DWP on claimants' earnings, employers are also required to report the weekly hours worked by each employee, as they fall into the following bands:

A. Up to 15.99 hours
B. 16 to 29.99 hours
C. 30 hours or more
D. Other

You don't have to record the exact hours worked, only the normal hours the employee is expected to work.

RTI penalties will commence from April 2013. However, these are only penalties for inaccurate returns, not for late returns.

Penalties for inaccurate returns are not issued automatically and generally are only applied after a PAYE inspection (employer compliance check). However, as under RTI the employer will be making as least 12 reports a year (full payment submissions: FPS), the risk of inaccuracies creeping in must be greater than under the current once a year reporting system.

Penalties for late FPSs submitted within the tax year will be issued automatically, but not until after April 2014. However, the final FPS for the tax years 2012/13 and 2013/14 will be subject to a late return penalty if it is not received by 19 May following the tax year end.

Please talk to us about how your business can meet the RTI challenge and how we can help. You have just four months to get ready.

Newsletter issue - December 2012.

The Taxman apparently believes that anyone who does business in cash must be a potential 'tax cheat'. This is ridiculous of course, but his latest business record checks campaign is based on this fallacy.

If you receive a call from the Taxman asking questions about your business records, please refer the caller to us before agreeing to answer his questions. You should not be penalised for doing this. The Taxman is required to deal with the taxpayer's agent if asked to do so.

The telephone questionnaire is a computer generated script, which only accepts a limited range of answers. For example: How many purchases are in cash? Answers accepted: none, a third, half or more.

The answers given determine whether the Taxman sends you guidance on how to keep better business records, or an Inspector to check what you may be doing wrong. Where the Taxman wants to inspect your business records, please ask us to be present when they come. The potential penalties for flying solo are not worth it.

Newsletter issue - December 2012.

The Taxman has announced a taskforce to investigate tax avoidance by landlords in South East England.

Private residential landlords have now been the subject of a taskforce in: Scotland, North Wales, London, East Anglia, North East, North West, and now South East England. That covers pretty much the whole of the UK. The message is clear; individuals who own rental properties must correctly declare all of the income and gains generated by those properties.

It is relatively easy for the Taxman to trace the owners of let properties through the Land Registry and compare the registered owner's name to those recorded on the electoral roll for the property. If the names aren't the same, the Taxman will assume the property has been let. He can also ask letting agents to provide lists of the landlords and properties they serve.

Please talk to us if you are uncertain about what reliefs and expenses you can claim for your let property.

Newsletter issue - December 2012.

It's one number (£77,000 from 1 April 2012), so why is so easy to get it wrong? We are talking about the compulsory VAT registration threshold in the UK. If your VAT taxable turnover (sales) total for the previous 12 calendar months exceeds this compulsory registration threshold, or the sales you expect to make in next 30 days will exceed that threshold, you MUST register for VAT within the next 30 days.

You can now register for VAT online on the HMRC website, but we recommend that you talk to us first, as so many things can go wrong. If you make a mistake with the form, the Taxman may not let you correct it. For example:

• If you exceed the VAT registration threshold due to a 'blip' in sales, you can ask the VATman for permission not to register for VAT, but you must ask first and permission may not be granted.
• You can reclaim VAT on services you purchased for your business in the six months before the day your VAT registration is effective from, so it is essential to time your VAT registration date with an eye on the invoice dates for those expensive services. If the service relates to an asset which was no longer held at registration, the VAT can't be recovered as pre-registration VAT.
• If you receive a large order which will push your sales over the VAT registration threshold for the next 30 days alone, pay attention to the delivery dates for that order. A staggered delivery for the order may mean you do not exceed the VAT threshold in the next 30 days, and you may register for VAT too early.

Newsletter issue - December 2012.

Q. I registered as self-employed in 2005, but as I didn't have any income I ignored the tax returns the tax office sent me. When they demanded £1,000 tax for each year I got my act together and sent in the completed tax returns which showed no tax due. Now the Taxman won't cancel the tax demands issued for the years before 2008/09. What can I do?

A. You have been caught by the tax law here. The years before 2008/09 are 'out of time' and the Taxman doesn't have to cancel the tax demands for those years. Although you may be able to appeal for the tax demands to be cancelled under 'special relief', but you need to show it would be unconscionable for the Taxman to collect the excessive tax. This is a very high hurdle to clear.

Q. From 1 January 2013 Independent Financial Advisers (IFAs) are not permitted to charge commission, and should instead charge fees for the advice and services they provide. Do firms of IFAs have to charge VAT on all the advice they give or is some advice exempt from VAT?

A. The VATman's guidance says the IFA's advice-only services will be subject to VAT, but if the fee is for an introduction to an exempt financial service, that introduction fee will be exempt from VAT. As an IFA you need to sort out exactly what you are charging for:

• general advice
• introductions to exempt services (such as to authorised dealers in securities) or
• introductions to services which are subject to VAT such as discretionary investment manager services.

We need to discuss your particular circumstances in detail to sort out the VAT position.

Q. I got divorced in 2007, but I still jointly own my former family home with my ex-wife. We agreed she would live there with my daughter until she finished her school exams. The house is now about to be sold. Will I have to pay capital gains tax on my share of the profit made?

A. You can escape tax on the gain made on your former home if all these conditions are met:

1. Since you left the property your former spouse has occupied it as her main residence.
2. The agreement for your ex-spouse to stay in the home was made either under a court order, or as part of your divorce.
3. You haven't elected for another property to be your main residence for any part of the period since you ceased living in your former home. If you have acquired another property in the meantime, you need to think carefully about which property you claim capital gains tax relief on, as this relief can't be applied to two properties for the same period.

Newsletter issue - December 2012.

19/22 - PAYE/NIC and CIS deductions due for month to 5/12/2012

30 - Deadline for 2011/12 self assessment online returns to be filed if you are an employee and want tax underpaid to be collected by adjustment to your 2013/14 PAYE code (for underpayments of up to £3,000 only)

Newsletter issue - December 2012.

The main tax rates, thresholds and allowances as they have been announced in the Autumn Statement and subsequent releases for the tax year 2013/14 are summarised below.

Income Tax

The level of personal allowance is now tied to the taxpayers' year of birth, not to his or her age in the current tax year. The marriage allowance is only available to taxpayers born before 6 April 1935, and is given as reduction in tax at 10% of the allowance value.

* Not available if non-savings income exceeds the savings rate threshold.

National Insurance

*only available for women who made a valid married woman's election before 11 May 1977.

Company Cars and Vans

The tax charge for the private use of a company car is based on a percentage of the list price of that car when new, as read-off the table of the vehicle's CO2 emissions.

For 2013/14 and 2014/15 a 5% list price band applies to cars with CO2 emission not exceeding 75g/km.

In 2013/14 the 10% list price band applies to cars with emissions of 76-94g/km, and one percentage point is added for every 5g/km of CO2 emissions, but in 2014/15 the 11% of list price will apply to these 'entry level' cars. From 6 April 2015 the lowest percentage of list price will be 13%, and from 2016 the minimum percentage of list price increases to 15%.

Fuel benefit

Where a company car driver receives free fuel, the taxable benefit is calculated as the percentage of the list price for the car applied to a set value, currently £20,200. This will rise to £21,100 from 6 April 2013. The taxable benefit when fuel is provided for private use in a company van will increase to £564 for 2013/14.

Capital Gains Tax

* Not confirmed.

Tax Credits

All of the above figures are frozen at the 2012/13 rates (which were also frozen at 2011/12 rates), except for the disabled and childcare elements. The amount of childcare cost that can be claimed as a deduction is capped at £175 per week for one child or £300 per week for two or more children, and up to 70% of the child care costs can be covered.

Tax credits will be replaced by Universal Credits for new claimants from October 2013. Existing tax credit claimants will be gradually moved to the new system over four years.

ISAs

Pensions

In spite of much speculation about a reduction in tax relief for contributions to registered pension schemes, there has been no change in the tax relief rates or annual allowance for 2013/14.

Each individual has a personal annual allowance of £50,000 (for 2013/14), which is expanded by any unused annual allowance brought forward from the previous three tax years. If the value of the pension contributions deemed to be made (by both employee and employer), exceed the taxpayer's available annual allowance, an annual allowance tax charge applies on the excess contributions, set at the taxpayer's highest rate of income tax.

The lifetime allowance is the maximum value of the pension savings from which a tax free lump sum can be taken on retirement. If the lifetime allowance is exceeded when the taxpayer starts take their pension benefits, part of those pension benefits are subject to a lifetime allowance charge. As the lifetime allowance is to be reduced from 6 April 2014, affected taxpayers can elect to fix protection on their current pension pots which already exceed £1.25 million.

Inheritance Tax

The value of a person's estate that is free of inheritance tax is called the nil rate band. This has been frozen for five years to 2015.

Corporation Tax

* to be confirmed at Budget 2013

Capital Allowances

The Annual Investment Allowance (AIA) has been increased to £250,000 but only for qualifying expenditure incurred in the two years from 1 January 2013. Where the accounting period straddles 1 January 2013 the AIA is restricted to the relevant proportion of the AIA cap in place for periods before and after 1 January. Great care must be taken to ensure that the expenditure falls in the correct period to use the AIA cap available.

Annual Residential Property Tax

This is a new tax which will apply to residential properties in the UK valued at £2 million or more, which are owned by:

• a company,
• other corporate body,
• collective investment vehicle such as a unit trust; or
• a partnership which includes one or more of the above as a member.

There will be exemptions for properties which are not dwellings (such as boarding schools, hospitals), are used for business or charitable purposes or are open to the public.

The tax will be charged at the following rates for 2013/14 with the first payment due by 31 October 2013.

Benedicts Accountants are based in London, offering local business owners and individuals a wide range of services.

All clients are entitled to fixed fees, work delivered on time and unlimited phone support. Visit our website jbenedict.co.uk for more information.