Tuesday, 9 August 2016

Student loan deductions, Login for HMRC accounts, Dividends and deceased estates

Employers inevitably have to shoulder the administration burden of payroll deductions, and so it is with student loan repayments. We have an update on the new loan repayment structure effective from April 2016, and additional changes expected later this year. Accessing the HMRC online accounts is becoming more complicated as we explain below. There is also a difficulty with dividends received by estates of deceased persons.  

This is an extract from our topical tax tips newsletter dated 4 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
  
Dividends and deceased estates 
All dividends are now taxed in the hands of individuals and trustees at 7.5%, 32.5% or 38.1% depending on the taxpayer's total level of income. This applies to estates of deceased persons as well as to living taxpayers. 

The problem is that estates in administration (and trusts) are not entitled to the dividend allowance of £5000, so all dividends received after 5 April 2016 must be taxed at 7.5% at least. There is no de-minimise amount which can be ignored, as applies to interest received (see our newsletter 5 May 2016). 

When the dividend income received by the estate is distributed to a beneficiary, the cash amount must be grossed up at 7.5% and carry a repayable credit for the tax deducted at that rate. The form R185 (Estate Income) will be revised shortly, but meanwhile Box 18 on the current form may be used to show the position. 
  
The situation is more complicated where the estate has received dividend income in 2015/16 or earlier, and distributes that income in 2016/17 or later. HMRC's current position is that the 10% non-repayable tax credit for earlier years may be used to frank the 7.5% tax due in 2016/17. 
 
This is an extract from our topical tax tips newsletter dated 4 August 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained the remainder of this item plus links to related source material and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday, 2 August 2016

P800 calculation, Travel and subsistence and umbrella companies: the SDC test, Partial exemption

Last week we took a look at the P800 calculation and why you should check  that your clients’ P800s are correct. We also explored changes to the travel and subsistence rules insofar as they affect workers who provide their services through umbrella companies. Finally, we took a look at the risk areas in relation to VAT returns for partially exempt clients.


This is an extract from our topical tax tips newsletter dated 28 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

P800 calculation 
HMRC’s annual PAYE reconciliation process for 2015/16 is now underway and your clients will be receiving their P800 calculations between now and November. As HMRC can and do make mistakes, it is important that you encourage your clients to pass their P800 on to you and that you check it to make sure everything is in order. During the reconciliation process, HMRC compare the tax that they think is due with what has actually been paid and send out a P800 to taxpayers who show and overpayment or and underpayment. 
  
So, what should you look for when checking the P800? 
  
The P800 shows the total income, which according to HMRC’s records, the taxpayer should have paid tax on. This will include wages or salary, any benefits in kind, any pension or taxable state benefits received and any interest on savings. Check the figures against the your client’s P60, P11D, bank statements etc to verify that they are correct. If the figures are wrong, you will need to tell HMRC. 
  
The P800 calculation may show that your client has paid too much or too little tax. There are various reasons why this may be the case and in checking whether the figures are right you should consider whether: ..........

This is an extract from our topical tax tips newsletter dated 28 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
  
The full newsletter contained the remainder of this item plus links to related source material and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday, 26 July 2016

Dividend allowance, CIS issues, Tax Credits

Last week we examined how shares held in a micro-company can be used to spread income among family members and save tax. We also analysed the current problems with the HMRC online service for CIS, and the fixes available. Finally, we had a reminder about tax credit claims which need to be renewed this month.  

This is an extract from our topical tax tips newsletter dated 21 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
  
Dividend allowance 
From 6 April 2016 every individual can receive up to £5,000 of dividend income per year, tax free, whatever their marginal rate of tax, by using the dividend allowance. Spreading dividends among family members can save tax, but only if the correct company secretarial procedures are followed. 

The spouse, child, or other relative of the company owner, can only receive a dividend from the company if they hold a share which entitles them to receive the dividend. In last week's newsletter (14 July 2016) we examined what can go wrong if dividends are paid to someone who is not a shareholder. 

Your first step should be to examine the authorised and issued share capital for the company. Many micro-companies operate for years with only one share in issue. If the company owner wants to divide their shareholding with their spouse, the owner needs to hold sufficient shares in order to pass some shares on. 

This may mean more shares have to be issued. Different categories of shares will permit dividends to be paid at different rates and at varying times to each shareholder. To avoid the settlements legislation applying, the new shares should carry full rights to capital on a winding-up as well as variable dividends. 

A gift of shares between spouses or civil partners will be a no gain no loss transfer for CGT. Gains arising on gifts of shares to other individuals will be taxable, but small gains may be covered by the donor's annual exemption (£11,100) or could be held-over under TCGA 1992, s 165. 

Shares given to employees of the company can subject to income tax as employment-related securities, but there is a general exemption from that legislation for gifts made as part of a family relationship. As an alternative to gifting shares, family members could subscribe directly for their shares. 

Although the dividend allowance taxes up to £5,000 of dividends at 0%, that dividend income is counted for the high income child benefit charge, and for £100,000 threshold that withdraws personal allowances. The tax effect on the recipient of the dividend should be calculated before the dividend is declared or paid. 


This is an extract from our topical tax tips newsletter dated 21 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday, 19 July 2016

Who holds the shares, Payroll pains, Paying HMRC


For the first time in over 6 years the UK has a new Chancellor of the Exchequer. Let’s hope he takes a considered approach to any tax changes, as there are many problems to fix with our tax system, before adding new complications. We have three examples of such problems with payroll systems this week, and two issues found when trying to pay HMRC. But first we examine the mess created by sloppy work when setting up a personal service company.

This is an extract from our topical tax tips newsletter dated 14 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Who holds the shares 
When you take on a new client do you check the Companies House record for their personal service company, if they have one?  The reality of who holds the shares may not agree with the client's understanding. 

A mismatch can be very expensive, as Terrance Raine discovered. He was landed with a tax and penalty bill of £41,450 because he believed what he was told by the firm who set up his personal service company.    

Mr Raine was advised by a recruitment consultant to open his own limited company in order to gain work as an interim or locum manager. Raine and his partner Ms Hamilton met with Giant Accounting Limited, who offered them an off-the-shelf company (Linkdrive Solutions Ltd), and agreed to deal with all accounting, payroll and company secretarial requirements. Raine and Hamilton were told that they would hold one share each, and would be appointed as company director and company secretary respectively. 

However, Giant never completed the paperwork to allot shares to Hamilton or Raine, and technically the one subscriber share remained in the name of the formation agent. The annual returns for Linkdrive Ltd filed at Companies House, showed Raine as the only shareholder with two shares, and this continued for 10 years to 2011. The statutory accounts for Linkdrive also reflected that position.     

From 2004 to 2011 Giant prepared dividend vouchers showing equal amounts of dividend payable to Raine and Hamilton, which were declared on their respective tax returns. 

When HMRC investigated the mismatch between dividends shown on Raine's tax returns and the shareholdings declared at Companies House, Giant initially denied there was a problem. 

The Tax Tribunal decided that Raine must have realised that all the shares were in his name as he signed the company accounts, and he should have realised that dividends can only be paid to shareholders. The tax and penalties due were confirmed.    


This is an extract from our topical tax tips newsletter dated 14 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday, 12 July 2016

CGT relief on incorporation, VAT flat rate scheme, Fake HMRC contacts

Many businesses still want to incorporate for non-tax reasons, so last week we reviewed the reliefs which can postpone or reduce CGT due on incorporation. We also examined a problem found when applying for the VAT flat rate scheme, and we had a warning about convincing tax repayment scams which may catch-out your clients. 

This is an extract from our topical tax tips newsletter dated 7 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>> 

VAT flat rate scheme
The VAT flat rate scheme (FRS) for small businesses is very useful. It reduces the work needed to complete a VAT return, as generally only the sales income is considered. Many businesses can also make a small profit purely from using the scheme. 


However, that profit depends on the trade category the business opts to use. This category determines the FRS percentage which must be applied to the gross sales income to calculate the VAT payable to HMRC each quarter. 


When the business applies to use the FRS it should pick the trade category which best fits a plain English description of the majority of its trade. For example, a mechanical engineer would not pick the category "architect, civil and structural engineers", as a mechanical engineer (dealing with machines) is a very different job to a civil engineer (dealing with buildings and structures). If there is no category which is a good fit, the business should choose one of the catch-all categories such as "business services that are not listed elsewhere". 


You can apply for the FRS online as part of the process of registering the business for VAT. This allows the business to benefit from a reduction in its FRS percentage by 1% point during the first 12 months in which it is VAT registered. However, the HMRC computer may not register the business category which you have picked. 


As part of the FRS application you can enter a free text description of the business activity. If that doesn't match one of the trade categories, you can use the more precise Standard Industrial Classification (SIC) code. The computer then matches the SIC code to one of the trade categories, but not always as you would expect. An online message should tell you which trade category has been selected. 


If you are not happy with the computer's choice of trade category your only option is to cancel the online application, and use the stand alone form VAT600FRS to apply for the FRS. This is an interactive form, but it doesn't try to guess the trade category for you. It must be completed then printed out for signing and submission to HMRC.


This is an extract from our topical tax tips newsletter dated 7 July 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday, 5 July 2016

Planning to leave, Loans to report on P11D, Rent-a-room relief

Some of your clients may be deeply affected by the result of EU referendum, and are looking for advice on how close or move their business interests in order to leave the UK. We have some practical tips on planning for such a move. We also look at which directors' loans to report on the P11D form. Finally, HMRC has updated its guidance on rent-a-room relief, we highlight the key points.

This is an extract from our topical tax tips newsletter dated 30 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Planning to leave 
Selling or moving a business is not a simple as moving home. It needs to be planned carefully, with as much notice as possible. The first thing to clarify is: how strongly is the business connected with the individual owner. 

If the business is essentially the individual trading on their own account as a sole-trader or company, then it may not be possible to sell the business without the current owner's continued involvement. In that case the only solution may be to wind-down the business and extract the cash in a tax-efficient manner. 

Pension contributions can be used to do this, as withdrawals from a pension fund can now be made from age 55. However, if the cash is required quickly locking value into a pension fund may not be advisable. The taxpayer should always take independent financial advice before making a large pension contribution. 

If the business is to be sold for a significant profit, check whether the conditions for entrepreneurs' relief will be met for at least 12 months ending with the date of sale. Where owner's the spouse or civil partner holds less than 5% of the ordinary share capital, a transfer of shares between the spouses/partners may allow two people to claim entrepreneurs' relief up to the maximum lifetime limit of £10 million.      

The levels of unutilised cash and investment assets held within the company should be reviewed. Where the cash has not been ear-marked for a business purpose (even paying a dividend), HMRC could regard it as a non-trading asset, which could scupper a claim for entrepreneurs' relief. 

Every business will need a different exit plan. Our tax experts are happy to cast a second eye over your client's plans, to check for possible problems.    

This is an extract from our topical tax tips newsletter dated 30 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>> 
 
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday, 28 June 2016

Entrepreneurs' relief, Investors' relief, Companies House

The Government has made some significant amendments to the draft Finance Bill 2016 concerning entrepreneurs' relief and investors' relief, which take effect immediately. The procedures and costs relating to incorporation and returns filed at Companies House are also changing from 30 June 2016. We outline those changes below.

This is an extract from our topical tax tips newsletter dated 23 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Entrepreneurs' relief 
The associated disposal rules within entrepreneurs' relief (ER) have been manipulated by people who arrange for their trading business to use a personally owned property for the purposes of the trade, (say as an office) for a year. A claim for ER on the sale of the property would succeed if the individual disposed of any shares or interest in the partnership at the same time as the property sale. 
  
Those associated disposal rules were changed from 18 March 2015 (by FA 2015), to discourage such manipulation. Now the taxpayer has to dispose of at least 5% of his partnership, or personal company, if he wants to claim ER on an associated disposal. Finance Bill 2016 tweaks these rules further to require the personally-held asset to be owned for at least 3 years before disposal - a change which was to apply to disposals from 18 March 2015 onwards.   
  
The Government has realised that such back-dating would mean some people would have further tax to pay on transactions which have already been completed. It has thus amended the Finance Bill 2016 such that the 3-year ownership period will only apply to assets acquired on or after 13 June 2016. 
  
The condition that the taxpayer must dispose of at least a 5% interest in his partnership is also changed by amendments to the Finance Bill 2016. In most circumstances a partner must reduce his interest in his partnership by at least 5% (eg from 20% to 15%) when he makes an associated disposal. But if the partner is retiring and he may have already reduced his interest in the partnership to below 5%. In such a case the retiring partner will be able to claim ER on an associated disposal made when he finally exits from partnership, even if that last portion of partnership interest amounts to less than 5% 


This is an extract from our topical tax tips newsletter dated 23 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>