Showing posts with label tax. Show all posts
Showing posts with label tax. Show all posts

Wednesday, March 21, 2012

Budget Summary 2012

Amidst fears of a double-dip recession, Chancellor of the Exchequer George Osborne had the unenviable task of presenting the Budget for the third time on 21st March. It came as no surprise when the Chancellor announced very early on in his speech that there would be no "unfunded giveaways", confirming speculation that any concessions would need to be offset by an increase in tax elsewhere.

Although there was a significant change to the Stamp Duty on residential property costing over £2,000,000, the wealthy will benefit from a cut in the top rate of tax down to 45% from April 2013 (currently 50%). Individuals will gain from an £1,100 increase in the personal allowance from April 2013 but they could also lose out if they are earning over £50,000 and in receipt of Child Benefit. Large companies will welcome the 2% cut in their rate of corporation tax. But whether small or large, all businesses were disappointed the government did not reverse their plans to reduce the Annual Investment Allowance to just £25,000.

Sunday, February 12, 2012

Missed the tax deadline?

If you are yet to file your self assessment tax return help is still available! But don’t delay as the new HM Revenue & Customs (HMRC) penalty regime will mean that the penalties increase the longer you postpone filing your return. An estimated 1 million taxpayers are expected to receive an automatic late filing penalty of £100 so if you have missed the deadline you are by no means alone. What's different this year however is the new penalty regime.

If you've missed the deadline you'll have to pay a penalty of £100. You should send your tax return online as soon as you can to avoid further penalties. Don't send a paper tax return as the penalties will be even higher. The longer you delay, the more you'll have to pay. When your tax return is three months late, you'll have to pay a penalty for each additional day it is late. When it's six months late, you'll have to pay a further penalty and another final penalty when it's 12 months late. Together these can add up to a penalty of £1,600 or more.

Tuesday, December 27, 2011

Annual Party Tax Considerations

When it comes to dining either employees or clients, you have to be aware of the tax implications. If you dine your employees, it is considered an allowable business expense for the company but a taxable benefit for the employee. Unless the company has put a PAYE Settlement Agreement (PSA) in place those benefits have to be reported on the employee's P11D and the employee will end up paying taxes on those. When you dine clients however, this is considered entertainment and it is therefore not an allowable business expense from a corporation tax standpoint (effectively increasing the tax rate for the company).

Thursday, December 15, 2011

The Seed Enterprise Investment Scheme

This new tax advantaged form of venture capital scheme was announced at the Autumn Statement 2011; it will be focused on smaller, start up companies and will provide a form of relief similar to the EIS Scheme. This scheme will make tax relief available to investors who subscribe for shares and have less than a 30% stake in the company.

The main points to note are as follows:
  • The type of company this applies to is one that has less than 25 employees with assets of up to £200,000 who are preparing to carry on new business

Wednesday, November 30, 2011

Flash Update: Autumn Statement

On 29th November 2011, the Chancellor of the Exchequer, George Osborne, announced the Autumn Statement which provides an update on the Government's plans for the economy.

Here is a summary of the key changes impacting small businesses...

Businesses in need of finance
Government to back £20 billion of small business loans under the National Loan Guarantee Scheme. The Scheme will lower the cost of bank loans for smaller businesses with turnover of up to £50 million. Ministers hope the Scheme will be live by the start of 2012 and it is envisaged it will run for the next two years. The Scheme should deliver up to a one percentage point reduction in the cost of a business loan.

Friday, November 25, 2011

50p tax band to cost UK £1bn a year

The UK faces a lost generation of wealth creators, with the 50% top rate of income tax set to push them away and cost the economy billions, a new report has said.

Published by the Centre for Economics and Business Research (Cebr), the report, entitled ‘The 50p tax - good intentions, bad outcomes’ is an examination of how the UK's high-rate marginal tax impacts on Treasury revenues, and looks at how income tax has changed since the 1980s.

According to the Cebr's figures, the UK's 270,000 major wealth creators (the top 1% of income tax payers) contribute around GBP40bn (USD62bn) in income tax a year, or 25% of the GBP163bn paid in income tax to HM Revenue and Customs (HMRC) in total. The 50% rate of tax is charged on all incomes over a GBP150,000 threshold. Among the conclusions offered by the report is the assertion that the UK has lost its place as an attractive, low-tax jurisdiction that welcomes wealth-creators and has instead become one of the most punitive. As a result, the Cebr has warned that other European countries now are competing in a "silent auction" for the tax from high earners.

Saturday, November 19, 2011

UK tax system loosing competitiveness

While the UK has a competitive tax system it risks being overtaken by other economies easing tax burdens for businesses, according to a new report from PwC. The latest global league table, compiled by PwC, the World Bank and the International Finance Corporation, shows that the UK's position is under pressure as other nations are making paying taxes easier. The UK is now in 18th position in the league table of 183 economies, down from 16th position last year and 11th place in 2006.

The report assesses tax regimes by measuring the total tax costs, number of payments and the time necessary to comply for a case-study flowerpot firm. In compiling the data, all the mandatory taxes and contributions that a medium-sized firm must pay in a given year were considered. Taxes and contributions measured include corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transaction tax, waste collection taxes, vehicle and road taxes, and other minor taxes or fees.

Monday, November 14, 2011

Know your overseas shopping limits

If you are going abroad to do Christmas shopping, or buying goods online from non-EU countries, you need to know how much you can buy before you have to pay import duty or VAT. Rules can be complex and easy to overlook. Here is a quick summary to ensure that you stay on the right side of the law:

Arriving in the UK by commercial sea or air transport from a non-EU country, you can bring in up to £390 worth of goods for personal use without paying customs duty or VAT (excluding tobacco and alcohol, which have separate allowances, and fuel). Arriving by other means, including by private plane or boat for pleasure purposes, you can bring in goods up to the value of £270. Above these allowances and up to £630, there is a duty flat rate of 2.5 per cent.

Saturday, October 22, 2011

French Lawmakers Back Top Earner Tax

Within the framework of the government’s 2012 budget bill, the French National Assembly has adopted the provision introducing an exceptional tax on top earners in France. Coming on top of the existing wealth tax that the current government failed to repel and denounced by opposition parties as merely a “cosmetic” tax, the measure, which was recently agreed by way of a compromise between the government and the parliamentary majority, provides for a 3% tax on income of between €250,000 and €500,000, and for a 4% tax on income in excess of €500,000.

Defending the beacon measure of the 2012 budget ahead of the vote, French Budget Minister Valérie Pécresse underscored the “justice” of the levy, which targets very high income in all its components, income from work and capital. In its initial draft, the government originally put forward the idea of imposing a 3% tax on income from work and from capital in excess of €500,000 from 2011 to 2013. The tax was expected to yield in the region of €200m for the state in 2012.

Friday, October 14, 2011

Class 4 NI refunds for sleeping partners

A “sleeping partner” is a partner who does not take any part in the running of the partnership’s business. HMRC now accepts that such a partner is not liable to Class 4 NIC, because they do not fall within the definition above. Class 4 National Insurance contributions are paid as a percentage of your annual taxable profits - 9 per cent on profits between £7,225 and £42,475, and a further 2 per cent on profits over that amount.

In the past, there has been a reluctance to classify a partner as a “sleeping partner”, particularly in the case of the standard husband and wife partnership. This was because there was a fear that HMRC would argue that the sleeping partner was not really entitled to their profit share, and that as a result the active partner had made a “settlement” on the sleeping partner by consenting to their having a share of profits they had not “earned”. The fear was that HMRC would therefore seek to tax the active partner on the profits diverted to the sleeping partner – often with the result that those profits would be liable to income tax at 40% instead of the 20% they suffered in the hands of the sleeping partner.

Sunday, October 9, 2011

EIS Changes approved by the EU

The European Commission has approved for State aid purposes the increase in the Enterprise Investment Scheme (EIS) income tax relief rate to 30 per cent in respect of investments made in EIS qualifying companies on or after 6 April 2011. It has also approved the individual investment limit from £500,000 to £1 million in respect of investments made on or after 6 April 2012. Both changes were announced in Budget 2011 and the rate increase was included in Finance Act 2011. The intention is to include the increase in the individual investment limit in Finance Bill 2012.

Sunday, October 2, 2011

UK expats at risk of being caught by residency test changes

As the British government seeks ways of supplementing its tax take, the British residency test will be changing from April 2012. If you are a British citizen who’s working in Dubai, Hong Kong or Singapore because you want to pay less tax, this could be a big issue. The new rules are very complex but in a nutshell, you could put yourself at risk if you visit the UK for more than 10 days per year. Coming back to the UK for more than that makes you fall into the connections tests and at risk of being classified as UK resident.

These connections tests look at various things, including whether you still have a house in the UK, whether your family are based in the UK and whether you have financial ties to the UK. Although children at boarding school are not counted as being ‘family in the UK’ during term time, they will count as ‘family in the UK’ if they remain in the country staying with grandparents or friends during school holidays. Equally, when the new rules come into effect in April, there will be a look back over three years at people’s previous visits and connections.

Friday, September 16, 2011

Late tax returns: new penalties this year

As we are approaching the deadline for self-assessment tax returns (SATR), it's worth remembering that this year, there will be changes in the penalty regime for late filed returns. As a reminder, the filing deadline for paper returns is October 31st, and the one for online returns it is January 31st.

The changes were announced in the FA2009 and FA2010 Budgets legislation and included in the relevant Finance Acts. They are mostly:
  • The removal of capping a penalty 
  • Automatic fixed £100 penalty immediately the return is late (ie no longer a tax geared penalty for individuals and trustees) 

Sunday, June 5, 2011

Is the VAT Flat Rate Scheme worth it?

In the UK there are basically 3 ways you can collect and pay VAT. The standard scheme that everyone know about: you collect VAT on your sales and recover VAT on your purchases then pay the difference to HMRC every 3 months. The principle is quite simple (practice is lot more complex however!).

There is a second method which is a slight variation on the first one: it's available to businesses with an expected turnover of less than £1.35m and it's called the cash accounting scheme. Using standard VAT accounting, you pay VAT on your sales whether or not your customer has paid you. Using cash accounting, you do not need to pay VAT until your customer has paid you. It can improve cash-flows for businesses with less favourable terms for suppliers than for clients.

Then there is the flat rate scheme. It was designed to help the small business but you need to understand all the implications before you jump. It's only available to businesses with a turnover of £150k or less and once you have joined you can only stay in the scheme for as long as your turnover remains under £230k.

Monday, May 30, 2011

Owning property via a limited company

When you purchase properties in the UK, you might be tempted to setup a company to do the purchasing. As with any business incorporating has a great number of benefits, like reduced taxation and increased flexibility. Property investing however has some specificities that need to be kept in mind before you decide to make the jump. Here are some of the benefits and drawbacks of incorporating when doing property investments:

Benefits of owning property via a company

1. Flexibility regarding share transfers
2. Reduced stamp duty (0.5% vs. up to 5%)
3. Lower tax rates on net rents
4. Indexation allowance on capital gains
5. Profits can be reinvested
6. Income may be extracted by dividends
7. A company has limited liability

Monday, April 4, 2011

Tougher penalties for late filers

The new HMRC penalty regime for late filing and late payment of self assessment income tax begins on Wednesday (6 April). As a result, a tax return filed six months late could attract a penalty of at least £1,300. In the past, being late to file your tax return would generate a fine but that fine would be waived is no tax was due. Not anymore!

The new sanctions are:
  • Just one day late: an initial penalty of £100, even if there is no tax to pay or all tax owed has been paid.
  • Three months late: an automatic daily penalty of £10 a day up to a maximum of £900.
  • Six months late: further penalties charged of the greater of 5% of tax due or £300.
  • Twelve months late: the penalty will be the greater of 5% of tax due or £300. In serious cases, a higher penalty of up to 100% of the tax due could be charged.
The penalties are on top of the interest HMRC will charge on outstanding amounts, including unpaid penalties, until payment is received.

Friday, April 1, 2011

Childcare vouchers

One of the benefits employers have been able to offer to their employees has been childcare vouchers. They are free of tax and NIC as long as long there are within a certain threshold. The new budget has introduced changes however that introduce a new level a complexity.

The current situation (per parent) is as follows:
  • Basic (20%) Taxpayer. Allowed £55/week vouchers, maximum annual gain £890
  • Higher (40%) Taxpayer. Allowed £55/week voucher, maximum annual gain £1,170
  • Top (50%) Taxpayer. Allowed £55/week voucher, maximum annual gain £1,460
For new joiners after 6 April 2011 it will be:
  • Basic (20%) Taxpayer. Allowed £55/week vouchers, maximum annual gain £920
  • Higher (40%) Taxpayer. Allowed £28/week voucher, maximum annual gain £610
  • Top (50%) Taxpayer. Allowed £22/week voucher, maximum annual gain £590

Sunday, January 23, 2011

Extracting profits from your company

One of the benefits of running your own company is that it gives you a lot of flexibility when it comes to extract profits from the firm. As a sole trader, whatever profit you make is taxed immediately at a rate that depends on the amount of profits but that can now be as high as 58% if we include Class 4 National Insurance Contributions.

If you own a limited company however you have a lot more flexibility and if you are not needing the cash now, you can reduce your tax considerably. In most cases it's just a matter of following those simple steps:
  1. If, as a director, your only revenue comes from your company, you can extract up to the personal allowance without paying personal taxes and that cost is tax deductible for your company. That amount is currently £6,475 but it should increase up to £10,000 in the next few years. Keep in mind however that if your annual salary is £5,715 or more you will incur some national insurance contribution costs. This is why most directors extract just that amount every year: no tax, no NI and allowable expense for the company.

Tuesday, December 7, 2010

What about the director's loan account?

In most small businesses, a director will often spend money on behalf of his company or conversely have the company pay for personal items. While in theory it would be better to not do that, it does happen and when it does it's important to record those transactions properly in the accounts.

That's what the director's loan account is for. It's also sometimes called an expense account or a director's current account. Its role is to record money due to or due by the director. Typically, if a director uses cash or his personal credit card to buy items for the company, that account would be credited by the corresponding amount. Conversely, should  he buy some personal items using the company credit card, that account would be debited. In that case the net effect is that the company would have lent him some money. This is where the name comes from.

Thursday, November 25, 2010

Selling abroad and VAT

VAT rules can be extremely complex. On top of that they are changing all the time, and will continue to do so for at least the next few years. To make matters worse, rules are filled with exceptions based on the type of activity or business. Information is plentiful but not always crystal clear.

Here is quick summary of what to put on your invoice and your VAT return depending on the type of client you deal with. Keep in mind that it's just a summary and as I said there will be many exceptions.

But it's a good start and it should help you get started if you sell overseas. If you want to understand more about the subtleties of reverse charging, place of supply and so on, please feel free to head to the HMRC website. But beware if you are prone to migraines...