Archive for June, 2018

Are you paying too much income tax

Thursday, June 28th, 2018

When your income exceeds £100,000 for income tax purposes your entitlement to a personal allowance (£11,850 for 2018-19) is reduced by £1 for every £2 that your income exceeds this threshold.

Which means, when your income reaches £123,700, you no longer qualify for a personal allowance.

The effect on the income tax rate you pay in this band – £100,000 to £123,700 – is alarming. As well as paying tax at the higher rate of 40%, income up to the value of your lost personal allowance £11,850 that was previously exempt from tax is now due to be taxed at 20%. Accordingly, your combined income tax rate is 60%.

This process may catch some individuals unaware. For example, say you take a drawdown from your pension pot for £50,000 and your other income is say £80,000 – below the £100,000 cut-off point. Your pension provider has likely deducted tax at 40% from the payment made to you and you may believe that what’s left is yours to spend or invest. Not so. When your total income position is calculated at the end of the tax year this will have breached the £100,000 limit and the effect of the loss of personal allowance will create an additional tax bill.

Readers who are concerned that they may be on route for an income of more than £100,000 for this current tax year, may we respectfully suggest that they call to discuss their options. There are still planning opportunities that can be utilised but decisions on what needs to be done, and action to be taken, needs to happen before 5 April 2019.

What now for the gig economy

Tuesday, June 26th, 2018

The Supreme Court has ruled in favour of Gary Smith, a self-employed contractor with Pimlico Plumbers, who considered he was due worker’s rights and has now had his assertion rubber stamped by the highest court in the land.

There are no win-win outcomes following this case, in fact the status of all sides in the so-called “gig economy” is up for reinterpretation. Let’s hope that government is up to the task and is able to draft clearer instructions on this fractious area of tax law so that we can all proceed to negotiate future arrangements between companies and their self-employed contractors or employees within clear guidelines.

The court has issued a press release concerning the background to the appeal, the judgement and the reasons for the judgement. For those readers who are interested in the detail of this case the release is reproduced in part below:

BACKGROUND TO THE APPEAL

The Respondent, Mr Gary Smith, is a plumbing and heating engineer. Between August 2005 and April 2011 Mr Smith worked for the First Appellant – Pimlico Plumbers Ltd – a substantial plumbing business in London which is owned by the Second Appellant, Mr Charlie Mullins. Mr Smith had worked for the company under two written agreements (the second of which replaced the first in 2009). These agreements were drafted in quite confusing terms.

In August 2011 Mr Smith issued proceedings against the Appellants before the employment tribunal alleging that he had been unfairly dismissed, that an unlawful deduction had been made from his wages, that he had not been paid for a period of statutory annual leave and that he had been discriminated against by virtue of his disability. The employment tribunal decided that Mr Smith had not been an employee under a contract of employment, and therefore that he was not entitled to complain of unfair dismissal (a finding that Mr Smith does not now challenge), but that Mr Smith (i) was a ‘worker’ within the meaning of s.230(3) of the Employment Rights Act 1996, (ii) was a ‘worker’ within the meaning of regulation 2(1) of the Working Time Regulations 1998, and (iii) had been in ‘employment’ for the purposes of s.83(2) of the Equality Act 2010. These findings meant that Mr Smith could legitimately proceed with his latter three complaints and directions were made for their substantive consideration at a later date. The Appellants appealed this decision to an appeal tribunal and then to the Court of Appeal but were unsuccessful. They consequently appealed to the Supreme Court.

JUDGMENT

The Supreme Court unanimously dismisses the appeal. Lord Wilson gives the judgment with which Lady Hale, Lord Hughes, Lady Black and Lord Lloyd-Jones agree. The tribunal was entitled to conclude that Mr Smith qualified as a ‘worker’ under s.230(3)(b) of the Employment Rights Act 1996 (and by analogy the relevant provisions of the Working Time Regulations 1998 and the Equality Act 2010), and his substantive claims can proceed to be heard.

When is a car a van

Thursday, June 21st, 2018

There are advantages for tax purposes if the vehicle you buy for your business is considered to be a van as opposed to a car.

If you are VAT registered, you can claim back the VAT added to the purchase price (as long as there is no private use in which case you will have to apportion your claim) and the acquisition will qualify for generous tax allowances.

If you buy a car you cannot reclaim the VAT and tax allowances are far less expansive. There are exceptions; for example, if you by a car to use solely as a taxi or driving school vehicle, then VAT is potentially reclaimable and the ability to write off your investment against profits more likely.

Which begs the question, what is the definition of a car for VAT and tax purposes?

According to HMRC’s definitions set out in their VAT internal manual we will need to consider the following:

From the outside [car derived] vehicles still look like a car. However, from the inside the vehicles look like and function as a van. This is because:

  • the rear seats and seatbelts have been taken out, along with their mountings;
  • the rear area of the shell is fitted with a new floor panel to create a payload area; and
  • the vehicle’s side windows to the rear of the driver’s seat are made opaque.

HMRC have published a list of car derived vans that distinguishes between those that are considered to be cars and those that are considered to be vans. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/428510/Car_derived_Van_updateMay2015.pdf

 

A further complication are double cab pick-ups, are they cars or vans? It would seem that if the payload capacity is one tonne or more then the cab would be considered a van, any less than one tonne would be considered a car.

Obviously, these distinctions are important for VAT and tax purposes. If you are considering your options, we can help you research and buy a vehicle that meets your aesthetic needs and is still a tax effective purchase.

How deep are your pockets

Tuesday, June 19th, 2018

Next month, those of us who are still self-employed will be digging deep to pay our second payment on account for the tax year 2017-18. The deadline to avoid late payment interest and penalties is 31 July 2018.

For most of us, these payments on account (January and July 2018) for 2017-18 are based on agreed self-assessment liability for 2016-17. Which begs the questions, what if your liability for 2017-18 is more or less than 2016-17?

The quick reply is fairly obvious, you will be over or underpaying tax in January and July 2018 dependent on your taxable income in both years.

As the major income source for most self-assessment persons is profits from self-employment, now is a good time to take a close look at your draft accounts assessed in 2017-18, for the majority of tax payers affected this will be for the accounting year ended 31 March 2018.

If your profits have fallen

If draft accounts demonstrate a fall in profits 2017-18, compared to the previous year, then you may have grounds to reduce your payments on account January and July 2018. As you have already paid the January instalment (based on previous year estimates) now you have evidence that income is falling, you can lodge an application with HMRC to reduce payments on account and your July payment may be reduced, and perhaps significantly.

Time to crunch the numbers, and we can help you estimate liabilities and lodge your application accordingly. In this way you may not have to dig too deep after all.

If your profits have increased

If you have increased your income for 2017-18, your payments on account January and July 2018 may not cover your actual liability for the year.

Fear not, you do not need to increase your payments on account, but it is well worth gathering your papers and completing your accounts, so your advisor can prepare your tax return for 2017-18 and quantify the amount of the underpayment. This will be payable, together with your first payment on account for 2018-19 on or before 31 January 2019.

The Maternity Allowance

Thursday, June 14th, 2018

Women who find that they are not eligible to claim Statutory Maternity Pay may nevertheless, still qualify for the Maternity Allowance (MA).

The amount of MA you get will depend on eligibility.

You might get Maternity Allowance for 39 weeks if one of the following applies:

  • you’re employed, but you can’t get Statutory Maternity Pay
  • you’re self-employed and pay Class 2 National Insurance (including voluntary National Insurance)
  • you’ve recently stopped working

In the 66 weeks before your baby’s due, you must also have been:

  • employed or self-employed for at least 26 weeks
  • earning (or classed as earning) £30 a week or more in at least 13 weeks – the weeks don’t have to be together

You may still qualify if you’ve recently stopped working. It doesn’t matter if you had different jobs or periods of unemployment.

If you’re self-employed, to get the full amount of Maternity Allowance, you must have paid Class 2 National Insurance for at least 13 of the 66 weeks before your baby’s due.

The Department for Work and Pensions (DWP) will check if you’ve paid enough when you make your claim. They’ll write to you if you haven’t.

If you haven’t paid enough Class 2 National Insurance to get the full rate (£145.18 a week), you’ll get £27 a week for 39 weeks. You still need to meet all the other eligibility criteria to get this amount.

You may be able to get the full rate by making early National Insurance payments. HM Revenue and Customs (HMRC) will send you a letter to tell you how.

Construction sector VAT shakeup

Wednesday, June 13th, 2018

Government are considering an extension of the VAT reverse charge to include the construction sector. The reverse charge process places the responsibility for paying VAT on the customer instead of the supplier. In their explanatory notes on this topic HMRC said:

What is being done and why

7.1 This instrument, with effect from the 1st October 2019, applies a reverse charge to certain supplies of construction services in order to remove the opportunity for missing trader fraud in the construction sector.

7.2 Missing trader fraud is an organised criminal attack on the VAT system. The fraud is perpetrated through transaction chains in certain business sectors with the loss occurring when the VAT charged by the supplier is not paid to HMRC but is retained by the recipient.

7.3 This type of fraud has been used by criminals to steal billions of pounds in VAT from governments throughout the European Union, both in relation to domestic supplies such as construction services, and also in connection with cross-border intracommunity trading in goods such as mobile telephones, computer chips and emissions allowances. A reverse charge for mobile telephones and computer chips was introduced with effect from 1st June 2007 and one for emissions allowances was introduced with effect from 1st November 2010. Further reverse charge measures were introduced for gas and electricity with effect from 1st July 2014 and for electronic communications with effect from 1st February 2016.

7.4 Construction services have been targeted by criminals because labour-only suppliers in the sector do not incur any significant VAT on their costs but can charge VAT to customers and then go missing, keeping the VAT for themselves. This instrument makes the reverse charge apply to construction services which, for these purposes, have been defined consistently with the activities covered in the Construction Industry Scheme. This is a statutory scheme which is concerned with tackling the risk of direct tax fraud in the construction industry.

7.5 The risk of fraud in the construction industry is principally centred around the supply of construction services between construction businesses in the supply chain and this instrument, therefore, does not require other types of business to apply the reverse charge when receiving construction services and there is also no reverse charge requirement in relation to building and construction materials that are supplied separately and independently of construction services.

7.6 Reverse charge accounting makes it impossible for fraudsters to perpetrate missing trader fraud because the customer rather than the supplier accounts for the VAT direct to HMRC.

7.7 The introduction of the reverse charge in this business sector will mean that businesses will need to adapt their systems and manage their cash flow differently. Due to the large number of small businesses potentially affected by a reverse charge TNA/EM/10-2015.1 3 for construction services the government has given a long lead-in time to help businesses

Ring in the changes, or else

Thursday, June 7th, 2018

There are a number of obligations that business owners should be aware, that involve them informing HMRC of changes to their business circumstances. In some cases, failure to comply may result in fines.

We have paraphrased some of occasions when you will need to advise HMRC:

  • You must tell HMRC if you decide to change the legal structure of your business, for example if you become a limited company or set up a partnership.
  • you’ll need to tell HMRC if you stop being self-employed or close a limited company. To close a partnership, the nominated partner needs to report this on the final partnership tax return.
  • You don’t need to tell HMRC a partner is joining or leaving unless the partnership is VAT-registered. If your partnership is VAT-registered, you must tell HMRC when a partner joins or leaves within 30 days – you can be fined if you don’t.

 

If a partner dies or becomes bankrupt you must:

 

  • If there are 2 partners, the partnership will be automatically dissolved. The remaining partner must re-register for Self-Assessment as a sole trader.
  • If there are more than 2 partners, the partnership will be dissolved unless the partnership has agreed otherwise.
  • If the nominated partner dies, the partnership must nominate another partner and tell HMRC as soon as possible. If they don’t, HMRC will nominate one and write to the partnership. That partner must then complete any outstanding partnership tax returns.

 

Additionally, if you start to employ staff you must register as an employer with HMRC.

VAT imposes a number of obligations. You will need to advise HMRC of changes to your turnover, businesses activity or if you become a member of a VAT group, and in most cases, you must tell them, within 30 days of the change.

Readers who are clients can be reassured that will do this for them (as long as we are given the facts). If you are concerned that you may have changes to disclose, please call and we will deal with this for you.

Tax Diary June/July 2018

Wednesday, June 6th, 2018

1 June 2018 – Due date for Corporation Tax due for the year ended 31 August 2017.

19 June 2018 – PAYE and NIC deductions due for month ended 5 June 2018. (If you pay your tax electronically the due date is 22 June 2018)

19 June 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2018.

19 June 2018 – CIS tax deducted for the month ended 5 June 2018 is payable by today.

1 July 2018 – Due date for Corporation Tax due for the year ended 30 September 2017.

6 July 2018 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2018 – Pay Class 1A NICs (by the 22 July 2018 if paid electronically).

19 July 2018 – PAYE and NIC deductions due for month ended 5 July 2018. (If you pay your tax electronically the due date is 22 July 2018)

19 July 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2018.

19 July 2018 – CIS tax deducted for the month ended 5 July 2018 is payable by today.

What to do if you cannot pay your tax

Wednesday, June 6th, 2018

HMRC will consider extended options for settling your outstanding tax bill. The key is to contact HMRC, explain why you can’t pay on time, and discuss how you can settle any outstanding liabilities.

If you can’t pay before the deadline, call the Business Payment Support Service. Anyone can use this service, not just businesses.

Business Payment Support Service
 

Telephone: 0300 200 3835
Monday to Friday, 8am to 8pm
Saturday and Sunday, 8am to 4pm
 

Nominated partners in business partnerships can negotiate time to pay with HMRC on behalf of the partnership or individual partners.

 

If you’ve missed your payment date

 

If you’ve received a payment demand, like a tax bill or a letter threatening you with legal action, call the HMRC office that sent you the letter.

Call the Business Payment Support Service if you haven’t received a bill or letter about payment yet.

 

Self-assessment

Call the Self-assessment helpline if you’ve missed your payment date.

Telephone: 0300 200 3822
Monday to Friday, 8am to 8pm
Saturday, 8am to 4pm

Employees holiday entitlement

Wednesday, June 6th, 2018

The following definitions should help to clarify employee and employer rights and responsibilities regarding entitlement to holiday pay.

Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.

Most workers who work a 5-day week must receive at least 28 days paid annual leave per year. This is the equivalent of 5.6 weeks of holiday.

Part-time workers are entitled to less paid holiday than full-time workers. They are entitled to at least 5.6 weeks of paid holiday but this amounts to fewer than 28 days because they work fewer hours per week.

Statutory paid holiday entitlement is limited to 28 days, and so staff working 6 days a week are still only entitled to 28 days’ paid holiday.

Bank holidays or public holidays do not have to be given as paid leave. An employer can choose to include bank holidays as part of a worker’s statutory annual leave. An employer can also choose to offer more leave than the legal minimum. They don’t have to apply all the rules that apply to statutory leave to the extra leave. For example, a worker might need to be employed for a certain amount of time before they become entitled to the additional entitlement.

Additionally, workers have the right to:

  • get paid for leave;

  • build up (‘accrue’) holiday entitlement during maternity, paternity and adoption leave;

  • build up holiday entitlement while off work sick;

  • request holiday at the same time as sick leave.

Paid annual leave is a legal right that an employer must provide. If a worker thinks their right to leave and pay are not being met there are a number of ways to resolve the dispute.

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