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Dates and deadlines for August 2013

Posted by: edwinsmith on July 31st, 2013

Upcoming deadlines for businesses and individuals

1 August: Corporation tax payment for a company not within the instalment regulations: year ending 31 October 2012.

Outstanding 2011/12 self assessment tax returns will now be subject to a penalty of £300 or 5% of tax due whichever is higher (this penalty is in addition to previous late filing penalties).

2 August: Submission date for form P46 (Car) for quarter ended 5 July 2013.

5 August: End of month 4 for PAYE (RTI). All FPS (Full Payment Submissions) due if taking advantage of concession.

7 August: Online VAT return due to be filed and electronic payment of VAT due to be cleared into HMRC bank: quarter ended 30 June 2013.

9 August: Property sales campaign deadline for intention to make a disclosure notice.

12 August: Direct debit VAT payment will be taken: quarter ended 30 June 2013.

19 August: CIS monthly return deadline: month ended 5 August 2013.

19 August: Cheque payments for PAYE/NI, student loan, CIS  to be cleared into HMRC bank: month ended 5 August 2013.

22 August: Electronic PAYE/NI etc payments to be cleared into HMRC bank: month ended 5 August 2013.

31 August : Company tax return CT600 due to HMRC: years ending 31 August 2012.

31 August: Company accounts (Private Limited Co) due to be filed: years ending 30 November 2012.

31 August: Company accounts (Public Companies) due to be filed: years ending 28 February 2013.

1 September : Corporation tax payment for company not within the instalment regulations: years ending 30 November 2012.

Filed under: Dates and deadlines

The ‘My tax return catch up’ campaign

Posted by: edwinsmith on July 31st, 2013

HMRC has recently released details of its latest campaign which has been termed the ‘My tax return catch up plan’. Being similar to last year’s tax return initiative, it encourages late self assessment filers to get up to date.

If you are behind with your affairs and wish to take advantage of this latest campaign, you will need to:

  1. Tell HMRC that you want to join;
    1. Complete and submit all your outstanding returns; and
    2. Pay what you or if you are lucky, claim the repayment you are owed.

I am behind but why should I take part?

If you are behind with your tax returns then you will be incurring penalties. If you take part in the campaign then you will increase your chances of obtaining a reduced penalty. By getting up to date you also avoid receiving an estimate of the tax you owe together with the associated telephone calls and court visits.

If you owe a significant amount in tax you may be able to spread the payments on agreement with HMRC.

HMRC has created a dedicated helpline on 0845 601 8818 which is open Monday to Friday 9am to 5pm.

How to take part

If you wish to take part, you will need to tell HMRC by completing a notification form. More details on the HMRC website.

Once you have made the notification, you will need to complete and submit your returns by15 October 2013.

Details of other campaigns can be found on our website. If you need any assistance with your tax affairs then please do contact us for a free initial consultation.

Business use of home as office

Posted by: edwinsmith on July 26th, 2013

As many small businesses operate from home, costs can be incurred where it is possible to obtain tax relief against business income. Detailed below are the various methods that can be used in determining the allowable expense for sole traders, business partnerships and small companies.

Sole traders and business partnerships

Flat rate deductions – business use of home

From 2013/14 HMRC have introduced some fixed rate expenses that can be taken advantage of by sole traders and business partnerships. One of these relates to business use of home (These simplified expenses will be detailed in an online article next month).

The flat rate deduction can be used as an alternative to recording actual expenditure and apportioning business element. This rate includes all household running costs such as heat, light, power, telephone and broadband/internet costs and is based on the number of monthly average hours worked at home. The monthly rates are detailed below.

25 or more hours worked per month  - flat rate of £10 per month

51 or more hours worked per month  – flat rate of £18 per month

101 or more hours worked per month – flat rate of £26 per month

It would be advisable to review the business proportion of home telephone and internet costs before using the flat rates.

If a business does not wish to use the simplified expenses for business use of home, then where private use of telephone/internet costs does not form a significant proportion of the service use, HMRC will accept that the full amount of expenditure can be claimed. However business will need to use the normal statutory method of calculating the business use of home costs as detailed below.

Normal method calculating – business use of home

You can claim a proportion of the annual home costs such as insurance, council tax, mortgage interest, rent, water rates and running costs each year such as heat, light and power. You need to be able to justify the claim and the calculation would normally be based on the number of rooms used for business use compared with number of rooms in the house. You should also take into account the number of hours worked in the room at home. If only one room is partly used at home for business then there should not be any capital gains tax implications (loss of private residence exemption) but care needs to be taken if claims are made where there is sole use of a number of rooms for business use.

Small companies

Unfortunately directors working from home for small companies cannot claim business use of home costs in the same way as sole traders/partnerships’ working from home as these costs are not incurred wholly, exclusively and necessarily for their employment.

If considering charging a rent to company then in order to obtain the same effective treatment as a sole trader you would need to set up a rental agreement between the company and individual (director). The rent in effect would equate to the ‘business use of home’ costs and as long as rent did not exceed commercial arm’s length amount then rent would be allowed as deduction in arriving at taxable profits for corporation tax. The rent received by the individual (director) would need to be declared  in self assessment tax return but would be offset by costs calculated for ‘business use of home’ leaving a nil profit from the office rent.

Again care should be taken with the rental agreement to avoid any loss of private residence relief. The agreement should state that the home room/facilities are only let to company for specific hours in the week.

Employee/ (directors) allowable tax relief for household expenses

If you wish to avoid problems associated with charging rents then HMRC have agreed rates that can be used by employees or directors to claim tax relief on household expenses.

These expenses cover extra cost of gas and electricity to heat and light your work area and business telephone calls. You won’t be able to get tax relief on mortgage, council tax, telephone line rental or Internet access. In order to obtain tax relief on land lines and broadband at home then it is important to have a designated phone line/broadband and the contract in the company name.

From 2012/13 the agreed HMRC rate for household expenses (without keeping documentation) amounts to £4 per week or £18 per month. For amounts above £4 you will need supporting evidence to show that the amount you are claiming is no more than the additional household expenses you have actually incurred.

The guideline rate for 2008-09 to 2011-12 was £3.00 per week and for 2007-08 it was £2.00 per week. For further details see HM Revenue & Customs: Tax relief for household expenses when working at home

Please contact us if you require any advice on expenses that can be claimed for business use of home.

Payment protection insurance compensation

Posted by: edwinsmith on July 19th, 2013

For the last few years, claims for mis-selling payment protection insurance or PPI have been common and are still ongoing. 

PPI is sold to those taking out loans or credit cards as protection against being unable to make the repayments. It includes those policies sold as an annual premium and added to the loan, and those paid on a monthly policy on credit cards for example. 

If you have been successful in making a claim, then you would have received a repayment. This could be made up of the following:

  1. a refund of the PPI premiums paid
  2. historic interest (interest paid by the customer on the PPI premium if it was added to the loan or credit card)
  3. simple interest at a rate of 8% per annum which is to compensate the customer for being deprived of the money they had paid to the firm for the PPI.

You should be notified of the basis of the payment and how it is made up. 

Why does this matter? 

It is often overlooked that the simple interest noted above is taxable and should be included on your self assessment tax return. Depending on who made the payment to you, this may or may not have had basic rate tax deducted and so you will need to check your paperwork. If there has been no tax deducted, then depending upon your circumstances you may need tell HMRC. 

Higher rate tax payers will need to pay additional tax on the interest and if no tax was deducted at source then all tax payers will need to pay additional tax.

If you complete a self assessment tax return then you will need to include this on your return.

If you do not complete a tax return then you will need to contact HMRC and declare the additional income in writing (or this may be accepted over the phone).

What if it was a business loan? 

If the PPI was paid on a business loan and tax relief claimed on those premiums, the refunded PPI premiums will need to be included in your accounts together with the interest which will also be taxed. The refunded premiums will increase your profits and will be taxed in the normal manner.

What to do now?

If you received a refund in 2012/13, then you will need to include it on your next tax return or write to HMRC soon.

If you received the refund in an earlier year, then you will need to amend your return.

If you are not in self assessment, then you will need to write to HMRC to make the disclosure.

If we complete your return for you, you will need to tell us about any claim and we can then establish the taxable element and ensure you return is complete.

If you have any questions then please contact us .

Filed under: Self Assessment, Tax

Inheritance Tax – Gifts made from income as part of normal expenditure

Posted by: edwinsmith on July 12th, 2013

Following on from the previous online article Inheritance Tax – Make use of lifetime exemptions,  further information is detailed below to explain the rules concerning gifts made from income.

Gifts that are made as part of the donor’s normal expenditure, if accepted, will be exempt from Inheritance Tax (IHT) and it is possible that significant tax savings can be obtained from this type of gift if it is supported with information to meet the following criteria:

  • 1: The gift must form part of the donor’s normal expenditure;
  • 2: It must be made from the donor’s income; and
  • 3: It must leave the donor with sufficient income to maintain their normal lifestyle.

In order to meet the first criteria you must show that the gift is part of the donor’s settled pattern of expenditure (habitual gifts rather than special) and not irregular amounts or to various individuals. This can be established by keeping a record of expenditure over a period of time (see below) or the donor making a commitment and thereafter complying with it.

The type of gifts made from income can include:

  • Monthly or other regular payments to someone;
  • Regular gifts for Christmas, birthdays or wedding /civil partnership anniversaries; and
  • Regular premiums on a life insurance policy for you or someone. 

The donor’s income in the second criteria must not include capital but will include income after tax such as earnings (employed/self employed), pensions, and property income etc.

The third criteria means that after making the gift, the donor must be left with enough income to maintain their normal standard of living. As everyone has different lifestyles then you will need to establish the normal living expenses in order to assess the surplus income that was available at the time gift was made. If you do not have sufficient income for normal expenditure and you reduce capital to meet these living costs at the time of the gift then the exemption will be lost.

In order to obtain this type of gift exemption, it is important that a record is kept of income and expenses and there is a specific  IHT form 403 which includes a schedule for this purpose. This form is usually for the executors etc. to complete but is a useful schedule if planning to reduce Inheritance Tax, as it will assist you in keeping sufficient records over a period of time to show these gifts were made out of income and obtain IHT exemption.

It would be advisable to seek professional advice in this area so please contact us  for any of your IHT planning needs.

Filed under: Inheritance Tax, Tax

Inheritance Tax – Make use of lifetime exemptions

Posted by: edwinsmith on July 5th, 2013

Some basic inheritance tax (IHT) planning can save substantial amounts of tax. Everyone when they die is able to leave assets free of tax with a value up to the Inheritance Tax threshold (nil rate band) of £325,000 for 2013-14. This threshold is currently frozen until 2017-18. If the value of your estate exceeds the nil rate-band then you will be subject to tax at 40% on the excess.

Gifts made to individuals will be exempt from Inheritance Tax as long as you live seven years after making the gift. If you die within the seven years then the gift maybe subject to Inheritance Tax.  These gifts are known as Potentially Exempt Transfers (PETS).

If you give an asset away at anytime but still retain an interest in it, then the gift will not be a potentially exempt transfer (PET).

Some gifts are exempt from Inheritance tax even if made within seven years of death. One way to reduce the tax liability is to make full use of these lifetime exemptions or gifts. The following transfers available to tax payers which are exempt from inheritance tax are detailed below:

Annual exemption - £3,000 can be given away each year and be exempt from Inheritance Tax. Any unused part of the £3,000 exemption can be carried forward to the next year but only for one year. If you don’t use the carried forward amount in that year then the exemption expires.

Small Gifts Exemption – small gifts up to the value of £250 to any one individual can be made per tax year - these small gifts are not counted towards the annual exemption but you can’t use small gifts allowance together with any other exemption when giving to the same person. You can’t give more than £250 and claim that the first £250 is a small gift and if you do the small gift exemption is lost altogether.

Gifts to charities and UK political parties – Gifts can be made to charities and political parties free of inheritance tax. It must be a qualifying charity established in the EU or other specified country. The UK political party must have at least two elected members to the House of Commons or one elected member (with the party having at least 150,000 votes). Certain national institutions such as museums, universities and the National Trust may qualify for exempt IHT gifts.

Gifts to your husband, wife or civil partner – Gifts to spouse or civil partner can be made exempt from Inheritance Tax as long as they have a permanent home in the UK.

Gifts on consideration of marriageWedding or civil partnership ceremony gifts that are made on condition of marriage/civil partnership agreement can be made free from Inheritance Tax with the exemption amount dependent of donor’s relationship with the couple as follows:

£5,000 - gift from parent 

£2,500 - gift from grandparent or remoter ancestor (great grandparent)

£2,500 – gift from bride/groom to each other 

£1,000 - gift from anyone else

In order to obtain the exemption, the gift must be conditional and be made (or the promise to make gift) on or shortly before the marriage ceremony.

Gifts from normal income– regular gifts that are made from income (after tax), such as earnings and pensions, which leaves enough income for your normal life style are exempt from Inheritance Tax. This does not include gifts made out of capital. Further information will be provided in next online article.

Gifts for family maintenance – These include maintenance payments for:

Your husband, wife and civil partner 

Your ex spouse or former civil partner 

Relatives who are dependent on you because of old age or infirmity

Your children, including adopted and step- children who are under 18 or in fulltime education

Please contact us if you would like further advice on all aspects of IHT planning.


Filed under: Inheritance Tax, Tax