As we get closer to the 31st January taxpayers across the land will start to worry about their self assessment tax returns.
Many tax payers will be frustated and confused by the information needed, just like the lady in the video above.
You’ll need to send a tax return if, in the last tax year:
- you were self-employed – you can deduct allowable expenses
- you got £2,500 or more in untaxed income, for example from renting out a property or savings and investments – contact the helpline if it was less than £2,500
- your savings or investment income was £10,000 or more before tax
- you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax
- you were a company director – unless it was for a non-profit organisation (such as a charity) and you didn’t get any pay or benefits, like a company car
- your income (or your partner’s) was over £50,000 and one of you claimed Child Benefit
- you had income from abroad that you needed to pay tax on
- you lived abroad and had a UK income
- you got dividends from shares and you’re a higher or additional rate taxpayer – but if you don’t need to send a return for any other reason, contact the helpline instead
- your income was over £100,000
- you were a trustee of a trust or registered pension scheme
- you had a P800 from HMRC saying you didn’t pay enough tax last year – and you didn’t pay what you owe through your tax code or with a voluntary payment
If you have a question and don’t have an accountant taxpayers have 3 main ways to contact HMRC:
Based on last year it could take 47 minutes at this time of year to get to speak to someone at HMRC!
Here are 10 of the most common problems faced by tax payers who don’t have an accountant
- Not leaving enough time to register for Self Assessment – It can take 20 working days (this is usually 4 weeks) to complete the registration process, then for online returns, allow 10 working days (21 if you’re abroad) to register because HM Revenue and Customs (HMRC) posts you an activation code.
- Lost Login details – Your account will be locked for 2 hours if you enter the wrong user ID or password 3 times.If you’ve lost both your user ID and password:
- Leaving it too late to get help – If you need help from an accountant don’t leave it too late as they will need to carryout AML and other checks before they can file your return, they will also need your UTR
- Failing to complete all the parts of the return – For example leaving out PAYE information
- Failing to press ‘submit’ – you would be surprised how many people complete the return and then stop without submitting or leave submission and then forget to do it
- Missing out details of your Pension Provider
- Failing to check the calculation – Most people do a rough calculation of what they owe but fail to check the HMRC calculation only to find out they have made a mistake
- Using invalid characters such as # ‘ ” in boxes where these are not allowed
- Not paying the tax they owe by 31st January
- Failing to explain where estimates and provisional sums have been used
To complete a self assessment return, the most common things you will need to know are:
- Employment Income – P60 and P11D
- Child Benefit
- Pension Contributions – statement from provider
- Donations to Charity
- Bank and Building Society Interest
- Buy to Let Investments, Holiday Lets and Second Homes
- Other Income
- Employment Expenses not paid by your employer including mileage to approved rates and clothing
- Professional Memberships related to your job and on HMRC List 3
- Home Office Expenses
- Capital Gains
Many tax payers are unaware of tax allowances and expenses that they can claim and often this means they end up paying too much tax.
For example employment expenses such as Flat Rate and Mileage.
Property Investors should be claiming
- Mortgage or Loan Interest (but not capital)
- Repairs and maintenance (but not improvements)
- Travel costs to and from your properties for lettings or meetings
- Advertising costs
- Agents fees
- Buildings and contents insurance
- Ground Rent
- Accountants Fees
- Rent insurance (if you claim the income will need to be declared)
- Legal fees relating to eviction
Using an accountant will help you get your tax affairs right
With all the recent changes in Property Investment Tax rules some investors have sought to move their property investments into LLP’s
Limited Liability Partnerships have largely been ignored by HMRC and untested with case law (so there is a risk that HMRC will start to pay more attention to them if they grow in popularity).
LLPs could have some benefits, especially for Inheritance, let’s look at the advantages:
- If you had a property portfolio with potentially large capital gain you could move the property to the LLP as equity capital introduced (be careful on how the LLP agreement is written) and in theory this wouldn’t create a capital gain (CGT)
- The LLP will show the full value in their accounts including the gain
- Then you can add other family members
LLP’s are also being used as a stepping stone to incorporation.
S162 Incorporation Tax Relief would probably be available once the LLP has been trading for a while
Can a Residential Property Investor use Incorporation Tax Relief?
SDLT will probably not apply
Where the transferor is a partnership, this normal rule is overridden by the prescriptive rules in FA 2003 Sch 15. The impact of these provisions can be that to the extent the company is connected with the partners making the transfer, no SDLT may arise. https://www.taxjournal.com/articles/incorporation-buy-let-business-10062015
There are specialists offering solutions such as Property 118 – but the fees may out way the benefits for many investors
Holding property in companies is definitely the future for residential property investment
5 reasons why you need a Property Investment Company!
I would recommend a company for each property as this should make it easier for lenders to take a charge and creates the opportunity to sell the company rather than the property within it.
You can then have a holding company.
Some people have some odd ideas about pensions, here are a few:
Auto Enrolment Pensions
Our company doesn’t need an auto enrolment pension as we already have pensions and would just opt out! not true every employer needs an auto enrolment pension and you can not opt out before you have joined.
One Person companies are not subject to Auto Enrolment however, if the company takes on a second worker and the director and new employee have contracts of employment then both could become workers under auto enrolment.
Pensions aren’t as good as buy to let property
Property is a good investment and Buy to Let property has benefited from excellent capital growth, pension schemes can’t invest in residential property but they can invest in
- Industrial units
- Offices and shops
- Farmland and forestry
- Public houses
- Nursing homes
- Marine berth
Pensions are the most tax efficient way to invest because:
- You or your company will get tax relief on money paid in (for higher rate taxpayer that’s 40% tax relief)
- Pension schemes don’t pay income tax or capital gains tax
- When you are over 55 you can have 25% tax free
- Pensions are generally outside of the scope of Inheritance Tax
The Pension dies with me
It doesn’t have to die with you, in fact many people are now creating family pension schemes
How a Family Pension Scheme will save you Tax
The potential benefits of the Family Pension Trust are:
- Members, including minors, can pool funds together to benefit from a wider range of investment opportunities
- Multiple common investment funds allow a variety of bespoke portfolios to be established for some or all members, which widens investment options and can reduce costs
- Investment decisions do not have to be unanimous
- Different attitudes to risk can be catered for
- No minimum fund requirement
- Increased borrowing potential
- Succession planning options and death benefits
- Comprehensive, flexible options to enable retirement income to be phased
IR35 is a nightmare for contractors, since it came into force on the 6th April 2000, it has never been clear cut as to whether a contractor is in or out of IR35. Being in IR35 means paying a lot more tax.
There are a range of factors to consider, including:
1. The nature of the contract and written terms
2. Right of substitution
3. Mutality of obligation
4. Right of control
5. Provision of own equipment
6. Financial risk
7. Opportunity to profit
8. Length of engagement
9. ‘part and parcel’ of the organization
10. Entitlement to employee-type benefits
11. Right of termination
12. Personal factors
13. The intention of the parties
HMRC estimate that there are 200,000 personal service companies.
Since July HMRC have been pursuing BBC Presenters and so far it looks like 100 presenters are on their list, this will of course be the tip of iceberg and many more will be caught if HMRC win.
Why can’t we just have a simple online test for IR35 as we do with employment status! it would save so much confusion
What happens to your spare capacity?
Its impossible to totally eliminate spare capacity, for example hotels statistically are at 77% occupancy in the provinces and 84% in London.
So 16% to 23% of hotel capacity is wasted, its time dependent so it can never be re-used.
How much time are you wasting?
What if you could take that unused capacity and bank it for future use? well you can with BBX
You can even use your spare capacity to buy UK Property
Find out more http://www.bbxuk.com/special/bicknell-business-advisers/
Did you see our October Newsletter:
- Do you hate doing tax returns? we can help
- 21 Expenses and Allowances that will reduce your tax bill
- 10 ways to pay less property tax
Click on this link to get a copy http://eepurl.com/cjI9uP
Sign up to our mailing list http://eepurl.com/b6k7HH
Firstly, if you are an online trader and its not just a hobby, makesure you register and pay tax.
The criteria used to assess if an activity is a hobby or a business are:
- The size and commerciality of the activity.
- The frequency of the activity and transactions
- The application of business principles.
- Whether there is a genuine profit motive.
- The amount of time devoted to the activities.
- The existence of arm’s-length customers (as opposed to just selling your wares to family and friends).
You must register for VAT with HM Revenue and Customs (HMRC) if your business’ VAT taxable turnover is more than £83,000.
So once you are VAT registered and trading online with Ebay, Amazon or other platforms how do you work out how much VAT you should account for on sales?
Let’s take an example:
Sales are £5,000
Online Platform Commission £500
Is your VAT able income:
a) £5,000 (Goods)
b) £5,500 (Goods plus Postage)
c) £4,500 (Goods net of Commission)
The answer is b) Goods plus Postage = Total Sales Value
Assuming its a UK customer and goods are standard rated the VAT would be £5,500/6 = £916.67 because when you sell to consumers the price is inclusive of VAT.
If your platform provider is based outside the UK but in the EU their fees will subject to ‘Reverse Charge‘ VAT.
When you buy services from suppliers in other countries, you may have to account for the VAT yourself – depending on the circumstances. This is called the ‘reverse charge’, and is also known as ‘tax shift’. Where it applies, you act as if you are both the supplier and the customer – you charge yourself the VAT and then, assuming that the service relates to VAT taxable supplies that you make, you also claim it back. So there’s no net cost to you – the two taxes cancel each other out. [HMRC]
In the last year HMRC have increased their raids on business premises by 28% and that’s a 53% increase over 5 years.
761 properties were raided last year!
HMRC possesses powers to raid premises with a search warrant granted by a judge or magistrate.
During August 2016 (Consultations end in October 2016) they issued 3 new consultations:
Tackling the hidden economy: Sanctions
Tackling the hidden economy: Extension of data – gathering powers to Money Service Businesses
HMRC have always been keen to seek out those who fail to register for tax, since 2011 they have been using CONNECT.
According to Accounting Web:
It uses a mathematical technique to search previously unrelated information and detect otherwise invisible ‘relationship’ networks. Using Connect, HMRC sifts through information on property transactions at the Land Registry, company ownerships, loans, bank accounts, employment history, voting and local authority rates registers and compares with self-assessment records to spot taxpayers who might be under-declaring or not declaring income.
Connect has made links between tax records and third party data from hospitals, pharmaceutical companies, insurers and even gas SAFE registrations. DVLA records and the shipping and Civil Aviation Authority registers help identify owners of cars and planes who declare income that the computer suggests cannot support such purchases.
If you have undeclared tax now would be a good time to tell HMRC.
Business rates are charged on most non-domestic properties, like:
- holiday rental homes or guest houses
If your property has a rateable value below £18,000 (£25,500 in Greater London) you’re considered a small business.
Even if you don’t qualify for small business rate relief, your business rates will be calculated using the small business multiplier instead of the standard one. This is the case even if your business uses more than property.
You can get small business rate relief if:
- you business only uses one property
- your property’s rateable value is less than £12,000
Contact your local council to apply for small business rate relief.
The Valuation Office Agency recently revalued all 1.96 million non-domestic properties in England and Wales. These new rateable values are based on the rental value of properties on 1 April 2015, and will be used to calculate business rate bills from 1 April 2017.
You can find out how much your rates will be using this link