It’s time to run your first RTI PAYE year end and you have your own limited company, how do you answer this question?
‘Yes’ if you are a service company – ‘service company’ includes a limited company, a limited liability partnership or a partnership (but not a sole trader) – and have operated the Intermediaries legislation (Chapter 8, Part 2, Income Tax (Earnings and Pensions) Act 2003 (ITEPA), sometimes known as IR35). Otherwise indicate ‘No’.
The question is now a bit more specific, which is great, because you will only answer ‘Yes’ if you have operated IR35.
Many companies will make a trading loss at some point, its part of being in business. When it happens how can you claim tax relief and get a corporation tax refund? the three main ways are as follows:
1. Carry the Trading Loss Forward
The most common way is for Trading losses to be offset against profits from the same trade in future accounting periods. You don’t have to make any claim for this to happen. It’s done automatically when you complete your Corporation Tax Return.
This method means you get your refund in the future by paying less tax in future years.
2. Carry the Trading Loss Back
Instead of carrying a loss forward, you can claim for the loss to be offset against profits for the preceding 12-month period (not accounting period). But you can only do this if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in the preceding 12-month period.
You can make a claim to carry back a trading loss when you submit your Company Tax Return for the period when you made the loss.
Your claim should normally be made in your return or in an amendment to a return.
If you’re too late to make your claim in your return or return amendment for an accounting period, you can make your claim in a letter. A claim should be made within two years of the end of the accounting period when you made the loss. Your claim should include:
the name of your company or organisation
the period when the loss is made
the amount of the loss
how the loss is to be used
When you amend a return previously submitted and paid and it results in an overpayment you should be able to claim a cash refund.
3. Terminal Loss
If your company or organisation stops trading, you may be able to claim Terminal Loss Relief. This allows you to carry back any trading losses that occur in the final accounting period to be set off against profits made in any or all of the previous three years. But for each year, you can only offset the loss against the profits in that year if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in that year.
This gives you three years rather than one to offset the loss against.
The most talked about and biggest surprise in the Budget was the announcement on changes to pensions.
Under the current system three quarters of those retiring had to buy an annuity with only very small or very large pensions having flexibility.
From April 2015 the system for accessing defined contribution pensions at retirement will be….
Under the current tax system, people are charged 55% if they choose to withdraw all of their defined contribution pension savings at the point of retirement. This means the majority of people instead purchase an annuity and receive taxable income over the course of their retirement. Under the new system, an individual will be able to withdraw their savings at a time of their choosing subject to their marginal rate of income tax. The government anticipates that under these circumstances some people will choose to draw down their pension sooner in order to suit their personal situation. This will increase income tax revenue in the short to medium term.
Consultants who work as contractors often build up funds their limited companies, they do this as a safe guard because being a contractor, there can be gaps between contracts and they will need cash to carry themselves through to the next contract.
But what if they decide to retire or they get offered their dream job as an employee, they may have lots of assets and cash in their company, perhaps more that £25,000.
They might even find that their main client insists they become employees for example
Some of the BBC’s biggest freelance stars could be asked to join the payroll or leave the corporation, as a new test aims to clear up tax issues.
It is part of a clampdown on the use of personal service companies (PSCs) and a move to tax more freelancers at source.
How could they close the company and use Entrepreneurs Tax Relief to pay 10% tax?
They could use a Members Voluntary Liquidation (MVL).
The Insolvency Practitioner will ask the Contractor’s Accountant to confirm that the clients tax affairs are inorder and that appropriate advice has been given
Final Accounts will need to be prepared and creditors paid
A Declaration of Insolvency will be signed – The declaration of insolvency demonstrates that the company will be able to settle or secure liabilities and the costs of liquidation within 12 months
A meeting of Shareholders will appoint the Insolvency Practitioner
Notices will be posted at Companies House and in the London Gazzette
Then the MVL can be a carried out and funds distributed
Arrangements can be put in place to allow the directors access to funds during the process
Using an MVL should mean you can claim Entrepreneurs Tax Relief and pay 10% tax.
Before doing an MVL you should consider whether alternative options such as paying dividends might be more appropriate or whether the cost of the MVL exceeds the potential tax saved or whether Strike Off and ESC C16 could be used.
HM Revenue & Customs (HMRC) plans to make its Basic PAYE Tools product for the 2014-15 tax year available on 3 April 2014.
The 2014-15 version of Basic PAYE Tools will be provided as an update to the existing version rather than a separate download, so existing users do not need to go to the HMRC website to get the update.