Month: March 2014

How to use the new UK pension rules to make £500….

CASH ICON

Here is the theory….

  1. You pay £8,000 into a defined contribution pension fund
  2. Its topped up by £2,000 (tax back from the government)
  3. So that’s £10,000 in your pension pot
  4. You take out £2,500 (25%) tax free
  5. You then pay 20% tax on £7,500 = £1,500
  6. So £8,000 in + £2,000 credit – £1,500 tax = £8,500 which is £500 more than you paid in

This is based on the HMRC rules.…

You must be at least 60 years of age to take your pension pot as a lump sum.

You may qualify to take all of your pension pot as a lump sum if:

  • one of your pension pots is worth £10,000 or less

If a lump sum is paid instead of a small pension before you started to get that pension, only 75 per cent of the lump sum is taxable.

There will be some charges from your pension provider but these should be small, take look at this list for a comparison

ABI data suggest that 25% of pension pots are less than £10,000

steve@bicknells.net

RTI Declarations – Service Company

And now round two of justify it

It’s time to run your first RTI PAYE year end and you have your own limited company, how do you answer this question?

Service Company ‘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.

steve@bicknells.net

3 ways to recover the tax from a trading loss

Button "Cashback" green/silver

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.

Click here for more details from HMRC

steve@bicknells.net

 

 

New Pension Proposals Explained

This is exactly how I pictured the partners lounge

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.

Old Pension

From April 2015 the system for accessing defined contribution pensions at retirement will be….

New Pension

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.

…. Budget Report 2014

steve@bicknells.net

Budget 2014 – Pensions you can spend, hooray!

Pot of gold coins isolated on white

Thank Mr Osborne, its been a long time coming but an end to being forced to buy an annuity is coming….

From April 2015, pensioners will have the freedom to cash in as much or as little of their pension pot as they want, removing the need to buy an annuity.

We will now have the choice of taking a lumpsum, drawdown over time or buy an annuity.

The news wasn’t good for Life Insurance Companies who saw £4.4m wiped off their value yesterday.

If you do want to buy an annuity you be able to get free independent advice.

There will also be a new NS&I Pensioner Bond savings scheme to be available from January to all people over 65, paying interest rates of 2.8% for one-year bonds and 4% for three-year bonds.

From 27th March 2014 small penion pots can be cashed in, the ABI say that 25% of annuity sales related to pension pots of less that £10,000.

“Savers with pension pots of less than £30,000 can now take this out as cash, in what is a welcome lifeline for savers with small pension pots,” says David Macmillan, managing director at life and pensions provider Aegon UK.

There are still rules and the changes apply to Defined Contribution Schemes not Defined Benefit Schemes but this is a massive change in pension rules.

steve@bicknells.net

 

 

HMRC are going to let you tell them your tax code…

Pay Packet And Banknotes

It’s true, from April 2014, you can tell HMRC what you think your code should be by explaining why you think its wrong, here is a link to the HMRC structured E Mail

HMRC Link

This form can only be used for queries relating to your PAYE Coding Notice. Any other queries will not be answered.

HMRC aim to respond within 15 days of receiving your E Mail.

Checking your tax code

You’ll find your tax code on:

  • your pay slip
  • your PAYE Coding Notice – you usually get this a couple of months before the start of the tax year and you may also get one if something has changed but not everyone needs to get one
  • form P60 – you get this at the end of each tax year
  • form P45 – you get this when you leave a job

Your tax code can be wrong for lots of reasons so being able to sent a structured E Mail to HMRC should help to get things corrected faster.

steve@bicknells.net

The most tax efficient way for a contractor to close their business

Balance sheet business diagram

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.

BBC News 7th November 2013

How could they close the company and use Entrepreneurs Tax Relief to pay 10% tax?

They could use a Members Voluntary Liquidation (MVL).
  1. 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
  2. Final Accounts will need to be prepared and creditors paid
  3. 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
  4. A meeting of Shareholders will appoint the Insolvency Practitioner
  5. Notices will be posted at Companies House and in the London Gazzette
  6. Then the MVL can be a carried out and funds distributed
  7. 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.
steve@bicknells.net

5 top reasons why you need to use an MVL

Pot of gold coins isolated on white

Members Voluntary Liquidations have been increasing in popularity

According to the official statistics from The Insolvency Service, over the last few (financial) years the number of MVLs has been:

 

 

 

2008/2009

3,727

2009/2010

3,266

2010/2011

3,270

2011/2012

3,644

 

 

 

Since the ESC C16 change came into effect on 1st March 2012, the number increased to:

 

 

 

2012/2013

4,695

Here are my top 5 reasons why an MVL might be a good choice:

  1. The change in 2012 capped capital distributions on striking off at £25,000 but this cap does not apply to liquidations
  2. You want to retire and close your business and extract the net worth
  3. You created a Special Purpose Vehicle (SPV) for a specific project and the company is no longer needed
  4. Companies that are stuck off can be re-instated but that’s not the case with liquidated companies
  5. Entrepreneurs Tax Relief may be applicable meaning the capital distribution is taxed at 10%

steve@bicknells.net

Are you ready for your first RTI year end?

Close up of payslip

Basically you will need to:

  • Prepare P60’s (but no P14 and P35) by 31st May
  • Submit your final FPS or EPS
  • Update your Payroll Software for the New Tax Year

You can order your P60’s for free from HMRC http://www.hmrc.gov.uk/payerti/forms-updates/forms-publications/onlineorder.htm

Here is a great video from HMRC

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.

steve@bicknells.net