Sole Traders lose Goodwill Tax Relief Reply

Branding

Since 6th April 2008 and until 3rd December 2014 Sole Traders and Parternships were able to claim Entrepreneurs Tax Relief on Goodwill when becoming a Limited Company.

Until the 3rd December 2014 they would claim there Capital Gains Allowance

Period Tax-free allowance
5 April 2013 to 6 April 2014 £10,900
5 April 2014 to 6 April 2015 £11,000

Then claim ER which reduced the rate of tax to 10% on the gain.

But from the 3rd December they will now pay Capital Gains at the normal rates of CGT which are 18% or 28% (for Higher Rate Income Tax Payers).

They also lose the Corporation Tax Relief see Section 849C CTA2009

Also see this blog..

The tax benefits of goodwill on incorporation?

steve@bicknells.net

 

What if you can’t complete your Self Assessment Tax Return? 2

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11.2 million people will be required to complete a Self Assessment Return for 2013/14 and the deadline is the 31st January 2015.

The most common things you will need to know are:

  • Employment Income – P60 and P11D
  • Pension Contributions – statement from provider
  • Donations to Charity
  • Bank and Building Society Interest
  • Dividends
  • 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

What can you do if despite your best efforts you can’t find or get hold of the information you need?

Returns which include provisional or estimated figures should be accepted provided they can be regarded as satisfying the filing requirement.

  • A provisional figure is one which the taxpayer / agent has supplied pending the submission of the final / accurate figure
  • An estimated figure is one which the taxpayer / agent wishes to be accepted as the final figure because it is not possible to provide an accurate figure for example where the records have been lost. The taxpayer is not required to tick box 20 of the Finishing your Tax Return section of the return page TR 6 (or equivalent in a return for an earlier year) where estimated figures have been used

If you make a mistake on your tax return, you’ve normally got 12 months from 31 January after the end of the tax year to correct or amend it. For example, if you send your 2013-14 online tax return by 31 January 2015, you have until 31 January 2016 to amendment it.

If you sent your tax return online by 31 January, it’s easy to amend it online too. You just need to log into your Self Assessment online account, go to the ‘at a glance’ page and choose the option to amend your tax return.

steve@bicknells.net

How do you create a Tronc? Reply

Tip jar

Typically, an employee is appointed to administer the tronc and is usually referred to as the troncmaster. HMRC does not prescribe who the troncmaster should be.

Frank owns a pub and restaurant. Tips paid by cheque, debit and credit card are all passed to Sharon, the troncmaster, who has been appointed by Frank. Sharon operates PAYE on the tips that she distributes. A staff committee decides on the allocation and Frank has nothing to do with this.

Even though Frank has appointed Sharon as troncmaster he has played no part, directly or indirectly, in the allocation of the tips because he is not involved in determining who should receive tips and how much each employee should receive. In these circumstances, no NICs will be due on the tips received by the tronc members. Example from NIM02942

Y0u may also find my blog helpful

How Troncmasters can keep your tips NI and VAT Free

The Income Tax (Pay As You Earn) Regulations 2003 require an employer to

  • Notify HMRC of the existence of a tronc created on or after 6 April 2004

And

  • Give the troncmaster’s name (if known)

When you are notified of a tronc you should

  • Confirm that there is an organised arrangement for sharing tips and determine
    • How the tronc receives monies (for example employees paying in cash tips or an employer paying in credit card tips)
    • Who holds the tronc monies and how (for example, is there a tronc bank account and if so who operates it?)
    • On what basis are distributions made from the tronc and who decides that basis
    • Which employees are tronc members
    • Whether the person said to be the troncmaster accepts and understands the role (including the obligation to operate PAYE)

If you are satisfied that there is a tronc for PAYE purposes (bear in mind that a business could have more than one tronc, for example a hotel could have separate troncs for restaurant staff and housekeeping staff and each should be dealt with separately)

  • Arrange for a PAYE scheme to be set up in the name of the troncmaster. Further information can be found in PAYE20160

steve@bicknells.net

The Yacht that wasn’t a benefit in kind Reply

Yacht de luxe.

This is the case of Gillian Rockall v HMRC (2014) HKFTT 643.

Mr Michael & Mrs Gillian Rockall were involved in running a hotel and conference centre and providing high-end residential courses, amongst the companies assets was a 140 foot ocean-going yacht costing $11.9 million called Masquerade of Sole.

HMRC issued assessments on Mr & Mrs Rockall for the tax years 2000-2001 to 2008-2009 on the basis of personal use (benefit is normally assessed as 20% of the market value).

The Yacht was used for:

  • Business Networking
  • Customer Training
  • Exploring Business Opportunities in the Caribbean and Mediterranean
  • Friends and Acquaintances were taken on occassional trips to provide a opinion on opportunities

The Yacht was also placed with an agent for charter when not required for the purposes above.

The First-Tier Tribunal took the view that the use of the Yacht was only for Business and not for private purposes.

However under S203 ITEPA 2003 a benefit in kind would arise because the asset was at the disposal of the employees.

The Rockalls appealed to the First-Tier Tax Tribunal, on the grounds that the use of the yacht was tax-deductible under s365 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). This requires that the item comprising the benefit in kind was used ‘wholly, exclusively and necessarily in the performance of the duties of the employment’.

The tribunal has now ruled that the yacht was bought and operated purely for business purposes and thus was fully tax-deductible for both the Rockalls.

– See more at: http://www.step.org/yacht-used-impress-customers-were-legitimate-expense#sthash.dNRhVYmG.dpuf

steve@bicknells.net

Will your tax return stand up to HMRC Profit Benchmarking? 1

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HMRC have been doing lots of research on SME businesses, the most interesting areas of research are:

Understanding Small and Medium Enterprise (SME) business life eventsSME Customer Journey Mapping

Research was carried out to understand:

  • the key life events and activities that SMEs experience
  • how these relate to tax
  • what opportunities there are for the improvement of HM Revenue and Customs (HMRC) services by more closely aligning them to business lifecycles

The Transparent Benchmarking Team Statement (November 2014)

HMRC is conducting a number of pilots, focussed on SME customers, designed to explore the effectiveness of publishing benchmarks on aiding greater voluntary compliance.

Following the first pilot (benchmark net profit ratios for Painters and Decorators, and Driving Instructors) in March 2014, HMRC will run two more in the autumn. One of these will focus on self-employed taxi drivers and pharmacists, where HMRC will be writing to around 2,500 agents that have a number of clients in the target sectors. The idea is to test whether publishing benchmarks through an agent is more effective than writing to a customer directly. Letters will also be sent to a sample of represented and unrepresented customers within the selected sectors to form control groups for evaluation purposes. All represented individuals and businesses written to directly will be informed that their agent has not received a copy of the letter.

The benchmark for both sectors is the net profit ratio. Because this is a controlled pilot exercise, not all agents or businesses within the relevant sectors will be receiving a letter. (source CIOT)

The Benchmarks we know so far are:

  • Painters & Decorators range from 59% to 79%
  • Driving Instructors 31% to 67%

So the range of profits are big!

We await the ranges for Taxi Drivers and Pharmacists.

If your profit doesn’t fit then you need to know why.

Do not ignore the letter because HMRC are likely to follow it up and assume you are deliberately trying to avoid tax!

You may have some valid reasons for not fitting the benchmark and you must explain those reasons to HMRC.

A deliberate error will results in a higher penalty (up 100% of the tax) but can also open the door to HMRC going back over up to 20 years of your accounts!

The letters refer to common mistakes in:

  • Travel Expenses
  • Telephone Costs
  • Utility and insurance charges
  • Professional Fees
  • Capital Expenditure

You may find these blogs helpful

Motor Expenses

Travel Expenses

Home Office Expenses

10 Ways to Save Tax

HMRC also have some useful toolkits/checklists…..

Business Profits Toolkit

Private and Personal Expenditure Toolkit

steve@bicknells.net