Sometimes its accidental, using the wrong card linked to say Amazon, and sometimes its because it makes sense, for example with BBX.
For example BBX have a trade show which focuses on personal purchases
If you’re self employed then any personal spending is Drawings.
Drawings don’ affect your tax as you pay tax based on your profit.
The most common treat is to post personal expenses to the directors loan account. This is a balance sheet account and shows the balance the director owes to the company or that the company owes the director.
The Directors Loan Account is often cleared with dividends.
Alternatively the personal expenditure could be treated as additional salary or as a benefit in kind.
You can’t reclaim VAT on personal expenditure.
Whatever you do make sure the Directors Loan isn’t overdrawn 9 months after year end or you will pay an additional temporary tax charge.
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
Pension Contributions – statement from provider
Donations to Charity
Bank and Building Society Interest
Buy to Let Investments, Holiday Lets and Second Homes
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
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
Buildings and contents insurance
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
Small Business Saturday UK bus tour is taking to the road again, visiting 29 stops in five weeks!
The A-B bus tour will begin on Monday 24th October in Aberdeen and will conclude in Bournemouth on Friday 25th November. The bus will play host to numerous activities, workshops and small businesses exhibiting. If you would like to get involved, please get in touch marking your email subject line with your preferred tour location(s).
Tell us what your doing for Small Business Saturday on the BCTC Facebook Page
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
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
Offices and shops
Farmland and forestry
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
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
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]
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.