You don’t need to register for Self Assessment or send a tax return if your company is a non-profit organisation (for example, a charity) and you didn’t get any pay or benefits, like a company car.
So, basically, if you are a director you must register!
Many accountants think that this one size fits all approach is a little over the top and returns for salaried directors are unnecessary in some cases but the rules are absolutely clear, Directors must register!
So the latest case involving a property company came as a surprise to many accountants
Mohammed Salem Kadhem (case TC05929) became a director of a property company on 21 May 2014. He received no pay or dividends from that company and didn’t register for self-assessment.
Basically HMRC made mistakes in their approach to the case basically arguing that a notice to file had been sent but were unable to prove the notice was sent and Mohammed Salem Kadhem won.
The tribunal accepted that he had a reasonable excuse for filing a late return and all the penalties were quashed.
This doesn’t change the fact that all directors must register and a file self assessment returns. Don’t risk it, its better to file returns!
Almost a third of British workers run some kind of creative business outside their main job contributing an estimated £15bn to the UK economy, according to research from Moo.com. One in ten part-time creative entrepreneurs plans to leave their job to focus on their business full-time within the next year. However, 60% said it was their passion for the business, and not making money, that motivated them. The most popular part-time creative ventures are in food and cooking, gardening, photography and knitting. (According to Law Donut)
So why are micro businesses taking off:
You can start off working at home
Your start up costs are low
You can do it part time when it suits you
With wages frozen and costs rising it can provide a useful additional income
Its easy to be price competitive with low overheads
The Internet makes it easy to sell your goods and services
Your social capital can be used to generate sales ie use your contacts and connections
There could be tax advantages – employees generally pay more tax than sole traders
Some clients prefer the personal touch
It could be start of something big
HMRC orginally launched their campaign in April 2014 and have updated it on 12th June 2017.
The Second Incomes Campaign is an opportunity open to individuals in employment who have an additional untaxed source of income.
Examples could include:
fees from consultancy or other services such as public speaking or providing training
payment for organising parties and events or providing entertainment
income from activities such as taxi driving, hairdressing, providing fitness training or landscape gardening
profits from spare time activities such as making and selling craft items
profits from buying and selling goods, for example regular market stalls, boot sales etc
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).
To take part in the Second Incomes Campaign you should:
tell HMRC that you want to take part in the Second Incomes Campaign (Notify)
tell HMRC about all income, gains, tax and duties you’ve not previously told them about (Disclose)
make a formal offer
pay what you owe
help HMRC as much as you can if they ask you for more information
To benefit from the reduced penalties offered HMRC will take account of the level to which you have helped them and the accuracy of the information you provided.
All accountants and tax agents should now be sending or have sent a letter or e mail to their clients saying
From 2016, HM Revenue & Customs (HMRC) is getting an unprecedented amount of information about people’s overseas accounts, structures, trusts, and investments from more than 100 jurisdictions worldwide, thanks to agreements to increase global tax transparency. This gives HMRC unprecedented levels of information to check that, as in most cases, the right tax has been paid.
If you have already declared all of your past and present income or gains to HMRC, including from overseas, you do not need to worry. But if you are in any doubt, HMRC recommends that you read the factsheet attached to help you decide now what to do next.
The Construction Industry Scheme (CIS) applies to anyone who carries out construction work as a trade, in other words developers, contractors, building maintenance and repairs, decorating, property conversion, basically if you use sub-contractors to work on a building its probably within CIS. It does, however, exclude property investors (although this could change soon) and domestic householders.
Rob is asked to undertake some repair work on Ben’s private house. He asks Wendy to help him with the electrical work. Wendy is working on a self-employed basis for this contract. Ben pays Rob without deduction of tax as Ben is a private householder. Rob then pays Wendy.
Rob should register under CIS as a contractor before making the payment to Wendy. Rob should ask Wendy for her UTR and check her CIS status with HMRC. He should then pay Wendy net of 20% tax or net of 30% tax depending on her status with HMRC (exceptionally, if Wendy is entitled to register with HMRC for gross payment, then HMRC would tell Rob that he can pay Wendy without deduction of tax; gross payment will only apply to larger businesses).
If HMRC advises Rob that Wendy is registered under CIS (but not for gross payment), then Rob will keep back 20% tax and pay this CIS tax across to HMRC on Wendy’s behalf.
If Rob failed to register as a contractor under the CIS scheme he could face very big penalties. These include a £3,000 fine for not keeping CIS records, and a £100 per month penalty per missed return (and returns are due monthly).
Failing to register for a number of years could lead to penalties in the tens of thousands of pounds. This can happen even when all the workers are registered as self-employed and have paid the tax due on their income.
In summary the penalties are:
The maximum penalty is currently £3,000 for failing to register then there are late filing penalties
How late the return is
Penalty
1 day late
£100
2 months late
£200
6 months late
£300 or 5% of the CIS deductions on the return, whichever is higher
12 months late
£300 or 5% of the CIS deductions on the return, whichever is higher
For returns later than this, you may be given an additional penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever is higher.
There is no lower limit for CIS registration and the penalties can be harsh as demonstrated in the cases below
Brian Parkinson a gardner and lanscaper who used occasional subcontractors and got £31,500 in CIS Penalties!
The FTT heard evidence that little or no loss of tax resulted from this omission, as the amount of tax Parkinson ought to have deducted under the CIS was put at £837.90. [Brian Parkinson and the Commissioners for Her Majesty’s Revenue & Customs TC04526; Appeal number: TC/2013/00224].
Or how about CJS Eastern an installer of lightning conductors
INCOME TAX – subcontractors – appellant company contracted with a third party provider to supply “operatives” – third party provider “net” for CIS purposes – company’s failure to make CIS returns – fixed monthly penalties of £28,500 – Month 13 penalties of £56,500 – whether reasonable excuse – held, no – whether disproportionate as a breach of A1P1 – Tribunal’s jurisdiction and interaction with mitigation – Bosher followed – fixed penalties upheld – Month 13 penalties set aside as excessive – appeal allowed in part
Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).
The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.
Every month contractors have to file a CIS return online and issue Deduction Statements to Subcontractors.
But many people are confused as to what to put in the boxes on the return, below is the official guidance.
Deductions at the standard rate
Examples D1 to D3 show deductions at the standard rate of 20% which was the rate in force at the time of writing this guide.
Example D1
Where no materials are supplied (‘labour-only’)
A labour-only subcontractor does work on site for £200
Total payment £200
Amount deducted at 20% = £40
Net payment to subcontractor £160
The contractor calculates the deduction (£40), which has to be paid to our accounts office. The labour-only subcontractor receives the balance of £160.
Entries on the contractor’s monthly return
In example D1, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:
Total payment £200
Direct cost of materials used £0
Amount deducted £40
Example D2
The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’) and the contractor has paid the subcontractor’s expenses.
Where the subcontractor isn’t registered for VAT, any VAT they had to pay on materials should be included in the cost of materials when calculating the CIS deduction.
Where expenses, for example accommodation, mobile phone and fuel costs are paid to the subcontractor, the amounts should be included in the subcontractor’s gross payment.
A tiling subcontractor, who isn’t VAT-registered, agrees to tile a wall and to supply the necessary materials for a total payment of £535. The materials cost the subcontractor a total of £235 (£200 + £35 for VAT). The subcontractor is also paid accommodation costs of £50 and fuel of £10.
Labour charge £300
Materials £235
Accommodation and fuel £60
Amount due (invoice amount) £595
Calculation of deduction
Total payment £595
Less cost of materials (inclusive of VAT) £235
Amount liable to deduction £360
Amount deducted at 20% £72
Net payment to subcontractor £523
The contractor deducts the cost of materials from the price for the whole job and calculates the deduction on the difference of £360. The contractor has to pay £72 to our accounts office and pays £523 (£595 – £72) to the subcontractor.
Entries on the contractor’s monthly return
In example D2, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:
Total payment £595
Direct cost of materials used £235
Amount deducted £72
Example D3
The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’). Where the subcontractor is registered for VAT, any VAT they had to pay on materials should be excluded from the cost of materials when calculating the CIS deduction.
For the total cost of £600, a subcontractor who is a taxable person for VAT purposes, agrees to paint the interior of a building and to supply the materials. The painter pays £235 for the materials, which includes VAT of £35.
Labour charge £400
Materials £200
Total payment £600
Add VAT £105
Amount due (invoice amount) £705
Calculation of deduction
Total payment (exclusive of VAT) £600
Less cost of materials (exclusive of VAT) £200
Amount liable to deduction £400
Amount deducted at 20% £80
Net payment to subcontractor £625
The subcontractor is paid £625, which is the invoice amount (£705) less the deduction (£80).
Entries on the contractor’s monthly return
In example D3, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:
Total payment £600
Direct cost of materials used £200
Amount deducted £80
Deductions at the higher rate
Examples D4 to D6 show deductions at the higher rate of 30%. This rate is used for illustration purposes and may or may not be the rate in force at the time of reading this guide.
Example D4
Where no materials are supplied (‘labour-only’)
A labour-only subcontractor does work on site for £200
Total payment £200
Amount deducted at 30% £60
Net payment to subcontractor £140
The contractor calculates the deduction (£60), which has to be paid to our accounts office. The labour-only subcontractor receives the balance of £140.
Entries on the contractor’s monthly return
In example D4, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:
Total payment £200
Direct cost of materials used £0
Amount deducted £60
Example D5
The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’). Where the subcontractor isn’t registered for VAT, any VAT they had to pay on materials should be included in the cost of materials when calculating the CIS deduction.
A tiling subcontractor, who isn’t VAT registered, agrees to tile a wall and to supply the necessary materials for a total payment of £535. The materials cost the subcontractor a total of £235 (£200 + £35 for VAT).
Labour charge £300
Materials £235
Amount due (invoice amount) £535
Calculation of deduction
Total payment £535
Less cost of materials (inclusive of VAT) £235
Amount liable to deduction £300
Amount deducted at 30% £90
Net payment to subcontractor £445
The contractor deducts the cost of materials from the price for the whole job and calculates the deduction on the difference of £300. The contractor has to pay £90 to our accounts office and pays £445 (£535 – £90) to the subcontractor.
Entries on the contractor’s monthly return
In example D5, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:
Total payment £535
Direct cost of materials used £235
Amount deducted £90
Example D6
The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’). Where the subcontractor is registered for VAT, any VAT they had to pay on materials should be excluded in the cost of materials when calculating the CIS deduction.
For the total cost of £600 a subcontractor, who is a taxable person for VAT purposes, agrees to paint the interior of a building and to supply the materials. The painter pays £235 for the materials, which includes VAT of £35.
Labour charge £400
Materials £200
Total payment £600
Add VAT £105
Amount due (invoice amount) £705
Calculation of deduction
Total payment (exclusive of VAT) £600
Less cost of materials (exclusive of VAT) £200
Amount liable to deduction £400
Amount deducted at 30% £120
Net payment to subcontractor £585
The subcontractor is paid £585, which is the invoice amount (£705) less the deduction (£120).
Entries on the contractor’s monthly return
In example D6, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:
Total payment £600
Direct cost of materials used £200
Amount deducted £120
Most small businesses and employees do something in their garage.
The top choices being
Storage
In order to claim a tax deduction for using your garage for storage as part of your business or as an employee you will need to charge rent. If you don’t you will be taxed on it as PAYE.
To do this you will need a licence agreement between you and your company, the agreement might need to have some special rules in it depending on what is being stored including fire prevention and health and safety.
The rent then needs to be declared in the UK Property pages of your self assessment return.
You will be able to offset relevant costs.
Cars
Obviously garages are designed for cars and that’s often what they are used for.
Your company may require you to hire a garage to protect your company car and provided this is an employment condition the cost of hiring the the garage should be tax free, even if the employee pays and is reimbursed.
The employer should give the employee a letter insisting that for security reasons the car must be kept overnight in a garage.
The 1614D is used so that the seller won’t charge VAT when selling a building which has been opted to tax where the buy intends to convert to residential.
Basically it says – who are you, who is the seller and what is the property? – that’s nice and simple, what could possibly go wrong?
Its great for the purchaser as they don’t have to wait to recover the VAT.
The potential downside is for the seller, let say you originally bought the property for your business and only later decided to rent it out and Opt to tax. The issues are:
Because its an exempt supply the seller can’t recover any VAT related to the sale
The biggest potential problem is the Capital Good scheme which have a 10 year adjustment period, if you sell within this period you will have to pay back to HMRC some of the VAT
If you acquire or create an expensive capital asset, or already have one when you register for VAT, you may have to adjust the amount of VAT you reclaim. You do this by using the Capital Goods Scheme, which allows you to spread the initial VAT claimed over a number of years. You can reclaim more if the proportion of your taxable supplies increases, you’ll have to repay some if it decreases. Taxable supplies are the sales that you make which are standard, reduced or zero-rated.
You’ll have to use the Capital Goods Scheme if you spend £250,000 (excluding VAT) or more on:
buying land, a building or part of a building or civil engineering work
constructing a building or civil engineering work
refurbishing, fitting out, altering or extending a building or civil engineering work
Civil engineering work includes things like roads, bridges, golf courses, running tracks and the installation of pipes for connecting to mains services.
IR35 is complicated set of rules that applies to contractors.
Many companies will award contracts to related and associated businesses, are these subject to IR35?
Paragraph 3(1) and (2) Schedule 12 Finance Act 2000 / Section 51(1) and (2)
Chapter 8 ITEPA 2003
Regulation 5(2)(a) SI 2000 No. 727
The conditions of liability are not met if the intermediary is an associated company of the client by reason of the two companies both being under the control of the worker, or the worker and one or more persons.
When considering who has control of both companies you have to consider the minimum irreducible shareholdings.
Example 1
Mrs J owns all of the shares in Holdco Ltd, which in turn owns all of the shares in Tradeco Ltd. She works for Tradeco Ltd under a service agreement between Tradeco Ltd and Holdco Ltd. Both client and intermediary companies are under the control of Mrs J so the conditions of liability are not met and therefore, the legislation does not apply.
Example 2
Mr K and Mr L each own 50% of the shares in Holdco Ltd and Tradeco Ltd. They both work for Tradeco Ltd under a service agreement between Tradeco Ltd and Holdco Ltd. Neither Mr K nor Mr L controls both companies on their own and both their shareholdings have to be taken into account in establishing control. Therefore Holdco Ltd and Tradeco Ltd are under the control of Mr K and Mr L. The conditions of liability are not met and no deemed payment arises.
Example 3
Ms M owns 60% of the shares in Holdco Ltd and Tradeco Ltd. Mr N and Mr O own a further 20% of the shares each. Ms M has control of both companies on her own. Therefore the conditions of liability will not be met with respect to her services. However, the exception will not apply to any services provided by Mr N and Mr O.
Example 4
Mr A, Mrs B, Mr C and Ms D who are unconnected each own 25% of the ordinary shares in both Holdco Ltd (intermediary) and Manuco Ltd (client). The following combinations could control both companies – Mr A, Mrs B and Mr C; Mr A, Mrs B and Ms D; Mr A, Mr C and Ms D; Mrs B, Mr C and Ms D. Consequently, in relation to each worker’s engagement, the companies are associated companies as they are both under the control of the worker and other persons.
Example 5
Mr A, Mrs B, Mr C and Ms D who are unconnected each own 25% of the ordinary shares in Holdco Ltd (intermediary) but Mr A, Mrs B and Mr C each own one-third of the ordinary shares of Manuco Ltd (client). The combinations which could control Holdco Ltd are as shown in Example 4 above. The combinations which could control Manuco Ltd are Mr A and Mrs B; Mr A and Mr C; and Mrs B and Mr C. As none of these combinations control Holdco Ltd the companies are not associated companies for the purposes of the legislation.
