Category: Self Assessment

What is a Non Dom?

city view at london

Non-Dom status is a term used to describe individuals who are not domiciled in the United Kingdom for tax purposes. This means that they are not considered to be permanent residents of the UK and are therefore not subject to UK tax on their foreign income and gains, unless they choose to be.

The UK residency status test is used to determine an individual’s residency status for tax purposes. The test takes into account a number of factors, including the number of days spent in the UK, the individual’s ties to the UK, and their intentions for the future. If an individual spends more than 183 days in the UK in a tax year, or has significant ties to the UK, they will be considered a UK resident for tax purposes.

You might find this blog helpful Where should you pay tax? (Statutory Residence Test) – Steve J Bicknell Tel 01202 025252

If an individual is a Non-Dom and chooses to be taxed on the remittance basis, they will only be taxed on their UK income and gains, as well as any foreign income and gains that they bring into the UK. This means that they can avoid paying tax on their foreign income and gains that are kept outside of the UK.

However, there is a 7-year charge for Non-Doms who have been resident in the UK for 7 out of the previous 9 tax years. This charge is designed to discourage individuals from using Non-Dom status as a way to avoid paying UK tax on their foreign income and gains. The charge is currently set at £30,000 per year, but may be higher for individuals who have been resident in the UK for longer periods of time.

In conclusion, Non-Dom status can be a useful tool for individuals who have significant foreign income and gains, but it is important to understand the UK residency status test and the potential tax implications of choosing to be taxed on the remittance basis. The 7-year charge for Non-Doms is also an important consideration for those who are considering using Non-Dom status as a way to avoid paying UK tax. It is always advisable to seek professional advice before making any decisions regarding tax planning.

steve@bicknells.net

How can you claim your £1,000 property allowance?

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property.

If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income.

It was introduced in Finance Act (No2) 2017.

I have seen may tax payers use it incorrectly on their returns, putting in the allowance and claiming expenses, which is incorrect.

The property allowance applies to

  • UK and Overseas property businesses
  • Commercial and Residential Lettings

There are exclusions

  • Rent a Room – PIM4424
  • Individuals claim the Base Rate Finance Cost Allowance – PIM4460
  • Partnership Property – PIM4454

If your property income from UK and Overseas properties is less than £1,000 you will get full relief and don’t need to file a self assessment return.

If your income is over a £1,000 from UK and Overseas Property then you can choose whether its worthwhile, for example if your expenses exceed £1,000 you would not want to use the allowance as you can claim the actual expenses, there are some examples in PIM4482.

The Property Allowance can not create a property loss to carry forward.

If your property income exceeds £1,000 and you elect to use the Property Allowance, that would be ‘Partial Relief’.

You can choose to either deduct the £1,000 or the actual costs (this is bit I have seen incorrectly noted on tax returns, basically landlords have tried to claim both, which is not allowed)

You can decide on a year by year basis which is better – £1,000 or the actual costs.

Elections must be made by the 31st January following the tax year.

Here is an example from PIM4483

Stephanie computes partial relief as follows:

Step 1 – Calculate Total Receipts of the relevant property business:

The total receipts of the relevant property business is £1,200.

Step 2 – Subtract the Deductible Amount from Receipts:

The £1,000 allowance is subtracted from the total receipts for her property business. This leaves £200 (£1,200 – £1,000) of taxable profits for Stephanie’s property business.

The legal fees of £150 are not brought into account because you cannot claim both the property allowance and expenses.

There is further guidance at PIM4400

steve@bicknells.net

It’s Self Assessment season, it’s time to call your accountant

As we get closer to the 31st January taxpayers across the land will start to worry about their self assessment tax returns.

Many tax payers will be frustated and confused by the information needed, just like the lady in the video above.

You’ll need to send a tax return if, in the last tax year:

  • you were self-employed – you can deduct allowable expenses
  • you got £2,500 or more in untaxed income, for example from renting out a property or savings and investments – contact the helpline if it was less than £2,500
  • your savings or investment income was £10,000 or more before tax
  • you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax
  • you were a company director – unless it was for a non-profit organisation (such as a charity) and you didn’t get any pay or benefits, like a company car
  • your income (or your partner’s) was over £50,000 and one of you claimed Child Benefit
  • you had income from abroad that you needed to pay tax on
  • you lived abroad and had a UK income
  • you got dividends from shares and you’re a higher or additional rate taxpayer – but if you don’t need to send a return for any other reason, contact the helpline instead
  • your income was over £100,000
  • 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:

  • Online
  • Phone
  • Post

Based on last year it could take 47 minutes at this time of year to get to speak to someone at HMRC!

An overworked office worker

Here are 10 of the most common problems faced by tax payers who don’t have an accountant

  1. 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.
  2. 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:
  3. 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
  4. Failing to complete all the parts of the return – For example leaving out PAYE information
  5. 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
  6. Missing out details of your Pension Provider
  7. 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
  8. Using invalid characters such as # ‘ ” in boxes where these are not allowed
  9. Not paying the tax they owe by 31st January
  10. 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
  • Child Benefit
  • 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
  • Capital Gains

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)
  • Decorating
  • Gardening
  • Cleaning
  • Travel costs to and from your properties for lettings or meetings
  • Advertising costs
  • Agents fees
  • Buildings and contents insurance
  • Ground Rent
  • Accountants Fees
  • 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

steve@bicknells.net

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When do you do your Self Assessment Return?

sa-monthly-online-figures-2011-12

2014-15 Self Assessment facts summary:

  • 11.26 million SA returns due
  • 10.39 million returns were received in total
  • Around 870,000 SA returns not submitted by 31st January 2016
  • 10.39 million returns received by midnight on 31 January (92% of total issued)
  • 9.24 million returns filed online (89%)
  • 1.14 million returns filed on paper (11%)
  • More than 4.45 million returns received in January 2016 (43% of total received)
  • 823,000 returns received on 30 and 31 January (18% of total returns received in January)
  • Busiest hour: 14:00 – 15:00 on 29 January – 50,358 returns received (839.3 per minute; 13.9 per second).
  • N.B. The figures are sourced from Self Assessment management information from the Computerised Environment for Self Assessment as at 01 February 2016 for the 2014-15 tax year.

Procrastination - do it now or tomorrow sticky note

There are three different types of penalties that can be charged if a return is outstanding after the return due date or is filed late. These are

  • Late filing fixed penalty (see SAM61220)
  • Daily penalties (see SAM61230)
  • Late filing (tax geared) penalty (see SAM61240)

HMRC even have a calculator to help work out how much the penalty might be…

https://www.gov.uk/estimate-self-assessment-penalties

Here are 10 of the most common problems, issues and errors that come up.

  1. 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.
  2. 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:
  3. 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
  4. Failing to complete all the parts of the return – For example leaving out PAYE information
  5. 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
  6. Missing out details of your Pension Provider
  7. 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
  8. Using invalid characters such as # ‘ ” in boxes where these are not allowed
  9. Not paying the tax they owe by 31st January
  10. Failing to explain where estimates and provisional sums have been used

Why leave till January! do it now

steve@bicknells.net

HMRC – please don’t leave me hanging on telephone!

genervte frau am telefon

Taxpayers have 3 main ways to contact HMRC:

  • Online
  • Phone
  • Post

Often taxpayers want to ask questions and get quick answers, which is why they like to use the phone. The NAO have published a report and the key facts are below.

Click to access The-quality-of-service-for-personal-taxpayers.pdf

hmrc-nao

We also know that taxpayers often leave things till close to the deadline

sa-monthly-online-figures-2011-12

So if you don’t want to spend 47 minutes waiting to speak to HMRC only to find out they can’t answer your question because its too specific or requires an opinion why not use an accountant?

Accountants

steve@bicknells.net

What expenses can the self employed claim?

Business people group.

The UK has seen the fastest growth in self-employment in Western Europe over the past year, according to the Institute for Public Policy Research (IPPR).

There are many types of expense that you can claim and HMRC have just created a new guide…

HMRC expenses

http://www.hmrc.gov.uk/courses/SYOB3/syob_3_exps/html/syob_3_exps_menu.html

Pre Trading expenses

Many business owners incur in costs before they actually start in business. You can go back up to 7 years can claim costs as pre-trading expenses.

Let’s says you want to start a home based business, you need to create an office at home or build an office in the garden. This means that you have building costs as well as equipment costs before you start trading. These costs are submitted to the new business as an expense claim by the owner on the first day the business starts.

Also you might have legal cost for contracts or renting offices or equipment, you could have costs for product development, stock, samples, or even a motor vehicle.

You can check more about pre-trading expenses legislation.gov.uk or at HMRC.

However, what happens when you have paid VAT prior being VAT registered? You can reclaim any VAT you are charged on goods or services that you use to set up your business.

Normally, this will include:

  • VAT on goods you bought for your business within the last 4 years and which you have not yet sold
  • VAT on services, which you received not more than 6 months before your date of registration

You should include this VAT on your first VAT return. If you have doubts as to whether you should be VAT registered or not, take a look at VAT Notice 700/1: should I be registered for VAT.

Simplified or Actual Expenses

Simplified expenses are a way of calculating some of your business expenses using flat rates instead of working out your actual business costs. You don’t have to use simplified expenses. You can just decide if it suits your business or not.

Simplified expenses can be used by:

  • sole traders
  • business partnerships that have no companies as partners

You can use flat rates for:

  • business costs for vehicles
  • working from home
  • living in your business premises

You must calculate all other expenses by working out the actual costs.

In order to find out which method works best for you, you can use the Government expense checker

Don’t forget Capital Allowances and the Annual Investment Allowance

Buying equipment, even if it’s on finance, is a great way to reduce your tax bill, the 100% AIA can be used on the date you buy the asset.

Currently, the Annual Investment Allowance is £500,000 and this has been reduced to £200,000 in January 2016.

It is not necessary to claim the maximum capital allowances available or even claim them at all, crazy as it might sound there are situations when not claiming capital allowances can reduce your tax bill!

Sole Trader Example

The personal tax allowance is currently £10,600 (2015/16)

Let’s assume profits are £15,000 and Capital Allowances available are £5,000, so that would reduce taxable profits to £10,000 which would waste £600 of the personal tax allowance.

It would therefore be better to only claim £4,400 in capital allowances and claim the remaining £600 in the following year.

https://stevejbicknell.com/wp-content/uploads/2014/05/workers.jpg

Employers are saving £6k by opting for Self Employed Freelancers…

A survey by PeoplePerHour has shown that the self-employed segment of the labour market in both the UK and USA is growing at a rate of 3.5% per year – faster than any other sector. Should this growth continue for the next five years, researchers predict that half of the working population could be self-employed freelancers by 2020.

The survey also suggests that small businesses that hire freelancers instead of full-time employees could save £6,297.17 per annum. The survey shows that the average waste or spare capacity for each employee in a SMEs is 1.9 hours per day.

The research identifies a number of key drivers behind the shift from employment to self-employment, including “the availability of ubiquitous and inexpensive computing power, sophisticated applications and cloud-based services“. [Lawdonut]

http://www.sage.co.uk/~/media/markets/uk/images/business-advice/infographic-starting-your-business.gif

steve@bicknells.net

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Have you done your Self Assessment Return?

SA100 tax return form with calculator and pencil lying on table

In January 2015, HMRC reported…

A record 85.5% of these were sent online, with the busiest days for filing coming on 30 and 31 January, when HMRC received 980,000 returns. The busiest hour was between 1pm and 2pm on 30 January, when almost 50,000 returns were received – 830 per minute.

The busiest hour on deadline day was between 11 am and midday, when almost 32,000 returns were received – 530 per minute. HMRC also answered 95% of calls first time on deadline day.

Around 4.3 million customers (42%) left it until January to file their returns, which HMRC issued in April 2014.

By the end of January, more than a million Self Assessment-only customers (self-employed, with no other source of income, no employees and not VAT-registered) opted to receive electronic messages from HMRC, rather than paper communications. If you are eligible, you can sign up by logging into your Self Assessment online account and following the prompts.

There are three different types of penalties that can be charged if a return is outstanding after the return due date or is filed late. These are

  • Late filing fixed penalty (see SAM61220)
  • Daily penalties (see SAM61230)
  • Late filing (tax geared) penalty (see SAM61240)

Customers may appeal against any late filing penalty on the grounds that there was a reasonable excuse for the late submission of the return.

HMRC even have a calculator to help work out how much the penalty might be…

https://www.gov.uk/estimate-self-assessment-penalties

Don’t be late, do it today!

steve@bicknells.net

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If you are self employed have you tried the HMRC Simplified Expenses Checker?

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Simplified expenses are a way of calculating some of your business expenses using flat rates instead of working out your actual business costs.

You don’t have to use simplified expenses. You can decide if it suits your business.

Simplified expenses can be used by:

  • sole traders
  • business partnerships that have no companies as partners

You can use flat rates for:

  • business costs for vehicles
  • working from home
  • living in your business premises

You must calculate all other expenses by working out the actual costs.

Costs you can claim as allowable expenses

These include:

Use this checker to work out which method is best for you.

What you need to know:

  • you’ll be asked to make estimates about some of your business expenses – you don’t have to give accurate amounts
  • this checker doesn’t give exact figures to use in your tax return, it gives you an idea of which way of calculating your expenses might be best for you
  • limited companies aren’t eligible

act now icon

Start now

steve@bicknells.net

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10 most common online self assessment issues

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The deadline of the 31st January 2016 is fast approaching for filing 2014/15 Self Assessments online, thousands will probably file late and 50% will leave filing until January.

Here are 10 of the most common problems, issues and errors that come up.

  1. 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.
  2. 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:
  3. 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
  4. Failing to complete all the parts of the return – For example leaving out PAYE information
  5. 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
  6. Missing out details of your Pension Provider
  7. 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
  8. Using invalid characters such as # ‘ ” in boxes where these are not allowed
  9. Not paying the tax they owe by 31st January
  10. Failing to explain where estimates and provisional sums have been used

 

steve@bicknells.net

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How do you become self employed?

businesswoman is very multitasking

The UK saw the fastest growth in self-employment in Western Europe in 2014, according to the Institute for Public Policy Research (IPPR).

The number of self-employed workers rose by 8%, faster than any other Western European economy, and outpaced by only a handful of countries in Southern and Eastern Europe.

The IPPR’s analysis shows that the UK – which had low levels of self-employment for many years – has caught up with the EU average. If this growth continues, it says, the UK will look more like Southern and Eastern European countries which tend to have much larger shares of self-employed workers.

Your responsibilities

You’re responsible for:

Naming your business

You can use your own name or trade under a business name – read the rules for naming your business.

You must include your own name and business name (if you have one) on any official paperwork, like invoices and letters.

When should you get help from an Accountant?

Often business owners wait too long before they realise that they need help from an accountant.

Key reasons are:

– not understanding the difference between a book keeper and an accountant
– thinking that an accountant will just be an extra cost – the reality is that most accountants will save the business many times their cost
– thinking that accountants are just bean counters.

But if you choose a qualified and experienced accountant they can bring huge benefits: management tools to improve profitability, cost controls, tax savings, growth strategies, business planning, business structures and much more. So don’t wait too long – getting an accountant should be a priority for all businesses!

Common Mistakes

First off – not having a separate bank accounts. Many start ups try mixing business and personal transactions in their personal bank accounts, its a total nightmare, don’t do it, get a business bank account. Mixing things up will almost certainly have tax implications.

Not registering for tax or filing returns is another one. Getting things right at the beginning is extremely important and a CIMA Accountant can make sure that you choose the right business structure and will help you register for VAT, PAYE, CIS and other taxes. Choosing the right VAT scheme will save you tax. Not registering and filing returns will have severe consequences and lead to fines and penalties.

Also – contract mistakes. Ask your Accountant to review your contracts, they will be able to give you lots of useful tips.

Running out of cash: draw up a Budget and Cashflow and forecast how much cash you will need to run the business, looking at your cash cycle and managing it will be vital. If you need funding ask your Accountant for help, they will be able to look at all the options and help you choose the option that’s best for your business.

Accounting – many start ups fail to keep control of their accounting, by working with an accountant and using Debitoor or Sage One you can avoid this problem.

 

 

steve@bicknells.net

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