A new type of employment status

The Office of Tax Simplification – Employment Status Report – March 2015 suggests we could see a new type of worker being created, part way between Employed and Self Employed. We could also see the term office holder removed from legislation.

Contractor Weekly reported – This involves the introduction of a new category of worker, a ‘third way’ between the employed and self-employed, acknowledging that some workers do not fit easily into either of the two traditional positions and that they should be subject to a modified set of tax rules. Freelancers might fall into this ‘third way’ and who might be seen as people who have chosen this route of working and want certainty over their status.

Click on this link to read the Employment Status Report

Will this solve the IR35 problem? who will it defined? what should the rules be?

Workers

 

steve@bicknells.net

HMRC open discussions on Penalties

Scaring amounts

On 2nd February 2015 HMRC launched HMRC Penalties: a Discussion Document

Closing date 11th May 2015.

HMRC state…

We don’t use penalties as a way of raising revenue, or to offset our running costs. In essence, we want compliance, not penalties.

Do you think HMRC penalties are fair? do they work? how could the system work better?

Why not use the discussion document to help HMRC to change the system and improve the way penalties are applied.

steve@bicknells.net

Simplified Expenses – Working From Home

Beautiful young woman with coffee using laptop in the kitchen

Most people working from home were claiming the £4 per week allowance based on HMRC guidance, but this has now been updated for the self employed.

You can now calculate your allowable expenses using a flat rate based on the hours you work from home each month.

This means you don’t have to work out the proportion of personal and business use for your home, eg how much of your utility bills are for business.

The flat rate doesn’t include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs.

You can only use simplified expenses if you work for 25 hours or more a month from home.

Hours of business use per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 and more £26

Example

You worked 40 hours from home for 10 months, but worked 60 hours during 2 particular months:

10 months x £10 = £100
2 months x £18 = £36

Total you can claim = £136

Use the simplified expenses checker to compare what you can claim using simplified expenses with what you can claim by working out the actual costs.

https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home

Alternatively you could claim you can claim a proportion (based on the number of rooms and hours of business use) of your household expenses

  • Mortgage interest or rent
  • Council tax
  • Water rates
  • Repairs and maintenance
  • Building and contents insurance
  • Electricity
  • Gas, oil or other heating costs
  • Cleaning
  • Telephone (based on usage)
  • Broadband

You can draw up a home rental agreement to reclaim these costs.

The Rental Agreement can be very basic, it just needs to show:

  • The Parties – Employee, Company, Home Office Address
  • The agreement is for use of the accommodation, furniture etc (‘the Home Office’)
  • The hours it will be used
  • The rental charge

or your could use an agreement like this one

https://www.rocketlawyer.co.uk/documents-and-forms/home-office-space-agreement.rl#

If the rental is only to cover costs (and not to make a profit) then it should not create any tax liability.

Some experts say that claiming Mortgage Interest and Council Tax can be queried but that would depend on circumstances.

There are also other isuues to consider such as VAT and Capital Gains and these are covered in the blog below.

http://stevejbicknell.com/2013/01/06/what-are-the-tax-issues-and-advantages-of-a-home-office/

steve@bicknells.net

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

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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

Will your tax return stand up to HMRC Profit Benchmarking?

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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

When will you file your Self Assessment Return?

SA monthly online figures 2011-12

It’s Self Assessment time, most returns are filed online in December and January, here is some great advice from Ruth Owen from last year….

If you are late you will get penalties https://www.gov.uk/estimate-self-assessment-penalties

If you don’t have all the answers take a look at my 3 life savers

3 Self Assessment Life Savers – Estimates, Provisional and Corrections

If you don’t know where to send the payment this might help

Self Assessment Payment – Shipley or Cumbernauld

steve@bicknells.net

Are you one of the third of workers with a part time business?

Business people group.

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 new research from Moo.com. Profitability among this group of enterprises has increased by 32% in the past year. 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:

  1. You can start off working at home
  2. Your start up costs are low
  3. You can do it part time when it suits you
  4. With wages frozen and costs rising it can provide a useful additional income
  5. Its easy to be price competitive with low overheads
  6. The Internet makes it easy to sell your goods and services
  7. Your social capital can be used to generate sales ie use your contacts and connections
  8. There could tax advantages – employees generally pay more tax than sole traders
  9. Some clients prefer the personal touch
  10. It could be start of something big

Here are my top 20 home based business ideas:

  1. Get a lodger – Under rent-a-room a taxpayer can be exempt from Income Tax on profits from furnished accommodation in their only or main home if the gross receipts they get (that is, before expenses) are £4,250 or less
  2. Ironing and Laundry Services – Always popular and you can start with friends and family
  3. E Bay Trading – as E Bay say… The first task is to sort through those bulging drawers and messy cupboards, finding stuff to flog. Get a big eBay box to stash your wares in, and systematically clear out wardrobes, DVD and CD piles, the loft and garage. Use the easy 12-month rule of thumb to help you decide what to offload: Haven’t used it for a year? Flog it.
  4. Blogging – Blogging has taken off and many businesses are looking for people to write blogs for them
  5. Candle Making – You can sell the candles on line and its easy to buy the wax and things you need to make the candles
  6. Car Boot Sale – As with E Bay but without going on line
  7. Cake Making – Make sure everything is labelled correctly and you comply with Health & Safety issues
  8. Data Entry – The internet makes it easy to enter data from where ever you are
  9. Social Media – Similar to blogging, businesses need help to manage Twitter, Facebook and Linked In
  10. Website Design – If you have the expertise, go for it
  11. Sales Parties –  Cosmetics to Ann Summers, there is a long list of opportunities
  12. Sewing and Clothes Alterations – Perfect before and after Christmas
  13. Jewellery – Making and selling jewellery is always popular and great for Christmas presents
  14. Car Repairs – Assuming you have the skills needed and comply with legal requirements
  15. Pet Care – Walking dogs or grooming is popular
  16. Virtual Assistant – Also personal organiser or personal shopper
  17. Wedding Planner – You could start by creating a blog about your expertise
  18. Direct Sales – For example http://www.netmums.com/back-to-work/working-for-yourself/direct-selling-opportunities
  19. Computer Repair – Great provided you have the skills
  20. Marketing – Telesales to leaflet design and freelance writing

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

 

steve@bicknells.net

Government help to get new businesses started

Entrepreneur startup business model

The New Enterprise Allowance can provide money and support to help people start their own business if they get certain benefits and have a business idea that could work.

The scheme has resulted in:

  • around 460 new businesses being set up each week – around 53,000 in total
  • 12,360 businesses being started by people aged 50 or over
  • 10,040 disabled people becoming their own boss
  • 3,920 started by young people

People who don’t qualify for the scheme may be able to get other help with setting up a business.

Business Mentors have a key role to play

The New Enterprise Allowance is available to:

  • people over 18 who are claiming Jobseeker’s Allowance
  • lone parents on Income Support
  • people on Employment and Support Allowance in the work-related activity group

People on the scheme get expert help and advice from a business mentor who will help them to develop their business idea and write a business plan. If the business plan is approved, they are eligible for financial support payable through a weekly allowance over 26 weeks up to a total of £1,274.

There are also Start Up Loans

A government funded scheme to provide advice, business loans and mentoring to startup businesses

steve@bicknells.net

Are Cruise Ship Entertainers Employees?

afro american jazz pianist

If they weren’t on cruise ships HMRC would probably argue that they were employees but in the case of cruise ships they argue the opposite.

Pete Matthews (1) Keith Sidwick (2) v Revenue & Customs [2011] UKFTT 24 (TC)

Mr Sidwick was a musician and played piano on a series of cruise ships. Mr Matthews was a juggler, similarly entertaining passengers on cruise ships. Both were subject to a close degree of control by the ships officers but the First-tier Tribunal found that this degree of control was required by the context of a cruise ship.

The First-tier Tribunal concluded that the entertainers were not employees ‘…but earn their living by entering into a series of separate engagements with a number of different cruise lines in a similar way to actors…’

The reason why HMRC argued against employment was to stop a claim for Seafarers Earnings Deductions.

To get the deduction you must:

  • work on a ship. Oil rigs and other offshore installations aren’t ships for the purposes of Seafarers’ Earnings Deduction – but cargo vessels, tankers, cruise liners and passenger vessels are
  • work all or part of the time outside the UK. This means that for each employment you must carry out duties on at least one voyage per year that begins or ends at a foreign port
  • be resident in the UK or resident for tax purposes in a European Economic Area (EEA) State (other than the UK) – find out more by following the link ‘Check your residence status’ in the section below

You get the deduction from your earnings as a seafarer if you have an ‘eligible period’ of at least 365 days that consists mainly of days when you are absent from the UK.

From 6 April 2013 the rules that determine if someone is resident in the UK for tax purposes have been put on a statutory basis. These rules are known as the Statutory Residence Test (SRT).

steve@bicknells.net