Oops! HMRC software not working Reply

We have an extremely complicated tax system, so is it any wonder that even HMRC struggle to calculate your tax correctly!

The way that allowances are applied for dividends, allowances, savings and other items all impact on each other.

Many tax payers will be working on their 2016/17 returns (to 5th April 2017 due by 31st January 2018) over the coming months and find that they can’t use the HMRC software because it doesn’t work properly.

As reported by Accounting Web

Rob Ellis, CEO of BTCSoftware, can’t remember a year when there have been so many exclusions from filing SA tax returns online. For the 2016/17 tax returns 16 new examples have been added to the online filing exclusions list, which is now in version 4;  there is a version 5 of this list under construction.

You can read the full list of exclusion on this link https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/622426/2017-exc-indi.pdf

There are 62 exclusions!

Why is tax complicated! Here are the facts:

  • 6,102 pages of legislation (according to Tolleys in 2012)
  • 639 monetary values
  • 425 thresholds
  • 214 penalties

In 2016:

  • 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.

Even if the HMRC software is working…

10 most common online self assessment issues

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:
    – individuals in Self Assessment can request new ones (allow 7 days to get them by post) or sign up with the GOV.UK Verify trial
    – contact HMRC for all other online services
  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

If you don’t already use an accountant, may be 2017 is the year to start?

steve@bicknells.net

The Second Finance Bill 2017 changes the timetable for Making Tax Digital – what are we doing now? Reply

The previous timetable for Making Tax Digital was

  • April 2018 – quarterly reporting for income tax purposes for unincorporated businesses with a turnover over £85,000
  • April 2019 – quarterly reporting for both incorporated and unincorporated businesses for income tax and VAT
  • April 2020 – quarterly reporting for corporation tax purposes

The new timetable will be

  • Only VAT registered businesses will need to keep digital records and only for VAT purposes.
  • They will only need to do so from April 2019.
  • Businesses will not be asked to keep digital records or update HMRC quarterly for other taxes until at least April 2020 (the original dates had implementation from April 2019).

If you are VAT registered then you will need to move to digital record keeping (i.e. use software to record all your VAT invoices and receipts).

This is massive change in timetable and one that many small businesses and landlords will welcome.

Whilst this now gives smaller businesses longer to prepare, MTDfB is still coming in 2020 and expected to require unincorporated businesses to report the information noted below, so its still worth starting preparations and using cloud based accounting systems.

The details below are an extract from gov.uk for Quarterly Reporting

Non-property businesses

Income:

  • turnover, takings, fees, sales or money earned
  • any other business income

Expenses:

  • cost of goods bought for resale or goods used
  • construction industry – payments to subcontractors
  • wages, salaries and other staff costs
  • car, van and travel expenses
  • rent, rates, power and insurance costs
  • repairs and renewals of property and equipment
  • phone, fax, stationary and other office costs
  • advertising and business entertaining costs
  • interest on bank and other charges
  • bank, credit card and other financial charges
  • irrecoverable debts written off
  • accountancy, legal and other professional fees
  • depreciation and loss/profit on sale of assets
  • other business expenses
  • goods and services for your own use
  • income, receipts and other profits included in business income or expenses but not taxable as business profits
  • disallowable element for each category

Property businesses

Income – furnished holiday lettings:

  • rental income and any income for services provided to tenants

Expenses – furnished holiday lettings:

  • tax taken off income
  • rent paid, repairs, insurance and cost of services provided
  • loan interest and other financial costs
  • legal, management and other professional fees
  • other allowable property expenses
  • private use adjustment
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • property repairs and maintenance
  • costs of services provided, including wages

Income – property:

  • rental income and other income from property

Expenses – property:

  • tax taken off any income from total rents
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • rent, rates, insurance, ground rents etc.
  • property repairs and maintenance
  • loan interest for residential properties and other related financial costs
  • other loan interest and financial costs
  • legal, management and other professional fees
  • costs of services provided, including wages
  • other allowable property expenses
  • private use adjustment

To find out all the latest information why not come to one of my seminars

steve@bicknells.net

Are you making the most of your tax free allowances? 1

Each year we a get tax free allowances:

NI Free £8,164

Tax Free Salary £11,500

Capital Gains Tax Allowance £11,300

Rent a Room £7,500

Dividend Allowance £5,000

Personal Savings Allowance £1,000

Then there are  many other tax saving opportunities like tax free childcare https://stevejbicknell.com/2016/08/19/childcare-3-part-report-for-childcare-providers-and-parents/

Plus tax free benefits https://stevejbicknell.com/2016/09/21/are-you-making-the-most-of-tax-free-benefits/

Have you tried to use these allowances?

What if you set out each year to take advantage of these tax free opportunities?

You would need your own business to be able to restrict your earnings to £8,164 or £11,500 as National Minimum Wage would mean you will get pay levels above these £7.50 x 37.5 hours x 52 weeks = £14,625, however, directors can pay themselves below NMW.

To use the Capital Gains Allowance you are going to need to have assets to sell and make a gain

Rent a Room is achievable especially if you take in students

Dividend Allowance is great if you have your own company

Everyone should be able to use the PSA

Why not sit down and work out how you could maximise the use of the tax free allowances that are available

steve@bicknells.net

 

 

 

 

 

Do Directors really have to do self assessment returns? read What happened to a Property Company Director Reply

The official guidance for Directors is…

As a director of a limited company, you must:

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.

https://www.gov.uk/running-a-limited-company

https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return

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

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j9898/TC05929.pdf

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.

It was reported in full at http://www.accountingweb.co.uk/tax/hmrc-policy/tribunal-company-directors-dont-have-to-submit-tax-returns?utm_medium=email&utm_campaign=AWUKPOW210617&utm_content=AWUKPOW210617+CID_b1f3f98189c6021fa5eaf5a489ca5e3d&utm_source=internal_cm&utm_term=Company%20directors%20dont%20have%20to%20submit%20tax%20returns

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!

steve@bicknells.net

The Second Income Campaign re-visited! what is your side hustle? Reply

Second Jobs or as the Americans call them Side Hustles are very popular, here is a website focused on them

http://www.sidehustlenation.com/ideas/

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:

  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 be 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

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.

https://www.gov.uk/government/publications/second-incomes-campaign-your-guide-to-making-a-disclosure/second-incomes-campaign-your-guide-to-making-a-disclosure

steve@bicknells.net

What if you fail to register for CIS Reply

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.

Tax Aid have a good example of how it works

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].
This comprised £6,000 (5 x the £1,200 maximum) charged under the Taxes Management Act 1970 (TMA 1970), s98A(2)(a) and also month 13 penalties of £25,500 charged under TMA 1970, s. 98A(2)(b). – See more at: https://www.accountancylive.com/partial-win-gardener-over-%E2%80%98excessive%E2%80%99-cis-penalties#sthash.zJA59Gjv.AfCNNGRJ.dpuf
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

https://cases.legal/lang-en/act-uk2-156151.html

If you work in construction make sure you register and comply with CIS!

steve@bicknells.net

What information will you need to report under Making Tax Digital (MTDfB)? Reply

Once the election is over, Making Tax Digital will be pushed forward again, ready for its launch in April 2018.

If you aren’t using any software or apps to prepare your accounts, now is the time to start. Under MTDfB – Making Tax Digital for Business – Sole Trader, Partnerships, Landlords and ultimately Companies will need to file returns every quarter and submit a final year end return.

This what you will need to report

The categories of information listed below are being reviewed and have not yet been finalised. They have been included mainly for indicative purposes.

https://www.gov.uk/government/publications/bringing-business-tax-into-the-digital-age-legislation-overview/bringing-business-tax-into-the-digital-age-legislation-overview#schedule

Non-property businesses

Income:

  • turnover, takings, fees, sales or money earned
  • any other business income

Expenses:

  • cost of goods bought for resale or goods used
  • construction industry – payments to subcontractors
  • wages, salaries and other staff costs
  • car, van and travel expenses
  • rent, rates, power and insurance costs
  • repairs and renewals of property and equipment
  • phone, fax, stationary and other office costs
  • advertising and business entertaining costs
  • interest on bank and other charges
  • bank, credit card and other financial charges
  • irrecoverable debts written off
  • accountancy, legal and other professional fees
  • depreciation and loss/profit on sale of assets
  • other business expenses
  • goods and services for your own use
  • income, receipts and other profits included in business income or expenses but not taxable as business profits
  • disallowable element for each category

Property businesses

Income – furnished holiday lettings:

  • rental income and any income for services provided to tenants

Expenses – furnished holiday lettings:

  • tax taken off income
  • rent paid, repairs, insurance and cost of services provided
  • loan interest and other financial costs
  • legal, management and other professional fees
  • other allowable property expenses
  • private use adjustment
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • property repairs and maintenance
  • costs of services provided, including wages

Income – property:

  • rental income and other income from property

Expenses – property:

  • tax taken off any income from total rents
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • rent, rates, insurance, ground rents etc.
  • property repairs and maintenance
  • loan interest for residential properties and other related financial costs
  • other loan interest and financial costs
  • legal, management and other professional fees
  • costs of services provided, including wages
  • other allowable property expenses
  • private use adjustment

Partnerships

Interest and alternative finance receipts without UK tax deducted:

  • interest and alternative finance receipts from UK banks and building societies paid without tax deducted
  • interest distributions from UK authorised unit trusts and UK open-ended investment companies and investment trusts
  • income from National Savings and Investments
  • other untaxed income from UK savings and investments (except dividends)

Interest and alternative finance receipts with UK tax deducted:

  • other taxed income from UK savings and investments (except dividends) (amount net of tax deducted)
  • tax deducted

Dividends:

  • dividends and other qualifying distributions from UK companies
  • tax credits attached to such dividends etc
  • dividend distributions from UK authorised unit trusts and open-ended investment companies
  • tax credits attached to such distributions
  • stock dividends from UK companies
  • tax credits attached to such stock dividends
  • non-qualifying distributions and loans written off
  • tax credits attached to such distributions etc

Other income received without UK tax deducted:

  • other income – profit
  • other income – loss

Other income received with UK tax deducted:

  • other income (amount net of tax deducted)
  • tax deducted

Partnerships – end of year information

Disposal of capital assets – partnerships:

  • description of assets
  • whether listed or unlisted shares or securities (if applicable)
  • name of partners who benefited from the disposal proceeds
  • total proceeds from disposal

End of year information

Tax adjustments and elections:

  • adjustment required where the basis period is not the same as the accounting period under section 203 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005
  • averaging adjustment applied to taxable profits where an election has been made for averaging under section 222 or 222A of ITTOIA 2005
  • adjustment required as a result of a change in basis under Chapter 17 of Part 2 of ITTOIA 2005
  • total of any construction industry scheme deductions taken from payments made to subcontractors under section 61 of Finance Act 2004
  • any other tax deducted from trading income (excluding deductions made by contractors on account of tax)
  • sums due to be charged under sections 277 to 285 of ITTOIA 2005
  • adjustments required under Chapter 7 of Part 3 of ITTOIA 2005
  • claims for loss relief under Chapter 2 of Part 4 of the Income Tax Act 2007 (Chapter 4 for property businesses)
  • disallowable expenditure
  • foreign tax deducted
  • any other tax adjustment
  • adjustment on change of basis
  • foreign tax deducted

Capital allowances – claims and balancing charges:

  • annual investment allowance
  • capital allowances at 18%
  • capital allowances at 8%
  • restricted capital allowances on cars costing more than £12,000 where bought before 6 April 2009
  • business premises renovation allowance
  • enhanced capital allowances: energy-saving relief
  • enhanced capital allowances: environmentally-beneficial relief
  • enhanced capital allowanced: electric charge-points
  • enhanced capital allowances: gas refuelling equipment
  • allowances on sale or cessation of businesses use (where an asset has been disposed of for less than its tax written down value)
  • total capital allowances
  • balancing charge on sale or cessation of business use (where business renovation allowance has been claimed)
  • balancing charge on sales of other assets or on the cessation of business use (where an asset has been disposed of for less than its tax written down value)

 

steve@bicknells.net

Do you have to charge VAT when you buy things for clients? 1

When you buy things for your client on their behalf the items could be excluded from your VAT calculations if they are Disbursements

To treat a payment as a disbursement all of the following must apply:

  • you paid the supplier on your customer’s behalf and acted as the agent of your customer
  • your customer received, used or had the benefit of the goods or services you paid for on their behalf
  • it was your customer’s responsibility to pay for the goods or services, not yours
  • you had permission from your customer to make the payment
  • your customer knew that the goods or services were from another supplier, not from you
  • you show the costs separately on your invoice
  • you pass on the exact amount of each cost to your customer when you invoice them
  • the goods and services you paid for are in addition to the cost of your own services

It’s usually only an advantage to treat a payment as a disbursement if the supplier didn’t charge VAT on it, or if your customer can’t reclaim the VAT.

An example of an invoice showing disbursements and recharges

A website design consultant based in London does a week’s work for a client in Edinburgh. The consultant visits the client’s premises at the start of the week to discuss the project. The consultant also agrees to purchase a website hosting package from an Internet service provider on behalf of the client.

The consultant and the client agree the following fees:

Activity Fee
Consultant’s work £2,500 plus VAT
Consultant’s travelling expenses £300
Website hosting package purchased on the client’s behalf £150

The £300 travel cost that the consultant recharges to the client is not a disbursement so the consultant must charge VAT on it. But the cost of the website hosting package is a disbursement and can be excluded from the VAT calculation, because:

  • it was purchased for the use of the client
  • the client agreed that the consultant would arrange and pay for it on their behalf – this means the consultant agreed to act as the client’s agent
  • the consultant passed the whole £150 charge on to the client, without adding anything, as a separate item on the invoice
  • it was the client’s responsibility to pay for the goods
  • the consultant had permission from his client to make the payment
  • the client knew the web hosting package was from another supplier and not from the consultant
  • the consultant showed the costs separately in the invoice
  • the web hosting package paid for by the consultant is additional to the other services being billed to the client

The consultant’s invoice to their client for this work might include the following items:

  • design services – £2,500
  • travelling expenses – £300
  • amount on which VAT is due – £2,800
  • VAT at 20% – £560
  • disbursements – £150
  • total including VAT – £3510

steve@bicknells.net

How does a property investor or partnership ask HMRC for incorporation clearance? Reply

Woman working with documents, Tablet pc and notebook. Property management Concept.

It doesn’t matter whether you have a partnership, an LLP or just have properties in your own name, provided you play an active role in managing your properties you could qualify for Section 162 Incorporation Tax Relief which will allow you to roll/hold over the capital gain into shares in your new company.

https://www.gov.uk/government/publications/incorporation-relief-hs276-self-assessment-helpsheet/hs276-incorporation-relief-2015

If you, either as an individual or in partnership, incorporate a business by transferring the business, together with all the assets of the business, in exchange wholly or partly for shares, you can defer some or all of the gain arising from the disposal of the ‘old assets’ (the business and the assets of the business) until such time as you dispose of the ‘new assets’ (the shares).

This relief is given automatically by Section 162 Taxation of Chargeable Gains Act 1992 provided the various requirements are met.

The key problem area is that Property Investment is generally not considered to be a Trade but because of the uncertainty created by recent legal cases you are able to ask HMRC for a Non-Statutory Clearance. This is effectively written approval from HMRC.

An example of playing an active role (and therefore having a Trade/Business) came up in EM Ramsay v HMRC [2013] UKUT 0226 (TCC)

Mrs Ramsey carried out the following activities

  1. Mr & Mrs Ramsey personally met potential tenants
  2. Mrs Ramsey check the quarterly electric bills
  3. Mrs Ramsey arranged insurance
  4. Mrs Ramsey arranged and attended to maintenance issues (drains)
  5. Mrs Ramsey and her son maintained the garages and cleared rubbish
  6. Mrs Ramsey dealt with post
  7. Mrs Ramsey dealt with fire regulation issues
  8. Mrs Ramsey arranged for a fence to be erected
  9. Mrs Ramsey created a flower bed
  10. Shrubs were pruned and leaves swept
  11. The parking area was cleared of weeds
  12. The flag stones were bleached
  13. Communal areas were vacuumed
  14. Security checks were carried out
  15. She took rubbish to tip
  16. She cleaned vacant flats
  17. she helped elderly tenants with utilities

This work equated to at least 20 hours per week and Mrs Ramsey had no other employment.

It is because she did the work herself that her property investment was considered a ‘Business’ and eligible for Incorporation Tax Relief.

How do you request a Non-Statutory Clearance from HMRC?

You can ask HMRC for further guidance or advice if you:

  • have fully considered the relevant guidance and/or contacted the relevant helpline
  • have not been able to find the information you need
  • remain uncertain about HMRC’s interpretation of tax legislation

HMRC will then set out their advice in writing.

Annex A of HMRC explains the information required

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/377646/annex-a.pdf

steve@bicknells.net