HMRC continue to target small businesses – are you ready for a visit? 1

I want you

According to recent reports HMRC has increased the number of small business investigations and they continue to be seen as soft targets.

About 7% of tax inspections are random, the majority are triggered because HMRC believes that something is wrong.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

You might also consider tax investigation insurance, FSB include tax investigation insurance as a member benefit, they also have some great advice if you do get selected

steve@bicknells.net

Time to prepare for tax year end April 2016 1

Fotolia_91134201_XS Advice

Now you have filed your April 2015 Return (50% will have been filed in January 2016) you only have 2 months left to take action to save tax on your April 2016 tax return.

What should you be doing right now to save tax?

Contribute to your Pension

Transitional rules, for 2015/16 only, mean that there’s an annual allowance of £80,000, although only £40,000 of this can be used between 9 July 2015 and 5 April 2016. You may also have unused annual allowances from the three previous tax years.

These Transitional rules are to align PIP’s (Pension Input Periods) with the Tax Year.

Pensions have huge tax saving advantages

How a family pension scheme will save you tax

Optimise your 2015/16 Salary

You can’t carry forward any unused personal allowances so generally the optimum salary will be £10,600

What is the optimum tax efficient salary 2015-16?

Take Dividends now

When you take dividends has never been more critical due to changes in the Summer Budget 2015, so if you have distributable reserves you might want to take more dividends this tax year.

Dividend tax rates before April 2016

Tax band Effective dividend tax rate
Basic rate (20%) (and non-taxpayers) 0%
Higher rate (40%) 25%
Additional rate (45%) 30.56%

 

This will change from April 2016, see the table below

Dividend tax rates after April 2016

Tax band Effective dividend tax rate
Tax Free £5,000 0%
Basic Rate Tax Payers (20%) 7.5%
Higher Rate Tax Payers (40%) 32.5%
 Additional Rate Tax Payers (45%)  38.1%

 

Capital Gains Tax Allowance

Each year individuals get a capital gains tax allowance, this year its £11,100. If you have capital gains it could worth phasing them to use up the capital gains tax allowance.

Here are some great blogs on how you could transfer a personally owned property or sell shares in a property company to take gains in stages

https://stevejbicknell.com/2014/08/13/how-do-you-give-away-property-in-stages/

https://stevejbicknell.com/2015/08/24/5-reasons-why-you-need-a-property-investment-company/

Other Ideas

steve@bicknells.net

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Buy to Let interest relief tax saving ideas 3

To Let

Restriction of Mortgage Interest Tax Relief

The governments’ plan is to restrict individuals on claiming mortgage interest as a cost against their property investment income, for individuals it will work as follows

2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%

2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%

2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%

2020/21 100% will get only 20% relief

For a 20% tax payer that’s fine but for higher rate taxpayer its a disaster that will lead to them paying a lot more tax

These rules will not apply to Companies, Companies will continue to claim full relief.

What could a Property Investor do to reduce the impact of these changes?

Here are a few ideas….

  1. Pension Contributions – Pension Contributions currently receive tax relief at your rate of tax – 20% to 45% – so if you are a 40% tax payer you would need pay half the value of your 20% restricted interest into your pension to mitigate the extra tax
  2. Change of Use – would your Buy to Let be able to be converted to a Furnished Holiday Let? or anther type of commercial property on which the restriction won’t apply
  3. Increasing the Rent – Could you charge more to cover the extra tax?
  4. Spouse Income Tax Elections – If the property is jointly held HMRC assume a 50/50 split of the income but you can change that using Form 17 this might be useful if one of you is a basic rate taxpayer and the other a higher rate taxpayer
  5. Tax Deductible Expenses – Many landlords overlook expenses at the moment but they could become a lot more important, for example, use of your home, motor expenses, computers, travel and subsistence, phone costs etc

What do you plan to do when the changes take effect?

steve@bicknells.net

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Are you ready for the changes to employee expenses? 1

Pay for woman.

From April 2016 all employee expense Dispensations agreed with HMRC will cease to apply!

You will need new systems for checking expenses, HMRC will be supply examples.

Expenses which are not covered by benchmark scale rates are likely to paid and taxed via the payroll with the employee claiming relief through P87 and Self Assessment SA100.

Expenses

Are you ready for the new regime?

steve@bicknells.net

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10 most common online self assessment issues Reply

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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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5 million paid the wrong tax last year – is your tax code right? Reply

Tax Refund Green Blue Horizontal

As reported last year by the Telegraph

Five million people may have been billed incorrectly by HMRC.

You’ll find your tax code on:

  • your pay slip
  • your PAYE Coding Notice – you usually get this a couple of months before the start of the tax year and you may also get one if something has changed but not everyone needs to get one
  • form P60 – you get this at the end of each tax year
  • form P45 – you get this when you leave a job

Among those most likely to be affected are veterans who have taken a civilian job after leaving the Armed Forces, but who also draw a military pension. Pensioners with two pensions and those who have continued to work part-time after retirement are also more likely to be hit.

Taxpayers, who must complete their self-assessment tax returns before Jan 31, are being warned to check their paperwork again to make sure they are not affected.

Problems arise because various tax offices around Britain are failing to share information about taxpayers’ incomes on a central database.

People with more than one income, whether from pensions, PAYE employment or a mixture of the two, are being allocated their personal tax-free allowance multiple times. It means the tax codes issued for their various income sources are incorrect, so not enough tax is taken. Often the mistakes are discovered by HMRC years later, leading to unexpected tax demands. Telegraph

If you think your Tax Code is wrong you should tell HMRC as soon as possible using online form P2

https://online.hmrc.gov.uk/shortforms/form/P2

You can check how your tax using this HMRC link

https://www.gov.uk/check-income-tax

The most common tax code for tax year 2015 to 2016 is 1060L (£10,600 being the annual income tax free allowance for 2015/16) – in 2014 to 2015 it was 1000L. It’s used for most people born after 5 April 1938 with one job and no untaxed income, unpaid tax or taxable benefits (eg company car).

steve@bicknells.net

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10 ways to pay less VAT 1

3D Vat button block cube text

Here are my top 10 ways to pay less VAT

1 Choose the best VAT Scheme for your business

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

Flat Rate Scheme – try our calculator

Flat Rate Calculator 2

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

2 Claim Pre-registration VAT

When you register for VAT, there’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:

  • 4 years for goods you still have, or that were used to make other goods you still have
  • 6 months for services

Be careful not to over claim – see this blog for details https://stevejbicknell.com/2015/06/24/preregistration-vat-confusion/

3 Property Investors might benefit from a Development Company

Property Development is a trade, where as Property Investment isn’t – renting out a residential property is a VAT exempt supply.

If you are planning significant building work, setting up a Development Company or using a building contractor might save VAT.

Assuming you employ a builder…

The VAT Rules are in VAT Notice 708 Buildings & Construction

Your builder may be able to charge you VAT at the reduced rate of 5 per cent if you are converting premises into:

  • a ‘single household dwelling’
  • a different number of ‘single household dwellings’
  • a ‘multiple occupancy dwelling’, such as bed-sits, or
  • premises intended for use solely for a ‘relevant residential purpose’

As your builder will be VAT registered, they reclaim the VAT they are charged and then charge you VAT at 5%.

If your business is property rental and you do the work yourself, you can’t take advantage of the 5% rate.

If your Development Company is VAT registered you can reclaim all the VAT.

4 Do you need to charge VAT on Intercompany Charges

There are situations where one company is VAT registered and other related companies are either partially exempt or not registered for VAT, so in these circumstances not charging VAT is an advantage.

The following are not Taxable supplies for VAT:

Common Directors – Notice 700/34 (May 2012)

Joint Employment – Notice 700/34 (May 2012)

Paying a Bill on behalf of an associated business

Insurance

5 Use VAT Groups for Business Acquisition Costs

Basically HMRC disallow Input VAT relating to Investments.

The most well known example of this was when BAA purchased Airport Development Investments Limited in June 2006, the decision was upheld by the Court of Appeal in February 2013.

The BAA VAT group sought to recover the VAT (£6.7m) incurred on the acquisition costs but recovery was refused by HMRC on the basis that they considered ADIL had not made onward taxable supplies, had not demonstrated any intention to make taxable supplies and was not a member of the VAT group at the time costs were incurred.

BAA used an SPV (Ferrovial) to purchase ADIL but did not bring the SPV into the BAA VAT Group until September 2006, 3 months after the acquisition.

The lessons to learn from this are:

  1. Once you have successfully made the acquisition join a VAT Group immediately and make it clear in correspondence that the SPV intends to join the VAT Group at the earliest opportunity
  2. Consider not using an SPV
  3. Buy the Assets instead of the Shares
  4. Show that the SPV will make taxable management charges
  5. Consider the scope of the advisors work, HMRC may disallow advice focussed on passively holding shares

6 How Hotels save VAT

Here are some VAT examples for Hotels – HMRC Reference:Notice 709/3 (October 2011) :

The Long Stay Rule

If a guest stays in your establishment for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.

VAT Exempt Meeting Rooms and Refreshments

Hiring a room for a meeting, or letting of shops and display cases are generally exempt, but you may choose to standard-rate them by opting to tax, see Notice 742A Opting to tax land and buildings.

VAT on Deposits

Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.

Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation.

7 VAT on Pool Cars

When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:

  • a taxi
  • for driving instruction
  • for self-drive hire

If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used exclusively for a business purpose.

8 Use a Tronc for Tips

Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:

• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.

Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore
standard rated.

If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.

Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food

9 Get your TOGC right – Transfer of a Going Concern

Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate. A transfer of a business as a going concern for VAT purposes (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions. Where the sale meets the conditions then the supply is outside the scope of VAT and therefore VAT is not chargeable.

It is important to be aware that the TOGC rules are mandatory and not optional. So it is important to establish from the outset whether the sale is or is not a TOGC.

The main conditions are:

  • the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
  • the assets are to be used by the purchaser with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical)
  • where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
  • in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date
  • where only part of the ‘business’ is sold it must be capable of operating separately
  • there must not be a series of immediately consecutive transfers of ‘business’

The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it is very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and or interest.

10 Choose the best time to register for VAT

You may decide to voluntarily register to reclaim VAT you have paid out to set up you business or you might decide to wait till you have to register to gain a competitive advantage.

You must register for VAT if:

  • your VAT taxable turnover is more than £82,000 (the ‘threshold’) in a 12 month period
  • you receive goods in the UK from the EU worth more than £82,000
  • you expect to go over the threshold in a single 30 day period

steve@bicknells.net

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10 ways to pay less Property Tax (Investors) 3

Mosaïque de logements

Here are my top 10 ways that property investors can save tax

1 Property Investment Companies

  • Restriction of Mortgage Interest Tax Relief – this doesn’t apply to companies
  • Corporation Tax Rates – falling to 18% by 2020
  • Capital Gains Tax – Capital Gains Tax indexation
  • Stamp Duty – lower on share sales
  • Inheritance Tax (IHT) and Potentially Exempt Transfers planning – better with shares

Further details in our blog https://stevejbicknell.com/2015/08/24/5-reasons-why-you-need-a-property-investment-company/

2 Commercial Property should be in a Pension Scheme

Self Invested Personal Pension (SIPP) Schemes and Small Self Administered Schemes (SSAS) can invest in commercial property, no tax on the rental income, no capital gains, you only pay tax when you draw your pension.

You also get tax relief on money paid into your Pension.

3 Claim tax deductible expenses

Claim allowable expenses

  • 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

If the property is furnished claim for Wear & Tear, you can claim 10% of the rent each year

Claim for repair and advertising expenses incurred in getting the property ready for renting

4 Use a Property Development Company to Save VAT

Property Development is a trade, where as Property Investment isn’t – renting out a residential property is a VAT exempt supply.

If you are planning significant building work, setting up a Development Company or using a building contractor might save VAT.

Assuming you employ a builder…

The VAT Rules are in VAT Notice 708 Buildings & Construction

Your builder may be able to charge you VAT at the reduced rate of 5 per cent if you are converting premises into:

  • a ‘single household dwelling’
  • a different number of ‘single household dwellings’
  • a ‘multiple occupancy dwelling’, such as bed-sits, or
  • premises intended for use solely for a ‘relevant residential purpose’

As your builder will be VAT registered, they reclaim the VAT they are charged and then charge you VAT at 5%.

If your business is property rental and you do the work yourself, you can’t take advantage of the 5% rate.

If your Development Company is VAT registered you can reclaim all the VAT.

Get your existing business or your property development company to convert the property and then sell it to another company that you own (may be an SPV)  will be a  VAT Zero Rated transaction. The other company then carries on the rental business.

5 Principle Private Residence Relief and Lettings Relief

Principle Private Residence Relief (PPR) is useful relief that saves you capital gains tax (18% for basic rate tax payers and 28% for higher rates tax payers) on your main residence.

You may also qualify for lettings relief after you have moved out.

6 Give away your Property in Stages

As long as the home you give away is your main home, Capital Gains Tax won’t be payable.

However, if you give away a second home, Capital Gains Tax may be payable if the property has increased in value between when you first owned it and when you gave it away.

If you sell your second home and give the money to your children, the gift won’t be included in your estate for Inheritance Tax purposes, provided you live for 7 years after you make the gift.

It is possible to to gift property in stages.

Your solicitor will draw up the required documents to conveyance a percentage of the property and register the transactions with the Land Registry.

In order to calculate the capital gain you will need to know the acquisition cost and any reliefs such as PPR.

Giving away your property in stages could save you from having to pay capital gains tax.

7 Claim Capital Allowances and Claim Tax Relief on Integral Features

FA2008 introduced a new classification of integral features of a building or structure, expenditure on the provision or replacement of which qualifies for WDAs at the 10% special rate. The new classification applies to qualifying expenditure incurred on or after 1 April 2008 (CT) or 6 April 2008 (IT).

http://www.hmrc.gov.uk/manuals/camanual/CA22300.htm

The rules on integral features apply where a person carrying on a qualifying activity incurs expenditure on the provision or replacement of an integral feature for the purposes of that qualifying activity. Each of the following is an integral feature of a building or structure –

  1. an electrical system (including a lighting system),
  2. a cold water system,
  3. a space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system,
  4. a lift, an escalator or a moving walkway,
  5. external solar shading

Only assets that are on the list are integral features for PMA purposes; if an asset is not one of those included in the list, the integral features rules are not in point.

However, Plant and Machinery includes….

other building fixtures, such as shop fittings, kitchen and bathroom fittings

Many businesses have never claimed capital allowances for these items.

8 Consider Joint Ownership

If you own property personally you could double up your tax free Capital Gains Tax Allowance if you switch to owning property jointly with your spouse.

9 Check if you qualify for relief from ATED

Most residential properties (dwellings) are owned directly by individuals. But in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.

ATED is a tax payable by companies on high value residential property (a dwelling).

There are reliefs that might lead to you not having to pay any ATED. You can only claim these by completing and sending an ATED return.

A dwelling might get relief from ATED if it is:

  • let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • open to the public for at least 28 days per annum, if part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property
  • part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • part of a property developers trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • for the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10%, the employee’s duties must not include services for any present or future occupation of the property by someone connected with the company, the relief is also available where a partner in a partnership does not have an interest of more than 10% in the partnership
  • a farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner
  • a dwelling acquired by a financial institution in the course of lending
  • owned by a provider of social housing

10 Take dividends this tax year

When you take dividends has never been more critical due to changes in the Summer Budget 2015, so if you have distributable reserves you might want to take more dividends this tax year, try our Dividend Calculator  to see how much difference it could make.

Dividend tax rates before April 2016

Tax band Effective dividend tax rate
Basic rate (20%) (and non-taxpayers) 0%
Higher rate (40%) 25%
Additional rate (45%) 30.56%

 

This will change from April 2016, see the table below

Dividend tax rates after April 2016

Tax band Effective dividend tax rate
Tax Free £5,000 0%
Basic Rate Tax Payers (20%) 7.5%
Higher Rate Tax Payers (40%) 32.5%
 Additional Rate Tax Payers (45%)  38.1%

 

The new rules are easier to follow, the 10% tax credit in the current rules is hard for most people to follow.

There is a Dividend Allowance factsheet which helps to explain how dividend tax will be calculated.

But be warned!

While these rates remain below the main rates of income tax, those who receive significant dividend income – for example due to very large shareholdings (typically more than £140,000) or as a result of receiving significant dividends through a closed company – will pay more.

So far we don’t know how much more!

steve@bicknells.net

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Beware of letting your accounts become a shambles Reply

Unhappy office worker on the phone, isolated on white

It’s not uncommon for Directors and Senior Employees to get behind with their expense claims and paperwork, they are busy people trying to build their businesses and sometimes the paperwork gets put to one side.

But lets consider the recent HMRC case against the Directors of RSL (NorthEast) Ltd. Mr White was Director of RSL and he had a company credit card which he used for business and personal expenses, he travelled extensively on company business. Unfortunately RSL became insolvent, so HMRC assessed Mr White on credit card expenses as a benefit in kind.

Mr White appealed on the basis that he had lent the company large amounts of his own money and any credit card expenses were just a reimbursement.

HMRC argued…

  • Section 203(2) ITEPA does not grant any right to retrospectively make good a benefit. Income tax is an annual tax, and the value of the benefit depends upon what is made good in that tax year.”
  • “Any “rewriting” [to reflect the money reimbursed to RSL] would have a retrospective effect on the Company accounts.” HMRC implied that this would not be allowed.

HMRC won the case, but mainly because the accounts were in a terrible shambles!

What can we learn from this?

  1. Keep good records, don’t put off doing your accounts!
  2. If you do get behind you do a have a ‘reasonable time to make good’ as noted in HMRC’s manuals http://www.hmrc.gov.uk/manuals/eimanual/EIM21121.htm

steve@bicknells.net

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10 ways to pay less income tax Reply

Pay Packet And Banknotes

Income Tax is a tax you pay on your income. You don’t have to pay tax on all types of income.

You pay tax on things like:

  • money you earn from employment
  • profits you make if you’re self-employed – including from services you sell through websites or apps
  • some state benefits
  • most pensions, including state pensions, company and personal pensions and retirement annuities
  • interest on savings and pensioner bonds
  • rental income (unless you’re a live-in landlord and get £4,250 (£7,500 from April 2016) or less)
  • benefits you get from your job
  • income from a trust
  • dividends from company shares

So how can you pay less income tax?

Here are 10 suggestions…

  1. Pension

When you pay into a pension you get income tax relief on your contributions .

Lets say you invest £10,000 per year of earned gross income, increasing each year by 3% for inflation and see the effect of tax relief at 40% and 20%, assuming a return on the investment of 7% (which you should get with Commercial Property Investment)

40% Tax Rate 20% Tax Rate
Year Pension No Pension % Diff Year Pension No Pension % Diff
1 £10,700 £6,252 71% 1 £10,700 £8,336 28%
2 £22,470 £12,954 73% 2 £22,470 £17,272 30%
3 £35,395 £20,131 76% 3 £35,395 £26,841 32%
4 £49,564 £27,808 78% 4 £49,564 £37,078 34%
5 £65,077 £36,013 81% 5 £65,077 £48,017 36%
6 £82,036 £44,773 83% 6 £82,036 £59,698 37%
7 £100,555 £54,119 86% 7 £100,555 £72,158 39%
8 £120,754 £64,081 88% 8 £120,754 £85,441 41%
9 £142,761 £74,692 91% 9 £142,761 £99,590 43%
10 £166,715 £85,987 94% 10 £166,715 £114,649 45%
11 £192,765 £98,000 97% 11 £192,765 £130,667 48%
12 £221,070 £110,771 100% 12 £221,070 £147,694 50%
13 £251,801 £124,337 103% 13 £251,801 £165,782 52%
14 £285,140 £138,740 106% 14 £285,140 £184,987 54%
15 £321,285 £154,024 109% 15 £321,285 £205,365 56%
16 £360,445 £170,233 112% 16 £360,445 £226,978 59%
17 £402,846 £187,416 115% 17 £402,846 £249,888 61%
18 £448,731 £205,621 118% 18 £448,731 £274,161 64%
19 £498,358 £224,901 122% 19 £498,358 £299,868 66%
20 £552,006 £245,309 125% 20 £552,006 £327,079 69%

Even when you consider:

  • Your money is locked up till you are 55
  • You pay tax when you take money out of the pension
  • You can get 25% out of the pension tax free

The difference in growth is massive

If you do salary sacrifice you can increase the tax effect by saving national insurance too.

2. ISA

Individual Savings Accounts have been around for a few years and very soon the Help to Buy ISA will be launched

Help to Buy ISA

Top 10 facts and rules…

  1. Its only available to ‘First Time Buyers’
  2. ‘First Time Buyers’ can only have one Help to Buy ISA with one provider
  3. You can pay in £1,000 when you open the account and then save a maximum of £200 per month
  4. The maximum government bonus is £3,000 (but you can lower amounts of bonus if you have less than £12,000)
  5. The scheme will run for 4 years from the date it opens (Autumn 2015)
  6. Couples can have a Help to Buy ISA each which means if they don’t want to wait 4 years could save £12,000 in 25 months where as a single saver would need 55 months
  7. Unlike ISA’s where you open one per year, the Help to Buy ISA will continue for 4 years
  8. You can withdraw funds but if its not to buy a home then you won’t get the bonus
  9. More than 100,000 homes have now been bought with government backed schemes
  10. You will be able to get them at banks and building societies

3. Salary Sacrifice

Salary Sacrifice is a very tax efficient way to give your employees benefits and the most popular benefits are Pensions and Childcare. I wrote a blog back in 2011 which explained how it can save 45.8% in tax and NI

HMRC decided on 9th April 2013 that it was time to “clarify”  in their Manuals what are successful and unsuccessful salary sacrifice schemes and have added some further guidance. Their Staff are instructed not to approve schemes (Employment Income Manual EIM42772)….

You (HMRC) may get requests for advice:

  • on how to set up a salary sacrifice arrangement, or
  • on whether draft documentation will achieve a successful salary sacrifice.

You (HMRC) should not comment on either of these areas. Salary sacrifice is a matter of employment law, not tax law. The nature of an employee’s contract of employment is a matter for the employer and employee.

The specific updates are:

EIM42750 – Salary Sacrifice – updated – this contains the examples of schemes

EIM42777 – Contractual arrangements – this has interesting comments on childcare and pensions

4. Employment Expenses

As an employee you can claim tax relief for expenses incurred in doing your job, for example business mileage, cycling on business, hotels, meals, business phone calls, in fact anything as long as its business related

If your claim is less than £2500 you can make your claim using Form P87 http://www.hmrc.gov.uk/forms/p87.pdf if its more than £2500 you will need to complete a Self Assessment Return (you need to phone HMRC to request a Self Assessment Return – contact details below), if you know your UTR number you can register and file your Self Assessment Return on line.

5. Dividends

When you take dividends has never been more critical due to changes in the Summer Budget 2015, so if you have distributable reserves you might want to take more dividends this tax year, try the Dividend Calculator above to see how much difference it could make.

Dividend Calculator 2

6. Tax break for Couples

A new tax break as launched this week from 6 April 2015, which will be eligible to more than 4 million married couples and 15,000 civil partnerships.

The Allowance means a spouse or civil partner who doesn’t pay tax – therefore is not earning at all or is earning below the basic rate threshold (£10,600) – can transfer up to £1,060 of their personal tax-free allowance to a spouse or civil partner – as long as the recipient of the transfer doesn’t pay more than the basic rate of income tax.

7. Tax Free Benefits

Getting tax free benefits will save you lots of tax, here some ideas…

  1. Pensions – Up to £40k can be paid in to you pension scheme by your employer (2015/16)  and you can use carry forward to pay in even more
  2. Childcare – Up to £55 per week but check the rules to makesure your childcare complies (HMRC Leaflet IR115) – these rules are changing soon.
  3. Mobile Phone – One per employee
  4. Lunch – Tax Free Lunch Blog
  5. Cycle Schemes – Cycle to Work Blog
  6. Fitness – Fitness Blog
  7. Parties and Gifts – Christmas Blog
  8. Parking – Parking Blog
  9. Business Mileage Allowance – 45p for the first 10,000 miles then 25p
  10. Long Service Award – A bit restrictive as you need 20 years service, the tax free amount is £50 x the number of years
  11. Eye Tests and Spectacles – The Eye Test must be needed under the Health & Safety at Work Act
  12. Suggestion Schemes – Suggestion Scheme Blog
  13. Insurance such and Death in Service and Income Protection – Medical Insurance Blog
  14. Travel Expenses – Travel Blog
  15. Working From Home – Working from Home Blog

8. Earn less than £100k

Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £121,200 or above.

9. Green Company Car

A calculator is available here: http://www.hmrc.gov.uk/calcs/cars.htm and rates are shown in the table below for zero emission vehicles and some of the lower CO2 vehicles.

BIK CO2

10. Check your P800

The P800’s are likely to contain errors because:

  1. Large amounts of data are manually input
  2. Estimates especially for Bank Interest and Investment Income

So check the following carefully:

  1. P60 – you get this at the end of each tax year
  2. P45 – you get this when you leave a job
  3. PAYE Coding Notice
  4. P11D Expenses and benefits
  5. P9D Expenses payments and income from which tax cannot be deducted
  6. Bank and Building society statements
  7. Pension Tax Deductions

Its expected that around 3 million people will be asked to pay more tax and around 2 million people will have overpaid.

 

steve@bicknells.net

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