Are your spouses wages tax deductible? Reply

Any salary paid will be subject to Income Tax and National Insurance as well as having to comply with National Minimum Wage and Auto Enrolment.

But you can only use the cost as a business tax deduction if:

  1. Its ‘wholly and exclusively’ for the benefit of the business
  2. The payment must reflect the actual work done and be realistic
  3. The payment must be shown in the accounts
  4. The wages must actually be paid
  5. If you provide for wages they must be paid within 9 months of the end of the accounting period

Mark McLaughlin explains more in this video and tells about a recent case involving a Heating Engineer and his wife. Mark is a brilliant tax writer and I have already order his next book ‘Tax Planning 2017/18’

The rules don’t only cover spouses, they also cover other family members.

 

 

 

There are many other pitfalls relating to other ways to share income such as dividends.

The s660 rules (or settlements legislation) have been around since the 1930s.

The rules stop you passing income to someone else in the family, or giving income or assets to someone else in an effort to reduce your overall tax bill. This is called a “settlement”, and the aim of the legislation is to stop people settling their income on another person who pays tax at a lower rate. (Contractor UK)

steve@bicknells.net

When is a Van not a Van? when its a VW Transporter Kombi! Reply

It makes a big difference whether a vehicle is treated as a Car or a Van for tax purposes, in summary:

  1. Benefit in Kind on Cars is linked to CO2 where as on a Van its Flat Rate (and could be zero if your private use is insignificant)
  2. Vans qualify for the Annual Investment Allowance, Cars have restricted Capital Allowances
  3. You can reclaim VAT on Vans but its much harder to reclaim VAT on cars

HMRC have some guidance in EIM23150….

Under this measure, a double cab pick-up that has a payload of 1 tonne (1,000kg) or more is accepted as a van for benefits purposes. Payload means gross vehicle weight (or design weight) less unoccupied kerb weight (care is needed when looking at manufacturers’ brochures as they sometimes define payload differently).

Under a separate agreement between Customs and the Society of Motor Manufacturers and Traders (SMMT), a hard top consisting of metal, fibre glass or similar material, with or without windows, is accorded a generic weight of 45kg. Therefore the addition of a hard top to a double cab pick-up with an ex-works payload of 1,010 kg will convert the vehicle into a car (net payload reduced to 965 kg). Under this agreement, the weight of all other optional accessories is disregarded. HMRC has also adopted this treatment.

http://www.hmrc.gov.uk/manuals/eimanual/eim23150.htm

Kombi’s have been a grey area, but not any more, following the case of Noel Payne v HMRC as reported by Croner Taxwise…

Under ITEPA 2003 S.115, a van is a vehicle where its primary construction is for the conveyance of goods or burden.  Kombi vans and those similar have not previously been thought to fall into this category due to them being designed to carry both goods and people. Historically, HMRC has offered a concession from 2002/2003 onwards for vehicles of a very similar construction, double cab pickups (including both uncovered and covered models), if the payload capacity of the pickup exceeds a metric tonne. HMRC accepts that these vehicles can be treated as a van for benefit in kind purposes.

With such similarities in the construction of the Kombi van, this has led to this concession being applied to the Kombi vans as well. However, in Noel Payne vs HMRC, a judgment was reached that the primary construction of the kombi van was not for the conveyance of goods alone but rather that its purpose was for the conveyance of both goods and people equally. This means that the Kombi did not meet the requirement to be considered to be a van and therefore for benefit in kind purposes it is a car.

The advice from Croner is that from now on Kombi’s and any van built to carry passengers should now be treated as a car for benefit in kind purposes, the case did involve a Vivaro as well but that was manufactured as a Van and later converted so that was allowed to be treated as a Van.

This also has implications for VAT and Capital Allowances.

steve@bicknells.net

If my company pays me interest will it be taxed? Reply

Companies often borrow from their directors, especially property companies as 100% loan to value loans may not be available from lenders.

If the company pays interest on the loan it will have to register with HMRC and prepare CT61 returns

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/383833/ct61-notes-2010.pdf

The CT61 requires the company to deduct 20% tax on the interest.

The Director may be entitled to the interest tax free

Personal Savings Allowance

You may also get up to £1,000 of interest tax-free depending on which Income Tax band you’re in. This is your Personal Savings Allowance.

Income Tax band Tax-free savings income
Basic rate £1,000
Higher rate £500
Additional rate £0

Savings covered by your allowance

Your allowance applies to interest from:

  • bank and building society accounts
  • savings and credit union accounts
  • unit trusts, investment trusts and open-ended investment companies
  • peer-to-peer lending

So the Personal Savings Allowance should cover Directors Loans as explained in accountingweb

https://www.accountingweb.co.uk/tax/business-tax/paying-interest-to-the-director

If you are lending to your company you should make sure that its at a market rate and you may want to consider your security for the loan.

You could opt for a charge at Companies House but at the very least you should have a loan agreement.

steve@bicknells.net

Do you have overseas assets and income you haven’t declared? Reply

All accountants and tax agents should now be sending or have sent a letter or e mail to their clients saying

From 2016, HM Revenue & Customs (HMRC) is getting an unprecedented amount of information about people’s overseas accounts, structures, trusts, and investments from more than 100 jurisdictions worldwide, thanks to agreements to increase global tax transparency. This gives HMRC unprecedented levels of information to check that, as in most cases, the right tax has been paid.

If you have already declared all of your past and present income or gains to HMRC, including from overseas, you do not need to worry. But if you are in any doubt, HMRC recommends that you read the factsheet attached to help you decide now what to do next.

https://www.gov.uk/government/publications/client-notification-income-or-assets-abroad/notes-on-how-and-when-to-send-the-client-notification-letter

Here is a link to the fact sheet

https://bbaltd.sharepoint.com/_layouts/15/guestaccess.aspx?docid=0b2969c05c0b74833bb2c42df251ddfb0&authkey=AQoJsi8KFnP87sNNjN-JK4E

Time is running out, so make sure you declare all your income and assets.

steve@bicknells.net

The Mini Finance Bill Reply

The Finance Bill 2017 was to be the largest at 762 pages but in order to rush it though it was cut to 148 pages!

That’s an 80% reduction dropping 72 out of the 135 clauses and 18 out of 29 schedules.

One of the items dropped was Making Tax Digital (MTD).

But its widely expected that following the general election there will be another bill to bring in all the items that were dropped.

Our tax system is already far too complex:

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

Its a shame they couldn’t cut all the tax rules by 80%!

 

steve@bicknells.net

Why have we made UK Tax so complicated! Reply

Here are the facts:

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

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/603469/OTS_Focus_paper_on_complexity_final.pdf

The Office of Tax Simplication have been working on ways to simply things since 2010 but it seems to me every time we change things we just create more rules!

How will tax payers be able to cope with Making Tax Digital and the introduction of Quarterly and eventually Monthly reporting!

steve@bicknells.net

Ways to save tax before 5th April 2017 Reply

There are now only a few days left until the end of the tax year, so what can you do save tax?

Dividends

The Dividend Allowance was introduced in April 2016 and it allows you to take £5,000 in dividends tax free.

As announced at Spring Budget 2017, the government will legislate in Finance Bill 2017 to reduce the tax-free allowance for dividend income from £5,000 to £2,000.

So in 2016/17 and 2017/18 you need to take the £5,000 because in 2018/19 its dropping to £2,000 and most people expect it to disappear in 2019/20.

Dividends above the allowance are taxed as follows:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

Marriage Allowance

Marriage Allowance lets you transfer £1,100 of your Personal Allowance to your husband, wife or civil partner – if they earn more than you.

This reduces their tax by up to £220 in the tax year (6 April to 5 April the next year).

To benefit as a couple, you (as the lower earner) must have an income of £11,000 or less. You can calculate how much tax you’ll pay as a couple.

Personal Allowances

You can earn £8,060 without paying any Tax or National Insurance or £11,000 Tax Free.

If you own a company and haven’t taken these allowances why not?

steve@bicknells.net

Are you going to buy a car before April to avoid the Road Tax Increases? Reply

The rates explained

Vehicle tax for the first year is based on CO2 emissions.

After the first year, the amount of tax that needs to be paid depends on the type of vehicle. The rates are:

  • £140 a year for petrol or diesel vehicles
  • £130 a year for alternative fuel vehicles (hybrids, bioethanol and LPG)
  • £0 a year for vehicles with zero CO2 emissions

Auto Express have made some useful comparisons

You can read their full article by clicking here http://www.autoexpress.co.uk/car-news/consumer-news/88361/tax-disc-changes-everything-you-need-to-know-about-uk-road-tax

Highest proportionate increase CO2 emissions Current First Year Rate New First Year Rate Three years’ tax current rate Three years’ tax new rates % change three year ownership
Peugeot 208 1.2 PureTech (82) Allure 104g/km £0 £140  £40 £420 950%
Ford C-Max 1.5TDCi (120) Zetec 105g/km £0 £140 £40 £420 950%
VW Passat 1.6 TDI S 105g/km £0 £140 £40 £420 950%
Nissan Qashqai 1.6 dCi  (130) N-Connecta  115g/km £0 £160  £60 £440 633.3%
Lowest proportionate increase
SEAT Alhambra 1.4 TSI (150) 150g/km £145 £200 £435 £480 10.3%
Ford Mondeo 1.5 EcoBoost Titanium  

134g/km

 

£130

 

£200

 

£390

 

£480

 

23.1%

Jaguar XE 2.0i R-Sport (auto)  

179g/km

 

£355

 

£800

 

£815

 

£1,080

 

35.8%

Toyota Verso 1.6 V-Matic Icon 154g/km £185 £500 £555 £780 40.5%
Honda CR-V 2.0 i-VTEC SE 4WD 173g/km £300 £800 £720 £1,080 50%

Why has government changed the rates?

Basically too many cars are now low in CO2 that not enough tax is being collected!

New VED system – for cars registered from April 2017
Emissions (g/CO2/km) First year rate Standard rate*
0 £0 £0
1-50 £10 £140
51-75 £25 £140
76-90 £100 £140
91-100 £120 £140
101-110 £140 £140
111-130 £160 £140
131-150 £200 £140
151-170 £500 £140
171-190 £800 £140
191-225 £1200 £140
226-255 £1700 £140
over 255 £2000 £140
*cars over £40,000 pay £310 supplement for 5 years

steve@bicknells.net

 

Take your £5,000 Dividend Allowance while you still can! Reply

The Dividend Allowance was introduced in April 2016 and it allows you to take £5,000 in dividends tax free.

As announced at Spring Budget 2017, the government will legislate in Finance Bill 2017 to reduce the tax-free allowance for dividend income from £5,000 to £2,000.

So in 2016/17 and 2017/18 you need to take the £5,000 because in 2018/19 its dropping to £2,000 and most people expect it to disappear in 2019/20.

Dividends above the allowance are taxed as follows:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

What are the requirements for a legal dividend?

Companies Act 2006 Section 830 – Distributions to be made only out of profits available for the purpose

(1)A company may only make a distribution out of profits available for the purpose.

(2)A company’s profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.

(3)Subsection (2) has effect subject to sections 832 and 835 (investment companies etc: distributions out of accumulated revenue profits).

A distribution must be justified by

  1. The Company’s last published accounts
  2. Interim Accounts
  3. Initial Accounts

In small businesses having the right paperwork is vital should HMRC raise any questions, you will need:

  • Board Minutes
  • Dividend Vouchers

steve@bicknells.net