Make the Best of Allowances

As the sole owner/director of your company you face a dilemma over how to extract income from that company. If you pay yourself a salary of more than £8,060 per year you will have to pay class 1 NIC at the rate of 12% on the excess pay above that threshold up to £42,385 pa. However, income tax is not due until your salary tops £10,600 (the value of your personal allowance for 2015/16).

One solution is to take a salary of up to £8,060 and any further income as dividends of up to £30,892 pa Continue reading

Non-resident Capital Gains Tax

If you are involved with sales of UK residential property where the buyer or seller is tax-resident outside of the UK, you need to be aware of a new tax that came into effect on 6 April 2015: non-resident CGT (NR CGT).

The NR CGT charge is applied at different rates according to whether the seller is a non-resident closely-held company, fund, individual, personal representative or trustee. It applies to gains made in the period from 6 April 2015 to the disposal date of the property, so a small amount of tax likely to be payable on property sales made in 2015/16.
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EIS Assurance

The Enterprise Investment Scheme (EIS) provides some very attractive tax incentives for investors who subscribe for shares in small companies. If you are thinking of attracting investors using the EIS you should first get an advance assurance from HMRC that your company will qualify.

However, HMRC has recently changed the conditions under which it will give that advanced assurance. It will no longer grant assurance for an EIS application if the company is: Continue reading

When is a MVL Appropriate

A Members Voluntary Liquidation (MVL) is the process used to gather in the assets of a solvent company, pay all its creditors and distribute the surplus to the shareholders.

Whilst winding down a limited company is far from the minds of say limited company contractors who are just starting out, with luck every limited company contractor will reach the point of retirement or may even at some point re-enter the world of the permanent employment. There have been various mechanisms over the years Continue reading

HMRC – Updated Guidance on Income from Property Rentals

HMRC has updated its Property Rental Toolkit aimed at providing guidance on the errors that most commonly occur in relation to property rental in tax returns. The updated version of the toolkit, which was published at the beginning of May 2015, makes the following important points:

  • Where a person receives rental income in different capacities (e.g. as an individual property owner and as a member of a partnership that lets property) letting in each of these capacities represents a separate rental business. A loss on one rental business cannot be set against a profit on another.

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May 2015 Question and Answer Section

Q. I live in France and I am about to sell my former home in the UK, which has been let out since I emigrated in August 2001. Do I have to pay tax in the UK on the gain?

A. As you have lived abroad for nearly 14 years you will probably be treated as “non-resident” in the UK for tax purposes, but we need to check that with a few more questions. If you are a non-resident, the gain would generally be exempt from UK capital gains tax (CGT).

However, a new non-resident CGT applies to gains made on the disposal of residential property for 6 April 2015. This new tax only applies to the property of the gain falling after 5 April 2015. So if you sell the property fairly shortly after April 2015 there should be little gain to tax, and the first £11,100 of the gain will be exempt from tax.

Q. I am the sole director of my own company and will take a salary of £10,600 this tax year. How much dividend can I extract from the company this year without paying higher rate tax?

A. Assuming your company makes sufficient profits you can take out net dividends of £28,606 (90% of £31,785), without breaking into the 40% tax band.

Q. I am a UK national resident for tax purposes in Portugal and own a residential property in the UK which is rented out. The tax payable on this property amounts to a rate of 20pc whereas the rate in Portugal would be 28pc. Are the Portuguese tax authorities allowed to charge me the difference of 8pc by way of Portuguese tax?

A. Yes, if you are resident in Portugal you are liable to Portuguese tax first and foremost. Rental income from a UK property is taxed at source in the UK irrespective of tax residency of the property owner so you will first pay tax on the rental income in the UK. You should receive a credit for taxes paid in the UK against taxes due on the same income in Portugal thanks to the tax treaty in place between Portugal and the UK, leaving you only to pay the difference.

Q. My Dad is nearly 90 years old and has an income of £26,000. My Mum who is 85, has an income of less than £10,000. Can my Mum transfer some of her unused personal allowance to my Dad in 2015/16?

A. Unfortunately, the transferable allowance of £1,060, doesn’t apply to people who were born before 6 April 1935. Your father will already receive the married couple’s allowance, which is worth up to £816.50 for 2015/16. The transferable allowance is only worth £212 (£1,060 x 20%), so he is better off with the married couple’s allowance.

Personal Companies – Optimal 2015/2016 Salary

The introduction the employment allowance has added another dimension to remuneration planning for one-man companies. With an increase in the personal allowance, we consider the optimal salary for 2015/2016.

Remuneration Planning The employment allowance (EA) gives employers a discount of up to £2,000 on their secondary Class 1 NI bill. The allowance must be claimed and is equal to the lower of £2,000 and the employers secondary Class 1 NI bill for the year. The EA adds a further variable to the salary v dividend debate for one-man companies. However, in order to determine the optimal salary level it’s also necessary to consider what other income, if any, the director receives during the year. Continue reading

Forms P11D and P9D

The forms P11D and P9D need to be submitted to HMRC by 6 July 2015 where expenses or benefits were provided to your employees in 2014/15, which are not covered by a dispensation, or are not otherwise exempt from tax. If the forms are not submitted on time, HMRC will issue penalties.

But how does HMRC know whether a P11D or P9D is due to be filed? In pre­RTI years when you completed the end of year form P35 you had to say whether a P11D was due. Those P35 questions were carried over to the “final” RTI report for each tax year, which is normally a full payment submission (FPS) report or employer payment summary (EPS). However, from 6 March 2015 there has been no legal requirement to complete those end of year questions, but most payroll software continued to include them in the final submission for the year. Continue reading

Cancelling VAT or VAT­-MOSS Registration

If you registered for UK VAT in order to operate VAT-­MOSS for your overseas sales of digital services to non-­business customers, you may now find that the administration for such sales is just not worth the hassle. If so you may want to de-register for both UK­-VAT and VAT-­MOSS, and restrict your sales to UK-­based consumers, or businesses located anywhere outside the EU.

The de-registration process for VAT-­MOSS must be done online and it will take effect from the end of the calendar quarter in which notice to de-register is given. Thus to de-register from VAT­-MOSS with effect from 1 July 2015 onwards, notice must be given by 15 June 2015. Note that once de-registered for VAT-­MOSS your business can’t use VAT-­MOSS again for two calendar quarters. Continue reading

ATED Reporting

The annual tax on enveloped dwellings (ATED) now applies to residential properties worth over £1m that are owned by a company, or a partnership with one or more corporate members, or in some cases a unit trust.

The ATED charge starts at £7,000 per year for properties worth over £1m but no more than £2m, and increases in steps to £218,200 per year for properties worth over £20m. This tax is normally payable to HMRC by 30 April within the year that charge applies to, which starts on 1 April.

So for most properties the 2015/16 ATED charge is payable by 30 April 2015 unless a relief or exemption is claimed. Although owners of properties which are in the lowest valuation band for 2015/16 (over £1m and not more than £2m) have until 31 October 2015 to pay this year’s ATED charge. Continue reading

Auto­-Enrolment Exemptions

Have you received a letter from The Pension Regulator (TPR) telling you to “ACT NOW” to prepare for auto-­enrolment? The letter gives you just a few weeks to nominate a contact to receive communications about auto­enrolment, with the threat of fines or prosecution if you don’t take action.

The “staging date” for your business will be stated in the letter. This is the date by which you must have a pension scheme ready for your employees to join, if you do indeed need one.

A large number of small companies will be exempt from auto­enrolment, if they don’t technically have any “workers” at their staging date. A company director is not a “worker” if he or she does not have a contract of employment with the company. A company with no staff Continue reading

HMRC Launches Latest ‘Let Property Campaign’

HMRC has launched a new disclosure campaign aimed at landlords who let out residential property in the UK or abroad. The ‘Let Property Campaign’ gives landlords who owe tax the opportunity to bring their tax affairs up to date on preferential terms.

The campaign will last indefinitely and is open to all residential property landlords with undisclosed taxes including:

  • those that have multiple properties
  • landlords with single rentals
  • specialist landlords with student or workforce rentals
  • holiday lettings anyone who rents out a room in their main home for more than £4,250 per year (or £2,125 if the property is let jointly), but has not told HMRC about this income
  • those who live abroad or intend to live abroad for more than 6 months and rent out a property in the UK

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Birthday Surprise

Do you know when your younger workers will reach their key birthdays: 18 and 21? It is essential to know exactly when these dates fall, as reaching such a milestone will change the level of national minimum wage (NMW) which must be paid to that worker. The current and proposed NMW hourly rates are:

Age or status of employee: From 1 October 2014 From 1 October 2015
21 and over £6.50 £6.70
18 to 20 £5.13 £5.30
Under age 18 £3.79 £3.87
Apprentices under 19 or in 1st year £2.73 £3.30

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Pension Freedom or Liberation?

Pension freedom is a GOOD thing. The change in law from 6 April 2015 means that members of defined contribution pension schemes who are aged 55 or more should be able to draw what they want from their pension schemes. But “pension liberation” is a BAD thing. This is when scammers use confidence tricks to separate taxpayers from their pension savings, and the taxpayer has to pay high charges and tax penalties. Can you tell the difference?

If you are thinking about taking funds from your pension plan, you need to think carefully about all the implications. The Government has Continue reading

Marriage Allowance

If you are married or in a civil partnership, and born on or after 6 April 1935 you can now apply for the new marriage allowance. This is not an extra amount of tax free allowance, but a transfer of £1,060 of unused personal allowance from one spouse or civil partner to the other. It will save the couple tax of £212 for 2015/16.

The marriage allowance can only be claimed where one person has unused personal allowance and the other partner/spouse is taxed at no more than 20%. The transferred allowance is treated as the belonging to the recipient for the whole of the tax year for which it is claimed. Continue reading

Charities and Tax

If you help to run a charity you need to keep on top of the tax and audit regulations that apply to charities, and the gift aid scheme.

A person with earnings or pension income of less than £10,600 and interest of up to £5,000 will pay no income tax in 2015/16. These individuals should not make gift aid declarations for donations made on or after 6 April 2015, as they do not pay the income tax which the charity reclaims in respect of that donation.

As a charity you can reclaim tax online which has been deducted from bank interest, or is due back under the gift aid scheme or gift aid Continue reading

Help-To-Buy ISA: an update

In his Budget 2015 speech, the Chancellor announced plans to introduce a new ‘Help to Buy: ISA’ to help first-time buyers get on the property ladder. HMRC has published an overview of how the ‘Help to Buy: ISA’ will work.

The new ISA will be available from banks and building societies from Autumn 2015 for a temporary period of 4 years. Savers will be able to open accounts with an initial deposit of up to £1,000 and thereafter will be able to save up to £200 a month towards their first home in a tax-efficient environment. While the opportunity to open a new account will only be available temporarily, once an account has been opened there is no limit on how long account holders can save for. Continue reading

Share and Share alike with Dividends

Dividends are treated as if they have 10% tax deducted before you receive them, so if you draw £9,000, that is equivalent to £10,000, the standard personal allowance, but even though the company will have paid corporation tax on its profits, you can’t recaim repayment of the £1,000 ‘tax credit’ and the company doesn’t get a deduction for dividends either.

Use your personal allowances first
Therefore if you don’t have any other income, the first slice of your drawings should be your salary. Considering the tax year 2015-2016, if you draw £883 a month your tax allowance will cover all the drawings unless you also receive taxable benefits such as a car. You may pay some National Insurance contributions, but overall the tax bill should be lower. In the current year the basic rate band is £31,785 so, Continue reading