March 2012

Once your employee reaches state pension age (SPA) you should not deduct employee’s class 1 NICs from their wages, but the employer’s class 1 NICs must be paid. The problem is, the SPA no longer aligns with a person’s 60^th or 65^th birthdays. For example a woman celebrating her 60^th birthday on 15 March 2012, will reaches her SPA on 6 March 2014. You need to use the online state pension age calculator to work out the SPA for your older employees.

CLICK HERE - State pension age calculator

CKLG Accountants in Cambridge are here to help.

If you are just starting a business, who should you approach for advice: HMRC or a qualified tax adviser? Louise Stones chose the HMRC business support team and followed their advice when completing her tax returns for 2002/03 onwards. However, when HMRC reviewed her tax returns in 2008, the investigating officer concluded the original advice was incorrect. Ms Stones endured a stressful two - year tax investigation which could have been avoided if she had been correctly advised from the start.

CLICK HERE - Louise Stones v HMRC TC 1806

CKLG Accountants in Cambridge are here to help.

You have to wait until age 55 years or more, before drawing any benefits from a registered pension fund, unless you are seriously ill or in a special occupation such as professional footballer. This is the law. But schemes are being marketed that claim to provide early access to pension savings.

For this to work you must authorise a transfer of funds from your existing occupational or private pension into a risky investment structure, which may be based overseas. This puts the value of your pension fund at risk, and can generate a tax charge of 55% of any cash withdrawn, plus 15% charge for the pension administrator. Don’t be taken in by schemes that look to good to be true.

CLICK HERE - Warning about pension release schemes

CKLG Accountants are here to help.

Welcome to our Spring edition of help@

We have distilled the content of the Chancellor’s statement yesterday into a synopsis. Please click on the home page to reach the download.

And of course if you have any questions or concerns about any aspect of its provisions, simply call us on 01223 810100 or email help@cklg.co.uk

BUSINESS RECORDS CHECKS – REVIEW, SUSPENSION AND RELAUNCH

The pilot programme of BRCs began in April 2011 and involved checks by HMRC on the standard of small and medium-sized enterprises’ (SME’s) statutory business records. Up to 4 January 2012, 2,437 BRC’s had been carried out. These found that 28% of SMEs had some issue with their record-keeping, and an additional 11% had issues serious enough to warrant a follow-up visit.

HMRC undertook a strategic review of the project in consultation with the professional and representative bodies. The purpose of the review was to consider the overall aims of BRCs, examine whether the current approach is the best way of achieving the policy objectives and identify what changes are needed to ensure that the objectives are achieved.

As a result of the review, the scheme has been suspended! However, don’t celebrate too much as it will be relaunched early in the 2012/13 tax year with a fresh approach. This will partly involve:

• Collecting far less revenue than originally forecast
• More focus on businesses considered to be at a higher risk of keeping poor records
• No penalties charged unless poor records lead to an incorrect tax return.

This is all good news and at last HMRC are being sensible about how to operate BRCs.

ELECTRICIANS TO LOSE THEIR SPARK

HMRC have just launched their Electricians’ Tax Safe Plan, to encourage electricians to declare any income they have kept quiet about so far. If you know of any electricians in that category, please point them towards us and we will get the best tax deal for them under this plan.

The special deal involves lower penalties than are normally charged on previously undeclared income and represent a convenient way of coming clean and getting the tax position in order.

Notification for taking part has to be made by 15 May 2012 and the tax arrears have to be paid by 14 August 2012.

Similar campaigns will start soon and we are ready to help anybody within the following categories:

• Not completed tax returns but are liable to tax at the 40% or 50% rates.
• Those in the construction and building work industry who are not paying the correct amount of tax. This includes roofers, window fitters, bricklayers, carpenters and joiners.
• Direct selling from buying and selling goods direct to others, or receiving commission on such sales.
• Those using e-marketplaces to buy and sell goods as a trade or business (the odd deal should not be a problem).

Caught by the personal allowance trap?

Do you know if you are one of the 700,000+ people paying a marginal income tax rate of 60%? This is an increasingly unfair trap, which exists if your income is just over £100,000. That means you are a 40% taxpayer, but some of your income will (amazingly) be taxed at 60%. You may not even realise this, as it is not absolutely clear from the tax computation we produce for you each tax year.

How can this happen? It’s all down to the withdrawal of the personal tax allowance by £1 for every £2 that your income exceeds the magic figure of £100,000. And with the large increase in the personal allowance (the plan is to get that up to £10,000 eventually) it is a tax trap that will affect more and more people each year. Here is what it means in figures for 2011/12:

Taxable Income

£100 000 to £114 950 - 60%

£114 951 to £149 999 - 40%

£150 000+ - 50%

And for the next tax year 2012/12 it is even worse in terms of the number of people affected:

Taxable Income

£100 000 to £116 210 - 60%

£116 210 to £149 999 - 40%

£150 000+ - 50%

As if the above was not bad enough, add in your national insurance contributions at 2% if employed or self-employed and you suffer a marginal rate of 62%!

There are several techniques available to avoid this unacceptable tax rate. Please contact us for help.

YOUR MONEY

Dividend or Salary? 

If you are a director and shareholder of a company you could take payment by dividends, by salary, or a mixture of the two. There are advantages and disadvantages to both methods, including:

Salary - Advantages

Reduces corporation tax bill

Can be paid even when the company is making a loss

Can be better for cashflow

Could enhance pension contribution allowance

Salary - Disdvantages

Liable for national insurance contributions

Only available to employees

Dividend - Advantages

No national insurance liability

Non-working shareholders are entitled to dividends

Dividend - Disdvantages

Can normally only be paid when the company is in profit

A popular strategy is to take a salary totaling your personal allowance, and the rest as dividends, but it is important to note that this is a complex area and a number of factors will need to be considered before making the decision that is right for you.

We can help you weigh up your options and make sure that you are paying yourself in the most tax efficient way. Please contact us to find out more.

Plan now or you could end up working into your 70s

A recent report revealed that high pension charges and the wrong choice of annuity could cut a savers’ pension income by almost a quarter – forcing some to work past their 70s.

Planning for retirement is important, particularly as life expectancy continues to rise and the state pension age edges closer to 70. There are actions you can take to make sure that you are not working into your 70s, but it is important that you seek professional advice in doing so.

Areas that you may wish to consider when putting together a retirement strategy include:

• Supplementing your pension provision with other sources of retirement income such as savings products, investments or even property acquisition
• Working out how much you will receive from your state pension
• When you plan to retire, and if you are a business owner, when you will leave your business – whether you pass it on to others in the family or sell it and cash out, it is wise to prepare your exit strategy well in advance
• Finally, there are matters of life assurance provision, long-term care and medical insurance to consider.

Retirement planning is complex and will depend on a number of factors, most notably your personal circumstances.

It is important that you seek professional advice – please speak to us to find out how we may be able to help.

If you are employed but work at home, you can claim a flat rate expense from your employer of up to £3 per week to cover the additional power and other services used by working at home. This rate is to increase to £4 per week with effect from 6 April 2012.

However, this flat rate may not compensate you for the actual additional household costs you incur. If you can prove your household expenses have increased beyond this level by working from home, your employer can be reimburse the actual additional costs free of tax and NICs, but you do need to provide evidence to support an additional claim.

 CLICK HERE - Working from home expenses

CKLG Accountants in Cambridge are here to help.

HMRC have revised the advisory fuel mileage rates for diesel vehicles as follows:

Diesel engine 1600cc or less - 13p per mile from 1 March 2012 and 12p per mile from 1 June - 29 Feb 2012

Diesel engine 1601cc - 2000cc - 15p per mile from 1 March 2012 and 15p per mile from 1 June - 29 Feb 2012

Diesel engine over 2000cc - 19p per mile from 1 March 2012 and 18p per mile from 1 June - 29 Feb 2012

These rates can be used to reimburse company car drivers for the cost of fuel they pay for, which is used on business journeys. The mileage rates for petrol vehicles have also not been increased since 1 June 2011, see link below.

CLICK HERE - Advisory fuel rates

CKLG Accountants in Cambridge are here to help.

If your employer provides you with one mobile phone for business, there are no tax charges as long as the employer retains ownership of the phone and the contract is between your employer and the telecoms company. However, until recently HMRC regarded smart-phones as computers not mobile phones, so a tax charge could arise if the smart-phone was not used almost entirely for business. 

Fortunately HMRC have changed their approach with retrospective effect, so smart phones are now regarded mobile phones, but a tax charge will still arise if you are provided with more than one mobile phone by your employer.

CLICK HERE - HMRC brief on smart phones

CKLG Accountants in Cambridge are here to help.

If you were late in submitting your 2010/11 self-assessment tax return you will receive a penalty of £100. You can appeal against this penalty by letter or using the appeal form provided. Normally you would only have 30 days to submit an appeal, but this year HMRC will accept appeals until 31 March 2012.

If you don’t think you need to complete a personal tax return form you should telephone HMRC on 0845 900 0444 (or +44 161 931 9070 from outside the UK). If HMRC agree, your £100 penalty will be cancelled.

CLICK HERE - Tax return penalty appeal period extended

CKLG Accountants in Cambridge are here to help.

The annual allowance is the maximum that can be contributed to your pension scheme each year, and receive tax relief. The amount of your personal annual allowance for each tax year depends on your past pension contributions, the level of your salary and benefits, and the type of pension scheme you belong to. HMRC have provided an online calculator to help you work out your annual allowance, but it can’t cope with even slightly complicated situations. Ask us to help you calculate your annual allowance for the current tax year.

CLICK HERE - Annual allowance calculator

CKLG Accountants in Cambridge are here to help.

On 14 March 2012 HMRC will launch a campaign to encourage e-traders (those who sell through online markets), to pay tax on undeclared income. To help you judge whether your online sales are part of a hobby or part of a trade, HMRC have a set of eight questions with alterative answers (A or B). If your answers are mostly in the A category (eg: you sell things at a price to cover costs and bring in a profit), you are probably trading and your profits are taxable. If your answers are mostly Bs (eg: you sell things that you make as a hobby and you only want to cover your costs), you are probably not trading and your profits and losses not taxable.

CLICK HERE - E-traders campaign

CKLG Accountants in Cambridge are here to help.

HMRC launched the electrician’s tax safe plan (ETSP) on 14 February 2012, and dispatched up to 50,000 letters to electricians who may have irregularities in their tax affairs. If you receive such a letter, or think your tax returns may be inaccurate, ask us to help you make a disclosure through the ETSP. You could benefit from low penalties, and peace of mind that your tax problems are sorted. 

CLICK HERE - Electrician tax safe plan campaign

CKLG Accountants in Cambridge are here to help.

If you drive a company car with CO2 emissions in the range 76-120 g/km you are taxed on 10% of the vehicle’s list price. However from 6 April 2012 this low tax charge will only apply to cars with CO2 emissions in the band 76-99g/km. Those with CO2 emissions of 100g/km will be taxed at 11% of list price, with the percentage increasing in 1% steps for each additional emissions of 5g/km. Ask us to check what the tax charge will be on your company car in the next tax year.

CLICK HERE - Higher benefit for low emissions cars

CKLG Accountants in Cambridge are here to help.