Category Archives: Taxation

Rental Income Taxation Changes

Rental Income Taxation Changes

Rental Income Taxation

If you are a landlord with residential properties there are certain changes on how much tax relief you will be able to claim from 6 April, 2016 and 6 April, 2017.

The Wear and Tear Allowance

Up until 5 April this year, landlords of furnished residential properties could claim 10% of the rent received (less certain expenses) against tax to cover maintaining and replacing the furnishings and equipment.

From 6 April, 2016 this has been scrapped and replaced by a new system allowing landlords of residential property to deduct only the actual costs incurred in replacing furnishings and equipment.

This change does not affect landlords of furnished holiday lettings as they are taxed differently.

Tax Relief on Mortgage Interest

From 6th April, 2017, the amount of tax relief you will be able to claim will be restricted to 20% of the mortgage interest or other finance costs.

If you are a basic rate tax payer, this change will make no difference to you.

However, for higher rate tax payers, you will no longer be able to claim 40% or 45% tax relief as now, you will only be able to claim 20%.

This change is being phased in over three years to help landlords who are higher rate tax payers as follows:

      • 6 April, 2017 to 5 April, 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
      • 6 April, 2018 to 5 April, 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
      • 6 April, 2019 to 5 April, 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
      • from 6 April, 2020 all financing costs incurred by a landlord will be given as a basic rate tax reduction

The changes in rental income taxation may deter some higher rate tax payers from investing in ‘buy to let’ properties. If you are affected, you should contact your accountant or financial adviser.

Please note that this change does not affect landlords of furnished holiday lettings.

Disclaimer

The above is not exhaustive and is for guidance only and you should consult your accountant or other professional adviser before taking action on any of the above. See the Disclaimer

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Claiming VAT Back on Mileage Allowance

Aston Martin Vantage Racing Team Car

An employer can claim input VAT back on the fuel element of the tax free Mileage Allowance and Fuel Allowance. Input tax is calculated by dividing the fuel element of the mileage allowance by 6 (for the current VAT rate of 20%).

Here is some information provided by HMRC:

The allowance paid to employees must be based on mileage actually done. Business records must be kept to back this up. The business must retain records for each employee claiming a mileage allowance to show:

  • the mileage travelled;
  • whether the journey is both business and private;
  • the cylinder capacity of the vehicle;
  • the rate of mileage allowance; and
  • the amount of input tax claimed.

HMRC officers may check what rates employers have used to calculate claimable input tax on the fuel element of mileage allowances paid to their employees. Current rates as published by motoring associations such as AA or RAC are generally acceptable. HMRC will also accept HMRC’s own advisory rates which are published twice a year and can be found at Company Cars – advisory fuel rates.

Some employers cap employees to a particular level of allowance. For example, the employer may decide that employees with cars with engines over 2000cc will receive only the rate paid for vehicles between 1400 and 2000cc. If this happens HMRC will only allow input tax recovery on the mileage rate that the employer has paid to the employee.

Speak to your accountant for specific advice based on your circumstances before acting on the information above

 

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Tax Free Mileage Allowance

Aston Martin Vantage Racing Team Car

HMRC allows you to pay your employees and directors a tax free mileage allowance for using their own vehicle for business journeys. Provided the payments are no more than HMRC’s mileage approved rates below there will be no tax to pay on the payments and they do not have to be reported as a benefit on forms P9D or P11D.

Below is information provided by HMRC:

Mileage Allowance Payments

Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle for business journeys.

You’re allowed to pay your employee a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’.

Work out the Value

To calculate the ‘approved amount’, multiply your employee’s business travel miles for the year by the rate per mile for their vehicle below.

Tax free rates per business mile

Type of vehicle First 10,000 miles Above 10,000 miles
Cars and vans 45p (40p before 2011 to 2012) 25p
Motorcycles 24p 24p
Bikes 20p 20p

Example:

The employee travels 12,000 business miles in their car – the approved amount for the year would be £5,000 (10,000 x 45p plus 2,000 x 25p).

Passenger payments

If your employee carries another employee in their own car or van on a business journey, you can pay them passenger payments of up to 5p per mile tax-free.

It does not matter if your employee uses more than one vehicle in a year – it’s all calculated together.

What to report to HMRC and pay

Who gets the benefit What to do What to pay
Employees at a rate of less than £8,500 a year Report on form P9D Add anything above the ‘approved amount’ to the employee’s pay, and deduct and pay tax as normal
Employees at a rate of £8,500 or more a year Report on form P11D Add anything above the ‘approved amount’ to the employee’s pay, and deduct and pay tax as normal
Directors Report on form P11D Add anything above the ‘approved amount’ to the employee’s pay, and deduct and pay tax as normal

Anything below the ‘approved amount’

If your employee gets paid less than the above rates, you won’t have to report to HMRC or pay tax, but:

  • your employee will be able to get tax relief (called Mileage Allowance Relief, or MAR) on the unused balance of the approved amount
  • you can make separate optional reports to HMRC of any such unused balances under a scheme called the Mileage Allowance Relief Optional Reporting Scheme (MARORS) – contact your HMRC office to join the scheme.

Speak to your accountant for specific advice based on your circumstances before acting on the information above

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New Advisory Fuel Rates

Aston Martin Vantage Racing Team Car

From 1 December, 2015, HMRC lowered the Advisory Fuel Rates (AFR) applying to employees and owner directors using a company car.

 

 

Advisory Fuel Rates from 1 December 2015

These rates apply from 1 December 2015. You can use the previous rates for up to 1 month from the date the new rates apply.

Engine size Petrol – amount per mile LPG – amount per mile
1400cc or less 11 pence 7 pence
1401cc to 2000cc 13 pence 9 pence
Over 2000cc 20 pence 13 pence
Engine size Diesel – amount per mile
1600cc or less 9 pence
1601cc to 2000cc 11 pence
Over 2000cc 13 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Below is information provided by HMRC:

When you can use the mileage rates

The rates only apply when you either:

  • reimburse employees for business travel in their company cars
  • require employees to repay the cost of fuel used for private travel

You must not use these rates in any other circumstances. If you use them correctly you will not need to apply for a dispensation to cover the payments you make.

Reimburse employees for business travel in their company cars

If you pay a rate per mile for business travel no higher than the AFR, for the particular engine size and fuel type, HM Revenue and Customs (HMRC) will accept there is no taxable profit and no Class 1A National Insurance to pay.

You can use your own rates which better reflect your circumstances if, for example, your cars are more fuel efficient, or if the cost of business travel is higher than the guideline rates.

If you pay rates that are higher than the advisory rates and can’t demonstrate the fuel cost per mile is higher, there is no fuel benefit charge if the mileage payments are solely for miles of business travel. Instead, you will have to treat any excess as taxable profit and as earnings for Class 1 National Insurance purposes.

Require employees to repay the cost of fuel used for private travel

If you have correctly recorded all miles of private travel and used the correct rate (or anything higher) to work out the cost of fuel used for private travel that the employee must repay to you, HMRC will accept there is no fuel benefit charge.

The advisory rates will not be binding where you can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

 

 

 

 

 

 

Remember to speak to your accountant before acting on the above information

 

 

 

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Dividends Tax Shocker

Tax on Dividends Concept

How do the changes to the taxation of dividends from April, 2016 affect owner-managed and family companies?

At present, owners of owner-managed and family limited companies would would pay themselves a minimum salary to cover the personal allowance and avoid payment of tax and National Insurance on it but enough to qualify for state pension purposes.

The balance of their remuneration would be in the form of dividends (provided there is enough retained profit in the company).

The Present Situation

At the moment, dividends have a 10% tax credit so that for every £100 dividend actually paid by the company (the net dividend) is divided by 9 and then multiplied by 10 to get to the gross dividend of £111.11.

How much additional tax would you be liable to pay at present?

  • Provided you are a basic rate tax payer (20% band), you have no further tax to pay;
  • If you are a higher rate tax payer (40% band), you will have a further 25% of the £100 net dividend to pay in tax;
  • If you are an additional rate tax payer (45% band), you will have a further 30.6% of the £100 net dividend to pay in tax

The reason that basic 20% rate tax payers have no further tax to pay is that the company has already been taxed 20% on the profit before it is paid out as dividend.

What is the Benefit of Business Owners Paying Themselves with Dividends?

Although the company does not get tax relief on dividends paid (unlike wages and salaries), dividends are attractive as you do not have to pay National Insurance contributions on them and no additional tax is payable until your income goes into the higher 40% after income reaches the limit of the basic rate band of £31,785 plus your personal allowance (2015/16).

What will Change from April 2016?

The 10% dividend tax credit will be abolished on 6 April, 2016. In its place, all taxpayers will receive a tax free dividend allowance of £5,000 which is offset against the first £5,000 of taxable income. This means that someone who only has dividend income will be able to receive £16,000 in dividends with no further tax to pay (£11,000 personal allowance in 2016/17 plus the £5,000 dividend allowance).

Where dividends are received above the dividend allowance, from 6 April, 2016 the balance will be taxed at 7.5% for basic rate tax payers, 32.5% for higher rate tax payers and at 38.1% for additional rate tax payers.

In effect, from 6 April, 2016, all tax payers receiving dividends above the £5,000 dividend allowance, will be paying 7.5% more tax than prior to 6 April, 2016.

This additional tax is tackling owners of owner-managed companies who pay themselves a small salary and take the balance in dividend to avoid National Insurance.

However, like a blunderbuss, it hits the pensioners who do not pay National Insurance anyway and the higher earning employees who pay the maximum National Insurance (at normal rate) that have dividend income from investments.

Dividends in ISA’s and pension funds will not pay the tax.

HMRC Examples

The way the allowance will work in different situations is demonstrated in the examples below.

Where appropriate to the calculations, the examples use the limits that will apply from April 2016:

  • Personal Allowance: £11,000
  • Basic Rate Limit: £32,000
  • Higher Rate Threshold: £43,000

Example 1

“I receive less than £5,000 per year in dividends”

From April 2016 you won’t have to pay tax on your dividend income as it is within your new Dividend Allowance.

Example 2

“I receive dividends of £600 from shares invested in an ISA

As is the case now, no tax is due on dividend income within an ISA, whatever rate of tax you pay.

Example 3

“I have a non-dividend income of £6,500, and a dividend income of £12,000 from shares outside of an ISA

With a Personal Allowance of £11,000, £4,500 of the dividends are under the threshold for tax. A further £5,000 comes within the Dividend Allowance, leaving tax to pay at Basic Rate (7.5%) on £2,500.

Example 4

“I have a non-dividend income of £20,000, and receive dividends of £6,000 outside of an ISA

You won’t need to pay tax on the first £5,000 of dividends due to the Dividend Allowance, but will pay tax on £1,000 of dividends at 7.5%.

Example 5

“I have a non-dividend income of £18,000, and receive dividends of £22,000 outside of an ISA

Of the £18,000 non-dividend income:

  • £11,000 is covered by the Personal Allowance
  • the remaining £7,000 to be taxed at Basic Rate

Of the £22,000 dividend income:

  • the Dividend Allowance covers the first £5,000
  • the remaining £17,000 of dividends to be taxed at the Basic Rate (7.5%)

Example 6

“I have a non-dividend income of £40,000, and receive dividends of £9,000 outside of an ISA

Of the £40,000 non-dividend income, £11,000 is covered by the Personal Allowance, leaving £29,000 to be taxed at basic rate.

This leaves £3,000 of income that can be earned within the basic rate limit before the higher rate threshold is crossed. The Dividend Allowance covers this £3,000 first, leaving £2,000 of Allowance to use in the higher rate band. All of this £5,000 dividend income is therefore covered by the Allowance and is not subject to tax.

The remaining £4,000 of dividends are all taxed at higher rate (32.5%).

 

 

 

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Why am I still paying monthly Class 2 NI?

A couple of months ago a self-employed client asked me why he was still paying his monthly direct debit to HMRC for Class ” National Insurance.

As a reminder of the changes from 6 April 2015 the main changes are:

  • Self-employed people no longer need to apply for an exception from paying class 2 National Insurance due to low self-employed profits or due to the maximum National Insurance being paid through employment. If your profits are below the Small Profit Threshold (£5,965 for 2015-16), you won’t be asked to pay
  • Any class 2 National Insurance that is due will be calculated when the tax payer sends in their 2015-16 tax return. It will be added to their self-assessment tax bill
  • If the tax payer pays class 2 National Insurance, but they are not in self assessment (e.g they work full-time abroad), HMRC should contact them to make arrangements for continuing to pay class 2

In answer to my self-employed clients’ question about still paying Class 2 National Insurance by direct debit, I pointed out that he is actually paying four months in arrears. This means that his direct debits would continue for four months into the 2015/16 tax year, i.e. until 10 July 2015 – in order to pay the 2014-15 contributions owed.

From August 2015, he will have no automatic deductions made by direct debit. His full year’s contributions will be due for payment by 31 January 2017, along with any income tax and class 4 National Insurance calculated based on his tax return for year-ended 5 April, 2016.

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VAT Registration Threshold Increases

With effect from 1 April, 2015 the VAT registration and de-registration thresholds are uprated as follows:

Registration threshold £82,000 (previously £81,000)

De-registration threshold £80,000 (previously £79,000)

For most small businesses it’s the historic turnover test that will determine when they are required to register for VAT. The trader must look at the value of taxable supplies made on a rolling twelve-month basis, or for new businesses since trading commenced. HMRC must be notified within 30 days of the end of the month in which the registration threshold was exceeded.

It is not enough to wait until your year end and your accountant informing you that you have exceeded the VAT threshold as you may face late registration penalties.

To help you, I have a spread sheet produced by one of my associations (the 2020 Group) that has been updated for 2015/16:

2020-VAT Registration Tool_2015-16 When the spreadsheet comes up you need to click on ‘Enable Editing’ and then ‘Enable Content’.

Speak to your accountant during the year if your not VAT registered and think your annual turnover is close to the threshold. It may be too late to avoid backdated VAT and penalties if you wait until you drop your books off after your year end.

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HMRC Benchmarking Businesses

HMRC’s benchmarking team is targeting more trade sectors and extending it to VAT returns.

In November, 2014 HMRC started to analyse accounts submitted by businesses in certain sectors.

HMRC staff have always used business ratios to identify businesses falling outside expected norms. What is new now is that HMRC’s use of technology for risk analysis is becoming much more sophisticated.

HMRC can review a businesses net profit or VAT mark-up ratios from:

  • Limited company accounts filed with the Corporation Tax return (CT600)
  • Figures declared on self-employed and partnership self-assessment returns
  • Reviewing VAT returns submitted

HMRC’s benchmarks are not published anywhere and if you receive a benchmarking letter you should provide a copy to your accountant as they are not being copied by HMRC.

Previously HMRC sent a letter out headed Benchmarking – Are you happy with your performance? This resulted in some businesses ‘coming clean’ and the tax haul increased. Here is an example of the letter sent out:

Download (PDF, Unknown)

Today targeted business sectors may receive a Net Profit Ratio letter from HMRC stating the expected percentage range of net profit to turnover. Here is an example of one sent to pharmacists:

Download (PDF, Unknown)

Alternatively, targeted business sectors may receive a VAT mark-up letter stating the expected percentage ratio of sales excluding VAT and purchases excluding VAT. An example of the letter sent to car mechanics and details of the ratio calculation is here:

Download (PDF, Unknown)

HMRC comes up with their expected ratios by reviewing the tax returns filed for the business sector over the past three years. Of course, these ratios can change over time.

HMRC does not publish the benchmarks anywhere, some have been found out from businesses that have been sent a letter.

So far the net profit ratios available are:

  • Painters and decorators – 59% to 79%
  • Driving instructors – 31% to 67%
  • Taxi drivers – 29% to 49%
  • Pharmacists – 71% to 89%

The only VAT Mark-Up ratio I know at the moment is:

  • Car mechanics – 27% to 82%

I will add to these lists as I become aware of new ratios.

Even if your ratios are outside HMRC’s expected ones, there may be a good reason for it. If you have maintained accurate bookkeeping records and included all income and expenditure and can show HMRC that your accounts are true you have nothing to worry about.

 

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My profits are low, should I take advantage of no Class 2 NI to pay?

Following my previous blog Class 2 National Insurance from April 2015 a client asked me a question:

“Should I take advantage of paying no Class 2 National Insurance as my earnings are below the £5,965 small profits threshold?”

Answer:

As Class 2 National Insurance counts towards the state pension (and some other state benefits such as maternity allowance), it would be advisable for her and other self employed people with small profits and not having any employment income, to take up the option of making voluntary Class 2 NI payments.

There may be exceptions and one would be anyone who reaches state pension age on or after 6 April, 2016 who has already reached the 35 years’ contributions needed to earn the maximum new flat-rate state pension.

If you don’t know how many years’ contributions you have made, you can go onto the Governments Future Pension Centre page and follow the instructions and download and complete the PDF Form BR19 or complete an interactive PDF version of form BR19 online and download it.

The form should be sent to the address on the form which is:

Newcastle Pension Centre, Futures Group
The Pension Service 9
Mail Handling Site A
Wolverhampton
WV98 1LU

I know, the Newcastle Pension Centre is in Wolverhampton!

Alternatively, you can call them on 0845 3000 168 or 0345 3000 168.

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Class 2 National Insurance from April 2015

In the past if your self-employed earnings are below the small earnings threshold, just after 5 April you would be completing the 2015/16 deferment application for Class 2 NI.

From 6 April, 2015 deferment applications are no longer needed as there is a change in the way Class 2 NI is paid. Previously, you paid Class 2 NI each month at a fixed weekly rate.

From 6 April, 2015 Class 2 NI, like Class 4 NI, will be payable with income tax through your self-assessment tax return each year. Therefore, the Class 2 NI for the 2015/16 tax year will be due on 31 January, 2017. For those with small earnings, Class 2 NI will only be due on that date if your profits are above the small profits threshold (just a new name for the small earnings limit) which is set at £5,965 for 2015/16.

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Utilising the Employment Allowance

I was asked a question by a client, who had a company and she was the only director/employee (‘one-person company’) – “Can I pay myself a salary above the £8,060 you suggest in your blog tax efficient salary & dividend mix to make full use of the £2,000 National Insurance Employment Allowance?”

Anwer:

In 2015/16 the Employment Allowance of £2,000 is equal to employers’ National Insurance on earnings of £22,605. At this salary level the Employers’ National Insurance payable would be £2,000 but after taking advantage of the Employment Allowance of £2,000, there is no Employers’ NI to pay.

This is not worthwhile doing as the additional tax and Employees’ NI deducted from the salary would total £4,146.40 which exceeds the additional Corporation Tax relief of £2,909, so she and her company would be worse off by £1,237.40.

Summary

  • For a company with one director shareholder and no other employees, it’s better to pay a salary equal to the personal allowance and lose part of the Employment Allowance than to pay a higher salary to utilise it in full.
  • A company with up to five director shareholders and no other employees can pay each director a salary up to the £10,600 personal allowance and still make use of the Employment Allowance (the Employers’ NI saving per director is £343.34 so five times this is £1,716.70 – all within the £2,000 National Insurance Employment Allowance.
  •  Other factors may affect yourself, such as pension contributions, so take advice from your accountant before taking action based on this blog.
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Certifying Income for Mortgages

Since the government’s mortgage review following the 2008 banking crash, most lenders require evidence from HMRC in the form of a tax calculation which is only provided on form SA302. It is no longer good enough for accountants to complete an Accountant’s Certificate confirming income.

The problem is that HMRC only sends out Form SA302 as routine if a paper tax return is filed. As most accountants file clients tax returns electronically, the accountant or client has to phone HMRC (and that can take a long time, see cost of calling HMRC) to request a copy which can take up to 14 days to arrive.

In mid-December 2014 HMRC announced that the Council of Mortgage lenders had agreed that self-employed mortgage applicants could provide proof of income by printing off  the “tax calculation” and the “tax year overview” from their HMRC online account.

Unfortunately, most self-employed use an accountant to handle there tax affairs and most accountants use third party software to file tax returns and therefore do not have an HMRC online account and therefore cannot download these two documents. This means we are back to phoning HMRC for a copy of Form SA302.

My advice, if you are going to require a loan or mortgage in the near future is to call HMRC and request the last 3 years Forms SA302 so that you have them ready for when you apply for the loan or mortgage. You will still need an Accountant’s Certificate to accompany the Forms SA302 and this is normally subject to a fee.

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Tax efficient salary and dividend mix 2015/16

At this time of year owner managers of limited companies “what is the most tax efficient split of salary and dividend in the new tax year?”

Provided your company is not caught under the IR35 rules (your accountant will have told you if you do), from 6 April, 2015 the tax factors to consider are as follow for the 2015/16 tax year:

  • You have a tax free personal allowance (if you are allowed it all) of £10,600 (£883.33 per month);
  • As a director, you start paying Employees’ National Insurance when your salary reaches £8,060;
  • Although Employers’ National Insurance is payable when, as a director, your salary reaches £8,112. Since April, 2014 businesses have been able to take advantage of the Employment Allowance meaning no Employers’ National Insurance is payable to HMRC until it reaches £2,000;
  • Level of company retained profits after tax that a dividend can be paid out of;
  • Who else has shares in the business;
  • If you have set up your business during the tax year and received salary from another company in the year then you need to speak to your accountant as my calculations will not apply to you as they are;
  • Consideration needs to be taken of any pension contributions you want to make;
  • Any redundancy payments you want if your company ‘closes down’ or is sold and you are made redundant;
  • Similarly, some unemployment and state benefits are based on your salary (i.e. higher benefit if your salary was higher)

If the only consideration is the most tax efficient remuneration from the company and you will not be wanting more than £100,000 in total, a tax efficient salary/dividend split would be:

Salary £10,600 PA (£883.33 per month)

This salary level would result in Employees’ National Insurance being deducted of £304.80 PA (£25.40 per month). The good news is that the additional tax relief the Company gets on the part of the salary above the National Insurance threshold of £8,060 is £508.00 PA (£42.33 per month) resulting in £203.20 less tax to pay each year after the National Insurance paid is taken off.

The balance of remuneration can be paid as dividend (subject to the retained profits after tax of the company).

The first £31,785 of dividend above the £10,600 salary would attract no additional tax on the director/shareholder as total income reaches £42,385 which is the 40% higher rate band threshold.

Any dividend you pay yourself above the £31,785 is subject to additional tax. The tax you pay on it is 25% of the net dividend providing it does not exceed £150,000 (basically you need to put away £250 for each £1,000 of dividend to cover the tax).

Any dividend you pay yourself above the £150,000 is subject to additional rate tax. The tax you pay on it is 30.556% of the net dividend (basically you need to put away £305.56 for each £1,000 of dividend to cover the tax).

This is a general summary of the tax efficient remuneration for owner managers of limited companies. It is essential to speak to your accountant before acting on the above as everyones circumstances are different and there may be other factors to consider.

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How Much Does it Cost to Contact HMRC?

HMRC uses 0300 numbers for ‘customers’ to call them.

Calls to 0300 numbers according to HMRC’s web site cost:

  • From land line up to 9 pence per minute
  • From a mobile phone from 8 pence to 40 pence per minute

The BBC reported this year that 34.5% of callers were cut off after paying for the waiting time.

Which? found that the average waiting time they had to wait to speak to an adviser was 18 minutes. On one call they were left waiting 41 minutes! They found the shortest waiting times were before 10.00 am. I personally find phoning before 9.00 am faster still (before us accountants start ringing, although we have a fast agent direct phone number which is answered quickly for client Self Assessment matters but not available for other taxes).

Basically, expect to wait a while, before phoning deal with comfort breaks and pour yourself a beverage, use hands free with your phone if you can so that you can continue working.

So what is the cost of the call, well, excluding costs when you don’t get through before you are automatically cut off by HMRC who ask you to call back later:

From a land line:

  • In the average 18 minutes waiting time up to £1.62
  • In the longest time Which? waited up to £3.69

From a mobile:

  • In the average 18 minutes waiting time from £1.44 to £7.20
  • In the longest time Which? waited from £3.28 to £16.40

Is it not time HMRC had a normal land line number to save the tax payer from paying more than their taxes?

Tax payers that live abroad have a normal land line number to call, those tax payers feed the economy of another country and pay less to call HMRC. We UK residents feed the UK economy with our everyday spending but are charged at a premium rate to contact HMRC. Surely things must change?

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Drawing Down Your Pension Pot

If you are planning on drawing down all or part of your pension pot under the new flexible rules coming into force on Monday 6 April, 2015 it is wise to consider the pros and cons and obtain suitable advice.

Your financial adviser should be consulted and/or Pension Wise which is a free and impartial Government service.

A maximum of 25% of a pension pot can be taken tax free (if not already taken) and the balance is taxable at your marginal rate of tax. Therefore some of the pension drawdown may be subject to 20% tax and the remainder may be at 40% and/or 45% dependent on your total income for the year including the pension drawdown. Your accountant can advise how much you personally will be taxed.

It may be worth considering drawing down in stages over a few years so that you keep your total income for any tax year within the 20% tax band. Again, your accountant or financial adviser should be consulted.

As far as I know, the pension company’s will automatically deduct 20% tax at source with any additional tax payable on the drawdown being declared on your tax return and paid on the 31 January following.

Therefore if you draw down all or some of your pension fund in May 2015, it would be declared on your 2015/16 tax return and additional tax payable by 31 January, 2017.

 

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How to Pay HMRC

Close up of Female Hands Making Online Payment

I am often asked how businesses and individuals pay HMRC the tax and VAT they owe.

Tax payers can pay by direct debit or by debit or credit card through BillPay). Their is a fee for paying by credit card of 1.4% as at 16 January, 2015 but may change in the future.

Below are links for paying VAT, PAYE and other taxes:

Pay your Self Assessment tax bill

Pay your Corporation Tax bill

Pay your VAT bill

Pay employers’ PAYE

Pay employers’ Class 1A National Insurance

Full list of links for paying other taxes and penalties

When paying HMRC you will need your reference number for the tax you are paying and follow HMRC’s instructions and information requests.

You will also have to allow 3 working days for your payment to reach HMRC’s bank account to avoid late payment.

If you can’t pay the tax owed there is an HMRC Business Payment Support Service you can call on 0300 200 3835. This service is for individuals as well as businesses. For information you will need before you call click the following link:

When you call about your tax bill

Speak to your accountant for further help on paying HMRC or requesting time to pay your tax bill.

 

 

 

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Benefits in Kind Medical Costs

From 1 January, 2015, recommended medical treatment costing up to £500 can be paid by an employer free of income tax and National Insurance. There are detailed restrictions including that:

  • Either the employee has been absent from work, due to injury or ill health, for at least 28 consecutive days, or a health care professional expects that, without medical treatment, the employee will be unfit for work for at least 28 consecutive days; and
  • In either case, the recommendation for treatment must be by a health care professional.

Contact your accountant for further details.

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