Welcome to March's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you abreast of the latest developments in taxation.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice. We're here to help!
Salary, dividend or pension contribution?
When you work for your own company you can decide how much salary to pay yourself, how much to pay into your pension fund, and what proportion of the remaining profits to take as a dividend. The split is important as it will affect the tax and national insurance payable by you and your company.
A salary just sufficient to be covered by your personal allowance (£10,600 for 2015/16), will be tax free, assuming you have no other income. However, if your company has more than one employee (including directors), a salary of over £10,000 (for 2015/16) will mean the recipient has to be automatically enrolled in the company's pension scheme, under the auto-enrolment rules.
You must pay national insurance contributions (NIC) at 12% on your salary above £8,060. So if the company pays you £10,600, you take home £10,295 after NIC deductions. The company will also pay employer's NIC of £343.34 on that salary. However, most companies are entitled to an employment allowance of £2,000 p.a. to set against NIC due for all the employees. This means the company doesn't pay over employer's NIC until the £2,000 allowance is used up.
You could pay yourself a salary just under the NI threshold of £8,060, so you receive an NI credit towards your state pension, but you don't actually pay any tax or NI. However, at that annual salary level you will be "wasting" £2,540 of your tax free personal allowance, unless you have other income to cover it. The 1/9th tax credit attached to a dividend can't be repaid even if the dividend is covered by your tax free personal allowance.
Finally, don't forget your company can make contributions into your pension scheme and get a tax deduction for the cost. From 6 April 2015, if you are aged 55 or more you will be able to draw all funds from that scheme, although 75% of the fund will be taxable in your hands.
The implications of drawing funds out of a pension scheme can be complex and irreversible, so you should take advice from a financial adviser registered with the financial conduct authority (FCA) before making any decisions concerning pensions.
Last month we warned you about the penalties coming into effect for late filed RTI reports. The good news is that HMRC are cutting employers just a little slack, and will now allow three extra days in which to submit the full payment submission (FPS) report.
Normally the FPS must be submitted on or before the day the employees are paid, but there are some circumstances in which the FPS can be submitted up to 7 or 14 days later. For example, the FPS can be submitted within 7 days of the pay day if the employees' pay can't be calculated until the end of their shift, such as for harvest workers.
If you have already received a late filing penalty notice for a period since 6 October 2014, you can ask for the penalty to be removed. Do this by logging an appeal via the online appeals system. Complete the "other" reason box with the statement "return filed within 3 days", and the penalty should be cancelled. We can do this for you if you send us a copy of the penalty notice.
Penalties for late paid PAYE were also due to be applied automatically from 6 April 2015. However, HMRC is now going to assess the reason for the apparent late payment of PAYE before sending out a penalty notice.
We hope this means HMRC will only issue a late payment penalty when it is clear that PAYE was deliberately paid late. This should avoid penalties being issued for disputed amounts that appear on your business tax dashboard (online accounts) with HMRC. If your online account shows you owe an odd amount of PAYE please let us know without delay.
Child benefit claw-back
If you or your spouse/partner claim child benefit, and at least one of you has adjusted net income of £50,000 or more for the year, the highest earner must declare the benefit on their tax return in order to pay back part or all of the child benefit as a tax charge.
HMRC is writing to taxpayers who it thinks should have paid the child benefit tax charge for 2013/14, but didn't. Unfortunately some people who have received such letters are childless, or haven't claimed child benefit for decades.
If you have received one of those letters by mistake, don't ignore it. HMRC can alter your tax return to collect the tax it thinks is due. You need to reject any such incorrect alteration to your tax assessment within 30 days, but we can help you do this.
If you do earn over £50,000 and want to keep your child benefit for 2014/15 there are a number of things you can do.
First, work-out your adjusted net income. This is your gross salary before tax, less expenses that have not been reimbursed by your employer, but which are tax deductible, such as the cost of travelling to a temporary workplace and professional subscriptions. The self-employed should start with taxable profits and deduct trading losses. Any profits from let property, gross amounts of interest and dividends must also be included.
Next, deduct the grossed-up amount of donations made under Gift Aid, and grossed-up pension contributions made to personal pension schemes. Paying more pension contributions or making additional Gift Aid donations before 6 April 2015 can reduce your adjusted net income, and hence preserve your child benefit.
Remember only 1% of the child benefit is clawed-back for every £100 of adjusted net income above £50,000, so you might lose only a small amount of the child benefit as a tax charge.
Does your company still own or lease the car you use for private journeys? You may need to rethink that arrangement in light of the tax charges due to apply in the years ahead.
From 6 April 2015 all company cars will generate a tax charge for the driver and the employer, even electric cars will be taxed on 5% of their list price. The taxable benefit for other low emission vehicles (51-75g/kg) will leap up from 5% to 9% of the vehicle's list price. The taxable benefit for all other cars will also increase by two percentage points. The taxable benefit for high emission cars (over 210g/km), will increase from 35% to 37% of the list price.
In 2016/17 all company car drivers will suffer another 2% hike in taxable benefit, except for those which are already taxed at the maximum of 37% of the car's list price. From 2017/18 the tax shoots up again, as for each extra 5g of CO2 emissions the taxable benefit increases by two percentage points of the list price. "Classic" cars with no recorded CO2 emissions will also be hit with increased taxable benefit charges.
Say you were provided with a new Lexus NX 300 H Sport on 5 April 2014. Its list price is £40,000, and it has a CO2 emissions rating of 121g/kg. If you keep the car for four years you will be taxed 86% of its initial value:
March Question and Answer Section
Q. In the February newsletter you said holiday pay was not a contractual right. I don't understand how that can be the case. Please explain.
A. New regulations came into force from 8 January 2015 which indicates that employees can't take a claim to a civil court for breach of contract if their employer fails to pay amounts of holiday pay on the basis of an entitlement under the Working Time regulations. The new regulations indicate that the right to holiday pay is a separate statutory right not contractual right. However, if the amount of holiday pay is stipulated in the employee's employment contract, and that amount is not paid, the employee may be able to claim breach of contract.
Q. My company uses the flat rate VAT scheme, so we don't reclaim VAT on the things we buy. When I set up the company it bought some office furniture for £1,500. I am now moving to new offices and selling the old furniture. Must the company charge VAT on the sale of the furniture even though it didn't reclaim VAT when it purchased the items?
A. Any sales the company makes, including selling on surplus assets, must carry VAT as the company is VAT-registered. There are different rules when selling land or buildings. The fact that the company didn't reclaim VAT when it purchased the assets is irrelevant.
Q. I run a pub which has a cash machine (ATM) inside. I've just received an extra business rates bill from the local authority in respect of the cash machine for £3,600! They haven't charged a separate bill for the ATM before now. Is there anything I can do?
A. You can appeal against the business property valuation, including the treatment of the ATM as a separate property. Do this by contacting the national Valuation Office Agency (VOA). If you can't agree a reduction in the property's rateable value you can take your case to a Valuation Tribunal. But don't delay, as if you succeed in getting a reduction in the rates due, you will only get a refund for periods from 2010 to 2015, if your appeal was made by 31 March 2015.
March Key Tax Dates
19/22 - PAYE/NIC, student loan and CIS deductions due for the month to 5/3/2015
31 - Last minute tax planning for the 2014/15 tax year. Ensure you use up all exemptions to which you are entitled