Welcome to April'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!
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 set up a website: www.pensionwise.gov.uk, which provides basic guidance on the six steps to take before accessing your pension savings. There will also be free face to face meetings, and telephone support, where you can learn about your options.
If you want to invest your money outside your pension fund, you should take advice from a qualified financial adviser who is registered with the Financial Conduct Authority (FCA). The Money Advice Service website (also Government backed) has some good tips about how to choose a financial adviser.
Beware of taking large sums out of your pension fund in one go, as this may push you into the 40% or 45% tax bands. We can help you calculate how much tax you will have to pay when you access your pension savings.
Taking flexible income payments from your pension scheme is an irreversible process. You can't put all the money back into the pension scheme if you change your mind. You may also be restricted to making pension contributions of no more than £10,000 per year, rather than the current cap of £40,000 per year. A withdrawal of tax-free cash from the pension scheme, or a transfer of funds into a pension annuity does not count as a "flexible income payment" for this purpose.
The decision to start drawing your pension benefits should not be taken lightly, or without qualified advice.
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
|18 to 20
|Under age 18
Apprentices under 19
or in 1st year
An employee's pay must be increased from the beginning of the pay period that starts on or after the date the NMW rate changes, either because all the NMW rates have changed (on 1 October each year), or because the employee has moved into a different rate band due to their age or status (apprentice). A pay period is the normal period for which the employee is paid - be that weekly or monthly.
Failure to pay the NMW is a criminal offence, as is falsifying payment records regarding the NMW. The maximum financial penalty for NMW underpayments is £20,000 per employer, but will soon change to £20,000 per employee. If HMRC find out that your business has not paid the right amount of NMW, it will be publically named, even if the amounts underpaid are very small for each worker.
You need to keep a close eye on when employees turn 21 for NIC purposes. From 6 April 2015 the wages of up to £815 per week paid to workers aged under 21 attract a zero rate of employers' class 1 NIC. Once the employee reaches 21 the normal NIC rates apply.
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.
The claim for the marriage allowance must be done online through the GOV.UK website, by the person who is surrendering part of their allowance. If the taxpayer can't use the online service HMRC is supposed to provide additional support.
Once the marriage allowance is claimed, the couples' PAYE codes will be altered to reflect the change in allowances with the following suffix letters used in the place of L:
- M - for the person who receives the extra allowance
- N - for the person who has surrendered £1,060 of their personal allowance
The existing married couple's allowance (worth up to £835.50) continues to apply for couples who were born before 6 April 1935.
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 small donations scheme (GASDA). The charity needs to register with HMRC's online services and opt to use the Charities Online service. Details of the donations it receives can be reported on a spreadsheet for up to 1,000 donations at a time. HMRC provide example spreadsheets to help with this process.
Charities generally have to have their accounts audited, which can be a costly undertaking. To allow charities to spend more of their income on their charitable aims the Government has raised the threshold above which an audit is required to £1 million of income per year, for accounting periods that end on or after 31 March 2015. The charity can opt to have a less costly independent examination of its accounts carried out in place of a full audit, to reassure the charity's trustees that all is well financially.
April Question and Answer Section
Q. My personal company operates from a little brick building at the end of my garden, which is heated with a portable gas heater. Can the company pay me for the cost of the gas bottles used for that heater, on top of the "use of home" allowance of £4 per week?
A. The company can pay you the actual additional costs for using your home for business purposes instead of the £4 per week working at home allowance. You would need to record and calculate the additional running costs you incur for using the brick shed, but we can help you with that.
Alternatively, the company could pay you rent for the shed including an amount for heat and light, but you would have to declare the rent received on your personal tax return. This arrangement could also have implications for the tax due when you sell the whole property. We need to talk through the details.
Q. Which is cheaper: the company to take out a corporate health insurance policy for its employees, or each employee to take out personal health insurance policies and the company to pay the policy premiums on behalf of the employees?
A. Generally, a corporate health plan is cheaper than several individual health plans, but that would depend on the number of employees involved and their ages. The cost of the corporate policy must be divided between the employees covered and reported as a benefit in kind on their P11D forms. The company will pay class 1A national insurance contributions (NIC) at 13.8% on the value of the P11D reported benefit, and each employee will pay income tax on the reported value of the health plan.
If the company pays the premiums for the personal policies of the employees, those amounts are taxed as additional pay of the employees. Thus the company must pay class 1 NIC due from employers at 13.8%. The employees must pay income tax, as well as the employees' NIC at 12% on the amount paid for the policy premiums. The employer's class 1 NIC may be off-set against any available employment allowance (worth up to £2,000 per business) for the year.
Q. I started trading as a hairdresser nine months ago and have made sales of £66,000 so far. I'm worried that I will have to register for VAT soon and lose 20% of my income directly to the taxman. What can I do?
A. The VAT registration threshold increased to £82,000 with effect from 1 April 2015. This is the maximum total sales you can make in any 12 month period before you are required to register for VAT. On your current sales pattern you will exceed the VAT threshold within the next three months.
Other than reducing your sales to keep the total below £82,000, perhaps by taking a break from work, there is nothing you can do to avoid the need to register for VAT. However, once registered you can reclaim VAT on things you buy for your business such as hair dyes, scissors etc. In your first VAT return you can also reclaim VAT charged on any services you used for your business within the six months ending with the VAT registration date and on goods purchased in the four years ending with the date of registration, as long as you still hold those items at the registration date. It is essential that the right VAT registration is entered on the VAT application form, we can help you with this.
April Key Tax Dates
5 - End of 2014/15 tax year. Last day to use up your annual exemptions for capital gains tax, inheritance tax and ISA's
14 - Return and payment of CT61 tax due for quarter to 31 March 2015
19 - Deadline for Employers' 2014/15 end of year PAYE Returns (P35, P14, P38 & P38A). Penalties for non-submission
19 - PAYE/NIC, student loan and CIS deductions due for month to 5/4/2015 or quarter 4 of 2014/15 for small employers. Interest will run on any unpaid PAYE/NIC for the tax year 2014/15
30 - Additional daily penalties of £10 per day up to a maximum of £900 for failing to file self-assessment tax return due on 31 January 2015