2015 June | Exchange Accountancy Services

Archive for June, 2015

Cashing in your pension pot

Monday, June 29th, 2015

From April 2015, persons aged 55 years or older, with defined contribution personal pension pots, can consider cashing in the value accumulated in their fund. Certainly, anyone considering this course of action should take professional advice from their independent financial advisor.

 The following steps are advised by the Pensions Wise website:

 Here are some next steps if you’re interested in taking cash:

 Cash in chunks:

  • check with your current provider if they offer the option and what they charge – if they don’t offer it, you can transfer your pot but you might be charged
  • check if your pot has any special arrangements attached to it that could mean you get a better deal, e.g. a guaranteed value at a certain time
  • make sure you know how much tax you’ll pay on any money you’re planning to take out

 Taking your whole pot:

  • check with your provider if you can take 25% tax free
  • make sure you know how much tax you’ll pay on the remaining 75%
  • if you want to reinvest the money, talk to a registered financial adviser first

 In the majority of cases, if you cash in your whole pension pot 25% of the amount received is tax free; the remaining 75% is treated as part of your taxable income for income tax purposes.

When the payment is made by your pension company they will estimate the income tax due and deduct this amount before sending you the balance. They will provide you with a P45 that shows the taxable amount refunded and the income tax they have deducted. These details will form part of your income tax assessment in the tax year that you cash in your policy.

It is important to realise that the amount of tax deducted may or may not cover the income tax due. It will have been based on an estimate of your total income when the payment is made. If you are a high income earner, subject to income tax at a marginal rate of 40% or 45%, or likely to be a higher rate tax payer if the taxable 75% of your cashed in fund is included, then take professional tax advice before spending or reinvesting your fund proceeds.

Tax Diary July/August 2015

Friday, June 26th, 2015

1 July 2015 – Due date for Corporation Tax due for the year ended 30 September 2014.

6 July 2015 – Complete and submit forms P11D return of benefits and expenses and P11D (b) return of Class 1A NICs.

8 July 2015 – The second Budget Day for this year.

19 July 2015 – Pay Class 1A NICs (by the 22 July 2015 if paid electronically).

19 July 2015 – PAYE and NIC deductions due for month ended 5 July 2015. (If you pay your tax electronically the due date is 22 July 2015)

19 July 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2015.

19 July 2015 – CIS tax deducted for the month ended 5 July 2015 is payable by today.

1 August 2015 – Due date for Corporation Tax due for the year ended 31 October 2014.

19 August 2015 – PAYE and NIC deductions due for month ended 5 August 2015. (If you pay your tax electronically the due date is 22 August 2015)

19 August 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2015.

19 August 2015 – CIS tax deducted for the month ended 5 August 2015 is payable by today.

Under and over payments of tax 2014-15

Friday, June 26th, 2015

HMRC have started the process of sending formal statements to taxpayers who may have under or over paid Income Tax for 2014-15.

In a recent press release they said:

“We are sending P800s that show an overpayment of tax first, followed by a cheque around a fortnight later. You don’t need to do anything.

The whole process should be completed in October.

This automated process ensures those who have had a change in circumstances during the last tax year (2014-15) that was not captured in their tax code have paid no more or less than they should. Any discrepancy could be because the taxpayer changed jobs, had more than one job for a time, a change of company car or received investment income that was not reported during the year.

The vast majority of PAYE taxpayers will have paid the right amount of tax for the year and will not be contacted by HMRC.”

We advise taxpayers who receive a statement, and they are unsure if the figures are correct, to take professional advice – get the numbers checked.

Summer Budget 2015

Friday, June 26th, 2015

 Next week, Wednesday 8th July, George Osborne will present his first budget of the new parliament.

 He has indicated that there will be no hikes in the major taxes: Income Tax, National Insurance, VAT and Corporation Tax. We shall see…

 What he will be revealing is how he intends to reduce public expenditure in order to meet his commitments to reduce our growing national debt.

 We will likely see further legislation to combat tax evasion and the re-introduction of the few issues that were dropped from the March 2015 Finance Bill in order to expedite matters before the general election.

Scottish Rate of Income Tax

Friday, June 26th, 2015

From April 2016, the Scottish Parliament has devolved powers to set the Scottish Rate of Income Tax (SRIT). Within the last few weeks it has been widely publicised that this may mean a higher rate of Income Tax in Scotland as compared to the Income Tax rates in other parts of the UK.

 HMRC have also issued a technical statement that clarifies who will be subject to SRIT.

 According to the statement issued, a Scottish taxpayer will be defined using a simple test:

 “For the vast majority of individuals, the question of whether or not they are a Scottish taxpayer will be a simple one – they will either live in Scotland and thus be a Scottish taxpayer or live elsewhere in the UK and not be a Scottish taxpayer.”

Factor in the possibility that Income Tax rates in Scotland will be higher than the rest of the UK and tax payers living and working in the border areas may need to reconsider their living arrangements.

For example, a business person living and working in Edinburgh will pay the SRIT from April 2016. If they relocated their family home to say Berwick on Tweed, and continued to work in Edinburgh, they would pay the UK Income Tax and not be subject to SRIT.

Turning this example on its head; consider a person living in Scotland and working in England. They would be subject to SRIT even though their income was earned in England.

Does this mean the north of England will become the UK’s Monte Carlo as wealthy Scots seek to establish tax residence in England to avoid SRIT?

Business start-ups

Friday, June 26th, 2015

If you are an old hand at setting up a new business most of the content of this article will be a timely reminder of the issues you need to cover in your project to-do list. For first timers, use this article as a guide to see you through what can prove to be an exhilarating and challenging adventure.

 Planning and research

 Your planning and research should at least cover the following issues:

  • What does it take to run your own business?
  • What skills will you need?
  • What do you know about your competitors?
  • How much capital will you need to raise?
  • What resources will you need, plant, equipment, computers etc?
  • Could you start on a part-time basis and delay leaving the day job?
  • Can you run your business from home?

 Also be aware that none of us operate in a vacuum. What special considerations do you need to look out for taking into account the present economic conditions?

 Red tape

 There is no doubt that at times you will just have to deal with it. Here are a few tips that may make the process less painful.

  • Find out exactly what is required, what forms need to be filled in and when they need to be submitted.
  • If you feel that a particular process is beyond your abilities find a professional advisor to help, the cost will generally be recovered by time that you are able to free up to work on your business.
  • If you want to complete the online filing or form filling make sure you read the fine print…

Red tape seems to be a necessary evil in our highly organised society. If you do find yourself beating your head against a brick wall, save yourself the headache, get some help

 Tax planning

Whatever you do, don’t underestimate the UK tax system. Be very clear what your obligations are and the ways you can organise your business affairs to save tax. There is no point in planning for your tax liabilities after the event! The time to plan is before you act. This is a really important point. Tax specialists, us included, take no joy in advising tax payers that they could have saved themselves tax if only they had acted in a certain way at some time in the past. The tax system is riddled with deadlines that once passed, deny you tax saving opportunities.

HMRC sets out its position on charging penalties

Wednesday, June 17th, 2015

Its official, HMRC does not want to charge penalties!

HMRC have made the following announcement on their approach to the £100 late filing penalty for people sending in tax returns late:

“We want to focus more and more of our resources on investigating major tax avoidance and evasion rather than penalising ordinary people who are trying to do the right thing.

But it’s important to make clear that the deadline for appealing fines for 2013/14 tax year has now passed. Those who have already appealed will only be let off the fine if they’ve now sent in their return, paid the tax due, appealed and have a good reason for sending it in late.

This is part of our planned, proportionate approach to penalty appeals, particularly for small businesses and individuals.

The bottom line is that we don’t want to charge penalties, we just want the tax return and the tax in on time.

In addition, the more complete picture that digital technology gives us means, in the longer term, we want to move away from sending out penalty notices as a mechanical reaction to a single missed deadline. We will be able to track patterns of behaviour so we only focus on those who persistently fail to pay or send their tax returns on time.”

It will be interesting to see if HMRC’s consultation on this topic results in a change in the law.

North of England set to become dormitory for wealthy Scots

Monday, June 15th, 2015

The north of England may become a Scottish executives’ area of choice to live if the Scottish Parliament sets the Scottish income tax at higher rates than the rest of the UK.

In effect the north of England could become a dormitory for wealthy families, presently living in Scotland, who for tax reasons, will seek to establish residential status in England.

The Scottish Government is considering higher income tax rates than England under its devolved powers and HMRC have recently published guidance on who will be liable to pay the devolved Scottish rate of income tax (SRIT):

“The SRIT, as introduced by the Scotland Act 2012, will be charged on the non-savings and non-dividend income of those defined as Scottish taxpayers and will start from April 2016.

The definition of a Scottish taxpayer is focused on where an individual lives, or resides, in the course of a tax year. Scottish taxpayer status applies for a whole tax year – it is not possible to be a Scottish taxpayer for part of a tax year.

For the vast majority of individuals, the question of whether or not they are a Scottish taxpayer will be a simple one, they will either live in Scotland and thus be a Scottish taxpayer, or live elsewhere in the UK and not be a Scottish taxpayer.

Whether or not an individual is a Scottish taxpayer will not, however, be simple in all cases. This draft technical guidance provides initial detail on the manner in which HM Revenue and Customs (HMRC) will interpret some of the terms used in the sections of the Scotland Act 2012, which set out the definition of a Scottish taxpayer.

HMRC is also currently working closely with Ministry of Defence on the preparation of separate guidance to ensure that all service personnel will have clarity on how SRIT will apply to their individual circumstances prior to its introduction. This guidance will be available later this year.”

If SRIT is eventually set at higher rates in Scotland, it will only be payable if you live in Scotland, and not if you work in Scotland. High income earners in Scotland could choose to live in England and commute to work, and thus pay income tax at marginally lower rates.

This will create all sorts of problems as an employer north of the border may have to run two payrolls: one for Scottish residents and one for English residents!

How to renew tax credits

Thursday, June 11th, 2015

 You usually need to renew your tax credits once a year. You should receive your renewal pack by 30 June. If you haven’t got your pack, call the Tax Credit Helpline.

You can’t renew your tax credits until you get your renewal pack. If you claimed tax credits after 6 April, your renewal pack is usually sent the following year.

Renewal deadline

The deadline is usually 31 July unless your renewal pack gives you a different deadline.

If you miss the deadline your tax credits payments will stop. You’ll be sent a statement and will have to pay back the tax credits you’ve been given since 6 April.

Your payments will start again and will be backdated to 6 April if you send your renewal within 30 days of getting the statement. You’ll usually need to make a new claim if you don’t respond within 30 days of getting the statement.

Renew your tax credits

You can renew your tax credits online. The Tax Credit Office will send you an award notice within 8 weeks of receiving your renewal, telling you how much you’ll get.

Automatic renewal

If you only get a form with the code ‘TC 603 R’ your tax credits will be renewed automatically. Check the form carefully to make sure your details are correct. You can use the online service to report: any mistakes on your form and any changes in your circumstances.

Estate and lettings agents at risk of breaking competition law

Wednesday, June 10th, 2015

The Competition and Markets Authority (CMA) recently fined an association of estate and lettings agents, 3 of its members and a newspaper publisher over £735,000 for agreeing to restrict the advertising of fees or discounts in a local newspaper.

In light of this case, the CMA has sent warning letters to a number of estate and lettings agents that it has reasonable grounds for suspecting have been involved in anti-competitive agreements to restrict the advertising of fees.

Separately, the CMA has received complaints that other associations of estate agents and local newspapers may be engaging in similar practices, and is considering whether to take further action.

In order to help businesses avoid competition law risks, the CMA has also published open letters to companies in the property and newspaper industries and a case study to raise awareness that this type of activity is likely to be illegal and that businesses may face significant fines if they engage in it.

Businesses that are found to have broken competition law can be fined up to 10% of their annual worldwide turnover, and company directors can be disqualified for up to 15 years where their conduct in relation to such a breach makes them unfit to be concerned in the management of a company. In addition, individuals involved in certain very serious cartel activity, such as price-fixing, may be found guilty of the criminal cartel offence and could go to prison for up to 5 years and/or have to pay an unlimited fine.

The CMA is working with a number of industry bodies, including the National Estate Agents Association and the Property Ombudsman, to help publicise the lessons to be learned from this case and encourage best practice.

Ann Pope, CMA Acting Executive Director, Enforcement, said:

The CMA is keen to work with businesses across the property and newspaper publishing industries to explain the implications of this case and ensure they understand what they need to do to comply with competition law and can recognise where they may be at risk of breaking it.

The CMA has published a range of guidance to help businesses comply with competition law. In addition, we encourage businesses to have an effective compliance programme, including a clear and unambiguous commitment to competition law compliance from senior management. Businesses need to assess if they are at risk of breaking competition law and, if necessary, take steps to remedy the situation.