Nov 2013
Starting in business? Why not be a sole trader? There are some big advantages to starting trading as a sole trader, as opposed to running a new business through a company. To start with, it’s a flexible way to trade and it is low on administration. Setting up: becoming a sole trader is easy; you register for tax and National Insurance with HMRC, open a business bank account and then annually submit your tax return.
Tax Calendar November 2013 2
Quarterly submissions of P46(car) (for employees whose car and/or fuel benefit has changed in the quarter to 5 July).
19
Monthly CIS payments due.
19/22
Monthly PAYE/Class 1 NICs/student loan payments due.
Cash flow: a sole trader may use cash accounting, which means that profits are only taxed in terms of cash actually received. Losses: a sole trader who makes a loss can offset it against any other income for the year but may also carry it back against any other income from the three previous years. Motor vehicles: there is no tax charge for private use of a vehicle if you are a sole trader, you simply do not receive tax relief for the proportion of your motoring costs that relate to private journeys. Mobile phones: as a sole trader you can obtain tax relief on the cost of equipment and calls purchased for business use. So if you are in an area with a poor signal and you need two phones on two networks, you will receive tax relief on the cost of both. Incorporation: once you have established yourself in business for several years and are trading successfully at a profit you may incorporate and sell your business and its goodwill to your own new company for cash. This allows you to cash in on the value of the business you have created at that time.
19th for non-electronic payments, 22nd for online payments. December 2013 19/22
HMRC puts considerable resources into its campaigns and this is a big one. It is able to access data for buy-to-let mortgages, land registry transactions and also details of tenancy deposits made under the deposit protection scheme. There is the possibility that many landlords have not declared rental income because they think that they are making losses once they deduct mortgage payments from income; however there is a potential pitfall, only the interest element of a mortgage payment is deductible for tax purposes.
www.mcmillanaccountants.com
Monthly PAYE/Class 1 NICs/student loan payments due. 19th for non-electronic payments, 22nd for online payments.
31
Deadline for online submission of Self Assessment tax returns for tax year ended 5 April 2013 for HMRC to collect through client’s PAYE codes, where they owe less than £3,000.
January 2014 5
End of tax quarter.
19/22
Quarter 3 PAYE/NICs payments due (for quarter ended 5 January) Monthly PAYE/Class 1 NICs/student loan and CIS payments due. 19th for non-electronic payments, 22nd for online payments
Tax disclosure time for rental landlords According to HMRC, some 500,000 taxpayers are registered as landlords in the UK, however the property industry estimates that the actual number of landlords is between 1.2 and 1.5 million. It therefore comes as no surprise to find that HMRC has just launched a new tax disclosure scheme. The Let Property Campaign runs for 18 months and will allow landlords to declare their rental income and get their tax affairs up to date. The incentive for using this campaign is the prospect of zero or low tax penalties on any undeclared income.
Issue 6, 2013
NEWSLETTER
31
Deadline for online submissions of Self Assessment tax return for tax year ended 5 April 2013. Deadline for paying 2012-13 Self Assessment ‘balancing payments’. Deadline for first Self Assessment payment on account for 2013-14.
February 2014 2
Quarterly submission of P46 (car) (for employees whose car and/or fuel benefit has changed in the quarter to 5 January.
19/22
Monthly PAYE/Class 1 NICs/student loan and CIS payments due.
This newsletter is written for the general interest of our clients and is not a substitute for professional advice. Please contact McMillan & Co LLP for specific advice before taking any action.
Issue 6, 2013 Page 2
NEWSLETTER Income tax planning for spouses and civil partners The tax rules provide a range of special reliefs that are only available for transactions made between spouses (the measures also extend to civil partners). For income tax purposes, an exemption allows “income shifting” between spouses. A person may make a taxfree gift of any income-producing assets to their spouse. This is useful where one spouse is not making use of their full personal allowance and the giver is a higher-rate taxpayer. Income-producing assets may include shares in a personal company. This relief, however, does not apply to income without the transfer of an asset — so a higher-earning spouse cannot for example, give away their salary to a lower-earning spouse. Additionally any transfer must be outright: so if one spouse decides to give their partner an asset such as cash on deposit, it will need to go into the partner’s bank account and remain under their control.
Where a couple receive Child Benefit, there is potentially a tax charge if one has a net income of more than £50,000 per year. However with careful planning some couples may be able shift around their income-producing assets to equalise their income and avoid that charge.
When it comes to disposing of capital assets, such as shares, a gift between spouses is also not liable to capital gains tax, the gift is treated as being made “nil gain, nil loss”.
The rules for jointly held property make transferring assets between spouses simple. If property is put into joint names, income arising from it is automatically taxed 50:50. If the couple wish to vary the apportionment, they may execute a declaration of trust to change the ratio.
For inheritance tax purposes a person may leave their entire estate to their spouse, again tax-free. If they have not used their IHT exempt amount (currently £325,000), that also transfers over to the survivor, so that on the second death there will be an exempt amount of £650,000 before any IHT is payable.
Transferring assets from one spouse to another may create a higher charge to IHT on the second death, so it will be sensible to consider using gifts (and or trusts) to mitigate liabilities.
Fixed rate allowances for sole traders and partnerships From April 2013 traders have the option of claiming a new range of fixed rate allowances instead of keeping receipts for their actual expenses. These fixed rate allowances are set at a very low rate, substantially lower than actual costs. What this boils down to is choosing whether to spend more time in bookkeeping to obtain higher tax relief or not. Allowances given include:
Mileage allowances: claim an allowance for business journeys of 45p per mile for up to 10,000 miles per year, thereafter 25p per mile. The rate is 24p per mile for motorcycle journeys. This is instead of claiming motor running costs and capital allowances on your vehicles.
Working from home: rather than keeping a running total of all household bills, if you keep a record of your working hours you may claim fixed allowances according to the number of hours worked: • 25 to 50 hours - £10 pcm • 51 to 100 hours - £18 pcm • 101+ - £26 pcm
Board and lodging adjustments: if you are living on your trading premises rather than disallowing a proportion of your bills for private use, you may use a fixed rate month, depending on the number of people living there: • 1 occupant - £350 pcm • 2 occupants - £500 pcm • 3 or more occupants - £650 pcm
If you have any queries in relation to any of the topics covered in this newsletter then please do not hesitate to contact us. 28 Eaton Avenue Matrix Office Park Buckshaw Village Chorley Lancashire, PR7 7NA 01772 299888 [email protected]
McMillan & Co LLP is registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales
Tax Calendar November 2013 2
Quarterly submissions of P46(car) (for employees whose car and/or fuel benefit has changed in the quarter to 5 July).
19
Monthly CIS payments due.
19/22
Monthly PAYE/Class 1 NICs/student loan payments due.
Cash flow: a sole trader may use cash accounting, which means that profits are only taxed in terms of cash actually received. Losses: a sole trader who makes a loss can offset it against any other income for the year but may also carry it back against any other income from the three previous years. Motor vehicles: there is no tax charge for private use of a vehicle if you are a sole trader, you simply do not receive tax relief for the proportion of your motoring costs that relate to private journeys. Mobile phones: as a sole trader you can obtain tax relief on the cost of equipment and calls purchased for business use. So if you are in an area with a poor signal and you need two phones on two networks, you will receive tax relief on the cost of both. Incorporation: once you have established yourself in business for several years and are trading successfully at a profit you may incorporate and sell your business and its goodwill to your own new company for cash. This allows you to cash in on the value of the business you have created at that time.
19th for non-electronic payments, 22nd for online payments. December 2013 19/22
HMRC puts considerable resources into its campaigns and this is a big one. It is able to access data for buy-to-let mortgages, land registry transactions and also details of tenancy deposits made under the deposit protection scheme. There is the possibility that many landlords have not declared rental income because they think that they are making losses once they deduct mortgage payments from income; however there is a potential pitfall, only the interest element of a mortgage payment is deductible for tax purposes.
www.mcmillanaccountants.com
Monthly PAYE/Class 1 NICs/student loan payments due. 19th for non-electronic payments, 22nd for online payments.
31
Deadline for online submission of Self Assessment tax returns for tax year ended 5 April 2013 for HMRC to collect through client’s PAYE codes, where they owe less than £3,000.
January 2014 5
End of tax quarter.
19/22
Quarter 3 PAYE/NICs payments due (for quarter ended 5 January) Monthly PAYE/Class 1 NICs/student loan and CIS payments due. 19th for non-electronic payments, 22nd for online payments
Tax disclosure time for rental landlords According to HMRC, some 500,000 taxpayers are registered as landlords in the UK, however the property industry estimates that the actual number of landlords is between 1.2 and 1.5 million. It therefore comes as no surprise to find that HMRC has just launched a new tax disclosure scheme. The Let Property Campaign runs for 18 months and will allow landlords to declare their rental income and get their tax affairs up to date. The incentive for using this campaign is the prospect of zero or low tax penalties on any undeclared income.
Issue 6, 2013
NEWSLETTER
31
Deadline for online submissions of Self Assessment tax return for tax year ended 5 April 2013. Deadline for paying 2012-13 Self Assessment ‘balancing payments’. Deadline for first Self Assessment payment on account for 2013-14.
February 2014 2
Quarterly submission of P46 (car) (for employees whose car and/or fuel benefit has changed in the quarter to 5 January.
19/22
Monthly PAYE/Class 1 NICs/student loan and CIS payments due.
This newsletter is written for the general interest of our clients and is not a substitute for professional advice. Please contact McMillan & Co LLP for specific advice before taking any action.
Issue 6, 2013 Page 2
NEWSLETTER Income tax planning for spouses and civil partners The tax rules provide a range of special reliefs that are only available for transactions made between spouses (the measures also extend to civil partners). For income tax purposes, an exemption allows “income shifting” between spouses. A person may make a taxfree gift of any income-producing assets to their spouse. This is useful where one spouse is not making use of their full personal allowance and the giver is a higher-rate taxpayer. Income-producing assets may include shares in a personal company. This relief, however, does not apply to income without the transfer of an asset — so a higher-earning spouse cannot for example, give away their salary to a lower-earning spouse. Additionally any transfer must be outright: so if one spouse decides to give their partner an asset such as cash on deposit, it will need to go into the partner’s bank account and remain under their control.
Where a couple receive Child Benefit, there is potentially a tax charge if one has a net income of more than £50,000 per year. However with careful planning some couples may be able shift around their income-producing assets to equalise their income and avoid that charge.
When it comes to disposing of capital assets, such as shares, a gift between spouses is also not liable to capital gains tax, the gift is treated as being made “nil gain, nil loss”.
The rules for jointly held property make transferring assets between spouses simple. If property is put into joint names, income arising from it is automatically taxed 50:50. If the couple wish to vary the apportionment, they may execute a declaration of trust to change the ratio.
For inheritance tax purposes a person may leave their entire estate to their spouse, again tax-free. If they have not used their IHT exempt amount (currently £325,000), that also transfers over to the survivor, so that on the second death there will be an exempt amount of £650,000 before any IHT is payable.
Transferring assets from one spouse to another may create a higher charge to IHT on the second death, so it will be sensible to consider using gifts (and or trusts) to mitigate liabilities.
Fixed rate allowances for sole traders and partnerships From April 2013 traders have the option of claiming a new range of fixed rate allowances instead of keeping receipts for their actual expenses. These fixed rate allowances are set at a very low rate, substantially lower than actual costs. What this boils down to is choosing whether to spend more time in bookkeeping to obtain higher tax relief or not. Allowances given include:
Mileage allowances: claim an allowance for business journeys of 45p per mile for up to 10,000 miles per year, thereafter 25p per mile. The rate is 24p per mile for motorcycle journeys. This is instead of claiming motor running costs and capital allowances on your vehicles.
Working from home: rather than keeping a running total of all household bills, if you keep a record of your working hours you may claim fixed allowances according to the number of hours worked: • 25 to 50 hours - £10 pcm • 51 to 100 hours - £18 pcm • 101+ - £26 pcm
Board and lodging adjustments: if you are living on your trading premises rather than disallowing a proportion of your bills for private use, you may use a fixed rate month, depending on the number of people living there: • 1 occupant - £350 pcm • 2 occupants - £500 pcm • 3 or more occupants - £650 pcm
If you have any queries in relation to any of the topics covered in this newsletter then please do not hesitate to contact us. 28 Eaton Avenue Matrix Office Park Buckshaw Village Chorley Lancashire, PR7 7NA 01772 299888 [email protected]
McMillan & Co LLP is registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales
