In an effort to streamline and simplify the administration of the Self Assessment tax system, HMRC is planning to introduce digital accounts for fifty million taxpayers by 2020. When completed, taxpayers will no longer be required to submit Self Assessment tax returns to HMRC.

Instead, HMRC will gather information from employers, pension providers, banks and building societies, and automatically post data regarding salaries, benefits, pensions and investment income to the digital accounts.

It is still not clear how information regarding property income, capital gains, business profits and other chargeable income or gains will be gathered by HMRC, although it has been mooted that it will be possible to link business accounting software with the digital accounts by 2020.

This is a radical shift from the present “gathering and filing” processes that presently places the responsibility for the make-up and lodgement of Self Assessment data on the taxpayer. In some respects it harks back to the days prior to Self Assessment when HMRC used to issue assessments to taxpayers, who were then obliged to check the numbers.

Information published so far by HMRC indicates that:

• Taxpayers, and their agents, will be able to access their digital accounts to make real time changes to data and pay their tax.
• Fifteen million taxpayers will be set up with digital accounts as early as 2016 with the remainder given access to their digital accounts by 2020.

More details are needed in order to assess the impact of these changes and HMRC have advised they will publish this later this year.

It will be interesting to see how the change will impact associated issues such as late filing penalties. Hopefully, HMRC will abandon these charges for taxpayers where little or no tax is due.

The Government will also need to consider digital exclusion: how are they going to accommodate taxpayers who cannot easily access the internet for various reasons?

 

Did you know that if you take on domestic help you may be considered an employer?

Anyone who works in a private home is treated as an employee if they only work for one family, except for au pairs. This includes nannies, housekeepers, gardeners and anyone else working for one family. You’re their employer if you hire them.

As an employer you would need to ensure that an employee:

• has an employment contract
• is given payslips
• does not work more than the maximum hours allowed per week
• be paid at least the National Minimum Wage

They’re also entitled to employment-related benefits, if they meet the eligibility requirements. These include:

• statutory maternity pay
• statutory sick pay
• paid holiday
• redundancy pay

Additionally, domestic employers must:

• check if the person can work in the UK
• have employer’s liability insurance
• register as an employer and send employer tax returns each year – even if they pay the employee in cash

Running a home with staff is the equivalent of running a business with staff, there are a multitude of legal matters you will need to consider.

Do you have any idea if your estate will have an inheritance bill when you die? How much will it be? Who will have to pay it?

Planning opportunities arise if:

1. If you have assets that you would like to give away.
2. If you have any interests in a business or company, or own agricultural property.
3. If you have assets that you would like to gift, but are concerned that other parties may seek to control those assets against your wishes.

These and many other scenarios, particular to your circumstances, may be available. The key is to explore these planning strategies before the burden of responsibility for settling tax is passed to your executors, and ultimately, your family and beneficiaries.

There are a number of tax planning opportunities that will cease to exist once the clock passes midnight, 5 April 2015. For businesses whose year end is the 31 March 2015 these opportunities include:

• The timing of capital purchases: equipment, vehicles and so on.
• The timing of significant overhead expenditure.
• Dividend and profits extraction planning if your business is a limited company.
• And again, if you have a limited company is your director’s loan account overdrawn?

In fact, all taxpayers, whether in business, employment or receiving a pension, may have opportunities to legitimately reduce their tax liabilities for 2014-15. The point of this article is to remind you that once the tax year end passes these opportunities will be lost, very often permanently.

Readers who are in business, or who have significant or complex sources of income, should have contacted and consulted with their tax advisors by now. If not, there is still just over three weeks to take action. Please call to see if there are any advantages that may be available to you.

You may be kicking yourself later this year if you pass over this planning window without taking action.

None of the comments that follow should stop you considering strategies that minimise your tax position based on current law and best practice. One thing that HMRC has failed to mention in its published comments, highlighted below, is the number of taxpayers in the UK who pay too much tax because they failed to claim allowances and reliefs available. Planning is critical especially if your tax affairs are complex.

Here’s what HMRC have said:

1. HMRC is serious about stopping avoidance: the Government is taking unprecedented steps to clamp down on the small minority who try to avoid paying tax that is legally due.
2. Other people are getting out of avoidance: increasing numbers of people involved in multiple avoidance schemes are approaching HMRC to settle up so that they can put the past behind them and protect their reputation.
3. HMRC wants to help tax avoiders to get out of avoidance: HMRC will work with avoiders who demonstrate a commitment to resolving their avoidance arrangements to finalise their tax liability and will provide certainty over payment terms. HMRC has set up a single point of contact to help establish the possible terms for exit from each scheme a serial avoider uses.
4. HMRC is moving more quickly to tackle serial avoiders: as they close in and increase their focus on this minority, HMRC will look ever more carefully at those who use multiple schemes.
5. The tax avoider is the one who is responsible: even if a promoter or agent has arranged the avoidance scheme for the user, the avoider remains responsible for their own tax affairs and what is put on their tax return. Serial avoiders will personally have to provide HMRC with information and documents regarding their tax affairs.
6. HMRC has a special unit looking at tax avoiders: the Serial Avoiders Unit is identifying users of multiple schemes who choose not to approach HMRC to settle their affairs.
7. Tax avoiders may personally have to attend meetings with HMRC investigators: HMRC will ask questions about their tax affairs and will be checking that they have the full facts about their arrangements.
8. HMRC will look at all the tax avoider’s tax affairs: serial avoiders will be subject to a more co-ordinated approach to challenge and resolve their tax affairs. HMRC will look at their current activity, not just enquiries that are already open. And they will look at all the entities and structures the tax avoiders are connected with, to challenge any avoidance and evasion in all areas of their affairs.
9. Tax avoiders may have to pay up front: HMRC will fundamentally reduce the incentive to engage in serial tax avoidance and recover all duties legally due at the earliest opportunity. Multiple users of schemes may receive Accelerated Payment Notices before other users of a scheme.
10. There are heavy sanctions: HMRC will evaluate the behaviour of each serial avoider and this could result in penalties for careless or deliberate behaviour or for any failure to disclose avoidance. Deliberately misleading or concealing information from HMRC could lead to prosecution and criminal conviction.

These comments are a reminder, as we approach the end of another tax year, that overstepping the mark can have serious consequences.

 

The local property tax you pay, in England and Wales, will be either Council Tax or Non-domestic (business) Rates depending on the type of property. Some properties are part business and part domestic, so you may pay both taxes. Good examples are public houses where the publican lives on the premises or shops where the shopkeeper lives in a flat over the shop.

Generally, you should not have to pay business rates for minor business use of the home. The Government does not normally expect home-based businesses to have to pay business rates if:

• You use a small part of your home for your business (for example you use a bedroom part of the day as an office), and
• You do not use it to sell goods or services to visiting clients or members of the public (as opposed to selling by post), and
• You do not employ other people to work at the premises, and
• You have not made alterations of a sort that would not usually be associated with a home (such as converting a garage to a hairdressers or installing a hydraulic car lift).

These are general guidelines currently set out on the GOV.UK website. Some situations might need the facts of each case to be considered.

 

You may feel aggrieved that you were unable to file your return on time for a perfectly valid reason. If you want to appeal against any penalties charged there is a formal appeals procedure you should follow. In order to convince HMRC to withdraw their penalty notice you will have to convince them that you had a reasonable excuse.

The following examples, of what constitutes a reasonable excuse, are copied from HMRC’s website:

• HMRC Online Services would not accept the tax return – you’ll need to provide the error message you received and the date you tried to send it.
• You did not receive the tax return or letter telling you to complete a tax return – HMRC usually know if you did not because it is sent back undelivered.
• Bereavement – the death of a close relative or domestic partner shortly before the deadline.
• Serious or life-threatening illness, for example, a major heart attack or a serious mental illness that prevents you dealing with your tax affairs.
• You did not receive your online Activation Code, User ID or password in time to send your tax return by the deadline – as long as you tried to get them before the deadline and once you received them you sent your tax return as soon as you could.
• Your tax return or cheque was lost or delayed in the post. You must have posted it in good time to meet the deadline.
• Loss of tax records, through theft, fire or flood that cannot be replaced in time to meet the deadline.
• Your cheque was dishonoured because of an error by your bank.

What HMRC will not accept as a reasonable excuse includes:

• The tax return was too difficult to complete.
• Pressure of work.
• It was your agent’s or tax adviser’s fault that you missed the deadline.
• Lack of information available.
• We did not remind you about the tax return and payment deadlines.
• You want to replace the paper tax return you have already sent with an online tax return to reduce your penalties.
• Unable to send a certain tax return or supplementary pages online as there was no free HMRC software.
• Your cheque was dishonoured due to a shortage of funds or made out incorrectly.

The best possible strategy to avoid penalties is to file your tax return before the statutory deadline. If you are prevented from doing so by circumstances that you feel constitute a reasonable excuse, then you should appeal against the penalty

 

The deadline for submitting your Self Assessment tax return for 2013-14 has passed. The online filing date, after which penalties apply, was midnight, 31 January 2015.

Penalties for individuals:

If you failed to make the filing deadline a range of penalties becomes payable, or potentially payable, how much will depend on how quickly you bring your affairs up-to-date.

Penalties are progressive: they apply from 1 day, 3 months, 6 months and 12 months after 31 January 2015 for the 2013-14 return.

1. One day late: an automatic penalty of £100 applies.
2. 3 months late: a daily penalty of £10 per day for a maximum of 90 days applies (£900).
3. 6 months late: a further £300 or 5% of any tax outstanding, whichever is the greater.
4. 12 months late: a further £300 or 5% of any tax outstanding, whichever is the greater. In serious cases you may be asked to pay 100% of the tax due instead.

The above penalties are in addition to any penalties and interest for paying tax late.

Penalties for partners:

There is a nasty sting in the tail for partners who fail to submit their partnership Self Assessment return on time.

Even though a partnership tax return is one document, each partner will be charged a penalty for late filing. If a partner is also late in filing their own tax return then separate penalties will apply.

The penalties listed in points 1 and 2 above will be payable by each partner. The penalties in points 3 and 4 will be limited to £300 per partner.

The Government has indicated that it wants to offer more to existing pensioners and people who reach State Pension age before 6 April 2016 when the single-tier pension is introduced.

To achieve this a new Class 3A voluntary contribution will be available from October 2015 to April 2017.

The Class 3A contribution will allow people to top up their additional State Pension. The rate of contribution, which will be a lump sum payment, will be set at an actuarially fair rate that ensures that both individual contributors and the tax payer get a fair deal.

The scheme will be only be open for a limited period as it is expected that most people who want to take-up Class 3A entitlement will do so in the first few months.

You may want to consider the effects this may have on your State Pension at retirement.

Most of the tax planning that can be employed to reduce your business tax liabilities need to be considered and implemented prior to your year end date.

If you are in business, you should consider at least one planning exercise with your professional advisor before the end of the tax year. This should be a priority.

Here’s why:

1. When deciding on whether to make (or not make) a purchase of equipment or a vehicle, you should consider carefully the tax effects this may have. There are significant investment allowances available and appropriate action can result in cash flow advantages – securing tax relief sooner rather than later.
2. In a similar vein, there is still an opportunity to maximise tax relief by considering the timing of significant overhead payments that are not recurring – for example, repairs to plant or buildings or significant training costs. Should you commit before or after the tax year end?
3. If you operate your business as a limited company have you ensured that you have sufficient post tax profits, for the current year and brought forward, to cover dividend payments to shareholders?
4. Again, in a company environment, are directors’ loan accounts overdrawn? Can this be rectified before the end of the trading year? What are the personal and Corporate Tax consequences?

For many of our business clients this pre-year end planning is the norm – an essential part of our service. If you would like to organise your planning session please call us so we can have a discussion; once your trading year end, or the tax year end passes, opportunities to save tax may be lost.