If you pay your VAT late to HMRC, even one day late, your card will be marked for a VAT penalty called a 'default surcharge'. The first late payment doesn't attract a monetary penalty, but the second occasion on which you are late within 12 months triggers a penalty of 2% of the VAT due. The third, fourth, and fifth occasions of lateness increase the percentage of the penalty to 5%, 10% then 15% of the VAT due (ouch!).
You may not notice the first two penalties set at 2% and 5% of the VAT due as HMRC will only demand payment from a small business if the total penalty amounts to over £400. However, you will receive a warning letter, and you should appeal against the penalty if you had a reasonable excuse for paying late.
Not having the money available to pay your VAT bill is not a reasonable excuse. If your business has a cash flow problem you need to ask the HMRC business support service for time to pay before the VAT becomes payable, or we can do this on your behalf. The number to ring is: 0300 200 3835, and it's open every day. Don't ring the VAT helpline as they can't deal with VAT debt issues.
If your VAT payment was delayed by circumstances outside your control, for example a computer failure at your bank, that would be a reasonable excuse. However, you do need to present evidence of this reason when asking HMRC to review the penalty. Around 60% of VAT penalties are overturned on review, so it's worth a try!
Monday 31 March 2014
Friday 28 March 2014
NON-RESIDENT LANDLORDS
If you leave the UK and let your property here, your letting agent (or the tenant where there is no agent) should deduct basic rate (20%) tax from the rents paid after deduction of certain expenses, under the non-resident landlord scheme (NRL). This ensures that at least some tax is paid on the income in the UK.
You can avoid having 20% tax deducted if you successfully apply for approval under the NRL scheme from HMRC. Approval will be granted where your UK tax affairs are up to date, or you don't expect to be liable to pay UK tax in the year you apply.
The NRL scheme applies if the landlord's usual place of abode is not in the UK. This is not the same as being not resident in the UK for tax purposes. An absence from the UK for as little as six months can be enough to establish your usual place of abode as being outside the UK.
The NRL scheme applies to members of the armed forces and diplomats, just as it does to any other non-resident landlord. It also applies to overseas trusts and companies, which must have income tax (not corporation tax) deducted from their rental income.
If your UK property is let as holiday accommodation, you may need to register for VAT in the UK as holiday lets are subject to standard rate VAT. As an overseas person you have a zero turnover threshold for VAT registration, so you may have to register for VAT immediately on letting holiday accommodation. However, where a UK letting agent manages the property on your behalf, the VAT registration threshold of £79,000 applies for that landlord.
You can avoid having 20% tax deducted if you successfully apply for approval under the NRL scheme from HMRC. Approval will be granted where your UK tax affairs are up to date, or you don't expect to be liable to pay UK tax in the year you apply.
The NRL scheme applies if the landlord's usual place of abode is not in the UK. This is not the same as being not resident in the UK for tax purposes. An absence from the UK for as little as six months can be enough to establish your usual place of abode as being outside the UK.
The NRL scheme applies to members of the armed forces and diplomats, just as it does to any other non-resident landlord. It also applies to overseas trusts and companies, which must have income tax (not corporation tax) deducted from their rental income.
If your UK property is let as holiday accommodation, you may need to register for VAT in the UK as holiday lets are subject to standard rate VAT. As an overseas person you have a zero turnover threshold for VAT registration, so you may have to register for VAT immediately on letting holiday accommodation. However, where a UK letting agent manages the property on your behalf, the VAT registration threshold of £79,000 applies for that landlord.
Tuesday 25 March 2014
CGT ON HOME DEVELOPMENTS
Your main home is exempt from capital gains tax when you sell it, but only if you bought the property with the intention of living in it on a permanent basis, not as a project to renovate and sell. People who are required to live in job related accommodation, such as prison warders and church ministers, can have a separate tax-exempt home without having to live in it.
Some taxpayers who have taken on renovation projects have found the gain on their property doesn't qualify for the tax exemption, because they can't prove they occupied the property on a permanent basis while it was being renovated before the sale.
For example, Jason Moore bought a property with his girlfriend in December 1999. He claimed to have lived there while he renovated it in the period to late February 2000, when he returned to live with his girlfriend. The property was then let to tenants until it was sold for a profit in June 2004. Jason had no documentary evidence of his time at the property in the three months to February 2000, so his claim for the tax exemption failed.
Paul Gibson went much further in knocking down his whole home and constructing a new one on the same site, which he sold shortly after it was completed. Although Paul intended to live in the new property, he was forced to sell it to repay the loans he had taken out. He claimed to have occupied the finished house for about five months before the sale, but he couldn't prove this with any documents.
If you are planning a "grand design" conversion for your own home talk to us first about the tax implications.
Some taxpayers who have taken on renovation projects have found the gain on their property doesn't qualify for the tax exemption, because they can't prove they occupied the property on a permanent basis while it was being renovated before the sale.
For example, Jason Moore bought a property with his girlfriend in December 1999. He claimed to have lived there while he renovated it in the period to late February 2000, when he returned to live with his girlfriend. The property was then let to tenants until it was sold for a profit in June 2004. Jason had no documentary evidence of his time at the property in the three months to February 2000, so his claim for the tax exemption failed.
Paul Gibson went much further in knocking down his whole home and constructing a new one on the same site, which he sold shortly after it was completed. Although Paul intended to live in the new property, he was forced to sell it to repay the loans he had taken out. He claimed to have occupied the finished house for about five months before the sale, but he couldn't prove this with any documents.
If you are planning a "grand design" conversion for your own home talk to us first about the tax implications.
Saturday 22 March 2014
JUNIOR ISA
Use your children's Junior ISA limit.
Junior ISAs are long-term savings accounts for children. A child can have a Junior ISA if he or she is under 18, lives in the UK and does not have a child trust fund account.
The money belongs to the child, although anyone can put money in. There are two types of Junior ISA - cash Junior ISA and a stocks and shares Junior ISA. A child can have one or both.
The maximum amount that can be paid into a Junior ISA is £3,720 for 2013/14. Income and gains are tax-free. Except in very limited circumstances the money cannot be withdrawn until the child is 18.
An ISA can be used to build up a nice savings pot for the child or maybe to fund university or college.
Once a child reaches 16, they can open an adult cash ISA and take advantage of the higher investment limits.
Junior ISAs are long-term savings accounts for children. A child can have a Junior ISA if he or she is under 18, lives in the UK and does not have a child trust fund account.
The money belongs to the child, although anyone can put money in. There are two types of Junior ISA - cash Junior ISA and a stocks and shares Junior ISA. A child can have one or both.
The maximum amount that can be paid into a Junior ISA is £3,720 for 2013/14. Income and gains are tax-free. Except in very limited circumstances the money cannot be withdrawn until the child is 18.
An ISA can be used to build up a nice savings pot for the child or maybe to fund university or college.
Once a child reaches 16, they can open an adult cash ISA and take advantage of the higher investment limits.
Thursday 20 March 2014
INHERITANCE TAX
Inheritance tax (IHT) is payable at 40% on the net value of the assets you own when you die, plus (to a certain extent) on the value of the gifts you made in the seven years before you die. The first £325,000 of assets is currently exempt from IHT in all cases.
There are also exemptions from IHT for business assets, such as shares held in unquoted companies. However, you cannot escape IHT by holding all your investments and spare cash inside your personal company. The business of the company must be more than passive holding of investments, and the Taxman normally regards letting property as an investment, but this is a grey area.
Even where your company has an active trade, it doesn't follow that the full value of its shares will qualify for the IHT exemption. The Taxman wants to look inside the company and check that each asset it holds, including cash, is used for the purpose of the trading business.
This can cause difficulties for companies which hold more cash than is needed for everyday working capital. If your company is in this position, to get the IHT exemption you need to form some plans for use of the funds within the business and document those plans.
The IHT exemption applies where the shares of the trading company are held by individuals, or where a holding company holds the shares, and shares in that holding company are held by individuals. However, where the holding vehicle is a general partnership or an LLP, instead of a company, the IHT exemption does not apply.
There are also exemptions from IHT for business assets, such as shares held in unquoted companies. However, you cannot escape IHT by holding all your investments and spare cash inside your personal company. The business of the company must be more than passive holding of investments, and the Taxman normally regards letting property as an investment, but this is a grey area.
Even where your company has an active trade, it doesn't follow that the full value of its shares will qualify for the IHT exemption. The Taxman wants to look inside the company and check that each asset it holds, including cash, is used for the purpose of the trading business.
This can cause difficulties for companies which hold more cash than is needed for everyday working capital. If your company is in this position, to get the IHT exemption you need to form some plans for use of the funds within the business and document those plans.
The IHT exemption applies where the shares of the trading company are held by individuals, or where a holding company holds the shares, and shares in that holding company are held by individuals. However, where the holding vehicle is a general partnership or an LLP, instead of a company, the IHT exemption does not apply.
Wednesday 19 March 2014
PAY PAYE ON TIME TO AVOID PENALTIES
Penalties are charged if PAVE is paid late on more than one occasion in the tax year.
The penalty charged for late payment is a percentage of the PAYE paid late.
The penalty rate is linked to the number of occasions on which payment was made late in the tax year, ranging from 1% if payment is made late on two, three or four occasions in the year to 4% if payment is made late on 11 or 12 occasions.
A further penalty of 5% is charged if payment is outstanding after six months. If payment remains due after 12 months, a subsequent 5% penalty is levied.
A PAYE month runs to the 5th of each month. Where payment is made electronically, cleared funds must reach HMRC's bank account by the 22nd of the month. Payments of PAYE and NIC must reach HMRC by the 19th of the month if paid by cheque.
The penalty charged for late payment is a percentage of the PAYE paid late.
The penalty rate is linked to the number of occasions on which payment was made late in the tax year, ranging from 1% if payment is made late on two, three or four occasions in the year to 4% if payment is made late on 11 or 12 occasions.
A further penalty of 5% is charged if payment is outstanding after six months. If payment remains due after 12 months, a subsequent 5% penalty is levied.
A PAYE month runs to the 5th of each month. Where payment is made electronically, cleared funds must reach HMRC's bank account by the 22nd of the month. Payments of PAYE and NIC must reach HMRC by the 19th of the month if paid by cheque.
Friday 14 March 2014
CAPITAL ALLOWANCES: ANNUAL INVESTMENT ALLOWANCES
Ensuring that the annual investment allowance (AlA) is claimed on all new items of plant and machinery can save considerable amounts of tax.
The AlA gives a 100% deduction against profits up to the amount of the allowance. The allowance is £250,000 for a temporary period of two years from 1 January 2013, after which it will revert to £25,000 from 1 January 2015.
Where the chargeable accounting period spans 1 January 2013, the allowance is determined pro rata for the period before and after 1 January 2013. The pro rata limits set the maximum AlA expenditure in each period.
The AlA gives a 100% deduction against profits up to the amount of the allowance. The allowance is £250,000 for a temporary period of two years from 1 January 2013, after which it will revert to £25,000 from 1 January 2015.
Where the chargeable accounting period spans 1 January 2013, the allowance is determined pro rata for the period before and after 1 January 2013. The pro rata limits set the maximum AlA expenditure in each period.
Thursday 13 March 2014
VAT PENALTIES
If you pay your VAT late to HMRC, even one day late, your card will be marked for a VAT penalty called a 'default surcharge'. The first late payment doesn't attract a monetary penalty, but the second occasion on which you are late within 12 months triggers a penalty of 2% of the VAT due. The third, fourth, and fifth occasions of lateness increase the percentage of the penalty to 5%, 10% then 15% of the VAT due (ouch!).
You may not notice the first two penalties set at 2% and 5% of the VAT due as HMRC will only demand payment from a small business if the total penalty amounts to over £400. However, you will receive a warning letter, and you should appeal against the penalty if you had a reasonable excuse for paying late.
Not having the money available to pay your VAT bill is not a reasonable excuse. If your business has a cash flow problem you need to ask the HMRC business support service for time to pay before the VAT becomes payable, or we can do this on your behalf. The number to ring is: 0300 200 3835, and it's open every day. Don't ring the VAT helpline as they can't deal with VAT debt issues.
If your VAT payment was delayed by circumstances outside your control, for example a computer failure at your bank, that would be a reasonable excuse. However, you do need to present evidence of this reason when asking HMRC to review the penalty. Around 60% of VAT penalties are overturned on review, so it's worth a try!
You may not notice the first two penalties set at 2% and 5% of the VAT due as HMRC will only demand payment from a small business if the total penalty amounts to over £400. However, you will receive a warning letter, and you should appeal against the penalty if you had a reasonable excuse for paying late.
Not having the money available to pay your VAT bill is not a reasonable excuse. If your business has a cash flow problem you need to ask the HMRC business support service for time to pay before the VAT becomes payable, or we can do this on your behalf. The number to ring is: 0300 200 3835, and it's open every day. Don't ring the VAT helpline as they can't deal with VAT debt issues.
If your VAT payment was delayed by circumstances outside your control, for example a computer failure at your bank, that would be a reasonable excuse. However, you do need to present evidence of this reason when asking HMRC to review the penalty. Around 60% of VAT penalties are overturned on review, so it's worth a try!
Monday 10 March 2014
NON-RESIDENT LANDLORDS
If you leave the UK and let your property here, your letting agent (or the tenant where there is no agent) should deduct basic rate (20%) tax from the rents paid after deduction of certain expenses, under the non-resident landlord scheme (NRL). This ensures that at least some tax is paid on the income in the UK.
You can avoid having 20% tax deducted if you successfully apply for approval under the NRL scheme from HMRC. Approval will be granted where your UK tax affairs are up to date, or you don't expect to be liable to pay UK tax in the year you apply.
The NRL scheme applies if the landlord's usual place of abode is not in the UK. This is not the same as being not resident in the UK for tax purposes. An absence from the UK for as little as six months can be enough to establish your usual place of abode as being outside the UK.
The NRL scheme applies to members of the armed forces and diplomats, just as it does to any other non-resident landlord. It also applies to overseas trusts and companies, which must have income tax (not corporation tax) deducted from their rental income.
If your UK property is let as holiday accommodation, you may need to register for VAT in the UK as holiday lets are subject to standard rate VAT. As an overseas person you have a zero turnover threshold for VAT registration, so you may have to register for VAT immediately on letting holiday accommodation. However, where a UK letting agent manages the property on your behalf, the VAT registration threshold of £79,000 applies for that landlord.
You can avoid having 20% tax deducted if you successfully apply for approval under the NRL scheme from HMRC. Approval will be granted where your UK tax affairs are up to date, or you don't expect to be liable to pay UK tax in the year you apply.
The NRL scheme applies if the landlord's usual place of abode is not in the UK. This is not the same as being not resident in the UK for tax purposes. An absence from the UK for as little as six months can be enough to establish your usual place of abode as being outside the UK.
The NRL scheme applies to members of the armed forces and diplomats, just as it does to any other non-resident landlord. It also applies to overseas trusts and companies, which must have income tax (not corporation tax) deducted from their rental income.
If your UK property is let as holiday accommodation, you may need to register for VAT in the UK as holiday lets are subject to standard rate VAT. As an overseas person you have a zero turnover threshold for VAT registration, so you may have to register for VAT immediately on letting holiday accommodation. However, where a UK letting agent manages the property on your behalf, the VAT registration threshold of £79,000 applies for that landlord.
Friday 7 March 2014
CGT ON HOME DEVELOPMENTS
Your main home is exempt from capital gains tax when you sell it, but only if you bought the property with the intention of living in it on a permanent basis, not as a project to renovate and sell. People who are required to live in job related accommodation, such as prison warders and church ministers, can have a separate tax-exempt home without having to live in it.
Some taxpayers who have taken on renovation projects have found the gain on their property doesn't qualify for the tax exemption, because they can't prove they occupied the property on a permanent basis while it was being renovated before the sale.
For example, Jason Moore bought a property with his girlfriend in December 1999. He claimed to have lived there while he renovated it in the period to late February 2000, when he returned to live with his girlfriend. The property was then let to tenants until it was sold for a profit in June 2004. Jason had no documentary evidence of his time at the property in the three months to February 2000, so his claim for the tax exemption failed.
Paul Gibson went much further in knocking down his whole home and constructing a new one on the same site, which he sold shortly after it was completed. Although Paul intended to live in the new property, he was forced to sell it to repay the loans he had taken out. He claimed to have occupied the finished house for about five months before the sale, but he couldn't prove this with any documents.
If you are planning a "grand design" conversion for your own home talk to us first about the tax implications.
Some taxpayers who have taken on renovation projects have found the gain on their property doesn't qualify for the tax exemption, because they can't prove they occupied the property on a permanent basis while it was being renovated before the sale.
For example, Jason Moore bought a property with his girlfriend in December 1999. He claimed to have lived there while he renovated it in the period to late February 2000, when he returned to live with his girlfriend. The property was then let to tenants until it was sold for a profit in June 2004. Jason had no documentary evidence of his time at the property in the three months to February 2000, so his claim for the tax exemption failed.
Paul Gibson went much further in knocking down his whole home and constructing a new one on the same site, which he sold shortly after it was completed. Although Paul intended to live in the new property, he was forced to sell it to repay the loans he had taken out. He claimed to have occupied the finished house for about five months before the sale, but he couldn't prove this with any documents.
If you are planning a "grand design" conversion for your own home talk to us first about the tax implications.
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