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.

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.

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!

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.

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.

EMPLOYMENT AGENCIES

From 6 April 2014 if a worker supplied by an employment agency personally carries out the work, or is involved in the provision of the services, the payment from the engager to the worker will have to be taxed under PAYE with class 1 NICs deducted. Any apparent  right of substitution in the worker's contract will not prevent PAYE and NICs being due at the employed rates.

If you have any doubts about the contracts you are using either as a worker or an employer, our tax experts can help check the tax implications for you.

DISGUISED EMPLOYMENT

The Government is cracking down on situations in which workers are treated as self-employed for tax purposes, and hence pay low amounts of NICs, but from the outside they appear to act as employees. The following changes in the tax law are proposed to block the use of 'self-employed' workers working through LLPs or who are hired-out through employment agencies.

LLPs

All individual members of LLPs are currently taxed as self-employed persons, even if they receive a regular 'salary'. This is the default position of the law and nothing is being 'fiddled' to put workers in this position. However, HMRC believe this rule is being abused, and the workers involved may not realise that they are technically self-employed.

From 6 April 2014 salaried members of LLPs will be treated as employees of the LLP if  all of the following conditions are met:

- the member works for LLP and at least 80% of the pay he receives from
the LLP is disguised salary;
- where the member has contributed any capital to the LLP, that capital
amounts to less than 25% of the member's 'disguised salary' for the
year; and
- the member is not involved significantly in the management of the LLP.

The Government has not yet defined term 'disguised salary'. If you have salaried members in your LLP we need to talk about these tax changes.