To July's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Corner.
We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.
Please contact us for advice in your own specific circumstances. We're here to help!
Applying New CGT Rules
The June Budget introduced some complex changes to capital gains tax (CGT) that apply from 23 June 2010. For disposals made on or after that date there are now three alterative tax rates for individuals.
Taxable income and gains after deduction of allowances up to £37,400 are taxed at 18%. Those over the £37,400 limit are taxed at 28% and gains subject to entrepreneur's relief are taxed at 10%.
The old CGT rate of 18% applies to all capital gains made by individuals and trustees from 6 April 2008 to 22 June 2010 inclusive, irrespective of the amount of the gain or the person's level of income. Trustees pay CGT at 28% on all gains made on or after 23 June 2010 irrespective of the level of income of the trust.
The new higher rate of 28% only applies to individuals where their total taxable income and gains exceed the higher tax rate threshold of £37,400. That sum includes the total income for the full tax year less allowances and all allowable deductions, plus all capital gains made on or after 23 June less your annual CGT exemption of £10,100. Any gains made before 23 June 2010 are not included in this total. You can choose how to set-off any losses and your annual CGT exemption so you pay the minimum amount of tax. This is best illustrated by an example:
Sid's taxable income for 2010/11 is £27,400 after his personal allowance and all tax allowable expenses have been deducted. He sold a property in May 2010 that made a gain of £17,000, and sold another property in November 2010 for a gain of £25,100. Neither property qualifies for entrepreneurs' relief or for the exemption as his main residence. Sid has no capital losses to use in 2010/11. The CGT on those gains is calculated as follows:
The first gain of £17,000 in May 2010 will be taxed at 18%. The second gain in November 2010 of £25,100 plus his taxable income of £27,400 exceed the higher rate threshold of £37,400 by £15,100 and liable to the higher 28% rate. As such it makes sense to deduct the CGT annual exemption of £10,100 from the second gain so that only £5,000 of the gain is taxed at 28%. The remainder of the gain of £10,000 will be taxed at 18%. If Sid has any CGT losses he could also have chosen to offset those against the second gain to maximise relief at 28% rather than 18%.
Giving Shares to Employees
There are a number of approved share schemes that a company can use to provide its employees with shares in the company they work for, or options to buy those shares at a favourable price. The scheme designed for small companies to use is the Enterprise Management Investment scheme (EMI).
If the company chooses not to use one of the approved share or share option schemes and issues shares or options to its employees, there can be some very serious tax consequences, such as:
- The employee is taxed on the value of the shares he receives as if that value was part of his salary.
- The company must pay the employer's class 1 NICs on the value of the shares issued.
- The company must also find the employee's class 1 NIC and the tax that should have been deducted under PAYE from the value of the shares provided to the employee.
- If the employee leaves shortly after acquiring the shares, the employer may not be able to recover the PAYE and NIC paid to in respect of the value of those shares.
- If the Taxman views the giving of the shares as part of a tax avoidance scheme, the employee may be subject to tax and NICs on any dividends he receives from those shares, as if those dividends were salary payments.
If you want to provide your employees with shares please talk to us about what you want to achieve this, so we can advise on how to do it the most tax efficient manner.
VAT Online - Are You Ready?
Compulsory online filing for VAT returns is here. The first period for which an established business with a turnover of £100,000 or more is required to submit their tax return online is the quarter ending 30 June 2010. That VAT return is due in by midnight on 31 July 2010. In fact as the VAT return is submitted online the submission date is stretched to 7 August 2010, although a VAT repayment claim must still be received by 31 July.
Businesses who always receive VAT repayments can ask to complete monthly VAT returns, in which case the first period for which they must submit their VAT return online was 30 April 2010.
Once you start to submit your VAT returns online you will no longer receive a paper form from the VAT office, or any type of paper reminder.
If you have included your email address in the information about your business in the HMRC online services page, you should receive an email reminder when your VAT return becomes due.
When you submit your VAT return online you also need to pay any VAT due electronically. One of the easiest ways to do this is by direct debit (DD), when the VATman calls the exact amount of VAT due from your account as reported on your VAT return. To allow the VAT office time to allocate your VAT return to the DD instruction, you must set up the DD instruction at least five working days before your VAT return is submitted online. Not five days before the VAT payment is due.
If you are a Mazuma client we will have already sent you a help sheet and step by step guide on how to file your VAT online.
Young People and Taxes
The summer is here and the exams are over, so many young people will be leaving school or college this month to take their chances in the jobs market. It is a daunting prospect; trying to cope with the tax and benefits systems for the first time.
If your child is in this position you could point them towards the HMRC website designed for 16 to 19 year olds: http://www.taxmatters.hmrc.gov.uk
It covers topics such as NI and how the NI number is important, what is PAYE and self-assessment. There are also quizzes and a teacher's area including materials teachers can use to explain tax to different age groups of students.
As a parent you may need to tell HMRC that your child is no longer in full-time education.
- Child benefit is paid until 31 August following the child's 16th birthday, but after that date the benefit if only paid while the child is under 20 and in relevant education or training, or is aged under 18 and is registered for work, education or training with an approved body. You can provide the relevant details to HMRC using an online form on their website, or by phoning the child benefit helpline on: 0845 302 1444.
- If you are claiming Child Tax Credits for that child you also need to inform the Tax Credits Office that your child is no longer in full-time education. You can only do this by telephone on 0845 300 3900 as the online forms for Tax Credits were taken down some years ago due to fraud.
Although Working and Child Tax Credits are administered by HMRC who also administer Child Benefit, you will need to make to make a separate call to the Tax Credits office as their computers are not linked into the Child Benefit system.
July Question and Answer Section
Q. My company has bought a classic motorcycle as an investment. Can it claim a tax deduction for the cost? If the motorcycle is kept at my home, but not used at all, will I suffer a tax charge?
A. If your company buys a motorcycle for use in its trade, including providing the motorcycle to the director, it can claim a tax deduction for the cost. If the motorcycle is purchased as an investment and not used in the trade, the company cannot claim a tax deduction for the cost.
If the motorcycle is kept at your home it is available for your use. The benefit in kind tax charge applies if the motorcycle is made available to you, not whether you actually ride it. The same tax charge would apply whether the motorcycle was a 'work of art' or a functioning motorcycle, as it remains a company owned asset which is made available to you for your private use.
Q. I'm looking to buy the property my company trades from. Should I buy it in my own name or should my company buy it? I have the reserves for either.
A. If you hold the property personally and let it to the company you will be able to extract funds from your company as NIC-free rents. However, when you sell the property, the gain may well be taxed at a higher rate in your hands (up to 28%) than in the company (possibly 20%). You will only get entrepreneurs' relief on the property if it is sold in association with your withdrawal from the business that involves a disposal of some, but not necessarily all, of the company shares. The entrepreneurs' relief on the gain is reduced where rent for the property has been paid by the company.
If the company holds property this removes the possibility of NIC-free rents. When the company sells the property it will get indexation relief on the value and the net gain may be taxed at a lower tax rate. However, the proceeds will be trapped within the company. Both you and the company could roll-over a gain arising on the sale of the property in the future, if it has been used for the purpose of the trade carried out by your personal company. As you can see there is a lot to consider and expert advice in your own situation is important
Q. What happened to the Furnished Holiday Lettings rules in the Budget?
A. The tax rules and exemptions for furnished holiday lettings (FHL) remain in place and unchanged at least until 5 April 2011 (1 April 2011 for companies). However, the Government has said that it will consult on changes to the FHL rules to be introduced from 6 April 2011.Those changes are likely to include a restriction on how losses from FHL can be set off, and a tightening of the conditions which will allow the tax reliefs for FHL to be claimed.
July Key Tax Dates
5 Deadline for PAYE settlement agreement for 2009/10
6 Deadline for 2009/10 forms P11Db, P11D and P9D to be submitted and copies of P11D and P9D to be issued to relevant employees
Deadline for employers to report share incentives for 2009/10 - form 42
14 Return and Payment of CT61 tax due for quarter to 30 June 2010
19/22 PAYE/NIC and CIS deductions due for month to 5/7/2010 or quarter 1 of 2010/11 for small employers
19 Class 1A NIC due in respect of the tax year 2009/10
31 Second self assessment payment on account due for 2009/10.
Second 5% penalty surcharge on any 2008/09 outstanding tax due on 31 January 2010 still unpaid.
Second £100 penalty if 2008/09 tax return due for filing on 31 January 2010 is still outstanding.
Deadline for Tax Credits to finalise claims for 2009/10 and renew claims for 2010/11
Much More From Mr P...
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The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.