To October'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 Section.
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!
Taxman Brings in the Heavies
The Taxman has hired four debt collection firms to help collect an additional £140 million of unpaid taxes each year. Those firms are:
- Commercial Collection Services Ltd;
- Credit Solutions Ltd;
- Fairfax Solicitors Ltd; and
- iQor Recovery Service Ltd.
They will all be expected to operate under industry and Tax Office standards.
If you owe tax, even a just a few hundred pounds, you may well find a bailiff from one of those commercial firms on your doorstep. Before this happens you should receive a warning letter from the Collector of Taxes, but we know those letters can be out of date, contain incorrect figures or sometimes never arrive.
We are aware of some problems with corporation tax demands such as:
- Letters asking for tax to be paid but with no details of how the debt arose, or what period it is for;
- Demands sent where no corporation tax is due;
- Estimated tax bills issued and chased when in fact no tax is due.
If you receive a letter regarding an unpaid tax debt do not ignore it, even if the facts are incorrect and you don't owe the tax stated. If the Taxman's information is not corrected promptly you can expect to see the bailiffs and they can be hard people to deal with.
National Minimum Wage Changes
In the current recession you may have been forced to freeze or even reduce wages. If your workers are low paid you must be careful that you continue to pay at least the national minimum wage rate (NMW).
The hourly NMW rates increased on 1 October 2010 and now apply to workers in the following age bands:
21 and over: £5.93
16 and 17: £3.64
Apprentice rate: £2.50
The apprentice rate applies to apprentices aged under 19, or those aged 19 or more in the first year of their apprenticeship.
The Taxman can impose penalties of up to £5,000 if you do not pay the statutory NMW rate, and you may even be tried in the Crown Court for non-compliance with the NMW rate regulations, leading to an unlimited fine. You must also pay any arrears of wages owed (for the previous 6 years), based on the current NMW rate, not the rate in force when your employee was underpaid.
You have no doubt heard on the news about the PAYE 'errors' affecting millions of people this autumn. The underlying problem is not new - the PAYE system does not cope well with taxpayers who have income from more than one employment or pension during the year. Under or overpayments of tax arise, and when the Taxman gets round to reconciling the tax and allowances due on the two or more employments, he issues a tax computation (form P800) to the taxpayer.
Unfortunately the Taxman did not do his reconciliations for 2008/09 (and in many circumstances for earlier years), so there are now two years worth of forms P800 (2008/09 and 2009/10) on their way to up to 4.7 million taxpayers.
It is going to take some weeks to issue all those forms, so you may not receive a letter immediately, if at all. If you normally complete a self-assessment tax return form you should not receive a form P800 as all your tax liabilities are reconciled on the self-assessment form.
If you do receive a form P800, don't panic. In most cases it will show a repayment of tax, which will be sent to you within a few weeks. You do not have to supply any further details to the Taxman to get this repayment. To avoid fraudulent scams, PLEASE DO NOT respond to emails or telephone calls asking for your bank details in connection with a tax repayment.
If the form P800 shows that you owe some tax, you won't have to pay anything immediately. Indeed, if you owe less than £300 in total for 2008/09 and 2009/10 that tax will be written off and you won't have anything to pay. If the tax due is less than £2,000 it will be collected through your 2011/12 PAYE, so the amount will be deducted from your monthly salary in the year to 6 April 2012. If the tax due is more than £2,000 the Tax Office will issue a separate payment request, and ask for payments to be made in 2011. However, if you will have difficulty in paying the amount due, whether this is more or less than £2000, you can ask to pay over an extended period of up to three years.
There is a possibility that you could avoid paying the tax due, where you can prove that the Taxman ignored information relating to your tax affairs for more than 12 months after the end of the tax year. This procedure is called Extra Statutory Concession A19, and you need to make a claim for this to apply.
Tell the Taxman Now!
Did you know you could be landed with a penalty if you fail to tell the Taxman when you become liable to pay tax? For example, when you become self-employed, or make a large capital gain. The deadline for declaring that you have income tax or capital gains tax (CGT) chargeable relating to the year to 5 April 2010, is 5 October 2010.
If you miss that deadline, the Taxman may send you a failure to notify penalty, which can be up to 100% of the tax due. However, if you pay all the tax due on time, which for income tax and CGT relating to the 2009/10 tax year, is by 31 January 2011, the penalty can be reduced to nil.
Where you have already received a self-assessment tax return form to complete for 2009/10 or a notice to file a self-assessment tax return online, your obligation to tell the Taxman is satisfied when you submit your tax return on time. But if you haven't got a tax return form, you need to ask the Taxman to set you up in the self-assessment system before 5 October 2010. We can help you with registration.
Once you are registered with the Tax Office, you should receive either a Tax Return form or a letter from the Taxman asking you file a Tax Return online. The form or letter will include your Unique Taxpayer Reference number (UTR). If you submit a Tax Return that does not include your personal UTR number it may be rejected, and any tax payments you make will not be promptly matched to your records.
October Question and Answer Section
Q. As I was made redundant last year I decided to take time out and build my own house. A neighbour told me I could claim back the VAT on my costs, even though I am not a VAT registered builder. If that is true, how do I go about claiming?
A. You can reclaim VAT correctly charged on your building materials and on most of your building services, using the VAT refund scheme for DIY builders. The claim form for new builds under this scheme (VAT 431NB) can be downloaded from the HMRC website, but be sure to also read the guidance notes. There is a different form (VAT 431C) to use where you are converting a property rather than building it from new. In either case you can't reclaim the VAT charged on professional services connected with the build, such as architectural or legal services. We can help you compile and submit your claim to the VAT office.
Q. A large UK company has made a late payment of fees owed to my company. They paid interest on the late paid amount, as they are required to do so under the contract, but they deducted tax from that interest. How do I deal with that tax in my accounts?
A. Your customer should not have deducted tax from the interest it paid, as both parties involved in the transaction are UK resident companies trading in the UK. Companies used to have to deduct income tax from annual amounts of interest paid, but that requirement was removed from 1 April 2001 where the recipient is a UK company. Ask your customer to pay you the amount of interest it has withheld as 'tax'. We can provide a longer explanation of the legal position if you need it.
Q. I have received several emails recently from organisations claiming I could use an employee benefit trust (EBT) to reduce tax. Is this a scam, or is there something in it?
A. In outline a lot of EBT schemes works like this: the company pays money into the EBT and employees of the company receive a loan from the EBT in place of all or part of their salary. The employees pay tax and NI on just 4% on the loan per year. This all sounds good, but there can be various problems in practice. Some schemes are more aggressive than others and you should be prepared for the Taxman to look very closely and try to challenge such arrangements. They are not for those not willing to take some risk and you should be made aware of all the risks involved before proceeding.
Much More from Mr P...
Here at Mazuma we're big believers in giving people Accountancy advice in a simple and accessible way; that's why our very own Mr P is an avid Twitter user and offers free Accountancy advice to all Twitter users, whether you are a Mazuma client or not!
So, if you've got a niggling tax question or a pesky VAT query lurking in the back of your mind, why not get on to Twitter and Ask Mr P?
For more information about Mr P, see our website here.
p.s. Don't forget about our iPad competition!
October Key Tax Dates
1 Due date for payment of Corporation Tax for the year ended 31 December 2009
5 If a Tax Return has not been received, individuals and trustees must notify HMRC of new sources of income and chargeability in 2009/10
14 Return and payment of CT61 tax due for quarter to 30 September 2010
19 Tax and Class 1B NI due on PAYE settlements for 2009/10
19/22 PAYE/NIC, and CIS deductions due for month to 5/10/2010 or quarter 2 of 2010/11 for small employers
31 Deadline for 2009/10 self assessment paper returns to be filed for HMRC to do the tax calculation.
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.