Category: Income tax

Company cars are in their dying days

I didn’t say this, Rebecca Benneyworth, a highly respected tax lecturer said it in an article aimed mainly at accountants, adding

The company car is being taxed out of existence, whether you’re going for a low emissions or high emissions vehicle, and it’s just not worth it anymore

Rather than make you read an article aimed at accountants I’ll add a few quotes:

What’s going to happen is that tax on company cars is set to rise really quite markedly over the next few years. Oddly, it’s perverse, but almost the worst to lose out from it are people who have gone for a low emissions car.

If you’re an occasional business driver, it [the solution] really is give up your company car and charge 45p/25p a mile for your personal car.

It’s an even tougher decision for someone who does a lot of miles.

The answer ………… is probably a van.

Do remember these rules do not apply to sole traders and partnerships and there is no general rule which can be applied to everyone. You and/or your accountant should calculate the best option for you.

 

Don’t let the government into your bank accounts

The government is trying to give HMRC the power to access our bank accounts without recourse to anyone!

I know how often mistakes are made by HMRC and how difficult and how long it can take to correct their errors. My own Institute has said

To let HMRC take the money from bank accounts and argue later is not appropriate in a democratic society.

Please click on the link below to sign an e-petition to help prevent these proposals becoming law.

David Cameron and tax

I’ve read a great deal about David Cameron’s tax “giveaway”, most of it has been highly critical, and to be honest I do wonder how George Osborne will find £7bn to pay for it but I can’t help feeling that Cameron has the right idea.

One of his supporters is Christian May, head of communications at the Institute of Directors, who in an article on CITYA.M. sums up the speech in one sentence:

Rewarding those who do the right thing.

Our future prosperity depends on people who do the “right thing”, i.e. work hard, pay their taxes, save and support themselves. It doesn’t mean that we ignore those in society who can’t do this but not encouraging the “doers” will not solve our problems.

It’s time to take pride in ourselves and our country.

 

 

Sign this if you don’t want HMRC taking money from your bank account

Thirty years after 1984 the Government seems determined to allow HMRC to become Big Brother*.

Normally, I wouldn’t aim a discussion of tax legislation at the man or woman in the street but what the Government is proposing has the potential to affect everyone.

In very simple terms, HMRC will be allowed to recover tax debts from taxpayers’ bank accounts without sufficient safeguards and any outside supervision

The majority of the tax profession is against these proposals and has started a petition to withdraw the proposals but we need people outside the profession to voice their objections as well. After all, anybody may suddenly find HMRC have taken money from their bank account without warning.

Please sign the petition.

 

* Not the Channel 5 programme of the same name!

 

 

What the Budget means for small business finances

Economia, the magazine of the Institute of Chartered Accountants in England & Wales, very kindly published my summary of the Budget.

Unlike most of the summaries from other firms of chartered accountants it doesn’t focus on the detailed tweaks to the tax system which don’t really make a great deal of difference to businesses, especially small businesses. Instead, I have tried to point out what is important now that the Budget is over and what action you should take to make sure your business is a success.

 

Next week’s Budget – what to expect

 

This will be the last Budget which can have any significant impact on the May 2015 General Election.

The economy is finally beginning to grow but the Chancellor will be keen to say that there is still work to be done in addressing the public finances and rebalancing the economy.

So if you’re the owner of a small business what should you expect and more importantly what should you do?

  1. The Annual Investment Allowance was raised for a two year period from £25,000 to £250,000, and at the moment comes to an end on 31 December this year. If you’re thinking of spending money on equipment (including vans) during the coming year listen to what the Chancellor says about changing the Annual Investment Allowance. It may be worth bringing forward your spending plans.
  2. The Personal Allowance has increased enormously during this Parliament and it will be interesting to see what further announcements the Chancellor will make and whether there will be some announcement about the income level at which the 40% higher rate tax band begins. There is a great deal of correcting to be done! More and more people have been sucked into 40% tax because of ‘fiscal drag‘ and sadly there is very little that can be done about it. If you’re self employed, however, or own your own company you may be able to employ other ‘family members’ to utilise their basic rate (20%) bands to mitigate the effects.
  3. Business rates may change but until we have the details there is little which can be done.

Finally, and this relates to the 2013 Budget, make sure you take full advantage of the government’s Employment Allowance

 

Please may we have a bo***cks button for government statements?

A few months ago my daughter suggested that we needed a bo***cks button, in addition to the Like button, on Facebook to comment on our relative’s Facebook posts.

At about the same time, Paul Aplin, the chairman of the ICAEW Tax Faculty’s Technical Committee, in the Hardman Lecture asked why the ‘one-in,two-out‘ rule about red tape didn’t apply to tax law. Recently I  had to write to the Chief Executive of HMRC, so I took the opportunity to ask Paul’s question.

This is HMRC’s reply.

As you know in 2010, the Department  for Business  Innovation  and Skills launched  an
initiative to reduce the number  of new regulations  for businesses.  However,  tax law is not
included  in the ‘one-in, two-out’  rule because tax is not the same as regulation.  The
obligation  that tax law imposes  on business  represents  the essential  information  needed for
us to calculate  the tax charge,  or check compliance.  This distinguishes  them from pure
regulation,  where the aim is to change  behaviour.  The Government  initiatives to reduce red
tape are appropriate  for managing  regulatory  burdens  rather than tax policy.

Why did I bother?  And where’s the button?

As a director in 2014/15, what should I pay myself?

The introduction of Employment Allowance and the increase in the personal allowance to £10,000 has muddied the waters yet more in deciding the optimum salary to take as a director.

Last year I said

Like so many tax issues, a simple question produces a complicated answer!

This year I’m going to keep it really simple – the optimum salary is £10,000 per annum (£833.33 per month). Any less and you will waste personal allowances, any more and you will start paying too much in National Insurance.

Please note that if the company doesn’t qualify for Employment Allowance or the Employment allowance can be utilised against other employees, £10,000 per annum is wrong.

Likewise, if you have other income (not dividends) to set against your personal allowance, then £10,000 is wrong.

P.S. The reasoning behind paying £10,000 even though it creates a personal NIC liability of £245 is as follows:

  • If you wanted to avoid NIC your annual salary would have to be less than £7,956
  • You would therefore ‘waste’ £2,044 of personal allowance (£10,000 – £7,956)
  • The company would have to pay £408.80 corporation tax on the ‘extra’ profit of £2,044.
  • Your (personal) NIC saving would be £245.28
  • Overall the company and you would be £163.52 ‘worse off’.
  • The company will have to pay £282 NIC on the ‘extra’ £2044 salary but this will be refunded under the Enterprise Allowance scheme.
  • Once your salary exceeds £10,000 you will start paying tax at 20% and NIC at 12% (the company will have to pay a further 13.8%*) compared to the company paying corporation tax at 20% on the ‘extra’ profit if you do nothing.

* 11.04% after tax relief

How to avoid the High Income Child Benefit Tax Charge

More than 100,000 parents who were dragged into self assessment by changes to child benefit (the High Income Child Benefit Tax Charge) will miss next Friday’s deadline for filing their tax return because the sign-up process takes too long.

HMRC in view of this have relented slightly and have said provided you phone them early this week to arrange payment of the High Income Child Benefit Tax Charge by Friday’s deadline, you will have three months to complete your tax return, and you will not receive an automatic penalty of £100.

HMRC don’t set out what you should do so I suggest you:

  1. Phone the HMRC Self Assessment Helpline on 0300 200 3310;
  2. Explain that you are liable under the High Income Child Benefit Tax Charge but you haven’t registered for Self Assessment;
  3. Ask to register under Self Assessment;
  4. Ask for a call reference to prove you phoned. You won’t get one, so make a note of the name of the person you spoke to and the name of the office and the time of the call;
  5. Ask how you pay the tax due;
  6. Calculate the tax due using the Child Benefit tax calculator ;and
  7. Make sure you pay the tax on or before Friday, 31 January 2014.

And finally, don’t forget to complete and submit your 2013 tax return (online) within the three months.

HMRC “name and shame” but don’t collect the tax or penalties!

A few weeks ago HMRC published their first list of businesses who they say are deliberately defaulting paying tax. Richard Murphy has suggested that only little people are named and shamed for not paying tax but I would like to raise another point

What is the point of HMRC naming and shaming businesses when they have failed to collect the tax and penalties and will probably never ever receive a penny of the amount due?

The Trade Beverage Company Ltd of Mobberley owed £156,000 in corporation tax and £292,000 in penalties but according to the Manchester Evening News the company

was set up in March 2009, but 13 months later defaulted on a tax payment. It did the same in February 2011 and again in the following September. Last March it was served with a winding up notice and is now listed as being in liquidation.

HMRC would be better spending their time collecting the tax rather than naming and shaming people who are probably not bothered about the publicity. However, as I have explained previously, it’s not HMRC’s fault.

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