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.
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?
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
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:
- Phone the HMRC Self Assessment Helpline on 0300 200 3310;
- Explain that you are liable under the High Income Child Benefit Tax Charge but you haven’t registered for Self Assessment;
- Ask to register under Self Assessment;
- 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;
- Ask how you pay the tax due;
- Calculate the tax due using the Child Benefit tax calculator ;and
- 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.
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.
Let me know if you would like a copy of the Simple Guide to Self Assessment by sending me a tweet @StuartJones or an email email@example.com
The first thing to remember is you don’t pay HMRC through the HMRC website.
You pay HMRC as you would anyone else by going to your own online bank account.
You’ll need the HMRC reference which is on your payslip.
If you don’t have your reference, use your Unique Tax Reference (UTR) and add the letter K after the ten figure number.
Your bank will probably have set up HMRC‘s details already.
Make sure you choose the account which refers to Self Assessment, Self, or something similar.
If there is a choice between Shipley and Cumbernauld choose Cumbernauld.
And then follow the bank’s instructions.
The countdown has begun to the 31 January Self Assessment deadline, with just days left for anyone with an outstanding 2011-12 tax return to send it online to HM Revenue and Customs (HMRC).
If you haven’t sent a tax return online before, you’ll need to sign up for HMRC’s online service by Monday 21 January. This is because it can take up to seven working days to complete the process, as an Activation Code has to be posted to you.
But, more importantly, if you’ve filed online before, but have lost your password or user ID and need a replacement, you must also contact HMRC by this date.
I would also keep a record of when you applied for the details, just in case they are delayed in the post and you are unable to submit your return on time. Penalties are automatic and you will need to appeal and submit evidence of why the return was late, in the hope that HMRC will cancel the penalty.
As yet another high street retailer closes the shutters, we have an opportunity to vote on the following
Tax avoidance: fair or foul?
Don’t be put off by the fact that its being run by AccountancyAge or because its only for professionals, it isn’t.
The arguments for and against are put simply by Richard Murphy, the director of Tax Research UK, and Stephen Herring, a tax partner in BDO.
Please vote by clicking here.
It will make a difference.