Dividends – Husband & Wife companies

When you form a new company, in which you will be the main income generator, should you subscribe for shares and give some to your partner, or should you both subscribe?

The answer – either way is OK and will be effective in splitting the income for tax purposes. The ruling by the Lords states that ‘where one shareholder is wholly or mainly responsible for generating a company’s income and allows their spouse to receive a share of it either by transferring shares to them or allowing them to subscribe for them when the company is formed, it counts as a ‘settlement’ (gift)’

For example, you set up a company and expect to generate a profit, after corporation tax, of around £137,000. If you owned all the shares in the company and took all of its profits as dividends, you would pay income tax of around £35,000. But, if half the shares were owned by your partner (who does not work), your joint liability on the same income would be halved to around £17,500.

Planning how many shares each spouse should own for maximum tax efficiency can be difficult as the company’s and both your income’s are likely to change from year to year. For this reason, consider issuing ‘Alphabet shares’ to each of you so that dividends can be varied.

If you would like help in forming a company and issuing shares, please give us a call on 01908 227055 or drop us an email.

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Bought something on holiday for your business?

You’re in Europe on holiday and see something you need for your business, i.e. IT equipment.

How do you account for the VAT?

The best thing to do in this situation is to tell the seller that you intend taking that equipment back to use in your business in the UK. If you provide them with your VAT number plus the name and address of your business, the seller can then zero-rate the sale.

When back in the UK, you can then account for the VAT on the goods on your UK VAT return and on the same return reclaim any of the VAT you are entitled to according to the UK rules.

If you would like us to complete your VAT return, give us a call on 01908 227055 or drop us an email.

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HMRC’s plan to accelerate Capital Gains Tax

From April 2020, the way that you are required to report and pay capital gains tax made from the sale of residential property is changing.

At present, gains made by individuals are reported through self-assessment. i.e. if you sell a property in the tax year ended 5 April 2020, you must declare it on your tax return and pay the tax you owe no later than 31 January 2021.

The new rules

As of 6 April 2020, you will have just 30 days following completion of the sale to submit a provisional calculation of the gain and pay the tax you estimate is due.

You must still declare the gain on your self-assessment tax return and pay, by the usual self-assessment deadline, any gain over and above what you estimated.

Once you have submitted your estimated calculation and paid the tax, if you discover you made a capital loss, you will not be allowed to reduce it until you submit your self-assessment tax return. There will be penalties if you do not meet the 30 day deadline for reporting and paying the tax.

If you would like any help with CGT or submission of your self-assessment tax return, please drop us an email or call us on 01908 227055

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Inheritance Tax – Quick Succession Relief

Q. My father inherited a large sum of money a few years before his own death. This money had already been subject to Inheritance Tax, how can I avoid paying full Inheritance Tax on the same money again?

A. Quick Succession Relief.

Quick Succession Relief can reduce Inheritance Tax payable if the two deaths occurred within 5 years of each other.

The reduction depends on the years between transfer and death:

  • 100% – up to one year
  • 80% – between 1 and 2 years
  • 60% – between 2 and 3 years
  • 40% – between 3 and 4 years
  • 20% – between 4 and 5 years

The Inheritance Tax threshold is £325,000.

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Reclaiming extra Stamp Duty Land Tax

In April 2016, HMRC introduced a higher rate of ‘Stamp Duty Land Tax’ (SDLT) for those buying a residential home and already owned one or more. This was bad news for buy-to-let investors who were the government’s intended target for the new tax.

The extra 3% paid in SDLT also affects buyers who acquire a new home before selling their old one. Say, for instance, they want to ‘do up’ the old house first before selling in order to get a better price. But, essentially, they own two homes until the old one is sold.

The extra 3% can be reclaimed but there are deadlines!!!

The deadline depends on when the sale of your old home took place.

  • Sale on or before 28 October 2018 – claim by the later of either, three months of the sale of the old property or twelve months of the filing date of the SDLT return for your new home (usually 30 days from completion)
  • Sales on or after 29 October 2018 – claim within 12 months of the later of either, the sale of your old home or the filing date of the SDLT return for the purchase of your new home.

It is easy to reclaim the extra SDLT (there are different procedures for Scotland and Wales). Apply online at https://www.gov.uk/government/publications/stamp-duty-land-tax-apply-for-a-repayment-of-the-higher-rates-for-additional-properties

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Corporation Tax & Changing your Accounting Date

Extending your company’s accounting period has the advantage of spreading the profit and the tax bill but how does if affect tax returns and payments?

Accounting periods, for Corporation Tax purposes, cannot exceed twelve months, although it can be shorter. For example, if your accounting date was 30 May 2019 and you decide to extend it to 30 November 2019, you must divide your accounting period up into a twelve month period to 30 May 2019 and a six month period ended 30 November 2019 and not the other way around. You must submit two CT returns, one for each period. The deadline for both returns would be 30 November 2020!

The Corporation Tax payable, however, must be paid 9 months and 1 day after each period. So for the 30 May 2019 period, CT is due on 1 March 2020 and for the 30 November 2019 period it is due on 1 August 2020.

If you would like help in extending your company accounting date, company formation or with preparing your Corportation Tax return – please give us a call on 01908 227055 or drop us an email: info@srlynn.co.uk

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Rent a Room Relief

Rent a room relief of £7,500 is available if sharing your home with a lodger.

It had previously been announced that Finance Bill 2019 would introduce a shared occupancy test for rent a room relief for 2019/2020 onwards. However it is now announced that this test will not be introduced by Finance  Bill 2019.

 

 

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Property tax changes – Sale of own home Principal Private Residence Relief

You do not pay tax on the sale of your own home if you have occupied throughout the period of ownership. For periods you have not occupied the house tax  may be payable.

The chancellor announced 2 significant changes to reliefs available on sale of our Principal Private Residence (PPR) which effect people who have had periods of time where they have not occupied the home. 

If you let out your home during the period of ownership, you can claim letting  relief, however from 6/4/2020 this will be reformed so that it applies only in circumstances where the owner of the property is in shared-occupancy with a tenant.

Also on 6/4/2020 the “final relief period” of 18 months will be reduced to 9 months.

 

 

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Registering for VAT on or after 1 April 2019?

If you’re required to register for VAT on or after 1 April 2019,  Making Tax Digital for VAT will apply to you from the date of registration unless: 

  • you’re exempt* – you’ll need to apply to HMRC for an exemption
  • your business falls into one of the deferred start date categories**
  • the Stage 2 start date applies to you (mainly businesses who aren’t required to register but voluntarily register)

* if you aren’t permitted to use computers for religious reasons, are unable to because of age, disability or location, any other reason acceptable to HMRC
**trusts, not-for-profit organisations, divisional and group registrations, businesses based oversea, those required to make VAT payments on account or use the annual accounting scheme

If you require help with VAT or VAT Registration, please give us a call on 01908 227055

 

 

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High Income Child Benefit Charges (HICBC)

HMRC are now raising assessments going back to 2012/13 to individuals not under Self-Assessment for the HICBC.  They are also charging penalties for the failure to notify HMRC of a tax liability. 

If you or your partners earnings are over £50,000, you are obligated to either opt out of Child Benefit receipts or pay the tax charge.  HMRC have an online calculator to help you decide whether you need to pay the charge and how much is payable.

 

 

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HMRC’s Tax Calculation Forms P800

HMRC have been sending out tax calculation forms P800 and PA302. 

If you receive one of these calculations from HMRC, we would encourage you to check them.  In particular interest, dividend and rental income figures as these could be estimates, as HMRC will not have had  direct access to these amounts, unlike employment and pension income and state pension income. 

If you submit Self-Assessment returns, you should not receive one of these forms.  If you do, you need to call HMRC and ask them to cancel the form. 

If you need any help with checking a calculation from HMRC, then please give us a call on 01908 227055.

 

 

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EIS Schemes and Directors

To qualify for EIS relief you must subscribe for shares and not purchase them from a person or another business.  The company must be trading and you must have at least 5% of the company’s ordinary shares. 

You must not be connected with the company or EIS relief will be lost.  Connected means a paid employee or director, but you can be an unpaid director.  You must not own directly or indirectly 30% of the company’s ordinary shares capital, it’s voting rights or rights to assets on winding up. 

It is recommended that the shares should be subscribed for before the individual is appointed as a director, but remain unpaid for the 3 years after the shares were acquired or trade commences, which ever is the later. 

 

 

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VAT Notice 700/22 Making Tax Digital

HMRC have updated VAT Notice 700/22 MTD for VAT.  This sets out examples of how digital links can be used and where they are required.

VAT registered businesses should take the time now to look at this notice, as MTD for VAT came in to effect April 2019, and if a change in accounting software is required, or the setup of digital links, then this could take time to implement.  Many businesses are assuming their current software is MTD compliant, but there are some that are probably not even aware MTD exists. The notice is quite clear that it is happening, and there will be no further delay.

What is a “digital link”?

A digital link includes linked cells in spreadsheets, for example, if you have a formula in one sheet that mirrors the source’s value in another cell, then the cells are linked.

HMRC will also accept digital links as:

  • emailing a spreadsheet containing digital records to a tax agent so that the agent can import the data into their software to carry out a calculation (for instance, a Partial Exemption calculation)
  • transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, flash drive) and physically giving this to an agent to import that data into their software
  • XML, CSV import and export and download and upload of files
  • automated data transfer
  • API transfer

However the good news is for the first year of mandation (VAT periods commencing between 1 April 2019 and 31 March 2020) businesses will not be required to have digital links between software programs. The one exception to this is where data is transferred, following preparation of the information required for the VAT Return, to another product (for example, a bridging product) that is API-enabled solely for the purpose of submitting the 9 Box VAT Return data to HMRC. The transfer of data to this product must be digital.’

If you need help with MTD for VAT please give us a call on 01908 227055.

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Updated: 6 June 2019

Employer Notifications

HMRC are rapidly moving further towards being fully digital and therefore, the days of paper mailings are numbered. 

We are encouraging our employer clients to register for email alerts so they are aware of their latest coding changes and important information published on the Government web pages. 

 

 

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Company Tax References (UTR)

You have always been able to call HMRC and ask for your company Corporation Tax reference number.  HMRC are now withdrawing this option as it receives a large number of calls and is taking up valuable resources. 

If you cannot find your Company’s UTR, you will have to log onto your Business Tax Account or go back and look at letters or notices sent by HMRC.  It is worthwhile keeping a note of the UTR for future reference. 

 

 

 

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HMRC Refund Cheques

HMRC are phasing out cheques for Corporation Tax refunds. 

Companies that are expecting a refund should include their company’s bank details on the CT600 (Corporation Tax Return).  This will enable HMRC to send the refund directly. 

The bank account must be a UK bank account in the company’s name.

 

 

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Stamp Duty Land Tax

“I’m buying my first house, do I have to pay stamp duty……”

First time buyers of residential properties in England, Wales and Northern Ireland will not pay Stamp Duty Land Tax (SDLT) when buying a property of £300,000 or less. 

First time buyers paying between £300,000 and £500,000 will pay SDLT at 5% on the amount of the purchase price above £300,000. 

 

 

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Tax on Bank and Building Society Interest

For individuals who are not required to file Self-Assessment returns, HMRC are changing the way they collect tax on interest earned from savings.

HMRC have been working closely with banks and building societies and, in November 2017,  HMRC began writing directly to individuals where the interest on their savings exceeded the new personal savings allowance during the tax year 5 April 2017.  HMRC are advising that they have changed individuals tax codes  to collect any tax due.

If you are one of these individuals and need some help to check HMRC’s adjustment, please give us a call on 01908 227055.

 

 

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When does a business need to register for VAT?

The VAT registration threshold is currently £85,000 pa, so when a business’ taxable turnover reaches the limit, it must register for VAT. 

You should be monitoring your turnover on a rolling 12 month basis and then it is advisable to check your turnover for the past 12 months on a monthly basis.

What is my taxable turnover? 

There are some income streams that can be excluded when deciding if your business needs to register for VAT such as : 

  • Income outside the scope of VAT including: 

                –   Supplies of services to business customers in another EU country
                –   Supplies of services to customers outside the EU
                –   Supplies of goods or services that are outside the scope of UK VAT because of the place of supply rules

  • Rental income
  • Sale of land and buildings
  • Betting or gaming income

 

 

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Entrepreneurs’ Relief (ER) and risks of not meeting the conditions

Did you know that Entrepreneurs’ Relief would be lost if you resigned on or before the date of the contract to sell your shares? 

One of the conditions of Entrepreneurs’ Relief is that you must have been an employee or officer of the company for the previous 12 months.  If you resign the day before the contract, the conditions for ER will not have been met and you will be unable to claim the general relief and  pay Capital Gains at 10%. 

Please make sure that you do not fall into this trap when selling shares in your company. 

 

 

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Training Costs – Can I get tax relief?

This is a question I get asked from time to time and the answer is not as straight forward as you think. 

Whether you get relief depends on the following: 

  • Type of training, is it a new skill or development for keeping up-to-date in your industry?
  • Are you self-employed or an employee or director? 

If you are a sole trader or partner, the training must be wholly and exclusively for the purpose of the business and not be of a capital nature.  HMRC considers training to be  of a capital nature if it is training for a new qualification or skill. 

However, if you are a director or employee the rules are much simpler and clearer.  If the training is related to the employment, a company can claim the cost as allowable, and not a taxable benefit for the employee/director. 

 

 

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Do you pay wages to your spouse?

Do you pay wages to your spouse? 


If so, have you considered whether the payment is “wholly and exclusively” for the purpose of the business?

 

This can be an easy challenge for HMRC.  When a spouse or a family member works for you or your business you should apply the same principles as if they were a regular employee, such as giving them an employment contract.  You should not pay your spouse a rate that is excessive for the type and amount of work that they do. 

In addition, if you are a sole trader and you pay your spouse a wage, you should actually pay the wage rather than making a book entry. 

 

 

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Directors bonuses and Real Time Information

When a company declares a bonus to a director at its AGM, it is common for the declared bonus to be paid sometime in the future in order to get the Corporation Tax relief  (usually within 9 months of the end of the accounting period to which the bonus relates).  But, for PAYE purposes, the bonus is treated as paid on the date of the meeting.

Most companies are not aware of the ‘deemed payment’ rules for PAYE/RTI.  If your business pays directors bonuses, then you should notify your Payroll Administrator the same day that you declare the bonus. 

This is, of course, in practice, difficult to do.  Therefore, if there is more than one director receiving a bonus, you should not determine an amount for each director and just record the total amount available for the directors bonuses.  This way they will not count as paid until the bonus has been allocated between the directors. 

 

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Capital Gains Tax when Selling a Property

It  can be fairly simple to calculate the gain when you dispose of a property (the difference between the cost of the property and what you sell it for).

However, the sales price could include furniture, fixtures, white goods, adjustments to reflect water rates or warranties etc. These amounts should be excluded when working out your gain, as they are not taxable.

You should ask your Solicitor when selling a property to split out the extras on your Completion Statement for clarity and ease when calculating your gain.

If you need any help with CGT calcucations the please give us a call on 01908 227055

 

 

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Rent a Room Relief

If you rent a room out in your home,   HMRC let you earn up to £7,500 tax free .  To qualify for the relief, you must be a resident landlord or run a Bed and Breakfast.  The accommodation must be furnished and be part of your home. 

The exemption is automatic if your rent a room income is under the threshold. 

 

If you earn over £7,500 you can opt into the scheme and claim your £7,500 allowance on your return. 

However, you can choose whether or not you claim the allowance and you should choose which is more tax efficient:

  • Method 1 – pay tax on your gross receipts less the allowance. 
  • Method 2 – pay tax on your gross receipts less expenses. 

You can opt in and out of the scheme in each tax year.  However, if you want to opt in and claim the relief, you will need to tell HMRC within the time limit, which is 31 January following the end of the tax year. 

Careful consideration is needed if you are making losses. 

If you need any help or advice, please give us a call on 01908 227055.

 

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CIS – Ltd Company Subcontractor’s Repayment iForm

If you are a limited company subcontractor and you have not been able to off-set your company’s CIS deductions against PAYE liabilities during the year, you may need to claim a repayment after the end of the tax year. 

HMRC have now issued a new ‘Repayment iForm‘.  Rather than writing to claim a repayment, a limited company subcontractor can log into the Government Gateway and submit their claim using the iForm. 

 

 

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EIS/SEIS Schemes and Deferral Relief

Individuals making an investment under EIS or SEIS schemes cannot make a claim for Income Tax or Capital Gains Tax deferral relief unless they have a compliance certificate from the company that they invested in. 

A company can not issue a certificate to it’s investors until HMRC have authorised the company under the relevant scheme. 

Remember, a compliance certificate doesn’t automatically mean that an investor is entitled to claim the tax reliefs.  Individuals must also meet certain conditions relating to their personal circumstances. 

 

 

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Does the income from my buy-to-let properties trigger Class 2 and Class 4 NIC liabilities?

Buy to let blog  Surely my profits from a buy-to-let is not self employment? 

HMRC are known to look at buy-to-let investors and conclude that Class 2 and Class 4 NIC be due on profits.

The key is, do you play an active part in property management? 


Ask yourself these questions:

  • Do you advertise your properties?
  • Who collects the rent?
  • Who looks after the physical aspects of the properties?
  • How much of your time do you spend on looking after the properties?
  • Do you have other income, such as employment, which takes up the majority of your time?

If the answers to the questions above indicate that you spend a large amount of your time carrying out activities of a Landlord then you could be liable to Class 2 and 4 National Insurance liabilities.

If you would like any advice regarding a buy-to-let business, then please contact us on 01908 227055

Joanne

 

 

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VAT Flat Rate Scheme for Small Businesses

IMG_4421Jo  For businesses using the Flat Rate Scheme for VAT, the rules are changing. 

All businesses that use the Flat Rate Scheme will be required to check if they are a ‘limited cost trader’.   If your business falls within this category then you are required to use the FRS rate of 16.5%, which would mean an increase of 4.5% for your company.  If you don’t fall into this category then you can carry on using the same rate as before.

There is guidance in HMRC’s paper VAT Notice 733: Flat Rate Scheme for small businesseswhich helps you work out if you fall into this category.  


For some businesses it maybe more beneficial for you to leave the scheme.  If you would like advice on this, please give us a call on 01908 227055  

Joanne

 

 

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Accelerated CGT

The Chancellor made another attack on those owning residential property not used as their home.  From 6 April 2019, anyone who makes a gain from selling such properties will have to pay an amount on account of their capital gains tax bill within 30 days of completion.  The government will consult on how the scheme will work.

Dividend Tax

Tax on dividends is usually payable as part of your self-assessment bill on 31 January following the end of the tax year.  However, HMRC is making adjustments to some director shareholders’ code numbers to increase the PAYE tax on their salary as an alternative way to get its hands on the extra dividend tax sooner.

HMRC is including adjustments in tax codes.  To have adjustments removed write to your tax office, phone HMRC’s helpline (0300 200 3300) or send an email using its secure service.

Dividends Income

“The Dividend Tax Credit was abolished  in April 2016 and a new £2,000 tax free allowance for dividend income introduced.  The allowance does not reduce total income for tax purposes.  And only applied to dividend income.

The next rates of tax on dividend income above the allowance are:

  • 7.5% for basic rate individuals
  • 32.5% for higher rate individuals
  • 38.1% for additional rate individuals

This enabled everyone to receive up to £2,000 of dividend income.  This is on top of any dividends received on shares held in an ISA.  If an individual earns less than £2,000 of dividend, they will not pay tax.  Dividend tax is in addition to and outside of ISA allowances.

 

Dividend tax is not affected by the Scottish Rate of Income Tax and is applied at the same rate for all taxpayers across the UK.

An individual with dividends of between £2,000 (anything over the dividends allowance) and £10,000 (the maximum amount of dividends income before the customer is auto-registered for Self Assessment) can have this laibility deducted from their code or added to the End of Year reconciliation calculation if there is also additional PAYE income”

How to pay tax on dividends

How you pay tax on dividends depends on the amount of dividend income you received in the tax year.  If this was less than £2,000, you do not need to do anything or pay any tax.  If it was between £2,000 and £10,000, you need to tell HMRC.  You can do this by contacting the helpline, asking HMRC to change your tax code – the tax will be taken from your wages or pension or put it on your Self-Assessment tax return, if you already fill one in.

If the dividend is over £10,000, you will need to fill in a Self-Assessment tax return.

If you do not usually send a tax return, you need to register by 5 October following the tax year you had the income.

You will get a letter telling you what to do next after you have registered.  If you need any help with this please give us a call on 01908 227055″

Joanne

 

 

Last updated 28 Aug 2018