Tax Return Deadline is Approaching

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It comes around almost as fast as Christmas, and here we are again. The 31 January 2017 marks the deadline for filing of the 2015/16 Self-Assessment Tax Return (SATR).

Individuals who are required to submit a SATR include, the self-employed and some landlords, investors, company directors, high earners and people who have worked overseas.

Those taxpayers who fail to file their Return online by midnight on Tuesday 31 January will be subject to an automatic penalty of £100. This applies even if there is no tax to pay, or the tax is paid on time.

Tax Returns which are not filed after a further three months will be subject to daily penalties, and additional penalties will apply to Returns which remain unfiled after six and 12 months, adding up to a potential penalty of £1,600 or more.

Penalties and interest charges also apply for the late payment of tax, and these will continue to be applied until HM Revenue & Customs receives payment.

Green & Co can help with all your tax planning needs, including filing your Tax Return – please contact us for further assistance.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Digital Tax Reporting – The Story So Far

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In 2015 the Government announced its commitment to bringing our tax system into the 21st century by introducing digital technology and dispensing with the annual tax return.  The new system would involve digital quarterly reporting with a view to making tax simpler and easier to manage for the taxpayer.  The Financial Secretary to the Treasury, Jane Ellison MP, has said that the new tax system will help businesses put “people and profit, not paperwork, first.”

Over the past 18 months  consultations have been taking place to establish exactly how HMRC are going to implement the changes and what effect it will have both on the Treasury and taxpayer. The Federation of Small Businesses (FSB) says that, following what it calls “real dialogue with the business community”, HMRC have listened to their representations and have announced the following considerations:

  • Landlords and businesses with a turnover of less than £10,000 to be exempt from digital reporting and quarterly returns.
  • The introduction of quarterly digital updates for other small businesses to be deferred.
  • Reporting to be based on a cash accounting scheme, whereby tax is paid on the money a business actually receives, rather than on invoices raised.
  • Help, both practical and financial, to be made available to ease the transition to digital accounting, but where a business cannot make the move, for whatever reason, it will not be forced to do so.

The FSB has welcomed the announcement and estimates that around half of Britain’s 5.4million small businesses could now be outside the scope of the initial moves into digital accounting.  The consultations are on-going, but it is hoped that the new digital tax system will be in place by 2020.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Digital Revolution Or Administration Nightmare?

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Businesses will not be expected to complete quarterly tax returns from 2020, it has been revealed.

Further to HMRC’s digital revolution and several announcements in the Chancellor’s budget, it was thought that all businesses would need to send quarterly tax returns. However HMRC director general Ruth Owen has emphasised that companies will only need to ‘update’ HMRC.

‘Contrary to some reports, this new system will not require businesses to fill out four tax returns a year,’ she said.

Businesses will be expected to keep digital records and update HMRC every three months, but these will be submitted through software which can be integrated with the businesses own record keeping.

In 2018, HMRC plan to introduce the need for businesses to report quarterly Income Tax and National Insurance information, although this is expected to be met using accounting software.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of alexisdc at FreeDigitalPhotos.net

Penalty For Accidental Late Submissions A Thing Of The Past?

www.greenandco.comThe initial £100 penalty for late submission of self-assessment tax returns could be abolished under new Government plans. Under the current system, which has been in place for the last 20 years, someone who files their return 24 hours later than the midnight deadline, will pay as much of a penalty as someone who is up to 12 weeks late.

HMRC admits that the current way of dealing with late submissions is punishing the honest tax payers who miss by a day as either a simple mistake or an ‘uncharacteristic failure’.

One of the radical new ideas being considered by HMRC is whether to implement a penalty point style system, such as is currently being done with motoring penalties. This would be designed in a better way to punish the repeat offenders, rather than those who make a one-off error.

HMRC themselves admit that there is no distinction being made between the customers who miss by a day, and those who make no attempt to comply at all.

The proposals could mean thousands of taxpayers who fail to file their self-assessment forms on time each year could escape a financial penalty.

Prior to the 31st January deadline for online self-assessment tax returns for 2013-14, 10.2 million returns were filed on time, but 890,000 were overdue.

Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants, said the existing penalties were an unjust source of income for the Government. He said “We seem to have lost sight of the fact that the taxpayer is the unpaid administrator of tax compliance and we should be looking to smarter ways of dealing with late filers.”

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Photo credit: freedigitalphotos.net

Nick Park analyses the Budget on BBC Radio Wales

To find out what other announcements were made in  the Chancellor’s Budget, read our Budget Summary.

Receiving Rental Income: Should You Be Completing A Tax Return?

For Rent

Rental income does have to be disclosed to HM Revenue and Customs but whether or not you have to complete a tax return to disclose the income will depend on your circumstances.

You will not need to complete a tax return if:

  •  The gross rental income is below £10,000 per annum, and
  •  The net rents you receive after expenses are less than £2,500, and
  • You have no other taxable income

In these circumstances you merely need to report the income to HMRC.

If your income falls outside the above limits you will need to register for self assessment and complete tax returns.

For those landlords who have not realised that they should be reporting this income, HMRC have launched a let property campaign which will provide the opportunity to bring your affairs up to date and get the best possible terms to pay the tax you owe. This facility is not available to companies or trusts.

There are various expenses you can claim against the rental income, e.g. repairs, mortgage interest, rates, insurance…the list is extensive. The position for repairs is complex as HMRC only allow repairs which are classed as a revenue expense as opposed to capital, for example where a repair is actually a refurbishment or an improvement.

Should you require further information please do not hesitate to contact Green & Co

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of jscreationzs at FreeDigitalPhotos.net

Working From Home

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If you can cope with the relative social isolation and are not easily distracted by domestic issues, home-working offers a practical solution where it is not possible to carry out your duties at a business premises.   Working hours are flexible and can be fitted around family or other personal obligations, as well  saving on costs such as travelling and subsistence or  providing business-only accommodation. Where other costs are incurred as a result of working from home, reimbursement or allowance can be claimed according to your circumstances.

If you are self-employed:

HMRC will not allow you to claim household expenses unless they are “wholly and exclusively” for the business.  For instance the cost of installing and using a dedicated telephone line for the business is allowable, but  no claim can be made, for example, for  heating or water as they have a duality of purpose.

It is possible, however, to claim an allowance for “use of home as office”.  For a small business where a room at home is used for attending to administrative matters for a few hours a week, the allowance is minimal – probably no more than £5 per week.

If you wish to claim a greater amount, you will need to keep a record of your bills and details of the amount of time spent to justify your figures.  HMRC’s agreement will also depend on the number of rooms used in proportion to the size of your home, how many other people reside there and what equipment you use, if appropriate.

There are pitfalls however, particularly with larger claims in that it may affect your home insurance or your mortgage arrangements, particularly if you are using  specialist equipment or are likely to have visitors to your home  in connection with your business activity.

Your  Local Authority may also consider that you should be assessed for business rates especially if you have a dedicated area, such as a garage conversion or  a purpose-built conservatory.  In such a case if you sell your home your Principal Private Residence Relief may be affected resulting in a liability to Capital Gains Tax on the business portion of the premises.

If you are employed:

You can claim expenses incurred and not reimbursed by your employer as a result of working from home, IF

  • you are obliged to pay those expenses AND
  • they are “wholly, exclusively and necessarily incurred in the performance of duties as an employee”.

Working from home must be compulsory (ie.,  because it cannot be done elsewhere) and considered significant.  Claims are made on your SA return.

Where working from home is voluntary, there are three options

  • You can claim actual costs (proof required) which must be submitted to your employer.
  • You can claim an estimated agreed company rate scaled according to a sample of employee expenses. This should be claimed on your SA return.
  • You can claim the HMRC agreed rate of £4 per week, again on your SA return.

If you are a Director:

It is possible for you to enter into a formal licence agreement with the company whereby you receive an agreed rent for the use of a room in your home.  This can be treated as an expense by the company and declared by you as rental income. Any relevant expenditure incurred “wholly and exclusively” in providing the accommodation to the company can then be allowed as a deduction from the income.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of marin at FreeDigitalPhotos.net

Will your records pass the test?

HMRC restarted their business records checks in November 2012 on the expectation that such checks will increase the tax yield significantly. During a pilot of the scheme HMRC state that 10% of the 2,437 businesses they visited had inadequate records and a further 26% had records that gave rise to concerns.

The business records check(BRC) will comprise a four stage process:

  • HMRC’s identification of a risk of inadequate records.
  • An initial phone call by HMRC to the taxpayer to ascertain whether a business records visit is necessary.
  • The business records check itself
  • Follow-up action and a second visit.

HMRC will contact the taxpayer as opposed to the Accountant so it is important that the Accountant is informed of any such contact immediately,

If HMRC consider that the records are inadequate a record keeping penalty may be imposed (usually £500). That may not be the end of the problem as when your tax return is submitted,

HMRC are more likely to open an enquiry into the reported profits.

It is important that you review the records you maintain and discuss any concerns with your Accountant now.

Should you require any further information please contact Green & Co.