Tax Investigations Update

HMRC collected an additional £26.6bn from compliance in 2014/15, and has been given an additional £800m to pursue non-compliance and tax evasion. Please click to download the latest Tax-Investigations-Update-Sept-2015.pdf (429 downloads)  which highlights the increased risk posed by current HMRC activity and tactics. If you are not currently insured with us then do contact us

Are you paying enough?

From the 1st October 2015 the new National Minimum Wages (NMW) will come into force

Year 21 and over 18 to 20 Under 18 Apprentice
2015 (from 1 October) £6.70 £5.30 £3.87 £3.30
2014 (current rate) £6.50 £5.13 £3.79 £2.73

 

With a further increase in April 2016 for over 25’s to £7.20 per hour. The April 2016 wage will be called the Living Wage.

Penalties for non compliance are already harsh and as reported by the BBC on 1st September 2015 they are getting tougher…

These include doubling penalties for non-payment and disqualifying employers from being a company director for up to 15 years.

The government also announced plans to double the enforcement budget for non-payment and to set up a new team in HMRC to pursue criminal prosecutions for employers who deliberately do not pay workers the wage they are due.

Penalties for non-payment will be doubled, from 100% of arrears owed to 200%, although these will be halved if paid within 14 days. The maximum penalty will remain £20,000 per worker.

​Are you paying enough?

Dividend tax following the Summer 2015 Budget

One of the major announcements in the Summer Budget, affecting owner managed businesses was the proposed changes to dividend taxation.  Very little was announced on Budget Day but the Government have now published a factsheet providing further details on the Dividend Allowance which also provides examples of how the new tax allowance will work when it comes into force on April 2016.

 

To recap:

From April 2016 the dividend tax credit will be abolished and a new dividend tax allowance of £5,000 a year will be introduced. Dividends received up to £5,000 will be covered by the new Dividend Allowance and will be tax free, but dividends exceeding this amount will be taxed at the following rates:

 

  • 7.5% on dividend income within the basic rate
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

 

The Dividend Allowance factsheet gives 6 useful examples demonstrating how individuals could be affected.  Click here for a copy of HMRC’s Dividend Allowance Factsheet

 

Although the Governments headlines say “this simpler system will mean only those with significant dividend income will pay more tax”, we believe that in most cases where business owners extract profit by way of dividends, the new rules will lead to an increase in their tax liability.

 

With a split of income of £8,000 (to trigger basic national insurance) and £40,000 dividends received you will be £1,450 worse off in 2015/16.  A salary of £8,000 with £50,000 dividends will result in £2,200 additional tax.

 

Recipients of dividends who were previously did not have a tax liability will now have to pay tax if they are in receipt of dividends in excess of £5,000 and they will need to register with HMRC and complete a self assessment tax return to report this.

 

It is important therefore to plan for these changes in the current tax year.  It may be worth paying additional dividends in 2015/16, assuming there are sufficient distributable reserves, even if this accelerates the payment of income tax for those liable at the higher or additional rate of tax.

 

Call Liric now to find out how the new rules will affect you – 01763 853633.

 

Summer Budget 2015

Following the General Election, the Chancellor presented a second Budget to the House of Commons on 8 July 2015. The Budget contained some important announcements and confirmed a number of changes planned for the coming years. Some unexpected changes in the extraction of profits from Limited Companies will mean that dividend policy needs to be carefully reviewed.

We have put together a PDF newsletter Second-Budget-2015.pdf (395 downloads)  which contains the latest tax and financial information, which we trust you will find useful. For more information on how the changes may affect you, please contact us.

Changes to National Insurance

The Government has recently introduced a number of changes to national insurance and further measures affecting both employers and individuals are in the pipeline. Our factsheet provides an overview of some key changes, as well as offering advice on a range of strategies to help minimise your national insurance bill.

HMRC Target online sellers

Thousands of online sellers will need to get their tax affairs in order as HMRC wields its expanded powers to get user information from online marketplaces like Amazon, Gumtree, Ebay and Etsy. The Revenue has sent 14,000 letters to traders suspected of running a business and failing to declare this on their tax returns. Of these, 1,000 letters are being sent to people where the taxman has already identified a shortfall on their self-assessment forms.The new crackdown was launched on the back of extensive new powers introduced last year enabling HMRC to download people’s account information. It was reported in theTelegraph that eBay, Etsy, Amazon and Gumtree are being forced to hand over customer account details, including their selling activity, as part of the taxman’s legal powers that were extended last year.

The HMRC also avoided stating exactly what the threshold is where an online seller becomes an online trader. Instead, the Revenue uses the badges of trade as their guiding principle.. The criteria used to assess if an activity is a hobby or a business are:

  • The size and commerciality of the activity.
  • The frequency of the activity and transactions
  • The application of business principles.
  • Whether there is a genuine profit motive.
  • The amount of time devoted to the activities.
  • The existence of arm’s-length customers (as opposed to just selling your wares to family and friends).

Some of the 14,000 targeted thus far had made as little as £100 profit online.

“Anyone just selling the occasional item has nothing to worry about. This is about making sure on-line traders pay the right tax – wealthy or otherwise. We will make contact with those that we are aware might need our help to get it right,” said a HMRC spokesperson.

The spokesperson went on to confirm that those continuing to avoid the Revenue’s overtures, could face penalties and that the taxman “will determine the amount of tax due based on the information we have available”.

HMRC have some great examples to help you decide, for example:

Gail is a full-time employee working for a stationery company. She pays her PAYE tax on this employment every month.

In her free time Gail makes cushions and uses most of them in her home. Occasionally she sells them to friends and work colleagues for an amount that just covers the cost of materials of £15. Sometimes she makes a loss. Any money she does make goes towards her holiday fund.

She decides to make extra cash by selling cushions on an Internet auction site and starts auctioning three or four to see how they go. They all sell for more than £50, a profit of at least £35 each.

She uses this money to buy more materials and within a month she is selling around ten cushions a week, always at a profit, and is considering setting up her own website.

Gail’s initial sales of cushions to friends are not classed as trading. It lacks commerciality and she does not set out to make a profit. The occasional sales are a by-product of her hobby. Once she begins to auction her cushions, she has moved into the realms of commerciality. She is systematically selling her goods to make a profit. She will need to inform HMRC about her trade, and keep records of all her transactions. On the level of sales shown in the example the potential turnover of around £26,000 is well below the VAT annual threshold so Gail does not need to register for VAT. Many traders start off in a small way and assume their activity will be treated as a hobby. They don’t realise that if it grows into a business they need to register with HMRC. You should register as Self Employed as soon as your hobby becomes a commercial venture, even if you are losing money! 

If you don’t register, HMRC will be looking for you and if you have an online business it won’t be hard for them to find you. If you need any help with registering as Self Employed just drop me an email or book a free call with me at www.liricaccountants.com

April newsletter

Its been a busy month so have a quick catch up of the topics that could affect you in our April newsletter

http://eepurl.com/biAGB9

 

MAXIMISE TAX RELIEF FOR CAPITAL EXPENDITURE

MAXIMISE TAX RELIEF FOR CAPITAL EXPENDITURE

Those running a business should take advantage of the temporary increase in the Annual Investment
Allowance (AIA) to £500,000. 5th April 2015 is not relevant for this tax break as the limit continues
until 31 December 2015 when it is scheduled to reduce to just £25,000. AIA provides a 100% tax write off for
plant and equipment used in your business. This tax relief extends to fixtures and fittings within business
premises such as electrical, water and heating systems.  If you are thinking of spending more that £25,000 before 31 December then its really important to get the date of the expenditure right.  Please ask us for further information.

Do you employ anyone under the age of 21?

If you employ anyone under 21 years old you will no longer have to pay Class 1 secondary National Insurance contributions on earnings up to the new Upper Secondary Threshold (UST) for those employees.  This comes into effect from 6 April 2015 so be prepared to change the NI Category letters of those employees to ensure you’re paying the correct amount of NI contributions.

The Abolition of employer National insurance contributions for under 21’s section of GOV.UK has been updated and now includes more detailed guidance for employers, plus detail on the new category letters and rates.

Budget Special

The Chancellor’s 2015 Budget contained some important announcements and confirmed a number of changes planned for the new tax year.

Following this, we have put together a PDF which contains the latest tax and financial information, which we trust you will find useful. For more information on how the changes may affect you, please contact us. Budget-newsletter-March-20151.pdf