Child Benfit - Don't leave it too late to notify

I wrote a blog post on child benefit a few months back but since that time there has been some important updates which I have included in this latest offering.

I recently went on a brilliant tax update course with my favourite tax speaker Tim Palmer taking it. He shared some very interesting stories about the latest tax investigations but he also brought us up to date with the latest tax position on child benefit, which I thought I would share with all of you as it is very interesting and probably some of you reading this will be affected.

Firstly legislation has been introduced to impose a new tax liability on a taxpayer who has income greater than £50,000, where they receive child benefit. It is important to note this is not the collective income with your partner and if your income is less than £50,000 and so is your partners, then the child benefit is not taxable. This new legislation comes into effect from 7th January 2013.

The £50,000 is 'net taxable income' i.e. after gross pension contributions but before personal allowances. For the current year (2012/13) taxpayers will pay income tax on the period 7 Jan 2013 - 5th April 2013.

Therefore if your income is between £50,000 - £60,000 you will have to pay income tax of 1% on the amount of child benefit you receive in the year, for every £100 of your income that exceeds 50k. If your income exceeds 60k however you will pay an income tax bill that actually equals the child benefit! For example if you have income of £60,000 and your partner received child benefit for 2 children of £1,752 for the year, the income tax will equal £1,752 which is the full amount received anyway giving a nil effect.

Individuals who earn above £50,000 per annum and receive child benefit will now need to register for self assessment with HMRC or face penalties in the future!

This will force thousands of individuals into a self assessment regime. Furthermore HMRC guidance states that you have to declare the amount you are entitled to and not received as the figure to go onto the retune.

If you do earn above 60k you can if you wish elect to not claim child benefit by disclaiming it.. HMRC will be producing a form in the coming months to enable this to happen.  This form must be submitted to HMRC by 7 January 2013.However my opinion is that the majority of individuals will still keep it as their partners have used the income for their children and more importantly for the 'stay at home mums' will lose the Home Responsibility Protection which will mean they may lose the qualifying years for their state pension, meaning their state pension will be lower.

In summary there are 3 different scenarios:

1. If the partners both individually have income below £50,000, then the child benefit is not taxed at all

2. If either of them has income greater than £60,000, the income tax bill on the child benefit equals the benefit itself and must be declared on a self assessment tax return.

3. If either of them have income between \£50,000 and £60,000, he will have to pay income tax of 1% of the child benefit element in the fiscal year for every £100 of his income over £50,000

The income tax charge arises when the claimant of the child benefit is entitled to receive it and not when they actually receive it. The person who is liable to pay the income tax charge (father) is responsible for notifying HMRC of their chargeability. Employees who are entitled to child benefit with net income greater than £50,000 must notify HMRC to avoid penalties.

I do not agree with the government on this and feel it is unfair and also to bring this into the self assessment tax regime is unnecessary and I can predict a lot of complications in the future.

As stated above this will no doubt affect a lot of you reading this as you will now need to complete tax returns and register with HMRC - Please contact me for a free initial chat and I will happily advise you and offer you 25% off our usual service fee.

Thank you for reading my blog and please do not hesitate to get in touch I am happy to help




Mitch the Tax Man
mitch@ljd.uk.com

PAYE Changes - Real Time Information - Make sure you are ready !

I have found some very useful guidance from HMRC that should help you understand what Real Time Information is and how it will effect the way you and your Company operate PAYE.

What is Real Time Information
From April 2013 there will be a new way to report PAYE in real time,  Real Time Information (RTI).
Under the present PAYE system, employers tell HMRC what deductions they have made from employees’ pay at the end of the year.
Over time reporting PAYE in real time will help improve accuracy for some individuals by improving processes relating to starterrs and leavers.
It will also provide accurate records on wages and tax for the forthcoming Universal Credit, so eligible employees will get the right amount of benefits or tax credits every month.

What is changing?
PAYE itself will not change – just the way, and how often, employers send PAYE details to HMRC.
Instead of sending all PAYE details to HMRC in one go, at the end of the year, from April 2013 employers will have to:
send details every time a payment is made
use payroll software to send the details electronically
send the details as part of your normal payroll process.

How will RTI benefit employers and pension providers?
By getting rid of employer annual returns and streamlining the starter and leaver processes, RTI will remove admin burdens from businesses of around £300m each year.

What is the timetable for introducing RTI? 
RTI is being introduced progressively to give plenty of time for testing the new systems. We began piloting RTI in April 2012, with around 310 volunteer employers.  The pilot is going well and is on track.
Most employers will begin reporting PAYE in real time in April 2013, with all doing so by October 2013.  

Next steps
Businesses of all sizes should start preparing for RTI now by talking to their payroll software provider or payroll service provider about how they are developing appropriate payroll software. It’s also vital that employers check that information about their employees is accurate and up to date. This involves making sure that surname, forename, gender, address, date of birth and National Insurance Number (NINO) are correct and in the right format. Employers should also make sure that they add staff to their payrolls who will now need to be included with their RTI submissions, for example, those under the Lower Earnings Limit (LEL). For more help and advice on improving data quality go to www.hmrc.gov.uk/rti/dip/index.htm
For further information about RTI go to: www.hmrc.gov.uk/rti

If you need any further help or have any additional queries please do not hesitate to contact me mitch@ljd.uk.com

Also please have a look at my new update facebook page and LIKE http://www.facebook.com/Mitchthetaxman

Yours in Tax


Mitch the Tax Man

Tax Planning Ideas - Reducing the costs of National Insurance

One area that often gets over looked when discussing tax savings and planning ideas is National Insurance. As we know National Insurance Contributions are on the rise and I expect them to continue to increase over the next 3 tax years. NI can be a major cost for a business and thus I thought I would share some simple tax tips to potentially lower this cost for you and your associates.

Dividends
The most common suggestion I make is to ensure that a Director takes a low salary and increases the amounts he takes in dividends. This will ensure one pays the marginal National Insurance Contributions and the rest is only subject to corporation tax at 20% with no additional NIC liabile. One thing to bear in mind is that if you are changing salaries for existing directors ou must ensure you have meeting notes on file with shareholders agreement and potential a revised contract of the new arrangement.

Pension Contribution
Another planning point can be to entering employees into a salary sacrifice pension scheme. This enables payments into the scheme to made from the gross pay. You must ensure inwrirting that the employee has given up part of his salary in favour of the company making a contribution.

Self Employment
A company can consider engaging individuals on a self employed basis rather than an employed contract. This is simply a matter of drafting appropriate contracts and terms and conditions.  The benefit is obvious as one would not pay employees/ers NI. The most important thing here is getting the contract right as HMRC often investigate this scenario

Share Incentive Schemes
Similar to the benefits under a salary sacrifice arrangement, an employer can set up this share scheme giving employees and option to purchase shares out of their gross pay and thus would not attract NI. The downside of this is that a trust must be set up and the shares must be held for five years to avoid further tax implications.

These are four very good, basic tips to give you and your associates ideas to reduce any National Insurance Costs.

As you know I am working hard to build my own client base so if you know of anyone who needs tax compliance work or advice please pass them my details

Thanks for reading and feel free to comment


Mitch the Tax Man

Helping Pensioners

Good morning everyone, Mitch Young from Lerman Jacobs Davis the young dynamic accountants who are committed to saving our clients hassle and money

I love dealing with pensioners – This week I helped a pensioner client of mine by saving him over £120 a year in tax

The way that one pays tax on a State Pension depends on whether the individual is employed or not:

• if you're working, you'll pay tax through your employer's PAYE scheme depending on the amount you earn
• if you're not working, you'll need to pay tax through Self Assessment by completing a tax return

My client completes tax returns and has state pension income that he pays tax on but after checking the full breakdown of what made up the state pension I found out it included, attendance allowance and winter fuel payments which are not taxable and he has always been paying tax on it !!

I thereby requested a repayment of tax for him and saved him £120 a year moving forward. No doubt he was delighted and fully appreciated my thorough approach to his situation 

Furthermore if you are a pensioner who has income less than the personal allowance and you have income such as bank interest that is taxed at source we can claim that tax back for you

Thus this week I would love to review any tax affairs of pensioners who you may know as I am sure I can help them potentially save tax

That’s Mitch Young from Lerman Jacobs Davis, helping you and your business to count

mitch@ljd.uk.com

HMRC to tax 5 a side football - Act Now !!

Good morning everyone, Mitch Young from Lerman Jacobs Davis the young dynamic accountants who are committed to saving our clients hassle and money

HMRC have caused up roar in the sporting world by trying to tax five a side football.

The 150 plus sites around the country that offer all-weather pitches to play and train on for small sided football are poised to receive a VAT bill of 20 per cent from HMRC under proposals from the government

Leagues say they would be forced to pass on the tax to individual players, costing about an extra £1 per player per match – or up to £100 a year for someone playing twice a week. Clubs say this will inevitably reduce the number of people playing football. This is not fair !

There is a petition on the telegraph website so make sure you sign it !

 http://www.telegraph.co.uk/sport/football/VAT-5-side-football/9393175/Scrap-VAT-on-five-a-side-football-Telegraph-petition.html

Thus this week I would love an introduction to any Residents Asssociations you know or work with

That’s Mitch Young from Lerman Jacobs Davis, helping you and your business to count.

Can a purchase of a Box at your favourite football club be tax deductible?

Good morning everyone, Mitch Young from Lerman Jacobs Davis the young dynamic accountants who are committed to saving our clients hassle and money

HMRC recently queried an engineering company claiming a deduction for a cost of a box at a London Premier League football club. For the 19 home matches they invited clients to the box to watch the game but before each match the partners held a board meeting. They also had promotional material highlighting their services and gave a brief presentation.

No children were invited and this was a genuine promotional targeted series of event. Furthermore they disallowed the separate bill for food and wine. They claimed it was like renting a satellite office for an event. HMRC investigated it and the engineering company won!

Thus this week I would love an introduction to any company directors you know who love football.

That’s Mitch Young from Lerman Jacobs Davis, helping you and your business to count.

Tax Tips - June 2012

There is a lot happening in the tax world this month so please have a look through the below five important tax tips for you to think about.

1. If you have received notices from HMRC informing you that you have under or overpaid tax for the year 2011/12 then this is a result of an annual check of PAYE carried out by HMRC and that an underpayment will most likely be coded out in your PAYE code.

2. There could be potentially a large tax saving if you you regularly draw a large bonus remuneration or dividend from your company and you defer this income until after 5th April 2013 where the tax rates get reduced slightly.

3. Another warning about various marketed tax schemes is that these are often very expensive to get involved in and more importantly that they can ultimately be found to be ineffective by HMRC and the courts, or event countered by retrospective legislation.

4. Are you involved in software development? Then you could take advantage of the extremely advantageous and generous tax relief known as research and development relief. Provided you can show that the various conditions are met then you could obtain a tax deduction of 125%.

5. We have seen over the past few years a rise in the popularity of personal service companies. The main area of concern for HMRC is that employees could provide their services through a medium of a company and as a result avoid PAYE and National Insurance. In the light of this HMRC has produced a business entity test which asks the customer a number of questions and scores the results on a points system. This is a good measure in determining whether someone is caught by the IR35 legislation. Consider applying this test in determining your risk factor.

I hope you have found these useful and should you require any tax assistance please do not hesitate to get in touch

Yours in tax

Mitch the Tax Man 

mitch@ljd.uk.com

P.S. As previously mentioned, I like to grow my business on a referral basis. I would therefore very much appreciate if you could suggest to me any colleagues, friends or family members of yours who might be interested in our services and I can guarantee my utmost discretion and professionalism