Doing your own tax return online is obviously the cheap option compared to using an online accountant. However, is it cheaper in the long run?

Have you claimed everything?

tax return Online

If your tax affairs are very straight forward, it could make sense to do your own tax return online. But what if you have anything more complicated like self employment or property income? How do you know you are claiming everything you can? For example, if you do any work at home such as the paperwork, you could be entitled to claim a proportion of certain household bills. Higher rate tax payers would only need to claim additional costs of about £300 to save an online accountant’s fees. A qualified accountant has a duty to take steps to ensure you pay the correct amount of tax. This includes claiming any expenses and allowances that are legitimately deductible.

Have you claimed too much, or not declared enough?

If you incorrectly do your own tax return online, even if it’s a honest mistake, you could be fined. The penalties charged depend on the severity, starting from up to 30% of the additional tax due for a lack of reasonable care. Then it goes up to 70% for deliberate errors. So a lack of care resulting in an underpayment of tax of £400 could cost you more than an online accountant.

Will you do your Tax Return Online and on time?

We all know what a chore it can be to dig out all of your paperwork and complete your tax return online. That’s why so many leave it until the last minute, or even file their tax return online late. Filing late by just 1 day will cost you £100, which increases by a daily £10 if filed more than 3 months late.

Find an online accountant?

As well as helping to prevent all of the above, an online accountant can identify other ways of saving tax. Ways that many people doing their own tax return online wouldn’t have heard of. Such as obtaining tax relief by investing spare cash in a Seed Enterprise Investment Scheme. We charge between £50 and £200 plus VAT to prepare and submit your tax return. Why risk paying more in penalties? Contact us now for peace of mind.


Marginal Tax Rates

Newsletter issue – June 2014

What rate of tax would you pay on an additional £1 of earnings? If your annual income is between £41,865 and £150,000 you may think the tax rate would be 40%, but the peculiarities of the UK tax system mean you could pay much more.

To start with earned income above the 40% threshold carries a national insurance charge (NICs) of 2% so for every £1 you earn above £41,865 (for 2014/15) you will pay 42% in tax and NICs.

Child benefit is withdrawn from the highest earner in the family at the rate of 1% of the benefit for each £100 of income exceeding £50,000 per year. This translates into an effective marginal tax rate of 60% on income between £50,000 and £60,000.

When your income exceeds £100,000 your personal allowance is withdrawn at the rate of £1 for every £2 of income above £100,000. This is an effective tax rate of 62% including NICs.

From 6 April 2015 married couples will be able to transfer up to 10% of their personal allowance between them. This will allow up to £1,050 of the allowance to be transferred from the person who earns less than £10,500, to their spouse who earns up to the 40% threshold. Thus £1 of additional income that takes you over the 40% threshold will mean you lose the whole of that transferable allowance – an infinite marginal tax rate.

If you are able to control the level of your taxable income, perhaps because you run your own business, it makes sense to adjust your income to avoid those high marginal tax rates. Perhaps you could employ other members of your family, or take them into business with you as partners, to spread the business income.

Payments of pension contributions and Gift Aid donations can stretch your 40% threshold, so the higher earner in the family should making those charitable donations and pay pension contributions. We can help you plan to avoid the highest tax rates and make the best use of all allowances available.

 

Disclaimer

 

If you are thinking of becoming self employed, you’ll need to know what to do, so an accountant can be very useful even before becoming self employed. They could save you more in tax than it costs in fees if you take advice on tax and business from the start of becoming self employed.

Here’s our list of the top things to look out for when becoming self employed.

    • Appreciate that setting up and running a self employed business takes a lot of time and commitment. The rewards can be great but you have to know why you are becoming self employed with your own business and what you are getting into.
    • Identify your strengths and especially your weaknesses. Identify areas where you need to get advice.
    • Decide on your business structure. You can trade as a sole trader, partnership, limited liability partnership or limited company. They all have different tax consequences and responsibilities and you should take advice on which one is best in your circumstances. We will help you with this.
    • Produce a financial forecast so that you know what funding you are likely to need and be conservative. We can help you with this.
    • Investigate the competition thoroughly, don’t take them for granted and look to take advantage of their weaknesses. You must also constantly be on the lookout for what they are doing.
    • Research your market to ensure there is a demand for what you are offering.
    • Decide on your marketing plan. Just because you have a good product or service doesn’t mean you will sell anything. Getting the marketing right can be the difference between success and failure.
    • Decide on what staff you are likely to need and what skills they need to have. You will have to operate PAYE for any employees you have although your accountant can help with this. You’ll also have employment law and health and safety law that you must be up to scratch on.
    • business plan is an important document to put together even if you don’t need to raise finance. It will help you to properly focused. We can help you with this.
    • Design your business stationery, ensuring it not only meets your legal obligations but conveys the image you want to get across.
    • Decide on how you are going to keep your accounts and get advice from your accountant from day 1. We will help you with this.
    • Make sure you register with all the relevant authorities including HM Revenue and Customs and decide if you need to register for VAT. We will help you with this.
    • Consider all the necessary insurances you need including public liability, keyman, stock, business assets, business interruption, bad debts, motor insurance, employer’s liability (compulsory if you have employees), professional indemnity and permanent health insurance.
    • Use trusted advisors such as accountants and solicitors to help guide you. Not getting the right advice can be costly.

How we can help you

Whilst there are many common issues to consider anyone becoming self employed, every business start up situation is different and expert advice at the beginning will pay for itself many times over. Assistance with business plans for funding, setting up your book-keeping system and tax planning at the beginning are all key areas that we regularly get involved with.

Child Benefit And Child Tax Credits After 16

If you have a child aged 16, check whether you are still receiving all the child benefit and child tax credits you expect to.

Child benefit and child tax credit both stop automatically on 31st August on or after the child’s 16th birthday, but where the child is in approved education or training, the parent who claims the child benefit is entitled to extend that claim until the child reaches their 20th birthday. ‘Approved education’ means at least 12 hours of supervised study per week, and the training can include an apprenticeship.

From September 2013 children who live in England (the rules are different in Wales, Northern Ireland and Scotland) are required by law to remain in education or training until the end of the academic year in which they turn 17. So there are a lot of families out there with 16 years olds who are in approved education, but who have lost their child benefit.

If you are one of those parents, and you want to continue to receive the child benefit, you need to contact the Child Benefit office at HMRC, to inform them that your child is still in approved education or training.

Similar rules apply for child tax credit. In that case the claimant must contact the Tax Credit office.

Although child benefit and child tax credit are both administered by HMRC, you need to inform them twice, as one section of HMRC cannot pass the relevant information to another part!

High income child benefit charge

You may prefer not to receive the child benefit if you or your partner/spouse earns £50,000 or more. In that case all or part of the child benefit paid to your family is clawed-back through the operation of the high income child benefit charge (HICBC). HMRC has written to some of the parents who may be due to pay the HICBC, but not all, as they cannot correctly identify every person who may be liable to pay the charge. More details here: high income child benefit tax charge.

If you are the highest earner in a family that has claimed child benefit since 7 January 2013, and your total income is £50,000 or more, you need to declare that child benefit on your tax return form. If you don’t normally complete a self-assessment tax return form, you need to ask HMRC to set you up on the self-assessment tax return system. We can help you with that, but don’t delay, as if you fail to complete the tax return form on time there will be automatic penalties to pay.

Disclaimer

The Type Of Tax Enquiries You Could Have

Technically we now start with tax enquiries rather than a tax investigation into your Tax Return. Let’s start with the basic facts…

  • Tax enquiries could be an aspect enquiry into one aspect of your tax return or a general enquiry into the whole return.
  • Over 250,000 tax enquires are carried out every year and most are innocent enough affairs but if it leads to a full-blown tax investigation, it’s not nice.
  • The change to the self-assessment system has allowed HMRC to spend more time on tax enquiries and they have also put more and more resources into it.
  • Interestingly, most tax enquiries are into the affairs of men, rather than women.
  • HMRC are also becoming more business like, targeting the businesses where they are most likely to get a result.
  • Whether they admit it or not, HMRC do have internal targets for the number of tax investigations to be carried out that are there to be met.
  • HMRC may select you for a tax enquiry for a reason or you may be chosen at random for a full enquiry.
  • The problem is, they don’t tell you whether you have been picked randomly or not, and they don’t tell you what they already know. They often indicate they know something to make you confess to perhaps more than they know about.
  • It all starts with a standard letter saying they are going to make a tax enquiry into your return and assuming you have an accountant, they will send a separate letter to them with the details of what their tax enquiries are. From this you can normally tell whether it is an aspect or general enquiry into the whole return.
  • Aspect enquiries do have the potential to turn into full enquiries. A full enquiry will turn into a tax investigation when it spreads over into looking into your affairs for more than one year.
  • With effect from 2007/08 onwards HMRC have one year after the date you file your tax return to enquire into it.

After that you are safe unless they make a discovery of fraudulent or negligent behaviour. In these cases they can go back up to 20 years, although 6 years is the norm. It therefore helps to give them all relevant information when submitting your return to help ensure finality.

Even your death isn’t the end of the matter as the enquiry can still continue through your representatives. In war, your death is the end, but not so with tax.

What’s At Stake?

As an example, let us say the Taxman finds just £1000 of income that hasn’t been declared on a return, the tax on this could be £400.

If they can show this was likely (not proven) to have occurred for 6 years, that tax bill becomes £2400. Interest will now be due on this, which could perhaps be another £1000.

In addition, there can be a penalty that can be as much as the tax. And in some situations from 1 April 2011 this can be up to 200% of the tax for those with financial interests outside the UK who have failed to declare the full extent of their offshore liabilities.

You are now looking at a tax bill of up to £5800, just because they found £1000 of income missing in one year.

Imagine how much you’re looking at if £20,000 was missing from your accounts in a year.

Aspect enquiries often tend not to lead to fines and penalties but general enquiries are more likely to. Jail is always an option but very rare amongst small businesses and is reserved for cases of serious fraud.

Accountants are more likely to go to jail for tax evasion and no doubt lists of dodgy agents exist at local tax offices whose clients are therefore more prone to enquiry.

The problem with investigations is that the Inspector seems to have all the time in the world to go through your affairs with a fine tooth comb, to the extent of identifying what restaurants you eat in, where you go on holiday, etc. They do this to try to prove the income declared in your accounts cannot support your lifestyle. They may want detailed information going back years.

Can you Remember…

  • Why you didn’t have any cash takings on the 3rd November 2001?
  • Where a banking in your private bank account 6 years ago for £123.18 came from?
  • How much a week you spent on milk in 2002?

It’s not out of the question that some tax inspectors will want to know the answers and be suspicious if you can’t answer.

The taxpayer on the other hand has to pay an accountant and so time is often limited by cost constraints and even when you’ve done nothing wrong. It can end up being easier for some taxpayers to just give up the fight, particularly when the investigation has been going on for a couple of years.

Please note a full investigation can take years, not months to conclude. Both the financial pressure and the pressure of just dealing with the investigation enquiries can be an enormous strain to taxpayers if they let it get on top of them. It’s important not to panic or be pressurised into surrendering.

Also, did you know accountancy expenses in dealing with a tax investigation are not usually deductible as an expense against tax.

Sometimes it doesn’t pay to own your own home, have savings, etc. There are some clients that just don’t worry about a Tax Investigation and are happy to concede whatever the Taxman wants. Often, these are clients with few assets who know that whatever the Inspectors finds, they can’t pay. If you haven’t got the assets to pay, HMRC aren’t going to be able to take anything from you. If this is the case with you, it helps to point this out at an early stage.

How we can help you

Simply using a good qualified accountant can help you to avoid tax enquiries and investigations. We have the knowledge and experience to identify and query anything that might trigger a tax enquiry. Click below for more information on how we can help you.

Doing your own online tax return is obviously the cheap option compared to finding your own accountant to do it for you. However, is it cheaper in the long run?

Have you claimed everything?
If your tax affairs are very straight forward, it could make sense to do your own online tax return. But if you have anything more complicated like self employment or property income, how do you know you are claiming everything you can? For example, if you do any work at home such as the paperwork, you could be entitled to claim a proportion of certain household bills. Higher rate tax payers would only need to claim additional costs of about £300 to cover the cost of a competitively priced accountant. A qualified accountant has a duty to take steps to ensure you pay the correct amount of tax, including claiming any expenses and allowances that are legitimately deductible.

Have you claimed too much, or not declared enough?
If you get your own online tax return wrong, even if the mistake is an honest one, there could be financial consequences. The penalties charged depend on the severity, starting from up to 30% of the additional tax due for a lack of reasonable care, going up to 70% for deliberate errors. So a lack of care resulting in an underpayment of tax of £400 could cost you more than an accountant.

Will your Online Tax Return be on time?
We all know what a chore it can be to dig out all of your paperwork and complete your tax return. That’s why so many leave it until the last minute, or even file it late (apparently 850,000 of us last year!). Filing late by just 1 day will cost you £100, which increases by a daily £10 if filed more than 3 months late.

Find an accountant?
As well as helping to prevent all of the above, an accountant can identify other ways of saving tax that many people doing their own online tax return wouldn’t have heard of, such as obtaining tax relief by investing spare cash in a Seed Enterprise Investment Scheme.

Advantages of a private limited company

The main advantages of a private limited company or a Limited Liability Partnership (LLP) is the protection from unlimited liability in the event you can’t pay your creditors, and the tax advantages of a private limited company.

We’re going to concentrate here on just the main tax advantages of a private limited company:

  • Small Private Limited Companies (that’s with profits up to £300,000) pay corporation tax at 20% on all of their profits but individuals (sole traders and partners) pay tax at a range of rates from 0% to an effective top rate of 47% (including national insurance), on different slices of their income. So, it’s possible to pay less in tax by working through a private limited company, but it does depend on the level of your total income and hence the total tax you would pay as an individual.
  • If you have £30,000 of profits liable to 40% tax and 2% NI (meaning your total income is about £72,000), the tax & NI saving can be £30,000 x 22% =£6,600 every year on this alone.
  • Sole traders and partners pay Class 2 & Class 4 National Insurance on all of their profits, but Private Limited Companies only pay national insurance on salaries and benefits paid to the employees and directors. For someone earning £30,000 in a year, the amount of class 2 and Class 4 NI to be saved is just over £2,000.
  • You can get tax advantages of a private limited company at very low profit levels as long as you do not pay all of the net profits out of the company as salary and benefits.

Is there a catch? Possibly:

  • There are additional costs involved in running a private limited company such as more administration and higher accountancy fees. Although we only charge from £50pm for companies. Click here to see our fixed accountancy fees.
  • With a Private Limited Company you have to consider how much money you want to take out of it and pay to yourself. But this flexibility can be used to your advantage.
  • When you take money out it gets taxed on you personally. The two main ways to take money out are either as a dividend or as a salary and we’ll compare them more in another post, but we’re are going to assume dividends are being used as these are normally the most beneficial to small business owners.
  • Assuming you can use dividends, you don’t pay any tax on these up to your 40% tax band of £41,450 but you pay 22.5% of the gross dividend above this amount (and 32.5% for those in the 45% rate tax band). If you add this to the 20% your company is paying, it then doesn’t look so great.
  • However, if you are happy to only take income out up to the basic rate band threshold (£41,450) and leave the excess profits in the company you can pay far less tax. This means Private Limited Companies can work for people making good profits who want to reinvest the profits of their business above £41,450 into the business, or are possibly happy to leave the profits in their company until a later year when they are making less, and take the money out then.
  • Property Developers are one trade where this is often the reason to leave the profits in the company, to buy the next property.
  • If you want to get your hands on all the money your Limited Company makes straight away, the advantages of a private limited company aren’t that great.

How we can help you
We can calculate how much you could save by trading as a company. We offer a free incorporation service to our clients to help them benefit from the advantages of a private limited company. Our accounts and tax fees for companies start at just £50pcm. Use the buttons below for more details.

Parents on higher incomes who continued to receive Child Benefit after January 2013 have been reminded that they must register for Self Assessment Tax Return by 5 October 2013 to avoid any penalties in relation to the High Income Child Benefit Tax Charge.

If you or your spouse/partner claim child benefit, and either one of you have income of over £50,000 per year, your family will be subject to the child benefit tax charge to claw-back part or all of the child benefit paid from 7 January 2013. The child benefit tax charge must be paid by the higher earner in the family irrespective of who actually receives the child benefit.

 

If you are the higher earner in the family, you will need to report the amount of child benefit the family receives on your self-assessment tax return. For 2012/13 this is only the child benefit received after 7 January 2013, but in future years it will be the full amount of child benefit received in the tax year. This will lead to a charge added to your tax bill due by 31 January 2014, or the charge may be collected through your PAYE tax code in 2013/14.

If you want to avoid paying the child benefit tax charge you and your partner/spouse can:

a. elect not to receive child benefit from 7 January 2013; or
b. reduce the higher earner’s adjusted net income.

You will be able to reverse the election in a) if your income drops, but you may miss out on some child benefit due to timing issues. Thus if your income is likely to be variable making an election not to receive child benefit is unlikely to be the best solution.

Your  ‘adjusted net income’  could be reduced by using any or all of the following methods:

  • Pay more personal pension contributions in the tax year. Make sure these contributions are paid by you and not by your employer.
  • Increase the Gift Aid donations you make. Channel all the Gift Aid donations made by the family though the higher earner’s bank account. Remember Gift Aid donations can be carried back to give relief in the previous tax year, if the donations are made before the tax return for that earlier tax year is submitted.
  • Reduce the amount of income you extract from your own company and instead employ your spouse or partner in your business. This will spread the income generated by the business more evenly between you both.
  • If you trade as a sole-trader you could take your spouse /partner into partnership, and again look to spread the income between you.
  • Where you and your spouse/partner already trade as a business partnership, consider changing the profit sharing ratios so you each receive a more even amount of profit.
  • If you are not domiciled in the UK you can adjust the amount of income you remit to the UK.
  • If you are married and living with your spouse, you can transfer assets to your spouse that generate income such as shares, savings or let property. Transferring assets between individuals who are not married may well create a tax charge.

Please contact us about how to undertake any of these ideas to avoid or reduce your child benefit tax charge before trying to implement them to ensure they are appropriate in your own circumstances.

If you need to register, we can do that for you if you would like us to do your tax return from £50pa plus VAT. See our tax services  or get an instant quote for more detail.

Parents on higher incomes who continued to receive Child Benefit after January 2013 have been reminded that they must register for Self Assessment Tax Return by 5 October 2013 to avoid any penalties in relation to the High Income Child Benefit Tax Charge.

The Taxman has launched a campaign to persuade tardy taxpayers to submit their late tax returns for 2011/12 or earlier years. If you have a personal tax return form (or notice to complete a tax return) sitting in a drawer, and have been putting off the tedious task of completing it, now is the time to act.

The Taxman’s campaign is called: My tax return catch-up. It was launched in July and will run to 15 October 2013. It is not open to those who operate outside the tax system in the so-called ‘black economy’, and have never received a tax return form or notice to submit a tax return.

All the late tax returns must be submitted by 15 October 2013, which is also the due date for paying any tax due. If you can’t pay all your outstanding tax by that date, you can ask for a time to pay agreement to spread the late tax payment over several months.

The incentives for joining the tax return catch-up campaign include lower penalties for late tax return submission and late payment of tax. Just how much lower those penalties will be is not specified, the actual discount will depend on your circumstances.

If you, or a friend or relative, want to take part in the late tax return campaign, that taxpayer first has to tell HMRC they want to join. This can be done online, by phone or post and we can do this on your behalf. We can also help with completing the late tax returns, calculating the tax due, and negotiating for time to pay outstanding tax with the tax office. Remember submitting a late tax return can sometimes result in a tax repayment!

Newsletter issue – August 2013. Save Tax! Sign up to receive tax tips and news.