Our newsletter this month covers: details of a new initiative by HMRC to check the books and records of restaurants, a reminder of circumstances that require you to file a tax return, the benefits of making protective claims for tax credits, and finally, a reminder of the increase in the rate per mile for the business use of a privately owned vehicle.
HMRC to investigate restaurant trade
HM Revenue & Customs have created a new task force to crack down on payers who HMRC believe have not made a full disclosure on their tax return. Their latest brief is to take a look at the restaurant trade. Initially their efforts will be targeted in the London area followed by the restaurant trade in Scotland and the North West of England.
One area of interest will undoubtedly be the recording and accounting of tips. For instance:
National Insurance is another complex area in relation to tips. Generally speaking employers are responsible for paying and deducting National Insurance contributions where customers:
Class 1 NICs are not due where:
As a final point, tips are not part of the “supply” for VAT purposes so do not make the mistake of accounting for output tax on them unless you are making use of the flat rate scheme.
When do I need to fill in a Tax Return?
If HMRC send you a notice reminding you to fill in a Self Assessment tax return, you should do so!
But what happens if you are not presently reminded or required by HMRC to send in a return?
The following persons should notify HMRC that they need to submit a return even if HMRC are not presently asking them to do so:
You are also required to send in a return if your income from the following sources exceeds:
*Although there is no requirement to request a tax Return if your untaxed savings income is below £2,500, it is necessary that you advise HMRC to include the income as a deduction on your Notice of Coding.
Why claim for Tax Credits if your income is too high?
Before we deal with the issue raised by the title of this article it is necessary to outline the claims procedure.
In order to qualify for tax credits for the complete tax year 2011-12 it is necessary to make a claim before 1 July 2011 as claims can only be backdated 3 months.
Any claim now for 2011-12 would have to be based on your taxable income to 5 April 2011, the previous tax year. If your income for that year was over the tax credits threshold, and if you did make a claim before the 30 June 2011, the Tax Credits office would issue a ‘Nil Award’ for 2011-12 – effectively your claim would be recorded but no payments would be made to you.
Let’s say that you are self-employed, you have made no application for Tax Credits, and during the 2011-12 tax year your income dropped from £100,000 to £10,000 due to a number of factors:
It only became apparent that your actual income would be at this level in June 2012 when your accounts were completed for the year to 31 March 2012 (the basis for your 2011-12 tax assessment). As you have made no claim for Tax Credits up to this point you could only backdate a claim to 5 April 2012. This being so you would receive no Tax Credits for 2011-12.
If, however, you had made a protective claim before end of June 2011, you could ask for your ‘Nil Award’ to be reassessed based on your actual earnings of £10,000 for 2011-12, instead of the earnings for the previous year amounting to £100,000. If all of the other qualifying conditions were satisfied you would then get a cheque for a full year’s tax credit claim.
This scenario does not just apply to the self-employed. Anyone, whose income fluctuates for whatever reason, may benefit in the same way. If it is likely that your income may drop in 2011-12, as compared to the previous tax year, please contact us now so that a protective claim can be put in place.
Don’t forget the increase in mileage rate
Don’t forget that from 6 April 2011 the HMRC approved amount you can claim for the business use of your own car is 45p per mile (previously 40p per mile).
The 45p rate applies to the first 10,000 business miles claimed in a tax year, after that the rate reduces to 25p per mile.
Employers are not obliged to pay at this rate but any rate paid up to 45p per mile will be effectively tax free to the recipient. Any payments in excess of 45p would need to be declared as a taxable benefit unless the recipient could prove that their actual motoring costs equalled or exceeded 45p per mile.
If employers pay, or have paid, less than 45p per mile (40p before 6 April 2011) employees can make a claim. For instance if an employer pays 25p per mile after 6 April 2011, the employees could claim 20p per mile on their tax return as an expense of their employment for which they have not been reimbursed.
Tax Diary June/July 2011