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Newsletter June 2014

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Newsletter June 2014

This month’s newsletter includes: a heads up for high income earners, details of HMRC’s campaign targeted at second income earners, news of relaxation in online filing of VAT returns, and the possible demise of the private residence election. 

Pension contributions and high income earners

Our previous government enacted legislation that removed the personal allowance for certain high income earners. The present government has made no change to this process. Basically, for every £2 your income exceeds £100,000, your personal allowance is reduced by £1.

Take, for example, the case of Joe Smith who has income for 2014-15 of £100,000 and a personal tax allowance of £10,000 – this leaves income subject to tax of £90,000 and a tax bill of £29,627.

Joe’s best friend, Charlie, has income of £120,000. Based on the £1 reduction for every £2 of income over £100,000, Charlie has lost entitlement to his personal allowance of £10,000 and his tax bill amounts to £41,627.

Charlie’s extra tax, compared to Joe’s, is £12,000. His income is £20,000 higher than Joe’s and accordingly, his marginal rate of tax on this amount is 60% (£12,000/£20,000).

This 60% Income Tax rate can be avoided. For instance, Charlie could pay a net contribution into his pension of £16,000 (gross premium £20,000) and this will reduce his taxable earnings to £100,000 saving him £8,000 in Income Tax ? Charlie also receives 20% tax relief at source of £4,000 ? the combined tax saved is therefore £12,000.

There are other strategies that can be employed to similar effect. If your income is likely to exceed £100,000 for the first time this tax year please call so we can discuss your options in more detail.

HMRC’s second incomes campaign

On 9 April 2014 HMRC published details of their latest campaign to encourage taxpayers to declare and pay unpaid tax on second incomes.

HMRC will expect settlement of any taxes due four months from the date of declaration of untaxed income sources to HMRC.

The types of income highlighted by HMRC include:

  • consultancy fees, for example, providing training
  • organising parties and events
  • providing services like taxi driving, hairdressing or fitness training
  • making and selling craft items
  • buying and selling goods, e.g. at market stalls or car boot sales

If you have undeclared income, making use of this disclosure opportunity should reduce any penalties HMRC may charge you. If you don’t make a voluntary declaration, and are discovered by HMRC, then the penalties you will be charged will be much higher.

  • If you make a voluntary disclosure penalty rates are 0%, 10% or 20% depending on the circumstances.
  • If you don’t make a voluntary disclosure these rates can rise to 100% of the tax underpaid.
  • If the non-disclosure involves offshore liabilities the penalties can increase to 200%.

VAT online filing relaxed

HMRC has proposed to relax the current online filing of VAT returns. They are going to improve the telephone filing service by making it possible for taxpayers to ring HMRC rather than making an appointment for HMRC to ring them. They are also providing: a dedicated line, and providing a service outside normal working hours. The service will be more widely publicised and guidance provided.

The change of approach has been largely due to recent tax cases that have challenged the mandatory online filing process for most taxpayers. In one case the judge found that requirement breached the human rights of those who were unable to file online because they were computer illiterate due to age, or had a disability that made using a computer accurately very difficult or painful, or they lived too remotely for a reliable internet connection.

VAT registered traders should be able to take advantage of non-online filing if they are:

  • elderly,
  • disabled,
  • in a remote location where internet access is not available,
  • unable to file online for any other reason

The changes should provide those groups with telephone filing, or paper filing alternatives.

The end of Private Residence elections?

At present taxpayers, who own more than one property used as residences by them, can make a formal election to determine which of their properties should be considered their private residence for tax purposes.

The election needs to be based on the facts ? how has each property been used as a private residence – and HMRC has a right to challenge an election if it looks as if the taxpayer has never really taken up residence in a property and is simply trying to obtain a tax advantage.

HMRC is presently consulting on a range of issues that affect owners of residential property in the UK. One of the changes they have under consideration is to scrap the present right to make an election, and to give HMRC the right to determine private residence status based on ?demonstrable? evidence.

If this change is enacted it could take effect from as early as April 2015.

Home owners with more than one property should consider their options now.

Tax Diary June/July 2014

1 June 2014 – Due date for Corporation Tax due for the year ended 31 August 2013.

19 June 2014 – PAYE and NIC deductions due for month ended 5 June 2014. (If you pay your tax electronically the due date is 22 June 2014.)

19 June 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2014.

19 June 2014 – CIS tax deducted for the month ended 5 June 2014 is payable by today.

1 July 2014 – Due date for Corporation Tax due for the year ended 30 September 2013.

6 July 2014 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2014 – Pay Class 1A NICs (by the 22 July 2014 if paid electronically).

19 July 2014 – PAYE and NIC deductions due for month ended 5 July 2014. (If you pay your tax electronically the due date is 22 July 2014.)

19 July 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2014.

19 July 2014 – CIS tax deducted for the month ended 5 July 2014 is payable by today.