Tax Diary November/December 2019

1 November 2019 – Due date for Corporation Tax due for the year ended 31 January 2019.

19 November 2019 – PAYE and NIC deductions due for the month ended 5 November 2019. (If you pay your tax electronically the due date is 22 November 2019.)

19 November 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2019. 

19 November 2019 – CIS tax deducted for the month ended 5 November 2019 is payable by today.

1 December 2019 – Due date for Corporation Tax due for the year ended 28 February 2019.

19 December 2019 – PAYE and NIC deductions due for the month ended 5 December 2019. (If you pay your tax electronically the due date is 22 December 2019)

19 December 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2019. 

19 December 2019 – CIS tax deducted for the month ended 5 December 2019 is payable by today.

30 December 2019 – Deadline for filing 2018-19 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2020-21.

Sale of income for a capital sum

A capital sum received by an individual in respect of the sale or relinquishment of income – derived from his or her personal activities – can sometimes be treated as earned income and chargeable to Income Tax. If this is the case, the amount charged to Income Tax is not also charged to Capital Gains Tax.

The following conditions must all be present before the sale of income legislation can operate.

  1. The individual must be carrying on an occupation wholly or partly in the UK.
  2. Transactions or arrangements must have been affected placing some other person in a position to exploit the earnings capacity of that individual.
  3. A 'capital amount' must have been obtained by the individual or for some other person, as part of, or in connection with, or in consequence of the transactions or arrangements.
  4. The main object, or one of the main objects, of the transactions or arrangements must be the avoidance or reduction of liability to Income Tax.

The charge to Income Tax will take place in the tax year or years in which the capital amount becomes receivable or the sale or realisation occurs.

Pecuniary liability treated as income

A pecuniary liability can occur when a monetary obligation is fulfilled by an employer, when by law, the liability was that of an employee. One example of this is the case of an employer paying a debt that an employee owes to a third party. The employer’s payment in this case is of direct monetary value to the employee because he or she no longer has to pay that amount of money to the third party. This payment is therefore treated as earnings in the hands of the employee and is taxable.

It does not matter for tax purposes whether the employer makes the payment voluntarily or under a contract. HMRC provides the example of an employee who has signed the application form for the supply of electricity or gas to her home, the employee is the customer and she will be the person who is billed. If the employer pays the bills for the employee, the employer is discharging the employee’s debt.

This principle has been applied in a number of cases including those relating to an employee’s Income Tax, employee’s rates, lighting, heating, other costs and the cost of employee’s petrol.

Using the cash basis for property businesses

The cash basis scheme helps sole traders and other unincorporated businesses benefit from a simpler way of managing their financial affairs. The scheme was extended to landlords from April 2017. The scheme is not open to limited companies and limited liability partnerships. The entry threshold for the cash basis scheme is £150,000 and you can stay in the scheme until your business turnover reaches £300,000.

Unlike other taxpayers that need to opt-in to use the scheme, the legislation assumes that landlords will use the cash basis as the default method of calculation. A landlord can still elect to opt out of the scheme in which case they can continue to use Generally Accepted Accounting Practice (GAAP) to calculate their taxable profits. Landlords are also required to continue using GAAP if their rental receipts are in excess of the £300,000 scheme threshold.

The cash basis scheme allows landlords to use the cash basis when recording income received and expenditure paid i.e. recording the flow of money from and to the business based on actual money flows. Traditional accounting uses the accruals basis i.e. income and expenditure is recorded when a bill is received, or a customer is invoiced.

Costs you can claim against your self-employed business

If you are self-employed it is important to be aware if an expense is allowable for tax deduction purposes or not. Any allowable costs can be used to reduce your taxable profit.

As a general rule you can claim for items that you would normally use for less than 2 years as allowable expenses, for example, stationery and other office sundries as well as rent, rates, power and insurance costs.

HMRC lists the following expenses as being allowable:

  • office costs, for example stationery or phone bills
  • travel costs, for example fuel, parking, train or bus fares
  • clothing expenses, for example uniforms
  • staff costs, for example salaries or subcontractor costs
  • things you buy to sell on, for example stock or raw materials
  • financial costs, for example insurance or bank charges
  • costs of your business premises, for example rent, heating, lighting, business rates
  • advertising or marketing, for example website costs
  • training courses related to your business, for example refresher courses

You can also claim the applicable part of rent, rates, power and insurance costs for any part of your home used as an office.

Equipment you buy to use in your business that you would expect to last for more than 2 years e.g. computers are treated as allowable expenses if you use cash basis accounting or you can claim Capital Allowances if you use traditional accounting. You cannot claim for any non-business use of premises, vehicles, phones or other office equipment.

The above list does not cover all the costs you may be able to claim. If you are new to self-employment, we can help you draw up a list of allowable costs for your business.

What you must do when charging VAT

When you issue a VAT invoice to your customer, you must ensure that you charge the correct rate of VAT. Whilst most businesses in the UK charge VAT at the standard rate of 20% there are a number of different VAT rates and exemptions that you will need to be aware of. In the UK, there are three separate VAT rates, the standard rate of 20%, the reduced rate of 5% and the zero rate 0%.

In addition, there are two other categories that the supplies of goods and services can fall under:

  • Exempt – where no VAT is charged on the supply.
  • Supplies that are ‘outside the scope’ of the UK VAT system altogether.

Where a transaction is a standard, reduced or zero-rated taxable supply, you must:

  • Charge the right rate of VAT
  • Work out the VAT if a single price is shown that includes or excludes VAT
  • Show the VAT information on your invoice
  • Show the transaction in your VAT account – a summary of your VAT
  • Show the amount on your VAT Return

If you charged the wrong amount of VAT and it is too high, then you are still responsible for accounting for the higher sum. If the amount is too low, then you must account for the amount you should have charged. Your customer can also ask for a replacement invoice to be issued reducing / increasing the amount of VAT due. The timing of finding an error can also impact on how the issue is resolved.

It is important to be aware that if the amount of VAT you charge is too high, your customer can only claim back the correct amount of VAT they should have been charged. A credit note will usually be required to rectify the situation.

If you are concerned that you may not be charging VAT at the correct rate, please call.

Just under 100 days to go

HMRC has published a news release to remind you that there is now less than 100 days to file your 2018-19 tax return. Last year over 11.5 million taxpayers were required to complete a Self-Assessment tax return but over 700,000 taxpayers missed the deadline.

The deadline for submitting your 2018-19 Self-Assessment tax returns online is 31 January 2020. You should also be aware that payment of any tax due should also be made by this date. This includes both the payment of any balance of Self-Assessment liability for the 2018-19, plus any payment on account due for the current 2019-20 tax year.

If you are filing online for the first time, you should ensure you register to use HMRC’s Self-Assessment online service as soon as possible. Once registered it can take up to seven working days for an activation code to be sent by mail. All Self-Assessment returns should now be made online as the deadline for submitting paper returns expired on 31 October 2019. There are penalties for late Self-Assessment returns including an automatic £100 penalty for submitting a late return even if there was no tax to pay or the tax due was paid on time.

HMRC is encouraging taxpayers to complete their tax return as early as possible to avoid working during the upcoming holiday period or getting more stressed as the filing date looms. In fact, last year over 2,000 taxpayers submitted their tax returns on Christmas Day.

If you are struggling to deal with the filing of your Self-Assessment tax return then this is a chore we can handle for you. Please call to discuss your options.

Coding out debts deadline

You can have tax underpayments collected via an adjustment to your PAYE tax code, provided you are in employment or in receipt of a UK-based pension. The coding adjustment applies to certain debts such as Self-Assessment liabilities, tax credit overpayments and outstanding Class 2 NIC contributions.

Instead of paying off debts in a lump sum, money is collected in equal monthly instalments over a tax year.

The amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. This is a different limit to that for paying your Self-Assessment bill where the amount owed must be less than £3,000. The maximum coding out allowance only applies to taxpayers with earnings exceeding £90,000.

The full breakdown is as follows:

Earnings Coding out limit
Less than £30k     £3k
£30k to £39,999.99 £5k
£40k to £49,999.99 £7k
£50k to £59,999.99 £9k
£60k to £69,999.99 £11k
£70k to £79,999.99 £13k
£80k to £89,999.99 £15k
£90k or more £17k

If you had tax underpayments in the 2018-19 tax year, you have until 30 December 2019 to file your Self-Assessment returns in order to have the monies collected in the 2020-21 tax year – starting on 6 April 2020.

If you need help organising the payment of your tax bill – to be paid off by an adjustment to your tax code – call now as the December deadline is fast approaching.

November Budget cancelled

Sajid Javid has cancelled the Budget that was due to be presented to Parliament 6th November.

As the UK will not be leaving the EU at the end of this month and as Boris Johnson is proposing a general election on 12th December, both of these events have rendered a budget inappropriate at this time.

As and when a new date is agreed we will publish details on this news feed.

 

 

Compensation limits for bank deposits

What happens if your bank becomes insolvent and you stand to lose any funds deposited?

The bank deposit guarantee limit is the amount of money that is guaranteed, for savers in UK banks and building societies, should the institution become insolvent. The Financial Services Compensation Scheme (FSCS) guaranteed amount is currently £85,000 per person, per authorised bank or building society.

There is additional protection available to savers with certain types of temporary high balances, for example proceeds from a house sale, benefits payable under an insurance policy and inheritances. The additional FSCS protection covers amounts of up to £1m per depositor per life event and is available for up to six months. The FSCS offers unlimited cover for personal injury claims.

The limit is enough to cover the deposits of more than 95% of all savers in the UK. However, savers with more than £85,000 should consider opening multiple bank accounts with separate banks and building societies in order to increase their guaranteed savings limits. The FSCS was set up mainly to assist private individuals, although some businesses and small local authorities (such as parish councils) are also covered. The compensation limit is doubled for joint account holders.