July 15, 2010HOW TO AVOID TAX USING INTER-SPOUSE TRANSFERS!

In this article we discuss family tax planning involving the transfer of property between spouses.

Family tax planning exercises involving the transfer of assets between spouses (or civil partners) is often necessary to enable each spouse to fully utilise the various tax exemptions available to an individual. If one spouse owns all the family assets this would not be possible. The ability to make such transfers tax effectively is thus important.

Equalisation of Estates
As a general rule so-called "equalisation of estates" is desirable. This means that ideally each spouse should own assets amounting to at least the value of the inheritance tax (IHT) nil rate band (£325,000 for tax year 2010/11); own assets which, on sale, enables full use of the capital gains tax (CGT) annual exempt amount (£10,100 for tax year 2010/11) and own assets generating income sufficient to mitigate any exposure to higher rate income tax.

The transfers between spouses must be "real" transfers and effected as if to a third party. This means all relevant documentation must be correctly completed.

Inheritance Tax
For IHT purposes inter-spouse transfers are "exempt" transfers and thus not subject to IHT if the spouses are married, although not necessarily living together. As indicated above, transfers from one spouse to the other to ensure each spouse’s estate is at least £325,000 can thus be made without attracting any inheritance tax charges.
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May 5, 2010HMRC PAYE online filing guidance

The taxman has warned businesses that most of them must file their PAYE returns online by 19 May or face stiff penalties. If you send any PAYE forms by paper or magnetic media when you’re required to send them online, you will face penalties. These penalties will still be due even if you subsequently file an online version of the form(s) for which you’ve been penalised.

Story from: hmrc.gov.uk

January 29, 2010The PAYE code avalanche has started

HMRC expect to send out 25 million PAYE codes for 2010/11 over the next week/weeks, which is double the number of codes issued in 2009. And the media are reporting that many of the codes are wrong.

What’s the true position and why the massive increase in the number of codes being sent out?

HMRC say it is all down to the new national insurance and PAYE computer system (NPS), which merged data from 12 regional computer systems last summer. HMRC say there is NO glitch and that the system is doing all they want it to do. The combined data set should highlight situations where a person has more than one employment or pension. The personal allowance will then be automatically allocated over those income sources, which may not be how the taxpayer desires. In which case the taxpayer, or their agent, will have to contact HMRC to get a revised code.

Additional PAYE codes may be sent out where there has been a mismatch in the PAYE data, and two employment records have been set up for one employment. There have also been reports of some ceased employments being treated as live, leading to the personal allowance being split over two employments. In both cases HMRC should be informed of the incorrect codes.

January 25, 2010Tax and national insurance rates and thresholds

Tax allowances and thresholds will remain the same for 2010-11. Click here to access full information on rates and allowances for 2010-11.

If you’re an employer, employee or self employed, bear in mind that the following National Insurance rates will apply from April 2010:

All other National Insurance Contributions (NICs) rates and thresholds are unchanged for 2010-11. Click here for further information on NICs rates and thresholds.

Statutory payment rates

The table below offers a rundown of the figures for this year.

Cars and vans: Changes to fuel tax
Those affected will be employees who receive free private fuel from their employers for company cars or vans and employers who bear Class 1A NICs on the taxable benefit of provided fuel.

The measure sets the fuel benefit charge for company cars and vans from 2010-11 with company car fuel benefit charges increasing to £18,000 and company van fuel benefit charge increasing to £550. Click here for further information. 

Penalties for submission of in year forms to HMRC
Penalties for paper submissions kick in, in the final quarter of the tax year commencing January 2010 (this currently applies to PAYE schemes 50 employees or over).

December 23, 2009Extra national insurance burden ahead

One of the significant announcements in the Pre-Budget Report earlier this month is a further increase in national insurance contributions (NIC) which is to take effect from 6 April 2011.

The NIC rates and limits are broadly frozen for 2010/11 at the 2009/10 figures, with a couple of minor exceptions.

An increase in the rates of NIC is proposed from April 2011 with an extra 1% being added to the rates applicable to employers, employees and the self-employed. The main rate of Class 1 (employee) NIC will be 12% and the Class 4 rate will be 9%. The employer rate will increase to 13.8%.

The additional rate of Class 1 and 4 contributions, payable on pay and profits currently in excess of £43,875, will also increase from the current 1% to 2%.

The government has announced that it will protect those at the lower end of the earnings scale by an increase in the point at which contributions become payable. It is therefore expected that employees paying the standard employee rate and earning below £20,000 will pay less NIC overall as a result of the change.

The government had previously announced that NIC rates would increase by 0.5% from April 2011. This further increase of 0.5% will represent a significant increase in costs particularly for employers.

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November 25, 2009Sage warns of VAT change complications

Sage has warned businesses to prepare for the VAT changes or face the consequences.

The financial software provider has found that just a third of businesses will be prepared for the VAT changes before they close their offices for the Christmas period.

The VAT rate will return to 17.5% on 1 January 2010 causing disruption to accountancy firms and businesses in the New Year.

"This is cause for serious concern - managing the change for something as integral as VAT is not as easy as simply flicking a switch. In fact, it can be hugely complex for businesses both small and large," said Kevin Hart, head of government relationships at Sage UK & Ireland.

"Those that fail to plan the changes now will pay the price later," he added.

When the VAT rate was reduced this year, businesses were given just four days to prepare for the amendments. Sage has said that its VAT development team and support staff had to work around the clock to prevent widespread disruption.

There are special arrangements being drafted for certain businesses operating beyond midnight on 31 December.

Sage is advising its clients to get in touch with their accountants as soon as possible to discuss how the changes will impact them.
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Accountancy Age

November 9, 2009VAT rate change: A practical guide

HMRC has now provided a complete guide to the rate change a summary of the key practical points to think about would be helpful.

Retail businesses

Whether retail businesses increase their prices or not on 1 January 2010, they will have to account for VAT at the 17.5% rate from then on. So if the prices are not adjusted to reflect the rate change, the business will suffer an immediate reduction in margin. The actual reduction in sales value is 1.85%, but of course as this all comes off the gross profit this will have a much bigger impact if margins are very slim. So all retailers who supply standard rated goods need to think in advance about the impact of the change. Whether they re-price or not, the rate will go up, so they will need to consider a mix of three alternatives :

Hold prices and take the profit hit
Increase prices to maintain margins, or
A mix of the two - increasing prices by less that the VAT hike to avoid hitting sales too hard, and accept some margin reduction.

Web based suppliers

Similarly those supplying goods and services over the internet will need to assess their position on supplies to end consumers. Businesses should now be thinking about what work will be needed to implement price changes, and whether any outside help in re-pricing on the website will be necessary. Businesses which have pre-printed price lists and order forms may also need to take steps to prepare.

Tickets to events

Tickets, including season tickets, to events are liable to VAT when the ticket is sold rather than when the event happens. Organisers of events will therefore wish to ensure that any printing on the tickets which will be sold across the date of the change in rate reflects their intentions. This would need to be taken into account when setting the price of the tickets.

Invoices issued in 2009

Generally speaking, if an invoice is issued to a customer before the change in rate, the VAT chargeable is 15% and not the increased rate. However, as there is ample opportunity for this rule to be exploited in favour of customers who cannot recover all (or in some cases any) of the VAT they bear, there are special rules designed to prevent early invoicing distorting the VAT base. That being said, these rules do not cover all eventualities, so some businesses may decide to raise invoices in December in respect of supplies they will make in early 2010. There is a separate article dealing with the anti avoidance rules - so check there first before launching into a "cunning plan".

Flat rate supplies

New rates will apply to those businesses making flat rate supplies from 1 January 2010. However, businesses should not adopt the old flat rates in place before the reduction, as HMRC has already warned that there will be some changes to rates. Revised flat rates will be published before the end of 2010.

Coin operated machines

The normal treatment is for supplies to be accounted for when the machine was used. If machine operators do not intend to visit and empty machines during New year’s day, they will need to apportion the sales at the next cash collection date. They will also need to have supporting evidence that the apportionment was reasonable. Once again, as there is a detrimental effect on profit, machine operators will need to consider the impact on their business in advance of the change.

Software

Business will need access to both the 15% rate of VAT and the 17.5% rate for some time after the change happens, as any credit notes raised in respect of supplies made during 2009 will have to be credited at 15%. Purchases should have VAT recovered at the "correct" rate, and if some purchased invoices are delayed this may lead to the recovery of VAT at 15% for some time. Businesses should not, therefore "over write" their standard rate of VAT in their accounting software.
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October 15, 2009Hartnett vows to 'bear down' on 50% top rate tax cheats

Dave Hartnett promises crack down on those helping clients dodge 50% income tax rate

The taxman has given tax advisers its clearest signal yet that it will "bear down on those who bend or break the rules."

HMRC said it would crack down on those who help clients avoid the new 50% top rate of income tax, which comes into effect next year, by the use of schemes converting income into capital.

The huge disparity between the incoming top rate of income tax and the rate for CGT could potentially be a cause for concern for any new government if Labour " who introduced the 18% rate in April 2008 " were to lose next year's general election.

Would a newly-elected government look to reduce or abolish the disparity? There is some historical precedent for this.

Nigel Lawson, chancellor of the exchequer for the Conservative administration in the 1980s, equated the top rate of income, which was then 40%, to the top rate of CGT to prevent tax accountants and tax lawyers coming up with ever more elaborate schemes to convert one to the other.

Hartnett cautioned that HMRC would not hesitate to ask ministers to change the law in relation to turning income into capital arrangements if necessary.

Story from: Accountancy Age

August 12, 2009Liechtenstein tax amnesty

HMRC has signed a deal with the government of Liechtenstein which will enable lost taxes to be recovered from UK residents with offshore investments there.
The Liechtenstein tax deal offers account holders the opportunity to settle any unpaid tax with only a 10% penalty and going back only as far as ten years. In contrast, the NDO set to begin in September this year is asking UK taxpayers with investments in other offshore jurisdictions to declare unpaid tax as far back as 20 years. In some cases they may also have to pay a 20% rather than a 10% penalty.
It is wholly unfair that there are different rules for those with investments in Liechtenstein and those with investments in other offshore jurisdictions. HMRC should align the terms of the NDO with this new amnesty.
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AccountingWeb

July 23, 2009Paying Self Assessment by Budget Payment Plan

A Budget Payment Plan offers an easier way to pay your Self Assessment tax by allowing you to make voluntary regular payments towards your future tax bill. It’s available to tax payers whose payments are up to date and who pay by Direct Debit.
The plan is flexible and you can:
*decide the regular weekly or monthly amount you want HMRC to collect
*choose to change your regular payment amount
*suspend payment for a period of up to six months
*cancel the Budget Payment Plan at any time

If you currently have an outstanding Self Assessment liability but are interested in setting up a Budget Payment Plan please contact the HMRC Payment Helpline on Tel 0845 366 1204. The Helpline staff will be able to advise you on how to bring your affairs up to date and when you can start a Budget Payment Plan.

Story from: hmrc.gov.uk