Understanding the Self-Assessment Tax Return

Understanding the Self-Assessment Tax Return

We don’t like to be a scrooge here at Intouch, but after the Christmas festivities have ended it’ll be time for you to submit your Self-Assessment Tax Return (SATR). After all the Christmas chocolates have gone and the New Year celebrations seem like a distant memory, you will need to take stock from the past tax year and pay what is due to HMRC.

 

It’s a good idea to get on with your SATR as soon as possible so that it’s one less thing to worry about, especially over the festive period. If you are an Intouch client your Personal Accountant will have already been in touch to guide you through this process and make you aware of what needs to be submitted.

 

But if you’re not yet a client of ours and need to understand what the assessment is and if you need to fill one out, read on…

 

What is the Self-Assessment Tax Return?

It’s HMRC’s way of accounting for the incomes that may not all be taxed through permanent employment. Paper self-assessments must have been received by HMRC by the 31st of October and online submissions must be made by January 31st.

 

The assessment itself is a series of questions which all must be filled out. If you’re struggling with the answers, or need advice on claiming for your business expenses, then enlisting the services of a trusted accountant will be one of the best moves you can make.

 

If you have received only PAYE income since April 6th of this year, you may not have to complete an assessment. Exemptions may include if you have received any Child Benefit in your household and one receives an income in excess of £50,000, or if your income has exceeded £100,000 whilst in PAYE.

 

Who has to fill one out?

If you have received non PAYE income then you may need to fill out a Self-Assessment Tax Return. This includes (but is not limited to) the following types of people:

  •  self employed
  • if you are a company director
  • if you have accommodation or land that you receive payment for from tenants (unless covered by the rent-a-room scheme threshold of £4,250)
  • if you receive other income which is not taxed before you receive it
  • if you are subject to paying more tax as a result of Child Benefits and a member of your household is receiving more than £50,000 in income
  • if you are a pensioner who receives a higher amount than your tax-free personal allowances

 

If you’re unsure whether you need to complete a return, take a look at HMRC’s website.

 

What happens if you don’t return your self-assessment or tax due to HMRC?

If you miss the submission deadline for your return and / or tax payment, HMRC will issue you with a fine. The fines range from £100 for the first three months after missing the submission deadline and interest if the tax payment is late, with penalties enforced if more than 30 days late.

 

HMRC do allow you to pay your tax bill throughout the year with the use of their budget payment plan. Your Personal Accountant will be able to advise you on the best way to ensure you retain the correct amount of tax and when it’s due to HMRC.

 

What happens if you make a mistake on your SATR?

Many people make mistakes on their SATR, but it’s worth remembering that HMRC will not accept it if you’ve included incorrect information. If you do make a mistake you’ll have twelve months to correct it (which is called an amendment). However, if HMRC find an error in which they have had to prompt you, there could be a minimum 15% penalty charge on the total tax owed for each mistake that HMRC classes as a careless error. So make sure that you check it, check it again – then check it once more before you submit it!

 

How can Intouch Accounting help?

We ask our clients to submit their assessment details to us by November 30th, so there’s still time to join Intouch and have your self assessment submitted for this year. Please be aware that if you do join us now, there will be a charge for your SATR to be completed, as you have not been a client for the past tax year.

 

Alternatively if you’ve tried to go it alone and seen first hand the amount of time (and potential stress) it can cause, it might be time to look into appointing a contractor accountant.

 

At Intouch we include a personal self assessment tax return as part of our all inclusive monthly fee of £98+VAT. But that’s not all, take a look at our full service inclusions to see just how much we include in our monthly charge with no nasty hidden charges. Ready to join us? Great! Give our team a call on 01202 375 562 to talk through the joining process.

 

Missed our twitter chat with IPSE on the Self-Assessment Tax Return? Catch the full Q&As here.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Flat Rate VAT Scheme for contractors explained

Flat Rate VAT Scheme for contractors explained

Once a business reaches a turnover of £82,000 within a twelve month period, it is a legal requirement to register for VAT and subsequently, charge VAT (20%). Businesses who are registered for VAT must charge this to their clients and customers (most commonly at a rate of 20% but occasionally at either a reduced or zero rate), but may reclaim any VAT paid out on business-related goods and services (expenses).

 

For many contractors however, the level of VAT which can be reclaimed is minimal, often as a result of the ‘service’ offered being time, knowledge and experience. In most cases, the level of VAT paid to HMRC by a business equals the difference between VAT charged and VAT claimed back. However, under the Flat Rate Scheme, this is calculated at a fixed rate based on their activities.

 

Fixed Rate VAT

In short, the Flat Rate VAT Scheme means a contractor must pay only a fixed rate of VAT and may keep the difference. In this instance, under the Flat Rate VAT Scheme, the VAT paid out on goods and services cannot be reclaimed unless on certain capital purchases costing more than £2,000 (in one transaction).

 

Eligibility

To be eligible to join the Flat Rate VAT Scheme, the business must have turnover of  less than £150,000 per annum (excluding VAT). Whilst it is a legal requirement to register for VAT once turnover exceeds £82,000 in a twelve-month period, it is possible for businesses to voluntarily register when turnover is below this threshold.

 

How it works

Somewhat different to standard VAT accounting, on the Flat Rate Scheme, you’ll pay a percentage of turnover in VAT as opposed to paying the difference between the amount of VAT charged to clients, less the VAT reclaimed on purchases.

 

The Flat Rate VAT Scheme fixed rate does differ from industry to industry however, to offer a number of examples:

 

  • Computer and IT consultancy or data processing – 14.5%
  • General building or construction services – 9.5%
  • Management consultancy – 14%

 

Whilst this is by no means a comprehensive list of industries within which contractors are commonly seen, the above gives an idea as to how the rates can differ.

 

When calculating the VAT due, the fixed-rate percentage of the gross is taken. This is calculated on the value of sales (including VAT) multiplied by the percentage based on the business’ main activity. As an example, on a sale of £100 (which becomes £120 once VAT is added), an IT Consultant would pay £17.40 to HMRC (14.5% of £120).

During the first year of registration, businesses will  be entitled to an additional 1% deduction on the fixed rate.

 

What this means for contractors

As a contractor, it may often be the case that you have very few expenses in comparison to other businesses. In this respect, you may find that the scheme is perfect for you, although this can differ between individuals depending upon turnover and expenses claimed.

 

Benefits of the scheme lie not only in the fact that it is possible to profit from being VAT registered if there would be very little that could be claimed back under the standard scheme, but also that the admin associated with filling a VAT return is significantly reduced. As opposed to being required to submit information on the VAT charged out as well as putting together a claim back for VAT paid out, on the flat rate, the VAT payable can be calculated solely from knowing the revenue.

 

Whilst not for all businesses, if you’re turning over no more than £150,000 in a twelve month period and don’t find yourself claiming much back in the way of expenses, it’s something seriously worth considering; even if you’re not reaching the £82,000 threshold.

 

You can find out more information about the Flat Rate VAT Scheme on the Gov.uk website, or the VAT – Could you be paying too much? Flat Rate VAT? blog from Intouch Accounting. However, if you’d prefer a chat with one of our friendly and helpful advisers, why not give us a call today on 01202 375 562 or fill in our contact form and we’ll call you back.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

How much salary should I pay myself as a Limited Company contractor?

How much salary should I pay myself as a Limited Company contractor?

Making the right choice on the level of salary to draw as a Limited Company director and contractor is one of the more important decisions to take. Surprisingly though it’s not just an annual decision, taken at the beginning of each tax year, but one that should be revisited whenever changes occur in your circumstances.

To fully understand the mechanics affecting the choice of salary requires a working knowledge of Income Tax (PAYE), National Insurance and IR35, Corporation Tax and the rules concerning National Minimum Wage and that’s something your specialist contractor accountant can help you with. But to avoid a detailed technical analysis we can whittle these down to a short list of considerations:

I’m subject to IR35, so it makes no difference

If you are subject to IR35 your eventual salary is determined according to the defined rules of IR35; however you retain the choice of how much to take during the year that affect the amount of tax payable and when it is payable.

The Employment Allowance (EA) was introduced in April 2014 to provide a deduction of up to £2,000 from the Employer’s NI payable by your company. However EA is not available to any part of your salary determined as a deemed payment under IR35 and so only deductible against Employer’s NI payable on normal salary. You should therefore set a level of normal salary that utilises the EA limit. For 2015/16 the level of salary that fully utilises EA would be £22,552.

The second choice concerns timing of tax payments. Taking a monthly salary that utilises EA will result in quarterly PAYE and NI payments, whereas the tax on the deemed salary is payable at the end of the tax year. So it would appear better to keep your salary low enough to utilise the EA and leave the IR35 balance to be determined at the end of the year and pay PAYE and NI much later.

Although one point to appreciate is that any money taken from the company on account of a final IR35 salary will be a loan and subject to beneficial loan interest rules when the loan exceeds £10,000. A minor point not to be overlooked.

What about National Minimum Wage (NMW)?

New rules introduced in March 2015 mean that any failure to pay NMW can result in a fine of £20,000 per employee. Ok, this is unlikely to be an issue in practice, but HMRC can take action where the NMW rules apply and such a fine is an attractive motivator.

NMW only applies to Limited Company contractors who are the directors of the company where there is a contract of employment, and to the company’s employees. If you are one of the few contractors that has issued a contract to yourself then you should pay the NMW. Since October 2014 this is £6.50 and from October 2015 it is expected to be £6.70.

NMW has no influence over IR35 status and can be ignored where no contract of employment exists.

Are you thinking of pensions?

The level of salary taken affects the level of personal pension contributions you are able to make that take advantage of the tax benefits. If you pay pension contributions then you should seek advice from your financial advisor on the minimum required level of salary to support the tax benefits.

I’m outside IR35, pay enough to support my pension provisions and don’t have a contract of employment

Congratulations, you have complete freedom of choice. You can set any level of salary that now suits your personal circumstances and your view on tax. The next step in this discussion assumes that you want to minimise tax. If that’s not your driver then select any level of salary that you want and can be supported by the company’s income.

Most contractors are aware that dividends incur less tax than salary because NI does not apply to dividends. However there is a minimum level of salary that should be taken that overall reduces total tax (Income Tax, National Insurance and Corporation Tax). That minimum level used to be linked to the thresholds when NI became payable, however since the introduction of EA the best level of salary is linked to your personal tax allowance.

Personal Allowances (or your tax free allowance) changes every year. For 2015/2016 most contractors start off with Personal Allowances of £10,600. This typical level may be reduced if you have tax liabilities from earlier years that are collected via your tax code or you have any taxable benefits in kind. If you are not sure then obtain a copy of your tax code calculation from HMRC.

Your Personal Allowance is a tax free allowance and is set against your total income. So if you have other income such as interest or rental income then deduct the gross value of that other income and you are left with your available personal allowance.

The level of your available Personal Allowance is often the best level for your salary that achieves the least tax liability overall.

Let’s explain that with some examples:

Assumptions:

  • Personal Allowance is £10,600
  • No higher rate tax (but only to keep it simple)
  • No other income
  • Profit after expenses but before salary £40,000
  • Available dividends are declared
example salary

Conclusion: Salary at Personal Allowance is the least tax

Now let’s compare the result where Personal Allowances are £8,000 because of underpaid tax brought forward

Assumptions as above except:

  • Personal Allowance is restricted to £8,000

 example salary 2

Conclusion: Salary at Personal Allowance is still the least tax

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Payment difficulties – Self Assessment 2015

Payment difficulties – Self Assessment 2015

Many contractors and freelance workers submit a Self-Assessment Tax Return. The deadline for filing the Return for the year ended 5 April 2014 and also for having paid any additional tax that’s not collected via the PAYE system is the end of this month (January 2015).

The tax system requires that you pay not only any balancing tax liability but can also require that you make a second payment on account for the current tax year (5 April 2015), both at the end of January, with a second payment on account for the current tax year next July.

If you don’t pay your tax liability on time HMRC will automatically charge you interest from 1 February at 3% per annum, and you would expect that to be the case, but what many contractors don’t realise is that there are additional surcharge penalties that are automatically charged for unpaid tax after 30 days, 5 months and 11 months.

Each penalty is 5% and so your unpaid tax liabilities can rapidly increase significantly.

So, what do you do when you cannot pay?

key-points4

Our advice for contractors who find themselves in the unfortunate position of not being able to meet their tax liabilities in time there are a few points to consider which might help:

Speak with your contractor accountant – as soon as you’re aware that you will have difficulty with paying your tax liabilities let your contractor accountant know. They will be able to advise you in detail of the options available as they apply to your specific financial position and can help you establish exactly how much tax is due and by when.

Contact HMRC – There is some flexibility possible, depending on your circumstances, so it’s worth exploring your options.  For example:

  • If your notice of tax changeability was issued late in the year, you have three months from the issue date until the tax is due. If this is the case, it may mean that your personal tax due date for the current tax year is after 31st January.
  • If amendments are made to your tax changeability after 1st January additional tax chargeable as a result will not be due until 30 days after the amendment was made. There will, however, still be interest charged if you pay the additional amount after 31st January.
  • HMRC will usually accept if you cannot pay by 31st January but promise to pay the full amount owed within  30 days.
  • If you cannot pay within  30 days HMRC will consider special circumstances and may reduce penalties in some cases, so speak with them if this might apply to you.
  • There are also a number of schemes available which can help you spread out your tax payments as long as you are currently paid up to date. HMRC are obliged to at least consider reasonable payment arrangement proposals. However, if an arrangement is spread over more than 3 months, HMRC will want evidence of income, expenditure and any savings you have.

 

Being unable to pay your tax liabilities can be extremely stressful, but by taking action as you soon as you become aware there’s an issue you may find there are workable solutions available.

Are you a contractor in need of some advice on your Self Assessment Tax Return? Intouch Accounting are contractor accounting experts, able to provide professional support to Limited Company contractors – leaving you to focus on the matter at hand without needing to worry about your finances.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

2014 changes to statutory sick pay

2014 changes to statutory sick pay

One of the lesser known changes in this year’s Budget relates to Statutory Sick Pay (SSP) brought in partly due to the rather bizarre belief that the old system provided no encouragement for an employer to get an employee back into work.

SSP is a legal requirement and is paid to employees for up to 28 weeks at a rate of £87.55 per week if they are off work due to illness.  As an employee of a Limited Company you would be entitled to this, provided you earn at least £111 a week and are classed as an employee (there’s another discussion to be had there around being an employee and therefore being paid National Minimum Wage, but we’ll leave that one for another blog…!)

The SSP payment is taxable, is paid the same as any normal salary, and only starts when the employee has been sick for 4 or more days.  The employer then used to be able to reclaim this via their PAYE scheme as long as the SSP exceeded 13% of the gross NI in the same month (known as the percentage threshold scheme).  No more.

The Government have concluded that the scheme was used by 100,000 employers at a cost of £50 million to the Exchequer, which could be better spent by establishing a state funded “Health and Work Assessment and Advisory Service” that will provide access to independent occupational health experts and support employees retuning to work, after they’ve been off for 4 weeks or more.  What they seem to have missed is that this will really only hit small employers, who could find their overall employment costs increase a great deal if they have staff off sick and then also have to pay temporary staff to cover.

Even if you are entitled to SSP it’s a good idea to get separate protection in place as the amount you’ll receive is not likely to cover your household bills!

For more information please speak to your contractor accountant for guidance.

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

New contractors’ guide to Tax Return Deadlines

New contractors’ guide to Tax Return Deadlines

With the 31st of January deadline for online self-assessment fast approaching, it is important that all new Limited Company contractors are aware of all personal and company tax return deadlines.

Filing all personal and company tax information required and making payment to HMRC within their specified deadlines is vital. Firstly, it ensures you don’t end up having to pay out for late penalty amounts. It’s also good business practice to keep within these deadlines as it will mean that you’re generally keeping your contractor accounting and tax affairs fully up to date. Ideally you should be aware of the key deadline dates which apply to you, but if you’re unsure a contractor accountant will be able to help.

As a Limited Company contractor you will be required to file a number of different types of tax return. The specific returns applicable will partly depend on the size and type of business involved but most contractors will usually need to file the following:

  • Self-Assessment tax return – relating to your own personal taxable income.
  • Employer related tax returns e.g. National Insurance Contributions (NIC), Pay as you earn (PAYE) and other employee related returns for yourself (as an employee of your own company) and any other employees.
  • Company tax return for your business.
  • VAT return(s) for your business if your company is VAT registered.

HMRC specifies a number of different deadline dates for each of these returns. A list of key dates for the main tax return categories is given below.

Tax Return filing and payment deadlines

Self Assessment Tax Return:

The end of the tax year is 5 April. The start of each new tax year is 6 April. You will need to notify HMRC that you need to complete a self-assessment tax return for the previous tax year’s income.

Table 1

Employer related filing and payment deadlines

 Employer PAYE submissions in real time became effective from 6 April 2013. Employers now report their payroll information online directly to HMRC by submitting Full Payment Submissions (FPS) and Employer Payment Summaries (EPS).

table 2

Company Tax Return filing and payment deadlines

Corporation Tax is payable by all active profit making companies. The amount owed must be paid nine months and a day after the end of the company’s accounting period end date. This means that the actual deadline dates will vary from business to business.

box 3

 VAT Return filing and payment deadlines

There are no fixed dates in the year for paying VAT.  However, depending on the type of business and the VAT options you choose you could be filing and paying monthly, quarterly or annually.

box 4

Intouch Tax Returns Service

At Intouch Accounting we make your life easier, we offer tax return administration as a standard part of our comprehensive Monthly Service package (£98 + VAT per month). This includes filing all HMRC and Companies House tax returns, including your personal self-assessment tax return. Contact us to find out more about our services.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

HMRC and tax codes

HMRC and tax codes

All contractors will receive a ‘PAYE Coding Notice’ from HMRC at some point which states your current tax code. This code informs employers and pension providers how much tax free income you’re allowed which enables them to calculate how much tax to deduct from your gross income.

For Limited Company contractors this code will be applied to the tax calculation for the salary paid through your company.

The PAYE Coding Notice will show two elements which determine how much tax will be deducted:

  • allowances and reliefs – including your personal tax free allowance
  • amounts which reduce your tax free amount – including taxable company benefits and any unpaid tax from a previous tax year

 

What to do when you get one

Store your PAYE Coding Notice safely with your company records. If you have a contractor accountant or tax adviser, ensure that you send them a copy to check if this is correct on your behalf.  HMRC do not send a copy of your full coding notice to your accountant.

You would need to check the information, to confirm the details correctly describe your current circumstances and income. Your contactor accountantwill be able to help you with this, unfortunately HMRC are known to make mistakes, so do not simply assume that your code is correct.

An incorrect code can mean that you either pay too much or too little in tax. If you underpay, you risk being sent a large tax bill at a later date to remedy this.

 

How to get a PAYE code corrected

If you find that information or figures on this are incorrect, contact HMRC. They will make amendments and issue you with correct notice and adjusted tax code.

Tax underpayments and the role of ESC a19

If you receive an unexpected bill for tax underpayment then you may be able to submit a case for writing off your debt under the rules of Extra Statutory Concession a19 (ESC a19).

This allows those who reasonably believed that their tax affairs were in order to be relieved of tax debts incurred due to failures by HMRC. If HMRC are proven not to have made full and timely use of all information given to them, or failed to notify the taxpayer of the underpayment in reasonable time – as defined by ESC a19 – then the debt may be written off.

If this is an option you would like to pursue, speak to your contractor accountant for further guidance.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

How to pay PAYE during 2011

How to pay PAYE during 2011

HMRC are no longer sending out yellow payslip booklets to enable a company to pay its PAYE, instead they are issuing a letter reminding companies of the details needed in order to pay online.

PAYE can be paid monthly, or quarterly if your payments are under £1,500 per month on average.

A direct payment can be made to HMRC with the following details:

 

Account name:                                    HMRC Shipley

Account number:                                 12001020

Sort Code:                                            08-32-10

You will need your accounts office reference which will be similar to 049PG012345678.

If you are unsure of your reference, please contact us.

Each payment made will also need to include a reference that is specific to the month it relates to.

So for the quarter to 5th July 2011 you would use 049PG0123456781203.

The cleared funds must reach HMRC’s bank account by the 22nd of the month or quarter it relates to.  HMRC can charge interest and penalties if payments are late.

If no PAYE is due you must still inform HMRC, and you can do this online here:

http://www.hmrc.gov.uk/payinghmrc/paye-nil.htm

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.