Personal tax calculations and payments on account

Personal tax calculations and payments on account

If you are a director then you will be obliged to file a tax return each year, and will need to pay any tax that is due thereon as a lump sum on 31st January.  You normally have to wait for your contractor accountant to calculate your tax for you, but if your income is a simple mix of salary, bank interest and dividends then it’s easy to estimate the amount yourself.

Calculation

Dividends are tax free in the basic rate band, and then taxed at 25% of the net value in the higher rate band.

To work out the amount of your dividends that fall into the basic rate band you simply take the higher rate limit of £41,450 (for 2013/14), reduce by any other gross income, then divide by 10 and x by 9.

 

So £41,450 less a salary of say £12,000 and gross bank interest of £400 leaves £29,050 /10×9 = £26,145.

 

If you’ve taken dividends of £40,000 then deduct the basic rate amount of £26,145 to leave £13,855.  Your liability will be 25% of that, so £3,463.75.

 

This will be payable in the January following the end of the tax year – so for the year to 05/04/2014 the tax will be due by 31/01/2015.  HMRC will pay you interest if you pay early, and probably at a higher rate than your bank would!

 

If you have income exceeding £100,000, benefits in kind, self-employment, foreign income, rental income, other dividend income, capital gains etc. then the calculation gets more complex, so discuss with your contractor accountant if you want an early estimate of your liability.

Bear in mind that your liability may also be increased if you have a student loan to repay, or you have Child Benefit that is being reclaimed.

Payments on account – a word of caution

What catches many people unaware is the additional tax that may be due because of payments on account, especially if it’s their first year in the self-assessment system.  You may have to pay not only the tax due on your higher rate dividends as above, but also a 50% payment on account.  If your liability is already significant, this can increase it further and come as quite a shock if you don’t find out until the last minute.  A further 50% is then also due in July of the same year.  These payments will be offset against your liability next year, but can still cause a major cash-flow issue in the meantime.

 

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.

Tax return pitfalls

Tax return pitfalls

We’re now into the 2014/15 tax year, which must mean it’s time to start thinking about the joy of completing your 2013/14 tax return!  Many contractors will leave this task to their contractor accountant, but if you do complete it yourself you should be mindful of a few common mistakes.  Here’s our lucky top 13.

  • tax return is a summary of all income received during a year, regardless of whether or not it has already been taxed.  Make sure to include bank interest and other taxed income as it can affect the rate of tax you pay on your untaxed income.  You can however ignore an ISA.
  • If you had a student loan with a balance outstanding during the year make sure you include it.  You will need to repay the loan at the rate of 9% on any income above £16,365, so check now to see if you’re better off simply repaying the loan in full – the tax return will calculate the 9% regardless of the loan balance, and it’s a long process to get any overpayment refunded.
  • Do you own a property and receive rental income, but make an overall loss?  If so, make sure it is included so that HMRC are aware you have losses to carry forward against future profits.
  • If this is your first year of filing a tax return, have you got a Government Gateway account, and registered for Self Assessment?  If not, do it now.  It can take weeks to set up, so leaving it to the last minute could mean you’re unable to file on time.
  • Do you want your tax collected through your tax code?  Make sure you file by 30thDecember (not the 31st!)
  • Changes to the Self Assessment system in 2013 mean that you now have to declare Child Benefit if you or your partner earn over £50,000.  Make sure you know the rules of who has to declare and repay the benefit.
  • If you were in a Partnership during the year make sure you file a return for the Partnership itself too.  If you don’t, it will be subject to a £100 late filing penalty just like an individual would.
  • Have you included all employments during the year?  One of the common mistakes we see with new contractors is that they include their own company income but forget to include the details from their old employer (check your P45 for the information you’ll need).
  • Remember that dividends are received net of a 10% tax credit and must be grossed up before being added to your return.  A dividend of £1,000 is actually £1,111 with tax paid of £111.
  • Did you receive Jobseekers Allowance or other taxable benefits in the year?  Make sure these are included too.  You should have a P45 or P60 from the Job Centre with the details.
  • Do you pay into a personal pension?  Include the details on your return and it will increase your basic rate tax band, potentially decreasing the tax you owe.  Be careful though, pension contributions made by your employer do not get included here.
  • Donations to charity also increase your basic rate band and should be included on your tax return.  If you’re not a UK taxpayer though you should check whether they are being made under the gift aid scheme, as you’ll be liable to pay the tax on the donation if they are.
  • If you owe tax for a prior year make sure it’s included on your return, otherwise HMRC could refund you only to ask for it back later, which confuses things all round.

 

Remember that even if you do ask a contractor accountant to complete the return for you, it’s still your legal responsibility to check it is correct as you will be the one held accountable for any errors or omissions.  Review the return and check it through before you sign it!

 

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’s bank raiding powers

HMRC’s bank raiding powers

George Osborne announced a proposed new system during the 2014 Budget that would allow HMRC to seize assets from anyone that owes more than £1,000 in tax or tax credits.  That in itself isn’t really anything new, HMRC can already seize property or cash if they go through the Courts, but these changes would allow HMRC to simply to take money from a taxpayer’s bank account with no Court approval!

HMRC, who say they lose £35 billion a year by cheats who refuse to pay their taxes or find ways to avoid them, have stated:

“Most people pay their taxes on time, but a minority do not and some refuse to engage with us at all. It is wrong that this should hand an advantage to those who simply dodge their obligations, and is unfair on the vast majority who pay their taxes in full and on time,” he said

“We will shortly be consulting on a new measure with appropriate safeguards to help level the playing field, and tackle those who have the means to pay but are choosing not to. These are people who have, on average, over £20,000 in their accounts but are refusing to pay their debts.

“This will only affect a tiny number of debtors whom we have contacted a minimum of four times to ask for payment.”

Details of what the safeguards will be have not been released, but we do know that HMRC will have to leave a minimum balance of at least £5,000 across all bank accounts.

Frank Haskew, head of the tax faculty at the Institute of Chartered Accountants in England and Wales, says “it is a fundamental tenet of our English law and our democratic society that money cannot be grabbed from somebody’s account without a judge agreeing to the move”.

He said the change, which could come into force in just 12 months’ time, would be “unprecedented in the UK”.

And that: “At the end of the day, we can’t have HMRC as judge and jury on this.”

Mr Haskew also highlighted the fact that HMRC have a long track record of making mistakes and harassing innocent taxpayers – something that sadly most accountants will have seen first-hand.

Finally, this change would effectively see HMRC reinstated as a preferential creditor, a status that was removed from them in 2003, thus violating insolvency law.

Thankfully these new powers are not yet law, but are subject to Consultation.  With the ACCA calling the measures “seriously draconian” we can hope that they won’t become law without a fight, but with similar systems are already in place in countries such as France and the US it may be a forgone conclusion…….

 

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.

Do you need to file a tax return?

Do you need to file a tax return?

Each year HMRC send a Notice to Complete a tax return to anyone they think requires one, but be careful because it still remains your responsibility to inform them if you need one, and you’ll still get a penalty if you fail to complete one when necessary.  These days penalties will apply even if the tax due is zero.

The most common reasons you’ll need to complete a return are:

  • You are self-employed.
  • You’re a partner in a partnership.  The Partnership itself will have to file a return too.
  • You’re a company director.
  • You have annual income of £100,000 or more.
  • You have annual income of £50,000 or more, and you or your Partner was in receipt of child benefit.
  • You have rental income.
  • You need to claim expenses or reliefs, or you’re a Trustee.
  • You have Capital Gain’s Tax to pay.
  • You have £10,000 or more in dividend or other investment income.

 

Technically, the last has no basis in the actual legislation; it’s simply HMRC adding on another category of people that they want a return from!  That being said, if it’s a simple return then there’s no harm in filing one anyway, and it prevents any arguments at a later date.

If HMRC send you a return to complete but none of the apply to you then just give them a call on the Self Assessment Helpline.  You may find that it’s an error, and that you don’t need one after all.

If you think you need a tax return for the 2013/14 tax year, which ended on 5th April 2014, then you have until the 5th October 2014 to tell HMRC.  If you don’t there could be penalties.

Your contractor accountant can of course help, so if you’re not sure you can always give them a call.

Intouch Accounting currently offer the completion of a personal self-assessment tax returns for one employee as part of our comprehensive contractor monthly service please call us to find out more.

 

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.

The cost of late tax payments and late filing a self assessment tax return

The cost of late tax payments and late filing a Self Assessment Tax Return

Many contractors will be relieved that they have filed their 2011-12 Self-Assessment Tax Returns before the final deadline date of 31 January 2013. Others may be in the position of not having filed their return within this time and they will incur penalties from HMRC as a result.

It’s important to note that the deadline date is not only the deadline for actually filing the tax return, it’s also the date to pay any tax for the previous year along with your first payment on account for the next tax year.  Penalties apply to both late filing and late payment so you could potentially end up with an additional bill if you’ve filed but still not paid.

 

Penalties for late payment of tax due

If the deadline for paying tax due is missed, interest will be charged daily from the due date of 31 January 2013. The interest rate charged is variable; the latest figures appear on the HMRC website.

If the tax remains unpaid by 28 February 2013 a 5% surcharge will also be applied to your bill.

If any tax still remains unpaid by 31 July 2013 a further 5% surcharge will added to the outstanding amount.

 

Penalties for late filing of a tax return

Missing the deadline date for filing a paper or online tax return for 2011-12 will incur the following penalties from HMRC

  • An automatic penalty of £100 is applied to all returns filed after the deadline date, even if no tax is actually due.
  • If the return is filed three months late a penalty of £10 a day will be applied. This is payable up to a maximum of 90 days. This amount will be owed in addition to the £100 automatic penalty described above.
  • If the return is filed six months late, the penalty will be the higher of:  5% of the total tax owed or £300.  This will be payable on top of all of the penalties described above

 

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.