Category: Tax Advice

Solicitors are being targeted by HM Revenue & Customs for not paying enough tax

HM Revenue and Customs (HMRC) is urging solicitors to come forward and bring their tax affairs up to date as part of a new campaign. Solicitors are the latest group of professionals being targeted by HMRC for non-payment of tax.

Information gathered by HMRC has identified solicitors who appear to have not fully declared income or paid the correct amount of tax. HMRC has made it clear that it will vigorously pursue anyone who decides not to put their tax affairs in order. Solicitors who are self-employed or work within a partnership are being targeted, as well as those who work within a law firm.

HMRC have criminally investigated a number of professionals who did not come forward with most being successfully prosecuted.

Clients choosing to make a disclosure to HMRC need to be carefully prepared and presented.

Many people die intestate because they think their estate will automatically pass to their spouse free of inheritance tax (IHT). This is not necessarily correct. Moreover, having a Will in place makes it easier to get a grant of probate and avoids the Statutory Intestacy Rules governing how the estate is distributed.

From 1 October 2014, if an individual is survived by a spouse or civil partner (but no children or remoter issue), the entire estate will go to the surviving spouse or civil partner. Previously, the spouse would only have received the first £450,000 (and half of the excess over £450,000); the other half of the excess would have passed to parents or siblings.

If the deceased individual is survived by a spouse/civil partner as well as children or remoter issue, the surviving spouse or civil partner will only receive the first £250,000 (and half of the excess over £250,000). The children will receive the other half of the excess equally between them. Having a Will is thus important for IHT planning, as only the first £325,000 is exempt unless the assets pass to the spouse. Making a Will is also important when couples divorce and there are former partners and children of previous marriages involved.

Unlike income tax under PAYE, Class 1 National Insurance Contributions (NICs) are not normally calculated on an employee’s cumulative earnings but on the earnings for that week or month in isolation. Employees pay Class 1 contributions at the rate of 12% on earnings between £663 a month and £3,488 a month. Above the upper earnings limit, a rate of 2% applies.

There have always been special rules for directors where an annual earnings period applies, but these do not generally apply to employees. HMRC are understood to be increasing the application of an annual earnings period for other employees in cases where they suspect Class 1 NIC is being avoided. Take for example a car salesman with a regular salary of £24,000 a year. His normal gross pay would be £2,000 a month, but he receives a commission twice a year based on car sales. If he receives £5,000 commission in October due to his car sales in the period to September, £3,512 of that that commission would only attract 2% Class I NICs (£70.24), as the £3,488 limit applies on a non-cumulative basis. Applying an annual basis would have resulted in afurther £351.20 being deducted (£421.44 less £70.24). Note that employers NIC would be unaffected.

The suggested reimbursement rates for employees’ private mileage in their company cars are reviewed each quarter on 1 March, 1 June, 1 September and 1 December. The following rates apply from 1 September 2014, with the previous quarter’s rates shown in brackets:

If you reimburse your employees the tax free amount of 45p a mile (25p after 10,000 miles) for using their own car for business purposes, 20/120ths of the above amounts can be reclaimed as input VAT by your business e.g. a petrol engine car over 2,000 cc = 24p x 1/6 = 4p VAT a mile.

Many employees and employers find the current tax rules for dealing with travelling and subsistence claims difficult to understand. This is an area that the Office of Tax Simplification is seeking to make more comprehensible. Consequently, the treasury are consulting on possible changes to the rules, and the way that such expenses are reported. The government intends for any new rules to reflect, rather than drive, commercial decisions and that it will be responsive to 21st century working patterns. As is currently the case, any new system would not provide tax relief for private travel or ordinary commuting.

Note that unless the employer holds a dispensation from reporting such expenses, they need to be included on the employee’s or director’s end of the year Form P11d.

If the tax rules or reporting requirements change, we will get in touch to explain the implications for your business.

HMRC has amended its guidance for charities that claim Gift Aid on the sale of donated goods.Gift Aid normally only applies to gifts of money by an individual. However, in certain situations, Gift Aid can be claimed by charities or community amateur sports clubs on the income from the sale of supporters’ goods on their behalf.

The charity can offer to act as an agent for private individuals and sell goods on their behalf, so that at the point of sale the funds actually belong to the individual. If the owner agrees to donate the sales proceeds to the charity, Gift Aid can be claimed by the charity on the net sales proceeds, subject to all other Gift Aid conditions being satisfied. The charity is then able to reclaim tax at the basic rate. A number of charities, such as Oxfam, operate such schemes. The charity provides the donor with details of the value of goods sold in order for the donor to claim tax relief on their self-assessment tax return.

Remember that the Gift Aid payments, grossed up for basic rate tax, are an effective way of reducing income where an individual’s personal allowance is restricted by income in excess of £100,000 a year.
Higher rate taxpayers also benefit from additional tax relief. For example, if a suit is sold for £40, the charity is able to reclaim £10 basic rate tax from HMRC (£50 gross) and a higher rate taxpayer obtains a further £10 tax relief – win win!

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Let Property Campaign

This campaign is an opportunity to disclose taxable income to HM Revenue and Customs( HMRC) on better terms than those available in an HMRC enquiry.  Landlords who have failed to declare their rental earnings to HMRC are being warned to pay up or face higher penalties.  You may be unaware that income you have from property is taxable. If you owe tax on your letting income you’ll need to tell HMRC about the income you haven’t declared by making a voluntary disclosure.

This includes you if you’re:

• renting out a single property
• renting out multiple properties
• a specialist landlord, e.g. student or workforce rentals
• renting out a room in your main home for more than £4,250 a year or £2,125 a year if letting the property jointly, i.e. above the Rent a Room Scheme threshold
• living abroad and renting out a property in the UK
• living in the UK and renting a property abroad
• renting out a holiday home even if you use it yourself

The sooner you make a disclosure, the less likely it is that HMRC will find you first!

For any more information regarding the issues raised in this article please contact one of the a&c team on 0161 962 1855 or email lisa@ac-accounts.co.uk quote let property campaign.