Heather Miller, our new tax consultant, has been published this week in Taxation magazine – click here to read her article on partnerships and basis periods.

The article discusses a medical practice and the admission of new partners; in particular, overlap profits, opening year rules, and the amount of profits taxed on each partner in each tax year. Although the scenario involves a health centre, it could easily be applied to any business operating through a partnership or limited liability partnership.

Are you about to make the transition from employee/sole trader to partner? Call us to discuss how this will affect your tax position going forward.

Inevitably, the main focus of the Chancellor’s Autumn Statement was the state of the UK’s finances and the outlook for future growth.

The most interesting announcement from a tax perspective was the proposed relief for investments via a new “Seed Enterprise Investment Scheme” (SEIS) which is intended to give UK business a much needed jump-start.

Fine details of the new scheme are yet to be announced, but the headlines are:

• From the start of the next tax year, an individual will be able to invest up to £100k as seed capital in a “qualifying” company and generate a 50% rebate (regardless of whether or not the investor is a 50% taxpayer).
• For the 2012/13 tax year only, the individual investor will also enjoy an exemption from tax on capital gains of up to £100k invested in via the SEIS programme.
• From the company’s perspective, the maximum fund raise under the SEIS plan will be £150,000.

In other welcome news, the Chancellor acknowledged the challenges that small businesses are facing in terms of raising finance. It was pleasing to see some helpful relaxations to the current Enterprise Investment Scheme (EIS) which may help the flow of “investor angel” funds to companies looking to expand. There was also the promise of simplifying and refocusing the existing EIS and Venture Capital Trust schemes which, again, augurs well for the future.

The SEIS proposals are in addition to the enhancements already announced in respect of EIS, as detailed in our earlier blog.

Please contact us for further details or to discuss the impact of the Autumn Statements with one of our advisors.

Changes to HMRC’s penalty regime mean that taxpayers who submit their 2010/11 Tax Return late, face far heftier fines than ever before – regardless of whether they ultimately have a tax liability or indeed even if they are due a repayment.

HMRC are understandably keen to encourage tax payers to submit prompt returns, particularly in this climate of austerity, but taxpayers need to ensure they aren’t caught out by the new regime. The additional penalties mean that taxpayers need, more than ever, to make sure that their return is submitted on time and is accurate.

The new late filing and late payments penalties introduced apply in respect of 2010/11 Tax Returns – which must be filed by 31 January 2012. Because of these changes, late submission of a self-assessment return, even by one day, results in a fine of £100 – even if you do not owe any tax. A return submitted six months late will incur a fine of at least £1,300, even if no tax is due!

We are offering free 30 minute evening consultations for City professionals who want to ensure they are organised for the New Year. We will evaluate your affairs, answer any specific tax questions you may have and offer a guide as to how complex your return is likely to be and provide a quote for assisting you with the completion of your return.

To take advantage of one of our 30-minute consultations, email your name and telephone number to help@tap-london.com and one of our team will call you back to arrange an appointment. There are a limited number of slots, and these will be allocated on a first come, first served basis.

Contribute more than £50,000 to your pension in 2011/12 AND get higher rate tax relief

As of 6th April 2011, the government reduced the annual pension allowance to ensure that only the first £50,000 of an individual’s gross pension contributions will attract higher rate tax relief at 40% or 50%.

But if you have not contributed to your pension for the last few years, or if your contributions have been limited by the special annual allowance of £20,000 or £30,000 in 2009/10 and 2010/11, there may be some scope to contribute more than £50,000 and still receive full higher rate tax relief.

How?

If you have an existing pension scheme and have already made gross contributions of £50,000 (a £40,000 net contribution if made personally outside of payroll arrangements) in the pension input period ending in 2010/11, it is possible to look back to the previous 3 tax years and carry forward any “unused pension allowance”.

How is “unused pension allowance” calculated?

A notional £50,000 annual allowance is applied to the 2008/09, 2009/10 and 2010/11 tax years and any leftover allowance after actual contributions made can be carried forward to the current tax year.

For example:

In this example the total unused pension allowance is £95,000 which means that the taxpayer could make a total gross contribution of £145,000 in 2011/12 and, providing they have at least £145,000 of relevant earnings in the tax year, receive full higher/additional rate tax relief of up to 50%.

Why now?

With murmurs of a complete withdrawal or restriction of higher and additional rate pension relief on the horizon, it would make sense for taxpayers to consider their position ahead of the Chancellors Autumn Statement on 29th November, as any changes could be effective from that date.

Please note that the example above is merely an illustration of a particular scenario; the pensions rules are complex and advice on your individual situation should be sought before any action is taken.

If you have an existing pension scheme and you are unsure of how much you can contribute, or would like some general advice on the tax relief available for pension contributions, please contact us.

The Tax Advisory Partnership is a member firm of the Chartered Institute of Taxation (CIOT). We are not Financial Advisors and are not regulated by the Financial Services Authority (FSA). Where appropriate we will work with your Independent Financial Advisor or we can introduce you to an IFA we have worked with in the past who can take care of the FSA aspects of any advice you require. However, our focus is on ensuring that any investment strategy you may select meets with your overall financial and taxation objectives.

2010/11 Self Assessment Tax Return Filing

The economic climate of recent years and austerity measures introduced by the government have resulted in a spotlight being turned on the collection of UK tax.

We are increasingly seeing a hard line approach being taken in respect of a taxpayer’s failure to comply with very complex and ever changing legislation.

New late filing rules introduced this year could result in penalties being charged, even if you do not owe any tax!

These penalties were highlighted in an earlier TAP blog, and it is fair to say that failure to submit returns and/or late payment of tax can be a costly business.

For ease of reference, we have detailed key dates and filing deadlines for you below.

If you require any assistance with the completion of your 2010/11 Tax Return or any earlier years, please contact us at the earliest opportunity.

The filing deadlines for 2010/11 UK Tax Returns are as follows:

31 October 2011 – If you are filing a hard copy paper return;

31 January 2012 – If you are filing your Return on-line.

You may have an extension to the above dates if you have only just been notified a Tax Return is required.

There’s an earlier deadline of 30 December if you want HMRC to collect any tax due through your PAYE (Pay As You Earn) tax code. You can only ask for this if you owe less than £2,000.

If you are unsure whether or not you have to file a tax return, our on-line tool should help you decide: “Do I Need to Complete A Tax Return”

If you do need to complete a Tax Return for 2010/11 but have not notified HMRC you should do so at the earliest opportunity. You will then be issued with a tax reference and will hopefully still be able to meet the filing deadline.

New late filing penalties apply in respect of the 2010/11 Tax Return, as follows:

Tax Repayment

If you have overpaid your tax and are due a refund this is normally received within two weeks of filing your Return.

As of 27 January 2009, the rate of interest paid by HMRC in respect of overpaid tax has been a very un-generous 0%. Therefore, if you are owed a repayment it makes sense to file your Return at the earliest opportunity.

Deadlines for Paying Your Tax

31 January 2012

You must pay any tax you owe for 2010/11 by 31 January 2012.

The payment deadline is the same for both paper and online returns.

You will need to pay one or both of the following:

• any tax you still owe for 2010/11, the ‘balancing payment’
• the first of two ‘payments on account’ towards your 2011/12 liability, where appropriate.

31 July 2012

This is your deadline for making any further payments on account towards 2011/12, where appropriate.

The following surcharges (separate to the penalties as above) will apply if you pay your tax late:

The surcharges above do not apply to any payments on account that you pay late.

Interest charges if you pay late

You will have to pay interest (currently 3%) on anything you owe and haven’t paid, including any unpaid penalties, until HMRC receives your payment. Surcharges will also start to attract interest if they are not paid within 30 days.

Generous enhancements to the Enterprise Investment Scheme (EIS) were announced in this year’s Budget, however they were subject to approval by the European Commission….

It has now been announced that approval has been given by the EC, which is great news for the British economy and UK business and entrepreneurship!

To recap the changes announced are as follows:

From 6 April 2011

The rate of income tax relief on qualifying investments has been increased to 30%

From 6 April 2012

The maximum individual investment will increase to £1M (from £500K in 2011/12)

The maximum amount a company can raise in the 12 months ending on the date of the relevant investment has been increased to £10M (£2M in 2011/12)

A company will qualify if it has up to 250 employees (50 for 2011/12 and earlier years)

The gross asset test for a company will increase to £15M (£7M for 2011/12 and earlier years)

If you would like advice regarding the tax implications of making investments in EIS companies, or you are a Company Director looking to raise funds for your company and require assistance in obtaining EIS approval from HMRC please contact us.

The Tax Advisory Partnership is a member firm of the Chartered Institute of Taxation (CIOT) and also the Enterprise Investment Scheme Association (EISA). We are not Financial Advisors and are not regulated by the Financial Services Authority (FSA). Where appropriate we will work with your Independent Financial Advisor or we can introduce you to an IFA we have worked with in the past who can take care of the FSA aspects. However, our focus is on ensuring that any investment strategy you may select meets with your overall financial and taxation objectives.

HMRC have launched their second tax amnesty of 2011, this time focusing on the undeclared taxes of tutors and coaches.

Following on from the Plumbers Tax Safe Plan launched in March 2011, the Revenue have turned their attention to those who have a sideline (or a main job!) in tutoring and coaching on a cash-in-hand basis and have not paid the correct amount of tax. If this seems like a small slice of the £35billion ‘lost revenue’ pie, HMRC have confirmed that anyone, tutor or not, who feels they owe backdated taxes can make a disclosure under this facility, subject to certain specific exceptions.

In exchange for a voluntary disclosure, HMRC have agreed to cap their usual 100% penalty to a maximum of 20% of the tax owed. In many cases this penalty could be reduced to nil, if it is found that the tax was unpaid as a result of a careless omission.

Whilst most people can be confident that they are paying the correct amount of tax through payroll, this could be an important facility for entrepreneurs who, in their focused attempts to get a business off the ground, may have let their tax liabilities fall by the wayside. Equally, as our tax regime gets ever more complicated, errors and omissions can creep in to the affairs of even the most conscientious taxpayer.

Now is the perfect time to review your tax affairs and ensure everything is in order.

If you would like our assistance with this, or in making a disclosure using the Tax Catch Up Plan, please contact us at the earliest opportunity.

Swiss tax agreement announced

The long-awaited agreement with Switzerland over bank accounts held by UK taxpayers has now been finalised. In overview, the agreement will see a one-off “catch-up” charge of between 19% and 34% on account balances to settle previously undisclosed liabilities, and a new withholding tax of 48% on investment income and 27% on capital gains from May 2013.

As part of the agreement, HMRC will also be able to investigate alleged tax evasion involving Swiss accounts held by UK taxpayers. Unlike recent HMRC initiatives however, this is not an amnesty, and any taxpayers with Swiss accounts who are later subject to an enquiry by HMRC may be subject to penalties of up to 150% of the tax due.

Details of the agreement can be found here http://www.taxadvisorypartnership.com/news-distribution-service but there are a number of points worth making at this stage.

• The one-off deduction will only apply if the account was open on 31 December 2010 and is open on 31 May 2013.
• Neither the one-off deduction nor the withholding tax will apply if the account holder instructs the bank to disclose details of the account to HMRC. This is important as there may be legitimate reasons for holding a Swiss account and is likely to be the preferred course of action for those who do not have undisclosed tax liabilities. Many UK resident but non-domiciled individuals should fall into this category.
• Those who do have undisclosed tax liabilities will also be able to elect for disclosure to the UK tax authorities, and HMRC will then seek the relevant interest and penalties.
• It is perhaps surprising that the withholding rates are set slightly lower than the highest UK marginal tax rates. Presumably this is to account for the cash-flow disadvantage of suffering ongoing withholding tax as opposed to annual/semi-annual payments via the UK self-assessment system.

Please contact us if you would like to discuss how the agreement may affect you in more detail, and what your options might be in terms of disclosing unpaid tax to HMRC. Our team have extensive experience of helping clients through cases and negotiating with HMRC on their behalf to secure a fair outcome.

TAP INTO TAX Iss. 3

The purpose of this series of blogs is to highlight innovative tax planning ideas, which you can ‘TAP’ into; we hope you find them useful.

There are many possibilities when considering how to structure a new business venture. These can range from a sole trader or simple general partnership, with only two or three partners, to complex structures involving groups of companies or Limited Liability Partnerships, with corporate members, where a company is also a partner in the LLP.

By way of illustration, it is well understood that operating as a partnership, which is transparent for UK tax purposes of course, is significantly more cost effective in terms of tax and national insurance contributions, than operating as a limited company through which the owners of the business are paid as employees. The greater the level of remuneration, the bigger this difference becomes. It is true that a company can pay dividends to its shareholders and this can bring the effective tax and NIC rate back down again. It is also true that corporation tax rates are lower than income tax rates, which can have an impact where profits are to be retained rather than distributed.

The permutations and comparisons can be complicated and it is difficult to know which structure will be the most tax efficient for your business when comparing income tax and corporation tax rates.

In cases where there is a commercial reason to restructure your business it may be possible to have the best of both worlds, benefitting from the tax breaks available to sole-traders/ partners and the lower rates of corporation tax. This can be achieved through the use of a limited liability partnership with a corporate member. This structure can produce significant tax savings, however the tax breaks although welcome cannot be the only commercial factor driving the business restructure. We can of course consider why a decision to restructure for your business is appropriate and the commercial factors which drive the decision to do so.

If you believe your business would benefit from a business structuring review to ascertain what tax and other cost savings could be achieved, or if you are about to invest in a new start-up business please contact us.

HMRC have recently announced they will be focusing a new disclosure opportunity at people who use e-marketplaces such as eBay to buy and sell goods as a trade or business but fail to declare the income earned. This announcement will no doubt leave thousands of people in the UK wondering if in fact they have an obligation to disclose to HMRC income from selling goods on the internet.

First things first, how do you determine whether you are trading or carrying on a business? ‘Trade’ is defined in UK statute as including ‘any venture in the nature of trade’ with no further guidance given. Obviously, this is not very useful and gives little clarity on the subject!

As a result, a number of ‘badges of trade’, have developed from UK case law, which provide useful indicators of situations where HMRC can be expected to suggest that a trade is being carried on. There are nine badges, which we will discuss in a little more detail here. It must be stressed the badges of trade can only be relied upon for guidance and are not a definitive checklist. It is always neccessary to consider the whole picture and facts of a particular case.

Let us put this into context with two case studies and consider them alongside the nine badges of trade.

Mr Smith regularly uses an online auction site to sell items such as unwanted computer games and IT equipment. This keeps him busy when he is not at work and, on average, he sells 5 items a week generating an annual income of around £5,000. The income generated is used to buy new computer software for his personal use.

Mr Jones also uses an online auction site but sells computer hardware he buys from other online auction sellers, which he has refurbished. On average he sells 5 items a week and generating an annual income of around £10,000. The income generated is used to buy new stock to refurbish and sell.

Based on the facts available, it appears that Mr Smith is not carrying on a trade, despite potentially meeting the criteria for 4 of the ‘badges’. In Mr Smith’s case, despite the volume of transactions and profits being earned it is quite clear he is selling personal assets originally acquired to give some personal enjoyment and is very unlikely he is making a true ‘profit’ over and above the original cost of those items. This shows that you cannot rely on the badges in isolation; a common sense approach is always required to consider the bigger picture.

In Mr Jones’ case it would appear he meets at least seven of the badge. It is fair to conclude he is buying and selling items with a sole purpose of making a profit and is therefore carrying on a trade and needs to declare her income and profits to HMRC.

If on reflection you feel you do have a trading business, our team of advisers can assist you in bringing your affairs up to date. Alternatively, if you would like some guidance on whether or not you are trading please contact us.

The HMRC disclosure amnesty is expected to begin in Spring 2012. However, people who are in doubt about their status should take action now to bring their affairs up to date and should not wait for the amnesty as this may have additional penalty implications.

Please click here to speak to an adviser to discuss this matter further.