Entries Tagged 'Tax tips' ↓

Deadline for paper 2009 tax returns

Officially the deadline for submitting your 2008/09 personal tax return is midnight on 31 October 2009 otherwise a £100 penalty will be charged.

However, if the return is in the Taxman’s letter box when their offices open on Monday 2 November, the return will be treated as being filed on time.

The return will be treated as late, but no penalty will be charged, if it is in the letter box when the office opens on 3 November 2009.

As receipts are no longer given for hand delivered returns, we recommend you use recorded delivery so that you have proof that the return was submitted on time.

Company funds in a personal bank account

The interest rate for personal bank accounts are often much better than for company bank accounts.  We are often asked if it is possible to temporarily place company funds on deposit in a personal bank account in order to earn a greater return.  This would avoid legally extracting the funds from the company and having to pay personal tax on the amounts transferred into a personal bank account.

This ‘best of both worlds’ can theoretically be achieved if the funds are held by the individual on trust for the company.  However, you would need a formal trust deed in place documenting the situation and which gives the company a legal right to the funds.  Also, you would need to advise the bank that the funds are legally owned by the company in which case we understand that the bank would then offer reduced rates of interest as it would be viewed as a business account rather than a personal account.

So, it is possible but unlikely to be worthwhile if done properly!

Double cab pick ups

Until recently the Taxman treated double-cab pick ups differently for different taxes.  For benefits in kind, they were treated as vans (which is good news) but for capital allowance purposes they were cars (bad news).

Now, sense seems to have prevailed and these vehicles are treated as vans for capital allowances.  This is good news as it means tax relief is available alot quicker.  This new treatment has been backdated to April 2008.

To qualify for this advantageous tax treatment, the double-cab pick up should have a payload of at least one tonne (1,000 kg).

How do HMRC decide who to investigate?

Follow this link for an interesting article on how HMRC select different businesses for a tax investigation and how HMRC gather information on unsuspecting taxpayers.

PAYE coding notices

More than 50% of the PAYE codes we see are incorrect.  Often the Taxman will include adjustments for a taxpayer’s rental income, dividend income and bank interest meaning that your employer will deduct extra tax from your wages to pay the tax on this other income.

We think it is worthwhile exercising your right to have these adjustments removed from your code.  At the worst it will delay the payment of the tax by up to 21 months but if your other income is less than in previous years it will mean you don’t pay extra tax only to have to claim it back from the Taxman several months later.

VAT and EU exports

We are regularly asked about what VAT to charge overseas customers.  Here is our summary for the EU.

Goods sold to customers based in another EU country can be zero-rated if the customer is a VAT registered business.  To ensure your paperwork is water-tight you should quote the customer’s VAT number on your invoice to them and keep a proof of shipping.

If the customer collects the goods from you in the UK, ask for a 15% deposit which can then be returned to them once proof of the export is supplied to you.

Buying a state pension

Its not usually a good idea to pay tax voluntarily, but sometimes it can be beneficial.

If you’re retiring after 5 April 2010 and you won’t have achieved 30 years of NI contributions required for a full state pension you can buy extra years (up to a maximum of six).

Paying £626 of Class 3 NI contributions will buy you an extra £165 per year of state pension income.  So four years after retirement you’ll have got more money back than you originally paid.

Contributions to your state pension

It is advisable to regularly check your NI contributions record with HMRC to ensure you are on track to qualify for your state pension when you reach retirement age.  To fully qualify you need to have built up 30 years of contributions (or deemed contributions).

To check your last 6 years’ contributions record, call HMRC on 0845 915 5996.

To request a state pension forecast (which will confirm how many working years you have accrued in total) call the Pension Service on 0845 3000 168.

Pre-trading expenditure and VAT

Often people incur business start up costs (and VAT) before they get round to setting up their limited company and registering for VAT.  So, how far back can you go in reclaiming this type of VAT?

A VAT registered company can recover VAT incurred before registration on its first VAT return as long as:

  • the person who paid for the item becomes a shareholder, employee or director of the company
  • the company reimbursed the individual for the whole cost
  • the goods or services in question were acquired for the business
  • if goods, they must have been purchased within 3 years of the start of registration and still be owned, e.g. computers.  Items that are consumed (petrol, electricity, gas) do not count.
  • if services, they must have been purchased within 6 months of the start of registration

Withdrawing funds from your company

As a director/shareholder, the most common ways to extract cash from your limited company is to pay yourself a bonus/salary or vote yourself a dividend. 

However, if you do neither of these and simply take money out you will make your director’s loan account (DLA) overdrawn.  Often people will sort this out with a dividend at the end of the year although it will mean your loan account has been overdrawn for many months.

The Taxman will treat an overdrawn loan account as earnings and charge PAYE tax on the balance – very costly for you!  You can avoid this if you can demonstrate that your intention was always to clear the overdrawn balance with a dividend or introducing your own funds to the company.  The best way of doing this is to get the company to minute a policy that overdrawn directors’ loan accounts must be cleared by either a dividend or personal funds introduced by the director. 

If you still get problems from the Taxman, refer him to para 29 of his own leaflet – CA44 National Insurance for Directors which confirms the above get out.