Taxes Archives - The Tax Guys
Award Winning Accountants
MAKING BUSINESS LESS TAXING™
Category

Taxes

Mortgage

Should you transfer your buy-to-let properties into a limited company?

By | Financial, Taxes | No Comments

With mortgage interest tax relief disappearing, landlords who have a few buy-to-let properties could consider transferring them into a limited company.  But is it worth doing? Jonathan Amponsah, CEO at The Tax Guys, explains the pros and cons.

Mortgage interest relief for buy-to-let (BTL) landlords is changing, with the new rules being phased in between April 2017 and 2020.

MORE

Landlords will no longer be able to deduct all of their finance costs from their property income.  From 2020, you will instead receive a basic rate reduction from your income tax liability for your finance costs. So, if you incur £1,000 interest, you will only be able to claim £200 (20% x £1,000) off your tax bill.

However, this change doesn‘t apply to limited companies so many BTL landlords are now tempted to transfer their property into a limited company to continue claiming tax relief on all the interest and finance costs.

It’s an attractive proposition as a limited company will enjoy the tax relief that individuals are now losing, and any net profit will be taxed at the lower company tax rates of 20%.

But… you may find yourself landed with unnecessary tax bills and costs.

Pitfalls

Here are five common pitfalls to be aware of if you are considering a transfer to a limited company:

  • Stamp Duty Land Tax. If you transfer the property from yourself to the company (effectively the company buys the property) then the company could become liable to pay stamp duty land tax. So while you reduce income tax, you may end up paying the same amount or more in stamp duty land tax.
  • Capital Gains Tax. If you transfer the property to the company, this will be treated as if you’ve sold the property to the company. If the property has gone up in value since you originally bought it, you’ll have to pay up to 28% capital gains tax on the difference, subject to any tax reliefs and allowances. If you have a few properties to transfer, seek advice about a relief you could claim to defer your capital gains tax.

These two main tax pitfalls could potentially wipe out any short-term tax savings.

  • Your Mortgage. If your company needs a mortgage to buy the property from you then watch out as in most cases the interest rate is higher for commercial or company mortgages than it is for individuals. So, you could end up paying a lot more over the full term of the mortgage.
  • Once the property is transferred, the company owns it, not the landlord. If something happens to the company, all its assets will be exposed including the property that you put in it.
  • At some point in the future if you sell the property the company will pay Corporation Tax on the profits and the balance of the money from the sale will remain in the company.  In order to get access to the funds to enjoy you’d need to take it out of the company either as salary or dividends or other means. You’d then pay additional tax on that income. When you take the above into account the idea of transferring your BTL property into a limited company starts to sound rather bleak.

Benefits

But there are some situations where you can reduce or eliminate the pitfalls above and enjoy some of the benefits of holding your properties through a limited company.

  • If you’re buying a new property then a limited company could be a good idea. But if it’s an existing property and you’re only managing one or two properties, I’d say: don’t bother. You’re better off paying just a little bit of tax now instead of triggering all these taxes and then having to pay additional double tax if you sell the property in the future.
  • If you currently run your BTL through a properly arranged partnership business, then transferring into a limited company could be a good idea because some of the tax burdens above could be reduced.
  • Legacy planning. Landlords who want to leave their BTL properties to their children could consider the pros and cons of a Family Investment Company as an alternative to a Trust.

Important decision

Clearly the message here is ‘don’t rush into it’. It’s extremely unwise to move BTL properties into a company without taking professional advice.

Whilst there’s no simple answer to the question and it all depends on your circumstances, as a general ‘rule of thumb’ I would say that if it‘s only one or two existing properties in your name, it‘s not a good idea.

If you‘ve got six to 10 properties, it might be worth your while to look at how you can enjoy the benefits of a limited company without triggering unnecessary taxes and costs.

Source: https://www.whatmortgage.co.uk/news/buy-to-let/transfer-buy-let-properties-limited-company/

LESS

taxgys

Ten common tax return mistakes made by small business owners

By | Taxes | No Comments

To assist self-employed and freelance workers getting ready to file self-assessment tax returns this month, Jonathan Amponsah, co-founder of tax return app Easy Tax Returns, reveals ten common tax return mistakes to help small business owners avoid an unwanted visit from HMRC.

January 31 is looming – and if you haven’t already filed your self-assessment tax return, then it’s time to get started. Late filing can result in hefty fines.

MORE

But it’s not just being late that can lead to a nasty letter from HMRC or a request for additional money to cover interest and a fine. In my experience, there are ten classic mistakes that people make on their tax return.

These mistakes, however innocent, can lead to additional enquiries and even investigations by HMRC. At the very least they may mean that you pay too much tax or a refund is delayed.

1.     Forgetting to include all sources of income

In the rush for January, it’s easy to forget income sources, such as interest being received in the year.

However, HMRC knows if you have an interest earning account or perhaps an offshore bank account. So, they will be asking: “Is this where you have filtered away undeclared profits?”.

This will trigger an investigation, which can be time consuming and costly. 

2.     Not using the white space to explain unusual variations

If you know there is something unusual, explain it.

HMRC is then far less likely to start an enquiry. It is crucial that you or your accountant do this, although often it doesn’t seem to happen especially if your accountant is snowed under with lots of last minute returns to prepare.

For instance, if your net profit seems too low to support someone above the poverty line, be prepared for give a plausible explanation.

However, there’s no need to go overboard or be over generous in the information you give. Keep it straight, honest and simple.

Also, make sure you do a reasonableness check. If your final tax is a lot more or a lot less than you expected, then this is a sign that something may have been entered incorrectly. Unless you’re able to put a finger on the reason why, you need to go back and double check.

3.     Entering the same expenses in different boxes each year

In their haste to get the return filed, many taxpayers and sometimes even their accountants do misclassify the expenses on the return.

For example, a driving instructor putting their fuel cost in the cost of sales figure one year and then in motor expenses the next, will produce large variations that the computer will want further explanations for.

4.     Entering “yes” between questions one to nine on page two of the tax return but not forwarding the supplementary pages to HMRC

This is a common mistake with manual, paper filing. If you are filing online then this will be picked up by the checks the programme carries out.

Also, don’t simply say “as per accounts” or “more information to follow”. You have to send the relevant information with your return. You might think the taxman already knows it and can look it up, but that’s not the way the tax calculation programme works. You simply have to supply the info in the boxes as required.

5.     Claiming for expenses that cannot be claimed

The rules on what expenses can/cannot be claimed is not as straight forward as you may think. You should proceed with care or appoint a good accountant or tax adviser.

For instance, you might assume that an actor who rented accommodation in Scotland during a film shoot for his business could claim the cost of the accommodation against his income, right? Wrong. HMRC denied the expenses and won the Court case. It was decided that the expenses did not meet the so called “wholly and exclusively for the purpose trade” test.

In addition there are certain areas to be aware of. These “hot spot” areas tend to attract more attention than others. HMRC knows that enquiries into the following expenditure areas are likely to produce some interesting results:

  • Legal and professional expenses
  • Repairs and renewals
  • Entertaining
  • Stock
  • Provisions and accruals
  • Research and development
  • Drawings
  • Pensions
  • Employment expense
  • Termination payments

The taxman has been known to raise more enquiries into the above expenses than any other areas. For instance, where drawings are comparatively low, HMRC may wonder whether there have been undeclared cash sales which have been used to fund your living expenses.

Knowing the rules on the other expense categories will ensure that any questions do not lead to a full blown, and very costly investigation.

6.     Using estimates and round sum figures on the return

This will fuel the taxman’s suspicion that you do not keep proper records and will be used as a basis to ask for evidence to substantiate the amounts on the return.

If the taxman can show that balancing figures or estimates have been used or that there are no invoices for some of the expenses, then he will tend to take this as carte blanche to propose hefty additions to taxable profits, often based on nothing more than a finger in the air.

7.     Not showing private use adjustments separately on the self-employment pages

HMRC will always be looking to disallow any private use of items. So where you have already restricted say motor expenses for private use, you will avoid questions if you show the adjustments separately rather than netting it off so that it’s clear to the taxman that adjustments have been made.

8.     Forgetting to add Class 2 NIC to the tax bill

This is a new requirement so remember to include your Class 2 NIC on your return if you are self-employed and are required to pay it or have opted to pay it.

9.     Forgetting about Foreign Income

This is huge and one of the most common tax return mistakes.

Foreign Income was such a frequent oversight that the law was changed to make this error a criminal offence. Proceed carefully and use a checklist to ensure nothing gets missed or go through HMRC’s 12 points on “who must send in a tax return” to prompt you to include any foreign income you may have.

Alternatively, instruct a professional to ensure you get it right.

10.Not seeking help to avoid tax return mistakes

HMRC campaigns tell us that “tax doesn’t have to be taxing”. However, the task of completing your taxes cannot always be considered straightforward. And if you get it wrong it can lead to an unfriendly letter from HMRC.

My advice is to seek help if you’re unsure.  If you feel confident, then yes, you can certainly do it yourself and use HMRC’s site or other online platforms.

Alternatively, take your records to an accountant, post them, or use an online app where you can handover your tax return to a professional and remove the risk of tax penalties.

And if you decide to give it a go yourself, do take extra care, use a checklist and don’t leave it to the last minute.

Source: http://businessadvice.co.uk/tax-admin/year-end/ten-common-tax-return-mistakes-made-by-small-business-owners/

LESS

taxguy

How To File A Tax Return: Avoid These 23 Common Mistakes

By | Taxes | No Comments

AFTER A decade of dealing with hundreds of tax returns and assisting clients with tax enquiries, I have come across 23 common mistakes that people make when filling in their personal tax return.

These mistakes, however innocent can lead to unnecessary penalties, costly tax enquiries and even investigations by Her Majesty’s Revenue and Customs (HMRC). At the least, mistakes may mean you pay too much tax or your refund is delayed.

MORE

Here are the 23 most common mistakes:

  1. Not using the white space to explain unusual variations

If you know there is something unusual, explain it. For instance, if your net profit seems too low to support someone above the poverty line, be prepared for give a plausible explanation. However there’s no need to be over generous in the information you give. Keep it straight, honest and simple.

  1. Entering the same expenses in different boxes each year

In their haste to get the return filed, many taxpayers and sometimes even their accountants do mis-classify the expenses on the return. For example, a driving instructor putting their fuel cost in the cost of sales figure one year and then in motor expenses the next, will produce large variations that the computer will want further explanations for.

  1. Failing to declare or forgetting to include all sources of income

In the rush for January 31, it’s easy to forget income sources, such as interest being received in the year. However, HMRC knows if you have an interest earning account or perhaps an offshore bank account.

  1. Entering a ‘yes’ tick in one of the questions numbered 1-9 on page 2 of the tax return, but not forwarding the supplementary pages with the tax return

This is a common mistake with manual, paper filing. If you are filing online then this will be picked up by the checks the programme carries out.

  1. Using estimates and round sum figures on the return

If the taxman can show that balancing figures or estimates have been used or that there are no invoices for some of the expenses, then he will tend to take this as carte blanche to propose hefty additions to taxable profits, often based on nothing more than a finger in the air.

  1. Not claiming eligible pension reliefs

This can happen by entering the net figure of employee personal pension premiums instead of the gross figure on the return. This means that you are claiming insufficient relief where higher rates of tax are payable. Whilst this may not lead to an enquiry, it’s a common mistake that could cost you money.

  1. Detailing information on separate schedules or entering manuscript notes on the return

For ease, you may enter ‘as per accounts’ and/or ‘information to follow’ instead of entering actual information or figures on the form. You might think the taxman already knows and can look it up, but that’s not the way the tax calculation programme works.

  1. Entering the figure of capital expenditure in the wrong box on the self employment pages instead of the Capital Allowances section

This is a common error that means you are claiming excessive relief. Of course, the end result will be the same if the equipment qualifies for a 100% annual invest allowance but the problem is that entering it in the wrong box will produce variance year on year, which can raise a red flag with HMRC.

  1. Lack of attention to risk areas and hot spots

HMRC knows that enquiries into the following expenditure areas are likely to produce some interesting results:

  • Legal and professional expenses
    • Repairs and renewals
    • Entertaining
    • Stock
    • Provisions and accruals
    • Research and development
    • Drawings
    • Pensions
    • Employment expense
    • Termination payments.
  1. Failing to complete question 19 of the core return where a repayment is due

This is a common oversight where paper returns are used. The taxman will assume that you wish to leave the overpaid amount on your record, to be set against future liabilities. Even where online filing is used, not providing bank details means having to wait a bit longer for the refund.

  1. Not showing private use adjustments separately on the self employment pages

HMRC will always be looking to disallow any private use of items. So, where you have already restricted, say motor expenses for private use, you will avoid questions if you show the adjustments separately rather than netting it off so that it’s clear to the taxman that adjustments have been made.

  1. Forgetting to pay the tax

Whilst this will not lead to enquiries, it will incur a late payment penalty and some unfriendly letters from HMRC. You can avoid this by simply typing in ‘paying HMRC self-assessment’ into Google for the online payment link.

  1. Not arranging time to pay

For those who have not put any money aside, do not bury your head in the sand. Pluck-up courage and call HMRC and ask for time to pay. HMRC can be understanding. Yes, there will be some interest added but this is much better that incurring more penalties.

  1. Claiming for expenses that cannot be claimed

The rules on what expenses can and cannot be claimed are not as straightforward as you may think. You should proceed with care or appoint a good accountant or tax adviser. For instance, you might assume that an actor who rented accommodation in Scotland during a film shoot for his business could claim the cost of the accommodation against his income right? Wrong. HMRC denied the expenses and won the court case. It was decided that the expenses did not meet the so called “wholly and exclusively for the purpose trade” test.

  1. Forgetting to add Class 2 National Insurance Contributions (NIC) to the tax bill

This is a new requirement and can be easily forgotten.

  1. Claiming termination payments twice

This happens where an employer has already taken the £30,000 termination payments into account through the payroll and given tax relief at source, but tax payers innocently claim it again on their tax returns. This is very common and a classic mistake that has led to a number of tribunal cases where tax payers are being asked to pay, on average, £3,000 in carelessness tax penalties.

  1. Forgetting about student loans

This is another area that gets picked up very often by HMRC and leads to a letter saying ‘your tax return was inaccurate…you may have to pay an inaccuracy penalty,’ which happens when you’ve taken a student loan and now having to make repayments through the tax return because your earnings exceed the threshold.

  1. Forgetting about Child Benefit clawback

This is another classic mistake, and is becoming more common among higher income earners who are receiving child benefits and who earn over £50,000. Essentially the amount of child benefit is clawed back under what is called the ‘High Income Child Benefit Charge’.

  1. Forgetting about foreign income

This was such a common oversight that the law was changed to make this error a criminal offence. Please proceed carefully and use the checklist (a basic one like the self-assessment checklist can help) to take greater care of your return. Or, instruct a professional.

  1. Not claiming eligible reliefs

The particular relief that springs to mind is the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).

  1. Ignoring tax code notices

Nearly all tax papers are entitled to an annual tax-free allowance. This is usually shown as a tax code to enable employers to deduct the right amount of tax. Sometimes the taxman will add or deduct certain items from you tax code. For example, benefits in kind, pensions or tax underpayments.

  1. Failing to do a quick reasonableness check

If your final tax is a lot more or a lot less than you expected, then this is a sign that something may have been entered incorrectly. Unless you’re able to put a finger on the reason why, you need to go back and double check.

  1. Not seeking help

HMRC campaigns tell us that “tax doesn’t have to be taxing…,” However, the task of completing your taxes cannot always be considered straightforward. My advice is to seek help if you’re unsure – use HMRC’s site or other online platforms. Alternatively, you could take your records to an accountant, post them, or use an app like Easy Tax Returns where you can hand over your return to a tax pro and remove the risk of penalties.

Source: http://voice-online.co.uk/article/how-file-tax-return-avoid-these-23-common-mistakes

LESS

Claims Against Tax

How to claim your holiday, golf lessons, school fees and entertainment against your business

By | Taxes | No Comments

Nobody wants to pay more tax than they need to, but sole traders and directors of limited companies commonly pay unnecessarily high tax because they simply don‘t realise the extent of expenses that they can claim against their income.

According to HMRC, expenses that are incurred “wholly and exclusively” for the purpose of your business can be claimed against your income. So the first point is to find out which expenses you have incurred; for example, rent and rates for your business office, telephone, computer software, business travel, staff wages, marketing costs, insurance. All the usual expenses that you would expect a business to incur.

MORE

Then there are “other expenses” that could possibly be claimed but have a personal element to them as well, such as holidays, entertainment and leisure. In tax there is a confusion over what “wholly and exclusively” means, and what the purpose of the expenses was. So, let‘s look at some expenses that, if done correctly, you can claim but if you’re not careful, you won‘t be able to claim at all.

Entertainment i.e. drink, food etc.:

This is an area of expenses that the tax authorities don’t allow you to claim against in general, but where you meet certain conditions, you can.

Staff entertainment: You are allowed to claim £150 a year per head for entertainment. Even if it’s just yourself, as director of a limited company, you can still claim this expense against your income. Because you (the director) are classed as an employee.

Contractual obligation: Where it’s part of your business to entertain, say if you’re providing a training course to businesses and you entertain them as part of the course – maybe providing tea, coffee, lunch and so on – even if it’s food, you’re still allowed to claim that because you’re under a contractual obligation to give them food.

Quid pro quo:  Let’s say you’re a freelance journalist and you want to speak to say Andy, a man who has world of experience on a topic you’re writing about. You offer to take Andy out to lunch in exchange for his insight into the topic which you’re researching. Because Andy is coming to the table with something of value but not benefitting from it apart from getting free lunch, you’re actually allowed to claim the expense, even though it appears as entertainment.

Holidays:

Holidays are another expense that most people don’t expect to be able to claim against but, again, if done correctly, you can. This is an area where there’s a lot of confusion but let me give you three common scenarios:

  • Extending a business trip:  You need to go on a business trip to, let’s say, Las Vegas, and since you’re going there you decide to spend an extra day or two to do some shopping or sightseeing. There’s a great myth that because you’ve mixed business with pleasure, you can’t claim any of the trip expenses because now the trip has “dual purpose” and according to tax laws, you can’t make a claim for such a trip. But that’s not applicable if the primary purpose of the trip is business, that’s the key thing. But the only amount that you can’t claim against is the extra cost of staying in Vegas a bit longer. If you spend £1000 on the business trip and then the extra cost is £200, you can then pay the company back £200 and still claim the £1000 against its income, because the primary purpose of the trip was for business. Make sure you keep proper records, notes and also board minutes to document the main reason for the trip.

Also, if you decide to bring your spouse but they’re not a business partner or employee, then all you have to do is separate the cost; your spouse’s flights will be disallowed but your flight will be allowed and so on. So, simply put, as long as the primary purpose of the trip is business, you can claim against any cost in relation to that. Other non-business related cost will be disallowed.

  • Mixing pleasure with business: Let’s say you’re on a business trip somewhere nice and decide to go to the beach, without incurring additional cost. That doesn’t mean you’ve ruined the chance of claiming the cost of the trip against your income, it’s just another myth. But because the original purpose of the trip was for business, you can still claim the whole amount through the company. All you have to do is keep receipts for everything that you’re meant to be doing on the business trip and claim that against your income, your little fun on the beach doesn’t matter. Why because there is no additional cost and it’s just an incidental benefit from the main business purpose.
  • Turning holiday into a business trip: This is the only time where you absolutely cannot claim expenses against your income. When you go on holiday and the purpose of the trip is personal but then you decide to do some business while over there, you’ve waived your right to claim any expenses. Because the purpose of the trip was personal, you can’t claim any of the cost incurred while doing business.

A few other areas that might surprise you

Lastly, school fees, care home fees, staff holidays, and even golfing lessons – these can be claimed as a business expense in certain circumstances and you run your business through a limited company rather than sole trader or partnership.

If you provide your employees with vouchers that they can exchange for a holiday, HMRC allows you to claim against that, as long as you report this cost as a benefit to your staff. So as director, you can have your company pay for your holiday, the company reports this as a benefit – much like company car or medical benefits – then pays Class 1 National Insurance on the cost and you as an employee pay tax on it, either 20 or 40 percent. Then, the company can claim the cost of this benefit against its income. Is it worth it? Yes, because the crucial point is that the company would have to pay higher tax on the holiday cost if it went through the payroll, so this way you can keep the salary cost down. This goes for school fees or care home fees too or leisure such as golf club fees, gym membership and so on.

There is a helpful guide on HMRC’s site under their expenses and benefits section on this so if you’re not using a tax adviser or an accountant, you might find it useful.

So my advice is to look carefully into any cost of your business, whether you’re a sole trader or director of a limited company, because even the least likely cost might be claimed against, as long as it’s done correctly or you seek advice. And make sure you get the paperwork and evidence right. Otherwise, you might be paying more tax than you have to, allowing your business to bleed money that it perhaps can’t afford.

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who has advised many clients over the last decade on tax deductible expenses. Jonathan is the founder and CEO of The Tax Guys. He is also the co-founder of Easy Tax Returns (a tax return app to help tax payers avoid stress, penalties and find their peace).

For more information see:

www.easytaxreturns.online
www.facebook.com/EasyTaxReturnsApp/
@easytaxreturns #easytaxreturns
www.thetaxguys.co.uk

LESS

The Tax Guys - Tax Accountants

Should You Run Your Business Without An Accountant?

By | Taxes | No Comments

Nowadays there are plenty of tools to help you do your with little or no help from an accountant. And for many micro businesses and sole traders, the additional costs of hiring an accountant can be put back into the business. Not to mention the fear and nervousness in seeing or speaking to an accountant.

But imagine a world where seeing your accountant isn’t nerve racking or doesn’t feel like a trip to the dentist….

MORE

Where your accountant is able to add a minimum of £5,041 to your bank account? And protect your fees with a personal guarantee backing…?

What if they also put money in your pocket by giving you personally a pre-paid MasterCard to shop at Tesco when you sign up to their full or premium services…?

And what if their services can help your kids get onto the property ladder or fund their school fees?

Oh, and imagine, every time you do business with these guys…:

  • a young person in Wandsworth gets two weeks paid work experience
  • a UK family is saved from losing their home from HMRC bankruptcy petition
  • a child in Malawi gets access to clean free water for a year
  • A homeless person in London is saved from HMRC stress and gets their life back

So do such accountants exists…?

There are certainly a new breed of accountants who are focused on adding value, make a lasting difference and changing lives. But they don’t come cheap.

So unless your affairs are really simple and you have the time to give it a go or your budget is very low, do speak to a few these accountants before deciding to run your business without an accountant. As tempting as it might be, the DIY route certainly has many downsides.

LESS

Share with your friends










Submit
Share with your friends










Submit
Share with your friends










Submit
Share with your friends










Submit
Share with your friends










Submit