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What are the implications of being a Service Company? Q1 Page TR4 SA100
Here is the question:
If you provided your services through a service company (a company which provides your personal services to third
parties), enter the total of the dividends (including the tax credit) and salary (before tax was taken off) you withdrew
from the company in the tax year – read page TRG 21 of the guide
£ • 0 0
This is what the guide says:
Service companies
Box 1 If you provided your services through a service company
Complete this box if you provided your services through a service company.
You provided your services through a service company if:
• you performed services (intellectual, manual or a mixture of both) for a client (or clients), and
• the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder, and
• the company’s income was, at any time during the tax year, derived wholly or mainly (that is, more than half of it) from services performed by the shareholders personally.
Do not complete this box if all the income you derived from the company
was employment income.
http://www.hmrc.gov.uk/worksheets/sa150.pdf
The majority of limited company contractors are, by definition, ‘personal service companies’ and therefore this box is of relevance.
The question however has no statutory backing and you cannot be penalised for failing or refusing to answer it but if contractors ignore the question when HMRC know full well that their company is a ‘service company’ then they may be drawing unnecessary attention to themselves.
The information to be entered is the total of the gross salary and dividends taken from the contractor’s company in the year ended 5th April 2012.
http://shop.qdosconsulting.com/freelancer/news/2013/01/18/psc-question-on-sa-return
The point is not the whether you answer the question or not, its whether your company falls under IR35 that matters most.
IR35 came into existance in 1999, it was created to prevent workers previously employed from creating a limited company and then benefiting from lower taxes and national insurance through the use of dividends and expenses.
So you think you are self employed, does HMRC agree?
http://stevejbicknell.com/2012/01/28/so-you-think-you-are-self-employed-does-hmrc-agree/
Can your business pass the HMRC IR35 Business Entity Tests
http://stevejbicknell.com/2012/05/14/can-your-business-pass-the-hmrc-ir35-business-entity-tests/
Consultants beware of IR35
http://stevejbicknell.com/2011/09/10/consultants-beware-of-ir35-use-the-qdos-model-contract-free/
steve@bicknells.net
Save for Children but save tax where you can
Many parents, grandparents and other family members like to save for children but are you paying tax on the interest?
The £100 Rule
HMRC Form R85 is used to claim interest tax free but what you might not realise is that despite your child having a personal tax allowance from birth there is a maximum of £100 per year which can earned tax free in interest and dividends earned on parental/family gifts.
So for 2 parents that’s £200 plus grandparents have the same exemption, but if the interest exceeds the limit even by a small amount, the exemption is lost and whole amount of interest becomes taxable.
Junior ISA
Children can have an ISA in their name, the maximum annual contribution limit is £3,720 (2013/14) in cash or shares but the money will be locked in until the child is 18. The £100 rule doesn’t apply to ISA’s.
Pension
Yes, crazy as it might sound your baby can start a pension plan.
You can receive 20% tax relief even if you don’t pay tax. The maximum you can contribute is £3,600 gross – a payment of £2,880 to which the taxman adds £720. This is the case even for people who don’t pay tax, such as children and non-earning spouses.
steve@bicknells.net
Key Points from the Autumn Statement 2013
The Chancellor George Osborne presented the Autumn Statement to the House of Commons on 5th December 2013 and things are getting better, economic growth forecasts for this year have more than doubled from 0.6% to 1.4% but the austerity plan is set to continue.
Here is a summary of the key announcements:
Business Rates
Business rate increases in England will be capped at 2% in 2014/15 (they were set to increase by 3.2%) and businesses will be able to pay over 12 months rather than 10.
The Retail Sector will also get a £1,000 discount in 2014/15 and 2015/16, this applies to pubs, cafes, restaurants and charity shops with a rateable value below £50,000.
A reoccupation relief of 50% is being introduced for up to 18 months on premises that have been empty for a year or more and it will apply from 1st April 2014 to 31st March 2016.
Small Business Rate Relief has been extended to April 2015 under the scheme small businesses with a rateable value of £6,000 or less can get 100% relief, the relief is scaled down to zero on rateable values of £12,000 and there is a lower multiplier on rates between £12,001 and £17,999.
Income Tax
As previously announced the personal allowance will be £10,000 for the tax year 2014/15.
From April 2015, a spouse or civil partner who is not liable to income tax will be able to transfer £1,000 of their allowance to a basic rate tax paying spouse and as a result save £200 in tax.
State Pension Age
By 2020 it will be 66, by 2028 it will be 67 and by mid 2030′s 68, then in 2040′s 69.
Capital Gains Tax
The annual exempt amount will be £11,000 for individuals for 2014/15.
But there was an exemption for principle private residence letting for 36 months and from 6th April 2014 it will be reduced to 18 months.
Consultation will start in April on non-residents paying capital gains on property disposals.
Individual Savings Account (ISA)
The limit will rise to £11,880 for 2014/15 and of this £5,940 can be invested in cash ISA’s
Mortgage Guarantee Scheme
The scheme started in October will run for 3 years and end in January 2017.
Buyers will only need a 5% deposit and the government and the funder will guarantee 15% of the loan in return for a fee.
IR35
Legislation will be tightened from April 2014.
Anti-avoidance
A range of measures were discussed in addition to IR35 and these included:
- Partnership Tax
- Controlled foreign companies
- Charities
- High risk tax avoidance schemes
- Dual contracts
Other headline measures
- Employers NI for under 21′s to be scrapped in 2015
- Rolling back green levies to allow an average saving of £50 on energy bills
- Free school meals for infants
- Scrapping of 1% above inflation rail fare increases
- Electronic tax discs
- Abolition of next years 2p per litre fuel duty rise
steve@bicknells.net
New case clarifies the meaning of insolvency
When a company becomes insolvent there can be serious consequences:
- An increased risk of personal claims and Directors disqualification
- Winding up petitions
- Disposal of assets will be void once a winding up petition has been made
- Banks and Lenders will enforce their security
- Termination of contracts with customers and suppliers
- Transactions entered into within the previous 2 years can be reviewed and reversed
There are two tests for corporate insolvency:
- the cash-flow test: is the company currently, or will it in the future, be unable to pay its debts as and when they fall due for payment?
- the balance sheet test: is the value of the company’s assets less than the amount of its liabilities, taking into account as-yet uncertain and future liabilities?
If the evidence proves that the answer to either of these questions is yes on balance of probabilities, then the company is deemed insolvent under English law.http://www.out-law.com/en/topics/financial-services/restructuring/corporate-insolvency-the-basics/
On the 9th May 2013 the Supreme Court ruled in the case of:
BNY Corporate Trustee Services Ltd & Ors v Eurosail-UK 2007- 3BL plc & 2 other cases [2013] UKSC 28
Lord Walker acknowledged the uncertainty that is inherent in the (Balance Sheet) test, commenting that: “it is still very far from an exact test, and the burden of proof must be on the party which asserts balance-sheet insolvency.” It will, therefore, not simply be a matter of looking at a company’s statutory balance sheet at a given moment in time as there may be relevant assets and liabilities not contained in that document. However, nor will it involve a rather more complex assessment of whether the debtor has reached the point of no return.
Further comments on the case:
It is of course true that a snapshot of a company’s balance sheet is not conclusive as to its commercial and economic viability, and to make every company in this position vulnerable to a winding-up or administration order would be unfair and uncommercial.
The Supreme Court’s decision should therefore be welcomed for clarifying that the two tests are mutually exclusive and both represent different ways of analysing whether a company is insolvent. The judgment does leave some issues unresolved, for example the correct methodology for discounting future liabilities and the timing of the accrual of future and contingent liabilities.
steve@bicknells.net
Will Temp Agencies avoid Auto Enrolment by using Postponement?
- Large employers (with 250 or more workers), have started automatically enrolling their workers and will continue to February 2014 (some employers may choose to start earlier)
- Medium employers (50 – 249 workers) will have to start automatically enrolling their workersfrom April 2014 to April 2015
- Small employers (49 workers or less) will have to start automatically enrolling their workers from June 2015 to April 2017
- New employers (established after April 2012) will have to start automatically enrolling their workers from May 2017 to February 2018
- Employers who chose to use Defined Benefit or Hybrid Schemes can delay their staging date until 30 September 2017
You can postpone the start of Auto Enrolment for up to 3 months and then re-test for eligibility using this method could mean that Temporary Staff Agencies could avoid Auto Enrolment for their temps. This also means that many agencies will use NEST because other pension schemes will not want to sign them up as they many not actually receive any contributions.
Pinsent Masons blogged:
Agency workers are different from other workers and so present particular challenges. Many are seeking work for only a short period. Many will register with a number of different agencies and will, in fact, only be ’employed’ by a particular agency for a short period. The auto-enrolment obligation applies to all workers who meet the age and earnings thresholds, but there are options which may assist those employing high churn groups of workers.
Employers can make workers wait up to three calendar months before enrolling them into a pension scheme. If the worker has left by the end of that three-month period, then there is no need to provide that worker with a pension.
If you do postpone, make sure you follow the rules otherwise there could be harsh penalties under the Pension Act 2008 Section 45
Offences of failing to comply(1)An offence is committed by an employer who wilfully fails to comply with—
(a)the duty under section 3(2) (automatic enrolment),
(b)the duty under section 5(2) (automatic re-enrolment), or
(c)the duty under section 7(3) (jobholder’s right to opt in).
(2)A person guilty of an offence under this section is liable—
(a)on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or both;
(b)on summary conviction to a fine not exceeding the statutory maximum.
steve@bicknells.net
If you’re in health care the tax man is coming
The latest HMRC Task Force has been named as ‘The Health and Wellbeing Tax Plan’.
If you work in a health and wellbeing profession such as:
- physical therapy – eg physiotherapist, chiropractor, chiropodist, osteopath, occupational therapist
- alternative medicine or therapy – eg homeopathy, acupuncture, nutritional therapy, reflexology, nutrition
- other therapy – eg psychology, speech therapy, arts therapy
You have until 31st December 2013 to notify HMRC and any unpaid tax has to be paid by 6th April 2014.
Health and wellbeing tax plan helpline
Telephone: 0845 600 4507
From outside the UK: +44 1792 657 324
Monday to Friday, 8am to 6:30pm
Marian Wilson, Head of HMRC Campaigns, said:
“I urge health and wellbeing professionals to take advantage of our quick and straightforward way of bringing their tax affairs up to date. Help, advice and support is available.
“After the opportunity closes on 6 April, HMRC will use information it holds from third parties and regulatory bodies to identify people who have not paid what they owe. Penalties – or even criminal prosecution – could follow.”
Do you have anything to declare? HMRC can go back 6 years
steve@bicknells.net
Self Employed Tax Allowances
Basically when you are self employed you spend money on 3 types of expense:
1. Capital Expenditure – Equipment & Vehicles
2. Business Expenditure – stock, wages, premises
3. Private Expenditure – day to day living expenses – mostly not allowed but some types of cost may still count as business expenses
In general its types 1 and 3 where sole traders and partnerships miss out on tax allowances.
For example, you could claim capital allowances on your car, if you use your car partly for private and partly for business you simply disallow a % for private use.
On other assets there is an Annual Investment Allowance which is currently £250,000 per year from January 2013.
For most business that will cover all their capital expenditure, but there are further allowances available too.
With regard to private expenditure, there are tax reliefs available for working from home
http://www.hmrc.gov.uk/incometax/relief-household.htm
If you have to spend money on tools or specialist clothing for your job you may be entitled to either:
- tax relief for the actual amounts you spend
- a ‘flat rate deduction’
http://www.hmrc.gov.uk/manuals/eimanual/eim32712.htm
steve@bicknells.net
5 ways to reduce the risk of a tax investigation
THE TAX YIELD derived from HM Revenue & Customs investigations into the affairs of small- and medium-sized companies rose by 31% over the last 12 months, according to UHY Hacker Young.
Compliance investigations into SMEs generated £565m for HMRC in 2012/13, up from £434m in 2011/12, with the year ending March 31. Accountancy Age
Some investigations are random and some as a result of HMRC task forces, but many are triggered by risk profiling.
What can you do to reduce your chances of being selected:
1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return
2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns
3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing
4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund
5. Tax Avoidance Schemes – if you are using a tax avoidance scheme I am sure HMRC will be looking closely, if they can find a way to challenge the scheme then at some point they will
steve@bicknells.net
10 tax allowances we fail to claim
In 2012 Unbiased.co.uk reported that £12.6 billion was unclaimed by UK tax payers, here is a list with some ideas:
- Income Related Tax Credits – Check and find out what you are entitled to – UK Benefits https://www.gov.uk/benefits-adviser
- Tax Relief on Pension Contributions – There are estimated to be over 4 million people not paying into a pension, auto enrolment should help to change that, this blogs explains the tax advantages http://stevejbicknell.com/2012/05/02/why-invest-in-a-pension-because-of-tax-relief/
- Tax Relief on Charity Donations – Are you using Gift Aid? are you a higher rate tax payer entitled to additional relief?
- Saving on Inheritance Tax – Many people don’t have a Will let alone any IHT planning!
- Making Use of ISA’s – Why get taxed on the interest on your savings if you could have an ISA? Its easy to get an ISA and you can still have access to your ISA savings if you need it, the current ISA allowance is £11,520 or £5,760 for cash ISA’s
- Child Benefit – Use the benefits adviser to check if you can claim – UK Benefits https://www.gov.uk/benefits-adviser
- Avoiding tax penalties and late filing – This just requires you to be organised, make sure you know the filing dates http://www.hmrc.gov.uk/sa/deadlines-penalties.htm and get the information needed in plenty of time
- Savings on Capital Gains – The current allowance for 2013/14 is £10,900 (previously £10,600) for an individual many people seem to forget they have this allowance
- Making Use of Employee Share Schemes – The government love employees to have shares and this year introduced a new share ownership option http://stevejbicknell.com/2013/08/03/employee-shareholders-will-your-employees-want-shares/
- Income Tax and Personal Allowances – Consider who should own assets (and get income from those investments) – you or your spouse – so that you can minimise your tax liability
Steve@bicknells.net
Are your businesses really separate for VAT purposes?
HMRC have been updating their manuals (21/10/13).
The purpose of VATDSAG01050 Single Entity and Disaggregation Manual is to help you to determine
- whether two (or more) apparently separate businesses are, in reality, a single entity
- whether, where two (or more) separate entities exist, they have been separated artificially.
Schedule 1,1A (2) of the VAT Act 1994 requires that, in determining whether any separation is artificial, due regard is had to the extent to which the different persons concerned are closely bound to one another by
- financial
- economic, and
- organisational links.
Schedule 1, 2(2) of the VAT Act 1994 lays down three conditions which must be met before we can issue a Notice of Direction to any person. These are:
- he is making or has made taxable supplies
- those taxable supplies form part of wider activities carried on concurrently or previously (or both) with one or more other persons
- the totality of the disaggregated activities gives rise to a liability to be VAT registered.
Here is a link to the updates http://www.hmrc.gov.uk/manuals/vatdsagmanual/index.htm
HMRC have some interesting cases, here is an example:
The case of Stephen and Angela Trippitt (MAN/00/0249) VTD 17340 addressed the question of whether a husband and wife could operate two businesses from the same premises.
In this case, the Tribunal decided that
- the traders had successfully separated the activities of public house and bed and breakfast into two separate entities
- we were incorrect in issuing a Notice of Direction.
The facts showed the extent of the commercial relationship between the entities, in addition to which Mrs Trippitt gave 35% of her takings to her husband.
The Tribunal was satisfied that this amount constituted a realistic, commercial, arm’s length contribution towards the value of the shared premises and telephone and utilities.
This decision means that where one entity argues that it pays a fixed percentage of its takings to the other, you need to establish:
- what would happen if there were no takings?
- would a minimal amount still have to be paid?
- if not, how does that entity see these arrangements as constituting a normal commercial relationship, given that it is at no financial risk?
- is there a real monetary transaction (as opposed to just the appearance of one in the books)? Can they provide evidence of this?
For more cases follow this link http://www.hmrc.gov.uk/manuals/vatdsagmanual/VATDSAG08100.htm
steve@bicknells.net
Business Accountant 