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Self Assessment worries dog the new year 2017

Self Assessment worries dog the new year 2017

January tax help.

Firstly I hope all our readers and clients have a Prosperous 2017, not held back by Self Assessment worries.

As is so common after Christmas, we are getting loads of calls from new clients. People are keen to sort out their taxes.  I think Christmas focuses the minds.  People have time off at home.  They have chats with spouses and family.  They realise all is not well.

Self Assessment Tax Returns having been around for 20 years now. Despite this the 31 January date still creeps up and bites people every year – though the penalties are now nastier.

VIDEO – on similar content to this – see here

Why might you call Huston & Co?

  • You have income to declare and have not yet registered with HMRC
  • You are registered and realise there is not long left until the 31 January filing deadline, and want help with the Self-Assessment form.
  • There is a confession to be made to HMRC covering a number of years, and you want us in your corner against HMRC
  • You just want a chat or a review and can get that for an hourly consultation, by phone or in person.
  • You live or work overseas and want our specialist help with UK rents or overseas earnings.

Some people phone having seen my free tax videos on YouTube ( www.YouTube.com/HustonTV ).  I am delighted that these have been viewed well over 80,000 times.

Self Assessment

We can get your Self Assessment return filed before the deadline even late in January.  Also, in the early part of the month we can still get you registered with HMRC in time too!

Call Adrian Huston or Felicity Huston on 028 9080 6080 for a chat and a price to help you out. View the video for this post here

We are both quite approachable, despite both having been Tax Inspectors before we crossed the floor!

Dividend tax changes from 2016/17

Dividend tax changes from 2016/17

Nasty extra dividend tax hits owners of small companies.

April 2016 sees the start of a new dividend tax regime which will affect the owners of most of the UK’s small limited companies. Many will be hundreds or thousands of pounds worse off.

Individual investors who own shares can also be affected, but only if their total dividends in the year exceed £5,000.  So that means a fairly small number of people.

The Chancellor George Osborne has introduced this new dividend tax to balance out the tax bills suffered by people who have the same income, but receive it in different ways.

My video at http://tinyurl.com/HustonTV52 explains the change, and read on for further details.

Take 3 categories of people:

  • Jenny runs her own limited company. It can make £50K per year and she can take a mix of salary and dividends.
  • Roger is a sole trader who makes profits of £50K per year.
  • Andrew is an employee and his salary is £50K.

Prior to April 2016 Jenny could arrange her dividend/salary mix to make a big saving, mainly on National Insurance Contributions (NIC)

If we worked out the 2015/16 total tax and National Insurance bills (including Jenny’s company tax) there would be widely varying bills, as follows:

  • Jenny’s percentage of the £50K taken in taxes could be as low as 18% (or up to 33% if she took all her money as salary, against the advice of her accountant.)
  • Self-employed Roger would lose some 25% of his profits in tax and NIC.
  • Andrew, the employee would lose 27%.

Why the changes for 2016/17 and beyond?

With previous governments having encouraged businesses to form up as limited companies, now the Chancellor has decided to take away one of the main advantages – the ability to juggle your salary and dividend split to save some money.  He wants self-employed and limited companies to have a more similar tax regime.  I do not need to get into the morality of the old or new approaches, I must merely warn those with large dividends about the new regime. Before I go into the detail, let’s see the effect of the changes in April 2017.

How do Jenny, Roger and Andrew fare in 2016/17?

  • Jenny’s best case split of salary and dividend raises her tax bills to about 21%, up from 18%. (If she took all salary there would be no change at 33%, but that would be daft.)
  • Roger, being self-employed, is unaffected at 25%.
  • Meanwhile employee Andrew is also unaffected at 27% to the government.

So we can see that the Chancellor’s measure is closing the gap in the tax regimes between someone being self-employed and choosing to set up their business as a limited company. Jenny faces a few thousand more in tax each year due to the dividend tax.

The 2015/16 dividend tax regime in summary

Up to 5 April 2016 dividends, to the basic rate taxpayer, were simply treated as if they had already been taxed.

Higher rate taxpayers paid extra tax on dividends – 25% of the net they received.

This meant that the owner of a small company could take out a salary of say £10,000 and dividends of say £28,000 and pay no tax and only minimal National Insurance.  The company would pay tax, but taken together the company and owner would be better off that if they had just been self-employed.

Working out if you were close to the limit to start paying higher-rate tax was confusing.  Net dividends you received had to be grossed up.  Every £90 of dividend was treated as £100 gross.  The gross dividends plus your other income dictated whether you had some higher rate tax to pay.

The 2016/17 measures in detail

Dividend income will no longer have any form of tax credit to confuse the sums.  What you get is regarded as the gross dividend.

If your dividends in the year are £5,000 or less there will be no income tax to pay. This £5,000 is called your Dividend Allowance.

More reading and some examples are on the HMRC website at https://www.gov.uk/government/publications/dividend-allowance-factsheet

If your dividends exceed £5K, then those dividends above the allowance will be taxed.

The tax rates will depend on whether your total income exceeds the basic rate threshold. (£43,000 in 2016/17)

  • The starting rate for dividend tax is 7.5% on dividends over £5,000.
  • Any dividends which push you into the higher rate threshold will be taxed at 32.5%.
  • People earning over £150,000 will have a dividend tax rate of 38.1%.

Tax planning points for those in business

If thinking about setting up a limited company, then the decision is much less clear-cut than it used to be. You might decide just to be a sole trader or some form of partnership.

Limited companies will still be attractive if you can make a lot of money but do not need to take it all out of the company each year. They will also still provide some protection from risking your house and savings if something goes wrong or the business is sued.

Advice on the best form to use for your business is now more important than ever.

If you already operate through your own limited company then look carefully at dividend levels, amount you need to take out, and pension contributions.

Tax planning points for people with high dividends but are not in business

This new tax makes it much more attractive to reduce your dividend income to under £5,000, and one way to do this is to move your shareholdings into an ISA.  Dividend income in an ISA is tax-free.

Ba careful of Capital Gains Tax if selling a lot of shares or ones which have risen well since you bought them.  If worried, then paying for a chat with a tax expert might be worthwhile.

In conclusion

Anyone who gets more than £5,000 in dividend income will be affected by this from 6 April 2016.  They need to know what tax they will owe, and how to declare the income to HMRC.  They also need to set some money aside to pay the bill when it arrives.

VIDEO: See also my video on this subject at http://tinyurl.com/HustonTV52

 

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.
Tax codes explained – are you on the wrong tax code?

Tax codes explained – are you on the wrong tax code?

Is my tax code wrong?

Tax codes dictate how much tax we lose from our wages and pensions. If they are wrong then the tax is wrong. If we don’t spot it then there is no guarantee that HMRC will! This is why understanding tax codes is important.
Unless your tax code begins with a K, or is BR or D0, then there is a simple rule of thumb. Most tax codes show your tax-free allowances, but divided by 10.
For example the standard tax-free Personal Allowance is £10,600. Divide this by 10 to get the tax code. Thus most people are on a code of 1060L.
Picture is an example tax code for 2015/16 for a 40% taxpayer who pays gift aid and personal pension contributions

HMRC tax code
Example tax code for 2015/16

Adjustments to tax codes
Sometimes HMRC will try to make adjustments to your tax code. This is normally a good thing. They are trying to have the correct amount of tax deducted from you over the year. In theory this should leave your tax correct at the year-end of 5 April.
Examples of adjustments made include:
• State pension or benefits expected
• Collect tax owed from an earlier year
• Rental profit estimated
• Company car – the taxable benefit
• Relief for professional subscriptions you pay
• Relief for gift aid payments (if you pay higher-rate tax)
• Higher-rate relief for pension contributions
So your tax code may have extra allowances added – to give you extra tax relief. Or it may have things deducted – HMRC’s way of taxing some income.
By far the most common adjustment is to reflect the state pension HMRC thinks you will get this year. State pension is taxable, though if that was all you earned it would be below the tax-free Personal Allowance. However if you have another source of income, and it is taxed at source, then HMRC will try to collect the tax due on both the pension and that other source, all from the same place. This can make it look like you are losing a lot of tax from your job or works pension. In fact you are losing the tax from two sources of income, but only having it taken off one!
What if I think my tax code needs changed?
You need to contact HMRC in one of two ways:
• Phone them on 0300 200 3300 (open 8-8 weekdays, 8-4 on Saturday)
• Write to them at HMRC, BX9 1AS. (Yes the address is that short.)
If you are nervous about phoning them then write to them. The answer may take longer, but at least the answer will be in writing. You will have time to study it. If phoning then write down the date of the call and who you speak to.
If you don’t understand part of what makes up your tax code – then ask for it to be explained. It is the tax official’s job to help you understand.
What happens if code is wrong and I do nothing?
Then your employer or pension provider will deduct the wrong amount of tax. Depending on the error, this may never be discovered by HMRC, and you could lose out.
Deferred state pension
HMRC is normally told how much state pension you will get. They use this to adjust your code. The adjustments are NORMALLY correct.
However I have seen some cases recently were people put off receiving their state pension for a few years. I found that HMRC was adjusting their tax code each year. In other words HMRC assumed they were getting the pension, and were taxing them too highly. One client was owed a tax refund of thousands.
Unusual codes
Here are the most common codes which are NOT simply 10% of your tax-free allowances after adjustments:
• BR – means deduct Basic Rate tax of 20%. Used for second jobs, extra pensions etc.
• D0 – means deduct 40% tax. Used for second jobs where the person pays higher-rate tax.
• K codes – mean the items deducted from the code are greater than the allowances, and you have a negative amount of tax-free allowances. The K code is roughly 10% of the negative allowances. These codes are most common with company cars or large state pensions.

In conclusion

• Tax codes dictate the amount of tax your employer deducts.
• They may be wrong, and the mistake can go undiscovered.
• If in doubt ask HMRC to check your tax code.

The author Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.

Contact HMRC – 10 tips to do it right

Contact HMRC – 10 tips to do it right

22 years in our tax practice has taught me a few things about effective communication with my former colleagues in HMRC. It has also left me almost bald, from tearing my hair out when contact goes wrong. So let me make things easier for you.

Recently I had an unsatisfactory call to an HMRC officer, and what happened when I asked for the supervisor beggared belief! I was so shocked that I obtained the recording of the exchange (for how, see later) and posted it on YouTube. Suggest you listen from 5:05 on the following link http://tinyurl.com/HMRC-hangsup

So from years of experience here are 10 tips to having an effective contact with HMRC.

1. NERVOUS ON PHONE? THEN WRITE. If you are nervous on the phone to the government, or might get flustered, then writing might be easier. Then you have time to digest their written response. Or show it to a friend. Put your National Insurance number on the letter and write to the office which contacted you recently, otherwise to:

HM Revenue & Customs
Pay As You Earn
PO Box 1970
Liverpool
L75 1WX

I still write to HMRC to sort a lot of things out. My copy is a record of what was said, when and where I sent it.

2. PHONING HMRC. They are open 8 to 8 weekdays and 8 to 4pm on Saturdays. Call them on 0300 200 0300. If you can avoid the lunch hour and just after 9am you will find the waiting time on the phone shorter. Try calling at 815am, in the evening, or Saturday. ALWAYS, but always, write down the time and date of the call. Then the name of the person you spoke to, then what was agreed would happen.

3. EMAIL? HMRC is still very nervous about email and they don’t publish email addresses for contacting them. Having said that they do have an email service for telling them a change of name or address. It is at http://www.hmrc.gov.uk/individuals/change-of-circs.htm

If your tax code for the present year may be wrong then you can contact them by email on http://www.hmrc.gov.uk/incometax/email-taxcode-wrong.htm

Take a screenprint BEFORE you hit submit, because after that you just get a message saying we have your message. No reference number, no proof of what you said.

4. ACCOUNTANTS – AGENT PRIORITY NUMBER – accountants and tax consultants can use a special number to contact HMRC which means they will rarely sit in a queue. I won’t publish it here, because if a member of the public uses it they will not get helped.

5. GET A RECORDING OF YOUR CALL? If you think HMRC didn’t do what they promised, or an officer behaved badly, then you may be able to get an audio recording of the whole call.       This is free and is done under Freedom of Information. You will need to know the number you phoned and the date and time. The application is easy and is at http://tinyurl.com/HMRC-FOI  When I applied this way the reply and CD was back inside two weeks – impressive.

6. WHEN NOTHING IS DONE? If you ring HMRC and nothing is done within say 3 weeks of the call, then consider a complaint. If you wrote a letter then best allow 5 weeks before complaining. Sometimes phoning to ask what’s happening can work, but I tend to favour a written complaint. Mark the top of the letter COMPLAINT. Details on complaints at http://www.hmrc.gov.uk/complaints-appeals/how-to-complain/make-complaint.htm  If you still have problems then complain to your MP at:

House of Commons
London
SW1A 0AA

MPs get a priority service which often helps resolve things.

7. CAN AN ACCOUNTANT COMPLAIN FOR ME? Yes, and, once a second attempt to get HMRC to sort something has failed, they have a special service to use. It is called the Agents’ Issue Resolution Service. I have had mixed results using this service, but your accountant should give it a go. They may not know about it.

8. COMPLAINING ON SOCIAL MEDIA. Increasingly people make complaints about companies and organisations via social media. Twitter can be good as someone in the PR department often monitors tweets which paint the organisation in a bad light. I have seen no sign of this causing HMRC to spring into life, but if you want a go then mention in your tweet @HMRCgovUK If you have a juicy case of incompetence, or hardship caused, you could always contact the national press, like the Daily Mail or BBC Radio 4’s Money Box.

9. CAN I JUST CALL IN AT THE TAX OFFICE? No. In its drive to ‘improve’ customer service, HMRC has closed all its public enquiry offices! Yes, it’s hard to believe. HMRC says that in some (probably extreme) cases they may do house calls. I reckon you would need to be very elderly or very infirm, but if you would like a home visit then ask them.

10. HOW DOES HMRC WANT ME TO CONTACT THEM? Really they want everyone to get their tax information from the website www.hrmc.go.uk  And where that’s not enough they want you to phone. They would prefer not to receive letters – but don’t let that put you off sending one!

Don’t be scared of contacting HMRC. They genuinely do want to help, and most things can be sorted first time around. My tips above also show what to do if things go wrong.

 

Adrian Huston, a former Tax Inspector, is a director of tax consultancy Huston & Co, www.Huston.co.uk or 028 9080 6080. Twitter @HustonTax