Q: I have my own business and now my children are grown up, my wife would like to return to work and deal with some administrative jobs for me. What is the most tax efficient way for her to be paid? Should I treat her as if she is self-employed and she invoices me?
A: Self-employed status generally results in a lower tax liability than that of employment. Firstly, the rate of National Insurance self-employed people generally pay is 9% (as opposed to 12% if employed). And secondly, the ‘employer’ does not need to pay Employer’s National Insurance on their behalf either. Of these two options, people therefore tend to prefer being treated as self-employed.
You also have the option of transferring the business into a partnership and giving your wife a share of the profits.
However, you cannot simply choose to treat your wife as self-employed/ partner/ employed- it is really a question of the facts and HM Revenue & Customs (HMRC) have lots of guidance in this area.
We would recommend that you seek professional advice about how to remunerate your wife, before proceeding. Firstly, to check you are acting within guidelines and legislation and secondly, to calculate the tax position. Please feel free to contact us if you would like to be put in touch with your local TaxAssist Accountant.
Q: Please can you explain what the change was with regards to RTI and late filing penalties? I’m getting confused!
A: In-year late filing penalties were due to apply from 6th October 2014 where:
- a Full Payment Submission (FPS) has not been filed on or before the date employees were paid; or
- HMRC had not received the expected number of submissions
However, HMRC have announced that automated in-year penalties for late real-time PAYE returns for employers with fewer than 50 employees will be delayed until 6th March next year.
Those who employ 50 or more people will face penalties from 6th October 2014 as planned.
HMRC will send electronic messages to all employers shortly to let them know when the penalties will apply to them, based on the number of employees shown in HMRC’s records.
Please be clear, separate and additional penalty regimes already exists for inaccurate returns or late payments, which will simply continue.
If you’re concerned that you aren’t keeping on top of your payroll and filing requirements, please feel free to contact TaxAssist Accountants in Portishead on 01275 390596 to discuss.
Q: I am a contractor and I have just picked up a big contract with a large firm. However, I am a bit confused as to whether I am employed or self-employed. Can you clarify it for me please?
A: In order to establish your employment status, your employer may find it helpful to use the Employment Status Indicator (ESI), which is HMRC’s online interactive tool that asks a series of questions about the working relationship between the two parties. It is the quickest way of getting HMRC’s view on whether a worker is employed or self-employed.
The ESI tool can be accessed on their website here: http://www.hmrc.gov.uk/calcs/esi.htm.
HMRC will accept the tool’s outcome as binding; as long as your employer has answered accurately to reflect the terms and conditions under which you provide your services. Your employer must also retain a printout of:
- the ESI result screen
- the Enquiry Details screen showing their replies to the questions asked
Alternatively, please feel free to get in touch with your local TaxAssist Accountant who will be able to discuss this with you further.
Can I ignore the P35 I’ve received?
Q: I have received a P35 from HMRC but I don’t think I need to submit one. Can i just ignore it?
A: If you think you have received the form in error, you should inform HM Revenue & Customs (HMRC). Otherwise, the department will automatically raise late filing penalties.
To notify HMRC that you do not need to submit the P35, you’ll need your Employer PAYE reference (you’ll find this P35 they’ve sent you) and your contact details. You will also need to know whether you are intending to submit form P11D(b) as well.
You can notify them online at www.hmrc.gov.uk, over the phone with the Employer Helpline on 08457 143 143 or via an agent (such as an accountant).
Your local TaxAssist Accountant would be happy to deal with this on your behalf.
Q: Most of my tax is collected via PAYE, but I have a rental property which I make a small profit on. I have recently drafted my tax return for 2010/11 and my tax liability is £1,500, which I just can’t afford, especially with Christmas coming up. What can I do?
A: You could ask HM Revenue & Customs (HMRC) to collect your tax liability gradually from your employment income by adjusting your tax code. In order to do this, make sure that box 2 on page 5 of the tax return is blank before you file your return and the return is filed by 30 December 2011.
Please note, anyone can request to have their 2010/11 tax liability settled like this, provided their tax liability is under £2,000 and they submit their return by 30 December 2011 (from next year, the limit will be increased to £3,000).
Alternatively, there may be scope to negotiate a Time to Pay Arrangement with HMRC, which is effectively a payment plan.
Bookkeeping – what do I do?
Q: I’ve just started my own business having been made redundant from my last job. I’ve registered with HMRC as self-employed, but could you tell me what my obligations are with regards to record-keeping for HMRC?
A: Under current legislation, business owners must retain their records for 6 years. Payroll records, CIS records and personal tax return information may be retained for less.
HMRC provide no rules regarding the format of the records, but as a minimum they should include all sales and purchase invoices.
Ultimately, the most important factor is that you keep accurate, timely records. So these could be anything from manual cashbooks, to computerised spreadsheets, to a sophisticated computerised bookkeeping package.
Penalties will apply if HMRC ever enquired into your affairs and found no evidence to back up the figures in your income tax or VAT returns. HMRC are also clamping down on poor records, and can impose fines in severe cases where the records are felt to be inadequate and inaccurate.
For advice on finding the right bookkeeping solution for you and more detail on your obligations, please feel free to contact your local TaxAssist Accountant
Q: I operate my business from home and spend one or two days a week where my staff work. Can I count my travel costs as tax-deductible?
A: This depends on the address of your business. If the address where the staff are located, is where the business trades from, that address will be the business place of work. If you travel to that address, the cost would not be an allowable deduction for tax purposes as it would count as simply travel from your home to your place of work. This applies even if you do some work from home.
If, however, your home is the business address then travel to your staff would be allowable.
Structuring your travel costs tax efficiently can be tricky. So feel free to contact your local TaxAssist Accountant if you would like some advice regarding this or any other tax or accounting issue.
Q: I’m in my late fifties and still working part-time. Firstly, at what age will I be able to start receiving my State Pension? And secondly, will I carry on paying National Insurance and tax on my wages?
A: The State Pension age changed for both genders from April 2010.
For women, if you were born before 6 April 1950, then your State Pension age is 60. However, if you were born after this date, then your State Pension age will gradually increase.
For men, if you were born before 6 April 1959, then your state pension age is 65. However, if you were born after this date, then again, your State Pension age will gradually increase.
Under current law, pensioners of both genders could be up to 68 years old before they retire in future.
Once you reach State Pension age, you will no longer have to pay National Insurance contributions. As for tax, you get an increased personal allowance if you are 65 and over (currently £9,940), which means you can earn up to this limit without paying any tax. Income above this level will be taxed as normal.
Please be aware that there is an ‘income limit’. If you earn in excess of this limit, your personal allowance will be gradually be eroded away to the basic personal allowance.
Your local TaxAssist Accountant would be happy to discuss your tax affairs with you.
Q: I am an employed brick layer and I am therefore pretty good when it comes DIY. My girlfriend and I are thinking of building our own house and one of my mates in the trade, said that we might be able to get some tax back. Was there any truth in what he said?
A: Yes- there is a DIY Refund Scheme which could mean you could reclaim some of the VAT back on a new build or a conversion of a non-residential property into dwellings which will be used either by you or your
relatives for residential or holiday purposes.
You can claim for building materials, including materials bought in any other member state of the EU. But there are strict rules that they are genuine building materials, and not furniture, electrical/ gas appliances, carpets etc.
You can also reclaim for any builder’s services, although they should be zero-rated anyway. You cannot reclaim VAT paid on any professional services though, like surveyors or architects fees. And you cannot reclaim the VAT paid on any hire of plant and equipment.
You cannot claim before or during construction; you must wait until the building is completed, and your claim must be made to HM Revenue & Customs within three months of completion. The forms to make a claim can be obtained from HM Revenue & Customs’ website.
You must include various information with your claim: your calculation of your refund, copy of the planning permission, plans and evidence the building is completed (such as a Council Tax assessment).
If your claim is successful, HM Revenue & Customs estimate you should receive your refund within 30 banking days of them receiving your claim.
If you would like to discuss this further or would like your local TaxAssist Accountant to help you with your claim, please feel free to contact us.
Q: I normally work in the UK but my employer is sending me on a short-term secondment to our French offices. Will I still pay UK taxes or French?
A: You are deemed to be a ‘posted worker’, i.e. you normally work in the UK but have been temporarily posted elsewhere in the EEA. Provided your work in France is not expected to last more than 24 months, you should continue to be insured in the UK and have to pay UK National Insurance contributions as if you were here. Your employer should apply to HM Revenue & Customs for a certificate A1, so that you will not normally have to pay contributions to the other country’s social security scheme as well.
Your employer is also likely to continue to calculate and deduct PAYE tax in the normal way. Your employer should give you a letter including the following details though:
- the date you went abroad to work
- your gross pay from the start of the tax year to the date when you were sent abroad
- the tax deducted from the start of the tax year to the date when you were sent abroad
If you would like to discuss the implications of your secondment further, please do not hesitate to contact your local TaxAssist Accountant.