If you receive a VAT penalty, perhaps because you have submitted your VAT return late, the Taxman should offer an independent review of the penalty.
You should certainly take up this offer of a review, as this may be the first time that a human (rather than a computer) has looked at the circumstances under which the penalty was imposed. You should reply in writing to the Taxman accepting (or in rare cases rejecting), the offer of the review within 30 days of the date of the penalty notice. Don't delay, as the penalty notice may have been sitting in the Taxman's post area for weeks before it reaches you.
Where you believe the penalty is not due, because you have a reasonable excuse for submitting your form late (or whatever was the cause of the penalty), set out your reasons in the letter that accompanies the acceptance of the review. When the review department within the Tax Office looks at your case you have a chance of having the VAT penalty overturned. We can help you set out your reasons to the Tax Office.
www.cheap-accountant.com
Cheap-Accountant.com is an innovative firm of Chartered Certified Accountants, and one of the UK's leading low-cost, fixed fee, tax and accountancy services.
Tuesday 8 February 2011
Monday 5 July 2010
How You Can Give to Charity Tax Efficiently
How should a company give to charity?
The most tax efficient way for individuals to make charitable gifts is under the gift aid scheme. All the individual has to do is declare to the charity that they pay enough UK tax to cover the basic rate tax deemed to be deducted from the gift. The charity can then reclaim this tax. For a gift of £80 the individual must pay at least £20 in UK tax.
A company cannot make donations whereby the charity reclaims the tax, but it can receive tax relief for the gross value of the charitable gift it makes. The donation is deducted from the company's total profits before corporation tax is calculated, so the company receives tax relief at its highest marginal tax rate. This gift is treated as a non-trading charge against profits, which cannot increase a trading loss, or be carried over to another accounting period. The company must be making profits in the year it makes the donation to get tax relief for the gift. There are restrictions on the tax relief if the company or a connected person receives benefit back from the charity, with particular rules for companies that are controlled by charities.
Whether it is more tax efficient to give as an individual or through a company depends on the relative marginal tax rates. A small company currently pays tax at 21%, but could have a marginal rate of 29.75% for profits over £300,000. Individuals pay income tax at 20%, and tax relief at this level is built into the gift-aid scheme. Higher rate taxpayers who pay tax at 40% can reclaim the additional 20% tax relief on their donations through their annual tax return.
However, if you need to take the funds out of your company first in order to get the funds personally to make the gift, you will also have to consider the tax to pay in taking the funds out of the company. In this situation the calculations get more complex depending on you tax rate and whether you extract funds as dividend or salary and whether a loss is created by the gift.
www.cheap-accountant.com
The most tax efficient way for individuals to make charitable gifts is under the gift aid scheme. All the individual has to do is declare to the charity that they pay enough UK tax to cover the basic rate tax deemed to be deducted from the gift. The charity can then reclaim this tax. For a gift of £80 the individual must pay at least £20 in UK tax.
A company cannot make donations whereby the charity reclaims the tax, but it can receive tax relief for the gross value of the charitable gift it makes. The donation is deducted from the company's total profits before corporation tax is calculated, so the company receives tax relief at its highest marginal tax rate. This gift is treated as a non-trading charge against profits, which cannot increase a trading loss, or be carried over to another accounting period. The company must be making profits in the year it makes the donation to get tax relief for the gift. There are restrictions on the tax relief if the company or a connected person receives benefit back from the charity, with particular rules for companies that are controlled by charities.
Whether it is more tax efficient to give as an individual or through a company depends on the relative marginal tax rates. A small company currently pays tax at 21%, but could have a marginal rate of 29.75% for profits over £300,000. Individuals pay income tax at 20%, and tax relief at this level is built into the gift-aid scheme. Higher rate taxpayers who pay tax at 40% can reclaim the additional 20% tax relief on their donations through their annual tax return.
However, if you need to take the funds out of your company first in order to get the funds personally to make the gift, you will also have to consider the tax to pay in taking the funds out of the company. In this situation the calculations get more complex depending on you tax rate and whether you extract funds as dividend or salary and whether a loss is created by the gift.
www.cheap-accountant.com
Wednesday 16 June 2010
Tax Help for Losses and Falling Sales
If your sales have dropped and costs have risen, you may be making a loss. This is not a disaster, but you should take action soon to get the best out of the tax system at this difficult time.
VAT
Where your turnover for the last 12 months has dropped below £70,000 you could deregister for VAT. This will not suit all businesses, but if you sell to the public you may gain a competitive advantage by being outside the VAT net.
Loss Claims
Once you have a definite loss figure from your accounts you can set this against your profits for the previous year to generate a tax repayment or tax reduction. If the current loss exceeds the previous year's profits you may be able to carry the excess back a further two years, but this depends on when your loss making period ended. You may need to change your accounting period slightly to accelerate the loss relief available.
Tax and Pension Credits
If your business is your main source of income, a loss means you may be eligible to receive Tax Credits. Tax credits are particularly valuable for families with children under the age of 16 or who are in full-time education, but single individuals can also claim. Your claim can only be backdated up to three months, so you need to make sure you don't delay making a claim. If you are aged 60 or over you may be able to claim Pension Credit. You don't have to be retired to claim this support and it is a much simpler system than Tax Credits.
However your trading loss arose, the best policy is to make sure you act quickly to reduce the business tax payments and generate tax refunds. The worst thing you can do is put your head in the sand!
www.cheap-accountant.com
VAT
Where your turnover for the last 12 months has dropped below £70,000 you could deregister for VAT. This will not suit all businesses, but if you sell to the public you may gain a competitive advantage by being outside the VAT net.
Loss Claims
Once you have a definite loss figure from your accounts you can set this against your profits for the previous year to generate a tax repayment or tax reduction. If the current loss exceeds the previous year's profits you may be able to carry the excess back a further two years, but this depends on when your loss making period ended. You may need to change your accounting period slightly to accelerate the loss relief available.
Tax and Pension Credits
If your business is your main source of income, a loss means you may be eligible to receive Tax Credits. Tax credits are particularly valuable for families with children under the age of 16 or who are in full-time education, but single individuals can also claim. Your claim can only be backdated up to three months, so you need to make sure you don't delay making a claim. If you are aged 60 or over you may be able to claim Pension Credit. You don't have to be retired to claim this support and it is a much simpler system than Tax Credits.
However your trading loss arose, the best policy is to make sure you act quickly to reduce the business tax payments and generate tax refunds. The worst thing you can do is put your head in the sand!
www.cheap-accountant.com
Wednesday 2 June 2010
Traps in the VAT Flat Rate Scheme
The Taxman likes to encourage small businesses to join the flat rate VAT scheme. This scheme simplifies your VAT return as you apply the relevant flat percentage applicable for your trade sector to all your total business income each quarter, (including the VAT charged), and pay the resulting amount as VAT to the Taxman as VAT. You don't have to worry about reclaiming VAT charged on purchases.
However, the flat rate VAT scheme does not suit all small businesses. The flat rate must be applied to all business income, including interest received from business bank accounts, rents, and sales of assets where VAT was not reclaimed, such as cars or property. This means you effectively pay VAT on the gross receipts of sales on which you have not collected any VAT.
If you are a sole-trader the flat rate should be applied to any letting income you receive in your sole name, as lettings are regarded as a business for VAT purposes. Lettings undertaken as a partnership, perhaps jointly with your spouse, are not counted as part of your sole-trader business income. When you sell a let property the flat rate should be applied to the total proceeds. You can withdraw from the flat rate scheme before you sell a high value item such as a property, but you have to stay out of the scheme for at least 12 months.
If you would like to discuss the flat scheme in further detail, or if you would like us to check you are using the correct flat rate for your sector, please contact us on 0800 0988 144.
www.cheap-accountant.com
However, the flat rate VAT scheme does not suit all small businesses. The flat rate must be applied to all business income, including interest received from business bank accounts, rents, and sales of assets where VAT was not reclaimed, such as cars or property. This means you effectively pay VAT on the gross receipts of sales on which you have not collected any VAT.
If you are a sole-trader the flat rate should be applied to any letting income you receive in your sole name, as lettings are regarded as a business for VAT purposes. Lettings undertaken as a partnership, perhaps jointly with your spouse, are not counted as part of your sole-trader business income. When you sell a let property the flat rate should be applied to the total proceeds. You can withdraw from the flat rate scheme before you sell a high value item such as a property, but you have to stay out of the scheme for at least 12 months.
If you would like to discuss the flat scheme in further detail, or if you would like us to check you are using the correct flat rate for your sector, please contact us on 0800 0988 144.
www.cheap-accountant.com
Sunday 30 May 2010
Flipping Houses - Just like an MP
If you own and occupy more than one property as your home you can elect, within a set time period, for one of those properties to be your main home for tax purposes. You can change this election at any time so another property qualifies as your main home, hence the term 'flipping'. When you sell your main home the increase in value that has built up while it was your main home, and for the last three years of ownership, is free of capital gains tax.
Three years of the ownership period will be free of tax, even if the property has only been designated as your main home for a very short period, perhaps only a week. This is the tax rule many MPs used to avoid paying tax on the home that had been largely funded by their expense claims.
You can flip your properties just like an MP, if you make the first election within two years of acquiring another residence, or within two years of marrying (or civil partnership). If you have missed this deadline on your current properties it may be worth acquiring a very small third property to give you the option to make the election again.
However, beware that the law in this area could be changed following the MP's scandal.
Please contact us on 0800 0988 144 if you would like to discuss this post in further detail.
www.cheap-accountant.com
Three years of the ownership period will be free of tax, even if the property has only been designated as your main home for a very short period, perhaps only a week. This is the tax rule many MPs used to avoid paying tax on the home that had been largely funded by their expense claims.
You can flip your properties just like an MP, if you make the first election within two years of acquiring another residence, or within two years of marrying (or civil partnership). If you have missed this deadline on your current properties it may be worth acquiring a very small third property to give you the option to make the election again.
However, beware that the law in this area could be changed following the MP's scandal.
Please contact us on 0800 0988 144 if you would like to discuss this post in further detail.
www.cheap-accountant.com
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