2013/14 Personal Tax Tips

Need help with personal tax in Bexhill, Hastings and Vauxhall? Look no further!
Here are some recent personal tax changes that you may be interested in.

CHILD BENEFIT
From January 2013, when an individual is earning more than £50,000, their entitlement to Child Benefit is reduced by 1% for every £100 over this limit. At £60,000 and above, it is completely withdrawn. However, it is not always the best action to stop the benefit, as the non-working partner could lose many years of state pension contributions as a result. Do NOT just stop it! Speak to a tax advisor first!

PERSONAL ALLOWANCE
The personal allowance was increased in the budget this year to £9,440. This is the amount you can earn before you have to pay income tax and applies whether you are employed or self employed. The increase means that each basic rate taxpayer will pay £267 less tax each year. If you are employed, it is advisable to check your tax code on your payslip to ensure you are receiving this increased allowance. Your tax code should be 944L (unless there are any other deductions or additional allowances you know of).
If you are a higher rate tax payer, it is important to note that married couples/civil partners can utilise both allowances by transferring income-producing assets to your spouse to benefit from their lower taxable income.

ISA ALLOWANCE
Every year, everyone in the UK receives an ISA allowance. For this year, the allowance is £11,520 (£5,760 in cash). To reap the greatest rewards from this, you should take advantage of it as soon as possible in the tax year to earn tax free interest on your savings.

LATE TAX RETURN PENALTIES
HMRC are now issuing automatic penalties for late self-assessment returns. The deadline is 31st January for online returns. The penalty is £100 plus further daily penalties. This can amount to a significant penalty of at least £1300 for a return that is 6 months late!

CAPITAL GAINS TAX
The annual tax-free allowance allows you to make a certain amount of gains each year before you have to pay tax. For individuals, personal representatives and trustees for disabled people, this amount is £10,900 for 2013/14. See our October issue for more on Capital Gains Tax.

DON’T GET STRESSED, GET ADVICE FROM AN ACCOUNTANT/TAX ADVISOR! – This is the most effective way of finding the best solution for you.

DISCLAIMER This feature aims to give some informal hints and tips. McPhersons Chartered Accountants will not be held responsible for any inaccuracies. For detailed advice, please contact McPhersons to arrange a consultation.

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Basic Bookkeeping

Need help with bookkeeping in Bexhill, Hastings, Vauxhall? Look no further!
Basic Bookkeeping

WHY IS GOOD BOOKKEEPING IMPORTANT?

There are three main reasons to keep good records; to meet tax requirements, to keep your accountancy fees down and to manage and control your business effectively.

HOW WILL GOOD BOOKKEEPING HELP ME MANAGE AND CONTROL MY BUSINESS?

Accurate bookkeeping will help you identify:

Your cashflow position in order to help you plan ahead and meet your obligations;
Whether your expenses are in proportion to your income;
Which products/clients are most/least profitable;
Whether your business is growing or shrinking!

WHAT ARE THE MAIN TAX REQUIREMENTS TO BE AWARE OF?

You will need to complete an annual tax return which is a summary of your income and expenditure over the tax year. In order to do this, you must have accurate records. These records must be kept for five years after the tax return deadline of 31st January.

You will also want to make sure that you are claiming all you can in terms of expenses. Accurate and well kept records will assist with this.

WHAT DIFFERENT METHODS ARE THERE TO KEEP BOOKS?

At McPhersons in Bexhill, Hastings and Vauxhall, we spend time with our clients to set up a robust system. This free service makes our work more efficient and gives our clients peace of mind.
The options are:

Manual bookkeeping. This is the way many small businesses start. It is cheap and generally easy to maintain. With a little help, you can save time and keep excellent manual records;
Spreadsheets. We can show you how to set up and manage your record keeping using a spreadsheet. This way, data can be extracted and we can set up some key reports to allow you to keep a close eye on your business;
Accountancy software such as Sage, Xero or Quickbooks. Your accountant can advise which program is best for you;
Outsource it. An accountant or freelance bookkeeper can do it for you. Make sure you choose carefully and are getting a good value, prompt, efficient service.

WHAT ARE THE BASIC THINGS I HAVE TO RECORD?

Some key transactions you need to record are:
Sales and Purchases;
VAT input and output (if VAT registered)
Payroll;
Establishment costs (if you have a business establishment);
Bank and cash accounts (many transactions are now paperless e.g. bank transfers);
Administration costs such as; telephone, stationery, advertising, motor, computer;
Capital expenditure on equipment;
Petty Cash.

This list is not exhaustive so please speak to us for advice.
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RTI Could Damage Small Firms

Tomorrow sees the introduction of Pay As You Earn (PAYE) reporting using real time information (RTI), for all but the smallest firms, but there are fears that it could sound the death knell to cash-strapped organisations.

HM Revenue & Customs (HMRC) is bringing in RTI to prevent tax code errors caused by people moving from job to job throughout their working life and the department has said that its implementation will save around £300m a year in administration costs.

However, while large firms have payroll departments that have been preparing for its introduction for months, small firms are having to devote time and money they can ill afford to buying new payroll software and ensuring that each employee’s details, even for casual staff, are completely accurate.

In fact, some firms are so enmeshed in the minutiae of their business, they are still oblivious to it; a survey this week suggested that as many as one in five is unprepared for the change or even unaware that it is happening.

For this reason, HMRC announced recently that firms with 50 employees or fewer will not have to start reporting in real time until October, when Universal Credit will start.

The Chartered Institute of Taxation (CIoT) has gone so far as to rename RTI as the ‘Route to Insolvency’ for some small firms. The Institute has said that employers who are caught unawares in October will have a “nasty wake-up call” when HMRC debt management officers contact them. While other tax experts have predicted that the payroll costs for small firms could quadruple when it starts.

Also, many small firms use PAYE as a cheap source of finance by delaying payment to help with cash flow, which they will not be able to do from October. They will also have to pay for the software and for people to check employee details, not to mention the added paperwork that could be as often as daily if they employ casual staff.

The Institute is also not optimistic about HMRC’s track record in launching new systems successfully, nor communicating effectively about RTI to employers, who face heavy penalties if they make mistakes.

First Tax Dodgers List

HM Revenue & Customs (HMRC) has published its first list of tax dodgers, which highlights “deliberate defaulters” found during the department’s investigations into their affairs from April 2010.

This list features nine names – including a hairdresser, a coach operator and a knitwear manufacturer – each of whom had not paid more than £25,000 of tax.

Individuals and businesses named on the list received fines from a few thousand pounds upwards. Cheshire-based wine retailer, The Trade Beverage Company Ltd, was fined £291,830, while a penalty of more than £17,000 was imposed on hairdresser Joseph Tyrrell for dodging tax between October and December 2010.

According to the government, the publication of the names sends a clear signal that cheating on tax is wrong, and reassures the vast majority of people who pay their taxes that there are consequences for those who refuse to tell HMRC about their full liability.

The department also hopes that publishing the list will encourage defaulters to make a full and prompt disclosure and cooperate with HMRC to avoid being named.

However, with the total tax owed by those on the list amounting to less than £1m, Treasury Minister David Gauke was asked why no large corporations were included on the list.

Mr Gauke replied that HMRC was taking action to close legal loopholes, as well as to expose those promoting aggressive tax avoidance schemes.

Chair of the Commons Public Accounts Committee, Margaret Hodge called the publication of the list an “amazing” step forward.

“Publicly naming and shaming does act as a deterrent, as we demonstrated over the Starbucks and Amazon hearing,” she added.

However, she also hoped that HMRC would not just focus on individuals and small businesses, as the general public does not want to see big global corporations “getting away with it”.

Governor Overruled

For only the fourth time since he became Governor of the Bank of England, Sir Mervyn King was overruled by other members of the Monetary Policy Committee (PMC), this time over quantitative easing (QE).

The minutes of the meeting revealed that three members, including Sir Mervyn, voted to increase QE by £25bn to £400bn, whereas last month, only David Miles wanted to restart the programme.

Last month the Bank raised its forecasts for inflation from those made in November, warning that inflation would hit 3 per cent later this year and not fall back to the Government’s 2 per cent target until the beginning of 2016. Under normal conditions, the Bank would be expected to consider raising interest rates to offset such a rise.

However, officials said they “stand ready” to increase quantitative easing to support the recovery, though they still questioned the effectiveness of current policy tools for easing credit strains in the economy.

In a wide-ranging discussion on the need for “targeted” measures, they said some may be beyond the scope of the central bank and fall under the province of other government departments.

The minutes reported that growth remained subdued and the economy continued to face a number of headwinds, so a case could be made that, if further stimulus was required, policy interventions more targeted at particular frictions or market failures in the economy were likely to be more effective in current conditions than further asset purchases.

Other policies discussed were a possible extension of the Funding for Lending (FLS) cheap credit scheme to “non-bank lenders”. In addition, using QE to buy assets other than gilts and a reduction in interest rates below 0.5 per cent were discussed and, once again, dismissed.

Following publication of the minutes, the pound fell sharply to a 15-month low against the Euro and fell to the lowest since June versus the dollar.

Isle Of Man Agrees To Tell Taxman

Earlier this week, the UK Treasury and the Isle of Man struck an automatic exchange agreement, which aims to clamp down on tax evaders and may net hundreds of millions of pounds by targeting people who try to hide their money offshore to try and escape a tax bill.

The agreement, which runs from 6 April this year to September 2016, will lead to an automatic exchange of information on people who have bank accounts on the island, and a chance for people to come forward to pay tax.

It forms an integral part of the Government’s offshore anti-evasion strategy, which will be published later this year. The package includes an automatic tax information exchange agreement and the setting up of a disclosure facility.

The disclosure facility will allow investors with accounts in the Isle of Man to come forward and settle their past affairs before information on their accounts is automatically shared, although they will not have immunity from possible criminal proceedings.

Under the automatic exchange agreement, a wide range of financial information on UK taxpayers with accounts in the Isle of Man will be reported to HM Revenue & Customs (HMRC) automatically each year.

It follows the UK-US agreement to Improve International Tax Compliance and to Implement the Foreign Account Tax Compliance ACT (FATCA) in order to minimise burdens on financial institutions.

When the agreement was announced, Chancellor George Osborne said that the Government is also in discussion with Jersey and Guernsey, as part of its common commitment to combat tax evasion, and that tax transparency will be a focus of the UK’s G8 presidency, where it will look to further promote automatic information exchange.