Tax newsletter 23 July 2009
Following on from last week's tips about paying tax due on 31 July, this week we have some further practical tips about spreading tax payments, a reminder about recent VAT changes and news of confusion about the completion of trust tax returns.
|After the practical points in this newsletter I have provided a Spotlight feature, highlighted the newer commentaries added to our TaxBuzz blog and provided an
item for the 'Tax fun' spot.
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Spreading the tax due
Conscientious self-employed individuals save up all year to pay the tax due on 31
July and 31 January, as they live in fear of being in debt to the Taxman. Other
business people follow the 'borrow from Peter to pay Paul' philosophy, hoping that
a big sale will arrive in time to pay the inevitable tax bill. Both categories of
clients could benefit from a new initiative from HMRC to help people budget to
pay their tax bills.
Under the Budget Payment Plan the taxpayer makes regular payments toward
their next self-assessment tax liability by direct debit. The taxpayer decides how
much to pay and whether to pay monthly or weekly. They can change the
amounts, or cancel or suspend the whole payment system at any time. Many
taxpayers will feel reassured that the money to pay their tax is already with the
Taxman, and they do not have to worry about a big tax bill arriving.
The disadvantages of the Budget Payment Plan are:
- The taxpayer must be up to date with their SA payments to start the plan, but
the HMRC payment helpline on 0845 366 1204 can advise when the budget
payment plan can be used.
- Payments must be made by direct debit - some people still don't trust this
method of payment.
- The taxpayer must be registered for self-assessment online, but they don't
have to wait for the activation pin before setting up the direct debit.
- HMRC does not pay any interest on the advance tax payments - but interest
rates for small savings accounts are at a record low anyway.
- It takes five working days to set up the first direct debit.
The direct debit facility can also be used just to pay single amounts of tax due.
Once the direct debit is set up the amount to be paid only has to be specified 3
days in advance. A payment to HMRC made by this method will be noted as
'HMRC NDDS' on the taxpayer's bank statement.
If your client is having a temporary cash-flow crisis, they can pay their tax bill by
credit card. This also needs to be done online through a special bill payment site
(see below). There is a transaction charge of 1.25% of the tax due, so this
method should only be used by those in a very tight spot.
Paying income tax using the Budget Payment Plan
Paying by debit or credit card
If you are completing or checking your client's VAT return for the quarter to 30
June 2009 double check whether the VAT treatment of any of the transactions, or
VAT schemes used by your client has changed. Three significant changes in the
last quarter are:
VAT on hired staff
From 1 April 2009 businesses that supply staff, such as temping agencies, must
charge standard rate VAT on the full invoiced amount including the wages of the
staff, not just their administration fee as was previously the case. We highlighted
this change in our newsletter of 12 June 2008, but it has still come as a surprise
to many organisations that cannot fully recover VAT on their costs, such as
Flat rate scheme
If your client is in the flat rate scheme for small businesses or you think they
could benefit from being in that scheme, check out the changes to this scheme
which came into effect from 1 April 2009 (Notice 733, update 1).
The entry requirement now only has one test: the taxable turnover for the next
year is expected to be £150,000 or less. This test is based on taxable sales only
and excludes any exempt sales. However, the exit criteria is based on total
turnover including any exempt sales. The business must leave the flat rate
scheme when the total turnover in the year ending with an anniversary of joining
the scheme is more than £225,000, or the turnover in the next 30 days will
exceed this limit.
If you are viewing notice 733 online you need to scroll right to the end to read
the amendments to the entry and exit criteria, as these changes are not noted in
the body of the leaflet, even on the online version.
Partial exemption standard method
We discussed this change in our newsletter of 9 April 2009. The changes to the
standard method will benefit many businesses who can now make an early
annual adjustment in this quarter.
VAT on hired staff: info sheet 03/09
Flat rate scheme: VAT notice 733
Partial exemption standard method: info sheet 04/09
Trust tax returns
Trying to complete and submit a trust tax return is a frustrating process at the
best of times. We reported in our newsletter of 25 June 2009 on the difficulties of
getting the trust return accepted by the HMRC online system, but now it seems
that the guidance notes for the 2008/09 trust return are incorrect.
The error is contained in the supplementary pages that deal with foreign income
(SA904). The notes to these pages do not reflect the current HMRC treatment of
foreign dividends, that the trustees should be entitled to the tax credit where the
shareholding is less than 10%. The tax calculation guide is also incorrect.
HMRC now have provided some detailed guidance on the correct treatment of
foreign dividends (see below), and how the R185 form for beneficiaries should be
completed. If you use tax return software to complete your trust tax returns, you
should check that this software is producing the correct tax calculation based on
the HMRC revised guidance.
If you have already submitted a trust tax return completed based on the original
incorrect guidance notes, you don't have to do anything. HMRC will revise the tax
calculation for 2008/09 in due course.
Foreign dividends received by trusts
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Tax Buzz - The Tax Advice Network blog
This newsletter focuses on practical day to day issues. My TazBuzz blog in contrast contains commentary and observations on a wider range of topics. So if you are interested and have the time do check out the TazBuzz blog if you want to know about the TaxBuzz around:
Do please add your comments and views using the 'comments' link at the bottom left of each posting; It's really easy to do and I welcome your feedback regardless of whether you agree or disagree with my view. You can also indicate if you found the item useful.
- Tax avoidance schemes - a simple guide
- Tax avoidance - what are you allowed to do? A simple guide
- Do you want to be taxed in principle or by the letter of the law?
- Undisclosed income from buy to let properties
- Finance Bill 2010 - don't hold your breath
- MPs breaking tax laws" - surprised?
- A wild and wiki approach to developing tax law
Spotlight on: Something on your mind?
Have you had a conversation with a client and been wondering whether it's worth you trying to get sufficiently upto speed to give your client all of the advice they need - with confidence?
Would a second opinion help?
Alternatively you could dig out the books, search online, spend more time than it's really worth and get diverted from the aspects of work you really enjoy.
The chances are that whatever's on your mind can be resolved by a specialist Tax Adviser. With over 30 areas of specialism between them, there's bound to be someone in the Network who can help you.
Simply go to the website and either use the search facility or the specialisms list to find someone suitable. You can call them using the phone number at the top of their profile - or email them using the 'Contact me' link at the foot of their profile. As ever, you choose the approach that best suits you.
The search bar is a top right of the screen on every page of the website.
Tax Fun spot - Tax rises and the Hissing Index
The recent Wyman debate arranged by the ICAEW Tax Faculty was conducted in very good humour. The motion was "Assuming taxes rise which goose should be plucked first?"
One of the speakers, Trevor Evans (Ex-Director Business tax HMRC), focused on what he called the Hissing Index ("HI") which he suggested was much used in the corridors of power - Treasury and HMRC. This sounded, as intended I suspect, more like something that could have been derived from the days of 'Yes Minister'.
According to Trevor: HI is derived from the formula:
V x X x AF where:
V = Volume of hissing per goose (ie: how much of a fuss is made by those required to pay additional taxes)
X = Number of geese being plucked (ie: how big is the group of geese that will be subject to additional taxes)
AF = Amplification Factor (This being a factor of the number of connections that a goose or gaggle of geese have eg: in the press, media, on TV news - or simply through being on first name terms with a Treasury Minister!).
Trevor then proceeded to identify which propositions had a High HI and encouraged the audience to vote for his proposition which, he claimed, would have a low HI.
(Maybe you had to be there!)
* The title was derived from a famous Jean Baptise Colbert quote.
Items appearing in this 'tax fun' spot are taken from the Accountant-Jokes.com blog - with my permission!
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