In view of the positive feedback to my Blog on questions I’ve received, I thought I would share a few of more of them with you
Question: My tax affairs are not complicated and my only source of income is my salary which is taxed at source, however, my wife gets Tax Credits for our three children and it looks likely that I will be affected by this High Income Child Benefit Charge. I have never completed a tax return and wondered if there any way I can avoid doing so now?
Answer: Unfortunately, the only way you can avoid completing a tax return if the High Income Child Benefit Charge applies to you, is to opt to no longer receive it. If you wish to continue to receive it, but make your life a little easier, HMRC will allow you to have the Charge collected via your tax code.
Late Tax Return
Question: I recently submitted my Tax Return for the 2012/13 year but have now realised that I should have sent in one for the previous year. I didn’t work much that year, largely due to ill-health, what should I do and what are the consequences of being late?
Answer: Firstly, you should submit the outstanding return ASAP. The consequences are a £100 fixed penalty plus £10 each day from 1st May to 29th July (£900), followed by a £300 penalty or 5% of the tax due (whichever is the higher) plus interest on any tax due. However as you suffered from ill-health, this may well be accepted by HMRC as a reasonable excuse, especially if there is little or no tax due.
Staff Christmas presents
Question: Just before Christmas I gave all of my staff a £50 store voucher (I only paid £45 as I bought several), but I’ve now realised that there may be tax consequences; are there and if so, what?
Answer: As you provided your employees with redeemable vouchers, the value for tax and NIC purposes is the cost to you as the employer, ie £45. This sum should be included in their earnings for Class 1 NIC & tax purposes (unless the employee earns less than £8,500pa) and you will need to warn them of this. There is an alternative however by paying for their tax liabilities yourself using a PAYE Settlement Agreement (PSA).
Question: I have just collated my paperwork in order to do my VAT return and realised to my horror, that 4 week’s expense receipts are missing. Is there anything I can do to avoid losing the VAT on them?
Answer: HMRC-VAT’s basic position is “no receipt no VAT claim”, however you may still be able to recover the VAT, but this is at HMRC’s discretion. For such a claim to be successful HMRC-VAT will look for alternative evidence which can include supplier’s statements, purchase orders, delivery notes, record of payment or evidence of onward sales. You should also be able to provide the supplier’s VAT number.
Excessive tax bill
Question: I am married with two children (16 & 18) and a couple of years ago I switched from being self-employed to a limited company, I’m the only director and shareholder and have found the amount of tax I pay has risen significantly, largely because of higher NIC payments on my monthly salary (which I can’t reduce because of monthly commitments). My gross personal income is £50 to 55k, my only employee is my wife (paid under tax threshold) and I take a small annual dividend. Is there anything legally I can do to reduce my tax bill?
Answer: Yes, there a number of ways you can reduce your overall tax bill without falling foul of HMRC. Your NIC bill has gone up because as you take most of your income as PAYE salary you as the employee are paying 12% Class 1 NIC and your company as the employer is paying an additional 13%, rather than the 9% rate your were paying when self-employed; plus you are paying 40% tax on some of your income. What I think you should consider is:-
- Reduce your salary to just over the tax threshold
- Pay dividends every 3 months (there is no tax or NIC liability to you if you’re a basic rate taxpayer)
- Utilise savings or your Director’s loan account to cover the monthly shortfall before the first dividend
- Make your wife a Director and shareholder so the dividend is shared between you, to avoid the 40% tax bracket
- As you undoubtedly bankroll your teenage kids anyway, why don’t you suggest that they do a bit of part-time work for the business and pay them a wage which will utilise their tax free allowance. You’ll still be paying out, but at least you’ll be getting tax relief