Tax return penalties

The filing deadline for paper copies of your Self Assessment tax return for 2012 was 31 October 2012. If you file a paper

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HM Treasury (Photo credit: Wikipedia)

return after this date penalties will apply.

Would readers note that, if we prepare your return it will be filed electronically, the deadline for electronic filing of 2012 Self Assessment returns is 31 January 2013.

 

If you have still not sent us the information we will need to complete your return, could you attend to this as soon as possible. The penalties for late filing are now rigorously enforced by HMRC. If the filing deadline is breached you will be facing the following charges:

• 1 day late – A penalty of £100. This applies even if you have no tax to pay or have paid the tax you owe.

• 3 months late – £10 for each following day – up to a 90 day maximum of £900. This is as well as the fixed penalty above.

• 6 months late – £300 or 5% of the tax due, whichever is the higher. This is as well as the penalties above.

• 12 months late – £300 or 5% of the tax due, whichever is the higher.
In serious cases you may be asked to pay up to 100% of the tax due instead.
These are as well as the penalties above.

Workplace pension reform

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 (Photo credit: Wikipedia)

All employers need to be aware of their responsibilities following the introduction of pension reforms. Some elements of this new legislation, such as the safeguards for individuals, came into effect for all employers from 1 July 2012.

 

The Pensions Regulator has issued “Getting Ready” notes for employers and this can be downloaded as a PDF document at http://www.thepensionsregulator.gov.uk/docs/pensions-reform-getting-ready-v4_1.pdf.

 

This article summarises some of the key points.

 

• Employers should find out the staging date from which the new auto enrolment regulations apply to their business.

• Employers will need to familiarise themselves with the duties they are likely to have to comply with. These could include: deciding on a pension scheme to use, preparing data to send to scheme administrators, preparing information to send to employees, and setting up payroll processes.

 

Staging Dates

 

1. Employers with 250 or more employees will be staged between October 2012 and February 2014.

2. Employers with 50 to 249 employees will be staged between 1 April 2014 and 1 April 2015.

3. Employers with less than 50 employees will be staged between 1 June 2015 and 1 April 2017.

4. New employers setting up a business from 1 April 2012 up to and including 30 September 2017 will have staging dates between 1 May 2017 and 1 February 2018.

 

In certain circumstances small employers (employers with less than 50 employees at 1 April 2012) can elect to move their staging date to a later modified date. These modified dates are published in the PDF linked earlier in this article.

 

The Pensions Regulator will be writing to each employer 12 months and 3 months ahead of their staging date.

 

Child Benefit lost for high earners

From January 2013 a person who earns more than £50,000 must advise HMRC if they receive Child Benefit personally,

A smiling baby lying in a soft cot (furniture).

(Photo credit: Wikipedia)

or if they are the higher earner of a couple where their partner receives Child Benefit. If you fall into this category you may be receiving a letter soon from HMRC advising you of the new tax charge.

 

We have summarised below the details of the tax charge that will apply from 7 January 2013:

 

1. Child Benefit is not being made liable to tax, the amount claimed is unaffected. The tax charge simply claws back the value of the benefit of those with higher incomes.

2. Child Benefit claimants can elect not to receive benefit if they or their partner do not wish to pay the new tax charge. This election can subsequently be withdrawn if circumstances change.

3. The amount of the tax charge will be collected through Self Assessment and PAYE.

4. The tax charge will be 1% of the amount of the Child Benefit you receive for every £100 of income you earn in excess of £50,000. This sliding scale will apply to earnings up to £60,000.

5. The tax charge will recover all of the Child Benefit you or your partner receives if your income exceeds £60,000.

6. An individual who has an income over £50,000 but does not receive Child Benefit themselves will only be subject to the tax charge for any part of the tax year during which they live with a Child Benefit claimant whose income is below £50,000.

 

A couple or partnership affected by these new rules comprises:

 

• a married couple living together;

• civil partners living together;

• a man and a woman who are not married to each other but who are living together; or

• a man living with a man or a woman living with a woman who are living together as if they were civil partners.

 

What planning could reduce this tax charge?

 

If the highest earner’s income is marginally over £50,000 the simplest way to reduce or eliminate this new tax charge is to reduce your income for tax purposes. One way that you can do this and retain benefit for your family is to make a lump sum contribution into your pension scheme. You will create higher rate tax relief on the contribution and save all or part of the higher Income Tax charge to recover Child Benefit. Depending on the number of children you claim for, this could create tax savings of over 70%.

 

Couples affected would be wise to seek professional help to ensure this new tax charge is kept to a minimum, especially for families where the highest income earner’s income only marginally exceeds £50,000.

National Minimum Wage Rates

New rates came into force on 1 October 2012 and are:

  • £6.19 per hour for workers aged 21 and over – a rise of 11p
  • £4.98 per hour for 18-20 year olds – no change
  • £3.68 per hour for workers above school leaving age but under 18 – no change
  • £2.65 per hour for apprentices – a rise of 5p

If your employer provides you with accommodation, they can count some of its value towards your NMW pay. This is called the accommodation offset. From October, the maximum that employers can count towards NMW pay will be £4.82 – a rise of 9p.

HMRC Advisory Fuel Rates

Where an employer reimburses an employee for fuel only, the employer can choose to reimburse using the ‘advisory

Old gasoline pumps, Norway

rates’ issued by HMRC. If  different rates are used, the employer would need to be able to justify this with some supporting evidence.

New advisory fuel rates have been issued by HMRC that took effect from 1 September 2012.
They are:

Engine size:  Petrol;  LPG

1400cc or less:  15p;  10p
1401cc to 2000cc:  18p;  12p
Over 2000cc:  26p;  17p

Engine size:  Diesel

1600cc or less:  12p
1601cc to 2000cc:  15p
Over 2000cc:   18p

Employers please note that employees can only avoid the car fuel benefit charge if the amount they repay in respect of private fuel at least equals the amounts based on these and previous published fuel rates.

Petrol hybrid cars are treated as petrol cars for this purpose.

These rates can also be used to reclaim VAT input tax on the fuel element of car mileage payments although businesses will also need to retain fuel receipts.

Charitable donations and the tax savings

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After much intense lobbying by the charity sector, the Chancellor’s attempt to cap tax relief on charitable giving (Budget 2012) was withdrawn.

Major donors to charities are obviously moved to philanthropy by considerations other than the amount of tax they can save, although they will want to make their donations in the most tax efficient way. Here is a roundup of some of the tax considerations to consider

  • To qualify for relief, cash donations need to be paid out of taxed income. Accordingly, charities can recover the 20% basic rate tax deemed to have been paid by the donor, thus increasing the cash value of the donation significantly.
  • 40% or 50% rate tax payers can claim an additional 20% or 30% tax relief on qualifying donations.

A gift can be made by way of an outright gift of a qualifying investment or land. In this case the Gift Aid rules set out above do not apply and the reliefs available are as follows:

Income Tax consequences:

  • The donor can claim Income Tax relief based on the market value of the investment or land on the date of the gift, or
  • If the donor sells the investment or land to the charity at less than market value. Income Tax relief is normally available on the difference between the sale price and the market value when the sale is completed.
  • In each case the relief is given by deducting the relevant value from income.

Capital Gains Tax consequences:

  • In the case of an outright gift, no chargeable gain will arise.
  • In the case of a sale at less than current market value, CGT will only be payable if the amount received from the charity is more than the base cost of the asset for CGT purposes.

Carry back bonus

It is still possible to carry back Gift Aid donations made in a current tax year to the previous tax year. The over-riding condition is that any election to make the carry back must be made prior to the tax return being submitted for the relevant year. For example, if a tax payer wanted to carry back a donation, made during the tax year 2012-13 to 2011-12, they would need to make the election prior to submitting their tax return for 2013.

In this way, higher rate tax payers are given an extended opportunity to maximise the tax effectiveness of charitable donations. If the additional rate of Income Tax is reduced next April to 45%, 50% rate, tax payers in this tax year (2012-13) may want to consider carrying back charitable donations made 2013-14 to the previous tax year to reduce liability at the higher rate.

Carry back does not apply to a gift of investments or land.

New Seed EIS scheme offers higher tax breaks

Investors in higher-risk smaller companies have benefitted for a number of years from the Enterprise Investment Scheme (EIS). The new SEIS is targeted to provide funding for early stage companies who may find it difficult to raise seed capital. Recognising these needs, the SEIS scheme also offers investors higher tax breaks than the existing EIS. The SEIS applies to shares issued on or after 6 April 2012.

The following tax reliefs are available to qualifying investors:

Income Tax

  • Relief is available to individuals who subscribe for qualifying shares in a company that meets the SEIS requirements.
  • Investors need to have a UK tax liability against which the relief can be set.
  • Relief is available at 50% of the cost of the shares on a maximum annual investment of £100,000.
  • Relief is limited to the total tax liability of an investor in a year of assessment.
  • Surplus relief can be carried back to a previous year but no relief can be carried back prior to 2012-13, the first year that SEIS applies.

Capital Gains Tax (CGT) – reinvestment relief

If chargeable gains arise for an individual in the tax year 2012-13 they can be reinvested in the SEIS scheme and the amount reinvested will be exempt from any CGT charge. The £100,000 SEIS investment limit and the carry-back facility also apply to this relief in exactly the same way as income relief.

The chargeable asset does not need to be disposed of first. As long as the CGT disposal and SEIS investment occur in the tax year 2012-13, reinvestment relief can be claimed.

Individuals who pay Income Tax at the highest rates can potentially claim a 78% tax break from claiming SEIS and the associated CGT reinvestment reliefs for 2012-13.

Capital Gains Tax (CGT) – disposal relief

Individuals who have claimed Income Tax relief on an SEIS investment, and the shares are kept for at least three years, will be exempt from CGT on any gain on disposal.

Note that if an investor did not claim Income Tax relief on the original investment, then any gain on subsequent disposal at any time will be subject to CGT.

Investment requirements

One of the key investment requirements is that shares to be included in SEIS must be paid up in full, and in cash, when they are issued.

According to HMRC, one of the most common reasons that an SEIS claim is refused is where investors take up subscriber shares when a company is set up, but before the company has banking arrangements in place to accept payment.

There are also a number of other “qualifying” criteria that need to be met. It is not possible to outline them all in this short article. Please contact us if you would like to explore this investment opportunity for your company.