Finance and Tax Blog for individuals and companies

On 19 February 2012 the UK signed an agreement with the Government of the Isle of Man which establishes a new disclosure facility. This will allow investors with accounts in the Isle of Man to come forward and settle outstanding UK tax liabilities.

This is being referred to as the “MDF”. Details are in the Memorandum of Understanding between HMRC and the Isle of Man. Further details will be available when HMRC publishes its expected guidance.

The key points of the Isle of Man disclosure opportunity are:

• The MDF begins on 6 April 2013 and runs until 30 September 2016.
• Anyone can use the MDF to make full disclosure of their UK tax arrears if (a) they have been UK-resident and (b) have property in the Isle of Man, at any time in the period 6 April 1999 to 31 December 2013. So those wishing to participate may be able to do so if they invest in the Isle of Man before the end of this year.
• Property in the Isle of Man is widely defined and includes bank accounts and insurance or annuity contracts, and also interests in companies, partnerships, trusts, etc.
• Anyone who has been the subject of an investigation by HMRC before 6 April 2013 cannot take part in the MDF. The definition of investigation is a very wide one.
• Anyone who participates in the MDF is required to make full disclosure of such details as HMRC may require.
• The taxpayer is required to pay their UK tax arrears at the same time as they apply to participate in the MDF – though if this causes problems they can make a time to pay proposal.
• The MDF does not provide guaranteed immunity from prosecution.

HMRC may amend or withdraw the disclosure facility upon giving three months in writing to the Government of the Isle of Man.

As a citizen of the United Kingdom you need to file your tax returns. Now, this can be done either by post or online. Remember, missing the deadline will definitely mean bad news for your finances with an extra charge of around 100 British pounds. If you don’t take care of your finances well, then there are chances of going into debt and then you will be left looking for fast debt relief measures which is definitely not a favourable situation.

Do you need to file a tax return?

Before getting into further details about filing a tax return, the question remains about who should file tax returns. Many are under the illusion that they can do without filing tax returns and this can lead to more financial mess. If you are earning, be it through self-employed means, or a job, or through letting out property or land or any other source, then you very well need to file a tax return.

How will you file your tax returns online?

Now, with the kind of fast-paced lifestyle that everyone leads these days, filing your tax return online is the best idea. Here are a few steps that you need to follow to do so –

1. Get an account: The very first thing you should do is register for an account with HM Revenue and Customs when looking to file your tax returns online. Visit the account setup page and click on “Register”. You can find this under the “New User” column.
2. Answer the questions: Next, you have to answer all the questions that you will find on each page. As for the self-assessment option, then it is for the personal tax return and the other options are used for different types of VAT.
3. Provide information: Make sure that you provide necessary information, like say your email address and likewise. Also, do not forget to enter your Unique Taxpayer Reference or your National Insurance Number when prompted. You can make use of the activation pin that you will receive via mail to log in to your account.
4. 4. Fill out the forms: Do fill out the Self Assessment forms that you will find online. This will tell you how much tax you owe actually. You can go ahead and submit and pay your taxes with the help of your debit cards as well.
5. Write a cheque: You must write out a check that will be payable to HM Revenue and Customs only. Make sure that you include your payslip along with the cheque. Remember, your payment is due on January 31st, but you need to file your paper returns by October 31st. You can also go ahead and make the payments to a post office. However, in this case you make the cheque payable to “Post Office Ltd.”

Now that you know how you can file tax returns online, do not delay the process unnecessarily. Instead of getting into debt and opting for fast debt relief, it is better that you avoid fines and file your tax at the right time.

This article has been written by Madison Cooper who is a specialist in legal matters related to filing tax returns. He has written for many reputed websites on various
topics related to filing tax returns.

The Government has now announced, following consultation in March 2012, a simpler income tax system for small businesses. From the 2013/14 tax year, self employed individuals or partnerships carrying on the smallest trading businesses will be able to choose to be taxed on the basis of receipts less payments (‘cash basis’) and all unincorporated businesses will be able to use simpler rules for some business expenses.

This will replace the need to prepare accounts on a more conventional accruals basis coupled with making adjustments to comply with the tax code. The Government wants to make it easier for the smallest businesses to calculate their taxable income, whether self-employed sole traders or those in partnership with other individuals, as well as providing them with more certainty over their tax affairs.

The key aspects of the cash basis proposals are:

• It is an optional scheme which small unincorporated businesses can elect to use. However, businesses that do not elect to use the cash basis will have the option to use any or all of the simplified expenses rules listed below as they wish.
• Businesses can enter the cash basis if their receipts for the year are less than the amount of the VAT registration threshold (currently £77,000) or twice that (currently £154,000) for recipients of Universal Credit.
• Businesses must leave the cash basis after their receipts exceed twice the amount of the VAT registration threshold (currently £154,000).
• It will work on a cash flow basis. For income, it’s what the business receives, when it is received; for outgoings, it’s what the business pays, when it pays it.
• Receipts include all amounts received in connection with the business including those from the disposal of non-durable assets and VAT refunds.
• Allowable payments are expenses paid wholly and exclusively for the purposes of the trade, including for non-durable assets and payments of VAT (but excluding business entertaining and purchase of property or other “investment” assets). It will no longer be necessary to calculate and claim capital allowances.
• Interest payments are also allowed up to a limit of £500.
• Business losses may be carried forward to set against the profits of future years but not carried back or set off ‘sideways’ against other sources of income.
• Rules on entering or leaving the cash basis are intended to ensure that income is taxed once and once only and expenses are relieved once and once only.

Simplified expenses are easier to follow rules that can be used when calculating some business expenses:

• Fixed allowances for business mileage (rather than deductions for actual expenditure on purchasing, maintaining and running a motor vehicle or motor cycle, apportioned between business and private use). This is mandatory for the use of cars or motorcycles by businesses using the cash basis.
• A flat rate to calculate expenses relating to business use of home (rather than deductions for actual amounts, apportioned between business and private use)
• A 3 tier banded rate to calculate the adjustment for private use of business premises (rather than deductions for actual amounts, apportioned between business and private use)

The above rules will be introduced in the Finance Bill 2013.

HM Revenue & Customs (HMRC) will soon launch its Direct Selling campaign aimed at those individuals or businesses who sell products to customers without the need for a shop. If you are involved in direct selling and have not told HMRC about all of your income, you may not be paying the right amount of tax. The Direct Selling campaign is an opportunity for you to bring your tax affairs up to date.

The campaign will target ‘agents’, ‘consultants’, ‘representatives’ or ‘distributors’ and will start on 26 September 2012 and run until 28 February 2013.

Selling can involve demonstrating a product in a customer’s home, sometimes at a party, whilst some agents sell door to door, often using catalogues. Others may only sell to friends or relatives. Direct sellers take commission on the sales they make. Direct selling can be a full time business, but some people do it to top up their income from another job or to fit around caring commitments.

HMRC is urging those involved in direct selling to inform HMRC about all their income. As with previous HMRC campaigns, if you have not paid what you owe it’s an opportunity to get your tax affairs in order on the best possible terms.

This follows recent campaigns targeting online sellers, tutors, coaches and electricians.

Finance Act 2012 has introduced from 17 July 2012 the new group 16 to Schedule 9 to the VAT Act 1994 which deals primarily with the Cost Sharing Exemption provision.

The exemption applies when two or more organisations (whether businesses or otherwise) with exempt and/or non-business activities join together on a co-operative basis to form a separate, independent entity, a cost sharing group (CSG), to supply themselves with certain services at cost and exempt from VAT. As a result a ‘cooperative self-supply’ arrangement (a term the EU Commission use) is created.

The exemption applies to supplies of certain qualifying services that are made by the representative member of the CSG to other members of the CSG. These supplies can include ancillary goods only must be ‘directly necessary’ for the exempt and/or non-business supplies made by the individual qualifying member.

The CSG is a separate taxable person from that of its members. It is therefore able to make supplies for VAT purposes to its members. These supplies will be exempt if the relevant conditions are met. This type of arrangement enables the creation of the same economies of scale for smaller businesses and organisations as larger businesses and organisations naturally enjoy. Thus the more members of a CSG there are the greater the potential savings and lower the costs per member of operating the relevant CSG.

The cost sharing exemption which is mandatory applies only in very specific circumstances and will not cover all shared service arrangements.

There are five conditions attached to the exemption:

1. There must be an ‘independent group of persons’ (a CSG) supplying services to persons who are its ‘members’.
2. All the members must carry on an activity that is exempt from VAT or one which is not a business activity for VAT purposes.
3. The services supplied by the CSG, to which the exemption applies, must be ‘directly necessary’ for a member’s exempt and/or non-business activity.
4. d) The CSG only recovers, from its members, the members’ individual share of the expenses incurred by the CSG in making the exempt supplies to its members.
5. The application of the exemption to the supplies made by the CSG to its members is not likely to cause a distortion of competition.

All these conditions have to be satisfied for a supply to be exempt.

If any of the conditions are not met the supplies will be taxable.

The Government has now decided to take no additional action against perceived tax avoidance in the area of taxpayers claiming relief for losses against income tax.

Around the time of the 2011 Budget, the Government published “Tackling Tax Avoidance” setting out the HMRC anti-avoidance strategy which focuses on preventing tax avoidance to protect the Exchequer including a number of specific measures and increase certainty for taxpayers.

On 30 June 2011, HMRC published a consultation document “High-Risk Areas of the Tax Code: Relief for income tax losses” on options to deter tax avoidance exploiting income tax loss reliefs. Its aim was to see if a legislative approach could be found that would deter avoidance that exploits income tax loss reliefs whilst ensuring that adverse consequences are minimised for businesses with genuine losses.

The consultation covered specific income tax loss reliefs that can be set against a person’s income or gains of the same tax year or another tax year, the main focus being on trade loss reliefs available for set-off against general income and gains, property loss relief available for set-off against general income, and employment losses.

The consultation proposed three options to counter this behaviour:

• a principle-based approach;
• a mechanistic approach of limiting relief to £25,000; and
• an administrative approach of withholding repayment where the total loss relief claimed for set-off in a year is in excess of £25,000, until claims have been agreed by HMRC.

The International Olympics Committee have reached agreement with HMRC that it suspends its normal tax regime for those people coming to the UK to compete in the games. Therefore payments to foreign competitors participating in the London 2012 Olympic Games and Paralympics will not be subject to UK tax provided they fall within the terms of the Special Exemption. This includes payments under sponsorship or endorsement contracts entered into before the Games started. This special exemption will also be extended to foreign Olympic officials, journalists, broadcasters and other foreign workers engaged in the games but ii is unclear whether or not this extends to entertainers. The exempt season will run from the end of March 2012 to the first week in November 2012.

The normal UK rule is that if a foreign sportsperson comes here to compete HMRC would subject part of any earnings to UK income tax.

The Government announced a package of measures in Budget 2012 to ensure that
individuals and companies pay a fair share of tax on residential property transactions and to tackle avoidance, including the wrapping of property in corporate and other “envelopes”. This consultation which closes on 23rd August 2012 is on two specific parts of this package:

• An annual charge on residential properties valued over £2 million owned by certain
  “non-natural” persons (broadly companies, partnerships including companies and
  collective investment vehicles); and
• The extension of Capital Gains Tax (CGT) to the disposal by certain non-resident
  non-natural persons of residential property, interests in such property, or the
  envelopes in which they are held.

On 24th May 2012 HMRC published a consultation to introduce statutory power to remove the obligation to file a Tax Return once a notice to file has been issued to a personal, trustee or partnership taxpayer and to cancel any penalty for failure to make such a return where it is appropriate to do so.

There are currently no statutory criteria setting out when HMRC will require a SA return but the most common reasons are where a person:

• is self-employed or a partner in a business at any time in the year;
• is a company director;
• receives income over £100,000;
• receives more than £10,000 in savings and investment income;
• receives income from letting out property;
• receives foreign income liable to UK tax; or
• is an employee claiming expenses or professional subscriptions of £2,500 or more.

This is not an exhaustive list as the power to issue a notice to file is flexible. There is also a range of less common circumstances where a return may be necessary, for example, if individuals need to complete a SA return to claim certain sorts of relief or to crystallise a tax debt.

HMRC issues a notice requiring an individual to complete a SA return based on the information it holds. Sometimes an individual’s circumstances will have changed, perhaps since they completed their last SA return. As a result, individuals sometimes complete returns which HMRC then processes but which after the event are found to have been unnecessary.

HMRC aims to ensure that only those people whose circumstances make the income tax Self Assessment regime appropriate are included in the requirement to file returns. The closing date for views from interested parties is 16th August 2012.

Until the 5th April 2011 where a bank or building society savings account was held jointly with a spouse HMRC split any savings interest income 50/50 basis. Their view was that any interest a joint account produced must be declared and taxed on a 50/50 basis because the money in joint accounts is equally accessible to both spouses. HMRC did not take account of the underlying economic ownership or financial arrangements between the parties concerned.

From 6th April 2011 HMRC have now changed their view and it is possible for individuals to agree upfront a different split. It is recommended that a written agreement be drawn up recording the terms of the split say for example, 75/25. Ideally it may be more beneficial to allocate more income to the spouse paying a lower rate of tax.

When you make an agreement you can submit a Form 17 election to HMRC stating how the interest is to be allocated for tax purposes.