Employed and Self Employed in the same year
Q: My work in the building industry involves a mixture of short periods of work for an employer under Pay As You Earn and periods of self-employment within the same year. Is it necessary for me to register for self employment on a contract by contract basis?
A: You will initially have to become registered for Self-Employment using form CWF1 and as a subcontractor for CIS (Construction Industry Scheme). The easiest way is to register is to call the Self–Employed
Registration Helpline on 08459 15 45 15, or visit www.hmrc.gov.uk.
To register as a subcontractor you should contact your local HMRC office. The HMRC will then give you a Registration Card for the Construction Industry Scheme. There will be no need for you to re-register on a future occasion unless you notify the HMRC that you have ceased self-employment on a permanent basis and finalised your Self Assessment affairs and now wish to re-start.
Engaging a Subcontractor
Q. I have recently had a substantial increase in the work of my Construction Industry business and need to take on someone else to help. Im not sure how long this will last so I have decided to take a subcontractor on for a continuous period of 3 months to cover this period. If this arrangement continues further will I have to make them an employee?
A . Not necessarily. The length of time that a subcontractor is engaged is not in itself a determination as to their employment status. However, a lengthy spell could indicate that a contract may not be one of self-employment but that of employment. Employment status is not a matter of choice. You or the subcontractor cannot simply decide to treat your working arrangements as either self-employment or employment. The circumstances of the engagement determine how it is treated.
People are self-employed if they are in business on their own account and bear the responsibility for their business's success or failure. There are a number of pointers which would indicate whether or not your worker is self-employed and these can be found on the HMRC website in booklet IR148. If it points towards an employment arrangement you must operate the correct PAYE Income Tax and National Insurance deductions.
Energy Efficient Machinery Investment
Q: I am looking to purchase some new equipment for my business and the supplier has advised that the type of product I am purchasing qualifies for First Year Allowances at 100%. Is this true?
A: In 2001 , the government introduced a scheme which allows businesses investing in qualifying energy saving plant and machinery investments to reclaim 100% Capital allowances on the expenditure incurred. A joint venture was then developed between the HMRC , DEFRA and The Carbon Trust, which is an independent company funded by Government. Their role is to help the UK to a low carbon economy by helping business and the public sector reduce carbon emissions now and capture the commercial opportunities of low carbon technologies that are being developed.
Various types of expenditure will qualify for the 100% allowance, if it meets the required energy-saving standards as outlined on the by the Enhanced Capital Allowances scheme.
To see if your item qualifies for the increased allowance, visit www.eca.gov.uk . Claims for Enhanced Capital Allowances are made in the same way as other capital allowances on the Corporation Tax Return for companies and the Income Tax Return for individuals and partnerships.
Each year the government adds further items to this list in their annual budget update. Your accountant will be able to advise on this further.
Records Stolen in Burglary
Q: I didn’t file my tax return as part of my records were stolen in a burglary at my business premises. Should I have sent in an estimate of income/expenditure to the Inland Revenue or should I wait to see if the documents can be recovered?
A: The HMRC advise that you should not delay sending in your tax return just because you do not have all the information you need. If you feel that there may be the possibility that you can recover the information then you should submit your return with provisional figures, and advise the HMRC when you expect to be able to file actual figures. You must ensure that figures you provided are reasonable and take account of any information that is available for the same period.
If you feel that the records are unlikely to be recovered you should submit estimates for the period which is missing. Once again these need to be reliable estimates, and you should be aware that HMRC obviously reserve the right to investigate and ensure the figures are reasonable and consistent with similar trades and previous years figures.
Make sure that if your estimates give rise to a tax liability, you pay your tax by the 28 th February, as this will ensure you do not receive a 5% surcharge on tax unpaid. If you then find your records and submit the actual figures at a later date which increases your tax liability, you will still receive the surcharge on any amount unpaid at 28 February. On this basis you must ensure that any provisional or estimated figures are reliable.
Business clients should really be advised to ensure suitable back up procedures are in place to prevent problems such as this occurring. Duplicate bank statements can always be obtained as a last resort to substantiate reported figures.
Interest and Surcharges on tax unpaid
Q: I filed my tax return before Christmas but due to cashflow problems I did not pay the tax I owed by the deadline of the 31 st January. Will I still receive a late filing penalty of £100?
A: You will not receive the £100 penalty as you have filed your tax return before the 31 January deadline, but as you haven’t paid your tax liability for the 2004/05 tax year, the HMRC will have already started to charge you interest on a daily basis starting from 00.00am on 1st February on the tax unpaid. Currently interest is being charged by the HMRC on late payment of tax at a rate of 6.5%.
You must also try to ensure that you pay the tax you owe by 28 February, as any amounts relating to the 2004/05 tax liability that are still unpaid at this date will receive an initial 5% surcharge. Also, an additional surcharge of 5% will be levied on any tax outstanding if you still have not cleared your 2004/05 tax liability more than 6 months following the filing date, which is the 31 July 2006.
PAYE procedure for the death of an employee
Q: One of my employees recently passed away after a short illness. I have continued paying him up until his death under the terms of his contract, but I don’t know what I need to do with regard to the payroll now?
A: When you learn of the death of an employee you should complete a form P45 as normal for any employees who leave, write D in the box at the bottom of the form, and send all four parts of the form to your Inland Revenue office.
Obviously there may be some of the payments due to this employee made after the date of death. In this situation, you should make the payments of the outstanding wages to the personal representative of the deceased employee. Pay As You Earn deductions will need to be made on this, using tax code BR on any payments after you have completed the form P45 as advised above. Also all payments made after the date of death should continue to be detailed on the PAYE working sheet (form P11)
If the payments you are making fall into a later tax year than the one in which your employee died, you should deduct PAYE using the code BR and record details on a new form P11 in the name of the deceased employee. Again these payments should be made to the personal representative of the deceased.
VAT Annual Accounting Scheme
Q: I registered for VAT over a year ago, but have encountered problems dealing with the VAT returns every quarter for my business. I think I will find it much easier to deal with VAT administration of my business all at once rather than every three months, which I find quite time consuming. Is this possible?
Yes it is. HMRC have three simplified accounting schemes for small businesses, one of which is the “Annual Accounting” scheme. It is open to businesses with an annual turnover not expected to exceed £150,000 (meaning they can join on initially registering for VAT), and to businesses with an annual turnover not expected to exceed £660,000 and already registered for VAT for at least 12 months.
Under the ‘Annual accounting’ scheme, you only actually need to file one VAT return instead of four, and it will enable you to manage your cash flow with more certainty, as you are required to pay over a fixed amount of VAT per month. However, one scheme requirement is that these payments must be made be made electronically. It also gives you an extra month to complete and send in the annual VAT return and any balancing payment due.
To register for the Annual Accounting scheme you will need to send in an application to a VAT Registration Unit. For further information on the scheme and registering, you should speak to your accountant.
Stamp duty implications on exchanging properties
Q: A friend of ours has offered to part exchange their property for our smaller property. Our house is currently valued at £105,000 and theirs is £145,000. We have agreed to pay £40,000 cash to cover the difference. Do we still have to pay stamp duty, and are any relief’s available?
A: Unfortunately, the transfer is still liable to Stamp Duty Land Tax (SDLT) in full. You will effectively be purchasing the property for £145,000 by way of £40,000 cash (known as 'equality money') and £105,000 house transfer. The SDLT payable by you on this transaction will be based on the full £145,000, and as the chargeable consideration exceeds the nil rate threshold of £120,000, you will be liable to pay SDLT of £1,450 under the current rate of 1%.
However, you should check to see if the property qualifies for disadvantaged area relief. For residential transactions this is still available, and as the value of the property is less than £150,000, you will not be required to pay any SDLT.
The transaction for your friend is also chargeable to SDLT, but under the current rates which became effective on 17 th March 2005, you friend will not have anything to pay, as transactions up to £120,000 are at zero %.
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By TaxAssist Direct Ltd. Both answers and advice are offered strictly on the basis that no legal liability is created thereby. Personal circumstances may vary and TaxAssist Direct Ltd advises that individuals seek personal professional advice in all situations.
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