Can’t Pay Your Tax Liability?
Q: My accountant filed my tax return before Christmas but due to cashflow problems I do not think I will be able to pay the tax I owe by the deadline of 31st 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. Penalties are only charged if you haven’t filed your return. However, as you haven’t paid your tax liability for the 2006/07 tax year by this date, HM Revenue & Customs will begin to charge you interest on a daily basis starting from 00.00am on 1st February on the tax unpaid. Currently interest will be charged by HM Revenue & Customs on late payment of tax at a rate of 7.5% with effect from 6 January 2008 .
You must also try to ensure that you pay the tax you owe by 28 February 2008, as any amounts relating to the 2006/07 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 2006/07 tax liability more than 6 months following the filing date, which is the 31 July 2008.
If you are due to make payments on account towards next years 2007/08 tax liability, you will not receive a surcharge or penalty if you don’t make payment of these, but you will be charged interest from the due date of payment, which is 31st January 2008 and 31st July 2008 respectively.
Can I take My Tax Return to any Tax Office?
Q: I am still in the process of trying to complete my tax return and do not want to miss the 31st January deadline. I have yet to pay my tax liability and wondered if I would I still have to pay the late filing penalty if Royal Mail delivered the return late?
A: I am afraid you would as it is your responsibility to ensure the return is filed on time. The only time HMRC reduce a penalty due to a postal delay is when the return was posted in good time, and an unforeseen event occurred which disrupted the normal post service, which has led to loss or delay of the return. Examples include a fire or flood at the Post Office where the return was handled or prolonged industrial action by the Post Office staff.
However, they will allow you to take it into your nearest HM Revenue & Customs office as they are bound to accept it, whether it will eventually be processed there or not.
Unfortunately, new guidelines issued this year mean HMRC will not now issue receipts for hand delivered tax returns. On this basis, if you want proof of delivery you may be better advised to post the return either by recorded or special delivery to ensure receipt, as HMRC have confirmed that it is now departmental policy to sign for items received in this way.
Records Destroyed by Fire
Q: I have yet to file my tax return as part of my records were destroyed in fire at my home. Should I send an estimate of income/expenditure to the Inland Revenue or should I wait to see if the documents can be recovered?
A: HM Revenue & Customs 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.
If you run a business, HM Revenue and Customs do advise you to ensure suitable back up procedures are in place to prevent problems occurring with your records. Duplicate bank statements can always be obtained as a last resort to substantiate figures you have reported.
Employee Telephone Calls over Christmas
Q: Over the Christmas period, some of my employees were required to be on call 24 hrs per day, and consequently use their personal mobile phones to make business calls. How should I reimburse these employees for the cost of the business calls they make?
A: Where this is the case, Class 1 NIC and tax are payable though PAYE if you;
1. reimburse the cost of the mobile telephone, service charges or the cost of private calls
2. provide the employee with a voucher for use in relation to the mobile telephone or private calls made on it.
Where you reimburse the costs incurred by an employee in making business calls only on his or her own mobile telephone, you can ask for a dispensation from the HMRC. If you do not have a dispensation you must return the full cost you have incurred on reimbursing the calls on form P11D at section N.
No Class 1 or Class 1A NIC is payable on items included in section N of the p11d, but tax is deducted by making an adjustment to the employees PAYE code. The employee can then apply to the HMRC to advise that the payment is for expenditure incurred in the course of their employment and claim a refund for tax paid on this.
An alternative option you have is to provide these employees with a mobile telephone and enter into a service agreement with the telephone company. Then there would be no liability for NIC or tax, even if the employees use it for private use. This applies to the provision of the telephone, the service and all calls.
Capital Gains Tax loss on selling a house
Q: The house prices in the area in which we live seem to be dropping. We recently purchased a property and want to know if we move and the selling price less costs is less than the original purchase price, will we be able to claim a Capital Gains Tax loss?
A: The largest capital gain that most individuals are likely to realise is on the disposal of the house in which they live. The exemption from tax on capital gains arising on the disposal of an individual’s sole or main residence has remained largely unaltered by successive governments since the introduction of capital gains tax in 1965 as a means of encouraging home ownership and assisting greater mobility of the nation’s workforce.
The exemption has survived, despite some individuals being able to make significant tax-free profits over a short period of time during a period of spiralling property prices. Conversely, when property prices are falling, losses made on the sole or main residence are not available to offset against capital gains realised on other chargeable assets.
However, if the property is a buy to let, the main residence exemption will not apply, so in the same way that you would be charged tax on a capital gain tax loss, you can claim relief against future capital gains profits for any losses which you incur. You should note that relief is only given against Capital Gains profits, so you cannot unfortunately claim tax relief against the income tax you have paid on your employment, or self employment.
Compulsory Purchase of Land
Q: I own a small piece of arable land which is about to be compulsory purchased by the government to build a bypass. Can you explain whether I will have any tax to pay on this?
A: If your land is compulsorily purchased, you are subject to Capital Gains Tax in the normal way. You will need to determine the date of disposal so you can decide on which tax return you must show the purchase, with an apportioned cost derived from the original cost the land you own.
There are some special rules which may enable you to minimize your CGT liability, which includes where the land compulsorily acquired is only part of a larger holding of land, you can claim small part disposal relief if the amount doesn’t exceed £3,000 or 5% of the value of the whole piece of land you own.
In some situations, the payment you receive also includes an element of interest which is paid on top of the agreed sale price. If this is received you will be charged income tax on this, and need to ensure it is shown on page 3 of your tax return.
You may, in certain circumstances, also allow for any gain arising to be rolled-over against the acquisition of new land and your local TaxAssist Accountant will be able to advise further.
Do I need a PAYE scheme?
Q: I have recently set up a limited company but as I have paid tax in this tax year my accountant has suggested not to take any salary until April 2008. As I am not paying any wages do I still need to set a up payroll scheme for the company now?
A: You do not legally need a PAYE scheme until you propose to take salary or begin to employee staff. When you decide to start taking a salary or employee a staff member you should contact the employers helpline or your local HMRC office immediately to re-set up a PAYE scheme. However, you must also ensure you do not receive any benefit or expenses payments from the company in this period.
HM Revenue & Customs will normally set up a PAYE scheme once it receives the new company notification form (CT41G). This is because they assume that all companies will have at least one director and normally (though not inevitably) that director will receive salary which should be subject to PAYE deductions. If no salary or wages are being paid, the HMRC suggest that a covering letter is submitted with the form (or on receipt of the end of year form (P35)) which highlights this and they will update their records to show no PAYE scheme is required.
Although you have used you personal allowance against other income in the year, you may wish to consider paying a small salary to preserve your entitlement to state benefit and state pensions. Currently this will need to be between £87 and £100 per week.
If you do have a scheme set up, you will still need to file end of year forms P35 and P14, but if you do it online you will benefit from the tax free filing incentive, which may pay some of your accountants fees to file the return.
Refund Of Reclaimed VAT
Q: Last year we refurbished the kitchen in a small café business we run, reclaimed the VAT on the work done. The business has now decreased to an extent where we can deregister for VAT. If we deregister will we have to refund the VAT claimed on the refurbishment?
A: When you deregister there is a requirement to assess the value of the stock and any equipment you have on hand at the date of deregistration. If the market value of these produces a VAT bill of more than £1,000, (which means the market value when new of the assets held must be more than £6,714.28) then you will need to make payment to H. M. Customs & Excise.
It would appear that the VAT would have been paid on the building work, which because the business is continuing, would be classified as a service. Thus the VAT is not repayable on this element of the costs you incurred.
You must also ensure that even after deregistration, you retain the records you have kept whilst you were VAT registered for a period of 6 years, in case the HMRC want to look at any VAT you have previously reclaimed.
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