Working in the UK
Q: I have just arrived in the UK on a 6 month work placement from Canada. I will be living and working in the UK for approximately 6 months over the summer, returning to Canada in August to start University. My employers advised that I would be paying UK income tax on this employment income. I thought I wouldn’t have to pay any tax in the UK, as I am only here for 6 months and not a UK citizen? If I do have to pay, how do I claim back my tax rebate for this period of work before I leave at the end of August?
A: As you are employed by a UK based employer you will be subject to the same standard deduction of Income Tax and National Insurance under PAYE as all other UK based employees, irrespective of where you originate.
When you arrive in the UK you should complete a Form P86 to notify the HM Revenue & Customs of your arrival and before you leave you should obtain a form P85 to notify of your departure. These are vitally important for the authorities to decide on your liability to tax in the UK. They will need to establish your liability to UK income tax on your earnings for the two tax years you are here in the UK. As you are a commonwealth citizen you can claim the normal UK personal tax allowances, which for the 2005/06-tax year is £4,895, and depending on how much you earn, may entitle you to a tax refund for the 2005/06 and 2006/07 tax years.
Providing Employees with Living Accommodation
Q: I have recently been granted 24 hour licence for my public house, and due to the increasing number of hours we will be open I have offered a managers job. Part of the package is that they can live in a flat above the pub. Are there any tax implications I need to consider for this as I am not going to be charging the manager any rent?
A: If you allow an employee to live in accommodation supplied by you, they are liable to a benefit in kind on the annual value of that property. They will however be exempt from this charge if the accommodation is provided for the better performance or proper performance of the job, or is provided for security reasons. Usually in the public house industry the accommodation is supplied for security purposes and assuming the contract of employment specifies this, it will be job related accommodation and exempt from a benefit in kind.
However, if you are also paying the bills for the gas, water, electricity and other ancillary services such as redecorating, on behalf of the manager, he will be assessed on a benefit in kind. This amount chargeable is equal to the lower of: the total of all bills paid or 10% of managers earnings in the tax year. Also, if you provide the flat furnished, then there is an additional benefit based on 20% of the market value of the furniture at the beginning of the tax year that the accommodation is first provided.
Theft of income by an employee
Q: I recently took an extended holiday over the Christmas period and left one of my staff members in charge of my newsagent business. On my return I noticed the report showing the takings, cash expenses and the amounts banked did not reconcile with the till receipts by quite a substantial amount. On speaking to my staff member, she admitted that she had taken the missing amounts, and agreed to repay me. The next day she did not turn up for work and I have been unable to contact her about the debt. The police do not seem that interested in finding her, although they have now logged a theft report. Will I still have to pay over the VAT on the missing monies and is the amount stolen allowable for tax?
A: As you have actually made the sales, HM Revenue & Customs will insist on the relevant VAT being paid over for the VAT period in which the sales were actually made. For tax purposes, as an employee was responsible for the theft, the amounts stolen will be an allowable deduction. However, if your business insurance covers theft and your insurers allow you to make a claim, then only the element which relates to the uninsured loss can be allowed against tax. If you cannot make a claim, and do not receive an insurance payout for the loss incurred then the full amount will be allowed. As the police have filed a report on the matter, you should have received a crime number, which should be kept if the Inland Revenue query the loss in your accounts.
Do I need a PAYE scheme?
Q: I have recently set up limited company but do not wish to take any salary in the first few years to assist the cash flow of my business. I have a number of personal investments which mean I already pay tax at basic rate and can live off the income that these provide for a few years. As I am not paying any wages do I still need to set a up payroll scheme for the company, as the accountant wants to charge me for doing this?
A: You will not need a PAYE scheme until you propose to take salary or begin to employee staff. However, you must also ensure you do not receive any benefit or expenses payments from the company. You may also wish to consider paying a small salary to preserve your entitlement to state benefit and state pensions. Currently this will need to be between £82 and £94 per week. Unfortunately, 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 of £575 over the next 4 years, which should be enough to pay your accountants fees.
The HMRC 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.
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.
Storing VAT invoices, records and returns electronically
Q: I recently upgraded my IT equipment for my business, and now have the ability to store and produce all of my VAT information on my computer system. I usually have boxes of invoices and records relating to VAT each year, can I dispose of these?
A: A business is not obliged to keep VAT invoices and records in any particular format, but they must be kept in one that means they can be readily accessible in to VAT inspectors in a legible form. Records must be kept of all taxable goods and services received and supplied in the course of a business.
HM Customs & Excise has rights of access to VAT-related records on a computer and can check its operation and the information stored – in doing this, they can ask for help from people in a business who are in charge of or who operate the computer or its software.
HMRC suggests that on first registering for VAT a business should notify the local VAT Business Centre if it intends to use a computer for VAT accounting. Businesses like yours also now have the ability to complete VAT returns online using the ‘eVAT’ service, which removes the requirement to complete paper forms. If you pay by an approved electronic method, your business will also receive additional time to make returns and payments.
Amending my income tax return
Q: I rushed the submission of my tax return in January, and realised that I missed off the tax return the interest I received from my bank accounts and dividends received from some investments during the 2004/05 tax year. Can I revise my tax return and will I incur any fines for doing this?
A: Just as the Revenue has the right to repair an obvious error or mistake on a return the taxpayer has the right to amend it, within 12 months of the filing date for the tax return, which in the majority of cases is the following 31 January. The amendment to your tax return may be in the form of a letter detailing the omissions, an amended return, an extra supplementary page that shows the relevant source of income, or an amended supplementary page of one originally submitted with the return.
The Revenue will normally accept an amendment to a return or self assessment under Section 9(4)(b) of the Taxes Management Act, whether it is notified by the taxpayer or by their agent. However, you must ensure the amendment is supplied in writing.
No penalties for late filing will be applicable, but you need to be aware that if the amendment results in additional tax to pay you will be charged interest from the due date of payment, which in your case was 31 January, and may be liable to a 5% surcharge if this is not paid by the end of February.
Charities and VAT
Q: I am forming a charity to provide funds for a local hospice. Am I right in thinking that because we are a charity, we will not be charged VAT on the equipment we donate?
A: I’m afraid that just being a registered charity does not entitle you to VAT exemption. If the charity registers for VAT, which it must if its business activities exceed the usual VAT registration limit, which is currently £60,000, then it will be able to reclaim the input VAT charged on purchases. However, some items you may supply carry a reduced rate of 5%, and some have no VAT charged on them at all. Examples may include some advertising services and certain equipment supplied in caring for the disabled. You should speak to your accountant who will be able to supply more details on the rate of VAT, which applies to the sales you make.
Information required for payroll
Q: I have recently secured some larger contracts for my business and need to take on some employees. I will not have time to calculate the weekly wages and tax deductions for my staff and I would like to get some help with this. I understand that there are bureaus that will do this for me. What sort of information will they need?
A: There are indeed bureaus that will manage your payroll – as indeed an accountant can, and it may be worth getting quotes for carrying out this work before you proceed. You may be pleasantly surprised! Whichever route you choose, you will need to supply the full name, address, sex, tax code, date of birth, national insurance number, national insurance letter, gross pay to date, tax paid to date and the totals from columns 1a to 1e on the from P11 that you must be using currently for each of your employees. The bureau or accountant you choose should send you a pro forma to use, ideally two or three weeks before you need to commence - and can supply it in good time for the payroll to be processed without disrupting expected pay dates.
You should also consider if the accountant or bureaus can offer to deal with this electronically, as this will save you even more time, and if they file your end of year form P35 online from the 2005/06 tax year onwards, you should qualify to a tax free lump sum of £575 over the next 4 years.
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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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