As the annual filing deadline for self assessment tax returns has now passed, for the year to 5 April 2004, we have offered a few ideas this month for the new year.
Tax Diary February/March 2005
1 February 2005: Due date for corporation tax due for the year ending 30 April 2004.
19 February 2005: PAYE and NIC deductions due for month ending 5 February 2005. (If you pay your tax electronically the due date is 22 February 2005)
28 February 2005: If you pay your balance of tax due for the year to 5 April 2004, AFTER this date, an automatic 5% surcharge will be added to the amount due. Interest will run from the 31 January 2005.
1 March 2005: Due date for corporation tax due for the year ending 31 May 2004.
19 March 2005: PAYE and NIC deductions due for month ending 5 March 2005. (If you pay your tax electronically the due date is 22 March 2005)
Pay your tax by 28 February 2005.
One quick reminder for all non-corporate tax payers. If you were due to pay either the balance of your self assessment tax for the year to 5 April 2004, or the first payment on account for the year to 5 April 2005, then make sure any arrears for the year to 5 April 2004 are settled before the 28 February 2005. (It was due to be paid on the 31 January 2005)
Any tax outstanding for the year ending 5 April 2004, and still unpaid as at 28 February 2005 will attract a penalty of 5% of the tax due.
If cash flow is a problem you could consider the following strategies:
- Even if you cannot clear all the tax due, make a payment on account as this will reduce the penalty charged.
- If your cash flow is timed to improve shortly after the 28 February 2005, you could ask your bank manager to increase your overdraft facility to allow the tax to be settled. You could also use a credit card to provide payment. Obviously you should compare the costs involved but it is likely that interest on your overdraft or credit card will not exceed the 5% tax penalty plus interest that the Inland Revenue will charge.
Classic Cars - company car strategy.
If you have a desire to drive a classic car, and pay for it through your company, read on!
Currently company cars are taxed based on CO2 emissions and list price when new. If you drive a car with high emissions and a list price of say £50,000, up to £17,500 may be added to your income each year. For higher rate tax payers this will cost you £583 per month. Additionally employers will be charged 12.8% class 1A national insurance, £2240!
So what are the rules for classic cars - those 15 years old or more?
If the vehicle has a current market value of over £15,000 the taxable benefit is based on 15% to 32% of the market value, not list price when new. The position is very different if the current market value is under £15,000.
If the current market value of a classic car is under £15,000 your tax benefit may be calculated on the list price when new. It's possible that many of the classic cars of the 1960's, MGs, Triumphs, even Jaguar E-Types, can be purchased now for under £15,000 but would have cost less than £2,000 when new.
At a cost or list price of £2,000 the taxable benefit would be no more than £640 (32%), an increase in a higher rate tax payers monthly dues of £21.33! The class 1A national insurance charge for employers would be £82.
This may be a tactic that works particularly well for drivers who are in a position to have a second company car - but your company will have to take into account higher repairs and fuel costs!
If you do run a classic car, we advise that we separately evaluate your paying for your own private fuel. If your company pays for any of your fuel for non-business use - even £1 worth(!) then standard scale tax charges will apply - this will be calculated at a rate between 15% - 32% x £14,400. This tax charge needs to be balanced against the cost of the fuel, taking VAT and VAT scale Fuel Charges into account.
Husband and Wife companies
The Inland Revenue are continuing to look at husband and wife controlled companies.
They assert that any transactions that fail a commercial test can be unpicked, and more tax may be due as a result.
In practice the following arrangements may cause problems:
- Where one spouse does most of the work in the business, but salaries are not split in like proportion. For instance spouse A may do 95% of the work but receives a salary equal to that paid to spouse B.
- Where shareholdings and therefore dividend allocation, do not reflect participation in the business.
If the above circumstances occur in your business the Inland Revenue may seek to treat excessive payments to a spouse as the income of the other. In our example above if A owns 50% of the shares but is involved in 95% of the work running the business, then the Inland Revenue may allocate most of the dividend income of spouse B to the income of spouse A.
This is still an area of UK tax law that is far from certain. A case is presently under appeal that may "encourage" the Revenue to soften their approach.
Please call if you would like more information
Childcare Vouchers - A reminder.
We recommend that employers take a close look at the voucher scheme to be introduced by the Inland Revenue from the 5 April 2005 to support child care. In a recent newsletter we reported:
"From the 6 April 2005 employers will be able to provide financial assistance with child care up to £50 per week per employee. The payment will be free of tax or national insurance as long as the employer:
- contracts with an approved childcarer, or
- provides childcare vouchers for the purpose of paying an approved childcarer.
This scheme is available to all employees, including shareholder/directors. Husband and wife teams can both sacrifice salary of up to £2600 per year and take childcare vouchers in its place. For higher rate tax earners this could save each £1040 per year plus associated national insurance reductions.
If clients would like assistance with the set-up process please contact us.
Printable 'Tax News - February Newsletter 2005' Page
