Numerico Chartered Certified Accountants

HM Revenue & Customs has announced that it will increase the tax-free amount that employers can pay to its employees for working from home - for "reimbursing sundry household expenses" from £3 per week to £4 per week from 6 April 2012.

Whilst higher amounts can be paid, this is the level which HMRC categorically states can be paid without any Income Tax or NIC cost, or any evidence/records required of the additional cost incurred by the employee.

From 6th April 2012 HMRC can collect unpaid self-assessment bills, personal PAYE underpayments and Tax Credit overpayments by taking it out of your salary. HMRC are allowed to do this where a tax bill is fully or partly unpaid and the amount owing is less than £3,000. This will be achieved by amending your PAYE code number for a complete tax year and so in effect will spread the payment of the bill over twelve months.  But where the bill is in dispute, you can insist that the adjustment is removed.

Any interest on the unpaid amounts can’t be collected through your PAYE code.  Instead HMRC will demand a direct payment.

The new collection method shouldn't be confused with the long-standing arrangement which allows you to spread a PAYE or self-assessment tax liability by adjusting your code. The new rule which comes into force in April only applies where a tax bill has become overdue.

The 31 October deadline for paper returns is only days away, HMRC is urging individuals and businesses to get their paper tax returns in on time, or face a penalty. New penalty regime was introduced this year and paper tax returns submitted on or after 1 November will now incur a £100 penalty – even if there is no tax to pay or the tax due are paid on time. The longer the delay, the more there will be to pay, as there are further late-filing penalties after three, six and twelve months as follows:

• an initial £100 fixed penalty, which will now apply even if there is no tax to pay, or if the tax due is paid on time;

• after three months, additional daily penalties of £10 per day, up to a maximum of £900;

• after six months, a further penalty of 5% of the tax due or £300, whichever is greater; and

• after 12 months, another 5% or £300 charge, whichever is greater. In serious cases, the penalty after 12 months can be up to 100% of the tax due.

So act now or... consider filing your return online. Filing Online has a number of advantages, such as later deadline – 31st January; you will get an immediate online acknowledgement and your return is processed faster, so any money owed to you is repaid more quickly.

HM Revenue & Customs launched its "Mortgage Verification Scheme" on 1 September.

HMRC hasn't publicised the launch of the Scheme through the normal channels there haven't been any Press Releases issued, or any announcements on its website.  In fact the only useful reference to the "Income Verification Scheme" that could be found was one paragraph under their 2010 Budget Announcement Tax Gap, Evasion and Fraud.

“Colin Barclay, Assistant Director, HMRC Risk and Intelligence Service, said "HMRC are determined to tackle fraud wherever we can. The Mortgage Verification Scheme is an unprecedented opportunity for HMRC and lenders to work together to combat fraud in the mortgage industry."'

The Risk and Intelligence Service is the department that launched the Plumbers' Tax Safe Plan and the current VAT Campaign, and will be starting the campaigns for those who provide private tuition and coaching,  and next year e-commerce trading.
HMRC has confirmed that mortgage lenders will be providing that department with the income details included in mortgage applications, and that "this information will naturally feed in to" their risk assessment processes.

Whilst mortgage lenders will understandably be concerned to ensure that lending is based on accurate income details, HMRC will of course be keen to investigate any apparent discrepancies between stated income levels for mortgage applications and those reported for tax purposes.

The Association of Residential Letting Agents (ARLA) has reported that three-quarters of agencies had more prospective tenants on their books than properties to let.  Just two years ago only one in ten of agents had a surplus register of tenants.  One reason for the surge in demand for rental properties is the difficulty that many people are experiencing in finding properties to buy.

Ian Potter of ARLA said: "Faced with this, many people are turning to rental homes as a more flexible option than buying.

"Yet our research highlights that the dearth of properties is just as real in the private rented sector and is showing no signs of improvement."

Government figures appear to substantiate the findings of the latest ARLA survey. According to data published by the Department of Communities and Local Government, over the past five years rental occupancies have climbed by 40 per cent, from 2.4 million in 2005 to 3.4 million in 2010

According to the new fiscal sustainability report from the Office for Budget Responsibility (OBR), the greater numbers of higher earners there are in the UK the better it is for the public purse.

Since the UK operates a progressive tax regime - the richer pay more than the poorer - the OBR said that every one per cent increase in the overall share of wages which goes to the top 5 per cent of earners means that the state benefits to the tune of £2.4 billion.

From 2000 to 2008, that top 5 per cent of earners saw their take of the wages available in the UK climb from 23.3 per cent to 26.4 per cent of the total. This produced an additional £7.2 billion in tax revenues.

The OBR report stated: "If the recent trend of increasing income inequality were to continue it would potentially drive an increase in personal tax receipts. Conversely, a reversal of income inequality would lead to a fall in revenues

Personal Taxes

• The main headline in the Budget is the consultation about the proposed merger of National Insurance Contributions and Income Tax.  This would be a radical change and it will take some time to formulate.
• Class 2 NIC will be collected on 31 July and 31 January in the future. Although these are the same dates for payments under self-assessment they will be collected separately. This also appears to be the start of the merger.
• There is a £1,000 increase in the basic personal allowance for income tax for those aged under 65 from £6,475 in 2010/11 to £7,475 in 2011/12 – this is the amount of income most people can have before they start to pay tax.
• The income tax personal allowance is to rise by a further £630 next year, as part of the Coalition's commitment to lift more low earners out of the income tax regime, taking it to £8,105 in 2012/13. 
• National Insurance rates have increased by 1%. This means that employees now pay a primary rate of class 1 NIC of 12% (up from 11%) and the self-employed pay class 4 NIC of 9% (up from 8%). But this increase is offset for those on lower incomes by increases in the lower limits you can earn before starting to pay them - £139 a week for employees and annual profits of £7,225 for the self-employed.
• The approved mileage allowance payment rate will increase by 5p per mile from April. That means that the first 10,000 miles claim is at 45p with 25p thereafter.  This transforms into £500 of tax free mileage for high mileage drivers. 
• The income tax relief available for investments into EIS will increase to 30% from April and the thresholds for EIS and VCT investments will increase in April 2012 subject to State Aid approval from the EU.
• It has been confirmed that the annual allowance for tax relief on pension contributions is reduced from £255,000 to £50,000 from April 2011.
• The ceiling for entrepreneur’s relief is increased to £10 million.
• Although the IR35 regime is to remain, the Government has pledged to improve the way it is administered.

Business Taxes

• Corporation Tax - from April 2011 the main rate of tax will reduce to 26% and with further annual reductions the rate will be 23% from 2014. The small companies’ rate will reduce to 20% from 1 April 2011.
• Capital Allowances – as previously announced Writing Down Allowances rates will reduce from 20% to 18% on the main pool and 10% to 8% on the special rate pools from 2012. The length of a short life asset pool is to be increased to 8 years from the current 4.
• It has been confirmed that the Annual Investment Allowance relief will be reduced in April 2012 from £100,000 to £25,000.
• 21 new Enterprise Zones are to be introduced. There will be a focus in giving enhanced capital allowances for high value manufacturing in these areas.
• VAT filing is set to become compulsory for every registered business.  As from 1 August 2012, online registration for and deregistration from VAT will be compulsory for all.  VAT registered businesses with a VAT exclusive turnover under £100,000 per annum will be required to file returns online as from 1 April 2012 (previously this rule has only applied to those businesses with an annual, VAT exclusive turnover exceeding £100,000 and newly registered businesses).

Charitable Giving, Savings and IHT

• To encourage charitable giving and to support the voluntary sector, the rate of inheritance tax for those who give 10 per cent of their estates to charity is to fall from 40 per cent to 36 per cent from April 2012.
• The Gift Aid benefit limit climbs from £500 to £2,500 from April 2011.  From April 2013 charities and CASC’s will be able to claim gift aid on small gifts (£10 or less) without gift aid declarations, subject to a £5,000 donation limit. HMRC will also be moving the claims to an online form from 2012/13.
• The ability to donate tax refunds through the self-assessment return will stop.
• ISA’s for under 18’s are to be introduced from autumn 2011. It is not clear if there will be a restriction on these as to the source of the funds, in terms of parental gifts, as there are with the usual investments for minor children. We await the detail.

HMRC has produced another toolkit – a record-keeping toolkit which is aimed at telling businesses how they should keep their records. However be warned that this isn’t just another helpful guide!

HMRC has just finished a review of the level of penalties it can charge where it believes a business doesn’t keep adequate records. The maximum fine is £3,000 and tax inspectors will be carrying out an extra 50,000 random tax investigations this year in the hope of raking in some cash.

Take a look at the guide just in case. Even if you’re unlucky enough to be selected for an investigation, if you follow the rules HMRC would find it difficult to justify a fine.

http://www.hmrc.gov.uk/factsheet/record-keeping.pdf

The deadline for using your annual ISA investment allowance is April 5th.  If it is your intention to invest money into an ISA before the end of this tax tear make sure you leave sufficient time to do so. 

In recent years many investors have found their money stranded in no-mans-land because the banks etc. have struggled to process new ISA applications made within the final week or so before the cut-off date, meaning that the investments can’t qualify for the tax-free status.

HM Revenue & Customs has launched the Plumbers' Tax Safe Plan which is primarily aimed at small traders working in plumbing, heating and gas installation sectors.

However, it is please note that the scope of the Plan is much broader than this and any business is potentially eligible and not just in the Home Improvement sector.  The Plan is available to companies as well as to individuals and initial investigations indicate that even people without a business may also use the scheme.

The main benefit of the Plan appears to be the offer of significantly reduced penalty rates - 10-20%

The Plan is following a similar schedule to previous opportunities/schemes: notifying HMRC that a disclosure will be made (by 31 May) and then disclosure itself. (By 31 August).