Please do get in touch if you would like further information about the Construction Industry Scheme (CIS). Whether you are a contractor or a subcontractor, at Adiva Accountants in London we can advise on the CIS for your business in Bromley, Kent and London.
The whole CIS system is backed up by a series of significant penalties. These penalties cover situations in which an incorrect monthly return is sent in negligently or fraudulently. Or for failure to provide CIS records for HMRC to inspect and incorrect declarations about employment status. Penalties are triggered by late returns under the CIS scheme as follows:
- a basic penalty of £100 for failure to meet due date of the 19th of the following month
- where the failure continues after two months after the due date, a penalty of £200
- after six months, the penalty rises to the greater of 5% of the tax, or £300
- after 12 months, the penalty will again be the greater of £300, or 5% of the tax
- where information is withheld deliberately, the penalty is 70% of tax, or £1,500 if greater
- where the withholding of information is deliberate and concealed, it will be 100% of the tax, or £3,000 if greater
- where the return is 12 months late, but the information only relates to persons registered for gross payment (so no tax deduction was due). The penalty will be £1,500 for deliberate withholding without concealment, and the penalty will be £3,000 for deliberate and concealed withholding of information
- where a person has just entered the CIS scheme penalties will be restricted to a maximum of £3,000 in certain circumstances
If you need help with penalties, or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to help you.
There are three requirements for subcontractors to be paid gross. They include a business test, a turnover test and a compliance test. To qualify for gross payment a subcontractor must:
- have paid their tax and National Insurance on time in the past
- do construction work (or provides labour for it) in the UK
- run the business through a bank account.
The turnover for the last 12 month (ignoring VAT and the cost of materials) must be at least:
- £30,000 for a sole trader
- £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership
- £30,000 for each director of a company, or at least £100,000 for the whole company
If your company is controlled by 5 people or fewer, you must have an annual turnover of £30,000 for each of them.
Subcontractors not registered with the HMRC will suffer the higher rate deduction (30%) from any payments made to them by contractors.
The contractor has to contact HMRC to find if he should pay a subcontractor gross or net. You don’t have to verify all the subcontractors all the time. You would normally verify only the new ones. The verification procedure will establish which of the following payment options apply:
- gross payment (no deductions made)
- a standard rate deduction of 20%
- a deduction made at the higher rate of 30%, if the subcontractor has not registered for CIS with HMRC. Or cannot provide accurate details to the contractor and HMRC cannot verify them.
HMRC will give the contractor a verification number for the subcontractors which will be matched with HMRC’s own computer. This number will be the same for each subcontractor verified at any particular time. Subcontractors who cannot be verified will have special suffixes for the numbers. The numbers are also shown on the payslips issued to the subcontractors and on contractors’ monthly returns.
These numbers are important and contractors have to ensure that they have a good system in place for obtaining and retaining them. It is crucially important to give precise details to HMRC. As the higher rate deduction (30%) will have to be made, if their computer does not recognise the subcontractor. Mandatory online verification of subcontractors will be introduced from 6 April 2017.
The contractor will not have to verify the subcontractor if they have already included them on any monthly return in the two previous tax years.
Payslips
All subcontractors have to be provided with at least a monthly ‘payslip’. It should show the total amount of the payments and how much tax, if any, has the contractor deducted from those payments. Payslips can have different styles, but certain specific information has to be provided including the:
- contractor’s name and their employer tax reference
- subcontractor’s name, unique tax reference or specific subcontractor reference
- tax month to which the payment relates
- the gross amount of the payment
- cost of any materials which have reduced the gross payment
- amount of any tax deductions made and
- verification number where deduction has been made at the higher rate of 30%.
If contractors include such payments as part of their normal payroll system, it has to be clear that they are classed as self-employed.
If you need help with the payroll of the subcontractors, or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to assist you.
Not always. The items below should be excluded when entering the gross amount of payment on the monthly return:
- VAT charged by the subcontractor (if the subcontractor is registered for VAT)
- any Construction Industry Training Board levy.
Furthermore, when working out the amount of payment from which the deduction should be made, the following items should be deducted from the gross amount of payment:
- what the subcontractor paid for materials including VAT paid (if the subcontractor is not registered for VAT). Plus consumable stores, fuel (except fuel for travelling) and plant hire used in the construction operations
- the cost of manufacture or prefabrication of materials used in the construction operations.
The gross amount of payment and the amount from which the deduction is made should include any travelling expenses (including fuel costs) and subsistence paid to the subcontractor.
The deadline for paying over the deductions
The deadline for the contractors to pay over all deductions made from subcontractors is by the 19th following the end of the tax month to which the deductions relate. The deadline would be 22nd, if payment is being made electronically, or the next earlier banking day when the 22nd is a weekend or holiday. Often the contractor is a company which operates as a subcontractor and has deductions made from its payments as a subcontractor. In these circumstances, the deductions made may be set against the company’s liabilities for PAYE, NI and any CIS deductions it is due to pay over.
Subcontractors
A subcontractor will need to register for the CIS when first starts working in the construction industry on a self-employed basis. The registration is carried out by the subcontractor who needs to contact HMRC by phone or online.
If you need help with the registration of the subcontractors, or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to help you.
The compliance requirements of the Construction Industry Scheme (CIS) need to be dealt from all those working in the construction industry. At Adiva Accountants in London, we can assist you to comply with the requirements of the Scheme for your business in Bromley, Kent and London.
The Construction Industry Scheme (CIS) sets out special rules for tax for those working in the construction industry. The CIS applies to construction work and also jobs such as alterations, decorating, repairs and demolition. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’. They may be self employed individuals, companies, or partnerships.
Contractors and subcontractors
Contractors can include construction companies and building firms, but also local authorities and government departments. Any business which operates in CIS and spends more than £1 million a year on construction is classed as a contractor. Subcontractors are those businesses that carry out work for contractors. Actually, many businesses act as both contractors and subcontractors.
CIS returns
Online monthly returns must be submitted to HMRC by contractors confirming the following:
- that the verification process has been correctly dealt with
- that the employment status of subcontractors has been considered
- payment details made to all subcontractors and
- any details of tax deductions made from those payments
The monthly return relates to each tax month (ie running from the 6th of one month to the 5th of the next). The deadline for return submission is 14 days after the end of the tax month. A Nil return should be submitted where a contractor has not made any payments to subcontractors in a tax month. This will avoid penalties that HMRC can issue for failure to make a return. Even if the contractors are entitled to pay their PAYE quarterly, still they must file their returns monthly.
Identification
When they enter into a contract, subcontractors must give contractors their name, unique taxpayer reference (UTR) and national insurance number (or company registration number). The contractor should be satisfied that the subcontractor is genuinely self-employed, then follow the ‘verification’ procedure explained below.
If you need help with the CIS monthly returns or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to help.
The contractor must consider the status of the subcontractors and to be satisfied that none of those listed on the return are employees. Penalties of up to £3,000 can be imposed by HMRC, if contractors negligently or deliberately provide incorrect information. It’s important to note that employment status is not a matter of choice. The specific circumstances of the engagement determine how it is treated.
The issue of the status of workers within the construction industry is very important. Over the years HMRC have been making efforts to re-classify as many subcontractors as possible as employees. Different factors are considered by the courts over the years in deciding whether a worker is self-employed or employed. The tests which are applied include:
- the right of control over how, what, where and when the work is done. The more control that a contractor can exercise over the above, the more likely it is that the worker is an employee.
- whether any equipment is necessary to do the job, and if so, who provides it
- the basis of payment – whether an hourly/weekly rate is paid. Whether there is any overtime, sick or holiday pay, and whether invoices are raised for the work done
- whether the worker provides a personal service, or whether a substitute could be provided to do that work
- whether there is a mutuality of obligation. That is, an ongoing understanding that the contractor will offer work and the worker accept it
- whether the worker is part and parcel of the organisation, or whether they are conducting a task which is self-contained in its own right
- what the intention of the parties is. Whether there is any written statement that there is no intention of an employment relationship
- whether the workers have any financial risk.
So, there are a number of factors which must be considered as to whether somebody should be classified as employed or self-employed.
The employment status indicator tool is available on HMRC website, to help address this matter. However, the software appears to be heavily weighted towards re-classifying subcontractors as employees. Please talk to us, if you have any particular concerns in this area and if this is a major issue for your business. It is obvious that HMRC would like subcontractors to be classed as employees, as this means that more tax and national insurance is due. However, just because the HMRC tool suggests that somebody is an employee, it does not necessarily mean that they are correct.
If you need help with the status of the subcontractors, or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to assist you.
Under the cash basis, if your business incurs a loss, this can only be carried forward and set against profits of the same business in future years. This is a restriction on the normal rules, which will allow the loss to be carried back or set off ‘sideways’ against other income. Special calculations are needed on entering or leaving the cash basis. This is to make sure that income is taxed and expenses are relieved ‘once and once only’.
The cash basis rules for the self-employed and partnerships can be quite complex. If your business is in Sidcup, Bromley, Kent, London and nationwide we can help and advice in the most appropriate option for your business. Please do contact us at Adiva Accountants in Sidcup, if you would like further help or advice.
In terms of deductions allowable, apart from being incurred wholly and exclusively for the purposes of the trade. The expenses must have been actually paid in the accounting period.
No deductions are generally allowed for items which are of a capital nature such as the purchase of property, when calculating the taxable profits. However, under the cash basis the costs of most plant and machinery are deductible. One key exclusion is the purchase of cars.
Relief for interest payments
A maximum of £500 can be claimed if you have a business loan or overdraft only interest payment. If you wish to claim more interest as a deduction, then this could be treated as a change of circumstances. As a result, you will have to prepare your accounts on the accruals basis.
We will cover below the unincorporated businesses. We will focus at the optional rules which allow small unincorporated businesses to use the cash basis rather than the accruals basis to calculate their profits for tax purposes. If your business is in Sidcup, Bromley, Kent, London or nationwide we at Adiva Accountants in Sidcup can help by looking at whether this is an appropriate option for your business.
Accruals basis and cash basis
When using the accruals basis, the credit sales are included in the accounts income. This is regardless if the customer has paid or not for the goods or services by the end of the accounting period. But, when using the cash basis, the business income includes only the cash receipts received during the accounting period. So, under the cash basis credit sales are accounted for and taxed not when raised, but in the year in which they are paid for by the customer.
Eligibility
The main entry criteria to use the cash basis are that your business is unincorporated (sole trader or a partnership). And that your receipts in the accounting period are less than the VAT registration threshold in force at the end of the relevant tax year. The current VAT registration threshold is £83,000 (from 1 April 2016, previously £82,000). The threshold is set at twice the VAT registration threshold for those individuals who intend to make a Universal Credit claim.
Limited Liability Partnerships, Lloyd’s underwriters and those eligible individuals who wish to continue to claim averaging of profits, like farmers are excluded from using the cash basis.
Unless the business grows too large, or there is another ‘change of circumstances’ the individual once elected to use the scheme will generally have to remain in the scheme.
Important tax points
Cash receipts
Cash receipts include all cash receipts that the business receives during the accounting period. Apart from the trading income, this will also include the proceeds from the sale of any plant and machinery. Any amount still unpaid from the customers by the accounting year end, will not be taxable until it is actually received by the business.
If your business is in Sidcup, Bromley, Kent, London or nationwide we can help and advice on the best option for your business. Please do contact us at Adiva Accountants in Sidcup if you would like further help or advice.
The share identification rules
Regardless of when they were originally acquired, all shares of the same class, in the same company are treated as forming a single asset. However, ‘same day’ transactions are matched and the ’30 day’ anti-avoidance rules will remain.
Example
On 10 April 2015 Tina sold 2,000 shares in A plc from her holding of 5,000 shares which he had acquired as follows:
- 1,000 in February 1991
- 1,500 in May 2002
- 2,500 in September 2006
Due to a significant stock market change, she decided to purchase 500 shares on 30 April 2015 in the same company.
The disposal of 2,000 shares will be matched firstly with the later transaction of 500 shares. As this is within the following 30 days and then with 1,500/5,000 (1,000+1,500+2,500) of the single asset pool on an average cost basis.
The CGT annual exemption
Every tax year each individual is allowed to make gains up to the annual exemption without paying any CGT. The annual exemption for 2015/16 and 2016/17 is £11,100. You may have to take action to ensure that both spouses/civil partners and possibly children utilise this free allowance.
The new CGT rates
The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private residence relief (PRR). In addition, the 28% rate still applies for ATED related chargeable gains accruing to any person (principally companies).
In order to minimise the capital gains tax, careful planning of capital asset disposals is essential. If you live in Welling, Beckenham, Bromley, Kent and London we, at Adiva Accountants in Welling, would be happy to discuss the options and reliefs with you. Please contact us today, if you would like further help and advice.
We will cover below the taxation of capital gains and outline the reliefs available. If you live in Welling, Beckenham, Bromley, Kent and London we, at Adiva Accountants in Welling, can provide taxation advice to ensure that maximum opportunity is taken of the reliefs available.
A capital gain arises when certain capital (or ‘chargeable’) assets are sold at a profit. The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).
The features of the current system
- For disposals up to 5 April 2016 capital gains tax (CGT) at the rate of 18% applies to gains (including any held over gains coming into charge) where net total taxable gains and income is below the income tax basic rate band of £31,785 for 2015/16. Gains (or the rest of gains) above this limit will be charged at 28%.
- From 6 April 2016, with a few exceptions the government is to reduce the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%.
- Entrepreneurs’ relief may be available on certain business disposals.
Entrepreneurs’ Relief (ER)
For certain business disposals taking place on or after 6 April 2008, ER may be available. This relief has the effect of charging only 10% tax on the first £10m (from 6 April 2011) of gains qualifying for the relief.
This relief will apply to gains arising on a disposal of:
- the whole, or part, of a trading business that is carried on by the individual, either alone or in partnership;
- assets used by a business or a company which has ceased;
- shares in a trading company, or holding company of a trading group. Provided that the individual owns broadly a 5% shareholding and has been an officer or employee of the company;
- assets used in a partnership or by a company but owned by an individual. If the assets disposed of are ‘associated’ with the withdrawal from participation in the partnership or the company.
A trading business includes professions, but only includes a property business if it is a ‘furnished holiday lettings’ business.
In certain situations, there are restrictions on obtaining the relief on an “associated disposal”. This applies where a property is currently in personal ownership, but is used in an unquoted company or partnership trade in return for a rent. The availability of ER relief is restricted where rent is paid from 6 April 2008 onwards. It is clear that careful planning will be required with ER, so please do get in touch. We are happy to discuss ER in detail and how it might affect your business.
Investors Relief
In Budget 2016 the government announced that ER will be extended to external investors. Other than certain employees or officers of the company in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions will apply:
- shares must be newly issued and subscribed for by the individual for new consideration
- have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
- be in an unlisted trading company, or an unlisted holding company of a trading group
- have been held continuously for a period of three years before disposal.
An individual’s qualifying gains for investors’ relief (the same as ER) will be subject to a lifetime cap of £10 million.
Other reliefs
Capital gains rise on Enterprise Investment Scheme and Venture Capital Trust shares, and deferred gains on share for share or share for loan note exchanges, can be complex. Please talk to us before making any decisions.
Finally, many existing reliefs continue to be available, such as:
- private residence relief;
- letting relief;
- business asset gift relief, which allows the gain on business assets that are given away to be held over until the assets are disposed of by the donee;
- business asset rollover relief, which enables the gain on a business asset to be deferred until a point in the future;
- any unused allowable losses from previous years, which can be brought forward in order to reduce any gains.
If you are an investor or entrepreneur who live in Welling, Beckenham, Bromley, Kent and London we, at Adiva Accountants in Welling, can provide tax advice to ensure that all the reliefs available are claimed. We would welcome the chance to tailor a plan to your own personal circumstances, so please do contact us today.
Marriage breakdown, separation and divorce can have quite significant tax implications. The most important areas to consider are:
- available tax allowances
- transfers of assets between spouses.
Marriage Breakdown
Maintenance payments
An important element in tax planning on marriage breakdown involves the payment of maintenance. No tax relief is usually due on maintenance payments.
The transfer of Assets
Quite often marriage breakdowns involve the transfer of assets between husbands and wives. Careful planning on the timing of any such transfers can avoid or mitigate adverse CGT consequences.
If an asset is transferred between a husband and wife who are living together, the asset is deemed to be transferred at a price that does not give rise to a gain or a loss. This treatment continues up to the end of the tax year in which the separation takes place. Therefore, where transfers take place after the end of the tax year of separation, but before the divorce, the CGT implications can be significant. However, gifts holdover relief is usually available on transfers of qualifying assets under a Court Order.
On the other hand, if transfers take place before the granting of a decree absolute on divorce, IHT will not cause a problem. Transfers after this date may still not be a problem as often there is no gratuitous intent.
Any tax planning must take into account all relevant circumstances. It is important that any proposed course of action considers all areas of tax that may be affected by the proposals.
It is important that professional advice is sought at an early stage. That is crucial as tax savings can only be achieved if an appropriate course of action is planned in advance.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich, would welcome the chance to tailor a plan to your own personal circumstances so please do contact us today.
The joint ownership of assets
The ownership of income producing assets should be divided in such a way, to ensure that personal allowances are fully utilised. This way any higher rate tax liabilities are minimised. When husband and wife jointly own assets, any income arising is usually assumed to be shared equally for tax purposes. This rule applies even where the asset is owned in unequal shares. Unless an election is made to split the income in accordance to the ownership of the asset.
Married couples are taxed on dividends from jointly owned shares in ‘close’ companies according to their ownership of the shares. Close companies are those owned by the directors, or five or fewer people. For example, if a spouse is entitled to 95% of the income from jointly owned shares they will pay tax on 95% of the dividends from those shares. This is designed to close a loophole in the rules and does not apply to income from any other jointly owned assets.
We at Adiva Accountants can advise on the best strategy for jointly owned assets to ensure that the tax liabilities are minimised.
Capital gains tax (CGT)
The CGT liability for each spouse is computed by reference to their own disposals of assets. Each spouse is entitled to their own annual exemption allowance of £11,100 per annum, for 2015/16 and 2016/17.
Tax savings may be made by ensuring that maximum advantage is taken of any available capital losses and annual exemptions. This often is achieved by transferring assets between spouses before the sale of the asset. This course of action generally has no adverse implications for CGT or inheritance tax. Planning is important, and the impact on income tax of transferring assets should be carefully considered.
Inheritance tax (IHT)
When a person dies, IHT becomes due on their estate. The rate of inheritance tax payable is 40% on death, and 20% on lifetime chargeable transfers. The nil rate band covers the first £325,000. Providing the donor survives for seven years after the gift, most of them are ignored and not tax is due on them.
Transfers of property between spouses are generally exempt from IHT. New rules have been introduced which allow the surviving spouse to use any nil-rate band unused on the first spouse’s death. The transfer of the unused nil-rate band from a deceased spouse, irrelevant of the date of death, may be made to the estate of their surviving spouse who dies on or after 9 October 2007. The amount of the nil-rate band available for transfer will be based on the proportion of the nil-rate band which was unused when the first spouse died.
IHT is not charged on a gift for family maintenance. These cases include the transfer of property made on divorce under a court order. Also, the gifts for the education of children, or maintenance of a dependent relative.
Gifts in consideration of marriage are exempt up to £5,000 if made by a parent with lower limits for other donors.
Small gifts to individuals not exceeding £250 in total per tax year per recipient are exempt.
Gifts which are made from income which are typical and habitual and do not result in a fall in the standard of living of the donor are exempt. Payments under deed of covenant and the payment of annual premiums on life insurance policies would usually be exempt too.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you pay less Capital Gains and Inheritance tax, depending on your family’s personal circumstances, so why not call us today.
Children
Tax savings could be achieved by the transfer of income producing assets to a child, to take advantage of the child’s personal allowance. If the annual income arising is above £100, this cannot be done by the parent. The income will still be taxed on the parent. However, transfers of income producing assets by grandparents or others, will be effective.
A parent can use a ‘bare trust’ which would allow a child to use any entitlement to the CGT annual exemption.
Child Tax Credit
Depending on various factors Child Tax Credit (CTC) might be available to some families. To check if you are entitled to claim visit the HMRC website.
The High Income Child Benefit Charge
High Income Child Benefit Charge applies to a taxpayer who has adjusted net income over £50,000 in a tax year. And where either they or their partner are in receipt of Child Benefit for the year. If both partners have incomes in excess of £50,000, the charge will apply to the partner with the higher income.
The income tax charge will apply at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. Therefore, the charge on taxpayers with income above £60,000 will be equal to the full amount of Child Benefit received. If the claimant or their partner do not wish to pay the charge, it is possible to elect not to receive the Child Benefit.
Example
The Child Benefit for two children amounts to £1,788.
The taxpayer’s adjusted net income is £53,000.
The income tax charge will be £536.
This is calculated as £17.88 for every £100 above £50,000.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you pay less Child Benefit charge, so why not call us today.
You need to be aware that husbands and wives are taxed separately and you need to consider the tax position of the children too. You need to consider the impact of marriage breakdowns and divorce on your tax affairs. We will cover here the most relevant issues and the basic tax planning opportunities. If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you optimise your tax position depending on you and your family’s personal circumstances.
We cover below the main areas of importance where proactive tax planning can minimise overall tax liabilities.
It is very important that professional advice is sought on matters relevant to your personal circumstances.
Married couples
Independent taxation means that husbands and wives incomes and capital gains are taxed separately. As a result, both have their own personal allowances and basic rate tax bands for income tax. Also, the annual exemption allowance for capital gains tax purposes. Each are responsible for their own tax affairs. The same rules apply to same-sex couples who have entered a civil partnership under the Civil Partnership Act.
Children
For tax purposes a child is an independent person. So, is entitled to a personal allowance, the savings and basic rate tax bands before being taxed at the higher rate. Therefore, it may be possible to save tax by generating income or capital gains in the children’s hands.
Tax planning for couples
Every person is entitled to a basic personal allowance. However, this allowance cannot be transferred between spouses, except for the circumstances below.
Marriage Allowance
From the beginning of tax year 2015/16, married couples and civil partners are eligible for a new Transferable Tax Allowance.
This is the Marriage Allowance, and enables spouses and civil partners to transfer 10% of their personal allowance to their spouse. This option is not available to unmarried couples. This option is available only to couples where neither pays tax at the higher or additional rate. If eligible, one partner can transfer 10% of their personal allowance to the other partner, which is £1,100 for 2016/17 (£1,060 for the 2015/16 tax year).
Couples who marry within the year are entitled to the full benefit in their first year of marriage. For all those couples, where one spouse does not use all their personal allowance, this tax benefit will be worth up to £220 in 2016/17 (£212 in 2015/16).
Eligible couples can apply for the marriage allowance at https://www.gov.uk/marriage-allowance. The spouse or partner with the lower income need to enter some basic information before applying to transfer some of their personal allowance. Those who do not apply via the government gateway will still be able to make an application later and receive the allowance.
A married couple’s allowance is available, if either you or your spouse were born before 6 April 1935. This is given to the husband, although it is possible, by election, to transfer it to the wife.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you minimise the amount of tax that you have to pay, depending on your family’s personal circumstances, so why not call us today.
You are required to keep records of income, expenditure and reliefs claimed. On the income side this means the taxpayer has to keep the documentation given by the person making the payment. In regard of expenses, records are required to support the claim. If they decide to enquire into the return, HMRC wants to ensure that the underlying records to the tax return exist.
Records required for HMRC enquiry
Employees and Directors
- Details of payments made for business expenses (e.g. receipts, credit card statements)
- Deductions and reliefs
- Share options awarded or exercised
Documents you have signed or which have been provided to you by someone else:
- Interest and dividends
- Gift aid payments
- Tax deduction certificates
- Dividend vouchers
- Personal pension plan certificates.
Personal financial records which support any claims or amounts paid e.g. certificates of interest paid.
Records for Business
- Invoices, bank statements and paying-in slips
- Details of personal drawings from cash and bank receipts
- Invoices for purchases and other expenses
If you live in Orpington, Bromley, Kent and London we can prepare your personal tax return on your behalf and advise on the appropriate payments on account to make. If there is an enquiry into your tax return, we will assist you in answering any queries from HMRC. Please do not hesitate to contact us at Adiva Accountants in Orpington for help or information.
Please find below the late filing penalties that apply to personal tax returns:
- £100* penalty immediately after the due date for filing (this penalty is applied even if there is no tax to pay, or the tax due has already been paid)
* In the past, the penalty could not exceed the tax due, however this cap has been removed. Therefore, if your return is filed late, the full penalty of £100 will always be due. If filing by ‘paper’ the deadline is 31 October after the end of the fiscal year, and if filing online the deadline is 31 January.
Please find below the additional penalties that can be charged:
- over 3 months late – a £10 daily penalty up to a maximum of £900
- over 6 months late – an additional £300 or 5% of the tax due if higher
- over 12 months late – a further £300 or a further 5% of the tax due if higher. Furthermore, in particularly serious cases, there is a penalty of up to 100% of the tax due.
If you live in Orpington, Bromley, Kent and London and have been charged a penalty we, at Adiva Accountants in Orpington, can help to appeal against the penalty.
The underpayment “coding out”
As a taxpayer, you have the option to ask HMRC to compute your tax liability in advance of the tax being due. In this case the tax return must be completed and filed by 31 October following the end of the tax year. This is also the deadline for making a return where you require HMRC to collect any underpayment of tax through your tax code, also known as ‘coding out’. However, if you file your return online HMRC will extend this deadline to 30 December. Whether you or HMRC calculate the tax liability, there will be only one assessment which covers all your tax liabilities for the tax year.
Amendments and corrections
HMRC has nine months from the return being filed to correct a self assessment, in order to correct any obvious errors or mistakes in the return.
An individual has 12 months from the return being filed to amend their self assessment by notifying HMRC of the changes made.
HMRC may enquire into any tax return by giving a written notice. Usually the time limit for HMRC to issue a notice is 12 months from the filing date.
If HMRC does not enquire into a return, it will be final and conclusive. Unless HMRC makes a discovery, or the taxpayer makes an overpayment relief claim.
Most noteworthy HMRC cannot query any entry on a tax return without starting an enquiry. The main purpose of an enquiry is to identify any errors on, or omissions from, a tax return which result in an understatement of tax due. However, the opening of an enquiry does not mean that a return is incorrect.
If there is an enquiry in your tax return, we will also receive a letter from HMRC. It will detail the necessary information required by them to check the return. If that happens, we will contact you to discuss the contents of the letter and the way forward. If you live in Orpington, Bromley, Kent and London and have HMRC enquiring into your tax return we, at Adiva Accountants in Orpington, can advise and assist in answering the enquiry.
We summarise below the self assessment rules, penalties and interest charged for failing to comply with your obligations. If you live in Orpington, Bromley, Kent and London we, at Adiva Accountants in Orpington, can prepare your tax return and advise you on payments that you may need to make to HMRC. We will minimise the amount of personal tax that you have to pay, so why not call us today.
Under the self assessment, it is the responsibility of the individual to make sure that their tax liability is calculated and is paid on time.
The self assessment cycle
Shortly after the end of the fiscal year, HMRC issues tax return notices to all of those whom HMRC are aware need a return. These include all who are self employed or company directors. If a taxpayer is not issued with a tax return but has tax due, they should notify HMRC who may then issue a return.
The fiscal year runs from 6 April to the following 5 April, so 2015/16 tax year runs from 6 April 2015 to 5 April 2016. If using online filing a taxpayer is required to file his tax return by 31 January following the end of the fiscal year. If using paper format, the 2015/16 return must be filed by 31 October 2016. If this deadline is missed, penalties will apply, unless the return is filed online before the following 31 January. If you live in Orpington, Bromley, Kent and London and need to prepare a tax return we, at Adiva Accountants in Orpington, can advise and prepare your tax return.
There are three requirements for subcontractors to be paid gross. They include a business test, a turnover test and a compliance test. To qualify for gross payment a subcontractor must:
- have paid their tax and National Insurance on time in the pastn
- do construction work (or provides labour for it) in the UKn
- run the business through a bank account.nThe turnover for the last 12 month (ignoring VAT and the cost of materials) must be at least:
- £30,000 for a sole tradern
- £30,000 for each partner in a partnership, or at least £100,000 for the whole partnershipn
- £30,000 for each director of a company, or at least £100,000 for the whole companynIf your company is controlled by 5 people or fewer, you must have an annual turnover of £30,000 for each of them.nSubcontractors not registered with the HMRC will suffer the higher rate deduction (30%) from any payments made to them by contractors.
Please do get in touch if you would like further information about the Construction Industry Scheme (CIS). Whether you are a contractor or a subcontractor, at Adiva Accountants in London we can advise on the CIS for your business in Bromley, Kent and London.
Many people invest in property with the expectation of capital growth. They expect that the rental income from tenants will cover the mortgage costs and any outgoings. If you live in Croydon, Kent and London we, at Adiva Accountants in Croydon, can help you plan and structure the investment appropriately.
Due to financial crises, the stock market has had its ups and downs. Additionally, many people have lost the confidence in pension funds as a means of saving for the future. At the same time the bank interest on savings have been at lowest for decades. Therefore, it is not at all surprising that investors have looked elsewhere.
The UK property market, despite its ups and downs, has proved over the long-term to be a solid investment. As a result of this, buy to let market has seen a massive expansion. However, the gross return from buy to let properties is not as attractive as it once was. Investors need to take a view on the likelihood of capital appreciation exceeding inflation. They need to consider the fact that mortgagee interest rates have been at a low level for a long period of time, and will rise in a near future.nn
Do:
- think of your investment as medium to long-termn
- do your sums carefullyn
- research the local marketn
- consider decorating to a high standard to attract tenants quickly
Don’t:
- purchase anything with serious maintenance problems
- think that friends and relatives can look after the letting for you – you’re probably better off with a full management service
- cut corners with tenancy agreements and other legal documentation
Your property
Bear in mind that investing in a buy to let property is not the same as buying your own home. Therefore, you may wish to get an agent to advise you of the local market for rented property. You need to find first what type of property is in higher demand and where, such as properties close to schools or transport links.
Letting Agents
You need to be aware that letting property can be very time consuming and inconvenient. Tenants have rights and will expect a quick solution if the central heating breaks down over the weekend or bank holiday. Also, would you want to advertise the property and show around prospective tenants yourself. There is always the option of hiring a letting agent to deal with all of this for you.
Tenancy agreements
A tenancy agreement will ensure that the legal position for both sides is clear.
Rental income tax
Income tax will be payable on the net of rents received less allowable expenses. Currently allowable expenses include mortgage interest, repairs, agent’s letting fees, and an allowance for furnishings. The Summer Budget changes will impact on the allowable expenses for landlords, particularly the amount of mortgage interest allowed.
If you live in Croydon, Kent and London we, at Adiva Accountants in Croydon, can help you structure your investment appropriately.
In the coming years, the amount of income tax relief landlords can get on residential property finance costs will be restricted to the basic rate of income tax. Finance costs include mortgage interest, interest on loans to buy furnishings, and finance fees incurred when taking out or repaying mortgages or loans. There is no relief available for capital repayments of a mortgage or loan.
Landlords instead of deducting their full financial costs will receive a basic rate reduction from their income tax liability for their finance costs. The government will introduce this change gradually from April 2017, over four years. The restriction in the finance cost relief will be phased in as follows:
- in 2017/18, the deduction from property income will be restricted to 75% of finance costs. The remaining 25% being available as a basic rate tax reduction
- in 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction
- in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction
- from 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.
The above restriction will not apply to landlords of furnished holiday lettings.
If you live in Croydon, Kent and London we, at Adiva Accountants in Croydon, can help you understand the impact that loan interest restriction will have in your rental income.
Replacement of furnishings
From April 2016, all landlords of residential dwelling houses are allowed to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property. This relief for the cost of replacing furnishings is available to furnished and unfurnished properties too. Before this change, it was possible to claim wear and tear allowance for furnished properties. But there was no tax relief for the replacement of furnishings in partly furnished or unfurnished properties.
Examples of eligible capital expenditure are:
- furniture
- furnishings
- appliances (including white goods)
- kitchenware
but would exclude items which are fixtures.
However, if there is an improvement on an old item, the relief is restricted to the cost of an equivalent item. This deduction will not be available for furnished holiday lettings, or where rent-a-room relief is claimed.
The withdrawal of Wear and tear allowance
From April 2016, the wear and tear allowance which was available to landlords of fully furnished properties has been abolished.
If you live in Croydon, Kent and London we, at Adiva Accountants in Croydon, can help you understand how the changes in reliefs can impact your rental income.
If you sell the property, the capital gains tax (CGT) will be payable. The tax will be payable on the disposal proceeds less the original cost of the property, certain legal costs and any capital improvements made to the property. Before the tax the gain will be further reduced by any annual exemption available. The resulting gain is then taxed at either 18% (part of gain which falls within the basic rate band). Or 28% (part of gain within higher and additional rate band), or a combination of the two rates.
From 6 April 2016, a reduction of CGT rates is introduced generally from 28% to 20% (the higher rate band) and from 18% to 10% (the basic rate band). However, in regard of the gains arising on the disposal of residential property that do not qualify for private residence relief, there is no change (28% and 18% rates will continue to apply). CGT is payable on 31 January after the end of the tax year in which the gain is made. From April 2019, on the disposal of residential property a payment on account of any CGT due will be required to be made within 30 days of the completion of the disposal. The above is not required for gains on properties which are not liable for CGT due to Private Residence Relief.
Student lettings
If you have children at college or university, then buy to let may be a good option. However, it is important that the arrangement is structured in the right way. Not the parent, but the student should purchase the property (with the parent acting as guarantor on the mortgage). We will describe below the advantages of this arrangement.
Advantages
First, you will provide your child with somewhere decent to live in a cost-effective way. Rental income on letting spare rooms to other students should be sufficient to cover the mortgage repayments and other costs.
Second, the amount of rental income chargeable to income tax is reduced by ‘rent a room relief’. This relief is increased to £7,500 per annum from 6 April 2016 (was £4,250 for 2015/16). Please note that if you claim this relief, no expenses are tax deductible. Alternatively, if it is more beneficial, expenses can be deducted from income under normal letting rules.
Third, if the property will be the child’s only property, it will be regarded as their main residence and it will be exempt from CGT on its eventual sale.
If you live in Croydon, Kent and London we, at Adiva Accountants in Croydon, can help you in relation to capital gains and how to minimise your tax liability.
Another type of property investment to consider is furnished holiday letting (FHL). This form of letting is short holiday lettings as opposed to letting for the residential market. There is a favourable tax regime for furnished holiday letting accommodation. And the rules for allowable expenditure are more generous too. It includes qualifying property located not only in the UK, but anywhere in the European Economic Area (EEA). However, certain conditions have to be met in order to qualify for FHL treatment. These conditions include the property being available for letting for at least 210 days in each tax year, and being actually let for 105 days. It will be possible to make an election to keep the property as qualifying for up to two years even though the condition may not be satisfied in those years. This is allowed if there is a genuine intention to meet the actual letting requirement. This is particularly important to preserve the special CGT treatment of any gain as qualifying for the lower CGT rate of 10% where the conditions for Entrepreneurs’ Relief are satisfied. Any losses arising in an FHL business are not allowed to be set against other income of the taxpayer. These losses can only be offset against profits of the same or future years in each relevant sector.
Another advantage is that you will be able to take a holiday in your own property, or make it available some of the time to your family or friends. If you do that, then care would need to be taken to adjust the level of expenses claimed to reflect this private use.
FHL Disadvantages
Holiday letting will usually have higher agent’s fees, advertising costs, and maintenance fees (e.g. more regular cleaning).
You could find yourself spending a lot of time sorting out problems, as owning a holiday property may be more time consuming than you think.
Any advice and plan for property investment must take into account your circumstances and aspirations. Seeking professional advice can help to sort out potential problems and structure the investment correctly.nIf you live in Croydon, Kent and London we would be happy to discuss with you, buy to let or other investments. Please contact us at Adiva Accountants in Croydon for more detailed advice.n
We will cover below the unincorporated businesses. We will focus at the optional rules which allow small unincorporated businesses to use the cash basis rather than the accruals basis to calculate their profits for tax purposes. If your business is in Sidcup, Bromley, Kent, London or nationwide we at Adiva Accountants in Sidcup can help by looking at whether this is an appropriate option for your business.nAccruals basis and cash basis.
When using the accruals basis, the credit sales are included in the accounts income. This is regardless if the customer has paid or not for the goods or services by the end of the accounting period. But, when using the cash basis, the business income includes only the cash receipts received during the accounting period. So, under the cash basis credit sales are accounted for and taxed not when raised, but in the year in which they are paid for by the customer.
Eligibility
The main entry criteria to use the cash basis are that your business is unincorporated (sole trader or a partnership). And that your receipts in the accounting period are less than the VAT registration threshold in force at the end of the relevant tax year. The current VAT registration threshold is £83,000 (from 1 April 2016, previously £82,000). The threshold is set at twice the VAT registration threshold for those individuals who intend to make a Universal Credit claim.
Limited Liability Partnerships, Lloyd’s underwriters and those eligible individuals who wish to continue to claim averaging of profits, like farmers are excluded from using the cash basis.nUnless the business grows too large, or there is another ‘change of circumstances’ the individual once elected to use the scheme will generally have to remain in the scheme.
- Important tax points.
Cash receipts
Cash receipts include all cash receipts that the business receives during the accounting period. Apart from the trading income, this will also include the proceeds from the sale of any plant and machinery. Any amount still unpaid from the customers by the accounting year end, will not be taxable until it is actually received by the business.
If your business is in Sidcup, Bromley, Kent, London or nationwide we can help and advice on the best option for your business. Please do contact us at Adiva Accountants in Sidcup if you would like further help or advice.
Any advice and plan for property investment must take into account your circumstances and aspirations. Seeking professional advice can help to sort out potential problems and structure the investment correctly.
If you live in Croydon, Kent and London we would be happy to discuss with you, buy to let or other investments. Please contact us at Adiva Accountants in Croydon for more detailed advice.
The cash basis rules for the self-employed and partnerships can be quite complex. If your business is in Sidcup, Bromley, Kent, London and nationwide we can help and advice in the most appropriate option for your business. Please do contact us at Adiva Accountants in Sidcup, if you would like further help or advice.nn
The compliance requirements of the Construction Industry Scheme (CIS) need to be dealt from all those working in the construction industry. At Adiva Accountants in London, we can assist you to comply with the requirements of the Scheme for your business in Bromley, Kent and London.
The Construction Industry Scheme (CIS) sets out special rules for tax for those working in the construction industry. The CIS applies to construction work and also jobs such as alterations, decorating, repairs and demolition. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’. They may be self employed individuals, companies, or partnerships.
Contractors and subcontractors
Contractors can include construction companies and building firms, but also local authorities and government departments. Any business which operates in CIS and spends more than £1 million a year on construction is classed as a contractor. Subcontractors are those businesses that carry out work for contractors. Actually, many businesses act as both contractors and subcontractors.
CIS returns
Online monthly returns must be submitted to HMRC by contractors confirming the following:
- that the verification process has been correctly dealt with
- that the employment status of subcontractors has been considered
- payment details made to all subcontractors and
- any details of tax deductions made from those payments
The monthly return relates to each tax month (ie running from the 6th of one month to the 5th of the next). The deadline for return submission is 14 days after the end of the tax month. A Nil return should be submitted where a contractor has not made any payments to subcontractors in a tax month. This will avoid penalties that HMRC can issue for failure to make a return. Even if the contractors are entitled to pay their PAYE quarterly, still they must file their returns monthly.
Identification
When they enter into a contract, subcontractors must give contractors their name, unique taxpayer reference (UTR) and national insurance number (or company registration number). The contractor should be satisfied that the subcontractor is genuinely self-employed, then follow the ‘verification’ procedure explained below.
If you need help with the CIS monthly returns or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to help.
The contractor must consider the status of the subcontractors and to be satisfied that none of those listed on the return are employees. Penalties of up to £3,000 can be imposed by HMRC, if contractors negligently or deliberately provide incorrect information. It’s important to note that employment status is not a matter of choice. The specific circumstances of the engagement determine how it is treated.
The issue of the status of workers within the construction industry is very important. Over the years HMRC have been making efforts to re-classify as many subcontractors as possible as employees. Different factors are considered by the courts over the years in deciding whether a worker is self-employed or employed. The tests which are applied include:
- the right of control over how, what, where and when the work is done. The more control that a contractor can exercise over the above, the more likely it is that the worker is an employee.
- whether any equipment is necessary to do the job, and if so, who provides it
- the basis of payment – whether an hourly/weekly rate is paid. Whether there is any overtime, sick or holiday pay, and whether invoices are raised for the work done
- whether the worker provides a personal service, or whether a substitute could be provided to do that work
- whether there is a mutuality of obligation. That is, an ongoing understanding that the contractor will offer work and the worker accept it
- whether the worker is part and parcel of the organisation, or whether they are conducting a task which is self-contained in its own right
- what the intention of the parties is. Whether there is any written statement that there is no intention of an employment relationship
- whether the workers have any financial risk.
So, there are a number of factors which must be considered as to whether somebody should be classified as employed or self-employed.
The employment status indicator tool is available on HMRC website, to help address this matter. However, the software appears to be heavily weighted towards re-classifying subcontractors as employees. Please talk to us, if you have any particular concerns in this area and if this is a major issue for your business. It is obvious that HMRC would like subcontractors to be classed as employees, as this means that more tax and national insurance is due. However, just because the HMRC tool suggests that somebody is an employee, it does not necessarily mean that they are correct.
If you need help with the status of the subcontractors, or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to assist you.
The contractor has to contact HMRC to find if he should pay a subcontractor gross or net. You don’t have to verify all the subcontractors all the time. You would normally verify only the new ones. The verification procedure will establish which of the following payment options apply:
- gross payment (no deductions made)
- a standard rate deduction of 20%
- a deduction made at the higher rate of 30%, if the subcontractor has not registered for CIS with HMRC. Or cannot provide accurate details to the contractor and HMRC cannot verify them.
HMRC will give the contractor a verification number for the subcontractors which will be matched with HMRC’s own computer. This number will be the same for each subcontractor verified at any particular time. Subcontractors who cannot be verified will have special suffixes for the numbers. The numbers are also shown on the payslips issued to the subcontractors and on contractors’ monthly returns.
These numbers are important and contractors have to ensure that they have a good system in place for obtaining and retaining them. It is crucially important to give precise details to HMRC. As the higher rate deduction (30%) will have to be made, if their computer does not recognise the subcontractor. Mandatory online verification of subcontractors will be introduced from 6 April 2017.
The contractor will not have to verify the subcontractor if they have already included them on any monthly return in the two previous tax years.
Payslips
All subcontractors have to be provided with at least a monthly ‘payslip’. It should show the total amount of the payments and how much tax, if any, has the contractor deducted from those payments. Payslips can have different styles, but certain specific information has to be provided including the:
- contractor’s name and their employer tax reference
- subcontractor’s name, unique tax reference or specific subcontractor reference
- tax month to which the payment relates
- the gross amount of the payment
- cost of any materials which have reduced the gross payment
- amount of any tax deductions made and
- verification number where deduction has been made at the higher rate of 30%.
If contractors include such payments as part of their normal payroll system, it has to be clear that they are classed as self-employed.
If you need help with the payroll of the subcontractors, or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to assist you.
Not always. The items below should be excluded when entering the gross amount of payment on the monthly return:
- VAT charged by the subcontractor (if the subcontractor is registered for VAT)
- any Construction Industry Training Board levy.
Furthermore, when working out the amount of payment from which the deduction should be made, the following items should be deducted from the gross amount of payment:
- what the subcontractor paid for materials including VAT paid (if the subcontractor is not registered for VAT). Plus consumable stores, fuel (except fuel for travelling) and plant hire used in the construction operations
- the cost of manufacture or prefabrication of materials used in the construction operations.
The gross amount of payment and the amount from which the deduction is made should include any travelling expenses (including fuel costs) and subsistence paid to the subcontractor.
The deadline for paying over the deductions
The deadline for the contractors to pay over all deductions made from subcontractors is by the 19th following the end of the tax month to which the deductions relate. The deadline would be 22nd, if payment is being made electronically, or the next earlier banking day when the 22nd is a weekend or holiday. Often the contractor is a company which operates as a subcontractor and has deductions made from its payments as a subcontractor. In these circumstances, the deductions made may be set against the company’s liabilities for PAYE, NI and any CIS deductions it is due to pay over.
Subcontractors
A subcontractor will need to register for the CIS when first starts working in the construction industry on a self-employed basis. The registration is carried out by the subcontractor who needs to contact HMRC by phone or online.
If you need help with the registration of the subcontractors, or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to help you.
The whole CIS system is backed up by a series of significant penalties. These penalties cover situations in which an incorrect monthly return is sent in negligently or fraudulently. Or for failure to provide CIS records for HMRC to inspect and incorrect declarations about employment status. Penalties are triggered by late returns under the CIS scheme as follows:
- a basic penalty of £100 for failure to meet due date of the 19th of the following month
- where the failure continues after two months after the due date, a penalty of £200
- after six months, the penalty rises to the greater of 5% of the tax, or £300
- after 12 months, the penalty will again be the greater of £300, or 5% of the tax
- where information is withheld deliberately, the penalty is 70% of tax, or £1,500 if greater
- where the withholding of information is deliberate and concealed, it will be 100% of the tax, or £3,000 if greater
- where the return is 12 months late, but the information only relates to persons registered for gross payment (so no tax deduction was due). The penalty will be £1,500 for deliberate withholding without concealment, and the penalty will be £3,000 for deliberate and concealed withholding of information
- where a person has just entered the CIS scheme penalties will be restricted to a maximum of £3,000 in certain circumstances
If you need help with penalties, or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to help you.
