Archive for the 'Tax' Category


In the recent budget, the Chancellor announced that from 6 April 2016 there will no longer be a national tax credit associated with dividends received and the following rates will apply after a £5,000 tax free dividend allowance:
Basic rate taxpayers         – 7 ½%

Higher rate taxpayers        – 32 ½%

Additional rate taxpayers             – 38.1%


This will mean that from 2016/17 individuals will be able to receive up to £17,000 tax free:
Personal allowance          £11,000

Tax free interest                 £1,000

Tax free dividends             £5,000




A common strategy that we often advise to family company director/shareholders is that they extract profits from their company by way of dividends instead of paying themselves a salary. This is because there are no national insurance contributions on dividend payments and where the dividend income falls within the basic rate band (up to £42,385 for 2015/16) there is currently no income tax on dividends.


Where both husband and wife are directors and shareholders they will be able to pay themselves a salary of £11,000 each and then dividends of £5,000 each tax free. However the next £27,000 of dividends up to the new £43,000 higher rate threshold would be taxed at 7 ½ % resulting in income tax of £2,025 each being payable for 2016/17. Under the current rules there would be no tax on such dividends up to £42,385.


This is a significant change to the taxation of dividends and clearly makes them less attractive than previously. From April 2016 more consideration may have to be given to the choice between paying salary or dividend to owner managers!!!!

Staff Clothes


If you provide clothes for your staff to wear at work you need to be aware of the tax and VAT implications which may vary according to the items provided.

Where the items provided constitute a uniform or protective clothing which is needed to perform the job, the cost is tax deductible for the business and the VAT can be reclaimed. There is no taxable benefit in kind for the employee.

If the clothes are not considered to be a “uniform” and can’t qualify as protective clothing, the tax treatment depends on whether the employees are permitted to keep the items.

Where ownership of the items effectively passes to the employee you should generally treat the provision of the clothes as a sale at cost price, in which case you must account for VAT as if the clothing items had been sold at the cost to you. This can apply when sales staff in a clothing store are given clothes to wear from the store’s range, and are not required to return those clothes if they leave the company’s employment. The value of the clothes provided may also be a taxable benefit for the employee, which needs to be accounted for either on the annual form P11D or as part of a payroll settlement agreement (PSA).

Where the value of the items provided to any one employee is less than £50 in the tax year, the provision can be treated as a business gift by the employer. In this case the employer does not treat the value of the clothes as a sale. The taxman may also agree that the value of the clothes is a trivial benefit which is not taxable on the employee. However, it is best to establish this position with the tax office in advance. We can help you with that.


HMRC continue to pursue online traders

HMRC are continuing their campaign against online traders. There is now more urgency for online traders to get their tax affairs in order as HMRC wields its expanded powers to get user information from online marketplaces like Amazon, Gumtree, Ebay and Etsy.  

The clampdown is a continuance of the e-marketplace campaign which originally started in 2012, initially running between March and September of that year. According to HMRC’s press office, the initial correspondence sent to traders was to inform them of the campaign and were “educational”.

The new crackdown was launched on the back of extensive new powers introduced last year enabling HMRC to download people’s account information. It has been reported that the websites in question “are being forced to hand over customer account details, including their selling activity, as part of the taxman’s legal powers that were extended last year”.

HMRC haven’t stated what the threshold is where an online seller becomes an online trader. And some of the 14,000 targeted thus far had made as little as £100 profit online. According to HMRC, “anyone just selling the occasional item has nothing to worry about. This is about making sure on-line traders pay the right tax – wealthy or otherwise.“

A HMRC spokesperson went on to confirm that those continuing to avoid the Revenue’s overtures, could face penalties and that the taxman “will determine the amount of tax due based on the information we have available”.

The campaign has had some notable successes, with one eBay seller who turned over an undeclared £1.4m in six years handed a two year prison sentence.

Lump sum withdrawals from pension funds – Quirks of the new legislation

The new pension fund rules which became operative from 6th April this year allow you to withdraw all or part of your pension pot in a lump sum. However, beware that if the pension provider does not have a current tax code (or P45) then you will end up having tax deducted from the lump sum at the emergency (month 1) tax rate. This could result in excessive income tax being deducted and the overpayment will only be rectified at the following 5th April when HMRC reconcile your PAYE.

For example—you have annual taxable income of say £15,000 and you decide to withdraw a lump sum of £20,000 from your pension. The first 25% of the lump sum will be tax free (providing you haven’t already drawn all or part of your 25% tax free amount) and you would expect that there would be income tax of 20% deducted from the remaining £15,000 amounting to £3,000. However, if the emergency tax rate has to be applied then tax of £5,995 will be deducted. So you end up with £2,995 less than expected—OUCH!


Fortunately it is possible to obtain an early refund and HMRC have introduced a number of forms to use, depending upon the exact circumstances involved :


Form P50z if you have withdrawn all of your pension pot in one go and have no other PAYE or pension income other than the state pension.

Form P53z if you have chosen to withdraw all of your pension pot in one go and you do have other PAYE or pension income.

Form P55 if you have taken a lump sum payment which doesn’t use up all of your pension pot.

Here at Balance Accountants we understand how the new pension rules work —they can be a bit complicated –but if you need our help regarding overpaid tax then Contact us and we will be happy to help.

Flat Rate VAT Scheme and capital expenditure

If you use the Flat Rate VAT scheme then you can, in addition, reclaim the VAT on a single purchase of capital expenditure where the amount of the purchase, including VAT, is £2,000 or more.


This all sounds fairly straightforward. Beware, however,  that if goods are purchased from one supplier at one time then they count as one purchase BUT if they are from different suppliers at different times then they will be separate purchases (even if they are used in conjunction with one another) and each must be £2,000 or more in order to qualify. So, for example, a company installs a new computer system and buys the various components and software from different suppliers then these may not qualify for a VAT reclaim if the individual purchases from each supplier are less than £2,000—EVEN IF the total cost of the computer installation is over £2,000.

HMRC’s VAT Notice 733, para 15.3 provides examples of what qualifies as a single purchase.

End of tax year fast approaching!

The tax year end of 5 April is fast approaching which means that it is time to think about maximising your tax position. There are a number of possible tax planning issues that you might wish to consider and we have included a few of the more popular ones below:


Take advantage of the pension carry forward rules in order to benefit from any unused relief. The maximum amount that can be contributed to your pension is currently £40,000 per annum (£50,000 per annum up until 5 April 2014) but it is possible to use the previous 3 year’s relief if not already used. If you have not used previous years’ pension relief then it may be worth paying a large pension contribution before 5 April 2015 in order to make use of the pension relief available.


For those aged 55 and over and with a SIPP or other money purchase scheme, the new flexible pension rules commence on 6 April 2015. The new rules allow you to withdraw as much or as little income as you like from your fund but the income drawn will be taxed at your marginal tax rate.


For every £2 that your adjusted net income exceeds £100,000, the £10,000 personal tax free allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.


Higher rate taxpayers can make charitable payments under Gift Aid to obtain additional tax relief. The charity will also be able to reclaim the basic rate tax from HMRC.


Have you used your 2014/15 annual exemption of £11,000? Consider selling shares where the gain is less than £11,000 before 6 April 2015. Also, if you have any worthless shares consider a negligible value claim to establish a capital loss. You may even be able to set off the capital loss against your income under certain circumstances.


Your maximum annual investment in ISAs for 2013/14 is £15,000. Your investment needs to be made before 6 April 2015. In addition, have you thought about investing for your children or grandchildren by setting up junior ISAs or pensions? In the 2014/15 tax year, you can invest £4,000 into a Junior ISA for any child under 18 who does not have a Child Trust Fund.


Have you made use of your annual inheritance tax exemptions? The general annual exemption is £3,000 per donor (plus last year’s £3,000 exemption if you did not use it). Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT.


If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS), which offers income tax relief of 30 per cent as well as

capital gains tax relief when you buy shares in certain qualifying companies? An even more generous tax break is available for investment in a qualifying Seed EIS company where income tax relief at 50 per cent is available. It is possible to shelter 50% of your capital gains in 2014/15 and there is a capital gains tax exemption when the shares are sold. Note however that qualifying Seed EIS companies tend to be risky investments so professional advice should be taken. A 30% income tax break is also available by investing in a Venture Capital Trust.


The £2,000 “employment allowance” introduced in 2014/15 continues to be available for 2015/16. Note that this allowance provides relief from paying employers NIC on the first £2,000 of contributions. The £2,000 allowance is set against employers NIC on a cumulative basis during the tax year. The allowance is available to most employers, although those under common control are restricted to just the one £2,000 allowance. Husband and wife companies with no other employees charged to national insurance may find it tax efficient to change the mix of salaries and dividends to take advantage of the £2,000 allowance. From 6 April 2015 it may be advantageous to increase directors’ salaries to the new £10,600 personal allowance instead of the NIC threshold of £8,060 (£155 a week).


A Government policy to reduce the number of school leavers not in employment, education or training is to abolish employers NIC for those under the age of 21. This exemption starts 6 April 2015 and will not apply to those earning more than the Upper Earnings Limit (UEL), Employers NIC will be charged as normal beyond that limit.

The notes above only provide an outline of the possible tax planning ideas, if you require further details or advice then please do not hesitate to contact us.

This blog was complied by Ashley Barrowclough.

July Tax Payments

The due date for the payment of the second instalment of 2013/14 tax is fast approaching.

Self employed people, of which there are 4.54 million in the UK, together with certain other tax payers  have to pay their tax in two instalments on 31 January and 31 July each year. The July 31st payment will be due in just a few weeks’ time and many of you will have already received a payslip from HMRC stating the amount of tax due. Make sure that your payment is received by HMRC by 31 July in order to avoid unnecessary interest arising.

If you are unsure as to whether the HMRC payslip amount is correct then you should contact your accountant who will be able to advise you accordingly.

This article was compiled by Ashley Barrowclough.


From 1 April 2014 to 31 March 2015, the main rate of corporation tax is 21% where a company’s profits exceed £1,500,000 (divided by companies under common control). The 20% small profits rate continues to apply to companies with profits up to £300,000 (also divided as above).  As previously announced, a single corporation tax rate of 20% will apply from April 2015 whatever your level of profits


The recent budget delivered by George Osborne was very detailed and doesn’t make for very interesting reading. We have therefore selected some of the more important aspects that might affect you and your business. We will deliver these in daily bite size chunks with the first one below:

Budget Blog 1

R&D TAX CREDIT RATE INCREASED Companies that are small and medium sized enterprises (SMEs) carrying out qualifying research and development can currently claim a corporation tax deduction of 225% of their qualifying spend. This means that £100,000 spend would result in a £225,000 reduction in taxable profits, potentially saving £45,000 corporation tax (at 20%). However, if the company is loss making this benefit may not be received until future years when profits are made. In order to improve the cash flow of these loss- making SMEs, the tax rules allow the company to surrender the loss attributable to the enhanced R&D spend for a tax refund. This has been increased from 11% to 14.5% with effect from 1 April 2014. So the £225,000 (based on £100,000 spend) would result in a refund of £32,625. Contact us if you would like to discuss whether your company could qualify for R&D tax relief.

Another HMRC Attack!

This time it is the turn of chiropodists, psychologists and homeopaths to be targeted by the attest HMRC campaign, offering the usual time-limited disclosure opportunity in which to bring tax affairs up to date on preferential terms. Basically the taxman is saying “If you have any income that you have not disclosed then tell us all about it and we will go easy on you. If however, you do not tell us voluntarily and we subsequently discover undeclared income then we will take tough action against you!

  1. The scheme is aimed at health professionals who offer physical treatments (including physiotherapy, chiropractic, chiropody, osteopathy, and occupational therapy) or alternative medicine (such as homeopathy, acupuncture and reflexology), or practice in areas like psychology, speech therapy and arts therapy.
  2. The campaign is not intended for doctors and dentists, who were covered by a previous disclosure initiative, or for nurses or social workers.
  3. Individuals have until 31 December to join the scheme. They will then have until 6th April 2014 to make disclosure and pay the tax owed while facing a penalty of a maximum of 20%.
  4. Help is available from HMRC’s health and wellbeing tax plan helpline on 0845 600 4507. As usual, other tax payers wishing to disclose unpaid tax outside of this targeted area can call the voluntary disclosure helpline on 0845 601 5041.

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