Taxman On The Hunt Again

The Taxman has run a number of campaigns designed to encourage certain classes of taxpayer to declare their untaxed income. In the past we have seen campaigns aimed at medics, plumbers, tutors, electricians and e-traders.

A new campaign started on 26 September 2012, this time targeting direct sellers. These are people who sell products on a commission basis in customers’ homes. These sellers often earn very little from their efforts, but they still need to declare those small amounts of income to the Tax Office. The campaign will primarily focus on helping the door-to-door sellers understand their obligations to register for tax and to file tax returns.

Following swiftly on will be a campaign targeting builders and tradesmen who provide home maintenance, repair or home improvement services.

These tradesmen may not be registered with HMRC under the construction industry scheme (CIS) if they only work for householders. If you are such a builder or trades-person, now would be a good time to talk to us about any tax related worries you have.

The Taxman has also formed some new taskforce teams to door-step particular businesses in defined areas. The latest list of potential ‘tax cheats’ now includes: grocers & retail traders, restaurants, motor-traders, hairdressers & beauticians, and London-based lawyers! If your business is in this list, please contact us for a free consultation and we will discuss if this may affect your business.

We warned you previously about the new real time information (RTI) process. Now the Taxman is writing to all employers who are not already part of an RTI pilot, to tell them how to prepare for RTI.

Key Considerations

To recap: RTI is a new way of submitting payroll data to the Tax Office. Instead of sending PAYE information to HMRC once after the end of the tax year, employers must submit their payroll data online on every occasion their employees are paid.

If you run a computerised payroll, your payroll software should be updated to cope with RTI. However, do check with your software provider, as some payroll packages are not going to be revised for RTI. In which case you need to find new payroll software, or use the free software provided by HMRC (for up to 9 employees), or ask us help you process your payroll each month.

All small and medium sized employers will be expected to start using RTI to submit payroll data from April 2013, unless they have agreed a different start date with the Tax Office. Once you receive an ‘invitation’ from the Taxman to use RTI, you must join the RTI system from the date directed.

You will need to collect some new data items under RTI which are not currently required for PAYE, such as:

– Hours worked per week for each employee based on one of four bands; – Details of those earning less than the lower earnings limit (£107 per week); – Which employees are paid irregularly, perhaps only once per year; and – Passport numbers for employees who do not have NI numbers.

In addition you will need to have the correct NI number (where this exists), date of birth, gender, full name and address for each employee.

What This Means For You

Our accountants in Kingston can help you with the transition to RTI, but please start thinking about what help you might need sooner rather than later.

If the previous business was VAT registered it can pass its VAT number on to the new company under the transfer of going concern rules (TOGC). However, this is not always advisable as the VAT number will carry with it all the ‘history’ of the old business, including defaults for late payment and error records. If the owners of the new company are not exactly the same people as those who owned the old business, the new owners may not want to take on the VAT ‘sins’ of the old business.

In this case the new company will have to apply for a new VAT number. This is the same procedure as a new VAT registration, and penalties will apply if it is not done on time.

If you want the new company to adopt the VAT number of the unincorporated business you must inform the Tax Office of the change in structure of the business within 30 days. If this deadline is not met the Taxman will impose a ‘failure to notify’ penalty which could be up to 100% of the VAT due, even where all the VAT due has been paid on time.

Please ask one of our VAT experts for advice on dealing with VAT on incorporation.

Goodwill On Incorporation

Trading as a company is generally more tax efficient for profitable businesses; the tax rates are lower and many tax reliefs are only available to companies. Certain professions which were previously prevented from operating as a company, such as solicitors, can now incorporate.

If your business is loss making it may be better to remain as a sole-trader or partnership until those losses are fully relieved.

When incorporating a business, great care should be taken over the value of assets which are transferred to the new company, including the business goodwill. It is generally fairly easy to value fixed assets such as buildings or equipment, but goodwill of the business will depend on a number of factors and may not exist at all for some businesses. Examples of factors to consider include:

– Reputation of the business; – Ability to generate future sales or fees; – Customer & staff loyalty; and – Location of the business.

A common approach is to estimate the capitalised value of the future profits of the unincorporated business and adjust for non-recurring items of income or expenditure. Adjustments will also be required for differences between the structure of the old partnership and the new company. The directors will be paid a salary, whereas the former partners took a profit share. Interest on borrowings will be paid by the company instead of by the partners.

Once a goodwill figure is established it can be included as part of the price to be paid under a sale agreement that transfers the business to the company. It is a good idea to include a price adjuster clause in this sale document, so if the Taxman challenges the value of the goodwill any outstanding amount of sale proceeds due to the former owners can be adjusted.

Important Points

Where the former owners become directors of the new company, it is common practice to leave part of the sale proceeds owing to those individuals as loan accounts within the company. These loan balances can then be drawn down gradually from the company with no tax to pay. However, the former owners may have to pay capital gains tax on the transfer of the business to the company.

If you are thinking of incorporating your business, please contact us, and we will go through each area of your business and discuss what incorporating will mean for you. Each business is very different and so incorporating can have different advantages and disadvantages in each individual case. However, in most cases incorporating leads to a more efficient business and lower tax bills for business owners, so although it is a complex move to make, the long term benefits make this option appealing for more business owners.

Q. I am employed by a charity that provides me with a Skoda Yeti car as my work involves transporting disabled people. I pay for all the petrol, but the charity reimburses me for work-related journeys at 15p per mile. This rate has not changed since June 2011, although the price of petrol has increased. Can I claim back any more of my petrol costs for work journeys from the Tax Office?

A. Unfortunately not. The advisory fuel rate for cars with petrol engines of up to 1400cc is 15p per mile and it hasn’t changed since 1 June 2011. The rates for LPG cars and diesels have moved slightly over that period but not much. You could ask your employer to pay more per mile, but you will then be taxed on the excess above 15p per mile, unless you can show your car is particularly fuel-hungry, which is unlikely for a Skoda.

Q. I’m a painter and decorator, working mainly for individual householders. I only give out an invoice for work done if my customer asks for one. Is this acceptable to the Taxman? I’m not VAT registered.

A. As you are not VAT registered there is no legal requirement to issue invoices for every sale, but it is good business practice. If you accurately record the money you receive from customers, and those amounts can be tied up to the cash and cheques you bank, the Taxman should not have a problem with your business records. However, if the Taxman suspects that you have been under-recording your sales, because you receive many payments in cash which are not immediately banked, you may have a problem. We can help you set up a system which will accurately record your sales, and keep the Taxman happy.

Further Details

Q. My office junior is paid exactly the national minimum wage (NMW). Do I have to put his wages up from 1 October 2012?

A. It depends how old your employee is. >From 1 October 2012 the NMW rate for those aged 21 and over rises from £6.08 to £6.19 per hour, and the apprentice rate is increased to £2.65 per hour. However the rates for 16 to 20 year olds have not been increased.

October Key Tax Dates

• 1st – Due date for payment of Corporation Tax for the year ended 31 December 2011
• 5th – If a Tax Return has not been received, individuals and trustees must notify HMRC of new sources of income and chargeability in 2011/12
• 14th – Return and payment of CT61 tax due for quarter to 30 September 2012
• 19th – Tax and Class 1B NI due on PAYE settlements for 2011/12
• 19th/22nd – PAYE/NIC and CIS deductions due for month to 5/10/2012 or quarter 2 of 2012/13 for small employers
• 31st – Deadline for 2011/12 self assessment paper returns to be filed for HMRC to do the tax calculation. If a paper return is being filed also the deadline for tax underpaid to be collected by adjustment to your 2013/14 PAYE code (for underpayments of up to £3000 only)

Things To Know

If you have any questions, submit them by e-mail to have them answered in next month’s tax Q&A. And for any advice on the issues raised in this month’s newsletter, or to find out how we can you to improve your business and make sure that it’s running in the most tax efficient way possible, please call our accountants in Kingston on 020 8977 3883 or contact us through our website. Also you can . Additionally, you can keep reading our daily blogs.