Income Shifting & How To Benefit From It

Income Shifting & How To Benefit From It

Income Shifting

How to benefit from Income Shifting or shifting your Tax Liability the easy way…

Special rules apply to income received from assets which are jointly owned by married couples. They allow them to vary the share of income on which each pays tax. So how can we use these rules to create tax savings for our clients?

It is quite shocking to think that until 1990 a married woman’s income belonged to her husband for tax purposes. Can you believe it was even necessary for HMRC to obtain a husband’s permission to refund his wife any tax that she had overpaid. Times have changed and while this antiquated system has been scrapped, some aspects remain, but the good news is that these tend to owrk in favour of married couples.

Whether or not you are married, they (and no one else) are liable to tax on the income to which they’re entitled. What’s more, anti-avoidance rules prevent them from transferring income for tax purposes to their spouse in order to save tax. However, a tax break, which is a throw-back to the pre-1990 system, allows couples to shift the liability between themselves and achieve a tax reduction.

The 50/50 Tax Rule

The 50/50 tax rule for married couples can save tax without the need for a form 17 election.

Tip: Consider transferring a small share of an asset into the spouse’s name if they pay tax at a lower rate.

Example: in 2016/2017 Amanda’s shareholdings pay her dividends of £18,000. Her other income is £32,000. Tax at the higher rate kicks in on income over £42,000, and so applies to £8,000 of Amanda’s dividends. Her Husband, James, has an income of £30,000. So Amanda converts each shareholding to jointly owned by transferring 5% to James. They make no Form 17 election. They are each taxable on 50% of the dividends, i.e. £9,000 each, which means that Amanda is no longer liable to higher rate tax and neither is James.

 

Need Help With Income Shifting

If you need any help or guidance with Income Shifting and how you can make the most from it, please feel free to contact Maze Accountants on 020 8643 9633.

Contact Maze Accountants

Form 17 Conditions

A Form 17 can be used by a married couple to elect to be taxed on income they receive from a jointly owned asset according to the proportions in which they own it. After the form has been completed, signed and dated, it must be submitted to HMRC within 60 days.

The form cannot be used for:

  • income to which neither you nor your partner is beneficially entitled
  • partnership income
  • income from commercial letting of furnished holiday accommodation
  • income from shares in a close company (broadly that’s a company controlled by five or fewer individuals)
  • income which for tax purposes is treated as income of a third party
  • property held as beneficial joint tenants, i.e. where you are both jointly entitled to the whole of the property and income.
Tax Returns 2016 Are Due By 31st January 2017

Tax Returns 2016 Are Due By 31st January 2017

Tax Returns 2016

If you file your tax return late, you will face a fine of at least £100 from HMRC.

How to submit your 2015-16 tax return

There are two ways to submit your tax return. You can either send a paper tax return to HMRC or fill in an online tax return online on the HMRC website.

Submitting your tax return online has various advantages – you can find out more about submitting online tax returns here.

If you need additional help with tax, or other aspects of accounting, you can contact a member of our team at Maze Accountants to get individual guidance. Telephone 020 8643 9633.

Different ways to submit your tax return

The deadline for submitting your Tax Return depends on how you choose to submit your tax return.

  • Paper Tax Returns need to be filed by 31st October 2016. Tax Returns in paper form relating to April 2015 to April 2016, should be submitted by 31st October 2016.
  • Online Tax Returns can be filed up to 3 months later – 31st  January 2017. Electronic filing of Tax Returns relating to April 2015 to April 2016 can be filed online up to 31st January 2017.

Important deadlines for your 2015-16 tax return

31st October 2016: – This is the deadline for filing a paper tax return, whether you choose to work out how much tax your owe yourself or want HMRC to do it. However, if you receive notice that you must file a tax return after 31 July 2016, you’ll need to send back the completed form within three months of the notice’s date of issue.

30th December 2016: – If you file your tax return online and also have earnings taxed under PAYE, you can opt to have overdue tax (if it is less than £2,000) collected by PAYE, provided you filed your online return by this date. The advantage of this is that any tax payable would be paid over 12 months from April 2016, rather than in a single lump sum by 31 January 2017.

31st January 2017: – This is the final deadline for online tax returns, unless the notice to make an online tax return is issued by HMRC after 31 October 2016, in which case you have three months from the date of issue. This is also the deadline to pay any tax due for paper Tax Returns and online submission of Tax Returns.

It’s important to be aware that filing your tax return late, or failing to pay the tax you owe on time, will mean you can face extra penalty fees and interest charges.

Maze Accountants, based in Banstead, help many local individuals and businesses with submitting their Tax Returns, so why not let us help you too! Contact Maze Accountants for further information on help with Tax Returns on 020 8643 9633.

RELATED ARTICLE: Submitting Your Online Tax Return 2016

VAT Flat Rate Scheme Advantages Restricted

VAT Flat Rate Scheme Advantages Restricted

VAT flat rate scheme advantages restricted

Last week, the Chancellor announced in the Autumn Statement that many contractors and other service providers will lose the cash benefit of the VAT Flat Rate Scheme from April 2017.

Flat Rate Scheme

The Flat Rate Scheme (FRS) – is used by many small businesses to make their VAT reporting simpler. In addition, many businesses also gain a cash advantage from using the flat rate scheme. However, this advantage is to be cut back significantly from 1 April 2017, as announced by the Chancellor. The Flat Rate Scheme will continue, although many businesses will not find it cost effective to use.

Cash Advantage

Currently, when using the Flat Rate Scheme, the business ignores VAT incurred on purchases when reporting VAT payable – with the exception of capital items which cost £2,000 or more. The process is to simply multiply the gross turnover (including VAT charged at the normal rates) by the FRS percentage according to their specific trade sector.

This Flat Rate Scheme percentage is taking into account the amount of VAT likely to be incurred on business expenses.

The common percentages used by service-related businesses are:

  • Accountancy and legal services 14.5%
  • Journalism or entertaining 12.5%
  • Computer or IT consultancy 14.5%
  • Business services not listed elsewhere 12%
  • Estate agents and property management 12%
  • Management consultancy 14%

If the business incurs minimal expenses, in a sector with a low FRS percentage, it will pay less VAT to HMRC under the FRS than it would outside the scheme.

Many businesses register for VAT voluntarily prior to their turnover reaching the VAT threshold, in order to use the Flat Rate Scheme and gain the cash advantage.

VAT Flat Rate Scheme Advantages Restricted / Maze Accountants Banstead 020 8643 9633

Abuse Of The Flat Rate Scheme   

It is believed by the government that many small businesses have abused the Flat Rate Scheme by using it as the law intended. In response, it is changing the terms of the scheme to make the scheme less attractive, and to reduce the cash advantage enjoyed by service-related businesses.

From 1 April 2017, a small business will be required to use the Flat Rate Scheme percentage of 16.5% if it is a “low cost trader”. This is more likely to adversely affect businesses in all of the trade sectors listed above, and quite possibly many other similar businesses, as 16.5% of the gross turnover is equivalent to 19.8% of the net leaving virtually no credit for VAT incurred on purchases.

Low Cost Trader

A Low Cost Trader is a business whose expenditure on goods only is less than 2% of its gross turnover.  Or if it is more than 2% of the turnover, the amount spent on goods is less than £1,000 per year. Any expenditure on; capital items, motor expenses, or food or drink for consumption by the business, is ignored when working out the 2% or £1,000 threshold.

This emphasis on ‘goods’ will discriminate against businesses who incur VAT on services such as: rent, software licences, IT support, digital journals, sub-contractors, telecoms etc.

In VAT terms, a service is anything which is intangible, or where the cost relates to a tangible asset, it is the temporary use of that asset – such as hiring.

What To Do Next

We will need to review the use of the Flat Rate Scheme for every client who currently uses that scheme.

Any of our clients who are trading below the VAT threshold of £83,000 may wish to deregister from VAT with effect from 1 April 2017. Businesses who are already trading above that threshold may need to withdraw from the FRS from the same date.

Please Note that any attempt to invoice in advance for services to be provided on or after 1 April 2017, to capture that invoice within the FRS, will be treated as if the invoice was issued on 1 April 2017

For further information regarding the restriction to the VAT Flat Rate Scheme contact Maze Accountants on 020 8643 9633.

Monday Morning Motivation

Monday Morning Motivation

Monday Morning Motivation

Hey Folks, how about this for some Monday Morning Motivation?
“To Be Successful, The First Thing To Do Is Fall In Love With Your Work.”

A lot of the general population say that they hate Mondays and that the weekend is not long enough! But that is mainly because they have not “fallen in love with their work”. Or quite simply they are doing a job that they are not interested in. It just doesn’t “float their boat” or get them going. Do you jump out of bed on a Monday morning, keen to get to work?

As the quote above says, to be successful you need to love what you do. And if you don’t love what you do, then you won’t have the passion and you won’t have the drive to make it a success.

Monday Morning Motivation - How Does Monday morning make you feel?

Many people start a business because they have a passion for a hobby, helping the local community or another reason. It doesn’t really matter what the reason is behind starting the business. The key ingredient is they have PASSION for what they do. If you are passionate about your business – your products or services that will give you drive to make your business a success.

Of course, it is always sensible to make sure that it is a viable business. And Maze Accountants can help you with that. We can help you work out your costs – overheads, cost of sale, manufacturing costs, packaging and so on. And that’s where our passion lies – we really love helping new businesses get off the ground and to become a successful business.

We Love What We Do!

It’s simple, we love what we do – and – if you love what you do, we can help you to love it more (is that even possible?) by guiding you to a profitable business model.

Our clients use us because we are qualified, knowledgeable, serious (yet fun) and we will change your mind about stereotypical accountants. Because we are not stereotypical accountants. We still get the job done but we also have fun – and that rhymes. So why not find out why it “pays to be with Maze” – that also rhymes.

 

This was written at just after 9am on a Monday morning. Why? Well, I was thinking about Monday mornings and how the majority of people appear to respond to Monday mornings. Negatively!

We all have bills to pay and whilst the majority of people don’t really look forward to Monday mornings, they know they’ve got to get to work, to earn the money, to pay the bills.

So, how could you change your perception of Monday mornings? How could you be passionate about your work? What’s your drive and motivation for getting out the door and getting to work?

Do you need some help with your Monday Morning Motivation – or more specifically your business accounts (no matter what sort of mess they may be in) then you are more than welcome to contact Maze Accountants on 020 8643 9633.

We are based in Banstead, Surrey – previously in Sutton and we look after many local individuals and businesses. Our range of accountancy services are listed here.

 

A Quick Overview of the Autumn Statement 2016

A Quick Overview of the Autumn Statement 2016

A Quick Overview of the Autumn Statement 2016

A Quick Overview of the Autumn Statement 2016 - Philip Hammond MP Chancellor of the ExchequerSo, we’ve been waiting in anticipation for Philip Hammond MP to announce the Autumn Statement as Chancellor of the Exchequer. And in order to get the information out as soon as possible, we have got a quick overview of the Autumn Statement 2016 in a snapshot below.

And how does the Autumn Statement affect the British population? Which changes have been put forward? If you’re keen to know – but can’t actually be bothered to read all of the detail, here is a quick overview of the Autumn Statement 2016 here for you.

And the main point that everyone wants to know is “Will We Be Better Off… Or Worse Off?” 

Here are the “Winning” points:

  • Savers A new savings account from National Savings & Investments is to be launched. It is expected to pay 2.2% over a three-year term on a maximum balance of £3,000. Details will be announced in the Budget next year, which will now take place in the autumn. It was announced that Autumn Statements will be moved to the spring and will involve “no major fiscal changes” except in response to unexpected circumstances. The annual ISA allowance will rise to £20,000 in April next year.
  • Pensioners The “triple lock” on the state pension will remain in place.
  • Those Aspiring Home Owners £7.2bn will be put towards support of the construction of new affordable homes, including spending by housing associations. A new £2.3bn Housing Infrastructure Fund will be established for infrastructure for up to 100,000 new homes in high-demand areas. The Help to Buy “equity loan” scheme and the Help to Buy ISA will remain.
  • Taxpayers The tax-free personal allowance is raised to £12,500 and the threshold for higher-rate tax to £50,000 as per previous announcements. After 2020, the thresholds will rise in line with the consumer prices index. The National Insurance threshold for employees and employers will be aligned at £157 a week. There will be no cost to employees. Class 2 National Insurance contributions will be abolished in April 2018, which will simplify National Insurance for the self-employed, as mentioned in the Budget.
  • Workers On State Benefits The amount of benefits that claimants can keep while in work is to be increased. More than £1bn will be diverted into the welfare system in a move designed to ease the impact of previous cuts. The Chancellor said the Government had no plans for further welfare savings measures in this parliament beyond those already announced.
  • For Motorists A clampdown on whiplash claims will save each driver £40 on premiums. Fuel duty is to be frozen, saving the average driver around £130 a year compared with pre-2010 plans.
  • Employees Earning Minimum Wage The National Living Wage will rise from £7.20 an hour to £7.50 from April 2017, and steps to ensure that people are paid the minimum.
  • Parents The Chancellor confirmed that the Government would begin to roll out tax-free childcare across Britain in early 2017. He said this would represent a saving of up to £2,000 per child.
  • Tenants Letting agents’ fees charged to tenants, which currently add as much as £500 to the cost of renting a home, are to be banned.
  • Employees Who Are Made Redundant The first £30,000 of termination payments will remain tax-free. There had been fears of a reduction. As announced in the Budget, from April 2018 termination payments over £30,000, which are already subject to income tax, will also be subject to employers’ National Insurance contributions.
  • Pension Savers The Government will shortly publish a consultation on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse “small self-administered schemes”.

And the “Losing” points?

  • Savers Using ‘Drawdown’ Pensions The annual allowance for saving into a pension for those who have started to “draw down” their pension savings will be cut to £4,000 from £10,000.
  • Buy-To-Let Investors While tenants will benefit from the removal of upfront letting agents’ fees [winning point], landlords can expect to be worse off, if they now have to meet the costs of various agents’ services such as credit and immigration checks.
  • Tax Avoidance Schemes To tackle tax avoidance, the Government would “strengthen sanctions and deterrents” and will take further action on disguised remuneration tax avoidance schemes.
  • Employees Tax Perks The rules that govern “salary sacrifice” – buying services from your pre-tax income through your company are to be tightened. However, saving for your pension this way is not affected by the change in the rules. Arrangements relating to childcare, the Cycle to Work scheme and ultra-low emission cars are also unaffected.
  • Insurance Policyholders Insurance premium tax (IPT) is to rise from 10% to 12%.
  • House Buyers There has been no change to the stamp duty regime. The amount raised for the Exchequer from stamp duty is expected to rise from £11.3bn to £16.8bn by 2012-22.
  • Foreign Pensions Tax treatment of foreign pensions will more closely mirror the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones. Currently there are opportunities to extract money without paying UK tax.

There you have it, a quick overview of the Autumn Statement 2016.

But what about the Autumn Statement 2016 from a business perspective?

Here are the key headline points for businesses: 

  • Corporation Tax To Fall To 17% Corporation tax will continue to fall to 17% by 2020 and this is in-line will measures introduced in Budget 2016. Hoping to help benefit over a million businesses, this rate will be the lowest of any G20 nation.
  • £1bn To Be Invested In Full-Fibre Broadband And Trialing 5G Networks Over £1bn will be invested in digital infrastructure in the hope to make the UK a “world leader in 5G”. From April 2017, 100% business rates relief will be provided for new full-fibre infrastructure for a five-year period.
  • £400m To Be Invested In Growing Innovative Firms The government, through the British Business Bank, will be investing £400m into VC firms to support scale-ups and smaller businesses.
  • UK Export Finance Capacity Doubled UK Export Finance capacity was doubled – with the aim to make it easier for British businesses to export and receive insurance from the private sector.
  • Supporting Management Skills For Businesses Sir Charlie Mayfield’s review of business productivity will be implemented, with the government providing £13m to help businesses improve their management skills.

What To Do Next?

Want to know how some of these changes may affect you and your business? We can give you advice on how best to adapt to the changes as outlined in the Autumn Statement. Schedule a discussion here or call us on 020 8643 9633.

 

Here’s a link to the announcement from HM Treasury

 
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