Summary

Based on your past income levels you may be of the opinion that an application would produce no cash benefit. However, your circumstances may change. For example if you are self-employed you may suffer a downturn in trade that you cannot foresee or you may be able to claim for a significant investment in plant or equipment and reduce your taxable profits accordingly.

Applying in the April-July 2012 window will secure your rights to Tax Credits for 2012-13. Even if the initial assessment reveals that no Tax Credit payments are due to you, should your circumstances change you can ask for the assessment to be re-evaluated.

Please call if you would like assistance in making a claim.

HMRC have apoloised after sending out misleading letters regarding tax credits.

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• Tax officials apologise after misleading families on child tax credits (telegraph.co.uk)

If the answer is yes you will not qualify for the higher value personal

allowances presently available to the over 65s and over 75s.

From 6 April 2013 Age Related Personal Allowances are being phased out. Here’s how the changes will work in practice:

1.            If your birthday is after 5 April 1948 you will not qualify for Age Related allowances.

2.            If your birthday is after 5 April 1938 but before 6 April 1948 you will continue to qualify for the Age Related Personal Allowance (65 to 74 age group) of £10,500 until this allowance equals, or is exceeded by, the Personal Allowance. For 2013-14 the basic Personal Allowance is due to rise to £9,205.

3.            If your birthday is before 6 April 1938 you will continue to qualify for the Age Related Personal Allowance (75 and over) of £10,660 until this allowance equals, or is exceeded by, the Personal Allowance. As mentioned in 2 above for 2013-14 the basic Personal Allowance is due to rise to £9,205.

There is no doubt that eventually all taxpayers over the age of 65 will be disadvantaged by these changes.

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• Why raising the personal allowance is bad policy (newstatesman.com)

This will not affect tax reliefs which are already capped such as Enterprise Investment Scheme and pension reliefs, but may affect “open-ended” reliefs such as interest relief on qualifying loans and gift aid relief. The Chancellor has said that he will consult to make sure that charities are not negatively affected by such a move.

Ironically, this may mean that tax planning opportunities available to 50% rate tax payers in 2012-13, may produce more tax savings than if applied, and capped, in 2013-14 when the top rate of tax is reduced to 45%.

50% tax rate payers therefore have one more fiscal year, 2012-13, to take advantage of certain, unlimited reliefs.

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• Budget scare for charities over tax relief cap (thejc.com)

Firstly the extension of the nil rate band to £250,000 for first time buyers ceased 24 March 2012.

The current Stamp Duty Land Tax (SDLT) rates are:

Residential property purchased outside disadvantaged areas

Zero charge – £0 to £125,000

1% charge – £125,001 to £250,000

3% charge – £250,001 to £500,000

4% charge – £500,001 to £1,000,000

5% charge – £1,000,001 to £2,000,000

7% charge – Over £2,000,000

15% charge – on properties over £2m held in a “corporate envelope” (see below)

The 7% and 15% charges were introduced in the Budget last month. The 7% charge applies to property purchases completed after 22 March 2012.

The 15% charge has been introduced to counter a tax device that aimed to avoid SDLT charges on high value residential property purchases. The scheme involved purchasing through offshore companies, so-called “corporate enveloping”. The 15% charge will apply from 21 March 2012. In his Budget speech George Osborne made it clear he would close any variants of the scheme that are created in the future; if necessary the Government would introduce retrospective legislation.

Residential property purchased in a disadvantaged area

If a property you are purchasing is inside one of the 2,000 disadvantaged areas you may qualify for Disadvantaged Areas Relief. The only change to the SDLT rates listed above is to the nil rate band. If a property is located inside a disadvantaged area the nil rate band applies to property transactions up to £150,000. The 1% charge is adjusted accordingly, and applies to the band £150,001 to £250,000.

If you want to see if a property you are about to purchase qualifies for Disadvantaged Areas Relief you can use HMRC’s search tool at http://www.hmrc.gov.uk/so/dar/dar-search.htm

Related articles

• Stamp duty soars on homes over £2m (independent.co.uk)
• Stamp duty: Estate agents voice fears as plug is pulled on the rock star’s property trick (independent.co.uk)

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It is common for owner managers to take income from their own company through a mixture of salary and dividends.

For 2012/13 the maximum salary at which no tax or NI is payable is £7,485.

Although no employee’s or employer’s NI is due on this level of salary, the employee does still receive a full years credit to their state pension record.

The personal allowance for 2012/13 is set to increase to £8,105 (from £7475).

To avoid going into the band at which higher rate tax becomes payable, the maximum figures for 2012/13 are:

Salary                                                         £7,485

Dividend                                                 £31,491

(before tax credit)

If you have paid pension contributions or made gift aid payments, then the amount of dividend can be increased.

Note dividends can only be paid if the company has distributable profits.

Between husband and wife and civil partners a simple transfer of legal title into joint names, with no change in the beneficial interest will mean that the rental income is automatically split 50:50 for tax purposes between the spouses (s.836 ITA 2007). If a different split of income is required then the beneficial interest must be held in the same proportion as the desired split of income and a joint declaration under s.837 sent to HMRC.

For non-spouses the situation is different. Where there is any beneficial joint ownership (for example 99:1) this gives an opportunity for the rental income to be split in whatever proportion the owners agree between themselves. So if a taxpaying grandparent for example owns a rental property and wishes to pass income to grandchild in a tax effective way without transferring assets they could give a 1% beneficial interest (covered by annual CGT exemption) and agree to split the income however they wish, even as much as 99% to the grandchild. This could form the basis of some useful late planning for school fees for example.

You will be paying tax at the 40% income tax rate if your income less tax allowances exceeds £35,000 and at the additional rate, 50%, if your taxable income exceeds £150,000.

Tax (Photo credit: 401K)

Additionally, your Personal Allowance reduces when your income is above £100,000 – by £1 for every £2 of income above the £100,000 limit. This reduction applies irrespective of age. As the basic personal allowance is £7,475 for 2011-12, when your income exceeds £114,950 this tax allowance is eliminated.

Income under £100,000

If your income is under £100,000 you should not lose any of your personal tax allowance and none of your top-sliced income will be taxed at 50%.

Income between £100,000 and £114,950

In this income range you are progressively losing a tax allowance and paying tax at 40% on the top sliced £14,950. The combined tax suffered is therefore a significant 60%.

Income over £150,000

Will all be taxed at 50%

Ironically, therefore, if you want to adopt strategies to reduce your taxable income, it is not those with income over £150,000 that stand to save tax at the highest rate. Instead it is those with income between £100,000 and £114,950 where the possible tax savings are at a rate of 60%.

The cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes. Also as long as the criteria below are followed, there will be no taxable benefit charged to employees:

1.            The event must be open to all employees at a particular location.

2.            The cost is only tax deductible for employees and their partners (which would include directors in the case of a company) but not sole traders and business partners in the case of unincorporated organisations.

3.            An annual Christmas party or other annual events offered to staff generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 p.a. Partners and spouses of staff attending are included in the head count when computing the cost per head attending.

4.            All costs must be taken into account, including the costs of transport to and from the event or accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring. No deduction will be allowed for the £150 exemption.

5.            VAT input tax can be recovered on staff entertaining expenditure. If staff partners/spouses are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.

Gifts

A final note on ‘Trivial’ gifts for employees.

Employers may find the following Revenue concession useful – we have copied the note directly from the HMRC handbook:

“An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned.”

One final cautionary note regarding VAT and staff gifts, VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys however, are zero rated for VAT purposes!

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In the past as long as you paid your tax liabilities on time and cleared any self-assessment tax due by 31 January, no late filing penalties were due. Even if you failed to pay your tax on time, late filing penalties were capped at £100 or nil if you were due a tax refund. The goal posts have moved! The 2010-11 tax returns have to be filed by 31 October 2011 if you are filing a paper return, or 31 January 2012 if you are filing electronically. If you fail to meet these deadlines you face the following penalty regime, even if your tax payments are up-to-date.

* One day late an initial penalty of £100.

* Three months late a daily penalty of £10 per day up to a maximum of £900.

* Six months late an additional £300 or 5% of any tax outstanding, whichever is the higher amount.

* One year late a further £300 or 5% of any tax outstanding, whichever is the higher amount.

As you can see the minimum penalty for filing 6 months late is £1,300 even if all your tax due is paid on time or you are due a tax repayment. If you have had a relaxed attitude to meeting the filing deadline in the past; you may like to reconsider your priorities for the filing of the 2011 return!