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There is no specific tax relief for school fees but

Wednesday, October 12th, 2016

MAKE SCHOOL FEES LESS TAXING

Having enjoyed our great British summer and spent quality time with your children, perhaps it’s a good time to consider that expensive topic of school fees now they’re now back at school.

There is no specific tax relief for school fees but the application of general tax planning can definitely help in this area.

Most people know that if you transfer income to your children, then it will be taxed on you until they are 18. However, such rules do not apply to income provided by other members of the family. The most common situation is usually grandparents.

You can consider the situation where the grandparents have investment income – or maybe income from dividends in a personal company – which is taxed at the higher rates of 40% or 45%. The net income, after this high level of Income Tax, is then put aside, and their capital grows and so creates a larger estate. This eventually leads to be ‘double whammy’ of a larger Inheritance Tax bill at 40% in due course.

It is unlikely that either you as parents or the grandparents would be comfortable with large levels of capital, or shares in a profitable company, being directly held by your children.

So, you would usually build in the protection of transferring the assets to a discretionary trust, with you or the grandparents as trustees, and the children as beneficiaries. This gives the children no rights to the assets, and the trustees would pay the school fees out of the trust income.

The tax calculations are complicated, but in the end, as the children use their personal tax allowances and lower rates of tax, there are sizeable savings.

EXAMPLE: Granddad Joe has £40,000 of dividend income from his personal company, which he pays around £11,000 in Income Tax on. He gifts the shares to a discretionary trust, and he and his son Steve are trustees. The trust pays the net income out to Steve’s 2 children each year to pay their school fees, and their net tax bill is less than £4,000 in total, an annual tax saving of over £7,000.

Tax is a complicated area as you can see from the example above and it’s always wise to seek professional advice so call Des on 0800 019 1744 or email dmm@barringtons.co.uk and we’ll make an appointment for you to discuss this in more detail.

Author: Andrew Wilshaw

Director & Tax Specialist at Barringtons Chartered Accountants

HMRC penalties for late VAT registration

Thursday, August 25th, 2016

VAT’S HOW TO DO IT (part 1)

Value Added Tax or VAT is always a thorny subject and affects all of us indirectly as it impacts on the prices we pay. It is particularly interesting for small business owners whose turnover is close to the VAT threshold.

The annual VAT registration limit is £83,000, so if the value of the goods or services that you sell exceeds this figure then you need to apply for VAT registration.

The first point to watch here is that the limit is for ANY 12 month period. It is not based on your accounts year-end date. So, if you wait until the end of your accounting period you may find that you are several months late in registering. There are 3 big problems here.

Firstly, the VAT man will say that you should have charged VAT on all sales from the date you exceeded the limit. So, if you exceeded the limit 6 months ago, and have invoiced £45,000 since then, you will owe HMRC £7,500. In some circumstances you might be able to recover this from customers, but often this is not possible.

Secondly, you will be charged a penalty based on the overall VAT payable.

Thirdly, even if your sales have since decreased below the VAT de-registration limit, once you were due to register, you remain registered until the date you notify the VAT man of this fact. So, you end up paying much more VAT than if you had dealt with the problem earlier.

So, it is vital to keep an up to date summary of your sales in the previous 12 months at all times. This allows for decisions to be made.

One decision could be to ensure that you trade below the VAT registration limit. A good example would be a coffee shop, where VAT registration would be disastrous if not managed properly. An increase in sales from £81,000 to £83,000 might end up in a VAT bill of around £12,000. So, a small increase in sales has actually cost you at least £10,000 in the pocket.

The answer might simply be to close on Monday afternoons, enjoy the time off and save yourself a lot of money! The key is having up to date figures to allow the right decision to be made.

Good financial management is one of the cornerstones of a successful business so don’t wait to attract HMRC penalties. Call Des on 0800 019 1744 or email dmm@barringtons.co.uk and we’ll make an appointment for you to discuss this in more detail.

Author: Andrew Wilshaw
Director at Barringtons Chartered Accountants

How new tax laws affect your ‘Buy to Let’ income

Monday, August 15th, 2016

Profitable Property

If you have a have a ‘buy to let’ property or a portfolio of properties then this article will concern you. The appeal of ‘buy to let’ is obvious – a steady income stream, low mortgage costs, and, in the long-run, an increase in value which has steadily been above inflation.

Until recently there have been few specific tax rules in this regard – it was taxed like any other investment. However, there appears to be the political view that the large number of property investors have priced many first-time buyers out of the market.

So, rightly or wrongly, residential property investors are being hit by extra tax in this area. Each of the past 3 Budgets have seen increases in tax payable – Income Tax on net profit, Stamp Duty on purchases and, in the recent March 2016 Budget, Capital Gains Tax on disposals.

Firstly, mortgage interest is being restricted to 20% tax relief only. If you are a higher-rate taxpayer with £10,000 in interest each year, your tax bill will increase by £2,000. Ouch!

Not only that, as your taxable income will be higher, this could affect things like claims to Child Benefit or other tax reliefs which are restricted to basic rate taxpayers. Suddenly, with the same net income as before, you will have moved into a completely different tax bracket.

A family with 3 children will currently receive around £2,500 in Child Benefit per year. If their taxable income is suddenly £10,000 higher as a result of these changes, then possibly all of this Benefit may need to be repaid as well as the extra Income Tax. Double ouch.

As a result of these changes, many people have heard about the idea of running your properties through a limited company. Whilst this does improve some of these issues, it can cause other problems in itself, and potentially make things worse. It is a not topic for easy discussion here, and it will depend on your precise circumstances.

The second change concerns the Stamp Duty on purchasing buy to let properties. This is now 3% more than the rate you would pay on your main residence. The final change is that Capital Gains Tax on the sale of buy to let properties will be 8% higher than the main rates. Triple and Quadruple ouch!

As always, careful planning is required to get the best result. So, please call Des on 0330 024 0498 or email dmm@barringtons.co.uk and we’ll make an appointment for you to discuss this in more detail.

Author: Andrew Wilshaw

Director at Barringtons Chartered Accountants

GPs and practice managers need to act on an important NHS policy

Tuesday, August 2nd, 2016

Seize your chances to get one step ahead

GPs and practice managers need to act on an important NHS policy document so they can turn it to advantage for their practices. Deborah Wood** casts an accountant’s financial eye over the General Practice Forward View

Over the last decade investment in secondary care specialists has grown three times faster than investment in GPs in primary care. Now, at last, the NHS seems to have recognised this imbalance needs redressing.

NHS England’s General Practice Forward View document, published in April 2016, sets out practical ways for this to be dealt with over the next five years and includes information on additional funding for investment in staff, technology, premises, indemnity, bureaucracy and care redesign.

The aim of the support package is to reinvent the clinical model, the career model and the business model to reinvigorate general practice.

Keeping general practice at the core of patient-centred, co-ordinated, high-quality community care that encompasses the complexity of acute, long-term, mental and social care is the goal.

The GP’s role will be to lead multi-disciplinary teams linking hospital, community and social care professionals to provide co-ordinated care for their patient list. This is likely to be in a networked, collaborative environment in which specialisms can thrive.

Greater use of technology will also be a key component for making these ideas work.

GPs and practice managers need to be abreast of what is in the document so that they can consider what is available to their own practices at a local level.

Investment

£2.4 billion a year to 2020-21 is on the table, which represents a 14% real terms increase. For 2016-17 this means that an additional £322m is allocated into primary care.

In addition there will be a Sustainability and Transformation package of £508m over five years to support struggling practices, develop the workforce and stimulate care redesign.

Each area in England has to produce a plan to secure and support general practice by July 2016. This funding includes £56m for a practice resilience programme starting in 2016-17, £206m to grow the workforce, and £246m for service redesign.

The practice funding formula will be recalculated in the summer of 2016 to reflect workload, deprivation and rurality issues. PMS reviews are being phased in over a minimum of four years requiring a published reinvestment plan for local savings before full implementation.

Proposals to find ways to tackle the high cost of indemnity for GPs are being developed from July 2016.

From April 2016 CCGs, local authorities and NHS England are able to pool their Better Care Fund budgets to jointly commission services including nurses in GP settings to provide a co-ordination role for patients with long term conditions; GPs providing services in care/nursing homes; providing mental health care professionals in a GP setting and hosting social workers in GP surgeries.

Workforce

Ambitious targets have been set by NHS England together with Health Education England to double the rate of additional doctors coming into general practice over the next five years. This means an increase in GP training recruitment to 3,250 a year to support 5,000 new GPs by 2020. As I write, there has been a 70% take up of places for 2016-17.

There are bursaries of up to £20,000 available to attract 109 GP trainees into under-doctored areas and a national induction and refresher scheme offers a £2,300 a month bursary during the supervised period for returners.

In addition to trying to attract new and returning doctors into general practice there will be:

* investment in 3,000 additional mental health therapists

* existing investment in clinical pharmacist positions to be increased to expand the programme by a further 1,500 pharmacists in general practice by 2020,

* £15m investment in training capacity in general practice for nurses

* £45m to support training for reception/clerical staff

* 1,000 physician associates to be trained

* pilots for medical assistant roles

* £6m for practice manager development and

* £3.5m for multi-disciplinary training hubs.

And there is also £16m on top of the £3.5m previously announced to be invested in specialist mental health services to support GPs themselves who are suffering from stress and burnout.

Workload

Research suggests that workload in general practice has increased by 2.5% a year since 2007-08, with 27% of GP appointments potentially avoidable.

A £30m development programme ‘Releasing time for patients’ will facilitate patients to self-manage their illness and practices to support people with long-term conditions to self-care and influence the involvement of community pharmacy.

There will be some tightening up of legal matters in NHS Standard Contracts to help prevent workload shifting inappropriately from secondary to primary care with CCGs responsible for monitoring this.

Pilot sites are operating better communication methods between GPs and consultants to access advice and minimise referrals. Use of IT systems that simplify the process for new care plans are to be actioned for 2017-18.

In addition, £40m of additional funding over four years is available for practice resilience plans.

BMA roadshows have provided advice on 10 actions to create capacity.

On the back of CQC inspections to date, 87% of practices have been found to be good or outstanding so five yearly reviews are to be instigated. Along with professional indemnity fees, CQC registration fee increases are reflected in the annual Review Body pay award.

QOF is to be reviewed and it is likely that the unplanned admissions enhanced service will cease at 31 March 2017.

GP practice data collection and payment systems are to be simplified. CQRS data can be entered manually to avoid cash flow problems. The payment systems providers will be expected to improve their accuracy and to develop a payment claim/reconciliation tool.

Computerised paperless systems and integration across NHS organisations is also moving forward.

Various initiatives are in place to create best practice guidelines for practice workload/appointment management. Interaction with social prescribing and the Fit for Work campaign is intended to reduce the burden on GP practices.

Practice infrastructure

£900m is included within the overall investment funds for capital investment over the next five years. New rules are being created to enable NHS England to fund up to 100% of premises development from September 2016 (currently 66%).

Practices that are tenants of NHS Property Services will be encouraged to sign new leases from May 2016 to October 2017 and their stamp duty land tax costs will be funded.

Transitional funding for practices seeing significant increases in facilities management costs within leases held by NHS Property Services or Community Health Partnerships will be available from 1 May 2016 to 31 October 2017.

CCGs will be allocated an 18% increase in funding for IT services and technology for general practice.

Online access for patients, online consultations, an approved medical apps library, Wi-Fi in practices, and communication improvements are all being funded via a £45m national programme.

Care redesign

This will include integration of extended access with out of hours and urgent care services involving reformation of the 111 service to ensure there is sufficient access at evenings and weekends and working at scale through access hubs.

The new Multispeciality Community Provider Contract is being developed for April 2017 to create a new clinical and business model based on the patient list. Funding will be for the whole population budget and for the full service range.

Working at scale is encouraged to develop economies of scale, quality improvements, assist with workforce development and redesign delivery of care services.

Federation systems are envisaged to provide resilience by sharing back-office functions and pools of staff.

Overview

The General Practice Forward View certainly contains a lot of useful ideas about how to improve the current situation for general practice. There is a mixture of new funding and redeployment of existing funding together with best practice guidelines which should all help.

Practices need to get close to their CCGs and check out the plans for how the various investment funds will be allocated to ensure they are getting access to their fair share.

There is a clear need to do something different in general practice but is the five year turnaround time achievable or too ambitious? Is there enough fighting spirit left amongst the GP leaders to roll their sleeves up and make it work? Will all the parties collaborate together sufficiently quickly to make change happen?

It is incumbent upon the GPC and RCGP together with CCGs and member practices to steer the implementation process effectively to ensure that general practice continues to be fully sustained, not just for the next five years, but also for the next generation.

Ends

Subs – for runners and riders

**Deborah Wood is AISMA vice chairman and head of Healthcare Services Moore and Smalley LLP

 

This article first appeared in the Summer 2016 issue of AISMA Doctor Newsline, the newsletter of the Association of Independent Specialist Medical Accountants.

 

If you would like the support of a specialist medical accountant please contact Des to make an appointment on tel. 0330 024 0498.

 

HMRC’s use of penalties to ‘encourage’ compliance

Tuesday, July 12th, 2016

Transfers of Businesses – Unforeseen Cost

As many will have observed, HMRC’s use of penalties to ‘encourage’ compliance and punish non compliance is becoming ever more prolific.

One area of development (if that is the right term) is in the context of what are generally termed ‘reallocations of VAT registrations.’

Often, where a business is to change entity – for example if a sole trader business incorporates or becomes a partnership etc., the VAT number of the preceding entity is retained, and therefore transferred to the new entity, usually for very good reasons.

However, one must remember that by reallocating the VAT number to the new entity, that new entity immediately becomes VAT registered. Until the reallocation happens, the new entity is unregistered. Therefore if the reallocation is delayed, there is technically a late registration, with the associated painful sounding penal consequences.

There have been a number of instances where HMRC has taken penalty action in circumstances where an entity change has occurred and the new entity has duly continued to file and pay VAT returns following the change, but failed to notify HMRC. In the past, such events drew little more than a stern letter from HMRC. More recently however, they have resulted in penalties, notwithstanding the fact that all VAT due may have been declared paid over to HMRC.

Because the penalties are based on the tax due for the late period (i.e. from the time the change should have been notified until the time it actually was), they can be significant, and sometimes are assessed under the old Belated Notification Penalty, which HMRC once used to colloquially refer to as the ‘BNP,’ before hurriedly changing their terminology to Late Notification Penalty some years ago.

Until recently, there was no Case Law on HMRC’s approach. The one case which has found its way to the First Tier Tax Tribunal is useful for those wishing to contest such penalties, but I suspect that something more substantial will probably be needed to curb HMRC’s behaviour.

I have dealt with a number of such cases, the latest of which concerned a 15-year late notification which HMRC did eventually concede, but only in the face of a Tribunal application.

A planning point to bear in mind is that if it seems advantageous to make a retrospective change, for example, creating a partnership from a sole trader business with effect from the start of the current year, and if the start of the current year is more than 30 days ago, there is every possibility that the conditions will have been created to produce exactly the kind of penalty discussed above.

Planning is required so please call Des on 0330 024 0498 or email dmm@barringtons.co.uk to arrange a free of charge initial consultation.

Author: Colin Woodward

Barringtons Director, Chartered Tax Advisor & Specialist in VAT & Customs Duties

Date: 11/07/2016

National Living Wage

Thursday, March 24th, 2016

From April 2016, the National Living Wage will be £7.20 an hour for workers aged 25 and older. The minimum wage will still apply for workers aged 24 and under.

Previous years

The age groups were different before 2010 and there were no National Minimum Wage rates for apprentices.

Year

22 and over

18 to 21

Under 18

2009

£5.80

£4.83

£3.57

2008

£5.73

£4.77

£3.53

2007

£5.52

£4.60

£3.40

2006

£5.35

£4.45

£3.30

2005

£5.05

£4.25

£3.00

National Minimum Wage Rates

The National Minimum Wage rate per hour depends on your age and whether you’re an apprentice – you must be at least school leaving age to get it.

Year

21 and over

18 to 20

Under 18

Apprentice*

2015 (current rate)

£6.70

£5.30

£3.87

£3.30

2014

£6.50

£5.13

£3.79

£2.73

2013

£6.31

£5.03

£3.72

£2.68

2012

£6.19

£4.98

£3.68

£2.65

2011

£6.08

£4.98

£3.68

£2.60

2010

£5.93

£4.92

£3.64

£2.50

*This rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

The rates are usually updated every October – the current rates apply from October 2015.

If you have any queries then please contact telephone or email

Sue Howie – smh@barringtons.co.uk / 01782 713700
Kathy Pettit – kp@barringtons.co.uk / 01782 713700
Louise Hughes – elh@barringtons.co.uk / 01952 811745

Get the most out of Gift Aid!

Thursday, March 3rd, 2016

Many of us will have given good causes over the Christmas period and we all know that there are plenty of worthy causes that would be happy to oblige and take our money.

So how do you ensure that you both you and Charity make the most of these gifts, and, possibly, how do you ensure that you don’t end up on the wrong side and owe money to the taxman?

Most of us will be aware of Gift Aid. In a nutshell, if you give £100 to a favoured charity, and tick the Gift Aid box, the charity will get an additional £25 from the taxman. Sounds good so far.

However, this £25 is coming out of your tax bill – the taxman isn’t going to give away money that you haven’t already given to him. So, if you are not a taxpayer, the taxman can come knocking at your door and demand the £25 back from you. Remember that Gift Aid declaration you signed, giving your details and confirming you were a taxpayer…………?

With higher tax allowances, and people living off savings it can be easy to fall into this trap. So, if you don’t think you pay enough tax, then be wary about signing any declarations or giving any details on appeals.

So, how can you make it better? A simple answer might be that your spouse or partner is a taxpayer, and would be happy to make the donation in their name.

There is an even better outcome if you or your partner are 40% taxpayers. Remember that the charity has only claimed back £25. So you have not had 40% tax relief. So, you need to make a note of all donations made in the year, and make a claim for these, either on your Tax Return, or on a tax relief claim form. The net result is that you will get an additional £25 back as well.

The results are even better if your income is more than £100,000.

What’s more, if you know that last year’s income is very high, you can make a Gift Aid payment now and claim it against last year’s tax. Everyone wins, and money left over for presents!

If you want to discuss this or any more tax issues, then just give me a call on 01952 811745.

This article first appeared in the December 2015 edition of the Nova Magazine in Newport (tel. 01952 810560)

Author: Andrew Wilshaw FCA CTA
Tax Director
Barringtons Chartered Accountants

Are your tax affairs in order, as

Monday, January 18th, 2016

DON’T MAKE JANUARY TOO TAXING

Most of us know that the Tax Return and tax payment deadline is 31 January 2016.

Failure to file your Tax Return is an automatic penalty of £100 – this is even if you do not have any tax to pay. That is not the end of it, however. Once you reach 1 May, you will be liable to daily penalties of £10, up to a total of £900, and there are additional penalties beyond that.

Interest is payable at 3% on any late payment of tax. Even more costly is a flat 5% surcharge on the balance not paid within 30 days, and there is a further 5% penalty on the balance outstanding at 31 July.

And, long before this point, you will have had some nasty letters and phone calls from the taxman, threatening all sorts of action against you.

The key is to take control of the situation long before it gets to this stage.

Filing the Tax Return is the first matter. You will need to file it online as the deadline to submit it by post has already passed. Whilst this is possible, you need to be registered with HMRC and have the necessary ID and passwords, and you will also need to have all of your information to hand. This all takes time.

Paying the tax is next, and not always easy to deal with. Money can be tight at that time of year. If this is the case, do not just ignore it.

Firstly, you can call the HMRC Business Payment Support helpline to discuss what you can currently pay. In the right circumstances they will allow a time to pay arrangement, and spread the tax bill over a few months. Not only will this stop the 5% surcharge that would normally apply, it will also stop any nasty demands.

Secondly, part of the tax payable on 31 January will be a payment on account of next year’s tax bill. Assuming that you have good grounds for saying that next year’s tax bill will be lower than this year, you can submit a claim to pay less on account.

Of course, a qualified accountant is the best way to ensure you are on the right side of all of these points. Please give me a call tel. 01952 811745 if you want to discuss your tax matters further.

This article first appeared in the January 2016 edition of the Nova Magazine in Newport (tel. 01952 810560)

How will dividend tax affect you…….?

Monday, September 28th, 2015

“Take a dividend – maybe…”

Most small or medium-sized limited company owners are aware of the most tax-efficient tax structure for drawings funds out of their business. This is basically a small salary topped up with dividends up to the level required.

Many sole trader business owners will have incorporated into a limited company in recent years to take advantage of these savings. For a business making £40,000, the savings are around £3,000. For a business making more, the savings could potentially be a lot higher.

Savings compared to an equivalent PAYE salary are even higher.

So life as a tax advisor has been easy. ‘Need some cash for your holiday – take a dividend’. ‘Want a new car – take a dividend’. ‘Deposit on son’s flat at university – take a dividend’. ‘Want to buy a rental property – take a loan from the company (that’s confused you!) – then pay it off with a dividend next year’.

And, as long as you do things correctly, HMRC have to accept this. Must be sufficient profits – tick, must be paper trail of minutes and vouchers – tick, properly paid out – tick, not part of a scheme to sacrifice salary – tick.

Realising that there was nothing that HMRC could do to stop properly declared dividends, the boffins at the Treasury have finally come up with an idea. Make dividends more expensive. So, this was included in Mr Osborne’s Summer Budget, when he was basking in the post election glow and so able to say pretty much what he wanted.

Without going into some very boring calculations and technical definitions, basically the tax on dividends will go up by an extra 7.5% from April 2016, regardless of what rate of tax you pay.

7.5% is less than 9%. It is also less than 12% plus 13.8%. You might wonder why I am digressing into elementary maths. The key is that dividends will still be cheaper than being self employed (with it’s 9% National Insurance (NI)), or having a salary (with it’s Employees NI of 12% plus 13.8% of Employers NIC).

Crucially, however, 7.5% is more than 0%. Again, not A-level Maths, but there is no NI on rental income, interest received or a Company Pension Contribution, which is the 0% in question here.

In addition, remember that amount that you lent to the company in the past, and you’ve left it there for a rainy day – well, this might be that rainy day.

There are plenty of other options, and this is what we can discuss with you. The overall tax might go up, but we can find the way to reduce that increase to the absolute minimum.

Dividends might well still be the answer – or at least a significant part of it. It is just that it will be part of a proper analysis of your situation. Next time you ask if you should take a dividend, the answer should be ‘Maybe’.

Author: Andrew Wilshaw FCA CTA Tax Director
Barringtons Chartered Accountants

Can Insurance Premiums attract VAT

Wednesday, September 9th, 2015

One aspect of VAT which regularly crops up is its applicability to insurance. Insurance is of course taxed by means of Insurance Premium Tax but, in some instances, it may instead (or sometimes also) attract VAT.

Unfortunately, the VAT boundaries for insurance have become increasingly blurred, and therefore increasingly contentious. This has been exacerbated by technological advances: the definitions of insurance business in 1973, when VAT was first introduced in the UK , or indeed in 1994, when the present version of the Value Added Tax Act was drafted, were founded on insurance supplied in traditional ways, and by traditional parties (high street brokers etc.); the explosion of online business, with often quite a number of electronic counterparties to a single insurance transaction, each with its own VAT consideration, could never have been envisaged.

This difficult relationship between the Law as written and insurance business in practice has led to substantial and wide ranging disputes between businesses and HMRC, and subsequent Case Law.

One of my recent cases involved a taxi firm making charges for vehicle insurance to its drivers, to whom it also hired cars. HMRC took the view that these charges either fell short of insurance, in which case they were subject to the full rate of VAT or, in the alternative, they were further consideration for the hire charges and therefore, again, subject to VAT at the full rate.

At Court, following a two day hearing, careful analysis and cross examination of witnesses, the Judge ultimately found for our client, which is of course excellent news in view of the substantial amount of tax at stake. However, one cannot be complacent and there is a very strong chance that HMRC will wish to appeal the Judgment in view, not just of the tax in dispute, but the potentially very wide ranging implications of the decision. At this stage, I would therefore have to say that whilst we have won the battle, the war may not yet be over…

If you wish to read the decision, it can be found here

Author: Colin Woodward
VAT & Custom Duties Director
Barringtons Chartered Accountants