Category: Personal Tax Planning

Medical Profession – Pension Tax Trap

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It’s that time of year again when we come round to preparing tax returns. We understand how complicated they can get.

One of our specialisms here at Egan Roberts is acting for clients in the medical profession.

Tax returns can be complicated enough to put together with a combination of practice or NHS income and then private income and looking at ways to minimise your liability. One way to reduce your liability used to be pension contributions, but over the years with the introduction of the lifetime allowance and limits to annual contributions this has become less of a tax planning opportunity.

How does my pension affect my tax?

Indeed it is now quite likely that your pension may be the cause of additional tax liabilities. For older members of the medical profession with a long period of service, you need to carefully monitor the value of your pension in comparison with the lifetime allowance, which presently stands at £1,030,000, increasing to £1,055,000 for 2019/20.

Where the whole of a lifetime allowance has been used by crystallisation events, the lifetime allowance charge will be applied at the rate of 25% on income (the income itself then being also taxed at your marginal income tax rate). For excess amounts taken as lump sums, the marginal rate is 55%.

 

In addition to the above tax trap, you also need to watch that your deemed pension contributions don’t exceed the Standard Annual Allowance which is £40,000 per annum. It is important that you pass to your accountant your NHS Annual Allowance Pension Savings Statement which will tell you your pension input amount for the year.

However, you should be aware that if you do exceed the Standard Annual Allowance, you may be saved from additional tax by the use of Carry Forward, where excess contributions can be offset against unused allowance carried forward from the previous three years.

Liked this blog? Read another here.

You became a doctor to be a doctor, not to run a business.

For help getting started with your tax return checklist, click here.

If you would like any help or advice regarding your self assessment tax return, call us on 01254 583515 and we’ll get in touch.

Make your list and check it twice!

Posted on by r3df3rn

The Christmas markets opened this week, but what about January? You might not be thinking about it yet but your accountants are!

While your children sit down to start their lists to Santa, you should join them and complete your tax return checklist.

Running your business and planning Christmas leaves little time for all of that admin work…but the tax return deadline at the end of January will be here before you know it.

Complete your list now and you’ll have one less task to think about!

Not sure where to start? Here’s a simple list to help you on your way.

 

  1. Employment income
  2. Employment benefits e.g. car benefit
  3. Pension income
  4. Interest income
  5. Dividend income
  6. Property income and expenses
  7. Trade income and expenses
  8. Child benefit received
  9. Charitable donations
  10. Pension contributions

 

Read more on self-assessment here.

Every checklist is unique and personal to you. So if you would like some help or advice on completing yours, contact us on 01254 583515 or fill out the form below and we’ll get back in touch with you as soon as possible.

Investment Schemes: Company and Investor Perspectives

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At Egan Roberts we provide year round tax advice on income tax, capital gains tax, inheritance tax trust and estates and non-domiciliary tax issues.
If you are interested in growing your business or making an investment, the below investment schemes may be available to you.

Enterprise Investment Scheme (EIS)

The company’s perspective

An EIS raises money for your company to help grow your business.

It offers tax reliefs to individuals who buy new shares in your company.

You can receive up to £5 million per year up to a company lifetime maximum of £12 million. However this does include any amounts received from other venture capital schemes.

Can my company apply?

If your company is less than 10 years old, has less than 250 full time employees and less than £15 million of assets, you may be eligible.

All conditions of application for EIS are set out here.

The investor’s perspective

An investor can receive the following incentives:

  • Income tax relief being 30% of the investment up to a maximum investment of £1 million.
  • Capital gains tax exemptions
  • Inheritance tax exemptions
  • Reinvestment relief
  • Loss relief

Note: If your income tax liability is lower than the 30% relief, you must relinquish the excess relief.

Seed Enterprise Investment Scheme (SEIS)

Similar to the EIS, if your company is less than 2 years old, has less than 25 full time employees and less than £200,000 of assets, you may be able to receive up to £150,000.

All conditions of application for SEIS are set out here.

The investor can receive income tax relief of 50% of their investment up to a maximum investment of £100,000.

Reinvestment relief, loss relief and capital gains tax relief are also available with a SEIS.

An overview of venture capital schemes for investors is available here.

If you would like to get in touch, please use the contact form below, visit our website www.egan.co.uk or call us on 01254 583515.

HMRC Investigations: What to Expect

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Whether you are the chief executive of a multi-million pound company or a small business owner, HMRC may open an investigation if they suspect false reporting or underpayment of tax.

Triggers

Reasons for you or your business drawing the attention of HMRC are:

  • HMRC receives a tip-off
  •  your business regularly receives payments in cash
  • tax returns are consistently filed late
  • you operate in a sector HMRC has specifically targeted
  • you are randomly selected
Taxes

The taxes investigated by HMRC include but are not limited to:

  • Income tax
  • Capital gains tax
  • Corporation tax
  • Landfill tax
  • National insurance
  • VAT
Stages

There are three levels of an investigation; random, aspect and full.

As above, HMRC have the ability to choose to investigate your business completely at random.

An aspect investigation means HMRC is concerned about a particular part (or parts) of your accounts. This could include something as straightforward as forgetting to include all of your savings income within your self-assessment tax return. An aspect investigation can be upscaled to full at the discretion of HMRC.

A full investigation is when HMRC considers there to be a significant risk of error in your tax return. This would include a comprehensive review of your records including personal finance records as well as business-related.

The process

1. HMRC will initially contact you via letter or phone call with a query. They will specify what information they require for the investigation.

2. You will be expected to supply the information HMRC require which may include obtaining replacement copies of documents if you no longer have them.

3. Informing HMRC at this point of any mistakes you have knowingly made will benefit you further down the line.

4. HMRC will formally begin their investigation

What happens next?

Some common resolution include:

Underpaid tax

You will have 30 days to settle the underpayment with HMRC.

Failure to do so will result in a penalty ranging from 20% to 100% of the extra tax due.

The severity of the penalty depends on whether the underpayment was due to a lack of reasonable care, a deliberate error or deliberate and concealed errors.

Overpaid tax

If you have paid too much tax, HMRC may send you a rebate through the post.

If they do not, you will need to make a claim for a repayment.

Deliberate wrongdoing

If HMRC believe you have committed fraud, you may be subject to criminal proceedings.

You may also be charged a penalty depending on why you underpaid tax, how soon you informed HMRC of any mistakes and whether you were fully co-operative during the investigation.

Resolution

A decision notice will arrive in the post explaining the assessment and any penalty details.

Alternatively, HMRC may issue a contract settlement which legally binds you to pay the money that is owed to HMRC.

Tips to avoid an investigation

Nothing can prevent a random investigation but the following tips will help you to avoid becoming under HMRC’s microscope.

  • Maintaining accurate records
  • Putting money aside to cover your tax bill and pay it on time
  • File your tax returns accurately
  • Explain any changes or unusual transactions from one year to the next

If you are under HMRC investigation or have any questions please contact us via the contact form below or call us on 01254 583515.

Take a look at our blog outlining what accounting records you should keep.

Enquiry About My Tax

If you think there might be anything amiss with your Tax, or you’re setting up a new business and don’t want to get in any uncomfortable positions with HMRC, contact us for a free meeting to discuss your situation and how we may be able to help now and in the future.

Excuses and Expense Claims: What not to Submit

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At Egan Roberts Accountants based in Ribchester, Lancashire we can advise you as to whether your ‘excuses’ and expense claims are reasonable or whether they just won’t cut it with HMRC.

We’ve shared with you below some of the recent claims submitted to HM Revenue and Customs (HMRC).

Late Tax Return Excuses

1. I spilt coffee on it.
2. My ex-wife left my tax return upstairs, but I suffer from vertigo and can’t go upstairs to retrieve it.
3. My wife has been seeing aliens and won’t let me enter the house to file my return.

Less recent excuses also include:

1. My husband ran over my laptop.
2. My dog ate my tax return.
3. My tax papers were left in the shed and the rat ate them.

All of the above will not be seen as ‘reasonable’ and are likely to suffer a £100 penalty which can be significantly increased the later your return is filed.

Expense Claims

Interesting expense claims have included:

1. A three piece suite for my partner to sit on when I’m doing my accounts.
2. Hotel room service for candles and prosecco.
3. £4.50 for sausage and chips meal for 250 days.

Unsurprisingly, all of these claims were rejected by HMRC.

Need more information?

Follow the links below for some guidance on reasonable excuses and expense claims.

Reasonable Excuse

Self-employed Expense Claims

Alternatively, if you would like to get in touch with us, please use the contact form below, visit our website www.egan.co.uk or call us on 01254 583515.

Enquiry About My Tax

If you think there might be anything amiss with your Tax, or you’re setting up a new business and don’t want to get in any uncomfortable positions with HMRC, contact us for a free meeting to discuss your situation and how we may be able to help now and in the future.

Gift It or Keep It? The Capital Tax Implications

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At Egan Roberts Accountants based in Ribchester, Lancashire we can provide you with year round tax advice on capital gains tax and inheritance tax.

Capital Gains Tax (CGT)

CGT is the tax payable on the ‘gain’ you have made from selling an asset which has increased in value.

The gain (proceeds less cost) is reduced by your annual exempt amount of £11,100.

Any remaining gain is taxed at 10% if you are a basic rate tax payer or 20% if you are a higher rate tax payer.

Gift Relief

If you have given the asset away or received less than market value proceeds, you may be able to claim gift relief.

This means the amount chargeable to CGT is the real proceeds you have actually received.

However, this only defers the CGT. The amount of gift relief claimed will become chargeable when the donee sells the asset.

So by reducing your gain, the donee will have a bigger gain later.

More information on gift relief is available here.

Entrepreneur’s Relief (ER)

There are certain criteria which must be met for you to qualify for ER.

The full list is set out here.

In summary, if you are selling all or part of your sole trade or partnership, you must have owned the business for at least 12 months prior to the sale. If you are selling shares (of which you hold at least 5% of total shares), the company must be trading and you must be an employee or officer of the company.

ER reduces the CGT rate to 10% regardless of whether you are a higher rate tax payer.

Gifts to Spouses / Charity

Any assets you gift or sell to your spouse or civil partner are not subject to CGT unless you separated and did not live together for the whole tax year or you have them goods for them to sell on as part of their business.

CGT is not charged on assets given to charity. You may pay some CGT if you sell an asset to charity for more than you paid for it but for less than market value.

Find further information about this here.

Inheritance Tax (IHT)

Lifetime Gifts

If you make a gift during your lifetime to a person, this is known as a PET (potentially exempt transfer), meaning no IHT is payable on the gift.

However, if the donor dies less than 7 years after making the gift, IHT then becomes chargeable at 40%.

Death Estate

If you leave the asset as part of your death estate rather than selling it or gifting it, IHT may be payable at 40%.

Items left to your spouse/civil partner/charity are exempt from IHT.

The value of your remaining estate chargeable to IHT could be reduced with the use of business property relief.

Everybody has a nil rate band of £325,000 which also reduces the amount chargeable to IHT.

This £325,000 is reduced by the gross chargeable transfers of any gifts made within the 7 years before death.

If your spouse did not use all or some of their nil rate band on their death estate, the amount unused can be transferred to you in addition to your £325,000.

The remaining value is then subject to IHT at 40%.

If you would like to get in touch with us, please use the contact formbelow, visit our website www.egan.co.uk or call us on 01254 583515.

What every small business owner should be aware of when paying HMRC?

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Paying HMRC

The Post Office service or personal credit cards will no longer be accepted when paying HMRC from the 15th December 2017 and 13th January 2018 respectively.

Not to worry! There are still various other ways of making payment which HMRC say will save you time and expense. These include:

  • Direct debit
  • Online or telephone banking (including Faster Payments, Bacs and CHAPS)
  • Debit/Corporate Credit card online or by telephone

Specifically for Self-Assessment you can also set up a budget payment plan to give you control over the payments you make.
Making weekly/monthly payments will be more manageable for most people and saves you from being hit with a hefty tax figure on the deadline.

Taxpayers who are unable to pay their tax bill on time may be entitled to pay by instalments or be granted additional time to pay.

You will need to contact HMRC with details of your income, assets etc. and HMRC will decide whether you are entitled based on your circumstances. Interest will be charged on the amount you pay late and HMRC will expect you to pay your tax bill straight away if you don’t meet their criteria.

More information concerning the above can be found at https://www.gov.uk/topic/dealing-with-hmrc/paying-hmrc.

Contact us if you would like to know more about the above

Inheritance Tax: Residence Nil Rate Band (RNRB)

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At Egan Roberts Chartered Accountants & Financial Advisors we offer estate planning services including the related tax advice. It is important we now think carefully about the residence nil rate band (RNRB) when estate planning. Please read on if you would like to find out more.

What is the RNRB?

The RNRB was introduced in Finance Act 2015 and applies to deaths after 5 April 2017.

The basic nil rate band currently stands at £325,000 as it has since 6 April 2009 and will not change until 5 April 2021.

Rather than increase the £325k nil rate band to adjust for the effects of inflation and increases in house prices, the RNRB was announced.

The RNRB provides an additional nil rate amount when a person’s main residence is passed to their direct descendant on death.

It is worth noting here that the RNRB is only available on death; it cannot apply to a lifetime gift.

How much is the RNRB?

The RNRB is in addition to the basic nil rate band (£325k) and will be gradually introduced as follows:

Tax Year      RNRB
2017/18    £100,000
2018/19    £125,000
2019/20    £150,000
2020/21    £175,000

After 6 April 2021 the RNRB will increase annually in line with the consumer price index.

When is the RNRB available?

The RNRB is available when a qualifying residential interest is closely inherited.

A qualifying residential interest is a residential property which at some point was occupied by the deceased as their residence.

It will be closely inherited if it is passed to any of the following:
• The deceased’s children or grandchildren and their spouses
• Widowers of those children/grandchildren if they have not remarried
• Step-children, adopted or foster children
• Children for whom the deceased acted as guardian whilst they were under 18 years old

Other information

In the same way as the basic nil rate band, if a person does not use their RNRB in full, any unused percentage can be transferred to the surviving spouse to be used in addition to their own RNRB.

The RNRB will be reduced by £1 for every £2 by which the deceased’s net estate exceeds a threshold of £2m. This threshold will also increase in line with the consumer price index.

As many people move into a smaller home or into residential care, the RNRB is still available on the estate if the person sold their home on or after 8 July 2015.

We hope you found the above information useful. If you would like to discuss estate planning or inheritance tax further, please contact Egan Roberts on 01254 583515.

Further guidance and information is available at https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band

Free HMRC App

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HMRC launches an app to assist with personal taxation

The newly issued HMRC app enables individuals to find information about their tax, National Insurance, tax credits and benefits on the move. Suitable for both Apple and Android devices, users will need their Government Gateway credentials to access the information.

For accountants like us who act as tax agents for individuals and for whom we will never have full access to the client’s personal tax account this provides easy way to enable clients to show us, ‘on the move’, otherwise unavailable information without having to access it via a computer/internet.

Full details can be found at: https://www.gov.uk/government/publications/the-official-hmrc-app/the-free-hmrc-app

You can use the HMRC app to estimate your tax, manage your tax credits, access your Help to Save account, or work out your take-home pay.

Used by more than 550,000 people per month, the app puts you at the heart of your tax matters and financial life.

What the HMRC app enables you to do

You can use it to:

    • view your tax code and an estimate of the tax you need to pay
    • see your income and benefits
    • check your National Insurance number
    • view your tax credits payments schedule
  • renew your tax credits
  • access your Help to Save account
  • use our tax calculator to work out your take home pay after Income Tax and National Insurance deductions
  • track forms and letters you’ve sent to us
  • get 6-digit access codes to make your HMRC accounts more secure

 

Getting started

Download the free HMRC app now from:

 

How to sign in

The first time you sign in, you’ll need to enter your Government Gateway ID and password. If you haven’t got these, go to the Government Gateway website and register as an individual.

Whenever you use the app again, depending on what your handset supports, you can sign in using:

  • a 6-digit PIN
  • fingerprint authentication
  • facial recognition

 

Setting up a personal tax account

You can use the app to set up a personal tax account by giving us your name, National Insurance number and date of birth.

If we need to verify your identity, we’ll ask for details such as your passport number and information about your salary.

Sign in to your Help to Save account

The Help to Save service went into a trial phase known as ‘private beta’ in January 2018. It is being rolled out gradually so that it can be tested and developed.

If you’ve already opened a Help to Save account as part of the trial, you can use the app to:

  • check your Help to Save account balance and bonus
  • keep track of how much money you’ve paid in each month
  • see how much money you can still pay in before the end of each calendar month
  • set regular reminders to add to your savings
  • view all your payments and withdrawals

If you want to do other tasks, such as pay money in, it is easy to sign in to your Help to Save account using the app.

Safety and security

HMRC takes cyber security very seriously – see how we are keeping you safe online.

Help and support

If you have a problem with your account that you can’t solve using HMRC’s online resources, contact us for help.