Personal Tax Return Deadline Approaches
Completing a personal tax return can be a stressful, complex task and an unwanted hassle for self assessment taxpayers. At Tax Affinity we provide a simple, price competitive service to alleviate your concerns over personal tax returns. If you currently complete your own tax return then you could certainly benefit from our services to ensure that you don’t overpay on tax. Mistakes on your tax return could cost you a significant amount and it is therefore worth taking advantage of expert advice to make sure you report the correct level of taxable income. We will assess all of your income and expenses information to ensure you minimise your tax liability. If you are already taking advantage of our tax help, please ensure you send us all your income and expenses information (bank statements, invoices and receipts) for the period 6th April 2012- 5th April 2013 as soon as possible. With the busy Christmas and New Year period approaching, it is vital that we receive all this information in the next 3-4 weeks so we can ensure all of our clients’ tax returns are submitted before the deadline. By leaving your tax return right up until the last minute you risk incurring a late filing penalty. Here is a summary of the HMRC penalty charges you may face: Length of Delay - Penalty incurred 1 day late A penalty charge of £100 even if you have no tax liability for the year or have paid the tax you owe 3 months late A penalty charge of £10 per day up to a maximum of 90 days- £900. This is on top of the initial £100 charge. 6 months late £300 or 5% of the tax due (whichever is higher). On top of the penalties listed above 12 months late An additional £300 or 5% of tax due. However, in certain cases the charge may be up to 100% of the tax due or higher. Please avoid any of these penalties by sending us all your information as soon as possible. Feel free to pop into the office or just email us the necessary documents. Rushing a tax return can result in a number of unnecessary errors so please ensure you get on top of the situation in the coming weeks. By Tom Hoadley at Tax Affinity. Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they regularly submit tax returns for their clients peace of mind, providing a great value for money service for people from all walks of life. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Properties have always been a relatively safe and sound option for investment. As a landlord, renting out your property can offer an alternative source of income in the form of rent and potentially give a good return on the initial investment through capital appreciation. However, if you’re looking for huge returns over a few days then property investment is unlikely to be your preferred choice. Nonetheless properties have historically been a low risk investment and have provided modest returns over the long term. Here are a few things to consider if you wish to maximise your rental income:
Deducting Allowable Expenses You can reduce the amount of rental income that is taxable by taking advantage deducting allowable expenses. There more common expenses you can deduct are:
The costs should be wholly and exclusively incurred as a result of renting out the property. If a part of the expense meets this condition then that part can be deducted from income. Cost comparisons Saving costs can only have a positive effect as expenses are the only thing eating into your rental income. Try reviewing your costs on an occasional basis (once a quarter) and you may witness bargains that could help you save a lot of money. Service providers tend to offer sizeable discounts to new customers but only have stagnant prices for existing customers. Getting quotes from different companies that offer the same service can sometimes amaze you at how wide the price range can be. Just be sure you don’t jeopardise the quality of services just to save a few pennies. Annual Investment Allowance Expenses of a capital nature are not deductible. You cannot deduct from income the cost of the property you are renting out, expenditure that adds to or improves the property or the cost of renovating a property from a state that cannot be rented out. However, capital spending can be deducted using the Annual Investment Allowance. From 1st January 2013 (until 1st January 2015), you can deduct up to £250,000 a year for many types of capital spending using the Annual Investment Allowance, such as commercial vehicles, business furniture, computers, machinery and tools. It would be beneficial to take advantage of the temporary rise in the Annual Investment Allowance as it is likely to revert back to around the limit of 2012/13 (£25,000) after January 2015. Landlord’s Energy Savings Allowance (LESA) Until April 2015, an allowance of up to £1,500 per let residential property can be claimed for the cost of loft, wall and floor insulation, draft proofing and hot water system insulation. The LESA was introduced to encourage landlords to improve the energy efficiency of let residential properties. These expenditures are usually not deductible from taxable income and are not eligible for capital allowances. Wear and Tear Allowance or Renewals Allowance For fully furnished properties, a wear and tear allowance can be claimed for furnishings such as beds, carpets and appliances. The allowance is 10% of the net rental income (gross rent minus utility bills, service charges and council tax) you receive from these properties. With the renewals allowance, you can claim expenses of any furniture as you replace them. Any money you make from the disposal of the asset must be deducted and the cost of any improvements (e.g. an upgrade from a washing machine to a washer-dryer) Note that you can only claim either the Wear and Tear Allowance or the Renewals Allowance but not both. By Wilson Law at Tax Affinity. Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Tips to avoid paying too much tax if you’re self employed
According to Which.co.uk, we paid an estimate of £12.6 billion in unnecessary tax in 2012. People who are self-employed or have their own businesses are particularly prone to overpaying tax. But by doing a bit of research and accessing your tax options, you can maximise your income and safeguard your finances for the future. Spreading income tax payments among the family Every individual that is able to work has a personal allowance of £9,440 for the financial year 2013/14. If you are earning over the 20% rate band for income tax, it may be wise to employ a family member to share a part of your workload. Income up to £9,440 would be free of income tax for him or her, and an allowable expense for you. This is especially ideal for any children you have over 16 that can work over the holidays as their wages are also tax deductible. Furthermore, no national insurance is payable if they earn less than £149 per week. Additionally, members earning between £109-148 are entitled to certain state benefits such as building towards the state pension. Using the personal allowance to its maximum Rather than one individual holding the bulk of the income and facing a higher rate of income tax, it is of best interest to arrange the finances in a way that lessens the tax burden. This can be achieved by building up a state pension for your partner and/or make pension payments to build up a retirement pot. These contributions are tax relievable at the marginal rate of the payer. On a further note, £3,600 can be contributed per year irrespective of earnings so consider pensioning for any of your children helping out at the business. Taking advantage of tax free opportunities Use up you and your partner’s cash ISA limit of £5,760. Gift any surplus funds to your partner if he/she is a lower tax payer than you. Be careful of the liquidity position of the business, it may be troubling to recall back the funds. The £100,000 ceiling Try not to exceed earnings of £100,000. For every £2 of income over £100,000, your personal allowance falls by £1. This means that at an income of £118,880 you will have lost all your personal allowance of £9,440. The £9,440 is then taxed at a rate of 20%, and the £18,800 over £100,000 is taxed at a rate of 40%, meaning that your marginal rate of tax on this slice of income is a whopping 60%. You can consider increasing your pension contribution to preserve your personal allowance. Note that the maximum annual allowance is £50,000 but you can use any unused annual allowances dating back three tax years to increase your contribution. Maximising your tax allowances Each person has an annual capital gains tax allowance that can be reached before the gain is taxed. This figure amounts to £10,900 for the financial tax year 2013/2014. With sound financial planning, you can get up to £20,340 tax free each year (£9,440 for personal allowance and £10,900 for Capital Gains Tax). Be well organised and keep good records The deadline for the online tax return is 31st January (31st October for the paper tax return). Failure to commit to the deadline may result in penalties. Keeping your records in an organised manner can make your life a lot easier especially if HMRC decides to investigate. Plan ahead Good forward financial planning can maximise successful tax strategies. That’s why at Tax Affinity Accountants we make sure to sit with all our clients and run through the options for good financial planning. By Wilson Law Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Where to invest in the current economic climate- Property versus Shares There is much debate regarding the merits and fallbacks of investing in property versus shares. Traditionally, investments in property have been seen as more stable whilst stocks are far more volatile. Either way, with the retail banks continuing to offer painfully low interest on savings, coupled with high rates of inflation, investors are looking to achieve higher rates of return on their capital. This article gives an outline of the respective issues surrounding both methods of investment. Property Figures for August 2013 show a sharp rise in UK property prices, with the average UK property now worth 3.5% more than a year ago. Economists have pointed towards increased consumer confidence, due to the economic recovery, as a key driver behind rising house prices. Equally, the Government’s Funding for Lending (FLS) scheme and the Help to Buy scheme have gradually improved credit availability. While rates offered by the banks for your savings remain low, property investment can offer a higher return on your capital. Buy-to-let investment is a very sensible option as it offers two potential returns on your investment. Firstly, assuming you find tenants rapidly, you will enjoy a regular stream of income from rent. And secondly, provided you invest in the right property, you have an appreciating asset that can earn you a healthy profit should you look to sell in the future. Furthermore, unlike with shares, property allows you to leverage up your investment. This can be simplified as follows:
This is a hugely simplistic example which discounts some of the costs of property investment but it does highlight the benefits of leverage in property investment. Issues with Property Be careful to choose your location wisely as this will be central to the future value of your property and the rents you can command. Inevitably, the surrounding suburbs of London are extremely popular as they can allow for easy commutes whilst being priced more reasonably than equivalent properties in more central locations. Kingston upon Thames, Ealing, Hackney and Merton are all prime examples of this. Equally, it is worth considering that this unprecedented period of record low interest rates is bound to come to an end as the economic recovery gathers momentum. If interest rates rise then this will make mortgage repayments a far greater burden on potential property investors. Shares Investing in equities is another method for achieving greater return on your capital. The FTSE 100 index has seen a notable recovery since the financial crash around 2008 and now shares are becoming a more appealing investment once again. However, investment in shares requires more industry-specific knowledge in order to outperform the market and thus it may be advisable to invest in an Investment Fund or an Investment Trust:
Tax Implications for Investments in Property and Shares As with all investments, profits made will be liable for Capital Gains Tax (CGT) so this is worth considering before you invest. However, there are certain methods to avoid CGT. For example, you may wish to put your property or shares into a trust. Equally, stocks and shares ISAs can be used to shelter equity profits from CGT. Also, utilise your full tax-free allowance by splitting your assets with a spouse so as to minimise your tax bill. Verdict Overall it is probably fair to say that the optimal investment strategy would involve both property and shares. Bricks and mortar provide a more reliable investment option whilst the riskier option of share investment can reap higher rewards. However, with the FTSE 100 at extremely high historic levels one might argue that property can provide more reliable profit margins. By Tom Hoadley. To read more interesting articles visit www.taxaffinity.com/blog. Tax Affinity Accountants are expert tax and business accountants based in Kingston upon Thames. They provide a comprehensive range of services to businesses across the UK. To contact them visit www.taxaffinity.com. Tips for Efficient Savings and Investments There are a range of methods for saving and investing your money more effectively. Summarised below are several straightforward ways to obtain tax-free returns and reduce your tax bill. National Savings and Investments National Savings and Investments are backed by the Treasury and thus offer a secure method of saving and investing your money. The tax free savings and investments products currently offered from National Savings and Investments include:
Tax-Free Interest on Savings Interest from your savings in banks and building societies is usually taxed at 20%, but you may be able to register to receive gross (untaxed) interest if your taxable income is within your tax-free allowance. You can also claim back tax paid unnecessarily on savings in the past. ISAs (Individual Savings Accounts) An ISA is a financial product, introduced in the UK in 1999, to allow tax-favoured savings and investment accounts. They can be used to save cash (Cash ISA) or to invest (Stocks and Shares ISA). One can invest a maximum of £11,520 into an ISA in the tax year 2013-14, of which £5,760 may be saved in cash. The remaining sum may be invested in a range of financial products:
No tax is paid on the interest or dividends received from an ISA and profits from investments are exempt from Capital Gains Tax. Junior ISAs Similar to standard ISAs, Junior ISAs offer tax free savings for any child under the age of 18, providing they are not eligible for a Child Trust Fund (CTF) account. The upper limit for a tax free Junior ISA in 2013-14 is £3,720, and once again there is no tax on interest or dividends. However, as with CTFs, the money is locked into the ISA until the child is 18. Child Trust Funds Only eligible for children born between 1st September 2002 and 2nd January 2011, CTF accounts can be paid into by parents, family and friends up to a limit of £3,720 tax free for 2013-14. Once again, the money in the CTF account cannot be accessed until the child is 18 years old. Pension Contributions Taxpayers are encouraged by the government to make contributions to pension schemes by offering tax relief on any such payments. Once you retire, you will ordinarily be able to claim 25% of you pension fund as a tax-free lump sum, and then your pension will be taxed in line with standard income tax rates. Savings in pension schemes are unlimited up to 100% of your earnings each tax year and thus offer an effective method for reducing your tax bill. By Tom Hoadley. To read more interesting and informative articles by this and other writers visit www.taxaffinity.com/blog. Tax Affinity Accountants are experts in Tax and Accountancy for small businesses and help business across the UK and those abroad that have an interest in the UK. Visit www.taxaffinity.com for more details. Please feel free to comment and share this with your friends. Buy-to-let properties have attracted thousands of investors. But before you take the plunge, it's important to consider the tax implications.
Taxes on buy-to-let properties: Britain's landlords are required to pay tax on rent and capital gains tax, but there are ways to minimise this. Rental Income Rent income will be treated as income and taxed in line with your basic or higher-rate tax bands. You can, however, be able to offset mortgage interest payments, letting agency costs and maintenance expenses against the taxable rental income. This can make it more tax-efficient to have a mortgage on your investment property rather than your main home where you can no longer get tax relief on your mortgage. Rental incomes should be declared on an annual self-assessment tax return, it may be worth seeking an accountant to ensure all tax breaks are taken advantage of. Tax on the property price rise Capital Gains Tax (CGT) comes in when you sell a buy-to-let property at a profit. From April 2008, capital gains tax was changed to a flat rate of 18%. Any gains above the annaul £10,100 (2009/20) personal threshold will attract CGT. Before CGT as charged at up to 40% and taper relief cut this, if a property had been owned for more than three years. This no longer applies. Capital gains tax applies to any property which is not your main home, known as the Principal Private Residence. If you only have one property and it is considered your PPR, then you do not have to pay CGT, however, the taxman may want evidence that you were actually living there. CGT liabilities should be declared annually on your tax return and anyone making a substantial sum from selling a property should seek out a good accountant, who can take advantage of all available breaks. Stamp duties Stamp duty tax is payable on buy-to-let properties by the purchaser, as all other residential properties. The current rates are 1% above £125,000, 3% above £250,000 and 4% above £500,000. A stamp duty holiday currently applies until the end of the year on all properties under £175,000. Decreasing tax Most people think that one way to dodge tax - and are often advised by accountants - is to put a second home in the name of their partner. When they come to sell, they claim their partner has been living in the property thereby making it exempt from CGT. This choice is easier for people who have done let-to-buy: they keep the mortgage on the first home which they lived in - and then take a second traditional mortgage with another lender on an additional home where they live. In this way you can bypass the need for a proper buy-to-let mortgage on the first property, which would alert the taxman. However, it breaches the lender's rules, which means they could call in the loan without notice. More importantly, evading CGT in this way would be treated as illegal and result in fines or even imprisonment. However, there are more complicated ways of mitigating tax on buy-to-let, including setting up a company to own the properties. For the average amateur investor this is not worthwhile as it is expensive, complicated and can limit access to mortgage finance. Cutting down on capital gains tax Typically, buy-to-let owners and those with second homes can slash tax bills if they have ever lived there as their principal private residence and through lettings relief And everyone's main home - or principal private residence as the taxman catchily names it - is exempt from capital gains tax when sold, but any other properties they own attract CGT at their highest rate when sold. For example - an unmarried couple may each own a home that qualifies as their principal residence but a married couple may only nominate one property and must elect jointly. And it is possible to cut capital gains bills by living in the second property for a period of time. Special rules apply to properties that have been a main residence. The period when it was the main residence is exempt, plus the last 36 months of ownership. As for those who have previously rented out their main residences there is the added benefit of being able to claim up to £40,000 letting relief. This is available to anyone with a share in the property - giving a couple, even if married, up to £80,000 between them. Finally, the amount of private letting relief that can be claimed cannot be greater than £40,000 and must be the lower of that sum, the amount of principal private residence relief being claimed, or the capital gains made during the letting period. The best advice however that the wisest of investors make sure to have is to use a clever tax accountant to handle your affairs. The tax saved will be much greater than the fees they will ever charge. Tax Affinity Accountants based in Kingston Upon Thames, are experts in tax and accounting. Visit www.taxaffinity.com for more interesting articles. Please feel free to comment and share this article with your friends. In the current economic climate everyone should be looking for ways to save tax. And to help, we at Tax Affinity Accountants have compiled a list to do just that.
The tax codes, allowances and deadlines 1. Tax code Check your tax code each year (the numbers and letters on your payslip). If you're on the wrong code, you may be paying too much tax. 2. Capital gains tax allowance Remember that capital gains under £10,600 are tax-free. Married couples and civil partners who own assets jointly can claim a double allowance of £21,200. CGT is charged at 18% if you are a standard rate taxpayer, and 28% if you pay tax at a higher rate. 3. Tax return deadlines Don’t miss the 31 October deadline if you want to make a paper tax return. You can do your tax online up to 31 January, but paper tax returns need to be in three months earlier than online tax returns to avoid a £100 fine. 4. Annual investment allowance If you are a landlord or run your own business, take advantage of the annual investment allowance (AIA) to claim for capital expenditure on items such as tools and computers. You can claim relief on up to £25,000 a year. How to pay less tax if you're self-employed 5. Tax-deductible expenses If you’re self-employed, don’t forget to claim all your tax-deductible expenses, including cash expenditure where eligible. 6. Self-employed car costs If you're self employed, you can claim the running costs of a car, but not the cost of buying one. If you use the same car privately, you can claim a proportion of the total costs. 7. Cash-flow boost for self-employed If you are setting up as self employed, you may be able to improve your cashflow by choosing an accounting year that ends early in the tax year. This maximises the delay between earning your profits and your final tax demand. 8. Annual losses If you are self employed, you can carry forward losses from one year and offset them against profits from the next. See our page on when the self-employed pay tax for more. 9. Payments on account If you are self-employed and expect to earn less in 2012-13 than you did the year before, apply to reduce any payments on account that HMRC ask you to make. Saving tax on property income 10. Rent a room Rent a room relief is an optional scheme that lets you receive up to £4,250 in rent each year from a lodger, tax-free. This only applies if you rent out furnished accommodation in your own home. 11. Landlord's energy-saving allowance If you rent out property you can claim special tax allowance of up to £1,500 for insulation, draught proofing and installing a hot water system. 12. Landlord's expenses If you rent out property, you can deduct a range of costs before declaring your taxable income. These include the wages of gardeners and cleaners, and letting agency fees. 13. Tax relief on your mortgage You can claim tax relief on the interest on a mortgage you take out to buy a rental property – even if it the rental property is abroad. 14. Reduce capital gains tax (CGT) on a rental property Landlords are normally liable for CGT when they sell a rental property. If it has been your main home at some time in the past, you can claim tax relief for the last three years of ownership. Pay less tax on savings and investments 15. Isa allowance Use your tax-free Isa allowance. This year, the overall limit is £10,680, of which £5,340 can be put into in a cash Isa. 16. No CGT on shares held in an Isa There is no capital gains tax to pay when you sell shares or units held in an Isa. For more details see Tax on savings and investments. 17. Junior Isas Use Junior Isas or Children’s Bonus Bonds to avoid being taxed on gifts you make to your own children. 18. Transfer assets Transfer savings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do. See our guide to tax and your partner for more information. 19. Children's savings Stop children being taxed at source on their savings by completing a simple form (R85) on their behalf. Tax savings for older people 20. Age-related allowance If you are aged 65-plus you may be eligible for an increased personal allowance. This means you pay a lower income tax rate. See Tax in retirement. 21. National Insurance Make sure you stop making National Insurance contributions if you carry on working beyond state retirement age (currently 62 for women and 65 for men). 22. Gift Aid If you are over 65, making donations to charity through Gift Aid can reduce your taxable income to below the threshold at which you start to lose out on age-related allowances. 23. Tax relief on gifts If you are in a higher tax bracket, you can claim back the difference between the basic and higher rate of income tax on any Gift Aid donations. 24. Inheritance tax Lifetime gifts are not normally counted as part of your estate for inheritance tax purposes if you live for a further seven years after making them. Known as potentially exempt transfers (PETs) they can reduce your residual estate significantly. See our blog on inheritance tax. Tax savings through employee benefits 25. Season ticket loan If you are a commuter, check to see if your employer will give you a tax-free loan to buy your season ticket. 26. Pool cars Use a pool car for occasional business travel, if your employer provides these. 27. Childcare schemes and tax credits If you are an employee and pay for childcare, ask your employer if they have a childcare scheme. Salary sacrifice childcare schemes are easy to establish and can result in substantial savings for both employees and employers. For more details see working for an employer. Child tax credits can also save you money. 28. Company car? If you are entitled to a company car, consider whether it would be more tax-efficient to take a cash equivalent in pay instead. 29. Going green If you are changing your company car, consider a low-emissions model . These are now taxed at a lower percentage of their list price, than cars with a high CO2 rating. 30. Pay in to a pension scheme Contributions to your employer's pension scheme (including any additional voluntary contributions you make) can be made from your gross pay, before any tax is charged. For the most up to date and accurate advice speak to tax accountant, as these allowances and benefits do change every year. Tax Affinity Accountants are expert Qualified Tax Accountants in Kingston upon Thames. To read more visit www.taxaffinity.com/blog and please feel free to comment and share this with your friends. |
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