Leasing is a way of raising finance (as opposed to traditional renting) to purchase outright or purchase the use of an asset.
This article excludes leases over 5 years and car leases where tax treatment differs.
The Lease period may vary from 1 to 5 years depending on the life of the asset.
The Lessor is the business providing the asset.
The Lessee is the business using the asset.
There are two types of Leases available, both of which are accounted for differently.
Please refer to our article Leasing in our knowledgebase for full details.
Once you have filed your Self-Assessment Tax Return you can expect to receive your statement of account within 45 days of a payment becoming due. If you have filed your return on-line, you will see a breakdown of any tax owed after completion.
Balancing Payments
Any balancing payment that you owe from the previous year will be added to your tax statement.
Example
For the tax year 2007-08 your tax bill was £5,000. You have made payments of £2,500. The balancing payment of £2,500 is due for payment on January 31st 2010. If there had been any unpaid tax from the previous year/s, this would be added and would include any interest and penalties.
Payments on Account
Tax due to be paid under £1,000 will not have to be paid on account; a single payment will be due on 31st January 2011 for the tax year 2008/9.
If it is over this amount, it will be spread over two payments.
Example
For the Tax year 2008-09 your tax bill was £8,000. Payments on account are assessed for the current tax year 2009-10, at the amount of the 2008-09 tax bill.
You will have a payment on account of £4,000 on 31st January 2010 and £4,000 on 31st July 2010.
When your tax return for 2009-10 is filed on 31st January 2011, any payments on account are deducted from tax due in that year.
Application to reduce Payments on Account
If you have received a tax bill with payments on account and you think that your income for the next year will be less, therefore less tax being owed, you can apply to have the payments on account reduced. If you use on-line filing you can make an application on the Government Gateway. If you do not then you need to complete from SA303 and send to HMRC. If it is found that later you owed more tax than you have paid on account, interest will be chargeable and penalties may be applied.
Penalties and Interest
Any balancing payments for the previous year that have not been paid by 31st January will be charged a daily interest of 3% (applicable September 2009) plus an automatic 5% surcharge. If this still has not been paid by the second payment date of 31st July a further 5% surcharge will be added.
Where a self-assessment return is filed after the deadline an automatic surcharge will be charged of £100. If you leave filing your return until 31st January 2010 and should have paid tax by that date you will get an automatic 5% surcharge and daily interest of 3%.
Please refer to ourguide on Self-Assessment Tax Returns in our knowledgebase.
In the April 2009 Budget, the Chancellor increased the tax free investment limit for ISA's from £7,200 to £10,200.
Any person over 50 years of age qualifies for the increase in the 2009/10 tax year. It will apply to all other individuals from 6th April 2010. The tax year commences on 6th April ending 5th April following.
This means that a 40% tax payer can save £4,080, and £2,040 for 20% tax payers.
The ISA (Individual's Saving Account) was introduced in April 1999 and replaced Tessa's and Pep's.
Please see our guide on Individual Savings Accounts in our knowledgebase for further information.
Formerly known as Permanent Health Insurance (PHI), IPI is an insurance paid when a person is incapacitated to work their usual work that they are qualified to perform due to illness or accident.
Typically policies pay out around 65% of gross earnings, although this may be lower for high earners.
Some providers will allow dividend income to count towards gross earnings, but many will not. Therefore careful selection of a provider is important as generally Contractors and Freelancers take a low salary with the majority of income taken as dividends.
There may be tax savings to be made when taking out a group policy in the company name; however, in the event of a claim, the cost to the individual may outweigh any tax savings.
For further details please see our guide Income Protection Insurance.
To all our Clients and Visitors
Please note that our offices will be closed from 12 noon December 24th 2009 to January 3rd 2010. During this closure period we will have a skeleton staff available to attend to emergency queries from our clients on:
29th December 10 - 4pm
30th December 10 - 4pm
31st December 10 - 4pm
As confirmed in the Chancellor's Pre Budget Report, the standard rate of VAT reverts back to 17.5% on 1st January 2010.
HM Revenue and Customs have also revised the VAT Flat Rate Scheme percentages and some business will actually have an increase in their VAT FRS surplus, albeit taxable!
- You should charge VAT at the rate of 17.5% on any sales of standard rated goods or services that you make on or after 1 January 2010
- The change in the standard rate of VAT does not affect sales of goods or services that are Exempt or charged at another rate of VAT i.e Zero rated and reduced rated
- The VAT return VAT 100 remains unchanged. You will continue to receive it following the same monthly, quarterly or annual pattern. Payment due dates also remain the same
For full information, please see our guide - VAT Standard Rate Increase 2010
For Contractors and Freelancers arranging a Christmas night of celebrations; before you charge the account to the company, find out what the tax implications are!
There are two aspects to consider when claiming office party expenses:
- Expenses deducted against corporation tax
- Expenses that will incur a benefit in kind (BIK) charge
Christmas and other office parties are an allowable expense for the cost of employee/s and their spouse against corporation tax, providing that the social function is ‘open’ for all employees to attend. The cost of anyone who is not an employee is not allowable as it is classed as business entertainment.
In the case of Contractors and Freelancers - Do you qualify?
Please see our guide Christmas / Office Party Expenses in our knowledgebase.
Chancellor Alistair Darling delivered his Pre-Budget Report 2009.
Thankfully,Professional Contractors and Freelancers with limited companies can breathe a sigh of relief! Past mutterings such as the income shifting legislation are still just that, there are no major changes to report.A consultation will get underway in the New Year between HMRC and the Department for Business to look at National Minimum Wage Regulations to tackle the problemof arrangement known as “Travel Schemes”. These schemes enable travel expenses to be paid under the travel rules to a temporary workplace and are free of Tax and NICS.
Where a worker is paid at or near to NMW rates, the workers entitlements to earnings related to social security benefits are impacted as earnings are reduced by the amount of travel expenses.
This consultation may have a future impact on agencies supplying workers on low wages.The highlight for Personal and Small Business implications are as follows:
· Small Business Corporation Tax Rate remains at 21%
· New increased rates for the VAT Flat Rate Scheme from 1st January 2010
· VAT Standard Rate returns to 17.5% on 1st January 2010
· VAT Cross-Border changes effective 1st January 2010
· The introduction of a 10% rate of Corporation Tax for company income derived from UK patents
· All National Insurance Contribution raise an additional 0.5% on the proposed 0.5% totalling a 1% increase effective April 2011. This will not apply to incomes of £20,000 and below.
· Stamp duty holiday expires 31st December 2009
· Working Tax Credits increase April 2010
· Child Benefit and Disability Benefit increase by 1.5% April 2010
· State Pension increase of 2.5% April 2010
· Introduction of 50p monthly tax on telephone landlines to finance broadband super infrastructure
· The £43,000 threshold for lower rate tax frozen for 2010
· Inheritance Tax threshold frozen at £325,000
· Fuel duty rates increase by 1p April 2010
· No increase in alcohol and tobacco duty
· And for Bingo players a 2% Tax cut!
Please download our Pre Budget Report 2009 for all the detail.
Recently HMRC released new rates for business mileage for company cars effective from 1st December 2009. Interestingly enough, the AMAP’s rates that many of us claim (approved mileage allowance payments) remain unchanged since 2002.
When the AMAP rates were set at 40p for the first 10,000 miles reducing to 25p per mile thereafter, petrol was an averageof 44% cheaper than it is of today. And not only have fuel prices gone through the roof; this also has a knock on effect to most other related costs including servicing and insurance.
With the Standard VAT rate reverting to 17.5% 1st January this will further increase costs.
It's worth spending a few minutes in comparing the costs, each case will be unique. For full information please see our guide on Company Cars v AMAPs in our Knowledgebase.
It is probable that many Professional Contractors and Freelancers have contributed into private or company pension schemes prior to starting their own companies. In some cases there may be multiple funds, especially for those of you have 'career hopped' in the past.
If you have lost track of past schemes, the Government Pensions Office have a tracing service which is free to use.
For full details please see our guidance on Pensions -Tracing missing funds in our knowledge base.