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June 2014

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June’s Tax Tips & News
Welcome to our newsletter designed to bring you tax tips and MYOB news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

Please contact us for advice.
We’re here to help!
June 2014
· More on Salary and Dividend Strategy 2014/15
· Marginal Tax Rates
· VAT and Discounts
· Real Time Information (RTI) Interest
· June Questions and Answers
· June Key Tax Dates
More on Salary and Dividend Strategy 2014/15 top
The bulk of our clients are directors and shareholders of a single company.  Our last advice in our April Newsletter helped you to decide how much salary to pay yourself each month in the most tax efficient way.

But the solution can be more sophisticated for people with further income.

For those readers with any of the following:
  • self employment income which takes their total taxable income to the £10,000 personal allowance,
  • rental income from a property,
  • a second profitable company paying a salary,
  • a second employment or
  • an Employer NI liability for other staff which exceeds the £2000 Employment Allowance

The key here is not to incur further income which attracts Employee NI.  Therefore take a salary of just above the NI lower earnings threshold of £481 per month, you will get an NI credit towards your state pension, but still not pay any tax or NI. 

Meanwhile for those readers with:
  • an exemption for NI because you have reached state pension age.

In this case the business will not have to pay Employer NI, and you will not have to pay Employee NI.  In this case it makes little difference if your business pays wages to you, or dividends.  The personal tax applied to wages are matched by the corporation tax your business saves.  Wages have a slight disadvantage as the tax is paid earlier in the year and under the inflexible RTI scheme.  If you are in danger of reaching the top of the basic rate band then better you are paid wages – which at least allows your business to reclaim corporation tax on the cost.

If you take a salary of just above the NI lower earnings threshold of £481 per month, you will get an NI credit towards your state pension even though you don’t pay any tax or NI.

It is not tax efficient to pay in excess of the personal allowance (with reduced dividend income) even if this means that all or part of the Employers Allowance is wasted.
Marginal Tax rates
VAT and Discounts top
What rate of tax would you pay on an additional £1 of earnings?

If your annual income is between £41,865 and £150,000 you may think the tax rate would be 40%, but the peculiarities of the UK tax system mean you could pay 62% or even more. Read More

Do you offer prompt payment discounts to your customers – known as PPDs?

Under UK law VAT is payable on the net amount after deducting the discount, whether or not the customer takes advantage of the discount.

Say you sell a carpet for £1,000 + VAT, and offer 3% discount if the customer pays within 10 days VAT is charged at 20% on £970 ie £194, rather than as 20% of £1,000 which is £200. Even if the customer takes two weeks to pay and thus doesn’t qualify for the PPD, the amount due will be £1194. Read More
Real Time Information (RTI) Interest top
June Questions and Answers top
In the past some employers would play the PAYE system, holding on to the PAYE deductions until the last payment date of the year, and then paying the balance due before interest was charged. That is no longer possible under real time information (RTI), as interest is now charged on late paid PAYE and CIS deductions on a monthly basis throughout the tax year.

The interest is applied to payments which fall due on and after 19 May 2014, which are paid late. If you check your business tax dashboard on the HMRC website, you may see interest accrued from 19th of the month. Where you pay the PAYE due electronically the payment is due by 22nd of the month. In the case of an electronic payment the interest charged from 19th to 22nd should be cancelled.

However, there is a known problem which HMRC are working to fix. If your business made no full payment submissions (FPS) for a tax month (perhaps because no wages were paid), HMRC may have estimated the PAYE due and added that estimated amount to your PAYE account. The estimated PAYE debt is called a “specified charge”. Interest accrues on the specified charge as if it was real PAYE due.

The way to get rid of a specified charge is to submit a nil Employer Payment Summary (EPS) for each of the tax months for which the specified charge has been raised for. This should also remove the interest accrued on the specified charge, but currently it doesn’t. HMRC say this interest will not be pursued, and it will be removed from the PAYE account when the software is fixed.
Q. My father resigned as a director of our family business in March, and started to draw his pension, but he retained 15% of the shares in the company. It seems likely that company will be sold later this year. Will my father get entrepreneurs’ relief on any the gain he makes on his shares?Answer

Q. I have just received my renewal pack for claiming working tax credits, but the income figure for 2013/14 doesn’t agree with my P60 form and payslips from my employer – by a wide margin. What’s gone wrong and what should I do? Answer

Q. I run a small independent chemist which has three employees. I was told that my business would not qualify for the employment allowance as a good deal of our work involves dispensing NHS prescriptions. Is that true?Answer
June Key Tax Dates top
19/22 – PAYE/NIC and CIS deductions due for month to 5/6/2014. Note this is the first period of RTI declaration for those employers on quarterly declaration.

Need Help? top
New Clients Welcome top
Please contact us if we can help you with these or any other tax or accounts matters.

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See details of our Business Companion Service.
About Us top
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut AccountEdge, Solar Accounts, Quickbooks or Clearbooks. We offer a range of accountancy services despite being specialists.

‘All clients using these software packages can benefit from our support. Visit our website for a look at the resource on offer.’

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