Planning means different things to different people, in the minds of a lot of people it is a tedious exercise producing documents for the purpose of senior management, lenders, funders, and other third parties.  It prevents us ‘from getting on with it, represents a restriction and straightjacket on our activities, stifles our innovation and to cap it all once a ‘formal’ plan is produced it becomes out of date and is a handy paperweight at best.

I will throw my hat into ring and declare that I am a big fan of planning, both at a business and personal level, business and personal planning share many features.  However the focus of this article will be on planning in a business and organisational setting.  I have been involved in formulating and implementing plans for my own businesses and activities, advising and supporting individuals and organisations in the planning process, and assessing business plans.  My attitude and opinion as to what planning is and isn’t has changed over the last thirty years, one constant is that effective planning is vital to help us navigate an uncertain business landscape and reduce the risk of failure.  It is an unfortunate statistic that 70% of business failures are put down to poor management skills, which includes weak planning skills.

Planning is to a large extent a continual activity; it should not be confused with the end document(s) produced such as a business plan, budget or cash flow, these documents are merely capturing in words and numbers the results of (hopefully) some clear thinking and likely outcomes of our business journey.

The future is an uncertain landscape and none of us are blessed with the ability to predict with 100% accuracy what it holds for us, at the risk of using an overworked cliché, the only things in life that are certain are our own mortality and that we will pay taxes.   One of the primary purposes of planning is to demonstrate that we have considered and have tried to understand the risks involved in our business journey, and that we have considered how we may deal with those risks –all with the primary objective of realising and ultimately achieving our aspirations.

Planning has to be based on solid foundations, solidity starts with our mission statement, which helps our raison d’être, our calling card to the outside world.  The mission statement (effectively our aspirations), tells the world what are our aspirations are, how we hope to achieve them, and who will be benefit from this.  A mission statement is not a bland promotional tool; it needs to be simple, concise and memorable.  Shared mission, value & vision are the bedrock of businesses and organisations, work/business cultures create the environment in which behaviour – dysfunctional or otherwise is created.  Organisations are just another example of the family that we see & experience in our personal lives

Our mission statement helps generate critical success factors (CSFs), CSFs are the cause of our success, those areas in which we need to perform best if we are to achieve overall success and ultimately achieve our objectives.  For example, CSFs for a retailer would typically be the right product mix, product availability, effective marketing to attract customers and correct pricing.  CSFs help us generate measures to monitor and manage the achievement of those CSFs; these measures are also referred to as Key Performance Indicators (KPIs).  KPIs should normally be a blend of numbers (quantitative) and non-numbers (qualitative).  Targets can be set for these KPIs, and progress measured against these targets, any variations against these targets prompts investigation and ultimately action taken to rectify the situation.

There is a general rule in business that you cannot manage what you cannot measure; we need clues/milestones to identify if we are progressing on our journey.   Take the example of an individual who decides that their aspiration (mission) is to lead a healthier life style; one identified objective is to reduce their blood pressure to a certain level; a CSF is change of diet; a KPI to monitor this is body weight.  If we measure weight loss against a pre-set target then if that weight loss is not achieved we can have a closer look at what and when we are eating, and then hopefully put this right.

In the example of the retailer quoted above, appropriate KPIs may be levels of gross profit achieved; customer feedback, repeat purchases, and levels of spend per customer.

Within the planning process we need to consider the resources, both physical (tangible) and non-physical (intangible).  The ability of any business to perform effectively is determined by the adequacy and suitability of its resources.

There are a number of ways to categorise resources

• Physical:  For example buildings and equipment, their relative age and condition will determine their usefulness and adequacy
• Financial: For example adequacy of cash flow and working capital
• Human resources: This will include numbers and skills levels
• Intellectual capital: This will include brand names, reputation, client databases and business systems.

A resource analysis needs to consider how resources are managed, deployed and used.  For example, there no point in a business having a good reputation and brand name if it lacks the skills and expertise to exploit them effectively.

Successful businesses and organisations, in addition to effective planning require control and management decision making.   The role, purpose and benefits of effective planning, control & decision making can be compared to the control panel on an aircraft. The pilot relies upon his instruments to measure and control the performance of the aircraft, show him how the aircraft is doing, what outside conditions are like, the path that should be taken and so on. The instrument panel is not however flying the aircraft; it is helping the pilot to do their job effectively.

Knowledge and understanding helps all businesses, regardless of size, to maximise their potential. It puts them in a firmer position to shape and control their own destiny.

One of the things that I like to advise clients is that you need to ensure that you take time off away from the business to recharge batteries, maintain a fresh perspective, clarity of thought and make time for the personal dimension of your life – what some might call the work life balance. However, I was making the classic business mistake of focusing on providing a good business service, getting the work completed and responding to clients, not wishing to disappoint anyone – in effect I was not taking my own advice.

Unfortunately last week, one of our cats was put to sleep after a period of declining health, unfortunately medical interventions were unable to prolong his life. I took a day and half off work (which for those who know me is a long time) for some reflection and contemplation – I know it may seem bizarre to some but when an animal forms part of the fabric of your life, it’s premature departure makes quite an impact and my focus was not 100% for a short while. I am very fortunate to have great clients who understood and were flexible in moving deadlines, and an excellent staff team, my thanks again to them.

The law of unintended consequences occurred, the reason for the time off was not pleasant but spending a bit of time at home, away from a long day at work, e-mails, meetings etc. was re-energising and recuperative. I was able to clearly think through some challenging business issues and do what I always try to encourage others to do, i.e. space to think through, plan, evaluate and have a clear vision and mission. If anything, this brief period of time away from the office recharged my batteries, has made me more determined within my own business and I hope that I actually maintain the ability to create some time away from the hurly burly.

I may slip back into old habits, like the majority of business owners long hours are not always viewed as work in the conventional sense. Maintaining and growing a business requires time and tenacity, especially where the business is an employer. However, business owners need to maintain a sensible work-life balance whilst appreciating the need to have a clear plan

Contentment & achievement in business, work & life is more likely if actions are aligned to meet whatever your objectives are

As a business advisor and tax professional payroll and PAYE is certainly one of those areas that have been subject to many procedural and legislative changes.  I was asked to write a piece for Arts Professional (one of the UKs leading arts  management publications), however this is a topic and issue that is of equal importance to all organisations .   We as an office are getting geared up for the change and appreciate the potential time pressures and anxieties it can cause, we   hope the article is of some use to alleviate the anxieties.

Introduction

Arts organisations, like all employers will be fully exposed to a dramatic change in the operation of PAYE and NIC, known as Real Time Information (RTI).  RTI is not optional and will eventually apply to all employers; its introduction is being phased in, it will be live for medium and large employers (50+employees) from April 2013, smaller employers will be bought into the scheme from October 2013.

The fundamentals of PAYE will be unchanged, for example, use of tax codes, status tests, deduction of tax and NI, if anything the HMRC spotlight will be shone on payroll operations.  One of the key drivers behind introducing RTI is that it will support the introduction of Universal Credit, available nationally from October 2013.

The main advice at the outset is to plan for the change, review (and modify?) your current data & HR procedures, inform your staff and don’t panic.  Payroll information will now need to be reported electronically, on or before any day when you pay someone.

The vast majority of employers must report their payroll information online using a Full Payment Submission (FPS) for each pay period, with effect from 6^th April 2013; all employers are expected to be operating RTI from 6^th April 2014.

Each time a payroll is run details will need to be submitted of:

• deductions, such as Income Tax and NICs
• starter and leaver dates if applicable
• all employees paid, including those below the NICs Lower Earnings Limit (LEL)
• all starter and leaver information (P45/P46)

In some limited instances, existing employers may be asked to submit a separate submission called an Employer Alignment Submission (EAS) before the first FPS is submitted.  This is to ensure that payroll records match with HMRC's (payroll alignment).   A separate EAS needs to be submitted prior to the first FPS for large employers or, those with complex payroll systems.

Additional submissions include:

• National Insurance number Verification Request to verify or obtain a National Insurance number for new employees.
• Employer Payment Summary (EPS) to report a reduction in the amount you pay to HMRC or if you haven't paid any employees in a pay period.
• Earlier Year Update (EYU) to correct, after 19 April, any of the year to date totals submitted in your final FPS for the previous tax year. This only applies to years after you started to send information in real time. The first year an employer can use an EYU is 2012-2013.

PAYE Online

Employers will still need to be registered for PAYE Online, irrespective of RTI.  PAYE Online will still be needed because:

• PAYE Online will still be used for sending in certain forms to HMRC such as returns of expenses and benefits, including P46 (Car), P9D, P11D and P11D (b).  This can be done directly from your payroll software if it supports this feature.
• PAYE online will be used to issue tax codes and notices.  This can be done directly from your payroll software if it supports this feature.

HMRC have identified that over 80 per cent of data quality problems are caused by holding the incorrect information about an individual's name, date of birth or National Insurance number.

Examples quoted by HMRC as to the types of things that can go wrong are where:

• An employee only works for you for a very short time
• An employee gives two slightly different numbers
• An employee doesn't have documentation demonstrating their correct number

Data accuracy is critical to the operation of RTI (and to avoid penalties), the information needs to be verified from an official source such as HMRC and/or Department for Work and Pensions (DWP) documentation; passport documentation; birth certificate; full driving licence (photo version)

On-or-before Payments (OOB)

The vast majority of employers and pension providers will be subject to OOB reporting requirements.  , i.e.  reporting PAYE information before payment is made.  There are some limited relaxations to this rule, where the OOB requirements are relaxed, this does not excuse the employer from having to report the payments, merely slightly delays the time.

RTI Penalties

There is still some ambiguity over the penalty regime, and we may expect some flexibility in the first year of operation, however HMRC has not stated its exact position over this.

This article first appeared in Arts Professional

My colleague Suzanne Rowland and I will be facing our fears together and climbing over the edge of the seven story Leicester landmark to make the descent in aid of vulnerable children, young people, families and the elderly who are experiencing poverty, hardship or crisis throughout Leicester, Leicestershire and Rutland.

Our normal day consists of client’s tax returns, accounts and business plans, so we jumped at the chance to do something a little out of the ordinary to raise money for a fantastic cause when we were contacted by a local company with the proposal. I really hope people get behind us and come up with the sponsorship to make it all worthwhile.

Leicester Charity Link helps more than 5,000 vulnerable people and children across Leicester, Leicestershire and Rutland, providing items that most of us take for granted, such as a bed to sleep in, a cooker to prepare a hot meal and, in emergencies, food.  The fundraising abseil, being organised by The Phoenix Partners, hopes to involve up to one hundred people.

Anyone wishing to support the Suzanne and I in our vertigo inducing stunt can  donate directly online on the event’s Just Giving page at https://www.justgiving.com/ThePhoenixPartners

Please give generously – we’ll certainly be giving our all!

 

 

 

Financial, wealth and tax planning was a recent topic of conversation in our offices, a subject made more topical by the media burst of interest over the recent government announcement regarding state funding for elderly and social care.

Thousands more people will pay inheritance tax (IHT) to fund a watered-down version of the Dilnot plan for universal state funding for elderly and social care.  Pensioners and disabled adults will have to pay up to £75,000 of any care bills they incur before the state steps in under the new arrangement.  The new measures will directly affect IHT, in that the proposed changes will be funded by maintaining a freeze until 2019 the IHT tax threshold, commonly referred to as the nil rate band (NRB).

WEALTH PLANNING AND IHT

I want to focus on a particular aspect of Wealth planning, namely IHT, a tax that is bringing more people into the tax net.  If we have good fortune and health, then we will all become elderly, however comfort and quality of expected lifestyles will be dependent on a number of factors, personal financial, wealth and tax planning being one of them. 

IHT is, perversely an avoidable tax, if some planning and consideration is applied – even if planning is not carried out during your lifetime it is still possible to mitigate the effects of IHT at death, for example rewriting wills. 

The UK IHT regime affects those that are considered UK domiciled (actual or deemed), and IHT will normally be applicable if the value of your worldwide estate at death and transfers over the last 7 years exceed  the NRB, currently for the tax years 2012-13 to 2014-15 this will be £325,000.  It is estimated that the proposed freezing of the band until at least 2019 will bring 5,000 more families a year into the tax trap. It will increase IHT bills by an average £95,000 compared to what they would have been had the allowance had been increased as planned.

GIVING AWAY YOUR WEALTH WHILE STILL LIVING
Lifetime transfers are divided into two groups, potentially exempt transfers (PET) and chargeable lifetime transfers (CLT).

NO IHT TO PAY WHILE STILL LIVNG
Any transfer that is made to another individual is classified as a PET; a PET only becomes chargeable to IHT if the donor dies within seven years of making the gift. If the donor survives for seven years then the PET becomes exempt and can be completely ignored.
If the donor dies within seven years of making a PET then it becomes chargeable. Tax will be charged according to the rates and allowances applicable to the tax year in which the donor dies. However, the value of a PET is fixed at the time that the gift is made.

POSSIBLE IHT TO PAY WHILE STILL ALIVE
Any transfer that is made to a trust is a chargeable lifetime transfer, a trust is a widely used legal device and arises where a person transfers assets to people (the trustees) to hold for the benefit of other people (the beneficiaries). For example, parents may think that gifting assets and wealth to their offspring presents too much of a temptation for them.  Instead, assets can be put into a trust with the trust being controlled by trustees until their offspring are older.

Unlike a PET, a CLT is immediately charged to IHT based on the rates and allowances applicable to the tax year in which the CLT is made; if chargeable it will be at 20% (current life time rate).  An additional tax liability may then arise if the donor dies within seven years of making the gift. Just as for a PET, the value of a CLT is fixed at the time that the gift is made, but the additional tax liability is calculated using the rates and allowances applicable to the tax year in which the donor dies.

Unlike capital gains tax where, for example, a principal private residence is exempt, all of a person’s estate is generally chargeable to IHT.

TAX LIABILITY ON DEATH ESTATE
A person’s estate includes the value of all UK and wordlwide assets which they own at the date of death, such as property, shares, motor vehicles, cash and other investments.  A person’s estate also includes the proceeds from life assurance policies even though these proceeds will not be received until after the date of death. The actual market value of a life assurance policy at the date of death is irrelevant.

RATES OF TAX
IHT is payable once a person’s cumulative chargeable transfers over a seven year period exceed the NRB.  For the tax year 2012–13 & 2013-14 the NRB is £325,000, the rate of IHT payable as a result of a person’s death is 40%.  This is the rate that is charged on a person’s estate at death, on PETs that become chargeable as a result of death within seven years, and is also the rate used to see if any additional tax is payable on CLTs made within seven years of death.The rate of IHT payable on CLTs at the time they are made is 20% (half the death rate).

SOME THINGS TO CONSIDER
MAKE A WILL
• Making a will and being sure people know where to find it is the first step to making sure that your estate is shared out exactly as you want it to be when you die.
• If you don't leave a will, your estate will be shared out among your next of kin according to a strict order of priority called the 'rules of intestacy'.

GIVE WEALTH AWAY WHILE STILL LIVING
Lifetime transfers are the easiest way for a person to reduce their potential IHTliability.
• A PET is completely exempt after seven years.
• A CLT will not incurany additional IHT liability after seven years.
• Even if the donor does not survive for seven years, taper relief will reduce the amount of IHT payable after three years.
• The value of PETs and CLTs is fixed at the timethey are made, so it can be beneficial to make gifts of assets that are expected to increase in value such as property or shares
• Consider equity release
• Put life assurance policies under trust

TRUSTS
• Not just for the rich and famous

INVESTMENTS
• There are certain investments that become IHT free after 2 years.  Qualifying AIM shares is one, and Enterprise Investment Schemes are another.  After a period of two years, the value of any EIS investment will be outside that person's estate, therefore after death, beneficiaries will receive 100 per cent of the return. This is known as Business Property Relief.'

IHT RELIEFS
• Taper relief reduces the amount of tax payable where a donor lives for more than three years, but less than seven years, after making a gift, taper relief ranges from 20% to 100%.
• Transfer of a spouse’s & registered civil partners unused NRB
• Intra-spouse transfers are exempt from IHT (and CGT)
• Small gifts exemption (up to £250 per annum per donee while alive)
• Annual exemption of £3,000, unused annual exemptions available to carry forward
• Normal expenditure out of income, IHT is not intended to apply to gifts of income.
• Gifts in consideration of marriage, up to £5,000 if made by parent gift; £1,000 if anyone else

In future blogs we will look at the subject of Capital Gains Tax and the relationship with IHT.  I hope you found this information useful and as with all these things, it of general application.  More news and stories can be found on this site, future blogs and by connecting to me on Linkedin http://www.linkedin.com/profile/view?id=60867303&trk=hb_tab_pro_top

Welcome to my first membership blog of 2013.  This promises to be an exciting year for Pro-Active Resolutions.  We are actively working on a couple of new services for the voluntary sector, including membership organisations.  We hope to bring you more news of these later in the year.

In December we issued a survey on membership.  Many thanks to all of you who responded:

• 32% were charities
• 25% were sports clubs
• 14% were trade associations
• professional bodies, support organisations, special interest groups and others make up the rest

 

Strong concerns were expressed regarding:

• attracting new members (54%);
• financial pressure – growing costs and reduced income (50%)
• keeping existing members (43%);
• getting members more interested and involved in activities (39%)

Respondents also reported concerns regarding:

• Providing services that members value (39%)
• Providing cost effective member services (32%)

 

We will be considering how to provide more support in these areas in the next few months and will keep you informed.  In the meantime, our Factsheets  which focus on these areas may be a useful starting point.

Please let us have your details if you would like to sign up for our newsletter,  due for publication in Spring this year.

Tax, as has often been quoted is one of the only certainties in life; tax evasion and avoidance have been with us since tax has been levied by government on its citizens.  For example the Window Tax of 1695, introduced by William III resulted in architects redesigning houses with fewer windows, householders bricked up existing windows.  This had a negative impact on the glass industry, and some believe that the phrase ‘daylight robbery’ originated from this.

Fast forward to 2013, the topic of non-payment of tax is still topical, albeit the spotlight, as far as the media are concerned is the big corporates who are the non-payers. 

This is not how HMRC see it and one of the purposes of this blog is to overview the current climate, how HMRC find tax evaders and avoiders, the consequences and suggestions as to how to deal with it.  I have used property investors and landlords as an illustration, the points raised are applicable to all groups of taxpayers.
 
Over the last 20 years that I have been involved in tax work and investigations I have seen a change in how HMRC operates; its increasing powers; its wide access to information; and the financial and criminal consequences of non-compliance.  HMRC is increasingly rolling out campaigns against certain groups of taxpayers; these have included doctors, dentist’s plumbers.  Its current   disquiet (amongst many) is second homes, where rental income may not be declared or capital gains tax paid in full when the property is sold. Other targeted groups include the self-employed, who either do not notify HMRC that they are working for themselves or do not declare all their earnings; those who sell items over the internet or at car boot sales, of which a large number are effectively "trading"; businesses and the self-employed who may not be charging VAT correctly, and who may not be registered.

Tax evasion, means doing illegal things to avoid paying taxes, for a property landlord/investor this would include not declaring rental income and/or property gains, abuse of the PPR regime, and  claiming expenses that had not actually been incurred.

The HMRC have a Designated Compliance Unit for property and in March 2013 they are planning to start a campaign using new data to target those who have profited through owning and selling second homes or multiple properties in the UK or abroad and have not paid their tax liability.  Tax inspectors have already targeted buy to let landlords with portfolios of three or more properties in the North West and North Wales.

How will this happen…?
Landlords and property investors need to be aware of the tax office’s (HMRC) increasing focused, intelligence based and assertive approach to tax investigations.  A significant investment in IT, better use of evaluating the immense amount of data accessible by HMRC (such as Land Registry documents, letting agents records, council tax records), additional HMRC staff, significant penalties for ‘non-declarers, wider media exposure and more use of the criminal courts significantly increases the likelihood of being investigated by the big beast that is HMRC.

It is believed that HMRC knows exactly how many owners are trying to sell which investment properties, their primary source of information is now becoming the internet which produces high grade information, not only of houses for sale or to rent but also of planning applications in relation to proposed house conversions which are then sold at a later date producing a potential CGT liability.

How does the tax office know what I am up to?

HMRC has an incredible range and depth of information sources which can be used to uncover tax under-declaration, examples relevant to property landlords include:
• The ‘Northgate Public Services Information System’ database which contains details of housing benefits paid to landlords by any UK local council
• Land Registry documents, Land Registry searches are the main source of information relating to home and land ownership, mortgages, charges, easements, restrictive covenants, property boundaries, rights of way, past ownerships and house prices.
• Electoral Rolls
• Council Tax records
• Mortgage applications
• Letting agent client records
• Information provided by third parties
• So called “schedule 36” information notices, which are legally enforceable notices used to require information (about let properties) to be released by letting agents, insurers, Council Tax offices, tenants, Housing Benefit offices and Estate agents.
• Banks and building societies, they are required to provide details of accounts on which interest is paid over a certain amount. 
• Planning applications in relation to proposed house conversions which are then sold at a later date producing a potential CGT liability.
• Inheritance tax returns, indicating second properties passing under a will
• Looking at and interrogating websites, such as ‘Rightmove’, this site provides the sale and rental information for a property, and an estimate of the capital appreciation of a house since the last transaction
• Increased sharing of information across government departments and overseas institutions
• The Internet
• Bringing in outside expertise from the financial services industry, academia, and the credit reference agencies

How does HMRC use the information used?
Advances in technology and the effective use of date-mining techniques have yielded positive results for HMRC at the moment, and is likely to increase as their skills and competency levels improve.  For example, a check with a credit agency such as ‘Experian’ will show details of loans and mortgages of the taxpayer and people they are connected with as well as identifying any linked addresses.

Bank details may confirm the opening of a new bank account in which a large amount has been deposited. If this ties up with an entry on the Land Registry following the sale of a property, this could possibly mean that a chargeable gain should have been declared on the tax return.
Data mining of the Land Registry can provide me properties sold and acquired by individuals; this can be cross referenced to what if anything is held for that individual in terms of tax records and returns.

HMRC has a new computer system based the Valuation Office Agency in Worthing, West Sussex.  This system brings together information formerly based in District Councils and enables the comparison of data collected such that for example, an HMRC inspector can request a search to provide an historical list of all properties purchased by a landlord, or in some cases members of the landlord’s family.

This list can then be compared with declarations made on the CGT pages of personal tax returns. Properties sold within short timescales are therefore easily identifiable and tax return declarations easily checked. HMRC have had such success with their new system that they have formed a designated compliance unit tasked with targeting ‘tax evading’ property developers and ‘buy to let’ landlords.

How do they choose who to investigate?
Random selections are not that common, more often than not HMRC use a risk based approach to selecting cases for investigations.  The likelihood is that if HMRC contact you to ask questions, it is highly likely they have built up a profile of your financial conduct and behaviour.   

For example, in their publication ‘Closing in on tax evasion’ HMRC, via third party data identified an individual who was found to have 11 undisclosed properties in several Mediterranean countries. The total cost of the properties exceeded €1.3 million despite the individual declaring UK income of just £6,000.

As part of a campaign aimed at medical professionals, HMRC’s computer system ‘Connect’ helped make the links between tax records and data from hospitals, pharmaceutical companies and insurers. This resulted in £33 million in unpaid tax being recovered so far including one case of £1.2 million.

Should I stay hidden or come clean?
I have dealt with a whole range of clients over the years regarding tax evasion and in the vast majority of situations they are not hard-bitten criminals but people who have got trapped in a viscous cycle.  They may not have been initially aware of the need to declare, received incorrect advice or have been meaning to declare income and/or gains but did not get round to it.  As time goes by they get in the habit of not making a declaration but now become worried and anxious regarding the consequences of non-declaration – the advertising campaigns by HMRC are certainly, dramatic and hard hitting and do not help in this respect, but I can understand HMRC’s motivation in doing so.

There are effectively two choices, do nothing and see what happens.  There is a possibility that you may never be discovered, more likely if you are invisible, do not legally exist, have no NI number and every financial transaction you have done is in cash, there is nothing recorded about you in the public domain and you do have not an electronic footprint.  If you are caught, then penalties will be applied more heavily and subject to the nature of the evasion, criminal prosecutions and custodial sentences are more likely.

My opinion is that a voluntary declaration (ideally managed and dealt with by a tax professional) is the best route forward.  The financial consequences will be less, certainly as far as penalties are concerned.  It is the personal impact that is as beneficial, in every case that I have dealt with over the years all my clients have felt such a burden lifted, and even there will be a financial consequence the pain is manageable and they   do not have to worry about the nasty letter or knock on the door.

If I am affected what should I do now?
If you are concerned that you may have undisclosed tax liabilities you should take expert advice on liaising with HMRC, either speak to your existing accountant or contact me at mahmood@proactiveresolutions.com

At the date of writing there are 28 days to go before the 2011-12 tax return has to be filed, and any balancing payments and payments on account have to be paid.

It would seem appropriate to outline some important points about Self Assessment (SA), with particular reference to the property landlord, albeit a number of the points are relevant to other taxpayers.

Requirement to be part of Self Assessment
If an individual only has income from non-PAYE sources, such as income from renting properties then a tax return will need to be completed if all of the following apply:

• you have income to declare, for example income from savings, trusts or abroad, rental income from land or property
• your total income exceeds your total allowances and reliefs
• you have tax to pay on this income

The completion of a tax return will be required if a taxpayer wishes to claim any loss reliefs.

Record keeping
Taxpayers are under a legal duty to keep sufficient records to back up their SA submission. HMRC take this matter very seriously and are continuing with (redesigned) business record checks. Their selection criteria are based on risk assessment; cash based businesses being more likely to be selected for business record checks.

For income tax purposes, HMRC advise landlords to keep details of:
•the dates when you let out your property
•all rent you get
•any income from services you give to tenants (e.g. if you charge for maintenance or repairs)
•rent books, receipts, invoices and bank statements
•allowable expenses you pay to run your property (e.g. services you pay for such as cleaning or gardening)

Taxpayers must retain records for a certain length of time, for example, for a 2011-12 return filed on or before 31 January 2013, records must be kept until 31 January 2014.

Income tax
Tax is payable on the net rental 'profits' of the property, effectively rental income due minus any running costs that are incurred in connection with the letting of the property.

A separate article of what can be claimed will be uploaded separately, more information can be found at http://www.proactiveresolutions.com/?s=property – remember that tax allowable costs must normally be "wholly and exclusively" for the purpose of the rental business.

Capital gains tax
Property gains are calculated by deducting the capital costs from the value of the disposal, the disposal is normally by sale or transfer; net gains will be after further deduction of capital losses and the annual exemption of £10,600 for 2011-12.

Tax rates 2011-12
Income tax is payable at 20% on taxable rental profits up to £35,000, 40% is payable on the excess and an additional 50% on profits over £150,000.

Net capital gains will be taxed according to the 'income tax' status of the taxpayer, 18% for 'basic rate' gains, and up to 28% if the taxpayer is a 'higher rate payer', a higher rate taxpayer is one who has a gross income in excess of £42,475.

Capital gains tax reliefs
These include capital losses and the annual exemption, are the principal private relief (PPR); letting relief (gains up to £40,000 tax free); transfers to a trust, non-residence and death of the individual.

Paying HMRC
It is vital that taxpayers do not miss payment deadlines, HMRC are more flexible in the methods of payment and encourage internet and telephone payments, if this method is adopted it is important that the correct bank accounts and number formats are adopted. HMRC have updated their own website to include a lookup tool that sets out which bank account to use and the required format to use for the reference numbers.

Problems paying
Do not impersonate an ostrich and contact HMRC at the earliest arrangement and negotiate a time to pay. Payment plans are not guaranteed, and will be dependent on a number of factors, such as level of tax owed, affordability (evidence may be required), previous tax history. HMRC have certainly been more assertive in collecting tax and are under increasing political pressure to be more so. HMRC more readily move to legal action for uncollected debts, having the use of (currently) 11 private debt collection agencies.

Good luck

I find the Xmas break an enjoyable one, not just from the point of view of seeing friends and family, eating, socialising, enjoying the quiet roads and being able to take a few days off from the frenetic activity of running a business.

This time of the year gives me a chance to reflect on the year gone by and plan (i.e. put pen to paper, or keyboard to computer) in preparation for the years ahead.  I can take advantage of the relatively quiet time – with most of staff having a deserved break – to review the past, plan and re-energise for next year.

Two things that help us to deal with the continuing challenges of the present and future is in the quality of our planning and thought process.  Planning is an essential discipline, however it is applied, albeit the exactness of the plan may not happen, the thought processes it involves are important.  For example, consider business plans, of which during 2012 I was involved in developing and assessing a number.  Business plans represent (in words) the journey that we are going to make, informing our ‘audience’ as to why we are making the journey (mission), what we wish to get from that journey (objectives), the people we wish to visit (clients), the route we wish to take (how to), our ability to make such a journey and the terrain out there (financial and other risks).

We know that one certainty is that the reality will not match the reality of the actual business journey.    However, this does not relegate planning to a redundant activity, the process of producing the plan enables us to look at the journey through a wider lens and not the narrow focus of just our skills and experiences.

My general approach to ‘business’ is to identify and maintain core underlying activities, whilst developing additional services & products.  At the end of 2012 I have achieved some things that I set out to achieve, been involved in work that I had not anticipated (unforeseen but welcome opportunities), but core activities help sustain the business.

One of my wishes for 2013, apart from the obvious desires for world peace, food and shelter for all, and business success is a new approach of better quality, integrity, thought, discussion, consideration & application by policy makers & media. Critical, objective thinking & analysis that is deemed important in our business & working lives seems to be abandoned and ends up in a cul-de-sac when it relates to wider societal issues.

Very best wishes for 2013

 

Winter months are taking their grip, the end of the year is approaching, festivities are building up slowly and (at the date of writing this article) there are 46 days before the Self Assessment (SA) deadline – by which time the 2011-12 tax return has to be filed, and any balancing payments and payments on account have to be paid. 

It would seem appropriate to outline some important points about SA, with particular reference to the property landlord, albeit a number of the points are relevant to other taxpayers..

Requirement to be part of Self Assessment

If an individual only has income from non-PAYE sources, such as income from renting properties then a tax return will need to be completed if all of the following apply:

• you have income to declare, for example income from savings, trusts or abroad, rental income from land or property
• your total income exceeds your total allowances and reliefs
• you have tax to pay on this income 

The completion of a tax return will be required if a taxpayer wishes to claim any loss reliefs. 

Record keeping

Taxpayers are under a legal duty to keep sufficient records to back up their Self Assessment submission.  HMRC take this matter very seriously and are continuing with (redesigned) business record checks.  Their selection criteria are based on risk assessment; cash based businesses being more likely to be selected for business record checks. 

For income tax purposes, HMRC advise landlords to keep details of: 

• the dates when you let out your property
• all rent you get
• any income from services you give to tenants (eg if you charge for maintenance or repairs)
• rent books, receipts, invoices and bank statements
• allowable expenses you pay to run your property (eg services you pay for such as cleaning or gardening) 

Taxpayers must retain records for a certain length of time, for example, for a 2011-12 return filed on or before 31 January 2013, records must be kept until 31 January 2014. 

Income tax

Tax is payable on the net rental ‘profits’ of the property, effectively rental income due minus any running costs that are incurred in connection with the letting of the property. 

Details of what can be claimed have been discussed in previous articles, remember that tax allowable costs must normally be “wholly and exclusively” for the purpose of the rental business.

Capital gains tax

Property gains are calculated by deducting the capital costs from the value of the disposal, the disposal is normally by sale or transfer; net gains will be after further deduction of capital losses and the annual exemption of £10,600 for 2011-12. 

Tax rates 2011-12

Income tax is payable at 20% on taxable rental profits up to £35,000, 40% is payable on the excess and an additional 50% on profits over £150,000.  

Net capital gains will be taxed according to the ‘income tax’ status of the taxpayer, 18% for ‘basic rate’ gains, and up to 28% if the taxpayer is a ‘higher rate payer’, a higher rate taxpayer is one who has a gross income in excess of £42,475. 

Capital gains tax reliefs

These include capital losses and the annual exemption, are the principal private relief (PPR); letting relief (gains up to £40,000 tax free); transfers to a trust, non residence and death of the individual. 

Paying HMRC

It is vital that taxpayers do not miss payment deadlines, HMRC are more flexible in the methods of payment and encourage internet and telephone payments, if this method is adopted it is important that the correct bank accounts and number formats are adopted.  HMRC have updated their own website to include a lookup tool that sets out which bank account to use and the required format to use for the reference numbers. 

Problems paying

Do not impersonate an ostrich and contact HMRC at the earliest arrangement and negotiate a time to pay.  Payment plans are not guaranteed, and will be dependant on a number of factors, such as level of tax owed, affordability (evidence may be required), previous tax history.  HMRC have certainly been more assertive in collecting tax and are under increasing political pressure to be more so.  HMRC more readily move to legal action for uncollected debts, having the use of (currently) 11 private debt collection agencies. 

Keep warm, have a great festive period and happy Self Assessment.