Around 12,000 taxpayers have been sent penalty notice letters by HM Revenue & Customs (HMRC) in error, warning them of the new £10 daily fines for failing to file their self-assessment tax returns.

However, the taxpayers concerned were originally informed that they no longer needed to fill in a tax return.

A spokesperson for the HMRC said, ‘We can reassure these customers that we know who they are and that this letter is incorrect – they do not owe a penalty’.

The deadline for filing the self assessment tax return online was 2 February. Under HMRC’s new penalty system, individuals who have not filed their return by 1 May are subject to daily penalties.

Further penalties apply for taxpayers who have still not filed their returns after 6 and 12 months.

We can help with all of your tax planning needs, including dealing with your tax returns.

Please contact us for further information.

Questions relating to  tax return submission are both regular and varied. The following answer is extensive, but necessary, as there are many areas to cover. If you have any other questions regarding your tax return, contact us via our online enquiry form.

If filing a Tax Return online, it has to be filed by 31st January after 5th April year end. For example, the Return to 05/04/2012 has to be filed online by 31/01/2013.

If a Return is being filed on paper, it has to be filed by 31st October following the 5th April year end. For example, the paper return to 05/04/12 must be filed by 31/10/2012.

If you have a tax underpayment and wish HMRC to collect it via your tax code (if you have PAYE income), it has to be filed by 31st December following 5th April year end, even if it is filed online. For example the return for 05/04/12 showing an underpayment to be collected via your code number has to be filed by 31/12/2012.

Where the notice to file a return was issued after 31 July, (rather than 5th April, which is the standard issue date), the deadline for filing a paper return will be 3 months and 7 days after the date the notice was issued and the deadline for an online return will be the later of 3 months and 7 days after the notice was issued or the 31 January following the tax year end.

If your return isn’t filed by the appropriate deadline, HMRC will charge you a £100 penalty, irrespective of whether you have a tax liability for the year in question.

There are more severe penalties for longer delays:-

3 months late £10 for each following day – up to a 90 day maximum of £900. This is as well as the fixed penalty above.
6 months late £300 or 5% of the tax due, whichever is the higher. This is as well as the penalties above.
12 months late £300 or 5% of the tax due, whichever is the higher.

In serious cases you may be asked to pay up to 100% of the tax due instead. These are as well as the penalties above.

There are also deadlines for paying your tax.

You must pay any tax you owe by 31 January following the end of the tax year.

For example, for the tax year 2011-12 (ending on 5 April 2012) you must pay any tax you owe by 31 January 2013.

The payment deadline is the same for both paper and online returns.
You’ll need to pay one or both of the following:

• any tax you still owe for the previous tax year
• the first of two ‘payments on account’

Payments on account are part payments towards your next tax bill. You don’t always have to pay these – it’ll depend on the amount of tax due and the kind of income you receive.

There is also a deadline for making any further payments on account. For example on 31 July 2012, you’d make your second payment on account for the 2012 -13 tax year. (There is further information regarding when to make payments in “Recurring Questions”)

HMRC will also charge penalties on tax that is paid late, as follows

Length of delay and Penalty you will have to pay:

Thirty days late - 5% of the tax you owe at that date
Six months late - 5% of the tax you owe at that date. This is as well as the 5% above.
Twelve months late - 5% of the tax unpaid at that date. This as well as the two 5% penalties above

The penalties above do not apply to any payments on account that you pay late.
You will also have to pay interest on anything you owe and haven’t paid, including any unpaid penalties, until HMRC receives your payment. At the time of writing, the rate is 3%

Completing a Tax Return is not always a straightforward matter, which is why we ask our clients to let us have their records in good time before 30th September each year.

Although October to January may seem ample time to prepare a set of accounts and a Tax Return, that is not always the case – if it is your first set of accounts, there may be lots of questions that we need to ask:-

• You may not have provided us with enough details regarding expenses claimed
• We may not be able to identify certain expenses you have claimed
• We may need to establish how some of the expenses are utilised in your business
• We may need to ask you about expenses that you have not claimed but may be able to claim
• You may need information from us that will require us to do some research
• We need further information to complete the other sections of your tax return, such as PAYE income, pension contribution details, bank/building society interest details etc.
• We may need to contact a third party for information, for example, your previous accountant if you are new to TWD
• You may need to contact a third party for information, for example a bank/building society.

Apart from the above, the main advantage of letting us have your information early means that we will be able to advise you of your tax liability in good time before the payment date. It will give you more time to provide for your impending tax bill.

On the flip side, if you are due a refund of tax, the earlier the Tax Return is submitted (in theory) the quicker you will get your refund.

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Over the past few month’s our Free Online Tax Advice Form has been inundated with self employed tax and accountancy questions.

Starting today, and running over the next few weeks, I will run through the most popular questions and answers right here on the blog.

Q. How easy is it to change my accountant?

This should not be a difficult task.

Once you have signed up with a new accountant, you should, out of courtesy, contact your old accountant and warn them that you will be employing another accountant and they should expect a letter from us in the next few days.

At TWD we will also write out of professional courtesy to ask if they object to us acting and whether there are any reasons why we should not act on your behalf. We will also ask for several pieces of information, such as a copy of your last completed accounts and tax return, tax calculations and any other information we may need to prepare your accounts.

Most accountants are usually quite prompt in doing this, but we do have the odd one or two that drag their heels as they are not happy that you are changing. We will send them reminders until they reply. In some circumstances, if the accountant is a member of a professional association, a complaint can be lodged to that association and the accountant will be taken to task.

Previous accountants can withhold information from new accountants if you have outstanding fees, so please make sure that you are up to date with any bills they have issued to you.

We will ask you to sign a form which authorises us to act on your behalf and send that to HMRC and that will cancel out the authority from the previous accountant.

Look out for the next Q&A: I haven’t filed my tax return on time, can you help?

You may also find the following pages useful: Tax FAQ’s , Tax Tips, Tax Calculators

Chancellor George Osborne began yesterday’s Budget speech with a pledge to support working families, through ‘far-reaching reform’ of the UK tax system.

At a glance the key highlights are include, 4.5 million pensioners are to lose out, a 3p rise in Fuel Duty to go ahead in August and Corporation tax is being cut to 24%.

Looking deeper the Chancellor’s statement contained some key announcements on personal and business taxation, including confirmation of a cut in the 50p headline rate of income tax. Confirming recent speculation, the Chancellor emphasised that the rate has ‘damaged competitiveness’ and raised ‘next to nothing’, although the reduction of the rate to 45p will not take effect until April 2013.

Meanwhile, personal tax allowances were also a significant focus of the Chancellor’s speech. With the income tax personal allowance set to rise to £8,105 next month, the Chancellor confirmed that a further rise in the income tax allowance will take place in 2013, taking the allowance to £9,205. Age-related tax allowances currently stand at £10,500 for those aged up to 74 and £10,660 thereafter. However, these allowances are to be frozen, and will stop for anyone turning 65 after 5 April 2013.

The freezing of age-related allowances for pensioners, or ‘granny tax’, will act as “a relatively modest tax increase”, costing pensioners an average of 0.25% of their income in 2014 but hitting hardest those who reach 65 over the next two years.

For full details from yesterday’s Budget Statement visit our – 2012 Budget Report 2012 section.

Feel free to comment on the blog and either ask us a question or give us your reaction.

Picture taken from insolvencyandlawblog.com

With Harry Redknapp recently being found not guilty on two counts of tax evasion and Glasgow Rangers and Portsmouth going into administration this week, it is clear that HM Revenue and Customs (HMRC) are focusing their attention on the footballing arena.

Around £100 million of the revenues money goes missing each year, and it has been reported that investigations are now being made into football players tax returns. The information collected will be checked to see if the players are liable for unpaid tax or if the clubs need to pay additional National Insurance contributions.

HMRC’s efforts to identify those who are evading tax have become increasingly sophisticated, with the creation of a High Net Worth Unit who’s aim is to target individuals worth in excess of £20million.

The Mail on Sunday quoted a source as saying “We are not talking about a few low-cost gifts. These people are multimillionaires.”

“It doesn’t matter where you come from. If you work in the UK you are liable to pay tax on your UK earnings.”

The Revenue will have their work cut out, as footballers are already taking advantage of image rights loopholes. It has been regularly been reported that Premier League footballers, whose wages are often looked upon adversely, get image rights written into their contracts. The tax paid on image rights is 26%, instead of the usual 50% tax that high earners have to pay.

And for those not playing the beautiful game at the highest level, you may still be on the HMRC radar.
Building on previous campaigns which targeted plumbers and electricians, the tax authority will also turn its attention to those in the construction sector, including roofers, bricklayers, joiners, window fitters and carpenters. The recent campaign against plumbers resulted in a number of ‘ghost’ trader arrests and over 600 investigations.

Will tax payers declare or take the chance?

The figure of 1.1 million for tax evaders is the lowest since online filing first started, and compares with 1.4 million last year and 1.6 million the year before.

The question is with new initiatives in place will the remaining 1.1 million look to declare or take the chance?

As the 31^st January tax return deadline is looming, many business focus their attention on their year-end accounts. Throughout January we have been contact by a number of businesses in and around the London area enquiring about the pro’s and con’s of a remote/online accountant. In short, a remote accountancy practice has a number of benefits:

• Save a business time – Reduced travel costs for meetings
• Constant telephone access allows issues to be solved immediately
• Lower costs – This is not always the case but without the need for face to face meetings, remote accountants can generally maintain lower costs with fixed fee pricing.

Is this method right for every business? Of course the answer is no. The main obstacle we face is that certain businesses like the thought of visiting their local accountant, so they can build up a relationship. If you are happy with your accountant, the trust you build up is important, so sometimes this will outweigh any additional fee. We often make the point that each business has completely different circumstances. Certain companies want to save both money and time and are happy to ‘take a leap of faith’ with a remote/online accountant. Other businesses prefer face to face meetings to build up a rapport with their accountant. At the end of the day it comes down to the individual or business, as no two companies are ever the same.

Don’t just take our word for it; here is what our London based clients think:

“I started using TWD because I wanted to file my tax return online and needed a time and cost-effective method of coping with CGT: you needed then, (maybe you still do), specialist software to submit CGT data online. TWD did this for me and also checked over my whole return at very reasonable cost so I’ve been more than happy to keep using them.”

Mr. Bob Howell, London

“Over the past five years my tax affairs/returns and subsequent letters were a headache, never seemed to get it right. Not any more. Your questionnaire was easy to understand and complete…I commend the polite, professional response experienced each occasion I have contacted TWD Accountants.”

Mr Irvine, Essex

Finally a few stats about us:

• We prepare accounts for over 3,000 clients per tax year.
• In 2010/11 we filed in excess of 7,500 tax returns.
• 40% of our accountancy clients are based in London or the South East.
• In our latest customer survey 97% of our clients stated they are either satisfied or very satisfied with the support they receive.

As this is my first blog of 2012, a belated Happy New Year is in order.

We have just returned back from exhibiting at the 2012 SWPP Photographic Convention in Hammersmith. The convention was a resounding success and it was great to meet up with so many of our clients.

For those photography clients who could not make it, here are a few pictures from the convention.

For more details regarding self employed tax and accounts for photographers please click here.

Here is a picture of Harpreet from Magenta Photography, who was our competition winner.

Chancellor George Osborne vowed that the Government would stick to its strict programme to protect against ‘the sovereign debt storm’.

The Chancellor announced a reduction in the UK’s economic growth forecasts, with the 2011 figure revised downwards from 1.7% to 0.9%. Alongside this was an increase in Government borrowing, with the forecast for 2011/12 rising to £127bn, and total additional borrowing amounting to £112bn over the next four years.

Mr Osborne was quick to deny recent reports that the UK is set to slip back into recession in the coming months.

Key announcements for business

• Introduction of further credit easing: Up to £20bn is being made available to small and medium-sized businesses through the National Loan Guarantee Scheme.

• The business rate relief ‘holiday’ for small firms will be extended to April 2013, and a new Seed Enterprise Investment Scheme for small businesses will offer 50% income tax relief for those investing up to £100,000 in new start-ups, together with a one year freeze on capital gains tax.

• A £940m ‘Youth Contract’ will also aim to boost employment by means of subsidised work placements for young workers.

For full details of the report visit: Autumn Statement 2011

At TWD we regularly update our tax advice section with the replies to questions submitted by both clients and non-clients.
We have recently had 2 questions submitted by someone in the entertainment industry, both of which are becoming more and more frequent.

• “Can I claim back my gym membership”; and
• “Is cosmetic surgery a business expense?”

Whilst these questions have been added to our FAQ page, given the frequency with which they are asked I thought they would benefit from a blog posting.

Can I claim back my gym membership?

If you are self employed you can claim for any expense as long as it is “wholly and exclusively” for business.

However, gym expenses are generally regarded as maintaining or restoring good health and as such are not allowable expenses. HMRC will try and treat gym expenses in the same manner as they do medical expenses.

Unfortunately this view is backed up by case law. A self-employed writer suffered an illness that prevented him from working.  Claiming his illness was a direct result of working in unfavourable conditions he made a claim for his medical bills on the basis they were connected with his professional work.  His claim was rejected by HMRC and on appeal the judge held that it was impossible to argue that medical bills represent expenses incurred wholly and exclusively for the purposes of his business as there was undeniably a personal element to his treatment.

“Can I claim for Cosmetic Surgery?”

Strangely different considerations may apply where an individual pays for cosmetic surgery. Where a person in the public eye pays for cosmetic surgery then HMRC will examine the reasons for surgery.

If the surgery is for vanity reasons no deduction will be due. Only in exceptional circumstances will an operation to change personal appearance by reversing or masking the advancing of the years not have a private purpose.

As you can see tax law does not always make sense. Always seek professional advice when dealing with your tax affairs as you can see nothing is straightforward!

If you have any questions please feel free to email us via our free online tax advice form.

At TWD we always want to help our clients stay one step ahead of the taxman.

Our small business guide is full of useful tips and information for the coming winter months.

This months winter guide includes the following articles:

Could your business benefit from R&D? Corporation Tax relief is now available on research and development revenue expenditure at varying rates.

Countdown to retirement: are you still on track? If you have ten years until you retire, or just six months, there are some simple steps that you can take to get your retirement planning on track.

Planning for a prosperous 2012: Useful guide that could make a difference to your business profits.

Other information includes:

• PAYE: Collecting Real Time Information.
• Changes to business link services
• Junior ISA limit is raised
• The move to online VAT filing
• Business Reminders for Winter – Key dates

To download our Winter Guide visit our: Limited company page.