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Top tax tips 2006 Top FAQ’s!. Why do I pay so much tax? How can I minimise what I pay? There are special VAT schemes for small businesses – would these help me? I own two residential properties – how can I save Capital Gains Tax when I sell one or both of them?

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top tax tips 2006 top faq s
Top tax tips 2006Top FAQ’s!
  • Why do I pay so much tax? How can I minimise what I pay?
  • There are special VAT schemes for small businesses – would these help me?
  • I own two residential properties – how can I save Capital Gains Tax when I sell one or both of them?
  • I want to pass on my wealth to my children and grandchildren – not the taxman. What can I do?
  • I am buying a commercial building – the seller is charging me VAT – can I claim the VAT back?
  • I am a “service” business and my business shows year end “work in progress” on its balance sheet. I have heard that there are some changes coming this year. What are these and what should I do?
  • What tax credits and tax breaks are available for me and my staff?
  • A “friend” had an HMRC PAYE compliance visit. It cost him a lot of money. How can I stop this happening to me?
  • A “friend” had an HMRC investigation into his business and it cost him substantial extra tax and expensive accountancy fees. How can I avoid this?
top tax tips 2006
Top tax tips 2006
  • Why do I pay so much tax? How can I minimise what I pay?

Suggestions:

      • Personal allowances and basic rate tax bands – use these up for both you and your spouse
      • If you are self employed – think about using a limited company
      • Pay dividends rather than salary
      • If you have lent money to your family company, consider paying interest (to yourself) on these borrowings. No national insurance is payable
      • Personal borrowings – make sure that interest paid on these is tax deductible If you are self employed or in partnership and have a year end other than 31 March / 5 April, you may have some pre 1997 overlap relief to use up
      • Maximise claims to capital allowances – including [a] short life asset claims and [b] claims on plant & equipment in commercial buildings
      • Consider some non taxable benefits for directors and staff
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Top tax tips 2006
  • There are special VAT schemes for small businesses – would these help me?

Suggestions:

      • Flat rate scheme – sales turnover limit of £150,000pa
      • Cash accounting scheme – VAT paid on cash received and paid out – sales turnover limit currently £ 660,000 pa
      • Annual accounting scheme – sales turnover limit currently £ 1,350,000 pa
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Top tax tips 2006

3 I own two residential properties - how can I save Capital Gains Tax when I sell one or both of them?

Answers:

  • Consider living in both properties at some time during your ownership, to maximise the use of your CGT principal private residence (“PPR”) election
  • Make the PPR election within two years of purchase / availability (to live in) of the second property
  • Use the let property exemption if you can
  • If all else fails, make sure you sell in joint names of both spouses
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Top tax tips 2006

4 I want to pass on my wealth to my children and grandchildren – not the taxman. What can I do?

Suggestions:

  • Don’t die without having an up to date will
  • Use up the nil rate band for the first spouse to die
  • Use a “nil rate band” discretionary trust if you have insufficient cash assets to use up the nil rate band of £285k
  • Consider a “civil partnership” if you are in a same sex relationship, or get married
  • Give away assets and survive 7 years
  • Do NOT give away assets and retain the “benefit” – these gifts will be ineffective for IHT purposes – and will be treated as “GWR’s”, (gifts with reservation of benefit)
  • Business property relief (at 100% and 50%) and agricultural property relief (at 100% and 50%) – try and use these up – if available
  • Beware of the “POAT”, (pre owned assets tax). This is a “new” income tax, charged on assets given away that might escape an IHT charge. This tax comes into force for 2005/2006
  • Avoid IHT planning on your private residence unless absolutely necessary
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5 I am buying a commercial building – the seller is charging me VAT – can I claim the VAT back?

Answers:

  • Yes, if you are making VAT standard or zero rated sales
  • If you are not VAT registered or you are making VAT exempt sales, then the answer may well be “no”
  • If the former, you can get the VAT back, but you may have to “VAT opt” the building
  • VAT opting is irrevocable (it lasts for 20 years) and the consequences are:
    • You can recover input VAT on purchase
    • You must charge VAT on rents received and any recharges such as insurance
    • You must charge VAT on the sale of the building in most circumstances
    • Any subsequent change of use – for charitable or non business usage – can result in a clawback of input VAT
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6 My business provides services and shows year end work in progress on its balance sheet. I have heard that there are some changes coming this year. What are these and what should I do?

Answers:

  • The changes apply to year ends after 30 June 2005
  • WIP (work in progress) should now recognise the right to revenue over the life of a contract – involving a recognition of profits earlier
  • Large tax catch up charge may arise
  • This would normally increase the tax payable for 2005/2006
  • However, there will be a “spreading” concession over three to six years – detailed legislation to come in this year’s Finance Bill / Act
  • Revise your billing and cash collection arrangements – to help finance the additional tax due
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7 What tax credits and tax breaks are available for me and my staff?

Suggestions:

  • Provision of qualifying childcare of up to £55pw can be tax free
  • Take up entitlement to child tax credit (CTC) and working tax credit (WTC)
  • Take up the child trust fund entitlement for new born children
  • Pay the maximum tax free mileage rate (of 40p per business mile)
  • Pay pension contributions to staff pension plans rather than staff paying contributions out of taxed income
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Top tax tips 2006

8 A “friend” had an HMRC PAYE compliance visit. It cost him a lot of money. How can I stop this happening to me?

If you have a PAYE scheme, you will get a visit sooner or later, so prepare now ……

  • Consider the tax status of freelancers – are they really self employed? If not, you, as employer, could be liable for the unpaid PAYE/NIC
  • Have you got signed forms P46 for all your low paid and casual staff? If not, organise this now
  • Do you properly report taxable staff entertaining? Business meetings and “entertaining” for staff are a favourite target
  • Mobile phones – the contracts should ideally be in the employer’s name to avoid any benefit in kind issues
  • For company cars, do you keep mileage logs to ensure that ONLY business fuel is reimbursed?
  • Are car benefits and van benefits accurately reported? Pool cars and vehicles with no private use will be open to challenge
  • Have you paid Class 1A NIC at 12.8% on taxable benefits in kind?
  • Report changes in company cars at the end of each calendar quarter – using the form P46(car)
  • Do you comply with the national minimum wage?
  • If you are a builder, make sure you are ready for the “new” CIS scheme in April 2007
  • Is fuel for private motoring for a company car still viable?
  • Be ready for the revised company van rules from April 2007
  • HMRC can go “back” for up to 6 years
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Top tax tips 2006

9 A “friend” had an HMRC investigation into his business and it cost him substantial extra tax and expensive accountancy fees. How can I avoid this?

Suggestions:

  • Keep good and accurate records
  • Can you demonstrate that you have enough CASH drawings to live on?
  • Keep accurate records of cash receipts and takings – till rolls, etc., can provide you with valuable evidence – or not……
  • Do your payments for supplies tally with your sales?
  • HMRC have access to information from all sorts of different sources – which you may not be aware of – including anonymous tip offs……
  • Is your gross profit % in line with industry norms? Don’t stand out from the crowd……
  • Are your private use proportions fair and reasonable and supportable?
  • File your returns on time
  • Take out professional fees insurance to cover your accountancy and legal costs
  • HMRC can go “back” for up to 6 years