Most people leave thinking about their tax returns until some time on the 29th of January.  In fact, that’s almost the busiest day of the year for me.

On 30 March 2011, HM Revenue & Customs (HMRC) released a warning that the next lot of tax returns (2010/11) are going to be subject to a new penalty regime starting tomorrow (from April 2011).

If you fill in a tax return you will shortly receive your 2010/11 notice and paper return. There will also be information about the changes to the penalty regime:

Penalties for filing a tax return late

• Day one: an initial penalty of £100, even if you have no tax to pay or you have already paid all the tax you owe
• Three months late: an automatic daily penalty of £10 per day, up to a maximum of £900
• Six months late: further penalties, which are the greater of five per cent of tax due or £300

That is a total of £1,300 for filing a return 6 months late.

If the return is 12 months late there will be a tax based penalty up to 100% of the tax due.

Penalties for paying your tax late

• 30 days late: you will be charged an initial penalty of 5% of the tax unpaid at that date;
• 6 months late: you will be charged a further penalty of 5% of the tax that is still unpaid; and
• 12 months late: you will be charged a further penalty of 5% of the tax that is still unpaid.

These penalties are on top of the interest that HMRC will charge on all outstanding amounts, including unpaid penalties, until your payment is received.  In most cases penalties are added automatically, although there might be grounds for appeal.

What should you do?

If you have a very straightforward tax return then you may be able to prepare this yourself.  If so, don’t leave it to the last minute! 

If you have a more complicated situation then you should consider taking advice.  This might include for example, if you are self employed, a partner in a partnership, a director of a company, have capital gains, overseas issues or if you may be able to claim tax relief, etc.

If you would like assistance in calculating your tax or preparing your tax return, please contact me on james.odds@mablaw.com or 01923 20 20 20.

Every year some clever bods in a think tank work out when Tax Freedom Day is.  This is the day after which you are working for yourself.  Until then, the wages earned all belong to the taxman.  So Tax Freedom Day is generally a cause for celebration.

Not this year though.  Due to changes in the tax system and, especially, the rise in VAT, tax freedom day has moved back by 3 whole days. 

So we’re all slaves to the state until 30 May this year.

If you are looking for true tax freedom, consider moving to Monaco.  Or if you are looking for something less radical why not call our Wealth Management Team.

This continues the trend in recent years of grandparents picking up increasingly more of the burden, both financially and in terms of time.

Unless your kids are really demanding, you probably won’t need to consult your solicitor to get you out of babysitting for the little darlings.  However, if you are a grandparent providing financial support (for example, school fees) there are a number of steps you can take to reduce the cost of helping.

For example, many grandparents put money or investments on trust for their grandchildren.  Any growth in the fund gives rise to tax on the grandchildren (which in most cases will mean that there is effectively no tax).  This may also be effective inheritance tax planning.

If you would like to discuss tax planning to provide for your grandchildren, please contact me or any member of the Wealth Management team on 01923 20 20 20.

So what should you do?

• If you have paid too much you will automatically receive a repayment.
• If you have paid too little and the underpayment is under £2,000, HMRC will automatically add this to your tax for 2011-12. This spreads the collection of the underpayment throughout the year.
• If this results in hardship, you can ask for the underpayment to be included in your tax code over a longer period.
• If the underpayment is over £2,000 HMRC will write to you and ask for direct payment.  You should contact HMRC if you wish to discuss a repayment schedule.
• If your benefits have been affected then you should contact HMRC to discuss this.

In all cases it is important that you obtain a calculation from HMRC to determine whether they are correct in their assesment.  If you have any doubts then please feel free to contact me on 01923 202020 or james.odds@mablaw.com.

Getting technical, there are nine consultation / discussion documents which invite views from the public and professions on:

• PAYE reform
• Furnished holiday lettings
• Pensions tax relief
• Associated company rules
• Disclosure of inheritance tax avoidance
• Foreign branch taxation
• Controlled foreign company interim improvements
• Modernisation of investment trust company rules
• National minimum wage regulations

This is supposed to be the start of a new era of openness and transparency.  It is hard, though, to escape the cynicism engendered by 13 years of Mr Brown at the tiller.  Under the last regime, consultations meant less and less as time went by.  It became increasingly clear that they were more of a statement of intent than a genuine request for views. Time will tell how the new Government will act.

Only the papers PAYE and national minimum wage have the potential to be of interest to the public at large (and even then, there is a limited audience).  The other consultations are of more interest to the professions and to business.

Many people will look carefully at the proposed changes to pensions tax, and associated companies which could have a genuine impact on owner managed businesses.  For tax planners, the outcome of the discussions on disclosure of inheritance tax avoidance and foreign branch taxation will be of particular interest.

If you would like to discuss the impact of any of these proposals please contact me on james.odds@mablaw.com or comment below.

Basics

Inheritance tax (IHT) generally arises on death. It is normally only a concern if the estate on death is over the nil-rate band threshold, currently set at £325,000 for a few years. Over this amount, IHT is charged at 40%. IHT is also charged on gifts made in the seven years prior to death.  IHT can be charged on gifts made during someone’s lifetime, including gifts made to trusts.  

Married couples and registered civil partners are able to benefit from the transferrable nil rate band.  This can effectively increase in the nil-rate band threshold when the second partner dies – to as much as £650,000 currently.

Saving IHT with business property relief

Business property relief (BPR) is one of the most useful IHT reliefs. BPR can reduce the value of the relevant assets in the estate by up to 100% of its value. It is available in respect of a range of shares, securities or other property classed as an interest in a business.  The relief is also available for unquoted shares, which includes shares in AIM listed companies. The business property needs to have been held for two years before relief is available.

Top Tips:

• Some providers offer investments in a selected portfolio of shares all of which qualify for business property relief after 2 years. Clearly there are risks involved in investing in shares, and proper advice should be taken.
• BPR is only available for businesses which are substantially trading businesses.  If the business comprises a mix of investments and trading stock, or even large amounts of cash, careful planning will be required to ensure that relief is not restricted.  Compare, for example a business which develops properties and then rents them.  The development trade would qualify but the property rental would not, potentially contaminating the overall BPR position.
• For business owners, will planning is essential.  Not only does this give the opportunity to plan for the continued success of the business but through careful use of the nil rate band and other reliefs, it may be possible to minimize the overall IHT burden on the estate.
• If you are owed money by your business then this is an asset in your estate (and therefore subject to IHT).  It may be possible to convert this into a security which can benefit from BPR.

For more information about these planning ideas (or others) or to discuss inheritance tax generally please contact me on james.odds@mablaw.com