NEWS

Q  I have been contracting through a composite company, but have now heard that these structures are to be closed down. Is this true?

A  In his pre-budget report in December, the chancellor, Gordon Brown, made specific reference to managed company services (Umbrella and Composite company structures) and schemes whereby profits are shifted offshore and then returned without incurring a tax charge.

It seems that a number of tests will be applied, and if these fail, the contractor as well as service provider can be held liable for the additional tax. A key determinant will be the element of control – i.e. who runs the company and specifically the bank account.

Structures that will not be caught by this new legislation are personal service companies where contractors maintain control over the company – i.e. they are directors and control the bank accounts.

On the offshore structure front, Inland Revenue will be looking closely at the revenue flows, and disallowing the double taxation relief if they believe that the scheme is avoiding UK tax. The effective date of this new legislation was 6 December 2006, but the exact terms thereof will only become clear in the budget in March.

Q  I have recently been sent a payment of Class 1A NIC’s and  Return of expenses and benefits forms for my Limited Company. What must I do with these?

A  The above 2 forms, more commonly referred to as the P11D and P11D(b) forms, relate to any amounts paid to employees (including directors) other than salary.

When completing the P35 annual PAYE return, you would have been asked whether you will be submitting these forms. If you ticked the appropriate box, the above forms would have been sent to you, and now need to be completed and returned.

Certain of these payments will attract NI payments at a rate of 12.8%, depending on what exactly they relate to. You will also need to issue the respective P11d’s to the employees involved, for inclusion in their own personal tax returns.

These forms need to be submitted by 6 July , with any NI due payable by 19 July.

Q How will the 2006 budget affect me?

A  Their were both good and not so good aspects to this budget:

Positive Effects :

• The tax free personal allowances for individuals have been increased
• Additional funds (£250) have been set aside for children born after 2002 to be paid in the Child Trust Funds on their 7th birthdays
• Inheritance Tax bands have been increased
• Stamp duty threshold raised to £125,000

Negative Effects :

• Benefits of Trust for Inheritance Tax Planning greatly reduced
• Excise duty on beer, cigarettes and wine has been increased
• Venture Capital Trust tax benefits have been reduced – thus it is vital that anyone wanting to take advantage of the current benefits does so before 6 April 2006.
• £10,000 tax free amount for small companies removed

Q  I have not received a self assessment tax return to complete, but think that I may have to, as I am a director of a Limited Company. What is the situation?

A  The self assessment tax returns are due by 31 January 2006. The people that need to submit tax returns are :

• Anyone that is sent a tax return
• All company directors
• All higher rate taxpayers (those in the 40% bracket)
• All self-employed individuals
• Anyone earning income that is not taxed at source
• Partners in a partnership
• Landlords with rental income

Unfortunately, the onus to submit a tax return rests on the individual, and Inland Revenue will not accept lack of knowledge thereof as an excuse.

Q How will the 2005 budget affect me?

A The main issues coming out of the 2005 budget are as follows:

For individuals, some tax relief will be found in the following areas:

• The raising of the stamp duty threshold on property purchases from £60,000 to £120,000
• Inheritance tax threshold raised to £285,000 this year, and £300,000 in 2006
• Tax free ISA levels maintained at £7,000 p.a. for 5 more years
• Increased pension credits for those aged over 60
• Child tax credits to rise by 13% over the next 3 years
• The tax free amount due to individuals will rise from £4,745 to £4,895 per year - increasing the amount able to be claimed as tax rebates
• Non-domiciled status of Expats left untouched
• Vat registration threshold raised to £60,000
• Duty on fuel was frozen

On the other side of the coin, the following changes were implemented:

• Duty on beer up 1p per pint
• Duty on Wine up 4p per bottle
• Duty on Cigarettes up 7p per pack

A full version of the budget can be found at http://www.hm-treasury.gov.uk/budget/

Q I am expecting my first child in the UK. I believe I am entitled to claim some benefits. If, so, what are they, and how do we apply?

A The first benefit is the Child Benefit, which is claimable for each child that you are bringing up that is under 16 years of age, or under 19 and in full time education. It is not dependent on income, and is thus available to all families, provided your rights to claim are not restricted in terms of your visa.
You are able to claim £16.50 per week for the first child, and £11.05 per week for each additional child thereafter.

To register for the benefit, you should be given the required registration forms at the hospital when the baby is born. If this does not happen, you can call the child benefit helpline on 0845 302 1444, or register online on the Inland Revenue website. It is important to do this as soon as possible after the baby is born or taken into your care, as claims cannot be backdated.

Child Tax Credits (CTC) are also claimable for families with children aged under 16, where the combined family income is less than £58,000 (or £66,000 if the child is younger than one). The amounts claimable depend on each individual circumstance, and work on a sliding scale.

The Working Tax Credit (WTC) is claimable by families on lower income, regardless of dependents, but is increased for those caring for children or disabled people. You will be required to work a minimum number of hours each week, and have a joint income of less than £55,000 per annum. The benefits also work on a sliding scale.

To register for the CTC and WTC, either visit the Inland Revenue website, or call the helpline on 0845 300 3900.

Q I earn rental income from my flat in South Africa. Is this taxable in the UK?

A There are a number of factors that will affect this, however, the over-riding determinant being your domicile status in the UK. If you are classified as non-domiciled in the UK (as most Commonwealth citizens are on a temporary or semi-permanent basis are), you will be taxed in the UK on a remittance basis.

Basically, this means that if you were to bring any of the rental income into the UK, it would be taxable in the UK (although you may qualify for some relief under the double taxation agreement). It would most likely first be taxed in the country of origin.

If you left the income outside of the UK, it would not incur any UK taxation. This relates to other types of income too, such as dividends and interest from non-UK organisations.

Q I have been working in the UK in a permanent position for a year and a half now, am I able to reclaim any tax?

Answer : When working in the UK, irrespective of whether you are working on a full or part-time basis, you will be able to reclaim tax for one of the following reasons:

• Firstly, if you worked for less than 12 months in any one tax year (April-March).
• Secondly, if you were initially put onto an emergency tax rate at the outset of your employment (identified by the letters BR, M1, MTN1, W1, X in your tax code)
• Thirdly, if you earned less than the tax-free allowance available in that year (currently £4895).