Universal tax credit

Universal credit – an introduction 

Universal Credit is a new simpler, single monthly payment for people looking for work or on a low income. It will replace some of the benefits and tax credits you might be getting now. 

What is Universal credit?

Universal Credit is a new simpler, single monthly payment for people in or out of work, which merges together some of the benefits and tax credits that you might be getting now.
Universal Credit will replace:

• Income-based Jobseeker's Allowance
• Income-related Employment and Support Allowance
• Income Support
• Child Tax Credit
• Working Tax Credit
• Housing Benefit 

If you're on a low income, you will probably still get Universal Credit when you first start a new job or increase your part-time hours.

Your Universal Credit won't suddenly be taken away, but steadily withdrawn as your earnings increase. This means that you will be better off for every additional hour you work.

All Universal Credit claimants will have a claimant commitment which clearly sets out your responsibilities and the consequences if you fail to meet them.  

What’s different about Universal credit?

Universal Credit will be paid in a different way to current benefits:

• it will be paid monthly into an account you choose
• if you and your partner are both eligible, you will get one monthly payment for the household
• if you get help with your rent, this will be included in your monthly payment – you’ll then pay your landlord yourself 

Universal Credit will generally be managed online. You can make your claim online, then check on your payments and updates through your online account. 

When does Universal credit start?

Universal Credit will be introduced in stages between October 2013 and 2017, although it will start for some people in selected areas from April 2013.

April 2013 - Universal Credit begins in selected areas of Oldham, Tameside, Warrington and Wigan.

October 2013 - The national introduction of Universal Credit begins as groups of newly unemployed will be able to make their claim. Claims for existing benefits and credits will be gradually phased out.

From spring 2014 - Universal Credit will expand to accept new claims from people who are in work as claims to tax credits are closed down. Current benefit claimants will be moved onto Universal Credit in a phased approach.

2017 - Universal Credit roll-out complete. 

Changes to other benefits in 2013

There will be some important changes to a number of other benefits in 2013.

• Disability Living Allowance will be replaced by Personal Independence Payment from 2013.
• Council Tax Benefit will be abolished in April 2013 and replaced by a system of localised support.
• Pension Credit will be amended from October 2014 to include help with eligible rent and dependent children.
• Social Fund is also being reformed to introduce new local assistance.
• A cap on the total amount of benefits that can be claimed will be introduced in April 2013.

If you are interested in how the Universal tax credit work and would like to know more, be sure to get in touch.

Mark

Repaying your student loan

Student loans are a great way to finance learning when you’re low on cash, but the money has to be paid back at some point, and if you don’t know how this works you could be in for a surprise if it gets collected without your knowledge.

How repayments are made

Repayments of your student loan are taken from your pay in the same way as PAYE and National Insurance contributions when your income before taxes exceeds a certain threshold. This threshold is one of the following

£303 per week if you are paid weekly

£1,316 per month if you are paid monthly, or

£15,795 per year.

How much is taken?

The rate for student loan deductions is 9% of anything earned over the above thresholds.

For example, if you earn £1,750 in a month, you subtract £1,316 giving an amount of £434, then you take 9% of £434 to give you £39 as the amount that will be deducted from your income per month.

Other repayment examples

Income before tax (£)	Monthly Salary (£)	Monthly repayment (£)
Up to 15,795	1,316	0
16,000	1,333	1
21,000	1,750	39
24,000	2,000	61
27,000	2,250	84
30,000	2,500	106

What you can expect when your income changes throughout the year

Because the repayments are taken in the same fashion as PAYE, if your income rises or falls throughout the year, the amount of student loan you pay back will alter to reflect this. This means if your income drops sharply, you wont have to worry about an unaffordable payment on your student loan.

Making payments even if below annual threshold

If you are under the annual threshold but have a temporary increase in income, such as taking on an extra shift at work or a bonus, you could have some of your student loan repaid if you exceed the weekly or monthly threshold for that week or month.

If some money was taken for your loan in this fashion, you can apply for a refund providing you are still below the annual threshold at the end of the tax year.

Student loans and your tax return

If you are a sole trader, your student loan must be declared on your income tax return, failing to do this could result in HM Revenue and Customs issuing a penalty for an inaccurate tax return if you cannot provide a reasonable excuse.

So if you have a student loan, make sure to let us know and provide us with a copy of an up to date statement with your accounts so that we can ensure that your tax return will be accurate.

I hope this has managed to shed some light on this seldom mentioned subject, if you do have any queries regarding this, please do not hesitate to give me a call.

Mark.

Saving money by working at home

Normally tax for self-employment is worked out by taking a percentage from the profits that the business makes, which is the money earned by the business with expenses subtracted. Expenses are usually costs that are “wholly and exclusively” for the purposes of trade.

If some business is carried out from home, then some tax relief may be available. HMRC agree that a deduction for household expenses is acceptable, provided that part of the home is solely being used for business purposes.

This does not mean that the business part of the costs must be billed separately or that part of the home must be permanently used for business purposes. However it does mean that when part of the home is being used for business, that’s all you use it for.

Apportioning costs

HMRC will accept that costs can be apportioned and if the amount is small they will usually not be interested in it. For example you can claim £3 per week for use of home, that’s £156 per year with no questions asked.

Although if you plan on claiming any more then there are some things to consider such as:

The proportion in terms of area of the home used for business services, how much is consumed where there is a metered or measurable supply like electricity and how long you use that part of the home for business purposes.

Generally HMRC will accept a reasonable proportion of costs such as council tax, mortgage interest, water rates, rent and general repairs. Additionally allowable costs may include business telephone calls, a proportion of line rental and internet connection if it is used for business purposes.

Any equipment at home, such as a laptop or desk, can have a costs proportioned under capital allowances claims based on the estimated business usage.

Travel from home

Another consequence of working from home will be the impact on your travel costs. The cost of travel from home to work is generally disallowed, as it represents the personal choice of where you live. This will not be affected by doing some work at home, however, if there are no other business premises, then travel costs to visit clients should be allowable. So it really depends on where the business is run from.

Selling the home

Normally when you sell your home, any profit made is exempt from tax if it is your primary place of living. However, when part of the home is used exclusively for business, then that portion of the house will not be exempt. Occasional and minor business will be ignored for this purpose.

To summarise, it is possible to claim some extra 'home' expenses to reduce your tax, but you need to be clear about the rules, keep good records and be reasonable about how much you claim.

If you need more information about this subject then feel free to call me on 01761 436 436.

Mark.

Child benefit withdrawal

As part of the reforms to the welfare system, Child Benefit will be withdrawn from households that include certain higher earners beginning from 7^th January 2013. In other words these rules will already apply from this tax year 2012/2013. This is regardless of whether you are a single parent or have a partner.

How will they do this?

This will take the form of a tax charge at a rate of 1% of the child benefit per £100 above an adjusted net income of £50,000. Once the adjusted net income exceeds £60,000 the tax charge will be equal to the Child Benefit. This applies even if one partner is earning over the limit and the other one is under and is receiving Child Benefit.

For example if someone has child tax benefits of £1,752 and had an adjusted net income of £57,750, you would first calculate the percentage by taking 57,750 minus 50,000 and divide the remaining 7,750 by 100 which equals 77% (rule of rounding is to round down to nearest whole number). Then you would take 77% of £1,752 which equals a Child Benefit tax of £1,349.

The tax is calculated by reference to weeks therefore it will only apply in the weeks you are eligible for it. For example if a couple gets together and child benefit is already being paid, then the tax will apply for those weeks from the date the couple started living together until the end of the tax year.

Who is a partner?

HMRC have decided that a partner is defined as a spouse or a civil partner or someone that you are living with as if they were a spouse or civil partner.

As long as one partner is in receipt of Child Benefits and either partner has an adjusted net income greater than £50,000 then it is the partner with the income over £50,000 who will be responsible for paying the tax.

What is the effect of the tax charge?

The following table shows how this income benefit tax will affect three different couple with different amounts of adjusted net income.

Couple	Partner 1 Income £	Partner 2 Income £	How much	Who pays the tax
A	40,000	45,000	None	N/A
B	30,000	55,000	50% of benefit	Partner 2
C	65,000	20,000	100% of benefit	Partner 1

There is of course concerns that this system is flawed, in the above examples, all three couples earn between them £85,000 yet Couple B is charged 50% of their benefit and Couple C loses all of their benefit. While Couple A retains all of their Child Benefits.

Therefore the most beneficial scenario would be where both partners earn up to £50,000 each for a total adjusted net income of £100,000 with no Child Benefit tax becoming due.

Another potential flaw is who is responsible for paying the tax. With Couple B Partner 2 will pay the tax regardless of who is receiving the child benefits, and with Couple C it will be Partner 1. Therefore you will need to discuss with your partner how much each of you is earning.

What to do if you meet the requirements for the tax charge.

Should you meet the requirements for the income tax charge, you will need to inform HMRC as soon as possible or no later than 5^th October 2013, failure to do so can result in a penalty equal to the amount charged to your income tax.

If you feel you would like more information or advice on this subject, help is only a phone call away on 01761 436 436.

Mark

Tax credits

For people who are struggling to make ends meet on low incomes, the government can provide tax credits to supplement your income.

These tax credits come in two types. These are Child tax credits and Working tax credits.

Child tax credits.

As the name suggests these credits are available to families and parents, the purpose of these tax credits is to help with the expenses of raising a family.

To be eligible for child tax credits you must be responsible for at least one child.

Child tax credits are made up of the following:

The Child Tax Credit elements	What it means	Current maximum yearly amount
Family element - the basic element	It's the basic payment if you are responsible for one or more children.	£545
Child element	This is paid for each of your children. It is paid on top of the basic family element.	£2,690
Disabled child element	This is an extra payment for each disabled child you have.	£2,950
Severely disabled child element	This is an extra payment for each severely disabled child you have.  It is paid on top of any disability element.	£1,190

As you can see, you get a basic amount, followed by a payment per child and then an additional amount if your children are disabled.

However if your earnings exceed £15,860 your tax credits will be reduced at a rate of 41% of the amount you are earning above £15,860, for example if you earn £16,860 you will lose £410 of your tax credits being 41% of the £1,000 above the threshold.

Working tax credits

These tax credits are available to those on low income, but are also working.

To be eligible for working tax credits, you must be working 30 or more hours per week if you’re at least 25 or more than 16 hours per week if you’re at least 16 and have a child or are disabled. However, for a couple with children, you must total 24 hours a week between you, with one of you working at least 16 hours per week.

They are made up of the following:

The elements	Who it applies to	Current maximum yearly amount
Basic element	The basic amount if you qualify for Working Tax Credit.	£1,920
Couples	Paid if you make a joint claim and is on top of the basic element.	£1,950
Lone parent element	Paid if you're a single parent bringing up children on your own. It is paid on top of the basic element.	£1,950
30 hour element	An extra payment if you work at least 30 hours a week.  It also applies if you're in a couple, with at least one child, and you work at least 30 hours a week between you. But one of you needs to work at least 16 hours or more a week.	£790
Disability element	An extra payment if you work and have a disability.	£2,790
Severe disability element	An extra payment if you work and have a severe disability. If you're in a couple, the person with the severe disability doesn't have to be working - as long as one of you is.	£1,190
Childcare element	An extra payment if you pay registered or approved childcare.	Up to 70% of your costs, subject to a maximum limit as follows: ·                     £175 per week if you're paying for one child ·                     £300 per week if you're paying for two or more children

As you can see you have a basic amount that depends on whether or not you are single or have children, followed by an extra amount if you work more than 30 hours per week then disability and help paying for childcare while you are out working.

The limit before you start losing working tax credits is less generous than for child tax credits, with you only having to earn over £6,420 before you start losing tax credits.

If you are in receipt of both working and child tax credits you would use the lower limit of £6,420 before you start losing tax credits.

For example if you were a single parent with 1 child working 16 hours per week at the minimum wage of £6.08 per hour, you would be entitled to the £545 family allowance, £2,690 for having a child, £1,920 for the basic working tax credit and a lone parent allowance of £1,950. This adds up to a total of £7,105 tax credits per year, and your employment would be earning £5,059 per annum, which is low enough to retain all of your tax credits.

To claim tax credits you will need to fill in a claim form that can be received by calling the tax credits helpline on 0345 300 3900 but the form must be complete and sent back between the 5^th April and 31^st July to be eligible.

If you require any assistance with the above, or need some more information, be sure to call me on 01761 436436.

Mark.

Employed or self employed?

This subject is rarely out of the headlines. One of the reasons for this is that the distinction between the two is not defined in statutory law. Instead, reference must be made to numerous Commissioners decisions and appeal cases on the issue.

This debate has been extended with IR35, which seeks to examine the relationship between the worker and the ultimate client (where a Limited Company exists to receive payment on behalf of the worker).

The following tips and practical points should be borne in mind:

Ensure that there is a watertight contract and that this contains a satisfactory substitution clause (we can provide a sample contract, if required).

A self-employed person tends to have some control over how he does his work. He supplies his own tools and equipment, engages in on-going training and incurs advertising costs. The self-employed person should engage in more than one contract during the year(the more clients, contracts or customers the better).

Recognise that the business of defending a tax status tends to be a complex and expensive exercise as there is no satisfactory test in place to determine whether or not someone is self-employed or an employee. HMRC have an extensive list of what may be taken into account here.

If you are concerned about any of the above, or if you feel you would like some additional advice, please do not hesitate to call me,

Mark

Opting to tax property

Usually property is exempt from VAT which makes things simple because you don’t have to register for VAT and worry about VAT returns.

However some people will “opt to tax” which means they will register for VAT and complete returns, why do they do this you may ask?

The short answer is to be entitled to claim input VAT on costs when selling a property.

Basically the VAT rate depends on the type of land being sold as shown below.

Sale/Lease of land: Exempt

Sale/Lease of commercial property: Exempt

Sale of a new (less than 3 years old) commercial property: Standard Rated (20%)

Sale/Lease of a dwelling: Exempt

Sale (including lease over 21 years) of a new (first sale) dwelling: Zero-rated

If you incur any VAT on costs in the course of making a taxable (standard or zero-rated) property sale you can reclaim that VAT. However if it is an exempt sale you cannot.

By “opting to tax” you would change most sales and leases of non-dwellings into Standard rated taxable sales. This allows the business purchasing the property to recover the associated VAT (on construction, purchase renovation and ancillary costs).

A business will not need to “Opt to tax” in order to recover VAT if it is using the property for business purposes, e.g. a factory for the purpose of manufacturing goods.

Most developers will already know that if a residential property has remained vacant for two years, the VAT rate associated with its refurbishment stands at 5%. this, of course, helps to mitigate the developers irrecoverable VAT cost as the sale of refurbished houses is exempt from VAT.

What is less known is the fact that a property that has been vacant for ten years or more can be treated as if the building was new and therefore its disposal - freehold or a lease exceeding 21 years - is taxable at a zero rate.

This enables developers to recover the 5% VAT rate charged by subcontractors as well as a VAT rate of 20% charged on legal and professional services. This is a major saving and is something that should always be kept in mind when buying derelict properties with the potential for refurbishment and re-sale.

If you feel the above would be useful to you and that you would like some more information, please make sure to contact me.

Mark