Collection by PAYE tax code adjustment

If you owe tax and are struggling to pay your tax in a lump sum you may be able to choose to pay through the PAYE system. This means is that you can have your tax paid by way of an adjustment to your PAYE tax code. Assuming, of course, that you have a continuing income from employment.

The process is this. The tax owed is the taken by an adjustment to your PAYE tax code (or coded out) so that you pay it off monthly or weekly depending on how often you are paid with the idea that all of the tax will be paid by the end of the tax year. For example, if you owe tax for 2012/2013 you can choose to have this collected by way of an adjustment to your tax code in 2014/2015. 

Time limits

In the above example, HMRC must also be notified before 31^st December 2013 or they may not make the adjustment.

Limtations

In order to protect you from paying unreasonable tax deductions HMRC will not take tax through your tax code if you don’t have enough PAYE income to enable the collections. They also will not take the tax this way if more than 50% of your PAYE income will be taken to pay it, or if you would end up paying twice as much tax as you normally would each time you get paid. There is also a maximum amount of £3,000 tax that can be paid through a tax code adjustment. If the tax cannot be paid through your tax code, HMRC will write to you with alternative methods of payment.

When tax is taken through your tax code you should receive a PAYE Coding Notice which will display what changes have been made to your tax code and why.

Other points to note

There are occasions where HMRC will choose to collect other underpaid taxes through your tax code,

For example, from April 2014 HMRC may collect outstanding Class 2 National Insurance Contributions in addition to tax if you receive PAYE income. If you do not pay or contact HMRC after receiving a payment request, they will send a coding notice between January and March 2014 showing how they will collect the outstanding National Insurance.

If you require more information on the above, you can follow this link, or get in touch with us to see how we can help.

Mark

Mileage allowances

Travelling expenses

The Inland Revenue (HMRC) have guidelines when it comes to paying motor expenses. The basic concept is that no tax relief is available for ‘ordinary commuting’, i.e. an employee travelling between their home and their permanent workplace. A permanent workplace is a place an employee regularly goes to work unless it is for a limited duration or for some other temporary purpose.

Temporary workplace

An exception to this is where the employee travels to a workplace that is not the usual place of work, or a temporary workplace. HMRC refers to people who have no permanent workplace, by referring to them as ‘site based’ employees and now accepts that such employees have no ordinary commuting journeys between home and their temporary workplace.

Where the employee’s contract of employment requires him to work from home so that home is the normal workplace, then the employee is entitled to relief for all journeys between home and any other places of work.

In order for a workplace to qualify as ‘temporary’, the employee must expect to be working there for 24 months or less. As long as this is the case, the journey from the employee’s home to the site is not ordinary commuting and the employee is entitled to tax relief for the full costs of the journey. After 24 months then it will become a permanent workplace and the employee is entitled to no tax relief on all of their travel expenses.

Where at first, an employee expects to be at a site for 24 months or less, but this subsequently changes and he becomes aware that he will be working there for longer then, at that point, the site becomes a permanent workplace on the day that the employee becomes aware of the change. From that date onwards, he is no longer entitled to tax relief on the travelling expenses, but he is entitled to tax relief from home to site before that date.

Mileage rates

The mileage rates that can be paid are claimed at the rate of 45 pence per mile for cars and vans, for the first 10,000 miles in a year, any additional miles are claimed at a rate of 25 pence per mile. A table of mileage rates can be found below.

Vehicle	First 10,000 miles	Miles above 10,000
Motor cars and vans	45 pence per mile	25 pence per mile
Motorbike	24 pence per mile	24 pence per mile
Bicycle	20 pence per mile	20 pence per mile

 

If you are employed and your employer pays you more than the above rates, then the excess payment is counted as a benefit in kind and will be liable for tax. If you are paid less by an employer, you could get some additional tax relief.

It is important to keep a  detailed log of your journeys and mileage claimed as HMRC may require access to the information.

There are other expenses that can be claimed, such as parking, congestion charges and tolls, but you must have the original receipts to back up your claim. You cannot claim tax relief for parking fines or speeding fines.

If you are working at a temporary workplace, then you can also claim amounts for subsistence and accommodation expenses caused by working at the temporary workplace.

As with the other expenses, always be sure to keep receipts as evidence of your claims, as HMRC may request to see them.

If you feel that any of the above is relevant to you and you would like to claim the relief but not sure how, just give me a call and I will be happy to help.

Mark

Salary sacrifice

Salary sacrifice is offered by some employers as a means for their employees to receive increased pension scheme contributions. This is not an effective way of saving for everyone so if you are offered salary sacrifice by your employer, make sure you benefit before signing up.

How it works

You sacrifice part of your salary. The amount you sacrifice is paid to your pension plan directly by your employer, rather than being paid to you.

As a result of you having a lower salary, both you and your employer pay less National Insurance Contributions (NIC). As part of the salary sacrifice deal, your employer pays all or pat of their NIC saving into your pension plan along with the sacrificed wages.

For example if you earn £30,000 per year and decide to sacrifice £1,000, your new salary is £29,000, with the employer paying £1,000 into your pension plan. You pay less NIC (and in some cases less Income Tax) because your salary is lower. Your employer also pays less NIC and pays a percentage of their savings into your pension plan.

The percentage of NIC saving your employer pays is defined by them as part of their salary sacrifice offer, it could be anything between 0% and 100%.

The advantages

The main advantages are:

1. You pay less NIC (and in some cases less Income Tax) because your salary is lower; and
   
   
2. You may receive a boost to your retirement savings because your employer may add a percentage of their NIC savings to your pension contribution.

 The disadvantages

Salary sacrifice results in you having a lower salary. This could affect the following.

1. Life cover – your employer may provide you with life cover, which is usually calculated as a multiple of your salary. As your salary is lower under salary sacrifice, so may be your life cover. Some employers will continue to provide life cover at the pre-salary sacrifice rate.
   
   
2. Refund of contributions – some occupational pension schemes offer a refund of employee contributions on leaving with less than two years service. The contributions made with a salary sacrifice arrangement are not employee contributions and therefore would not be refunded.
   
   
3. Mortgage borrowing – mortgage lenders usually calculate the maximum borrowing level as a multiple of salary. As your salary is lower under salary sacrifice, your borrowing may be affected.
   
   
4. Statutory maternity pay (SMP) – SMP is available if you earn above the Lower Earnings Limit (LEL, £5,564 in 2012/13) prior to going on maternity leave. If salary sacrifice takes you below LEL then you may lose your entitlement to SMP.
   
   
5. State Second Pension (S2P) – this additional part of the state pension is calculated with reference to your earnings. Any reduction in your earnings between the Low Earnings Threshold (£14,700 in 2012/13) and the Upper Accrual Point (£40,040 in 2012/13) may affect this entitlement. In addition, if your salary falls below LEL then your entitlement to S2P may be lost.

If you require further guidance on the above, then feel free to give me a call, or check out the HM Revenue & Customs website for more information.

http://www.hmrc.gov.uk/payerti/payroll/special-pay/salary-sacrifice.htm

Mark

Real time information

Real time information (RTI), the biggest shake up to payroll procedures since PAYE was introduced in the 1940’s, will become a reality for employers from April 2013.

Look out for a letter from HMRC inviting your PAYE scheme to join RTI, an invitation you cannot refuse! Let us know as soon as you have received your invitation so we can help you make the necessary transition.

The principle behind RTI is simple, HMRC want to know which employees are being paid, together with details of the deductions being made ‘on or before’ the payment is made to the employee.

Real time information key procedures

Here we primarily concentrate on the key submissions but do contact us regarding any questions concerning RTI.

Key submissions	What the submission contains and ‘top tips’
Employer alignment submission (EAS) – preparing for RTI	Although this submission is only compulsory for large employers or those with a complex payroll system. It is advisable for all employers. It provides HMRC with details of all employees employed in the current tax year.
Full payment submission (FPS)  – operating RTI	Used to report details of employees being paid for a particular pay period.
Employer payment submission (EPS) - operating RTI	Used to report employer details each month such as payments to HMRC (or where no payments are due) and also CIS suffered.

Changes to employees leaving and new employees

Under RTI information, when an employee leaves a company, the information is filed automatically along with the payment details for the pay period during which they left, as opposed to separately filing a P45. There will still be a P45 to issued to the employee.

For a new employee, information for them is automatically filed during the pay period in which they started work for an employer. This means that there will no longer be P46’s issued to employees, unless the employer is exempt from filing online.

If we are currently handling your payroll then you don’t have to worry about doing anything for RTI, our software provider has already confirmed that they can handle the change and are fully compliant with RTI.

If we do not currently handle your payroll and you would like further details of the service we provide, please give us a call and we can also quote a price to suit your needs.

Mark

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.