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On-line sellers beware!

Last month, HMRC raided warehouses and seized more than £500,000 of goods they believe were illegally being offered to UK online shoppers at VAT-free prices, in response to evidence of a large and growing fraud by sellers using Amazon and eBay. There are now apparently more than 75 live investigations into this kind of suspected VAT fraud and this is expect to double this year
As with tax avoidance schemes, in addition to their usual powers, HMRC and Government are now using media coverage to attack such activities as morally wrong.  
We have long known that HMRC were looking closely at on-line retailers, particularly those using Ebay and with the increasing volume of goods purchased on-line, these activities are inevitably going to continue.
If you have sold personal items on-line, this is unlikely to create any difficulty. However, if you are buying and selling with a view to making a profit, this is a business just like any other. As we have noted in previous articles, HMRC now have sophisticated tools at their disposal and will not hesitate to follow these up. If you have not declared an on-line business, it may only be a matter of time.    

Beware Facebook!

Everyone loves social media, don't they? As a tool for keeping in touch, especially with distant friends and relatives, it has become an indispensable part of daily life.

Many businesses are now using Facebook and Twitter to promote themselves, often by posting photographs of their work and products. We have seen a wide range of businesses using social media: builders, craft shops, landscapers, kitchen fitters, restaurants and cafes to name but a few.

Our children these days are taught to be aware of their on-line presence and rightly so. The phrase "once it's out there, it's out there" has never been more true.
It may therefore come as no real surprise that HMRC is finding that social media and the web generally is an extremely useful source of information both to seek out businesses that are not being properly declared, but also to gain background information to assess whether declared information is consistent with other sources. We all "big up" our successes, but sometimes the gap between what has been declared and what has been claimed is just too wide.

The obvious rule is always declare your profits and pay your tax. However, be aware that what you say about yourself on-line is accessible to everyone, not just potential customers. If you find yourself as a subject of an HMRC enquiry, do not be surprised if anything you say on the web is used as evidence against you.......   


Possible changes to buy-to-let taxation??

There is much speculation in the press concerning the possibility of the Chancellor, George Osbourne, removing tax relief on mortgage interest costs in the budget on 8 July.

What does this mean for buy-to-let home owners?

Many of us have used savings as a deposit to buy a rental property, funding the balance of the purchase price with an interest only mortgage. Although there is no regular reduction of capital in this situation, it does mean that interest costs represent a large percentage of total rental income, and any tax liability payable on the profit is comparatively low.

If the Chancellor removes the ability to deduct interest costs in calculating the profit on which tax is calculated, this will substantially increase the tax cost of any mortgaged rental property.

If you own a rental property which has a mortgage on it, and the Chancellor introduces this change, you should consider the net income (after tax) and the yield that you are currently generating from your property. You should also review your current tax budget to ensure you are setting aside sufficient funds to settle the tax when it falls due.

There will undoubtedly be some property owners who decide to sell and invest elsewhere. Don't forget that this will almost certainly trigger a capital gain on which capital gains tax will be payable.

Whether or not you decide to retain or sell a rental property, there are a few simple changes you could make to improve your tax position. If you would like to know more, email us on enquiries@acklandwebb.co.uk.

Last call to buy-to-let property owners!

As the end of January approaches, it seems that there are a large number of buy-to-let property owners who have still not completed an income tax return.

HMRC estimate that there are 1,500,000 people in the UK who own more than one property, but have calculated that only 500,000 people have declared income from a second property. This leaves approximately 1,000,000 people that have not reported any such income to HMRC. Even allowing for those who hold a second home but do not rent it, for example, a holiday home or one provided for an elderly parent or adult child, this still leaves a huge number of people who appear not to have taken steps to bring their tax affairs up to date.

Strictly speaking, you are only required to complete a tax return if you have a tax liability, so if you rent out a property but do so at a loss, there is no legal requirement to report this to HMRC. However, tax rules permit you to carry a loss forward to reduce future years’ profits; it is therefore still in your interest to complete a tax return in order to quantify and claim this loss.

It may be of interest to note that special investigation teams at HMRC are said to have already begun investigations into 50,000 second home owners who have not made any kind of declaration to the tax authorities. Such an investigation may ultimately conclude that there is no additional tax to pay, for example where there is a loss, but it is an uncomfortable and lengthy process to be avoided if at all possible.

We take this opportunity to remind you that the amnesty scheme to declare income from earlier years is still available and offers you a chance to bring your tax affairs up to date within a low penalty regime.

If you are concerned about a second property, we can help you. It is not too late!

Watch out for scam letters

By now, you should be aware and alert to scam emails purporting to come from HM Revenue & Customs. However, we have see a spate of what appear to be scam letters. Typically they show an address outside the UK and often refer to a listing in a register or directory. Most imply that the listing is free, but invariably refer to a disproportionate subscription cost in the small print on the back of the letter.

If you are not sure what the letter is for, please do not reply to it. At the very least, seek professional advice as to whether is likely to be genuine. In our experience, most such letters should simply be ignored.

Success of business start ups

The key statistic often quoted in the media by politicians and commentators in relation to start ups is the number of new businesses being created. Recently we saw much excitement at the widely quoted fact that, at 40% of the working population,  the UK now has a higher proportion of self employed workers than any other EU country.

However, this only looks at the number of new businesses. Information released today suggests that only half of start up businesses survive beyond five years. 

The reasons for this will be varied. Start ups, by their very nature, tend to be speculative and some will be established simply to test an idea. Such ventures will tend to have a high failure rate. However, other start ups may fail through lack of funding, a lack of management expertise, poor advice or, in some extreme cases, a flawed idea or business model.

Whatever the reason, it is the job of professional advisers, such as ourselves, to help and advise new businesses as much as possible, even it is sometimes advice that a new business owner does not want to hear. We enjoy helping to create new ventures and take pride in making them successful.    

Penalties for late tax returns

In the past few years, the issue of penalties for late filing of personal tax returns has become of greater importance. Historically, the general rule was that a penalty could not exceed the amount of any tax due. In situations where a taxpayer had been issued with a tax return notice but did not have a tax liability (so did not bother to file a tax return) there was no consequence of a failure to file the return on time because the penalty was reduced to zero.

Sadly, this is no longer the case and penalties are payable even if there is no tax due. We have seen a number of instances where unwary taxpayers are faced with penalties which in some cases exceed £1,000, even where there is no tax due!

In the first instance, we therefore recommend that if you have previously needed to file a tax return, you should not simply assume that a change in circumstances means you do not have to file a return in the future. Common changes which might lead you to think this are: ceasing in self-employment, retiring from a company directorship or no longer owning a buy to let property.

It is a very simple matter to check the position. Simply ring HMRC quoting your unique tax reference (UTR) and ask, or login to the HMRC Gateway and check your account. Obviously, if you do not feel comfortable with this course of action, we can check these details for you.

If, like the innocent taxpayers referred to above, you are being chased for payment of penalties by HMRC, all is not lost!

It is possible to appeal against the penalties and, if there is a reasonable excuse for the failure to file a tax return on time, it may be possible to get the penalties reduced to zero. One of the difficulties with this course of action is that the appeal needs to be made within a certain period of time. If the appeal is out of time, HMRC may well choose to dismiss the appeal itself. However, a recent tax case indicated that tax tribunals will interpret the reasonable excuse rule in a wider fashion than HMRC traditionally choose to do, so even if HMRC dismiss an appeal, it may be worth appealing to Tribunal.

In conclusion, if you are charged penalties by HMRC for late filing of a tax return, you should not accept the HMRC position without further consideration. If the penalty is small, the easiest course of action is probably to pay the penalty and file the outstanding return. For higher penalties, you may wish to appeal, but the position can be complex and always needs to be considered on a case by case basis. We therefore recommend that you should always consult with a professional adviser before taking further action

Reporting rental income to HMRC

In the current climate, where it is increasingly common for individuals to own buy to let property, a question that often arises is how rental income might be allocated between spouses or partners to achieve maximum tax efficiency.

Generally HMRC will expect the income from the property (or the proceeds of any sale) to be allocated for tax purposes to the beneficial owner or owners in the same proportion as their beneficial interest.

It is extremely important here to bear in mind that there are two forms of ownership: legal   ownership and beneficial ownership.

Legal ownership is generally determined by reference to the name or names shown on legal documents and recorded at the land Registry. Beneficial ownership refers to who actually receives economic benefit from the property, usually in the form of occupation of the property, or who receives the rental income.

The difficulty is proving what the beneficial ownership actually is.

Beneficial ownership should ideally be established in advance and cannot be changed retrospectively at the whim of individuals to suit their circumstances at a particular time. It is possible to avoid uncertainty by the creation of a simple trust and we have also seen cases where taxpayers have written to HMRC to place on record what the beneficial ownership is. In circumstances where neither of these actions have taken place, beneficial ownership will usually be established by reference to a number of factors which includes the issues already noted, such as legal title, who occupies the property, who receives the rental income (or sale proceeds) but also who provided funds or borrowed money to buy the property, or provided any security.

It should be noted that where a property is purchased jointly, unless there is evidence to show that the contributions were not equal, it is usually presumed that the purchasers will have an equal interest in the property.  

Unfortunately, this can often have adverse tax consequences, particularly where a property is owned jointly between spouses and one spouse is a higher rate taxpayer and the other is not. From a tax perspective, it is invariably more advantageous for the property to be beneficially owned by the lower earning spouse so that rental income does not attract tax at higher rate.

If you are in any doubt about how you own a property and report income generated from it to HMRC, you should contact us, or any other tax adviser.

Finally, we remind our readers that the HMRC amnesty for landlords is still in place and continues to offer landlords who have failed to declare property income or disposals an opportunity to bring their tax affairs up to date at a reduced penalty of 10% of any unpaid tax. Given that the normal penalty rate in such situations is likely to be at least 30%, this represents a good opportunity to bring tax affairs up to date.

PPI compensation claims

Demonstrating what a bizarre world we live in, we remind our readers that although PPI compensation is not taxable, the interest that will usually be included is.

If you have received a PPI compensation award, it is highly likely that you will have to pay tax on the interest element.

If you received your award before 6 April 2013, you should have prepared a tax return by 31 January 2014, so it is now too late. You are recommended to contact HMRC using the amnesty procedure currently in place.

If you received your award after 5 April 2013, you should ensure that you declare the income to HMRC no later than 31 January 2015. You will need to complete a 2014 income tax return.

Sadly, as with the changes to child benefit rules, this increases the number of taxpayers who may be required to complete a tax return who otherwise would not need to do so.


SME optimism (at last!)

Recently published research confirms our own experiences that more than half of SMEs are predicting strong growth in the first half of 2014. Businesses have a more positive outlook for the first six months of 2014 compared to the same period in 2012 - more than half (52%) predict strong or improved growth for their businesses during the first six months of this year, a three-fold increase on 2012 (19%) figures. A separate report has revealed that three-quarters of small businesses feel more confident about the outlook for 2014 than 2013; however, only 21% plan to look for external finance this year as part of a growth strategy. This is consistent with the continuing concern that bank funding to SME's will continue to lag behind expectations.