Your tax return: the basics

On a regular basis, Frog Valley will be posting some really useful articles for entrepreneurs thanks to our partner Euro-Accounting, which we highly recommend to get in touch with.

 

Introduction to Self Assessment

Do you need to complete a tax return? 

Introduction

You will need to complete a Self Assessment tax return each year if you are self-employed or a partner in a business partnership.

Even if you aren’t in business, you may need to complete a tax return if your tax affairs aren’t straightforward, even if you already pay tax on your earnings through your PAYE (Pay As You Earn) tax code. This guide looks at some of the more common reasons for needing to complete a tax return.

Who needs to complete a tax return? 

The most common reasons for needing to fill in a tax return are listed below. 

If HM Revenue & Customs (HMRC) asks you to complete a tax return for any other reason (this will normally to be to make sure that you are paying the right tax and getting the right allowances) you must always do so.

You are self-employed 

If you are self-employed (including being a member of a partnership) you always have to complete a tax return. 

Company directors, ministers, Lloyd’s names or members 

You must complete a return if you are any of the following: 

  • a company director (unless you are a director of a non-profit organisation, for example a charity, and don’t receive any payments or benefits) 
  • a minister of religion (any faith) 
  • a name or member of Lloyd’s 

Income above a certain level from savings, investment or property 

If you don’t already complete a tax return, you’ll need to do so if you receive any of the following: 

  • annual trust or settlement income on which tax is still due (even if you are only treated as receiving this income) 
  • income from the estate of a deceased person on which tax is still due 

Income from overseas 

You must complete a tax return if you have any foreign income that’s liable to UK tax. 

Your annual income is £100,000 or more 

If you receive total income of £100,000 or more you’ll need to complete a tax return. You may have higher or additional rate tax to pay that hasn’t been collected through your tax code. 

You need to claim certain expenses or reliefs 

If you are employed and want to claim for expenses or professional subscriptions above HMRC threshold, you’ll need to complete a tax return. You can just write to HMRC with full details if you want to claim expenses below this amount. 

Some less common reliefs, such as Enterprise Investment Scheme relief or relief on Venture Capital Trusts, can only be claimed by completing a tax return. 

You owe tax and HMRC cannot collect it through your tax code, or you prefer to pay direct 

If you pay tax through PAYE and owe tax at the end of the year, you’ll need a tax return if either of the following applies: 

  • HMRC cannot collect the tax due by making a change to your tax code (they’ll tell you if this is the case) 
  • you don’t want to pay the tax through your tax code – you prefer to make a direct payment instead 

You have Capital Gains Tax to pay 

If you have Capital Gains Tax to pay, for example you have sold, given away or otherwise disposed of an asset such as a holiday home or shares, you’ll need to complete a tax return and the Capital Gains Tax pages. 

You have lived or worked abroad or aren’t domiciled in the UK 

You may need to complete a tax return if you are: 

  • not resident 
  • not domiciled in the UK and claim the ‘remittance basis’ 
  • dual resident of the UK and another country 

You are a trustee 

You’ll need a tax return if you are a: 

  • trustee or personal representative (including someone who manages the tax affairs of a deceased person) 
  • trustee of certain pension schemes 

 

Do you need to complete a tax return? 

Things to check if you don’t need a tax return 

If you don’t need a tax return, you still need to tell your Tax Office about new sources of income and any changes to your income if: 

  • you pay tax through PAYE (Pay As You Earn) on income from a job or pension and your other taxable income changes or becomes liable to higher rate tax 
  • you don’t pay tax through PAYE and your total taxable income is more than or increases to more than your Personal Allowance and any Blind Person’s Allowance you are entitled to 

Your taxable income may increase if, for example you receive: 

  • redundancy payments over £30,000 (payments below this amount aren’t taxable) 
  • a gain on a life insurance policy, also called a ‘chargeable event’ 
  • income from new investments after you have come into some money 

HM Revenue & Customs (HMRC) will decide if you need a tax return. If you pay tax through PAYE, HMRC may be able to collect the tax due through your tax code instead. 

 

Types of tax return 

There are different types of tax returns depending on the type of income you have. 

 

How to get a tax return 

You need to have your Unique Taxpayer Reference number to complete a tax return. 

We can help you to get it and to prepare your tax return. 

 

 


 

For further information, please contact:

Euro Accounting Ltd

Phone : +44 (0)778 986 2405

www.euro-accounting.com

info@euro-accounting.com

Income from abroad – Do you have to declare it in the UK? by Euro-Accounting

On a regular basis, Frog Valley will be posting some really useful articles for entrepreneurs thanks to our partner Euro-Accounting, which we highly recommend to get in touch with.

 

When you come from abroad i.e. France, Belgium etc to live in the UK, you become a UK resident, eventually a UK ordinarily resident but you usually remain a non domiciled person.

In this case, do you need to declare your foreign income? What if you have already paid your taxes in your country of origin?

The income you declare in the UK depends if you are on a remittance or arising basis.

 

  1. « Remittance » et « arising basis »

1.1 « Remittance »

You will be liable to UK tax on all of your UK income and gains as they arise or accrue each year but you will only be liable to UK tax on your foreign income and/or gains if and when you bring them (remit them) to the UK.

If you choose to be on a remittance basis, you will lose your « Personal Allowance » ie you will pay your taxes from the first pound you earn.

1.2 « Arising Basis »

Being taxed on an arising basis means that you are liable to pay UK tax on your worldwide income and gains, wherever those arise or accrue.

 

  1. If you’ve already paid tax in the country of origin

If you find that you’re being asked to pay tax both in the country of origin and in the UK, you may be able to claim relief – ‘foreign tax credit relief’ – from double taxation.

How much foreign tax credit relief will you get?

You’ll get relief on the lower of:

  • foreign tax payable under the terms of the agreement
  • the amount of UK tax due

If the foreign tax you’re due to pay is more than that payable as UK tax, you’ll still only get relief on the amount of UK tax payable.

 

  1. Earned income

Earned income is any payment you receive as a result of an employment, from a trade, profession or vocation you have, or from a pension you receive.

3.1. Earnings you receive from an employer

When you are liable to UK tax on the arising basis, you are taxed in the UK on your earnings from any employments, whether your duties of employment are carried out in the UK or abroad.

If you can and choose to be liable to UK tax on the remittance basis, your UK employment earnings are taxed in the UK but any earnings from employment abroad will only be taxed if they are remitted here.

But if you are resident and ordinarily resident in the UK, but are not domiciled here, the remittance basis will apply only to foreign employment income where the employment is performed wholly outside the UK for a foreign (non-UK) employer.

3.2 Tax on foreign savings and investment income

Foreign tax on dividends and interest

Double taxation agreements usually set out a rate of tax (called ‘withholding tax’) that a country can charge on a UK resident receiving certain types of income from that country – for example, dividends from companies or interest on savings.

Any claim that you make for relief against UK tax must be restricted to this amount. If you’ve paid foreign withholding tax at a higher rate than is listed for that type of income, you’ll need to approach the overseas tax authority for a refund of the tax paid above the withholding tax rate.

Rent from overseas property

If UK tax is due on rental income from an overseas property, you can deduct certain expenses and allowances in the same way as you can from income from UK property.

You can claim relief for tax paid in the other country.

3.3 Pensions

If you receive pension payments from outside the UK (an overseas pension) you might be entitled to a 10% deduction from the amount chargeable.

To summarise, if you come from abroad to live in the UK, you need to determine first if you are on a remittance or arising basis. This depends on each specific case. If you are on a remittance basis, your foreign income will not be taxed in the UK unless you remit it in this country.

If you are on an arising basis, your worldwide income will be taxed in the UK. However, you will not pay your taxes twice i.e. if you have already paid your taxes in France, you will get a tax relief.

 

For further information, please contact:

Euro Accounting Ltd

Phone : +44 (0)778 986 2405

www.euro-accounting.com

info@euro-accounting.com

Tax allowances and reliefs – employees or directors – VAT by Euro-Accounting

On a regular basis, Frog Valley will be posting some really useful articles for entrepreneurs thanks to our partner Euro-Accounting, which we highly recommend to get in touch with.

 

If you’re an employee or a director you might be able to get tax relief for business expenses you’ve paid for. These include the cost of professional fees or subscriptions, business travel and subsistence, tools and specialist clothing.

1. What counts as a ‘tax-deductible’ expense?

You can only get tax relief for business expenses you’ve paid for and if they were for the cost of:

  • travelling you had to do in doing your job
  • other expenses you had to pay in doing your job – and which related only to doing your job

You can’t ask for tax relief if your employer has already reimbursed you for the expense and has agreed a ‘dispensation’ with HM Revenue & Customs (HMRC).

1.1. Key allowances and reliefs

Business mileage or fuel

You may be able to get tax relief for business mileage when you use your own vehicle on business, or for fuel you buy when you use a company car. You can’t claim, though, for your normal commuting costs.

Business mileage is mileage you travel doing your job. It can include travel to a temporary work place.

 

Tax relief for business mileage in your own vehicle

You may be able to get tax relief for business mileage if you use your own vehicle for work. It can be a car, van, motorcycle or cycle.

You are only entitled to Mileage Allowance Relief if your employer pays you:

  • no mileage allowance
  • less than the approved amount.

If your employer pays you more than the approved amount, you’ll have to pay tax on the extra.

 

Tax relief for fuel when using a company vehicle

If you pay for fuel when using a company vehicle for business travel you can get tax relief on fuel costs, less any payments repaid by your employer and covered by a ‘dispensation.

 

What are business journeys

These are when, as part of your job:

  • you have to travel from one workplace to another – this includes travelling between your main ‘permanent workplace’ and a temporary workplace
  • you’ve got to travel to or from a certain workplace because your job requires you to.

 

Travel expenses that qualify for relief

You can get tax relief on the necessary costs of business travel like public transport fares, hotel accommodation, meals, tolls, congestion charges, parking fees, business phone calls, fax or photocopying costs.

 

The cost of travel between your home to your normal place of work is NOT unallowable. It is called commuting.

 

Professional fees and subscriptions

You can ask for tax relief for the cost of fees and subscriptions you pay to some approved organisations – but only if you have to pay them, or if it’s helpful for your work.

You may get tax relief on professional fees and subscriptions if:

  • you have registered, obtained a licence or become a member of the organisation in question because it’s necessary to your work
  • HM Revenue & Customs (HMRC) has approved the organisation you’re a member of

 

Tools and specialist clothing

If you have to spend money on tools or specialist clothing for your job you may be entitled to either:

  • tax relief for the actual amounts you spend
  • a ‘flat rate deduction’

 

Tax relief

If you have to provide small tools (ex: scissors for an hairdresser) or buy specialist clothing for your work – like a uniform or protective clothing – you may be able to get tax relief for the cost of them.

 

Flat rate expenses

Flat rate deductions are amounts that HM Revenue & Customs (HMRC) has agreed nationally – or sometimes locally if conditions are very different – with trade unions or other bodies. The deductions cover what’s typically spent each year by employees in different trades. For example, someone working in the clothing industry can get a deduction of £60 each year.

Capital allowances

The allowances cover items that you have to provide so that you can do your work. They’re to recognise that assets or equipment lose value as a result of general wear and tear – or depreciation. (likely to last for at least two years).For example: a desk for your work. There are some exceptions – cars, vans, motorcycles and cycles don’t count.

The Annual Investment Allowance (AIA) which allows a 100% tax deduction for expenditure on equipment is currently £200,000 p.a. .

 

Household expenses when working at home

You may be able to get relief for some household expenses and some travelling costs if you work from home. You might also be able to get capital allowances for capital expenditure.

The household expenses include:

  • the extra cost of gas and electricity to heat and light your work area
  • business telephone calls

You won’t be able to get relief on domestic expenses that you’re paying anyway – like your mortgage or council tax. You also won’t be able to get relief for expenses that relate to both business and private use – such as your telephone line rental, or Internet access.

 

1.2. How much relief you can get

For payments of up to £4.00 per week, or £18 per month for monthly paid employees, you don’t need to provide any records of the household expenses you’re claiming relief for. For amounts above £4.00 you will need supporting evidence to show that the amount you are claiming is no more than the additional household expenses you have actually incurred.

http://www.hmrc.gov.uk/incometax/relief-household.htm

 

2. Travel and subsistence costs

You may be able to get relief for the cost of business travel – for example if you need to visit a client or go to a temporary workplace. You can also ask for relief for ‘subsistence’ – the cost of meals and overnight expenses.

http://www.hmrc.gov.uk/vat/managing/reclaiming/travel-subs.htm

You can generally reclaim the VAT on travel and subsistence expenses where a director, partner, sole proprietor or employee is away from their normal place of work on a business trip.

You must pay for the actual cost or a proportion of the actual cost of these expenses. You cannot reclaim VAT on travel and subsistence expenses when you pay an employee a flat rate for these expenses.

Travel and subsistence expenses include:

  • rail or air transport (although these are generally zero-rated for VAT)
  • use of a private or hire car
  • meals
  • accommodation

You cannot reclaim VAT on employee travel or subsistence expenses that are:

  • in full or in part business entertainment expenses for VAT purposes
  • for non-business use such as a holiday

3. Business entertainment and VAT

http://www.hmrc.gov.uk/vat/managing/reclaiming/entertainment.htm

Generally, you cannot claim back the VAT on business entertainment expenses. Business entertainment is defined by HM Revenue & Customs (HMRC) as any form of free or subsidised entertainment or hospitality.

It makes no difference whether the person being entertained is an existing customer, a potential customer or any other person who is not an employee. The following are not employees for VAT business entertainment purposes, and so if any of these are present at an entertainment or other event, it is considered to be business entertainment and you cannot claim back the VAT:

  • pensioners and former employees
  • job applicants and interviewees
  • non-employee shareholders

Examples of business entertainment

Business entertainment expenses include:

  • food and drink
  • accommodation – eg hotels
  • theatre and concert tickets
  • sporting events and facilities
  • entry to clubs and nightclubs
  • use of capital assets such as yachts and aircraft
  • payments made to third party business entertainment organisers
  • free samples
  • business gifts
  • when you provide entertainment or hospitality only for the directors or partners of your business

 

4. When you can reclaim VAT on business entertainment

There are two specific exceptions to the general rule that VAT cannot be reclaimed on business entertainment expenses:

  • Recognised sporting bodies. VAT can be reclaimed if the body provides through necessity free accommodation and meals to amateur sports persons and officials who attend an event.
  • Airlines. VAT can be reclaimed if an airline provides catering and accommodation for passengers who have been delayed.

 

5. Mixed business entertainment expenses and other business expenses

http://www.hmrc.gov.uk/vat/managing/reclaiming/entertainment.htm

You can only reclaim VAT on the proportion of your expenses that are not used for business entertainment and are used for business purposes. For example, if you entertain employees and customers together, you may be able to reclaim VAT on the proportion of expenses that relate to employee entertainment – see the section in this guide on employee entertainment and expenses.

But you cannot reclaim any VAT at all if the sole purpose of the business entertainment is to entertain a non-employee – for example, if you or your employees act as a host to a non-employee.

 

6. Business gifts

A business gift is a gift of goods that is made in the course or furtherance of your business, and you can normally reclaim VAT on its purchase.

Business gifts cover a wide range of items from brochures, posters and advertising matter to expensive goods of the kind given as ‘executive presents’.

You do not have to account for VAT on business gifts made to the same person where the total cost of all the gifts does not exceed £50 in any 12-month period (and not the figure of £15 given in VAT Notice 700/35). For this purpose, it is acceptable for you to adopt any 12-month period that includes the day on which the gift is made.

Where the total cost of any business gifts made to the same person in any 12-month period exceeds £50 and you have been entitled to reclaim VAT, you will normally have to account for VAT on the total cost value of all the gifts.

Samples

Sometimes you might give away free samples of your products for people to try. Free samples are treated differently for VAT and you don’t have to account for VAT on a free sample you give to another person or business if you meet certain conditions.

Gifts to employees

 

7. Employee entertainment and expenses

7.1. Employee entertainment

http://www.hmrc.gov.uk/vat/managing/reclaiming/entertainment.htm

If you provide entertainment to reward your employees for good work or to maintain and improve staff morale, this is considered to be for business purposes and so you can claim back the VAT. Examples could include staff parties, team building exercises, staff outings and similar events.

However, you cannot claim back the VAT in either of these circumstances:

  • When non-employees are included in the event (this is business entertainment, not employee entertainment).
  • When the entertainment is provided only to directors, sole proprietors or partners of the business (where directors or partners attend staff parties together with other employees, you can claim the VAT back).

The following are not employees for VAT purposes. If any of these people are included in an event, then it is considered to be business entertainment – not employee entertainment – and you can’t claim the VAT back:

  • pensioners and former employees
  • job applicants and interviewees
  • non-employee shareholders

7.2. Employee expenses

People employed by you, and directors, partners or anyone managing the business may be entitled to claim back VAT on certain expenses such as travel and subsistence incurred for the purpose of the business.

 

8. What is a VAT invoice

http://www.hmrc.gov.uk/vat/managing/charging/vat-invoices.htm

8.1. What a VAT invoice must show

A VAT invoice must show:

  • an invoice number which is unique and follows on from the number of the previous invoice – if you spoil or cancel a serially numbered invoice, you must keep it to show to a VAT officer at your next VAT inspection
  • the seller’s name or trading name, and address
  • the seller’s VAT registration number
  • the invoice date
  • the time of supply (also known as tax point) if this is different from the invoice date – see below
  • the customer’s name or trading name, and address
  • a description sufficient to identify the goods or services supplied to the customer
  • the rate of any cash discount
  • the total amount of VAT charged expressed in sterling

For each different type of item listed on the invoice, you must show:

  • the unit price or rate, excluding VAT
  • the quantity of goods or the extent of the services
  • the rate of VAT that applies to what’s being sold
  • the total amount payable, excluding VAT

If you issue a VAT invoice that includes zero-rated or exempt goods or services, you must:

  • show clearly that there is no VAT payable on those goods or services
  • show the total of those values separately

If you make retail sales and you make a sale of goods or services for £250 or less including VAT you can issue a simplified VAT invoice – see the section in this guide on simplified VAT invoices.

Tax point or time of supply

The tax point, or time of supply, is the date when a sale is considered to take place for VAT purposes. There are rules that tell you if this is the date of the actual supply, the date of the invoice or some other date, depending on the circumstances.

It’s important to put the right date for the time of supply on your invoice, because both you and your customer will need this information to make sure the VAT on the invoice is accounted for on the right VAT Return.

You must also issue invoices within a certain time of the actual supply taking place – see the section in this guide on time limits on issuing invoices.

If your customer pays in cash you must, if they ask you to, show on the VAT invoice that you have received payment and when you received it.

8.2. When a VAT invoice must be issued

If you are registered for VAT you must give any VAT-registered customers a VAT invoice for any standard-rated or reduced-rated goods or services you sell them.

If you are a retailer, you do not need to issue a VAT invoice or receipt unless your customer asks for one.

As a VAT-registered supplier, you may be liable to a fine if you do not issue a VAT invoice for a supply you have made when asked to do so by a VAT-registered customer.

There is a time limit within which VAT invoices must be issued – see the section in this guide on time limits for issuing VAT invoices.

8.3. When a VAT invoice must not be issued

You must not issue a VAT invoice in the following situations:

  • you are not registered for VAT
  • you and your customer use self-billing arrangements or you use authenticated receipts – see the link below
  • you make a gift of goods on which VAT is due – see the link below
  • you are selling goods using the VAT margin scheme for second-hand goods – instead, there are different rules you must follow on your invoice – see the link below
  • you are selling goods using the Tour Operators’ Margin Scheme
  • you are issuing a ‘pro forma’ invoice – see the section in this guide on pro-forma invoices

8.4. Pro-forma invoices

If you need to issue a sales document for goods or services you haven’t supplied yet, you can issue a ‘pro-forma’ invoice or a similar document to offer goods or services to customers.

A pro-forma invoice is not a VAT invoice, and you should clearly mark them with the words ‘This is not a VAT invoice’.

If your potential customer accepts the goods or services you’re offering them and if you actually supply them, then you’ll need to issue a VAT invoice within the appropriate time limit – see the section in this guide on time limits for issuing invoices.

If you’ve been issued with a pro-forma invoice by your supplier, you can’t use that to claim back VAT on the purchase. You must obtain a VAT invoice from your supplier.


 

For further information, please contact:

Euro Accounting Ltd

Phone : +44 (0)778 986 2405

www.euro-accounting.com

info@euro-accounting.com