There are many reasons why individuals in self employment or partnerships choose to incorporate their business but one cannot fail to notice the financial saving presented by incorporation.

Provided an individual is not caught by IR35 or other complex legislation then taking a low wage with dividends can result in an annual saving of £4,210 in the tax year 2011/12.

The table below illustrates how an income of £46,902 achieves a saving of £4,210 in three stages. Where there is scope to defer or reallocate income the annual financial saving can exceed this amount.

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Further to my earlier article where I considered the combined percentage rate of income tax and national insurance contributions for the tax years 2008/09 and 2009/10, I now include the relevant percentage and income ranges for the tax years 2010/11 and 2011/12.

This is a basic illustration showing the position for those under 65 years old receiving income evenly throughout the year with a basic personal allowance, no employee benefits or pension contributions and no savings or investment income.

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Please note the significant changes to the penalty regime on late filed tax returns for previously the cost of filing a tax return late would be only a couple of hundred pounds. However, from 6th April 2011 the amount of any penalty is no longer reduced by reason of an individual owing no tax or national insurance.

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If you currently pay Class 2 National Insurance Contributions (either monthly, quarterly or by direct debit) then HM Revenue & Customs shall be writing to you shortly to explain that they are aligning the Class 2 NIC payment dates with those of Self Assessment. Consequently, to settle Class 2 NIC for the tax year 2011/12 the payments dates become 31 July 2011 and 31 January 2012.

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Following on from earlier publications this article covers the common penalties HM Revenue & Customs charge on individual’s failing to pay tax or file personal and partnership tax returns on time.

Please note that it is common for HM Revenue & Customs to issue payslips late and that interest is charged on late payments. Therefore if you find yourself without a payslip then do not delay making payment as their delay is no excuse against incurring penalties – it is a case of one rule for us and another rule for them!

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Six months into the tax year have you thought about the amount of your CIS refund? If so, then my refund estimator for 2009/10 may help.

With the usual health and safety warning applicable, here are the assumptions on which the estimator is based along with an explanation on how to use it.

  • The figures do not reflect a mark up on materials billed to contractors and assumes all labour is charged under the CIS.
  • Trading profit is therefore only derived from the billed labour.
  • I have taken total billed labour as equal to taxable profit, which therefore excludes the effect of tax relief on newly purchased and pre-owned fixed assets.
  • I have included four rates of business cost, being 0%, 10%, 15% and 20% of the billed labour, i.e. business cost of £6,000 are 20% of £30,000 of billed labour.

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This article looks at the dual tax rules that will exist for the next five years on cars held by companies and individuals following the recent alignment of tax rules with car Co2 emissions. It considers the impact on cars held on the balance sheets (i.e. purchased or on HP) and those lease financed, where they remain off the balance sheet, i.e. an operating lease.

The relevant date of commencement of the new rules is 1 April 2009 for companies and 6 April 2009 for individuals (i.e. the start of the 2009/10 tax year). The term “grandfathering” is tax speak for allowing the old ‘list price’ rules to continue to apply to cars held at and beyond the date of transition.

Welcome to another green stealth tax!

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There is always considerable discussion on the merit of paying dividends or bonuses in family or sole proprietor owned director/shareholder companies.

Typically, articles highlight the factors to be considered and the risks but then poorly illustrate the tax savings. So, I have done just the opposite.

I have taken just one scenario, illustrating the £695 saving available on a £10,000 bonus or dividend payment to a higher rate tax payer (basic rate tax payers save £1,783).

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To combat what is perceived as ‘false self employment’ in the construction industry the government is consulting on proposed changes to the CIS rules in an attempt to recover an estimated annual loss of £350 million in tax and national insurance contributions.

With a due consultation date of 12 October 2009, it remains unclear whether the proposal could become legislation in time for the start of the tax year 20010/11 – but this is still an unknown.

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There are hundreds of different rules governing tax and national insurance contributions and even I find it a struggle to remember the changes year on year.

Given that individual circumstances can be just as complicated it is difficult to illustrate how the combined tax and NIC rules reduce gross income. But below, I have illustrated the simplest situation for the self employed and employee in 2008/09 and 2009/10.

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If the summer of 2007 was the high point of UK prosperity then financial results for the tax year 2007/08 may not have been too bad. But the following year may tell a different tale and this article explains what can be done with a 2008/09 tax loss.

This article does not cover the nuances of loss relief or explain how a trading period is tagged to a tax year. The emphasis is on examining which tax years can be adjusted with a 2008/09 loss.

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I read recently that in the current economic climate more people will be looking (or be forced) into becoming self employed and that as a result there will be an increase of franchise sales.

To those looking to buy a franchise I want to prove one point and to do this I have searched Google using various word strings

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If you are self employed and work from home then this article may be of interest as it considers the household costs that can be claimed and the method of calculating a business deduction.

Before I start however, if monitoring household bills is not your thing and you do more than just ‘hobby trading’ then consider using a round sum claim of £2 a week, for which household bills do not need to be retained. Beware, however, for if you work only 40 weeks a year, the claim is 40 x 2 = £80.

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This article considers the common penalties that businesses and employers may face in connection with subcontracting and payroll operations.

In some instances, there are grounds for reduced penalties on the basis of ‘reasonable excuse’ but this is complex and beyond the scope of this article.

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