HMRC Target online sellers

Thousands of online sellers will need to get their tax affairs in order as HMRC wields its expanded powers to get user information from online marketplaces like Amazon, Gumtree, Ebay and Etsy. The Revenue has sent 14,000 letters to traders suspected of running a business and failing to declare this on their tax returns. Of these, 1,000 letters are being sent to people where the taxman has already identified a shortfall on their self-assessment forms.The new crackdown was launched on the back of extensive new powers introduced last year enabling HMRC to download people’s account information. It was reported in theTelegraph that eBay, Etsy, Amazon and Gumtree are being forced to hand over customer account details, including their selling activity, as part of the taxman’s legal powers that were extended last year.

The HMRC also avoided stating exactly what the threshold is where an online seller becomes an online trader. Instead, the Revenue uses the badges of trade as their guiding principle.. The criteria used to assess if an activity is a hobby or a business are:

  • The size and commerciality of the activity.
  • The frequency of the activity and transactions
  • The application of business principles.
  • Whether there is a genuine profit motive.
  • The amount of time devoted to the activities.
  • The existence of arm’s-length customers (as opposed to just selling your wares to family and friends).

Some of the 14,000 targeted thus far had made as little as £100 profit online.

“Anyone just selling the occasional item has nothing to worry about. This is about making sure on-line traders pay the right tax – wealthy or otherwise. We will make contact with those that we are aware might need our help to get it right,” said a HMRC spokesperson.

The spokesperson went on to confirm that those continuing to avoid the Revenue’s overtures, could face penalties and that the taxman “will determine the amount of tax due based on the information we have available”.

HMRC have some great examples to help you decide, for example:

Gail is a full-time employee working for a stationery company. She pays her PAYE tax on this employment every month.

In her free time Gail makes cushions and uses most of them in her home. Occasionally she sells them to friends and work colleagues for an amount that just covers the cost of materials of £15. Sometimes she makes a loss. Any money she does make goes towards her holiday fund.

She decides to make extra cash by selling cushions on an Internet auction site and starts auctioning three or four to see how they go. They all sell for more than £50, a profit of at least £35 each.

She uses this money to buy more materials and within a month she is selling around ten cushions a week, always at a profit, and is considering setting up her own website.

Gail’s initial sales of cushions to friends are not classed as trading. It lacks commerciality and she does not set out to make a profit. The occasional sales are a by-product of her hobby. Once she begins to auction her cushions, she has moved into the realms of commerciality. She is systematically selling her goods to make a profit. She will need to inform HMRC about her trade, and keep records of all her transactions. On the level of sales shown in the example the potential turnover of around £26,000 is well below the VAT annual threshold so Gail does not need to register for VAT. Many traders start off in a small way and assume their activity will be treated as a hobby. They don’t realise that if it grows into a business they need to register with HMRC. You should register as Self Employed as soon as your hobby becomes a commercial venture, even if you are losing money! 

If you don’t register, HMRC will be looking for you and if you have an online business it won’t be hard for them to find you. If you need any help with registering as Self Employed just drop me an email or book a free call with me at www.liricaccountants.com

London Marathon update

26 April 2015 – 26.2 miles run around the streets of London and was over the finish line in 3 hours 55 mins and 21 seconds.  The provisional results are showing my position as 350 in my category and 2646 overall – I’m not sure at the moment how many in each of those categories though – both would be women only. It sounds good to me and I am really pleased. Something to talk about for some time I think!

The last 2 miles were excruciating but am pleased to say I ran all the way.  It was an amazing day – emotional not just because of my own effort and achievement after the months and miles of training, but from the support of thousands of people cheering from the side lines along the entire route, brass bands playing, music pumping out to motivate the 38,000 runners on the day.

In return I think I have topped £3,000 in funds raised for NSPCC.  That makes it truly worthwhile. The support from my friends, family, clients and associates has been truly phenomenal. I have felt quite humbled by some of your lovely words.

If you had thought about supporting me by donating to NSPCC but just had not quite got round to it, it’s not too late.  Please visit my just giving site:  www.justgiving.com/Lisa-Compton2  The NSPCC is a truly worthy cause, they believe “no child should be abused” and your money can help prevent abuse and mend the lives of children who have suffered.

Thank you.

April newsletter

Its been a busy month so have a quick catch up of the topics that could affect you in our April newsletter

http://eepurl.com/biAGB9

 

MAXIMISE TAX RELIEF FOR CAPITAL EXPENDITURE

MAXIMISE TAX RELIEF FOR CAPITAL EXPENDITURE

Those running a business should take advantage of the temporary increase in the Annual Investment
Allowance (AIA) to £500,000. 5th April 2015 is not relevant for this tax break as the limit continues
until 31 December 2015 when it is scheduled to reduce to just £25,000. AIA provides a 100% tax write off for
plant and equipment used in your business. This tax relief extends to fixtures and fittings within business
premises such as electrical, water and heating systems.  If you are thinking of spending more that £25,000 before 31 December then its really important to get the date of the expenditure right.  Please ask us for further information.

Do you employ anyone under the age of 21?

If you employ anyone under 21 years old you will no longer have to pay Class 1 secondary National Insurance contributions on earnings up to the new Upper Secondary Threshold (UST) for those employees.  This comes into effect from 6 April 2015 so be prepared to change the NI Category letters of those employees to ensure you’re paying the correct amount of NI contributions.

The Abolition of employer National insurance contributions for under 21’s section of GOV.UK has been updated and now includes more detailed guidance for employers, plus detail on the new category letters and rates.

Budget Special

The Chancellor’s 2015 Budget contained some important announcements and confirmed a number of changes planned for the new tax year.

Following this, we have put together a PDF which contains the latest tax and financial information, which we trust you will find useful. For more information on how the changes may affect you, please contact us. Budget-newsletter-March-20151.pdf

NO EMPLOYERS NIC FOR THOSE UNDER 21 FROM 6 APRIL 2015

NO EMPLOYERS NIC FOR THOSE UNDER 21 FROM 6 APRIL 2015 A Government policy to reduce the number of school leavers not in employment, education or training is to abolish employers NIC for those under the age of 21. This exemption starts 6 April 2015 and will not apply to those earning more than the Upper Earnings Limit (UEL), Employers NIC will be charged as normal beyond that limit.

Dividends or salary

To illustrate how important it is to ensure the correct treatment of payments to directors as salary or dividends, a recent legal case has confirmed the position –

The case in question is   Richard and Julie Jones v HMRC [2014] UKFTT 1082 (5 December 2014).

They took a small salary and regular dividends from their recruitment company which was absolutely fine until the company got into financial trouble!

Their accountant (unethically but in an attempt to help their client) suggested they should re-write history and change the dividends to salary so that the liquidator couldn’t recall the dividends.

HMRC then decided to demand PAYE and NI and pursued Richard and Julie personally.

HMRC was refused the right to collect PAYE tax and NI due on the salary, not because the law didn’t allow it, but because it wasn’t possible for Richard & Julie to reclassify the dividends. They had been properly paid and the correct procedure followed. History couldn’t be rewritten and the dividends should have been changed to loans if the dividends were illegal.

Loans to directors then have a whole other raft of tax implications so it really is important to get this right and make sure that any dividends taken are legal and correctly paid.

TAKE ADVANTAGE OF YOUR 2014/15 ISA ALLOWANCES

TAKE ADVANTAGE OF YOUR 2014/15 ISA ALLOWANCES Your maximum annual investment in ISAs for 2013/14 is £15,000. Your investment needs to be made before 6 April 2015. In addition, have you thought about investing for your children or grandchildren by setting up junior ISAs or pensions? In the 2014/15 tax year, you can invest £4,000 into a Junior ISA for any child under 18 who does not have a Child Trust Fund.

Employment allowance continues

THE £2,000 EMPLOYMENT ALLOWANCE CONTINUES FOR 2015/16 The £2,000 “employment allowance” introduced in 2014/15 continues to be available for 2015/16. Note that this allowance provides relief from paying employers NIC on the first £2,000 of contributions. The £2,000 allowance is set against employers NIC on a cumulative basis during the tax year. The allowance is available to most employers, although those under common control are restricted to just the one £2,000 allowance. Husband and wife companies with no other employees charged to national insurance may find it tax efficient to change the mix of salaries and dividends to take advantage of the £2,000 allowance. From 6 April 2015 it may be advantageous to increase directors’ salaries to the new £10,600 personal allowance instead of the NIC threshold of £8,060 (£155 a week). The extra £2,540 will save £508 (20%) corporation tax (£1,016 for two directors) whereas the additional employees NIC would be just £305 each. Husband and wife company – from 2015/16: Salary £10,295 net = gross £10,600 Dividend up to BR band £28,606 net = gross £31,785 Top of BR band £42,385 Net cash extracted (each) £38,901 Total extracted £77,802 for couple There would however be 20% corporation tax payable. Profits before tax £71,515 @ 20% = £14,303 corporation tax, thus profits before salaries and tax would be £92,715. This results in an overall tax and NIC rate of just 16.1%. A salary in excess of £10,600 would attract income tax (at 20%) and employee’s NIC at 12%.