Can You keep Your Pension From Incurring Inheritance Taxes

In the past, savers are told to put away as much as they can for retirement. They did that, and things went well until they unfortunately passed away. Their heirs would get the pension, but they would have to deal with a tax of 55 per cent. This left the heirs with substantially less than what they deserve. There have been some changes made to pensions that could allow heirs to inherit the pension tax-free.

Beneficiaries will pay any taxes based on their own income tax level, rather than the oppressive 55 per cent tax rate. If the person who passed on is under the age of 75 there will be no tax at all to pay. Another change is that the pension can be passed on to grandchildren, not just the children of the deceased.

Inheritance-tax

The change was made effective since April 2015, and benefits families that would have otherwise had to pay an immense amount of tax. The previous tax scheme basically gave half the pension back to the Government, something that wasn’t a good outcome for anyone.

Keep in mind that if you’re purchasing an annuity, the rules still apply. The capital is almost always lost upon death, so keep this in mind if you’re trying to leave something behind for your loved ones.

Mr. Osborne had many reasons for changing the current law to freeing these pensions from taxes. Indeed, the push for pension freedom has come to a fever pitch across the country, with many people looking to leave as much as they can for their loved ones. From every angle, it definitely makes sense. If you’ve spent your whole life saving up for retirement and you happen to have money left over, why not pass it on to your loved ones?

The Chancellor also wants to encourage people to keep saving money in pensions, instead of going to annuities. In fact, these changes are almost certain to make annuities a thing of the past. The Chancellor already declared that buying an annuity isn’t a requirement anymore, as savers can just tap their pension funds directly. Unrestricted access to retirement savings is definitely a good thing, as it allows people to make different decisions based on their unique situations. From every angle, this is definitely a good thing. However, there are some industry concerns that unrestricted access may mean that people spend through their pension too quickly, leaving them with diminished options compared to earlier periods of their lives.

Be sure that you’re still writing a proper will that designates where this money is supposed to go. Otherwise, it’s a good time to start looking at your pension pots and determine how you’re going to move your funds!

Better Together Doesn’t Mean Zero Tax Code Changes!

If you’re just tuning into the post-referendum news, let’s bring you up to speed: Scotland’s residents voted “No” on Scottish independence, preferring to stay within the UK. If you’re looking at the tax deadlines this year, you might want to know what’s going to change, and whats going to stay the same.

The big news is a “devolution” spree that will get Scotland a few powers they didn’t have before, while keeping them within the union. Holyrood can raise a new 2 billion pounds in revenues, which will give them greater control over taxes than what’s currently in motion.

The Scottish Parliament isn’t dead in the water just because they’re remaining in the union. The Scotland Act is about to come into effect in April 2016, letting the country’s Parliament have more power over the taxes.

The current income tax is around 3p per pound. By 2016, Scottish Parliament could change that to 10p in the pound.

Zero Tax Code

Most within the UK know that the basic tax rate is around 20% right now. Yet in a little under 2 years, the rate could be reduced to 10%, or raised to 30%. The higher rate is already 40%, but Scotland could decide to give its residents a break. The top rate of 45% can be reduced as well, but it’s up to them to decide.

The UK is moving quickly to try to make peace with Scotland, given that over 1.6 million voters turned out to vote “Yes” to independence. David Cameron is trying to act quickly, but they also want to make sure that they handle things fairly. Too much focus on Scotland above the other countries could spark further problems.

Benefits are where the real battle begins. Scotland wants to get rid of the “bedroom tax”, which is the spare room subsidy portion of the housing benefit. The country also wants to control the execution of the Work Programme, a key resource that helps people find jobs.

The issues will be brought to the floor on the 16th of October, but nothing will be published until January. Yet don’t expect any change even in January, as the policy won’t become law until after May 2015.

Scotland has a long road ahead, just as they would have if they separated from the UK.

What do you think? Should Scotland have split form the UK and formed their own nation again, or should they stay and try to work things out with Westminster?

Handling Business Tax in the UK

New businesses are under the same regulations as established companies. In other words, saying to the HMRC that you “didn’t know” there would be business tax to pay just isn’t going to cut it. If you really want to know what type of taxes you’re going to face, this is the guide for you.

The first tax that you’ll need to be aware of would be Corporation Tax. This is the tax your company has to pay on taxable profits. The process of doing business and getting money from it is referred to as trading profits. Then you have the investments that the company makes. If you decide to sell off company assets, then you have to include that as taxable profits if you gained anything out of them.

You have to pay Corporate Tax on all your profits from around the UK and even abroad. There’s no way to shelter money from your company and make it not subject to Corporation Tax. When you start the company you have to set up for Corporation Tax from the beginning, so the HMRC can collect taxes properly. Stiff penalties arise when Corporate Tax isn’t paid in a timely manner. Keep in mind that you have to look at the deadlines for paying and filing your Company Tax Return. It will be different for every company depending on how your financial year is set up. You also don’t get a bill for Corporation Tax. You have to work out how much your company will owe. There are Corporation Tax reliefs available, which reduce taxable profits. You also want to look up your Corporation Tax Rate. You’ll need to figure out your company’s taxable profits through an annual account. They’re not that difficult to prepare, and HMRC provides a template that you can use.

New companies may not have anything to pay, and the temptation here is to do absolutely nothing at all. But that’s really a bad way to go, because the HMRC will penalize you if you don’t speak up. You have to file your Company Tax Return and indicate that no money is due.

Corporate Tax

Sometimes a company will stop being active and go into a non-trading position. If that’s the case and you aren’t receiving income through the Corporation anymore, then you will need to get a letter from HMRC specifically designating you as dormant, and therefore not needing to pay the Corporation Tax or file the tax returns. But if they tell you that you still need to file the tax return, make sure that you do that.

If your company has taxable profits of less than 1.5 million pounds, you have to pay your taxes nine months and one day after the end of your accounting period. Whether you start a new fiscal year on Jan 1, June 1, or October 1, you always know when your taxes are due.

Be aware that you have to report regularly changes to your business as well. An accountant can help you wade through these waters, but you want to make sure that you’re being as complete, through and honest about things. It’s better to pay on time than to deal with automatic penalties.

The New ISA Limits Are Here – And Here’s How to Use Them to Your Advantage

Saving has been a hot button topic around the country for a long time. Just how do you save when wages are falling and the cost of living is rising? HMRC announced in March that the ISA limits were changing. Now that we’ve had a few months to see what’s going on, there are some facts that you need to know in order to truly make the best decision around.

By now, you should have topped off your ISAs for the previous tax year. But as July 1st approaches, a new ISA limit approaches with it. From here on out, you can put away 15,000 GBP between cash ISA and a stocks and shares ISA. But the new ISA — called the Nisa, brings some flexibility that will make things a lot easier over time. We say “over time” for one big reason: these changes are rolling through in a very slow fashion. Some providers will act faster than others, and transfers may be slower than you would like. Be patient and let the system work itself out. This will be a net positive in the long run, from what we’ve seen so far.

Youth Encouraged to Save

One of the biggest trends that are emerging from the new wave of changes is that youth aged 16 to 18 are being encouraged to save. It’s been shown time and time again that the younger you are when you really start saving money, the more money that you will have over time. The power of compound interest is a proven fact, so we won’t belabor the point here.

New ISA Limits

People in this category get to put away 15,000 GBP into a cash ISA, but they also get to set aside 4,000 GBP in the new Junior ISA account, or “Jisa”. This is an incredibly opportunity to save more than the average person does, and hopefully young people will take advantage of it.

Transfers Allowed…To Cash Only

If you have money in a stocks and shares ISA, you can move it to a cash ISA. You want to make absolutely sure that you’re moving it to a cash ISA that allows for transfers in, otherwise you will not be able to do it.

No Peer to Peer Loans in S&S ISAs… For Now

Peer to peer loans are exploding in popularity across the UK, but that doesn’t mean that you can include them in your S&S ISA. It’s not the best news, but HMRC has promised to review the regulations and assorted issues surrounded these loans and make a ruling in the future. [Read more…]

Watch Out for these Common Mistakes

Do you know that you can save money when filing your taxes? Most of you still make common mistakes that cost money when filing taxes. By avoiding these simple mistakes, it is very easy to save money on taxes and get maximum tax return possible. What are the common mistakes when filing taxes? That is what we are going to find out in this article.

1. Not Filing on Time

If you are tempted to wait a few weeks after the deadline before filing your taxes, don’t! The IRS charges a compounding daily interest (plus an additional 3%) against any unfiled taxes. This means you will actually pay more by filing your taxes late. The annual tax filing deadline is April 15th; be sure to file your taxes before then.

2. Incorrect Information

Avoid fines and charges by double-checking your tax report before filing it. Use a tax software to help check your tax reports; today’s best software can identify mistakes and correct them for you. Once it is done, file the tax report electronically and save a lot of time in the process.

Don’t forget to sign your return as well; this is the most common form of incorrect tax filing these past several years. You cannot get the refund you are aiming for if there are mistakes in your report.

filing taxes

3. Count & Count Again

The tax software can only do so much. You still need to enter the correct financial details and calculate your numbers properly to avoid paying too much – or too little – in taxes. Start early, take your time and calculate every part of the report two or three times to avoid calculation errors.

4. Falling Out of the Loop

Visit the IRS’s website and read the latest tax news. The last thing you want is to miss important changes and updates on tax regulations. Especially those that influence the amount of tax you are required to pay or the return you can claim.

The IRS’s website also contains information on tax credits and exempts. The government is making a lot of tax cuts available these last several years; it would be a waste not to use the ones you qualify for optimally.

5. Not Keeping a Copy

Always keep a copy of your tax return. Ideally, you should keep copies for at least three years. Should you spot errors in the future, you can file for an amended income tax return and get the report corrected.

Could Tax Transparency Schemes Be Coming Your Way

Taxes aren’t high on the UK consumer’s list of favorite things, but it’s absolutely compulsory. So you need to be aware of any changes that could be possibly coming your way.

The truth is that today’s bit of news affects the countries that are pushing a low tax jurisdiction agenda. Simply put, David Cameron wants to make sure that everyone is paying their fair share. Avoidance schemes cost Britain a great amount in terms of lost revenue, and there have been numerous calls for reform in the system overall.

Mr. Cameron’s goal is to have a new agreement that would make tax evasion and avoidance incredibly difficult. As it stands, there’s a current scuffle with Google over its corporate tax payments.

The Prime Minister also wants to crack down on issues in the British Virgin Islands, the Caymans, Gibraltar, Anguilla, the Turks and Caicos Islands, and even Montserrat.

Usually anything that happens on the corporate level will eventually happen to regular taxpayers. So if you’ve been shaving a bit off here and there as you try to lower your tax bill, or failing to report sources of income, be warned — HMRC will be looking at you next. It always happens like this, so we decided to help you get organized before tax season rolls around.

Keeping track of all of your receipts will truly be the best thing that you can do. If you’re a business owner, going with an accounting firm that can take care of you will be another thing that you’ll want to look into. Just trying to hope that HMRC doesn’t catch on isn’t a good thing. Eventually they will see that there are some inconsistencies and come after you about them. It would make life very difficult in terms of penalties, late fees, and even possible jail time for fraud if it’s assumed that you purposefully tried to hold back large sums.

This is not something that every taxpayer will have to worry about. If you’re already paying your fair share, you can disregard this. But we would hate to see a scandal involving UK consumers, which is why we wrote this quick news piece. Good luck!

Limited company contractors – what you need to know about tax

While operating as a limited company contractor is the most tax efficient way of working on a freelance basis, it is unfortunately not as simple as merely registering as a limited company and choosing to pay less income tax and National Insurance.

Instead, there are a number of things you need to be aware of with regard to what is expected of you from HM Revenue and Customs (HMRC), from calculating your own personal tax return, to ensuring you keep accurate and detailed accounts.

As a result, there are a number of accountancy services providers who are experienced in advising contractors in all relevant areas, helping to keep their books and ensure they comply with all HMRC regulations. This is a common practice as very few contractors feel confident in keeping their own accounts, but if you are still interested to see how important tax is to limited company contractors read on for a summary of the basics.

What do I have to pay tax on?

You are required to pay tax on any profits made by your limited company. If you invoice a client for a contract, that will be classed as a form of income and subject to tax. The remainder of your taxable profits consists of interest received on any money held in deposit, the sale of any company assets, rent received for any land or property and any other type of income.

Once this has been calculated, you can take off any relevant deductions in the form of reliefs, losses or allowances. The rate of corporation tax you are required to pay differs depending on the level of profits your company makes, but it is applied to the calculation of pretax profits above to work out the amount you owe.

When do I pay it?

As a limited company, you essentially determine your own financial year, as the accounting period you need to make calculations for is taken from the date of the financial accounts you submitted to Companies House. Therefore, it doesn’t necessarily fall into line with the standard tax year.

There are also other deadlines relating to when you must pay what you owe. At the moment, you are required to pay within nine months of the end of your company’s accounting period and file the tax return within 12 months. [Read more…]

PAYE Tax Changes You Need to Know About

UK taxpayers got a real bombshell last Saturday — they learned that the Pay As You Earn (PAYE) information has to be reported in real time. This is done by the employer, so you might not be aware of how this affects you. We wanted to chime in with the changes, what you need to do (if anything), and anything that you might want to keep an eye on.

Most employees in the UK will not have to worry much, as the employer has the burden of managing real time compliance, not you. You just have to make sure that you show up to work every day like normal. Not too hard, right? Well, we guess it depends on your boss 🙂

The PAYE system is designed to make sure that everyone pays their fair share, with employers deducting not just the income tax but the National Insurance contributions as well. Waiting at the half-year and annual mark to collect taxes could allow some people to slip under the radar, and we can’t have that if we want to a solid country.

The new change is that employers have to report PAYE income tax stuff to HMRC in real time, but what does that really mean?

Simply put, it means that they have to notify HMRC as soon as possible rather than just waiting annually to report the information. These days, employees are all over the place. They’re moving around and changing jobs much faster than they were in 1944, when the system first came out.

This is something that’s going to essentially affect employers and accountants that service that market. Every time an employee is paid, the details of that payment have to be sent to HMRC. This is done through payroll software to keep the process very quick.

It is expected to strike businesses that have less than 50 employees the hardest, because they don’t have as much time to prepare. According to the Forum of Private Business, one in five business owners responded that they were not prepared at all.

For employers, getting the basic information correct has become more important than ever before. The easiest mistake to overlook: date of birth. From there, you also want to have the correct National Insurance number. Making sure that benefits will be paid to the right employee is very critical to the success of all underlying programs. Good luck!

A Gentle Reminder To Invest Your Tax Refund Wisely

A sudden influx of cash ahs the tendency to get us giddy, but that doesn’t mean that you have to necessarily be gleeful about it. The truth is that your tax refund is money that was yours all along. It was given to a government for their purposes, not yours. It’s time to take that power back. And you don’t take that power back by getting the money and then spending it on a huge TV. While the TV undoubtedly looks smashing in your living room, the reality is that it’s not helping your financial future one bit.

Now, you might be reading this and thinking — I’m young, I have all of the time in the world to be responsible. However, this is the perfect time to get responsible. Nobody wants to look back and wish that they had started sooner. Don’t regret — do it now. We’re not even saying that you have to be completely stuffy and never have any fun. But before you have fun, ask yourself this:

Do I have an emergency fund in case the worst happens (job loss, illnesses, sudden move?)?

Do I have all of my bills current, with a little extra?

Am I feeling financially secure right now?

Do I have a great stockpile of food in case there’s an emergency and I can’t get to the store?

If you can’t answer those questions with ease, then it’s highly likely that you’re not going to be able to run out and have fun just yet. Sure, you can disregard this advice…it’s your life, after all. But five years from now, you will be far happier with a fat savings account versus another shiny object that will be “uncool” in virtually no time at all.

Investing your tax refund wisely should be the focus, but what if you don’t know what you should do at all? This is where you actually need to step in and start thinking about short term savings accounts. There’s no need to lock your money away. Again, if you don’t have an emergency fund this is the perfect time to make one. It gives you a higher degree of peace of mind, and there’s really no price tag on that. It just depends on what you’re ultimately trying to do. You just have to make sure that you’re taking action as much as possible. That’s the only way that you’re going to be able to get anything done. You will have to make sure that you’re focusing on your goals.

We know that this advice isn’t what you want to hear at all. You want to do what your friends are doing. That’s okay — but it’s going to cost you big time. It would be better to make sure that you’re not doing that, if you possibly can. You have to make sure that you’re thinking about the bigger picture and plan accordingly. There’s nothing that says that you have to just jump in without any concept of what really matters. You have to make sure that you’re thinking completely about your goals over everyone else’s.

Ten years from now, your friends will not be the ones helping you make a deposit on your dream home. Your savings account will, if you take care of it. You might not think about it right now, but every single bit helps you in this journey. Make your life extraordinary on your own terms — the rest will come in time, we promise!

Major Corporations Corruptly Minimizing their Tax Obligations

While tax costs are significantly high in the United Kingdom, we all have to pay our taxes, whether we like it or not. Furthermore, even though it is the individuals and businesses which earn the most that form the makeup of the highest tax brackets, tax costs for the average Brit can of course be just as frustrating. Before I go on to talk about large corporations, there are steps that the average Joe can take to ensure that their taxes are all well and good. For example, if you are self-employed, need to drive your own car to temporary sites or buy work equipment yourself, you may be eligible for a Rift tax refund by going to their website, logging on and using their online calculator. Staying with the subject of tax, tales of multibillion pound corporations deliberately minimizing their tax obligations are disconcerting to say the least. Yet, this is precisely the reality and the practice of Starbucks, Google and Amazon.

Anger at Multinational Corporations

A lot of people in the UK seem pretty angry at the likes of Starbucks, Google and Amazon around their behaviour of tax. There’s been a whole series of hearings in the UK’s Public Accounts Committee over the last few weeks, with statements from the Chancellor amongst the opposition. Many are irritated about multinational corporations paying very low tax rates.

Starbucks are a good example, as despite having turnover in the UK of about £300m, it pays no tax at all because of its loss making. The annoyance surrounds the fact that these multinational corporations are arranging their affairs such that they send any taxable profits overseas. In Starbucks’ case, they pay a royalty to their parent company worth about 4.7% of its turnover, which takes a lot of profit outside of the UK.

An Attempt by the Chancellor to Alleviate Pressure

It’s just the sort of period where you’d expect people to start getting annoyed about such practices. The Chancellor’s under pressure because tax revenues aren’t what we’d hoped they would be and the deficit reduction program isn’t going as the Chancellor hoped it would be. Foreign corporations are quite an easy target, and particularly consumer facing corporation like Google, Amazon and Starbucks, for the Chancellor to aim criticism towards to alleviate some of the pressure from himself.

What steps are being taken to put things right?

The reality however, what Starbucks are doing is completely legal, if not completely ethical. Starbucks nonetheless has responded by saying they’re going to have a look at what they’re doing in regards to UK taxation and the central result is likely to be that they’ll cut the royalty they pay to their parent company. Last year the royalty they paid was about £25m and its operating cost in the UK was about £28m. They thus probably won’t cut their royalty payments entirely, but by cutting it someway they’ll reduce their operating losses. However, the wider question for Starbucks shareholders is why the company is doing so badly in the UK anyway. The cost of coffee makes a profit here at an 11.5% operating margin which is pretty good. Starbucks however seem unable to achieve this.

Other consumer facing companies will act, particularly those that have been named, such as Amazon and Google. The Government is acting as well, through investing £77m to increase tax compliance and prevent tax avoidance. The Government say that this investment will create extra revenue to the exchequer of around £2bn; which isn’t a bad return on investment. The suspicion behind all this is that the corporations will always employ cleverer people than the Government’s revenue teams, which mean that the Government will always be playing catch up with the major corporations.