Happy New Year? our newsletter this month includes: a reminder that self-assessment tax liabilities are due for payment 31 January 2019; ideas for New Year resolutions; is the top rate of Income Tax 45% and a CGT planning idea for married couples.
As all our self-assessment readers will be aware, 31 January is the date by which any arrears of tax for 2017-18 need to be settled, together with a payment on account for 2018-19, if one is due.
Those who have completed their tax returns for 2017-18 should be aware what these liabilities amount to and any clients reading this article who are unsure what they should be paying, please call so that we can advise in good time.
If you have cash problems and are unable to clear tax due on the 31 January, you can approach HMRC for extended terms. Call:
Business Payment Support Service - 0300 200 3835, or
Self Assessment Payment Helpline - 0300 200 3822
If you miss the payment deadline and receive a letter or bill threatening legal action, call the HMRC office that sent you the letter.
Before you call be sure to estimate how much you can pay on account and you will normally need to clear any balance before any future payments on account become due (ordinarily this would be before 31 July 2019 when the second payment on account for 2018-19 falls due).
This is not the place to discuss your personal options, but this is an ideal time to consider your business and personal financial planning options for 2019.
What are your options?
If Brexit, as it seems likely, has a depressive effect on the UK economy, we may be pushed back into a mild recession. If so, the enthusiasm for investment will decline and businesses will hoard cash.
Accordingly, you might like to consider your present cash position, plan for a levelling off or decline in your sales and pressure on your margins as competitors seek to maintain their competitive advantage; and, you will need to invest some time in considering the effects of any disruption to your supply lines especially if we are faced with a no-deal Brexit.
There has never been a more appropriate time to prepare a formal business plan.
Ideally, the numbers should be entered into your accounts software so that you can closely monitor what is happening to you financially compared to your expectations. In this way you can take remedial action as events unwind rather than considering the mess left behind if you take your eyes off the road ahead.
Named the additional rate, the highest rate of Income Tax is 45%, and some might say 45% is high enough.
However, if the rate of tax is measured as the relationship between income and tax plus tax related penalties paid, there are times when this 45% can rise, to as much as 90%.
For example, if HMRC discovers that a taxpayer has been negligent in declaring all their income for tax purposes, they can charge a penalty. This can be as much as 100% of the tax due - effectively this doubles the rate of tax charged. And so, if you are paying tax on under-declared income at 45%, and if a 100% penalty is levied, the effective rate of tax charged is 90% of the income declared.
Whilst this may be an extreme example, consider taxpayers whose income exceeds £100,000. For the tax year 2018-19, for every £2 your income exceeds £100,000 you lose £1 of your tax personal allowance. This means that taxable income between £100,000 and £123,700 is taxed at an effective rate of 60%.
This article is also relevant to couples who have entered into a civil partnership.
For the tax year 2018-19, taxpayers can make tax-free capital gains of up to £11,700.
This allowance is available on a per person basis and so married couples (and those in a civil partnership) have a combined CGT allowance of £23,400.
Consider married couple John and Joy. Joy wants to dispose of a block of shares before 6 April 2019, but this will create a taxable gain of £22,000. After her CGT allowance is deducted this will create a CGT bill of £2,060 - Joy is a higher rate taxpayer and so she would pay CGT at 20%.
John is retired and has relatively little income for 2018-19 and no capital gains. It is quite legitimate for Joy to gift 50% of her shares to John before they are sold - gifts between spouses and civil partners are free of CGT. Each party would then sell their half-shares and chargeable gains of £11,000 each would be covered by their £11,700 allowance. Hey presto, no CGT to pay.
1 January 2019 - Due date for Corporation Tax due for the year ended 31 March 2018.
19 January 2019 - PAYE and NIC deductions due for month ended 5 January 2019. (If you pay your tax electronically the due date is 22 January 2019)
19 January 2019 - Filing deadline for the CIS300 monthly return for the month ended 5 January 2019.
19 January 2019 - CIS tax deducted for the month ended 5 January 2019 is payable by today.
31 January 2019 - Last day to file 2017-18 self-assessment tax returns online.
31 January 2019 - Balance of self-assessment tax owing for 2017-18 due to be settled on or before today. Also due is any first payment on account for 2018-19.
1 February 2019 - Due date for Corporation Tax payable for the year ended 30 April 2018.
19 February 2019 - PAYE and NIC deductions due for month ended 5 February 2019. (If you pay your tax electronically the due date is 22 February 2019)
19 February 2019 - Filing deadline for the CIS300 monthly return for the month ended 5 February 2019.
19 February 2019 - CIS tax deducted for the month ended 5 February 2019 is payable by today.