HMRC Foreign Income Disclosure

Case Study: When HMRC asks about your foreign income

The UK has Automatic Exchange of Information agreements with over 100 countries, so HMRC knows if you have declared your foreign income or not.

According to the UK Parliament, there were 6.2 million people (9% of the total population) living in the UK who had another nationality. Within our Central London, Putney and Richmond offices, we also have foreign-born colleagues who had previously worked in another country. With international migration now a common trend, it is not uncommon to see some people struggling with foreign tax issues, particularly when they thought they had reported in another country but received a letter from HMRC pertaining to the overseas income.

HMRC Foreign Income DisclosureOne of our clients, Victor from Richmond-Upon-Thames, had previously lived and worked in Singapore for a decade, during which time he acquired some shares and a few assets. When Victor came to work in London, he didn’t pay much attention to his tax affairs as he is on PAYE. It also didn’t cross his mind that he had to report the small (and irregular) income he still receives and remains in his bank account there.

But one day Victor received a letter from HMRC about his foreign earnings which he had not reported in the UK. Panicked, Victor came to our Richmond-Upon-Thames office and asked for our help. Our personal tax accountants  analysed Victor’s position and advised on the correct remedy to rectify his tax filing requirements. Seeing how swiftly we acted and provided him with a satisfactory result, Victor has now engaged us to report his future foreign income through Self Assessment tax return service.

Worldwide Disclosure Facility (WDF)

If you have foreign interests, chances are you need to make a disclosure through the WDF, and preferably you do it before HMRC sends you a letter. If you aren’t sure if a disclosure is required, talk to our qualified personal tax accountants. We can review your specific circumstance and make the best recommendations.

The WDF users

HMRC wants anyone needing to disclose a UK tax liability that relates wholly or partly to an offshore issue to use the WDF. An offshore issue includes unpaid or omitted tax relating to:

  • Income arising from a source in a territory outside the UK
  • Assets situated or held in a territory outside the UK
  • Activities carried on wholly or mainly in a territory outside the UK
  • Anything having effect as if it were income, assets or activities of a kind described above

The WDF should also be used when you have funds connected to unpaid or omitted UK tax that you have transferred to a territory outside the UK or are owned in a territory outside the UK.

Examples of tax liabilities that you need to declare

  • Income from letting residential property or land
  • Capital Gains from assets that increased in value between the time you bought them and the time you sold or transferred them
  • Income from running a business
  • Income from freelance or commission-based work
  • Income from accepting credit card or debit card payments
  • Investment income
  • Any other incomes that you should have paid tax on

Call Tax Agility on 020 8108 0090 about disclosing your foreign income on the Worldwide Disclosure Facility today.

The WDF process

To use the WDF process, you must first register and HMRC will issue you a unique disclosure reference number.

After the registration process, you have 90 days to:

  • Gather the information you need to fill in your disclosure
  • Calculate the final liabilities including tax, duty, interest and penalties
  • Compete the online form

As the WDF process may not be straightforward, we do encourage those who have foreign assets to come to us for professional advice first or allow us to file on behalf of you.

Don’t underestimate the implications

HMRC wants to send a strong deterrent message to those who don’t disclose their foreign assets. Accordingly, if you fail to make an accurate disclosure or refuse to provide supporting documents allowing HMRC to check the accuracy, you may receive a higher penalty and have your details published on the website. Also, HMRC may choose to launch a civil or criminal investigation against you. To save yourself from the headache and unwanted attention, it is best to speak to our qualified personal tax accounts first.

Personal tax accountants at Tax Agility

Tax issues are never straightforward and things can get complicated quickly if you have foreign assets which you may not know that you need to declare and pay tax on.

Fortunately, our personal tax accountants are here to assist. We will first seek to understand your tax affairs and identify what needs to be disclosed through the Worldwide Disclosure Facility (or not).

Should a disclosure is needed, we can help to register you, prepare and submit your disclosure, work out how much tax, interest and penalties you may need to pay, and negotiate a payment arrangement if it is needed. Working with you every step of the way, we can help to make sure that you aren’t paying more than you should, and the disclosure matter will be completed quickly, efficiently and professionally.

Call us today on 020 8108 0090 and speak to a knowledgeable tax specialist in either our London Richmond-Upon-Thames office or our London Putney Office.

Does HMRC object to putting family members on the payroll?

It’s said that more than half of small businesses in the UK are family-owned, mainly in the wholesale, real estate, construction and transport sectors.

They employ more than 12 million people and generate more than a quarter of UK GDP. In London, it is estimated that there are more than 800,000 family businesses.

Even if you are the single owner of your limited company or a sole proprietor, there may be situations where you need an extra pair of hands helping you with the running of your business. In most instances, you turn to your spouse or family members as you know you can trust them to help you out on short notice. As such, questions relating to ‘can you put family members on the payroll’ abound, which is why our payroll specialists at Tax Agility aim to explain the ins and outs of hiring family members.

Family ties are irrelevant

First of all, it must be explained that HMRC deems your family ties to be entirely irrelevant when it comes to who is placed on your payroll. You can definitely employ your spouse or any family members and put them on your payroll.

What HMRC is very much interested in is what your company gets out of the arrangement. In other words, the person who is being paid a wage appropriate to the job should actually be doing the job. There must be no special treatment paid to the family member through an inflated salary, reduced working hours, or anything that falls outside the ‘equal pay for equal value’ idea.

Creating work for a family member

Many business owners incorrectly assume that they can only employ a family member within their company if they apply through the correct channels of communication for a job that is already available.

This isn’t the case at all. It’s entirely legal for you to create a job for your family member provided the work serves a necessary function in your company. For example, if you’ve been considering employing a receptionist for some time but haven’t got around to it, employing your spouse in this role would be perfectly acceptable. However, if you already have a receptionist who can currently handle their workload, to employ your spouse or any other family member as a second receptionist wouldn’t serve a necessary function in your company and could raise eyebrows at HMRC.

The same applies to employing your teenage son as your office cleaner, or your sister as an office administrator. So long as these extra bodies serve a necessary function, HMRC will have no issue with you employing them and placing them on your payroll, the same way you would any other employee in your company.

In general, the rules you must follow include:

  • The work must be real and your family members must be paid commercially viable wages. You can’t get away by paying them £2 an hour to do bookkeeping nor £100 an hour to answer telephone calls.
  • Payments must be made and records are kept.
  • You (the employer) and them (the employees) must pay National Insurance contributions if they earn more than £166 a week.
  • Obey child employment regulations if the family members involved are between 13-16-year-olds.

Should you make your family members shareholders?

As tax on dividends is lower than on salary, you may consider making your spouse a shareholder and allowing them to receive dividend payments instead of salary.

Here’s an example, assuming your spouse receives £35,000 in dividend payments in tax year 2019/20:

  • The first £12,500 is tax-free (personal allowance)
  • The first £2,000 of dividend is tax-free (director allowance)
  • Dividends up to £37,500 are taxed at 7.5%
  • This means the tax bill they are liable for is only £1,537.50

In comparison, if they receive £35,000 in salary in tax year 2019/20, then they are liable for £4,498 income tax.

Tax advantages

The salaries, commissions and bonuses you pay to your employees are tax-deductible expenses because they incur wholly and exclusively for the purposes of the business.

Here’s an example, assuming you hire your sister to do filing for £50 a week (£2,500 a year), you can offset this amount against your profit for income tax purposes. If you’ve done the work yourself, then you would be spending more time in the office while not enjoying the tax benefits.

Thinking about putting family members on the payroll?

If you’re a London-based business in need of further advice about putting family members on the payroll or other small business tax tips, contact Tax Agility’s small business accountants on 020 8108 0090, or get in touch with us via our contact page to arrange a complimentary no obligation meeting.

We’re London’s local accountants serving clients throughout the city with particular focus on Putney, Wimbledon, Fulham, Richmond, Hammersmith and Central London.

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

HMRC tax investigation

HMRC Legal Powers

HMRC tax investigationMany people remain unaware that in an age where data protection and privacy are big issues, such rights do not always exist when it comes to tax affairs.

In this area, HMRC has very wide powers to conduct surveillance and intrusively snoop on suspected tax dodgers.

Most would agree that tax evasion is a very serious issue, which should be investigated by HMRC if there’s a suspicion of fraud and criminal activity. But not everyone agrees when HMRC uses its power to collect more tax from innocent workers in order to minimise its tax gap, raising concerns on privacy infringement.

The power of HMRC comes from Schedule 36 of the Finance Act 2008, which allows HMRC to obtain information and documents from taxpayers and gives them the power to inspect businesses. According to HMRC, their criminal investigation powers allow them to:

  • Apply for orders requiring information to be produced
  • Apply for search warrants
  • Make arrests
  • Search suspects and premises following arrest

In July 2018, HMRC published a consultation proposing reforms to the existing legislation. Among other suggestions, they proposed to remove tribunal approval for third-party notices and create separate rules for third-party information requests.

While HMRC claims the reforms are meant to cut costs and improve efficiency, many businesses and taxpayers are concerned that this may remove some of the necessary checks and balances in place, which are particularly important when the requests relate to banking information.

How far can HMRC go in investigating?

While future changes are yet to be determined, at present, HMRC has the following powers to catch tax dodgers:

Their powers include:

  • The ability to track a suspected tax evader’s web browsing.
  • The ability to intercept and read private emails or eavesdrop on telephone calls, only permitted with a warrant.
  • The potential to bug an office, house or car.
  • The power to access credit reference information in order to compare alleged levels of income, information and documents given to credit companies and spending habits which may not match the information given in tax returns.
  • The right to visit third parties.
  • The ability to pass on any other relevant information regarding tax issues to other arms of the organisation.

What HMRC are not authorised to do

Be aware of your rights:

  • HMRC cannot force entry or physically search by hand, they can only inspect by eye.
  • They cannot make an unannounced visit without it being authorised by a senior officer.
  • They cannot visit domestic premises.
  • They cannot compel a taxpayer to answer questions.
  • They must make it clear why a taxpayer is being investigated. They cannot investigate any other matter that they haven’t provided notice about.

While HMRC officers have clear restrictions under Schedule 36, it has also been disputed that these officers can take advantage if a taxpayer voluntarily waives their rights.

Tax investigations

If you’re being investigated by HMRC, contact our experienced team of accountants and tax advisors today. Our tax investigations services include:

  • Liaising with the local tax office
  • Compliance reviews of PAYE and NI
  • Investigations of VAT issues

Get in touch today on 020 8108 0090 or contact us via our Online Form to arrange a complimentary, no obligation meeting.

This post was first published on 10 02 2013 and updated on 06 02 2019.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.

Filing a tax return image

Self-assessment: Are you excluded from online filing?

Someone filing a tax return sheet - imageEvery year, HMRC publishes a list of exclusions for online filing. This list outlines the circumstances under which you will need to submit your self-assessment tax return by paper rather than online, as your online self-assessment could be rejected, or your tax liabilities could be calculated wrong. The problem is that the deadline for paper submissions is much earlier than it is for online submissions – 31st of October rather than 31st of January. Exclusions exist for those who cannot submit their self-assessment online; instead, the deadline for their paper submissions is extended.

Why do filing exclusions exist?

Frustratingly, HMRC’s algorithms cannot always correctly calculate the amount of tax due, and the software they use for tax returns will struggle with certain combinations of income sources and amounts. Therefore, HMRC needs these tax returns to be filed as paper returns, so they can manually check that the calculations are correct. This is the case even when you use third-party software to calculate your online self-assessment.

Note that most of the exclusions published for the 2016/17 tax year are no longer in place, and instead 12 new ones have been added – numbers 79-90. Unfortunately, this means that whether you were on the previous list of exclusions or not, you need to check it again. During 2016/17, additional problems were caused when HMRC changed the self-assessment software halfway through the year. It now seems like they will keep the current software, so no panic – you should be able to submit your self-assessment in good time.

How do I check if I’m affected?

If you submit your own self-assessment tax return and think you may be affected, you have to trawl through the 20-page document yourself. Unfortunately, there’s no way around it. On the other hand, if you have a tax accountant like Tax Agility submit your self-assessment, they will check if you are excluded, and they will always calculate your tax in a way that is beneficial for you; that way you won’t be liable to pay any fines, and you can maximise the income at your disposal.

What happens if I can’t submit my paper self-assessment return on time?

If you are excluded from online self-assessment, you need to submit a paper self-assessment by the 31st of January or be liable to pay a penalty fine. You also need to include a clear note with your documents referring to the list of exclusions. Your exclusion ID will be in the far-left column on the list. Customers who notify HMRC that they are affected by an exclusion will not be charged a fine, as long as everything is submitted before the deadline for online self-assessment.

Who can help me?

If issues like exclusions and tax self-assessment seem bewildering, it’s because they are. The list provided by HMRC is not an easy read unless you know what you are looking at. It’s important to get your personal tax return right; otherwise, you may pay a hefty fine or much more tax than you are supposed to.

Experienced London tax accountants at Tax Agility know exactly what to submit and when to submit it, which is why our customers trust us to handle their self-assessments. Even if you are experienced in dealing with your personal tax return, why not check if we could save you money?

For a free consultation, call Tax Agility on 020 8108 0090 or complete our simple online enquiry form.

Inheritance Tax concept - hand on the left holds a bag of money, hand on the right holds a house

What you need to know about changes to Inheritance Tax

Inheritance Tax concept - hand on the left holds a bag of money, hand on the right holds a houseInheritance Tax (IHT) may not be on your mind, but when you have considerable savings and property to pass on, it’s a good idea to add IHT to your tax planning checklist.

In the past two years, HMRC has generated more revenue from Inheritance Tax than ever before, £5.3bn to be exact. This is thanks to rising house prices and that the tax authority has been closing down various loopholes. It may come as good news though for homeowners that there has been a boost to the residence nil-rate band, and Tax Agility is here to explain what that exactly means.

What’s the nil-rate band?

The Inheritance Tax threshold, also known as the nil-rate band, is frozen at £325,000 per person until 2021. This means no tax needs to be paid on assets (excluding property) passed to your descendants up to this value. Above this threshold, your estate will incur a tax of 40%.

An additional IHT allowance is in place for people who own property, and this is called the residence nil-rate band. Set at £100,000 per person in the past tax year, the threshold has been raised to £125,000 this month and will continue to rise by £25,000 every year until 2020/2021, to take into account rising property values. This means that your descendants will only need to pay tax on the inherited property if it is worth more than £125,000.

Married couples and civil partnerships

Your IHT allowance gets added to your partner’s allowance if you die before them. This means married couples and civil partners can pass on assets worth £650,000 completely tax-free. The same concept of doubling applies to the residence nil-rate band, giving couples a considerable tax break.

Inheritance Tax accountants

You can expect further changes to Inheritance Tax throughout the year as the Office for Tax Simplification has been urged to review the complex rules around Inheritance Tax on gifts. Tax Agility is keeping a close eye on the changes, and we’re happy to discuss what the new Inheritance Tax threshold could mean for you, your property, and those you wish to inherit it.

No one wants to leave a hefty IHT bill as part of their legacy. To speak with a professional accountant to discuss ways you can maximise the value of your estate with Inheritance Tax planning, contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

Vector illustration of Tax written above a laptop. % icons red-resting different aspects of tax encircle the laptop

Making Tax Digital pilot is now open to all self-employed UK taxpayers

Vector illustration of Tax written above a laptop. % icons red-resting different aspects of tax encircle the laptopJoin the government’s pilot and start sending regular income tax updates through HMRC’s Making Tax Digital system, if you’re self-employed.

The tax authority’s Making Tax Digital (MTD) system will be rolled out in 2020, and last year a limited pilot program was launched to test the new digital system that will require businesses to report taxes digitally. The pilot has now been extended to all self-employed taxpayers in the UK. This means if you’re a sole trader with income from one business and your current accounting period ends after 5 April 2018, you can volunteer to file your income tax updates to HMRC digitally via the compliant software providers supporting the pilot. The pilot is also said to open up next month to unincorporated landlords.

What software can self-employed UK taxpayers use for the pilot?

HMRC’s list of software providers at the time of writing only contains two entries – IRIS and Rhino, but further accounting software companies are expected to appear on the list as the pilot progresses. Compliant software allows digital record keeping of income and expenses, sending quarterly updates to HMRC and viewing tax estimates from HMRC regarding the tax you owe. This is based on the updates provided by the software.

If you are using different software for your accounting, it may still be possible to pull client information directly from that software into IRIS and RHINO, but you will need to check with your software provider whether they have a partnership in place.

Why join the pilot?

MTD is coming into force eventually, and by signing up now you can not only help the government test this new tax service, but it’s also a chance to get comfortable with the new system yourself.

If your only source of income is through your jobs as a self-employed individual, by signing up to the pilot, you will not need to worry about filing a Self Assessment tax return at the end of the year. Instead, you’ll see the taxes owed in real time as the year progresses.

You can sign up for the pilot using your Government Gateway user ID and password, which is the same one you use for the Self Assessment online service.

Sending MTD updates using your accountant

As accountants for small business owners, we’ve been providing MTD transition support to small businesses in London since the rollout of the pilot scheme last year, and are happy to extend our services to the self-employed. Integrating IT systems can be challenging and time-consuming and without IT support, you may struggle with HMRC’s accounting software. We understand this at Tax Agility and also know that dealing with new and unfamiliar software adds extra work to your day. We work with XERO, a cloud-based accounting software, to prepare our clients of all sizes for a smooth transition.

Give us a call on 020 8108 0090 today to hear more about how our small business accountants at Tax Agility can help you.

HMRC Tax Investigations: Know Your Rights

As the owner of a small business, you need to be aware of your rights before HMRC comes knocking at your door to undertake a tax investigation. Knowing what to expect determines how you behave during the audit process, and being co-operative during an HMRC tax investigation will put you and your company in a positive light.

Timing of Visits

HMRC usually gives you seven days’ notice if they wish to inspect your premises in order to get an overall view of your business. They will tell you exactly what documents they want to see and approximately how long the investigation will take.

HMRC can also send officers to visit your premises unannounced. This isn’t likely to happen unless you’ve consistently refused to grant them access in the past, or if they’ve received a tip-off and believe contacting you in advance would give you time to cover your tracks.

Allowing HMRC Tax Investigation Officers Access

When HMRC turns up for a pre-arranged visit, you are legally required to let them in. It is within your rights to check the identity of the officers. To do so, call the number you were given in your correspondence arranging the visit.

If the visit is unannounced, you have the legal right to turn the officers away. Before doing so, however, ask the officers for their credentials and who sent them. If their unannounced visit was approved by the First-Tier Tribunal (FTT), the appeal tribunal that deals with tax discrepancies, refusing entry could land you with a £300 fine.

Investigating Your Premises

HMRC’s officers have the right to inspect all business assets, documents, stock, and capital equipment on the premises of your business. During this process, you (or a member of your staff) should accompany the officer. It’s important to note that the right to inspect your business premises is not the same as a police-issued search warrant. The officer may only look at what’s on display, they cannot go searching through drawers or filing cabinets.

If you’re a small business owner running your company from home, the investigating officer has the right to investigate any part of your home that’s used for your business (such as a spare room you use as an office), but they have no right to see any other part of your home. Consider closing the doors leading into other rooms of your house before their arrival.

Contact an Experienced Accountant

Receiving notice of an HMRC tax investigation can be a daunting prospect for SME owners, especially if it’s the first time you’ve encountered one. Speaking with our professional tax accountants to discuss the implications of your upcoming tax investigation can help put your mind at ease. We provide tax advice for clients throughout London and in local areas including Putney, Wimbledon, Fulham, Hammersmith and from our Central London office in Cavendish Square.

Contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

Aspects of this article were first published on 25/01/16 and updated on 31/01/18

HMRC’s New Salary Grab: The Facts

Pay_TaxAgility-Accountants-LondonFirst announced at March’s Budget 2014, the Government’s plans to grant HMRC the power to significantly increase the amount of money it can take from individuals’ pay packets for repayment of debts was picked up by The Daily Mail recently.

Though it shouldn’t come as a shock that The Daily Mail would jump on a topic such as this with venom, these changes certainly shouldn’t be ignored if you’re in the higher tax bracket and have been repeatedly disregarding communications from HMRC.
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