Archive for June, 2012


When you get your tax bill, or your pay slip showing how much tax you have just paid, everyone wonders how great it would be to pay no tax.
One couple in the UK with their family business did just that for 10 years, but then they got caught. And here is what happened to them.

A husband and wife run tarmac business from Somerset recently felt the full force of an HMRC tax enforcement legal case.

The couple had failed to pay any tax, NI or VAT for over 10 years whilst living the highlife  – building up a property investment portfolio worth over £1.6million and a string of expensive Porche’s, Range Rover and Mercedes. They also were found to have over 80 bank accounts, many in false names with deposits totalling £1.4 million.

At the court hearing, HMRC presented their calculation of tax not paid totalling some £550 k , NI not paid totalling £276 k and VAT not paid of £256 k.

Shortly before the court date, the defendant claimed to be suffering from dementia in an attempt to delay the case. He subsequently attempted to fail on purpose the medical examinations ordered by the court  and was ordered for trial.
His wife changed her plea to guilty at the last minute.

Their punishment ?

The wife was sent to prison for 3 years and 6 months.

The husband was sent to prison for 4 years.

And HMRC were granted permission to recover the tax owing through the courts confiscation scheme.

Given that the couples business had previously been successfully prosecuted by trading standards for poor standards of work and false representation in targeting the elderly and vulnerable, it looks like the citizens of Somerset will not miss this business.

Tax Return HarlowTransform AccountingTax Return Essex

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tim healy

Allowed Business Expenses for Tax

You may know actor Tim Healy from his role as Dennis in the TV drama Auf Wiedersehen Pet and more recently as cross dressing “Les” in Benidorm.

But Tim has recently made the headlines by challenging HMRC in a landmark tax tribunal.

You Win Some

Mr Healy was successful in his claim for £32,000 of accommodation expenses to be allowed to be treated as tax deductible. These accommodation expenses were related to a period when he was rehearsing for the Billy Elliot theatre production in London and were held to be “wholly and exclusively for the purposes of his profession”.

You Lose Some

However, he lost his claim for £4,000 of taxi fares to be treated in a similar manner. The presiding judge declared that he could have been successful in his claim had he maintained more thorough records of his taxi journeys, but that she was unconvinced that they were all related to his profession and felt that it was likely that at least some of them related to socialising.

Interestingly, the judge concluded this after also reviewing Mr Healey’s bank statements which showed that some of the claimed journeys were at the same time as he was visiting the Groucho club in London, for socialising purposes rather than as part of his acting work.

Keep Tax Records

An interesting lesson learned here is for anyone who is going to claim taxi expenses to keep good records of the journeys being claimed in the event of a challenge from HMRC.

New Accountant for Small Business – Transform Accounting – The Essex Accountant

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In the last budget, the government proposed extending VAT to cover the sales of static caravans.

For someone buying a caravan with a value of £20,000, this additional 20% tax would result in the cost increasing to £24,000.
Perhaps not surprisingly in the middle of a recession, this has alarmed UK caravan manufacturers and dealers, fearing for the future of their businesses.

The proposed tax increases are due to come into effect in October, but we are currently in a period of consultation. A petition containing tens of thousands of names was supported by a number of cross party MP’s and they are hopeful that George Osborne will follow many of his recent climb downs such as the pasty tax and change his mind before this comes into effect.

In the meantime, if you are considering buying a fixed caravan, it might be better to act before October just in case.

Accountant Brentwood – Transform Accounting – The Essex Accountant

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Linked in

What happens if yours was one of the 6 million Linked In passwords that were hacked?

Strange E Mail

Last week I received an e mail from an old friend, with the title of “Hey Richard” and a message saying

“Sup what’s going on? There’s no way you can’t consider this. I know this is something you could take to the next level”.

And included in the message was a hypertext link made up of seemingly random letters.

The message had come from my friends hot mail account.

Feeling a little suspicious, I didn’t click on the link and instead contacted my friend to see what this message was all about.

Hotmail Hacked

He quickly came back to say that both his linked in and Hotmail accounts were hacked and that they had previously been using the same password. Once the Hotmail account had been hacked, it had then been used to send the suspicious e mail that I received to each of his contacts.

Linked In Hacked

So, it looks like his was one of the 6 ½ million passwords that were hacked from Linked In and were then posted on to a Russian website.

What to do if your account is hacked

My friend did the right thing by changing all of his passwords – starting with Hotmail and Linked in, and then running a full virus scan on his computer.

It looks like he has got off fairly lightly, but if you use the same password for many web services, this could have been a lot worse.

The best advice is to use different passwords for different services, change your passwords regularly and if you hear news reports of security breaches such as happened recently with Linked in, change your password immediately.

Accountant RomfordTransform AccountingChelmsford Accountant

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Skip Tax Increases

Concerns over a potential increase in fly tipping by unscrupulous operators have been raised after government proposals to increase landfill taxes.

As part of these tax changes, the tax for putting certain types of building rubble into landfill sites will increase from £2.50 per tonne to £64 per tonne.

Protests have been held in Parliament Square by skip hire companies who plan further protests and are threatening that this increase in tax will force them to lay off workers or go out of business completely.

Essex BookkeeperTransform AccountingHarlow Bookkeeper

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Fed Up Taxpayers Hang up on HMRC

Data recently released as a result of the freedom of information act, has shown that callers to HMRC have to hold for an average of 6 minutes before getting to speak to anyone.

This is an increase from last year when the average time was 5 minutes 45 seconds and a huge increase from 2009 when the average was just 1 minute and 53 seconds.

The statistics also show that 28% of callers gave up waiting and hung up on HMRC – an increase from just 10% in 2009.

Accountant EssexTransform AccountingBookkeeper Brentwood

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What happened to the UK plumber convicted of tax evasion?

Ever wondered what the consequences of setting yourself up as a self-employed plumber, working cash in hand and omitting to pay any tax or national insurance?

A plumber from Hampshire did just that after deciding to freelance in 1997. He chose not to register his earnings with HMRC for self-assessment and paid no income tax or VAT.

Enquiries made by HMRC found that he had evaded approximately £88,000 of tax and VAT. Once they added interest to these amounts, the total rose to £112,000.

The plumber was arrested at his home, and admitted committing £40,000 of fraud at Southampton Crown Court on 2nd April 2012.

So, how was he treated by the court?

Firstly, a four month jail sentence – suspended for 12 months.

Secondly, 100 hours of community service.

Thirdly, court costs of £1,800

This was in addition to £40,000 which he paid to HMRC prior to the court proceedings.

This verdict followed the “Plumbers Safe Tax Plan” which was basically an amnesty for plumbers who had not filed sufficient tax payments to come forward and put their tax affairs in order.

An HMRC spokesman said “We want people targeted by an HMRC campaign to come forward and use the opportunity to put the record straight and pay any tax due on the best possible terms. It really is better for people who owe tax to come to HMRC, before we come and find you”

Bookkeeper EssexTransform Accounting – The Essex Accountants

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stock chart

Diversified portfolio

Many investors have heard of the term “diversified portfolio”.

It means to have a collection of investments in different items and different sectors.

It is a generally accepted principle that a diversified portfolio carries lower risk than one that is entirely focused in a single asset class.

Here is a simple example of diversification in practice.

If you invested £100,000 in a property, and over the course of the next 5 years, that property had fallen in value to £95,000, the investor would have a net loss of £5,000.

Property Purchase Price               : £100,000
Sale Price                                         : £ 95,000
Loss                                                  : £ (5,000)

However, had he invested half in a property with the same decline in prices, and the other half in gold which rose 20% in 5 years, he would have a net gain of £7,500.

Property Purchase Price                 : £  50,000
Property Sales Price                        : £  47,500
Loss                                                    :  £ (2,500)

Gold Purchase Price                        : £  50,000
Gold Sales Price                                : £  60,000
Profit                                                   : £  10,000

Overall Profit                               : £   7,500

In this example, diversification worked well – this is where the term “not putting all your eggs in one basket” applies.

Of course, if he had invested all of his £100,000 in gold, then he would have made a gain of £20,000, but at greater risk.

So, what can you put into an investment portfolio to give greater diversity?

Cash – The safest asset class of all. Investments in banks and building societies will generate low, but very safe returns. In the UK, Premium Bonds and National Savings would fall under this heading.

Government Bonds – Usually considered one of the safest asset classes, government bonds are issued by most countries as a way of raising financing. These are also referred to as “Gilts” in the United Kingdom. Typically government bonds pay a low rate of interest.

Corporate Bonds – Bonds issued by companies which typically pay varying rates of interest depending on the considered level of risk of the company who issued the bonds.
EG – Microsoft bonds would be considered very low risk, and pay a low level of interest, a medium sized IT company would be considered high risk and would pay a higher level of interest.
Both government and Corporate bonds, should be viewed as a type of loan where you are the lender and the issuer is the borrower. These loans would be over a fixed period of time, and the amount of interest would be fixed. At the end of the loan period, the issuer will repay the face value of the bond.
There are two risks associated with owning a bond – the first is the issuer going bust and being unable to repay the bond, and the second is an increase in inflation resulting in a decline in value of the fixed interest rate coupons (or payments).

Growth Stocks –Growth  Stocks are considered higher risk than bonds, but are often considered to generate a higher return in the long run. There have always been time periods (such as 2008) when stock markets suffer from very sudden declines in value. A growth stock is considered to be from a company which does not pay dividends and where the investor hopes to increase his asset value through an increase in share price over time.

Dividend Paying stocks – Generally, dividend paying stocks are considered lower risk than growth stocks (but there are always exceptions such as Lloyds bank since 2008). Paying Dividends are the company’s mechanism for sharing the profits of the company with its owners (its shareholders). In the UK, the largest dividend paying companies are Vodafone and BP.

Mutual Funds – Because picking stocks and building your own portfolio can be difficult, a lot of investors trust fund managers to invest money on their behalf in mutual funds.
Examples of mutual fund managers would include Fidelity and Aberdeen asset management.
These companies operate a number of funds, often focusing on different geographical locations or market segments and attempt to pick shares which will outperform the market.
Fund managers will usually charge a fee of approx. 2% per year as a management fee in return for looking after your investment. This fee is charged every year even if the fund manager loses money on your investment. Mutual fund units can usually only be bought or sold at one point during a day, and it is common to have to give notice of several days to make a sale or purchase.

Exchange Traded Funds – also known as ETF’s, are bought and sold like a share (through a stockbroker). An ETF is a fund that is made up of a number of investments – eg – the ETF called “SPY” is made up of the whole Standard and Poors 500 index. This is a cheap way of effectively buying a portion of the whole index.
ETF’s are becoming more popular as investors are realising that they do not attract the large management fees of a mutual fund. In addition, ETF’s can be bought or sold at any point during the trading day. There are now several hundred ETF’s available and this ranges from stock indices, through to gold (GLD) and even one for agriculture which goes by the code of MOO!

Leveraged and Short ETF’s – Leveraged ETF’s allow you to purchase for example an S&P500 index which is leveraged to give you twice or three times the movement on the index. This is referred to as 2 or 3 times or 2x or 3x.
So, if the market index increases by 3%, the 2x leveraged ETF increases by 6%, whilst the 3x leveraged ETF increases by 9%.
Also, negative or “short” ETF’s now allow you to bet that a market index will decline. If the market declines, then your investment increases in value.
These ETF’s carry far greater risk and are more volatile.

Property – During the property bubbles of the 1990’s and early 2000’s, buy to let investments fueled by easy and cheap credit became very popular and during this period, those most leveraged with borrowings experienced excellent returns. As many property markets have either declined or stabilised and credit has dried up, investments in property have largely returned to professional landlords. As a long term investment, directly owning property plays an excellent role in providing portfolio diversification.

Gold and Silver – Precious metals can be a good “investment” as stores of value during periods of high inflation.  The downside is that precious metals are unproductive assets that generate no interest or dividend payments. Investments can be either in physical gold such as krugerrands, Maple Leafs or Sovereigns or through ETF’s (Exchange Traded Funds).

Alternative Investments – This sector can include assets such as classic cars, antiques, fine wines, stamps, coins, vintage share certificates and even vintage musical instruments.
All of these assets experience ups and downs in value and can be considered high risk, however it is worth bearing in mind that these assets can often be quite illiquid (difficult to return to cash).
Also, many of these asset classes rise during good economic times, and decline in value during a recession. These can be considered better investments if some pleasure is gained by the owner whilst in their possession.

So, a wide variety of investments are available to investors today. In order to reduce risk in your portfolio, diversification is key.

However, diversification just for diversifications sake is not recommended.

Ie – If an asset class is clearly in a downtrend, purchasing that asset class just to gain diversification is not to be recommended. Choose carefully.

Accountant Romford – Transform Accounting – The Essex Accountants

Disclaimer – The information presented in this article is intended for education purposes and is not intended to be used as the sole basis for any investment decision nor should it be construed as advice intended to meet the investment needs of any investor. The author may hold positions referred to in this article. Please perform your own research or contact a qualified financial adviser prior to making any investment decisions.

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Many small business employers need to provide their employees with a company van.

If you allow your employee to use the van privately and you pay for their fuel, then they will pay income tax on this benefit.
For the 2012/13 tax year, this can work out at £710 for a basic rate tax payer and £1,420 for a higher rate tax payer.
This will be paid by the employee.

(£3,000 + £550 = £3,550 x either 20% or 40%)

In addition, for the 2012/13 tax year, the small business will need to pay employers national insurance which will cost £489.90 for each van.
This will be paid by the small business.

(£3,550 x 13.8%)

How to pay less tax

A way round this tax charge is to restrict your employee’s private use of the van to travel between home and work and vice versa. This is defined as ordinary commuting.
This results in no tax implications if your employee takes the van home at night.
Insignificant private use (such as emergencies or occasional short journeys) is allowed, however.

HMRC will look closely at the arrangements that you have with your employees and are likely to challenge your private use unless journey records are in good order.

Note that these rules do not apply to cars and that HMRC’s definition of a “van” are not always as straightforward as you may think.

General good advice is that small business owners should make it an employment condition that their employees cannot drive company vans on private journeys unless they reimburse you for the full cost. You must be seen to enforce this policy if you are to avoid income tax or national insurance liabilities.

The above is just a rough guide intended for education purposes – If you want to provide a perk to member of staff, please seek professional advice from your accountant or see the HMRC website for detailed guidance.

Romford AccountantTransform AccountingAccountant Essex

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Transform Accounting

pound sign

How to pay less tax – File your return on time and save £000’s in fines

Small business owners or anyone who needs to file a personal tax return may be aware that there are penalties imposed by HMRC for late filing. But did you know that from this year these penalties have increased dramatically.

In the past, if you failed to file your tax return, you automatically received a £100 fine.

From April 6th, the rules have changed. You still receive your £100 fine, but in addition, if your return is three months late, you now start to receive a fine of £10 per day for every day until you file your return.
This rule applies for 90 days, resulting in an additional £900 fine on top of the £100 already levied giving a grand total of £1,000

If you still haven’t filed your tax return after…

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