01-12 v2 tax for barristers - menzies llp · – bertie has received cash of £50,000 and incurred...
TRANSCRIPT
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BARRISTERSManagement o f P ro fes s i ona l F i nanc es
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BARRISTER TEAM• David Truman
Partner
• Tim HumphriesAssociate Director
• Yasmina KreaaAssistant Manager
Menzies LLPLynton House7-12 Tavistock SquareLondonWC1H 9LT
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PROGRAMME TIMETABLE• Registration• Responsibilities as a self employed individual• Accounts and Choosing your year end• Tax and Tax Returns• Case Study
TEA BREAK• Allowable expenditure• Penalties and Enquiries• VAT• Protecting your wealth• Protection• Money Laundering Regulations
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REGISTRATION• Need to reg is ter wi th HMRC onl ine
• By 5 October in your second year o f t rad ing
Responsibilities as a self employed individual
• The UK operates a “se l f assessment” tax sys tem
• Record keeping
• Statutory requi rement to keep records for 6 years
• Open a separate bank account
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ACCOUNTS• Cash bas is
– Turnover less than VAT threshold (current ly £82,000) can e lec t to prepare on cash bas is
– Leave the scheme when receipts twice the VAT threshold (current ly £164,000)
• True & fa i r bas is– Earn ings bas is– Work in Progress (WIP)
Choosing your year end• You can choose when your account ing year ends• Fi rs t set o f accounts cannot be longer than 18 months
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TAX AND TAX RETURNS• Year runs 6 Apri l – 5 Apri l
• F i l ing deadl ine
– Paper f i l ing – 31 October fo l lowing the end of the tax year
– Elec tron ic f i l ing – 31 January fo l lowing the end of the tax year
• What tax you wi l l pay – POA, Class 4 NIC, Class 2 NIC
• Student loan repayments
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TIMELINE
April 2017Tax year 2016/17
April 2018Tax year 2017/18
April 2019Tax year 2018/19
31 January 2018
-2016/2017 tax payment due
- 2017/2018 1st
payment on account
31 July 2018
-2017/2018 2nd
payment on account
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CASE STUDY
• Step 1 – register ing with HMRC– B ert i e secu red pup i l l age beg i nn i ng 1 Oc tobe r 2015– H i s f i rs t s i x mon ths i s tax free (1 Oc tobe r 2015 – 31 March 2016)– The second s i x mon ths , 1 A p r i l – 30 S ep tember 2016 , s ta r ts h i s
accoun t i ng pe r i od– B ert i e reg i s te rs w i th H MR C as be i ng se l f emp l oyed , and fo r C l ass
2 N IC
• Step 2 – Accounting Year End– B ert i e has dec i ded tha t h i s accoun t i ng yea r end w i l l be 5 A p r i l
(N o te as d i scussed H MR C w i l l i gno re the f i rs t f i ve days from 1 A p r i l -5 A p r i l 2016 so a tax re tu rn fo r tha t yea r need no t be comp l e ted )
– B ert i e ’ s f i rs t accoun t i ng yea r runs 1 A p r i l 2016 – 5 A pr i l 2017– B ert i e has rece i ved cash o f £50 ,000 and i ncu rred expenses o f
£30 ,000 . H e the re fo re has p ro f i ts o f £20 ,000 on w h i ch he i s taxed
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CASE STUDY• Step 3 – the Tax Return
– Ber t i e’ s t ax r eturn has been c ompleted, wi t h addi t i on t o t he prof i t f r om hi s s el f employ ment as a bar r i s ter ; t here i s al s o a s mal l amount of bank i nteres t . Hi s t ax l i abi l i t y f or t he t ax y ear 2016/17 i s c al c ulated at £3,020.20
– Ber t i e’ s t ax r eturn i s due elec t r oni c al l y by 31 J anuary 2018– Ber t i e’ s t ax bi l l of £3,020.20 i s due by 31 J anuary 2018– Ber t i e i s al s o due to mak e two pay ments on ac c ount t owards
hi s 2017/18 tax l i abi l i t y of £1,510.10 (£3,020.20/ 2)
Payment due 31 January 2018
Payment due 31 July 2018
2016/17 Balancing payment
2017/18 1st Payment on Account
2017/18 2nd Payment on Account
3,020.20
1,510.10
1,510.10
Total 4,530.30 1,510.10
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CASE STUDY
• Step 4 – next year ’s tax re turn
– We then prepare t he 2017/18 tax r eturn and s ee that Ber t i e has a t ax l i abi l i t y of £10,000
– Ber t i e has al r eady made two pay ments on ac c ount t otal l i ng £3,020.20 whic h l eav es a balanc e of £6,979.80 to be paid on 31 J anuary 2018
– But t here i s s omething el s e Ber t i e wi l l need to pay on thi s date – the f i r s t pay ment on ac c ount f or t he nex t y ear ’ s l i abi l i t y. Thi s y ear, t hey wi l l be £5,000 (50% of t he £10,000 l i abi l i t y ) and thi s mak es the t otal pay ment t o be £11,979.80, due to be paid by t he 31 J anuary 2018
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TEA BREAK
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EXPENDITUREGenera l ly, HMRC al low you to deduct a l l expendi ture that is :• Incurred “whol ly and exc lus ive ly ” for the purpose of
generat ing your bus iness income.
• Revenue in nature – a l though p lant and machinery may qual i fy for capi ta l a l lowances.
• Not an expense that is spec i f ica lly d isa l lowed by s ta tue/case law.
The fo l lowing expenses are not an exhaust ive l is t but he lps g ive you an unders tanding of the main expenses usual ly c la imed.
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ALLOWABLE EXPENDITURE Revenue• Chambers rent and/or c lerk fees• Bus iness Use of Home:Ø A reasonable proport ion of household cos ts orØ Flat ra te (between £10 and £26 per month) depending
on number of hours worked f rom home (25 hours to 101 hours a month)
• Mobi le / in ternet cos ts – bus iness use only• Prac t ice cert i f icate, Indemni ty insurance and Data
Protec t ion Ac t payments• Accountancy fees
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ALLOWABLE EXPENDITURE
• Books & Stat ionery• Travel (normal commuting does not count, i .e . home to
chambers)• Hote ls and reasonable subs is tence cos ts i f incurred
during qual i fy ing bus iness t rave l • Col lars , bands and s tuds • Bank charges for operat ing a bus iness account. • Bank in teres t - i f account overdrawn to set t le bus iness
expenses (under the cash bas is in teres t capped at £500)
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ALLOWABLE EXPENDITURE
• Motor Expenses:
Ø Annual a l lowance g iven based on the cos t o f the car and a percentage (18% to 8%) dependant on the CO2 emiss ion (130g/km) less any pr ivate use. Plus road tax , insurance, MOT/serv ic ing, fue l cos ts less pr ivate use or
Ø Cla im based on HMRC AMAP rates o f 45p a mi le for f i rs t 10,000 bus iness mi les then 25p thereaf ter
• Car lease payments a l lowable subjec t to a 15% res tr ic t ion for renta l o f cars wi th CO2 over 130g/km less pr ivate use
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ALLOWABLE EXPENDITURECapital – Qualifying Plant & Machinery
Annual Inves tment Al lowance current ly a l lows 100% re l ie f on purchases of up to £500,000 therefore a l l cos ts wi l l be fu l ly deduct ib le• Wigs and Gown (but laundry cos ts a l lowed as Revenue)• Sui tcase Tro l ley bags• Laptops / IPADs, less any pr ivate use adjus tment• Ful l deduct ion for capi ta l i tems under cash bas is but
any proceeds on sa le are taxable
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EXPENDITUREDisallowable• Cos ts o f BPTC• In te res t on the loan taken ou t to pay fo r BPTC• Dinners a t the Inn• Inns o f Court membersh ip• C lo th ing e .g . su its , sh irts , shoes e tc . • C l ien t en te rta in ing• Park ing /speed ing f ines• Payment o f Tax and Na tiona l Insu rance • Overd ra ft fees to fund p riva te expenses
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PENALTIES & ENQUIRIES• Fai lure to submi t a tax re turn on t ime
– 1 day l ate - £100– 3 months l ate - £10 for eac h day up t o 90 day max – 6 months l ate - £300 or 5% of t ax due, whic hev er i s t he higher– 12 months l ate - £300 or 5% of t he t ax due whic hev er i s t he
higher Ser ious c as es may be as k ed to pay 100%
• Fai lure to pay tax due– Interes t – c ur rent l y 3%– Penal t i es
• 3 0 d a y s l a t e – 5 % o f t a x d u e• 6 m o n th s l a t e - 5 % o f t a x d u e• 1 2 m o n th s l a t e – 5 % o f t a x d u e
• Fa i lure to reg is ter wi th HMRC– Penal t y due bas ed on tax outs tanding at 31 J anuary
• Enqui r ies
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VAT• C om puls or y r e g is t r a t io n
- Tu r n o v e r e x c e e d s VAT th r e s h o l d ( c u r r e n t l y £ 8 2 ,0 0 0 ) i n a r o l l i n g 1 2 m o n th p e r i o d• Vo lun t a r y r e g is t r a t io n
- Yo u c a n r e g i s t e r v o l u n ta r i l y i f y o u r b u s i n e s s tu r n o v e r i s b e l o w £ 8 2 ,0 0 0• VAT R e t ur ns
- P r e p a r e d e v e r y q u a r t e r- R e tu r n h a s to b e s u b m i t t e d o n l i n e o n e m o n th a n d s e v e n d a y s a f t e r t h e q u a r t e r e n d- P a y m e n t i s d u e s a m e t i m e a s s u b m i s s i o n d e a d l i n e
• I npu t VAT- 5 0 % o n l e a s e p a y m e n t s o f c a r- Tw o d a r k s u i t s a n d s i x t u n i c s h i r t s- M a y r e c o v e r i n p u t VA T o n s e r v i c e s i f i n c u r r e d s i x m o n th s b e fo r e e f f e c t i v e d a te o fr e g i s t r a t i o n i f t h e s e r v i c e i s f o r a ta x a b l e b u s i n e s s p u r p o s e- I n p u t V AT o n g o o d s m a y b e c l a i m e d i f i n c u r r e d u p to fo u r y e a r s b e fo r e e f f e c t i v e d a te o f
r e g i s t r a t i o n i f g o o d s s t i l l u s e d i n th e b u s i n e s s• C a s h A c c ount ing S c h e m e
- P a y VAT o n y o u r s a l e s w h e n y o u r i n v o i c e s a r e p a i d r a th e r t h a n w h e n r a i s e d- C a n o n l y r e c l a i m VAT o n y o u r p u r c h a s e s w h e n y o u h a v e p a i d th e VAT- Tu r n o v e r m u s t b e £ 1 .3 5 m i l l i o n o r l e s s – n o a p p l i c a t i o n n e e d e d
• F la t r a t e s c he m e- F i x e d % ( c u r r e n t l y 1 4 .5 % ) o f y o u r f l a t r a t e tu r n o v e r.- F l a t r a t e tu r n o v e r i n c l u d e s VAT r e c e i v e d a n d e x e m p t i n c o m e ( i . e . r e n ta l i n c o m e )- I n y o u r f i r s t y e a r a s a VAT- r e g i s t e r e d b u s i n e s s th e r a te i s r e d u c e d b y 1 % .- C a n n o t r e c l a i m i n p u t VA T o n p u r c h a s e s e x c e p t f o r c a p i t a l g o o d s w i t h a V AT i n c l u s i v ec o s t o f £ 2 ,0 0 0 o r m o r e .- To j o i n t h e s c h e m e tu r n o v e r m u s t b e l e s s th a n £ 1 5 0 ,0 0 0 , y o u m u s t l e a v e th e s c h e m e i fy o u r t u r n o v e r e x c e e d s £ 2 3 0 ,0 0 0 i n th e l a s t tw e l v e m o n th s .
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Protecting Your Wealth
• Plan for your l i fe, not just for your death
• Protect your income and assets
• Make a wil l– Asse ts /Trus ts /Guard iansh ip /Tax
• Plan for retirement– Pens ions /ISAs/Investments /Property
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Protection
• Income Protection
• Cr itical Il lness
• Life Assurance – Term Cover
• Life Assurance – Whole of Life
Write in Trust
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MONEY LAUNDERING REGULATIONS • What is money launder ing?• Does this affect me?
– Regu la t ions app ly to a number o f pe rsons inc lud ing • t a x a d v i s e r s• i n d e p e n d e n t l e g a l p r o f e s s io n a l s ( f i r m o r s o le p r a c t i t i o n e r ) wh e n
d e a l i n g w i t h – B u y i n g o r s e l l i n g o r p r o p e r t y– M a n a g i n g c l i e n t m o n e y, s a v i n g s o r s e c u r i t i e s– Or g a n i s a t i o n o f c o n t r i b u t i o n s n e c e s s a r y f o r c r e a t i o n , o p e r a t i o n o r
m a n a g e m e n t o f c o m p a n i e s– C r e a t i o n , o p e r a t i o n o r m a n a g e m e n t o f t r u s t s , c o m p a n i e s o r s i m i l a r
s t r u c tu r e s
• Important dec is ion in Bowman v Fels • Obligations • Penalties
– F ine o r up to 2 years imprisonment
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USEFUL CONTACT DETAILS• Registering for Self Assessment and National Insurance contributions if you are a self-employed
sole traderhttps://www.gov.uk/government/publications/self-assessment-and-national-insurance-contributions-register-if-youre-a-self-employed-sole-trader-cwf1
• Record Keeping softwarehttp://www.hmrc.gov.uk/softwaredevelopers/mobile-apps/record-keeping.htm
Our detailsDavid Truman, Partner Tim Humphries, Associate Director Email : [email protected] Email: [email protected]
Yasmina Kreaa, Assistant Manager Phone: 020 7387 5868Email [email protected]
http://www.menzies.co.uk/helping-you/private-client/barristers-advice/
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