It’s relatively common knowledge that your main residence is exempt from capital gains tax because of private residence relief which wipes out any capital gains. However when you own / rent / occupy more than one property the tax position is more complex. And remember if you are married or in a civil partnership you can only have one main residence between you (and incidentally although it may be the last thing on your mind, around the time of marriage it’s crucial to think about your combination of properties from a tax perspective).

Which property is my main residence?
If you do not inform HMRC to the contrary they will make a decision as to which of your properties is your main residence based on a matter of fact. This will normally depend on a combination of factors including which one you spend more time in, proximity to work and children’s school and which address is used for bills, doctor’s registration, car registration etc. However if you make an election as to which is your main residence you are perfectly free to choose any property provided it is used as a residence by you. To quote HMRC’s own guidance:

‘’When nominating which residence is to be treated as the main residence, an individual is not obliged to nominate the residence which is factually his or her main residence; they may nominate whichever residence they choose’’

Importantly once you have made this election you can revoke it, i.e. change your mind and elect the other property as your main residence. However if you have never made this election you have no such flexibility.

Worked example – how a main residence election can save you tax:
If you imagine a scenario where you own two properties, both were purchased 10 years ago. Property A cost £100,000 and is now worth £200,000. Property B cost £300,000 and is now worth £850,000. If you sold both now you would realise total gains of £650,000, a nice return on your money. But that’s before tax…

If you had not made an election and HMRC deemed property A to be your main residence you could be facing a tax bill of around £148,000 because you will get no private residence relief on property B.

If however you had elected property B to be your main residence throughout your tax bill would be around £22,000 because you are benefitting from private residence relief on property B. What’s more with a bit more careful planning you could reduce the tax payable to £14,000 or even completely eliminate the tax by renting out property A for a period. That’s an impressive saving for taking some simple tax advice around time of purchase of the properties.

Conclusion / Recommendations:
The key point is if you own / occupy two or more properties then it is foolish not to make an election to HMRC. Nobody knows what the future holds, in terms of where you will be living, what a property will be worth or when you will sell, however by making an election you give yourself options and flexibility. Remember the election can be changed at a later date. If you don’t make an election you are stuck with the HMRC’s view as to which is your main residence, and this could be very costly.

The format and time limits for making an election are very strict. Ordinarily this election must be made within 2 years of acquiring the second property (or a change in residences) however there are exemptions to this in certain circumstances. Importantly an invalid election may be challenged by HMRC. These elections may also have impacts on your all round tax position therefore it is crucial you seek proper tax advice and have a full review of your tax position.

Norton Accountancy are property tax specialists and would be delighted to meet with you for an initial free consultation at our offices in London, Bristol, Cardiff or Newport. To get in touch please use the details below:

Email us on contact@nortonaccountancy.co.uk or ring us on:
Bristol – 0117 910 9858
Cardiff – 02920 567 366
London – 0203 3102 4185
Newport – 01633 547 409

The post ‘Flipping Elections’ – How to save tax on second homes appeared first on Norton Accountancy - Accountants Cardiff | Accountants Bristol.

This new tax will be collected by ‘forcing’ anyone earning over £50,000 to complete a tax return. If you don’t complete a tax return on time you could be fined well over £1,000. The good news however is this new tax has been badly planned by the Chancellor and that means with some careful planning you and your partner may be able to reduce or avoid this tax altogether.

How can I avoid this tax charge?
Whether you are employed or self employed making pension contributions could reduce or eliminate this tax. For employed people ensuring you are claiming all allowable employment expense could be an effective strategy. For self employed or company directors there is huge scope to restructure your affairs to plan around this tax. For example paying other family members a market rate to carry out tasks in your business or timing your income strategically could mean you get to keep the full Child Benefit.

A word of caution…
As with any tax reduction strategies it’s important to make sure you keep the right side of the fence legally and morally. We believe it’s completely moral to plan your affairs to minimise the impact of this new tax. If you’re unconvinced about the morality of that, consider the fact that if you earn £51,000 and your partner earns nothing you will be paying an effective tax rate of up to 72.5% on some of your income. Compare this to a couple earning £40k each who will be paying an effective tax rate of 20%.

How Norton Accountancy can help you…
We are offering a Child Benefit review and tax return service from just £99.

This will include:
• A one hour meeting to fully discuss and understand your income and your current position
• A personalised report identifying any opportunities to reduce this tax and your key deadlines and requirements.
• Free first year tax return completed and submitted to HMRC.

Give us a ring or email us on contact@nortonaccountancy.co.uk now to book your review:

Bristol - 0117 910 9858
Cardiff - 02920 567 366
London - 0203 3102 4185
Newport - 01633 547 409

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Sara has raised over £4,100 for the Charity so far, a magnificent achievement and in excess of her initial target of £4,000. It’s not too late to donate to the cause, please see the Just Giving page here (and remember it’s tax efficient with Gift Aid!) – http://www.justgiving.com/teams/Norton-China-Trek

The trek itself involved a tough schedule of 6 days trekking along some of the most remote and beautiful areas of the Wall such as Jinshanling & Mutianyu. Sara battled with hot weather conditions but has said the views from the Wall & watchtowers made it worth every step of the steep climb! Congratulations to Sara on achieving the fund raising and the physical targets involved in this trek.

Sara proudly sporting a Norton Accountancy t-shirt on the Jinshanling part of the Wall

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You will be invoiced for your Google Adwords expenditure by Google Ireland Ltd who are based, as the name suggests, in Ireland.  As this is an electronic service the place of supply for VAT purposes is the country in which you (the customer) are based i.e. the UK.  This means that if you are VAT registered you must account for VAT using the ‘reverse charge system’.

How does the reverse charge VAT system work:

Under the Reverse Charge VAT rules you effectively act both as the supplier and the customer of the service, based in the UK using UK VAT rates.  This means you charge yourself VAT on the invoice then also reclaim it on the same VAT return, giving a net effect of zero provided you are not partially exempt or exempt from VAT. So if you received an invoice from Google Adwords for £100 (no VAT) you would account for it as follows:

a)      Work out the UK VAT at 20% on the invoice value i.e. £100 invoice value gives £20 of UK VAT.

b)      Add £20 of VAT to your output VAT figure in Box 1 of the VAT return

c)      Add £20 of VAT to your input VAT figure in Box 4 of the VAT return

d)     Add £100 net invoice value to your net sales in Box 6 of the VAT return

e)      Add £100 net invoice value to your net purchases in Box 7 of the VAT return.

The overall effect is that you have added £20 of VAT to your VAT handed over on sales and reclaimed £20 of VAT from your VAT reclaimed on purchases so your overall VAT payable is unchanged.

A few extra points to note when dealing with VAT on Google Adwords:

1) Make sure you inform Google of your VAT number
If you are VAT registered you need to inform Google Adwords of your VAT number.  If you do not do this Google will invoice you with Irish VAT added.  To do this log into your Google Adwords account, select the Billing tab then click Billing Profile.  Within the Billing Profile you click edit and enter your UK VAT registration number.  Once you have done this Google will invoice you without any VAT and you can account for this under the Reverse Charge system discussed above

2) Adwords spend counts in your VAT turnover threshold
If you are not VAT registered beware that the value of Google Adwords expenditure is counted as part of your sales when considering whether you have hit the VAT registration threshold. That’s because the Reverse Charge VAT rules treat this Adwords invoice as if you have raised it yourself as a sale.  So if your total sales including Adwords expenditure is more than £77,000 in the past 12 months or you expect to exceed that in the next 30 days alone your must register for VAT.

3) Reverse charge VAT on the Flat Rate VAT scheme
If you are registered on the flat rate VAT scheme (what’s Flat Rate VAT) then you add the deemed VAT (i.e. 20% of the invoice) to your output VAT in Box 1 and your input VAT in Box 4, as you would on the normal VAT scheme.  However you do not add anything to boxes 6 or 7 of your VAT return relating to Reverse Charge supplies when you are on Flat Rate VAT scheme.

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• 1 day late – A fixed penalty of £100. Even if you have no tax liability, if you file your return even one day late you will receive this fine.
• 3 months late – £10 for each following day for up to 90 days i.e. a maximum of £900. This is in addition to the £100 fixed penalty above.
• 6 months late – A fixed £300 or 5% of the tax due, whichever is the higher. Again this is on top of the penalties above.
• 12 months late – Another fixed £300 or 5% of the tax due, whichever is the higher.  In serious cases you may be asked to pay up to 100% of the tax due instead. Again these are in addition to all the penalties above.

So if you’re 12 months late submitting your tax return, you may be facing a penalty of £1600 even if you owed no tax.

The system for issuing penalties by HMRC is largely automated and in many cases HMRC have wrongly issued penalties.  Before you pay a penalty demand from HMRC firstly think whether you in fact needed to complete a tax return.  Did you fall under the self assessment regime or not?  If you did not then HMRC may waive the penalty if you can successful argue that you were not required to complete a tax return.  Another common reason a fine may be withdrawn by HMRC is if you had a reasonable excuse for not filing your return on time.  HMRC may accept the following as reasonable excuses in some circumstances; illness, death of a partner, unforeseen postal delays, theft, fire, flood or not receiving codes from HMRC in time to complete a tax return.

At Norton Accountancy we have successfully appealed a number of HMRC penalties for late filing of self assessment.  Just because you receive a demand from HMRC does not mean that it is correct and justified.  If you require any assistance or think you may have a case to appeal please do get in touch with us.  We can offer a fixed fee appeal service or in some cases we can offer a ‘no win no fee’ appeal service to challenge your tax penalty on your behalf.  We offer this service for all types of fines from HMRC, not just late filing penalties for tax returns.

The post HMRC Tax Return Penalties – No win no fee appeals appeared first on Norton Accountancy - Accountants Cardiff | Accountants Bristol.

If you are looking for a specialist property accountant in London then you are in the right place. Phil Walters ACA, of Norton Accountancy, is widely recognised as an expert in the property tax field. Whether you are a first time landlord looking to purchase your first buy to let property or you are an experienced developer or investor we can help. We deal with clients of all sizes in all areas.

Structuring your property purchases in the correct manner from the start is crucial. We offer free, no obligation initial consultations to all new property clients either over the phone or in person.

If you are looking for a property accountant in London please get in touch with either our City office or our West End office using the details below or email us at london@nortonaccountancy.co.uk

City of London Office: Norton Accountancy Ltd, 70 St Mary Axe, London, EC3A 8BE | Phone: 020 3102 4185

West End London Office: Norton Accountancy Ltd, Centre Point, 103 New Oxford Street, London, WC1A 1DD | Phone: 020 3102 4185

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Olie joined Norton Accountancy in 2008 having trained as a chartered accountant at big four accountancy firm, KPMG. Since joining Norton Accountancy, Olie has been instrumental in driving a period of strong growth for the firm and overseen the opening of new offices in Cardiff and Newport.

Olie is inspired by seeing clients make ‘real tangible financial gains as a result of the advice he has given’. If you’re interested in finding out more about what Norton Accountancy can do for your business please get in touch with us for a free initial meeting on the numbers below:

Norton Accountancy Cardiff : 02920 567 366
Norton Accountancy Newport : 01633 547409
Norton Accountancy Bristol : 0117 910 9858

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• Full advice on best share structure and tax implications of various share structures
• Help you chose a company name
• Ensure your company formation is fully compliant with Companies Act 2006 legislation
• Provide you with an incorporation pack including your company Certificate of incorporation, articles of association and memorandum of association

We also offer a registered office service which means you can use our Cardiff, Newport or Bristol office address as the registered office address for your newly formed company.  This helps you maintain privacy as your personal residential address will not appear in Companies House publically available records.

Please get in touch with us now to find out more about Company Formation services by ring us on the numbers below:

• Company Formation Cardiff : 02920 567 366
• Company Formation Newport : 01633 547 409
• Company Formation Bristol : 0117 910 9858

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HMRC have introduced a new penalty system for anyone filing self assessment tax returns late for the tax year 2010/11.  Under the new scheme a return received just 1 day after 31st January 2012 will receive an £100 penalty rising to £1,600 if the return is still outstanding after 12 months – even if you owed no tax!  If you did owe tax then the penalty can rise to as much as 100% of the tax due.  For full details please see the HMRC website here.

Do I need to do a tax return?

You may not realise that you have to complete a tax return, but ignorance is not an excuse in HMRC eyes and per their own guidance (available here) they normally expect a tax return if you are:

-  Self employed

- A company director

- Receive income from property

- Have income from overseas

- Earn £100,000 or more a year (even if taxed under PAYE)

- You have made capital gains or disposed of

- You’ve lived abroad

- You’re a trustee

Where can I get help?

At Norton Accountancy we can take the stress out of your tax returns and ensure you are paying the least tax possible (legally!).  We always offer a free, no obligation initial consultation so why not get in touch with us.  We’ve got offices in Cardiff, Newport and Bristol – our phone numbers are at the top of the website.

The post Beware of fines for filing your 2010/11 Tax Return Late appeared first on Norton Accountancy - Accountants Cardiff | Accountants Bristol.