Category: VAT

HMRC can enquire into any statutory return (or amendment of that return) or statutory claim to check if the return has been prepared correctly or if further information is required.

HMRC’s internal manuals state that there is no statutory definition of an enquiry, so it carries its normal dictionary meaning of `seeking information, asking, questioning’. In practice the nature and extent of enquiries will vary considerably.

HMRC has historically referred to ‘full enquiries’ covering a tax return as a whole, and ‘aspect enquiries’ dealing with one or more matter(s). However, the legislation does not distinguish between different types of enquiries. Therefore, all enquiries into tax returns are legally enquiries into the full return, even if in practice HMRC only need to check part of the return.

If HMRC make no enquiries within the period allowed, or if they have completed an enquiry, the return becomes final unless

• the taxpayer is still within time to amend their return;
• the taxpayer has carelessly or deliberately caused a loss of tax; or
• HMRC discover that the return was incorrect, and the taxpayer had not disclosed enough information to show this. This is known as a discovery assessment. If a discovery is made in such circumstances HMRC can make a discovery assessment up to 6 years (20 years if the taxpayer has failed to notify chargeability) after the end of the relevant accounting period.

 

We support our clients by making sure they pay themselves and their families as tax efficiently as possible whilst making the process easy for them. Of course, we take care of all the personal and company tax return side of things too. Please contact us if you’d like to discuss your personal or business tax planning then please contact us on 01386 366741 or email here and one of our advisers will be in contact.

 

Tax on Children’s Savings

All children in the UK have their own personal allowance, currently £12,570. 

If you give a sum of money to a child under the age of 18, HMRC will generally deem that the money still belongs to you and you will be taxed on the interest that the money in your child’s bank account earns – if it is above your own Personal Savings Allowance (PSA) of £1,000.

These anti-avoidance laws are designed to prevent a child’s personal allowance being used by parents of children aged under 18, with some minimal exceptions.

There is an exemption though – no tax is payable if the interest doesn’t exceed £100 (before tax) annually. Providing this limit is not exceeded, any interest earnt will be treated by HMRC as if being received by the child. The £100 limit is per parent, per child

However, that £100 limit can be easily reached with the top children’s easy-access account paying interest at 5.25%, meaning that once you have £1,900 saved, you’ll hit that limit.

The £100 limit does not apply to money given by grandparents, family or friends. 

Escape the tax hit on children’s savings

Interest earned on ISA accounts or Child Trust Funds isn’t taxable. The 2024-25 subscription limit for both CTFs and Junior ISAs is £9,000. This means anyone who has built up decent savings outside an ISA can transfer up to that amount each year

We support our clients by making sure they pay themselves and their families as tax efficiently as possible whilst making the process easy for them. Of course, we take care of all the personal and company tax return side of things too. Please contact us if you’d like to discuss your personal or business tax planning then please contact us on 01386 366741 or email here and one of our advisers will be in contact.

 

There is an online tool, developed by HMRC, that allows taxpayers to check if they need to notify HMRC about additional income. The online tool can be found at www.gov.uk/check-additional-income-tax.

You are required to submit a self-assessment return if any of the following apply:

• you were self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on);
• you were a partner in a business partnership;
• you had a total taxable income of more than £150,000 in 2023-24 (£100,000 in 2022-23);
• you had to pay Capital Gains Tax when you sold or ‘disposed of’ something that increased in value; or
• you had to pay the High Income Child Benefit Charge.

You may also need to send a tax return if you have any untaxed income, such as:

• money from renting out a property;
• tips and commission;
• income from savings, investments and dividends; or
• foreign income.

There could be other reasons why you may be required to register for self-assessment and therefore using HMRC’s online tool can help you check if you are required to submit a return.

We support our clients by making sure they pay themselves as tax efficiently as possible whilst making the process easy for them. Of course, we take care of all the company filings and the personal tax return side of things too. Please contact us if you’d like to discuss your personal or business tax planning then please contact us on 01386 366741 or email here and one of our advisers will be in contact.

What are dividends?

Dividends are a distribution of limited company profits paid to shareholders after any expenses, taxes and liabilities are paid to reward them for their investment in the business.

How are dividends taxed?

Dividends are paid gross, with no tax deducted, and everyone is allowed to earn an amount tax free each year. In the 2024/25 tax year, you can receive £500 of dividend income, tax free.

Having been reduced from £5,000 to £2,000 in 2017, and reducing again to just £1,000 for the 2023/24 tax year, the dividend allowance of £500 in the 2024/25 tax year is a shadow of what it used to be.

The dividend tax rates are:

• 8.75% for basic rate taxpayers
• 33.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers

Dividend tax rates are lower than income tax rates. This means that with a tax efficient structuring of your remuneration through a combination of both salary and dividends, you can pay a reduced amount of tax – whilst remaining compliant and keeping more cash in your pocket.

Dividends also count towards your annual income and any amount of dividend income falling within your income tax personal allowance is also tax-free. The personal allowance is currently £12,570 and first applies to non-dividend income – i.e. from earnings or pensions.

The good news is that dividends are not subject to national insurance, which is why a combination of both salary and dividends can be the most tax efficient form of remuneration as director and shareholder of a limited company.

How do I pay myself dividends?

The company must be profit making for you to be able to withdraw dividends from your business. If the business is making a loss and has no retained profit then dividends can’t be paid. If you make a dividend payment from a loss making company, the payment would technically be a director’s loan which would need to be repaid. 

Dividends can be issued at any time but shareholders and directors will generally make dividends at regularly internals, such as every month or quarter. If you are the sole shareholder in the business you can receive 100% of the dividends being paid. If there are other shareholders within the company, dividends would normally be paid out on the basis of those shareholdings. For example, if there were two shareholders who each hold 50% of the shares, each shareholder would be entitled to receive a dividend payment at the same time.

A director’s meeting must be held to declare the dividend and a dividend voucher must be produced to confirm the details of the dividend payment. 

Any tax due on the dividend income received, is reported on each shareholder’s personal self assessment tax return each year. Any tax due on the dividends will then be paid by the recipients by 31 January each year.

Need help?

Our annual Director’s Salary report gives more information and examples showing how dividend tax is calculated as part of a salary and dividend remuneration package. Please contact us if you’d like a free copy.

We support our clients by making sure they pay themselves as tax efficiently as possible whilst making the process easy for them. We take care of all the HMRC payroll and ensure that help and advice is always on hand. Of course, we take care of all the company filings and the personal tax return side of things too. Please contact us if you’d like to discuss your personal tax planning then please contact us on 01386 366741 or email here and one of our advisers will be in contact.

Mistakes happen. As with any form of accounting, it’s possible that errors will occur. 

The most important matter is to make sure you take the necessary corrective action as soon as possible, and this will depend on the nature and value of the error.

HMRC consider VAT errors as your responsibility to put right. If you don’t correct the VAT error in the right way or at the right time, HMRC has a long list of conditions under which they can impose penalties, a process known as ‘The Penalties for Errors regime’. 

Reviewing VAT Returns

Reviewing your VAT returns is the first step in identifying any mistakes. Make sure to carefully review all the figures in your VAT return, including the box 6 figure, which is the total value of your sales and purchases. Check that the figures match your records and invoices. If you notice any discrepancies, investigate them further.

Identifying VAT errors

If you realise after submitting a VAT return that you mistakenly omitted a receipt or a payment, charged a customer the wrong rate of VAT or made an error in your calculations, you must act quickly to put matters right. Whether the error was in your latest VAT return submission or earlier, you are responsible for the accuracy of the figures in all your VAT return submissions.

If you fail to spot an error and HMRC discover it themselves, any penalty imposed could be higher.

Correcting the error

There are two different steps to take depending on whether you are correcting errors on VAT returns which are either under £10,000 or over £10,000.

Method 1

You can correct errors made in VAT returns for the preceding 4 years, providing the net value of the errors fits the criteria below:

• is less than £10,000

• is between £10,000 and £50,000 but less than 1% of the total value of your sales

For these kinds of errors, make an adjustment in your next return.

Method 2

You must tell HMRC separately about net errors that are:

• Over £50,000

• between £10,000 and £50,000 and exceed 1% of the box 6 (net outputs) VAT Return declaration due for the current return period during which the error was discovered
• Errors on previous returns that were made deliberately

You must notify HMRC as soon as possible by submitting a Form VAT652 to HMRC to correct the error. You will need to provide details of the error and the correct figures for the relevant period.

Time Limits

The general time limit within which errors can be corrected is four years from the end of the accounting period in which the error occurred. You cannot adjust your VAT Return, or make an error correction notification, for any errors that arose in accounting periods that date back beyond 4 years. 

Penalties for Errors

If you make an error on your VAT return, you may be subject to penalties. The penalty regime is based on the amount of tax due and the severity of the error. For example, if the error is due to carelessness or neglect, the penalty may be up to 30% of the additional tax due. If the error is deliberate, the penalty may be up to 100% of the additional tax due.

Interest on Corrections

In addition to penalties, you may also be required to pay interest on any additional tax due. The interest is calculated from the date the tax was due to the date it is paid. 

Further Information

HMRC’s website has further information on how to make VAT return corrections. 

https://www.gov.uk/guidance/check-if-you-need-to-report-errors-in-your-vat-return

 

If you want to discuss your VAT return or any other Accountancy Service with us then please contact us on 01386 366741 or email here and one of our advisers will be in contact.

Alternatively, you should contact your accountant or tax advisor for advice as soon as possible.

You work hard for your money, it’s important that your money works hard for you!