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HMRC have made a much simpler and easier process for voluntarily disclosing if you have not paid the right amount of tax. The Digital Disclosure Service (DDS) allows individuals who don’t qualify for one of the open HMRC Campaigns to voluntarily tell the tax office about any tax they are liable for but have not declared.

WHO CAN USE THE DIGITAL DISCLOSURE SERVICE?

HMRC work on the understanding that businesses and individuals want to pay the right amount of tax and so they do give you the opportunity to be open and honest about the tax you may owe. If you have miscalculated your tax or omitted taxable income, such as income from rented property or overseas loans, then the Digital Disclosure Service (DDS) allows you to inform HMRC that you need to disclose extra earnings and then gives you 90 days in which to calculate just how much tax you do need to pay.

You can use the Digital Disclosure Service (DDS) to inform the tax office about unpaid income tax, capital gains tax, corporation tax and national insurance contributions. Individuals, such as wives and husbands, will need to fill out separate disclosures for any missing incomes.

It can often be simple mistakes which lead you to not paying enough tax such as overlooking disguised remunerations from trusts or overseas loans but the sooner you contact HMRC once you realize the mistake then the better it will be for you.

THE DIGITAL DISCLOSURE SERVICE PROCESS

The HMRC computer system Connect cross-checks its database of companies against the taxes they have declared, and any discrepancies can lead to the tax office writing to you to chase up unpaid taxes. Once this happens, you will be looking at a fine of anywhere up to 200% of the tax you owe.

To start with the Digital Disclosure Service (DDS) process, you simply must notify HMRC that you plan to disclose more taxable income, calculate the amount of tax you owe over the next 90 days and fill out the Digital Disclosure Service (DDS) online, by post or alternatively, you can ask your accountant to do it for you. The Digital Disclosure Service (DDS) offers an Employee Benefit Trust (EBT) settlement opportunity for those still benefitting from the schemes as well as the option to appeal fines and avoid larger penalties. To sum up, whether you’ve not declared income due to a clerical error, or have been part of an EBT, it is essential that you act as soon as possible to correct any errors and pay the tax you owe.

If you are a contractor and have been issued Accelerated Payment Notice or you have been asked about the potential inquiry about a tax year and you feel that there are tax liabilities for other years, which need to be paid. Contact our team of specialist tax accountants at The Accountancy Solutions on 01216297768 or 02070784001.

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When starting a business you need to get a grasp of some key points. The Accountancy Solutions summarize the points needed to be remembered regarding Income Tax and Accounting compliance. An unincorporated business pays tax on what is known as the `current year basis’. This means that, as a general rule, the profits for a tax year are taxed by reference to the profits for the 12 months to the accounting date that ends in that tax year. So, for example, if Joe has been in business as a sole trader for many years and prepares accounts to 30 June each year, for the 2017/18 tax year he would be taxed on the profit for the year to 30 June 2017.

Early years

Special rules apply in the first few years of trade. The first year is taxed on the actual profits from the start of the business until 5 April at the end of that tax year. The basis period for year two depends on whether there is an accounting date (i.e. the date to which accounts are prepared) in that year and if so, whether that date is more or less than 12 months from the start of the business. Once year three is reached, the current year basis applies, and profits taxed are those for the 12 months to the accounting date ending in that year.

The following table shows the rules applying in the opening years.

Tax Year Basis period
Year 1 Date of commencement to following 5 April (actual)
Year 2 Accounting date in Year 2 is less than 12 months after commencement – first 12 months

Accounting date in Year 2 is more than 12 months after commencement – 12 months to accounting date in year 2

No accounting date in Year 2 – profits of tax year (actual)

Year 3 onwards 12 months to accounting date in tax year

 

When applying the opening year rules for Years 1 and 2, accounts drawn up to 31 March or to 1, 2, 3 or 4 April are treated as being equivalent to the tax year unless the taxpayer elects otherwise.

Example

Lulu started trading on 1 June 2016. She prepares accounts to 30 April each year. The basis periods for the first three tax years are as follows:

Year 1 – 2016/17: 1 June 2016 to 5 April 2017 (actual)

Year 2 – 2017/18: 1 June 2016 to 31 May 2017 (first 12 months)

Year 3 – 2018/19: 12 months to 30 April 2018.

Overlap profits

Because of the way the rules work, some profits may be taxed twice. In the above example, the profits from 1 June 2016 to 5 April 2017 are assessed in both 2016/17 and 2017/18 and those from 1 May 2017 to 31 May 2017 are assessed in 2017/18 and 2018/19. These are known as `overlap profits’.

Relief for these overlap profits are given either when the trade ceases or there is a change of accounting date and the basis period for the year in which the change occurs is longer than 12 months.

Choosing an accounting date

A business can choose the accounting date that best suits the business. This will affect the profits assessed in each tax year and the extent of overlap profits. A date early in the year will give the maximum cash flow benefit.

If you are thinking of starting a business, contact specialist team at The Accountancy Solutions to discuss the business plan or visit our website for more information.

For more information on Tax we have dedicated a website for only Tax Compliance and Issues. You can visit taxaccountant.co.uk for more information.

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When someone dies, there are inheritance tax forms to fill in and send to HMRC. There are different forms and the correct forms depend on whether or not there is any inheritance tax to pay. Consequently, before the forms can be completed, it is necessary to value the estate for inheritance tax purposes and determine whether any tax is due.

The inheritance tax forms should be sent with the application for the grant of representation. This is the legal right to deal with the estate.

Form IHT205 – no IHT to pay

Where there is no IHT to pay (for example if the whole estate has been transferred to a spouse or civil partner or the value is below the nil-rate band, currently £325,000), short form IHT205 (2011) should be used. This form can also be used where the whole estate is left to a charity with a charity reference number. However, it cannot be used for estates worth more than £1 million, even if there is no IHT to pay.

The form, together with notes on its completion is available on the Gov.uk website at www.gov.uk/government/publications/inheritance-tax-return-of-estate-information-iht205-2011

The information can also be completed online.

There is no deadline for the submission of form IHT205.

Form IHT217 – claim to transfer nil rate band for excepted estates

The unused portion of the nil rate band on the death of the first spouse or civil partner can be transferred for use against the surviving spouse or civil partner’s estate on their death. Where there is no tax to pay and form IHT205 has been completed, a claim to transfer the unused nil rate band should be made on form IHT217 and filed with form IHT205. Form IHT217 is available on the Gov.uk website at:

www.gov.uk/government/publications/inheritance-tax-claim-to-transfer-unused-nil-rate-band-for-excepted-estates-iht217

Form IHT400 – IHT to pay

The full form, IHT400, should be used where there is inheritance tax to pay, or where the short form cannot be used as the estate is worth more than £1 million.

The form is available on the Gov.uk website, together with guidance notes on its completion, at www.gov.uk/government/publications/inheritance-tax-inheritance-tax-account-iht400

There is a deadline for submitting the form – a year from the end of the month in which the person died. Penalties may be charged if the form is submitted late.

Form IHT402 – claim to transfer unused nil rate band

Where there is IHT to pay and the inheritance tax threshold is increased by transferring the unused portion for a late spouse or civil partner, form IHT402 should be used to work out the percentage and claim the transfer. Form IHT402, which is available on the Gov.uk website at
www.gov.uk/government/publications/inheritance-tax-claim-to-transfer-unused-nil-rate-band-iht402, should be submitted with form IHT400.

Form IHT207 – person who died lived abroad

If the person who died lived abroad permanently and had less than £150,000 in UK assets (cash, bank accounts or listed stocks and shares), form IHT207 should be used rather than form IHT205 if there is no tax to pay. It is available on the Gov.uk website at www.gov.uk/government/publications/inheritance-tax-return-of-estate-information-iht207-2006

Accountantsforpostoffices is a website owned and managed by The Accountancy Solutions. We are specialist accounting firm and specialise in accounting, tax and planning of different industries. To get more information please call our offices on 01216297768 or 02070784001.