Thursday 24 March 2011
rossstewart: BUDGET 2011 At a glance: What the income tax and N...
rossstewart: BUDGET 2011 At a glance: What the income tax and N...: "BUDGET 2011 At a glance: What the income tax and National Insurance changes mean for you and your family | Mail Online"
Thursday 17 March 2011
Wednesday 9 March 2011
Tuesday 8 March 2011
tax planning for the newly self employed: payroll/limited company/partnership
Email out: 08032011
‘Thank you for your e-mail with additional information.’
My pleasure.
Limited companies
‘1) Is it secure enough to use your private home address as the registered address?’
Absolutely. If you request the services of an accountant/solicitor to be your registered office then normally there is a charge.
If you want I can be your registered office but let me explain.
The registered office receives all sales literature some of which can be relevant to your company.
You will also receive letters from HMRC (Her Majesty Revenue and Customs) and Companies House. For those clients where I do not act as agent I ask that they scan these documents to me and I will deal with them. Accountants have these documents coming into their offices all the time.
I act for several limited companies. For some of these I act as the registered office and for others I do not. As I said yesterday I always work with my clients and try to fit in with their needs. It is right that you show concern as it means that you will manage and control your company perfectly. In my experience those individuals who worry about these things get them right.
HM Revenue and Customs
In due course a form is received asking you to enter the accounting year end of the company and the personal tax /NIC details of the directors together with the company year end. I complete this task for the limited company and post out this form to HMRC.
Twice a year HMRC will write to you once reminding you to pay any corporation tax on the profits of the company (nine months after the financial year end of the company) and once to remind you that accounts are due (twelve months after the year end of the company.) Called pay and file: pay first and file second.
Companies House
One a year to inform you that the annual return of the company is due (being the anniversary of the company formation) and once a year for the annual filing of the accounts.
If you elect for a company authorisation code from Companies House then they will only write to you if these documents are not received in time.
All accountants make written notes about these time limits on their client files and so will be aware of these time limits anyway.
‘2) My wife is not going to work in the company once we start up the business (maybe sometimes for help though, ), in this case, do you think it is still good idea for her to be a director or she can be just a shareholder?’
A director is a paid employee of the company. A payroll can be set up for the limited company with you as the only employee. Once the company becomes successful she can then be entered onto the payroll. Sounds good to me.
Of course she can be a shareholder without being a director and so will take her reward as dividends. Please note though, that this reward is not tax deductible in the limited company accounts and so there is an implied cost of 21% to the company. It depends on her individual work arrangements. If she has other earned income (from employment elsewhere) then it is not a good idea for her to be on the payroll. If however, she has no other income then she can be a paid employee without being a director and then made a director later on; or be a paid director from the beginning.
Partnership
Limited companies are hassle, expensive and a cheaper and better way for your business could be a simple partnership with you each having 50% of the share of the profits. Could work and will save you money and you should consider this vehicle. Can discuss further at our meeting.
David Barry and Company Ltd
020 8252 7018/07877671423
http://www.davidbarryaccountants.co.uk/
http://www.facebook.com/#!/profile.php?id=1422595788
http://twitter.com//DavidBarasch/
http://rossstewart.blogspot.com/
http://uk.linkedin.com/pub/david-barasch/21/69/785
‘Thank you for your e-mail with additional information.’
My pleasure.
Limited companies
‘1) Is it secure enough to use your private home address as the registered address?’
Absolutely. If you request the services of an accountant/solicitor to be your registered office then normally there is a charge.
If you want I can be your registered office but let me explain.
The registered office receives all sales literature some of which can be relevant to your company.
You will also receive letters from HMRC (Her Majesty Revenue and Customs) and Companies House. For those clients where I do not act as agent I ask that they scan these documents to me and I will deal with them. Accountants have these documents coming into their offices all the time.
I act for several limited companies. For some of these I act as the registered office and for others I do not. As I said yesterday I always work with my clients and try to fit in with their needs. It is right that you show concern as it means that you will manage and control your company perfectly. In my experience those individuals who worry about these things get them right.
HM Revenue and Customs
In due course a form is received asking you to enter the accounting year end of the company and the personal tax /NIC details of the directors together with the company year end. I complete this task for the limited company and post out this form to HMRC.
Twice a year HMRC will write to you once reminding you to pay any corporation tax on the profits of the company (nine months after the financial year end of the company) and once to remind you that accounts are due (twelve months after the year end of the company.) Called pay and file: pay first and file second.
Companies House
One a year to inform you that the annual return of the company is due (being the anniversary of the company formation) and once a year for the annual filing of the accounts.
If you elect for a company authorisation code from Companies House then they will only write to you if these documents are not received in time.
All accountants make written notes about these time limits on their client files and so will be aware of these time limits anyway.
‘2) My wife is not going to work in the company once we start up the business (maybe sometimes for help though, ), in this case, do you think it is still good idea for her to be a director or she can be just a shareholder?’
A director is a paid employee of the company. A payroll can be set up for the limited company with you as the only employee. Once the company becomes successful she can then be entered onto the payroll. Sounds good to me.
Of course she can be a shareholder without being a director and so will take her reward as dividends. Please note though, that this reward is not tax deductible in the limited company accounts and so there is an implied cost of 21% to the company. It depends on her individual work arrangements. If she has other earned income (from employment elsewhere) then it is not a good idea for her to be on the payroll. If however, she has no other income then she can be a paid employee without being a director and then made a director later on; or be a paid director from the beginning.
Partnership
Limited companies are hassle, expensive and a cheaper and better way for your business could be a simple partnership with you each having 50% of the share of the profits. Could work and will save you money and you should consider this vehicle. Can discuss further at our meeting.
David Barry and Company Ltd
020 8252 7018/07877671423
http://www.davidbarryaccountants.co.uk/
http://www.facebook.com/#!/profile.php?id=1422595788
http://twitter.com//DavidBarasch/
http://rossstewart.blogspot.com/
http://uk.linkedin.com/pub/david-barasch/21/69/785
tax planning for the newly self employed: payroll/limited company/partnership
Email out: 08032011
‘Thank you for your e-mail with additional information.’
My pleasure.
Limited companies
‘1) Is it secure enough to use your private home address as the registered address?’
Absolutely. If you request the services of an accountant/solicitor to be your registered office then normally there is a charge.
If you want I can be your registered office but let me explain.
The registered office receives all sales literature some of which can be relevant to your company.
You will also receive letters from HMRC (Her Majesty Revenue and Customs) and Companies House. For those clients where I do not act as agent I ask that they scan these documents to me and I will deal with them. Accountants have these documents coming into their offices all the time.
I act for several limited companies. For some of these I act as the registered office and for others I do not. As I said yesterday I always work with my clients and try to fit in with their needs. It is right that you show concern as it means that you will manage and control your company perfectly. In my experience those individuals who worry about these things get them right.
HM Revenue and Customs
In due course a form is received asking you to enter the accounting year end of the company and the personal tax /NIC details of the directors together with the company year end. I complete this task for the limited company and post out this form to HMRC.
Twice a year HMRC will write to you once reminding you to pay any corporation tax on the profits of the company (nine months after the financial year end of the company) and once to remind you that accounts are due (twelve months after the year end of the company.) Called pay and file: pay first and file second.
Companies House
One a year to inform you that the annual return of the company is due (being the anniversary of the company formation) and once a year for the annual filing of the accounts.
If you elect for a company authorisation code from Companies House then they will only write to you if these documents are not received in time.
All accountants make written notes about these time limits on their client files and so will be aware of these time limits anyway.
‘2) My wife is not going to work in the company once we start up the business (maybe sometimes for help though, ), in this case, do you think it is still good idea for her to be a director or she can be just a shareholder?’
A director is a paid employee of the company. A payroll can be set up for the limited company with you as the only employee. Once the company becomes successful she can then be entered onto the payroll. Sounds good to me.
Of course she can be a shareholder without being a director and so will take her reward as dividends. Please note though, that this reward is not tax deductible in the limited company accounts and so there is an implied cost of 21% to the company. It depends on her individual work arrangements. If she has other earned income (from employment elsewhere) then it is not a good idea for her to be on the payroll. If however, she has no other income then she can be a paid employee without being a director and then made a director later on; or be a paid director from the beginning.
Partnership
Limited companies are hassle, expensive and a cheaper and better way for your business could be a simple partnership with you each having 50% of the share of the profits. Could work and will save you money and you should consider this vehicle. Can discuss further at our meeting.
David Barry and Company Ltd
020 8252 7018/07877671423
http://www.davidbarryaccountants.co.uk/
http://www.facebook.com/#!/profile.php?id=1422595788
http://twitter.com//DavidBarasch/
http://rossstewart.blogspot.com/
http://uk.linkedin.com/pub/david-barasch/21/69/785
‘Thank you for your e-mail with additional information.’
My pleasure.
Limited companies
‘1) Is it secure enough to use your private home address as the registered address?’
Absolutely. If you request the services of an accountant/solicitor to be your registered office then normally there is a charge.
If you want I can be your registered office but let me explain.
The registered office receives all sales literature some of which can be relevant to your company.
You will also receive letters from HMRC (Her Majesty Revenue and Customs) and Companies House. For those clients where I do not act as agent I ask that they scan these documents to me and I will deal with them. Accountants have these documents coming into their offices all the time.
I act for several limited companies. For some of these I act as the registered office and for others I do not. As I said yesterday I always work with my clients and try to fit in with their needs. It is right that you show concern as it means that you will manage and control your company perfectly. In my experience those individuals who worry about these things get them right.
HM Revenue and Customs
In due course a form is received asking you to enter the accounting year end of the company and the personal tax /NIC details of the directors together with the company year end. I complete this task for the limited company and post out this form to HMRC.
Twice a year HMRC will write to you once reminding you to pay any corporation tax on the profits of the company (nine months after the financial year end of the company) and once to remind you that accounts are due (twelve months after the year end of the company.) Called pay and file: pay first and file second.
Companies House
One a year to inform you that the annual return of the company is due (being the anniversary of the company formation) and once a year for the annual filing of the accounts.
If you elect for a company authorisation code from Companies House then they will only write to you if these documents are not received in time.
All accountants make written notes about these time limits on their client files and so will be aware of these time limits anyway.
‘2) My wife is not going to work in the company once we start up the business (maybe sometimes for help though, ), in this case, do you think it is still good idea for her to be a director or she can be just a shareholder?’
A director is a paid employee of the company. A payroll can be set up for the limited company with you as the only employee. Once the company becomes successful she can then be entered onto the payroll. Sounds good to me.
Of course she can be a shareholder without being a director and so will take her reward as dividends. Please note though, that this reward is not tax deductible in the limited company accounts and so there is an implied cost of 21% to the company. It depends on her individual work arrangements. If she has other earned income (from employment elsewhere) then it is not a good idea for her to be on the payroll. If however, she has no other income then she can be a paid employee without being a director and then made a director later on; or be a paid director from the beginning.
Partnership
Limited companies are hassle, expensive and a cheaper and better way for your business could be a simple partnership with you each having 50% of the share of the profits. Could work and will save you money and you should consider this vehicle. Can discuss further at our meeting.
David Barry and Company Ltd
020 8252 7018/07877671423
http://www.davidbarryaccountants.co.uk/
http://www.facebook.com/#!/profile.php?id=1422595788
http://twitter.com//DavidBarasch/
http://rossstewart.blogspot.com/
http://uk.linkedin.com/pub/david-barasch/21/69/785
Monday 7 March 2011
tax planning for the newly self employed start-ups
We will soon be opening a delivery business. This is a new business which will be created as a limited company with 1 director and 1 employee. Could you please send us quote about your fees and services for small companies.
Also, company formation service if you do.’
I refer to our telephone conversation. I do understand that you need a little bit more time before you decide on your financial adviser.
I am happy to work with you until such time that you are at the stage to make a decision.
I also understand that you may wish to appoint an adviser close to you. I can assure you that you have as much proximity to advice with me as to anyone else.
At the start of a new business you need plenty of advice whether it be corporation tax/vat/payroll/personal tax planning and I want to do this for you until such time as you are ready/ or not to appoint me as your accountant.
Bookkeeping
Many companies now offer cloud computing and indeed this is one of the services that you can complete for yourselves. It will save you money and time.
Company formation
I would now like to turn my attention to the question of company formation being something that we discussed at length at the telephone.
Company structure
If both you and your wife are entering into this business together then it is wise that you are both directors of the company and hold one share each. It is better to have the registered office at a place not only where the management and control of the business takes place but also at where it is best that you receive all correspondence both from HMRC and Companies House and in my opinion that is your home address. If you are not sure how to best form your limited company then I can do this on your behalf at a cost of £75 being £30 for the costs of the company and £45 for my work (this excludes the company seal-which is something that you may like to consider if you think that sealing documents is something that is important to you.)
Otherwise you can complete this task yourself by going online at a formation agent and appoint both yourself and wife as directors and equal shareholders at 1 share each and elect your home address as your business registered office, That is all.
Once formed you can leave the rest of the work to me.
P & L forecast and cash flow forecast.
I would like to ask you if you have put together some sort of cash flow for the business as in this way you can organise in your mind whether the business is viable and cash generative. It will also help you if you are to seek funding for the business and in order to secure bank references should you find the need to secure business premises. Please note I am well used to compiling these for many start-up companies and have produced for 12-60 months at both monthly/yearly figures.
Vat registration
I have recently registered two different clients for vat. What you will need advice on is whether to opt for the normal method (collecting quartely inputs and outputs vat and paying/receiving the balance to HMRC); or instead the flat rate method (which then becomes automatically a fixed rate overhead for your business.)
I find that in start-up situations because the client has spent heavily on business purchases/business utilities/business equipment/legal costs, it is better at the beginning to opt for the normal method and then later on only if found better, to transfer instead to the fixed rate method for vat as in this way you have a set cost to the business each quarter. We can speak about this later.
Paye and monthly payroll
I can formulate and set up the payroll for the company. Directors can be on service contracts at £5,720 per annum as in this way there is nil tax and nil NIC both on the employees and on the company. Further income can be drawn as dividends (but please note that these are not tax deductible for corporation tax.) Therefore implicit is a corporation tax rate of 21% on extraction of dividends.
Annual returns plus registered office address
If required I can form this limited company for you. I can set up the registered office address for the business (it is better if this is your home address and I will explain this at our meeting.)
Annual return of the company
This is not completed until one calendar year after the formation of the company.
Financial statements/corporation tax return
Do not need to be prepared until the end of the financial year of the company.
Personal tax returns for the directors.
Only if the directors agree I will be able to enter into tax planning for the directors by completing their personal tax return forms.
These must be compiled and filed by 31 January following the end of the tax year and so therefore for the year ended 05 April 2011 must be filed by 31012012.
Bookkeeping
If you decide to be in charge of the bookkeeping of the business then I would like to both know and understand what bookkeeping system you plan to use and what software you plan to use. If however, you want some input from me on this then of course, I can go though the various software systems with you both.
Business Bank account
The best two banks in my opinion are either the Nat West Bank and/or the HSBC. Both have good online presence and excellent customer services.
My goals
My goals are to work with you at building your business rather than just presenting to you what services I have to offer. I do hope that this is acceptable to you.
REPRESENTING THE LIMITED COMPANY IN ITS CORPORATION TAX AFFAIRS
Leading on from my previous emails please note that I also need to have the UTR (unique tax reference number of the company ) in order to represent it in the corporation tax affairs of the company and so I look forward to you emailing this to me as soon as it is at hand.
The letter that you will receive from HMRC will have a series of questions on its second and final page that requires personal information on the directors of the company like the tax reference number of the current employers and your own NIC numbers and so these boxes must be completed. Please PDF this form to be before you sign and send it off to HMRC or even better PDF to me and I will send this off for you.
paye
Jonas will be quitting her current job to work full time in the café and will be taking a small wage to keep up her NIC contributions. I will continue to work in my current job as well as part time in the cafe. What do we need to do to set the PAYE scheme?’
Fine: would you agree with me that this email effectively gives me your instructions that you wish to set up a paye scheme for the company.
What I need is the UTR number for the company. Have you received from HMRC a communication asking you to complete a form that has written at its top the UTR (unique tax reference number) number of the company? It is 10 digits long.
Please let me know as soon as you can as if not then I need to contact them on your behalf for its re-issue.
(Please note that I have since telepehoned HMRC and discovered that no letter has been sent out to you but will be sent to you within the next 3-5 working days.) Once at hand please let me know this at once.
A paye scheme cannot be sent up for a company without a tax reference number for it. However do not worry as I will begin to start work at setting up for the company a P11 worksheet (a payroll worksheet that writes on it the weekly/monthly salary for Jonas.) Once the payroll number is set up, I can begin to produce payslips.
Paye tax Planning
I assume from your email that Jonas has not yet handed in her notice to her current employers. This is good as we are about 4 weeks away from a paye scheme for the company. Please remember to inform me of her leaving date from her employers and to retain all payslips and also to not forget to ask for her P45 form at the time of leaving -very, very important as without this it becomes very difficult to allocate the full personal allowance.
Do not worry about this: just follow my instructions and everything will be okay.
Once set up we will begin to discuss her monthly salary.
‘We will definitely need to register for VAT and will complete the form for you at some point this week.’
Be very careful about the page numbers that you need to go on to register for vat. If you like I can complete this task for you but it is better if I have proper written instructions from you at the time that you wish to register.
(hmrc.gov.uk https://registration/organisation?httpmethod=post)
My regards
David Barry
020 8252 7018/07877671423
davidbarryaccountants.co.uk
http://www.facebook.com
http://www.accountingweb.co.uk/blogs/davidbarry
http://twitter.com/!/DavidBarasch
http://www.linkedin.com/profile/
Also, company formation service if you do.’
I refer to our telephone conversation. I do understand that you need a little bit more time before you decide on your financial adviser.
I am happy to work with you until such time that you are at the stage to make a decision.
I also understand that you may wish to appoint an adviser close to you. I can assure you that you have as much proximity to advice with me as to anyone else.
At the start of a new business you need plenty of advice whether it be corporation tax/vat/payroll/personal tax planning and I want to do this for you until such time as you are ready/ or not to appoint me as your accountant.
Bookkeeping
Many companies now offer cloud computing and indeed this is one of the services that you can complete for yourselves. It will save you money and time.
Company formation
I would now like to turn my attention to the question of company formation being something that we discussed at length at the telephone.
Company structure
If both you and your wife are entering into this business together then it is wise that you are both directors of the company and hold one share each. It is better to have the registered office at a place not only where the management and control of the business takes place but also at where it is best that you receive all correspondence both from HMRC and Companies House and in my opinion that is your home address. If you are not sure how to best form your limited company then I can do this on your behalf at a cost of £75 being £30 for the costs of the company and £45 for my work (this excludes the company seal-which is something that you may like to consider if you think that sealing documents is something that is important to you.)
Otherwise you can complete this task yourself by going online at a formation agent and appoint both yourself and wife as directors and equal shareholders at 1 share each and elect your home address as your business registered office, That is all.
Once formed you can leave the rest of the work to me.
P & L forecast and cash flow forecast.
I would like to ask you if you have put together some sort of cash flow for the business as in this way you can organise in your mind whether the business is viable and cash generative. It will also help you if you are to seek funding for the business and in order to secure bank references should you find the need to secure business premises. Please note I am well used to compiling these for many start-up companies and have produced for 12-60 months at both monthly/yearly figures.
Vat registration
I have recently registered two different clients for vat. What you will need advice on is whether to opt for the normal method (collecting quartely inputs and outputs vat and paying/receiving the balance to HMRC); or instead the flat rate method (which then becomes automatically a fixed rate overhead for your business.)
I find that in start-up situations because the client has spent heavily on business purchases/business utilities/business equipment/legal costs, it is better at the beginning to opt for the normal method and then later on only if found better, to transfer instead to the fixed rate method for vat as in this way you have a set cost to the business each quarter. We can speak about this later.
Paye and monthly payroll
I can formulate and set up the payroll for the company. Directors can be on service contracts at £5,720 per annum as in this way there is nil tax and nil NIC both on the employees and on the company. Further income can be drawn as dividends (but please note that these are not tax deductible for corporation tax.) Therefore implicit is a corporation tax rate of 21% on extraction of dividends.
Annual returns plus registered office address
If required I can form this limited company for you. I can set up the registered office address for the business (it is better if this is your home address and I will explain this at our meeting.)
Annual return of the company
This is not completed until one calendar year after the formation of the company.
Financial statements/corporation tax return
Do not need to be prepared until the end of the financial year of the company.
Personal tax returns for the directors.
Only if the directors agree I will be able to enter into tax planning for the directors by completing their personal tax return forms.
These must be compiled and filed by 31 January following the end of the tax year and so therefore for the year ended 05 April 2011 must be filed by 31012012.
Bookkeeping
If you decide to be in charge of the bookkeeping of the business then I would like to both know and understand what bookkeeping system you plan to use and what software you plan to use. If however, you want some input from me on this then of course, I can go though the various software systems with you both.
Business Bank account
The best two banks in my opinion are either the Nat West Bank and/or the HSBC. Both have good online presence and excellent customer services.
My goals
My goals are to work with you at building your business rather than just presenting to you what services I have to offer. I do hope that this is acceptable to you.
REPRESENTING THE LIMITED COMPANY IN ITS CORPORATION TAX AFFAIRS
Leading on from my previous emails please note that I also need to have the UTR (unique tax reference number of the company ) in order to represent it in the corporation tax affairs of the company and so I look forward to you emailing this to me as soon as it is at hand.
The letter that you will receive from HMRC will have a series of questions on its second and final page that requires personal information on the directors of the company like the tax reference number of the current employers and your own NIC numbers and so these boxes must be completed. Please PDF this form to be before you sign and send it off to HMRC or even better PDF to me and I will send this off for you.
paye
Jonas will be quitting her current job to work full time in the café and will be taking a small wage to keep up her NIC contributions. I will continue to work in my current job as well as part time in the cafe. What do we need to do to set the PAYE scheme?’
Fine: would you agree with me that this email effectively gives me your instructions that you wish to set up a paye scheme for the company.
What I need is the UTR number for the company. Have you received from HMRC a communication asking you to complete a form that has written at its top the UTR (unique tax reference number) number of the company? It is 10 digits long.
Please let me know as soon as you can as if not then I need to contact them on your behalf for its re-issue.
(Please note that I have since telepehoned HMRC and discovered that no letter has been sent out to you but will be sent to you within the next 3-5 working days.) Once at hand please let me know this at once.
A paye scheme cannot be sent up for a company without a tax reference number for it. However do not worry as I will begin to start work at setting up for the company a P11 worksheet (a payroll worksheet that writes on it the weekly/monthly salary for Jonas.) Once the payroll number is set up, I can begin to produce payslips.
Paye tax Planning
I assume from your email that Jonas has not yet handed in her notice to her current employers. This is good as we are about 4 weeks away from a paye scheme for the company. Please remember to inform me of her leaving date from her employers and to retain all payslips and also to not forget to ask for her P45 form at the time of leaving -very, very important as without this it becomes very difficult to allocate the full personal allowance.
Do not worry about this: just follow my instructions and everything will be okay.
Once set up we will begin to discuss her monthly salary.
‘We will definitely need to register for VAT and will complete the form for you at some point this week.’
Be very careful about the page numbers that you need to go on to register for vat. If you like I can complete this task for you but it is better if I have proper written instructions from you at the time that you wish to register.
(hmrc.gov.uk https://registration/organisation?httpmethod=post)
My regards
David Barry
020 8252 7018/07877671423
davidbarryaccountants.co.uk
http://www.facebook.com
http://www.accountingweb.co.uk/blogs/davidbarry
http://twitter.com/!/DavidBarasch
http://www.linkedin.com/profile/
Sunday 6 March 2011
tax planning for the rich and famous
By David Barry, accountant/tax adviser
I remember that at the time I was studying to be an accountant the lecturer in tax asked the question "do we want a Labout or Conservative party in government as accountants/tax advisers? Of course, we all put up our hands and with one voice said out loud " a conservative party." "Not so," said the teacher. "It is better to have a labour government as there is more opportunity to engage in tax planning with the resultant highe fees payable as labour governments inevitably put up tax rates (does anybody remember Dennis Healey the former labour party Chancellor of the Exchequer who said "tax them to the pips squeak."
I reproduce an article below that at present writes the tax planning opportunities for the rich and famous. It is not intended to be by partisan but instead writes tax planning opportunities that are availaible.
22% for limited companies versus very high rates of personal tax; taking interest free loans from the limited companies at 2% instead of salaries/dividends with their corresponding high rates of personal tax.
I also reproduce readers replies 39, 43, 53,55,60,65,75 and 82 with thought provoking comment as well as additional tax planning ideas.
Footballers pay 22% tax thanks to loophole
By Daily Mail reporters
17 January 2011
Reader comments (85)
Top Premiership footballers like Wayne Rooney and Gareth Barry are avoiding millions of pounds in tax through a loophole which means they can pay 22% on wages.
Sriking it rich: Wayne Rooney is one of the footballers taking advantage of the gap in tax rules.
WANT TO KNOW MORE?
* Rooney down but Beckham still top in football rich list
* How much do England players earn?
TAX TABLES
> Tax allowances
> Income tax
> National Insurance
> Capital gains tax
> Inheritance tax
MORE ON TAX
* How to pay less tax - guides
* Find an IFA - postcode search
* Tax tips from other readers
* How to pay less inheritance tax
They are using complex tax avoidance schemes that allows them receive earnings from image rights into a 'shell' company, where they pay business, rather than personal, tax rates.
The Sunday Times has uncovered 55 players who are taxed at just 22% because they get a large proportion of their total earnings from their image rights companies.
The newspaper said that Manchester United star Rooney has saved almost £600,000 over the past two years by using the tax loophole.
Manchester City's Barry took home £135,000 more than if he had paid income tax at 40%.
Now the taxman has demanded the clubs pay £100m on behalf of their players as HM Revenue & Customs (HMRC) investigates how to stop the arrangement.
The players uncovered as taking advantage of the gap in the tax rules include England and Chelsea defender Ashley Cole, former husband of singer Cheryl, Manchester United's Rio Ferdinand, and his team-mate Michael Owen whose company Owen Promotions owns 11 racehorses.
Arsenal's Theo Walcott has TJW (Promotions) while David James, the former England goalkeeper has Toocoo.
Scores of top footballers launched their own companies eligible to take image rights payments after Labour Chancellor announced the 50p top rate tax.
The players have two contracts with their clubs. They get a salary as a player and the other is for 'image rights' - earnings from shirts and other merchandising. These royalties are paid into a company which is only liable for 28% corporation tax rather than the 50% income tax.
And players can take out loans from their companies where they only pay 2% tax on the sum because it is regarded as a benefit in kind.
Investigations by the Sunday Times showed the £200,000-a-week Rooney, Barry and Chelsea's Daniel Sturridge took advantage of this tax loophole. HMRC have confirmed they are looking at players' companies as part of their probe into image rights and tax avoidance.
They have demanded the money from the soccer clubs to make up for the shortfall in tax revenues after they overstated the proportion of players' income that was coming from image rights.
The practice is also used in other well-paid industries that are exposed to higher tax rates, such as banking and IT. The practice was highlighted by This is Money in 2009.
39.
I think this article is technically inaccurate. Any company owner can do the following:-
1. Pay themselves a base salary which is normally in the lower tax rate bracket. For this they'd pay 22% income tax (as the article suggests) but also employer n.i. (12.8%) and employee n.i (12%). So they'd pay 46.8% on this portion of their money if you forget about the personal tax threholds. The rest is normally paid out in dividends. They'll pay 28% corporation tax plus 12% income tax (40-28) on this amount. So they're paying 46.8% on a small segment of their money (whilst a normal employee wouldn't have to pay the employer n.i so would be better off, and 40% on the rest, which is where the tax avoidance comes in (they're avoiding an additional 10% tax on any income over £150,000) plus the employee n.i of 12.8% (up to £42k) and 1% above that. Their club is also avoiding the employer n.i. of 12.8% which they'd normally have to pay. The club is actually avoiding more tax than the players.
43. How do ManU pay Rooney his £7m per year without first receiving an invoice from his company? And,if Rooney's company earn that turnover it MUST by law be registered for VAT as a service provider. Thereafter, surely no director can just extract cash from his company tax free! can it? In addition to those comments, no company can just pay large wads of cash to offshore companies without a connection to the offshore company.
None of this makes sense to me having been a company secretary for 25 years before I retired.
If the Inland Revenue have been letting football clubs(which are all limited company's) get aWay with presenting their annual returns in this way, then HMRC have been acting negligently, and someone should be taking responsibility to examine the Tax office efficiency in these cases. Step forward George"we are all in this together" Osborne
53. The tax issue is more serious. Using a service company to avoid tax has been done for years. Originally by golfers and tennis stars,these things are promoted by cynical accountants who reinforce the greed ethos.
60. For your information one of the first action of this Goverment was to OK a loan by the Cayman's. The same Cayman's that a lot of companies and rich people have been using to pay less tax in the UK. So they have taken action that makes it easy under pay UK tax.
DC has told us one thing and them made the poor tax the taxes the rich are not.
Last week on Sky, Jeff Randell was report to have said the Cayman's are costing this country £40B every year. Much more that the VAT rise, but the problem with VAT it puts up RPI so in three years it is all gone due to high walfair payments.
65. How sad is it that you all have to find someone to have a go at, i myself run a large company and believe in tax cuts for the wealthy.its easy to sit on here and slate us but i started with nothing built 2 companies turning over millions, got charged huge fees buy accountants banks and all the rest wanting to put there hand in my pocket. after putting my life my family aside to build this, i provide employment for over 100 people,i suffered through recession and now where growing again after everything i have contributed to this country in tax, jobs, and time there are people that think when the cash finally hits my pocket i should give the same up as a guy that rolls in at 9am and goes at 5pm why. amongst the brighter out there a wealth creator should have loop holes to exploit as 20 percent of 500k is 100k and 20percent of 25k is 5k therefore i pay 20times the tax the 25k earner is yet this is deemed not enoth as you want 200k. ???????? why should I!!!!!
75. This is a total non-story and no 43 is the only correct comment. There is no legal way of directors/ employees permanently extracting cash from a UK company without paying income tax. In the short term you can borrow it (hence the "low" rate of tax you're all getting worked up about), but it has to be repaid. When you do take money out permanantly by salary or dividends, you will have a personal tax liability at your highest personal tax rate. Till then, the company can't set the loan against its profits so it will also be paying tax at up to 28% as well which it won't get back. I do wish that this kind of story was properly researched and run past a tax expert before being published.
82. It is perfectly acceptable for anyone to use the scheme. These players are taking there earnings through their own personal companies and corporation tax is around 22%, however as soon as these players take this money out of the companies they will be liable to pay income tax which would take them
Up to 51% tax. This scheme is common in entertainment industries as most people would not require direct access to such large sums of money. they will still be paying the full amount of tax just not all at once.
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I remember that at the time I was studying to be an accountant the lecturer in tax asked the question "do we want a Labout or Conservative party in government as accountants/tax advisers? Of course, we all put up our hands and with one voice said out loud " a conservative party." "Not so," said the teacher. "It is better to have a labour government as there is more opportunity to engage in tax planning with the resultant highe fees payable as labour governments inevitably put up tax rates (does anybody remember Dennis Healey the former labour party Chancellor of the Exchequer who said "tax them to the pips squeak."
I reproduce an article below that at present writes the tax planning opportunities for the rich and famous. It is not intended to be by partisan but instead writes tax planning opportunities that are availaible.
22% for limited companies versus very high rates of personal tax; taking interest free loans from the limited companies at 2% instead of salaries/dividends with their corresponding high rates of personal tax.
I also reproduce readers replies 39, 43, 53,55,60,65,75 and 82 with thought provoking comment as well as additional tax planning ideas.
Footballers pay 22% tax thanks to loophole
By Daily Mail reporters
17 January 2011
Reader comments (85)
Top Premiership footballers like Wayne Rooney and Gareth Barry are avoiding millions of pounds in tax through a loophole which means they can pay 22% on wages.
Sriking it rich: Wayne Rooney is one of the footballers taking advantage of the gap in tax rules.
WANT TO KNOW MORE?
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They are using complex tax avoidance schemes that allows them receive earnings from image rights into a 'shell' company, where they pay business, rather than personal, tax rates.
The Sunday Times has uncovered 55 players who are taxed at just 22% because they get a large proportion of their total earnings from their image rights companies.
The newspaper said that Manchester United star Rooney has saved almost £600,000 over the past two years by using the tax loophole.
Manchester City's Barry took home £135,000 more than if he had paid income tax at 40%.
Now the taxman has demanded the clubs pay £100m on behalf of their players as HM Revenue & Customs (HMRC) investigates how to stop the arrangement.
The players uncovered as taking advantage of the gap in the tax rules include England and Chelsea defender Ashley Cole, former husband of singer Cheryl, Manchester United's Rio Ferdinand, and his team-mate Michael Owen whose company Owen Promotions owns 11 racehorses.
Arsenal's Theo Walcott has TJW (Promotions) while David James, the former England goalkeeper has Toocoo.
Scores of top footballers launched their own companies eligible to take image rights payments after Labour Chancellor announced the 50p top rate tax.
The players have two contracts with their clubs. They get a salary as a player and the other is for 'image rights' - earnings from shirts and other merchandising. These royalties are paid into a company which is only liable for 28% corporation tax rather than the 50% income tax.
And players can take out loans from their companies where they only pay 2% tax on the sum because it is regarded as a benefit in kind.
Investigations by the Sunday Times showed the £200,000-a-week Rooney, Barry and Chelsea's Daniel Sturridge took advantage of this tax loophole. HMRC have confirmed they are looking at players' companies as part of their probe into image rights and tax avoidance.
They have demanded the money from the soccer clubs to make up for the shortfall in tax revenues after they overstated the proportion of players' income that was coming from image rights.
The practice is also used in other well-paid industries that are exposed to higher tax rates, such as banking and IT. The practice was highlighted by This is Money in 2009.
39.
I think this article is technically inaccurate. Any company owner can do the following:-
1. Pay themselves a base salary which is normally in the lower tax rate bracket. For this they'd pay 22% income tax (as the article suggests) but also employer n.i. (12.8%) and employee n.i (12%). So they'd pay 46.8% on this portion of their money if you forget about the personal tax threholds. The rest is normally paid out in dividends. They'll pay 28% corporation tax plus 12% income tax (40-28) on this amount. So they're paying 46.8% on a small segment of their money (whilst a normal employee wouldn't have to pay the employer n.i so would be better off, and 40% on the rest, which is where the tax avoidance comes in (they're avoiding an additional 10% tax on any income over £150,000) plus the employee n.i of 12.8% (up to £42k) and 1% above that. Their club is also avoiding the employer n.i. of 12.8% which they'd normally have to pay. The club is actually avoiding more tax than the players.
43. How do ManU pay Rooney his £7m per year without first receiving an invoice from his company? And,if Rooney's company earn that turnover it MUST by law be registered for VAT as a service provider. Thereafter, surely no director can just extract cash from his company tax free! can it? In addition to those comments, no company can just pay large wads of cash to offshore companies without a connection to the offshore company.
None of this makes sense to me having been a company secretary for 25 years before I retired.
If the Inland Revenue have been letting football clubs(which are all limited company's) get aWay with presenting their annual returns in this way, then HMRC have been acting negligently, and someone should be taking responsibility to examine the Tax office efficiency in these cases. Step forward George"we are all in this together" Osborne
53. The tax issue is more serious. Using a service company to avoid tax has been done for years. Originally by golfers and tennis stars,these things are promoted by cynical accountants who reinforce the greed ethos.
60. For your information one of the first action of this Goverment was to OK a loan by the Cayman's. The same Cayman's that a lot of companies and rich people have been using to pay less tax in the UK. So they have taken action that makes it easy under pay UK tax.
DC has told us one thing and them made the poor tax the taxes the rich are not.
Last week on Sky, Jeff Randell was report to have said the Cayman's are costing this country £40B every year. Much more that the VAT rise, but the problem with VAT it puts up RPI so in three years it is all gone due to high walfair payments.
65. How sad is it that you all have to find someone to have a go at, i myself run a large company and believe in tax cuts for the wealthy.its easy to sit on here and slate us but i started with nothing built 2 companies turning over millions, got charged huge fees buy accountants banks and all the rest wanting to put there hand in my pocket. after putting my life my family aside to build this, i provide employment for over 100 people,i suffered through recession and now where growing again after everything i have contributed to this country in tax, jobs, and time there are people that think when the cash finally hits my pocket i should give the same up as a guy that rolls in at 9am and goes at 5pm why. amongst the brighter out there a wealth creator should have loop holes to exploit as 20 percent of 500k is 100k and 20percent of 25k is 5k therefore i pay 20times the tax the 25k earner is yet this is deemed not enoth as you want 200k. ???????? why should I!!!!!
75. This is a total non-story and no 43 is the only correct comment. There is no legal way of directors/ employees permanently extracting cash from a UK company without paying income tax. In the short term you can borrow it (hence the "low" rate of tax you're all getting worked up about), but it has to be repaid. When you do take money out permanantly by salary or dividends, you will have a personal tax liability at your highest personal tax rate. Till then, the company can't set the loan against its profits so it will also be paying tax at up to 28% as well which it won't get back. I do wish that this kind of story was properly researched and run past a tax expert before being published.
82. It is perfectly acceptable for anyone to use the scheme. These players are taking there earnings through their own personal companies and corporation tax is around 22%, however as soon as these players take this money out of the companies they will be liable to pay income tax which would take them
Up to 51% tax. This scheme is common in entertainment industries as most people would not require direct access to such large sums of money. they will still be paying the full amount of tax just not all at once.
davidbarryaccountants.co.uk
020 8252 7018/07877671423
http://www.facebook.com
http://www.accountingweb.co.uk/blogs/davidbarry
http://twitter.com/David Barasch
http://www.linkedin.com/profile/
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