Wollaton Hall Batman

A-List Tax Affairs

Being a specialist accountant we look to foster relationships on trust and support our clients through our vast experience in servicing those in the creative arts, acting and entertainment industries.

For example, actors income levels can vary year on year depending on whether they get a big part in a movie or show which can also take them across the world. This may trigger tax implications and the key is not to panic! We are also sensitive to this and accommodate for fluctuating income so that our charges take this into account along with the time, number of agents involved and complexity of the tax return.

Let's say an actor arrives from another country, is equipped with a national insurance number (NINO) in the UK, the 64-8[1] is a starting point where Embrace Accountants, as the agent can get HMRC to generate a ‘Unique Taxpayer Reference’ (UTR) number and effectively registers the client for self-assessment. If you already have a UTR number and are UK tax resident that wins a gig abroad, an A1 form must be prepared & sent to HMRC in order to ensure that the client is covered for national insurance where the employment is based.[2]

After determining the clients tax residency status for that tax year,[3] a UK tax resident would declare and be taxed on their worldwide income with any foreign tax deducted in the foreign country worked in (known as Withholding Tax or tax deducted at source) can be claimed to offset any UK tax liability, avoiding any double taxation. Self-employed accounts are prepared annually with the accounting deadline falling into the relevant tax year that runs 6th April – 5th April each year. For example, a 30 April 20 year end falls into the 5 April 2021 (20/21) tax year.

 

One advantage of a client electing for an early accounting period in the tax year, is that it enables the client to assess from 11/12 months the estimated tax liability if another profitable year & therefore make appropriate payments on account early.

If however, a loss was made in 30 April 2021, it would be beneficial to submit the 5 April 2022 tax return earlier in order to carryback the loss to attract marginal tax relief. Not only will this result in a possible refund but help with cash flow. Having the early knowledge of this loss is beneficial from tax planning and cash flow perspectives.

For example, 30 April 2019 Profit £400,000 (Tax due £180,000), 30 April 20 Profit £50,000 (Tax due £10,000), 30 April 21 Loss £50,000 (Refund due £10,000).

Therefore instead of making high payments on account, an early claim to reduce these could help the client redivert cash being saved for their tax liability from profitable years into investments such as renting out a second property or building an investment portfolio (maximising ISA allowances of £20,000 each year).[4] Making use of tax wrappers means any disposals, interest or dividends received are not taxable. Investment brokers often section this out with ‘Main portfolio’ and then an ‘ISA’ portfolio with investments out of tax wrappers classed as follows:

- Interest from UK/foreign interest less than £1,000 no tax. If greater than £1,000 classed as Interest Income. (Box 2/3).

- Dividends from UK/Overseas dividend income less than £2,000 has no tax. If greater than £2,000 consider foreign tax credit relief and classed as ‘Dividends from foreign companies’. (Box 4/6).

- Dividends from authorised unit trusts / open ended investment trusts classed as ‘Other Dividends’ (Box 5).

- Property Income Distributions (PID’s) / Real Estate Investment Trusts (e.g. dividends from Property)  are classed as ‘Other Income’ on the tax return (Box 17).

Rules having changed for 20/21 and subsequent years means the mortgage interest attracts a basic rate tax relief credit. Assume gross rents of £10,000 minus expenses generating a profit for 20/21 of £5,000, mortgage interest of £3,000 attracts a basic rate tax relief being lower of i) profits ii) mortgage interest.[5]

It’s a journey, one we all have to embrace. Getting it right from the very beginning and at the end of each tax year, is the path to enlightenment!

 

[1] https://www.gov.uk/government/publications/tax-agents-and-advisers-authorising-your-agent-64-8

[2] https://www.gov.uk/guidance/apply-for-a-certificate-or-document-if-self-employed-in-the-eu-eea-or-switzerland-ca3837

[3] https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3

[4] https://www.gov.uk/individual-savings-accounts

[5] https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords#general-description-of-the-measure

Embrace Accountants

Dan Roper, Director, BSc, ACCA