Tax & Accountancy
So Child Benefit is changing but how will it affect you?
In the budget, George Osborne has revised the plans to end Child Benefit for any family where there is a higher rate tax payer and instead the threshold has been raised to £50,000 with the benefit then being tapered down so that once an earner in the family is earning £60,000 they will no longer be entitled to any benefit.
Child benefit is currently paid to all households with children at a rate of £20.30 a week, or £1,055.60 a year for the oldest child, and £13.40 a week, or £696.80 a year, for each younger sibling. This will continue to be the same up until one earner in the family is earning £50,000
When do the changes come into effect and how will they be made?
HMRC state the following on their website which I will attempt to simpify for you…
“Legislation will be introduced in Finance Bill 2012 that imposes a new charge on a taxpayer who has adjusted net income over £50,000 in a tax year, where either they, or their partner, is in receipt of Child Benefit for the year. This will have effect from 7 January 2013. If both partners have adjusted net income over £50,000, the partner with the higher income is liable for the charge.
The income tax charge will apply at a rate of one per cent of the full Child Benefit award for each £100 of income between £50,000 and £60,000. The charge on taxpayers with income above £60,000 will be equal to the amount of Child Benefit paid.
Child Benefit claimants will be able to decide not to receive Child Benefit if they or their partner do not wish to pay the new charge.
For the tax year 2012-13, the first year of the charge, the amount of income taken into account will be the full amount of income for 2012-13 and the amount of Child Benefit will be that paid in the period from 7 January 2013 to the end of the tax year. For subsequent years, the full amount of Child Benefit and the income for the year will be taken into account.”
What does this mean?
1. If neither you or your partner are going to earn income of £50,000 during 2012-13 (6th April 2012 – 5th April 2013) then you won’t be impacted by the child benefit changes and you don’t need to do anything.
2. If either of you or your partner earn over £60,000 a year then you won’t be entitled to any child benefit FROM 7th January 2013. Child Benefit will still continue to be paid as usual and any amounts paid between 7/1/13 and 5/4/13 will be clawed back through Self Assessment as an extra income tax charge which will be equal to the full amount of child benefit paid in this period. If you don’t want to pay Child Benefit back through Self Assessment then you can opt to cancel your child benefit payments after 7/1/13 to avoid having to repay it.
3. If you or your partner earn between £50,000 and £60,000 then you will still be entitled to some Child Benefit but this will be reduced gradually by 1% for every £100 you are over the £50,000 limit. You will still be paid the full Child Benefit as normal but any amounts received between 7/1/13 and 5/4/13 will be subject to an extra income tax charge through Self Assessment. (It currently looks likely that if you don’t already complete a Self Assessment then you will need to start completing one as it appears the only way HMRC will be able to claw back the overpaid Child Benefit is through the Self Assessment system.
If your partner earns £55,000 then on their self assessment for 2012-13 and you have received £263.90 child benefit between 7/1/13 and 5/4/13 (approx 13 weeks and 1 child rate is used for this example) they would be subject to a Child Benefit Income Tax Charge of (£55,000-£50,000)/100 = 50% of the child benefit paid ie £263.90 x 0.5 = £131.95.
If your partner earns £51,000 and you have 2 children, then you will receive approximately £438.10 in child benefit between 7/1/13 and 5/4/13. Your partner would then be subject to an income tax charge through self assessment of (£51,000 – £50,000)/100 = 10% so this would mean £438.10 x 0.1 = £43.81 would need to be repaid.
So what do I need to do?
You don’t need to do anything yet, HMRC will write to taxpayers in the autumn to explain what they need to do next and what options will be available. If you do not hear from HMRC in the autumn, you will be able to find information on HMRC’s website at that time which will tell you what you should do.
Any questions just ask and I’ll attempt to answer them for you
Well it’s been a long two years but we’ve survived! Our house has been taken over by toys, our savings are depleted but we have two happy healthy children to show for it. We were probably quite unusual in that we had two almost back-to-back maternity leaves. I was back at work for approximately two months before I went back on maternity leave with MasterB. I thought I’d share with you a few tips on budgeting for maternity leave as it is how we managed to survive financially for the last two years. In our household, both my husband and I have similar income careers and so the prospect of losing half of our household income was rather daunting and it took a lot of financial planning in advance. Now I know a lot of people don’t necessarily have time to plan ahead for their babies and maternity leave but if you do then these are my top tips on budgeting for maternity leave:
1. Set up a spreadsheet with columns across the top by month and income and expenditure down the side, something like this works and is nice and simple.
2. Work out your monthly income whilst on maternity leave, add in any child benefit and other tax credits etc you will be able to receive
3. Work out your current expenditure each month and then add in any expected costs of the new addition such as nappies, formula, wipes etc.
4. Work out whether you have enough income to cover all your expected expenditure. If not then you need to work out how much in savings you will need to cover this. From budgeting we knew exactly how much money we would need to cover the reduction in income and so made sure we had at least this amount in savings put away so that I could make the most of enjoying maternity leave with my children and not having to worry about paying the mortgage!
5. Work out how much you will need to spend on baby equipment. My top tip here is not to go overboard! It’s easy to get excited and spend a fortune on the latest pram, nursery decorations etc but in reality you don’t need to spend half as much as you think. Think carefully about what you REALLY need, at the end of the day you can hold of buying something and then go out and buy it later once the baby is here if you find you really need it! Essentials include monitor, pram, somewhere for it to sleep and clothes. Stores love to give out pre-printed lists of items to buy for your baby but trust me – you won’t need half of what’s on the list at all and most of it will just end up sitting in a cupboard until you get round to putting it on ebay
This is a sponsored post
This post is written for a few lovely ladies on twitter who have been asking me how the change in tax bands will affect the amount of tax they pay. Some things just can’t be answered in 140 characters so I thought I’d write it down here instead
The tax bands and personal allowances in the UK have been changing quite a lot over recent tax years and it’s causing quite a bit of confusion. These are the rates for the tax years 2010-11, 2011-12 and 2012-13. A tax year runs from 6th April through to the following 5th April.
So what does this mean? In order for you to see the impact I’ve done a series of illustrations for you ranging from an annual income of £10k to £50k and shown you how much tax you would end up paying under each tax year.
So as you can see from the above, the changes mean that you’ll be paying less tax compared to prior years in all of the above examples. Hope this helps
You may have noticed the badges over in my left sidebar over the last few months, I’ll be going to Britmums Live this year! I don’t think I’ve actually mentioned on here yet though that I’m speaking at Britmums Live!
I spoke about Tax and Blogging last year at Cybermummy and I can’t have been that bad as I’ve been invited to speak at Britmums Live on the subject! I’ll be covering all the tax implications of earning income through your blog, when you need to start paying tax (because believe it or not, income from blogging IS taxable once you’ve used up your personal allowance!) and how to go about registering with HMRC, paying tax, completing self assessments, keeping records and what you can and can’t claim as expenses. I’ll be speaking in the Beginning Blogging Essentials 2 Session 11:30-12:20 on the Saturday so please pop along and say hi!
If there is anything in particular relating to blogging and tax that you’d like me to include then please leave a comment and I’ll either include it or answer it on my blog at some point
If you see me at Britmums Live, please come and say hi! I’m not scarey and I’m a little shy as a rule. I promise not to bore with you tax talk outside my session I’ll probably be the one secretly drinking G&T whilst everyone else in having coffee
PS If any companies are interested in sponsoring me then please email me at firstname.lastname@example.org I will just need the cost of a train and hotel covering. In return we can negotiate what I can offer you and of course you will get a years free advertising on the blog etc…
Following my talk at Cybermummy11 I have put together the following guide to blogging and tax. Apologies if you attended my talk and it was complete waffle but it would have been impossible to fit all this information into my timeslot and it would have no doubt bored you all senseless!
Please bear in mind that tax is a huge area and that it also depends on any other income you may have etc and so this guide is a general guide and if you have any concerns relating to your personal taxation situation then you should really speak to an accountant or tax adviser.
So make sure you are prepared with a big mug of tea and biscuits and we shall begin Any questions on anything, just leave me a comment and I’ll answer it for you this week.
Do I need to pay tax?
The short answer to this is YES! If you are making any money from your blog then you need to start considering whether there is tax to pay. There is very little income in the UK that is not taxable – you can see a full list of this here on the HMRC website:
Everybody has a personal allowance but once this has been exceeded then any other income not on that list is then subject to income tax.
Hobby or Business?
The first step in figuring out how and how much tax you have to pay is working out whether your blog is a hobby or a business. Now you may consider that your blog is just your hobby but the way that HMRC views it could be different. HMRC looks for something called “Badges of Trade” in order to assess whether you are operating as a business or not. The full list of them is here:
The main thing that you really need to consider from all that is whether you are intending to make a profit from your blog (even though you may not actually be making one at present), if you are regularly doing business like transactions (ie charging for advertisements) and how the transactions are carried out. If you are unsure as to whether you should register your blog as a business then you should speak to an accountant or tax adviser.
I think I would be classed as a hobby even though occasionally I make a small income from my blog?
If you don’t meet any of the badges of trade about and feel that HMRC would class your blog as a hobby then you will still need to pay tax on any income you occasionally make through it. You won’t need to register for self assessment if you are already paying tax through PAYE, if the income is up to £2500 you can contact HMRC and ask them to adjust your PAYE code so that any extra tax will be deducted through your employer. This link basically tells you what you need to know about contacting them to do this.
Remember you can still deduct the costs of running your blog from any income you receive but whereas with a business if you make a loss you could offset it against other income, with hobby income (ie casual earnings) you can’t use losses to carry forward or set against other income.
OK so I think HMRC would view my blog as a business, what should I do now?
The first thing you will need to do is register with HMRC for self assessment, this should be done within 3 months of starting your business. The latest you can register for self assessment is the 5th October in the year following the tax year, so if your blog earned you income between 6th April 2010 and 5th April 2011 you will need to make sure you are registered for self assessment by 5th October 2011!
So how much tax will I have to pay?
If you run your blog as a business then you will need to pay Class 2 National Insurance payments of £2.50* per week although you can apply for a Small Earnings Exemption certificate if your earnings are less than £5,315* per year. You will also be liable to pay Class 4 National Insurance contributions of 9%* on any profits between £7,225* and £42,475* per year and you pay 2%* on any profits over that.
Income tax is payable on any profits from the blog whether it is classed as a business or a hobby. Everybody is entitled to a personal “tax free” allowance of £7,475* and if your profits plus any other taxable income you receive do not exceed this then no income tax would be payable. Any profits over this are subject to tax of 20%* up to £37,400* and 40%* up to £150k* and 50% over £150k*.
*rates used are for the tax year 2011/12
What kind of income is classed as taxable?
Here are a few common types of income you may get from your blog:
- Sponsored posts
- Affiliate sales – where you get a % for sales made through a link from your blog
- Payments in Kind – ie if you are given a product in exchange for an advertisement on your blog. For this you should record a fair market value, this could be the lower of either the usual rate you charge for an advertisement on your blog or the market value of the product you received.
What isn’t taxable are:
- Goody bags you receive from PR events, if you are not expected to do anything in return for them then they can be classed as gifts
- Days out or being entertained by PR/Companies. Again as long as there are no “terms and conditions” relating to the day out then it is classed as you are being entertained and you will not need to pay tax relating to this.
- Items received for review – this is a bit of a grey area but as long as you are going to use the item for personal use and just post your personal opinion of the product on your blog then you won’t need to pay tax on it. However if you acquire the products with the intention of selling them on, then they will be taxable!
So what expenses can I claim to deduct against this income?
The full list of allowable business expenses can be found here on the HMRC website:
Basically an expense is allowable if it was reasonably incurred and wholly and exclusively incurred for the purpose of the business. Although there are some expenses which are not deductible for tax purposes.
Tax allowable examples include:
- Web hosting fees
- Domain Registration
- Marketing costs such as advertising your blog, business cards etc
- Attending conferences to promote your blog – ie the cost of attending Cybermummy
- A proportion of your broadband costs (you would need to apportion this between private and business use)
- Heating and Lighting – BUT rules apply to this (see below)
What about Heating, Lighting, Home Office costs?
Certain costs can be claimed for using your home as your office if your blog is classed as a business. Full guidance on what you can and cannot claim can be found here:
You can alternatively claim a weekly allowance, the HMRC would not query a £2/£3 weekly charge for home office use being put through as an expense.
Expenses which are not tax deductible include:
- Capital items such as laptops, hard drives etc, capital allowances can be claimed on these so see further down for details about this.
- Entertaining – if you take a PR/Company out for lunch/dinner and pay for it yourself you will not be able to claim this against tax as entertaining is not allowable!
- Any private portion of expenses claimed (ie if you use your broadband 50% of the time for business and 50% of the time for personal use then only 50% can be claimed).
If you run your blog as a business then any capital assets you buy for it such as hard drives, laptops etc can be used to claim capital allowances. The most relevant capital allowance that you could claim would be the AIA (Annual Investment Allowance). Until April 2012 you can basically spent up to £100k on assets for your business (not cars or buildings) and claim 100% of the cost as a capital allowance which will reduce your taxable profits, from April 2012 this will drop to £25k. If you buy a laptop which you are going to also use for personal use then you can only claim a capital allowance for the business proportion of use!
Right, I know what I can claim as income and expenses, how should I record it?
The main thing you should so whether your blog is a hobby or a business is keep all your receipts!! I personally find the simplest way is to have a big brown envelope and keep putting them in there whenever I incur a business expense.
If you then log all the income/expenses in a spreadsheet this will make completing your self assessment much easier, I’d recommend a different tab for income, expenses and capital items.
It is important to keep all these records for a minimum of 6 years!
How do I complete my self assessment?
The simplest way of completing a self assessment is by doing it online (or getting an accountant to do it for you ) There is however plenty of guidance on the HMRC website here:
I could spend hours telling you which boxes you need to fill in etc but it would a) take far too long and b) I do run a business so I can’t keep giving away my services for free all the time If you do want me to do your self assessment for you and you have no other income aside from PAYE then I can offer a HUGE discount on my normal self assessment fees for you PROVIDING you can get everything to me before 1st December! December and January are by far my busiest months and so unfortunately I can’t offer a discount if you ask me to do your self assessment then
When would I have to pay any tax?
Tax for the tax year 2010/11 (6th April 2010 – 5th April 2011) will be payable by 31st January 2012 (the deadline for filing self assessments online and paying any tax due). When you pay this tax you will also notice that they will also add on a 50% prepayment for next years tax bill. This is because when you are paying tax through self assessment on a regular basis the payments go something like this (sorry if this gets a bit confusing but it’s very hard to simplify).
Lets say you have tax of £1000 to pay for tax year 2010/11 and £1500 to pay for tax year 2011/12
On 31/1/12 you will submit your tax return for 2010/11 and pay the £1000 tax but you will also pay a 50% payment towards your 2011/12 bill based on the 2010/11 bill (£500) so total payable will be £1500.
On 31/7/12 you will pay your second payment on account towards your 2011/12 tax bill (ie £500)
On 31/1/13 you will pay any balancing amount on your 2011/12 tax bill and 50% payment on account towards next years tax bill. So if the tax bill is £1500, you have already paid £500 on 31/1/12 and £500 on 31/7/12 and so you will need to pay the remaining £500 plus 50% payment on account of £750 so total payable would be £1250.
There is more about payment of tax here:
Other things you need to consider relating to income and blogging!
- If you are claiming child tax credits or working tax credits (or other benefits directly related to your income) then you will also need to include extra income from your blog on your tax credit renewal form. You only currently need to declare extra income over £300 (that is total extra income not just your blog income) and so if your total extra income does not exceed £300 then you need not declare it, if it does then you only need to declare the amount over £300 (ie if your extra income is £500 then you would only declare £200 on your tax credit renewal form). The Tax Credit Office may charge you a penalty if they find that you have supplied incorrect information in your claim. But they’ll contact you to tell you – they never give automatic penalties.
- Anything you win in competitions from other blogs etc is not taxable.
VAT and Limited Companies
The current limit where you would have to register for VAT is £73,000 turnover in a year, for the purposes of this post I’m assuming most of your blogs don’t generate this and so I will skim over the subject. You can of course voluntarily register for VAT before you reach this level of turnover if you feel it will benefit you! More information can be found here for those interested:
There is the option of setting up your blog as a Limited Company if you feel this is of benefit to you although the accounting costs do increase and there is more paperwork involved. I’m not going to go into this now but if it is something you want more information on it can be found here:
Disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet and the information above is general information only and should not be relied upon solely, if you have any queries about your tax position then you should speak to an Accountant or Tax Advisor to discuss your specific circumstances.