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.
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.
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!
General Elections can bring uncertainty due to whoever wins making their own polices which affect us all.
We’re going to focus on the key points of the leading parties’ manifestos ahead of the next general election on 4th July and how they may affect small businesses.
Conservatives
abolishing “the main rate of self-employed National Insurance. The party’s long term ambition is to scrap National Insurance entirely “when financial conditions allow”
further cut tax for workers by reducing employee National Insurance contributions by another 2p
no plans to raise corporation tax or capital gains tax
keep the VAT registration threshold under reviewand exploring options to “smooth the cliff edge” at £90,000
uphold triple lock pension, raising state pensions by 8.5%. plan to introduce a “triple lock plus,” increasing the tax-free state pension allowance by at least 2.5%.
to expand tax free childcare – 30 hours a week of free childcare from when a child is nine months old until they start school.
To tackle late payment, promote digital invoicing, improving enforcement of the Prompt Payment Code, building on the creation Laof the Small Business Commissioner with “powers to tackle unfavourable payment practices
Continuing programmes including the Invest in Women Task Force and the Lilac Review to encourage more female and disabled entrepreneurs.
Work with the British Business Bank and private sector fund managers to secure a £250m Invest In Women Fund to support female entrepreneurs.
Take more companies “out of the scope of burdensome reporting requirements” by lifting the employee threshold allowing more companies to be considered medium-sized. This is expected to save small businesses at least one million hours of admin per year.
Labour
no plans to increase taxes on working people
not to expect increases to National Insurance contributions, as well as basic, higher, or additional rates of income tax, and VAT.
to cap corporation tax at 25%
modernising HMRC in order to tackle tax avoidance (this will involve even further increasing reporting requirements)
providing more training opportunities
remove zero-hour contracts and ban ‘fire-and-rehire’ practices.
to make it easier for small businesses to access funding and investment
to introduce tough new laws to stamp out late payments
Scrap business rates and replace it with a system of business property taxation that is “fairer for bricks and mortar businesses”
To rejuvenate the construction industry – build 1.5 million new homes, create opportunities for small builders and tradespeople and to reduce red tape in the current building planning system
Retain annual investment allowance for small business, and “give firms greater clarity on what qualifies for allowances to improve business investment decisions”
Reform UK
raising the income tax threshold to £20,000 a year
removing VAT from energy bills
raising the minimum corporation tax profit threshold to £100,000 – as well as reducing the corporation tax rate to 20% (and eventually 15%)
abolishing existing IR35 rules
raising the VAT threshold to £120,000
abolishing business rates for high street small businesses
Cut entrepreneur’s tax relief to 5%.
Reform the tax system.
Liberal Democrats
cut income tax by raising the tax-free personal allowance
Abolishing business rates and replacing them with a commercial landowner levy to help high streets.
support HMRC in hopes they can better tackle tax avoidance
review IR35 reforms (also known as off-payroll working) to make sure the self-employed are treated fairly
Setting a 20% higher minimum wage for people on zero-hour contracts attimes of normal demand.
Expand parental leave and pay
Supporting small employers with statutory sick pay costs
Reforming capital gains tax to “close loopholes exploited by the super-wealthy by adjusting the rates and basing them solely on capital gains while increasing the tax-free allowance from £3,000 to £5,000, on top of a new tax-free allowance for inflation, and introducing a relief for small businesses”.
boost trade for small businesses by bringing down trade barriers
enforce the prompt payment code – requiring companies with more than 250 employees to sign
Tackle the problem of late payments
protect triple lock pensions so they rise in line with inflation, wages, or by 2.5% (whichever is highest)
plan to establish a new employment status: the dependent contractor, which will sit between employed and self-employed. This will provide entitlement to minimum earnings levels, sick pay, and holiday entitlement.
What are your thoughts? What policies would you like to see implemented to support small businesses?
We’ve put together a guide which will help you understand the mystery behind your tax code.
1257L
1257L reflects the amount of income everyone can earn before paying tax (£12,570, with the zero removed from the code)
It’s used for most people with one job and no untaxed income, unpaid tax or taxable benefits
Your tax code can change either upwards or downwards depending on your circumstances The letter L is what most taxpayers will see. It means you are entitled to the personal allowance
BR
Tax is deducted from all income at the basic rate. Most commonly used when an employee has two jobs and their personal allowance is already being used in the other employment.
0T
Tax is deducted from all income. There is no Personal Allowance.
Most commonly used when an employee has not given you a P45 or enough details to work out their tax code, or when their Personal Allowance has been used up
M
Tax is deducted at basic, higher and additional rates depending on the amount of taxable income.
For an employee whose spouse or civil partner has transferred some
N
Tax is deducted at basic, higher and additional rates depending on the amount of taxable income.
For an employee who has transferred some of their Personal Allowance to their spouse or civil partner.
NT
No tax is deducted.
Used in very specific cases, for example musicians who are regarded as self-employed and not subject to PAYE
T
Tax is deducted at basic, higher and additional rates depending on the amount of taxable income.
Used when HMRC needs to review some items with the employee. For instance, if you earn more than £100,000 a year then £1 of your allowance is deducted for every £2 you earn over that amount.
K
Used when your tax deductions already owed to HMRC from previous years are greater than your Personal Allowance.
This code results in more tax being collected in comparison to having a standard tax code because your personal allowance is reduced to allow for more tax to be taken from your salary.
Emergency Codes
Emergency tax codes are a temporary tax status given to employees until HMRC works out which tax code applies.
You might be placed on emergency tax because you don’t have a P45 or you have recently switched from being self-employed.
Emergency tax codes are usually:
1257 W1
1257 M1
1257 X
Think your tax code is wrong?
If you think your tax code is wrong, you should contact HMRC and ensure they have the correct information so they can work out your correct tax code. Your tax code will then be updated automatically.
Check your next payslip. Make sure your new tax code is in place and this will then ensure your tax deductions have been adjusted accordingly.
We are very excited with our new diversified service offering. This is a fantastic step towards providing our clients with comprehensive and tailored support throughout their business lifecycle and personal financial journey.
We have added Independent Financial Advice to our existing suite of services.
As your accountants we work with you to ensure your tax affairs are optimal.When it comes to your personal wealth there is far more to it than just tax planning.This is why we believe that in the same way you receive expert advice relating to your tax affairs and business management, you should ensure you receive expert financial planning advice from a qualified financial planner.
Our separately branded financial planning business TAG Financial Planning are able to offer advice in all areas of financial planning, such as:
Pensions – review existing pensions, company contributions and commercial property.
Insurance – shareholder protection, key man insurance, Mortgage life cover, income protection and critical illness cover
Goals Based Financial Planning – identifying goals and objectives, current position, strategy & progress modelling, implementation of plan to achieve success.
A member of our financial planning team will work with you to identify, quantify, and bring to life your life goals. They will assess your current financial plan, review the strengths and weaknesses, and advise what adjustments are required align it with your desired outcome.
Together with the financial planning we can also provide additional services as follows:
Corporate Restructuring
Share Schemes
M&A Tax Services
Capital Allowances
R&D Tax Credits
Tax Investigation
Exit Planning
Trust Planning
Inheritance Tax Planning
Property Portfolio Planning
Valuations
VAT Advice
We all know the benefit of receiving timely professional advice when it comes to financial matters, especially when big changes are required.
For more information or to arrange an initial conversation with an adviser please contact us on 01386 366741 or email hello@tpitdev2.uk and one of our advisers will be in contact.
You work hard for your money, it’s important that your money works hard for you!
Changing the name of a limited company is straight forward but there’s a lot to consider beforehand when choosing the name for your limited company.
There are a number of words and phrases that UK company law defines as ‘sensitive’ due to their potential to mislead, confuse or offend the general public. If your proposed company name change includes one of the sensitive words, there is a little more work involved in getting the name change approved.
There are no legal restrictions preventing the use of dissolved limited company names. If this is something you are considering, it’s advisable to carry out extensive research on the company that previously traded under the name you plan to use. This will help you to determine if there any negative associations attached to the name.
Before you complete the formal process of changing your company name, there are several tasks you will need complete:
Before anything else, you should carry out a trade mark search using your new name. This is to make sure that the name hasn’t already been as a trade mark by somebody else.
Check at Companies House to ensure the proposed name isn’t already in use. You will also want to check domain availability of your chosen name and that the domain name is available for purchase.
Review your company’s articles of association to check what provisions are written to enable changing the company’s name. Check if it provides another way to change the company name other than using the special resolution procedure (section 78, CA 2006).
On completing the above, gain a formal agreement to change your company name by passing a special resolution at a board meeting. Meeting minutes should also be prepared, circulated and retained for at least 10 years at the registered company office.
When changing your company name, you must ensure that you properly update the company’s statutory registers. This is a legal requirement and failing to correct company registers may result in fines.
You will need to notify HMRC of the company’s new name. You can report changes to your business directly to HMRC by following the guidance on the Gov.uk website – https://www.gov.uk/tell-hmrc-changed-business-details.
Your bank will need to be informed of any changes to your company name (or any other details).
Notify your customers. This is an important step and it’s advisable to let them know of the change before it happens.
Notify your suppliers. Suppliers must also know they are still working with the same company under a new name.
Notify your employees It’s important that they’re aware of any changes before they’re implemented to avoid any uncertainty or worry of change amongst the team.
Notify your insurers to ensure your policy is up to date. Failing to notify your insurer may invalidate your policy should you need to make a claim.
If you have Hire Purchase agreements or any similar finance creditors, it’s important to update your company name with these companies. This will ensure that any loans and agreements are up to date.
If you have an existing website in place, you will need to consider transferring or redirecting the website to the new domain name, whilst making any necessary changes to the website such as the company’s legal information.
When Changing the name of a limited company this will most likely impact your emails too, so you will need to make sure that these are transferred to your new domain if necessary.
When you change your company name it’s important to let the local councils and authorities know too so that their records can be updated.
With a new company name, you will need a new and updated set of memorandum & articles of association.
Make any changes to your printed business stationery and marketing materials.
Update your Xero software with the change of company name (and any other software)
Announce the name change across the company’s social media platforms and any other marketing audiences.
This is often one of the biggest hurdles that growing businesses face, raising cash. You’ve increased your sales to maximum capacity, you’ve got a team and processes in place but you can’t plan for further growth without further financial investment.
Raise cash
It’s a great position to be in but you need to consider your options for funding.
Firstly, be sure of what you’re setting out to achieve. Have a clear plan in place and clearly define your goals:
What’s your action plan for the next 12 months?
The next three years?
The next five years?
How much cash do you need for each of the above stages?
There are several different approaches to guiding your business to the next level. Here we list some potential options for consideration:
Personal Funding
The quickest and easiest way to raise finance is often to utilise personal savings. The disadvantage is that the amount of funds may be limited and insufficient to fund the level of growth required. Also, there may be a level of risk with no guarantee that the company will be able to repay those funds. Raising money from friends and family is also another option but again there is a level of risk and no guarantee that the money will ever be returned which can lead to strained relationships.
There are then only two other options – Equity or Debt.
Equity
Equity means you are looking for investor to give you money, in exchange for a stake in your business.
The benefit of raising cash this way is that it doesn’t need to be repaid and you may get to benefit from an investor with extremely valuable experience which will help the business grow in the direction you want it to. However, you’re also giving away a portion of your business which means you will have less control so it’s important to make sure you choose the right investor.
Here are some examples of equity investments:
Private Equity – investors who provided cash to established businesses in return for a large or controlling stake, to help them grow to the next level.
Corporate Venture Capital – an investment made by a large company into a smaller business, in return for a share of that business.
Expansion Capital firms – give established businesses money to grow and reach maturity.
Angel Investors – act as mentors and invest their own money in early-stage businesses for a share in the company.
Venture Capital – invest in businesses with high growth potential, often after Angel investors have got the business started. The money comes from established entrepreneurs, investment banks and other financial institutions.
Crowdfunding – Using an online platform, investors buy shares in a company to help it grow.
Debt
Debt financing means you are borrowing money that needs to be repaid, usually with interest being paid on the amount you borrow.
Debt is often a scary word and managing any borrowing needs to be done carefully when looking at raising cash. Some debt is straight forward and short-term. Other debt is longer term. This is why you need to be clear of the purpose for your lending requirements.
Always consider all the options and think ahead to your 5 year plan. Raising equity can be complex and is a lengthy process. Make sure you have sufficient cash to meet your plans. Having a strong financial business model and cashflow plan is essential.
Here are some debt options for consideration:
Overdraft – short term lending, typically from a compay’s bank and up to an agreed limit. Overdrafts can be expensive but a business will only pay interest on the amount they actually borrow.
Credit cards – another short term option and easily accessible but usually with a high interest rate.
Invoice factoring – selling your unpaid sales invoices to a third party who will collect the debt from your customer, paying you a percentage of the invoice value up front, minus their fee. A fairly expensive option but useful if you have a large amount of outstanding invoices with slow payers.
Asset financing – raising funds to purchase physical assets such as vehicles and equipment. A fairly quick form of finance, also giving the lender tangible assets to recover should you default on the repayments. Useful for asset intensive businesses with the option to consider refinancing the assets and releasing cash to the business.
Supplier Credit terms – often overlooked as a form of financing and another short term option. Negotiating extended credit terms with your key suppliers can free up working capital.
Business loans – borrowing money from a loan provider such as a bank and then paying it back with interest over an agreed period. Loans can be both short-term and long-term. There are also various Government backed loan schemes such as the Recovery Loan Scheme and start-up loans.
Peer to Peer Lending – a business borrows money through an online platform and pays it back with interest over an agreed period.
Direct lending funding – A business borrows money from a fund and repays it with interest. A fund may be able to provide loans where a bank will not.
There is also one other option – Grant Funding. A Grant is a non-repayable type of funding, usually awarded by governments, organisations, or companies to invest in certain assets or activities, or to help a business achieve a particular goal.
Exactly what level of debt is suitable for your business depends on your precise requirements at any one time. Whatever level of debt you undertake, it’s important to measure it. Keep track of your level of gearing and monitor your debt to equity ratio – a simple formula to show how capital has been raised to run a business. This is an important financial metric because it indicates how financially stable a company is when facing problems with trading or other operational considerations and what ability it has to raise additional capital for growth.
How an accountant can help you
There are a number of ways in which a qualified accountant can help make your business more efficient, especially when it comes to managing your debt. Every business is different but monitoring cash and debt, is equally as important as measuring profit.
An accountant can support you in creating a cashflow forecast to make sure you’re in good cash health and by spotting any potential cash shortfalls early on. You also need to understand what you owe as well as what cash you have in the bank. Looking at your bank balance every day won’t tell you all you need to know.
Based in the Heart of Evesham,The Accountancy Office are here to help If you wish to discuss any aspect covered in this article please don’t hesitate to call 01386 366741 or email us here.
In the face of looming expiration of many cheap fixed-rate mortgage arrangements, an increasing number of individuals find themselves grappling with the challenge of managing mortgage payments. The situation is expected to become even more daunting as these favorable deals come to an end. However, there is a solution that can provide some much-needed financial relief: renting a room to a lodger.
Renting a room to a lodger
Renting a room to a lodger will allow you to earn up to £7,500 a year tax free which will certainly help with mortgage payments, providing the following criteria is met:
Your house must be fully furnished and your lodger has access to other parts but exclusive use of their room. Rooms let unfurnished do not qualify. You must still live at the property.
You need to get permission from your lender to allow a lodger – most will grant this – possibly with a consent to mortgage form being completed for each one.
Your home insurance provider also needs to know to amend the policy; otherwise, they’ll null and void it on a claim.
You need a tenancy agreement of some sort. Websites such as spareroom.com provide excellent templates. You don’t need a lawyer, as lodgers come and go.
Where at least one other person receives income from letting a room in the same property, the tax-free limit is halved to £3,750. The limit of £3,750 per person applies where two or more people receive letting income in relation to a property, meaning that it is possible to receive tax-free income in respect of a single property in excess of £7,500 a year.
If you wish to discuss any aspect covered in this article please don’t hesitate to call 01386 366741 or email us here.
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