Category: News

Your responsibilities as Director…

The tax man may be more generous than you think! If you’re a sole trader, partnership or limited company you can claim a tax allowance known as a capital allowance.

When you buy items of equipment and tools for your business, typically items that will be utilised over a period of time, you cannot claim them as a business expense in your accounts. However, you may be able to claim capital allowances. These items are usually regarded as business assets and may include computer equipment, machinery, furniture and even vans and cars. There are various forms of capital allowances and the rates available will vary depending on the specific items of expenditure and dates of purchase.

Your business accounts will typically only cover a 12 month period and assets of the business will be used for a longer period so they need to be treated differently. The tax man allows you claim ‘capital allowances’ for these items which allows you to deduct a proportion of the cost from your taxable profits and reduce your tax bill. Adjustments for personal use of any asset is usually required.

The most useful capital allowance for small businesses is the ‘Annual Investment Allowance’ (AIA) which enables most businesses to claim 100% of the cost of assets against tax, up to an annual limit of expenditure of £200,000. This limit will be reduced to £25,000 from April 2012 so it’s wise to plan ahead carefully when considering new investment. Cars are excluded from the AIA.

Having just saved a new client a significant amount of tax utilising capital allowances not previously claimed, it is important that these allowances are considered and utilised wherever possible. Always consult your accountant for professional advice.

As a company owner you can choose how to extract the profits from your company, and by making the right choices you can minimise the tax and NI paid by you and the company.

The Taxman would like you to take all the profits in the form of a salary and possibly a bonus, as these carry the highest National Insurance charges and ensure the tax is deducted under PAYE before you get your hands on the net income. It is good practice to pay yourself at least a small salary that is covered by your personal allowance (£11,850 for 2018/19) as this makes the best use of your tax free allowances. However, the maximum salary you can take so that neither you nor the company pay NICs is £8,424 in 2018/19, as the threshold for NICs is lower than the tax free threshold. You will still receive NI contribution credits without actually paying NI.

Most company owners extract any further amount they need in the form of dividends. You can receive £2,000 of dividends tax free in 2018/19. Any dividends over £2,000 will be taxed at the following rates:

• Dividends falling within the basic tax rate – 7.5% (£34,500)
• Dividends falling with the higher tax rate – 32.5% (over £46,350 from April 2018)
• Dividends falling with the additional rate of tax – 38.1% (income over £150,000 meaning restrictions on your personal allowance)

NI is not paid on dividends.

You can also charge a rent for assets you own which the company uses (although this could affect the availability of entrepreneurs’ relief on a sale of that asset). These assets could be real property (land) or intellectual property (e.g. patents). If you lend funds to the company it can pay you a commercial rate of interest on that loan. These profit extraction methods are free of NI charges.

We can discuss other methods of extracting profits, perhaps using your family members. Please contact us for specific advice in your own circumstances.

There is a myth that every legitimate business is required to be VAT registered. This is not the case.

Your business (as a sole-trader, partnership or company) does not have to become VAT registered until the total sales for 12 consecutive months exceeds £85,000. However, this total does apply to all the businesses you run and you can’t artificially divide your businesses to avoid registering for VAT.

Once your business is VAT registered you must charge VAT at the appropriate rate (normally 20%) on your sales. You also have to submit regular VAT returns, either quarterly or monthly, which means you need to keep your records of sales and purchases up to date.

If this all sounds a bit too much to cope with there are a number of schemes you can sign up to which are designed to make VAT reporting much easier for small businesses. We’ll talk about three of the most commonly used schemes for now:

Standard Accounting. Using standard VAT accounting, you must complete four VAT Returns each year. Any VAT due is payable quarterly and any VAT refunds due to you are also repayable quarterly. You pay VAT on your sales whether or not your customer has paid you.

Cash Accounting Scheme. Using this scheme you pay VAT on your sales when your customers pay you and you reclaim VAT on your purchases when you have paid your supplier. This scheme can offer you cash flow advantages and is useful if there is often a delay between the time that you issue VAT invoices to your customers and when you actually receive payment from them.

Flat Rate Scheme. When you use this scheme you don’t have to worry about your purchases. You just have to total-up your sales each quarter and pay over a flat percentage as VAT to the Taxman. From April 2017, the Government introduced a new 16.5% flat rate VAT scheme that many ‘labour-only’ businesses, such as contractors, have to move to. This increased the rate at which VAT is paid under the Flat Rate scheme for many businesses, which means you need to review your VAT status. Ask your accountant if this scheme is still beneficial for you.

Some people prefer to keep their total sales below the compulsory VAT registration threshold, so they don’t have to charge VAT and submit VAT returns. They do this by turning down work that would take them over the VAT threshold. This is not illegal, but HMRC may be suspicious of businesses who manage their sales in this way. If you use this strategy to avoid VAT registration, you need to be able to prove all your sales are correctly recorded and declared.

As an employer you are required to collect repayments of student loans your employees took out through the Student Loan Company (SLC) while they were studying, during years after September 1998.

You are told to start making SLC deductions by a SL1 notice from HMRC. You should work out the correct figure of employee earnings on which Student Loan deductions are due. The figure to use is the same gross pay amount that you would use to calculate your employer’s secondary Class 1 National Insurance contributions (NICs).

Start making Student Loan deductions from the next available payday using the correct plan type, which you will select from a dropdown box on your HM Revenue and Customs (HMRC) submission, if any of the following apply:

• your new employee’s P45 shows deductions should continue – ask your employee to confirm their plan type
• your new employee tells you they’re repaying a Student Loan – ask your employee to confirm their plan type
• your new employee fills in a starter checklist showing they have a Student Loan – the checklist should tell you which plan type to use
• HMRC sends you form SL1 ‘Start Notice’ – this will tell you which plan type to use
• you receive a Generic Notification Service student loan reminder – ask your employee to confirm their plan type

Plan types and thresholds

With effect from April 2018, the thresholds for making Student Loan deductions are:

• Plan 1 – £18,330 annually (£1527.50 a month or £352.50 a week)
• Plan 2 – £25,000 annually (£2083.33 a month or £480.76 a week)

Stopping Student Loan deductions

Stop making Student Loans deductions when you receive a SL2 ‘Stop Notice’ from HMRC and from the first available payday after the deduction stop date shown on the notice. The ‘first available payday’ is the first payday on which it’s practical to apply that notice.

Self Employed

If you have a SLC loan yourself and are self-employed, the SLC loan repayments should be collected through your annual self-assessed tax bill.

If your self-employed profits are less than £18,330 per year, you are not required to make any SLC repayments. This also applies if your salary is under £18,330 or you have a number of jobs from which you earn under that threshold in each.

Many of our limited company clients find it difficult to understand all of the stautory filings that are required when running a limited company, it can be quite confusing! We’re here to help and will always remind our clients in advance of any impending reporting deadlines with polite reminders!

These are the essential aspects that a limited company typically needs to worry about:

• Annual statutory accounts
• Annual corporation tax return
• Payroll for Director/s
• Workplace Auto Enrolment
• VAT returns (if VAT registered)
• Self Assessment Tax Return for the Director/s
• Confirmation Statement

There is a large amount of red tape involved when running a limited company but it is important to remember that the Confirmation Statement is a separate document to the annual company accounts.

So what is the Confirmation Statement?
The Confirmation Statement is “a snapshot of general information about the company’s directors, secretary (where one has been appointed), registered office address, shareholders and share capital”. Every company in the UK must submit an Confirmation Statement to Companies House detailing any legal changes that have occurred within the company over the previous twelve months usually from the date of the anniversary of the company.

If you don’t know when the company Confirmation Statement is due you can check this on the Companies House website.

The easiest and cheapest way to complete the Confirmation Statement is to use the WebFiling service via the Companies House website. The associated filing fee is £13. To use WebFiling you must first register for two codes:

• A Security Code (sent by email and linked to your email address)
• An Authentication Code (posted to the registered office address).

The Director/s or secretary of the company are personally liable to deliver the completed Confirmation Statement form to Companies House on time. If not filed on time, late filing penalty payments may apply.

If you’re VAT registered you will no doubt have been advised by your accountant to always obtain a VAT receipt (or invoice) from your suppliers. Many of our clients provide us with what they believe to be VAT receipts but in actual fact they’re not. So….

What is a VAT receipt and why do you need it?

Delivery notes, letters or email correspondence are not valid VAT receipts and you cannot reclaim VAT using these documents.

To reclaim VAT on the purchases that you’ve acquired for your business you need to have a valid VAT receipt (or VAT invoice) as proof of the purchase and that you’ve paid VAT on that purchase. If you don’t have a valid VAT receipt you cannot reclaim the VAT.

What should the VAT receipt show?

A valid VAT receipt should include all of the following details:

• A unique invoice number
• The seller’s name or trading name and address
• The seller’s VAT registration number
• The invoice date
• The tax date (the date of supply which is also known as tax point – if different from the invoice date)
• Your name or trading name and address (i.e. the customer)
• A description of the goods or services supplied to you

Simplified VAT receipts

• The seller’s name and address
• The seller’s VAT registration number
• The date of supply (tax point)
• A description of the goods or services supplied

•  The total price including VAT
•  The VAT rate applicable to the item

Modified VAT Invoices

Retails who provide goods or services for more than £250 including VAT may issue “modifield invoices” if their customer is in agreement. This will show the VAT inclusive amounts (rather than the VAT exclusive values) for each standard rate or reduced rate item. At the foot of the invoice, it must show separately the total:

• VAT payable on those items
• Value of those items excluding VAT
• Value of any zero rated items included on the invoice
• Value of any exempt items included on the invoice

Electronic Invoices

You can issue, receive and store your VAT invoices in electronic format. You don’t need to tell HMRC if you plan to issue, receive and/or store invoices electronically.

Financial Penalties

HMRC send out notices to those individuals who, according to their records, are required to complete a self assessment tax return for the 2018-2019 tax year which ended on 5th April 2018

If you’ve received one of those notices, there is no need to panic as the HMRC deadline for submission of the tax return and payment of any tax due is not until 31 January 2019.

What do I need to do?

If your accountant usually completes your tax return for you, you simply need to get in touch and they will take care of this for you. Check if they have their own deadline when they need to receive any information from you to ensure that they have sufficient time to submit the tax return for you. Late filing of a tax return will incur a financial penalty so try to allow as much time as possible to avoid this.

What information is needed?

The tax return will need to include:

• Personal information including your full name, address, date of birth, national insurance number and most importantly your unique tax reference number (often referred to as a UTR number).
• Employment earnings (you should of received a P60 or P45 from your employer)
• Self employment income and expenditure
• Bank account or savings interest
• Any income you have received from investments (i.e. dividends)
• Any income from land or property (i.e. renting out a property)
• Capital gains income (from the sale of shares or investments)
• Pension contributions
• Gift aid donations

If you make or receive maintenance payments or child maintenance payments it won’t normally have any effect on your tax position.

We have a FREE personal tax organiser which will help you organise all of the necessary information so please let us know if you would like a copy.

How soon can I complete my tax return?

We have already started to prepare 2018-2019 tax returns. As soon as you have all of the relevant information available it is a good idea to complete the tax return so that it doesn’t get overlooked! You then won’t have to worry for another year and the sooner you know what your tax liability is (if any) the sooner you can start to budget for the payment. If you’re due a tax refund you’ll receive it sooner too!

If you receive tax credits you will shortly receive an annual declaration from HMRC to renew your claim which must be done no later than 31 July. If you’re self employed you will need the figures from your business accounts or tax return in order to complete this review.

If there is any other information that you think may be relevant to the completion of your tax return then you should seek professional advice. Your own personal circumstances will affect what aspects of the tax return needs to be completed and what income needs to be declared.

This is a popular topic for our self employed clients…

Subsistence includes accommodation, food and drink costs whilst away from the permanent workplace. Subsistence expenditure is specifically treated as a product of business travel and is therefore treated as part of the cost of that travel.

The cost of food, drink and accommodation is generally not an expense incurred wholly and exclusively for business purposes, since everyone must eat in order to live. They are normal costs of living incurred by all and not as a result of trading.

Occasional business journeys outside the normal pattern

Extra costs may be incurred wholly for business purposes where occasional business journeys outside the normal pattern are made. Modest expenses incurred in these circumstances may be deducted from business profits.

HMRC allow that “where a business is by its nature itinerant” i.e. you do not have a base but work at customer sites travelling from site to site to perform your work, then expenses may be claimed in relation to the costs associated with this travelling. Examples would be a self-employed travelling salesman, or a taxi driver, where it is part of the very nature of the business to travel. The cost of subsistence and accommodation while travelling is allowable.

Travel between home and work

If a self employed person has a base of operations that is separate to their home, then the cost of travelling between home and that base will be treated as ordinary commuting and therefore is not tax deductible.

Where the base of operations is away from home, and overnight accommodation and subsistence is incurred to allow the person to be at or close to the base of operations, then the expenditure will not be allowable.

However, where a person’s base of operations is at their home then the cost of travelling between their home and where work is carried out should be allowable. Difficulties can arise in determining whether there is a specific ‘base of operations’ and where this is. Claims for relief which are later challenged by HMRC could prove costly.

The crucial point is to establish precisely where the base of operations is. Each case will clearly depend on its own merits but in recent cases the fact that business records were kept and written up at home, that tools of the trade and equipment were kept at home and that new work was sourced from home were all contributing factors taken into account in determining where the base of operations was.

Overnight subsistence and accommodation expenses

Where a business trip necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible.

This does not extend to overnight accommodation and subsistence at the base of business operations, even if there is a contractual requirement for the trader to reside in a particular place.

The reasonable costs of meals taken in conjunction with overnight accommodation are allowable, whether they are paid on the same bill, or meals and accommodation are paid on separate bills.

If you receive a tax return, you are legally obliged to complete it, even if you think it is not relevant to you. If you do not complete and submit the tax return you will be fined. HMRC may also issue a bill for estimated tax due.

You must file your tax return with HMRC by 31 January following the tax year end date of 5 April. For example, the 2018 tax return (for the tax year 2017-2018) is due by 31 January 2019. You will be sent your tax return around May after the end of the tax year.

What happens if I submit my tax return late?

There are penalties for late filing:

• You will be charged a penalty even if you do not owe any tax.
• If you miss the filing dates of 31 October (for paper returns) or 31 January (online submission), you will be charged a penalty of £100.
• If you are three months late, you will be charged an automatic daily penalty of £10 per day, up to a maximum of £900.
• If you are six months late there will be a penalty of £300 (or 5% of the tax owing if this is greater).
• If you are 12 months late, you will be charged another £300 (or 5% of the tax owing if this is greater). In exceptional circumstances a higher penalty of up to 100% of the tax due is possible.

The are also penalties are late payment are:

• 5% of tax unpaid after 30 days
• Another 5% of tax unpaid after 6 months
• Another 5% of tax unpaid after 12 months

The penalties can result in a substantial amount of money so it is essential that you complete and submit your tax return and pay any tax due on time.