Category: News

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.

If you are self-employed your business may well be based at your home address, although you perform the majority of your work at your customers’ sites. This can apply to a range of trades from plumbers to computer consultants, and even medical professionals.

In order to claim the costs of travelling to your customers’ sites against your taxable profits, you need to show that your trading activity does not cease when you arrive home. The following records should help prove this:

• Precise records of all journeys to your customers’ sites, including the date, the mileage, and any public transport tickets and parking receipts.
• A diary of the time spent working on proposals, quotes and other business related paperwork at your home address.
• Business-related paperwork such as invoices and quotations should show your home address as the business base.
• Any insurance policy you need for your business should show your home address as the operational base for the business.
• Where your business is operated through a company, having the registered office for that company at the home address can also help. HMRC will be able to see these details, but you can hide them from prying eyes on the Companies House register.

Further information

You can also make a claim for the cost of running your business from home.

Drop us a message if you need help in determining what can and cannot be claimed as a business expense.

‘Tis the Season to be Jolly’!

Christmas isn’t too far away but we’d rather put that to one side for the time being. So if like us, you’re not ready for Christmas just yet, here’s a reminder of what is allowable for income or corporation tax purposes and what VAT you can reclaim so that you can plan your business celebrations in the most tax efficient way.

• Gifts to customers of the products or services you normally sell are tax allowable, as long as you are not in the food business.
• Small promotional gifts of any item are also treated as tax allowable for your business if they cost less than £50 each and carry a clear advertisement for the business. However, you cannot get income tax or corporation tax relief for the cost of gifts of food, drink, tobacco and gift tokens of any value.
• A number of gifts worth more than £50 in total should not be made to the same person in any 12-month period.
• If you are VAT registered you can reclaim the VAT on small gifts that cost up to £50 each, including gifts comprising of tobacco and alcohol.
• If the gift cost more than £50 (net of VAT) you must account for the VAT on the item as if you had sold it at cost.

Gifts to your staff are tax allowable, but your employees could be taxed on the value of the gift as a benefit in kind. In that case you would also have to pay Class 1A national insurance on the value of those gifts.

HMRC do consider some small items to be trivial benefits, which can be given as tax-free gifts to staff members. Trivial items can include seasonal gifts such as a turkey, an ordinary bottle of plonk (not fine vintage or champagne), or a box of chocolates.

Where you are considering making larger gifts to each employee such as a Christmas hamper, you can include the cost of those gifts in a PAYE Settlement Agreement (PSA) with the tax office. The PSA allows you to pay the tax and NI due on behalf of your employees.

From 1 April 2013, the self employed have been able to account for their income and expenditure on a cash basis. Limited companies are not able to use the scheme.

Under the previous HMRC system, self employed individuals were required to account for income and expenses as they were incurred. This is known as accrual accounting and can be time consuming for small businesses. Here’s a very simple example to illustrate this:

Let’s say you invoice a client for work you carry out for them in March 2018 but the client does not actually pay you until May 2018, which is when the money reaches your bank account. You would need to account for this income during the 2017-2018 tax year because this is the period the income was earned, i.e. March 2018.

The new system will allow you report the income in the period it was received, May 2018 in this example, which falls into the 2018-2019 tax year and therefore you will pay the tax on that income later than before.

No. The scheme will certainly make accounting simpler for small businesses but it does not mean that those businesses will pay less tax.

Small businesses that are unincorporated and with income of £150,000 or less are able to choose whether to use the simplified cash based scheme. You can stay in the scheme up to a total business turnover of £300,000 per year.

The main differences of the new system compared to the previous system are summarised by HMRC as follows:

• No need to understand rules designed for larger businesses
• No need to pay tax until cash is received
• No need to keep complicated records (for example stock, debtors and creditors), over and above those needed to run a business effectively
• No need to understand capital allowances
• No need to keep detailed records for certain key expenses – use a standard rate instead.

What are the pitfalls of the cash basis scheme?

• Capital allowances cannot be claimed. Expenditure on assets used in a business is allowable under the cash basis but certain types of capital expenditure are still excluded.
• Purchases of long-lasting assets such as cars and properties are not allowable. Business losses can only be carried forward to set against the profits of future years and not carried back or offset against other sources of income as they can currently.
• Interest payments are only allowed up to a limit of £500.

• Expenditure on vehicles – a standard fixed rate allowance can be claimed which will replace relief for actual expenditure on purchasing, maintaining and running a motor vehicle. Any small business using the cash basis must claim this way.
• Use of home for business purposes – optional for those businesses using cash accounting.
• Premises used for both home and for business purposes – optional for those business using cash accounting.

Yes you can although if two separate trades are taking place is the combined income total of both trades that will determine whether you are eligible to join the scheme.

When you use a personally owned car in your business, some of the costs associated with running the car are allowable for tax purposes so you can claim these expenses in your accounts to reduce your profits and pay less tax.

If you’re a sole trader there are two methods of claiming these expenses:

1. You can claim 45p for every business mile that you travel up to 10,000 miles. After 10,000 miles the approved  mileage rate drops to 25p per mile.
2. Claim a proportion of all running costs such as fuel, servicing, repairs, insurance and  road tax based on the number of business miles you have travelled. If you use the car privately, you can only claim a proportion of the costs that relate to business mileage, this is usually the ratio of your business mileage compared to your total mileage. You can also claim “Capital Allowances” (a form of tax relief spread over a number of years to reflect the purchase cost of the vehicle) and again these are claimed in proportion to business usage.

The capital allowances you can claim on your car are based on CO2 emissions, which are shown on the car’s V5 certificate. If you buy a new, unused car with emissions of 75g/km or less you can claim 100% allowance. So if the vehicle cost £10,000 to buy, you can claim the full amount as a capital allowance and reduce your tax bill.

For cars with emissions between 96 and 130g/km, capital allowances can be claimed at 18% and 8% for cars over 130g/km. Again, using a vehicle cost of £10,000, if the car has 100g/km emissions, £1800 (18%) would be claimed as a capital allowance in the year of purchase (reducing for personal use if necessary) and the £8200 balance would be claimed in future years.

It is essential to keep a mileage log when claiming actual running costs of the car and capital allowances because any claims made need to be based on the amount of business use and adjusted for any personal use. Keep a note of dates, journeys and the miles travelled together with a note of personal miles so that it’s easy to work out the proportion of business miles to personal miles. At the end of the tax year, if your vehicle has been used for 60% business and 40% for personal journeys, 60% of the total running costs for the year can be claimed and 60% of any capital allowances that are available.

There is no best method to use as it will vary depending on the vehicle, the mileage travelled and the overall running costs incurred. In many cases it is simpler and tax beneficial to use HMRC’s approved mileage rate of 45p per mile. Ask your accountant for advice if you’re unsure of which method is best suited to your circumstances.

If you’re a Director of a limited company, you will be able to claim 45p per business mile when carrying out business journeys in your personal vehicle, again up to 10,000 miles and the rate then falls to 25p per mile. You could also consider selling or transferring your vehicle to the company so that the company takes legal ownership of the car and bears all of the running costs. The disadvantage is that if you’re still using the car for personal journeys, you have been provided with a company car which is a taxable benefit and needs to be reported on a P11D to HMRC who will tax you accordingly.

If you lease a car rather than buying it, the rules are slightly different when it comes to tax relief on the lease payments. Cars with CO2 emissions above 111g/km suffer a 15% restriction on the lease rentals that are deductible against tax, meaning you can only claim 85% of the lease rental. There is no restriction on cars with emissions of 110g/km or less and the full cost of the lease is deductible.

Company contracts and pays for the broadband service

If a broadband contract is undertaken in the name of a limited company and the service is provided at the home of a Director or employee but paid for directly by the company, the monthly broadband cost is a tax deductible expense for the company for corporation tax purposes. If it is not possible to breakdown work and private usage, HMRC accept that providing any private use is insignificant there is no taxable benefit for the employee.

If the broadband connection is used for a mixture of business and personal use then a benefit in kind will apply with the full amount paid by the company becoming taxable on the individual.

Business use of a personal broadband service

HMRC guidance is quite clear under Section 316A ITEPA 2003. If there is already a broadband service in place at the Director’s (or employee’s) home, HMRC argue that there is no additional cost to you in using an existing broadband package for business use: