The Accountancy Office

What Is MTD ITSA and How Will It Affect Self-Employed Individuals?

MTD ITSA or Making Tax Digital for Income Tax Self Assessment  is a major change in the way self-employed individuals and landlords in the UK manage and report their taxes. It’s part of the Government’s initiative to modernise the tax system, making it more efficient and accurate.

If you’re self-employed, this change will likely affect how you record your income and submit your tax returns. 

What Is MTD ITSA?

MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. It’s an extension of the government’s Making Tax Digital (MTD) initiative, which already applies to VAT. MTD ITSA focuses on streamlining the process of reporting income tax for:

•Self-employed individuals.

•Landlords with annual rental income.

Under MTD ITSA, you’ll need to:

1.Keep digital records of your income and expenses.

2.Submit quarterly updates to HMRC through MTD-compatible software.

3.File an End of Period Statement (EOPS) and a Final Declaration to confirm your annual income and tax obligations.

Who Does MTD ITSA Apply To?

MTD ITSA will apply to:

•Self-employed individuals and landlords with an annual business or property income exceeding £50,000 starting from April 2026.

•Those with income between £30,000 and £50,000 starting from April 2027.

HMRC is still consulting on how MTD ITSA will apply to individuals earning below £30,000 annually, but it’s important to stay informed about future changes.

How Will MTD ITSA Affect You?

1.Digital Record-Keeping

If you’re used to keeping paper records or spreadsheets, you’ll need to switch to MTD-compatible software to maintain your records digitally.

2.Quarterly Reporting

Instead of filing a single self assessment tax return once a year, you’ll submit four quarterly updates to HMRC. These updates provide a snapshot of your income and expenses throughout the year.

3.End of Year Submissions

You’ll still need to finalise your accounts at the end of the year, but the process will be streamlined through digital tools.

4.Increased Transparency

With regular updates, you’ll have a clearer picture of your tax obligations throughout the year, reducing the risk of surprises at year-end.

What Do You Need to Do to Prepare for MTD ITSA?

1.Determine If MTD ITSA Applies to You

Check your annual income from self-employment or property to see when you’ll need to comply with MTD ITSA.

2.Choose MTD-Compatible Software

We work with Xero which is MTD-compatible. Xero will help you maintain digital records and submit quarterly updates seamlessly.

3.Organise Your Records

Ensure your income and expense records are accurate and up to date. If you’ve been relying on paper receipts, it’s time to transition to a digital system.

4.Learn the New Process

Familiarise yourself with how to submit quarterly updates, End of Period Statements, and the Final Declaration.

5.Seek Professional Advice

Navigating MTD ITSA can be complex, especially if you’re new to digital accounting. A trusted accountant can guide you through the transition and ensure compliance.

How The Accountancy Office Can Help

At The Accountancy Office we understand the challenges that MTD ITSA presents for self-employed individuals. Our goal is to make the transition as smooth and stress-free as possible.

Here’s how we can support you:

1.Expert Guidance

We’ll help you understand how MTD ITSA affects your specific situation and create a plan to ensure compliance.

2.Software Setup and Training

Choosing and setting up MTD-compatible software can be overwhelming. We’ll recommend the best option for your needs, handle the setup and provide training to get you up to speed.

3.Quarterly Reporting Support

We’ll assist with preparing and submitting your quarterly updates to HMRC, ensuring accuracy and timeliness.

4.Year-End Submissions

From the End of Period Statement to the Final Declaration, we’ll manage your year-end submissions so you can focus on running your business.

5.Ongoing Support

We’re here to answer your questions, troubleshoot issues, and provide peace of mind as you navigate MTD ITSA.

Get Ready for MTD ITSA with The Accountancy Office

Making Tax Digital for Income Tax Self Assessment is a significant change, but you don’t have to face it alone. At The Accountancy Office, we’re experts in helping self-employed individuals transition to MTD seamlessly.

Feeling overwhelmed with the thought of Making Tax Digital? Book your FREE consultation today and gain clarity on what MTD means for your business. Don’t miss this opportunity to get expert guidance tailored to your needs – make tax compliance stress-free and get ready for the future of tax reporting! 

HMRC’s online Time to Pay system

 

Can’t pay your tax bill in full by 31 January 2025? HMRC’s online Time to Pay system lets self-assessment taxpayers spread the cost over monthly instalments. With plans available for tax bills up to £30,000, this flexible option can help you avoid late payment penalties.

 Those eligible for the self-serve option can arrange payments online without needing to contact an HMRC adviser. HMRC has revealed that more than 15,000 taxpayers have already set up a Time to Pay payment plan for the 2023-24 tax year.

To qualify for the online Time to Pay option, taxpayers must meet these conditions:

  • No outstanding tax returns
  • No other tax debts
  • No existing HMRC payment plans

For taxpayers who do not meet these requirements or owe more than £30,000, other payment arrangements may be available. These are typically agreed on a case-by-case basis, tailored to individual circumstances and liabilities, allowing businesses and individuals to pay off their debt over time.

HMRC’s Director General for Customer Services, said:

We’re here to help customers get their tax right and if you are worried about how to pay your self-assessment bill, help and support is available. Customers can set up their online payment plan to suit their own financial circumstances and can spread those payments across a maximum of 12 months. It is a valuable option for someone needing extra flexibility in meeting their tax obligations.

Once you have your plan in place, take time to review your finances and prepare for next year’s tax bill. To find out if you are claiming all tax allowances available to you, visit HMRC’s website.

If you need help preparing tax returns, for companies or individuals , our team is here to help. We offer a comprehensive accounting service .

Contact us today to ensure you and your company’s taxes stay on the right track! 

Call us on  01386 366741 or email here and one of our advisers will be in contact.

Why Limited Company Directors and Shareholders Need to Prepare Dividend Vouchers (and How to Do It) 

As a director/shareholder of a limited company in the UK, understanding dividends is crucial for ensuring compliance with tax laws and maintaining clear financial records. A key part of the dividend process is preparing dividend vouchers. In this blog, we’ll explain why dividend vouchers are necessary and guide you through how to create them. 

 

What Are Dividend Vouchers? 

A dividend voucher is a document that records the payment of a dividend to a company’s shareholder(s). It acts as a formal receipt and is an important part of your company’s records. 

When a limited company declares and pays a dividend, it must issue a dividend voucher to each shareholder receiving a payment. This applies to all dividends, whether interim or final. 

 

Why Are Dividend Vouchers Necessary? 

1. Compliance with HMRC Requirements 

HMRC requires evidence of all dividend payments. Dividend vouchers serve as this evidence, showing that the payment was a dividend and not another type of transaction, such as a director’s loan or salary. Without a voucher, you may struggle to justify payments during a tax inspection. 

 

2. Record-Keeping Obligations 

As a limited company, you are legally required to maintain accurate records of all financial transactions. Dividend vouchers help fulfil this requirement by documenting distributions made to shareholders. 

 

3. Shareholder Clarity 

Dividend vouchers ensure transparency, providing shareholders with clear documentation of the payment, the amount received, and the associated tax credit. 

 

How to Prepare a Dividend Voucher 

Creating a dividend voucher is a straightforward process, but it must include specific information to meet legal requirements. Below is a step-by-step guide: 

Step 1: Confirm Company Profitability 

Before declaring dividends, ensure the company has sufficient post-tax profits to cover the payment. Paying dividends when there are no distributable profits could result in legal and financial complications. 

Step 2: Declare the Dividend 

Hold a board meeting to officially declare the dividend. Record the decision in the meeting minutes, stating the amount of the dividend and the date of payment. 

Step 3: Draft the Dividend Voucher 

Your dividend voucher should include the following details: 

          Company name: The name of the limited company issuing the dividend. 

          Shareholder details: The name and address of the shareholder receiving the payment. 

          Date of issue: The date the dividend is declared or paid. 

          Dividend amount: The gross amount of the dividend. 

          Tax credit: The tax credit associated with the dividend (this only applies to older distributions, as the dividend tax credit was removed in 2016). 

          Net amount: The amount the shareholder will receive after tax (if applicable). 

 Step 4: Distribute the Voucher 

Provide each shareholder with a copy of their dividend voucher. This can be done physically or electronically, depending on preference. 

Step 5: Retain Copies for Company Records 

Keep a copy of each dividend voucher in your company’s records. This ensures you have the necessary documentation for future reference or potential HMRC audits. 

 

How to Prepare a Dividend Voucher 

Creating a dividend voucher is a straightforward process, but it must include specific information to meet legal requirements. Below is a step-by-step guide: 

Step 1: Confirm Company Profitability 

Before declaring dividends, ensure the company has sufficient post-tax profits to cover the payment. Paying dividends when there are no distributable profits could result in legal and financial complications. 

Step 2: Declare the Dividend 

Hold a board meeting to officially declare the dividend. Record the decision in the meeting minutes, stating the amount of the dividend and the date of payment. 

Step 3: Draft the Dividend Voucher 

Your dividend voucher should include the following details: 

          Company name: The name of the limited company issuing the dividend. 

          Shareholder details: The name and address of the shareholder receiving the payment. 

          Date of issue: The date the dividend is declared or paid. 

          Dividend amount: The gross amount of the dividend. 

          Tax credit: The tax credit associated with the dividend (this only applies to older distributions, as the dividend tax credit was removed in 2016). 

          Net amount: The amount the shareholder will receive after tax (if applicable). 

Step 4: Distribute the Voucher 

Provide each shareholder with a copy of their dividend voucher. This can be done physically or electronically, depending on preference. 

 

Step 5: Retain Copies for Company Records 

Keep a copy of each dividend voucher in your company’s records. This ensures you have the necessary documentation for future reference or potential HMRC audits. 

 

What Happens Without Dividend Vouchers? 

Failing to prepare dividend vouchers can lead to: 

          HMRC challenging payments, potentially reclassifying them as salary or director’s loans, which could result in additional tax liabilities. 

          Difficulties in proving compliance with UK company law. 

          Confusion or disputes among shareholders regarding payment amounts and dates. 

 

Need help with dividend vouchers? 

Dividend vouchers may seem like a small administrative task, but they are vital for maintaining compliance and clarity within your limited company. By ensuring dividends are properly declared and documented, you protect your business and shareholders from potential complications. 

If you need help preparing dividend vouchers or understanding dividend compliance, our team is here to help. We offer a dividend voucher preparation service for a monthly fixed fee. 

Contact us today to ensure your company’s finances stay on the right track! 

Call us on  01386 366741 or email here and one of our advisers will be in contact.

MTD ITSA or Making Tax Digital for Income Tax Self Assessment FAQ

1. What is MTD ITSA?

MTD ITSA (Making Tax Digital for Income Tax Self Assessment) is part of HMRC’s initiative to modernise the tax system. It requires self-employed individuals and landlords to keep digital records of their income and expenses and submit quarterly updates to HMRC using MTD-compatible software.

2. Who does MTD ITSA apply to?

MTD ITSA applies to:

•Self-employed individuals and landlords with annual business or property income exceeding £50,000 from April 2026.

•Those earning between £30,000 and £50,000 will need to comply from April 2027.

Future plans for individuals earning below £30,000 are still under consultation.

3. When does MTD ITSA start?

April 2026: For individuals earning over £50,000 annually.

April 2027: For individuals earning between £30,000 and £50,000 annually.

4. What records do I need to keep digitally?

You’ll need to maintain digital records of:

•Income

•Expenses

•Bank transactions related to your business or property

These records must be stored in MTD-compatible software and submitted to HMRC via quarterly updates.

5. How often do I need to report under MTD ITSA?

You’ll need to submit:

Four quarterly updates summarizing your income and expenses throughout the year.

An End of Period Statement (EOPS) at the end of the tax year to confirm your figures.

A Final Declaration to declare all your income and confirm your tax liability.

6. What software do I need for MTD ITSA?

You’ll need MTD-compatible software to manage your records and submit updates such as Xero.

We can help set up Xero for you and provide you with training to get you started.

7. What happens if I don’t comply with MTD ITSA?

Failure to comply with MTD ITSA requirements may result in penalties from HMRC. These could include fines for late submissions or non-compliance with digital record-keeping rules.

8. Do I still need to file a Self Assessment tax return?

No. MTD ITSA replaces the traditional annual Self Assessment tax return. Instead, you’ll submit quarterly updates, an EOPS, and a Final Declaration through your MTD-compatible software.

9. How can The Accountancy Office help me with MTD ITSA?

We provide:

•Expert advice tailored to your situation.

•Setup and training for MTD-compatible software.

•Assistance with quarterly updates and year-end submissions.

•Ongoing support to ensure compliance and peace of mind.

10. What should I do now to prepare for MTD ITSA?

•Determine when MTD ITSA will apply to you based on your income.

•Choose and set up MTD-compatible software.

•Organise your records to ensure accuracy.

•Seek professional advice to streamline the transition.

Still Have Questions? We’re Here to Help!

At The Accountancy Office, we specialise in helping self-employed individuals prepare for MTD ITSA. Whether you need help setting up software or understanding your obligations, we’re just a call away.

Feeling overwhelmed with the thought of Making Tax Digital? Book your FREE consultation today and gain clarity on what MTD means for your business. Don’t miss this opportunity to get expert guidance tailored to your needs – make tax compliance stress-free and get ready for the future of tax reporting! 

VAT, Can I reclaim it pre-trading ?

 

There are special rules that determine the recoverability of VAT incurred before a business registered for VAT. 

This type of VAT is known as pre-registration input VAT. There are different rules for the supply of goods and services, but VAT can only be reclaimed if the pre-registration expenses relate to the supply of taxable goods or services by the newly VAT registered business.

The time limit is backdated from the date of registration and is:

  • 4 years for goods on hand, or that were used to make other goods on hand; and
  • 6 months for services.

The pre-trading VAT input tax should be reclaimed on a business’s first VAT return. When a new VAT registration is applied for, there is an option to backdate the registration (known as the effective date of registration), this option should be considered if there is additional input tax that will be made recoverable.

There are special rules for partially exempt businesses and for businesses that have non-business income and for the purchase of capital items within the capital goods scheme.

HMRC’s internal guidance on the issue provides interesting examples. One of those relate to the purchase of a van by an individual for wholly private purposes. Three years later the individual registers for VAT and uses the van exclusively within their business. The VAT incurred on the purchase of the van will never be recoverable because there were no business activities at the time the van was bought.

Please contact us if you’d like to discuss your company’s tax  options  then please contact us on 01386 366741 or email here and one of our advisers will be in contact.

How much National Insurance will my company pay in 2025-2026?

As the dust settles on Labour’s first Budget in 14 years, we look at the impact for businesses, in particular single directors’ of limited companies.
The biggest budget announcement related to employers National Insurance – hitting employers hard with a double whammy:
1.2% increase in employer’s National Insurance contributions (NICs) and

Lowering the secondary threshold (ST) which means employers will start to pay NICs on employees earnings from £5,000 instead of the current £9,100 threshold.
However, the Employment Allowance (EA) will be increasing from £5,000 to £10,500 which will help offset some of the additional costs – for some employers but not all.
Sole Directors of Limited Companies
A company with only one employee paid above the Class 1 National Insurance Secondary Threshold, where that employee is also a director of the company are specifically excluded from claiming the employment allowance.
Whilst this has always been the case (and seems somewhat outdated considering the reduction in the dividend allowance in recent years,) it does mean that sole directors will face additional NIC costs.

Example of a Director’s salary in 2024-2025
In 2024, for a single director working through their own limited company, the most common annual salary was typically £9,100 or £12,570.
A salary of £9,100 did not attract any Employers’ National Insurance because it was below the secondary threshold. The salary also suffered no employee tax or National Insurance contributions and secured a pension credit for the director, as if it had been paid and securing a qualifying year towards the state pension.

National Insurance Chart

What will be the optimum director’s salary in 2025/26?
We anticipate that for the 2025/26 tax year, sole Director Companies (with no employees) will choose between:
A salary of £12,570, achieving the most efficient tax savings available and securing a qualifying pension year, or
Lower salary, not achieving full tax savings and forfeiting a qualifying year, or
No salary, reducing administrative costs and forfeiting a qualifying year.
A salary of £6,000 would incur an Employers NI liability of £150 but it is too low to qualify for the state pension credit because earnings need to be equivalent to the National Insurance Lower Earnings Limit (LEL) (£533 per month 24/25 and £542 25/26).
However, a £6,000 salary + £150 Employers NI would save corporation tax of 19% = £1,169.
If you were to take £6,000 as dividends rather than a salary, the personal tax would be £481 based on the basic dividend rate of 8.75%.
Alternatively, employing an additional staff member could make the business eligible for the Employment Allowance, offsetting Employer NI costs.
There is no definitive answer as to what the best optimum salary for a limited company director is. It will depend on your personal situation, business position, personal priorities and overall tax position.
For company directors with employees (who can claim the Employers Allowance) the optimum salary will usually be £12,570.

What about larger companies?
Let’s look at a larger business who employs 150 workers paying them an average salary of £38,000 per year.
This example highlights the real impact of the Employers’ National Insurance changes with a clear illustration of how the government expects to raise extra revenue.
150 employees x £38,000 = £5,700,000
2024 Employers NIC x 13.8% = £598,230
The company is not eligible to claim the Employment Allowance as it’s Employers NICs exceeds £100,000.

In 2025, with the same number of employees and the same pay rate, the business will be eligible for the Employer’s Allowance due to the removal of the £100,000 cap.
150 employees x £38,000 = £5,700,000
2025 Employers NIC x 15% = £742,250
Less Employers Annual Allowance = £10,500
Total Employers NIC = £732,000
This employer will pay an additional £133,770 in NICs each year (22%) which is a very significant additional tax burden.

How Can I Prepare for the Employers National Insurance Increase?
Adapting to these new additional costs will require thoughtful adjustments to business strategies.
Here are some proactive steps you can take:
Review Payroll Budgets: Businesses should reassess their payroll budgets to account for the higher NI rate and the lowered threshold. By factoring in these changes early, businesses can better prepare for their financial impact. The National Minimum Wage increase should also be considered, where applicable.

Optimise Workforce Planning: Employers may consider restructuring roles or adjusting part-time and flexible work arrangements to manage costs effectively. Prioritising efficiency within the workforce and identifying ways to improve productivity could help offset some of the increased NI expenses.

Consider Salary Sacrifice Schemes: Some companies may explore tax-efficient remuneration options like salary sacrifice schemes, where employees opt to exchange part of their salary for non-cash benefits, reducing the NI liabilities for both employers and employees.

National Minimum Wage
The 6.7% increase in the National Minimum Wage from April 2025 will have a significant impact on employers.
The National Living Wage will increase to £12.21 from 1st April 2025, for employees aged 21 and above.
The National Minimum Wage rate for employees aged 18-20 will increase to £10.00.
The National Minimum Wage rate for employees aged 16-17 will increase to £7.55.
The National Minimum Wage rate for apprentices will increase to £7.55.

Conclusion
There were other announcements that will impact business owners that we have not covered in this blog. For your free Budget Report and complimentary personalised NIC projection, please call 01386 366741 or email us here

What are the Financial Reporting Changes from January 2026?

Financial Reporting Changes

The Financial Reporting Council (FRC) has announced changes to FRS102 and other financial reporting standards, affecting millions of UK companies from 1 January 2026. 

The changes are designed to enhance the quality of financial reporting in the UK and consistent with international standards.

What is FRS 102 and FRS 105?

FRS 102 is the Financial Reporting Standard applicable in the UK.

FRS 105 is the Financial Reporting Standard applicable to the Micro-entities Regime, a simplified version of FRS 102 to reflect the simpler nature and smaller size of UK companies. 

Check with your accountant if you’re unsure which Financial Reporting Standard you’re adopting.

What are the significant changes coming up in FRS 102?

The two headline changes relate to lease accounting and revenue recognition. 

In terms of lease accounting, the changes only affect FRS 102 (not FRS 105). 

Amendments to revenue recognition affect both FRS 102 and FRS 105.

Lease accounting

Almost all operating leases will be recognised on the balance sheet’ by lessees within the financial statements, bringing an asset and liability into their accounts, eliminating the distinction between operating and finance leases.

Currently, FRS 102 classifies leases as either operating or finance leases. Assets held under operating leases are not recognised on the balance sheet and the lease payments are expensed in the profit and loss account.

Assets held under finance leases are recognised on the balance sheet with a lease liability included in creditors for the lease rental payments due. Regular lease payments reduce the liability, they are not charged to the Profit and loss. Instead, depreciation and interest are recognised as an expense.

The amendment will remove operating leases from FRS 102 meaning that all leased assets will be included on the balance sheet and accounted for in the same way as finance leases.

There are some exemptions available for short term and low value leases.

Balance sheets will show more assets and liabilities. This could affect various financial ratios.

There will be some practical issues with assessing all current leases too. 

In terms of profit and loss account, there will be a charge for depreciation and interest on the lease liability.

Revenue recognition

Under FRS 102, revenue is recognised with reference to the stage of completion of the transaction. This will vary depending on whether the transaction is a sale of goods, provision of services or a contract over a period of time, such as construction.

The amount and timing of revenue included within the financial statements may change as a consequence of the new five-step recognition criteria, which is a simplified version of IFRS 15 ‘Revenue from Contracts with Customers’.

Distinct goods or services promised to a customer will be recognised when they are transferred to the customer.

The five-step revenue recognition model is:

  • Identify the contract with the customer.
  • Identify the performance obligations in the contract.
  • Determine the transaction price.
  • Allocate the transaction price to each performance obligation.
  • Recognise revenue when the performance obligation has been satisfied.

There will likely be little to no impact for many companies if their revenue recognition already follows this model.

Let’s look at an example of a mobile phone company providing a mobile phone to a customer, on a two year contract. 

  1. The contract is for the phone and the data/calls plan
  2. The obligation is to provide a mobile phone and two years of data/calls
  3. The transaction price will be the monthly cost, over the two year contract
  4. The transaction price is allocated between the mobile phone handset and the data/calls package
  5. The mobile phone revenue would be recognised on day 1, as soon as the phone is handed to the customer. The revenue from the data/calls would be recognised monthly over the life of the two year contract

How You Can Prepare for the Lease Accounting Changes Under FRS 102

Early adoption is an option, but you will have to adopt all leases at once.

It’s important to review your lease agreements. This is probably the most important and initially the most time-consuming part. 

Identify which leases are short-term leases and which are ‘low-value’ assets that qualify for exemptions. 

All remaining leases are “finance leases” and, if you are not already accounting for them as such, they will need to be brought onto your balance sheet from 2026.

It is crucial that you understand the impact on recognition and measurement on your financial statements if you adopt the revisions early. For example, most operating leases coming onto the balance sheet will increase assets and liabilities on your balance sheet. Your profit or loss will have an increased depreciation charge, increased interest/finance expense and decreased lease rental charge.

If you would like to discuss this further the please contact us on 01386 366741 or email here and one of our advisers will be happy to help.

What does my tax code mean?

Ever wondered what your tax code actually means?

What does my tax code mean?

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.

Posted in Tax

Tax Benefits of Renting Rooms in Your Home

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

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.

Based in the Heart of Evesham, The Accountancy Office are here to help with all of your accountancy needs.

If you wish to discuss any aspect covered in this article please don’t hesitate to call 01386 366741 or email us here.

Posted in Tax

Associated Companies for Corporation Tax 2023

Associated Companies for Corporation Tax – New Rules from April 2023 

closeup-low-angle-view-of-a-woman-using-adding-machine

The rules around corporation tax changed on 1 April 2023. The amount of corporation tax that a company will pay will depend on the level of its profits, and also whether or not it has any associated companies.

From 1 April 2023, companies with profits below £50,000 will pay corporation tax at the small profits rate of 19% whilst companies whose profits exceed the upper limit of £250,000 will pay corporation tax at the main rate of 25%.

Where two or more companies are “associated” with each other, the Corporation tax limits are divided by the number of companies concerned.

What is an Associated Company?

A company is an associated company of another at any time when:

  • One of the two has control of the other or
  • Both are under the control of the same person or persons

Companies are considered associated for the full accounting period, even if they are only associated for part of that period. Associated companies can also include both UK and Non-UK tax resident companies. 

Dormant Companies which are not carrying on any trade or business are excluded from the associated company calculation.

When considering whether a person has control over more than one company, the most common test for “control” is the voting power of a shareholder. In a simple case, where each of the company’s shares carries one vote, any person or persons who own more than 50% of the shares will “control” the company.

It is important to understand the number of associated companies as soon as possible to estimate tax liabilities. If you are forecasting to produce significant profits for your company and you have one or more Associated Companies, you may wish to considering restructuring your activities to minimise any loss of marginal relief.

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