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  • It’s Tax Return Season – 5 reasons to avoid the rush

    1 – You may be due a tax refund

    If so, don’t you want that cash in your account rather than HMRC’s? Refunds do occur quite often.

    If you’re a start-up sole trader still working in a PAYE job and you had a PAYE job in the previous few years, you may be able to claim a tax refund for the PAYE income tax you’ve paid.

    Even for employees, your tax code may have been wrong or you paid more tax-deductible costs, like charitable donations, than the year before.

    2 – Certainty

    If HMRC need to ask questions, they have 12 months from the date you file the return. So, if you submit it on 6 April 2019, HMRC must ask questions by 5 April 2020.

    Firstly, HMRC is likely to regard an early filing as a good thing. Secondly, they need to be very organised to get their notice to you that early in the tax calendar. And thirdly, you have more certainty that your tax bill is agreed.

    3 – Quality

    With more time far away from a deadline, the job isn’t rushed and less errors are likely to arise.

    4 – Be proactive

    More time also allows you and your accountant to review your tax position, discuss your business and your future plans, and take action at the beginning of the next tax year in good time and with proper consideration.

    All in all, less stress.

    5 – Smile

    You can fully enjoy Christmas and the New Year without your tax return hanging over you!

    At On The Spot Tax Accountants, we work with you throughout the year. We get to know your business inside out and keep your records up-to-date to avoid the end-of-year panic.

    If you’d like this approach to the wonderful world of tax and accounting, call us for a free initial chat.

  • New Year’s Resolution? – Make Tax Understandable

    1. Training Costs – Allow all relevant business training costs paid by a sole trader to be tax deductible, as they are for limited companies. Surely training is a good thing?
    2. Class 4 National Insurance – Link Class 4 NICs paid by the self employed to benefits. Currently they are the most expensive NICs paid by the self employed but they provide no state pension credit or any link to benefits or the NHS. They are really no different from charging a further 9% of income tax, except they start to be paid at income levels £3.5k lower. 
    3. Gift Aid Carry Back – Allow charitable donations to be carried back to the prior year even if that earlier tax return has already been submitted to HMRC. Why should someone who has delayed sending in a return be treated more favourably?
    4. Corporate Gifts – Apply the same rules for VAT and corporation tax. Corporation tax rules require the presence of a logo and the gift can’t be food or alcohol, but there are no such restrictions for VAT. With a merged tax department surely this can be aligned?
    5. Property Partnerships – Similarly, treat jointly-owned property as a partnership for both income tax and VAT purposes. Currently, only the VAT department will automatically describe this as a partnership.
    6. S/EIS – Be more reasonable with the practical operation of S/EIS. If a taxpayer only needs to claim capital gains tax relief why insist that dummy income tax relief is claimed in a tax return? The investment is either eligible or not. And surely it doesn’t matter if the wrong form is completed by mistake, as long as adequate, relevant details have been provided?
    7. Making Tax Digital – Ensure MPs aren’t exempt from the biggest change to tax reporting for years. If MPs aren’t subject to the same rules, there is no incentive to make them understandable, relevant and proportionate. Is it right that a sole trader preparing perfectly good handwritten tax figures all his working life and filing returns online with HMRC, is now forced to adopt new software because MPs have said so? Whereas well paid supported MPs don’t even need to think about this for themselves?
    8. Personal and Tax Free Allowances – The interaction of these is so complicated even HMRC hasn’t yet managed to code everything correctly into their software. KISS!

    It’s these and many other strange rules which don’t help the public’s perception of HMRC and paying tax, which also adds to the feeling that the system is set up against them. This New Year and decade could be the time to tackle this properly. 

    Thank you. 

    Yours faithfully

    Accountant explaining tax to people every day…

  • Jargon Busting – Does your SPV issue SPVs?

    SPV – According to business

    This means Single Purpose Vehicle. What is this?

    All this really means is a limited company. It usually means a new company set up for a specific task or an asset, often property, within an existing group. The idea being that if it fails, it’s debts don’t become debts of the group’s other companies, or if it succeeds it can be easily sold off without having to disentangle its activities from other group business.

    Therefore SPV is a term you often hear, but not to be confused with the completely different VAT version…

    SPV – According to HMRC VAT

    This means Single Purpose Voucher. What is this?

    The definition was changed in 2019 to bring forward when VAT is due on most vouchers, usually gift vouchers. If you sell a gift voucher which can be exchanged for goods or services charged at the same VAT rate, the VAT is due at the date of sale of the gift voucher.

    If, however, the goods or services aren’t charged at the same VAT rate the gift voucher is called a Multi-Purpose Voucher and VAT is only due when the voucher is later exchanged for goods or services.

    You may therefore prefer to issue Multi-Purpose Vouchers not only to delay VAT, but sometimes not to pay any. This is because many vouchers are never redeemed, and if they are MPVs, you don’t need to account for VAT on any part of the money received for that MPV.

  • Becoming an Accounting Franchisee – Top Tips and Pitfalls

    How do you build up your new business? What sort of things should you focus on? What are the pitfalls?

    On The Spot has been a franchised brand for over 8 years to other experienced chartered accountants and here are my personal tips to get you started.

    1. Be clear what you are getting

    You should receive a clear brand and image with a track record that is easily explainable to you and your clients. What contacts, networks and followers have been built up? Why does the franchisor think there is enough business for your company? Are you in a growing or stable market? Why should you sign up with On The Spot? 

     2. How can you repeat other franchisee successes?

    You need to know how you can be expected to repeat previous successes. Will you be able to make a head start because of established procedures, business model, contacts? Is there a big enough market? Is it driven by geography? If so, how do you know another area will work? Does it require a large investment in certain assets? What return should you expect and why? How much training do you need? Are other softer skills needed? Can you talk with other franchisees?

    3. What will you be charged and why?

    You need to understand what you are paying for. It might be training, branded assets, a website, new clients. Will there be one fixed fee or a menu of options. Will you be charged a different amount to other franchisees? Will there be regular add-on charges eg for client leads, email storage, social media support? Or will you simply be charged the typical 10% of invoiced sales? Are there less tangible benefits implicit in the fee such as a tried and tested business plan, a network of contacts, ongoing training, email and phone support?

    4. Review the franchise agreement

    Check you can fulfil the requirements of the agreement, how you or the franchisor may terminate the agreement, what constitutes a breach of contract, will the agreement run for the usual 5 years, are there any minimum turnover requirements? The franchise is an investment in time and money, so make sure you get it right. Is there an operating manual? If so, this should also be reviewed.

    Once you’re happy with the agreement, you may need to appoint a solicitor to review it on your behalf. The franchisor may have negotiated a good rate with an independent solicitor.

  • On Non-Budget Day, 5 Tax Planning Tips You Can Rely On.

    1. Incentives to innovate such as research and development (R&D) tax relief are likely to continue. Linked to these are enterprise investment schemes (SEIS and EIS) as a way of encouraging investment into certain companies. Therefore, you could take the view to not hold back and carry on planning for these to be around. You business is also likely to receive 100% capital allowances on its capital spend. Keep calm and carry on!
    2. Low salary and high dividends remain likely to be tax efficient. With owner-managed companies, the shareholder-director has two capacities: as a shareholder and as a director. As long as this distinction remains, and national insurance remains high, it seems hard to see how a high salary can be more tax efficient than taking dividends.
    3. The company car has been restored! As long as it’s electric. From 6 April 2020, the taxable benefit, including ‘fuel’, will be £ZERO for all 100% electric cars. It will also be £ZERO for new hybrid cars registered on/after 6 April 2020 with up to 50g/km emisisons and at least a 130 mile range. The rates increase a tiny bit in later years, but it’s still likely to be a good option for your company, particularly if you take into account the company also saves tax on 100% of the cost in the year of purchase.
    4. Always at least consider making pension contributions. These work well for profitable companies when owners have taken all the dividends they need or want within the tax brackets and thresholds, and at the same time, they save corporation tax. Although higher rate tax relief for income tax may be reviewed, it would be a brave Chancellor to take away pension freedoms. Therefore you could arrange for company contributions to be paid into your pension scheme, wait until only age 55 to take, say, 25% out tax free, but delay taking the entire pension until later. Admittedly the 25% tax free part may be at risk, but I wouldn’t expect that to be brought in overnight. And you could at least still take your pension when your income tax rate is low, for whatever reason. Please take IFA advice along the way.
    5. Business and tax year ends – timing of income, costs, dividends. Always remember your company year end date eg 31 March and the tax year end of 5 April and ensure that you use them well. For example, when you pay interim dividends, don’t pay them on 5 April if you want it to be taxed in the next year. If making company pension contributions as referred to above, make sure the company pays them before the company year end, otherwise the corporation tax relief is delayed by 1 year. Finally, if you’ve made losses investigate if you can get a tax refund whether you’re a sole trader, partner or limited company.

    Conclusion

    Of course, no-one knows what will actually happen, so please know there is some risk with any decision you take. Just take good advice and then decide!

  • After lots of Tricks, it’s time for some Treats! Take over £100k from your Limited company tax free.

    Please see below for further details. We do hope these prove to be some treats during a time of plenty of tricks.

    • Salary – If you have no other income you should each consider using your £12.5k tax free personal allowance.
    • Trivial Benefits – These are new and are designed to save HMRC’s time dealing with small items. Each benefit must cost less than £50 Incl VAT otherwise the whole amount is taxable.
    • Annual Parties – One of our old favourites. This could be a Halloween party, as well as a Christmas party. Everyone has to be invited and it’s £150 Incl VAT per person plus £150 Incl VAT for a guest. Again, if you spend more than this including on extras such as taxis, the whole amount is taxable.
    • Cycle To Work Scheme – Has to be offered to everyone and the bike used more than 50% of the time for commuting or business journeys. The bike is lent to you and you then buy it from the company at a second hand value a few years later.
    • Private Health Checks – A little known annual exemption regardless of any other taxable private healthcare arrangements you may have.
    • Eye Tests – A more well-known exemption and assumes you need a test because you use a computer monitor, which is most of us!
    • Tax Free Dividends – Whatever other income you earn, everyone gets £2k of dividends tax free. If you have any of your £12.5k tax free personal allowance available, that’s also available for a tax free dividend.
    • Pensions – These need to be Employer Contributions and usually the limit is £40k each but take care on the detail and take IFA advice. The limit might be higher or lower in certain situations.
    • Relevant Life Policies – A death in service policy where neither the premiums paid by the company or the benefits paid out are taxed on you or your beneficiaries. Again, IFA advice is recommended.

     

  • Jargon Busting – Are you a PSC of your PSC?

    In the great tradition of government-speak, HMRC and companies house have come up with the same acronym for different things, both of which can apply to the same small business.

    PSC – According to HMRC

    This means Personal Service Company. What is this?

    This is usually a one-person company providing professional services to clients. Think IT contractor invoicing a bank for working on an IT project. Or marketing expert taken on to advise on expansion into a new area.

    Why does it matter?

    PSCs are being scrutinised by HMRC in case they are providing employment services to clients, but not paying employee taxes, such as national insurance. HMRC’s concern is usually greater when the PSC has been providing the same services for a long period of time to the same single client. After a while, the consultant may become so much part of his client’s organisation that he may have stopped being an independent and now took more instruction from his client. Plus many other factors are taken into account.

    PSC – According to Companies House

    This means Person with Significant Control. What is this?

    This is someone who owns at least 25% of a company, and needs to be disclosed and updated at Companies House. Even when the person moves, their address must soon afterwards be updated at Companies House.

    Why does it matter?

    A relatively new concept, it’s designed to prevent people hiding the true ownership of a company, being required to maintain these PSC records.

    In Conclusion, you’ll appreciate that many small consultant businesses, will be a PSC of their PSC! Confused? Joined-up thinking would be appreciated at times!

  • Don’t Be Dwarfed By The Tax System – Seven Ways To Make Tax Less Taxing

     

    Dear Sajid Javid

    Following your ambition to simplify the tax system and as we approach your 1st Budget, may I pass on a few things that will make a difference to business’ actual experience of the tax system.

    Many good people looking at simplification tend to make changes from a macro viewpoint. Here, we’re looking at the micro level. The things that make people scratch their heads every day of the week.

    1. How many tax references do you need?

    A VAT registered owner-managed limited company with even only one shareholder-director has to obtain SIX different tax references, which arrive in different formats from different departments: 

    1. Government gateway
    2. Corporation tax
    3. VAT
    4. PAYE
    5. PAYE accounts office
    6. Income tax

    Not forgetting if there’s overseas trading, they’ll need a further VAT reference and in the construction trade, another reference. In the confusion they often end up setting up numerous government gateways. 

    There are attempts to make the system look combined but it soon breaks down into the same old silos once you scratch under the service. Please do not believe this is getting better.

    1. Names given to tax reliefs

    Please revisit the names of the following reliefs: 

    Substantial Shareholdings Relief – Part of the government’s business friendly agenda, to qualify and save capital gains tax, a company needs to own only 10% of shares in another company, hardly ‘Substantial’. Companies and many accountants miss out on this relief. 

    Adjusted Net Income – Affecting high earners and the amount of pension they can pay with tax relief, this is NOT net of tax. This is GROSS income and easily misunderstood so that unexpected tax bills arise. 

    Reinvestment Relief – This applies to SEIS capital gains tax savings when a gain is reinvested into SEIS shares. EIS also offers capital gains tax relief when a gain is reinvested into EIS shares. It’s not the same outcome (delay instead of reduction) but with both requiring a reinvestment into new shares, it’s endlessly confusing.

    1. Van tax

    What is a van? 3 different things according to the tax system depending on whether it’s:

    1. VAT
    2. Benefit in kind
    3. Capital allowances 

    Get this wrong and even taxpayers who run a simple van-based business, might get caught out and suffer financial hardship later.

    1. Change of company address

    With over 70% of limited companies registered at a home address, it’s quite common for the address to be changed. However, you can’t do this direct with HMRC. You change it with companies house and wait forever for that simple bit of information to be sent and/or dealt with by HMRC.

    If there needs to be the link, please ensure the information is acted upon. With electronic communication surely this should be almost immediate?

    There’s no point even trying to get the year end changed with HMRC via companies house. An accountant just has to do a workaround. If clients haven’t used an accountant before, they tend to appear at this point.

    1. CT61s

    Often needed when paying interest on a loan, perhaps to a shareholder-director for lending money to his/her company to help get it off the ground or expand.

    These forms record the income tax which still needs to be deducted despite the new £1k ‘simplification’. If tax still has to be deducted, surely the form should be available online? It’s about the only one that isn’t.

    Why the added administration for a busy start up who is responsibly lending money to ensure his/her company can pay its creditors. What’s so bad about that?

    1. IR35 and off-payroll working

    This gets more and more confusing. Recent Tribunal cases turn on a single judge’s casting vote, so how is anyone else supposed to decide?

    Surely the definition needs to either be very simple, such as after 2 years working for the same single client, you’re deemed an employee. Or people weigh up the pros and cons of being an employee and decide for themselves. With the new dividend tax, the government is now receiving some NI ‘replacement’.

    1. Agent Authorisation

    Due to the above, businesses need to use qualified accountants, who have to navigate HMRC’s agent gateway. To become an agent for a company the only box that works is the postcode and don’t forget to put the space in the right part of the postcode! No other website is so sensitive in this and other areas.

  • Focussed on Brexit? What About The Tax Year End Only 1 Week Later?

    Income Tax Thresholds – £50k and £100k 

    A relatively new phenomenon, these are crucially important to understand if you want to make sure you don’t pay more tax than you need to.

    As a company business owner, you can choose the salary and dividends you take out of your company; profits and cash permitting! You are in control and you don’t need to cross these thresholds unless you do so with knowledge of the consequences.

    For £50k up to £60k, your child benefit starts to get taken away for you or your partner. If your child benefit is an annual £1,752 and your income is £60k, you have to repay (or not claim) £1,752. This amounts to a further tax of 17.52% on top of your dividend tax in that bracket of 32.5%, just over 50% in total. This is expensive!

    Similarly, if you need to take more than £60k and are closer to the £100k threshold, you may want to stay under the £100k threshold. After this, you start to lose your tax free personal allowance. For every £1 of dividend taken between £100k and £123,700, the effective dividend tax due is 48.75%, rather than 32.5%. For high earning employees the effective tax rate is 60%!

    The Importance of Pension Contributions and Charitable Donations 

    The introduction of the above £50k and £100k thresholds has shown how important pension contributions and donations are to your financial health. Admittedly, you are parting with money so it does cost you, but perhaps not as much as you thought.

    If you were thinking of paying more pension contributions or some donations, you might want to make sure you pay them at the optimal time to maximise your tax reliefs.

    As a company owner, your pension contributions will probably need to be made as company contributions, so you’d need to focus on charitable donations or simply timing payments and dividends correctly.

    As a high earning employee, say, on a salary of £110k, paying £8k into a pension scheme will save you £6k of income tax! This is 60% of £10k which is the £8k you paid, grossed up by the 20%, or £2k, paid direct by the government into your pension pot. Therefore, paying £8k into a pension, which you should benefit from one day, only really costs you £4k.

    Take IFA advice before deciding when and where to invest, or you might want to use your employer’s scheme.

    Property Landlord? 

    If you’re due to carry out any repairs soon, make sure they’re done before the 5 April 2019 so you can claim tax relief in this tax year.

    Tax relief restrictions on loan interest continue to cause problems. It may be worth considering selling the property, particularly with further capital gains tax adverse changes coming in from April 2020, only just over a year away. As the property market is not as vibrant as it was, it may easily take a year to sell, so perhaps you should list it sooner rather than later. Subject to what you think might happen to house prices over this period, naturally!                           

    Start Up Sole Trader? 

    If you were an employee in the tax year you started your business, or in any of the previous 3 tax years, you should be able to reclaim a PAYE refund, if you make a tax loss.

    Many start ups make a tax loss in the first few years. If you have some costs to incur or equipment to buy in the next few months, you might want to incur these costs before 5 April 2019. This could increase your tax loss and therefore your tax refund. The meaning of ‘incur’ isn’t necessarily paying out cash before 5 April 2019, so check the rules if your cashflow is tight.

    Remember to take appropriate professional advice before taking or refraining from any action. 

  • Jargon Busting – 4 Accountancy Words You Wish You Understood

    1. Turnover. Well this is really Sales but Sales seem to refer more to Goods. Turnover includes all sorts of Sales such as Services as well as Goods, but essentially it really means Sales! The amount of Turnover is the total of all the Invoices you’ve issued before VAT. So, you might not yet have been paid for these Sales. It has nothing to do with VAT.

    2. Profit/(Loss). This starts with Turnover, but you then deduct all the costs that related to that Turnover. For example, Salaries or Rent for the months that generated that Turnover. Again, this has nothing to do with VAT – this is ignored (usually!). Plus accountants add a couple of other pretend costs such as Depreciation – see 3. If after all these costs there’s a positive figure eg £100, then you’ve made a Profit. If it’s a negative figure eg -£100, then you’ve made a Loss. This is not necessarily bad, especially for a start up, as a certain amount of investment in your new business is necessary and desirable.

    3. Depreciation. This is one of those accountancy pretend costs that are needed to get to your most accurate Profit or Loss figure. If you ignore it, your Profit would be too high or your Loss too low. It’s an indication of how much of an asset you’ve had to use to generate your Turnover eg if expensive computer equipment costing £6k should last you 3 years, you might spread that cost over 3 years and deduct a non-cash ‘pretend’ cost of £2k per year. 

    4. Cashflow. This ignores things like Invoice dates and Depreciation and is only concerned with money actually coming in and going out; the ‘flow’ of money. So not only does it include the amounts you’ve charged and been paid, included in your Turnover, it also includes the VAT added on to your charges showing on your Invoices. Similarly, where you’ve paid for something, it includes the VAT you paid on those costs.

    Conclusion

    You can see therefore that if your customers take time to pay you, you may run out of cash even if you’re making a Profit. This is a common problem, especially for start-ups and growing businesses, so that many businesses fail just from running out of cash. Preparing a rough expected future cashflow (Forecast) should keep things under control.