My Blog

Tag: Administration

Administration

  • 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…

  • New Years Resolution – Exercise Your Figures

    Look on them as more than simply keeping Companies House and HMRC happy. Put them through a workout for your benefit! 

    Gross Profit Margins

    Why should you bother with gross profit margins? They are the first stage to profitability. If these are small or even negative, you’ve no hope of making a profit. 

    What are they? Very simply, the difference between the price paid and the price sold. If you pay 10p for an apple and sell it for 50p, you’ve made a 40p gross margin. 

    So what? If you check these regularly, you’ll notice if they’re falling or increasing, better or worse than the year or month before. 

    And? If they’re falling it might indicate that your suppliers’ cost increases aren’t being passed on to your customers and you’re at risk of making an overall loss. 

    You might find yourself being busier, but less profitable which isn’t good for your health or bank balance.

    If they’re rising, perhaps you’re selling more higher margin product lines and you want to understand why and capitalise on it even further. 

    Actions

    You may need to:

    1. Increase prices on some products, not necessarily all of them.
    2. Reduce prices on other products.
    3. Negotiate with suppliers for better volume or early payment discounts.
    4. Carry out more market research on comparable pricing and markets leading you to change your product mix. 
    5. Amend sales force incentives to change behaviour to suit a new environment.
    6. Reduce stock levels for slower moving items. 

    Summary

    Only by knowing your figures do you really know your business.

    Start with healthy core information and then give it a workout getting relevant reports produced from which you can take the best action for your business. 

    We’ve only looked at one aspect of your figures. The same principles apply for many other areas such as cashflow, net profit, debtors, creditors and, of course, tax. 

    Happy New Year!

  • 2015 Autumn Statement – Your First Christmas Present?

    Instead it feels as though there have been giveaways. Is this genuine?

    It looks as though some reforecasting from the Office Budget Responsibility, including higher tax receipts, allowed George Osborne some flexibility. 

    In that case:

    What presents do we want to return to the shop?

    1. Second homes and buy-to-let properties increased stamp duty from April 2016

    Although, according to the Chancellor We Are The Builders, the Chancellor added to the pain announced in the summer, making buy-to-let properties look less and less like viable investments for many people. If you’re happy with the interest tax relief restriction going forward, the obvious action is to complete your buy-to-let property purchase before April 2016 to keep your stamp duty bill down.

    2. Capital gains tax on residential properties due by up to 21 months earlier from April 2019

    When you sell a taxable residential property, such as a buy-to-let, you’ll be paying any tax due within 1 month of completion. In practice this will involve a lot of cooperation between accountants and solicitors. Presumably if you have a capital loss to use you can include that loss in your tax calculation to reduce your tax bill? Or will you have to fund a higher tax bill until you submit your year end tax return? Or perhaps it will simply be included in your quarterly digital account? 

    3. Quarterly reporting to HMRC if you’re in business, self employed or a landlord

    Modernisation of tax administration through the planned digital accounts will require you to give quarterly figures to HMRC. This could be seen as an extension of the quarterly VAT return system. Having said that, VAT annual accounting was introduced specifically to help small businesses with turnover under £1.35m to reduce their administration costs. This and the possible further intervention required by accountants during the tax year, isn’t consistent with the message that small business red tape needs reducing and they should have less need for accountants.

    As we know these gifts are wrapped up very well, but the reality is a new real time tax return system which will require some managing. 

  • #Budget2015 – Sugar and Spice and All Things Simplification?

    Sugar

    Pensions, ISAs and Savings again featuring as good things deserving of encouragement and flexibility.

    If, despite the increased cash ISA thresholds, you still have some interest in a normal bank account, from April 2016 you can earn up to £16,800 and not pay any tax on the interest you earn. If you earn more than this and less than £42,700, interest over £1,000 is taxed. Therefore if you earn £1,500 of interest you have a mixed picture of £1,000 not taxed and £500 taxed which could result in too little or too much tax paid. This may be more easy to deal with in the proposed new digital tax accounts announced today – see Simplification below.

    The AIA 100% tax relief for capital investment will continue to be generous covering most small business capital expenditure requirements.

    Spice

    The large pension pots threshold subject to tax is falling to £1m. This equates to 25 years of paying the new maximum £40,000 current tax free contribution threshold, ignoring investment returns. Therefore, if you pay the maximum for most of your working life you’re likely to exceed the new threshold. 

    With Entrepreneurs Relief potentially worth £1.8m of tax during a taxpayer’s lifetime, it’s perhaps inevitable the Government needs to tie up perceived loopholes. Today, these were identified as property used in a business but owned personally benefiting from the 10% tax that now require a 5% share disposal at the same time. And those having an indirect holding in a trading group through a joint venture or partnership must also own 5% of the trading entity.

    With higher tax free income tax personal allowances, more Gift Aided donations are likely to be taxed on the donor. Donors who don’t pay income tax need to know not to Gift Aid their donations as they make them.

    Simplification

    We all thought RTI was a way of making sure benefits paid are as accurate as possible. It now seems it was the groundwork for major reporting and tax online simplifications.

    Digital tax statements are proposed for many taxpayers by pre-populating an online record with PAYE income, bank interest, pensions for the taxpayer to disagree or agree with. HMRC’s record in similar areas isn’t 100% accuracy so taxpayer checking is highly recommended.

    Partnerships can’t currently file online using HMRC software, so presumably they won’t be included in this simplification.

    Accounting information from software could be directly fed into HMRC’s digital portal so HMRC can populate your tax record during the tax year. This might fit in with VAT cash accounting and small businesses who choose to cash account. They will have most value if the end result can be fed in, after the agent has reviewed the records and included any other claims. For businesses with losses, claims would still need to be considered and made by the taxpayer. Perhaps another area for simplification later on?

    Class 2 NICs are the mechanism for the self employed to get a credit towards the build up of their state pension. By abolishing Class 2 NICs there will need to be another route, presumably through the online digital form.

    Abolishing the need for PAYE Dispensations, taxing employment benefits through RTI, and allowing non-cash benefits of up to £50 per person to be made without any tax effect [EDIT: This hasn’t yet been legislated], are all very welcome administration savings for small businesses. 

    HMRC will look very different in a few years time where most staff will need to be focussed on being helpline/online friendly, rather than exchanging polite hard copy letters. 

     

     

     

     

     

  • Are You A #Tax Avoider?

     1. Did you pay £50,000 or more to an accountant/adviser/bank to set up a scheme or provide funds?

    2. Have you set up an additional company or are you carrying out an additional transaction that you wouldn’t otherwise have done?

    3. Are you really a second-hand car dealer? Or do you have another very full time job such as a Radio 1 DJ?

    4. Does a large amount of money move around in a circle and come back to you, minus fees paid to the accountant/adviser/bank?

    5. Are you spending a lot of time changing how you run your business or personal life just because you’ve been told to?

    6. Do your advisers talk about Tax Counsel’s opinion?

    Probably out of these, 2. is the most problematic.

    If you’re a shareholder and a director in your own company, and you pay yourself dividends out of taxed profits, but could have taken a salary instead, is this included? No. You really are a shareholder. Your company really made profits. And you really decided to take a dividend. Paying a dividend is one of several normal choices available to a shareholder-director.

    Different to all of the above is tax evasion which is simply not telling HMRC about income you’ve earned or pretending you’ve spent more money. This has and always will be illegal and often confuses the debate!

     

     

     

     

  • 5 Reasons To Submit Next Year’s #Tax Return In April 2015

    Here are some good reasons to get next year’s tax return in quickly:

    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 even for employees. Often the tax code was wrong or you paid more tax deductible costs such as charitable donations than the year before.

    2. If HMRC need to ask questions, they have 12 months from the date you file the return. So, if you submit it on the 6 April 2015, HMRC have to ask questions by 5 April 2016. 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. Thirdly, you have more certainty that your tax bill is an agreed thing.

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

    4. More time also allows you and your accountant to not only review your tax position, discuss your business and your future plans, any resultant advice, such as making tax efficient investments, can be made at the beginning of the next tax year, in good time with proper consideration.

    5. You can enjoy the summer and Christmas, for once!