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Tag: HMRC

HMRC

  • After lots of Tricks, it’s time for some Treats!

    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 £1k 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 £60k 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.

     

  • Dear HMRC…Why We Need To Talk

    Dear HMRC

    Why we need to talk to you…..

    As an unrepresented taxpayer with apparently very simple tax affairs, I find myself needing to call you. I really don’t want to. I have better things to do, but I like to know I’m not going to upset you.

    Over the last few years, I’ve needed to talk to you about:

    Incorrect PAYE code – In common with the mightiest Finance Directors, I don’t like surprises. If this code is wrong and you send me a demand after the end of the tax year, it’s a worry. I don’t have spare resources to conjure up extra cash.

    No matter how hard I try, I don’t understand my code. If you change it, I won’t know why and I need to ask you. I need someone to say it’s OK, no need to worry.

    High Income Child Benefit Charge – A couple of times, I’ve earnt over £50,000, and you came back to me a few years later and asked me to repay some child benefit. This is a confusing rule. You saw my income, but child benefit continued to be paid. You told me this is on the website for me to see clearly.

    Sorry, but I don’t hang out on HMRC’s website just in case something applies to me. You know the jargon because you see and hear it every day. I don’t, so occasionally I need a human to explain things to me.

    Pensions – Full Tax Relief – When I earn over £50,270 (different to the £50,000 for child benefit) I’m told I can claim an additional 20% income tax on some of the gross pension payment made to my employer’s pension scheme. I have only the vaguest idea what this means and suspect there are a lot of us missing out on full tax relief.

    I’d quite like you to explain this to me. HMRC’s site assumes a certain level of starter knowledge eg what ‘relief at source’ means.

    Self Employed Class 2 NICs – My side hustle self employed income is sometimes very low and you refunded me the Class 2 NICs I’d asked to pay voluntarily. On enquiry a person explained that voluntary contributions aren’t accepted unless a certain form has been completed.

    For years, I’ve reported a small self employed business on the side. This isn’t enough to earn me a state pension credit should I ever need to pay Class 2 NICs voluntarily. How confusing is that? I couldn’t have worked this out on my own.

    Self Employed Tax Payments Due – In my busier years, no matter how hard I try I don’t understand any statement I see. I pay the figure at the bottom and hope for the best. You tell me the payment on account system is explained online.

    You’re the only organisation I deal with that has a twice a year payment system with half of it in advance and the other half after the end of a period. Unless someone takes me through how that works, I’m not going to understand it.

    It seems the people sitting in rooms talking familiar language make rules that suit their ends. The rest of us get on board as best we can.

    Or are you saying we now all need to pay an accountant?

    Yours confused

    Unrepresented Customer (who can’t choose another ‘supplier’)

  • Higher Interest Rates – How Might You Respond?

    If you have excess cash, you’re creating a new profit centre!

    1. Move excess cash into the increasing number of company savings accounts

    There’s no need to just look at your usual bank of course. You’re more likely to get a decent credit interest rate elsewhere even when maintaining instant access in case you have a business need. Corporate savings accounts that we’ve come across include Aldermore, Nationwide and Virgin.

    2. Pay HMRC early

    Along similar lines, get your spare working capital working for you and receive interest from HMRC. After today, HMRC’s credit rate should increase to 2% (being 1% below base).

    3. Negotiate reductions with suppliers for paying early

    If your suppliers would appreciate earlier cash, get something in return for early or prompt payment. This is often going to be a price reduction, but might also be a spec change or preference eg agreeing to deliver to more than one address, or adding a feature you’ve needed for a while but the gross margin didn’t work.

    You might instead choose to invest surplus cash in your business for future growth and resilience which could provide greater long term value for your business.

    If, your cash is tight, you’ll need to work at finding the most appropriate, good value sources of finance and working capital:

    4. Review bank borrowings

    Are you paying high interest rates on overdrafts or unsecured finance? Might you get a better rate using security such as your debtors or other assets? If you need more finance, do it in a planned way getting the cash you need at the best price you can. You may have excess cash at certain times during the year, so ensure this works for you to help fund borrowing costs at other times of the year.

    5. Negotiate with customers for early payment and suppliers for late payment

    If you have a decent gross margin, you may be prepared to give some of your margin away for prompt or early payment. At the other end, your suppliers may be happy with delayed payment for simple interest, a higher price or agreeing to consider them for your next contract.

    6. Lease new plant and equipment, sell owned assets

    If you’d planned expanding with new equipment or need replacement equipment, consider leasing or hire purchase. The total costs will be higher and need to be factored into the increased profits your investment is expected to generate. Build in the different tax treatments into your cashflow calculations. With hire purchase you still get to claim the 130% super deduction, where applicable.

    Consider selling any owned assets, perhaps surplus freehold property space, if it helps keep your business on track. 

    7. Borrow from yourself

    If you have personal cash to lend to the company, your company can refund you in the future tax free and in the meantime pay you interest. This saves the company corporation tax and some of it might be tax free for you.

    If you don’t have cash but can borrow at a better interest rate than your company, you could on-lend to your company. The interest you pay on this personal loan is tax deductible against the interest you receive from your company.

    8.  Attract new investors

    At the more structural end, with an expansion plan you could attract third party investors getting a cash injection in return for shares. The SEIS and EIS tax efficient schemes encourage investors to take more risks in smaller companies.

    If you didn’t have it before, you now have a new ‘treasury’ function within your business which needs optimising to help your business survive. 

  • Coronavirus – Limited Companies – What Are Your Choices?

    Now we’ve probably heard all the major Coronavirus announcements from the Chancellor, what choices do Director-Shareholder Limited Companies have to help them through this crisis? We provide a checklist below with signposting to the relevant part of gov.uk.

    Time To Pay

    Applicable to all companies and all taxes, you can call HMRC and agree a scheduled delay to paying your taxes. Have a realistic proposal that you can stick to. Signpost: https://www.gov.uk/government/news/tax-helpline-to-support-businesses-affected-by-coronavirus-covid-19

    Time To File

    Companies house will allow you to send in your accounts 3 months later than normal, a increase from the usual 9 months to 12 months, as long as you ask before the 9 month deadline.

    This may help if you’re finding it hard to get your figures prepared, but we would urge all companies to keep their figures and accounts up to date to help them keep on top of their finances particularly cashflow. Signpost: https://www.gov.uk/guidance/apply-for-more-time-to-file-your-companys-accounts#coronavirus-covid-19

    Corporation Tax

    Using an existing, normal rule, remember that if you make a trading loss during your current year end, you can carry it back 12 months and generate a corporation tax refund from the tax you paid in your previous accounting year.  Your loss may be increased by making a higher home office claim, due to working from home more often than usual.

    Business Interruption Loan

    Applicable to all companies, you may borrow from your current bank or another in the scheme, interest free and fee free for 12 months without providing any security up to £250k. If your company should be viable for the long term, this must be worth a look as a flexible option. Signpost: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/for-businesses-and-advisors/

    Director Personal Income Tax Payments Deferral

    You may be due to pay income tax on your dividends on 31 July 2020 on account for the 2019/20 tax year. HMRC will not charge interest if this isn’t paid on 31 July, as long as it’s paid by 31 January 2021, the next income tax payment date. Again, this is designed to provide some immediate breathing space, but will need to be paid 6 months later along with any other income tax due by 31 January 2021. Signpost: https://www.businesssupport.gov.uk/deferral-of-self-assessment-payment/

    If your dividends are less than expected for this tax year to 5 April 2020, it should be worth sending in your income tax return as soon as possible after 6 April to generate an income tax refund from your January 2020 payment on account.

    Director Personal Mortgage Or Rent Deferral

    To help your personal cashflow further, reducing the need to rely fully on your company’s finances, you may ask your mortgage company or landlord for a mortgage or rent deferral for 3 months. This will need paying back in due course, so be confident this is something you should be able to manage.  

    If your personal finances are very stretched you may want to claim state benefits which can also help with housing costs, if you’re eligible.

    VAT Deferral

    If your company is VAT registered, you won’t have to pay any VAT due between 20 March and 30 June 2020. This covers VAT quarters ended 29 February, 31 March, 30 April and possibly 31 May.

    If you pay by direct debit, remember to cancel your direct debit in good time, and then reinstate it afterwards. HMRC won’t ask for any explanation, charge interest or penalties as long as you repay this VAT by 31 March 2021. This may provide good breathing space for the next couple of months, but do have a plan to refund it before 31 March 2021. Signpost: https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19 

    Your VAT returns are due as normal, refunds will be paid as usual and VAT due outside of this period remains due. 

    Job Retention Scheme

    If you have employees whose jobs are at risk due to a downturn in your business, you can keep them on the books by labelling them as ‘furloughed’ employees for a minimum of 3 weeks at a time for a maximum of the three months March, April and May. They cannot do any work at all for you during the period they are furloughed.

    You need to pay your staff and operate PAYE on either full pay or 80% of their pay. The government will refund you, starting at the end of April, 80% of their pay, up to £2,500 per month, plus the associated national insurance and 3% auto-enrolment pension contribution if the employee is enrolled. Sign post: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

    We are still waiting to hear whether owner-directors can ‘furlough’ themselves where their business is on hold but they need to continue to carry out statutory duties such as preparing VAT returns or filing annual returns. If such a director was on a salary of £719 per month, this should mean a maximum refund of £1,725. [EDIT: It has been confirmed that owner-directors can furlough themselves, as long as they don’t work on the business and confine themselves to statutory duties. This is easy to demonstrate for freelancers and consultants who have no contracts at all or if a high street retailer has closed and isn’t carrying out any alternative business activity. The company through the Board of directors needs to make this decision and record it in the minutes of the meeting.]

    Separate to this, if your employees are off work due to being ill from the Coronavirus you can reclaim their sick pay for up to 2 weeks. This is also available to you as a director. Signpost: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-businesses-who-are-paying-sick-pay-to-employees

    Business Rates

    If you pay business rates, your company may be entitled to receive a £10k or £25k grant, which we assume will be taxable as for most other grants. 

    A £10k grant is available to any business which receives small business grant relief (SBRR) Signpost: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-businesses-that-pay-little-or-no-business-rates

    If you’re in the retail, hospitality or leisure sectors, you’ll pay no business rates from 6 April 2020 to 5 April 2021. If your rateable value is up to £15k, you’ll receive a grant of £10k, or if it’s between £15k and £51k a grant of £25k. Signpost: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-retail-hospitality-and-leisure-businesses-that-pay-business-rates 

    You don’t need to take any action because your local authority will contact you.

    In summary, please take appropriate advice to ensure you optimise your company’s particular situation. We’re in a fast moving situation and HMRC might amend its guidance without any signposting at all! 

    Stay well.

     

  • Budget 2020 – A pot-hole free drive in your electric car through magic money trees?

    There is much to be happy about in today’s Budget, where the magic money trees are well and truly thriving!

    Businesses will benefit from many announcements, particularly those who trade from a property, have one or two employees, and need a new car!

    Business rates are abolished for a year for rateable values of less than £51k and these same businesses will receive a £3k grant, as a response to the Coronavirus but it’s also part of the overall picture of dealing with competition from Amazon and other online retailers.

    Where possible and appropriate for your business model, businesses going forward may need to embrace online retail further. Having said that, many can provide a niche, local, personal service perhaps relying on online marketing, such as Facebook, but not online sales.

    With the money saved, and assuming you needed one already, an electric car is very tax efficient. The 100% write off against your tax bill has been extended beyond 2021 to 2025 with no benefit in kind until March 2021 and then minimal after that. VAT still can’t be recovered, however, apart from 50% through leasing.

    Your employees earning over £9,500 will pay less national insurance from April 2020, but you’ll still pay 13.8% national insurance on their salaries over £8,788 with a £4k offset from the increased employer annual allowance of £4k. For example, if you have one employee earning £37,774, the £4k annual allowance will offset all the employer national insurance due. Even employ a veteran where you save employer’s NI for a year. And remember to claim the statutory sick pay for up to 2 weeks if your employees need to be away from work due to the Coronavirus.

    If you’re a sole trader, your Class 4 national insurance of 9% will, from April 2020, only kick in after you’ve earnt profits of over £9,500. If the Corornavirus reduces your profits, however, remember to claim Universal Credit. You may need to pay Class 2 national insurance voluntarily to maintain your state pension credit.

    If you also carry out Research and Development, R&D, the new restriction on cash refunds for loss making businesses is still coming in, but delayed until April 2021, and if your claim is less than £20k, there’ll be no restriciton at all. So, as you were! Carry on with R&D and cash claims even if you are just a one or two director company on minimal salary.

    If your business survives the Coronavirus, perhaps with funding help from HMRC Time To Pay or your bank and one day you’re ready to sell your business, you’ll pay capital gains tax of 10% on the first and only £1m business capital gain in your lifetime, and 20% on the rest of the gain. Many small businesses are sold for less than £1m, so this is a welcome compromise effective immediately.

    Some of the good news is ofset by confirmation of the corporation tax rate remaining at 19%, but also HMRC being given 1,300 more staff to get tax HMRC believes it’s entitled to! Be careful you don’t get caught up in that, where HMRC have been known to go for low hanging fruit, possibly hanging on a magic money tree 😀, rather than trickier cases. 

    Stay well! 

  • 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.

  • 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.