Christmas is nearly upon us, and the tax return deadline is looming. So for many small businesses, it’s time to look at their tax affairs and see how they can minimise their tax bill …
This week, we’re going to look at small limited companies. If you run one, here are some quick tax saving tips that will help reduce what you give to HMRC in January:
If you have lent money to your company, leave it there and charge the company some interest. An individual can earn up to £1,000 interest tax-free saving £200 as a basic rate taxpayer, up to £500 tax-free saving £200 for a 40% taxpayer and nothing for a 45% taxpayer.
There is a form the company needs to fill in and a tax deduction made on any payments of interest, but the individual can get that tax repaid to them, and the interest is free of income taxes if it is within this allowance.
On the other hand, if you have borrowed money from your company – which might be because you have drawn out more than the available distributable profits – make sure you fix this.
This can be either by paying some money back to your company or in restricting how much you take out over the next few months. The reason for this is to avoid (or minimise) the two potential tax charges, one on the company and one on the individual.
Doing this saves the company a tax charge of 25% of the amount still owed to the company 9 months after the year-end.
Meanwhile, the individual saves a P11d ‘benefit in kind’ charge if the loan is larger than £10,000 and the loan is interest-free or below the official rate of interest (currently 3%).
It is also worthwhile having a formal loan agreement with your own limited company to protect you from a potential HMRC challenge to tax your payments under the PAYE rules.
If you are not already making full use of the dividend allowance, then look at ways to do this. The dividend allowance means that in the current tax years £5,000 of dividends are income tax-free, which could save you £1,625 in income tax.
This is going to reduce to £2,000 from April 2018 (subject to confirmation of this in the forthcoming budget).
If you are thinking of ways to make use of the dividend allowance, then be careful over gifting shares to family members.
Gifts between husband and wife are generally free of tax, but the settlements legislation can affect gifts to other people. Don’t get it wrong and incur an unexpected tax charge!
You can charge your business rent for working from home, but you need to consider how much quite carefully. The rent-a-room allowance does notcover rents charged for office space!
Therefore, you need to carefully work out what is a fair proportion to avoid simply incurring a personal tax charge on this rent.
Importantly, if you charge your business for the use of your home, it can be worthwhile having a formal agreement that documents that the business does not have exclusive use of the space, otherwise HMRC might charge you capital gains tax when you sell your house!
If you are looking for more tax saving tips then get in touch with me on 01234 752566 or email firstname.lastname@example.org and let’s discuss some bespoke tax planning for you and your business.
There is a lot of interest around the Paradise Papers and the revelations about how the super-rich are investing and storing their money. The press is going crazy and HMRC now wants to see the documents …
This is leaked or stolen information from two sets of lawyers, both of whom operate in offshore financial centres or tax havens. This is just the latest in a number of significant document leaks, last year’s being the Panama Papers.
“Is it just the ethics and morals of what has happened?”
Three of Canada’s previous Prime Ministers have been leaked as having offshore investments in Bermuda. Apple, Nike and other large businesses are similarly included, even Queen Elizabeth II has been involved.
The firm of lawyers at the centre of this document leak is Appleby’s. The documents cover a 50-year time span and are likely to provide more than just a couple of days’ headlines.
“So let’s look at the headlines of what has been revealed, but without some of the sensationalism!”
The Queen has had some of her wealth invested into UK businesses, via a fund based in the Cayman Islands. Well, firstly, the Queen doesn’t manager her own investments, they are all part of the Duchy of Lancaster. Actually, the job of looking after all her personal wealth is delegated to the Chancellor of the Duchy of Lancaster, who is an MP.
In turn, that MP delegates it to a team of advisers, and in turn they split the job up and pass it on to various investment firms. The Duchy of Lancaster has a total wealth of some £3.3bn, of which around £10m is invested via this Cayman Island investment fund, i.e. about 0.3% … so not important in the grand scheme of things.
There are two fascinating points about the Duchy. Firstly, the Queen can have the income from the Duchy, but not the capital. Secondly, although the Duchy legally pays no tax, the Queen voluntarily pays tax on the Duchy’s income. If the Queen doesn’t pay tax, why make an investment through a tax haven? In this case a Cayman Island Fund.
I suppose the obvious answer is that as the head of state of the Cayman Islands, it would be unusual if the Queen didn’t support the islands by investing there. Of more importance is the question; did anyone responsible for investing the Queen’s wealth consider the ethics of using that fund?
“For the super-rich, investing via offshore tax havens provides a few different advantages!”
Firstly, the main advantage is paying tax at a lower rate to that of their country of residence. This is not illegal, and anybody can do it if they can afford to! Jeremy Corbyn has made a statement about one rule for the rich and one for the poor, when in fact anyone who can afford it can invest via a tax haven.
Secondly, most tax haven jurisdictions provide a layer of confidentiality or secrecy. This means that the super-rich can hide their name from the investment. For some people, particularly big business who don’t want their competitors to know what they are doing, this is one of the objectives.
But, and this is where a lot of the media coverage is going, some people have used the anonymity to be unethical or hypocritical. For example, one of Canadian PM Trudeau’s aides has been helping that country to push through legislation against tax havens …
“While that aide has been anonymously investing through a tax haven!”
If you are worried about your name coming up in the Paradise Papers and you want help in reviewing your tax situation, then get do give me a call on 01234 752566 or email email@example.com
Did you know that auto-enrolment pensions are going to be more expensive from Easter 2018? As an employer, the percentage that you pay will double; mind you, that is only from 1% to 2% …
Your employees have a bigger increase from 1% to 3%, although some of this increase will be mitigated by tax relief, which means that actually, your employees will only pay a net amount of 2.4%.
There are two important things to do now; firstly, make sure you have a diary note for April 2018 so that you don’t miss the increase! Secondly, and more importantly, review your profitability to allow for the extra costs.
“What will this cost increase mean for you?”
People tend to be one of the most significant costs in any business and to have that cost increasing might mean that you need to look at your efficiencies and your pricing. You also need to think about the impact of inflation and the potential for wage rises.
It is pretty glib to say, “just put your prices up” and although that might, in some cases, be the answer, I think there is a bigger issue here that every business needs to address.
What is the impact of your competitors on your pricing and what are the specifics of the costs that are in your business? What you charge can also get more complicated, with questions like:
How much should you be charging?
What level of profits will you make?
What level of profits do you want?
What service level are you giving to your customers?
What service level should you be giving?
What are the cost implications of your service levels?
Charging and service levels are things that every business needs to get right, and the key message is to think about this now. You need to be prepared and have implemented any changes before we get to April so that they have started to work before your costs go up!
“Would you like to know more?”
If you would like our help in looking at the detail of your costs and planning for improvements, then get in touch with me on 01234 752566.
Two million couples have failed to claim their share of £1.3bn of marriage allowance relief. Yet getting hold of this money, much of which would be sent to you in the form of a cheque, is simple …
It takes just a few minutes, so every couple should check whether they are eligible, but figures obtained from HMRC show that the take-up of the marriage allowance is very low.
Perhaps it has passed a lot of people by, but the December 2013 autumn statement announced that the government would be introducing a transferable tax allowance for married couples and civil partners.
Called the Marriage Allowance, this tax break took effect in April 2015, and the government said at the time that more than four million married couples and 15,000 civil partnerships stood to benefit.
It does actually make a difference; when it was introduced this saved couples up to £212 a year and that figure has since risen to £230.
“I would encourage every married couple to check if they are eligible, including checking the past two years as you can back-claim!”
The marriage allowance is specially designed for couples where one partner pays standard rate income tax and the other is a non-taxpayer.
You can claim it provided the following apply:
You are married or in a civil partnership
One partner in the couple doesn’t earn anything at all, or their income is £11,500 or less in 2017-18
And the other partner’s income is between £11,501 and £45,000 in 2017-18 – or £43,000 if you are in Scotland
If you are eligible, the lower earner can transfer any unused tax-free allowance of up to 10% of the value of the full personal allowance (i.e. £1,150 in 2017-18, because the personal allowance is currently £11,500) to their higher-earning partner.
“This reduces their tax by up to £230 in the current tax year!”
What’s more, you can backdate your claim to include any tax year since 5 April 2015 during which you were eligible for the allowance. A couple who claimed now for 2015-16, 2016-17 and 2017-18 stand to gain to the tune of £662. The good news is that any money for previous tax years is likely to be paid in the form of a cheque.
The government has said applying online is simple(!) and can be done at gov.uk/apply-marriage-allowance. It is the non-taxpayer who has to apply, and they will need their own and their partner’s national insurance numbers. They will also need a way to prove their identities such as the last four digits of the account that their child benefit, tax credits or pension are paid into, or their passport number and expiry date.
For the current and future years, HMRC will typically give the recipient partner their extra allowance either by changing their tax code or via the self-assessment tax system. Once you have claimed, HMRC should remember this and the lower earner’s personal allowance should transfer automatically to their partner every year. And that continues until one of them cancels the allowance or their circumstances change – for example, because of divorce or death.
Importantly, if you or your partner were born before 6 April 1935, you might benefit even more as a couple by applying for the married couple’s allowance instead.
This could reduce your tax bill by between £326 and £844.50 a year. You can claim this allowance if all the following apply: you are married or in a civil partnership; you are living with your spouse/civil partner, and one of you was born before 6 April 1935.
“These two tax allowances are simple for you to claim for yourself!”
If you would like some help, or if your tax affairs are more complicated and you need help, then get in touch with me on 01234 752566 or email firstname.lastname@example.org and let’s see how I can help you.
We want to make an impact on the lives of business owners. One that flows into their families, communities, economies and the wider world. ‘Get and Give a Million’ makes that happen …
‘Get and Give a Million’ is a fabulous initiative that helps you as a business owner to do two really important things:
Make life better for you, your business and your loved ones – this is the “Get A Million” part
Play a bigger game, and have more of an impact, you create a legacy and you make more of a difference by supporting the UN Global Goals in order to make the world a better place – this is the “Give A Million” part
It is totally free. And there are no strings, catches or hidden agendas. So why are we doing this?
Quite simply because here at JVCA we want to make a real impact on the lives of business owners. An impact that flows over into their families, communities, economies and the wider world. An impact that will help to make the world a better place for us all. Many wonderful people are already on board. Will you join us?”
We have set two targets:
Get a Million – To help business owners get an extra £1 million
Give A Million – To help the UN achieve its Global Goals by creating a million micro-impacts and smiles for people less fortunate than us
Business owners come in for a free ‘Get and Give A Million’ meeting and during it, we use our skills as great accountants to identify new ways to add thousands, and possibly even millions, to your business and personal bank accounts.
We will also explain how the meeting has automatically helped us to take another step towards our target of creating a million micro-impacts and smiles for those in need.
What’s more, you’ll leave the meeting with:
A detailed action plan
A clear understanding of your three top priorities
And a very special gift that will put a smile on your face
And, it is all yours completely free of charge, with no strings, no hidden agenda and no selling.
Would a £million help? If it would, you can arrange your free meeting by calling me on 01234 752566 and let’s get started!
Being a business owner can sometimes be hard, but you don’t have to make it harder by ignoring the signs that are showing up in the news headlines every day …
Right now, in October 2017, the UK has a marketplace that is filled with both challenges and opportunities. The challenge is to position your business to win … the opportunity is to position your business to win as well!
“Importantly, don’t be sidetracked by all the arguments over what sort of Brexit we getting, or if we can avert it or not!”
Today’s headlines are full of arguments over the politicians handling (or mishandling) of negotiations. But that is a trivial issue compared to what Brexit is already doing to the UK and what it might do next year.
The information in the headlines recently can be summarised as:
- Interest rates are going up at some time in the next three months
- Productivity has fallen to its lowest rate for years
- Inflation is rising
- There is pressure from unions and workers to increase wages
- Post-Brexit fears over residency status means that the numbers of EU workers in the UK have fallen
What does this mean, and what do you need to know to make sure you are a winner and not a loser from Brexit?
- Wages costs are a problem to be faced!
- The fact that we have fewer EU workers coming to the UK means that jobs are being unfilled. Which in turn will mean that businesses have to offer higher wages to attract people. Can your business survive a 5% or 10% increase in wages?
- Wage pressure and the UK’s track record of small annual wage increases, means that wages are being pushed up. Great for the individual worker maybe, but bad for the businesses that are going to have to increase wages or lose staff.
- Remember the costs of auto-enrolment is set to increase each year over the next two years.
- Inflation is rising, which means that all of your suppliers are going to be looking to increase their costs.
- Interest rates are going up, meaning the costs of borrowing will increase. For the average loan, a ½% increase in base rate actually means a 12½% increase in your borrowing costs!
- The latest productivity statistics show that the UK has stagnated, but that other countries have improved their productivity. How competitive will our exports be, and what can you do to improve your business’ productivity. If you don’t export then this is still important! What can you simplify or automate in your business to make it leaner and meaner?
… all of which will inevitably mean that every business will need to look again at its budgets and forecasts.
Probably, you will need to increase prices now, to get increased profits flowing in the future, from which to pay these higher wages and other costs.
You should also look at technology; what software is out there that will help your business to be more efficient? Finally, every business needs to be on top of its cashflow and forecasting it forward.
The key to being a Brexit winner is to do the things you should be doing anyway, looking at budgets, costs, costings and profitability. Forecasting efficiently and planning for the future.
“Would you like to know more?”
If you need help doing any of this, do give me a call on 01234 752566 or email me at email@example.com and let’s see how I can help you.
Accounting software is getting cheaper and easier. What makes it more doable is that the internet can offer you tutorials on everything from posting transactions to trial balances …
If you’re a new entrepreneur, or simply fed up with your accountant, then doing it yourself might seem quite attractive. Your accountant may be suggesting you do a lot of it yourself, but why?
“Because technology is disruptive!”
According to research by the website entrepreneur.com, small businesses are becoming more receptive to the idea of internal accounting operations. In this sense, technology is disrupting the established order of things.
As an accountant myself, I want to help my clients take advantage of new technology for a couple of reasons:
Firstly, a modern cloud-based accounting package will make it easier for you, my client, to be better connected and more customer-centric. All of which is going to help you to develop your business processes.
At the same time, it helps me, your accountant, to connect with you in more meaningful ways.
Secondly, modern software tools enable the automation of data entry tasks. No more typing of information and lots more automatic imports, electronic documents, and the software doing a lot more for you. All of which leads to more efficiency and allows you as the business owner to do more without spending money on your accountant.
Equally, it enables me, as your accountant, to be doing the important stuff and not waste time on those manual data entry processes. Automation should also lead to greater accuracy and fewer errors, but only if you have set the automation systems up correctly!
Thirdly, automation that speeds the processing up means that we can move to real-time accounting and faster processing of data entry will lead to real-time reporting. Which can lead to more timely financial information and better decision making.
So there you have it; three great reasons to ask me about how to get more with cloud accounting software. Why ask your accountant to get involved with this?
Setting up the automation isn’t always straightforward. We find that lots of people need help with this.
Transitioning from an old-fashioned software to a cloud accounting software can be traumatic if you don’t get your accountant involved.
Modern automation tools make real-time information possible, but this needs to be double checked and controlled. You can’t abandon your accountant and just use the automation tools! You need to work with your accountant in different ways.
You can now use your accountant for the things that will help make a difference to your business, rather than the adding up that the computer is now doing. If all you have ever used your accountant for is just adding up your accounts, now is the time to find out how much more use you can get out of a good accountant like me!
At JVCA, we provide help and support to set up and transition from one software to another, and then to make the most of the available information from your new cloud software.
“Would you like to know more?”
If you’d like to find out more about this then do give me a call on 01234 752566.
Starting a business can be a daunting task. So many people will think you’re mad, and I suppose that leaving the security of the workplace in this time of austerity could be considered a little bonkers …
However, if you are going to do it, make sure you do it right and get your facts and figures straight before you take that leap of faith. I see so many potential business owners and always advise them specifically for their own circumstances.
Here are 10 of the most common questions I get asked:
When should I write a business plan and how do I do it?
Everyone who is starting a business should start by writing down their big picture. Your business idea – crystallised and clarified! At some point, you should prepare a more detailed plan and a cashflow forecast, but exactly when is up to you. The important thing is to have done this before you make a decision you might regret!
How much money will I need to set up my business?
Well, this depends on you and what sort of business you are planning on starting. Every business is different, the only way you can predict how much your business idea needs is to list out what you need … or prepare a cashflow forecast.
How can I raise the finance I need for my business plans?
Start-up finance for your business is often a tricky thing, and the best thing to rely on is yourself rather than others. The good news is that there are several potential sources of finance – but they often take some finding.
How much should I pay myself?
At the beginning you are more likely to be putting money into your business to fund it than taking it out! Once you have got to the point of being profitable, you can think about taking money out of the business.
How should I approach recruiting new staff?
Carefully! Hiring and firing is not something to be done without thinking through the long term and short term issues and then choosing carefully. Don’t hire your friends just because they are your friends, but because they are good at doing what needs to be done. Most importantly hire for the right attitude.
Should I go into partnership with someone else?
Well, my instinctive answer is no! However, there are some excellent businesses that are partnerships. It depends on the individuals and the circumstances.
Do I really need an office?
You might not! Technology makes it easy to work from home and keep your costs down, so this is one to think about. Start by making a list of the advantages and disadvantages of either option. Add in the costs but also think about your customer’s needs and perceptions.
Do I have to set up a limited company?
No you do not, but you might be well advised to. Limited companies have some particular features, and these can be an advantage, and occasionally a disadvantage.
What marketing and advertising should I be considering?
This is a short question but potentially a huge answer. Firstly check out books or articles about marketing and advertising. Secondly, where are your customers located? And what do they pay attention to? Thirdly, is there a networking group you can attend?
How do I find the business support and advice I need?
Ask your Chartered Accountant for help. They should be able to provide the support and advice you need – or help you to identify a suitable mentor.
Being self-employed, working in a partnership or running your own limited company all have their unique challenges and it’s vitally important to get things right from day one. You want to be successful right? Get the proper advice!
Until next time …
I love meeting potential new business owners and would love to talk to you about working with JVCA to ensure you’re planning is done, your finance is in place and your business is a success. Give us a call today on 01234 752566
Regulation is a fact of life in business. From simple stuff like sending your VAT return online, to Health and Safety risk assessments. And now there are auto-enrolment workplace pensions …
Part of the information published by the Pension Regulator talks about sending warnings and fines to ‘nudge’ businesses into compliance. Data from the Pensions Regulator shows that they carried out 276 inspections in the last quarter, issued nearly 5,000 fixed penalty fines of £400 and issued 1,384 EPNs ranging from £50 to £52,000.
“Do you fancy getting a fine to nudge you to be compliant?”
An EPN is an escalating fine notice, in other words, bigger fines. So far only 78% of employees have been included in auto-enrolment and there are about another 700,000 small businesses that need to get it sorted.
Like a lot of legislation, Auto Enrolment Workplace Pensions have been well publicised by the government … and like a lot of regulations, not everybody understands what they have to do or has done it by their deadline.
What is telling is that each quarterly report from the Pensions Regulator shows that more and more businesses are being fined. In other words, more and more people aren’t checking they have it right and are only realising they have got it wrong when it’s too late.
What is going to happen in the next three months? Are you going to be one of the businesses that get fined? If you don’t understand what you have to do, then you need to get yourself up-to-speed quickly:
Every business that has employees needs to comply with the rules, although sometimes complying doesn’t involve setting up a pension scheme, it normally does.
And that means a small amount of cost and hassle. You don’t need to involve an IFA or regulated pensions adviser, although you might want to. Probably the best place to start asking is your accountant or payroll provider. But not every accountant does this. If you want our help, then we have a low-cost solution so do get in touch.
Know when your deadline is! If you don’t know your deadline, how do you even start taking control? Importantly, you need to start taking action about three months before your deadline. Setting up an auto-enrolment pension scheme can take a while so don’t get caught out because you didn’t plan far enough in advance.
Assess your workforce. Note that it is possible for someone who is a worker, but not an employee, to be considered within auto-enrolment!
This assessment will show you how your employees are categorised and therefore approximately what auto-enrolment workplace pensions will cost you on a month to month basis. For most people, it works out at about the same as 3 or 4 pints of beer per month, so it doesn’t have to be expensive.
Do something now! Being compliant is cheaper than getting fined, so get yourself organised and if you don’t have the time to do it all yourself then delegate it.
Finally, auto-enrolment workplace pensions mean more costs for your business. So review your pricing. Is it time to put your prices up?
If you do nothing else after reading this blog post, know what your staging date is and don’t fail because you ignore the rules.
“Would you like to know more?”
And, of course, if you want our help, we are only too willing so get in touch with us on 01234 752566.
Taxation without representation was one of the key elements of the American War of Independence in the 1700s. America was being taxed by Britain, but it had no electoral say …
Nobody in America could vote, or otherwise influence things, and we are getting to a similar point with regard to HMRC’s rules on IR35 here in the UK. Or, to use its more official, but boring, title: ‘Off-Payroll Working in the Public Sector’.
The issue with HMRC’s rules is that, if you are caught out by them, you have all of the taxation of being an employee, that is you are taxed as if you were an employee and both income tax and national insurance are deducted on payments to your business.
But you have none of the protections and nice bits of being an employee. In fact, HMRC’s rules explicitly state that you have none of the protections of being an employee, no holiday pay, no sick pay, no employee rights at all.
“To my mind this is just
If HMRC is going to demand that you are treated as an employee for taxation purposes, then you should also be an employee for the protections it brings. You should not just have the nasty bit (the taxation) and not the nice bits of the holiday pay, etc.
However, it gets worse than that. It is normal that anyone who is caught by the Off-Payroll Working rules is actually running a small limited company. So they need to deal with VAT, bookkeeping, pensions, annual accounts, carry indemnity insurance, etc.
All of which incur hassle and costs that the Off-Payroll Working rules ignore … and the practical impact of this is that the company has no money from which to pay these costs.
Why am I talking about this now, six months after the rules changed in April 2017? Well, it is about now that the rules are starting to bite and people up and down the UK are beginning to see what is going on.
Here are my top 4 tips, if you are caught by the Off-Payroll Working rules:
If you are in extremis over this consider changing contracts! In fact, early indications are that a significant number of subcontractors did just that and left the public sector.
The first thing you should do to check your situation is to ask for a copy of the detailed decision pertaining to your individual circumstances. Your end client, the public sector department you work for, must have carried out a review and come to a decision about the individual status of your business and what you do for them. They might have got this wrong! So find out what they said … and challenge it if necessary.
If you are caught by the rules, but don’t want to change contracts, then is your limited company needed anymore? Well, actually yes! Just because you are being paid as if you were an employee doesn’t make you an employee. Changing to be an ordinary employee might not be available or available on the same terms.
The cashflow impact of the new rules can be dramatic and you end up taking home far less money. All of which makes contract negotiations more important and you should consider asking for considerably more money to make up for the shortfall.
If you would like to find out more about how the Off-Payroll Working rules and IR35 affects you and what you can do about it, do call me on 01234 752566.
Get In TouchJonathan Vowles
114 High Street
Tel: 01234 752 566
Fax: 01234 752 577
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