CHANGES TO TAXATION OF DIVIDENDS

In the recent budget, the Chancellor announced that from 6 April 2016 there will no longer be a national tax credit associated with dividends received and the following rates will apply after a £5,000 tax free dividend allowance:
Basic rate taxpayers         – 7 ½%

Higher rate taxpayers        – 32 ½%

Additional rate taxpayers             – 38.1%

 

This will mean that from 2016/17 individuals will be able to receive up to £17,000 tax free:
Personal allowance          £11,000

Tax free interest                 £1,000

Tax free dividends             £5,000

 

IMPACT OF CHANGES TO DIVIDEND TAXATION ON FAMILY COMPANIES

 

A common strategy that we often advise to family company director/shareholders is that they extract profits from their company by way of dividends instead of paying themselves a salary. This is because there are no national insurance contributions on dividend payments and where the dividend income falls within the basic rate band (up to £42,385 for 2015/16) there is currently no income tax on dividends.

 

Where both husband and wife are directors and shareholders they will be able to pay themselves a salary of £11,000 each and then dividends of £5,000 each tax free. However the next £27,000 of dividends up to the new £43,000 higher rate threshold would be taxed at 7 ½ % resulting in income tax of £2,025 each being payable for 2016/17. Under the current rules there would be no tax on such dividends up to £42,385.

 

This is a significant change to the taxation of dividends and clearly makes them less attractive than previously. From April 2016 more consideration may have to be given to the choice between paying salary or dividend to owner managers!!!!

25% Off First Year’s Fees at Balance

We love the sun here at Balance, and we are embracing it by offering a huge 25% off first your year’s fees if the temperature stays above 20 degrees for the rest of the week. All you have to do is retweet and follow Balance then tweet at us with the word #Sun. You will then be contacted to meet up for a chat.

sun campaign

Staff Clothes

 

If you provide clothes for your staff to wear at work you need to be aware of the tax and VAT implications which may vary according to the items provided.

Where the items provided constitute a uniform or protective clothing which is needed to perform the job, the cost is tax deductible for the business and the VAT can be reclaimed. There is no taxable benefit in kind for the employee.

If the clothes are not considered to be a “uniform” and can’t qualify as protective clothing, the tax treatment depends on whether the employees are permitted to keep the items.

Where ownership of the items effectively passes to the employee you should generally treat the provision of the clothes as a sale at cost price, in which case you must account for VAT as if the clothing items had been sold at the cost to you. This can apply when sales staff in a clothing store are given clothes to wear from the store’s range, and are not required to return those clothes if they leave the company’s employment. The value of the clothes provided may also be a taxable benefit for the employee, which needs to be accounted for either on the annual form P11D or as part of a payroll settlement agreement (PSA).

Where the value of the items provided to any one employee is less than £50 in the tax year, the provision can be treated as a business gift by the employer. In this case the employer does not treat the value of the clothes as a sale. The taxman may also agree that the value of the clothes is a trivial benefit which is not taxable on the employee. However, it is best to establish this position with the tax office in advance. We can help you with that.

 

HMRC continue to pursue online traders

HMRC are continuing their campaign against online traders. There is now more urgency for online traders to get their tax affairs in order as HMRC wields its expanded powers to get user information from online marketplaces like Amazon, Gumtree, Ebay and Etsy.  

The clampdown is a continuance of the e-marketplace campaign which originally started in 2012, initially running between March and September of that year. According to HMRC’s press office, the initial correspondence sent to traders was to inform them of the campaign and were “educational”.

The new crackdown was launched on the back of extensive new powers introduced last year enabling HMRC to download people’s account information. It has been reported that the websites in question “are being forced to hand over customer account details, including their selling activity, as part of the taxman’s legal powers that were extended last year”.

HMRC haven’t stated what the threshold is where an online seller becomes an online trader. And some of the 14,000 targeted thus far had made as little as £100 profit online. According to HMRC, “anyone just selling the occasional item has nothing to worry about. This is about making sure on-line traders pay the right tax – wealthy or otherwise.“

A HMRC spokesperson went on to confirm that those continuing to avoid the Revenue’s overtures, could face penalties and that the taxman “will determine the amount of tax due based on the information we have available”.

The campaign has had some notable successes, with one eBay seller who turned over an undeclared £1.4m in six years handed a two year prison sentence.

Lump sum withdrawals from pension funds – Quirks of the new legislation

The new pension fund rules which became operative from 6th April this year allow you to withdraw all or part of your pension pot in a lump sum. However, beware that if the pension provider does not have a current tax code (or P45) then you will end up having tax deducted from the lump sum at the emergency (month 1) tax rate. This could result in excessive income tax being deducted and the overpayment will only be rectified at the following 5th April when HMRC reconcile your PAYE.

For example—you have annual taxable income of say £15,000 and you decide to withdraw a lump sum of £20,000 from your pension. The first 25% of the lump sum will be tax free (providing you haven’t already drawn all or part of your 25% tax free amount) and you would expect that there would be income tax of 20% deducted from the remaining £15,000 amounting to £3,000. However, if the emergency tax rate has to be applied then tax of £5,995 will be deducted. So you end up with £2,995 less than expected—OUCH!

 

Fortunately it is possible to obtain an early refund and HMRC have introduced a number of forms to use, depending upon the exact circumstances involved :

 

Form P50z if you have withdrawn all of your pension pot in one go and have no other PAYE or pension income other than the state pension.

Form P53z if you have chosen to withdraw all of your pension pot in one go and you do have other PAYE or pension income.

Form P55 if you have taken a lump sum payment which doesn’t use up all of your pension pot.

Here at Balance Accountants we understand how the new pension rules work —they can be a bit complicated –but if you need our help regarding overpaid tax then Contact us and we will be happy to help.

How can you work less, beat your competition and unlock greater profits in your business

 

That is the title of the latest Balance Business Bitesize which is now available on our website.

Fail to eliminate waste and you fail to maximise the profits in your business

In this edition of Business Bitesize and the supporting tools, you will, learn how the NHS, Toyota and a headteacher have transformed their work processes in order to save money, build team engagement and deliver a better than ever experience to their customers and their clients.

Develop “eyes for waste”. Manage the 7 wastes out of your business and you will become more competitive, reduce your costs and increase your profits.

businees bitesize

Supporting Tools

Fill your details into the pop up and you will receive a free copy of the Balance Business Bitesize.

How post it notes, flipchart paper, a couple of team meetings and a single question can change how your business operates…..today

How to follow step by step guide on identifying, classifying and addressing the waste that could be present at every level within your business

How addressing waste in any business at any level can bring nothing but benefits.

Cloud based accountancy packages —-what’s the big deal???????

The big deal is that a whole host of modern cloud based accountancy packages have entered the market in recent years creating a massive shock wave in the established and ordered accountancy software market.

With a vast array of hi tech features included as standard, including access from anywhere in the world at any time of day, continuous upgrades, low monthly subscriptions, bank feeds, unlimited free online support, ease of use and powerful reporting, this new breed of accountancy software has left the traditional providers scrambling to catch up.

One of the best parts about managing your business finances in the cloud is that it allows you to analyse data in a way that, just a few years ago, was only available to massive corporations.

At Balance Accountants we have reviewed the cloud based offerings and chosen two to partner with. Freeagent provides a great entry level product for business owners with no accountancy knowledge but it is particularly attractive to creative businesses and professional service businesses because of the built in time sheet facility which allows time recording, project management and project billing. Xero offers a higher level package with departmental reporting and a whole host of add on modules such as stock control.

dude

The fact is that cloud accounting platforms like Xero and FreeAgent make the boring, repetitive task of bookkeeping less painful. The end result is freed up time to do the fun bit- managing your business.

At Balance accountants we are serious about cloud based accountancy and we believe that it is the way forward for 21st century businesses. If you have not seen cloud based accountancy packages in action then we will be happy to give you a free demonstration, just email flourish@balanceonline.co.uk

Flat Rate VAT Scheme and capital expenditure

If you use the Flat Rate VAT scheme then you can, in addition, reclaim the VAT on a single purchase of capital expenditure where the amount of the purchase, including VAT, is £2,000 or more.

forensic-accounting500

This all sounds fairly straightforward. Beware, however,  that if goods are purchased from one supplier at one time then they count as one purchase BUT if they are from different suppliers at different times then they will be separate purchases (even if they are used in conjunction with one another) and each must be £2,000 or more in order to qualify. So, for example, a company installs a new computer system and buys the various components and software from different suppliers then these may not qualify for a VAT reclaim if the individual purchases from each supplier are less than £2,000—EVEN IF the total cost of the computer installation is over £2,000.

HMRC’s VAT Notice 733, para 15.3 provides examples of what qualifies as a single purchase.

Brand new Business Bitesize!

Business Bitesize

Brand new from Balance Accountants is our Business Bitesize magazine which we are producing every 2 months.

Business Bitesize provides precious insights from some of the world’s best business books. Each issue is available via the home page of our website where you can download not only the magazine itself but a whole host of business tools and processes that will help you to implement the Business Bitesize ideas.

The whole package provides a great resource  for forward thinking business people who want to apply modern concepts to their businesses. But don’t take our word for it, look atv our website now and get access to a copy of the first Business Bitesize which looks at the subject of goalsetting.

More than just bean counters!

This year at Buy Yorkshire 2015 we are keen to point out that we are much more than just bean counters.  More to come on this over the next couple of days, but in the meantime here’s a look at the definition of ‘Bean Counters’.  Hopefully you will see why we don’t think this applies to us.

Bean counter

Meaning – A disparaging term for an accountant, or anyone excessively concerned with statistical records or accounts.

Origin

When researching the expression ‘bean counter’ there is a difficulty – the term has several different meanings. The common usage these days is as a name for a rather pedantic accountant, the implication being that, while most of us are content to buy beans by the bag, fussy accountants want to know exactly how many they are paying for. Before the first hapless accountant was called a ‘bean counter’ the phrase was also used as the name of a place where beans were sold, especially in the USA where ‘pork and bean counters’ were commonplace in the 19th and early 20th centuries. Added to that, our inventive predecessors used machines to count beans – and there’s no need to tell you what they called them. This variability can lead to some confusion when scanning old newspaper records and other references. Nevertheless, I’ll plough on and try to sort the leguminosae from the chaff.

Bean counters, that is, ‘counters where beans were sold’, came first. The US newspaper the Lewiston Evening Journal referred to these in June 1907:

The Clerk, seeing himself worsted by numbers… walked over to the bean counter where he again busied himself putting up packages for the evening trade.

This was followed by bean counters, that is, ‘machines that count beans’, which meaning is cited in the Pennsylvania newspaper The New Castle News, March 1916:

City Registry Clerk Stanley Treser has invented a new device. It is known as the bean counter.

Then, lastly, we get to bean counters, that is, ‘accountants’. The earliest reference I can find to the use of ‘bean counter’ with this meaning is in the US newspaper The Fort Wayne News And Sentinel, February 1919, in an article titled The Bean Counter:

The son of Josephus has been promoted in the quartermaster’s department. “I suppose,” remarked the Gentleman at the Adjacent Desk “I suppose that somebody has to count the beans for Colonel Roosevelt’s fighting sons.”

The ‘fighting sons’ were the US soldiers engaged in the latter part of WWI. The story alludes to the American politician Josephus Daniels who served in the administration of Theodore Roosevelt, who was himself a colonel during his military service and was a strong supporter of the US’s involvement in WWI.

The phrase appears in Australia soon afterwards, either by migration from the USA or by independent coinage. An example is found in The Parliamentary Debates of the Australian House of Representatives, 1928:

It is not a bean counter’s bill. There is no attempt to make any savings.

This insinuation that ‘bean counters’ were penny-pinching accountants who couldn’t see the bigger picture chimes in well with the no-nonsense reputation of Australian politicians. The phrase flourished down under during the 1930/40s before becoming commonplace throughout the English-speaking world later in the 20th century.

Article from The Phrase Finder




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