Archive for the 'Library' Category

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!!!!

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.

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.

End of tax year fast approaching!

The tax year end of 5 April is fast approaching which means that it is time to think about maximising your tax position. There are a number of possible tax planning issues that you might wish to consider and we have included a few of the more popular ones below:

YEAR END PENSION PLANNING

Take advantage of the pension carry forward rules in order to benefit from any unused relief. The maximum amount that can be contributed to your pension is currently £40,000 per annum (£50,000 per annum up until 5 April 2014) but it is possible to use the previous 3 year’s relief if not already used. If you have not used previous years’ pension relief then it may be worth paying a large pension contribution before 5 April 2015 in order to make use of the pension relief available.

GET READY FOR THE NEW FLEXIBLE PENSION RULES

For those aged 55 and over and with a SIPP or other money purchase scheme, the new flexible pension rules commence on 6 April 2015. The new rules allow you to withdraw as much or as little income as you like from your fund but the income drawn will be taxed at your marginal tax rate.

AVOID LOSING YOUR PERSONAL TAX ALLOWANCE

For every £2 that your adjusted net income exceeds £100,000, the £10,000 personal tax free allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.

MAKE CHARITABLE PAYMENTS UNDER GIFT AID TO SAVE MORE TAX

Higher rate taxpayers can make charitable payments under Gift Aid to obtain additional tax relief. The charity will also be able to reclaim the basic rate tax from HMRC.

YEAR END CAPITAL GAINS TAX PLANNING

Have you used your 2014/15 annual exemption of £11,000? Consider selling shares where the gain is less than £11,000 before 6 April 2015. Also, if you have any worthless shares consider a negligible value claim to establish a capital loss. You may even be able to set off the capital loss against your income under certain circumstances.

TAKE ADVANTAGE OF YOUR 2014/15 ISA ALLOWANCES

Your maximum annual investment in ISAs for 2013/14 is £15,000. Your investment needs to be made before 6 April 2015. In addition, have you thought about investing for your children or grandchildren by setting up junior ISAs or pensions? In the 2014/15 tax year, you can invest £4,000 into a Junior ISA for any child under 18 who does not have a Child Trust Fund.

INHERITANCE TAX PLANNING BEFORE 6 APRIL 2015

Have you made use of your annual inheritance tax exemptions? The general annual exemption is £3,000 per donor (plus last year’s £3,000 exemption if you did not use it). Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT.

OTHER TAX EFFICIENT INVESTMENTS

If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS), which offers income tax relief of 30 per cent as well as

capital gains tax relief when you buy shares in certain qualifying companies? An even more generous tax break is available for investment in a qualifying Seed EIS company where income tax relief at 50 per cent is available. It is possible to shelter 50% of your capital gains in 2014/15 and there is a capital gains tax exemption when the shares are sold. Note however that qualifying Seed EIS companies tend to be risky investments so professional advice should be taken. A 30% income tax break is also available by investing in a Venture Capital Trust.

THE £2,000 NATIONAL INSURANCE EMPLOYMENT ALLOWANCE CONTINUES FOR 2015/16

The £2,000 “employment allowance” introduced in 2014/15 continues to be available for 2015/16. Note that this allowance provides relief from paying employers NIC on the first £2,000 of contributions. The £2,000 allowance is set against employers NIC on a cumulative basis during the tax year. The allowance is available to most employers, although those under common control are restricted to just the one £2,000 allowance. Husband and wife companies with no other employees charged to national insurance may find it tax efficient to change the mix of salaries and dividends to take advantage of the £2,000 allowance. From 6 April 2015 it may be advantageous to increase directors’ salaries to the new £10,600 personal allowance instead of the NIC threshold of £8,060 (£155 a week).

AND NO EMPLOYERS NIC FOR THOSE UNDER 21 FROM 6 APRIL 2015

A Government policy to reduce the number of school leavers not in employment, education or training is to abolish employers NIC for those under the age of 21. This exemption starts 6 April 2015 and will not apply to those earning more than the Upper Earnings Limit (UEL), Employers NIC will be charged as normal beyond that limit.

The notes above only provide an outline of the possible tax planning ideas, if you require further details or advice then please do not hesitate to contact us.

This blog was complied by Ashley Barrowclough.

July Tax Payments

The due date for the payment of the second instalment of 2013/14 tax is fast approaching.

Self employed people, of which there are 4.54 million in the UK, together with certain other tax payers  have to pay their tax in two instalments on 31 January and 31 July each year. The July 31st payment will be due in just a few weeks’ time and many of you will have already received a payslip from HMRC stating the amount of tax due. Make sure that your payment is received by HMRC by 31 July in order to avoid unnecessary interest arising.

If you are unsure as to whether the HMRC payslip amount is correct then you should contact your accountant who will be able to advise you accordingly.

This article was compiled by Ashley Barrowclough.

Reduced rate of VAT on empty buildings

Here at Balance Accountants we regularly get asked questions about VAT on construction. This is probably because it is such a complicated VAT area. Last week one of our clients asked us if they were correct to charge a lower rate of VAT on the conversion of an empty property. There are a number of matters to take account of but the basic principles are as follows:

1. You can charge the reduced rate (5%) of VAT on the renovation or conversion of a residential building if, in the 2 years immediately prior to the commencement of works, the premises have not been lived in.

2. If you reduced-rate your supply then you may be required to prove that the building has not been lived in during the 2 years immediately before you start work. A letter from the local authority’s Empty Property Officer would be acceptable evidence of non occupancy.

3. Other than installing goods that are not building materials, you can reduced-rate any works of repair, maintenance or improvement carried out to the fabric of the building. You can also reduced-rate works within the immediate site of the dwelling that are in connection with the:

Means of providing water, power, heat or access.

Means of providing drainage or security, or

Provision of means of waste disposal

You can also reduced-rate the renovation or construction of a garage or conversion of a building into a garage provided that the work is carried out at the same time as the renovation or alteration of the premises concerned and the garage is intended to be occupied with the renovated or altered premises.

The above details were sufficient to answer our client’s query but there are additional details that may be relevant to individual circumstances so it always advisable to seek professional advice whenever you are unsure. The full provisions regarding the reduced rate of VAT on empty properties are set out in VAT notice 708, available at www.hmrc.gov.uk/vat/sectors/builders/construction.htm

This post was compiled by Ashley Barrowclough.

CORPORATION TAX REDUCTIONS

From 1 April 2014 to 31 March 2015, the main rate of corporation tax is 21% where a company’s profits exceed £1,500,000 (divided by companies under common control). The 20% small profits rate continues to apply to companies with profits up to £300,000 (also divided as above).  As previously announced, a single corporation tax rate of 20% will apply from April 2015 whatever your level of profits




Download the latest Balance Business Bitesize now!

Enter your e-mail and name now to learn how you can do the above

E-mail: 
Name:

Subscribe!