Blog

MARCH 2017

SIX KEY THINGS THE BUDGET MEANS FOR YOUR SME

Following the budget there are changes to both business and personal taxes, but this year small businesses and the self-employed seem to be feeling the burn – although it’s not all bad news.

1. CLASS 4 NATIONAL INSURANCE WHAM
It was already known that Class 2 NIC is to be abolished from 6 April 2018 but the main rate of Class 4 National Insurance contributions for the self-employed is to increase from 9% to 10% in April 2018 and 11% in April 2019.It’s a bit of a blow to the self-employed (again). No changes were proposed to National Insurance paid by the employed and employers or to income tax or VAT.

2. A RISE IN PERSONAL TAX-FREE ALLOWANCE
The personal tax-free allowance is planned to rise from £11,500 for tax year 2017/18 and to £12,500 by the 2019/20 tax year. Higher rate tax payers will receive a further tax break as the 40 per cent tax threshold is increased once more. From April 2017 only those with an income of more than £45,000 will be subject to a 40 per cent rate of income tax (the threshold was £43,000 before).

3. MINIMUM WAGES
The minimum wage will rise from £7.20 to £7.50 from April 2017, Mr Hammond confirmed. It’s not a massive hike but all adds up over a year.

4. BLOW FOR THOSE DIVIDEND ALLOWANCES
Company directors and private shareholders will have their tax-free allowance on dividends cut from £5,000 to £2,000 from April 2018. This cut in the allowance will mean that a higher rate taxpayer receiving £5,000 in dividend income will have to pay almost £1,000 more in additional tax. That’s quite a whammy.

5. BETTER NEWS ON BUSINESS RATES
Three measures were proposed to help small businesses facing big increases in rates due to the recent business rates revaluations. These measures include restricting any bill increase for a business coming out of small business rate relief to £50 per month and the capping of any future increases. There will be a £1,000 discount for all pubs with a rateable value of less than £100,000. Plus local authorities will be given a £300m fund to deliver discretionary relief for “individual hard cases”

6. DELAY IN MAKING TAX DIGITAL
The good news is that The Chancellor has agreed a 12-month delay in the original timeline for Making Tax Digital (MTD) for unincorporated businesses turning over more than £10,000. Unincorporated businesses that have an annual turnover below the VAT registration threshold of £83,000 will have until April 2019 to prepare before MTD becomes mandatory, giving them more time to prepare for digital record keeping and quarterly updates .At least that’s a bit less admin to worry about now!

 

March 2017

Pensions - Auto Enrolment

Staging for small and micro employers is set to ramp up over the next few years. More than 45,000 are due to enrol their workers onto a workplace pension scheme in 2015, rising to over half a million next year.

So how prepared are you?   And do you know when you should start? Below are some frequently asked questions which I hope will help.

What is automatic enrolment?
All employers are now legally required to enrol certain staff into a pension scheme and to make contributions.  The first step to complying with your duties under auto enrolment is to establish your staging date.

It’s automatic so surely I don’t have to do anything?
Unfortunately it is only automatic for staff not for the employer.

I only have 5 employees am I exempt from enrolling?
Every employer with at least one employee has a duty to comply with auto enrolment.

What is a staging date?
The staging date is the date that your automatic enrolment duties apply.

How can I find out my staging date?
The Pensions Regulator has been sending out letters letting employers know their staging date.  If you haven’t received a letter yet you can go online at www.thepensionsregulator.gov.uk and enter your PAYE reference to find this date.

I don’t have any staff; do I still have to comply?
If the only staff that you have are directors then you may not have any duties under the new scheme. However you will have a duty if more than one director has a contract of employment.

Who do I need to enrol?
The age and rate of pay will determine who has to be enrolled.

What happens if I don’t comply?
Employers that don’t comply will face enforcement action which could be a fine or prosecution or both.

What are the steps I need to follow?
The recommended steps are as follows:

 

  • Find out your staging date
  • Provide a point of contact
  • Establish who you need to enrol
  • Prepare your action plan

 


Who can be my point of contact?
The employer will be the primary point of contact but you can nominate another person such as your accountant, book keeper or payroll provider as your secondary contact and they can implement the process on your behalf.

These are just a few of questions asked.  If you need any further information or clarification then please do not hesitate to contact me.

Julia Wright

Accountancy Plus,    01273 735344     This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

November 2016

Lunch?  I’ll get this and put it through the business.

But can you claim it?  Is it allowable or not? Will it be classed as subsistence or entertaining? There is so much confusion between subsistence and entertaining and the distinction is important because one is an allowable expense for tax and the other isn’t.

Subsistence is food and drink when you are travelling for business. What you can claim as subsistence depends on your particular business circumstances. Subsistence is an allowable expense for tax.

Entertaining is providing hospitality and entertaining for customers, potential customers and other people. Usually this is food and drink but could include other forms of entertainment such as event tickets as well as accommodation, gifts and free samples.  The cost of entertaining clients, customers or third parties in relation to the business is disallowed as a deduction for tax purposes. It still should be included as a business expense on your “Profit and Loss” account but it should be separately analysed so that it can be added back for tax purposes.

What is allowable and what is not? Here are some examples that will hopefully clarify the difference

1. You take some clients or suppliers out for lunch near your home base. In this case the entire meal is definitely entertaining but as there is no allowable travel involved there is no potential subsistence element.

2. You are staying away on business and pay for a meal for yourself, a subcontractor who works for you and some clients. Can you claim any of this for tax? It all depends on the primary purpose of your trip. When the main purpose of the trip was for business then you may include the cost of your own meal as a subsistence expense. Everyone else is classed as entertaining and is not allowable for tax. If the purpose of your trip was to primarily to meet with the clients or suppliers for a meal, then unfortunately the whole trip including travel would be counted as entertaining. This is the case even if you were discussing business while you ate.

3. You are a Limited Company director staying away on business with two employees. You pay for the evening meal for the whole group. In this case, because everyone was an employee of the company and it was a business trip, providing the circumstances of the trip satisfy all the necessary requirements, the meal is classed as subsistence and is allowable. Although a subcontractor may feel like an employee for travel, subsistence and entertaining purposes they are not. They need to be on the payroll to be classed as an employee.

 

----------------------------------

April 2016

Does the taxman like a party? Unfortunately the answer is – not much!

As a general rule the cost of entertaining is not tax-deductible, and VAT is not recoverable on expenditure. As it involves tax the rules are of course complex, and VAT can be reclaimed in certain circumstances. £150 of costs of an annual party for employees and partners can be exempt from NICs and tax, as long as a number of conditions are met.

Entertaining Clients

The entertaining of clients or potential clients is not an allowable deduction for tax purposes. It makes no difference if the person being entertained is an existing customer, a potential customer, or any other person who is not an employee.  The VAT element of entertaining can only be claimed when it relates to staff as outlined below.  However if the staff member is acting as a host, and the purpose of the cost was to entertain the client, then no VAT can be reclaimed at all. If you have a limited company it is still worth paying from the company, as it saves you the income tax you would otherwise pay on withdrawing the funds to pay the costs personally.

Staff parties and entertaining - (When and how is an annual event exempt from tax?)

The above is a brief outline of the rules.  If you need any further information or clarification then please do not hesitate to contact me.
As with everything when it comes to HMRC, a common sense approach is advised.  If you run a limited company and are the sole employee/director a Christmas party where you invite 10 guests (who happen to be your family members or friends) may be seen as uncommercial, and has the potential to be disallowed as it’s not ‘for business purposes’.If you have 2 staff and 2 guests, you could therefore reclaim 50% of the VAT.


If you’re registered under the flat rate scheme then unfortunately you can’t reclaim any VAT, but those who are standard rated can reclaim to the extent the costs are applicable to staff. Obviously, if the employee does not attend either function or just the one with a cost of £100, no taxable benefit would arise. Note that the £150 annual function exemption has no impact on the tax position of the employer. The exemption is a relief from an income tax benefit in kind charge for employees. There is no add-back in the employer’s tax computation and the expense is allowable no matter what the impact on the employee.


Assuming that the employer determines that the £100 function is exempt but the £80 function is taxable in full then if an employee only attended the £80 function, they would be taxed on the £80 benefit in full. If the employee attended both functions, they would still only be taxed on the £80. 
If there is more than one function which in total exceed a cost of £150, then the exemption is only available on the function or functions which in total amount to £150 or less.

Say there are two functions at £100 and £80. Assuming that the employer determines that the £100 function is exempt but the £80 function is taxable in full then if an employee only attended the £80 function, they would be taxed on the £80 benefit in full. If the employee attended both functions, they would still only be taxed on the £80.

Obviously, if the employee does not attend either function or just the one with a cost of £100, no taxable benefit would arise. Note that the £150 annual function exemption has no impact on the tax position of the employer. The exemption is a relief from an income tax benefit in kind charge for employees. There is no add-back in the employer’s tax computation and the expense is allowable no matter what the impact on the employee.

If you’re registered under the flat rate scheme then unfortunately you can’t reclaim any VAT, but those who are standard rated can reclaim to the extent the costs are applicable to staff.  If you have 2 staff and 2 guests, you could therefore reclaim 50% of the VAT.

As with everything when it comes to HMRC, a common sense approach is advised.  If you run a limited company and are the sole employee/director a Christmas party where you invite 10 guests (who happen to be your family members or friends) may be seen as uncommercial, and has the potential to be disallowed as it’s not ‘for business purposes’.

The above is a brief outline of the rules.  If you need any further information or clarification then please do not hesitate to contact me.

 

----------------------------------

 

Oct 2015

Love, Marriage and the Taxman

Is there any financial advantage to saying “I do”?

There is a new tax allowance that the Government is urging married couples and civil partners to register for but it will be of little benefit to most couples who are considering tying the knot. This new tax break won’t save most married couples money and compared to the cost of a wedding doesn’t really provide much of an incentive. There are other tax and financial advantages though and the main benefits are outlined below.

Inheritance tax

One of the big advantages of marriage is the ability to pass on assets after your death without incurring inheritance tax. This might not leap out to younger people as an advantage when they may have a mortgage and debt, rather than savings, investments and property. It is a benefit for all married couple but it is older couples who tend to worry about what will happen to their assets when they die. Currently, inheritance tax (IHT) is charged at 40% on estates that are worth more than £325,000. However, if you are married or in a civil partnership, all assets can be passed to a surviving spouse without any inheritance tax. And when the second spouse dies you can utilise both partners' allowance when passing assets on to the next generation. This means married couples can leave £650,000 to their children before IHT is applied.

Income tax

To save income tax assets can be arranged so they are owned by the lower-earning spouse. It is possible for married couples to reduce the income tax paid on savings, investments, or on a rental property if one spouse pays a lower rate of tax than the other. For example if one spouse pays tax at 40% and the other spouse is not earning and any savings are held by the non-earner and the interest on those savings are below the personal allowance then they won't be taxed on that interest.

Capital gains tax

If you are selling assets, for example shares or property, then at current rates you will be taxed on any gain of more than £11,000. However, as both spouses have a capital gains tax (CGT) exemption of £11.000, assets can be transferred so that effectively a couple can realise gains of £22,000 before tax is applied.

Pensions

If you are married you should inherit any final salary pension your spouse has earned. This can be up to half the pension he or she would get , but you won't necessarily get this money if you are just living together.

 

----------------------------------

 

June 2015

2015 Summer budget changes to property and tax

Below are the 3 changes regarding property and tax.

Rent a room relief

This relief applies to private landlords, the owners of guest houses and similar establishments, provided that they use the property as their main or only home. From April 2016, the exemption will increase to £7,500 per household (years to 2015/16 £4,250 per household). There will still be no requirement to declare income if it is below this threshold.

Inheritance tax

The Finance bill introduced an additional nil-rate band when a residence is passed on death to a direct descendant. This will be:

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

It will then increase in line with Consumer Price Index from 2021 to 2022 onwards. Any unused nil-rate band will be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

Parents and grandparents will be able to leave homes worth up to £850,000 to their children without them paying inheritance tax from 2017, rising to £1 million by 2020.

The move, first pledged as part of the Conservative Party pre-election manifesto, means that once fully in motion, each parent will be able to leave £500,000 in property – up from the current £325,000 per person – without paying the tax. As allowances can be passed from one deceased partner to the other, when the first dies, their £500,000 allowance transfers to the other, giving the survivor a £1 million allowance.

 

Buy to let – restriction of mortgage interest relief.

Currently mortgage interest may be deducted from rents income to arrive at profit or loss for tax purposes and income tax relief is given at a taxpayer's marginal rate of tax.

The changes proposed are to restrict mortgage interest relief to the basic rate, and to give the relief as a tax reduction, not an allowable expense. The measure is to be phased in between 2017 and 2020. Individuals will be able to claim a basic rate tax reduction from their Income Tax liability on the portion of finance costs not deducted in calculating their rental profit. This tax relief will be calculated as 20% of the lower of the:

-       finance costs not deducted from income in the tax year (25% for 2017 to 2018, 50% for 2018 to 2019, 75% for 2019 to 2020 and 100% thereafter)

-       profits of the property business in the tax year

-       total income (excluding savings income and dividend income) that exceeds the personal allowance and blind person’s allowance in the tax year

Any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year.