Archive for August, 2014

Tax Diary August/September 2014

Tuesday, August 5th, 2014
  • 1 August 2014 – Due date for Corporation Tax due for the year ended 31 October 2013.
  • 19 August 2014 – PAYE and NIC deductions due for month ended 5 August 2014. (If you pay your tax electronically the due date is 22 August 2014.)
  • 19 August 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2014.
  • 19 August 2014 – CIS tax deducted for the month ended 5 August 2014 is payable by today.
  • 1 September – Corporation tax for year to 30/11/13
  • 19 September – PAYE & NIC deductions, and CIS return and tax, for month to 5/9/14 (due 22 September if you pay electronically)

Improved tax breaks for innovative companies

Tuesday, August 5th, 2014

There are currently two very generous tax breaks for companies involved in research and development (R&D) , particularly those that go on to patent their products or inventions. Many such companies may not be claiming all the relief that they are entitled to.

Firstly, R&D tax credit relief provides companies with an enhanced corporation tax deduction of up to 225% for qualifying R&D expenditure. For example, £100,000 qualifying expenditure attracts a tax deduction of £225,000. Qualifying expenditure would include scientists’ and engineers’ salaries involved on the research project.

Many companies involved in R&D are making a loss in the early stages and rather than carry the loss attributable to the enhanced R&D spend forward they are able to claim a repayment from HMRC. The repayment was increased to 14.5% from 1 April 2014, turning the £225,000 loss into a £32,625 refund (32.625% of the qualifying spend).

The second generous tax break is the “Patent Box” which entitles the company to a lower corporation tax rate on profits from the sale, licensing or other receipts from patented products. This lower rate is currently being phased in but will decrease to just 10% from 1 April 2017. In order to qualify for the Patent Box the company must register a UK or European patent over their invention.

Although software development can qualify for R&D tax relief, it does not currently qualify for the Patent Box. Please contact us if you want to discuss whether either of these tax breaks apply to your company

Interest and Capital Tax on business loans

Tuesday, August 5th, 2014

If you have made a loan to your business you should consider paying interest on the loan, as this will be an allowable deduction against the business profits. However, the interest will be taxable on the lender, so you need to consider the tax rate applicable to both parties.

For example, if the company pays tax at 20% and the director/shareholder pays tax at 40% this would clearly not make sense! If the loan is made to a company, the company will normally also need to deduct 20% tax at source and pay this to HMRC quarterly.

If the lender only has a small amount of other income, such as a small salary or pension below £10,000, the first £2,880 of savings income is only taxed at 10%.

Next year, however, the first £5,000 of savings income will be tax free which will provide a planning opportunity for some, as shown by the example:

Mr Wonger needs £100,000 to expand his sole trader business. His wife has just inherited a similar amount from her mother and decides to loan it to her husband’s business at 5% per annum. Her only other income is a small salary of £10,000 a year from her husband’s business. The £5,000 interest would potentially save up to 45% income tax plus national insurance for Mr Wonger, whereas Mrs Wonger would receive £5,000 interest tax free.

Capital Tax implications of the loan

Although the loan to the business in the example above is tax efficient (in that there is no income tax due from 6 April 2014) it would also be important to consider the CGT and IHT implications of the loan.

Should the business default, it may be possible to obtain relief as a capital loss against capital gains in the same or future years. There would, however, be no inheritance tax business property relief should the lender die with the loan in place. Please contact us for further advice in this area.

Agency workers and PAYE

Tuesday, August 5th, 2014

Changes in the Finance Act 2014 have tightened up the rules for “self-employed” workers supplying their services through UK agencies, employment businesses and other intermediaries.

From 6 April 2014 the agency must decide whether the way in which the worker does their work is subject to (or to a right of) supervision, direction or control by the end client or someone else. If it is then the worker will fall to be treated for income tax and national insurance contributions as an employee and the worker’s pay will be subject to PAYE and Class 1 employees/employers national insurance contributions.

HMRC have confirmed that the agency legislation will not generally apply where a worker is engaged via a personal service company (PSC). This is because the agency legislation will only apply when remuneration is received by the worker as a consequence of providing the services.

Dividends paid to the worker as a genuine consequence of their shareholding in the PSC will not normally constitute “remuneration” for the purposes of the agency legislation. Such workers will still potentially be subject to the “IR35” rules.

Please contact us if you wish to discuss whether the new legislation impacts on you or your workers.

VAT – pick and mix

Friday, August 1st, 2014

There are a number of VAT schemes that benefit registered businesses. For example:

 Cash accounting

If you are eligible and the scheme is suitable for your business, then using the cash accounting scheme enables you to pay VAT when your invoice is paid and not when you issue the invoice to your customers. You are also restricted when claiming back input VAT on purchases and expenses to the date you pay the bill, not the date you receive the invoice from your supplier.

You can use cash accounting if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million and you can continue to use cash accounting until your VAT taxable turnover exceeds £1.6 million.

Annual accounting

Annual accounting allows you to send in just one return a year. This offers some relief from the chore of submitting quarterly returns. Using the Annual Accounting Scheme, you make either nine interim payments at monthly intervals, or three quarterly interim payments, throughout the year. You only need to complete one return at the end of each year. At that point you must pay any outstanding amount or, if you have overpaid, you will receive a refund.

You can use the Annual Accounting Scheme if your estimated VAT taxable turnover for the coming year is not more than £1.35 million. Your VAT taxable turnover includes any standard, reduced and zero-rated sales and other VAT taxable supplies, but excludes the VAT itself, VAT-exempt supplies and capital asset sales.

Once you are using annual accounting you can continue to do so as long as your estimated VAT taxable turnover remains below £1.6 million.

You can also combine these two schemes. In this way you can have the cash flow benefits of using cash accounting and some relief from the administrative chores by submitting one return a year.

Before making a decision you will need to take advice as not all businesses will benefit.


Friday, August 1st, 2014

From April 2014 a new investment relief has been created, the Social Investment Tax Relief (SITR). Investments must be in a social enterprise, which means a community interest company, a community benefit society, or a charity. The money raised must be used for the enterprise’s chosen trade or charitable purpose.

In many ways SITR shares characteristics with the SEIS (Seed Enterprise Investment Scheme) and the EIS (Enterprise Investment Scheme). There are, however, some differences in the Income Tax, Capital Gains Tax and investment limits for each scheme.

Another important distinction is that SITR is the only scheme that can apply to certain debt instruments as well as shares.

A summary of the present tax reliefs available under the three schemes are set out below:

 Income Tax

 SITR – 30%, SEIS – 50%, and EIS -30%.

 Capital Gains Tax

 All three schemes provide potential CGT free gains on the growth in investments, if achieved, provided they are held for the minimum holding period.

 Additionally, gains on the disposal of any asset can be deferred into SITR and EIS (but not SEIS) investments.

 In place of the full deferral relief, investors in SEIS can claim a 50% exemption of the gains reinvested.

 At present the maximum amount that an individual can invest in SITR investments is £1m annually. The equivalent maximum amounts for SEIS are £100,000, and EIS £1m.

 Further, the maximum amounts that the entity can raise are: SITR Euros 200,000 over 3 years (including any other de minimis state aid received), SEIS £150,000 over 3 years, and EIS £5m in any 12 month period.

 Investors considering their investment options should seek professional advice as it may not be immediately clear which would be the best scheme to support their investment needs.

Companies House to increase free access to data

Friday, August 1st, 2014

In an effort to increase corporate transparency Companies House is to make all of its digital data available free of charge. This will make the UK the first country to establish a truly open register of business information.

As a result, it will be easier for businesses and members of the public to research and scrutinise the activities and ownership of companies and connected individuals. Last year (2013/14), customers searching the Companies House website spent £8.7 million accessing company information on the register.

The change will come into effect from the second quarter of 2015 (April – June).

Business Secretary Vince Cable said:

 “The Government firmly believes that the best way to maximise the value to the UK economy of the information which Companies House holds, is for it to be available as open data. By making its data freely available and free of charge, Companies House is making the UK a more transparent, efficient and effective place to do business.”

 It will be interesting to see how enterprising individuals and companies use the data for business development purposes.

Why management accounts are helpful

Friday, August 1st, 2014

Management accounts, produced on a regular basis, will give you and your professional advisor the information you need to manage your business and keep your planned profit growth on-track. They also provide the basic data that you will need to minimise your tax payments and keep your business on track to produce sustainable profits. Additionally, management accounts can be used to:

Keep your bank informed

If your business is constantly pushing towards the top end of its overdraft or loan facilities, your bank manager will be much more sympathetic to your requests for more support if you can provide regular up-to-date accounts.

Plan the purchase of new plant, equipment or vehicles

The tax allowances you can claim for capital purchases can vary significantly. In particular the date on which you buy and the specification of the vehicle or equipment will need to be taken into account. Well worth taking professional tax advice before you make any significant investment in this area.

Plan how you pay yourself

The options you have available to minimise tax and National Insurance on any income you draw from your business depends on the type of business structure you have opted to work with. Self-employed traders will pay tax on their profits regardless of the amount of cash they withdraw for personal needs; directors and shareholders of Limited Companies will pay tax on the amount of salary or dividends they take. Dividends, however, do not attract a National Insurance charge. Each business offers its own opportunities to minimise state deductions and maximise take home pay. You should certainly take advice prior to your year end to make sure you choose the right strategy; waiting until after the year end may close down beneficial options.