Archive for the ‘Uncategorized’ Category

New accounts filing regulations for smaller companies

Tuesday, April 25th, 2017

Companies house recently published the following news story.

Changes to UK company law removed the option for small companies to file abbreviated accounts for accounting periods starting on or after 1 January 2016.

Small companies

If you are a small company, you have 4 options for filing your accounts:

1. Micro-entity accounts

  • You must meet at least 2 of the following:
  • turnover is no more than £632,000
  • balance sheet total is no more than £316,000
  • average number of employees is no more than 10

2. Abridged accounts

  • You must meet at least 2 of the following:
  • turnover is no more than £10.2 million
  • balance sheet total is no more than £5.1 million
  • average number of employees is no more than 50

3. Full accounts with us and HMRC

These joint accounts are suitable for small companies who are audit exempt and need to file full accounts to us and HMRC. You can also file your tax return with HMRC at the same time.

4. Dormant company accounts

These accounts are suitable for companies limited by shares or by guarantee that have never traded and can be filed using our WebFiling Service.

How to file your accounts

 

Micro-entity accounts:

To file micro-entity accounts you need to sign-in to our WebFiling service and choose the micro-entity accounts type.

 

Abridged accounts:

We’re working on a replacement service that will enable you to file abridged accounts on Companies House Service. We expect to launch it this year.

 

Currently, there are 2 options for you to consider:

  • Use the Companies House-HMRC joint filing service. You’ll need a Government Gateway account and you can file your tax return to HMRC at the same time.
  • Use third party software. This service benefits those who file regularly.

 

Clients will be relieved to know that we will choose the appropriate filing method and format for them.

What are your responsibilities to pay the National Minimum Wage

Thursday, April 20th, 2017

The current state defined wage rates are divided between the National Living Wage (NLW) – this is currently set at £7.50 per hour and only applies to workers aged 25 years and over – and the NMW for workers under 25 years.

The NMW hourly rates are currently:

  • Age group 21 to 24 – £7.05
  • Age group 18 to 24 – £5.60
  • Age group under 18 – £4.05
  • Apprentices £3.50

Apprentices are entitled to the apprenticeship rate if they are either:

  • Aged under 19
  • Aged 19 or over and in the first year of their apprenticeship.

Workers are not entitled to the NMW until they reach the school leaving age. This depends on where you live:

England

You can leave school on the last Friday in June if you’ll be 16 by the end of the summer holidays.

You must then do one of the following until you’re 18:

  • stay in full-time education, for example at a college
  • start an apprenticeship or traineeship
  • spend 20 hours or more a week working or volunteering, while in part-time education or training

Scotland

If you turn 16 between 1 March and 30 September, you can leave school after 31 May of that year.

If you turn 16 between 1 October and the end of February, you can leave at the start of the Christmas holidays in that school year.

Wales

You can leave school on the last Friday in June, as long as you’ll be 16 by the end of that school year’s summer holidays.

Northern Ireland

If you turn 16 during the school year (between 1 September and 1 July) you can leave school after 30 June.

If you turn 16 between 2 July and 31 August, you can’t leave school until 30 June the following year.

Tax free capital gains

Wednesday, April 19th, 2017

Is there such a thing as a tax-free capital gain? In fact, there is… Every UK resident tax payer is allowed to make tax-free gains of up to £11,300 during the current tax year, 2017-18.

Additionally, you can sell personal possessions and make a gain of up to £6,000 without paying capital gains tax (CGT). This includes a sale of the following items:

  • jewellery
  • paintings
  • antiques
  • coins and stamps
  • sets of things, e.g. matching vases or chessmen

You’ll need to work out your gain to find out whether you need to pay tax.

Finally, you won’t need to pay CGT on disposals of:

 

  • Gifts to your husband, wife, civil partner or a charity
  • Your car, unless you have used it in your business
  • Anything with a limited lifespan, e.g. household furniture
  • Gains on the sale of ISAs or PEPs
  • Sale of UK government gilts and Premium Bonds
  • Betting, lottery and pools winnings

And your home can be sold free of any CGT consideration as long as you have not let part the property at any time during your ownership, or you have not elected for a second property to be considered your principal private residence for tax purposes during the same period.

Further considerations to bear in mind:

  • When you inherit an asset, Inheritance Tax is usually paid by the estate of the person who’s died. You only have to work out if you need to pay Capital Gains Tax if you later dispose of the asset.
  • You may have to pay Capital Gains Tax even if your asset is overseas. There are special rules if you’re a UK resident but not ‘domiciled’ and claim the ‘remittance basis’.
  • You have to pay tax on gains you make on residential property in the UK even if you’re non-resident for tax purposes. You don’t pay Capital Gains Tax on other UK assets, e.g. shares in UK companies, unless you return to the UK within 5 years of leaving.

Is the State Pension taxable

Monday, April 17th, 2017

Short answer, yes it is…

The State Pension is worth between £6,359.60 (the old version), and £8,296.60 (the new version), and many pensioners may receive additional payments based on additional contributions made in prior years. In both cases, this pension income is treated the same as earned income for income tax purposes.

For 2017-18, every person resident in the UK for tax is allowed to earn £11,500 tax free. Accordingly, if your only source of income is the State Pension you will have no tax to pay. A potential problem can arise if you have other income, say taxable investment income or other earnings, that when combined with your State Pension, add to more than your personal allowance.

Your State Pension is paid to you without a deduction of tax. Many pensioners rely on these payments to fund their day to day expenditures so there is a temptation to spend what you get. Unfortunately, if your total income (State Pension plus other earnings and investment income) exceeds your personal allowance, you may end up with a tax bill at the end of the tax year and the first you may hear about this is when the bill from HMRC drops through your letter box.

Our advice, is do the sums. If your estimated income from all sources is likely to exceed £11,500 for 2017-18, you may need to save for any year-end tax due. The sums can be complicated as there are reliefs other than your personal tax allowance that you may need to consider.

Utilising tax losses

Tuesday, April 11th, 2017

We have listed below a few of the ways you can make best use of tax losses. Generally speaking, a tax loss arises when a claim for expenses and other allowances (for example capital allowances for equipment purchases) exceeds the income of the relevant trade.

Many losses arise as a direct result of a difficult period of trading. Accordingly, the loss has in most instances reduced your business working capital and in particular your cash flow.

If possible, it is a good idea to utilise these losses as quickly as possible so that any recovery of tax already paid, generally when trading was better, can be recovered to help re-establish cash flow. The remainder of this post sketches out the choices available.

Ongoing trade losses

These losses can be used in a number of ways:

  • You can set losses against income, or possibly against capital gains, of the same year or an earlier tax year.
  • You can set-off against profits of the same trade in future years.
  • You can set-off against income from a company to which you transferred your trade.

Not all losses may be claimed in all of these ways and sometimes the amount of loss you claim is restricted or limited.

Terminal losses

These arise when a trade finishes and makes a loss in the final period of trading. It is possible to make a claim for losses in the final 12 months of trading to be used in the tax year that you make the loss or the previous three tax years.

There are caps on the amount of loss you can utilise in any one tax year. And care should be taken when making claims to ensure that you do not lose entitlement to your personal tax allowance when making a claim.

If in doubt seek professional advice.

Tax-Free Childcare to be rolled out from 28 April 2017

Monday, April 10th, 2017

Tax-Free Childcare, the new government scheme to help working parents with the cost of childcare, will be launched from 28 April 2017.

For every £8 a parent pays in, the government will pay in an extra £2. Parents can receive up to £2,000 per child, per year, towards their childcare costs making a total amount of £10,000. Higher limits of £4,000 and £20,000 apply for disabled children.

To qualify for Tax-Free Childcare all parents in the household must generally meet a minimum income level, based on working 16 hours a week (on average £120 a week) and each earn less than £100,000 a year.

The scheme will be available for children up to the age of 12, or 17 for children with disabilities. All eligible parents will be able to join the scheme by the end of 2017. Parents will be able to apply for all their children at the same time although the government rollout will start with the youngest children first. Parents will need to open an online account, which they can use to pay for childcare from a registered provider.

For those employers who currently offer Employer Supported Childcare, usually in the form of childcare vouchers, these schemes can remain open to new entrants until April 2018. Existing members will have the option to remain in their existing scheme or change over to Tax-Free childcare as their child becomes eligible.

A calculator is available on GOV.UK so that parents can check their eligibility for the new scheme and other government provided childcare available.

Making Tax Digital for Business update

Monday, April 10th, 2017

Extensive changes to how taxpayers record and report income to HMRC are being introduced under a project entitled Making Tax Digital for Business (MTDfB) .

MTDfB is to be introduced in stages and the government has confirmed in the Budget the deferral of some of the obligations for one year. The result of this announcement is that unincorporated businesses and unincorporated landlords with annual turnover:

• above the VAT threshold (currently £85,000) will need to comply with the requirements of MTDfB from the start of accounting periods which begin after 5 April 2018
• at or below the VAT threshold but above £10,000 will need to comply from the start of accounting periods which begin after 5 April 2019.
Companies (and partnerships with a turnover above £10 million) will not come within MTDfB until April 2020.
The government has decided how the general principles of MTDfB will operate. Draft legislation has been issued on some aspects and more is contained in Finance Bill 2017.
Under MTDfB, businesses, self-employed people and landlords will be required to:
• maintain their records digitally, through software or apps
• report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
• make an ‘End of Year’ declaration through their DTAs. The End of Year declaration will be similar to the online submission of a self assessment tax return but may be required to be submitted earlier than a tax return. Businesses will have 10 months from the end of their period of account (or 31 January following the tax year – the due date for a self assessment tax return – if sooner)

DTAs are like online bank accounts – secure areas where a business can see all of its tax details in one place and interact with HMRC digitally.
Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

VAT Flat Rate Scheme – Limited cost trader

Monday, April 10th, 2017

Changes are being made to the Flat Rate Scheme (FRS) which take effect from 1 April 2017. These changes may mean that the FRS is less attractive to some businesses and this may result in these businesses deciding to no longer operate under the FRS. In some cases where a trader has voluntarily registered for VAT it may be appropriate to deregister from VAT.

A new higher 16.5% rate will apply from 1 April 2017 for businesses with limited costs, such as many labour-only businesses, using the Flat Rate Scheme. Businesses using the FRS, or considering joining the scheme, will need to decide if they are a ‘limited cost trader’.
Under the FRS a set percentage, determined by the business trade sector, is applied to the VAT inclusive turnover of the business as a one-off calculation instead of having to identify and record the VAT on each sale and purchase the business makes. The percentage rates are determined according to the trade sector of the business and these generally range from 4% to 14.5%.

A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:

• less than 2% of their VAT inclusive turnover in a prescribed accounting period
• greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).
‘Relevant goods’, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
• capital expenditure
• food or drink for consumption by the flat rate business or its employees
• vehicles, vehicle parts and fuel, except where the business is one that carries out transport services, for example a taxi business, and uses its own or a leased vehicle to carry out those services
• payment for services, as these are not goods, this would include rent, accountancy fees, advertising costs etc
Examples of qualifying ‘relevant goods’ include stationery (and other office supplies), gas, electricity and cleaning products, but only where these are used exclusively for the business.
Businesses using the FRS will need to ensure that, for each VAT return period, they use the appropriate flat rate percentage, so the check to see whether a business is a limited cost trader will have to be carried out for each VAT return.

These rules come into force from 1 April 2017, so where a business has a VAT period that straddles 1 April 2017, the test to determine whether the business is a ‘limited cost trader’ will only apply to the period from 1 April 2017.

Please contact us if you would like advice on the FRS.

Simplified cash basis

Thursday, April 6th, 2017

For some time now, unincorporated businesses have been able to submit simplified accounts in order to settle their tax liabilities. The main advantage of using this system is that income and expenditure is based on money received from customers and money paid to suppliers. In other words, the accruals basis, where income and outgoings are based on the value of invoices sent and received, is not applied.

Prior to 6 April 2017, the turnover threshold for the scheme was set at the VAT registration limit, £83,000 for 2016-17. In the budget this limit was increased to £150,000.

Adopting the cash basis does simplify the recording of transactions, but there are disadvantages and complications. For example:

  • It is not possible to carry losses, accounted for using the cash basis, against previous year’s earnings or sideways against other income in which the loss was made. Losses can only be carried forwards.
  • It is not clear how VAT registered businesses using the simplified cash scheme for accounts purposes, will prepare VAT returns from April 2017. Certainly, they would be eligible to use the separate Cash Accounting Scheme for VAT purposes and this may be the best solution.
  • Interest costs are restricted to a maximum £500 per annum rather than the actual amount paid.
  • Cash basis accounts do not give a true picture of business performance and this can be problematic for supporting loan applications.
  • Flexibility in varying claims for capital allowances is lost, this can lead to wasted personal allowances in certain circumstances.

The use of the simplified cash basis does imply a saving in the time taken to record transactions for tax purposes, but as we have set out above there are possible complications and significant drawbacks.

Class 4 NICs

Thursday, April 6th, 2017

The Chancellor announced two increases in Class 4 NI contributions for the self-employed in his budget and in the following week withdrew the increases for the term of the current parliament.

His original notion was to start the process of equalising the NI contributions made by the employed and self-employed now that State Benefits, particularly the new flat-rate State Pension, are available to both groups.

The first rate increase, from April 2018, was set to coincide with the abolition of the self-employed Class 2 contributions on this date. However, it would appear that manifesto promises carry more weight than fiscal necessity and the increases have been abandoned.

Class 2 contributions are still being withdrawn, which means that the scope of Class 4 contributions will need to be adjusted to counter any loss in benefits presently provided by Class 2.

Legislation in this area has been thrown wide open to change by the apparent U-turn since the budget announcements. As and when the intentions of government become more certain we will update readers accordingly.