Archive for the ‘Uncategorized’ Category

Involving children in your business

Wednesday, August 16th, 2017

Whilst it is possible to involve your children in your business, this is a strategy that should be approached with caution.

Giving shares in your company to minor children is perfectly possible, but any dividends that you pay to under eighteens will be treated as if the income belonged to the relevant parent. HMRC would invoke the settlements legislation to do this. You could employ an under eighteen-year-old son or daughter, but you will need to be mindful of commercial considerations. These would include:

  • You would have to observe the minimum wage regulations.
  • The hourly rate paid should be a commercial rate for work undertaken. It would be hard to justify paying your children £50 an hour to deliver leaflets.

Once your child reaches the age of eighteen more opportunities arise: the possibility of issuing shares and paying dividends, if your business is a company, may be possible. At present, this is a useful option, as the first £5,000 of dividend income is completely tax free. If appropriate, this may be an attractive way to provide a tax-free allowance to reduce the need to extend student debt for example.

If you operate as a self-employed trader, you will not be able to issue shares, but you could employ your son or daughter if you are mindful of the commercial considerations listed above.

However, whether self-employed or incorporated. there are issues that should be resolved before transferring or issuing shares, or employing offspring, not least, that you may be diluting your ownership of your business. We can help. Planning in this regard is best done prior to making any decisions to involve children in this way.

Organising a trading name for your company

Monday, August 14th, 2017

We are often asked to register a trading name for an existing company. Usually, this is done so an incorporated business can develop a new brand with a name that is different to their existing company name. Unfortunately, there is no formal process that can be employed to do this; no registrar of trading names. However, there are ways to safeguard the use of a trading name.

The most effective strategy is to register a second limited company, with the required trading name, and keep it on the shelf, dormant. You will have to pay to incorporate the new company, and file annual accounts and other returns, but no-one else will be able to register a company with the same name.

Companies House also advise registering a trade mark if you want to stop other businesses from using your trading name. Here’s what they say on this matter:

You can trade using a different name to your registered name. This is known as a ‘business name’.

Business names must not:

  • be the same as an existing trade mark
  • include ‘limited’, ‘Ltd’, ‘limited liability partnership, ‘LLP’, ‘public limited company’ or ‘plc’
  • contain a ‘sensitive’ word or expression unless you get permission

You’ll need to register your name as a trade mark if you want to stop people from trading under your business name.

You can’t use another company’s trade mark as your business name.

Registering a trade mark can be a drawn out and expensive process, but if you have good reason to protect your business name this may be a worthwhile investment. If you decide to do this, registering a trade mark does not preclude forming a company with the same name, and so a combination of the two would be a belts and braces solution.

Saving to pay tax

Thursday, August 10th, 2017

If you are employed, or receive a pension from a non-State provider, any tax you should pay is probably deducted before payment under the PAYE rules. Assuming HMRC administer this process correctly, any taxes due should be settled in full.

However, the self-employed, those in receipt of significant dividends or bank interest, and retired persons who receive the State Pension in combination with other significant income streams, may possibly owe HMRC unpaid tax at the end of the tax year.

To save to meet these potential liabilities it is necessary to estimate current income, work out any taxes due and be aware of the date on which these likely liabilities will need to be paid. It is then a simple matter of dividing the liability by the time available to arrive at a monthly amount to put by.

If you don’t follow this process, you will have to pay tax on your current income from income in future years. Which is fine if all your income sources continue at the same level, but if your overall income falls, or stops, a disproportionate part of subsequent earnings may need to be allocated to pay past taxes causing financial hardship in those later years.

The same process applies to companies subject to corporation tax. Corporation tax is due nine months after the end of an accounting year. If directors keep a weather eye on current year profits, it should be possible to make some provision for tax on those profits, such that when the tax is due for payment, funds are available to settle.

The solution in most cases is to do the math, and when possible, save out of the income that created the tax liability in the first instance. Readers who would like help to figure out how to do this, please call, we would be pleased to help.

Dying without a Will, bad idea

Tuesday, August 8th, 2017

Many people die without making a Will. In legal terms, this means they die “intestate”. When this happens, the estate must be shared out according to certain rules. Individuals who may benefit under these rules are:

  • Married partners and civil partners at the time of death. This includes separated partners but not divorced partners or a civil partner if a civil partnership has ended.
  • Children, grandchildren and great grandchildren, if the estate is over a certain amount.
  • Parents, brothers and sisters, nieces and nephews.
  • Grandparents, uncles and aunts.

The order in which estates are distributed follow strict rules. For example, if there is a surviving partner, a child only inherits from the estate if it is valued at more than £250,000.

Partners who are unmarried, or not in a formal civil partnership, have no claim on their deceased partner’s estate.

When family groups are affected by divorce, re-marriage, or co-habiting and there are children involved, the actual rights of family members to share in a deceased’s estate can be complex, and may result in assets of the estate being distributed in a way at variance with the unwritten wishes of the deceased person.

The estates of persons, who die intestate and have no relatives, are passed to the Crown under the “Bona Vacantia” rules.

For these reasons, everyone should prepare a Will and make their intentions known and legally enforceable.

Taxation will also need to be considered. Without a Will, Inheritance Tax may take a disproportionate share of an estate. The current rate applied on chargeable assets on death is 40%.

Readers of this article who have not made a Will or considered the Inheritance Tax consequences of their death should take advice now. Failure to do so may create distressing situations for surviving family members and result in a large chunk of your hard-won assets being paid over in taxation. We can help. Please call to arrange an initial fact-find meeting.

Minimum Wage legislation

Thursday, August 3rd, 2017

No-one is going to complain if you pay more than the National Minimum Wage or National Living Wage rates – which ever applies.

However, there are matters you will need to consider if you pay less than the appropriate minimum wage rates.

The minimum wage legislation applies to workers or employees. It does not apply to the self-employed or office holders: an office holder is paid for the duties they perform and the most common example is a company director. This distinction is important, as office holders are not subject to the minimum wage legislation. Unfortunately, directors sometimes negotiate a contract of employment with their company and therefore any salary paid as part of such contract would be subject to the minimum wage legislation.

In other words, it is fine to pay yourself as a director (if you have no contract with your company) at less than the minimum wage. This may be the case, for example, if you have adopted the strategy of paying a low salary and any balance of remuneration as dividends.

HMRC oversee the monitoring of the minimum wage legislation. Accordingly, it is worth reviewing your wage and salary rates from time to time to ensure your business is paying at the correct rates.

Not only will you have to reimburse employees with any shortfall in wage payments, you may also be fined by HMRC.

We can help. If you would like to make sure you are compliant, we can check your payroll and advise if any remedial action needs to be taken.

A list of the current minimum wage hourly rates is displayed below:

  • Aged 25 and over £7.50
  • Aged 21 to 24 years £7.05
  • Aged 18 to 20 years £5.60
  • Under 18s – £4.05
  • Apprentice rate – £3.50

Apprentices are entitled to the apprentice rate if they are either: aged under 19, or aged 19 or over and in the first year of their apprenticeship.

Uniforms, work clothing and tools

Wednesday, August 2nd, 2017

It is possible to claim for the cost of repairing or replacing small tools you need to do your job as an employee (for example, scissors or an electric drill), or cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots).

If you need to buy other equipment to use in your employment, you can claim capital allowances instead. A capital allowance is an agreed percentage of the cost of the equipment, that can be deducted from your taxable income. In most cases, this sort of claim should enable you to write off the full cost of any qualifying expenditure made.

What you can claim.

You can claim for the amount you have spent, or a ‘flat rate deduction’.

If you are claiming for the amount you have spent you will need to keep a receipt.

Flat rate deductions are fixed amounts that HM Revenue and Customs has agreed are typically spent each year by employees in different occupations. They range from £60 to £140 depending on listed occupations.

If your occupation isn’t listed, you may still be able to claim a standard annual amount of £60 in tax relief.

You don’t need to keep records of what you’ve paid for if you claim a flat rate deduction.

Possible changes to tax rules for companies

Wednesday, August 2nd, 2017

There is a government department, the Office for Tax Simplification (OTS), that has been charged with investigating ways that the UK’s tax rules can be changed to make them easier to understand and easier to use.

The OTS has recently issued a new report on the proposal to simplify the Corporation Tax assessment process for companies, particularly smaller concerns.

Their report sets out some significant steps towards creating what they describe as “a 21st-century Corporation Tax system in the UK”. The aim is to make the calculation of Corporation Tax simpler, with fewer changes and more time to plan. The report also recognises the importance of reducing the burden on small businesses, and “keeping this country an attractive destination for trade and investment in a post Brexit world”.

The report takes an in-depth and innovative look across four broad themes:

  • simpler tax for smaller companies
  • aligning the tax rules more closely with accounting rules where appropriate
  • simplifying tax relief for capital investment
  • a range of further issues affecting the largest companies

It also highlights the links with HMRC’s work on Making Tax Digital, which offers a real impetus to move towards a simpler system by use of technology.

The OTS recommendations are not legislative changes, they are suggestions. These will now have to be taken up by the Treasury and HMRC to consider changes to tax law in future Budgets.

Rangers tax scheme kicked into touch

Wednesday, August 2nd, 2017

There has been a long running tax case rumbling through the lower courts on the use of a device called an Employee Benefit Trust (EBT) by Glasgow Rangers Plc. HMRC have considered the use of the EBT a scheme to avoid PAYE and NIC.

The case has now been considered by the Law Lords in the Supreme Court, who decisively ruled in favour of HMRC.

An EBT collects payments from employers and makes these available to employees as a loan – this process means that funds are made available, in the Rangers’ case to players, without a charge to tax or NIC.

Whilst it was acknowledged that the individual processes in the set up and management of the EBT were carefully drawn to keep within current legislation, the overall strategy was the avoidance of tax and NIC. In their judgement, the Supreme Court judges were satisfied that this “purposive” approach, the purpose for which the EBT had been created, was the avoidance of PAYE and NIC and therefore they dismissed Glasgow Rangers Plc’s appeal.

A growing number of cases, where HMRC had challenged the use of EBTs by other concerns, will now be pursued by HMRC based on this judgement. This decision probably marks the end of the EBT as a legitimate tax planning device.

Director minimum salary levels 2017-18

Wednesday, August 2nd, 2017

Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions, and in some case Income Tax.

The planning strategy is to pay a salary at a level that qualifies the director for State benefits, including the State Pension, but does not involve payment of any NI contributions.

For 2017/18 the NI contribution rate is set at 0% for annual earnings in the range of £5,876 to £8,164 inclusive. Earnings in this band range qualify for NIC credit for State benefit purposes. At £112.99 per week (£5,875 p.a.) no NI credit is obtained for State benefit purposes. At £157.01 plus per week (£8165 p.a.) NI contributions start to be paid at the rate of 12%.

Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band which depends on the actual date appointed. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC.

Directors resigning during the year still have the full annual earnings band quoted above, and so care is needed to ensure that earnings for the whole tax year are within the range of £5,876 to £8,164.

Directors considering their planning options for the first time are advised to take professional advice as there are a number of considerations to take into account when setting the most tax/NI efficient salary. We, of course, would be delighted to help.

Making Tax Digital E common sense prevails

Wednesday, August 2nd, 2017

Making Tax Digital (MTD) is the government’s latest attempt to fully digitise the process of collecting data from taxpayers so they can speed up the process of calculating how much tax you owe.

Until recently, we were facing radical changes to the tax system to accommodate this objective. Businesses (including landlords) were to be required to upload summarised accounts data from their accounts software on a quarterly basis. This information, plus details of other income was to be collected in a personal tax account which would automatically calculate future tax liabilities.

The process was timed to commence April 2018 and be completed April 2020.

The accountancy profession was united in opposition to the undue haste of the implementation process and the obligation that all businesses with turnover more than £10,000 would be required to invest in acceptable accounts software and make quarterly uploads.

It would seem the government has listened. Last week they announced:

Under the new timetable:

• only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes

• they will only need to do so from 2019

• businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.

This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.

As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.

It seems clear from this announcement that MTD is proceeding, but at a much more sensible pace.

VAT registered traders will need to have MTD compatible software in place by April 2019, and all businesses including property businesses with turnover above the VAT registration threshold (currently £85,000), will need to be ready to make the quarterly uploads of accounts data by April 2020.

Businesses with turnover below the VAT threshold will be under no obligation to use the MTD process, but can join in on a voluntary basis.

We will continue to work with clients to ensure they are ready to meet their obligations. It is gratifying to see the pace of change in this area slow down. This will give affected business owners and their advisors more time to implement the changes required and make more considered decisions about the software they will use to implement their links to HMRC’s MTD systems.