Landlords can claim a special tax allowance of up to £1,500 per property for expenditure on energy-saving insulation. This includes loft, wall, floor or hot water system insulation installed in residential properties.
This is a one-off allowance for expenditure made before 6 April 2015. It cannot be claimed by those who are claiming rent a room relief or if there is commercial letting of furnished holiday accommodation.
See the details here:
New tax incentives for childcare have been announced. To be eligible, families will have to have all parents in work, with each earning less than £150,000 a year and not already receiving support through Tax Credits or Universal Credit.
The relief will be 20% of the costs of childcare up to a total of childcare costs of £6,000 per child per year. The scheme will therefore be worth a maximum of £1,200 per child.
The scheme will be phased in from autumn 2015. For the first year of operation, all children under five will be eligible and the scheme will build up over time to include children under 12.
The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until the new scheme is available.
The Government will consult on the detail of the new scheme but it is expected that parents will be able to open an online voucher account with a voucher provider and have their payments topped up by the Government. Parents will be able to use the vouchers for any Ofsted regulated childcare in England and the equivalent bodies in Scotland, Wales and Northern Ireland.
The existing system of employer supported childcare is offered by less than 5% of employers and used by around 450,000 families. It provides an income tax and national insurance contributions (NIC) relief. The maximum relief is an exemption from income tax and NIC on £55 a week. This relief is per employee so if both parents are in employment the maximum exemption is £110 per week. In the new scheme the limit is per child.
Follow the link for more information
From April 2013, you can use Charities Online for repayment of tax on other income and claims for top-up payments under the new Gift Aid Small Donations Scheme (GASDS).
GASDS is a new scheme being introduced in April 2013. It means that charities and Community Amateur Sports Clubs (CASCs) can claim a top-up payment on cash donations of £20 or less without the need to collect Gift Aid declarations. Charities will generally be able to claim on small donations of up to £5,000 per year. Claiming for £5,000 of small donations will result in a repayment of £1,250 for the charity or CASC.
The GASDS is ideal for small cash donations received in collection boxes, bucket collections and during religious services. Charities and CASCs wishing to claim under GASDS will still need to make Gift Aid claims in respect of other donations for which they have a Gift Aid declaration in the same tax year, for example, on regular donations received from supporters. This is called the ‘matching rule’: every £10 of donations claimed under GASDS must be matched with £1 of donations claimed under Gift Aid in the same tax year.
Payments under this scheme must be claimed using the Charities Online service, through either, the online form, the database option or the ChR1 paper claim form.
For further information click on the link.
It has never been more important to keep good VAT records, with HMRC vowing to scrutinise the tax affairs of those who have payments outstanding after 28 February.
When it comes to VAT, this can be an expensive problem, as the business has no right to claim input VAT unless it holds a valid VAT invoice.
HMRC’s VAT Outstanding Return campaign is focused on businesses that have VAT returns outstanding.
Over 50,000 businesses that have failed to submit VAT returns will have their tax affairs closely scrutinised by the Revenue from 28 February if they fail to voluntarily come forward.
According to HMRC, records businesses should keep are:
• VAT records of sales and purchases
• Separate summary of VAT, or VAT account
• No set way of keeping records, but can be adapted from normal business records
HMRC has the discretion to accept alternative evidence in the absence of a valid VAT invoice, but in this case the tribunal would only allow for around £6,000 of the claim.
While the VAT Act 1994 was amended in 2003 to allow HMRC to accept additional information as alternative evidence, what it accepts as this is tightly controlled.
Input tax deduction without a valid VAT invoice – HMRC Statement of Practice
1. Do you have alternative documentary evidence other than an invoice (e.g. supplier statement)?
2. Do you have evidence of receipt of a taxable supply on which VAT has been charged?
3. Do you have evidence of payment?
4. Do you have evidence of how the goods/services have been consumed within your business or their onward supply?
5. How did you know that the supplier existed?
6. How was your relationship with the supplier established? For example:
7. How was contact made?
8. Do you know where the supplier operates from (have you been there)?
9. How do you contact them?
10. How do you know they can supply the goods or services?
11. If goods, how do you know the goods are not stolen?
12. How do you return faulty supplies?
For more information on VAT records and record keeping, see:
•HMRC: Accounts and records for your VAT
http://www.hmrc.gov.uk/vat/managing/returns-accounts/accounts.htm
Under this scheme, for a limited period and subject to meeting certain conditions, new businesses may qualify for a deduction of up to £5,000 from the employer NICs that would normally be due – for each of the first ten employees they take on.
The NICs you are entitled to withhold under the scheme does not have to be repaid at a later date.
The NICs holiday is voluntary – you do not have to take advantage of the scheme. If you decide not to apply or you do not meet the qualifying conditions, you must simply calculate Class 1 employer NICs in the normal way and pay them to HM Revenue & Customs (HMRC) with your monthly/quarterly payment.
Business location – why it’s important
You can only apply for the NICs holiday if your principal place of business is located within designated areas of the UK at the time your business starts up. The included countries and regions are:
•Northern Ireland
•Scotland
•Wales
•East Midlands
•North East
•North West
•South West
•West Midlands
•Yorkshire and Humber
The NICs holiday is available to new businesses that start up during the period from 22 June 2010 to 5 September 2013.
For further information follow the link.
http://www.hmrc.gov.uk/paye/intro/nics-holiday/index.htm
If you are unsure whether your business falls within a qualifying region, you can check by reading more about this in the guide on checking your business location.
In these uncertain times, businesses are at risk from a whole range of factors including changes in consumer demand, increases in operating costs and let’s not forget the banks! Businesses have never needed support as they do now.
That’s why we have decided to start up a monthly coffee morning open to local businesses and individuals in the hope we can offer guidance, financial advice, answer your queries and give you the support you need.
We have a tax specialist that can advise you on Tax planning, personal tax, corporation tax and inheritance tax. We also have a network of professionals we can put you in touch with if you require specialist advice in banking and insurance
Come and visit our friendly team at the The Paine Suite in the Nostell Estate! As well as offering free advice, we also offer free parking, free coffee and not to mention free cake!
Salary vs Dividend
One major benefit of incorporation is the ability to extract profits by way of dividends. The main advantage is in National Insurance savings as no NICs are payable on dividends, whereas a salary payment would attract employee NICs of 12% or 2% and employer NICs of 13.8% (2012/13 figures).
Dividends also come with an associated tax credit (the dividend is deemed to be paid net of the 10% tax credit). Dividends are taxed at a rate of 10% up to the basic rate limit, which is matched by the tax credit, so no additional tax is payable on dividends until the basic rate limit is exceeded. The dividend higher tax rate is 32.5% and the dividend additional tax rate is 42.5%. A payment of salary will attract tax at the taxpayer’s marginal rate of income tax (20%, 40% or 50% as appropriate).
However, unlike salary payments and employer NICs, dividends are not deductible when calculating corporation tax profits and must be paid out of after-tax profits.
A dividend can only be paid if there are sufficient retained profits. In addition, various company law requirements must be met.
The best results will depend on the circumstances as the decision whether to take remuneration or dividends will depend on the interaction of various factors – respective rates of income tax, corporation tax and National Insurance contributions, any other income that the taxpayer has and whether the company has sufficient retained profits.
Example:
Tony is the director and sole shareholder of a company. He has profits of £25,000 and wants to know whether to take a salary or a dividend. It is assumed that tony has received a small salary equal to his personal allowance.
Salary
| Profits |
25,000 |
||
| Less Employer’s NIC |
(3,031) |
||
| Available to pay as salary |
21,969 |
||
| Less Income Tax @ 20% |
(4,393) |
||
| Less NIC @ 12% |
(2,636) |
||
| Retained by shareholder |
14,940 |
||
There is no corporation tax to pay as taxable profits are reduced to nil after deducting salary of £21,969 and employer NIC of £3.031)
Dividend
| Profits |
25,000 |
||
| Less Corporation Tax @ 20% |
(5,000) |
||
| Distributed as a dividend |
20,000 |
||
| Income Tax |
0 |
||
| Retained by shareholder |
20,000 |
||
The gross dividend (£20,000 x 100/90) of £22,222 does not take the shareholder’s income above the basic rate limit so no additional tax is payable on the dividends. The tax on the dividend (£2222) is fully matched by the associated tax credit In this case; dividends are clearly more beneficial than a salary. Tony retains £20,000 of the profit by taking a dividend and only £14,940 if a salary is taken.
This guide is produced for general guidance only. Please seek professional tax advice before undertaking any tax planning measures as personal circumstances can differ and other considerations may need to be taken in to account before acting. Tax rules and legislation are constantly changing always seek professional advice before proceeding.
For small businesses
A business that joins the scheme avoids having to account internally for VAT on all purchases and supplies, and instead calculates its net liability by applying a flat rate percentage to the tax inclusive turnover. The flat rate percentage depends on the trade sector into which a business falls for the purposes of the scheme. There is a wide spread of applicable percentages ranging (on introduction of the scheme) from 5% to 14.5%.
Under the flat rate scheme businesses:
Continue to charge their customers the normal rate for the supply (i.e. not the flat rate percentage) on all taxable supplies of goods or services.
Issue tax invoices to their VAT registered customers, and also to all other customers if the business chooses to do so (these invoices show the normal rate for the supply and are used for the customers’ VAT reclaim).
They do not have to record all the details of the invoices issued or purchase invoices received to calculate the amount of VAT they must pay to HMRC.
Capital assets
If capital assets are purchased with a VAT inclusive value of £2,000 or more, the VAT can be recovered in the normal way. This concession, however, cannot be used where the assets were:
•acquired for resale, or for incorporation in goods to be sold,
•acquired to be hired out, leased or let,
•for consumption within one year, or
•covered by the capital goods scheme.
Further information
Full details of the scheme are included in VAT Notice 733 ‘Flat rate scheme for small businesses’,, which is available on the HMRC Internet site.
Computation of trading profits
The flat rate scheme removes the necessity to calculate VAT on each individual input and output for the VAT account. Instead only the flat rate VAT will need to be passed to the VAT account. Where the concession for capital assets is adopted, the VAT reclaimed will also pass through the VAT account.
Expenses will probably be shown inclusive of VAT as it is irrecoverable (similar to a business not registered for VAT), and it is likely that turnover will be shown net of the flat rate VAT payment. You may however find that the flat rate VAT payment is shown as a profit and loss expense rather than deducted from total turnover.
Where there is irrecoverable VAT on capital items it will form part of the cost of the asset on the balance sheet and of the cost for capital allowances purposes.
Example
A business has gross sales of £96,000 (including output VAT at 20% of £16,000), and expenses of £58,750 (including irrecoverable VAT). The flat rate VAT @ 6% is £5,760. A new machine is purchased (qualifying for capital allowances) at a cost of £2,400 including VAT of £400.
The accounts will show:
Turnover £90,240 (£96,000 less £5,760 flat rate VAT)
Expenses £58,750
Profit £31,490
If VAT is not reclaimed on the asset the cost for capital allowances purposes will be £2,400. If VAT is reclaimed the cost will be £2,000
The pros and cons of the Flat Rate Scheme
Benefits of using the Flat Rate Scheme
Using the Flat Rate Scheme can save you time and smooth your cash flow. It offers these benefits:
•You don’t have to record the VAT that you charge on every sale and purchase, as you do with standard VAT accounting. This can mean you spending less time on the books, and more time on your business. You do need to show VAT separately on your invoices, just as you do for normal VAT accounting.
•A first year discount. If you are in your first year of VAT registration you get a one per cent reduction in your flat rate percentage until the day before the first anniversary you became VAT registered.
•Fewer rules to follow. You no longer have to work out what VAT on purchases you can and can’t reclaim.
•Peace of mind. With less chance of mistakes, you have fewer worries about getting your VAT right.
•Certainty. You always know what percentage of your takings you will have to pay to HMRC.
Potential disadvantages of using a Flat Rate Scheme
The flat rate percentages are calculated in a way that takes into account zero-rated and exempt sales. They also contain an allowance for the VAT you spend on your purchases. So the VAT Flat Rate Scheme might not be right for your business if:
•you buy mostly standard-rated items, as you cannot generally reclaim any VAT on your purchases
•you regularly receive a VAT repayment under standard VAT accounting
•you make a lot of zero-rated or exempt sales.
Follow the link for more information:-
http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5
Even the smallest business can host an annual, tax-free social function for its entire staff, including the directors and their partners. As long as the cost per head is less than £150, employees are not taxed for having a good time, well not yet anyway, and the company benefits from full tax relief on the expense incurred.
Remember, however, that the figure of £150 is an exemption, not an allowance. If the £150 figure is exceeded, the whole amount becomes taxable for inclusion on the P11D.
Strictly speaking, all benefits are subject to tax and NICs, unless there is a specific exemption.
However, sensible practical administration of the tax system determines that benefits of a trivial nature (for example, a seasonal gift of a turkey or an ordinary bottle or two of wine) should not be treated as a benefit.
Anything more lavish in quality or quantity remains chargeable. Helpfully, there is no monetary limit to determine what a trivial benefit is.
Follow the link for more information: http://www.hmrc.gov.uk/guidance/480_chapter5.pdf
By transferring assets into joint names prior to a sale, you can utilise your spouse’s or civil partner’s annual capital gains tax exemption as well as your own if he or she as not used it. For 2012/13 the annual exemption is £10,600 which means that a couple can make gains of up to £21,200 before paying any capital gains tax.
Transfers between spouses and civil partners are treated as a no gain/no loss transaction and hence the spouse/civil partner steps in to the shoes of the other holder, taking over their base cost and length of ownership.
This can be especially useful when selling investment properties, although stamp duty land tax consideration need to be taken in to account.
Example
Mr Smith (a higher rate taxpayer) sells shares in 2012/13 and realises a taxable gain of £20,200.
He utilises his annual exemption and pays tax on £9,600 @ 28% = £2,688.
If Mr Smith had transferred the ownership in to joint names prior to the sale then Mr and Mrs Smith would each have a taxable gain of £10,100, which would be covered by the annual exemption of £10,600
By using their annual exemptions £10,600 each) they would incur no tax on this gain, thus leaving them £2,688 better off.
This guide is produced for general guidance only. Please seek professional tax advice before undertaking any tax planning measures as personal circumstances can differ and other considerations may need to be taken in to account before acting. Tax rules and legislation are constantly changing always seek professional advice before proceeding.
