Topical Tax Tips for Tax Year end and beyond

BEFORE THE TAX YEAR END

HELP TO BUY ISA

Do you know anyone aged 16 year or over wanting to buy their first home? If so they can now open a HELP TO BUY ISA  and the Government will boost their savings by up to 25%.

https://www.gov.uk/government/publications/help-to-buy-isa-factsheet

TAX FREE ALLOWANCES AND EXEMPTIONS

As we are approaching the end of the Tax Year make sure you use as much of your TAX FREE ALLOWANCES AND EXEMPTIONS as possible before the end of the Tax Year.

For example did you know that each year there is a £3,000 Annual Exemption for Inheritance Tax? You can also give small gifts upto £250 per person and up to £5,000 as a wedding gift.

https://www.gov.uk/inheritance-tax/gifts

PURCHASING ADDITIONAL PROPERTY

If you are PURCHASING ADDITIONAL PROPERTY to your main residence you should complete the transaction before 1 April 2016 as there will be extra stamp duty to pay from April 2016.

https://www.gov.uk/government/consultations/consultation-on-higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties/higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties

COMING UP IN APRIL 2016

PERSONAL TAX ALLOWANCE

Everyone regardless of their date of birth will be entitled to the same PERSONAL TAX ALLOWANCE of £11,000.

https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2016-17/tax-and-tax-credit-rates-and-thresholds-for-2016-17

PERSONAL SAVINGS ALLOWANCE

There will be a new PERSONAL SAVINGS ALLOWANCE so that Basic Rate taxpayers will not pay tax on the first £1,000 of savings income received. For Higher Rate taxpayers this will £500. This should mean than banks and building societies will not be deducting tax at source i.e. you should receive your savings interest gross in future.

https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2016-17/tax-and-tax-credit-rates-and-thresholds-for-2016-17

PERSONAL DIVIDEND ALLOWANCE

A new PERSONAL DIVIDEND ALLOWANCE comes into force. This means that individuals will not pay tax on the first £5,000 of Dividend Income they receive. For director/shareholder companies there is a tax planning opportunity here. They could pay themselves by 5 April 2016 the largest legal dividend available out of company profits because after that date they can only take £5,000 per annum tax free.

https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2016-17/tax-and-tax-credit-rates-and-thresholds-for-2016-17

EMPLOYMENT ALLOWANCE INCREASE

From April 2016 if you have Employees the EMPLOYMENT ALLOWANCE is increasing to £3,000 per year. However Businesses with only one employee will no longer be eligible for the allowance. This means that single director companies will not be able to claim the allowance.

 

 

Bookkeeping tips ………….

If you are in business bookkeeping is a necessity. If you do this yourself instead of employing a bookkeeper or accountant you should develop good habits as the task won’t go away; it just gets bigger. Also HMRC require you to keep accurate records for your business. As we are approaching the new tax year the timing couldn’t be better for a new (tax) year resolution. The following are some hints and tips to help you with your bookkeeping:

Don’t leave it too long

Fact – most business owners don’t like bookkeeping. They’d rather be doing almost anything else! However the longer you leave it, the harder it will be to tackle the job as the paperwork piles up.

Set aside a time each week to do your books so that the task doesn’t seem so huge. This is important so that you have up-to-date accurate information about your business and you can see what your profit is, what is working for you and just as importantly what is not.

Rubbish in, rubbish out

Bookkeeping needs to be accurate. If it’s not then the information you are looking at about your business is useless. Plus when the accountant sees your books and records they will have to correct the work done. This can be costly for you.

Categorisation

Talk to your accountant first and agree a method of keeping your records. Some accountants insist you use a particular package whilst others are more flexible and will allow you to choose the method that suits you best. Either way make sure you understand the system you are using and that it is easy to input your records accurately and efficiently.

It is important that you categorise all of your expenses properly and don’t change the way you post your figures from month to month, otherwise again your accountant will have to correct this.

Inconsistency

Similarly to Categorisation above, if you have repeat transactions such as a monthly subscription, ensure you put these in the same category each time. Otherwise your accountant will have to spend extra time finding those costs that have been posted into different places. Again this could increase the accountant’s fee to you.

For example if you subscribe to a bookkeeping package paid monthly, don’t classify it as subscriptions one month and computer software the next. Keep to one category to avoid confusion and this will make it easier to post the subscription when e.g. importing your bank data into your accounts.

Don’t over-complicate

If you are using a package but part of it isn’t relevant to your business, then don’t waste time posting entries you don’t need, e.g. not every business has to issue invoices. Also if you pay for something ‘on the spot’ you don’t have to post the expense into your accounting system, you can just record that transaction as a payment from the bank instead. (As you are not taking time to pay a supplier you don’t have to record it on the supplier part of the system).

Use technology where you can

Save time by using technology where you can.

You can photograph your expenses on the move and have them automatically uploaded to your accounts. To help you to do this http://www.fernhillaccountants.co.uk have developed a FREE to download APP available from Apple / iTunes. This APP includes a handy “Receipt Manager”, “Income Tracker” and “Mileage Tracker” as well as useful calculators, tax tables and finance dates.

Also if you use a package check to see if it has banks feeds available for your bank – this will allow you to pull your bank data automatically into your accounts.

So you want to start a business………?

Here are some of the things you may want to consider BEFORE you start a business:

Should you be self-employed or operate your business through your own company?

  • How risky will your business be for you and/or your customers
  • Types of expenditure you will incur e.g. requiring training as part of your on-going ‘duties’
  • Statutory obligations for a company
  • The company is a separate entity to you – directors are employees of the company
  • Easier to extract money from the business if self-employed but you may pay more tax

Should you register for VAT straight away?

  • If you are mainly going to do work for VAT registered businesses then it could be beneficial to register for VAT right from the start
  • However if you will be working for mainly customers e.g. the public who are not registered and you will be below the VAT registration limit for some time it may be better not to register immediately
  • Being VAT registered means you will have to submit VAT Returns quarterly

If you decide to be self-employed:

  • You don’t need a separate bank account but it may be easier for you to have one
  • If you don’t have one you will need to separate out your business items from your personal ones
  • You can claim for business proportions of telephone, mobile, broadband and motor expenses but these should be as accurate as possible and backed up with receipts
  • Can use simplified expenses e.g. for mileage at 45p per mile and use of home

If you decide to work through your own company

• Take a small salary and the rest in dividends to pay less income tax? Changes from April 2016 may make a higher salary and smaller dividends more beneficial
• Telephone, mobile, broadband contracts must be in the company’s name and paid for by the company to claim the expense
• If you work from home and don’t have separate company lines then business calls only are allowable
• Company cars are becoming less attractive although vans are treated as plant and machinery for capital allowance purposes but beware private usage is a benefit in kind
• If the company pays for certain items e.g. a car on behalf of the director – these are benefits in kind and must be reported
• Can use simplified expenses e.g. for mileage at 45p per mile and use of home

If you would like some advice before you start your business then please contact us for a free initial no obligation meeting:

Fernhill Accountants
Chartered Certified Accountants – Surrey, North-East Hampshire and Berkshire

01252 409477
enquiries@fernhillaccountants.co.uk
http://www.fernhillaccountants.co.uk

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Looking forward to the new flat-rate State Pension?

To ask any question about the new flat-rate State Pension scheme seems to suggest a straightforward answer. Everyone will get the same amount won’t they?

The answer to the latter question is NO. The amount you will get will depend upon a number of factors including:

  • how many qualifying years you have on your National Insurance (NI) record
  • how many years you have built up an entitlement to the additional State Pension under the current system
  • how many years you may have been paying lower NI contributions because you have been in a salary-related workplace pension scheme or you received NI rebates which went into a personal pension plan. Either of these scenarios had the effect of ‘contracting out’ a person from full entitlements under the State Pension scheme.

The new State Pension scheme applies to everyone who reaches State Pension age on or after 6 April 2016. The full State Pension has been set at £155.65 per week. People who have no contribution record under the current system will have to obtain 35 qualifying years of NI credits on their record to give them the flat-rate amount.

However, for individuals who have already built up a NI record (which is nearly everyone reading this article) there are transitional provisions which take into account the NI record accrued up to 5 April 2016. This is a very reasonable complication to have in moving to the new system. Otherwise, people who have accrued a substantial entitlement under the current system of basic and additional State Pension would be treated very differently depending on whether they reach State Pension Age on the 5 April 2016 (and thus receive a pension under the current system) or on the 6 April 2016 (and therefore receive a pension under the new system).

Under the transitional provisions, your NI record before 6 April 2016 is used to calculate your ‘starting amount’ for the new system at 6 April 2016. Your starting amount will be the higher of either:

  • the amount you would get under the current State Pension rules (which includes basic State Pension and additional State Pension)
  • the amount you would get if the new State Pension had been in place at the start of your working life.

For many of those reaching State Pension age in the near future, the transitional provisions offer the best of the current and new systems. Employees who have built up a significant entitlement to the additional State Pension will retain their entitlement. People who have been self-employed for most of their working lives may have little or no entitlement to the additional State Pension and thus will benefit from the new State Pension rules.

Example – self employed

Joe will reach his State Pension age in October 2020 (the State Pension will have risen from 65 to 66 by then). He has been self-employed except for the early part of his working life and he has no entitlement to additional State Pension. He has 32 qualifying years on his NI record.

His starting amount on 6 April 2016 (based on current figures) will be:

  • under the existing rules – 30 years NI record would give a full entitlement the basic State Pension of £119.30 a week
  • using the new rules – Joe would get £142.31 a week (£155.65 x 32/35).

Therefore his starting amount is £142.31. As his starting amount is less than the full rate of the State Pension, if he continues working for three years after 6 April 2016 he will accrue sufficient additional pension rights under the new system to bring him up to the full rate of £155.65.

Example – employed

Maureen will reach her State Pension age in October 2020. On 6 April 2016, Maureen has 35 qualifying years on her NI contribution record. During her working life, Maureen has had short periods when she was contracted out of the additional State Pension.

Her starting amount on 6 April 2016 will be:

  • under the existing rules – her 35 years NI record would give her a basic State Pension of £119.30 a week plus £86 additional State Pension but a deduction for her contracted out period of £32. (This will be computed by the Department of Work and Pensions.) This totals £173.30.
  • using the new rules Maureen would get £155.65 less a deduction of £32. This totals £123.65.

Maureen’s starting amount will be the higher of these two amounts, which is £173.30 a week. As her starting amount is more than the full rate of the State Pension, she cannot accrue additional pension rights under the new system.

How do you get a state pension forecast?

You can get a forecast in some cases online – in other cases you need to ask for a forecast by post. Go to http://www.gov.uk/state-pension-statement to find out.

How to help your Accountant (and yourself)

Tip #1 Keep all your receipts and invoices in the same place

If you leave receipts all over the place such as in the car, in the house or in the office you run the risk of not including them in the business. Worse you could lose them and that expense won’t be included because you may not remember how much you spent. Designate a place to put receipts and you’ll always know where to find them.

Tip #2 Lots of receipts?

If you have lots of receipts keep them in alphabetical order so that your Accountant and you can find them more easily if required. You may have a query and need to find the receipt fast. This should speed things up for you.

Tip #3 Help your Accountant

Give your Accountant / Bookkeeper everything they need or have asked for in one go. This will save them time and keep their fees down so you should benefit too!

Tip #4 New business or changes to your business?

Keep your Accountant informed of changes to your business. This can save you tax. For example, needing to register for VAT? Your Accountant can help you decide whether the VAT Flat Rate or Standard scheme would be better for you. Or if you are thinking of starting up a business should you be self-employed or operate through a company? Good advice at the start will save you making a costly mistake.

Tip #5 Self-Assessment Tax Return needed?

If your Accountant is preparing your self-assessment tax return for you, then don’t leave it until the end of January to get the information to them. This is an Accountant’s busiest time! Help THEM to give YOU a great service.

Tip #6 Keep track of receipts and mileage electronically?

To help you to do this http://www.fernhillaccountants.co.uk have developed a FREE to download APP available from Apple / iTunes. This APP includes a handy “Receipt Manager”, “Income Tracker” and “Mileage Tracker” as well as useful calculators, tax tables and finance dates.

 

 

 

VAT Registration

Three issues to consider when registering for VAT

1. It is the person who is registered for VAT and not the business

This has always been the case in the UK, but the principle has been reinforced as valid at European level as well.

What this means is that, once a person (legal or natural) is VAT-registered, everything that they do by way of business comes within the scope of their VAT registration. This can be advantageous, for example in allowing an individual to claim back VAT on costs relating to a buy-to-let property, if they are registered for some other reason and the relevant input tax falls below the de minimis limits.

It can also be disadvantageous, as, for example where a person owns a warehouse let to tenants who use it for storage (taxable turnover £55,000 p.a.) and a small portfolio of holiday lets (£45,000 p.a.), where the combination of the two brings them above the VAT threshold and causes them to have to register.

However the activities (including letting) must be in exactly the same name for this to apply. A VAT-registered sole trader will not have to account for VAT on income from a holiday let part owned with someone else e.g. their spouse, for example, since the letting activity will be seen as taking place in another name (the ‘partnership’ of husband and wife).

2. Documentation that must be submitted to HMRC when applying to register for VAT online, particularly when the business is involved in property

Form VAT5L – using Internet Explorer

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/398041/VAT5L_v2.0.pdf

is now required for all such applications and care must be taken when completing it.

VAT1614A form – again use Internet Explorer

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/398042/VAT1614A_v2.0.pdf

may also be required, if the applicant is letting or selling property which would otherwise be exempt and there is reason for wanting these to be standard-rated.

Do not assume that because HMRC have sent out a VAT1614A as part of their additional queries that it should automatically be completed. There is also an opportunity to upload additional documentation; two items are essential here. The first is evidence of ownership of the property (e.g. copy of extracts from the purchase contract – the size limit normally prevents the entire document from being used – completion statement, Land Registry paperwork, or equivalent). The other is documentary evidence of the intended activities (e.g. contracts for future sale, draft lease, planning consent in the case of development activities).

3. Applications to join the Flat Rate Scheme (FRS) made as part of the registration process

HMRC has gone through the entire Standard Industrial Classification of Economic Activities (SIC) allocating a FRS sector

http://www.hmrc.gov.uk/manuals/frsmanual/FRS7200.htm

and hence a percentage to every single code. Many of these seem to be incorrect.

If you believe the choice of SIC code gives you an inaccurate percentage, two choices arise. One is to search for alternative SIC codes that can still be seen to describe the business but which have a different FRS percentage. The other is to opt not to make the application as part of the registration application but to send a paper VAT600FRS

https://public-online.hmrc.gov.uk/lc/content/xfaforms/profiles/forms.html?contentRoot=repository:///Applications/Vat_iForms/1.0/VAT600FRS&template=VAT600FRS.xdp

to HMRC at Grimsby instead.

With thanks to Neil Owen, VAT Advisory Services Limited

http://vatadvice.net/

Fernhill Accountants Limited accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of the material in this blog post.

Tax notes …………..

Company cars

Do you have a company car? Then be warned. From April this year, all company cars will generate a benefit in kind charge. Even electric cars will be taxed on 5% of their list price. The taxable benefit for other low emission vehicles (51-75g/kg) will leap from 5% to 9% of the vehicle’s list price. The taxable benefit for all other cars will also increase by two percentage points, even for high emission cars, as the maximum taxable benefit is increasing to 37% of the list price.

National insurance contributions

Class 2 National Insurance contributions (NICs)

The government is planning to abolish Class 2 NICs in the next Parliament and will reform Class 4 to introduce a new contributory benefit test. Campaigners for the low paid have welcomed the announcement but are warning that the link with the self employed contribution record must not be affected.

State pension

Currently 30 years of contributions are needed for a full basic state pension, but this will rise to 35 years when the new “single-tier” pension is introduced in April 2016.

Employment allowance:

The “employment allowance” relief is now available to individuals who employ care and support workers. Employers are entitled to deduct up to £2,000 per annum from their liability to pay secondary Class 1 National Insurance contributions.

From April 2016 this allowance will increase to £3,000 per annum. However it is proposed to make the allowance unavailable where the only employee is the director.

https://www.gov.uk/claim-employment-allowance

Residential furnished lettings: replacing wear and tear allowance

HMRC are consulting until 09/10/2015 on replacing the 10% wear and tear allowance for residential furnished letting with relief for the actual costs of like-for-like renewals and replacements effective April 2016.

The proposals will give greater consistency and fairness across the residential property letting sector and reduce the number of tax rules applying to the sector.

Scope of the new replacement furniture relief

The relief will apply to landlords of unfurnished, part-furnished and furnished properties. The relief will not apply to ‘furnished holiday letting’ businesses and letting of commercial properties because these businesses receive relief through the capital allowances regime.

The new replacement furniture relief will only apply to the replacement of furnishings. The initial cost of furnishing a property would not be included. It will apply to the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house, such as:

  • moveable furniture or furnishings, such as beds or suites
  • televisions
  • fridges and freezers
  • carpets and floor-coverings
  • curtains
  • linens
  • crockery or cutlery and
  • beds and other furniture

Fixtures integral to the building that are not normally removed by the owner when the property is sold would not be included because the replacement cost of these would, as now, be a deductible expense as a repair to the property itself. Fixtures include items such as:

  • baths
  • washbasins
  • toilets
  • boilers and
  • fitted kitchen units

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447461/150715_Wear_and_tear_condoc.pdf

TIP: Defer renewals of furniture to 2016-17 if you can.

Tax-free childcare

The existing Employer Supported Childcare regime will cease for all new entrants in early 2017, but will still be available for existing recipients.

For the new scheme parents will be able to open an online account, into which they can pay to cover the cost of childcare with a registered provider. This will be done through the government website, GOV.UK.

For every 80p a parent or someone else pays in, the government will top up an extra 20p. The government will top up the account to a total of £10,000: the equivalent of up to £2,000 support per child per year (£4,000 for disabled children).

The scheme will be available for children up to the age of 12 years (currently 16 years). It will also be available for children with disabilities up to the age of 17 years, as their childcare costs can stay high throughout their teenage years.

To qualify, parents will have to be in work, earning just over an average of £50 a week and not more than £150,000 per year.

Any eligible working family can use the scheme. It doesn’t rely on employers offering the scheme, unlike the current employer-supported childcare scheme.

Self-employed parents will be able to get support for childcare costs in tax-free childcare, unlike the current scheme, which is not available to them.

Parents on the current scheme do not have to switch to tax-free childcare as long as their employer continues to offer it.

Parents and others (such as grandparents, other family members or employers) can pay into their childcare account as and when they like, building up a balance to be used when they need it e.g. over the summer holidays.

The process will be as easy as possible for parents. Their circumstances will be re-confirmed every three months via a simple online process. There will be a simple log-in service where parents can view accounts for all of their children at once.

If circumstances change or a parent no longer wants to pay into the account, then they will be able to withdraw the money they have built up. Similarly the government will withdraw their corresponding contribution.

TIP: Employers need to set up the Employer Supported Childcare scheme before April 2017 if they want the old scheme. Similarly parents need to join before this time.

Marriage relief registration opens online

Taxpayers can now sign up online for the new tax break for married couples and people in civil partnerships.

Web users can register at any point in the tax year and still receive the full benefit of the relief, which took effect from April. It permits a person who does not pay tax to transfer up to £1,060 (10% of standard personal allowance) to a spouse or civil partner. An individual can claim relief if all the following conditions apply:

  • he or she is married or in a civil partnership
  • he or she has an annual income of less than £10,600 including pensions, savings and investments
  • his or her spouse or civil partner has an annual income of between £10,601 and £42,385
  • both partners were born on or after 06/04/1935

Only one half of a couple should make an application. HMRC will then inform the recipient of the transfer of a change to his or her PAYE code.

TIP: One director/shareholder companies could make use of this if the director takes a low salary and the remainder in dividends e.g. salary £8,000 dividends £30,000 – no tax due. Therefore the transfer of part of the director’s personal allowance is allowable provided their spouse or civil partner pays tax at the basic rate.

With thanks to The Professional Training Partnership

https://www.ptptraining.com/

Fernhill Accountants Limited accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of the material in this blog post.