Delving into taxes when it concerns your business can always be a daunting time, and it is not always the most exciting part. However, it always needs to be dealt with at some point. To help you get started, we have gathered a few little tips to guide you on your way.
In this day and age, dealing with taxes can be complex. And whether your business is just starting out, or has been around for a few years, it can always be tricky to establish what is available to you, what you are entitled to, and your financial affairs. Before we get started if you are looking for some in-depth tax-saving tips from online accountants, then have a look at our range of free resources from special tax reports, tax calculators, and tax helpsheets. We can even email these directly to you (promise we won’t spam you).
1. Meet Deadlines and Stay Organised
One of the first and most important tips we can give you is to always meet your deadlines. Organisation is essential to any workplace. Any delayed filing with Companies House paperwork (confirmation statement), HMRC, FCA, and other regulatory accounts, can result in fines and other consequences. For a business, this can have devastating impacts as can affect your credit rating and banking commitments.
There are many documents you need to keep organised when you are running a business and keeping organised will reduce any hassle. It is also a great idea to map out future dates you need to be aware of. For instance:
Tax year dates – including any potential changes
Self assessment tax return deadlines
Tax registration deadlines
Tax payment and filing deadlines
Aware of any penalties for late payments
Any COVID extensions
Furthermore, make sure you always keep a copy of your documents, such as invoices and receipts in a safe place. According to HMRC, these business records need to be kept for six years, so keep them secure and protected. Also, records and receipts are needed from HMRC to expense claims or input VAT amounts, so make sure your business keeps proper supporting records.
2. Claim Anything You Are Entitled To
Make sure you claim anything you are entitled to such as ‘Capital Allowances’ to help with your business rates. Our friendly group of online accountants can talk you through this. Capital allowances can be claimed against taxable profit, meaning you can receive a reduction in capital expenditure such as business equipment. For example, there are:
Annual Investment Allowance (AIA)
AIA is available for British businesses, and is a form of tax relief designated for the purchase of business equipment. AIA applies to businesses of any size, and allows an immediate deduction against profits for capital expenditure up to a certain limit. Most businesses can claim on a portion of expenditure to most types of plant and machinery (except cars).
Enhanced Capital Allowances (ECAs)
ECAs encourage business to invest in efficient and environmentally friendly equipment. This scheme allows you to claim 100% first-year allowances such as tax relief in efficient technologies. This will not only reduce investment costs, but your environmental impact. All in all, this will improve your cash flow and the time it takes to pay back your investment. However keep in mind, this can only be claimed for new plant and machinery, not second-hand or used.
Make sure you do some research to find out exactly what you are entitled to. There are multiple options out there that will benefit you and your business, to which you are 100% entitled to.
3. Working From Home?
If you are working from home, or a self-employed business owner you may be able to claim tax relief for:
Gas and electricity
Business phone call and dial-up internet access
Furthermore, you can claim a fixed nominal sum of £6 a week with no evidence of your extra costs. There can be many generous tax savings for those of you who work from home. So make sure you research and are aware of them.
4. Be Aware of Illegal Dividends
Dividends are payments for shareholders, directors, or investors for buying the company’s shares or stocks. Any company can pay dividends from retained profits after paying corporation tax and have met all liabilities. However, be aware of illegal dividends, or ‘Ultra Vires’. This can occur after declaring expenses based on bank balance rather than profits, yet dividends should only be paid from profits. Unfortunately, this is not unusual and can result in an overpayment and is costly to sort out at a later date.
5. Talk To Us
Of course there is a lot of information out there which is time consuming, as well as being tricky to navigate. Here at CloudBook Online Accountants, we want to make your life easier. We will work with you from the start to the very end of the year and will assist and support you every step of the way. Whether you are a UK based sole trader, small or medium business owner or property investor. We will help get your finances on track and help you stay organised with an easily reachable, friendly and qualified online accountant.
So, we hope you have discovered some new information about tax and your business. Get in contact with us if you have any questions, or are interested in any services from our online accountants.
The economy and headline figures
The Chancellor presented the 2022 Spring Statement on 23 March 2022. You can read the actual 2022 Spring statement here or the main details are below.
The announcement of the 2022 Spring Statement followed the OBR reporting ‘the biggest hit to household finances since records began. With domestic interest rates already at a 30 year high, inflation at 6.2% the Chancellor set out a ‘three-part plan’. The plan aims to strengthen the economy over the remainder of the Parliament.
The first part of the Plan was for immediate tax cuts. Also, measures to help families with increasing energy bills coming next month following the increase to the energy ‘price cap’. The second part confirmed the introduction of measures intended to promote growth and productivity within the economy. The third part confirmed future tax cuts intended to increase the amount of money people have to spend.
The main 2022 Spring Statement ‘headliner’ was the cut in fuel duty. There is a temporary 12-month reduction to duty on petrol and diesel of 5p per litre. Representing a tax cut of around £2.4 billion over the next year. The RAC said that this cut would reduce the cost of filling up a typical family car by around £3. Although welcome, ‘will only take prices back to where they were just over a week ago’.
National Insurance Contributions
There were many calls to scrap the NIC/NHS levy due to come in next month. The Chancellor decided instead to increase the NIC Primary Threshold and Lower Profits Limit from £9,880 to £12,570. To align with the single personal allowance. This measure will come in for the July payroll run. The planned 1.25 percentage point increase in NIC for health and social care still going ahead. So the Chancellor will be receiving two months of increased NIC receipts. The delay is to give payroll software providers the time to accommodate the change into their systems.
The realignment of the NIC and the tax starting point is a long overdue measure. But the personal allowance has remained the same for two years now. Also, it will remain for another three years which will result in more tax receipts as wages increase.
The Chancellor did not leave out the self employed. From April 2022, the Lower Profit Limit will increase to align with the personal allowance. Self-employed individuals with profits between £6,725 and £12,570 will not pay Class 2 NIC. Although the year will still count towards state benefits such as the state pension. For the year 2022/23 the Lower Profit Limit will be £11,908. This comprises of the pre-July weekly Primary Threshold of £190 and the new, post-July threshold of £242.
The Employer’s NIC Secondary Threshold will remain at the same level. However, the Employment Allowance will increase to £5,000 from £4,000 from April 2022. As a result, this will benefit ‘around half a million businesses with a tax cut worth up to £1,000 each’. However, the measure will not benefit the many SME directors who withdraw a small salary with the balance as dividends. That’s because the Employers Allowance is not available to certain companies. Such as those with only one employee (who is a director) earning above the Secondary Threshold .
R&D tax relief
In the 2021 Autumn Budget he announced a reform of the system to claim Research and Development (R&D) relief. He confirmed in this Spring Statement; meanwhile, all cloud computing costs associated with R&D, including storage, will now qualify for tax relief as from April 2023. He also announced the expansion of the definition of R&D for tax reliefs to include pure mathematics. The intention, is to include support for investment by companies that work with artificial intelligence, quantum computing and robotics.
From April 2021 to March 2023 the ‘super-deduction’ enables companies investing in qualifying new plant and machinery assets to claim:
a 130% super-deduction capital allowance on qualifying plant and machinery investments
a 50% first-year allowance for qualifying special rate assets
This relief is to cease in a year’s time so they will be looking at ‘fixing that’ in the Autumn 2022 Budget.
Energy saving measures
The Chancellor is still looking to the future of energy saving measures. By extending the 0% VAT relief available for installing equipment in people’s homes for the next five years. Such as as heat pumps, solar panels and insulation. ‘A typical family having roof top solar panels installed will save more than £1,000 in total on installation.Then £300 annually on their energy bills‘. They will also remove complex eligibility conditions for this relief. Making the measure available to more households. However, not every ‘typical family’ will be able to afford to install these alternative energy sources.
Other 2022 Spring Statement measures
Household support fund
The Chancellor confirmed that he would double the amount made available to the Household Support Funds operated by local Councils. This fund provides short-term financial support to vulnerable households struggling to afford household essentials.
Business rates relief and exemptions
It was announced that the business rates multiplier will be frozen in 2022-23. Also, the retail, hospitality and leisure industry will be allowed a 50% cut on business rates up to £110,000.
Further business rates measures included the introduction of targeted business rate exemptions from 1 April 2022 until 31 March 2035. This is for eligible plant and machinery used in onsite renewable energy generation and storage. Also, a 100% relief for eligible low-carbon heat networks with their own rates bill. This is to support the decarbonisation of non-domestic buildings.
The Chancellor announced the creation of a new Public Sector Fraud Authority. This is to prevent fraud and ‘to tackle waste and inefficiency across the public sector’. The authority will work with the British Business Bank and the National Intelligence Service.
The take-up of the Apprenticeship Levy has been disappointing. Following calls from employers’ representatives for a more flexible scheme, the Chancellor announced a review of the current scheme. The review aims to improve methods to encourage employers to invest in adult training.
Above all, the Chancellor reaffirmed his promise that by 2024 the basic rate of tax will reduce by 1%. However, the hope is that the economy is in a stable enough position to make that promise a reality.
If you have any questions about how the Spring Statement 2022 affects your taxes, please get in touch.
Here are the tax highlights of the Spring Statement announced by the Chancellor Rishi Sunak on 23 March 2022. For a full report, sign up for our monthly newsletters here.
National insurance threshold increased by £3k
From July 2022, the primary threshold at which employees and the self-employed start paying national insurance will increase to £12,570. This is the same level as the income tax personal allowance (tax free) of £12,570. It sounds like the secondary threshold, at which employers start paying national insurance will remain at the planned level of £9,100 for 2022/23.
Fuel duty cut 5p per litre
From 6pm on 23 March 2022 until March 2023, fuel duty cut by 5p per litre, saving an average of about £3 per tank of car fuel.
Employment Allowance up by £1,000
Most employers will not need to pay the first £5,000 (was £4,000) of employer’s national insurance. The employment allowance doesn’t apply to companies where the only employee is a director.
Income tax cut by 1% by 2024
By the next election (due 2024), the basic rate of income tax reduced from 20% to 19%. However, there was no mention of the higher rates and dividends rates.
VAT removed on energy saving materials
Energy saving materials such as solar panels will have a VAT rate of 0% (was 20%).
Other measures announced
Household support fund doubled to £1bn
Reform and extension of Research and Development tax relief
Small business rates discounts of 50% for the retail, hospitality and leisure sectors
For more details, read the actual Spring Statement here and the Tax Plan here. Or sign up for our monthly newsletter to receive an emailed report here.
As we’re online accountants working from home, one question that nearly always comes up is: what expenses can I claim when working from home? Whether you have a self-employed business, or you are an employee (director), it’s worth checking that you’re claiming the correct amount of expenses when working from home.
Types of Working From Home Expenses
Self-Employed Expenses (not companies)
If you use part of the home solely for business, even for a short amount of time, you can claim a proportion of all the relevant costs listed below. Alternatively, you can claim a new fixed amount, which is £10 per month for working 25 to 50 hours per month, £18 for 51 to 100 hours pcm, or £26 for over 100 hours pcm. You can read HMRC’s guidance on that here.
Employees and Directors
Employees (including company directors) working from home can claim in a few ways. There’s a flat rate claim of £6 per week (was £4 until March 2020). Or you can claim a proportion of heating and electricity and business calls. Or directors could effectively sub-let part of their home to their company using a licence agreement. With a licence agreement, directors can claim more costs such as mortgage interest or rent.
Employees would normally claim their expenses when working from home (e.g. £6 per week) directly from their employer who should reimburse the amount claimed. If not, employees who have to work from home can claim tax relief for the costs instead. If you don’t prepare a tax return you can claim the costs on form P87 from HMRC.
Which Working From Home Expenses Can I Claim?
The fixed rate of home working expenses (e.g. £6 per week) is set at a level to cover all of your home-working expenses. So you wouldn’t be able to claim anything in addition to the fixed rate. Otherwise, here are the costs that you can include in your calculation.
Only the self-employed or licence holders can claim these costs
Rent or mortgage interest (not capital)
Home insurance (if no separate business policy)
General repairs & maintenance (e.g. roof)
Telephone & broadband rental
All home workers can claim these costs
Business telephone calls (all)
How much of my expenses can I claim for working from home?
You probably won’t have separate business and home bills for most of the costs above. So you will need to calculate how much of each cost you can claim. You would usually calculate the claim by floor area (or rooms in use) and/or time, but it could be more appropriate to use other factors such as number of people, or proportion of business telephone calls. There are no strict rules on how to do this, because each case is different.
For example, if your business use of the home is one room out of 5 usable rooms, you could claim one fifth or 20% of the costs. If you use that room for personal reasons half of the time, you should only claim 10%. But if 20% or 10% isn’t a reasonable estimate of the use of any of those costs, you could use a better method such as hours occupied in the office compared to the whole house.
Capital Gains Tax Trap
If you claim that part of your home is used exclusively for business, the principal private residence exemption for capital gains tax will not apply to that part of the house for the time it was in business use. However, if you have a little personal use of the part of the home used for business, it will normally qualify for the exemption.
What evidence do I need to claim expenses when working from home?
If you are claiming the fixed rate expenses (e.g. £6 per week), you don’t need any evidence or workings for your costs. You should keep a note of at least once each tax year when your employer required you to work from home.
For other types of claim, you should keep your home bills and your workings safe for at least 7 years. That’s in case HMRC want to see evidence of what expenses can I claim when working from home.
It usually pays to know exactly what expenses can I claim when working from home. So that you know that you are claiming the most homeworking expenses possible. It’s usually not the flat rate, so estimate and claim your actual business use of home expenses. But be aware that it is more restrictive for employees and directors. As always, keep your workings and invoices to support the claim.
If you have any questions or comments please contact us. At CloudBook Accountants we provide proactive advice like this to our clients throughout the year. Plus it is all included in our monthly fixed fees from £20 per month. Get an instant quote from our website now.
The tax year ends on 5th April 2022, so March is a good time to do some tax planning for 2022/23. This guide will help you check you’re not going to pay more tax than necessary in 2021/22 and 2022/23.
Most tax payers will pay a higher rate of tax next year due to a 1.25% increase in both the National Insurance and Dividend rates. So you may want to do some tax planning on or before 05-04-2022 to pay tax at the current lower rates.
Below are some tax planning suggestions to consider for everyone, then for directors/shareholders only.
TAX PLANNING FOR EVERYONE
Use up Income Tax allowances
To recap, everyone has a tax-free personal allowance. Income above that is taxed at different rates depending on the type of income it is and which band of your income (tax band) that income falls into. Earned income, such as a salary or self-employed profit, use up your tax bands before investment income, such as interest and dividends. So if you have a £50,270 salary and £40,000 dividends, all of the salary exceeding your personal allowance uses up your basic (lower) rate band so will all be taxed at the basic (lower) rate of income tax. Then all of the dividends fall into your higher rate band so will all be taxed at the higher tax rate for dividends. Except £2,000 which is covered by the dividend allowance so is taxed at 0%.
Unused personal allowances and tax bands are not available to be carried forward. So it is important to check that you are using them to efficiently each year. If it’s possible to increase or decrease your income, you should do some tax planning to save tax. It’s best to use up the lower rate bands and avoid the higher rate bands. Some planning can be achieve this, such as changing ownership of assets. For example, transferring shares of a company and therefore the amount of dividends paid out. Or creating an employment can increase income. The bands and rates for Scottish residents are here, and for everyone else in the UK are below.
£0 – £12,570 Personal allowance
£12,571 – £50,270 Basic rate band
£50,271 – £150,000 Higher rate band*
Over £150,000 Additional rate
Other allowances and bands to consider:
£2,000: tax-free dividend allowance per person per tax year. This still counts as income so also uses up your tax bands.
£50,000 – £60,000: child benefit repaid – see below.
£100,000 – £125,140: personal allowance withdrawn – see below.
The different tax rates for Income and Dividends are as follows:
Use up National Insurance allowances
National Insurance (NI) is payable by employers, employees, and the self-employed. Each of whom have different bands and rates to consider. As with income tax above, it’s best to do some tax planning to use up lower bands and avoid higher bands. You need to have a salary or self-employed profits that exceed the lower limit for the tax year for it to be a qualifying year for your state pension. You need 35 qualifying years for a full state pension. If self-employed profits exceed the lower limit, a fixed amount of NI is payable at £163.80pa (was £158.60pa).
Lower earnings limit
Avoid earning over £50k
As well as paying higher tax rates, you need to pay back any child benefit received if your income exceeds £50,000 for the year. It applies if either parent receives child benefit and if either parent has a total income of £50k or more. The higher earner will need to repay some or all of the child benefit. You will repay a proportion of it if your total adjusted income is between £50k and £60k. As a result the marginal tax rates are 60% for 2 children and over 70% for 4 children.
If the repayment can’t be avoided, consider stopping the child benefit, as this may spare any need to file a tax return. To calculate the amount of child benefit to be repaid, you adjust your total income down for any personal pension contributions and charity contributions. So you could pay more of these contributions to reduce your adjusted total income within the £50k – £60k band to save tax.
Avoid earning over £100k
When your total income exceeds £100,000 the tax-free personal allowance is gradually removed. You get no personal allowance when your income reaches £125,140 or more. In this band of total income, you have a marginal tax rate of 60% (i.e. your tax bill increases by 60p for every £1 your total income increases between £100k and £125k). Also, more benefits are removed such as tax-free childcare. As with the child benefit above, you could pay personal pension or charitable contributions to reduce your adjusted total income within the £100k – £125k band and save tax at 60%.
Claim Marriage Allowance
A spouse or civil partner who does not pay income tax above the basic rate for a tax year, can transfer £1,260 of their personal allowance to their spouse or civil partner. This is provided that the recipient of the transfer does not pay income tax above the basic rate. This can potentially mean a reduction in tax liability of £252.
Transfer assets to a spouse
If a spouse, or civil partner, pays tax at a lower rate, consider transferring to them income-producing assets. For example, savings, company shares, investment property. This gives the income to the person paying the lower rate.
Check your bank
If you have large sums of cash in ordinary accounts paying very little interest, consider moving cash to other accounts earning a higher interest rate. An Individual Savings Account (ISA) is tax free so make sure that ISA allowances have been fully utilised for all the family, where applicable.
Pay into savings
The ISA maximum subscription limit is currently £20,000 and there is no longer a restriction on the amount that may be invested in a cash ISA. The overall investment limits on ISAs mean that a couple could save a substantial amount in tax-efficient savings accounts. Any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year (until 50) and savers will receive a 25% bonus from the government on this money. Broadly, money invested in this type of account can be saved until the investor is 60 and used as retirement income, or it can be withdrawn to help buy a first home.
Junior ISAs are available to UK resident children (under-18s). Junior ISAs are tax-free and have many features in common with existing ISA products. The maximum annual subscription is currently £9,000. Investments may be made in any combination of qualifying cash or stocks and shares investments. Withdrawals are not permitted until the named child has reached the age of 18, except in cases of terminal illness. It’s possible to transfer Child Trust Funds (CTFs) to Junior ISAs.
You can invest regular sums into National Savings banks and building societies. Those willing to accept the possibility of greater risk perhaps equalling greater reward might consider other types of accounts. Such as the stock market, stock market-linked investments or buy-to-let property.
Pay into pensions
One of the best tax planning tips is to pay into your pension because you save tax and keep the money for retirement. Paying personal pension contributions currently gives tax relief at the individual’s highest income tax rate. Personal pension contributions are limited to your earnings. However, employer pension contributions are not limited to earnings but give tax relief to the employer not the employee.
Pension contributions are taxable if the total contributions into all of your pension schemes exceed an annual limit of £40,000 (or less if your total income exceeds £240,000). Any of these unused £40,000 allowances from the previous 3 years can be brought forward and used in the current year if required. There is a lifetime pension limit of £1,073,100.
Consider paying into pensions for family members. The introduction of stakeholder pensions allow contributions to be made for all UK residents, even children, as there is no requirement to have any earnings. Consider making payments of up to £3,600 for family members, as the fund will grow in a tax-free environment. The net cost is only £2,880.
Sell some chargeable assets
Take advantage of tax exemptions. Everyone has a yearly capital gains exemption. This exemption is currently £12,300, and gains up to this figure can be made without tax. Therefore, taxpayers should consider realising gains from investments up to this figure. Gifts between spouses and civil partners are tax free, so it is possible to double the yearly exemptions available by giving shares or other investments to a spouse or civil partner.
With regards to shares standing at a loss, consider selling them so that the loss can be set against any gains made over and above the capital gains annual exemption. If you wish to retain the investment, it could be bought back by the spouse or partner, within an ISA. It will not be tax effective to buy back the investment, unless he or she waits for 30 days before doing so. In addition, you must take care not to fall foul of anti-avoidance legislation. This prevents loss relief where certain arrangements exist, the main purpose, or one of the main purposes, of which is to secure a tax advantage.
Capital gains tax may be deferred through the use of an Enterprise Investment Scheme investment.
Give to charity
Making charitable donations via the Gift Aid scheme is an effective way to reduce taxable income. If you make donations, it is important that you tick Gift Aid so that the charity can benefit from the basic rate tax relief. Higher rate taxpayers should make the necessary claim on their tax return for further relief. If you plan on making future donations, bring these forward to 5th April to get tax relief at an earlier date.
Check your PAYE code
Check your PAYE tax code number for the following tax year is correct to avoid paying the wrong amount of tax.
Don’t get fined!
There are penalties and surcharges for submitting your tax returns late and for paying any tax due late. These penalties increase substantially over time so if you’re already late for the previous tax year, further delays will cost you more – see here. If you have a second payment on account to pay as a result of the previous year’s tax return, that payment is due by this 31st July.
We can submit your tax return for the year ending 05-04-2022 soon after 05-04-2022, so provide your details to us as soon as possible. The deadline for submission to HMRC is 31-01-2023, however, we need your details by 31st October to guarantee submission by the deadline. Also, the balance of tax due for the year ending 05-04-2022 plus potentially an extra 50% first payment on account is due by 31-01-2023.
TAX PLANNING FOR DIRECTORS/SHAREHOLDERS ONLY
To recap, it’s important to remember that your company is a completely separate entity from you (director/shareholder), as such, you each pay tax differently. However, the way you take money from your company may or may not affect the company’s tax. So it is important to consider all taxes when you decide how to pay yourself.
Your company will pay 19% corporation tax on the profit it makes in its accounting year, which is usually different to the tax year. A company usually pays a salary to directors, and has the option of paying out its profit (as dividends) to its shareholders. Your company’s taxable profit includes a deduction for salaries and expenses but not for dividends.
You will pay income tax on your total income in the tax year, including any salary and dividends taken from your company, but not expenses or loans. Also, see above for the various tax bands and rates.
Tax planning before April 2022
On or before 05-04-2022 make sure you use up your tax-free personal allowance of £12,570 with salary/earnings/dividends.
In last year’s tax planning advice we advised a salary of between £8,840 and £12,570, depending on whether your company is profitable and whether you would benefit from the Employment Allowance. If you have sufficient profit reserves in the company, you should top up this salary with dividends covering:
any remaining personal allowance (£12,570);
your tax-free dividend allowance of £2,000, then;
your remaining basic rate band of up to £35,700 at 7.5% (above this dividends are taxed at at least 32.5%).
Other tax planning tips for this month
Consider declaring extra dividends on or before 05-04-2022 to potentially pay a lower tax rate on those dividends by 1.25%. However, you need to be careful that you pay tax in the same or a lower band this year compared to next year. For example, the tax this year on extra dividends is 32.5% if your total income is between £50,270 and £100,000. But the tax next year on dividends is 8.75% if you expect your total income to be less than £50,270.
It’s best to have a similar amount of total income from year to year. This is better than than not using up your basic rate band one year, then going into your higher rate band in the other year. For example, you will save tax of about £9k by declaring total dividends of £35k each year, instead of none this year and £70k next year.
You don’t have to physically pay any extra salary or dividends. Instead, you can credit your directors loan account with the amount. Then you can draw out that amount tax-free at a later date. Or the credit will offset what you’ve already drawn out.
The company must have net profit reserves to declare any dividends. Tax applies to dividends in the current year if you approve the dividend and pay or credit the dividend by the 05-04-2022. As always, you must also prepare the meeting minutes and dividend voucher to support the dividend.
Next year, the income tax thresholds and rates remain the same. So the tax-free personal allowance stays at £12,570, and the higher tax rate threshold remains at £50,270. However, there are new National Insurance (NI) rates and thresholds. Employees start paying 13.25% (was 12%) NI on salaries in excess of £9,880 (was £9,568). Employers start paying 15.05% (was 13.8%) NI on salaries in excess of £9,100 (was £8,840).
Tax planning from April 2022
We’ve set out below our general tax planning advice on extracting funds from your own company. However, due to the numerous scenarios, which could also change during the year, we may advise you differently on an individual basis.
From 05-04-2022, our advice is that each director/shareholder should take money from the company in the following order:
Salary of £9,100pa or £758pcm, tax-free.
Additional salary of £780pa (£9,880pa or £823pcm) if the company is profitable.
Dividends of £2,000, tax-free.
Depending on your circumstances, either:
increase the salary up to £12,570, or
take a further £2,690 of dividends.
Dividends of £35,700, taxed at up to 8.75%.
The next £100k of dividends are taxed at 33.75% or more (see ‘Avoid’ sections above).
This assumes you have no other income and there are sufficient profit reserves in the company to take dividends. Profit reserves are accumulated net profits/losses since the company started, less accumulated dividends since the company started.
If you need any specific tax planning advice please get in touch.
2. SSP available to all those who self-isolate from day 1 and similar help for self-employed and those on Universal Credit
3. Cost of providing SSP for smaller employers refunded in full by gov for up to 14 days
4. Business support loans for small businesses to help them through the #coronavirus
5. Retail and leisure business rates cancelled for 12 months for small businesses
6. £3k cash grant to smallest businesses who don’t pay business rates
7. By 2024 National Living Wage is forecast to be £10.50ph. This April Employees NIC threshold to increase from £8,632 to £9,500.
8. No more VAT on sanitary products. Alcohol duty increases have been cancelled. £5k discount off rates for pubs.
9. Fuel duty also frozen. Increases to start up loans for businesses. Entrepreneurs Relief lifetime limit is reduced to £1m. R&D credit increased to 13%
10. Small employers’ Employment Allowance (for Employers NIC) increased from £3,000 to £4,000.
11. Electricity levy frozen. Gas levy increased. New tax on plastic packaging. Red diesel relief restricted to agriculture & rail in 2 years time.
12. £120m for flooded areas. £200m for flood resilience in those areas. £5.2bn on flood defences everywhere.
13. £billions being spent on road infrastructure, devolution, schools, cities, further education.
14. VAT abolished on Digital publications from 1st December
15. As already announced, Corporation tax cut to 17% has been cancelled. It will remain at 19%.
16. It’s over! Largest sustained fiscal boost for 30 years… fastest rate of 15%… 2.8% rises.. largest Budget giveaway since 1992 Norman Lamont Budget, says the OBR.
Not announced in the speech:
17. Digital Services Tax of 2% of UK Revenue will be payable by companies with revenues greater than £500m from which more than £25m are generated by British users. That would include Facebook, Google, and Amazon.
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In the 2016 Autumn Statement, it was proposed that A new 16.5% VAT flat rate for businesses with limited costs will take effect from 1 April 2017.
The VAT Flat Rate Scheme (FRS) is a simplified accounting scheme for small businesses. Currently businesses determine which flat rate percentage to use by reference to their trade sector. From 1 April 2017, FRS businesses must also determine whether they meet the definition of a limited cost trader, which will be included in new legislation.
Businesses using the scheme, or thinking of joining the scheme, will need to decide whether they are a limited cost trader. For some businesses – for example, those who purchase no goods, or who make significant purchases of goods – this will be obvious. Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5% rate.
Businesses using the FRS will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.
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 £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000).
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).
These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.
Doing your own tax return online is obviously the cheap option compared to using an online accountant. However, is it cheaper in the long run?
Have you claimed everything?
If your tax affairs are very straight forward, it could make sense to do your own tax return online. But what if you have anything more complicated like self employment or property income? How do you know you are claiming everything you can? For example, if you do any work at home such as the paperwork, you could be entitled to claim a proportion of certain household bills. Higher rate tax payers would only need to claim additional costs of about £300 to save an online accountant’s fees. A qualified accountant has a duty to take steps to ensure you pay the correct amount of tax. This includes claiming any expenses and allowances that are legitimately deductible.
Have you claimed too much, or not declared enough?
If you incorrectly do your own tax return online, even if it’s a honest mistake, you could be fined. The penalties charged depend on the severity, starting from up to 30% of the additional tax due for a lack of reasonable care. Then it goes up to 70% for deliberate errors. So a lack of care resulting in an underpayment of tax of £400 could cost you more than an online accountant.
Will you do your Tax Return Online and on time?
We all know what a chore it can be to dig out all of your paperwork and complete your tax return online. That’s why so many leave it until the last minute, or even file their tax return online late. Filing late by just 1 day will cost you £100, which increases by a daily £10 if filed more than 3 months late.
Find an online accountant?
As well as helping to prevent all of the above, an online accountant can identify other ways of saving tax. Ways that many people doing their own tax return online wouldn’t have heard of. Such as obtaining tax relief by investing spare cash in a Seed Enterprise Investment Scheme. We charge between £50 and £200 plus VAT to prepare and submit your tax return. Why risk paying more in penalties? Contact us now for peace of mind.
HMRC aim to be one of the most digitally advanced tax administrations in the world by making tax digital. They have published a report and discussion paper setting out how new procedures for interacting with HMRC and paying tax will be implemented under the Making Tax Digital banner.
It is intended that by 2017, every individual and small business will have access to their own secure digital tax account. This enables them to interact with HMRC digitally. By 2020, businesses and individual taxpayers will be able to register, file, pay and update their information at any time. For the vast majority, there will be no need to fill in an annual tax return.
The government is also to consult on the issue of payment. Including options to simplify the payment of taxes and align payment arrangements. Also, to bring payment dates closer to the time of the activity or transactions generating the tax liability. HMRC have held a series of consultation events in 2016 to discuss these issues with stakeholders. They are now testing new making tax digital systems and procedures on real tax payers.
The Making Tax Digital project has also presented the opportunity to align payment arrangements across different taxes and to provide a more joined-up service for taxpayers. The government has already brought the collection of Class 2 National Insurance Contributions (NICs) for the self-employed into the arrangements for self-assessment. This meant that from April 2015, Class 2 NICs are collected alongside Class 4 NICs. The government is also consulting on the abolition of Class 2 NICs and reform of Class 4 to further simplify the system.
HMRC have now officially launched Personal Tax Accounts (PTAs). This enables UK taxpayers to manage their tax affairs online. More than a million customers completing their self-assessment electronically will be directed to their online PTA which will:
provide a clear and joined-up view of the tax they pay and benefits they are entitled to;
enable customers to update their tax details as they occur in real time. Removing the need to resubmit information; and
make it easier and more efficient to contact HMRC officials through services like web chat and virtual assistant.
Between now and May 2016 HMRC will continue to add new services to the PTA, including:
improvements to the ‘Check your tax estimate service’. So customers can look a year ahead and back on their current, future and previous tax position;
a new online payment and repayment service;
expanding the opportunity for non-self-assessment customers to choose to stop receiving paper from HMRC;
integration of the tax credits online service in time for 2017 renewals;
introducing change of circumstances for the marriage allowance service; and
introduction of the new national insurance/state pension service.
At CloudBook Accountants, we specialise in online accounting software which will be necessary to comply with making tax digital. All of our accounts packages already include a quarterly review. So our clients are ready to update HMRC with quarterly reporting as will be required under making tax digital.
What rate of tax would you pay on an additional £1 of earnings? If your annual income is between £41,865 and £150,000 you may think the tax rate would be 40%, but the peculiarities of the UK tax system mean you could pay much more.
To start with earned income above the 40% threshold carries a national insurance charge (NICs) of 2% so for every £1 you earn above £41,865 (for 2014/15) you will pay 42% in tax and NICs.
Child benefit is withdrawn from the highest earner in the family at the rate of 1% of the benefit for each £100 of income exceeding £50,000 per year. This translates into an effective marginal tax rate of 60% on income between £50,000 and £60,000.
When your income exceeds £100,000 your personal allowance is withdrawn at the rate of £1 for every £2 of income above £100,000. This is an effective tax rate of 62% including NICs.
From 6 April 2015 married couples will be able to transfer up to 10% of their personal allowance between them. This will allow up to £1,050 of the allowance to be transferred from the person who earns less than £10,500, to their spouse who earns up to the 40% threshold. Thus £1 of additional income that takes you over the 40% threshold will mean you lose the whole of that transferable allowance – an infinite marginal tax rate.
If you are able to control the level of your taxable income, perhaps because you run your own business, it makes sense to adjust your income to avoid those high marginal tax rates. Perhaps you could employ other members of your family, or take them into business with you as partners, to spread the business income.
Payments of pension contributions and Gift Aid donations can stretch your 40% threshold, so the higher earner in the family should making those charitable donations and pay pension contributions. We can help you plan to avoid the highest tax rates and make the best use of all allowances available.