A scheme which encouraged higher rate taxpayers to sort out their accounting at a reduced cost is set to end early next month.
HM Revenue & Customs (HMRC) sent out more than 7,000 letters offering people who are yet to file their accounts or pay tax for 2009-10 the option of lower costs if they sorted out their affairs ASAP.
They have until October 2 to respond, after which fines and charges will revert back to their normal levels.
The tax authority has not confirmed what those who do come forward before the deadline will be charged but it has said that it will be significantly lower than the costs taxpayers will be hit by if HMRC has to track to them down.
Marian Wilson, head of HMRC campaigns, said: “This campaign offers you a quick and straightforward way to bring your tax affairs up to date, but time is running out - you have until 2 October to submit your tax returns and pay the tax you owe.”
If you need help with getting your tax affairs up to date or need an accountant in Brighton get in touch with us to see if we can help
Clients often ask about dividends issued to the owner of a limited company and what rate of tax such dividends attract. This article has been written to illustrate the tax implications of paying yourself dividends from your limited company without going into too much detail the postion is as follows
Let’s take the example of a company director paying himself a dividend from his limited company of £18,000 and this is the only income he has earned during the tax year.
The dividend issued by the Limited Company will be £18,000 and this will be the total sum received by the company director. However, the dividend certificate will state £18,000 dividend plus £2,000 dividend tax credit, giving total dividend income of £20,000. Here the dividend tax credit is simply a notional value and is not paid to the company director and will not be paid to HMRC.
The company director will not pay income tax on the dividend he has received above of £18,000 and the amount that should be stated on his Self-Assessment Tax Return is £20,000. In effect the 10% tax credit cancels out the tax due on the dividend at 10%.
In essence, if you are a basic rate tax payer (income up to £34,370 for the tax year 2012/13) then you will not pay any tax on dividends you issue to yourself from your limited company. If you are a higher rate tax payer then income tax will be due on the gross amount exceeding £34,370. (assuming a directors salary below or equal to the tax free allowance)
Whatever your business sector you must prepare annual accounts which report on business performance and activities during the financial year.
What you may be unaware of, is that businesses are allowed a free choice of when to end an accounting year.
So, for 2012/13 tax, accounting dates can vary between 6 April 2012 and 5 April 2013. The date that you choose may be dictated by commercial reasons, but also by external factors such as interest rate movements, inflation, changes in rates of tax and changes to the tax system.
Generally speaking, using a date towards the end of the tax year leads to the simplest application of a current year basis of assessment, although this leaves very little time before tax is payable. Alternatively, businesses expecting an upward trend in profits may benefit from cashflow advantages if their accounting date is set on or shortly after the beginning of the tax year, although this also has its disadvantages including increased liability should the business cease less any applicable overlap relief.
Do you need us to review your accounting date?
HMRC have rules regarding what constitues proof of expenditure including VAT that you can reclaim. The proof required for purchases over £250 are more strict than those for purchases under £250.
For purchases above £250 the VAT invoice must show:
When RTI comes into force in October 2013, employers will be required to send HMRC payroll payment information that includes information on the amounts paid and the number of hours. The submissions are made when the payroll is processed, which will have to be weekly or monthly to allow the Department of Works and Pension to use the information to calculate Universal Credits payments.
The monthly reporting to HMRC will be a problem for small companies which pay a small salary below or equal to the personal allowance (£8105) as there is a requirement to log hours worked, which could breach national minimum wage rules
Before RTI it was possible to declare a low salary as an annual payment, however under RTI if a monthly salary is taken this will need to be reported monthly even if there is no tax payable.
This scheme is going to be an administrative burden on accountants and owner businesses, the scheme is already being piloted and planned to be online by 6th October 2013
HMRC have prepared a webinar on RTI which can be found at http://www.hmrc.gov.uk/webinars/pre-recorded.htm
How good is your record-keeping?
HMRC has announced it is planning a programme of Business Records Checks that will review both the adequacy and accuracy of business records within small and medium enterprises.
The Revenue have stated that they will charged penalties for accounting records that are not adequate.
To ensure your records are adequate enough, the Revenue have issued guidance on what they would expect someone to keep.
Sole Trader Vs Limited Company
Corporation tax is currently 20%, for profits under £300,000 and 24% for profits above £1,500,000. Therefore conversion of your business into a limited company is more beneficial than before. You will enjoy a marginal rate tax saving of 9% from 1 April 2011, compared to 8% previously. This is compared to running your business under self assessment where Income Tax is 20% and Class 4 National Insurance is 9% for profits up to £42,475, profits up to £150,000 will be subject to 40% Income Tax and 2% National Insurance. Profits over £150,000 will be taxed at 50%. There are other factors to consider before incorporation its best to get in touch with us first.
Annual Investment Allowance
Where a business currently purchases plant and machinery, the first £25,000 of the expenditure qualifies for 100% tax relief in the year of the expenditure.
VAT Flat Rate Scheme
If you are mainly working for commercial customers it may suit your circumstances to register for VAT under Flat Rate Scheme voluntarily, even if your turnover is below the new VAT turnover threshold of £77,000 per annum. This is on the basis that you do not have much input VAT to reclaim (i.e. service companies). The scheme allows you to charge 20% to your customers, but only pay a smaller percentage of the gross turnover to HMRC. For example a computer consultant with a turnover of £50,000 would charge his customer 20% VAT and therefore receive £60,000, the additional £10,000 would be paid to HMRC, however under the Flat Rate Scheme only 14.5% of the gross turnover needs to be paid i.e. £60,000 x 14.5% = £8,700. Therefore a VAT saving of £1,300, which is taxable.
You will also enjoy a 1% discount during the first 12 months from date of VAT registration under the Flat Rate.
N.B - each industry has its own specific flat rate percentage.
Small businesses have been reminded of changes to the UK's VAT systems.
HM Revenue & Customs (HMRC) has issued a notice urging such enterprises to be prepared for the changes, which mean that from April 1st this year all VAT returns must be filed online.
Those yet to have made the necessary adjustments to cope with online filing could be tempted to seek the assistance of a specialist accountancy service to ensure their financial affairs are in order.
"Previously, only newly-registered businesses and those with turnovers of more than £100,000 had to submit their VAT online, as well as pay electronically. Anyone else could send HMRC a paper VAT return, but this will no longer be an option," the department explained.
Business owners have also been urged to register for online filing in plenty of time ahead of the changeover to avoid the risk of incurring any late filing penalties.
Licenced Accountant in Brighton