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?
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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:
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. The forms P11D, and where appropriate P9D, which report employees and directors benefits and expenses for the year ended 5 April 2012, are due for submission to HMRC by 6 July 2012. The process of gathering the necessary information can take some time, so it is important that this process is not left to the last minute. Employees pay tax on benefits provided as shown on the P11D, either via a PAYE coding notice adjustment or through the self assessment system. In addition, the employer has to pay Class 1A National Insurance Contributions at 13.8% on the provision of most benefits. The calculation of this liability is detailed on the P11D(b) form. HMRC have issued some guidance as to common errors on the forms in the latest Employer Bulletin. These include the following:
HMRC has a number of task forces to investigate certain business sectors, A summary of the current work of those task forces can be found below, each task force will move on to a new geographical area once the first area has been investigated.
London Properties This task force is investigating commercial property deals in Greater London, where the VAT rules may not have been applied correctly. Where they find this is the case, the HMRC officers will review the entire tax compliance of the property owner, across all taxes. Landlords HMRC are targeting landlords with three or more let properties in the North West of England and North Wales. Have you or your family correctly declared all of your rental income? Construction Industry The targets are self-employed builders (including small companies) in the North West of England and North Wales. The task force is looking for under-declared sales (such as cash jobs) and over-claimed expenses (where there are no supporting invoices). Remember to keep every receipt for purchases and keep a log of all business mileage. We can help you by advising what expenses are allowable to claim against your income. No Tax Return Submitted This task force is operating in the South East of England, looking for businesses who have not submitted tax returns for corporation tax, VAT, PAYE or income tax. |
AuthorLicenced Accountant in Brighton Archives
May 2020
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