If you fail to plan your planning to fail, this approach will help when it comes to tax planning without doubt.
1) PLAN YOUR TAX FROM THE BEGINNING One of the reasons many small businesses fail is cashflow or the lack of it, if you put aside a provision for tax from the start, its easy to estimate your profits and transfer your tax provision on a monthly basis into a separate bank account, at the end of the year once your actual liability is calculated you may even have some funds left over! 2) KEEP AN EYE ON YOUR TURNOVER The current VAT registration threshold is £73,000 based on a rolling 12 months, you need to register if you exceed this or expect to exceed it in the next 30 days, however, if you can demonstrate to HMRC your turnover in the following year will be below this amount you may be able to apply for exemption from registering. 3) PLAN AHEAD The decisions you make at the beginning and during the year can have tax implications, you need to be thinking about the structure of the share ownership, remuneration, entity i.e sole trader, limited company or LLP Its important to discuss your business discussions with your accountant as he/she may be able to advise you in the right direction or point out something you may not have considered.
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Principal private residence (PPR) exemption can be a very important tool in reducing capital gains for clients who own more than one property. So how can you make sure they are not missing out on their relief? The important thing to remember when using PPR relief is that the residence on which it is being claimed must at some point have been an actual residence where the claimant has lived and it needs to be available at th 1. Make an election An election can be made within two years of acquiring two residences. It is important to do this for protective purposes and it can save a lot of hassle later on. Once an election is made it can be varied. If no election is made then which residence is the residence on which PPR relief can be claimed will come down to the facts. It may be worth putting a note on your year end tax planning to check whether clients have acquired a new residence in the year, otherwise a valuable tax planning opportunity could be lost. Once an election validly is made it is conclusive. However, HMRC will not comment on the validity of an election until a claim is made. 2. Evidence This is important if HMRC query any exemption claimed and is very important where no election has been made or where the facts are disputed. Ideally this needs to be in place before the disposal. Assembling a convincing case as an afterthought is very difficult and there have been several recent cases where taxpayers have lost out on significant amounts of relief because the facts did not stack up. The available evidence needs to point towards the residence on which exemption is claimed as being the taxpayers main residence. So questions HMRC might ask:
Once an election is in place it can subsequently be varied. This ‘flipping’ is what caused so many problems for MPs during the expenses scandal. An example of how to do this used to appear in the CGT manual. This has now been removed however the principle remains. The election can be varied and the variation can be backdated up to two years. The example that used to appear in the HMRC manual varied the election for a week. This can give the last 36 months relief on the second property losing only one weeks PPR relief on the first residence. This is very valuable planning and as the variation can be backdated, it can be varied after the sale. You may want to add this to your standard tax planning checklist where a client has a gain on a property to ensure this is not missed. 4. Remember to use the exemptions In theory these look quite generous and include:
If job related accommodation is occupied on anything more than a licence the taxpayer should make an election in favour of his main residence. 5. Lettings relief If the property has been let at any time as residential accommodation then lettings relief may also be available. This is a very valuable relief and can be worth up to £40,000 per owner. The relief is the lower of the gain attributable to the let period, the PPR relief due and £40,000. This can often exempt a large part of the gain. 6. Spouses and civil partners Spouses and civil partners can only have one PPR between them. This does seem inequitable in modern times, however, the flip side is that transfers can be made between spouses under the nil gain/ nil loss provisions to facilitate planning before sale. For example, if one spouse is not a higher rate taxpayer, an inter-spouse transfer of part of the property before sale could mean more gain taxed at 18% instead of 28%. Similarly if one spouse has capital losses available a transfer may be advantageous. You need to consider all of the circumstances before recommending any planning. _As a Director of a small limited company you have 9 months, from your accounting year end date to file your accounts with Companies House. However, if you are a new company you have 21 months to file your accounts from the date of incorporation of your company. You will get a reminder from Companies House about 6 weeks before your accounts are due. This reminder will be sent to your registered office address.
If you miss the deadline of filing your company’s accounts you will incur an automatic penalty. Please be aware that late filing of accounts or not filing the accounts may mean you could be prosecuted and may end up with a criminal record and a fine that could be as high as £5,000. You may also be disqualified acting as a director. Late filing penalties are as follows: Missed Deadline by: Penalty Less than 1 month £150 Over a Month but less than 3 months £375 Over three months but less than 6 months £750 Over 6 months £1,500 The above penalties will be doubled if you are late in filing the accounts again in the following year. 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. _
Are you already filing your VAT returns online? If not, then you need to prepare to switch to online filing as this will be compulsory for all VAT registered businesses from 1 April 2012. Don’t leave this task until the last minute as it can take a few weeks to receive the unique user ID you need from the Tax Office. You will also have to create a password and set up a system to pay the VAT you owe.You will no longer be able to pay the VAT due by cheque. You have to pay by electronic means. This includes using a direct debit, bank-transfer such as CHAPS or BACS, a personalised bank giro payment slip paid in at a bank (these need to be ordered in advance), or a debit card or credit card over the internet.The good news is that Tax Office has now instructed its bank to accept tax payments by the faster payment service. This means the tax or VAT due will take less than a day to clear from your account to the Taxman’s bank account. Before relying on this shorter timescale, check whether your bank account is set-up to use the faster payment service and if any money limits apply. Many bank accounts can only pay out up to £10,000 by electronic payments in one day. If your VAT bill exceeds that cap you may have to spread the payment over several days, or talk to your bank about other transfer methods.We can file your VAT electronically on your behalf once you have completed the necessary authority forms from HMRC. We will also require all your VAT information in good time before the due date for the VAT return, so we can calculate the VAT due and tell you what to pay to ensure the return and payment is received by HMRC before the deadline. _ As most of you know, 31st January, 2012 is the 2010/11 online deadline for filing individuals’ and partnerships’ tax returns. The deadline for filing in paper form was 31 October 2011.
The difference in filing deadlines for paper and on-line submissions needs to be considered. As the examples below will show, if you are not one of our clients, it may be better to instruct us to file on-line for you and pay our fees out of the penalty you have saved. Under the new penalty regime that applies for the first time this year, if a return is filed late the following penalties will be charged:
Let me give you a few examples of the penalties payable. I am assuming that the taxpayer has no tax to pay: 2010/11 tax return filed on 1st March, 2012 – £100 penalty if filed online; £390 penalty if filed by paper. 2010/11 tax return filed on 1st May, 2012 – £110 penalty if filed online; £1,300 penalty if filed by paper. 2010/11 tax return filed on 1st August, 2012 – £1,300 penalty if filed online; £1,300 penalty if filed by paper. 2010/11 tax return filed on 1st November, 2012 – £1,300 penalty if filed online; £1,600 penalty if filed by paper. These examples show that, as a result of the £10 per day penalties, on-line filing penalties start to increase after 1st May, 2012. Anyone filing a paper return after 1st February will incur high late filing penalties. _Within the UK VAT system there are situations that can happen where businesses will have to pay VAT to HMRC before they have been paid by their customer. This can be an disaster for cash flow within a business. This is where bad debt relief can really help a business out. Where the business has accounted for the output VAT and paid it over to HMRC, but not yet received payment from the customer, it can claim a reimbursement for the outstanding amount. Small businesses really ought to be utilising this as they could be out of pocket for no good reason.
There are of course some conditions for bad debt relief to be able to apply to a business and to make it as easy as possible for you we have listed these conditions below.
Making the claim is not a huge task and it is in many respects relatively straight forward. On the VAT return form you need to enter the amount you wish to claim back into Box number 4 (as input tax) as if it were a purchase for the business. It should be noted that any business wishing to make a claim must keep the relevant records for at least 4 years from the date of the claim to convey the above points to HMRC. It is important to ensure you claim it as a bad debt and record it as such within your accounting records rather than issue a credit note. A credit note is only acceptable if there is a genuine change in the consideration of the supply. In addition, you want to notify that it is a bad debt as opposed to reversing the service/ commodity. After a claim has been made the business should ensure that it keeps a track of any of these debtors if they pay up as the output tax would then need to be paid over accordingly. _
Parties can be a tax-efficient way of rewarding employees. This is because, according to the HMRC, employees and their partners do not pay tax and national insurance on any parties they attend if the cost to the business is less than £150 per head in the tax year (starting 6th April). The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head. The event must be made available to all employees or (if you have more than one location) all those at a location. There are some things you need to be aware of though. If the cost per head of a single party is greater than £150, then the whole amount would be subject to tax and NI. For example, if the cost of a party averages out to £175 per head the employee is taxed on the full amount (and if they have a partner then they would be taxed on a benefit of £350). In another scenario if the employer laid on 3 parties over the course of the year costing £100 per head then £70 per head then £45 per head, then tax and NI would be levied on the £70 party. Though the £100 and £45 parties would be covered by the £150 annual exemption, the £90 party wouldn’t and so the whole event was taxable. This page http://www.hmrc.gov.uk/manuals/eimanual/EIM21691.htm has further examples of when parties may not qualify for the exemption. http://www.bbc.co.uk/news/uk-16064988
A very interesting title at the same time its something which I think haunts the majority of us, especially individuals where their income is too high to receive any help and too low to actually afford a decent life style…..I think the analysis is accurate in that we live in times of economic turmoil and times where every penny matters, where we are told that our take home pay will most likely decrease but that we are expected to pay more for everything including taxes to help others- who are "others" though: are these the people which our government tells us to support, these are the people that take priority at doctors surgeries because they are vulnerable, perhaps because they are receiving benefits, perhaps they are the people that live in big houses without having to pay rent…etc etc…so instead of "aspiring to others" as one commentator said in response to the article we have to be selfish with our money, be more judgemental and more savvy when it comes to where and what we spend our money on….. and eventually be less likely to help others and actually help ourselves…. Thoughts???? _ We are living in hard economic times, after all, everyday we read in the papers and listen on radio and TV how retail is slowing down and how every retailer is worried about the future .I’m thinking that there is no need for an educated guess to see how not just retailers are the ones worrying, we all are!
I think now more than ever we customers have to demand the best of everything but most importantly the best of customer care when it comes to any service we require, after all we are expected to deliver the best of service in our business/jobs, this is not a time to cut corners but a time when we should be being proactive, making sure that the money we pay for any service we receive is well spent and worth our hard earned money. |
AuthorLicenced Accountant in Brighton Archives
May 2020
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