You are no doubt aware of automatic enrolment and may well have received correspondence about it from HMRC. Here is a brief summary of what is involved:
Employers in the UK have been issued with a “staging date” from this date the employer will be required to enrol certain staff into a pension scheme and make contributions. You will have to tell your staff about the scheme you put them in and allow other staff to join if they request to do so.
Which staff are eligible?
- Any employee aged from 22 to the state pension age earning over £10,000 per annum gross (or £833 per month) is automatically enrolled (they have the right to opt out).
- Employees who are older than state pension age or younger than 22 have the right to opt in and you will have to contribute.
- Employees who earn less than the qualifying amount have the right to join a scheme but there is no requirement for you to contribute.
How much to contribute? Before 30/9/17 the employer’s minimum contribution is 1% of the employee’s salary and the total contribution has to be a minimum of 2% of the salary. This rises to 2% and 5% from 1/10/17 to 30/9/18 then 3% and 8% from 1/10/18.
What records need to be kept? At every pay run you need to assess staff to ensure they to ensure they are being treated correctly for example as a result of birthdays or payrises and a record needs to be kept that this has been done. You will also need to deal with any starter or leavers and employees opting in or out.
How to communicate with staff? After your staging date you need to write to your staff about how automatic enrolment affects them. Staff will need to be contacted on an ongoing basis, in particular any who have opted out should be contacted and given the option to opt back in.
What you need to do next:
- Find out your staging date, visit www.tpr.gov.uk/staging-date and enter your PAYE reference.
2. Provide a point of contact, visit www.tpr.gov.uk/nominate-contact
3.Choose a pension provider, if you have a pension in place you may wish to check if this is compliant, otherwise you should look at the government product NEST or talk to a financial adviser.
Contact me and let me know if you would like more information or to take advantage of my affordable Automatic Enrolment solution.
The last budget before the election and it contained few surprises, but what if anything will be the affect for small business owners of this fiscally neutral budget:
Business rates: always a major gripe for business owners, particularly in the retail sector, so the announcement of a review is definitely good news however if you are cynically minded you will note that this does not come with the promise of any action. So very much a wait and see.
Farmers’ averaging: this rule that allows farmers to average profits over 2 years to take advantage of good and bad years had previously seemed to be living on borrowed time, so it is good to see it has been given a new lease of life and increased to 5 years.
Personal allowance: to be increased to £11,000 for 2017-18 tax year.
Savers: will enjoy the first £1,000 of interest they earn being free of tax. There is also increased flexibility for ISAs and the creation of the help to buy ISA, first time buyers will benefit from government help in saving for their deposit.
Pension lifetime allowance: there had to be some bad news, the lifetime allowance has been reduced from £1.25 million to £1 million.
Death of the tax return? Saving the best news until last, I will now be able to book a holiday from Christmas until the end of January. Well may be no just yet. The details behind the headline suggest that a digital tax account will be created for all tax payers pulling together details of all their income and tax paid in to one place. Whilst this is a welcome step forward for tax payers with simple affairs the tax payer will still be ultimately responsible for the detail and accuracy of this. So the death of the tax return headline may be a bit of an exaggeration, at least for now.
A growing number of individuals are ending up as landlords and this seems to be an area HMRC are targeting.
Many landlords have been targeted lately by a letter and questionnaire from HMRC suggesting that they should be paying National Insurance on their earnings from the property. HMRC are taking advantage of the fact that currently the laws to decide if income is earnings for tax purposes is different to those for NI.
HMRC are arguing that to qualify as earnings for NI someone only needs to be gainfully employed, this would seem to include most landlords however you have two get-outs:
- If the net income from the rent is less than the small earnings limit (£5,885 for 2014/15) you don’t have to pay any NI.
- In 2002 the case of Mr Rashid was considered by HMRC’s Special Commissioners. Mr Rashid let out several properties and spent considerable time and effort maintaining them. The Commissioners decided that this was not sufficient to be gainful employment.
If you are a landlord and receive this letter do not send back a completed questionnaire, you should respond that you do not agree and refer HMRC to the case of Rashid v Garcia 2002.
Hopefully most people reading this have already downloaded my free app and had a chance to explore its functions. If not you really should go to the apple or android store and do so. One of my favourite functions in the app is the ‘should I incorporate’ calculator. As I get asked this all the time.
Although this is a very powerful tool it is really only a quick calculation and it is a good idea to use this as a starting to point for a discussion, for example if you are self employed with a car run by the business the treatment will not be so beneficial in a company. On the other hand it may be possible when you set up a company to bring goodwill in and effectively have the value of this available to be drawn down free of tax.
Another consideration is the timing of the incorporation. If a business invests in capital equipment then the value of this can usually be claimed against tax with up to £250,000 available per year at 100%, however this is not available in the final year of a business and so the relief is lost if you incorporate at the end of that tax year. The solution is simple enough, trade for a further short period, even a month before incorporating.
I hope you enjoy the tool and find it useful. Should you wish to discuss any of this give me a call on 07846 378028 or send me an email, James@jamescoward.com
Over the years of meeting with business owners there are some queries which come up regularly, thanks to modern technology I have been able to the solutions of these together in a free to download smart phone app.
As well as ‘solutions for you’ (articles written by me to help with problems you may have), news, key dates and tax tables, the app contains 12 calculators designed to help with problems such as whether a sole trader would save money by incorporating, or how much a company car would cost in tax.
My hope is that the app will help me work closer with the business owners I am trying to help. Please download it for free and leave any feed back you may have about it. Feel free to pass it on.
It is in the apple and android store as James Coward ACA, or follow the links below.
HMRC new powers to ask for payment at the start of an enquiry are coming into force .These measures appear to be designed to put people off using avoidance arrangements even where they are within the terms of the legislation.
Where HMRC believes a scheme has been used to avoid tax they can now issue an advance payment notice (APN) once they have started an enquiry, but before they have proved that an arrangement involves an unfair tax advantage.
The notice can be issued once the following conditions have been met:
HMRC must have launched an enquiry
- There must be a tax advantage arising from using the scheme
- HMRC has notified you that it believes that the scheme you have used involves tax avoidance
If issued with an APN you are able to appeal within 90 days but only if you believe one of the three conditions listed above has not been met. You also have the right to ask to pay the tax by instalments where the payment would lead to hardship.
If your 2012/13 tax return showed business profits in excess of £50,000 you may well have received a letter from HMRC recently stating you need to amend your tax return including “You need to act now” in a red box.
The letters are badly worded and a number of the statements they make are misleading so you may not in fact need to amend your return.
Firstly, the letter states “you should have included the child benefit payments from 7 January 2013 to 5 April 2013 on your tax return” this is not the case if your partner/spouse was the higher earner, in this case it should go on their return.
Secoundly, the letter also states “you have to pay the tax charge” again, if your partner is the higher earner it’s them that has to pay.
Finally the letter omits to mention that there are certain things that should be deducted from your earnings before it is compared to the £50,000 figure, in particular, donations to charity using gift aid, pension contributions and trading losses.
The overall advice is contact your accountant before doing anything.
If you run your business from any sort of premises, even a spare room, at some point you are likely to have to spend money on it. Many would assume that this would all be an allowable expense when it comes to tax, however there are pitfalls to avoid and simple steps you can take to ensure you get the best tax benefit from it.
The simple rule is you want the expenditure to qualify as a repair according to the tax rules and not an improvement.
The cost of a repair is used to reduce profit in the year in which it is incurred, unless an improvement qualifies as plant and machinery you will end up waiting until you eventually sell the property to get the benefit.
So if you can’t ‘improve’ the building why would you spend money on it? The key is in HMRC definition of ‘improve’. There have been many cases testing exactly what is meant by improve, but in general if you are adding something that wasn’t there before or is of better quality it is likely to be an improvement. If you are replacing something like for like or with a modern equivalent then it is a repair.
As mentioned above, some improvements may qualify as plant and machinery and so be eligible for capital allowances these include wiring, sprinkler systems, burglar alarms and partition walls but only where they are moveable. This means there will be some deduction available against tax for these irems.
The final situation to look out for is when converting a building which has been empty for over twelve months but which had previously been used for the purposes of a trade or profession. In this case relief is available at 100% under the business premises renovation allowance.
In general the advice is to consult your accountant before you start and ask the builder to identify the costs of different elements separately.
I am really pleased to be able to announce an exciting range of packages aimed at giving business owners more control over their figures.
I am frequently asked by clients to set them up with accounting software and have increasingly found myself recommending a package called Xero. I really like the software but the reaction of the clients I have shown it to has convinced me just how beneficial it can be.
In one particular company I work with the, bookkeeping has always been done manually in an old fashion ledger book. The company has grown and it was clear to me that this was no longer working but a fear of computers and incomprehensible software meant my recommendations were not listened to. Eventually I convinced the directors to agree to trial Xero and they were instantly impressed. Downloading transactions straight from the bank to the ledger made data entry quick, easy and accurate and the dashboard showed all the key information the directors needed in a glance. Records are also accessible anywhere through your phone or tablet.
Overnight they went from dreading the long evenings spent recording invoices and only knowing how the business was doing by looking in the bank, to looking forward to checking the bank information to find out how they were doing and having the important KPIs of the business available instantly and this was before I should them the management reports I could now produce for them, giving them a bang up to date idea of how the company is doing.
This was a revelation as I realised just how many businesses could benefit from this and I got straight to work putting together packages for businesses of all sizes. The idea is that for a set price you get this great software plus regular management accounts and meetings as well as the statutory accounts and tax returns.
This is something I believe could be of benefit to businesses of all sizes. I f you would like to know more contact me on firstname.lastname@example.org or 07846378028. You will not regret it.
I have been putting the finishing touches to my home office and it is clear that I am not alone in ditching the daily commute in order to be able to go to work in my slippers.
However one question that does come up is what is the capital gains effect of a home office? Most people are aware that gains on the value of your house are exempt from capital gains tax under principal private residence rules and the general fear is that by using part of your house in your business you can lose this.
The first piece of advice you will get down the pub is not to claim for any tax deductions for the household costs, the theory being that if you don’t claim these reliefs that are available to you, you will not be penalised on your capital gains tax. This is not the case however the legislation states that if you use part of your home exclusively for business you’ll lose a proportionate amount of the exemption, it makes no mention of any interaction with income tax deductions.
The key is the word exclusively, so setting up a workstation on the dining table will have no affect on your capital gains tax position. A dedicated office like mine however could be more problematic. To make sure there are no CGT effects, I make sure it is available for non-business uses, my wife has a computer on one end of the desk for her personal use and when friends come to stay the room is available for the erection of a travel cot, there is also washing permanently drying in the corner as it is the only room I will heat during the day.
The potential pitfall to this approach is that the legislation refers to ‘part of your home’ with no specific mention of rooms so you need to make sure that the personal use is throughout the general area of the office and no area of it can be said to be exclusively business.
The other approach is simply not to worry as the apportioned gain may well be covered by personal exemptions anyway. For example if a house is a sold with a gain of £300,000 having been owned for 15 years and for 10 years a dedicated office used 10% of the area (the garden can also be included in the apportionment calculation), this would lead to a taxable gain of £20,000. If the property is owned by a married couple this is coverd by their CGT exemption and no tax is payable as long as no other cpital gains are made in the same period.
So with that sorted all I need to worry about now is which draw to put my paperclips in.