Are your children tax-efficient? Get them working for you and save tax at the same time.

Children are entitled to the same income tax personal allowance as their parents, in the current tax year £11,000. Parents who are higher rate tax payers, will need to earn £8,333 if they want to enrich a son or daughter by £5,000. Your child would need to earn £5,000 as no tax would be payable (on the assumption that their total income including the £5,000 is under £11,000). Indirectly, this would save your business £3,333.

The key to employing your kids in the business is to make sure that any involvement is commercially justifiable. For example, paying your ten-year-old £6,000 a year for bookkeeping support will not pass muster with HMRC. You should always aim to pay realistic rates for the job undertaken and ensure that the tasks are manageable.

There are rules about the number of hours children can work per week – this won’t affect a few hours helping you out, but if you want to pay them any more than that then you need to check out the rules.  If you go over the NI threshold you will also need to operate a proper payroll but for amounts under approx. £150 per week there will be no tax or NI payable.

You also have to actually hand over the cash!  Pay it into their bank account from your business account.  What happens to it then is up to them (or you – depending on your relationship with your kids!!)

So get your kids helping you out (after all – they will be much quicker updating your website or researching etc than you anyway) and pay their pocket money from the business!

Tax reporting is changing soon – are you ready for it?

Starting from 2018 all businesses self employed and landlords will have to update their tax affairs digitally at least quarterly.  The intention is that this will be via apps or third party software, so keeping records on a spreadsheet (or in a shoebox!) is no longer going to be an option.

If you look at the HMRC Youtube video (click here for link), it all looks very lovely and simple, but the reality may be very different and there is very little information on how it will actually work.

This really seems to have been rushed in and HMRC is being lobbied by all accounting bodies to delay implementation, but they seem to be going ahead….

What do we know?

Everyone will have their own digital tax account and it will be pre-populated with info HMRC already have about you.  Eg if you are in employment, it will put your P60 details in there for you.  At least quarterly you will need to update this info with your self employment income, dividends etc- using an app or third party software.  HMRC have confirmed that tax agents ( eg your accountant) will not have access your digital account online, and will only have access through third party software.

So ignoring your accounts til mid January each year is definitely out – that’s probably a good thing!

You will have to keep records either on the free app HMRC will provide, or on a cloud based system – and keep it up to date.

What we don’t know!

When do you send this info through? Will it be on a cash basis or invoice basis? What if you make an error?

Will the quarters tie up with your VAT quarter if you are registered?

What about year end adjustments or do you have to update “use of home charges” etc quarterly?

Will there be penalties for sending the information late?

The intention is to start paying your tax on a pay as you go basis too rather than once a year – OMG!

What should you do?

You probably already have a Personal Tax Account (“PTA”) and possibly even a Business Tax Account (“BTA”) and you should get access to this now. (click here to see how to access)

If you are using spreadsheets for your accounts, you need to start thinking about changing over to a digital system as 2018 really isn’t that far away.  I will be keeping my clients up to date with changes to the system as they are introduced.  HMRC consultations are due – but have been delayed until after the referendum!!