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Making Tax Digital – less than 6 months to go – are you ready?

MTD goes live in less than 6 months, but research shows that 40% of small businesses that will be affected by MTD, are not yet aware of it, and have certainly not begun to prepare for its impact.

So are you affected and what do you need to do?

HMRC are about to launch their publicity campaign to increase awareness, but here are some frequently asked questions from small businesses:

Does MTD apply to me?

If you run a VAT-registered business (limited company OR sole trader) with a taxable turnover above the VAT registration threshold (currently £85,000) then YES it applies to you from April 19.

I have registered for VAT voluntarily, so I am VAT registered – but my turnover is less than £85K. Does MTD apply?

No it will not apply from April 19.  MTD is planned for all businesses over time, but you not caught in this first batch of people!

What does MTD mean anyway?

MTD means that you will have to keep digital VAT records and send VAT returns using “MTD-compatible” software from April 19.  The deadlines or frequency of returns are not changing, it is just how the information gets to HMRC.

If you are already using commercial accounting software, it is likely that the provider is working hard to make it MTD compatible, and you should be OK, though you will need to upgrade to the latest version that is compliant.

HMRC have provided a list of suppliers it is working with to provide MTD compliant software so you can check:

https://www.gov.uk/government/publications/software-suppliers-supporting-making-tax-digital-for-vat/software-suppliers-supporting-making-tax-digital-for-vat

I keep my accounts on a spreadsheet – is that still OK?

Technically yes, but I would be thinking about switching to a digital package!

If you use a spreadsheet, then that spreadsheet must be able to submit the required data to HMRC digitally and to do this you will need to add “bridging software”.  This is a piece of software that will extract the data from your spreadsheet and send it to HMRC in the correct format.

What you will no longer be able to do is physically retype in figures from one piece of software to another.

We have no examples yet of what this “bridging software” might look like – all we do know, is HMRC aren’t providing a free version for you to use!

My accountant does my VAT return from the info I send them so won’t they just deal with it?

Sadly no!

The portal that accountants use to submit vat returns will be closing, as this requires someone to type the information into it – and this will no longer be allowed.  Nor can your accountant take your spreadsheets, correct a few errors, and then retype the information into a vat return and submit it, as the information flow has not been digital.  HMRC have said that “cutting and pasting” information will be acceptable for the first year only, to give people time to update systems.

So what do I need to do if I am affected?

You need to look at how you keep your accounts, and if you have not yet moved onto a digital package, now really is the time to do it!  The start of your new financial year is the perfect time, so if that falls between now (or even a couple of months ago) and 31 March, then I would switch your accounts over now, so you are up and running smoothly when the changes come in.

Digital accounting packages are not expensive – prices can be as low as £9 per month, with add ons that allow you to submit receipts electronically.  Switching to digital will save your business time, and give you more accurate data about your business in real time, so be brave – bite the bullet and go digital!!

HMRC are still wanting to bring in MTD for everyone, so although the timetable has been pushed back to at least 2020, even if you don’t have to make the switch before April 2019, it is worth assessing how you keep your accounts and if it could be more efficient!

For more information please contact Rosie Forsyth at Wilkins Co.

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Allowable business travel – or commuting?

There are 2 ways for the self-employed to reclaim the costs of using their own car for work – the first is to charge 45p per business mile (up to 10,000 miles) and the second is to tot up the total costs of running your car, and then allocate a percentage to the business based on business usage of your vehicle.

But which journeys can you actually claim for, especially if you work from home?

The general rules are pretty obvious.

  1. Commuting is not an allowable expense – so if you travel everyday to an office, then you cannot claim the costs of getting to work as a business cost.
  2. You can claim for business travel – so if you go from your office to see a client or perform a work task, and come back to the office – you can claim the cost of getting there and back as an expense.

But what if you do some work from home – as so many of us do?

The rules here are not so clear cut and you need to establish your “permanent place of work” or your “business base”.

If you genuinely run your business from home, then the cost of visiting clients from your home is allowable.  I have an office at home, all my files are here, and I work here every day- so for me, I can claim the cost of travelling to see a client.

My client however is a marketing consultant.  She does her admin at home, and an hour or so in the evening sometimes, but she generally works 2 days per week at one client and 2 days per week at another.  Her permanent place of work is really at those clients, not her home, even though she is self-employed, so she should not be claiming the costs of getting from home to those 2 offices.

A good rule of thumb is that if your journey is “regular and predictable”, then it’s effectively commuting, and not allowable.

If you are an “itinerant” trader, and your base of operations is at home, then you can claim the costs of travel between home and the places you work.  This is someone who travels to a number of different locations for the purely temporary purpose of completing a job there – such as a mobile hairdresser, or a plumber.   The fact they go to different places every day make the costs business travel.  However, if the plumber rented a separate business premises and went there first every morning to pick up tools and print out his schedule for the day, this first cost would become commuting and should not be claimed.

So you need to think about where you genuinely run your business from, and if this is not at home, then be careful about the amount of travel you are treating as allowable in your business.

For more information contact Rosie Forsyth at Wilkins & Co

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When do I register for VAT?

You can google the VAT registration threshold – its currently £85k  – but so many people look at their wrong sales figure to compare to this number – and registering for VAT late can be very expensive!

You have to register for VAT when your “VAT taxable turnover” in a 12 month period is over £85k.  If we take ” VAT taxable turnover” to be your sales (which simplifies it somewhat,) then you need to look at your sales figure for the last 12 months.

This is NOT THE SAME AS YOUR SALES SINCE THE START OF YOUR FINANCIAL YEAR.
There is no starting again when you get to your year end – you need to look at your sales figure for the last 12 months – ON A ROLLING BASIS.

So you need to look at Sept 17 – Aug 18, and then Oct 17 – Sept 18, then Nov 17 – Oct 18 etc etc.

If your turnover is around the £75-80k, you need to keep a close eye on it each month to see if you have gone over the registration threshold.  If you have exceeded £85k, then you have one month in which to register for VAT and then you need to start charging VAT in the following month.

For example if your sales for the year Sept 17 to 31 Aug 18 were over £85k for the first time, then you need to register by 30 Sept 18 and you will be registered from 1 October.

If you are late in registering, then you are deemed to be register from 1 October anyway, and you are liable for the vat that you should have been charging, plus potentially a penalty, so this can be very expensive for your business!

If your turnover has gone over the threshold temporarily, say you have sent out an unusually large invoice – you can apply for an exception to registration, but you need to write to HMRC with evidence that you sales for the next 12 months will be under the VAT deregistration threshold of £83k.

So do keep an eye on your turnover if you are close to the threshold.  I see late registration time and time again, as business owners only look at current year sales, not sales for the last 12 months.

For more information then please contact Rosie Forsyth at Wilkins & Co.

 

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My Payment on Account is due – what is it?

Statements are arriving in the post and payments on account of 18/19 tax are due at 31 July.  What are they and how are they calculated?

If you pay your tax under self-assessment – you will probably have to make “payments on account” of your tax bill at 2 stages during the year -31 Jan and 31 July.  They are just that – a “part payment” of your anticipated tax bill for the year and are calculated based on your tax bill for last year.

An example is the easiest way to explain the calculation:

You started your business in May 2016, prepared your accounts and calculated your tax bill for 16/17 to be £3,000. This was due for payment at 31 Jan 2018.  But you also had to pay a payment on account of your next year’s (17/18) tax bill – and this was automatically calculated at 50% of the previous year – so £1,500.  So actually at 31 Jan 18 you had to pay £4500.  You may have just paid this at the time, thought it was a lot, but not really grasped what it was for.

The second payment on account for 17/18 is due by the end of July and again is 50% of last year’s bill – so another £,1500.

So by now – you have paid £3,000 on account of your 17/18 tax bill – even though, if you have not yet filed your tax return, you don’t actually know how much your final bill will be.

If your profits in Year 2 have gone up – and when you do your accounts and file your tax return, your tax bill for 17/18 is worked out to be £5,000, then you have already paid £3,000 of it during the year – so you only owe a further £2,000 at 31 January 2019.  But, the process is repeated – so at 31 January 19 you will owe £2,000 for this year – and your first payment on account of 18/19, calculated as before at 50% of the current year bill (£2,500) – so £4,500 in total.  You then owe at 31 July 2019 your second payment on account of 17/18 – another £2,500.

This is all fine if your profits have gone up.  If you are in the scenario where profits are lower than the year before, then you will have overpaid in the year with your 2 payments on account and you will be due a refund for that year.

In the example above, if your tax bill for 17/18 worked out to be £2,400, then because you have paid £3,000 during the year, then you have overpaid £600.  But, taking into account your first payment on account for 18/19 which will be 50% of £2400 = £1200, you still owe £1200 – £600 = £600 at 31 Jan 19!

Confused??  Who said tax wasn’t taxing!

If you know your profits are going to be lower in the next year, perhaps because you are doing less hours or lost a key client, then you can apply to reduce the payments on account that are going to make – to avoid overpaying in the first place.  Cashflow is crucial to a small business, so you don’t want to give the taxman anything that is not really his!

Getting on with your tax return for the year now will also give you certainty about your tax bill and how much you should be paying.  Why wait til January if you think you have overpaid and may be due a refund?

For more information or help with your tax return for the year, please contact Rosie Forsyth.

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Taxes Made Easy for 2018/19

Hot of the press is my new tax planning brochure for this tax year.

This easy to read guide provides you with simple tax planning points for the current year.

Covering personal tax, and matters affecting both you and your family, my guide suggest many ways in which you can save money on your tax bill by taking full advantage of the current tax system, as well as highlighting some of the pitfalls that you should avoid.

Please download a copy with my compliments – and let me know if I can help you with any issues raised.

Download Your Free Copy Now

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Are you getting paid on time?

Managing cashflow is one of the biggest and most important challenges you will face in your business.

It doesn’t matter how brilliant your business idea is, the old saying “turnover is vanity, profit is sanity, but cash is reality” is so true.

Unless that fabulous new customer actually pays you, in full and on time, they are not a fabulous new customer at all.

It’s crucial, then, not only to effectively manage your finances and keep on top of income and outgoings – but also to do as much as possible to ensure you get your invoices paid as quickly as possible.

So what can you do to help prompt payment?

Before starting work:

  • Make sure you have a signed agreement for your work. Ensure your terms and conditions are clear and payment terms are agreed.
  • Check out who you are working for if possible – consider looking at Companies House or doing a credit check on your client. A client on the edge of going under is not going to pay you!
  • If it’s a significant piece of work, consider asking for a deposit or part payment upfront, especially if you are having to incur costs from the outset.

Once the work is finished:

  • Be sure to invoice promptly. This may sound obvious but many businesses don’t invoice as soon as the work is done, and if you are doing several things at once, it’s very easy to totally forget.
  • Include a due date prominently on your invoice – in line with your agreed terms.
  • Consider payment as soon as the job is done using a card reader. You wouldn’t expect to leave a restaurant and get an invoice next week, so why would you expect to eg pick up your printed fliers and not pay there and then?  If immediate payment on completion has been agreed, then make it easy for your clients to actually do this by having the right technology in place.
  • Make sure the invoice is correct – and complete. Queries are a very good way of delaying having to pay!
  • Consider checking the invoice has been received by your client and it’s all OK. This again stops any “I never received it” delay tactics later on.

Chasing payment:

  • At some point you are probably going to have to chase up someone for payment and this may not come easy to you.
  • Remember, business is business, it is not personal – and hopefully more often than not, the payment has just slipped your client’s mind and they will cough up with a gentle nudge.
  • A couple of reminder emails initially, with a copy of the original invoice, is a good, professional, non-aggressive way to start.
  • If that fails, then you are going to have to pick up the phone. If you are having to call a large accounts department, then do get the name of who you speak to and try to come off the phone with a positive step in the right direction.  If it’s not immediate payment, it may be finding out the date of the next payment run, and confirmation that you are on it, or the email address of the person who needs to authorise the payment etc etc.
  • Hopefully you wont have to go as far as taking legal action as this is time consuming and takes your attention away from running your business. But don’t be afraid to follow this path, if you have done the work as agreed, then you deserve to be paid. Several small business schemes (such as the FSB) offer discounted rates and free assistance to help you chase slow payers, so if you are a member of such a group, make sure you use the services on offer.
  • Whatever you do – don’t start a new project for a client who has not yet paid for the last piece of work – unless you have a very good reason to believe they are good for the money!

Many accounting software packages now can greatly help with your debtor management.  The invoice can be prepared quickly and emailed over to your client, standard reminder letters and statements sent out and reports easily prepared to show you who still owes you money and how long it has been owed for.

Chasing for payment takes time and its not fun; so automate as much as you can, and concentrate on keeping your clients happy – as happy clients tend to pay up!!

For more information, please contact Rosie Forsyth at Wilkins & Co.

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Update on the new tax free childcare scheme

The new Tax -free childcare scheme began in 2017 and is now available to the employed and self-employed where both parents are in paid work for more than 16 hours per week and neither parent earns more than £100,000.

The scheme is run via an online account and the government tops up 20p for every 80p you pay into the scheme up to a maximum of £2,000 per child up to the age of 12 (and therefore an £8,000 contribution by parents).  Grandparents or employers could contribute instead of parents.

The scheme replaces the employer childcare vouchers.  These schemes were due to close to new entrants at 5 April 18 but will now remain open for an extra six months until October 2018. Parents already registered at that time can continue to receive vouchers for as long as their employer offers them, or switch to tax-free childcare instead.

If you already receive childcare vouchers from your employer, then you have to decide whether you want to continue with this scheme, or move to the new scheme.  The website https://www.childcarechoices.gov.uk can help you decide which is better for you.

In general, the new scheme is better for the self employed and those with more than one child and high childcare costs, as the vouchers are per child.  The old scheme, if offered, favours couples where one parent does not work and high earners – but it worth doing the sums in your particular case.

If you want to leave your employer’s voucher scheme you must provide them with a Childcare Account Notice (CAN). This can be sent by email and states that you wish to leave the voucher scheme and use tax-free childcare instead.

There were lots of teething problems when the online accounts were set up, so much so that ‘Childcare Service compensation‘ is now available from HMRC  – www.gov.uk/government/publications/childcare-service-compensation

It offers parents compensation if they have been subjected to various technical difficulties in relation to its online Tax-free Childcare account. Problems with the service include technical issues, mistakes and unreasonable delays.

Parents affected by technical issues may be able to ask the government for a top-up as a one-off payment for Tax-Free Childcare or apply for reimbursement of any reasonable costs directly caused by the service not working properly.

You may be eligible if you have:

  • been unable to complete your application for Tax-Free Childcare
  • been unable to access your childcare accounts
  • not received a decision about if you’re eligible, without explanation, for more than 20 days

If you require any further information then please get in touch.

 

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What tax planning should you be doing before 5 April?

With the tax year ending soon have you been as tax efficient as you could have been this tax year?

What can you do before the year end to maximise your tax efficiency?

Here are a few of my tips for tax efficiency:

If you have a limited company – make sure you have paid £5,000 in dividends if profits allows.  The tax free allowance for dividends is reducing to £2,000 after 6 April 2018

Transfer income-producing assets to a spouse if you pay tax at different rates.  If you have a limited company, should your spouse also have shares to get their tax free dividend allowance and potentially pay tax a lower rate on additional dividends?

Check your total income for the year if you receive child benefit payments.  If you have the ability to determine your income for the year, by varying the level of dividend paid, keeping your income below £50,000 will ensure you retain your child benefit.

Trivial Benefits – limited company directors can get £300 a year tax free using these.  If you have not used your full allowance yet, get down to John Lewis and stock up on vouchers.  Conditions do apply so check my early blog for full details

If you are considering buying capital equipment for your business, doing if before the end of the tax year will give you the tax deduction this year rather than next

Pension contributions – very tax efficient for the company to contribute to your personal pension.  Review any payments made in the year and take advice from an IFA.

If you have taxable income over £100,000, you will lose your personal allowance on a sliding scale, so your marginal tax rate may be as high as 60% on part of your income.  Consider making additional pension contributions or gift aid donations which may restore your personal tax allowance.

Use your allowance for tax free ISA saving; that’s up to £20,000 in this tax year. Under 18s can save £4,128 in a Junior ISA.  Also consider LISA’s to help your children get on the housing ladder.

Inheritance tax – often forgotten, but if you have spare cash available, consider making gifts to take the funds outside of your estate.  If you don’t have the cash, bring this up with grandparents over Sunday lunch!  Up to £3,000 per tax year can be gifted as one off capital sums and will be exempt from inheritance tax. Any unused part of this allowance can be carried forward 1 year.

Often simple steps can be taken to minimise your tax bill, so hopefully the above list has added one or two items to your “to do “list.

Please contact me for any further information.

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Tax efficient Xmas Gifts and Parties

‘Tis the season to be jolly and you might be wanting to thank some of your clients for their business during the year.  Whilst tax may not be top of your agenda right now – can you do this tax efficiently?

Your gifts will only get tax relief, and you can only reclaim the VAT if they are:

  • NOT food, drink, tobacco or a voucher AND
  • Carry a conspicuous advert for your business AND
  • The cost of that gift, and any other to that person in the year is under £50

(That’s why your gift may be an embossed diary/mug!)

If you want to give your staff a Christmas gift, it may well be covered by the “trivial benefit” rules I have covered in a previous blog.  Here if it is classed as “staff entertaining” you may well be able to reclaim the vat.

What about the Xmas party?

Most people are aware about the rules for the staff Xmas party.  For a limited company, the cost for the annual party is allowable for tax as long as it is under £150 per head (all staff have to be invited but the cost is per head – so that includes their “plus ones”)

But a lot of us work for ourselves and don’t have staff – we employ subcontractors.  What are the rules if we want to take them out at Xmas as a thank you.

These guys are not your employees so they are not covered by the above rule.  Any money spent on entertaining them is deemed customer entertaining and therefore won’t be allowable for tax in your accounts, (but – you should probably still take them out!!)

So what about you, the business owner?

If you are a director, then you are classed as an employee and you can treat yourself to a Xmas do.

If you are a sole trader, then Im sorry, it’s the final of Strictly and a bottle of cheap plonk for you!

 

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Halloween Horrors to avoid with your accounts

If you live in fear of your accounts, and see HMRC as a big scary monster, here’s a few horrors to avoid with your finances:

Mixing up personal and business expenditure

At the end of the year you need to produce a set of accounts for your business – both for the tax man and for yourself to see how your business is doing.

If you have only have one bank account that you use for business costs and personal treats, you need to plough through your statements at the year end,  probably with a highlighter, trying to match the receipts you have and identify things that related to your business.  Probably a gruesome task and a whole set of tricky questions from your accountant!

Having a separate account makes the process so much easier and will also mean that you have a better idea during the year how your business is doing.  No skeletons will appear at the year end and you’ll have no accounting nightmares!

You can still take money out of that account to live on – but do one transfer a month into your personal account, rather than constantly dipping into it.

Failing to budget for your tax bill

Hopefully your business has made a profit, and that may mean that you have tax to pay at 31 January 2019.  This shouldn’t be a nasty surprise but the amount due can be!  Self-employed individuals often forget that there is NI to pay on profit too, not just income tax – and some are even in denial about income tax!

Ideally you have been putting away money during the year to cover your tax bill, and the sooner you complete your accounts and tax return, the sooner you will have confirmation of the amount due.  Nothing worse than sleepless nights in January having buried you head in the sand all year about your finances.

If you owe more than £1,000 in income tax, then you will have to make a payment on account of your 18/19 tax too at 31 January 2019 equal to 50% of the tax again – enough to send shivers down your spine if you are unaware!

Keeping track of the money

You’ve done the work, sent off your invoice but you need to chase payment!  Cash is king in a small business and lack of it will suck your business dry.  I’m always amazed that people don’t know if they’ve been paid or not, or are too embarrassed to chase for payment.  If you are dealing with other small businesses, it’s usually not that they have withheld payment, it’s that their accounts are also totally disorganised and your invoice is in a pile somewhere!  A quick phone call or email usually resolves the issue.

Not Doing Anything

However terrified you are of numbers and your accounts – they won’t go away!  Ignoring them is not an option as then HMRC will come back and bite!  Little and often is the key – using a system that works for you.  Technology now allows you to keep your accounts up to date on the go via Apps, so you don’t need to have the dreaded “accounts day”.

Whilst your accounts may bring you out in a cold sweat,  my passion is taking the fear our of finances for small business, so if I can help you, then please do get in touch.

 

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