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The Autumn Budget 2017

Yesterday’s budget was good news if you are looking to buy your first house but was there much else in it for small businesses?  The threatened reduction in the level at which you have to register for VAT did not happen, which was a great relief.  Please click below to see my summary of the key points that may affect you and your business, and a summary of the new tax rates and allowances, and if you have any questions, then please let me know.

 The Autumn Budget 2017

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So the heatings on, the sequins are back and Lord Sugar is firing people. It can only mean one thing……


C’mon, you’ve had since April to do it and you’ve put it off for 6 months so far.  There are 4 months to go before the final deadline, so just get it out the way now, before winter really sets in and the “C” word gets mentioned.

So what are the key dates, and what do you need to do?

  • 31 Jan – most people know that 31 January is the filing deadline for tax returns.  This is for your 2016/17 tax return which covers your income from 6 April 2016 – 5 April 2017.  Any tax not already paid for the year is also due for payment then, plus any payment on account you need to make for your 2017/18 tax.
  • 31 October -if you want to send a paper tax return then this has to be in by 31 October.
  • 5 October – if you have a new source of income in the year, or need to register for the first time for self-assessment – then this should have been done by 5 October.  If you need to do this, and haven’t already – then get on the phone now.
  • 31 December – if you owe tax for the year and you want this to be collected via your tax code in 2017/18, rather than sending them a cheque at 31 January, then you need to get your return in by 31 December, not 31 January.

If it’s your first year of self-assessment and you are going to do it yourself, you will first need to register to file online and get the passwords sent to you in the post.  This can take a few weeks to come through, so you really can’t afford to leave this until January as not being organised won’t be an excuse for not filing on time!  The fine for late filing is an immediate £100, irrespective of the amount of tax due.

By doing your return now, rather than in the New Year, you will know what your tax bill is going to be and you can budget for any tax due over the next few months.  You’ll also have that warm inner smugness that it’s done, and that you won’t be joining the January panic this year.

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Work from Home? What Costs can I set off against my business?

So with the kids back at school, summer clothes put away, what else do you have to do apart from focus your attention on your accounts and getting your tax return done??

One of the most common questions I get is about allocating a cost to the business for working from home. What can you allocate and how do you work it out?

If you are self-employed and work at least partly from home then you are entitled to include part of the running costs of your home in your accounts.  But how much is a reasonable amount?

You have 2 options as to how to work out how much you can claim.

1  Flat Rate Method

If your sales are under the VAT threshold (currently £85,000) and you are self-employed then you can use this method. You simply work out how many hours a month you spend on average running your business from home and then include a fixed amount in your accounts, as follows:

25-50 hours: £10 per month

51-100 hours: £18 per month

101 hours or more: £26 per month

The flat rate covers the running costs of your home; you can also claim a proportion of the fixed costs and your phone/broadband as per option 2.

2  Actual Costs

 This method requires a little more effort, but it may give you a higher figure and therefore save you more tax.  Under this method, you need to apportion the running costs of your home on a “fair and reasonable” basis between those that are personal and those that relate to the business.

This is usually done by reference to the number of rooms you have in your house and the amount of time you use them for business.  There is no laid out formula though and therefore how you allocate costs will vary from business to business.  Keep any workings you have done so you can back up your figures to HMRC if necessary.

The costs you can actually claim can be spilt into fixed costs, running costs and phone/broadband.

Fixed Costs

  • Mortgage interest (not capital) or rent
  • Council tax
  • Insurance
  • Water rates

Running costs

  • Electricity
  • Gas
  • Repairs and maintenance
  • Cleaning

For example, assume you work from your sitting room 8 hours per day 4 days per week.  Your total fixed costs are £6,600 per year and your running costs £1,500.  You have 6 rooms in your house. A reasonable allocation of the fixed costs would be £6600 x 1/6 x 4/7 x 8/24 = £210.

An allocation of the running costs could be £1500 x 1/6 x 4/7 x 8/12 (as gas etc not used during the night) = £96

The phone and broadband is claimed on a usage basis only, so if you use your internet 50% business, 50% private you can claim 50% of the cost, including line rental.

If a property repair works solely to the area that you use for business, you can include the full cost in your accounts – for example, your office roof needs repairing.  If the repair is to the whole house – then claim in proportion as above.

So claiming costs of working from home is not as simple as it sounds.  The flat rate method will give you a quick answer, but the actual costs option may give you a higher figure.  If you need any further help then please contact Rosie Forsyth at Wilkins & Co.

Note – these rules only apply to the self-employed and not to owners of limited companies.


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It’s not You – it’s Me! How to trade in your current accountant for a better model

Apparently more people change their husbands than their bank accounts, even when they do nothing but complain about the poor service they receive (from their bank that is!)

The same is often true of accountants, so why – when customer satisfaction is low, are people reluctant to change?

It’s often due to the perceived hassle factor, and not wanting to upset anyone (apart from yourself at accounts time)

This blog sets out how easy it is to make the switch and the process that makes it happen.  Any reputable accountant will follow the clear procedures laid out below by their governing bodies and will act quickly to ensure a smooth transition.

  1. Give notice to your current accountant in writing (email is fine). You should make clear which services are being transferred and from which date.  You should also tell them who you are going to be using in the future.
  2. Your new accountant will then write to your old accountant to gain “professional clearance”. This is a standard courtesy letter between accountants to highlight any issues of concern the outgoing accountant feels the new accountant should know about.  Concerns are rare and are not of the “you always need to chase him 3 times for info” type – anything highlighted would be more about concerns over the honesty/integrity of the client.  I don’t think I have ever had any concerns highlighted to me from another accountant.
  3. At this stage it’s usual to ask for information as well- eg a copy of last year’s accounts/ tax return etc and back up for the figures. Most accountants are fairly quick at sending this over, you do get the occasional firm who like to drag out the process – but it really doesn’t benefit anyone!If you owe your outgoing accountant money they may well insist these debts are cleared before information is handed over, which I guess is fair enough.
  4. Due diligence  – all accountants operating under a professional body will conduct due diligence on new clients as part of their responsibility to combat fraud and money laundering. You will need to prove your identity and address- usually by providing your passport and a utility bill.  You will also be asked to sign an Engagement letter with your new accountant setting out your respective responsibilities.
  5. You will also be asked to sign the “Authorising your Agent” form. This tells HMRC that you have appointed a new accountant and gives them permission to deal with them if necessary.  It also lets your accountant see your account with HMRC, and file information on your behalf.
  6. You might be asked to sign a “Disengagement letter” with your old accountant and I do use them with most of my clients. It just confirms the services that your old accountant has provided and what they are not going to provide in the future for the avoidance of doubt.  eg – “the last VAT return that we are responsible for was 31 March 17 and we will not be preparing any future returns”

The whole process should not take more than a couple of weeks, and most of it happens behind the scenes.  It is most sensible to make the move at a convenient time in your business (eg just after a vat quarter) and certainly not in the last couple of weeks of January if you are expecting your tax return to be filed on time!

Accountancy firms will not in general charge to provide handover information, and will want to make the handover as smooth as possible.

So if you have been thinking of changing accountants, but have put it off as you can’t be bothered will the hassle – I hope this has shown you that it really isn’t a painful process – and if you aren’t happy, the do consider looking around and move to someone who better fits your current needs.

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

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The New Tax-Free Childcare Scheme

At the end of April 2017, the new Tax-Free Childcare scheme was launched by the government. The government has started inviting parents to apply for Tax-Free Childcare beginning with parents of the youngest children and parents of disabled children.

For the first time, the self employed will be able to get tax breaks with childcare.

What is Tax-Free Childcare?

Eligible parents will open an online childcare account. When a parent pays into the account, the government will pay in an extra 25%. So if £80 is paid into the account, the government will automatically add £20. The maximum government payments are £2,000 per child per year. This means annual childcare costs of £10,000 per child can be met by £8,000 of payments by the parents and £2,000 by the government.

For a disabled child, the maximum top-up payments are £4,000.

How much parents pay into their Tax-Free Childcare account, and when, is up to them.

Who can qualify for Tax-Free Childcare?

Parents need to be ‘working parents’ paying for ‘registered childcare’ for children under 12 (or under 17 for disabled children). If parents are not living together, the qualifying parent depends upon with whom the child usually lives.

The main criteria for a parent are:

  • earns on average at least £120 a week
  • earns less than £100,000 a year
  • not receiving other support for childcare such as Child Tax Credit or Universal Credit.

The self-employed parent can average self-employment income across the year to meet the minimum income requirement.

If the parent has a partner, he/she also needs to be working and satisfy the criteria above.

Registered childcare

Only childcare providers registered or approved by a UK regulator can sign up to receive Tax-Free Childcare payments. HMRC has written to childcare providers, asking them to sign up online for Tax-Free Childcare. Parents will be able to check online who is registered for the Tax-Free Childcare scheme.

Parents will send payments online from their Tax-Free Childcare account to the bank account of the registered childcare provider. Therefore when a provider receives a payment from a parent, this will include both their payment and the government contribution.

What if you already use an Employer Supported Childcare scheme?

You cannot benefit from both an Employer Supported Childcare scheme and the Tax-Free Childcare scheme. However employees are free to choose between the schemes if already in an Employer Supported Childcare scheme or join such a scheme before April 2018.

This choice is, of course, dependent on your employer continuing to offer a scheme. If they do continue to run a scheme, you will need to decide what to do. There are winners and losers when the two schemes are compared. For some, this will be a difficult choice to make.

The government has provided a ‘childcare calculator’ which provides an estimate of the financial support parents may be able to receive after they have answered a number of questions on their childcare costs and income. The calculator is available at

30 hours free childcare

The government is introducing an extension to the current schemes available in England for free childcare for three and four year-olds. The current scheme provides 570 hours of free early education or childcare over 38 weeks of the year (typically taken as 15 hours a week over 38 weeks). It is available for all three and four year-olds. The 30 hours scheme potentially extends the entitlement to an additional 570 hours. However not all children will be entitled to receive the extra hours. The criteria for the extension are similar to the criteria that apply for the Tax-Free Childcare scheme – for example the requirement for parents to be working and not earning above £100,000 a year.

The scheme will begin in September 2017 but eligible parents can apply for the Tax-Free Childcare and the 30 hours schemes through one online application. See the link below.

New government website – Childcare Choices

The government has recently launched a website – Childcare Choices – which guides parents through the various ways help is, or will be available. Please see:

Currently parents with a child under four on 31 August 2017 or disabled can apply through the Childcare Choices site. Parents will be able to apply for all their children at the same time, when their youngest child becomes eligible.

Other parents can request to receive an email from the government as to when they are able to apply. The link is also available on the Childcare Choices site. All eligible parents will be able to join the scheme by the end of 2017.

There have been reported technical problems with the HMRC site since its launch with many parents struggling to log on or access parts of the site – Im sure HMRC are working on sorting it out!

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Do I need a Business Bank Account?

I often get asked this by clients -and in typical accountants style – “it depends!”

As as sole trader you do not need to have a bank account set up in the business name.  You should always use a different bank account for your business transactions to your personal ones though, as it makes your bookkeeping much more simple, and much easier to deal with any HMRC queries.

It’s really hard for both you and your accountant at the year end to trawl through your personal account working out what was for business and what wasn’t, even if you have all the receipts – and should you be unlucky enough to be subject to an HMRC enquiry they will want sight of your business bank account.  If you have to send them your personal one, with business transactions included, they will have sight of all your transactions and that could open a real can of worms!

So for a sole trader – open a separate account in your name, and just use this for business transactions.  It is also a good idea to have a savings account where you can put away a bit each month towards your tax bill ( out of sight is out of mind!!)  You can transfer an amount each month from the nominated business account to your personal account to live, but do try to keep the two as separate as possible.

For a limited company, (although there is actually no legal requirement to have a separate business account,) HMRC would always expect you to have a business account.  This means setting up an account in the limited company name, and after the best free banking period you can find, you will have to pay a monthly fee to use the account.  For this account, even more so than for a sole trader you cannot treat it as your own money – it’s not, it belongs to the company, so don’t dip in and out of it when you need cash.  Any money you take out of the limited company account is either salary, dividends, reimbursement of expenses or a loan -and all have different tax consequences.

So – do you need a business bank account?

Well, you should always have an account that is just for your business transactions: for a sole trader this can be another account just in your name, but for a limited company, yes -it needs to be an account in the name of your company.

If you have any questions, then please contact Rosie Forsyth.


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Can I be employed and self-employed, and what tax do I pay?

Can you be both, and how do you deal with the tax and NI?

It’s pretty common these days for people to have more than one job.  It may be that you are starting a new business, but still need a regular income until things take off, or you want to earn a bit extra than your current employment gives you.

So how do you deal with the tax side of it all?

First of all, are you actually self-employed or just earning a bit of extra cash from a hobby.  Check out my early blog to help you decide (  If you are running a business, then read on……………………

Income Tax

Income tax is always paid on your total income for the year, so you need to add together all your sources of income and work out the tax due.

You will do this on your tax return, so as soon as you have any self-employed income you need to the let HMRC know.  They will then expect you to complete a tax return each year.

You pay tax on any income over your personal allowance (£11,500 in this tax year).  The rate is 20% on the next £33,500 of income and then 40% on income over this.  Depending on your income from your PAYE job, your self-employed profit could therefore be taxed at 20% or 40%.

For example:

Income from PAYE job                   £35,000

Profit from self-employment         £15,000

Personal allowance                         £11,500

The personal allowance is deducted from your PAYE job via your tax code, so during the year you will have tax deducted each month from your salary at 20% (on £23,500)

Your self-employment profit will be taxed at:

20% x £10,000 (£33,500-£23,500) =            £2,000

40% x £5,000                                                      £2,000

Total                                                                      £4,000


It may be that you only have a part time job and may earn less than your personal allowance.  In this case, you will be able to allocate the unused part of your personal allowance against your self-employed profit and only pay tax on the excess.

For example:

Income from PAYE job                                   £8,500

Profit from self-employment                     £15,000

In this case, you have £3,000 on personal allowance to set against your self-employment so the tax due on your self-employment will be:

20% x £12,000                                                    £2,400

What about NI?

The employed and self-employed pay different classes of NI – see my earlier blog about the NI that the self-employed pay.

The NI you pay on your employed income won’t change, and you might then pay class 2 NI and class 4 NI on your self-employed profit if it is above the relevant thresholds.

The NI due for your self-employment is now collected via your tax return at the end of the year.


What if I make a loss from my self-employment?

A new business may well make a loss in its early years.  The good news is that if your calculations show that you have made a loss, you can offset that loss against employed income, reducing the amount overall that you have to pay tax on.  You may in this instance get a refund of tax paid already via PAYE, and again you would do this via your self-assessment tax return.

For more information, please contact Rosie Forsyth.

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How will my income be taxed in 17/18?

The new tax year arrives on April 6 and with it the new tax rates and bands.  So how will your income be taxed in the 17/18 tax year.

The Personal Allowance for 17/18 will be £11,500.  This is the amount of income you can earn before you start paying tax.

The basic rate threshold has increased to £33,500, and the tax rate remains at 20%.  So on the next £33,500 of income, after the £11,500, you will pay tax at 20%.

The higher rate threshold remains at £150,000, and income falling in this bracket will be taxed at 40%.

Savers also benefit from the Personal Savings Allowance.  This means that on the first £1,000 of savings income (eg bank interest) you will not pay any tax if you are a basic rate tax payer, and on the first £500 of bank interest for a higher rate taxpayer.  (Yes, I know – bank interest, what’s that?)

For limited company owners, and those who owns shares, the dividend allowance for this year remains the same at £5,000.  The reduction to £2,000 announced in the Budget comes into effect from 18/19.  That means the first £5,000 you receive in dividends in the year is tax free.  After that you will pay at 7.5% for a basic rate taxpayer and 32.5% for a higher rate taxpayer.


Then there’s National Insurance to think about.  The thresholds for NI are different to those for income tax (obviously!)

For a sole trader, for 17/18 you will still pay class 2 NIC and class 4 NIC.


Class 2 NIC is a flat rate of £2.85 per week and is collected once a year when you submit your tax return.  If your profits are less than £6,025 then you will be exempt from paying class 2.  The exemption is automatic – it does not need to be claimed.


Class 4 NIC is payable on your profits.  You will pay class 4 NIC on profits over £8,164 and up to £45,000 at a rate of 9%.  Over £45,000 the rate is reduced to 2%.


This means that if your profit for 17/18 is between £8,164 and £11,000, you won’t pay income tax but you will pay National Insurance.

For employees, including directors of limited companies, you pay class 1 NIC on your salary.  For a director, you only pay NIC once your salary for the year is over £8,164; hence this being the rate at which may directors chose to pay themselves! Over this amount the rate of class 1 NIC is 12%.  The company will also pay class 1 NIC at a rate of 13.8% on salary over this level.

So – so much for tax simplification!  This blog covers the main tax bands for the year, but there are other exceptions etc and rates for certain types of income that are not covered here.


For more information or help please contact Rosie Forsyth.

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Paying a dividend before the end of the tax year? A reminder of the new tax rules on dividend income

The vast majority of small limited company owners will take money out of their company through a mixture of salary and dividends.  But the dividend rules changed from 6 April 2016 so as we approach the end of the tax year, here’s a reminder on the current rules and how you will now be taxed on your dividend income.


Under the new rules, the first £5,000 of dividends received in a tax year are tax free.

After that the following rates of tax are due:

  • Dividends falling within basic rate tax – tax at 7.5% of the dividend received
  • Dividends falling within higher rate tax – tax at 32.5% of the dividend received
  • Dividends falling within the additional rate of tax – tax at 38.1% of the dividend received

So it is no longer the case that you can extract dividends from the company up to your basic rate threshold “free of personal tax” and you need to think about the personal tax that will be due, when considering your company dividend policy.

The tax on these dividends will be declared on your 16/17 tax return – due to be filed by 31 Jan 2018 and the tax is payable then too.  But you do need to remember that if you have a personal tax bill due at that time of over £1,000, then you will also have to make a payment on account of your 17/18 tax, equal to 50% of your current year’s bill.

An individual who has traditionally taken salary of £11,000 and dividends up to their basic rate limit  (approx £32,000) will be £2,025 worse off under the new rules for the current tax year, so you need to make sure this money is put aside in preparation for your bill at 31 January.

Getting your tax return done early in the tax year will mean the tax due can be calculated and you will know precisely what your bill at 31 January is going to be!

For more information or help estimating the personal tax due on your dividend income, please contact Rosie Forsyth.

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What type of National Insurance do the Self-employed pay?

Its tax return season and I am currently up to my eyes in “last” self –assessment returns.

Most self-employed know that (and have budgeted for) tax is due at 20% (or 40%) on their profits, but National Insurance is often forgotten about, leading to confusion over the amounts due at 31 January. The first thing to get to grips with is the fact that if you are employed, your National Insurance position is very different from that of a sole trader.

As an employee you have Class 1 NIC’s deducted from your pay.  But if you are self-employed you currently pay two classes of NICs: Class 2 and Class 4.


Class 2 NIC

Class 2 NIC’s are flat rate contributions (£2.80 per week in 2015/16).  Class 2 NI is liable to be paid for every week of self-employment in a tax year, if the profits for that tax year are greater than the Small Profits Threshold (£5,965 in 2015/16).

Class 2 NI used to be paid monthly by direct debit but is now calculated and paid via your tax return.

These contributions provide you with the opportunity to build up entitlement to the state pension and other benefit. A full state pension is paid only to those who have an adequate record of NI contributions – currently 30 years of contributions.
If your profit is under the Small Profits Threshold then you will be exempt from paying Class 2 NIC – this exemption is now automatically given when you submit your tax return.  In previous year’s you had to separately claim the exemption.


Class 4 NIC

Class 4 NIC’s are paid on the net profits that are subject to income tax and are payable at the same time as your income tax.   Class 4 contributions are payable at a rate of 9% on profits over £8,060 up to £42,385, and 2% on profits above this level.

This means that you could be paying Class 4 NIC’s but not income tax if your profit for the year is between £8,060 and £10,600.  It’s also a big number to forget about when budgeting for the amounts due at 31 January!

Class 2 is going be abolished from April 2018 to simplify things for the self employed but you should still remember to take NI into account when budgeting for your tax bill to avoid any nasty surprises!


For more information please contact Rosie at Wilkins & Co.

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