This blog looks at items that are often overlooked or missed by individuals and employees when completing their tax returns.  All are allowances that you may be perfectly entitled to, so if you are not claiming them, you are missing out and paying more tax than is necessary.

Marriage Allowance

Many people entitled to this are still not claiming it – and it is worth £252 this tax year.  The allowance is available if you are married, one partner does not pay tax (as their income is under the personal allowance threshold of £12,570) and the other pays basic rate tax.  The non-taxpayer can transfer £1260 of their personal allowance to their partner, resulting in a £252 saving.  You can backdate a claim to April 17 for any year you were eligible, giving overall savings of over £900.

Claiming for Using your own car for work

Most self employed are aware that you can claim 45p per mile for business travel, but often overlooked is the situation for the employed.  If your employer reimburses you for business travel at a rate less than 45p then you can claim tax relief on the difference via your tax return or online.  Although business travel has probably been minimal this year, you should still claim the tax relief on mileage if you can.
https://www.gov.uk/tax-relief-for-employees

Subscriptions

Professional subscriptions related to your business are deductible. This applies not only to sole traders, but also to directors and other employees who pay their own subscriptions personally, and a claim can made via your tax return, or online as above.

Tax Relief on Pension Contributions

Contributions to personal pension schemes are paid net of basic rate tax.  Higher and additional rate taxpayers can claim further tax relief on their contributions, again this should be done via your personal tax return.

Gift Aid Payments

Donations to charity through Gift Aid are also paid net of basic rate tax, and the charity reclaims the tax that you have already paid.

Again, if you pay tax at higher or additional rates, you are entitled to further tax relief on your donations and this can be claimed via your tax return.  It is useful just to keep a list during the year of donations you have made that are under Gift Aid, so you have the information when you do your tax return, or to pass to your accountant.

Missing Receipts/Items paid personally

Failing to keep a list of items you have paid for personally for your business, or not having receipts means you are not claiming for all your costs of running your business, and will end up paying more tax.  The odd missing receipt is not going to be the end of the world, but not having any back up for your costs is going to cause a problem.

New Trading and Property Income allowances

Individuals with trading or property income below £1,000 no long need to declare or pay tax on that income.  This is meant to cover ebay sellers, hobby businesses etc.

Those with income above the allowance either calculate profits in the normal way, or simply deduct the relevant allowance from the income (not from the profit – you can’t have both!)

And don’t forget to declare SEISS income….

Not an allowance – but just worth the reminder that SEISS income is taxable – and needs to be declared on your tax return separately from your normal trading income.  If it’s not put in the right place on your tax return, and HMRC know you have received it, they will add it onto your income for the year, so you will end up paying more tax than you should.

These are just some of the commonly missed items.  Getting prepared and keeping information as you get it will help make sure you don’t miss out.  An accountant should pick up on these areas if they are completing your return for you, and you should always seek professional advice if you are in any doubt as to what you can claim.  For more information contact Rosie Forsyth at Wilkins & Co.

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

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.

People start businesses for many reasons – to be your own boss, to have flexibility, to escape the rat race and be home for the kids, or to develop a great idea you have had.  But whatever your reason, you need to generate a profit in the long term to keep the business going.

Put simply profit is the difference between your total sales and your total costs for a period and the only ways to increase your profit are to increase your sales, or reduce your costs!

Your costs include the total costs of running your business, not just the direct cost of making what you sell.  That’s where pricing becomes difficult, and you need to have some basic information to hand before you can come up with your sales price – you need to know your costs, and you need to have an idea of the income you want to generate for yourself.

Most of my clients provide services, not goods, and often say to me that they don’t really have any costs.  But your time is a cost, and you need to have an accurate idea of how long something actually takes to do – and you need to factor it in to your sales price.  This might include background research, admin time, client discussions and meetings.

You also need to think about your other costs that are not directly related to one customer – eg  rent, subscriptions, insurance, accountancy, phone charges, stationery etc as these all need to be paid from the money generated by your sales if you are to make a profit.  Make sure you account for all your costs too – if you don’t include the stationery that you bought while you were at the supermarket, or the parking ticket somewhere on the floor of your car, you aren’t building up an accurate picture of the true costs of running your business.

Once you have all this information – you can think about your pricing strategy.  There are many different ways to price your offering – it may be that you have different profit margins for different products depending on the level of expertise required to complete that project, you may offer a discount for buying in bulk.  There may be a generally accepted fee in the market place for what you are doing, and you should try to find out what the competition is doing.  But remember – you do need to be selling at a profit and covering all your costs if you want to stay in business.

New businesses are often tempted to price their services low to gain clients – and whilst there may be occasions when that’s a good idea – it shouldn’t be a long term strategy, especially if you are operating in a local market.  Awkward conversations about why you charge £x to one client and £y to another who turns out to be their best mate can be difficult, even if one was your very first client and you were so excited to get them you quoted a rock-bottom price (yes- I’ve been there!!)

Don’t undervalue yourself and think hard about taking on a client who immediately queries a reasonable quote.  A client who wants to knock you down on price may end up being more hassle than they are worth; are they coming to you because they value your service, or because you gave them the cheapest price?  You could well be better off with fewer clients paying you a higher price than with lots of clients at a lower price.

So before you stick your finger in the air and come up with a price when next asked, spend a bit of time thinking about what it is actually costing you to run your business, add in your profit margin and quote accordingly!!

It’s the start of the next tax year and that means all the numbers and thresholds have changed again.

Here’s what you need to know about this year’s allowances and at what rate you will pay tax.

Tax Rates and Allowances

• The income tax personal allowance is now £11,850 – you can earn this amount before you start to pay tax
• The basic rate limit is now £46,350. That means that on income between £11,850 and £46,350 you will pay tax at 20%.  Over this you will pay 40%, and over £150,000 you will pay 45%

Dividends

• Dividend allowance is now reduced to £2,000 (from £5,000). The first £2,000 of dividends you receive in this tax year are tax-free.
• Dividend tax rates otherwise unchanged. Dividends are taxed at 7.5% (basic rate), 32.5% (higher rate) and 38.1% (upper rate).

Savings

• Since April 2016, savings interest has been paid gross by the banks, and the Personal Savings Allowance (PSA) has come into play. The PSA means every basic-rate taxpayer can earn £1,000 interest per year without paying tax on it. Higher rate payers get a £500 allowance, and additional rate taxpayers don’t get an allowance
• A new lifetime ISA now exists to help with retirement savings or buying a first home for the under 40s.
• The annual ISA limits increase to £20,000 (£4,260 for children)

Employers NICs and payroll

• There is no Employers NIC on employees aged 21 and under, or apprentices aged 25 and under.
• The NIC Employers Allowance remains at £3,000 and is not available for companies where the sole employee is a director.

Self Employed Class 2 and Class 4 NIC

• Both class 2 and class 2 NIC are still here for this tax year, class 2 is due to be scrapped from 6 April 19
• Class 2 NIC is £2.95 per week and is payable if profits are over £6,205. It may be worth still paying the class 2 NIC is your profits are lower than this as it gives you another year towards your state pension
• Class 4 NIC is payable on profits over £8,424 and up to £46,350
• Both types of NIC are collected via self-assessment

 Marginal tax rates

There are several income points where the marginal extra cost in tax of each £1 over the level is disproportionately high. They are

• Over £46,350 – liability to higher rate tax
• Over £50,001 and up to £60,000 – a claw back of child benefits
• Over £100,000 – loss of personal allowances plus a requirement to file a personal tax return
• £150,000 – liability to upper rate tax

What can you do to avoid higher and marginal rate tax?

• Plan timing of dividend payments carefully
• Consider employing a spouse/partner and splitting income producing assets efficiently
• Make pension contributions which reduce your taxable income
• Make Gift Aid donations which also reduce your taxable income

What Salary Do I Pay?

• director aiming to be tax-efficient can pay £8,424 this year (£702 per month)
• at this level there is no tax or NI
• you do need to be set up as an employer and file RTI returns each month
• you can then dividends to utilise the rest of your personal allowance and use your £2,000 dividend allowance

Everyone’s tax affairs are different and so you need to review your own situation to plan effectively for the year ahead.

Please contact me for more information and help.

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

TAX RETURN TIME!

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.

One of the most common questions I get from sole traders is about allocating a cost to the business for working from home. If you are in a panic trying to get your tax return done before the end of the month, you might forget to include a cost for this in your accounts, but this would result in you paying more tax than necessary – so take 5 minutes and think about what you might be able to claim.

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.

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.

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 www.gov.uk/childcare-calculator

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: www.childcarechoices.gov.uk

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!