Tax codes are dropping through letter boxes at the moment for 2016/17 and causing complete confusion for many due to the new dividend tax rules.

Your tax code is important as it tells your employer/pension provide how much pay you can receive before they need to deduct tax.

Your tax code is made up of numbers and usually one letter.  The numbers show how much tax free income you get in a tax year – you usually multiply the number by 10 to get the total amount of income you can earn before tax.   The letter refers to your personal tax situation and how it affects your personal allowance (a detailed list can be found here)

For example the standard tax code next year is 1100L – this means you can earn £11000 (the amount of the personal allowance) before you start to pay tax.

For directors with dividend income, as you will be aware the rules for taxing those dividends are changing from 6 April 2016.

HMRC are being sneaky and including in your tax code an adjustment for the dividend tax they think you will pay in 16/17.  By including it in your code, the amount of pay you receive tax free will go down each month.  The tax would normally be collected via self-assessment (payable 31 Jan 18) so this is just HMRC’s way of getting the tax from you early!

You are perfectly entitled to change your code to take out this amount – and pay the tax via self-assessment.  You just need to call HMRC and ask them to remove the dividend tax amount from your tax code.

If you have any queries about your tax code and don’t understand why it is what it is, then please get in touch.

When you’re running your own business, the end of the tax year can be a great time for a spring clean and a time to create order out of chaos!  The tax year ends on 5 April 2016, so most sole traders will be preparing their accounts to this date.  For owners of limited companies, even if the company year end is different, you will be including the amount of salary and dividend paid to you in the tax year (6 April 15 – 5 April 16) on your self-assessment tax return.

So what should you be doing before the end of the tax year?

1. Get you Bookkeeping in Order

I know –not very exciting – but so important. Make sure you have copies of all your invoices and receipts, bank statements, and your spreadsheets are up to date.  A good filing system will not only make your life easier but also put a smile on your accountant’s face!

Make sure you have a record of any business mileage you have done, and have details of any other items relating to the business that you may have paid in cash or from your personal account (eg mobile phone, parking)

2. Asset purchase

If you are considering buying capital items for your business (computers, furniture etc) then if you purchase them before the end of the tax year and your accounting year end, then you will get the full tax relief for them in the year.

3. Personal tax

Don’t forget tax efficiency in your personal life.  Have you used your ISA allowance (or even part of it), considered pension contributions or made any Gift Aid donations – keep a note of all these as they could save you tax.

Make a plan to be organised for the new tax year – speak to a financial advisor about your own personal situation and resolve to get those things done you may have been putting off.  Have you made a will, got insurance for if you can’t work or worse?  Resolve to sort these out in the new tax year if you haven’t already.

4. Use your Allowances

Have you made use of you own and your family’s personal allowances?  Check to see if you can structure your assets and income in a way so that you are able to fully utilise your allowances.

5. Dividends

If you have a limited company consider bringing forward paying dividends.  Dividends that fall into the higher rate tax bracket are taxed at 25% before 5 April 16 and 32.5%.  Everyone will have a £5,000 dividend tax allowance from 6 April 16 so plan if possible to ensure it is fully utilised across the family.

A few simple steps can help you get your house in order before the year end and good tax planning can save you tax.  If you would like any more advice then please contact Rosie Forsyth at Wilkins & Co.

How would you describe your favourite client?  Describing your worst may be easy – demanding, unappreciative, quibbling over fees, paying late– but who is your best client?

It’s easy to say the one who pays you the most – but would that be true?  I have several clients whose fees are by no means amongst the top few – but I love working with them.  We talk regularly, they value my advice (or so they say!!) and they frequently recommend me to their contacts.  I don’t make a fortune from them – but we have a great relationship and they help me generate new business.

It’s a good idea to every now and again go through you client list and rank them A, B and C – maybe initially on gut feel.

A’s are your best clients – you have a good relationship with them, fees are good, they pay on time, use several of your services and they recommend you.

B’s are your “OK” clients – you get the job done, they pay you, don’t complain but you probably don’t sell extra services to them – and they don’t rave about you to their friends.

C’s – we all have some of them!  They take up far more of your time than they should, expect you to do a lot of things for nothing – because “it’ll only take you a few minutes”, may grumble over fees and take a long time to pay.  They probably, strangely, are quite loyal to you – because you do pander to their needs!

Now – put the fees you generate from each client in a year next to them and total them up for each category.

Is the amount you are getting from your C’s really worth the hassle?  Should you lose a few of them and concentrate your time servicing your A clients, or turning your B’s into A’s?

If you put your fees up for all your “C” clients and started charging for all those extra’s you do for them– and you did lose 1 or 2 because of it – would it be the end of the world?  Or would you breath a sigh of relief that they are going to cause someone else all that grief!  If you lost 5 C’s and gained an A – would your life be a lot easier?

On the other hand, are your favourite clients actually generating you a decent level of fees?

Or are you actually spending too much time working on their account, because you like them – and again not charging them accordingly?  Are they friends – and you offered them “mates rates” when you were setting up your business – and they are still on them even though their business has grown and changed?

We’ve all heard of the 80/20 rule – where 80% of your sales come from only 20% of your clients so just ranking your clients into these simple groups can see if this applies to you – and then you can take action!!