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!

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.

We are now well into the new tax year and if you have a new business, or your bookkeeping system leaves a little to be required – it’s time to get it into shape!  Leave it too long and the mountain of receipts just keeps growing!

If you have set up a new sole trader business this tax year – there are couple of things you must do straight away:

1. Register with HMRC – you can click here to do so.  This tells HMRC you are self-employed and means they will ask you to complete a tax return.  You need to do this within 3 months of starting your business.
2. Set up a separate bank account.  This can just be another current account but it’s really important to keep your business income and costs separate from your personal money.  You might want to set up another account as well where you can put money aside for your tax bill.
3. Buy a couple of folders (and keep the receipt!)

What Records do I need to keep?

You need to keep records of your sales and costs.  You won’t need to send these to HMRC but you need to keep them so you can work out your profit or loss for your tax return, and show them to HMRC if asked.

There are many ways you can keep your records, ranging from pen and paper to accounting software and the key is to choose one that suits you.  If you don’t get it – you aren’t going to keep it up to date!  The way we report our figures to HMRC will be changing – Making Tax Digital is on hold for now, but it is expected to be back on the agenda when the Government has sorted itself out, so before long we will need to be keeping digital records.

There are some great Apps out there now for scanning receipts and recording your data for you, so if you are just starting up your business, I would go straight for the digital option.  Take a photo of your receipt when you get it, upload it, put it into the relevant category, and then bin it – job done! You will save far more than the monthly subscription fee in regained time.

Even if you just go for an App to record your expenses (Receiptbank is the one I use) then the rest of your record keeping is pretty straightforward.

For your Sales:

Keep a copy of every invoice that you send out (paper or electronic).

Keep a record on a spreadsheet of all invoices raised – noting the date it was issued, the number (keep these sequential), who it was to and the amount.  Have a final column where you note the date the invoice is paid – perhaps in a different colour so it stands out!  You can then easily see who owes you money and how long the invoice has been outstanding – so you can get chasing!

Expenses:

It’s really important to keep track of what you are spending.  Try to pay for everything related to your business directly from your business bank account – this will make recording expenses so much easier.  Some things you will have to pay in cash (parking etc) but wherever possible use your business account debit card.  Even in Tesco if you are buying bits of stationery, pay for this separately to your weekly shop, or you will probably forget you bought it and you won’t claim it against the business.

If you haven’t gone for the App then keep a spreadsheet of your expenses.  It’s a good idea to have one spreadsheet or tab for all costs that you have paid for from the business account and another one for cash payments.  Your spreadsheet should note the date, the supplier name and the total.  It should then break down the amount into categories so you can keep track of what you are spending – the categories can be whatever you like and what will be useful for you – but might include post, stationery, travel, parking, website, networking, subscriptions etc. Don’t forget to include a category for money that you have taken out of the business for yourself, as you will need to “pay” yourself at some point!

Keep the actual receipts for your expenditure in a folder if you haven’t zapped them on your phone – filing them by month is a good idea and for the super organised, number them and cross reference them to your expenses summary spreadsheet, so when your accountant queries something you can find the receipt quickly!

Other Costs

If you use your car for business then the simplest way to charge the business for this is to recharge the mileage.  The business can pay you 45p per business mile – so you need to keep a record of the business mileage that you do.  You might chose to keep a notebook/diary in the car to keep a log, or to keep a spreadsheet but somewhere you need to keep a record of the business miles you have done.  Every month, or quarter, total this up and repay the amount due to you from the business account – not forgetting to note it on your expenses summary!

Keep a record of your mobile phone bill and internet costs as you can also reclaim a percentage of these from your business.

Bank Accounts

Print out your statement when you get it and file it in your folder.  Check the items on your bank statement to the income and costs on your summary and make sure you have everything recorded.

When you are paid by a client, it’s a good idea to put a percentage of this aside into your “tax” bank account to save for you tax bill – the amount you need to put aside will vary depending on your personal circumstance, but between 20 and 30% as a guide.

If you follow these basic steps then you are well on the way to having a good bookkeeping system.  Try to keep this up to date – there is nothing worse than sitting down to catch up the last 6 months!

Using your phone to zap your receipts is strangely satisfying (and the kids love it!) so I would really recommend going down the digital route to keep your records – contact me for prices.

If you are happier sticking to spreadsheets for now then do contact me by email for a template that can be used.