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Archives for October 2017

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 2020.  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 19/20 tax too at 31 January 2020 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 and cloud based accounting packages, 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 contact me at rosieforsyth@wilkinsco.co.uk

 

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Dividends – new rules mean higher personal tax bills at Jan 18

How dividends are taxed changed dramatically at 6 April 16 and its impact is just being felt by shareholders completing their 16/17 tax returns.  The tax on those dividends is due for payment at 31 Jan 18 and is coming as a shock for those unprepared!

In the good old days before 5 April 16, the 10% dividend credit meant that basic rate taxpayers paid no further tax on dividend income as the 10% tax on dividends was covered by the 10% tax credit.  Higher rate tax payers had additional tax due of 25% on any dividends taken.

Since April 16, all that changed.  The notional tax credit was scrapped, and instead everyone was given a £5,000 dividend allowance.  That means that you don’t pay tax on your first £5,000 of dividend received in a tax year.  But after that, basic rate taxpayers will pay 7.5% on any dividend received, and higher rate payers 32.5%.

So for example, a higher rate taxpayer receiving £30,000 of dividends this year, will face a tax bill of £8,125 (as opposed to £7,500 before)

The further sting is that under self-assessment, if you chose to pay your tax in one go at 31 January rather than have it collected via your tax code, then you need to make a payment on account of your 17/18 tax at the same time.  This is calculated at 50% of this year’s tax – so actually at 31 Jan 18 you will need to fork out £12,187 based on the example above.

Basic rate taxpayers with a dividend of £30,000 will face a tax bill of £1,875 (or £2,812 with the payment on account) at 31 January.  Prior to April 16 there would have been no additional personal tax on this dividend at all.

With the dividend allowance reducing from £5,000 to £2,000 from April 18, personal tax bills for limited company shareholders are only going in one direction!

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

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

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.

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