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Tax Returns – need some help? A few timely tips and reminders to help you on your way

A few personal tax reminders this week to point you in the right direction.  Need any more help – you know where I am!

  1. It’s your responsibility to complete a tax return and advise HMRC if you need to submit one – don’t wait to be asked!
  2. You need to submit your return by 31 January 2020, or the penalty is automatically £100.  The penalty is not reduced or cancelled if there is no tax due.
  3. Getting yourself set up to file your return takes time.  HMRC send out passwords in the post, and their postal system is worse than their phone system – so don’t leave it too late!
  4. If you want any tax owed to be collected via an adjustment to your tax code then you need to submit by 30 December 2019.
  5. If either you or your partner has adjusted income over £50,000, and you have been claiming Child Benefit in the year, then you need to pay this back at least in part.  You do this on your tax return, so you need to provide the details
  6. If you are self employed, class 2 NIC is paid via self assessment so this will be appearing on your statement as an amount due.  If your earnings are low, then the Small Earnings exemption is now automatically applied.
  7. Married couples and civil partners may be eligible for the Marriage Allowance which enables transfer of an element of the personal allowance between spouses (see previous blog.) This is widely underclaimed so check if it applies!
  8. If you are a higher rate tax payer and have made charitable donations in the year, then don’t forget to add this to your return as you will get tax relief on your donation.
  9. If you jointly own rental property, then this income is automatically split 50/50, unless you have declared otherwise to HMRC.  It’s not a matter of choice as to which of you declare it!
  10. Tax isn’t meant to be taxing – but it is!  Just let someone else do and get your life back!  Contact Rosie Forsyth at Wilkins & Co
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Payments on Account are Due 31 July – what are they?

Statements are arriving in the post and payments on account of 16/17 tax are due at 31 July.  What are they?

If you pay your tax under self assessment – you will probably have to make “payments on account” of your tax bill at 2 stages during the year -31 Jan and 31 July.

How these are calculated is easiest explained with an example.

You started your business in May 2014, prepared your accounts and calculated your tax bill for 14/15 to be £3,000. This was due for payment at 31 Jan 2016.  However, at 31 Jan 16 you also had to pay a payment on account of your next year’s (15/16) tax bill – and this was automatically calculated at 50% of the previous year – so £1500.  So actually at 31 Jan 16 you had to pay £4500.  You may have just paid this at the time and not really grasped what it was for.

The second payment on account for 15/16 is due by the end of July and again is 50% of last year’s bill – so another £1500.  So by now – you have paid £3000 on account of your 15/16 tax bill – and you probably haven’t even filed your tax return yet ( shame on you – but let’s not go there now!!)

If your profits in second year have gone up – and when you do your accounts and file your tax return, your tax bill for 15/16 is worked out to be £5,000, then you have already paid £3,000 of it during the year – so you only owe a further £2,000.  Bad news – the process is repeated – so at 31 Jan 17 you will owe £2,000 for this year – and your first payment on account of 16/17, calculated as before at 50% of the current year bill (£2,500) – so £4500 in total.  You then owe at 31 July 2017 your second payment on account of 16/17 – another £2,500.

If you are in the scenario where profits are lower than the year before, then you will have overpaid in the year with your 2 payments on account and you will be due a refund for that year.  In the example above, if your tax bill for 15/16 worked out to be £2,400, then because you have paid £3,000 during the year, then you have overpaid £600.  But, taking into account your first payment on account for 16/17 which will be 50% of £2400 = £1200, you still owe £1200 – £600 = £600 at 31 Jan 17!

 

Confused??  Who said tax wasn’t taxing!

If you know your profits are going to be lower in the next year, perhaps because you are doing less hours or lost a key client, then you can apply to reduce the payments on account that are going to make – to avoid overpaying in the first place.  Don’t overestimate the reduction though, as HMRC will charge you interest if you get it wrong and reduce the payments too much.

 

A word of warning – the changes to the dividend rules means that many more people will owe tax under self assessment. You are only excluded from making payments on account if the amount you owe in tax is less than £1,000, so many small business owners facing tax bills on dividends for the first time next year – will also be hit with payments on account!

 

For more information please contact Rosie Forsyth.

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Are your favourite clients actually your best clients?

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!!

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