The tax year end will soon be here so now you have recovered from filing your tax return, it’s a good time to check your finances and make sure you have minimised any tax liabilities for the current year.  What should you be looking at?

Here are 5 things that may apply to you to help you save some tax before 5 April.

Dividend Allowance

If you run your business through a limited company, then you can extract funds via dividends, as long as the business has the reserves to be able to do so.  The dividend allowance for 21/22 is £2,000, so you will be able to extract this amount tax-free per shareholder.

The rate of tax you pay on dividends is increasing by 1.25% from 6 April 22, so you might want to maximise any dividend payments in this tax year before the rate increases.

Timing of Expenses

If your company or business year end is 31 March 22, then think about expenditure around the year end.  Money spent before 31 March 22 will be included in this year’s accounts, and reduce your profit this year, whereas delaying until April 22 will move those costs into next year (generally).  If your business is on the cusp of paying higher rate tax, then bringing forward planned expenditure could be tax efficient.

Some assets now qualify for the “super deduction” of capital allowances which could make investing in new equipment even more tax efficient.

Pension Contributions

Pensions remain one of the most tax efficient ways to save. You receive a 20% top-up from the government on any contributions you make personally and you also extend your basic rate band for income tax purposes. Depending on your income, this can reduce the amount of tax you pay at higher rates.

Paying a pension contribution from your limited company is also very tax efficient and is an allowable deduction for corporation tax.  Speak to an IFA if you are interested in contributing to your later years!

Child Benefit

If you or your partner’s adjusted taxable income is above £50,000 then you start to lose your child benefit for the year.  This is reduced on a sliding scale up to £60,000 when it is lost in full, and if you have received it in the year it will need to be repaid.  Consider making pension contributions, or gift aid donations to reduce your adjusted taxable income, and to keep your child benefit.

On the flip side, many people’s income in 21/22 has been affected by the pandemic, so you could be in a position where you are actually eligible to claim child benefit again due to lower family income, so it is worth checking!

Marriage Allowance

So many people who are entitled to this are still not claiming it.

The Marriage allowance lets you transfer 10% of your personal allowance to your spouse/civil partner if you have not used it.  This can save you £252 as a couple in this tax year.  To qualify your spouse must be a basic rate taxpayer, and your income under £12,570.  Claims can be backdated to 2018 and can be done online.

For any more information, please contact Rosie Forsyth atWilkins & Co

This week I have a Guest Blog by Helen Steel of Streamlion Consulting Ltd, giving great advice on obtaining funding for your business.  Contact Helen for more advice or assistance.  (https://www.streamlionconsulting.com)

“I heard on the radio this morning that this is the time in January when most employees sit back and reevaluate their jobs. The excesses of Christmas and New Year are behind them. Any New Year’s resolutions are in full force or have already been binned! Thoughts they had over Xmas of “my job’s not that bad” or “I can stick this out for another year” have proved to be just as undoable as the New Years resolutions! Why not make a change! If you’ve always dreamed of running your own business and have a good idea, why not go for it? What is holding your back?

Well, if it’s money, there are some excellent start-up loan schemes that offer unsecured funding to entrepreneurs who meet certain qualifying criteria. These loans are just what you need to get up and running and the scheme has been created to give you the cash needed to sort out the first few months of your business trading. I am a business advisor for Transmit Start-Ups (https://transmitstartups.co.uk), now the number one provider of start-up loans in the country and I can honestly say that they have your back. This is a government scheme so there are certain processes to follow but I have had loans approved amazingly quickly for entrepreneurs eager to get out there to start making money! With interest rates of 6% and max lending of £25,000 per eligible director, it’s a great place to start.

There are other lending routes available if your business has been trading for more than 2 years or you just need a larger loan. Some of the banks offer unsecured lending themselves or through the EFG scheme. Knowyourmoney (https://www.knowyourmoney.co.uk/business-loans) has a great list of approachable lenders, some of whom will lend up to £1.2 million per year. I’ve recently been working with NatWest who have been very supportive of local entrepreneurs.

Another lending route is via “Angel” investment. Over the last few years, I have put together a portfolio of go-to private investors who will invest for an equity stake in a fast growing new venture. This is a bit like “Dragons Den” and I love working with the entrepreneurs to develop slick and professional business plans and investors deck to attract the best investor for their business. Investors can bring money and mentoring advice if wanted. Again, loan amounts vary but seed capital can be raised from either one investor or a number of smaller contributors.

Lastly there are traditional lending routes via your bank. These loans tend to be secured and you will need at least one year of company financial statements, possibly two. Interest rates tend to be slightly higher (around 9.3%) but there are always many options to chose from.

So, if you are having those “it’s now or never” or “I’ve got to give it a go” thoughts, act on your impulses and start your own business. I have yet to come across an entrepreneur who regrets making the break, but I have chatted to many who wished they had done it sooner!”

Helen Steel, MD for Streamlion Consulting Ltd (https://www.streamlionconsulting.com)

MTD goes live in less than 6 months, but research shows that 40% of small businesses that will be affected by MTD, are not yet aware of it, and have certainly not begun to prepare for its impact.

So are you affected and what do you need to do?

HMRC are about to launch their publicity campaign to increase awareness, but here are some frequently asked questions from small businesses:

Does MTD apply to me?

If you run a VAT-registered business (limited company OR sole trader) with a taxable turnover above the VAT registration threshold (currently £85,000) then YES it applies to you from April 19.

I have registered for VAT voluntarily, so I am VAT registered – but my turnover is less than £85K. Does MTD apply?

No it will not apply from April 19.  MTD is planned for all businesses over time, but you not caught in this first batch of people!

What does MTD mean anyway?

MTD means that you will have to keep digital VAT records and send VAT returns using “MTD-compatible” software from April 19.  The deadlines or frequency of returns are not changing, it is just how the information gets to HMRC.

If you are already using commercial accounting software, it is likely that the provider is working hard to make it MTD compatible, and you should be OK, though you will need to upgrade to the latest version that is compliant.

HMRC have provided a list of suppliers it is working with to provide MTD compliant software so you can check:

https://www.gov.uk/government/publications/software-suppliers-supporting-making-tax-digital-for-vat/software-suppliers-supporting-making-tax-digital-for-vat

I keep my accounts on a spreadsheet – is that still OK?

Technically yes, but I would be thinking about switching to a digital package!

If you use a spreadsheet, then that spreadsheet must be able to submit the required data to HMRC digitally and to do this you will need to add “bridging software”.  This is a piece of software that will extract the data from your spreadsheet and send it to HMRC in the correct format.

What you will no longer be able to do is physically retype in figures from one piece of software to another.

We have no examples yet of what this “bridging software” might look like – all we do know, is HMRC aren’t providing a free version for you to use!

My accountant does my VAT return from the info I send them so won’t they just deal with it?

Sadly no!

The portal that accountants use to submit vat returns will be closing, as this requires someone to type the information into it – and this will no longer be allowed.  Nor can your accountant take your spreadsheets, correct a few errors, and then retype the information into a vat return and submit it, as the information flow has not been digital.  HMRC have said that “cutting and pasting” information will be acceptable for the first year only, to give people time to update systems.

So what do I need to do if I am affected?

You need to look at how you keep your accounts, and if you have not yet moved onto a digital package, now really is the time to do it!  The start of your new financial year is the perfect time, so if that falls between now (or even a couple of months ago) and 31 March, then I would switch your accounts over now, so you are up and running smoothly when the changes come in.

Digital accounting packages are not expensive – prices can be as low as £9 per month, with add ons that allow you to submit receipts electronically.  Switching to digital will save your business time, and give you more accurate data about your business in real time, so be brave – bite the bullet and go digital!!

HMRC are still wanting to bring in MTD for everyone, so although the timetable has been pushed back to at least 2020, even if you don’t have to make the switch before April 2019, it is worth assessing how you keep your accounts and if it could be more efficient!

For more information please contact Rosie Forsyth at Wilkins Co.

You can google the VAT registration threshold – its currently £85k  – but so many people look at their wrong sales figure to compare to this number – and registering for VAT late can be very expensive!

You have to register for VAT when your “VAT taxable turnover” in a 12 month period is over £85k.  If we take ” VAT taxable turnover” to be your sales (which simplifies it somewhat,) then you need to look at your sales figure for the last 12 months.

This is NOT THE SAME AS YOUR SALES SINCE THE START OF YOUR FINANCIAL YEAR.
There is no starting again when you get to your year end – you need to look at your sales figure for the last 12 months – ON A ROLLING BASIS.

So you need to look at Sept 17 – Aug 18, and then Oct 17 – Sept 18, then Nov 17 – Oct 18 etc etc.

If your turnover is around the £75-80k, you need to keep a close eye on it each month to see if you have gone over the registration threshold.  If you have exceeded £85k, then you have one month in which to register for VAT and then you need to start charging VAT in the following month.

For example if your sales for the year Sept 17 to 31 Aug 18 were over £85k for the first time, then you need to register by 30 Sept 18 and you will be registered from 1 October.

If you are late in registering, then you are deemed to be register from 1 October anyway, and you are liable for the vat that you should have been charging, plus potentially a penalty, so this can be very expensive for your business!

If your turnover has gone over the threshold temporarily, say you have sent out an unusually large invoice – you can apply for an exception to registration, but you need to write to HMRC with evidence that you sales for the next 12 months will be under the VAT deregistration threshold of £83k.

So do keep an eye on your turnover if you are close to the threshold.  I see late registration time and time again, as business owners only look at current year sales, not sales for the last 12 months.

For more information then please 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.

With the tax year ending soon have you been as tax efficient as you could have been this tax year?

What can you do before the year end to maximise your tax efficiency?

Here are a few of my tips for tax efficiency:

If you have a limited company – make sure you have paid £5,000 in dividends if profits allows.  The tax free allowance for dividends is reducing to £2,000 after 6 April 2018

Transfer income-producing assets to a spouse if you pay tax at different rates.  If you have a limited company, should your spouse also have shares to get their tax free dividend allowance and potentially pay tax a lower rate on additional dividends?

Check your total income for the year if you receive child benefit payments.  If you have the ability to determine your income for the year, by varying the level of dividend paid, keeping your income below £50,000 will ensure you retain your child benefit.

Trivial Benefits – limited company directors can get £300 a year tax free using these.  If you have not used your full allowance yet, get down to John Lewis and stock up on vouchers.  Conditions do apply so check my early blog for full details

If you are considering buying capital equipment for your business, doing if before the end of the tax year will give you the tax deduction this year rather than next

Pension contributions – very tax efficient for the company to contribute to your personal pension.  Review any payments made in the year and take advice from an IFA.

If you have taxable income over £100,000, you will lose your personal allowance on a sliding scale, so your marginal tax rate may be as high as 60% on part of your income.  Consider making additional pension contributions or gift aid donations which may restore your personal tax allowance.

Use your allowance for tax free ISA saving; that’s up to £20,000 in this tax year. Under 18s can save £4,128 in a Junior ISA.  Also consider LISA’s to help your children get on the housing ladder.

Inheritance tax – often forgotten, but if you have spare cash available, consider making gifts to take the funds outside of your estate.  If you don’t have the cash, bring this up with grandparents over Sunday lunch!  Up to £3,000 per tax year can be gifted as one off capital sums and will be exempt from inheritance tax. Any unused part of this allowance can be carried forward 1 year.

Often simple steps can be taken to minimise your tax bill, so hopefully the above list has added one or two items to your “to do “list.

Please contact me for any further information.

‘Tis the season to be jolly and you might be wanting to thank some of your clients for their business during the year.  Whilst tax may not be top of your agenda right now – can you do this tax efficiently?

Your gifts will only get tax relief, and you can only reclaim the VAT if they are:

• NOT food, drink, tobacco or a voucher AND
• Carry a conspicuous advert for your business AND
• The cost of that gift, and any other to that person in the year is under £50

(That’s why your gift may be an embossed diary/mug!)

If you want to give your staff a Christmas gift, it may well be covered by the “trivial benefit” rules I have covered in a previous blog.  Here if it is classed as “staff entertaining” you may well be able to reclaim the vat.

What about the Xmas party?

Most people are aware about the rules for the staff Xmas party.  For a limited company, the cost for the annual party is allowable for tax as long as it is under £150 per head (all staff have to be invited but the cost is per head – “plus ones” can also be invited)

But a lot of us work for ourselves and don’t have staff – we employ subcontractors.  What are the rules if we want to take them out at Xmas as a thank you.

These guys are not your employees so they are not covered by the above rule.  Any money spent on entertaining them is deemed customer entertaining and therefore won’t be allowable for tax in your accounts, (but – you should probably still take them out!!)

So what about you, the business owner?

If you are a director, then you are classed as an employee and you can treat yourself ( and your plus one) to a Xmas do.

If you are a sole trader, then I’m sorry, it’s the final of Strictly and a bottle of cheap plonk for you!

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.

This is a commonly asked question – and people often do not realise that they have to register for self-assessment and file a personal tax return .

If you fell into any one of the categories below between 6 April 2016 and 5 April 2017, then yes you do need to file a personal tax return:

1. You were self employed
2. You were a company director – SEE BELOW
3. HMRC have sent you notification to complete a return
4. You had more than £2500 in untaxed income, eg from renting out a property
5. You received dividends, savings or investment income before tax of more than £10,000
6. You have a Capital Gain – ie you made profit from selling shares, a second home, a business or other chargeable assets
7. You or your partner’s income was over £50,000 and one of you claimed Child Benefit in the year
8. You had income from abroad that you need to pay tax on
9. You lived abroad and had a UK income
10. Your income was over £100,000
11. You had a form P800 send from HMRC saying you didn’t pay enough tax last year and you haven’t either sent them a cheque or arranged to pay it via your tax code

The company director question is an interesting one and one that has been subject of an HMRC tribunal in the year.

HMRC’s guidance on their website will tell you that all company directors need to complete a tax return – but that is to put it kindly, misleading (as the tribunal concluded!)

If you are going to have a tax liability based on your income, then yes, you need to notify HMRC and complete a return – but if you have no further tax liability, then there is no requirement to register for self-assessment, director or not!

Unfortunately due to the change in dividends rules in 16/17, many directors will be having to file a tax return this year for the first time, as personal tax payments become due on dividends over £5,000.

If you do fall into one of the categories above, and have not filed self-assessment returns before, you have to notify HMRC by 5 October 2017 that you have a tax liability for the year.  You then have until 31 January 2018 to file your return online.

We act for many small businesses completing tax returns for the first time – and we get that its daunting!  We can help you through the process and make it as stress free as possible– do get in touch for more information.