If you are starting up in business,  here’s my summary of useful blogs to help you with your accounts if you are self employed!

1. Smile – 10 reasons to get your tax return done early
2. Who needs to file a personal tax return
3. What you can claim from your business for working from home
4. Claiming the cost of your mobile phone
5. Claiming travel and subsistence
6. What are payments on account of tax
7. How to budget for your personal tax bill
8. Maternity Pay for the self-employed
9. When do I register for VAT?
10. Are you getting paid on time?

Hopefully there is something there to help you, if you need help and want to get in touch, please contact Rosie Forsyth here.

If you are employee and you go on maternity leave – you will generally be paid SMP by your employer (subject to meeting the qualifying conditions)

But what if you are self employed? 

Maternity Allowance (MA) is a benefit for women who are working but do not qualify for SMP.

It is payable at one of 2 rates:

1. £148.68 per week or
2. £27 a week

and is payable for 39 weeks.

Which Rate will I get?

The amount you get, depends on whether you have paid class 2 NIC or not.  If you have, then you will get the full rate of £148.68 per week.  If you haven’t then you will only get the lower rate.  This is one reason why it is really important to register with HMRC as being self-employed and to voluntarily pay your class 2 NIC (even if your self-employed earnings are low and mean you could qualify for an exemption from paying it.)

As class 2 NIC is now not paid until the end of the tax year, when you submit your claim for MA, you will be told if you need to pay your class 2 NIC early to get you the maximum MA rate, and how you can do this.

Eligibility?

To be eligible for MA, you need to have worked for at least 26 weeks in the 66 weeks (that’s 15 months) before your baby is due.  The work does not have to have been continuous.  You must also have earned more than £30 a week in 13 of those weeks.

How do I claim?

To claim, you need to complete and submit form MA1. https://www.gov.uk/government/publications/maternity-allowance-claim-form

You can claim MA once you have been pregnant for 26 weeks and payments can start 11 weeks before your baby is due. You chose when your payments start, so you could start them just before your baby is due or up to 11 weeks before your due date.   Don’t delay in claiming as you can only backdate a claim in certain circumstances.  MA is payable either every 2 or every 4 weeks in arrears.

If you are actually an employee, but do not meet the qualifying conditions to be able to claim SMP, either because you have not been at the company long enough, or you do not earn enough, then you may still be able to claim MA as an alternative.

The HRMC website gives you more information about MA and further links to additional information: https://www.gov.uk/maternity-allowance

If you require any further information, please contact Rosie Forsyth at Wilkins & Co.

You did your tax return in January – so why have you suddenly got a tax bill in the middle of July?

Payments on account are a pain in the backside for many self employed businesses, especially when you may not have been expecting to make a payment part way through the year.  Originally devised to help spread the cost of your tax bill over the year,  payments on account are just what they say they are – a “part payment” of your anticipated tax bill for the current tax year.

How are they calculated?

The payment on account is effectively paying off some of your tax bill in advance, and is calculated according to last year’s tax bill.

How these are calculated is easiest explained with an example.

If you started your business in May 2017, you will have prepared your first set of accounts to 5 April 2018, calculated your tax bill for 17/18, filed your tax return and paid your tax at 31 January 2019. Let’s say your tax bill was £3,000. You will have paid this by 31 January 2019.  But you will also have made a payment on account of your next year’s (18/19) tax bill at the same time – and this was automatically calculated at 50% of the previous year – so £1,500.  So actually at 31 Jan 2019 you paid £4,500.

You will then make your second payment on account for 18/19  by 31 July 2019 and again this is 50% of last year’s bill – so another £,1500.

So by now (31 July 2019) – you have paid £3,000 on account of your 18/19 tax bill – even though you may not have yet prepared your accounts for the year, or filed your tax return.  You may not yet therefore know what your final tax bill for 18/19 is going to be.

If your profits in Year 2  of trading have gone up – and when you do your accounts and file your tax return, your tax bill for 18/19 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 at 31 January 2020.  But, the process is repeated – so at 31 January 20 you will owe £2,000 for this year – and your first payment on account of 19/20, calculated as before at 50% of the current year bill (£2,500) – so £4,500 in total.  You then owe at 31 July 2020 your second payment on account of 19/20 – 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 18/19 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 19/20 which will be 50% of £2400 = £1200, you still owe £1200 – £600 = £600 at 31 Jan 2020!

Confused??  Who said tax wasn’t taxing!

For a new business, the payment on account regime can really hit your cashflow, so you need to be prepared for it.  Your first tax payment in the January is really 150% of your tax bill, by the time you have made your payment on account as well.  Another good reason for doing your tax return in plenty of time – so you know what this payment is going to be – and can budget for it accordingly.

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.

There are some circumstances in which a payment on account will not be due. If your tax bill for the previous year was less than £1,000 after PAYE or other deductions at source, no payment on account is necessary. Similarly, no payment on account will be due if, in the previous tax year, 80 per cent or more of your tax was deducted at source.

You can check the payments due on your account by logging into your personal tax account.  This will show you the amount due for the year and what you have paid already on account of this tax year.

For further help in understanding your payments on account, please contact Rosie Forsyth at Wilkins & Co.

Your tax return for 18/19 needs to be filed by 31 January 2020, but can be done NOW.

Here are 10 great reasons to get it out of the way before the heatwave arrives (OK – wishful thinking, but you never know)

1. Smugness
   It’s done- hooray!!!! Enjoy Christmas and find something else to moan about in January.  Peace of mind is a wonderful thing.
2. Budgeting
   You will know now what your tax bill is for the year. Filing your return early does not mean that the tax is due any earlier, so the tax for 18/19 is due at 31 January 2020 whenever you file your return.  Knowing what that figure is now gives you plenty of time to make sure the money is put aside.
3. Get your refund due sooner
   Although the tax payment date does not change from 31 January, if you have actually overpaid tax for 18/19, then as soon as your return is filed and processed, the repayment will be sent out to you. The earlier you file your return, the quicker you get any money back!
4. Confirming your 31 July 2019 payment
   For some people, payments on account of tax have to be made in the year, at 31 July.  The amount that is due is initially calculated from the year before’s tax liability and is really therefore an estimate.  If your total income is lower in this tax year, you can make a claim to reduce this payment on account at 31 July, to ensure that you don’t over pay tax.  Submitting your tax return before 31 July will ensure the tax man doesn’t take too much of your hard earned cash.
5. Tax credits
   The renewals forms have to be completed by 31 July, and being able to produce accurate figures will ensure your claim is accurate for the year, and you won’t end up having to repay amounts you were not entitled to.
6. Tax code adjustments
   If you pay any tax owed by an adjustment to your tax code, so it is taken from your monthly pay, then you want this code to be correct. Having the correct code early in the tax year will avoid large adjustments at the end of the tax year, which could impact significantly on your pay packet.
7. Access to information
   We all know its going to be easier to find the information you need soon after you receive it, rather than in January, when you realise your filing may not be quite as good as you thought!
8. Memory issues
   If you are producing accounts for your business, you are much more likely to know the answers to your accountant’s tricky questions now, rather than 6 months down the line! What was £x for again in Nov 2018????
9. Lower accountant’s fees and no fines
   Many accountants will increase their prices as the filing deadline approaches, as good old supply and demand comes into play.  Working weekends and into the wee small hours all through January is expensive!  Returns not filed by 31 January have an automatic £100 late filing penalty – so don’t run the risk!  HMRC don’t really care about computer problems, lost post, bad weather, Winter colds – if your return is late, expect a fine.
10. Happier, healthier accountants – see point 9!! January is depressing enough for most people, but when you still have a whole pile of tax returns to chase up and get filed, dry January just ain’t going to happen!!

    So if you are inspired to get your return done early this year and need some help, then please do get in touch.  You can contact us here at rosieforsyth@wilkinsco.co.uk

We can’t run our businesses without our mobile phones, but are you claiming the right amount from your business?

The rules for claiming the cost of your mobile phone from your business are different depending on whether you are a sole trader or a limited company.

For a sole trader – it’s relatively straight forward.

You can claim a percentage of your phone bill, or new phone, depending on the percentage that you use it for your business.  You don’t need to analyse all your calls, but it is a good idea to keep track of your business usage for 2-3 months, and then apply that percentage to the full year.  HMRC may ask you one day how you came to the percentage that you did, and you may find it hard to justify that you use your phone 90% for business, when you actually only work one day a week -so just be sensible!

For a limited company, as with most things, it’s more complicated.

If your phone contract is in your personal name, and the company pays the bill, or reimburses you for it, you have a benefit-in-kind – and this should be disclosed on a form called a P11D at the end of each tax year.  Both you and the company will have tax to pay on this amount.

The logic behind this, is that with contracts nowadays, we all get so many free minutes and texts etc, that there is actually no additional cost to you for using your phone for business.  You would be paying your phone bill anyway, and so getting the company to pay it, is really the same as paying yourself additional money from the company.  If you can separate additional business calls, eg they are overseas calls, then you can claim these from the business as a legitimate expense.

If you can put your phone contract in the company name, then HMRC will accept that private use of your “company” phone is minor, and the company can pay the whole bill, without any personal tax problems.

The same rules will apply for broadband costs in your home.

So if you have a limited company, you basically have a choice:

• If your phone contract is in your personal name,  don’t put any of the cost through the business (unless you have costs over and above your standard package cost that you can identify as relating to the business – such as overseas calls.)
• Put your contract into the limited company name – and then you can claim the full cost of your monthly bill ( but no prizes for guessing that a business contract is usually more expensive than a private one)

It’s a really common mistake to think that the company can just pay your personal mobile phone bill, as you use it for business, but get it wrong and you could land yourself and the company further unexpected tax bills!

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

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

Was your tax bill in January a shock?  Were you scrabbling around to find the money to pay it – or not able to pay it all in one go?  This blog sets out how to budget for your personal tax bill so you are prepared next January.

The best way to budget is to pretend that you are employed. One of the big advantages of employment is that your income tax is taken out of your pay via PAYE before you receive it. You don’t have to worry about putting money aside, as it is done for you.

Putting a chunk of money aside each month from your self employment income is important to save for your tax bill.

The big questions is how much do you need to put aside? This will depend on your personal circumstances but there are some general steps to follow to work out how much to save:

1: Allocate your Personal Allowance

We all have a Personal Allowance – this is the amount we can earn before we pay income tax.  In 18/19, this amount is £11,850 and for 19/20 it will be £12,500.  If you are employed as well as being self-employed, your personal allowance is used against this income first, and anything left is used against your self-employment.  So, if you have employed income of £8,000 per year, you won’t pay tax on this, as you have used £8,000 of your personal allowance against it, leaving £3,850 this year to set against your self-employment.

If you are only self-employed, then you have the whole personal allowance to use against business profit.

2: Estimate your profit

You pay tax on your business profit – not your sales.  So you need to have an idea what your profit is, to be able to estimate your tax bill.  This is one of the reasons cloud-based accounting packages are useful, as you can see at any time the profitability of your business in real time.

If you not using an accounting package, then you need to estimate your profit by taking into account the costs of the business.  It doesn’t need to be 100% accurate at this stage, as you are only using it for guidance.

3: How much to put aside?

You have 2 amounts to pay on your profit.

1. Income tax – currently at 20%
2. National insurance. Being self employed you pay a flat rate of £146 for this year (class 2 NIC), but then you also pay class 4 NIC of 9% of your profit over £8060.  This often gets forgotten and can be a reason why your tax bill is higher than expected at the year end.

So in broad terms, you pay 29% in tax and NI of your business profit, after fully utilising your personal allowance.  For some, putting aside 30% of estimated profit is a good way of ensuring their tax bill is covered.

If this is your first year of self-employment, or you have earned more profit this year than last,  then you do need to think about payments on account of tax.

I have explained these in more detail in another blog (https://wilkinsco.co.uk/payments-account-tax) but in basic terms, self-assessment works on a system where we pay tax during the tax year on account of the current tax year.  We make payments in January and July on account of the tax year we are in.  If your first year of self-employment is coming to an end at 5 April 2019, you will calculate your profit and pay the tax due on that profit at 31 Jan 2020.

BUT at that time, you will also pay your first payment on account of your 19/20 tax bill, and that is calculated as half your tax bill for 18/19.  So at 31 Jan 2020, you have a double whammy and pay 150% of the tax you thought you were going to pay.   This is where you can be caught out if you haven’t budgeted as you go along!

Top Tips for Budgeting for your tax bill

1. Get into the mind set that even though it’s in your bank account, it’s not all your money.
2. Have a separate bank account for your every day business transactions (a good idea for SO many reasons!)
3. Have a separate bank account where you save for your tax bill (any bank account will do)
4. Put something aside each month – putting 25-30% aside is generally sufficient,but think about payments on account in your first year of business. Remember- putting anything aside is better than nothing!
5. Once you have put it aside – forget about it. Don’t dip into just because it’s there – you won’t thank yourself in January!
6. Use cloud accounting – not only will this help you estimate your tax bill, it makes your bookkeeping during the year so much easier
7. Get your tax return done early. Doing it as soon as you can after the end of the tax year (5 April) will mean you know what you are going to owe the following January.  And your accountant will love you!

For more information, or for help with your sole trader accounts and your tax return, contact Rosie Forsyth at Wilkins & 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)

One of the most common questions I get from sole traders is about allocating a cost to the business for working from home, especially this year when so many of us have spent a lot of time working from home.

If you are in a panic trying to get your tax return done before the end of January, you might forget to include a cost for this in your accounts, but this would result in you paying more tax than necessary – so take 5 minutes and think about what you might be able to claim.

If you are self-employed and work at least partly from home then you are entitled to include part of the running costs of your home in your accounts.  But how much is a reasonable amount?

You have 2 options as to how to work out how much you can claim.

1  Flat Rate Method

If your sales are under the VAT threshold (currently £85,000) and you are self-employed then you can use this method. You simply work out how many hours a month you spend on average running your business from home and then include a fixed amount in your accounts, as follows:

25-50 hours: £10 per month

51-100 hours: £18 per month

101 hours or more: £26 per month

The flat rate covers the running costs of your home; you can also claim a proportion of the fixed costs and your phone/broadband as per option 2.

2  Actual Costs

 This method requires a little more effort, but it may give you a higher figure and therefore save you more tax.  Under this method, you need to apportion the running costs of your home on a “fair and reasonable” basis between those that are personal and those that relate to the business.

This is usually done by reference to the number of rooms you have in your house and the amount of time you use them for business.  There is no laid out formula though and therefore how you allocate costs will vary from business to business.  Keep any workings you have done so you can back up your figures to HMRC if necessary.

The costs you can actually claim can be spilt into fixed costs, running costs and phone/broadband.

Fixed Costs

• Mortgage interest (not capital) or rent
• Council tax
• Insurance
• Water rates

Running costs

• Electricity
• Gas
• Repairs and maintenance
• Cleaning

For example, assume you work from your sitting room 8 hours per day 4 days per week.  Your total fixed costs are £6,600 per year and your running costs £1,500.  You have 6 rooms in your house. A reasonable allocation of the fixed costs would be £6600 x 1/6 x 4/7 x 8/24 = £210.

An allocation of the running costs could be £1500 x 1/6 x 4/7 x 8/12 (as gas etc not used during the night) = £96

The phone and broadband is claimed on a usage basis only, so if you use your internet 50% business, 50% private you can claim 50% of the cost, including line rental.

If a property repair works solely to the area that you use for business, you can include the full cost in your accounts – for example, your office roof needs repairing.  If the repair is to the whole house – then claim in proportion as above.

So claiming costs of working from home is not as simple as it sounds.  The flat rate method will give you a quick answer, but the actual costs option may give you a higher figure.  If you need any further help then please contact Rosie Forsyth at Wilkins & Co.

Note – these rules only apply to the self-employed and not to owners of limited companies.

Do you need to file a tax return this year?

The tax year runs from 6 April to 5 April, and tax returns for last year (that’s 6 April 2020 to 5 April 2021) are due to be filed by 31 January 2022.  There has been no extension to the filing deadline as there was last year.

If you meet any of the following criteria – then YES you do need to file a tax return.

• You were self-employed at any point between 6 April 2020 and 5 April 2021 and your income from this was more than £1,000
• you received more than £2,500 from renting out property
• you received more than £2,500 in other untaxed income, for example from tips or commission
• your income from savings or investments was £10,000 or more before tax
• your income from dividends from shares was over £2,000
• you made profits from selling assets eg shares or a second home
• you were a company director and received income that needs to be declared
• your income (or your partner’s) was over £50,000 and one of you claimed child benefit
• your taxable income was over £100,000

You also need to send a tax return if you:

• need to prove you’re self-employed, for example to claim Tax-Free Childcare or claim Maternity Allowance
• want to make voluntary Class 2 National Insurance payments to help you qualify for state benefits

To file a tax return, you need to have first registered with HMRC.  You should have done this by 5 October 2021, but if you haven’t, then you need to get on with this ASAP, by following the link here if you are self-employed:

https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed

HMRC will then send you your UTR (unique taxpayer reference) number.  Without this, your tax return cannot be filed, either by yourself or by an accountant.  The reference can take a few weeks to come through, so do not leave this until January!!

If you are going to file your tax return yourself, you will need your government gateway ID and password.  If you are using an accountant, they can generally file your return using their own software and government gateway log-ins, but will also need time to set themselves up as your agent.

It is your responsibility to let HMRC know if you have to file a return – so if you have a new source of income in the year, or a one-off capital gain from selling an asset or shares, then don’t wait for HMRC to ask for the information!

Penalties for late filing are an automatic £100.  Even if there is not any tax actually due, if you are required for file a return, and this is not with HMRC by midnight on 31 Jan- you will get a fine!

The tax is also due to be paid by 31 January.  When you file your return, you will get a calculation of the tax due as part of the submission process, or your accountant will tell you when they send you your return for approval and signing, so the sooner you do this – the sooner you will know the amount you have to pay.

For any more information, or help with your personal tax return, please contact Rosie Forsyth at Wilkins & Co