Posted on 26/02/2016
It will be clear that for 2015/16 financial year, those with all or some of their basic rate tax band available will be better off taking dividends rather than salary during the year, as they will pay no further tax on the money they receive. Basic rate taxpayers are treated as having already paid 10% tax on the cash they physically receive. In light of the changes that are happening for the new financial year, it will be beneficial for basic rate tax payers to take advantage of this and pay dividends to yourself by 5th oh April 2016 without paying any tax. Delaying dividends till after 6th April 2016 may mean that you will have to pay an additional 7.5% on any dividends you receive after you exceed the threshold. The dividends tax free threshold for 2016/17 will be £5,000, which is added onto any of your personal allowances, which you may have only used some or none of your allowance.
Posted on 22/01/16
Tax Return Month
Tax Returns are a legal requirement for Businesses, so it is important that you submit them before the deadline. There are two deadlines for Tax Returns, 31st October (paper submission) and 31st January (online submission). A number of businesses choose to submit their Returns online, as it quicker to submit and gives the business more time to submit their Tax Returns. This is the same for Self-Employed individuals.
Staying organised and having Bookkeeping done by a specialist reduces the chances of your Tax Return from mistakes and your return can be submitted very quickly. Accountants provide Tax packages that include Bookkeeping, which benefits the Small Business owner, as it reduces the cost of having to hire a Bookkeeper. Your accounts will be easy to follow and read if you hire an external auditor to check if everything is done correctly for your accounts. Payroll Services are extra costs on Accountancy Services, as employers need to be on a P.A.Y.E scheme, unless they hire subcontractors. The prices may vary depending on how many staff you have hired and they will give you advice for the most tax efficient way for your business to pay your staff members.
Tax Accountants also Specialise in Tax Refunds. Tax Refunds are a major issue for employed individuals, especially for those who have had multiple jobs within the Financial Year. This may have affected your Tax Code, but HMRC usually contact individuals if it has changed. If ever in doubt, contact a Local Accountant and they can answer your queries for you. This service is usually free of charge.
Posted on 22/12/2015
Travel and Subsistence
The government has approved that the changes will go ahead to prevent contractors from attaining tax relief on the costs on travel to work. This is including the cost of accommodation related to the travel or the cost of the contractors’ meals.
The change of travel and subsistence was declared earlier this year, at the time the decision was being made the government was considering to include everyone who worked via a PSC (personal service company).
We now know that the changes for Travel and Subsistence will not affect personal service company contractors, unless the contract is caught by IR35, the anti-avoidance rules. This means the contractor was registered as self-employed and worked as individuals rather than using a personal service company, he can then continue to obtain tax relief on travel and subsistence.
Though, this is not the end of the story. Changes to the anti-avoidance rules (IR35) are also likely, following a review this year (2015) by the Office of Tax Simplification. Any changes are likely to tighten the current rules and make it easier for HMRC to police and enforce.
Accountants in East London
Winding up for tax reasons
When companies strike off their company, the money within the company can sometimes be paid out to them as capital, so that the more kind capital gains tax regime applies. This is a way of avoiding income tax, but this planning is now likely to be stopped.
Posted on 27/10/2015
Latest Tax News
The new tax on share dividends, announced in last week’s UK Budget, has been the cause of both confusion and dismay. People have said they expect their retirement incomes to be affected rigorously by the new tax changes, while others are still baffled about how it will all work.
How will the new tax work?
The new tax free dividend income each year will be the first £5,000. Additional income above that, for basic-rate taxpayers, will be taxed at 7.5 per cent, 32.5 per cent for higher-rate taxpayers and for additional-rate taxpayers 38.1 per cent (8% increase!). The new tax changes will take effect on the 6th of April 2016. Taxpayers must prepare a self-assessment tax return to pay any tax due; no tax will be deducted automatically.
How does this differ from before?
Under the current tax dividends system, which ends on the 5th of April 2015, basic-rate taxpayers currently pay no tax on their dividend income, while higher-rate taxpayers pay a generous rate of 25 per cent and additional-rate taxpayers pay a whopping 30.56 per cent. Taxpayers in all the current bands pay less tax and have been paying less tax than normal income workers. This is because dividends are paid out of the company’s profits after they have suffered corporation tax.
Will everyone be worse off under the new regime?
No. While it will seem as though many taxpayers will pay more, you still have £5,000 tax free dividends to play with. Some basic-rate taxpayers may not go above that threshold. Some higher-rate taxpayers are also better off, as at the moment they pay tax on their dividends, which may be £100, but now they can earn up to £5,000 without being taxed. So thanks to the £5,000 allowance; basic rate, higher-rate and additional rate taxpayers can now play around to decrease profits to avoid paying tax.
What if some of my dividend income is within the tax-free personal allowance?
Dividend income is still eligible for the personal allowance you already receive. So next year you can earn up to £16,000 (tax free!), £11,000 from personal allowance, plus the extra £5,000 from the new dividends allowance. As a result, you will pay less or no tax.
Posted on 16/10/2015
Top 3 Tax Bill Tips for Small Businesses
Making sure your bank account balance matches your accounts
The base of your business’s finances is the bank account. Remember that the money coming in is food of your business and without a sufficient flow of money it may struggle to develop and grow, so this means you, the business owner, are required to regularly keep track of how much money you have in your business bank account.
Another tip, try not to use your business bank account for personal spending.
If you are not doing this by now, check whether you can set up a feed that will automatically pull this data from your business bank account straight to your accounting software, this way it will minimise data entry errors. Then make sure you at least check your business bank account weekly, if not daily; to make sure that your bank balance is correct in your accounting software and that all your day-to-day transactions have been recorded. And remember if your bank balance in your accounts does not match with your bank balance, you’ll have to look back at all your transactions and find out the difference; it won’t automatically match, this is why double checking and reducing personal expenditure will make it easy for you!
Are your invoices up to date? Are you issuing invoices?
If you issue invoices to your customers, take advantage of your free time to check through your day books and make sure you have sent invoices for all the work you have done to the current date. It is the worst feeling when you are waiting for the money owed to you, but then you have found out you never actually asked your client to pay you for the work you have done!
It is a good idea to also separate paid and unpaid invoices, so you know who has and hasn’t paid you. On occasions there might be some invoices that have not been paid because the customer’s just forgotten and/or you just have not followed them up for payment. There may also be old invoices, like from the last tax year, in your accounts that have not been paid at all and won’t be, possibly because your customer has gone a-wall, out of business or they have come to terms with you that they cannot pay you. If you know the customers will never pay you, then write those invoices off, as they are bad debts, and then chase up those customers, now, who haven’t paid you for your hard work yet.
If you do not record any invoices, then you may be missing out on some money, so have a think about issuing them.
Record all of your ‘out-of-pocket’ expenses!
These ‘out-of-pocket’ expenses are expenses related to your business but have been paid by your personal account, or by cash. Don’t be afraid to put them in, it’s an allowable expenses that will reduce your tax bill! For example, you are a taxi or chauffeur driver, but you did not have your business bank card with you, so you paid in cash, you are allowed to put that expense in, because it is an essential expense for you business to generate money. You won’t pay this with your bank account on your accounting software; it will be paid by the cash account. So remember as long as your expenses are business related, you can put them in; it reduces the taxable profit for the year. So keep track of them!
Have a look at your wallet right now, some of the receipts you put in there may be business related, you may not have known to put it in there because sometimes it is second nature to shove the receipt in your wallet. Remember just put business costs in, not your lunch from the local fish and chips shop. If you have a bag where you keep all your receipts, look at them now, rather than the last week of your tax return, it saves you hassle and time if you record them daily or weekly.
Posted on 07/10/2015 posted by Umar Suhail
The following changes will be made from April 2016 for property income.
Wear and Tear allowance
From April 2016, Wear and Tear allowance is being abolished. This is important because clients can now deduct the cost of replacing/buying new furniture, as this is now an allowable expense.
If the landlord pays any expenses that would normally be paid by the tenant, then these should deducted from the invoices, which means the rent received (income) will be stated lower. The type of expenses that are allowable, and will deduct the rent received for the year are; utility bills (water, gas, electricity), council tax and/or for Northern Ireland, domestic rates.
Furnished lettings are allowable for the wear and tear allowance, which is calculated 10% of the net amount received from the rent. Unfurnished lettings do not receive this allowance, so the 10% wear and tear allowance is excluded from the deduction, this does include any expenses that would be normally paid by the tenant.
10% wear and tear allowance, what does it cover?
The 10% wear and tear allowance covers things like:
- beds and other furniture
- crockery or cutlery
- movable furniture or furnishings, such as beds or suites
- fridges and freezers
- carpets and floor-coverings
This list is not complete but gives an idea of what the assets the wear and tear allowance do cover.
What the 10% wear and tear allowance does not cover?
Wear and tear allowance relates to any changes or replacements of furniture and fittings made to the property, this is what makes it a furnished letting. It does not apply to the fixtures that are an essential part of the property.
Fixtures that are essential to the building are those that cannot normally be removed by either tenant or owner if the property is sold or vacated. Examples include:
- Immersion heaters
This list gives you, the property developer or new property developer, an idea of the assets that are fundamental to the building and are not included in the wear and tear allowance.
As these are items that are fundamental to the building, replacing these items are normally given as an allowable expense as repairs to the building.
Rent a Room
Rent a room increases from £4250 to £7500
From 2017-2018 the 25% of Mortgage interest on mortgages will be allowable as deduction at basic rate, see example below,
- Then from 2018 – 2019 it will 50%
- Then from 2019 – 2020 it will be 75%
- And eventually in 2020- 2021 it 100%