Category Archives: Accounting

What Travel Expenses will the taxman allow? Reply

Accounting, Bicknell Business Adviser • Tags: , , , , ,

Passport with diary open on expenses page

Apart from Business Mileage, what can you claim and what counts as a business trip?

Assuming your employer or supplier or customer aren’t reimbursing your costs….

If you’ve got to make journeys for business purposes you can deduct your travelling expenses from your taxable income – so you’ll pay less tax.

In addition, there is no restriction on the standard of travel and accommodation, provided the main purpose of the trip is that of business, you can travel first class and stay at the best hotels.

But what if the trip is partly business and partly pleasure, in this case you will need to apportion the costs and only claim for the business element.

What are business journeys (HMRC definition)

You can only get tax relief on the cost of business journeys. These are when, as part of your job:

  • you have to travel from one workplace to another – this includes travelling between your main ‘permanent workplace’ and a temporary workplace
  • you’ve got to travel to or from a certain workplace because your job requires you to

But business journeys don’t include:

  • ordinary commuting – when you travel between your home (or anywhere that is not a workplace) and a place which counts as a permanent workplace
  • private journeys – which have nothing to do with your job

If you’re not sure if a place you travel to counts as a permanent workplace telephone HM Revenue & Customs for advice.

Travel expenses include the actual costs of travel and also the subsistence expenditure and other associated costs that are incurred as part of the cost of making the journey.

The cost of business travel includes

  • the cost of any necessary subsistence costs incurred in the course of the journey
  • the cost of meals necessarily purchased whilst an employee is at a temporary workplace.

If an overnight stay is needed then the cost of the accommodation and any necessary meals is part of the cost of business travel. Even where an employee stays away for some time and the travel expenses are deductible, the cost of meals and accommodation is part of the overall cost of the business travel.

Travel expenses that qualify for relief

You can get tax relief on the necessary costs of business travel like:

  • public transport fares
  • hotel accommodation
  • meals
  • tolls
  • congestion charges
  • parking fees
  • business phone calls, fax or photocopying costs

But you can’t get tax relief for things that aren’t directly related to the business journey.

So far so good, but what about…..

Alcohol – claiming for a few drinks with your meal will be fine but other than with meals they would generally be considered a personal expense

Your Family – if you take your wife, husband or partner on a business trip their costs will be taxable unless they are on the trip for a business reason

Newspapers, Laundry and Phone Calls Home – HMRC allow claims for incidental overnight expenses up to £5 per night in the UK and £10 per night outside the UK

Learning the Lingo – no you can’t claim for language lessons

Staying with Friends – until 2009 HMRC were happy to agree a scale rate of £25 per night but now its based on actual costs

Basically, before you claim, stop and think, can you justify the expense as being a business expense for business purposes.

steve@bicknells.net

Interesting Tax Facts – VAT and Hotels 5

Accounting, Bicknell Business Adviser • Tags: , , , , , ,

HotelTax is made up of bizarre and complicated rules and for accountants that’s a good thing, keeps us in work, but why tax can’t be simplified is beyond me, its a crazy tax world out there.

Here are some VAT examples for Hotels – HMRC Reference:Notice 709/3 (October 2011) :

The Long Stay Rule

If a guest stays in your establishment for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.

A guest’s stay must be continuous to qualify for the reduced value rule. For example, if a guest stays for three weeks every month, you must always charge them VAT in full. If another guest stays for five weeks, leaves for a week, and returns to stay for five more weeks, the reduced value rule applies only to the fifth week of each separate stay.

However, a guest’s departure is not seen to end their stay provided the guest:

  • is a long-term resident and leaves for an occasional weekend or holiday,
  • is a student who leaves during the vacation but returns to the same accommodation for the following term, or
  • pays a retaining fee

In these cases the time away is ignored and you only have to charge VAT in full for the first 28 days of the overall stay.

It does not matter whether the guest returns to the same room or not.

VAT Exempt Meeting Rooms and Refreshments

Hiring a room for a meeting, or letting of shops and display cases are generally exempt, but you may choose to standard-rate them by opting to tax, see Notice 742A Opting to tax land and buildings.

If you make an exempt supply such as providing a room for a meeting or a conference and you provide minimal refreshments such as tea, coffee and biscuits, the room and the incidental catering will be treated as a single exempt supply. But, if you serve substantial refreshments such as a meal or buffet, the catering should be treated as a separate supply and you must account for VAT based on the normal charges you would make for such catering.

VAT on Deposits

Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.

Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation. This includes amounts debited from credit cards using details provided at the time of the booking. Where the cancellation charge takes the form of a retained deposit, you can reclaim any VAT already accounted for as an adjustment to your next return.

Reclaim Overpaid VAT

If you have overpaid VAT you can now go back up to 4 years and reclaim it.

steve@bicknells.net

Gift Aid £46m Tax Avoidance Scheme under the spot light – what is your view? 3

Accounting, Bicknell Business Adviser • Tags: , , ,

Give and Receive Sharing Support Helping Others

ONE OF THE UK’s largest charities was acting as a front for a tax avoidance scheme which abused Gift Aid incentives in order to help donors avoid £46m in tax.

The Cup Trust, a registered charity, raised around £176m over two years from 2010 – more than the Royal Society for the Protection of Birds, the British Heart Foundation and the Salvation Army – yet only £55,000 was put towards its stated cause of “improving the lives of young children and adults”.

For example, someone donating £1m to the Cup Trust could expect to recoup most of their money and still be entitled to between £250,000 and £375,000.The Cup Trust – which has not acted illegally – would purchase huge annual quantities of gilts, or government bonds. Those bonds were then reportedly sold on for a nominal sum through third parties to investors. The investors then sold them on at market value and donated the proceeds to the charity.

The head of Britain’s charity regulator will be hauled before MPs next month to explain how wealthy investors were able to use a charity scam to avoid £46 million in tax.

William Shawcross, the new head of the Charity Commission, will be questioned by the Public Accounts Committee about the Cup Trust, a charity exposed by The Times yesterday as a front for massive tax avoidance. MPs are also expected to ask him about other examples of charity rules being abused for tax purposes.

There are further articles at

http://www.thetimes.co.uk/tto/money/tax/article3674853.ece#commentsStart

http://www.mirror.co.uk/news/uk-news/charity-tax-avoiders-cup-trust-1568343

What would you do to stop this avoidance scheme? or do you think if its legal it’s ok?

steve@bicknells.net

 

VAT Return Box 2 EU Aquisitions? This is what you need to enter 4

Accounting, Bicknell Business Adviser • Tags: , , , , ,

3D Vat button block cube text

Personally I have always found this box a little odd as its not taken from invoices its calculated by you.

Box 2 Acquisition Tax is calculated as UK VAT due on VAT free purchase of goods from other Member States, i.e. 20% x Box 9 figure, the same amount is then entered in Box 4 (as noted below by HMRC) so the net effect is Zero.

Box 9 Total EU Purchases are the value of goods bought from other EU Member States on a VAT free basis.

The following are HMRC’s instructions:

Box 2: VAT due from you (but not paid) on acquisitions from other EU countries

You need to work out the VAT due – but not yet paid by you – on goods that you buy from other EU countries, and any services directly related to those goods (such as delivery charges). Put the figure in Box 2. You may be able to reclaim this amount, and if so remember to include this figure in your total in Box 4.

Box 4: VAT reclaimable on your purchases

This is the VAT you have been charged on your purchases for use in your business. You should also include:

  • VAT due (but not paid) on goods from other EU countries and services directly related to those goods (such as delivery charges) – this is the figure you put in Box 2

http://www.hmrc.gov.uk/vat/managing/returns-accounts/completing-returns.htm#4

If you trade regularly with the EU you may be required to do Intrastat Returns, here is a chart that explains the basics

steve@bicknells.net

Self Assessment Payment – Shipley or Cumbernauld 2

Accounting, Bicknell Business Adviser • Tags: , , , ,

SA 2012-13 Jan Outdoor poster 1

For all those struggling to work our whether to make a bank transfer to HMRC Shipley or Cumbernauld

Your payslip tells you which HMRC account to use. If you’re not sure, use HMRC Cumbernauld. You must use your UTR as the payment reference.

Sort code Account number Account name
083210 12001039 HMRC Cumbernauld
083210 12001020 HMRC Shipley

If you make a Faster Payment this will clear the same day if the amount is within your bank’s limits.

https://www.gov.uk/pay-self-assessment-tax-bill

steve@bicknells.net

Why it’s important to understand the theory of Queuing 4

Accounting, Bicknell Business Adviser • Tags: , , ,

long queue of people, back viewEssentially, the problem of Queuing is concerned with:

  1. Average waiting times
  2. The average length of the queue
  3. The number of service points (channels) there should be
  4. The cost of servicing the queue compared to cost of reducing waiting times

There are two main approaches to working out the solution:

  • Simulation
  • Queuing theory formulae

Queuing theory formulae can be complicated but are normally used in preference to simulation especially in simple situations.

Let’s take an everyday example, production staff queuing to collect stock from the company stores

So let’s run some numbers assuming the average number of production employees to be served every hour is 12 and we take 3 alternative service rates – 24, 18, 15 per hour, what is the probability of having to queue.

At 24 its 12/24 = 0.5 and the average number of staff in the queue will be 0.5/1-0.5 = 1 employee

At 18 its 12/18 = 0.67 and the average number of staff in the queue will be 0.67/1-0.67 = 2 staff

At 15 its 12/15 = 0.8 and the average number of staff in the queue will be 0.8/1-0.8 = 4 staff

The next stage is to work out the cost of servicing the production team quicker compared to the cost of a faster stores service to reduce queuing

If the production staff cost £20 per hour, based on a 6 hour day that’s £120 per day, that means based on the above the cost will be £120, £240 or £480 for queuing.

If the cost of a faster store man or faster servicing rate is less than the queuing cost then it’s worth investing to reduce the queuing cost.

steve@bicknells.net

Related Parties and Conflicts of Interest – Directors Responsibilities 1

Accounting, Bicknell Business Adviser • Tags: , , , , , , ,

integrity conceptual compassThe disclosure requirements for Related Party Transactions in published accounts are a common cause of confusion, on the face of it, its sounds easy but getting it right is often a balance between compliance and relevance. The rules are set out in the Companies Act 2006, FRS8 and for smaller companies FRSSE (April 2008). The rules apply to both Full and Abbreviated Accounts.

  • FRS 8 defines a related party to include an entity’s subsidiaries, associates, joint venture interests, directors and close family members of directors.
  • The standard requires an entity’s transactions with related parties, regardless of whether a price is charged, to be disclosed in that entity’s financial statements.

FRS 8 section 3 and FRSSE section 15.7 states that disclosure of the following is not required:

  1. Pension contributions paid to a pension fund
  2. Emoluments in respect of services as an employee or the reporting entity
  3. Transactions with parties simply because of their role as:
  • Providers of Finance
  • Utility Companies
  • Government Departments
  • Customer, Supplier, Franchiser, Distributor or Agent

The disclosure under FRS8 and FRSSE should include:

(a)   the names of the transacting related parties
(b)   a description of the relationship between the parties
(c)   a description of the transactions
(d)   the amounts involved
(e)   any other elements of the transactions necessary for an understanding of the financial statements
(f)     the amounts due to or from related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date
(g)   amounts written off in the period in respect of debts due to or from related parties.

Dividends to directors do meet the definition of related party transactions and are disclosable as such.

Trival items don’t require disclosure and the principle of materiality should be applied.

An item of information is material to the financial statements if its misstatement or omission might reasonably be expected to
influence the economic decisions of users of those financial statements, including their assessments of management’s stewardship.

The Companies Act 2006 places a statutory duty on directors in relation to potential conflicts of interest:

A director must “avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company”.

Related Party Transactions will often create a potential conflict of interest.

Authorisation may be given by the directors—

(a)where the company is a private company and nothing in the company’s constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors; or
(b)where the company is a public company and its constitution includes provision enabling the directors to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution.

The authorisation is effective only if—

(a)any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and
(b)the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.

So it is vital that Directors disclose any potential conflict of interest and seek authorisation from the Board of Directors.

steve@bicknells.net

Do I need to do a tax return? 4

Accounting, Bicknell Business Adviser • Tags: , , , , ,

Business woman

If any of the following apply then, YES, you need to do a tax return:

  1. You’re self-employed

  2. You’re a company director, minister, Lloyd’s name or member

  3. Your annual income is £100,000 or more

  4. You have income from savings, investment or property (unless collected via PAYE)

    • £10,000 or more from taxed savings and investments
    • £2,500 or more from untaxed savings and investments
    • £10,000 or more from property (before deducting allowable expenses)
    • £2,500 or more from property (after deducting allowable expenses)

  5. You need to claim expenses or reliefs

  6. You or your partner receive Child Benefit and your income is over £50,000

  7. You’re 65 and receive a reduced age-related allowance

  8. You get income from overseas

  9. You have income from trusts, settlements and estates

  10. You have Capital Gains Tax to pay

  11. You’ve lived or worked abroad or aren’t domiciled in the UK

  12. You’re a trustee

SA 2012-13 Jan Outdoor poster 3

For full details of who needs to do a tax return follow this link http://www.hmrc.gov.uk/sa/need-tax-return.htm

For details of how to register go to http://www.hmrc.gov.uk/sa/register.htm

I know that sometimes people simply don’t realise that they need to do a return, for example a newly appointed Director or someone receiving Dividends. HMRC often don’t know if you should be doing a return (if they think you should be they will contact you), so it is up to you to make sure you file a return and disclose your income to HMRC if any of the above apply.

If you think you have an excuse, think again!

http://stevejbicknell.com/2012/10/15/reasons-excuses-for-filing-your-self-assessment-return-late/

As you will see your chances of HMRC accepting your excuse are slim.

Employment Expenses – Use Form P87

As an employee you can claim tax relief for expenses incurred in doing your job (if not fully reimbursed by your employer), for example business mileage, cycling on business, hotels, meals, business phone calls, in fact anything as long as its business related

If your claim is less than £2500 you can make your claim using Form P87 without the need to do self assessment.

http://stevejbicknell.com/2011/12/20/how-to-claim-tax-relief-for-employment-expenses/

So having workout you need to do a return. and having registered online, and filed your first return with HMRC, what if you later find you have make a mistake, what can you do?

If you make a mistake on your tax return you’ve normally got 12 months from 31 January after the end of the tax year to correct it. This is called an ‘amendment’. For example, for the 2011-12 return you have until 31 January 2014 to make an amendment.

http://www.hmrc.gov.uk/sa/correct-repay.htm

What if you don’t file in time?

The penalties for late Self Assessment returns are:

  • an initial £100 fixed penalty, which applies even if there is no tax to pay, or if the tax due is paid on time;
  • after three months, additional daily penalties of £10 per day, up to a maximum of £900;
  • after six months, a further penalty of 5 per cent of the tax due or £300, whichever is greater; and
  • after 12 months, another 5 per cent or £300 charge, whichever is greater.

There are also additional penalties for paying late of 5 per cent of the tax unpaid at: 30 days; six months; and 12 months.

What if you don’t have all the answers, can you put in provisional figures?

There are occasions on which some information cannot be finalised within the formal self assessment time limits despite the taxpayer’s best efforts to do so. In such cases the taxpayer should include a ‘best estimate’ of the information in the tax return and, if appropriate, a corresponding provisional figure of the tax due. The provisional figures should be clearly identified as such in the tax return. A tax return containing a provisional figure should only be submitted once it is clear that a more accurate figure will not be available before the filing date.

http://www.hmrc.gov.uk/manuals/salfmanual/salf206.htm

steve@bicknells.net

What are the implications of being a Service Company? Q1 Page TR4 SA100 Reply

Accounting, Bicknell Business Adviser • Tags: , , , ,

 

Tax Money

Here is the question:

If you provided your services through a service company (a company which provides your personal services to third
parties), enter the total of the dividends (including the tax credit) and salary (before tax was taken off) you withdrew
from the company in the tax year – read page TRG 21 of the guide
£ • 0 0

This is what the guide says:

Service companies
Box 1 If you provided your services through a service company

Complete this box if you provided your services through a service company.

You provided your services through a service company if:

• you performed services (intellectual, manual or a mixture of both) for a client (or clients), and
• the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder, and
• the company’s income was, at any time during the tax year, derived wholly or mainly (that is, more than half of it) from services performed by the shareholders personally.
Do not complete this box if all the income you derived from the company
was employment income.

http://www.hmrc.gov.uk/worksheets/sa150.pdf

The majority of limited company contractors are, by definition, ‘personal service companies’ and therefore this box is of relevance.

The question however has no statutory backing and you cannot be penalised for failing or refusing to answer it but if contractors ignore the question when HMRC know full well that their company is a ‘service company’ then they may be drawing unnecessary attention to themselves.

The information to be entered is the total of the gross salary and dividends taken from the contractor’s company in the year ended 5th April 2012.

http://shop.qdosconsulting.com/freelancer/news/2013/01/18/psc-question-on-sa-return

The point is not the whether you answer the question or not, its whether your company falls under IR35 that matters most.

IR35 came into existance in 1999,  it was created to prevent workers previously employed from creating a limited company and then benefiting from lower taxes and national insurance through the use of dividends and expenses.

So you think you are self employed, does HMRC agree?

http://stevejbicknell.com/2012/01/28/so-you-think-you-are-self-employed-does-hmrc-agree/

Can your business pass the HMRC IR35 Business Entity Tests

http://stevejbicknell.com/2012/05/14/can-your-business-pass-the-hmrc-ir35-business-entity-tests/

Consultants beware of IR35

http://stevejbicknell.com/2011/09/10/consultants-beware-of-ir35-use-the-qdos-model-contract-free/

steve@bicknells.net

HMRC to hit businesses who file their VAT returns late – are your returns up to date? 1

Accounting, Bicknell Business Adviser • Tags: , , , , , , ,

Tax Return Due Now

On the 9th January 2013, HMRC announced:

As many as 50,000 businesses that have failed to submit VAT returns will be targeted by HM Revenue and Customs (HMRC) this month with warnings that their tax affairs will be closely scrutinised.

More than 600,000 businesses have to put in VAT returns each month and most do so on time. But in a new campaign some 50,000 will be warned that, from 28 February, their tax affairs will attract greater attention.

http://hmrc.presscentre.com/Press-Releases/Businesses-warned-on-late-VAT-returns-685cb.aspx

Marian Wilson, Head of HMRC Campaigns, said:

“After 28 February, if they have not submitted their outstanding VAT returns and paid what they owe, HMRC will use its legal powers to pursue outstanding returns and any VAT that is unpaid. Penalties, or even criminal investigation, could follow. “

Do you have a ‘reasonable excuse’?

HMRC have a flowchart so you can see if your excuse qualifies (but its pretty unlikely!)

http://www.hmrc.gov.uk/vat/vat-online/flow-diagram.pdf

If you can’t pay your VAT…

You need to contact HMRC’s Payment Support Service on Tel 0845 302 1435 – this service is available for individuals and businesses who have not yet received a payment demand.

Opening hours are Monday to Friday 8.00 am to 8.00 pm, Saturday and Sunday 8.00 am to 4.00 pm, excluding bank holidays.

Or you could get a loan…

The earlier you ask for a loan the better, lenders don’t like last minute requests as they will need to do credit checks etc before the loan can be approved. But there are lenders prepared to lend for VAT and other tax bills, as an example, here is a link to Lease Direct Finance/Investec who offer VAT funding http://www.ldf.co.uk/professions/Literature/vat.pdf

Don’t give the tax man a reason to closely scrutinised your business.

steve@bicknells.net