The UK 2013 Budget – Some things you might need to know…. 2

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

Big Ben with city bus and flag of England, London

First the Good News……

Income tax

The personal allowance for under-65s will rise by £560 to £10,000 in 2014/15.

Housing

From 1 April, the Help-to-Buy scheme will give people who have a 5% deposit a 20% interest-free loan on homes worth up to £600,000. The qualifying period for people looking to purchase their home under the Right-to-Buy scheme has gone down to three years.

Childcare

Working families will benefit from a 20% tax relief on childcare costs, offering an annual saving of £1,200 per child under 12. The scheme will be phased in from autumn 2015.

An additional £200 million will be provided to increase childcare support in Universal Credit, with the commitment being introduced from April 2016.

Corporation Tax

Corporation tax will be reduced by a 1% to 20% in April 2015.

Employers National Insurance

Employers’ national insurance payments will be cut by £2,000 from April 2014

To take advance of the allowance, firms will simply have to inform HM Revenue & Customs, and the Treasury says it will be “delivered through standard payroll software”.

Mr Osborne added: “For the person who’s set up their own business, and is thinking about taking on their first employee – a huge barrier will be removed.”

“They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax.”

450,000 small firms will pay no employer National Insurance.

So who are the overall winners and losers – overall we are losers!

Budget 2013

Based on Treasury analysis, the middle income families have done better than the bottom quartile and top quartile, but overall we are all worse off (based on all households).

The Economy and Borrowing are in worse shape than previously predicted

Growth forecast for 2013 halved to 0.6% from 1.2% in December

Office for Budget Responsibility (OBR) watchdog predicts UK will escape recession this year

Growth predicted to be 1.8% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017.

The OBR predicts borrowing of £121bn this year, the same as last year, and £120bn for 2014-5

George Osborne says borrowing as a share of GDP will fall from 7.4% in 2013-14 to 5% in 2015-16

Debt as a share of GDP to increase from 75.9% in 2012-13 to 85.6% in 2016-17

http://www.bbc.co.uk/news/uk-politics-21851965

You can read the full Budget Report by clicking on this link http://cdn.hm-treasury.gov.uk/budget2013_complete.pdf

steve@bicknells.net

If you work from home and claim mileage, you could be in for a shock 1

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

Highway Robbery

Its probably fair to say that most contractors who have an office at their home claim business mileage when they visit clients, but things could be about to change for the worse….

In what could become a landmark decision in the interpretation of “wholly and exclusively” allowable expenditure, a doctor has lost a protracted battle with HMRC over his business mileage claims.

After an enquiry lasting more than seven years and three tribunal hearings, the First-tier Tribunal led by Judge Kevin Poole acknowledged Dr Samad Samadian had a dedicated office in his home which was necessary for his professional activity.

However, the panel did not accept that the home office could be treated as the starting point for calculating private practice business mileage involving habitual journeys.

Potentially, the decision has wide implications for all professional self-employed activity, where the business owner undertakes substantive work at home, but also has another business base at which they deliver their expertise regularly.

http://www.taxation.co.uk/taxation/Articles/2013/02/13/53821/way-go-home

It is understood that Dr Samadian will be appealing.

But this could lead to Consultants paying back thousands of pounds in tax.

Phil Stunell spotted this article with the full details http://www.independent-practitioner-today.co.uk/news_story.php?r=1605&a=public

steve@bicknells.net

Save Tax with a Relevant Life Plan 1

Accounting, Bicknell Business Adviser • Tags: , , ,

Life Insurance

No one enjoys paying out on insurance premiums but why not take advantage of a great “tax break” when it comes to providing life assurance for your family?

It’s called a Relevant Life Plan and it works as follows;

Most directors pay for family life assurance out of their “taxed” net income and therefore for example a £100 per month premium has really cost approximately £145 when you add back in the tax and N.I.

If you were to pay for this via a Relevant life Plan then your company can make the payments for you and its classed as a business expense therefore saving on Corporation Tax. In this instance the £100 per month would now have a real cost of £80 per month. More good news is that it’s NOT a P11d benefit and the policy is written into a special trust which means on death the proceed go straight into the trust (for the benefit of your family) and not back to the company.

I found details of this policy at www.direct-fs.co.uk

steve@bicknells.net

What are your KPI’s and why did you choose them? Reply

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

Key Performance Indicators diagram

Key Performance Indicators (KPI) are used by organisations to evaluate success and when you choose KPI’s you should follow the smart approach:

S pecific – a well defined goal that is clearly understood by everyone.
M easurable – can you track your progress towards the goal?
A greed – both employer and employee must agree on what the goals are.
R ealistic – can you achieve the goal with the resources provided?
T ime related – will there be enough time to complete the task?

Here are some examples of E Commerce KPI’s

Sales Key Performance Indicators:

  • Hourly, daily, weekly, monthly, quarterly, and annual sales
  • Average order size (sometimes called average market basket)
  • Average margin
  • Conversion rate
  • Shopping cart abandonment rate
  • New customer orders versus returning customer sales
  • Cost of goods sold
  • Total available market relative to a retailer’s share of market
  • Product affinity (which products are purchased together)
  • Product relationship (which products are viewed consecutively)
  • Inventory levels
  • Competitive pricing

Marketing Key Performance Indicators:

  • Site traffic
  • Unique visitors versus returning visitors
  • Time on site
  • Page views per visit
  • Traffic source
  • Day part monitoring (when site visitors come)
  • Newsletter subscribers
  • Texting subscribers
  • Chat sessions initiated
  • Facebook, Twitter, or Pinterest followers or fans
  • Pay-per-click traffic volume
  • Blog traffic
  • Number and quality of product reviews
  • Brand or display advertising click-through rates
  • Affiliate performance rates

Customer Service Key Performance Indicators:

  • Customer service email count
  • Customer service phone call count
  • Customer service chat count
  • Average resolution time
  • Concern classification

What do UK Businesses use?

  1. Tesco
  2. RBS
  3. BAE Systems
  4. Argos
  5. Centrica

What are your KPI’s and why did you choose them?

steve@bicknells.net

 

 

 

How small companies can comply with RTI for Free 4

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

Close up of payslipFrom 6 April 2013 employers will have to start reporting PAYE information to HMRC in real time. This is referred to as Real Time Information – or RTI.

Lin Homer, the Chief Executive of HMRC, said:

“RTI delivers on all fronts. Business costs will be cut by £300 million a year, employees will be taxed more accurately and fraud and error in the tax credit system will be reduced by hundreds of millions of pounds every year.”

If you have 9 employees or less you will be able to use Basic PAYE Tools to comply with RTI for larger business you will need to purchase a payroll system or use a bureau.

Basic PAYE Tools will:

  • record your employees’ details
  • handle mid-year tax code changes
  • work out and record your employee’s pay, tax, NICs and any Student Loan deductions every payday
  • generate the payroll data that you need to send to HMRC in real time, including starter and leaver information
  • produce an Employer payment record that works out how much you need to pay HMRC
  • contain integrated calculators to help you to work out statutory payments such as Statutory Sick Pay and Statutory Maternity Pay
  • transfer employee details from one year to the next so you don’t have to re-enter their details

Basic PAYE Tools does not provide a payslip so here is a template you can use.

A key feature of RTI is to link RTI data and payment information together where employees are paid by direct Bacs. This will reduce errors and improve accuracy, particularly when Universal Credits is introduced. Employers need to use employee bank details to generate the hash cross reference. HMRC appreciate that this may result in a change to business processes for some employers.

The payroll and payment will be linked with a hash created by your payroll solution which contains:

A four character random string which is inserted in field 7 of the Bacs payment record• The sort code of the originator’s bank (6 digits);• The sort code of the recipient’s bank (6 digits)• The amount of payment in pence (-Tax and NI) (11 digits).

This will be sent alongside the tax information to HMRC.

Currently the use of the Hash Cross Reference only applies if you use Direct Bacs

The High Street Banks have not enabled Hash Tags for online banking yet, although this may well change at a later date.

See further discussion on Hash Tags on www.accountingweb.co.uk

steve@bicknells.net

Is it time to transfer out of your final salary pension scheme? Reply

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

Pension Scheme

Transfer values from final-salary schemes are at an all-time high (because 20 year gilts have fallen to 3% whereas in 1990 they were 11%), in fact transfer values are 80% higher than 6 years ago according to Investors Chronicle and they give 6 reasons to leave final salary schemes:

  1. You have other assets to fall back on
  2. You have a scheme from an ex-employer and don’t trust your former employer to keep funding the scheme
  3. You think you former employer is in trouble
  4. Your pension will not be fully covered by the Pension Protection Fund if you former employer becomes insolvent (the cap at age 65 for 2012-13 is £34,000 annual income)
  5. You are in bad health and won’t likely see an average length pension
  6. You are happy not to ever buy an annuity and want more flexible benefits

At December 2012 the FTSE 100 companies had a combined deficit of over £50bn and only 13% of final salary pension are open to new joiners.

How transfer values have out grown scheme benefits
This example would be a for a typical final salary scheme paying 3% benefit increases to deferred pensioners over the last six years and are based on a member who was 50 in 2006.

  Deferred pension
  Typical transfer
  value offered
Benefit in 2006   £50,000 pa   £1,000,000
 Benefit at end-2012   £59,700pa  £1,800,000
 % increase   19% 79%

 
Read more: http://www.ifaonline.co.uk/retirement-planner/feature/2244829/time-to-review-deferred-defined-pension-benefits#ixzz2MU35ToaN
IFA Online – News, blogs and analysis for IFAs. Visit the website now.

The Financial Services Authority (FSA) are in general against transfers out of final salary schemes and on the 28th February 2013 issued proposals to change the basis of calculation for transfer values:

The FSA estimates that the changes to the way TVAs are performed will prevent an undervaluation of benefits of up to £20bn. In other words, the changes mean that transfer values may have to increase before an adviser recommends a transfer.

Consultations close of 27th March 2013

Transferring out should be done with extreme care as its irreversible.

Charities have Pension Deficits too

In the Financial Director Magazine in February 2013 it was reported that Baker Tilly had resigned as auditor to Citizens Advice Bureau over a disagreement on pensions.

Citizens Advice’s pension pot has a growing deficit, which leapt from £19.4m in 2006 to almost £36.5m by March 2010. The defined benefit scheme closed to new entrants in 2008.

The charity insists “it is not possible to separately identify assets and liabilities relating to Citizens Advice”. For this reason, it cannot make provision under FRS12.

However, Baker Tilly disagrees and last year gave a qualified opinion on the accounts, calling for a provision of £8,305,000 to be made at 31 March 2010.

Read more: http://www.accountancyage.com/aa/news/2109706/baker-tilly-quits-citizens-advice-accounts#ixzz2MU8XpC7A
Accountancy Age – Finance, business and accountancy news, features and resources. Claim your free subscription today.

 

steve@bicknells.net

The Taxman takes his revenge on EBT’s….. Reply

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

Scaring amounts

Its been a long time coming, back in 2011 HMRC gave employers the chance to settle amounts owed in relation to Employee Benefit Trusts.

So what were EBT’s and how did they work…

The employee benefit trust (EBT) was used for many years as a way of avoiding corporation tax and income tax for employees.

Basically, any cash that was moved from the company account into the employee benefit trust was treated as an expense for the company, thus reducing corporation tax liability. The company could even then loan the cash back from the EBT as required in the future and additionally interest was charged on the employee benefit trust loan creating even further expenses for corporation tax avoidance. The key employees were then able to also either get an employee benefit trust loan, which was constructed so that it was never paid back, or they could take cash bonuses, which were taxed.

http://www.thetaxexperts.co.uk/employee-benefit-trust/

Scottish businesses involved in EBT’s could now face a tax bill of £400m

Scottish EBT schemes reportedly received letters warning them that the taxman is pursuing cases against EBTs, adding they had a 20% chance of winning any court case outright, a 60% chance of partial victory and 20% risk of an HMRC victory. A partial victory is likely to see businesses paying around £400,000 for every £1m ring-fenced, while a negotiated settlement would likely lead to payments of £412,000 for every £1m.

steve@bicknells.net

Why some Companies are becoming Partnerships… Reply

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

strategies

Choosing the right Business Structure can have a significant impact on how much tax you pay and it is possible to change from one structure to another.

Here are some useful links comparing structures:

Sole Trader v’s Limited Company

LLP v’s Limited Company

Limited Company v’s PLC

So why are some Companies changing back to Partnerships/Limited Liability Partnerships?

 LLP’s can provide an alternative method of remuneration for key employees, rather than the traditional routes of dividends or salary.  Such employees could terminate their employment contract, form an LLP and provide consultancy services to the business.  The individual would then save an element of national insurance, as rates are lower for the self employed than for the employed.  In addition, the business will benefit from a tax deduction on the charges made by the LLP, and save employer’s national insurance at a rate of 13.8%, potentially a significant saving. IR35 regulations would need to be considered in this plan.

Alternatively, an LLP could be used to remunerate all employees. They could all resign and become members of a “service“ LLP.  This would have the advantages of national insurance savings as above.  There are non tax areas to consider, for example the individuals will lose their employment rights on becoming self employed (this could be a huge advantage to the employer).  Clearly this risk would have to be appropriately managed and considered throughout.

http://www.plummer-parsons.co.uk/business-services/business-planning/business-forms/tax-planning-limited-liability-partnerships-llps

How much NI could be saved?

Employers pay 13.8%

Employees pay 12% on earnings above £146/week (2012/13) and 2% on earnings above £817/week (2012/13)

So for most employees that means on most of their earnings the employer and employee NI is 25.8%

The Self Employed (Sole Traders and Partnerships) pay Class 2 and Class 4 NI

Class 2 is £2.65/week (2012/13)

Class 4 is 9% on profits above £7,605 and up to £42,475, after that its 2% (2012/13)

http://www.hmrc.gov.uk/rates/nic.htm

So we are comparing 25.8% for employees with 9% for partners, a potential saving of 16.8%

Another area of tax saving is on the sale of the business using the Entrepreneurs Tax Relief 

Capital Gains Tax could be as high as 28% or as low as 10% with the Entrepreneurs Tax Relief.

The qualifying conditions are less stringent on partnerships, in a company the shareholder must:

  •  own at least 5 per cent of the ordinary share capital and have at least 5 per cent of the voting rights
  • you must have been an officer or employee of the company

These rules don’t apply to partnerships.

For short term projects such as a property development an LLP could save tax but for many businesses a limited company could be a better option.

You could of course have a mixture with companies and LLP’s holding shares or being partners.

steve@bicknells.net

Can you reclaim the VAT on Sponsorship? Probably but not always 1

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

Branding

Generally sponsorship is subject to VAT because normally the organisation you sponsor will be making taxable supplies to you because in return for sponsorship, they are obliged to provide the sponsor with a significant benefit. Typically this might include any of the following:

  • naming an event after the sponsor;
  • displaying the sponsor’s company logo or trading name;
  • participating in the sponsors promotional or advertising activities;
  • allowing the sponsor to use your name or logo;
  • giving free or reduced price tickets;
  • allowing access to special events such as premieres or gala evenings;
  • providing entertainment or hospitality facilities; or
  • giving the sponsor exclusive or priority booking rights.

Donations and gift are not normally subject to VAT.

The rules are in HMRC Reference:Notice 701/41 (March 2002)

A business can recover input tax on their legitimate costs when it:

  • promotes its business; or
  • provide facilities to its staff.

When a business only makes sporting or recreational facilities available to:

  • the proprietor
  • the partners
  • the directors of a company
  • the relatives and friends of the proprietor, partners or company directors

it is unlikely that this expense can be treated as being for the purpose of the business. Therefore, the VAT incurred would not qualify as input tax.

In the case of smaller businesses there is an increased risk that the sponsorship is conducted for a private purpose so the VATman has come up with a set of tests:

VIT44300 – Specific issues: test for sporting and recreational activities

Does the proprietor, partner or director actively take part in the sport?
If the proprietor, partner or director cannot take part because of injury or business commitments is another (independent) person employed to drive?
Does a member of the proprietor, partner or director’s family actively take part in the sport?
Is there a connection between the sport and the business?
Where does the sporting activity take place?
Is there extra advertising at the racing venue or in programmes?
Is there related advertising or promotional material?
Does the business name appear on the sporting vehicle, transporter or clothing?
For companies and partnerships is there a record of a decision to use sporting facilities for advertising?
Can the business produce any evidence of research into the benefits to be gained from the advertising?
Are the benefits of the advertising monitored?
Is the car or boat an asset of the company?
What other forms of advertising are there?
Has HMRC given a ruling for direct tax purposes?
Could the business cope with an expansion of trade?

steve@bicknells.net

How Troncmasters can keep your tips NI and VAT Free 2

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

Tip jar

If your employees receive tips directly from your customers and are allowed to keep them, then you do not need to do anything for PAYE tax or NICs. There are no NICs due on the money, and the tax due is the employee’s responsibility. Your employees should declare the money to HMRC, who will usually adjust their tax code to collect any tax due.

http://www.hmrc.gov.uk/paye/payroll/special-pay/tips.htm

A tronc is an arrangement for pooling and distributing tips and service charges and the person who operates the tronc is known as a troncmaster. If your employees use a tronc you must tell HMRC who the troncmaster is so that they can set up a PAYE scheme for the tronc.

http://www.hmrc.gov.uk/helpsheets/e24.pdf

Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:

• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.

Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore
standard rated.
If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.
Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food

steve@bicknells.net