Self Assessment Payment – Shipley or Cumbernauld

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

Essentially, 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

The 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?

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

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)

12. You’re a trustee

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

Here is the question:

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

• 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/

Consultants beware of IR35

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

steve@bicknells.net

How do you split capital and interest on finance agreements? Sum-of-digits

From a business perspective it makes sense to spread the cost of purchasing assets rather than using up working capital and putting pressure on your cash flow. The Matching of Revenue and Expenditure is a fundamental accounting concept.

Assets such as vehicles are often financed over 3 years, generally, the monthly payments are a fixed amount, but when the payments are posted to the Accounts, Capital needs to be posted against the Loan Balance on the Balance Sheet and Interest needs to be posted to the Profit & Loss.

There are basically two methods to calculate the split:

Simple Interest

Interest is calculated on the balance outstanding as follows Balance x Interest Rate/12 months

Here is a link to a Microsoft Template for Simple Interest

http://office.microsoft.com/en-us/templates/loan-calculator-TC006206287.aspx

Investopedia says:

The standard loan is called “simple interest”. You borrow some money and at the end of the period you pay it back plus interest. For longer term loans, you make periodic payments. With some consumer loans, especially with auto loans, you may encounter a different type of loan which mentions the “Rule of 78”. It is a different way of deciding how much of each monthly payment is interest and how much is principal.

Sum of Digits (Rule of 78’s)

The sum of digits method uses the formula:

(n x (n+1))/2

Sum-of-the-digits method, also know as the Rule of 78s is a term used in lending that refers to a method of yearly interest calculation. The name comes from the total number of months’ interest that is being calculated in a year (the first month is 1 month’s interest, whereas the second month contains 2 months’ interest, etc.). This is an accurate interest model only based on the assumption that the borrower pays only the amount due each month. If the borrower pays off the loan early, this method maximizes the amount paid by applying funds to interest before principal.

A simple fraction (as with 12/78) consists of a numerator (the top number, 12 in the example) and a denominator (the bottom number, 78 in the example). The denominator of a Rule of 78 loan is the sum of the digits, the sum of the number of monthly payments in the loan. For a 12 month loan, the sum of numbers from 1 to 12 is 78 (1 + 2 + 3 + . . . +12 = 78). For a 24 month loan, the denominator is 300. The sum of the numbers from 1 to n is given by the equation n * (n+1) / 2. If n were 24, the sum of the numbers from 1 to 24 is 24 * (24+1) / 2 = 12 x 25 = 300, which is the loan’s denominator, D.

http://en.wikipedia.org/wiki/Rule_of_78s

I have created a template for the Sum-of-digits method and you can download it using this link

Comparison

If you take the following example:

Asset cost £18,000

Deposit £1,800

Loan £16,200

Repayments 36 x £500

Interest Rate 6.9718%

The total interest charged over 3 years is the same £1,800 but the monthly interest is different, simple interest for month 1 = £94.12 but using sum-of-digits its £97.30. This means that with the sum of digits method the balance due for early repayment will be higher.

steve@bicknells.net

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

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.

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

What is a Pool Car? can you reclaim VAT? will it be tax free to drive?

Pool cars must meet the following conditions:

• used by more than one employee
• not ordinarily used by one employee to the exclusion of others
• not normally kept at or near employees’ homes
• used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)

Provided all these conditions are met, you have:

• no reporting requirements
• no tax or NICs to pay

http://www.hmrc.gov.uk/paye/exb/a-z/c/cars.htm#4

To back this up it would be worth having:

1. A written ‘no private use policy’
3. A mileage log to show that there’s no private mileage

When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:

• a taxi
• for driving instruction
• for self-drive hire

If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:

• exclusively for a business purpose
• a taxi, for driving instruction or self-drive hire

http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm

The following are VAT cases relating to Pool Cars and support the reclaiming of VAT Input Tax:

Masterguard Security Services Ltd VTD 18631

A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.

Peter Jackson Jewellers Ltd VTD 19474

A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.

http://www.hmrc.gov.uk/manuals/vitmanual/VIT64690.htm

What counts as private use?

Private use that is not merely incidental to business use should in practice be ignored in deciding whether the vehicle comes under the protection of either Section 167 ITEPA 2003 (cars) or Section 168 ITEPA 2003 (vans) where such private use is:

• small in extent and infrequent and
• consists of either or both of:
• use limited to meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds
• use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit.

Small in extent and infrequent will generally be not more than 5% of the vehicle’s annual mileage on occasions that are neither regular nor protracted.

Use meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds covers the kind of case where an employee is taken ill at work, or learns at work that a member of his or her family has been involved in an accident. It does not apply where an employee’s normal vehicle breaks down and the pool vehicle is used as a substitute.

Use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit might apply in a number of different situations. One example would be the use of a pool vehicle to take employee-provided equipment, such as a table tennis table, to an employer-provided sports facility. (Subject to various conditions, employer provided recreational facilities do not give rise to a tax charge.)

http://www.hmrc.gov.uk/manuals/eimanual/eim23460.htm

Type of Car

You could have any car as a Pool Car and some businesses might decide to have a luxury car as the Pool Car befitting of the company image, but makesure you can prove that it hasn’t had more the a small (5%) amount of private use (as noted above).

So you could have a personally owned car to get to and from the office and then use the Company Pool Car during business hours.

Change of Use

If the car stops being a Pool Car and gets allocated to an employee you will need to do a self-supply charge for VAT at the time of change. Basically this means you account for the VAT on the ‘current value’ of the car at the time of change.

VAT Act 1994 Section 56 (9) – Fuel rules

(9)In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—
(a)in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and
(b)in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and
(c)it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.

steve@bicknells.net

Are you eligible for Tax Credits?

There are two types of Tax Credit and there is also Child Benefit:

Child Tax Credits

You could get Child Tax Credit for each child you’re responsible for if they’re:

• under 16
• under 20 and in approved education or training

You don’t need to be working to claim Child Tax Credit.

https://www.gov.uk/child-tax-credit

Child Benefit Changes

The current rate of child benefit is £20.30 a week for the oldest child and £13.40 a week for each subsequent child. The payments are made every four weeks into one parent’s bank account.

From Monday 7 January 2013, any household in which someone earns more than £50,000 will no longer be entitled to the full payment. Households which include someone earning more than £60,000 will not be entitled to any child benefit at all.

However, rather than just paying parents less the government will continue to pay the full amount and claw back overpayments through the tax system and a new High Income Child Benefit Charge – unless you opt not to receive the payments.

http://www.guardian.co.uk/money/2013/jan/03/child-benefit-changes-what-they-mean

Working Tax Credits

Working tax credits are less easy to understand and often overlooked. They are awarded on a points system.

A working family with 2 Children could earn up to £58k and still get Working Family Tax Credits, on £30k they would get £12k in tax credits, at £40k its £8k and £50k its £4k (according to Tax Cafe – Small Business Tax Saving Tactics).

Claims are initially based on your previous years income and can only be backed a month.

Follow this link to find out how much you could be entitled to https://www.gov.uk/working-tax-credit/overview

The benefits system will be changing again with the introduction of Universal Credits in October 2013.

steve@bicknells.net

What are the tax issues and advantages of a Home Office?

Working from home is a popular option for business owners and employees. Assuming you need to create office space you could either convert an existing room, loft, or garage or build a new structure in the garden.

VAT

1. Estimate the amount of Business & Personal Use – you can only reclaim VAT on the Business Use proportion – you might have 100% business use if you were building an office in the garden. HMRC’s published and internal guidance states,
“Where a domestic room or rooms is put to business use, you may agree to an apportionment using an objective test to the extent to which the room is put to business use” (HMRC Manual V1-13, Section 14, para 14.7, and VAT Notice 700, Section 33,)
2. The invoice should be in Business Name
3. You can reclaim 100% VAT on Office Equipment used entirely for business purposes (if you reclaim VAT you need to charge VAT if you sell the equipment)
4. If you then sell your home to a buyer who wants to use the premises as part of their dwelling you don’t charge any VAT as it will be exempt

Capital Allowances

Capital Allowances are not given on land and building but you could claim for integral features, assets and equipment. Sole Traders and Partners can exclude a proportion for private use.

Benefit In Kind

Directors and Employees who have personal use of the assets will incur tax as it will be a benefit in kind. So it might be better to keep business assets for business use only to avoid this tax. Here is my blog comparing Directors Loans to Use of Assets http://stevejbicknell.com/2012/04/14/directors-loan-vs-private-use-of-company-assets/

Expenses

You can claim a proportion (based on the number of rooms and hours of business use) of your household expenses

• Mortgage interest or rent
• Council tax
• Water rates
• Repairs and maintenance
• Building and contents insurance
• Electricity
• Gas, oil or other heating costs
• Cleaning
• Telephone (based on usage)

You can draw up a home rental agreement to reclaim these costs, or claim expenses, or if the use is minimal you might find it easier to claim £4 per week as suggested by HMRC.

Here are some examples http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm

Capital Gains Tax

Your principle private residence is exempt from capital gains but your home office won’t be if its exclusively used for business, but it will only be a small proportion of the property value and as such any gain will probably be covered by your annual allowance £11,100 (2016/17) if you are a sole trader or partner, if not your company could have a small amount of capital gains tax to pay if a gain is made.

If you are a sole trader or partner and there is a private use element to your home office then the office will be exempt.

Other Issues to consider

Planning Use -You might wish to apply for a Certificate of Lawfulness (Proposed)

for a change of use, for example if you wanted to use a single room in a dwelling house as an office. https://www.planningportal.co.uk/info/200130/common_projects/120/what_to_do_next/3

Insurance – you will need to inform your home insurance company that you now have a home office

steve@bicknells.net