Month: January 2017

If your accountant prepares your self assessment return is there a taxable benefit?

Tax Return Mailing Income Envelope 3d Illustration

Over the years I have heard lots of comments on this, some say a tax return is a personal expense some say its a business expense if the cost is incidental to the accounting work.

For example, lets consider a sole trader, he has to prepare accounts and the only way to report the tax due is on a self assessment return. In many cases the only entries will be the self employed boxes.

Company Directors are probably only doing self assessment returns because they are directors and only the Salary and Dividend boxes will be completed.

We actually specify on our engagement letters to clients who have a businesses that we will complete the Self Assessment Return for Free (FOC) as part of an overall package of fixed fee services.

HMRC guidance states [BIM46450]

There is, however, a longstanding practice of allowing normal recurring legal, accountancy etc expenses incurred in preparing accounts, or agreeing the tax liability, see Statement of Practice SP 16/91 reproduced at EM3981. This has been approved by the courts as a reasonable response to the practical difficulties of apportionment…

It is the practice to allow, in computing profits assessable under Part 2 Chapter 4 of ITTOIA 2005 and under Case I & II Schedule D for companies, the normal accountancy expenses incurred in preparing accounts or accounts information and in assisting with the self assessment of tax liabilities.

So having just started working with Croner Taxwise for client tax investigation insurance, I gave them a call to check the rules and in summary, if the Self Assessment is incidental to the main accounting and tax work then it isn’t a benefit in kind and a separate fee does not need to charged (or assessed) to the business owner.

However, if the client doesn’t have a business, or has complicated tax affairs including capital gains, then they should pay a fee personally.

Equally you can’t claim accountants fees if you are an employee who has to do returns as these are clearly standalone costs and not required as part of your employment as explained in this case – Peter Figg v HMRC TC03703 16th June 2014.

On another note Tax Investigation Insurance is not a tax deductible expense, the reason for this is that you can only claim it as an expense if you are successful in any investigation, if HMRC are successful the fee is non deductible for tax. As you don’t know when or what you might be investigated for its impossible to say whether you will be successful so the best advice is not to deduct the cost against taxable income.

steve@bicknells.net

 

Is your Expense Checking System up to scratch?

Angry tax inspector looking serious and determined

HMRC have guidance in EIM30275 and EIM30270 which set out what they expect, so for example, this is what they expect the expense checking process to be for a one man company

Model D – One man company

Single employee of a one man company working at a series of temporary workplaces. Claiming benchmark scale rates.

Employee maintains a diary and time sheet to confirm occasions when travelling in the performance of their duties and retains receipts in respect of subsistence costs.  An independent third party performs regular monthly checks on a sample of the employees’ records to confirm that the relevant conditions for the exemption were met on each occasion. Checks are performed at random and the employee does not know in advance which journeys will be checked.

Independent third party would generally mean your accountant, but as HMRC encourage people to file themself many One Man Companies won’t have an accountant, so who does the checking then?

Lets see what bigger companies need to do?

Model C – Small employer

Small employer with less than 100 employees who regularly travel in the duties of their employment. Employer pays benchmark rates

Employer checks a random 10% of all claims.  Checks to be independently checked and authorised, and vouched by reference to employee diaries, work schedules and time sheets to confirm that employees were travelling in the performance of their duties on the date of the claim, and receipts to demonstrate that employees had in fact incurred costs whilst travelling. Employees should be aware that they might be subject to review at any time, and not be given notice that any particular claim will be subject to review.

The employer will have to be able to satisfy HMRC that their 10% sample really is a random one – for example, every 10th claim received.  HMRC will accept the evidence produced by such an exercise as being random for the purposes of confirming that employees meet the qualifying conditions for payment of the scale rate.

Employees required to retain receipts for a period of twelve months from the date of expenditure.

I think for small employers this would probably work and is achievable.

What system do you use? Do you think HMRC would accept your system?

steve@bicknells.net

The future is Digital, but we aren’t ready to Make Tax Digital yet!

b1854df8-4af2-474b-b2ae-fd20bfa3f1bb

On 14 December 2015, HMRC published a “roadmap” showing that the new process known as ‘MTD Making Tax Digital’ would be mandatory for most businesses:

“By 2020 most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. These changes will be introduced for some businesses from April 2018, and will be phased in by 2020, giving businesses time to adapt.”

Accountant’s have been saying for sometime that 2018 is too ambitious and the £10,000 threshold is too low.

The House of Commons Treasury Committee now agree that 2018 is too soon and feel it should be 2019 or later.

One of the big areas of concern has been over the quarterly tax reporting requirements and concerns over data accuracy.

Data accuracy is going to be critical, are most businesses up to providing data in real time? RTI has worked for payroll but could it really work for accounting information? many businesses rely on their accountants and book keepers to get the information correct.

The relationship between UK Taxpayers and HMRC is a good one, the vast majority of UK taxpayers want to pay the right amount of tax and the UK tax gap is already one of the lowest in the world. HMRC could lose that trust by rushing MTD.

Software is also a big issue, with the threshold at £10,000 even very small businesses will need specialist software to cope with MTD and spreadsheets will not be able to cope.

It’s time to take a slower more considered approach.

steve@bicknells.net

What if you can’t afford to pay your tax bill?

No money concept

Some tax payers are great at saving up and keeping money aside to pay their tax bill, but many aren’t!

What can you do if you can’t pay?

You could ask HMRC for help

You may be able to either:

  • get more time to pay
  • pay your bill in instalments by direct debit
  • Telephone: 0300 200 3835

  • Opening times:

    8am to 8pm, Monday to Friday
    8am to 4pm, Saturday and Sunday

Another option might be to use Credit Cards, you may be able to get a 0% credit card or pay and then transfer to 0%

https://www.uswitch.com/credit-cards/credit-card-balance-transfers/

This might be easier, better and cheaper than spreading payments with HMRC.

steve@bicknells.net

 

Only 8 days left to file your Self Assessment! don’t panic

Red help button concept.

Over 4 Million Self Assessment Returns (over 40%) will be filed in January 2017, last year the 29th January saw the highest level of filing with 50,358 returns filed between 2pm and 3pm on that day!

Its likely that many of those who haven’t yet filed their 5th April 2016 returns will either start to panic now or the panic will set in and increase in the next few days.

Here are some things to ease that panic.

What if you don’t have all the information you need for the return?

Returns which include provisional or estimated figures should be accepted provided they can be regarded as satisfying the filing requirement.

  • A provisional figure is one which the taxpayer / agent has supplied pending the submission of the final / accurate figure
  • An estimated figure is one which the taxpayer / agent wishes to be accepted as the final figure because it is not possible to provide an accurate figure for example where the records have been lost. The taxpayer is not required to tick box 20 of the Finishing your Tax Return section of the return page TR 6 (or equivalent in a return for an earlier year) where estimated figures have been used

HMRC SAM121190

Is there a reasonable excuse as to why you can’t file the return?

Here are some excuses that HMRC have accepted

  1. a failure in the HMRC computer system
  2. your computer breaks down just before or during the preparation of your online return
  3. a serious illness, disability or serious mental health condition has made you incapable of filing your tax return
  4. you registered for HMRC Online Services but didn’t get your Activation Code in time
  5. it was lost in the post HMD Response International v’s HMRC 2011 The accountant produced a contemporaneous note in his office diary for 16 May showing that he had filed the return.

What if you make a mistake?

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 or amend it.

What if you don’t know where to send the payment?

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

What if you don’t know how much to pay because of payments on account?

You can check the amount by logging onto HMRC or by asking your accountant to check with their Agent Login.

If you make payments on account you will have made payments in January 2016 and July 2016 towards the final payment to be made in January 2017.

What are the penalties for missing the deadline?

HMRC have tool to help you estimate the penalties and interest

https://www.gov.uk/estimate-self-assessment-penalties

steve@bicknells.net

How do you leave the Flat Rate Scheme?

Businesswoman Leaving Job vector

In the next few weeks and months many small businesses will leave the VAT Flat Rate Scheme.

The reason why Flat Rate is going see an exodus is because of Low or Limited cost traders will see their Flat Rate increased to 16.5% in April.

So for example

If your sales are £5,000, the VAT is £1,000, total £6,000 x 16.5% = £990 VAT payable, so HMRC have let you keep £10!

It is highly likely that almost every trader will have input tax higher than £10 so therefore there is no point in being in the Flat Rate Scheme.

How to leave

You can choose to leave the scheme at any time.

To leave, write to HMRC and they will confirm your leaving date.

HM Revenue and Customs
Imperial House
77 Victoria Street
Grimsby
Lincolnshire
DN31 1DB

Ask your accountant if you need help.

steve@bicknells.net

Are you part of the ‘Gig’ economy?

Concert Rock

The ‘Gig’ economy describes the growing popularity of using workers on short term contracts on an on demand basis.

gig

There of course several issues to consider:

  1. Are these workers really employees? or self employed?
  2. How should they be taxed?
  3. What rights should they have?

These issues are being considered carefully by the Office for Tax Simplification (OTS).

What we do know is that Self Employment has been growing in popularity as demonstrated by ONS statistics.

The level of self-employment in the UK increased from 3.8 million in 2008 to 4.6 million in 2015. While this strong performance is among the defining characteristics of the UK’s economic recovery, the recent rise in self-employment is the extension of a trend started in the early 2000s.

Full-time and part-time workers each account for around half of the rise in the absolute number of self-employed workers, but the growth rate of the part-time mode has been much stronger. Part time self-employment grew by 88% between 2001 and 2015, compared to 25% for the full-time mode. As a result, part-time self-employment accounts for 1.2 percentage points of the 1.6 percentage point increase in the self-employment share of all employment between 2008 and 2015.

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/trendsinselfemploymentintheuk/2001to2015

What is also interesting is the split between male and female

self-employed-chart

Statistically Self Employed earnings are lower than those who are employed, however, Self Employed earnings are masked by fluctuating work patterns and the use of tax planning for example cars and expenses.

What are your views on the ‘Gig’ economy? is it good for Britain?

steve@bicknells.net

 

Business Connections Newsletter – January

bicknell-news-7-jan-2017

Did you see our January Newsletter:

  • How can I stop my Flat Rate VAT bill going up in April? Choose the right VAT scheme now!
  • What tax allowances can childminders and parents claim?
  • Why Property Investors are rushing to form Limited Companies?
  • It’s a new year, let’s get networking

Click on this link to get a copy http://eepurl.com/cwT4n5

Sign up to our mailing list http://eepurl.com/b6k7HH

steve@bicknells.net

What is your plan for 2017?

Business Diagram

Now 2017 is in full swing, its time you thought about your business plan.

Before you do anything, sit down and think about

  1. How and where your income will come from
  2. What your Costs and Profit will be
  3. What your cash requirements are
  4. Which business structure will work for you and assess what tax you will need to pay

If you have a plan statistics show you are likely to make 20% more profit!

 

accountants-smaller

steve@bicknells.net