Month: May 2017

What information will you need to report under Making Tax Digital (MTDfB)?

Once the election is over, Making Tax Digital will be pushed forward again, ready for its launch in April 2018.

If you aren’t using any software or apps to prepare your accounts, now is the time to start. Under MTDfB – Making Tax Digital for Business – Sole Trader, Partnerships, Landlords and ultimately Companies will need to file returns every quarter and submit a final year end return.

This what you will need to report

The categories of information listed below are being reviewed and have not yet been finalised. They have been included mainly for indicative purposes.

https://www.gov.uk/government/publications/bringing-business-tax-into-the-digital-age-legislation-overview/bringing-business-tax-into-the-digital-age-legislation-overview#schedule

Non-property businesses

Income:

  • turnover, takings, fees, sales or money earned
  • any other business income

Expenses:

  • cost of goods bought for resale or goods used
  • construction industry – payments to subcontractors
  • wages, salaries and other staff costs
  • car, van and travel expenses
  • rent, rates, power and insurance costs
  • repairs and renewals of property and equipment
  • phone, fax, stationary and other office costs
  • advertising and business entertaining costs
  • interest on bank and other charges
  • bank, credit card and other financial charges
  • irrecoverable debts written off
  • accountancy, legal and other professional fees
  • depreciation and loss/profit on sale of assets
  • other business expenses
  • goods and services for your own use
  • income, receipts and other profits included in business income or expenses but not taxable as business profits
  • disallowable element for each category

Property businesses

Income – furnished holiday lettings:

  • rental income and any income for services provided to tenants

Expenses – furnished holiday lettings:

  • tax taken off income
  • rent paid, repairs, insurance and cost of services provided
  • loan interest and other financial costs
  • legal, management and other professional fees
  • other allowable property expenses
  • private use adjustment
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • property repairs and maintenance
  • costs of services provided, including wages

Income – property:

  • rental income and other income from property

Expenses – property:

  • tax taken off any income from total rents
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • rent, rates, insurance, ground rents etc.
  • property repairs and maintenance
  • loan interest for residential properties and other related financial costs
  • other loan interest and financial costs
  • legal, management and other professional fees
  • costs of services provided, including wages
  • other allowable property expenses
  • private use adjustment

Partnerships

Interest and alternative finance receipts without UK tax deducted:

  • interest and alternative finance receipts from UK banks and building societies paid without tax deducted
  • interest distributions from UK authorised unit trusts and UK open-ended investment companies and investment trusts
  • income from National Savings and Investments
  • other untaxed income from UK savings and investments (except dividends)

Interest and alternative finance receipts with UK tax deducted:

  • other taxed income from UK savings and investments (except dividends) (amount net of tax deducted)
  • tax deducted

Dividends:

  • dividends and other qualifying distributions from UK companies
  • tax credits attached to such dividends etc
  • dividend distributions from UK authorised unit trusts and open-ended investment companies
  • tax credits attached to such distributions
  • stock dividends from UK companies
  • tax credits attached to such stock dividends
  • non-qualifying distributions and loans written off
  • tax credits attached to such distributions etc

Other income received without UK tax deducted:

  • other income – profit
  • other income – loss

Other income received with UK tax deducted:

  • other income (amount net of tax deducted)
  • tax deducted

Partnerships – end of year information

Disposal of capital assets – partnerships:

  • description of assets
  • whether listed or unlisted shares or securities (if applicable)
  • name of partners who benefited from the disposal proceeds
  • total proceeds from disposal

End of year information

Tax adjustments and elections:

  • adjustment required where the basis period is not the same as the accounting period under section 203 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005
  • averaging adjustment applied to taxable profits where an election has been made for averaging under section 222 or 222A of ITTOIA 2005
  • adjustment required as a result of a change in basis under Chapter 17 of Part 2 of ITTOIA 2005
  • total of any construction industry scheme deductions taken from payments made to subcontractors under section 61 of Finance Act 2004
  • any other tax deducted from trading income (excluding deductions made by contractors on account of tax)
  • sums due to be charged under sections 277 to 285 of ITTOIA 2005
  • adjustments required under Chapter 7 of Part 3 of ITTOIA 2005
  • claims for loss relief under Chapter 2 of Part 4 of the Income Tax Act 2007 (Chapter 4 for property businesses)
  • disallowable expenditure
  • foreign tax deducted
  • any other tax adjustment
  • adjustment on change of basis
  • foreign tax deducted

Capital allowances – claims and balancing charges:

  • annual investment allowance
  • capital allowances at 18%
  • capital allowances at 8%
  • restricted capital allowances on cars costing more than £12,000 where bought before 6 April 2009
  • business premises renovation allowance
  • enhanced capital allowances: energy-saving relief
  • enhanced capital allowances: environmentally-beneficial relief
  • enhanced capital allowanced: electric charge-points
  • enhanced capital allowances: gas refuelling equipment
  • allowances on sale or cessation of businesses use (where an asset has been disposed of for less than its tax written down value)
  • total capital allowances
  • balancing charge on sale or cessation of business use (where business renovation allowance has been claimed)
  • balancing charge on sales of other assets or on the cessation of business use (where an asset has been disposed of for less than its tax written down value)

 

steve@bicknells.net

Have you tried Topcashback and Quidco for business purchases cashback?

Topcashback have 6 million members and Quidco 7 million, so they are well established platforms and free to join.

Cashback sites are a simple idea. Instead of going directly to a shop, you access a retailer’s online store through a link from a cashback website.

You still receive your item directly from the retailer, but you also get some money from the cashback website.

It is often a percentage of the total price you paid.

The sites have links to retailers of everything from groceries and toiletries, to insurance policies and broadband deals.

http://www.bbc.co.uk/news/business-18207304

Nobrainers explain the process

  1. Signup to a Cashback Website, the most popular ones are Topcashback and Quidco but there are many other smaller ones too. If you sign up through us, you’ll get additional signup bonuses! (do it now!)

  2. Search and compare products to buy online just as you normally would, for example, you might do a Google product search, or look on Kelkoo, for a CD, book, Furniture, anything.

  3. Choose the merchant you would like to purchase this item from, for example, you’ve done a search for Widgets and deciced to but then from WidgetsRus

  4. Now the clever bit, instead of going direct to widgetsRus, visit your cashback site first, eg. Topcashback, and search the site of several thousand Merchants for ‘widgetsRus’

  5. If you’re in luck, you’ll find the amount they will give you (usually a percentage) cashback on whatever you spend at widgetsRus. Click on their link, and it takes you direct to widgetsRus, where you complete your purchase.

  6. Once the purchase is complete (usually within 24 hours), you will get an email from the cashback website saying they successfully tracked my purchase.

  7. Usually within 1-3 months the money arrives in your cashback account which you can able to withdraw at any time. simple as that!

Indicator recently reported that you could get £75 to £80 back on business insurance or save around 12% on booking via Expedia.

steve@bicknells.net

Do you have any cash in reserve? 6m UK families don’t!

I was watching the BBC news this morning and in the Reality Check report they were talking about Debt.

Obviously the biggest amount of debt is mortgages and compared to other countries we are close to the average for Debt.

But its not just an issue for families its an issue for businesses too. We often work with landlords and typically their net cash flow out of the rent received is 2% or less.

That’s the Rental Income less mortgage interest, expenses and tax.

Landlords tend to be asset rich and cash poor, liquidity is vital to cover even minor problems such as repairs and void periods. It is of course easier to have liquidity with a bigger portfolio.

Landlords are facing many problems at the moment not least the Section 24 Interest Restrictions which start this year. This will mean large numbers of landlords with high Loan to Value ratios will have negative cash flow and if the sell they face 18% to 28% capital gains tax (as buy to let get an 8% penalty).

I wonder how many landlords have the resources to handle negative cash flow, how long could they cope what are their contingency plans?

The Lenders and Bank of England have anticipated this problem and for sometime now have tightened the lending rules coverage is now 145% for personal borrowers, but its still 125% for companies as they are aren’t affected by Section 24.

Now is the time to work on your strategy!

steve@bicknells.net

 

Tax and Performers – what can you claim?

Most people don’t like doing accounts and actors, singers, musicians, dancers and performers are no exception.

Making Tax Digital will mean they will need to be on top of their expenses in order to do quarterly returns from April 2018.

Here is quick summary of claimable expenses.

Section 352 Limited deduction for agency fees paid by entertainers

(1) A deduction is allowed from earnings from an employment as an entertainer for agency fees (and any value added tax on them) if the fees are calculated as a percentage of the whole or part of the earnings from the employment.

This is subject to the limit in subsection (2).

(2) Amounts may be deducted under this section in calculating the net taxable earnings from an employment in a tax year only to the extent that, in aggregate, they do not exceed 17.5% of the taxable earnings from the employment in the tax year.

(3) Subsections (4) and (5) apply for the purposes of this section.

(4) “Entertainer” means an actor, dancer, musician, singer or theatrical artist.

(5) “Agency fees”, in relation to an employment, means—

(a) fees paid under a contract between the employee and another person, to whom the fees are paid, who—

(i) agrees under the contract to act as an agent of the employee in connection with the employment, and

(ii) at the time the fees are paid is carrying on an employment agency with a view to profit, and

(b) fees paid under an arrangement under which a co-operative society or the members of such a society agree to act as the employee’s agent in connection with the employment.

(6) For the purposes of subsection (5)—

“co-operative society” does not include a society which carries on or intends to carry on business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with or lent to the society or any other person, and

“employment agency” has the meaning given by section 13(2) of the Employment Agencies Act 1973 (c. 35).

http://www.legislation.gov.uk/ukpga/2003/1/section/352

Trade and Magazine Subscriptions

You can claim for:

  • trade or professional journals
  • trade body or professional organisation membership

Travel & Subsistence

The normal rules apply https://stevejbicknell.com/2017/03/27/what-are-the-rules-on-subsistance-and-travel/

Travel to auditions, rehearsals and performance related activities should all be claimable.

Car Mileage can also be claimed at 45p for the first 10,000 miles then 25p per mile

Clothing and Costume Cleaning

If the clothing is for a performance then it should be fine but if used for personal use it has duality of purpose and can’t be claimed.

Generally rehearsal clothes can’t be claimed.

If the clothing counts as for a performance then the cleaning costs can be claimed

Other things

Tickets to events, shows, movies and museums may be claimable if they are for research purposes.

Props and equipment, even Ipads and computers could also be business expenses.

Websites, marketing, photography can all be business expenses.

Working form Home can also be claimed https://stevejbicknell.com/2015/02/02/simplified-expenses-working-from-home/

Also Mobile phones, stationery, insurance, accountancy and many more

 

steve@bicknells.net

How do you correct errors at Companies House?

Basically there are 2 procedures to correct errors at companies house.

Amending Published Accounts

You must send amended accounts to Companies House on paper.

Amended or corrected accounts must be for the same period as the original accounts.

You must clearly say in your new accounts that they:

  • replace the original accounts
  • are now the statutory accounts
  • are prepared as they were at the date of the original accounts

You must write “amended” on the front – the accounts may be rejected as duplicates if you don’t.

Your original accounts will remain on file at Companies House.

If you only want to amend one part of your accounts, you need to send a note saying what’s been changed. The note must be signed by a director and filed with a copy of the original accounts.

https://www.gov.uk/annual-accounts/corrections-and-amendments

Depending on the changes made you might also need to change the corporation tax returns!

Second Filing of Documents (RP04)

RP04 should be used to notify Companies House of a second filing of a previously properly delivered document that contains inaccuracies showing on the register.

This form only applies to the following documents:

Forms need to be printed at full size on white A4 sized paper.

https://www.gov.uk/government/publications/file-a-second-filing-of-a-document-previously-delivered-rp04

steve@bicknells.net

The Mini Finance Bill

The Finance Bill 2017 was to be the largest at 762 pages but in order to rush it though it was cut to 148 pages!

That’s an 80% reduction dropping 72 out of the 135 clauses and 18 out of 29 schedules.

One of the items dropped was Making Tax Digital (MTD).

But its widely expected that following the general election there will be another bill to bring in all the items that were dropped.

Our tax system is already far too complex:

  • 6,102 pages of legislation (according to Tolleys in 2012)
  • 639 monetary values
  • 425 thresholds
  • 214 penalties

Its a shame they couldn’t cut all the tax rules by 80%!

 

steve@bicknells.net

Can HMO’s and Residential Properties claim Capital Allowances?

Capital Allowances are for commercial properties.

Why are Capital Allowances important on commercial property?

They can be worth a lot money, sometimes a third of the property value can be plant and machinery and they are often over looked and under claimed.

There are companies who say you can claim them for HMOs but that doesn’t fit with rules!

Yes you could but them on your tax return but that doesn’t mean you have a valid claim as HMRC have process now and check later approach.

Here are the rules…

Capital Allowances Act 2001

http://www.legislation.gov.uk/ukpga/2001/2/section/35

The person’s expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house.

General: Definitions: Dwelling house

CAA01/S531

There are several references to dwelling house in CAA2001. The term appears in Part 2 (plant and machinery allowances), Part 3 (industrial buildings allowances), Part 3A (business premises renovation allowances), Part 6 (research and development allowances) and Part 10 (assured tenancy allowances).

For Part 10 (ATA) only “dwelling house” is given the same meaning as in the Rent Act 1977 (CAA01/S531).

There is no definition of “dwelling house” for the other Parts and so it takes its ordinary meaning. A dwelling house is a building, or a part of a building; its distinctive characteristic is its ability to afford to those who use it the facilities required for day-to-day private domestic existence. In most cases there should be little difficulty in deciding whether or not particular premises comprise a dwelling house, but difficult cases may need to be decided on their particular facts. In such cases the question is essentially one of fact.

A person’s second or holiday home or accommodation used for holiday letting is a dwelling house. A block of flats is not a dwelling house although the individual flats within the block may be. A hospital, a prison, a nursing home or hotel (run as a trade and offering services, whether by the owner-occupier or by a tenant) are not dwelling houses.

A University hall of residence may be one of the most difficult types of premises to decide because there are so many variations in student accommodation. On the one hand, an educational establishment that provides on-site accommodation purely for its own students, where, for example, the kitchen and dining facilities are physically separate from the study-bedrooms and may not always be accessible to the students, is probably an institution, rather than a “dwelling-house”. But on the other hand, cluster flats or houses in multiple occupation, that provide the facilities necessary for day-to-day private domestic existence (such as bedrooms with en-suite facilities and a shared or communal kitchen/diner and sitting room) are dwelling-houses. Such a flat or house would be a dwelling-house if occupied by a family, a group of friends or key workers, so the fact that it may be occupied by students is, in a sense, incidental.

The common parts (for example the stairs and lifts) of a building which contains two or more dwelling houses will not, however, comprise a dwelling-house.

https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca11520

steve@bicknells.net

Making Tax Digital will see the end of VAT Returns

Whilst we know that due to the election Making Tax Digital was dropped from the Finance Bill, we also know HMRC has said it will be back as soon as the elections are over!

The plan is that by 2019 VAT returns will be abolished for businesses including the Self Employed, Landlords and Partnerships.

But don’t start celebration too soon, they are being abolished because we will be providing more information each quarter online to HMRC.

Interestingly HMRC say they may be able to accept spreadsheets if they meet specific criteria, but realistically, surely everyone should now be using online accounting software. DIY spreadsheets are not the best way to keep your accounts and there is a high risk of error.

Why create your own spreadsheet when you can get software like Sage One Start for £6/mth or you might get an even better deal if you ask a Sage One Accountant.

So what is the expected timetable for Making Tax Digital

  • April 2018 – quarterly reporting for income tax purposes for unincorporated businesses with a turnover over £85,000
  • April 2019 – quarterly reporting for both incorporated and unincorporated businesses for income tax and VAT
  • April 2020 – quarterly reporting for corporation tax purposes

2018 is just the beginning as Sage explain …

What Making Tax Digital really means

  • All self-employed individuals, landlords and incorporated entities with business income over £10,000 will be required to keep digital records of all their income and expenditure and submit these records electronically to HMRC. Those in employment who have secondary income of more than £10,000 per year through self-employment or property will also be affected.
  • HMRC will not provide you with the tools for digital record keeping and submission. These will be offered through commercial software providers.
  • Those affected have the option to make the electronic submission in collaboration with their accountant or bookkeeper or can do this on their own.
  • Updates to HMRC will need to be made at least quarterly, taxpayers will have an option to pay tax based on their quarterly submissions, if they wish.
  • Any activity at the end of the year must be concluded and sent either by ten months after the last day of the accounting period, or by 31st January, whichever is sooner.

http://www.sage.co.uk/business-advice/legislation/making-tax-digital

The truth is, we don’t know exactly what the rules will be until the bill is drafted which won’t be till after the election, but what we do know is that big changes are coming!

steve@bicknells.net